When people in Australia think of the phrase 'compulsory acquisition', firstly they may think of the movie "The Castle" and secondly, they hope that they will never have to lose their "castle" to the Government for any public purpose. The reality of compulsory acquisition is that it is not only your castle that is at risk, but in many cases, it could be your livelihood and your business.
Under section 37 of the Land Acquisition (Just Terms Compensation) Act 1991 ("LAJTCA") it is stated that:
"An owner of an interest in land which is divested, extinguished or diminished by an acquisition notice is entitled to be paid compensation in accordance with this Part by the authority of the State which acquired the land."
The operative words in this section are "owner of an interest in land", meaning that it is not only landowners that are entitled to compensation in the event of compulsory acquisition but also in the event there are other interests in land such as a lease over the land for a business. This means in circumstances where there is a lease over land which is affected by compulsory acquisition, the market value of the land may be further affected due to the impact it has on the owner as lessor, as well as having an impact on the lessee in their ability to operate their business on the land due to the loss of part of the land or diminution of the value of the business. Please see Transport for NSW v Eureka Operations Pty Ltd [2022] NSWCA 56.
Such Interests in Land can take various forms. In the matter of Olde English Tiles Australia Pty Ltd v Transport for New South Wales [2022] NSWCA 108, the Courts held the requirement for there to be a written instrument between the parties (i.e. Lessor and lessee) rather than relying on a "personal relationship" in order to establish an interest in land capable of being extinguished, for those operating a business over affected land.
In this matter, the then Roads & Maritime Service RMS compulsorily acquired a parcel of land on Parramatta Road, Camperdown. The owners of the land were also sole directors and shareholders of a business on the land, Olde English Tiles Australia Pty Ltd. They occupied the premises under a bare licence (which means with the express or implied permission of the owner with no written agreement in place). In the initial matter, Duggan J awarded the affected owners' compensation for the market value of the acquired land, valuation and legal costs.
The affected owners did not claim their right of occupancy had any market value but claimed compensation under a loss attributable to 'Disturbance'. Duggan J dismissed this on the basis that it did not have a compensable interest in the acquired land as they held a licence terminable at will by the registered owners. On appeal, the Court of Appeal held the following:
"(1) The definition of "interest" in land in s 4 must be construed in its statutory context. A primary object of the Land Acquisition Act is to guarantee compensation at "not less than the market value of the land", which assumes that a compensable interest has market value. Secondly, the Land Acquisition Act uses the language of 'ownership' in relation to acquired land. Thirdly, the source of a "privilege over, or in connection with, land" must be in a legally enforceable instrument or arrangement for it to be divested, extinguished or diminished by the acquisition. If the privilege is not legally enforceable and is not extinguished by acquisition, it is not a compensable interest. Fourthly, the right to obtain compensation for loss attributable to disturbance is contingent upon the holder having a right to receive compensation for the market value of the interest.
(2) The finding that a bare licence terminable at will is not an interest in land under the Land Acquisition Act is consistent with existing authorities. The reasoning in those cases was not clearly wrong but rather correct in principle: they should not be overruled.
(3) The Land Acquisition Act identifies interests in land for the purpose of providing for payment of compensation upon compulsory acquisition. A finding that a right of occupancy terminable at will is not an interest in land for the purposes of the Act is consistent with cases finding that such interests are not compensable."
On the basis of this decision, the affected landowners were not entitled to compensation relating to the effect the acquisition had on the operation of their business, Olde English Tiles.
This is a significant decision which has wide ranging affects, particularly as there are many landowners that own the land while also operate a business on said land without the need for a legal instrument to be in place due to the fact it is their own land that they are using for that business.
On the basis of the above authority, it is imperative landowners and lessee's ensure that legal instrument is in place reflecting the value to each party, as it may have a significant impact in the event their property and business is impacted by compulsory acquisition.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
