Reforming Compulsory Purchase

The Labour government's plans to reform compulsory purchase orders (CPOs) have significant implications for the property sector. So far the government has been a little hazy on what exactly the changes will be but they do see this as a key part of their overall aims in reforming the housing sector and encouraging housebuilding. It will also interact with other infrastructure plans which are almost inevitable if the government is serious about economic growth.

Compulsory purchase is a legal mechanism that allows certain bodies, known as 'acquiring authorities', to acquire land without the owner's consent. The current system, governed by the Acquisition of Land Act 1981 requires acquiring authorities to go through a specific process to use their powers. It is pretty complex as the detailed government guidance on the process demonstrates. It has also long been a candidate for reform. The Law Commission produced a study on the topic in 2003-4 and has now been asked to look at it again.

The most significant proposed change is the reform of land valuation in CPO cases. Currently, landowners are compensated based on the 'hope value' of their land, which includes potential future development value. The government plans to introduce a new system where land would be valued at its current use value, often significantly lower than the 'hope value'. This is not entirely new. The Johnson government consulted on reducing the amount to be paid as part of its own review of compulsory purchase and some of this was ended up in the Levelling-up and Regeneration Act 2023. The Labour plans go much further though in seeking to largely eliminate any future development value.

This proposal seems unfair as this would mean that landowners are going to have their land purchased at far less than they would be paid if the open market were asking them to sell it for development as this market price would include at least some element of future value. Essentially this will mean that if a development or a developer can convince a body to purchase land using CPO powers then it will acquire land for a great deal less than it would have had to pay if it had bought it on the open market itself. I suspect that the government is going to have to re-think this and provide some compensation related to future value post-development if it is to avoid challenges, especially as developers are likely to make significant profits on land which has been purchased in this way. This differential makes possible challenges under Article 1, Protocol 1 of the European Convention on Human Rights likely as landowners will be deprived of their land without fair compensation. States have a wide margin of discretion in how they operate this but taking land with payments far below the market value as a policy is likely to be seen by the European Court of Human Rights as outside the acceptable margin of appreciation that states normally have.

None of this is a quick process as wholly new legislation will be required to implement the changes. That puts the clock over to somewhere around 2026 by the time the Law Commission has considered the issue and legislation has progressed through Parliament, so this is not something that is going to lead to immediate change.

For the property sector this is likely to get developers juices flowing. They potentially will be able to obtain development sites that were not available before and at far less cost. The potential value of this is almost incalculable. Landowners may be less happy. They may well though be pressured into voluntary sales if they think that compensation if CPO powers are used will be much less. Indeed, landowners with good offers on the table right now may look at how the wind is blowing and think seriously about taking them, lest they be forced to sell for far less later on. However, there is also a risk that landowners who consider that they have sites that are suitable for development may becomes reluctant to say anything if they think there is a risk that they will be forced to sell those sites at a price far less than they might get in the open market.

Labour's proposed reforms to compulsory purchase will lead to significant shifts in how land is valued and acquired for public purposes. While aimed largely at addressing housing shortages and reducing housing development costs, these changes will impact across a range of development scenarios and raise complex legal and ethical questions about property rights and fair compensation. Property professionals should keep a close eye on these reforms, as they have the potential to reshape the landscape of land acquisition and development. As the proposals move through the legislative process, there will likely be further refinements and potential legal challenges that could impact their final form and implementation.