Bank of Scotland PLC (Birmingham Midshires Division) v Burnley Borough Council

This decision, determined under the Tribunal’s written representations procedure, concerns the payment of compensation to the former mortgagee of a property which has been compulsorily acquired, where the level of that compensation does not meet the outstanding mortgage debt.

Where, as here, the borrowing mortgagors have not agreed the level of compensation nor taken any part in the proceedings, it is not open to the mortgagee and the acquiring authority simply to settle the level of compensation they have agreed. Instead, it is for the Tribunal to determine the compensation to be paid by the acquiring authority under section 15 of the Compulsory Purchase Act 1965 (“the Act”).

The property concerned is 14 Graham Street, Padiham, Burnley, BB12 8RW (“the property”). The absent borrowers are Mr Patrick James McAleenan and Mrs Marie Elizabeth McAleenan (“the borrowers”).

The property is a two-bedroom, two-storey, mid-terrace house of stone construction under a slate roof, dating from around 1890. On 21 May 2007 the borrowers acquired the leasehold of the property for a price of £75,000. They granted a legal mortgage over the property to Halifax plc, which was registered on 8 June 2007. The Bank of Scotland PLC (“the bank”) is a successor to Halifax plc as mortgagee.

The property eventually became vacant and fell into disrepair. Burnley Borough Council (“the authority”) made The Burnley (14 Graham Street Padiham Burnley) Compulsory Purchase Order 2024 (“the CPO”), the purpose of which was to bring the property back into residential use by renovating it so that it could be sold on the open market. The CPO was confirmed on 4 March 2024 and notice given to the bank on 15 March 2024.

By a notice dated 22 April 2024 the authority informed the bank that a General Vesting Declaration (“GVD”) had been executed and that the property would vest in the authority on 23 July 2024 (“the vesting date”). The authority took possession of the property on the vesting date, which is the date for assessment of compensation.

The authority’s surveyor assessed the market value of the leasehold interest in the property for compensation at £40,000 - £45,000 and the bank has accepted £45,000 as the market value of the property at the vesting date.At that date the outstanding balance of the mortgage was £76,164.80.

The bank has supplied evidence of correspondence addressed to the borrowers at the correspondence address held for them in their mortgage records, to which they have received no response. Accordingly, without the agreement of the mortgagor to the compensation sum the jurisdiction of the Tribunal is engaged.

On 8 May 2025, the bank made a reference to the Tribunal to determine the level of compensation payable, naming the authority as respondent and requesting that the matter be dealt with on the papers under the Tribunal’s written representations procedure.

On 16 May 2025 notice of the reference, together with supporting documents and Tribunal directions, was served on the authority and also served by post on the borrowers at their correspondence address.

The directions required a response to the notice of reference by 13 June 2025. The authority served a notice in response on 3 June 2025, confirming agreement to the compensation claim of £45,000 and to determination of the reference under the written representations procedure. No response was received from the borrowers.

Section 15 of the Act provides:

“15.— Mortgage debt exceeding value of mortgaged land.

(1)

If the value of any such mortgaged land is less than the principal, interest and costs secured on the land, the value of the land, or the compensation to be paid by the acquiring authority in respect of the land, shall be settled by agreement between the mortgagee and the person entitled to the equity of redemption on the one part, and the acquiring authority on the other part, or, if they fail to agree, shall be determined by the Upper Tribunal.

(2)

The amount so agreed or awarded shall be paid by the acquiring authority to the mortgagee in satisfaction or part satisfaction of his mortgage debt. …”

The borrowers are the “person entitled to the equity of redemption” (i.e. the person entitled to redeem the mortgage) and their lack of engagement means that the compensation to be paid must be determined by the Tribunal under section 15(1).

The bank has supplied photographic evidence of the exterior of the property, dated 1 December 2022 and 15 March 2023, which shows it to be uninhabited and boarded up, with rubbish and debris in the rear yard. Further extensive photographic evidence dated 12 July 2023 shows the interior to have been abandoned and in disrepair, with debris in every room.

Valuation evidence is supplied by the report of the authority’s surveyor, Margaret Rutherford BSc (Hons) MSc MRICS, who inspected the property on 25 March 2023 and 11 July 2024. Her report recommended a valuation for compensation of £45,000, as agreed with the bank, and provided evidence of five comparable sales in the locality in support of that figure. I am therefore satisfied that the compensation sum agreed by the parties is supported by expert valuation evidence.

The authority in its response to the notice of claim confirmed its liability to pay statutory interest on the compensation from the date of vesting on 23 July 2024, and confirmed the claimant’s entitlement to a claim for reimbursement of reasonable costs incurred in negotiating and settling the compensation claim.

I determine the value of the subject property, on the vesting date of 23 July 2024, at £45,000.

I am satisfied on the evidence that the mortgagors have chosen not to participate in the negotiations for compensation and that they have not responded to the reference. The bank made a valid claim under 15(1) of the Act, and under section 15(2) I determine that compensation of £45,000, plus any statutory interest, should be paid to the bank in part satisfaction of the mortgage debt secured against the property. The amount of the statutory interest payable shall be agreed between the bank and the authority, along with the amount of compensation for reasonable costs incurred by the bank in settling and negotiating the claim.