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«14th Pacific Rim Real Estate Society Conference Kuala Lumpur, Malaysia 20 - 23 January, 2008 Topic: How Australia deals with land acquisition ...»

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14th Pacific Rim Real Estate Society Conference

Kuala Lumpur, Malaysia

20 - 23 January, 2008

Topic: How Australia deals with land acquisition compensation for land subject to a

leasehold title

Author: Nelson Chan

Affiliation: School of Economics & Finance, College of Business

University of Western Sydney

Contact: n.chan@uws.edu.au

Keywords: freehold, leasehold, land acquisition, compensation


In Australia, the majority of private urban land is under freehold title. However, all land in Australian Capital City (ACT) and a small portion of urban land in various States and Territory are under leasehold title. In addition, large tracts of rural land throughout Australia are held under Crown leases. The government at Commonwealth, State and Territory level has passed separate land acquisition laws to deal with compensation issues.

While the compensation principle for assessing the value of freehold land is relatively straightforward and consistent throughout the country, the compensation principle for assessing the value of leasehold land is different in different states and territories.

This paper aims at studying the different legal provisions for compensating the value of leasehold land in the country. It also looks at whether leasehold landowners are treated fairly.

It is found that although there are different provisions in the various state and territory land acquisition compensation statutes, the spirit of compensation is on the whole the same throughout the country. Leasehold landowners are basically treated fairly when their land is acquired by the authority.

Introduction Land tenure refers to” the manner in which a person held or owned real property” (MSN Encarta, 2007). The land tenure system in a country governs the traditional or legal rights that individuals or groups have in land and the resulting social relationships among the people (Kuhnen, 1982). Land tenure system exists in different forms. In countries where private land ownership is allowed and the rule of law is followed, private property rights are protected by law and cannot be violated by the government or individuals. The government, however, in relation to the carrying out developments for public purpose, may compulsorily take land from private owners by way of ‘acquisition’ or ‘resumption’ according to the provisions of the law.

Compulsory land acquisition is the right and action of the government to take property not owned by it for public use. In the United States, this right is known as ‘eminent domain’, the action is known as ‘condemnation’ (Eaton, 1995). In Canada, the United Kingdom, and Australia, the right and action are known as ‘expropriation’ (Boyce, 1984), ‘compulsory purchase’ (Denyer-Green, 1994), and compulsory acquisition or resumption’ (Brown, 2004, Hyam, 2004, Jacobs, 1998), respectively. In each of these countries, compulsory acquisition of private property by the government is authorised by legislation.

In Australia, private land is owned under freehold or leasehold titles. There are 6 State and 2 Territory and 1 Federal governments in Australia. Each of them has passed law to govern the compensation principles for compulsory land acquisition. The compensation principles under these laws are not entirely the same. While leasehold land title is not as popular as freehold title, it is not unimportant given that the whole of Australian Capital Territory (ACT) is under a leasehold land tenure system.

The aim of this paper is to examine the different compensation principles for the compulsory acquisition of leasehold land in Australia to see if leasehold landowners are treated fairly. The compensation principles in Hong Kong are used to contrast the Australian ones. It is well known that Australia was a former British colony and has a common law legal system. Hong Kong was also a former British colony and has a common law legal system. What is important is that Hong Kong has a leasehold land tenure system. The compensation principles in Hong Kong, like Australia, are developed from the early compensation principles in Britain;

they are thus good comparables for contrasting the Australian ones. A conclusion is provided at the end of the paper.

Overview of land tenure system in Australia Being a former British colony, Australia has inherited common law and land tenure system from Britain. Private land in Australia may be held under freehold or leasehold titles. Land may also be held subject to native title, i.e. the traditional land rights of the Aboriginal people resurrected by the High Court’s decision in the case of Mabo and Others-v-The State of Queensland (No2) (1992) 107 ALR 1 (Sutton, 1996, Van Hattem, 1997). Table 1 below shows the category of private land in the country.

–  –  –

Source: Geoscience Australia, 2007 Australian Capital Territory (ACT) is the only jurisdiction in the country that has an exclusive leasehold land tenure system (Forster, 2000, ACTPLA, 2005). Land is generally disposed of by the government on 99-year leases. Subject to the payment of a fee, lessees will be granted a new lease towards the end of the lease term if the land is not required by either the Territory or Commonwealth for public purposes (ACTPLA, 2005). Under ss. 171 & 172 of Land (Planning and Environment) Act 1991 (ACT), if the term of a further lease (residential and leases other than residential or rural) is not longer than the term of the existing lease, the fee payable must not be more than the cost of granting the lease.

While freehold land tenure system prevails in other jurisdictions, the States and Territory governments may also dispose of surplus Crown land by long leases or perpetual leases. In New South Wales, perpetual lease holders have a right under the Crown Lands (Continued Tenures) Act 1989 to convert perpetual leases into freehold titles subject to the payment of a purchase price.

Overview of Australian compensation principles In Australia, compensation for compulsory land acquisition is not based on common law. This fact has been verified in various court decisions including Kozaris v Roads Corporation [1991] 1 VR 237 at 239, in which Gobbo J commented that “compensation for compulsory land acquisition is a matter of statutory entitlement and does not rest on common law”. The compensation principles are written in the statutes and are continuously being fine-tuned by court rulings.

The principle of ‘just terms’ compensation is provided in s. 51(xxxi) of Australian Constitution which provides that the Commonwealth may only acquire property on ‘just terms’). Just terms compensation is also enforced in NSW under the Land Acquisition (Just Terms Compensation) Act 1991 (Brown, 2004, Commonwealth of Australia, 1980, Hyam 2004, Jacobs, 1998). However, the meaning of ‘just terms’ is not defined in the Constitution or any other legislation. In general, ‘just terms’ compensation is assumed to be achieved if the assessment is made according to the ‘value to the owner’ principle.

The ‘value to the owner’ compensation principle is widely applied in Australia. The High Court explained in the case of Nelungaloo Pty Ltd v Commonwealth (1948) 75 CLR at 571 that this compensation principle “prima facie means recompense for loss, and when owner is to receive compensation for being deprived of real or personal property his pecuniary loss must be ascertained by determining the value to him of the property take from him. As the object is to find the money equivalent for the loss or, in other words, the pecuniary value to the owner contained in the asset, it cannot be less than the money value into which he might have converted his property had the law not deprived him of it”. The objective of this principle is to ensure that the dispossessed owners are fully indemnified for the loss of their land (Commonwealth of Australia, 1980, Rost & Collins, 1984).

The ‘value to the owner’ principle acknowledges that compensation is more than the market value of the land taken. In Turner v Minister for Public Instruction (1956) 95 CLR 245 at 264, Dixon CJ commented that “[c]ompensation should be the full monetary equivalent of the value to [the owner] of the land. All else is subsidiary to this end.” Beaumont J in Leppington Pastoral Co Pty Ltd v Commonwealth (1997) 94 LGERA 68 at 88 pointed out that “[i]n this country, the land acquisition statutes have not only retained the English concept of the market value of land, but also have gone further: our legislation provides for other factors to be taken into account which an ordinary seller of land would not be able to obtain from an ordinary buyer; so that it is well understood here that the dispossessed owner may be entitled to a claim for ‘disturbance’ or a ‘solatium’ over and over the ordinary sale price of land.” The ‘value to the owner’ principle has been incorporated in the various compensation statutes in Australia. There are 9 compensation statutes in Australia and the relevant compensation

principles are provided in:

1. Lands Acquisition Act 1989 (Commonwealth): ss. 55 -58;

2. Land Acquisition (Just Terms Compensation) Act 1991 (NSW): ss. 55 - 61;

3. Land Acquisition and Compensation Act 1986 (VIC): ss. 40 - 45;

4. Acquisition of Land Act 1976 (QLD): s. 20;

5. Lands Acquisition Act 1994 (ACT): ss. 45 -52.

6. Land Administration Act 1997 (WA): s. 241;

7. Land Acquisition Act 1969 (SA): s. 25;

8. Land Acquisition Act 1993 (TAS): ss. 27 - 33; and

9. Lands Acquisition Act 1978 (NT): Sch. 2.

In regard to which compensation statute is to be used for a particular land acquisition case, it depends on the background of the acquiring authority. If the authority is a Commonwealth government agency, then the Commonwealth compensation statute applies. If it is a State or Territory government agency, then the respective State or Territory compensation statute applies.

The heads of compensation under the principle of ‘value to the owner’ are known as ‘matters’ for consideration in these statutes. While the relevant ‘matters’ are described differently in the

statutes, they generally include the following items:

1. Market value of the interest taken;

2. Special value due to ownership or use of the land taken;

3. Severance loss to retained land;

4. Disturbance loss or consequential loss;

5. Solatium; and

6. Disregard any increase or decrease of the property value due to the purpose of the acquisition.

Item 6 actually contains 2 ‘matters’ for consideration. Any ‘increase’ of the property value due to the purpose of the acquisition means ‘betterment’ or ‘value enhancement’ due to the authority’s scheme. If the acquired land enjoys betterment or value enhancement due to the authority’s scheme, it has to be deducted from the compensation. In contrast, any ‘decrease’ of the property value due to the purpose of the acquisition is otherwise known as ‘injurious affection’ by the courts and text books. It is a head of compensation claim arising from a partial land acquisition (Brown, 2004, Hyam 2004, Jacobs, 1998).

Similar to compensation statutes in other common law countries or jurisdictions, Australian statutes allow compensation for market value of the land taken, severance and injurious affection value losses to any retained land and consequential losses. In addition, there is compensation for special value loss and solatium as well. These 2 heads of compensation may not be available in other countries and jurisdictions.

The special value of land is the additional financial advantage above market value. Special value is described differently in the compensation statutes. It was explained by Callinan J in Boland v Yates Property Corp Pty Ltd (1999) 74 ALJR 209 at 269 as “the value to the owner over and above [the land’s] market value. It arises in circumstances in which there is a conjunction of some special factor relating to the land and a capacity on the part of the owner exclusively or perhaps almost exclusively to exploit it. … There will in practice be few cases in which a property does have a special value for a particular owner. Obviously neither sentiment nor a long attachment to it will suffice. The special quality must be a quality that has an economic significance to the owner. A possible case would be one in which, for example, a blacksmith operates a forge in the vicinity of a racetrack on land zoned for residential purposes as a protected non-conforming use, the right to which might be lost on a transfer of ownership or an interruption of the protected use. Such a property will have a special value for its blacksmith owner, and perhaps another blacksmith who might be able to comply with the relevant requirements to enable him to continue the use but no one else.” Solatium is not a compensation for sentiment or attachment to the land. It is a sum of money to make up for the disruption, nuisance and inconvenience suffered by the dispossessed owner who has to relocate due to the land acquisition. To a layman, the meaning of solatium can be found in the Shorter Oxford Dictionary as “a sum of money paid over and above the actual damages as solace for injured feelings”. In s. 60(1) of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW), it is defined as “compensation to a person for nonfinancial disadvantage resulting from the necessity of the person to relocate his or her principal place of residence as a result of the acquisition”. In general, it is the compensation for residential owners who have to relocate from their principal place of residence due to the land acquisition. The amount of solatium payment differs under the various compensation statutes. For example, under s. 61 of Lands Acquisition Act 1989 (Commonwealth), the amount is $10,000 adjusted annually according to CPI. Under s. 60 of Land Acquisition (Just Terms Compensation) Act 1991 (NSW), the amount is a maximum of $15,000 or such higher amount notified by the Minister. In Victoria, s. 44(1) of Land Acquisition and Compensation Act 1986 provides that solatium payment could be up to 10% of the market value of the land taken.

Apart from the statutory compensation principles and court decisions, the attitude of the courts is also important in determining compensation for the dispossessed landowners.

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