Limited hope value in the compulsory acquisition of land for a bypass

The compulsory acquisition

The municipal council approved the compulsory acquisition of land for the road in August 2015. Before the compulsory acquisition, a voluntary land consolidation scheme was carried out for the land surrounding the road.

The municipality compulsorily acquired part of the agricultural property that later became the subject of proceedings before the Danish Overvaluation Commission. At the landowner’s request, the remainder of the property was also included in the compulsory acquisition because it could not reasonably be used following construction of the road.

Dispute over the value of the property

From the outset of the project, the municipality and the landowner disagreed over the value of the property. The dispute concerned whether the municipal plan’s designation of the land subject to compulsory acquisition for industrial use gave rise to a degree of hope value.

The amounts claimed by the parties differed significantly. As no agreement could be reached, the matter was referred first to the Danish Valuation Commission and subsequently to the Danish Overvaluation Commission.

Planning status

Part of the property had been designated in the municipal plan as industrial land subject to special siting requirements since 1973. This designation covered approximately 20.2 hectares of the property’s total area of approximately 58.0 hectares.

Under the 2013 municipal plan, a further 37.4 hectares were designated for industrial use based on the anticipated effect of the bypass on commercial development in the area.

However, no local development plans were adopted for the designated industrial land, and the property’s planning potential was never realised.

The municipality’s claim

Before the compulsory acquisition was carried out, the municipality and the landowner agreed that the entire agricultural holding should be independently valued. The valuation was undertaken by a rural property agent with no connection to the municipality or the local area.

The property was valued at DKK 17 million, excluding any uplift for hope value arising from the planning designation applicable to the property. On this basis, the municipality submitted that compensation should be fixed at DKK 17 million.

The municipality’s principal argument was that a designation in a municipal spatial plan did not in itself create value for the property. Instead, value would depend on there being an economic incentive to implement the plan. In the municipality’s view, no such incentive had existed at any point since 1973.

The municipality also based its claim on the fact that, at the time of the compulsory acquisition, there had been no genuine demand for industrial land in the area for many years. The owner could therefore not reasonably have expected a buyer to pay more for the property than could be justified by the returns from its agricultural use.

Finally, the municipality argued that, at the prevailing sale price for developable commercial land of approximately DKK 70/m², a potential investor would receive no economic return once all site-servicing costs had been paid – even if the land were acquired at its agricultural use value.

The landowner’s claim

The landowner claimed compensation of more than DKK 49 million, relying on a valuation report prepared by a valuer instructed by the landowner.

The principal argument was that the municipal plan’s designation of the property for industrial use created significant hope value and that the property should therefore be valued in line with the general market level for commercial land in the area.

The landowner argued that the municipality had indicated on several occasions that the land was to be developed for industrial purposes, citing the general development of the area – particularly around the port. The landowner also referred to several specific transactions in the area, including the municipality’s expected sale prices of DKK 70–80/m² for its own commercial land.

The compensation claimed varied between different parts of the property, taking into account the specific development potential of each area.

The Valuation Commission’s decision

The Valuation Commission issued its decision in May 2016 and awarded the landowner total compensation of DKK 18.8 million. Of this amount, DKK 14.3 million represented compensation for the land, while the buildings were valued at DKK 4.5 million.

In its decision, the Valuation Commission accepted that the agricultural land had some, albeit limited, hope value and set the land value at DKK 24/m². In doing so, it made no distinction based on zoning status or the date on which the land had been designated for industrial use in the municipal plan.

The Valuation Commission also gave separate weight to the property’s proximity to the town and port, which provided some prospect that the property could eventually be used for purposes other than agriculture.

The general hope value attributed to the land resulted in an estimated reduction in the value of the property’s agricultural buildings, as they could not be retained if the property were converted to another use.

The Overvaluation Commission’s decision

When the Overvaluation Commission decided the case in January 2023, it valued the property at DKK 18.828 million. This was close to the compensation awarded by the Valuation Commission, although the basis for the valuation differed.

The Overvaluation Commission determined that the agricultural use value of the land was DKK 20/m², regardless of its zoning status or when it had been designated in the municipal plan. Unlike the Valuation Commission, however, the Overvaluation Commission found that the assessment of hope value should distinguish between the land designated for industrial use in 1973 and that designated in 2013.

For the approximately 20.2 hectares designated in 1973, the Overvaluation Commission found no grounds to overturn the Valuation Commission’s assessment that the planning designation had created some hope value. It therefore upheld the land value of DKK 24/m².

By contrast, the Overvaluation Commission found no basis for attributing hope value to the approximately 37.4 hectares designated for industrial use and as a green buffer zone in the 2013 municipal plan. This land was therefore valued at its agricultural use value of DKK 20/m².

This was based on the assumption that the designation was a direct consequence of the plans for the bypass and that, under established practice, the municipality was not required to compensate for any increase in value created by the road project itself. The total compensation for the land was therefore reduced to DKK 12.328 million.

As the Overvaluation Commission gave less weight to the existing planning designations than the Valuation Commission, it attributed greater value to the agricultural buildings in relation to the property’s future use. The estimated value of all the buildings was therefore increased to DKK 6.5 million.

Opsamling

Overtaksationskommissionen lægger to forskellige principper til grund for fastlæggelsen af forventningsværdien.

Ikke overraskende nåede overtaksationskommissionen frem til, at der ikke kan tillægges forventningsværdi til de arealer, der blev udlagt til industri i 2013 som en direkte følge af omfartsvejens etablering. Dette ses helt naturligt, da kommunen ikke skal betale for kommunens ”egen” værdiskabelse i området.

Det er dog mere kompliceret at vurdere, hvorvidt der kan tillægges forventningsværdi til de arealer, der blev udlagt i 1973, hvor der ikke var konkrete planer om etablering af omfartsvejen.

Helt overordnet kan det jo kun være de nye pengestrømme, som en given planlægning skaber i et område, der får arealerne til at stige i værdi, eller kan give berettigede forventninger herom. På ejendommen har industriarealerne været udlagt siden 1973 uden, at det har genereret en privat industriudvikling i området.

Det virker derfor tvivlsomt, at en investor vil betale en pris, der ligger ud over den driftsmæssige værdi, når prisen på byggemodnede og bygbare erhvervsarealer i området ligger på ca. 70 kr./m2. Når alle omkostninger til byggemodningen er afholdt, kan der ikke være et afkast til en privat investor.

Det er derfor LE34´s opfattelse, at kommissionerne burde have baseret ejendommens markedsværdi på, at en potentiel køber på ekspropriationstidspunktet havde været en person med intention om landbrugsmæssig drift og ikke realisering af de planlægningsmæssige muligheder på ejendommen.

Ud fra denne valide antagelse vil der nemlig ikke være et økonomisk grundlag for den tilkendte forventningsværdi på de arealer, der blev udlagt til industriformål i 1973.

Hvis du har spørgsmål til artiklen kan du kontakte Martin Korgaard.