Hello and thank you for your question. I will be very pleased to assist you. I'm a practicing lawyer in England with over 10 years experience.
May I clarify this is a compulsory purchase order that has been made against your property please - I note you refer to a compulsory service order which I imagine may be a typo?
If so this is from what I gather a residential property and impacts the whole of the property?
Is this a property in which you live or rent out as an investment property?
Hi there, it was indeed a typo
My questions are about Compulsory Purchase Order
And what compensation you receive
in that event
I am looking to buy a flat that may be demolished in several years as a result of HS2. The agent says that the worst case if they decide to issue a CPO is compensation of market value for the property plus 10% - is this true?
Thanks - would this be to live in or to rent out?
the answer to that is both as for the first 2 years we would need to rent it out
What you have been told is not strictly accurate though it may be that the information was given in good faith. The principles that apply to compulsory purchase orders are those of ensuring you are placed in the same position but for the CPO but do not include the provision of actual compensation whereby you receive a pay out just for the fact you have to move. There is no 10% extra on top of market value as a sort of give away for the hassle. Rather the amount you receive is based on specific heads of claim as follows:
Regardless of whether you are living in the property or not you are entitled to payment equivalent to the market value of the property to a willing buyer as determined by agreement with the district valuer and if you cannot agree based on a decision of a Property Tribunal based on evidence you and the district valuer both present.
From there you are entitled to additional compensation if you are living there of removal expenses legal fees for buying a new property, stamp duty for buying a new property and surveyors fees, mortgage fees, costs towards altering furniture to adapt to your new property, and incidental costs such as utility connections, and so on.
I apologise for the bizarre formatting. I will repost my above post.
Can you read all of the above so far?
Essentially you can claim for any cost you can reasonably show you would not have incurred but for being forced to move.
just reading it through...
If you are not living there then the compensation due over and above the market price will depend on whether you can show you are acquiring a new investment property to rent out or not. If you are you must do so within 12 months in order to claim the above compensation. You may also be able to claim compensation if any tenant you have is forced to leave and can claim money from you under the tenancy for breach of contract.
It would not be wise to buy a property in the hope that you may be better off financially because of a compensation payout if it is subject to a CPO. CPOs do not set out to give compensation as such but rather to indemnify you against any loss or cost you suffer as result of the CPO. In other words the aim is to ensure that you are neither any better off nor any worse off as a result of the CPO.
Is there anything above I can clarify for you?
I understand the overall principle. So to clarify the 10% is not true (it could be true in certain cases subject to tribunal/valuer agreement.)
There is no provision for a 10% premium on top of the market value. It may be that you would receive approximately 10% over and above the market price being the total of all the various claims you can make as detailed above and the agent was offering this as a vague guide but it is not true to say that you would receive 10% on top of the price plus all the various claims you can make as above. That would not be correct.
To be absolutely clear, you can claim the market price of the property plus any expenses as detailed above on top of this so you should not be at all out of pocket but you will not be compensated for the "hassle factor" of having to move/sell.
Is there anything else I can help you with?
OK so the agent was being misleading. Can I clarify the 12 month thing with regard to not living in the property at the time of CPO. Is it correct that if I buy another property within 12 months then legal expenses/moving costs/stamp duty etc ARE paid? Whereas waiting over 12 months this compensation is not available.
In other words - it doesn't make too much difference if you live in the property or rent it out. Perhaps there is a higher hassle factor if it is your only home but that in either case legal fees/moving costs/stamp duty would be paid as compensation
If you are not living in the property you are not entitled to relocation and buying a new property as a starting point unless you can show that you intend to buy a new property to replace the same. If you can you can be entitled to claim such costs but there is a requirement that you acquire a new property within 12 months if you are to be able to make claims under these heads.
by 'replace the same' you mean to replace a rental investment property with another one of similar value / income?
Yes quite so. The rule is that you must acquire a new replacement property within a year to make these additional claims.
So if I acquired a new property I would be forced to not live in it (for how long?) in order to prove it was the same as what I had lost. In effect I would be proving that I had lost significant income as a result of CPO. Is it then common for people to live in the CPO affected property at the time in order to not be under the 12 month timeframe?
At the time the CPO is made you will either be living in the property or renting the property out for income from what you say. If you are living in it then you can claim replacement house costs. If you are not living in it then you will claim the same on the basis you are using the property for income stream. In the latter case you are required to acquire a new property within 12 months in order to make the additional above claims. Having acquired the new property you can either rent it out or live in it.
ok that's quite clear - but at the risk of complicating it - would a person ever be able to prove that in the 'new' investment property the yield or rental income was substantially lower as a result of CPO?
Do you mean to make a claim for loss of rent in the new property as opposed to the old property?
basically yeah - if the CPO forced you to buy a property that gave you a worse rental yeild and thus lower income
This would be difficult though not necessarily impossible. However the difficulty would likely be that you would face the counter argument that you were above to freely choose the replacement property and it was for you to satisfy yourself as to the suitability of the property for your income needs. The only way in which I could see the above argument would be possible is if you could show it was simply not possible for some reason to acquire a replacement property within the relevant period that was as good as the previous due to lack of availability of property or something of that nature. It would be a difficult argument I feel.
Ok - so overall the 10% is not true. It might be that this was a typical amount that buyers offer to avoid the owners kicking up a fuss and disputing the CPO. I'm just trying to work out why the agent kept saying 10% to me?
It may that you are at slight cross purposes with the agent and the agent is saying that typically you might expect to get 10% on top for your expenses. If he is claiming that you get 10% on top plus expenses this is not true and the agent may either simply trying to induce you into making an offer on the basis you will not be able to prove what he said later or he may be misinformed
In either event if there is a risk that HS2 is in the area and this may result in a COP this is a basis for negotiating down on the purchase price because you will want to "price in" the potential hassle factor compensation into the purchase price now because you won't any from the government.
It would be quite common for the purchase price to be negotiated upon if there is a potential COP in the pipeline.
Are you happy with the information I have provided to you above or is there anything above I can clarify for you any further?
i think that is all for now. many thanks
A pleasure. If I can assist any further as the situation develops please do no hesitate to let me know.