When land is reserved for a public purpose due to the making or an amendment of a planning scheme, the owner of the land is entitled to seek compensation for injurious affection. This is because the value of the land reserved under a planning scheme may be affected by the existence of the reservation. In a decision handed down on 8 February 2017, the High Court concluded that compensation is only available to the owner at the time of the reservation, setting aside the WA Court of Appeal decision in Southregal Pty Ltd v Western Australian Planning Commission.
Compensation for injurious affection
A landowner is entitled to seek compensation for injurious affection from the responsible authority under section 173(1) of the Planning and Development Act 2005 (WA) (P&D Act). The entitlement arises when land is reserved for a public purpose as a result of the making or an amendment of a planning scheme. This includes land set aside for public facilities such as hospitals, high schools, universities, prisons, utilities for electricity, water and treatment of waste water, and public open space.
In the case of the making or an amendment of a local planning scheme, the responsible authority will be the local government. The WA Planning Commission is the responsible authority in respect of the making or an amendment of a region planning scheme. The responsible authority may also elect to purchase the reserved land in lieu of paying compensation.
There are two circumstances in which a landowner may seek compensation for injurious affection from the responsible authority under the P&D Act. These are:
- The landowner at the date of reservation has a right to claim compensation when the land is first sold; or
- The landowner at the date a development application is made and refused (or granted on unacceptable conditions) has a right to compensation.
Any claim must be brought within 6 months of the event which triggers the entitlement to claim. Once compensation has been paid in respect of the reserved land, no further claim can be made by any party. A notification that compensation has been paid usually appears on the title to the land. In respect of (2) above, the person determining the amount of compensation must be satisfied that the development application was made in good faith.
In the case of a subdivision application which is refused or granted on unacceptable conditions, the same rights to compensation are not available. The WA Planning Commission has statutory power to impose conditions on subdivision approval requiring reserved land to be given up without compensation. Removal of such a condition would only be possible if, on an application for review, the State Administrative Tribunal or WA Supreme Court finds the condition was invalidly imposed.
High Court decision
The respondents in the High Court case were the owners of a parcel of land, part of which had been reserved for public open space under the Peel Region Scheme. They were not registered proprietors at the time the reservation was made. The respondents’ application to develop the land was refused because of the reservation and, as a consequence, the respondents sought compensation for injurious affection from the WA Planning Commission. One of the respondents, Southregal, had purchased its land for $2.6 million and claimed compensation of $51.6 million.
The respondents commenced proceedings in the WA Supreme Court against the WA Planning Commission decision to refuse compensation. Justice Beech of the WA Supreme Court concluded that the respondents were not required to have owned the land at the time of the reservation in order to be entitled to compensation. The decision was upheld by the WA Court of Appeal following an appeal by the WA Planning Commission.
The High Court reversed the decision of the WA Court of Appeal and concluded that where a development application is made by the owner and refused, an entitlement to compensation only arises under the P&D Act if the owner was the registered proprietor at the time of the reservation. This conclusion was reached because section 173(1) of the P&D Act does not suggest that anyone but a landowner at the time of reservation will be entitled to compensation. A purchaser would only be entitled to compensation if, after becoming the owner, there was an amendment to a planning scheme that injuriously affected the purchaser’s land.
Because the respondents did not own the land at the time of the reservation, they were not entitled to compensation.
Implications for landowners and purchasers
Where land is reserved for a public purpose following an amendment to a planning scheme, a landowner is entitled to claim compensation if it lodges a development application in respect of land that is subject to such a reservation and the application is refused or granted on conditions that are unacceptable. However, it is necessary for the owner of the land that is subject to the development application to have been the owner of the land at the time of the reservation. The application must also be made in good faith with the genuine intention of carrying out the development.
Thorough due diligence prior to acquisition will assist purchasers to determine if land is subject to a reservation or other restrictions that may limit development. Any potential impact on land value can then be factored into the purchase price.
The article was written by Charmian Barton, Partner.