Fresh from its election victory, the Labour Government published updated guidance in October 2024 on the process for obtaining a compulsory purchase order ("CPO"). The Government has said that planning reform – particularly house building – is going to drive the economy, and compulsory purchase is stated to form a crucial part of that reform.
Those noises are promising given the significant housing shortage in England, not least for affordable housing. But have the changes to the CPO guidance gone far enough?
Obstacles usually arise in a compulsory purchase when considering whether the powers should be used at all, and, if they are, what the level of compensation for the landowner should be. We have summarised the key changes to those aspects of the CPO process in the guidance and considered what the changes might mean, particularly in the affordable housing sector.
When should compulsory purchase powers be used?
Let us imagine that there's a large swathe of farmland situated close to a major road and a railway station; it appears perfect for a significant housing scheme. Only, there's a problem: the landowner doesn't want to sell.
Before an "acquiring authority" (a body that is authorised in legislation to use CPO powers) can use its CPO powers to buy this farmland, it must justify the use of the CPO powers. The steps required to so justify are set out in the Government's CPO guidance. The hope was that this updated guidance would lead to a softening of those steps, which would make it easier to bring forward schemes using a CPO.
Do acquiring authorities still have to negotiate?
Under the previous CPO guidance, the acquiring authority was required to demonstrate that it had taken reasonable steps to acquire the land by agreement. The guidance provided limited detail on what amounted to "reasonable steps". The updated guidance has provided clarity and may have eased the requirements on acquiring authorities in certain circumstances.
For instance, the updated guidance says that an acquiring may decide not to continue with attempts to engage with a party affected by the proposed CPO if that party has made it clear that it does not wish to communicate with the authority. So, in our scenario, if the acquiring authority contacts the landowner who quickly confirms it has no interest in negotiating the sale, the guidance now leaves it open to that authority to discontinue negotiations (although we would advise always keeping the lines of communication open).
The updated guidance also clarifies that acquiring authorities do not need to wait for negotiations with the landowner to break down, or even for them to respond, before commencing the formal CPO procedure. The authority should nevertheless make it clear that it is willing to continue negotiations in parallel with the CPO process. The upshot is that, under the updated guidance, the CPO procedure can start more quickly and continue even whilst negotiations are ongoing, which is beneficial to all parties.
Does the acquiring authority need to know how it intends to use the land?
The previous iteration of the CPO guidance stated that it would be difficult to justify the use of CPO powers unless the acquiring authority had a clear intention of how it intended to use the land to be acquired. Much of that language is retained in the updated guidance; however, it now recognises that it will not always be possible for authorities to have specific, detailed proposals for the land beyond a general planning framework.
The acquiring authority in our theoretical CPO may therefore make the CPO provided that it has a masterplan of the site showing the general site layout. Moreover, pursuant to the updated guidance, it is possible that aspects of the use of the site – for example, the location and mix of affordable housing – could be undecided at that stage without compromising the confirmation of the CPO.
Does the acquiring authority need to know how it intends to overcome impediments to the scheme?
The requirement under the previous guidance was that an acquiring authority must show that the scheme is unlikely to be blocked by any physical or legal impediments to implementation. Again, that wording is largely retained, but the updated guidance appears to soften the requirement. The updated guidance says that it will not be expected that all impediments to the delivery of a scheme will have been removed or overcome at the point when the CPO is confirmed (or not!).
The most obvious impediment is the requirement for planning permission. The updated guidance makes it clear that, for example, planning permission for the housing scheme in our scenario does not necessarily have to be obtained before the CPO is confirmed provided that the acquiring authority can show that it is unlikely that the proposed application will be refused. This change is helpful as it is often necessary to assemble land prior to making a planning application (indeed, this is expressly recognised in the updated guidance).
Mitigation for affected parties – an added requirement?
Most of the changes to the CPO guidance appear to make things easier for acquiring authorities. There is, however, a new passage which seems to place an additional requirement on authorities when justifying the use of its powers. It is now stated that acquiring authorities will be expected to have considered what mitigation measures will be in place against identified impacts of the exercise of CPO powers. This mitigation might be built into the CPO process, or it could involve relocation options for residents or businesses at the land.
If, for example, the landowner in our CPO had an ancillary business on the land to be acquired, the acquiring authority would need to consider what mitigation measures would be appropriate. This might include a compensation package and assisting the landowner with relocating this business to another part of their land that is not being acquired.
Are there any changes to the CPO compensation regime?
The updated guidance also includes amendments to the compensation regime. The most interesting for acquiring authorities and developers is the removal of "hope value" in some circumstances. Hope value is the value attributable to the prospect of planning permission being granted on the land in the future.
This can be a significant barrier to schemes being brought forward as it usually necessitates a substantial increase in the sums sought by landowners. So, in our scenario, under the previous guidance, the landowner could seek an increase in the CPO compensation (and therefore the sale price in any parallel negotiations) due to the prospect of the proposed housing scheme.
The updated CPO guidance provides that an acquiring authority can seek a direction to remove hope value (at the point when the CPO is confirmed) for developments where the provision of affordable or social housing is being facilitated. That would be of great benefit in our CPO as the acquiring authority would be entitled to disregard the hope value sought by the landowner when seeking to agree the CPO compensation or sale price with the landowner.
What do these changes mean for the affordable housing sector?
The updated guidance has gone some way to clarifying the scope and easing procedural requirements when acquiring authorities are justifying the use of CPO powers. It is true that many of these changes already existed in practice (for example, established principles in case law), but, in any case, it's positive that they have now been codified in statutory guidance. There is now the added hurdle of considering mitigation of identified impacts but, as with the other changes, that was already effectively a requirement on authorities.
The obvious positive for acquiring authorities, registered providers, and other parties involved in CPOs including affordable housing, is the possibility of removing hope value from CPO compensation. This will often significantly reduce the sum that can be sought by landowners and consequently the funding required by the acquiring authority for the delivery of the scheme.
Compulsory purchase continues to be a useful tool for authorities and can help bring forward much needed affordable housing. Generally, the updates in this version of the CPO guidance are best characterised as codification of existing practices and case law principles rather than the wholesale reform suggested by the Government. However, they do provide some clarification which might help bring forward much needed housing schemes and hopefully provide an indication as to the direction of travel for future changes to the guidance.
There remain significant hurdles to overcome in the CPO procedure, which require careful consideration in order to best ensure that CPOs are confirmed. We would be pleased to help you navigate the process, so please do get in touch with our CPO specialists if you have any queries.
