Last week, a committee of Legislative Council members issued their long-awaited report into the compulsory acquisition of land for major projects1. The committee, which was comprised of members of the major political parties, made a number of findings and multiple recommendations following an extensive inquiry in which it received submissions, held public hearings and conducted site visits.
The catalyst for the inquiry was years of disquiet about the compulsory acquisition process, complaints about the conduct of negotiations with landowners, how ‘market value’ is determined for land being acquired, and the rise of valuations by up to 70% from first to final offer.
Although less than 20% of acquisitions by State and local government authorities take place by compulsory process, the committee found that the acquisition process requires sweeping reforms to be fairer, more transparent, and to compensate dispossessed landowners more appropriately.
The purpose of this article is to highlight some of the commercial recommendations made by the committee for reforms to be made to the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act).
How should the mandatory negotiation process be conducted?
Acquiring authorities must make a genuine attempt to acquire land by agreement for at least 6 months before giving landowners a proposed acquisition notice. The Just terms Act mandates this requirement under section 10A in all but a number of specified cases, but it fails to prescribe how the negotiations should be structured.
One of the key recommendations made by the committee after receiving multiple submissions on the issue was that the NSW Government should amend section 10A to ensure that:
- acquiring authorities are obliged to negotiate genuinely;
- letters of offer are provided soon after the negotiation period commences, with a reasonable amount of information provided to affected landowners on the basis and breakdown of offers;
- acquiring authorities should provide partial upfront payments to affected landowners for experts’ report and legal fees;
- acquiring authorities should ensure the independence of valuers and where conflicts of interest arise draw them to the attention of landowners; and
- landowners can access an independent mediator if required.
One of the submissions received called for improvements to section 10A by requiring acquiring authorities to make an offer of compensation within 28 days of issuing the opening letter to ensure that the full 6 month period can be utilised.
Recommendations of this nature are difficult to contradict, not only because they are fair, but also when you consider that one of the stated objects of the Just Terms Act is to encourage the acquisition of land by agreement instead of compulsory process2. This object cannot be achieved without helpful, consistently applied and transparent parameters being applied to the negotiation process.
What should just terms compensation be?
Market value or reinstatement?
The main component of the compensation package payable to landowners is the ‘market value’ of the land at the date of its acquisition3.
In the case of one major acquisition, the committee received many concerns about compensation offers increasing by over 70% from the first to last offer and the use of market value assessments resulting in unjust compensation, contrary to the spirit and requirements of the Just Terms Act4.
After hearing various concerns raised, the committee found that market value does not necessarily guarantee that the landowner will receive compensation at a level which would allow the purchase of a similar property in a similar location. Compensation of this nature is referred to as ‘reinstatement’.
Reinstatement is not the basis for assessment of market value as currently provided under the Just Terms Act5. The committee recommended that the NSW Government should urgently amend the basis for determining compensation under the Just Terms Act to introduce a reinstatement approach to the calculation of market value. If this occurs, then all Australian jurisdictions will allow for reinstatement to be considered in determining market value compensation.
Uplift
In addition to reinstatement, the committee expressed concern that the current basis for determining market value does not capture the uplift or increase in value a property might receive due to investment in infrastructure resulting in ‘market value’ based compensation almost certainly disadvantaging landowners.
The issue of uplift did not find its way into the committee’s recommendations, but after receiving submissions on the issue including from the Law Society of New South Wales, it will be interesting to see if more attention is given to introducing this concept in determining just terms compensation payable to landowners.
Hardship applications
As expected, the COVID-19 crisis has led to a spike in owner-initiated acquisitions on the basis that landowners would suffer hardship through a delay in the acquisition of the land where it has been reserved for a public purpose.
The consideration of ‘hardship applications’ made its way into the report as the Just Terms Act currently provides that compensation for hardship applications ‘need not’ take into account payments for loss attributable to disturbance, severance, and disadvantage resulting from relocation (formerly known as ‘solatium’)6.
The Court of Appeal considered this issue in the case of Hoy v Coffs Harbour City Council [ 2016 ] NSWCA257 where it held that the words ‘need not’ confer a discretion, but that provisions of this nature should be construed generously and liberally because they are protecting the interests of those whose property rights have been damaged, in this case by the land being designated for public purposes7.
The decision of the Court of Appeal in Hoy has been applied by subsequent courts, but the report did not raise this critical point, so it appears that acquiring authorities may not be following its principles or that landowners’ lawyers are unaware of the decision.
Following on from this, the committee made the recommendation that the NSW Government should act to ensure that the eligibility and quantum of solatium payments associated with land acquisitions initiated for hardship is adequate and that access to those payments is sufficiently broad and includes compensation for unreasonable delays. Statutory reform in this regard would be welcome because it would bring the Just Terms Act in line with judicial authority and provide a clear basis for the determination of compensation in hardship applications.
Concluding remarks
The need for government authorities to acquire land and deliver major infrastructure projects in a timely manner and the requirement for landowners to be compensated appropriately often results in tensions.
Measures which can be implemented to reduce the tension and facilitate the process can only be welcome and beneficial to all concerned.
This article was written by Peter Barakate, Partner.
1Legislative Council Portfolio Committee No. 6 Acquisition of land in relation to major transport projects, Report 17 August 2022;
2Section 3(1)(e);
3Section 55(a);
4Section 54(1);
5Section 56;
6Section 26; and
7At [54] and [55].
