fraud investigation & dispute services the long and ... · deteriorating picture for those...

Fraud Investigation & Dispute Services

The long and winding roadCompulsory Purchase Survey 2017

1 Compulsory Purchase Survey 2017

About the EY CPO Team

Survey approach

EY’s CPO team advises on claims following compulsory purchase of business premises, including relocation, extinguishment and hybrid cases. We act on behalf of acquiring bodies and affected businesses, using a deep financial knowledge to help assess a fair level of compensation. Our experienced team is based across five UK offices and is part of EY’s Fraud Investigation & Dispute Services practice. We have worked on claims ranging from £500,000 to £90mn and our experience includes giving expert oral evidence to the Upper Tribunal (Lands Chamber) on numerous occasions.

In the Lands Tribunal case of Optical Express (Southern) Limited vs. Birmingham City Council (2004), the evidence presented by EY partner Sara Fowler set a precedent in relation to the basis on which compensation for post possession loss of profits are calculated.

We can work as part of a wider team alongside other professional advisors to supplement their work providing support and ensuring a consistent approach. In more complex cases we can assist with project management of the claim.

We use our extensive experience of this type of work to:

► Provide robust and objective advice

► Offer practical and commercial ideas

► Consider the profile and sensitivities of the claim

► Tailor our approach to the nature and size of each situation

To find out more please contact:

Sara Fowler + 44 7887 633 092

Hannah Griffin + 44 7974 205 229

Andrew Johnson + 44 7785 488 458

David Bell + 44 7738 711 404

Jack Clitheroe + 44 7557 929 984

Lauren Jones + 44 7552 282 389

[email protected]

Between June and September 2017, we surveyed 96 professionals working in the field of Compulsory Purchase across the UK. These included surveyors, solicitors, barristers, planners and accountants, with the significant majority being members of the Compulsory Purchase Order Association.

The survey was conducted electronically and was designed to elicit views and information on the changing landscape of Compulsory

Our aims are to:

► Assess a fair level of compensation

► Support a timely resolution to quantum disputes

► Provide value for money to encourage future investment and development in public interest projects

Purchase Orders. The survey was conducted anonymously. Statistics have been prepared on the basis that no respondents have acted, or continue to act, on the same claim.

This year, we have been able to compare our results with last year’s survey and identify any trends in our data, year on year. This has allowed us to discuss the potential reasons for these trends and explore solutions to any problems that could arise as a result.

2Compulsory Purchase Survey 2017

Following the UK’s June 2017 snap general election in which the Conservative Government lost its majority there is now even more uncertainty regarding Brexit and the potential challenges that it could bring. Despite this, both the Conservative and Labour manifestos shared prior to the election contained reassuring multi billion pound infrastructure investment promises — and that has been reflected in continuing momentum on some of the country’s larger infrastructure projects. In July of this year, the routes for High Speed 2, Phase 2a and 2b were confirmed, forging a path between the West Midlands, Manchester and Leeds. We also expect local infrastructure projects to increase as devolution policies build outside London, with Greater Manchester and the West Midlands Combined Authority electing their first Mayors, both with a commitment to increasing infrastructure investment in their regions. More recently, in the Government’s Autumn Budget, Chancellor Philip Hammond MP stated that compulsory purchase powers would be used on land ‘banked’ by developers in order to ‘ensure such land is brought forward for development’.

Compulsory purchase will play a key role in the implementation of these expected, proposed or confirmed infrastructure projects and these changes signal that the busy period for Compulsory Purchase Order (CPO) professionals is showing no signs of abating. Whilst our 2017 Survey shows respondents are working on fewer cases than last year (1,863 cases this year against 2,068 last year), the average value is higher (an average of £920,000 this year against £775,000 last year). What does this mean for the skills shortage identified in last year’s survey?

There have been a number of recent changes to legislation surrounding Compulsory Purchase, including the Housing and Planning Act 2016 and since our previous survey, the Neighbourhood Planning Act 2017. While these have been implemented with the aim of making the process ‘clearer, fairer and faster’, do CPO professionals think they have had the desired impact?

We would like to thank all of the respondents for taking the time to participate in this survey and for their valuable contributions and insights.

Sara Fowler Partner, EY CPO Team

[email protected]

Foreword

£920,000(2016: £775,000)

... but the average value of claims being dealt with

was larger ...

£1.7bn(2016: £1.6bn)

... with the total value of ongoing cases increasing.

1,863(2016: 2,068)

Our Survey showed a decreased number of ongoing cases across respondents ...

Compulsory Purchase Survey 2017


The skills shortage

The issueConcern regarding capacity to deal with increasing workloads (on large infrastructure projects such as HS2), and the difficulty in recruiting additional support into existing teams, remain key issues for CPO professionals that we work with. The potential implications of a skills shortage across CPO professions has become increasingly apparent.

In 2016 our survey highlighted the potential for significant strain on the profession unless new talent could be attracted, signalling the need for substantial immediate investment to ensure there is a future talent pool capable of dealing with CPOs. Twelve months on, we have sought to identify if the picture has changed in any way.

Our findingsWe asked respondents how long they have acted in the CPO field.

0

26%15%

29%7%

4%18%

7%3%

35%56%1–5

6–10

20+

0% 20% 40% 60%

2017 2016

11–20

Figure 2: Team size

By number of employees, how big is your CPO team nationwide?

Base: 77

Q

Whilst the results suggest a slight shift towards a demographic with less CPO experience compared to our 2016 respondents, there remains a clear imbalance between those relatively new to the profession and those in the later stages of their career (with the distribution significantly weighted towards the more experienced members). This suggests that there is further work to be done in attracting new people into the profession.

With over half of our respondents (55%) expecting larger caseloads from HS2, in particular, in the coming twelve months, there is expected to be an increasing need for additional support. This support will avoid further strain on existing members as well as ensuring claimants and acquiring authorities continue to receive a high quality service.

We can see evidence of a good start, with our respondents reporting larger team sizes this year as well as an increase in respondents with between two and ten years’ experience.

Figure 1: Experience

How long have you acted in the CPO field?

Base: 89

Q

0% 5% 10% 15% 20% 25% 30%

Less than 2 years 2%3%

16%

13%19%

29%19%

18%20%

26%28%

7%2–5 years

6–10 years

11–20 years

21–30 years

More than 30 years

2017 2016


Do you expect the number of HS2 cases you deal with to increase, decrease or stay the same in the next 12 months?

Base: 46

Q

Figure 3: HS2 expectations

55%

41%

4%

Increase

Decrease

Stay the same

The challengeThe Compulsory Purchase Association (CPA) continues to make conscious efforts to raise awareness amongst its members of the potential challenges facing the profession due to a skills shortage, and has begun to make strides (for example through the activities of the Outreach & Public Relations working groups) to address these challenges.

Unfortunately, there is no quick fix. Building relationships with universities, inviting students to Young CPA events and the provision of work placement opportunities are examples of ways in which the CPA is seeking to generate more interest in the CPO profession. But the impact of these initiatives will take time to come to fruition.

Whilst the hope is that, in the longer term, these initiatives will have the desired effect of attracting new people, the risk remains in the short to medium term that, with a shortage of available expertise, claimants and acquiring authorities alike will be competing to seek advice from the limited number of practitioners who are sufficiently experienced in CPO. It is likely that this will result in a longer process and further frustrations for those involved.

“�The�results�from�this�important�survey�echo�the�findings�from last year, reiterating that there remains a chronic shortage of professionals — and most particularly surveyors�—�practicing�in�the�field�of�compulsory�purchase�and compensation.

Across the board, now more than ever, the professionals that are working in compulsory purchase need to pull together to do what we can to attract new entrants, not least through raising awareness of the opportunities that exist in what remains a particularly interesting and diverse�field,�and�one�which�offers�a�long-term�and�highly�rewarding career.”

Jonathan Stott, Managing Director, Gateley Hamer


The long and winding road

The issueIn last year’s survey, we identified that the length of time it takes to resolve a CPO (from the planning phase through to transfer of ownership and payment of compensation) was a key area of concern for claimants and acquiring authorities.

In light of recent changes to legislation and a period of political uncertainty in the UK, has this improved or are we seeing a deteriorating picture for those impacted by CPOs?

Our findingsOur survey indicates that concerns regarding the lengthy CPO process have worsened in the last 12 months, with length of time to reach a settlement identified as the biggest concern for claimants by 64% of respondents, an increase from 52% in our previous survey.

This is reflected further in responses regarding the time period businesses are affected by blight, prior to acquisition, with 32% of respondents indicating that businesses were impacted for more than three years prior to acquisition, up from 24% in last year’s survey. 94% of respondents indicated business were impacted for at least a year, up from 85% last year.

Delays in assessment and receiving advance payments

18%

Other 4%

The impact on clients and businesses in the prepossession

14%

Length of time to reach a settlement

64%

Figure 4: Biggest challenges for claimants

Figure 5: Impact of blight

What is the biggest challenge you experience with regards to CPO compensation claims when you are acting for claimants?

Base: 47On average, of the claims you deal with, how long are businesses affected by blight before their land is acquired?

Base: 47

Q

Q

More than three years

32%

Less than a year

6%

2–3 years

24%

1–2 years

38%


The key concerns relating to dealing with claims from the acquiring authority perspective include a lack of information submitted by claimants and the availability of CPO professionals which both serve to cause delays in process.

Figure 6: Biggest challenges for acquiring authorities

Other

11%Lack of information submitted by claimants

50%Cost of experts

8%

Availability of other professionals dealing in CPO

31%

What is the biggest challenge for acquiring authorities when dealing with compensation claims?

Base: 48

Q

A number of changes to CPO legislation such as the Housing and Planning Act 2016 and the Neighbourhood Planning Act 2017 have recently been put in place, so we asked respondents what impact they believed changes would have on claimants and acquiring authorities. The majority of respondents considered legislative change would have no impact on challenges facing claimants (78%) and acquiring authorities (79%).

Figure 7: Impact of reforms

To what extent do recent reforms such as the Housing & Planning Act 2016 and Neighbourhood Planning Act 2017 impact challenges felt by acquiring authorities and claimants

Base: 50

Q

The challengeThe CPO process represents a long and winding road for claimants and acquiring authorities alike. This is a challenge identified last year which based on responses to our survey, shows no immediate signs of improvement and has not been helped by the shortage of available professionals, or alleviated by legislative change.

90%

75%

60%

45%

30%

15%

0%2%4%

1 — Challenge increased

0% 2%

5 — Challenge reduced

8% 6%

2

10% 10%

4

78% 79%

3 — No change

Acquiring authority Claimant


No place to call home

The issueAnother challenge highlighted in our 2016 survey relates to relocation. The complexities surrounding relocating a business from an affected site to a new site should not be underestimated. An understanding of the new site needs to be carefully considered in conjunction with a detailed analysis of the business and its stakeholders. The interplay between the key drivers of trade for the business and its physical surroundings needs to be assessed for both the affected site and the new site to fully understand the commercial impact, good and bad, of relocation.

In our experience, an issue that often gets overlooked in potential relocation claims is the inherent risk to the business from moving premises. Customer demographics, footfall, local competition and a variety of other issues need to be analysed in detail. These are complex issues and there is often a disparity between what the acquiring authority and the claimant see as a viable alternative site.

Our findingsOur survey indicates that the number of businesses affected by a CPO that could relocate the whole business to a new site has reduced in the last year. Our respondents indicated that 53% of their claimants over the last 12 months were able to relocate the whole business, this is a marked reduction from the 77% who were able to relocate the whole business a year ago. This indicates that potential suitable sites are becoming harder to source.

The challengeA lack of suitable premises is the biggest issue in terms of relocation, with 59% of respondents citing this as being the deciding factor that resulted in either an extinguishment or a partial relocation. This has become a bigger issue for our respondents when compared to a year ago, when only 40% of respondents indicated this was a key reason.

Extinguished

21%

Uneconomic

11%

Could relocate the whole business

53%

Could relocate limited operations

26%

Of your cases which settled in the last 12 months, what percentage of business could relocate the whole business, could relocate limited operations or were extinguished?

Base 75

What were the reasons for partial relocation or extinguishment; lack of suitable premises, age of owners, insufficient financial resources to fund a move prior to receiving compensation or uneconomic to relocate

Base 30

Q Q

Figure 8: Relocation or extinguishment Figure 9: Reasons for partial relocation or extinguishment

Insufficient financial resources

8%

Age of owners

22%

Lack of suitable premises

59%

8Compulsory Purchase Survey 2017Compulsory Purchase Survey 2017

In the last 12 months, we have been involved in cases where due to the location and limitations of the proposed site the claimant’s business model has to be adapted significantly for the business to continue to operate profitably. A business may have to be extinguished due to the proposed site being very different to the acquired site. While this is clearly an area of great uncertainty for claimants, there is a risk for acquiring authorities of an unforeseen additional cost of compensating for an extinguishment, rather than a relocation.

The compensation attaching to a relocation of a business can be a complicated area and one that can easily be underestimated by both the claimant and the acquiring authority. Potential heads of claim can include the more obvious costs invoiced to the business for relocation costs, but also dual running costs, professional fees, loss of profits due to business interruption, wasted management time, and sometimes a permanent loss of profits claim if the relocation causes a reduction in trade. All of these factors require careful consideration by both claimants and acquiring authorities.

David Bell, Assistant Director, EY CPO Team

“ Recent cases have demonstrated the real challenge in calculating a relocation claim. You have to work closely with the client to really understand their business and model different scenarios to understand the ‘what ifs’ that could impact trade by relocating to new premises. It can be an iterative�process�to�arrive�at�a�robust�quantification�of�loss�that is capable of standing up to challenge.”


Alternative Dispute Resolution (ADR)

The issueWe have identified that there is significant challenge ahead in making the Compulsory Purchase process ‘clearer, fairer and faster.’ One of the key contributors in this could be an increased use of ADR and in this survey we sought to identify any trends in the use of ADR in the last 12 months.

Our findingsSimilarly to last year, our survey suggests that ADR is not a commonly used mechanism with only 19% of respondents having used ADR in the last 12 months (in comparison with 15% last year). Our survey suggests that mediation is the most commonly used form of ADR. Other methods of ADR, such as early neutral evaluation, arbitration and using a joint independent expert are used to a lesser extent.

Our survey suggests that most cases have settled before a reference was made, and this percentage has increased since last year (57% in comparison to 42% in 2016). Results suggest a higher percentage of cases have settled between a reference being made and the hearing, increasing from 17% in 2016 to 21% in 2017.

Yes

19%

No

81%

What percentage of your cases; settled before a reference was made, settled between reference and hearing, settled pre CPO, were determined at Upper Tribunal (Lands Chamber), Not applicable?

Base: 35

Q

In the last year have you used alternative dispute resolution in a CPO case?

Base: 54

Q

Figure 11: Settlement timing

Figure 10: Use of ADR

The challengeOur findings suggests that although there appears to be a slight increase in the use of ADR, there is more to be done in utilising these methods in CPO disputes to make the process faster and reduce disruption for claimants and acquiring authorities.

With no changes to ADR in recent legislative reforms, increasing awareness and education of people in the profession of the benefits of ADR is key to encourage its use.

“ As I said in last year’s survey, I think that the use of ADR should be considered in all CPO cases because it can save costs, but also because it can expedite the CPO process.

The slight increase in ADR being used among our respondents is encouraging but there is clearly some progress to be made. This will go some way to reducing the challenges highlighted in this survey by reducing the disruption caused to businesses and the costs incurred by both claimants and acquiring authorities.”

Sara Fowler, Partner, EY CPO Team

Settled between reference and hearing

21%

Settled pre CPO

16%

Determined by the Upper Tribunal (Lands Chamber)

1%Not applicable

5%

Settled before a reference was made

57%


An ADR case study

OverviewWe have recently been involved in a CPO which resulted in the extinguishment of part of a business, with the remaining business being relocated.

The compensation being claimed was multi-millions of pounds and there were a number of heads of claim being assessed by the professional advisors:

► Under Rule 2: market value and loss payments

► Under Rule 6: disturbance; value for money; wasted time costs; losses due to forced sale and loss of goodwill (the business valuation)

The business was affected by the threat of CPO from late 2010 and after seven years and significant costs, the two parties had not agreed on the level of compensation and remained millions of pounds apart. Consequently the claimant made a reference to the Upper Tribunal (Lands Chamber).

Before proceeding to the Upper Tribunal (Lands Chamber), a successful mediation was held between the parties resulting in a level of compensation which both the claimant and the acquiring authority were satisfied with. This avoided the high costs of going to Tribunal and the risk to both sides of the Tribunal finding in favour of the opposing party.

As noted throughout this survey, one of the biggest challenges for claimants is the time it takes to gets a settlement and this case study illustrates the extent of this in practice with the claim taking a total of seven years to settle.

In our experience, key areas which can result in a quicker process on CPO claims include:

► Regular, open communication between the claimant and acquiring authority from an early stage can help to understand the respective positions and assist in negotiations between the parties

► Taking professional advice quickly can facilitate meaningful discussions, and provide realistic assessments, to enable compensation to be agreed through negotiation

► The acquiring authority taking the time to understand the impact of the CPO on the claimant’s business is vital. Not only will it help to understand the claimant’s position during negotiations but could help to avoid any confusion regarding the basis of certain heads of claim

EY | Assurance | Tax | Transactions | Advisory

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

About EY’s Fraud Investigation & Dispute ServicesDealing with complex issues of fraud, regulatory compliance and business disputes can detract from efforts to succeed. Better management of fraud risk and compliance exposure is a critical business priority — no matter the size or industry sector. With over 4,500 fraud investigation and dispute professionals around the world, EY provides the analytical and technical skills needed to quickly and effectively conduct financial and other investigations, and gather and analyze electronic evidence. Working closely with you and your legal advisors, we will assemble the right multidisciplinary and culturally aligned team, and bring an objective approach and fresh perspective to challenging situations, wherever you are in the world. And because we understand that you require a tailored service as much as consistent methodologies, we work to give you the benefit of our broad sector experience, our deep subject matter knowledge and the latest insights from our work worldwide.

Ernst & Young LLPThe UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number OC300001 and is a member firm of Ernst & Young Global Limited.

Ernst & Young LLP, 1 More London Place, London, SE1 2AF.

© 2017 Ernst & Young LLP. Published in the UK. All Rights Reserved.

ED None

EY-000048455.indd (UK) 12/17. Artwork by Creative Services Group London.

In line with EY’s commitment to minimise its impact on the environment, this document has been printed on paper with a high recycled content.

Information in this publication is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Ernst & Young LLP accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material.

ey.com/uk

fraud investigation & dispute services the long and ... · deteriorating picture for those...

Documents