Improved transparency, certainty and fairness is the focus in the Land Acquisition (Just Terms Compensation) Amendment Act 2016 (Amending Act), which has received assent from the Governor and will commence on a day or days to be appointed by proclamation. The Amending Act introduces changes to the Land Acquisition (Just Terms Compensation) Act 1991 (Act) and is part of the Government’s response to the independent review of the Act by David Russell SC in 2014 (Russell Review) and the subsequent citizen-focused Housing Acquisition Review undertaken by Customer Service Commissioner Michael Pratt AM earlier this year (Housing Acquisition Review).
The Government released its response to both of these reports on 18 October 2016 (Government Response), which set out a number of proposed legislative, administrative and operational changes in order to ‘strike a balance between the property rights of land owners and the public good derived from essential public infrastructure’.
Overall, the changes proposed by the Amending Act provide longer timeframes for consultation, and provide landowners with additional rights, with the aim of increasing transparency and fairness in the land acquisition process. The key changes are set out below:
- Six-month negotiation period prior to compulsory acquisition
The Amending Act introduces an obligation for an acquiring authority to make a genuine attempt to acquire land by agreement for at least 6 months before taking any steps to acquire the land by compulsory acquisition. This amendment is consistent with the recommendation of Mr Russell, who noted that both acquiring authorities and landowners had suggested that procedures were needed to encourage and facilitate bone fide negotiations for an agreed acquisition price. Mr Russell suggested that a minimum of six month period struck an appropriate balance between providing landowners with enough time to instruct advisors, receive advice and conduct negotiations, whilst also recognising that acquiring authorities cannot be expected to engage in protracted negotiations conducted at a leisurely pace.
There are a number of issues for acquiring authorities:
During the 6-month period the acquiring authority will be required to make a genuine attempt to negotiate. Unsurprisingly, there is not a corresponding obligation on the landowner. An authority may be required to expend time and resources to negotiate with a landowner that does not genuinely intend to reach agreement. There are no real opportunities to abridge that period other than with the Minister’s approval (s10A(4)) or the agreement of the owner (s10A(3)).
Section 33 of the Act provides that non-compliance with some pre-acquisition procedures in Part 3 of the Act does not invalidate the acquisition once it has occurred:
Once land has been acquired by compulsory process under this Act, the validity of the acquisition is not affected by:
(a) a failure to comply with any requirement of this Part relating to the giving of notice of the proposed acquisition, or;
The difficulty is that this protection only applies to a failure to comply with a requirement relating to the giving of notice of the proposed acquisition. Section 10A(2) says that there must be a 6-month period in which there is a genuine attempt to acquire by agreement before notice of the proposed acquisition can be given. The question that arises is whether the requirement to genuinely attempt to negotiate is a requirement that relates to the giving of notice. If not then the consequence is that the protection afforded by s33 will not be available. A dispossessed and disgruntled land owner may be entitled to have the acquisition set aside despite s33.
The concept of what is a genuine attempt is not discussed in the Amending Act. The concept is almost certain to be contentious from the perspective of a land owner who objects to the acquisition.
The proposed minimum negotiation process will not apply to an acquisition of Crown land or an acquisition from an owner who cannot be located or who expressly declines to negotiate.
The minimum negotiation period will also not apply to certain subsurface acquisitions, namely:
- an acquisition of easements, or rights to use land under the surface for the construction or maintenance of works;
- an acquisition of a stratum underneath the surface for the construction of a tunnel.
These concepts perhaps reflect the drafting of s62 of the Act that provides that compensation is not payable for certain sub-surface acquisitions, and it appears clear enough that the intent is that the references to construction and maintenance also imply use. That is, the fact that a tunnel is to be constructed and used and not just constructed does not mean that the obligation to negotiate is triggered.
It also seems clear that the acquisition of any part of the surface will trigger the negotiation obligation even if the part of the surface that is acquired is very small in comparison to the subsurface land acquired.
The concept of what comprises the surface will no doubt be debated – and be worthwhile debating if a failure to comply with s10A can potentially invalidate the acquisition.
- Changes to compensation claim procedures
The Amending Act introduces a number of changes to the procedures under the Act for compensation claims. These changes include:
- the timeframe for the acquiring authority to provide a compensation notice to a landowner is to be extended from 30 to 45 days;
- landowners can provide a claim for compensation directly to the Valuer-General, rather than the acquiring authority. Minister Gay noted that when negotiations between a landowner and the authority are not successful, it may be the landowner’s preference to deal directly with the Office of the Valuer-General and, in the interests of transparency and independence, the landowner should be able to provide information directly to the Valuer-General;
- acquiring authorities are required to provide the Valuer-General with a list of the issues relevant to a compensation determination within 7 days. This is designed to enable the Valuer-General to have expedited access to all necessary information on which to base the compensation determination. For relatively simple acquisition and valuation matters this may not be too onerous. However, for more complex matters such as the acquisition of land used for a business the requirement may be onerous. This is particularly so where the owner of the business has all of the information relevant to how its claim is structured and calculated and has not provided this to the acquiring authority. Further, the provision of this list might limit the acquiring authority’s ability to raise other arguments at a later date as more information becomes available; and
- the Valuer-General is to provide the compensation determination, including a land valuation report, directly to the former landowner at the same time as it is provided to the acquiring authority. This is intended to increase transparency and enable the landowner to receive information directly from the Valuer-General, rather than through the acquiring authority.
- Increase of the maximum payment for ‘disadvantage resulting from relocation’ to $75,000
Currently under the Act, a land owner is entitled to a maximum of $27,235 in compensation in respect of ‘solatium’; which is defined to mean compensation for non-financial disadvantage resulting from the necessity of the person to relocate his or her principal place of residence as a result of the acquisition. The Amending Act renames compensation for ‘solatium’ as compensation for ‘disadvantage resulting from relocation’ and increases the maximum amount payable to $75,000 (increased annually in line with CPI and with the ability for the amount to be increased under the Regulations). This increased amount is higher than the $50,000 recommended in the Russell Review.
In his second reading speech, Minister Gay stated that this increased amount will also apply retrospectively to former residential landowners and tenants whose acquisitions were settled on or after 26 February 2014, the date the Russell Review was provided to the Government.
- Right of review for unsuccessful hardship applications
Division 3 of Part 2 of the Act currently enables owner-initiated acquisition in cases of hardship. This Division was inserted in 2006 to set limits on owner-initiated acquisitions. The Division currently applies if in the opinion of the acquiring authority an owner of land which is designated for acquisition will suffer ‘hardship’ if there is delay in the acquisition of the land. Hardship is defined under the Act to occur if the owner is unable to sell the land, or is unable to sell the land at market value, because of the designation of the land for acquisition and it has become necessary for the owner to sell the land without delay for pressing personal, domestic or social reasons or in order to avoid the loss of (or substantial reduction in) the owner’s income.
Under the Act, there is currently no mechanism for the review of unsuccessful hardship applications. The Amending Act introduces the ability to submit a review of an unsuccessful hardship application to the Secretary of the Department of Finance, Services and Innovation, who will refer the application to an independent reviewer appointed by the Minister to undertake a merits review of the application. In the second reading speech for the Amending Act, Minister Gay indicated that an independent panel would be established to undertake these reviews.
Further information regarding making applications, the appointment of reviewers and the determination of applications for review may be provided in the regulations.
Notably the decision of the reviewer is final and must be given effect to by the relevant authority of the State. There are no appeal rights and arguably no right to seek judicial review of this determination.
- Reinstatement costs in respect of land used for limited specific purposes
When determining the amount of compensation to which a person is entitled, regard must be had only to matters specified in s 55 of the Act. One of those matters is ‘the market value of the land on the date of its acquisition’. Market value is defined under s 56 of the Act. The Amending Act amends s 56 to specify that if:
- land is used for a particular purpose and there is no general market for land used for that purpose; and
- the owner genuinely proposes to continue to use other land for that purpose after the acquisition,
the market value of the land is taken to be the reasonable cost to the owner of equivalent reinstatement in some other location (offset by the compensation payable for disturbance and by likely improvement in the owner’s financial position because of the relocation).
This amendment is a significant departure from the position under the Act where owners were not compensated on a reinstatement basis. However, it is consistent with a number of other jurisdictions that allow for reinstatement costs in certain circumstances. Notably the provision allows an acquiring authority to argue betterment.
Interesting questions prompted by this amendment include:
- in what circumstances can it ever be said that there is no “general market” (whatever that is)?
- is this a subjective or objective test. That is, does the section apply because the current owner cannot sell the land because of the characteristics or legal nature of the land owner? For example is a park that is owned by a reserve trust land for which there is no general market for land used for that purpose because the reserve trust is not able to sell its land or because the use as a park in anybody’s hands would mean there is no general market?
- given that market value is not necessarily determined on the actual use of the land but the highest and best use, how is a decision to be made as to when to value under s56(3) or on the traditional basis of highest and best use? Who makes that election?
- what is meant by the words ‘used for a particular purpose’ as opposed to the phrasing of s59(1)(f) ‘actual use’ or s61 ‘potential to be used for a purpose other than that for which it is currently used’?
- what is meant by the words ‘improvement in the owner’s financial position because of the relocation’ when this is the first point in the section where the word ‘relocation’ is used. Does it mean the betterment by reason of the reinstatement? That is, are the words ‘reinstatement in some other locations’ to be read as being ‘relocation’ for this purpose?
The proposed amendment rejects the recommendation in the Russell Review, to provide for compensation on a reinstatement basis in relation to dwelling houses generally – on the basis that reinstatement costs should be addressed by market value compensation (unless the market value is not able to be ascertained).
- Exemption from paying rent for a person’s principal place of residence for 3 months after acquisition
Section 34 of the Act currently enables a person to remain in occupation of their principal place of residence or principal place of business for 3 months after it has been compulsorily acquired, on such reasonable terms as are determined by the acquiring authority (including terms as to the rental to be paid). The Amending Act amends s 34 to provide that no rent is payable in relation to a person’s place of residence for 3 months after acquisition.
- Former owner has first right of refusal to re-purchase acquired land if not used for public purpose
The Amending Act introduces a requirement that, if practicable, a former owner is to be offered the opportunity to re-purchase acquired land if the authority proposes to subsequently dispose of that land because it is no longer required for the public purpose for which it was acquired. The land must be offered for sale to the former owner at its market value at the time the re-purchase offer is made.
The obligation to first offer the land for sale to the former owner does not apply if:
- more than 10 years has passed since the acquisition;
- the authority has made substantial improvements to the land;
- the land is Crown land; or
- the land is proposed to be disposed of to another State authority for a public purpose.
- the requirement applies to any acquisition under s5 of the Act – including by agreement – and to any disposal of land including for example a lease;
- the requirement applies where part of a parcel of land is left over after a project has been delivered;
- while s 56 of the Act provides how market value must be determined for the purposes of the Act, a different definition is included in s71A(6);
- the section creates a statutory right to acquire the land which right is not registered. Sub-section 71A(5) provides that if the land is vested in another person in contravention of s71A then the vesting is not affected by the contravention. A dispossessed owner will therefore need to assert their rights before the disposal occurs and restrain any contravention or they risk losing the right to re-acquire the land;
- the details of how to locate the former owner and to make offers etc. will presumably be included in the regulations.
The regulations may make provision for or with respect to offers for sale, the review of decisions of authorities and other matters arising under this new proposed section.
- Transitional provisions
The transitional provisions seek to say how the amendments shall apply to existing and proposed acquisition processes. Generally the intent appears to be that the amendments should apply to acquisitions that have not been completed at the date that the amendments commence operation. The difficulties with this include:
- clause 7 of the transitional provisions relates to s10A and applies to ‘any acquisition by compulsory process’ that is ‘made’ after the commencement of s 10A. So an acquisition process that has commenced by service of a PAN but has not proceeded to publication of the acquisition notice is now caught by s10A. Applied literally this means that the PAN cannot have been issued unless there was 6 months of negotiation. Obviously that is not the intent but the clause is worded to allow the argument to be made. Ideally, the clause should be redrafted so that new s10A only applies to a PAN that is served on a date that is 6 months following the date on which the Act was passed;
- clause 9 of the transitional provisions provides that the new test for market value on a re-instatement basis applies to ‘compensation for and acquisition by compulsory process made’ after the commencement of the subsection. Presumably the intent is that the provision applies to acquisitions that are completed by the publication of an acquisition notice after the date the subsection commences rather than to compensation that is made after that date. Given that the word ‘made’ does not appear in transitional cl 10 there is some ambiguity about this.
The Amending Act has received asset and will commence on a day or days to be appointed by proclamation. Once the Amending Act commences, acquiring authorities will need to factor an additional 6 months into their acquisition timelines. Acquiring authorities should also be aware that the legislative changes proposed by the Amending Act are to be supported by administrative and operational changes as summarised on p 6 of the Government response).
 Russell, D (February 2014), Review of the Land Acquisition (Just Terms Compensation) Act 1991, pg 35, available at: https://www.finance.nsw.gov.au/sites/default/files/David_Russell_SC_JTC_Review_Report.pdf
 Increased from $15,000 by notification of the Minister in the Government Gazette.
This blog post was prepared by Sophie Jacobs with the assistance of Patrick Ibbotson.