The capitalisation rate in expropriation to remain at 4 percent (Nome municipality)

The case concerns the capitalisation rate in the expropriation of a forest property. Where compensation for loss of use value is paid as a lump sum, future income must be discounted to present value. This calculation is based upon a capitalisation rate – an interest rate fixed on the assumption that the compensation will be prudently invested. The higher the rate, the lower the compensation. The Court of Appeal proceeded on the basis that case law establishes a standardised capitalisation rate of 4 percent. The issue before the Supreme Court was whether this reflected correct application of the law.

The Supreme Court noted the extensive and long‑standing practice of applying a standardised capitalisation rate of 4 percent. That level was established in a grand chamber judgment on personal injury compensation in 2014, and subsequent case law has confirmed that the same level applies in expropriation cases. The standard rate builds on the assumption that the compensation sum may be invested broadly – not only in one’s own undertaking, but also in other assets.

The Supreme Court found no basis for altering the established standard rate at the present time. The 2022 Regulation, which prescribes a capitalisation rate of 2.5 percent in the assessment of damages for personal injury, does not afford grounds for reducing the rate in expropriation proceedings. Nor have there been changes in the economic circumstances that would warrant a lowering of the standard rate.The Supreme Court further emphasised that a rate of 4 percent is not, in itself, so high as to warrant a reduction.The standard rate presupposes only investments readily accessible to all, and does not presuppose active management.

The rules on capital gains taxation of compensation sums likewise provide no basis for adjusting the rate. The Supreme Court further clarified that expected real income growth should not affect the capitalisation rate. Such growth is accounted for in the calculation of the lost cash flow, not in the rate itself.

The judgment confirms that a standardised capitalisation rate of 4 percent will continue to apply in expropriation cases. It also contains observations on Article 105 of the Constitution and sections 6 and 10 of the Expropriation Compensation Act. In addition, the judgment considers when earlier Supreme Court rulings may be departed from, and provides certain clarifications on the Supreme Court’s competence in valuation proceedings.

Read the judgment from the Supreme Court (Norwegian only) (PDF)

Key paragraphs: 50, 52, 67, 69, 70, 81, 85, 89, 95, 106, 124 and 125.  

Areas of law: Exproporiation law. Article 105 of the Constitution, sections 6 and 10 of the Expropriation Compensation Act, section 38 of the Valuation Procedure Act. 

Justices: Øie, Webster, Falkanger, Bull, Bergsjø, Bergh, Sæther, Stenvik, Sivertsen, Poulsen, Steen