In December 2020 we provided commentary (click here to view the previous article) in relation to the Victorian Supreme Court’s decision in Brompton Lodge Pty Ltd (in administration) v Head, Transport for Victoria [2020] VSC 797.
Early this year the claimant appealed this Supreme Court decision, however on 8 November 2021 the Victorian Court of Appeal in Brompton Lodge Pty Ltd v Head, Transport For Victoria [2021] VSCA 302 dismissed the appeal.
The Court of Appeal’s decision is critical for vendors and purchasers of land which is reserved for a public purpose (ie affected by a Public Acquisition Overlay (PAO) under the relevant planning scheme).
‘Loss on sale’ claim
Generally speaking, if land is reserved for a public purpose and the owner sells land for a lower price that they might otherwise expect to receive, they are entitled to seek compensation pursuant to a ‘loss on sale’ claim. However, the vendor must be able to demonstrate that the financial loss was the natural, reasonable and direct consequence of the reservation of the land for a public purpose.
Brompton Lodge
In this case, there was no question that the land was sold at a gross undervalue. The question was whether the loss arose as a result of the PAO or for some other reason.
The Court of Appeal confirmed that:
- the measure of loss must be referenced by the actual sale price, not a hypothetical valuation of the land which is affected by the PAO;
- the commercial circumstances of the sale are critical when analysing whether the financial loss is a consequence of the reservation of the land for a public purpose. In this case, the vendors had prevented themselves from entertaining higher offers from other willing purchasers by entering into a development agreement with another entity. As such, it could not be said that the financial loss arose from the imposition of the PAO; and
- the assignment of ‘loss on sale’ compensation from the vendor to the purchaser was effectively a benefit to the purchaser which was factored into the sale price. Put another way, the purchaser paid more than it might otherwise have paid for the land, in return for the right to the ‘loss on sale’ compensation, which supported the Authority’s argument that the financial loss did not arise as a consequence of the PAO but rather from the commercial circumstances of the transaction.
Recommendations
For landowners and purchasers who are negotiating contracts of sale where part of the land is affected by a PAO, it is critical to consider the Court of Appeal’s decision in Brompton Lodge.
The authors note that, having regard to the value of the claim in this matter, there is the potential for the decision to be appealed to the High Court. We will be monitoring the decision in this regard.
HWL Ebsworth Lawyers regularly provides advice to claimants and others involved in land acquisition and compensation issues. If you wish to discuss the effect of the decision, or any other matter, please contact us.
This article was written by James Lofting, Partner and Alex Gelber, Special Counsel.
