The Party Wall Act: Compensation & Expenses
What provisions are there under The Party Wall etc Act 1996 for compensation and expense?
In this article we're going to briefly look at matters relating to compensation and expense that are set out and available under The Party Wall etc Act 1996. The article will focus on the primary provisions of the Act with occasional reference to relevant case law. It does not comprehensively assess all the nuanced legal findings and precedents as there are so many, but instead it acts as a summary for both lay people and professionals looking for a quick overview of matters relating to compensation and expense in relation to party wall matters.
If you are in any doubt about compensation or expense in relation to a party wall matter that you are involved in, please contact us.
Compensation for disturbance, loss or damage
The Party Wall etc Act (1996) ("the Act") expressly includes a provision to cover any adjoining owner or occupier who suffers any loss or damage as a result of any works that are carried out in connection with the Act. This is covered under section 7(2), which states:
"The building owner shall compensate any adjoining owner and adjoining occupier for any loss or damage which may result to them by reason of any work executed in pursuance of this Act."
Section 7(2) of the Act effectively ensures that in the event of any damage arising as a result of the works covered in the Act (i.e. the notifiable works) that these are made good or compensated for by the building owner - that is the person carrying out the work. In most party wall matters the assessment of damage is made simpler by having a schedule of the condition of the relevant parts of the neighbour's property carried out before the works start which can then be referenced in the case of any claims of damage. It is worth mentioning here that the schedule of condition protects both parties, not just the neighbour, as it protects the building owner from potentially unscrupulous claims, which are unfortunately not uncommon.
This section of the Act however is not all encompassing and so it is important to determine exactly what it covers and what it does not cover. For example, it has long been established that section 7(2) does not cover compensation that would be payable in respect of normal consequences of lawful construction work that has been executed in accordance with the Act (i.e. where notices have been served and where these have been disputed, party wall awards (agreements) have been prepared). The only exception to this is where damage has resulted from excavation works. However, it does cover loss of trade to neighbouring businesses and to some extent the loss of enjoyment of the property which is discussed in more detail below.
In practice, all building work tends to cause a degree of loss or damage to the neighbours, usually in the form of dust, noise, general inconvenience, un-lettability of a property, etc. The rule at common law is that this is an inevitability and often unavoidable and were such disturbances considered grave enough to result in financial compensation to the damaged party then all building projects would be plagued with such expenses.
A limit is put on this common law position by the Act however in section 7(1) where it clarifies the responsibility of the party carrying out the work to do so in a manner that prevents unnecessary inconvenience. This is covered in section 7(1):
"A building owner shall not exercise any right conferred on him by this Act in such a manner or at such time as to cause unnecessary inconvenience to any adjoining owner or to any adjoining occupier."
Section 7(1) requires the building owner to mitigate unnecessary inconvenience whilst acknowledging that some inconvenience in inevitable. If it goes to court then a position will need to be taken as to whether section 7(1) was followed and unnecessary inconvenience was avoided where possible..
It is important to clarify that only works that are "executed in pursuance of this Act" can be compensated under section 7(2). This was confirmed in the case of Sleep v Wise in which the judge confirmed that the words "in pursuance of" must have the meaning of "in exercise of the authority conferred by". This follows the established principle that a surveyor may only deal with and act upon matters which are covered by the Act, specifically under sections 1, 2, and 6, and in relation to adjacent excavation, construction on the line of junction, and work to a party structure. They have no authority to deal with any other matters. If a surveyor wishes to provide advice in relation to other matters then he must do so from the position of an advisory consultant separately appointed, and not from the perspective of a party wall surveyor.
Compensation for loss of trade
Previously it had been determined that there would be no compensation for loss of trade as a result of lawful works. An obvious example of this would be where a neighbouring shop or restaurant will suffer a loss as a result of the works. However this position has now changed and surveyors are required to assess whether any adjoining owners or occupiers will suffer a financial loss as a result of the proposed works and determine a suitable compensation sum to cover such loss. This figure should be included in the party wall award.
Calculating compensation for loss and damage under section 7(2)
To calculate the sum that should be compensated in the event of damage occurring is, in most cases, straightforward. The sum will usually be the cost of putting right the damage caused, which can be achieved by a cost assessment, or by obtaining suitable quotations.
As well as damage, section 7(2) covers loss where it can be demonstrated that there has been a quantifiable loss of trade or diminution of value. The calculation of sums in this instance can be more complicated. For example, where the construction of a wall or structure subsequently reduces natural lighting or ruins an impressive view and leads to a reduction of an adjoining property's value, the surveyors will need to carefully consider whether any losses resulting from this should be compensated for in an award. In such cases it would be advisable to appoint a valuer or accountant to calculate an appropriate figure and further legal advice may be needed in relation to mitigation, remoteness and foreseeability.
Compensation for damage to landscaping, drains or underground services
Where damage has been caused as a result of the construction of a new wall next to the boundary line, or by the construction of new footings on a neighbour's land in order to support such a wall, the party who carried out the works must compensate the damaged party by paying to make good any damage to flowerbeds, driveways, drains, or underground services. In such cases often the preferred method of remedying this is for the owner responsible for the damage to pay the neighbour a sum in lieu of making good under section 11(8), rather than waiting for the person who carried out the work to arrange for his contractor or another contractor to make good the damage. In such cases the surveyors will need to agree and award the appropriate sum to be paid as compensation under the provisions of section 10.
Compensation for the subsequent use of work carried out by a neighbour - Enclosure Costs
It is not uncommon for a situation to arise where a neighbour will make use of works previously carried out and paid for by a neighbour. For example, one owner constructed a loft conversion or extension with the external wall being a party wall and at some point after that the neighbour then encloses upon that wall as part of the construction of their extension. In this situation, the neighbour has benefited from having a free wall which was paid for at the expense of the other owner. In such situations the Act has provisions for compensation which are stated in section 11(11):
"Where use is subsequently made by the adjoining owner of work carried out solely at the expense of the building owner the adjoining owner shall pay a due proportion of the expenses incurred by the building owner in carrying out the work; and for this purpose he shall be taken to have incurred expenses calculated by reference to what the cost of the work would be if it where carried out at the time when that subsequent use is made."
Section 11(11) is quite clear in what it is saying. Where work is carried out by one owner and is subsequently used by the other, a proportion of the expenses are to be paid as if the works were carried out at the time when the subsequent use is made. This type of compensation is often referred to as enclosure costs.
Examples of enclosure costs
Continuing on from the examples listed above, the three most common situations in which enclosure costs under section 11(11) are payable are as follows:
- When a single storey extension is built with a party wall separating the premises and the neighbour then makes use of that wall for their extension.
- When a party parapet wall is raised to form the side enclosure of a loft conversion and the neighbour then constructs a loft conversion using the raised party parapet wall as part of their enclosure.
- When foundations of a property are underpinned to construct a basement extension and the neighbour then makes use of the underpinning for their basement extension.
Calculation of expenses
Enclosure costs under section 11(11) are typically calculated by assessing the area of wall or structure that is to be subsequently used by the adjoining owner, calculating the cost of constructing that wall at today's rate, and then dividing that number by two in order to achieve what would be half of the cost. The result of this calculation is that half the cost of the wall is paid for by both owners and that this cost includes for inflation. This calculation assumes that equal use will be made by each owner, and as such there are exceptions to this which can result in the owner paying less, for example where they only make use of a single leaf of a cavity wall having provided adequate insulation and structure on their land.
Alternatively, if the neighbour who constructed the wall has receipts or schedules which evidence the cost of constructing the wall, or if both owners agree another cost, then they can agree this sum without the input of surveyors.
When does the payment become due
Section 11(11) comes into effect "where use is subsequently made by the adjoining owner". Therefore we can read that as meaning when subsequent use is made is the time at which payment becomes due. Often this will be determined in the award and will be no later than 14 days from the date of use being made. In terms of what determines use as being made, most surveyors would agree that this would start when the works that look to make use of the wall start.
What if the person who carried out the work no longer lives at the property
The adjoining owner entitled to the payment does not need to be the same owner who built the wall.
Payment is due to the current owner, whether they are the owner that carried out the works or not, unless there is a lease or conveyance that specifically states otherwise, or, if the property has been sold, to the incoming successor in title.
Whilst the right to receive compensation under section 11(11) can be waived by the current owner, the current owner cannot waive the rights of any successors in title. Therefore regardless if a previous award states that section 11(11) costs are to be waived, if the ownership has changed the neighbour is entitled to compensation.