CPO compensation case update

A recent decision has clarified the approach to compensation for business extinguishment and losses suffered under the threat of compulsory acquisition.

Executive summary

A recent Upper Tribunal decision concerning a specialist dog-training business provided an interesting insight into two key heads of CPO compensation, namely business extinguishment and pre-acquisition losses (“shadow losses”). 

Context

On 24 June 2026, the Upper Tribunal (“Tribunal”) awarded the claimant (“WKD”), a dog training business, just over £4 million in compensation from the Secretary of State for Transport after the claimant’s business was extinguished and his property compulsorily acquired for the construction of the HS2 high-speed rail project.

The claimant successfully claimed compensation for the property value under Rule 2 of Section 5 of the Land Compensation Act 1961. Additionally, all parties agreed that the claimant couldn’t relocate, and therefore the business was extinguished as a result of the compulsory acquisition. The claimant had sought alternative premises, however, there weren’t any viable options which accommodated the business needs within HS2’s imposed budget.

Legal issues

Shadow losses

As well as business extinguishment, the case included a claim for pre-acquisition losses, often referred to as “shadow losses”, because they are incurred under the shadow of the CPO.

The claimant claimed shadow losses of just over £1.65million, which represented the loss of earnings that it said were caused by the threat of compulsory acquisition between April 2019 and January 2023. The SoS accepted that the claimant was entitled to claim for shadow losses but valued them at just under £906,000 and suggested that other factors, such as covid, may have affected the claimant’s trading performance during the relevant period.

The starting point applied by the Tribunal was the principle of equivalence. This could be established through reference to the perceived value of the land to the owner, consistent with the well-established position outlined in the 1995 case of Shun Fung that: “land may…have a special value to a claimant over and above the price it would fetch if sold on the open market…If he is using the land to carry on a business, the value of the land to him will include the value of his being able to conduct his business there without disturbance.”

In relation to the recovery of business losses under Rule 6 of section 5 of the Land Compensation Act, the Shun Fung case also identified 3 conditions for this:

1. Losses must have been caused by the scheme
2. They must not be too remote
3. They must not be losses which a reasonable person would have avoided

The proposition of losses incurred under the threat of compulsory acquisition was also established in Shun Fung, and reaffirmed in the WKD case. The Tribunal confirmed that shadow losses are, like any other, assessed against the usual civil standard, and applied a “reasonable person” test to determine whether the claimant acted reasonably to prevent or mitigate their losses.

The claimant, amongst other metrics, quantified shadow losses using the “trained dog rate”. This essentially references the proportion of total dogs successful sold as being fully “trained”. The parties agreed that the rate declined during the shadow loss period asserted.

There were various contextual factors which contributed towards the reduced rate, particularly damaged staff morale (associated with the uncertainty) and a dilution of effort and loss of focus on the part of the business owner, which he claimed was due to the diversion of his time away from the core business to deal with attempted relocation.  The Tribunal ultimately concluded that, overall, the downturn in trained dog rates could be attributed to the scheme.

Business extinguishment

The other principle dispute between the parties centred around the business’s value upon being extinguished, specifically the appropriate multiplier to be applied to the maintainable profit of the business to arrive at its extinguishment value.

In considering this, the Tribunal emphasised that its job is to assess the value of a business to its owner, not to a purchaser. The price that the business might have sold for on the open market is useful but may not provide a complete answer, especially for small businesses.

The Tribunal said that the claimant is entitled to be put in the same position it would have been without the acquisition, which may be materially more favourable than the position of a purchaser. The Tribunal came up with a multiplier of 5.5, which was a small uplift to that suggested by the SoS.

CPO compensation

Burges Salmon regularly advises both affected parties and acquiring authorities in relation to compensation following compulsory purchase. Please get in touch with Jen Ashwell or Alex Minhinick for more information.