LANDS TRIBUNAL FOR NORTHERN IRELAND
LANDS TRIBUNAL AND COMPENSATION ACT (NORTHERN IRELAND) 1964
IN THE MATTER OF A REFERENCE
R/13/1995
BETWEEN
GRAINNE NEILSON - APPLICANT
AND
NORTHERN IRELAND HOUSING EXECUTIVE - RESPONDENT
PREMISES: 25 DUNMORE STREET, BELFAST
Lands Tribunal - Mr Michael R Curry FRICS FSVA IRRV ACI.Arb
Belfast - 21st December 1995
The dispute concerned a purchase by agreement in advance of vesting by the Northern
Ireland Housing Executive, the acquiring authority for the Clonard Redevelopment Area, of
an improved and extended pre-war kitchen terrace house at 25 Dunmore Street. Following
completion of the disposal of this property to the Northern Ireland Housing Executive in
September 1994 the Claimant relocated at a post war semi-detached house at 27 Floral
Park. For convenience only the Tribunal refers to the former as the "old" house and the
latter as the "new" house.
The Claimant had purchased the old house in 1990 and had funded the purchase by a
100% endowment mortgage of £17,500 through the National & Provincial Building Society.
At that time, the Society had required a single premium Mortgage Insurance Guarantee,
also known as a Mortgage Indemnity Policy, of £302, which was added to the loan and not
refundable on early redemption.
The market value agreed for the old house was £18,500 and the mortgage redemption
amount, which included some fees was £17,650.20. The purchase price of the new house
was £32,500 which was funded by a loan of £30,850 from the Ulster Bank Ltd which
required a mortgage indemnity policy premium of £243.75 as the loan to value ratio was
greater than 80%.
About 1991/2 the old house had been redecorated; the Tribunal was told the cost, at prices
ruling at the acquisition date, would have been about £900.
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Two matters had been referred to the Tribunal for determination. Both were put forward as
Disturbance claims. The first was for the £243.75 incurred by the Claimant in obtaining a
mortgage indemnity policy for the new house, and the second was for a proportion of the
decoration costs at the old house, of £300.
Appearances
Mark Orr instructed by McCann & McCann appeared for the Claimant and called Mr Joseph
Allen, an experienced Chartered Surveyor, to give expert evidence.
Ms Heather Gibson instructed by Northern Ireland Housing Executive Legal Department,
appeared for the Claimant and called Ms Deborah Tracey Rice, an experienced Chartered
Surveyor, to give expert evidence.
Matters Agreed between the experts
The expert witnesses, without admission of the relevance, importance or otherwise of these
matters to the issues in question, agreed that:
the consideration for the old house represented and was understood by both
parties to represent the estimated market value of the property in its actual
state at that time, assessed in accordance with the compulsory purchase
code,
the old house was in good decorative order at the date of sale, and there was
nothing extravagant or of peculiar taste in its decoration,
the new house was in need of immediate redecoration at the date of purchase
and costings put forward for its redecoration were not extravagant.
The Applicable Principles
So far as is relevant to this case, the principles of disturbance payments are as follows.
The rules for assessing compensation are set out in the Land Compensation (Northern
Ireland) Order 1982. The relevant rules are rules (2) and (6):
"(2) The value of land shall, subject to rules 3 to 6, be taken to be the amount which
the land if sold in the open market by a willing seller might be expected to realise;"
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and
"(6) The provisions of rule (2) shall not affect the assessment of compensation for
disturbance or any other matter not directly based on the value of land."
Rule (6) does not create the right to a disturbance payment (the origin is in the cases
probably beginning with Jubb v Hull Dock Co (1846) 9 QB 443), instead it makes clear that
the basis for assessing the 'personal loss of disturbance' is not restricted to open market
value.
Although the underlying principles of disturbance payments are well settled and illustrations
may be found in the cases and in many of the textbooks, the application of these principles
often causes problems both because it must reflect the continuously changing realities of
contemporary social circumstances and because it raises questions of causation.
"Questions of causation are particularly difficult and have vexed the best of human intellects
for 2,400 years" Arnott v O'Keefe [1977] IR19.
Disturbance is to be treated separately. In Munton v Newham London Borough Council
(1976) 32 P&CR 269, Lord Denning endorsed that view:
"The second point of law is whether, in order to be binding, there has to be one entire
sum agreed that comprises not only the value of the property itself but also the
compensation for disturbance. Under the Act of 1845 the inquiry was only as to the
'value of the land', and it was held that in that sum there was to be included the
compensation for disturbance. So only one sum was to be awarded. That seems to be
the effect of Inland Revenue Commissioners v Glasgow & South Western Railway Co
(1887) 12 App Cas 315 and Horn v Sunderland Corporation [1941] 2 KB 26. But,
although only one sum is awarded, it is very proper, in assessing it, to divide it into two
parts, (i) the land itself, and (ii) disturbance. Starting with the Acquisition of Land Act
1919, and repeated in the Land Compensation Act 1961, Parliament itself has made a
division between the two. In s5(6) of the Act it says: 'The provisions of rule (2)' - that is,
about the value of the land - 'shall not affect the assessment of compensation for
disturbance or any other matter not directly based on the value of land.' Since those
Acts, the practice always has been for the compensation for disturbance to be assessed
separately from the value of the land. That is as it should be. The value of the land can
be assessed while the owner is still in occupation. The compensation for disturbance
cannot be properly assessed until he goes out. It is only then that he can tell how much
it has cost him to move, such as to get extra premises or to move his furniture. The
practice is warranted by two cases in this court: Harvey v Crawley Development
Corporation [1957] 1 QB 485 and Lee v Minister of Transport [1966] 1 QB 111. In my
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opinion it is quite proper for the acquiring authority to agree in the first place with the
owner on the value of the house itself, and to leave till later the compensation for
disturbance. That can be assessed later when the acquiring authority go into
occupation and the house owner moves."
A dispossessed owner is entitled to be compensated for his disturbance loss due to the
acquisition, provided, as Romer LJ said, in Harvey v Crawley Development Corporation
1957 1 All ER 504
"First that it is not too remote and secondly that it is the natural and reasonable
consequence of the dispossession of the owner."
In Bailey v Derby Corporation [1965] 1 WLR 213; 16 P&CR 192 the Court of Appeal
considered the effect on compensation of the claimant's personal circumstances, which
would include financial impecuniosity. Lord Denning MR, approved the principles laid down
by Romer LJ in Harvey (above) and asked the question: "what is the loss which is 'the
natural and reasonable consequence' of the acquisition?" His answer was: "only that loss
immediately and directly consequent on his having to move". The extinguishment of the
claimant's business was not the natural and reasonable consequence of the acquisition, it
was due to the claimant's ill-health, an extraneous and independent cause. He said:
"In so far as any loss in due, not to the acquisition, but to the state of health of the
claimant, that seems to me an extraneous and independent matter which must be put
on one side. It should not be taken into account in assessing the compensation. It is
comparable to the impecuniosity mentioned in Liesbosch Dredger v Edison (Owners)
[1933] A C 449 case. It is very different from what have been called the 'thin skull'
cases, which, as Lord Wright said, are concerned with the actual physical damage."
The loss must be foreseeable. See, for instance, Hoddom & Kinmount Estates v Secretary
of State for Scotland [1992] 1 EGLR 252.
There is a duty on a Claimant to take reasonable steps to mitigate loss but the onus is on
the acquiring authority to show failure to mitigate, the standard of reasonableness is not
high and a Claimant will not be prejudiced by his financial inability to take such steps. See,
for instance, Lindon Print Ltd v West Midlands CC [1987] 2 EGLR 200.
There is a rebuttable presumption that in expenditure on new premises the claimant
receives value for money. See, for instance, Smith v Birmingham Corporation (1975) 29
P&CR 265 and Bibby & Sons Ltd v Merseyside County Council (1979) 251 EG 757
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The Mortgage Indemnity Premium (MIP)
Usual Practice
Correspondence from the Council of Mortgage Lenders was produced at the hearing and
was accepted to set out the usual position.
"If a borrower wishes to take out a mortgage above 70-75% of the value of the
property they are buying, they will usually be charged a "high lending fee" by their
mortgage lender. Although the lender may use this fee to buy a mortgage indemnity
policy (MIP), this does not mean that the borrower has bought the insurance. Rather,
payment of the fee simply enables a borrower to borrow more than the lender would
otherwise be willing to lend, as it requires some form of additional security over and
above the security offered by the property being bought and the borrower's personal
"covenant" to repay all of the mortgage loan.
An MIP is an insurance policy which a lender may take out for itself in case at some
future stage a borrower falls behind with their mortgage payments and the lender has to
repossess the property and sell it. The MIP protects the lender from incurring too much
of a loss if the price it can obtain for the property is less than the amount which is still
owed on the mortgage. It is not usual for the "high lending fee" to be refunded, either in
full or in part, on early redemption of a mortgage."
Mr Allen gave evidence that the practice was a relatively recent innovation adopted as a
result of the domestic property crash in 1980's.
The Amount of the Claim
The amount claimed was the full premium which was based upon the purchase price of the
replacement house. At the hearing the Tribunal indicated that if it was minded to approve
the claim in principle it would consider that the amount must be restricted to an amount
proportionate to the mortgage at the old house. The parties indicated that in that event they
were confident they could agree what the appropriate figure should be.
Applying the principles
The Tribunal concludes that an appropriate proportion of the mortgage guarantee premium
paid in respect of the new house is properly recoverable as disturbance for the following
reasons:
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The expense was actually incurred and there was nothing to suggest that it would
have been incurred but for the dispossession.
The expense was directly related to the acquisition, by the owner/occupier as
claimant, of the new house which was a replacement for the old house. There can
be no suggestion that she was not entitled to replace her house and she funded the
purchase of the new in a similar fashion to the old house. The expense was a
natural and foreseeable consequence of the dispossession.
It was not suggested that the requirement for the expense was due to any
impecuniosity on the part of the Claimant.
Although the requirement flowed from the contract with the Lenders, and it would
appear the effect was to protect the Lenders, the practicalities were that as a
condition of lending in these circumstances, a mortgage guarantee premium was
usually required. The Tribunal does not accept that the effect of the requirement
being part of a separate contract was sufficient to break the causal chain between
the dispossession and the expense. Many of the losses approved in the leading
cases were obviously incurred as a result of separate contracts and the Tribunal
does not accept that to be a useful test.
The letter from the Council of Mortgage Lenders made plain that the requirement for
a mortgage guarantee premium and the absence of a refund were only the usual
position and some Lenders may have different requirements. But the Claimant had
obtained a similar guarantee a few years earlier at the old house, and the
requirement was a usual requirement. Although the expenditure on the premium
was to an extent the Claimant's choice, the Tribunal accepts that it was both
reasonable by the Claimant and foreseeable by an acquiring authority.
There was no suggestion that the Claimant had failed to mitigate her loss.
The Tribunal does not find that the claimant has obtained value for money in the
sense of being in an improved position at the new house as a result of the
expenditure.
The Tribunal accepts that there are differences between the application of these
principles to issues which would be relevant to either bridging loans or interest as
part of the construction costs of replacement premises, and to the issue in this
reference.
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A parallel was suggested relating to contemporary rates of interest, but the Tribunal
cannot accept that a claim might fail because interest rates were high at the relevant
time and, in any event does not find that to be a useful analogy.
The Decoration Costs
In Mr Allen's view an owner seldom fully recovered the cost of decoration when selling their
house and he distinguished between the normal sales circumstances and compulsory
dispossession: in the latter the timing was not by choice.
His approach was to estimate the total cost of decoration in the old house at the removal
date and deduct an amount to allow for use and enjoyment up to then, to give the "existing
worth to the Claimant at the date of sale". That figure was then apportioned between a
figure that he estimated was added to the market value as a result of the decorations to
give a measure of shortfall in the value of the decorations in situ to the applicant. This was
claimed as a loss under the heading of Disturbance.
The Tribunal does not accept Mr Allen's approach. Land acquired and disturbance must be
separately assessed. The decorations at the old house were part and parcel of the land
acquired. In so far as those decorations give rise to a claim they must be, and have been in
this case, claimed and compensated under rule (2) ie market value and not "worth to the
Claimant". Cost does not always equal value but value is the statutory basis upon which
the Claimant is entitled to compensation.
The legislative intention behind Rule (2) was to replace "worth to the Claimant" by "the
amount which the land if sold in the open market by a willing seller might be expected to
realise" as the measure of compensation and the evidence is that, on that basis, the
claimant was fully compensated for all her decoration expense at the old house by the
compensation price paid for her interest in accordance with Rule (2).
There is no need to consider the application of the principles of assessing the claim as a
disturbance claim as it is not a proper matter to consider as disturbance. Indeed, to do so
would only confuse.
Conclusions
For the reasons outlined above, the Tribunal finds that the Claimant partially succeeds in
her claim for the expense incurred in obtaining a mortgage indemnity policy, the part
recoverable being an amount proportionate to the mortgage outstanding at the old house.
In default of agreement on the amount, the parties have liberty to apply.
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For the reasons outlined above, the Tribunal finds that the Claimant does not succeed in
her claim for decoration costs at the old house, as disturbance.
ORDERS ACCORDINGLY
1st February 1996
Mr M R Curry FRICS FSVA IRRV ACI.Arb
LANDS TRIBUNAL FOR NORTHERN IRELAND
Appearances:
Mr Mark Orr of Counsel instructed by Messrs McCann & McCann, Solicitors, for the
Claimant.
Ms Heather Gibson of Counsel instructed by the NIHE Legal Department for the
Respondent.
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