In July 2005 the International Olympic Committee announced that London had won the contested bid to hold the 2012 Olympic and Paralympic Games, beating Paris, which many had assumed to be the favourite.

London has hosted the Games before, the first time in 1906, when it replaced Rome at short notice following the devastation of Naples by the eruption of Mount Vesuvius, and subsequently the ‘ration book’ Olympics in 1948, which were the first Games to be televised.

Status of legislation

The government moved quickly after the IOC announcement and on 14 July the London Olympics Bill (the Bill) was introduced in the House of Commons. The Bill passed its second reading in the House of Commons on 21 July 2005 and is expected to receive Royal Assent in the first half of 2006. The main measures provide for:

• the establishment of the Olympic Delivery Authority (ODA) responsible for creating the permanent infrastructure for the Games, with wide-ranging powers extending across the country and with ultimate responsibility for delivering the Games on schedule and to budget;

• the delivery of transport needs;

• controls on marketing in connection with the Games;

• the Mayor of London’s power to prepare for and stage the Games; and

• extension of the purposes of regional development agencies to include the purpose of preparing for the Games.

The Bill enables the ODA to take planning powers by way of an Olympic Planning Order and on 15 February 2006 the Office of the Deputy Prime Minister issued a consultation paper entitled ‘Olympic Delivery Authority (Planning Functions) Order 2006’, which seeks views on whether and what planning powers should be granted to the ODA. The consultation ends on 12 April 2006.

LDA/ODA

Until the Bill receives Royal Assent, the London Development Agency (LDA) will have interim responsibility for delivering the 2012 Olympic Games. Its role includes environmental remediation, compulsory purchase powers, business and residential relocations and support, and land assembly.

The Bill does not contain any streamlined planning measures or compulsory purchase powers and therefore delivery of the 2012 Olympic Games will be dependent on existing planning and compulsory purchase procedures.

CPO procedures

An initial priority for the LDA is land assembly for the Olympic Park site in Stratford. The LDA has been negotiating with those that will need to be relocated to allow the construction work to begin. Although negotiations are ongoing, if unsuccessful the LDA will need to fall back on compulsory purchase orders (CPOs), and on 17 November 2005 a CPO was issued for the acquisition of all the necessary land interests on the 838- acre Olympic Park site, which can compel more than 2,000 landowners, 400 residents and 300 businesses to transfer their respective legal interests to the state. It is estimated that a total of around 3.5 million sq ft of alternative commercial premises will be needed in the Thames Gateway in order to relocate these businesses. One of the advisers to the Games has commented that the project represents ‘the biggest ever compulsory purchase order programme in England’.

Notice of a CPO must be served on all those having an interest in the site, along with a copy of the authority’s statement of reasons for making the order. Anyone can make a formal objection to the CPO – this is not restricted to those with an interest in the land.

It is usual for negotiations to be ongoing for some time before the threat of the CPO is made a reality. In the case of the Olympics, the LDA clearly felt that it had limited time and needed to issue the CPO more quickly than is usual. This has led to significant local resentment. The Marsh Gate Lane Business Group, which represents 248 businesses in the area, has said that the grounds for complaint were that the LDA had underestimated the costs of the relocation process; that the Order was heavy handed and didn’t reflect fair play; and that up to 5,000 people will lose their jobs. Compensation packages are yet to be announced, but the Secretary of State for Culture, Media and Sport has stated that the displaced occupiers will receive ‘fair and appropriate compensation’. So how should you advise a client whose business has been served with a CPO?

Once a CPO is confirmed, anyone with a legal title to any part of the land affected will have a right to compensation. Compensation is available for the value of the land and, if relocating, the costs of relocation of a business and other costs relating to the disturbance suffered. These costs have to be proven with evidence, usually from surveyors or accountants, depending on the type of costs.

Anyone who finds their land and business subject to a CPO should appoint a compensation expert as soon as possible. This is particularly relevant if the business has specific requirements in its relocation. The Compulsory Purchase Association has compensation surveyors as members and the Law Society has a list of lawyers who have expertise in the area of compulsory purchase. It is a very specialist area and appointing a professional who has experience in compulsory purchase can make a great deal of difference to the success of the claim.

The CPO is likely to specify a date when the acquiring authority wishes to take possession of the property. This will give the business a timescale to work to in respect of relocation. It also fixes a valuation date for the purpose of valuation, although the acquiring authority can enter and occupy the property without agreeing compensation. The business has no ability to negotiate for a greater compensation by refusing to leave its property.

One of the most important meetings a business will have in the whole process of compulsory purchase will be its meeting with its compensation surveyor to discuss the heads of claim the business will be looking to make in respect of its relocation. Acompany may choose to make different decisions about how it manages its relocation, based on what it claims compensation for. Therefore, an early meeting with its compensation surveyor is invaluable. One key decision a company will make in respect of its relocation is the extent to which the company uses its own staff to manage the relocation process. Time spent by company staff may or may not, depending on the circumstances, be reclaimable. It is prudent to understand what can be claimed for and what cannot at an early stage. If the claim for relocation is likely to be a large one compared with the value of the company, the acquiring authority may choose to pay extinguishment value. This is likely to be less than relocation. The acquiring authority will be entitled to pay only extinguishment value if it can demonstrate that no reasonable business person would have chosen to relocate rather than extinguish the business.

The nature of compensation

An acquiring authority will only compensate on a like-for-like basis. So, when considering premises for relocation, a business needs to be aware that an acquiring authority may refuse to pay for additional space if it believes the business is getting value for that additional space. Sometimes, because of the paucity of alternative premises, taking premises larger than those currently occupied will be the only option. It will be down to the business’s expert to argue why the acquiring authority should pay any compensation in relation to the additional area.

If there is a possibility of loss of profit arising from relocation, either because of the actual relocation or arising from the management of the process itself, this loss will have to be demonstrated. Therefore, in addition to a compensation surveyor, a business may also engage, as an additional expert, an accountant to demonstrate the profit which would have been obtained but for the compulsory purchase.

It is also possible that, in valuing the land, a surveyor will be able to take into account its development value. To help in this process the business would apply for a section 17 certificate from the local planning authority. A section 17 certificate will specify the development that would, in the view of the local planning authority, have received planning permission if the CPO had not existed. The business will set out in its application the development which it believes would have received planning permission and the local planning authority can either grant a section 17 certificate in respect of the application, grant one for an alternative development or refuse one.

Having undertaken discussions with its compensation surveyor and other experts, the business should have a good general understanding of its likely compensation, and will be able to attribute an estimate of its value. The next stage is to understand the acquiring authority’s view on the compensation it should be paying to the business. One way of ‘flushing out’ from the acquiring authority its view on the value of compensation to be paid is to apply for an advance payment (see below). The greater the gap between the business’s view of compensation and the acquiring authority’s view of compensation, the more likely it is that the claim will end up in the Lands Tribunal. A surveyor acting on behalf of the acquiring authority will usually be appointed and will require the business to prove its right to compensation over and above a certain basic level generally attributable to all the businesses affected. It will be up to each individual business to demonstrate why it has special characteristics that justify additional compensation.

It is very important for a business to have a realistic view of the compensation it is likely to come away with after finalisation of the process either through the Lands Tribunal or through negotiation. At an early stage, the business should be asking its compensation surveyor to give a realistic estimate of the amount of compensation the business is likely to be entitled to. The surveyor’s ability to provide such an estimate will depend on the quality of the information provided by the business.

Determination of compensation and relocation terms

If the acquiring authority and the business cannot agree the compensation, either side can refer the matter to the Lands Tribunal. The business is entitled to an advance payment of the compensation. This advance payment can be a significant amount if the compensation has been agreed. The business is entitled to 90% of either the agreed amount or, if not agreed, 90% of the acquiring authority’s valuation. An application for an advance payment is often used by a business to force the hand of an acquiring authority, if the acquiring authority is being slow in providing a figure for compensation.

Many disputed claims are settled at the court door and few progress all the way through to the Lands Tribunal. The Lands Tribunal now actively encourages the parties to mediate the claim.

Some practical assistance will be available from the acquiring authority in relation to relocation, but given the limited resources, it is difficult for the authorities to provide the level of strategic understanding and advice that most businesses need.

Inevitably, the acquiring authority’s main focus is on development and legacy, which will give rise to a conflict of interest, making it difficult for it to act in the best interests of the affected business.

However, the government’s argument is that by working with independent advisers and through careful preparation and strategic planning, compulsory relocation can become a business opportunity for the companies involved – in other words, the business will have an opportunity to realign its property strategy with its business strategy.

Some relocation deals have already been agreed in relation to the Olympic Park site, but there is still a long way to go if the LDA is to achieve vacant possession of the whole of the 838-acre site by the target date of July 2007.  © Property Law Journal