When retail premises are compulsorily purchased by public authorities and forced to relocate, to what extent should compensation be paid for any resulting permanent loss of profit? The Upper Tribunal (UT) considered that issue in a guideline case.

Leasehold premises occupied by a national chain of jewellers were compulsorily acquired by a local authority as part of a town centre regeneration scheme. The tenant relocated its store to a nearby shopping centre where the overheads were substantially higher. The council nevertheless disputed its entitlement to compensation in respect of permanent loss of profits.

Ruling on the matter, the UT noted that the original store was on a prominent corner plot which benefited from high footfall. The tenant said that the store owed much of its resounding success to the fact that its occupational costs were less than half those of an equivalent unit in the shopping centre and that there was not much difference in their turnovers.

The UT found that there was no equivalent alternative premises to which the tenant could have relocated in lieu of the shopping centre. The new store was superior to its predecessor but it did not represent such good value for money, in that its profit margin was adversely affected by increased property overheads. That reduction in profit was directly attributable to the store’s relocation.

Responsibility for the new store’s reduced footfall and net sales could not be laid at the door of the compulsory purchase and relocation. However, the end result of the enforced move was that the tenant achieved a lower turnover at more expensive premises and had sustained a permanent loss of profit. It was thus entitled to compensation calculated by reference to the increased overhead costs.

The UT assessed the tenant’s compensation in respect of permanent loss of profit at £318,469. That sum took account of relief from business rates and a rent-free period granted during the COVID-19 pandemic. Compensation in respect of relocation costs and professional fees was agreed and the tenant’s temporary loss of profits arising from the relocation was calculated at £184,045. The tenant’s total award came to £647,510.