Compulsory Purchase of Derelict Sites

The Derelict Sites Act, 1990 (the 1990 Act) allows local authorities to address derelict sites within their functional area by establishing a register of such sites, seeking to have owners or occupiers take steps to rectify the dereliction, and permits local authorities to raise levies on and, in certain instances, to compulsorily acquire the property.

Derelict Sites Register

Where a local authority seeks to include a property on its derelict sites register (the Register), it must serve notice on any owner and occupier where they can be ascertained by reasonable enquiry, thus giving the opportunity for representations to be made by the owner or occupier within the time period set out in the notice. For the purposes of such a notice, the statutory definition of an owner or occupier excludes "a mortgagee not in possession". This means that where not in possession, the mortgagee is not entitled to receive notice.

Once the relevant period for representations has passed without a change in the position, a property will be entered on the Register and derelict sites levies will begin to accrue. The local authority will provide details of the required works to be undertaken, so that the property can be removed from the Register.

Acquisition of Derelict Site

Sections 15 to 17 of the 1990 Act set out the notice requirements and procedures for compulsory purchase of derelict sites.  The requirements include:

• publication in one or more newspapers within the functional area of the local authority of the intention to acquire and clearly identifying the property and setting out the time within which objections can be made (this period is not specified but cannot be less than one month) and
• service of notice in the prescribed form on every owner, lessee and occupier (except where tenants for a month or less) but, again, this does not include a mortgagee not in possession.

In practice the notice is also often placed at the derelict site.

Objections can be made to the proposed compulsory acquisition by any person on whom the notice has been served, within the time and in the manner set out in the notice, by submitting the grounds for any objection.

Where no objections to the CPO are received to (or where the objection is withdrawn or with the consent of the Minister for Housing, Local Government & Heritage (Minister)), the local authority will complete the acquisition by vesting order (CPO). The local authority is obliged to publish notice of the CPO in one or more local newspapers in the functional area and also to issue notice of the CPO to "every person appearing to them to have an interest in the derelict site to which the order…" This stipulation provides a level of comfort to mortgagees, where known. In the case of registered land where the mortgagee (or any subsequent owner of the charge) would be apparent from the face of the folio it would be difficult to suggest that this party was not identifiable. The situation would differ in the case of unregistered land where, save for express notice, the scope of searches which a local authority may have to carry out to ascertain such parties may be seen as supporting an argument that they are unknown or unascertainable.

Compensation

Any person who has any estate or interest in or right in respect of the derelict site acquired by CPO, may apply to the local authority not later than twelve months after the making of the order for compensation and the local authority shall pay to the person by way of compensation an amount equal to the value (if any) of the estate, interest or right.  Where there is no agreement as to the value of compensation claimed, the matter shall be referred to arbitration.

Key Points for Mortgagees

From the perspective of mortgagees and receivers where they may not have taken possession of a property, it is extremely important to carry out inspections of properties and actively review the registers maintained on the websites of the various local authorities. The costs of carrying out works to remove a property from the Register should be considered, as having these works carried out will safeguard the property from a CPO situation, where the compensation would be less than market value, given the deduction of levies.

In circumstances where a vesting order has been made, claims for compensation must be submitted within 12 months from the making of that order. There is no scope within the legislation for any extension of this period. Failure to comply with that timeline would result in a mortgagee's claim for compensation being time barred and a local authority would have no obligation to pay any compensation to the mortgagee for the loss of their secured interest in the derelict site. Accordingly, where notification of a CPO is received, or the mortgagee or receiver becomes aware of the CPO, it is imperative that the local authority be immediately advised of the intention to seek compensation and provided with details of the claim. At the same time a valuation of the derelict property should be supplied to the local authority. This valuation will be reviewed, and a compensation amount advised reflective of both the valuation and the costs which would fall to be deducted from the value, such as derelict site levies.

There is no centralised approach to the settlement and payment of compensation claims. Some local authorities have a form of agreement, and some councils will seek a full conveyancing approach, notwithstanding that the title to the property will have vested in the local authority by virtue of the vesting order. As the approach differs, the timeframes to finalising compensation payment on a CPO also vary greatly.

A CPO is a disposal for the purposes of Capital Gain Tax purposes and in receiving compensation the claimant should be mindful of this.

Final thoughts

As councils deal with the current housing crisis, vacant housing stock is becoming a key discussion point and vacant buildings, both residential and commercial, are being highlighted as a source of potential housing. Whilst CPOs are not specifically included within Housing for All, the Minister has indicated that his department are looking at the arrangements for CPOs, seeking to address the challenges for local authorities within the process.