Clause 32.—(COMPENSATION TO INCLUDE UNEXPENDED BALANCE OF ESTAB LISHED DEVELOPMENT VALUE.) (Hansard, 22 November 1954)

§ The Solicitor-General
I beg to move, "That this House doth agree with the Lords in the said Amendment."
This Amendment introduces the new Schedule, and it is really impossible to consider it without, relating it to the division of the unexpended balance between competing interests on compulsory acquisition. I think the matter might shortly be dealt with in this way. Although the Amendment looks a most formidable piece of new legislation, it really does not alter in any way the principle which the House has approved that, in the case of the compulsory acquisition of land which has an unexpended balance of development value, there is to be paid to the owner of each interest which is acquired so much of the balance as is attributable to that interest.
The reason why the redrafting has occurred is really twofold. First of all, the hon. and learned Member for Leicester, North-East (Sir L. Ungoed-Thomas) asked us, and we agreed, that 852 as far as possible the Bill should be self-contained, and by using the new Schedule it is possible to get rid of regulations, except procedural regulations. That has been done, and it was necessary to include a reference to the rent charge and matters already dealt with.

§ Sir L. Ungoed-Thomas
This is certainly an improvement, and we welcome it. In the Bill originally, the principles dealt with were merely the principles of compensation dealing with cases where there was one interest in the land or even two interests, but, extraordinary as it may appear, where there were more than two interests, there was nothing provided at all.
The original suggestion by the Government was that, where there were more than two interests, all the principles dealing with compensation were to be dealt with by regulation. It seemed to us to be rather a staggering proposition that such an important and vital matter of principle should be handled in that way, instead of dealing with it in the Bill itself. We are grateful that the Government have listened to our arguments and have made an improvement in the Bill.
As one who has been extremely critical of the drafting of the Bill, I very much welcome the improvement which has been made, particularly in the proviso which appears in the Amendment. I believe it is new in substance. It is an improvement, and we certainly welcome it. The earlier part of the Amendment refers to the compensation being additional to the compensation payable in respect of the acquisition of the relevant interest, apart from the provisions of this Clause. It seems to me that we might perhaps have an estimate made of how the total compensation works out, and particularly how this proviso in the Amendment fits into the general scheme. As the Solicitor-General has referred to the new Schedule, perhaps it would be convenient to deal, with the two together, as that would save time in the long run.
I should like to have a fuller explanation of certain parts of the new Schedule. The first part is perfectly clear until we come to the question of preliminary calculations. I do not wish to ask any questions on the earlier part of the Schedule, which I think is lucid enough. 853 In regard to the provisions about preliminary calculations, however, we are dealing with cases of tenancies, first of all, and then we come to the cases of an interest in the reversion. Perhaps we could be told in rather more simple language than is used in the Schedule exactly what this Schedule means.
There is one other small point of detail. The new Schedule, in dealing with a tenancy, refers to the case where so much of the rent reserved … exceeds the existing use rent, there shall be calculated the capital value of the right to receive … an annual payment equal to the excess; and reference is also made to "the rental liability." What happens if the rent received is less than the existing use rent? I do not know if the point is covered by paragraph (5), but we are concerned about the application of the details in paragraphs (3), (4) and (5) of the new Schedule.

§ Mr. Speaker
If it is convenient to the House to discuss the proposed new Schedule now together with this Lords Amendment, it will be on the understanding that it is dealt with now once and for all.

§ Mr. Skeffington
We are grateful that this Amendment, complicated though it looks, has been included. It makes the Bill more self-contained and does away with the need for regulations, other than procedural regulations. As we have not had much chance to study the Amendment or the proposed new Schedule, will the Solicitor-General tell us how the interest on the unexpended balance will be paid in the case of a freeholder and a leaseholder? We do not quite follow the principle. No doubt that is our fault, but we have not had the Amendment and the proposed new Schedule before us for very long. I should be grateful to have the point answered.

§ The Solicitor-General
If the House will give me leave, I will try to deal with these matters. First of all, I should like to say a few words about the next clause. That concerns what should be the compensation on compulsory acquisition additional to that which, under existing provisions, the person gets whose interest is compulsorily acquired. It applies only to cases where the existing use value which he will get under other provisions relating to compensation does not properly reflect the additional value of 854 works. That is why one has, in legislation, to exclude cases where the value of works is already reflected in the existing use value.
Under the Amendment, the exclusions are twofold. Under paragraph (a) of the proviso, the exclusion will be where, by virtue of other provisions, the existing use value already takes into account the value of the works. That would be apart from other provisions. The simplest example would be Clause 34, or Clause 35, or other provision of that kind.
Speaking as between lawyers, I might say that the exclusions in paragraph (a) of the proviso are exclusions where the planning permission in question is still executory and has not been developed into buildings or works. The exclusions in paragraph (b) as it will be when amended are, by contrast, exclusions where the planning permission has been executed and has taken the form of factual, actual development.
The reason why the method is adopted of legislating by value is that it is a little tiresome to say, of a building, in terms of legislation, when it is completed. We get rid of the difficulty, and the remaining part of the amended proviso applies the same principle where the notice to treat applied only to part of the land. The effect is to confine the change in compensation to the part where the development has not been completed. That is clearly so.
I turn with a sense of humility to the proposed new Schedule. I do not purport to be an expert in valuation, but perhaps I may pick up some of the threads in the minds of hon. Members who have been thinking about the Bill in respect of valuation. Under other provisions, the owner of the interest is to get compensation for the existing use value. Let us take as an example the case of landlord and tenant. The landlord is to be compensated for his right to receive, at the end of the term, the unexpended balance of the development value, or, to speak more accurately, the present capital value of a right in futuro to receive it at the end of the term. That is what the Schedule terms "reversionary development value."
The other element of my supposed landlord's interest for which he may be compensated is, of course, his right to 855 receive the rent year by year, week by week, or whatever it may be, during the remainder of the term. The complication arises that he is already, under other provisions, entitled to compensation for the existing use value, so that in so far as the rent which the landlord receives from his tenant exceeds the rent appropriate to the existing use value, there is, in the rent which he receives, already an element of development value.
If his compensation under other provisions is calculated by reference to the rent which he in fact receives, he would be paid twice over if he got that element of development value paid additionally out of the unexpended balance of development value. That is the fundamental problem. Perhaps I may take a specimen for the purpose of explanation. It is a case of landlord and tenant, but the landlord's freehold is subject to a rent charge. This is the easiest way of dealing with the matter.
Perhaps hon. Members would think of the principles which I have just been describing in this way: what is the landlord entitled to, in those circumstances, by way of additional compensation out of the unexpended balance? Element one is what the Schedule calls "reversionary development value," but less, of course, a factor. I regret that this matter is so tiresome but I know of no way of making it less so. The factor I shall call "A minus B." A is the amount by which the rent payable by the landlord in respect of the rent charge exceeds the existing use rent. B is the amount by which the rent receivable by him from his tenant exceeds the existing use rent.
The new Schedule defines "existing use rent" in paragraph 2, the amount by which the rent payable exceeds the existing use rent, as "rental liability," in paragraph 3 (b) and it defines, in paragraph 3, the amount of the rental increment. In paragraph 5, hon. Members will find applied the precise principles which I have been describing. I hope that this explanation makes the matter as plain as one reasonably can make it.
The paragraph says: In the case of the interest in fee simple, an amount equal to the reversionary development value of that interest less the amount, if any, by which any rental liability of that interest exceeds any rental increment thereof. 856 That is my factor "A minus B" precisely. In the case of a tenancy in reversion, exactly the same thing applies. The head landlord has to pay a rent which, for the purpose of my example, would serve as equivalent to that payable under the rent charge. For this purpose the same principle applies in sub-paragraph (c) in the case of a tenancy other than a tenancy in reversion. I hope that the principle is now quite clear. No useful purpose would be served by working through the paragraphs, provided that I have made clear the principles upon which the plan works.

§ Sir L. Ungoed-Thomas
We are most grateful to the Solicitor-General for the most clear explanation he has given. I would ask him a question which puts in rather different form the question which, rather more clumsily, I tried to raise in my opening remarks. What happens in the factor "A minus B" if B exceeds A? That is what bothered me about this matter. I could not see what happened and how that picture would fit into the general scheme of the new Schedule. I thought that perhaps it might be covered by paragraph 5, but I was not sure. If the Solicitor-General could deal with the point we should be grateful.

§ The Solicitor-General
I think it is, because all the way through the paragraph the phrase used is the "excess," if any. In that case, it is not a factor of excess over existing use value, the existing use value having been conferred by other provisions outside this Schedule. The difficulty of thinking about it is that one is always dealing with the exceptional case. The fundamental case has already been dealt with outside the Schedule altogether.