Compulsory Acquisition of Land by WestConnex

Compensation to business – compulsory acquisition of land – Westconnex

This article examines what compensation is available to business in cases of compulsory acquisition of land, such as Westconnex.

In a previous article, we looked at the matters that are taken into consideration when assessing compensation for the compulsory acquisition of land for major public infrastructure projects such as WestConnex, Sydney Metro and Sydney Light Rail.  In September 2016, the Finance Minister Dominic Perrottet revealed in a budget estimates hearing that 1,713 properties had been acquired for infrastructure projects in the last four years and that 111 properties are yet to be acquired for the WestConnex project.

The properties to be acquired include private homes as well as business premises.  The compensation available to business owners in occupation of properties which are compulsorily acquired involves different considerations to those that concern the owners of private homes.

Interest in land

Under section 37 of the Land Acquisition (Just Terms Compensation) Act 1991 (“the Act”) owners of land are entitled to be paid compensation if the land is compulsorily acquired.  An owner of land is defined in the Act to mean any person who has an interest in the land.

The definition of “land” includes any interest in land and “interest” in land is defined in section 4 of the Act to mean:

  • a legal or equitable estate or interest in the land, or
  • an easement right, charge, power or privilege over, or in connection with, the land.

It is desirable but not essential that there be a formal lease in place because to a large extent, the amount of compensation payable under the Act will depend on the terms of the lease.  Tenants at will or tenants holding over after the expiration of the term of a lease, however, will have a sufficient interest in the land to be eligible for compensation. In George D Angus Pty Limited v Health Administration Corporation [2013] NSWLEC 212, the Land and Environment Court found that a statutory tenancy at will created by section 127 of the Conveyancing Act 1919 amounted to both an interest in the land within paragraph (a) of the definition of interest in land and a right or privilege within paragraph (b) of the definition.

A lessee’s interest under a lease of land and the interest of the lessee running a business under the lease are interests for which compensation may be due upon the compulsory acquisition of the land.

Assessing compensation

 Under section 55 of the Act, the matters to be taken into consideration in assessing compensation payable to a lessee running a business under a lease include the market value of the lessee’s interest in the land, the special value of the land to the lessee, loss arising from the land being severed or divided as a result of a partial acquisition and disturbance costs incurred by reason of the acquisition.  For more detail about these heads of compensation please see our website article titled “Assessing compensation when land is acquired by WestConnex, Sydney Metro and Sydney Light Rail”.

Compensation available to businesses

 If a business is being conducted on the land to be acquired, the compensation payable to the proprietor of the business is assessed on the basis of a loss attributable to disturbance under section 55(d) of the Act.  Compensation is assessed on the basis of either relocating or extinguishing the business.

Relocating the business

 The losses that may be taken into account when a business is relocated include:

  • loss of profits suffered in the period of the relocation and reinstatement of the business at the new site
  • costs of advertising the new premises
  • costs of notifying clients of the relocation
  • removal expenses
  • storage costs
  • costs of finding and outfitting a new site
  • stock losses
  • electricity and telephone reconnection fees
  • the difference between the rent under the current lease and any higher market rent of the premises at the new site
  • professional fees associated with the relocation such as project management and interior designer fees

 

Extinguishing the business

When compulsory acquisition of land results in the business being extinguished, compensation is assessed in accordance with the market value of the business on a walk in walk out basis.  Business owners need to retain a valuer experienced in business valuations to prepare a report on the market value of the business.  The business will be valued as a going concern with no liability for GST.

The items which may be taken into account in assessing the market value of a business include stock losses on a forced sale of stock and the value of plant and equipment.

Continued occupation of land that is compulsorily acquired

Under section 34 of the Act, a lessee running a business on land that is compulsorily acquired is entitled to continue to occupy the land for a period of three months after the date of acquisition.  The responsible Minister may, however, require immediate vacant possession in appropriate circumstances.

The acquiring authority is entitled to impose reasonable terms including rent for the lessee’s continued occupation of the land.

Conclusion

The entitlement of business owners to compensation arising from the compulsory acquisition of the land on which they operate their businesses is complex.

Foulsham & Geddes are able to advise business owners as to their entitlements under the Act to receive compensation for the compulsory acquisition of the land.  Business owners will be entitled to compensation for their legal fees and valuation fees reasonably incurred in connection with the compulsory acquisition of the land.