Australia: A tenant's right to compensation on resumption of land: the devil's in the detail

When land is resumed by a government authority, the "estate and interest" of every person entitled to the whole or part of the land is converted into a right to claim compensation.

However, the entitlement to compensation is not always certain, and in relation to tenanted land depends on the terms of the lease agreement. A Land Appeal Court of Queensland decision and a recent New South Wales Land and Environment Court case highlight the importance of ensuring that the terms of a lease accurately reflect the agreement between the parties when documentation is prepared or amended.

Entitlement to compensation for resumption of land

In order to claim compensation under the relevant legislation, a tenant must demonstrate that it has an "interest" in the land being resumed.

An "interest" in land is defined in the Acts Interpretation Act 1954 (Qld) as "a legal or equitable estate in the land... or, a right, power or privilege over, or in relation to, the land..."

Similarly, in New South Wales, an "interest" in land is defined in the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) as "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."

The NSW legislation gives the owner of an interest in land resumed by a compulsory process, an entitlement to compensation, and aims to ensure that any compensation is on just terms.

Recent Qld case

In Moreton Bay Regional Council v Mekpine Pty Ltd & Anor [2013] QLAC 5, the Land Appeal Court of Queensland recently considered a situation where a shopping centre was located on two adjacent lots which had been amalgamated.

In this case, a tenant leased a shop in the centre and had rights under the lease to access the common areas of the centre. The tenant's shop was located wholly within one of the original parcels of land.

Although the lease was entered into before the amalgamation, it was renewed after the amalgamation date on the same terms as the original lease. However, due to an oversight, the renewed lease contained the pre-amalgamation lot and title details which had been superseded when the amalgamation survey plan was registered.

A portion of the amalgamated lot was resumed, but the resumed land was wholly outside the pre-amalgamation lot on which the tenant's shop was located.

The tenant claimed compensation, arguing that it had lost access to part of the common areas as the lot on which the centre was situated now included the resumed land.

The tenant further argued that the statutory definition of "common areas" in the Retail Shop Leases Act 1994 (Qld) should be regarded as being incorporated into the lease and that the lease should be effectively amended to include, or create rights over, the resumed land.

Decision

Unfortunately for the tenant, the property details on the lease document were deemed to define the agreed subject area of the lease. The Court took the view that the tenant only retained access rights to the common areas within the pre-amalgamation lot.

Therefore, the Court held that the tenant did not have an interest in the resumed land and was not entitled to compensation.

As to the tenant's second assertion, the Court disagreed, determining that the definition of "common areas" in that Act does not, and cannot, have the effect of amending the lease to include land which is not the subject of the lease.

Comparison with accurate lease

In the same case, the Court also considered a second tenant's interest in the same shopping centre. The second lease differed from the above lease in that it was expressed to be over part of the newly created amalgamated lot.

The second lease also contained various clauses (which the first lease did not) which supported the conclusion that rights were conferred on the tenant and its customers to use parts of the common areas of the centre for access to, and from, the leased premises.

Accordingly, the Court determined that the resumed land did affect part of the "common areas" of the centre under the second lease. The second tenant's right to access the common areas under the lease constituted an "interest" for the purposes of the relevant legislation, and a claim for compensation could be made.

Recent NSW case

The extent of the occupier's interest in compulsorily acquired land was also considered in the NSW case of George D Angus Pty Ltd v Health Administration Corporation [2013] NSWLEC 212.

In this case, land was owned by a company (Benantra) of which Mrs Angus was the sole director and shareholder. Her husband, Dr Angus, was the sole director of another company, George D Angus Pty Ltd (GDA), which occupied the land.

GDA provided gynaecological and obstetric services from the land and was, in effect, Dr Angus' service company. Dr and Mrs Angus each held 50% of the shares in GDA.

The land was compulsorily acquired by Health Administration Corporation (HAC) and GDA claimed relocation and other financial costs.

GDA's tenancy arrangement was informal and Mrs Angus asserted that she never saw a need to record the agreement in writing.

GDA submitted that the proper characterisation of the arrangement was that GDA had an oral lease of no fixed term, with rent of $7,400 per month, and with an assured occupancy for an indefinite period while Benantra owned the land.

HAC argued that:

1. The Court could not accept Mrs Angus' evidence as to the conversations which she said had taken place with her husband and that there was no lease.
2. If there was, then on Mrs Angus' evidence the lease came to an end in accordance with its terms upon the acquisition of the reversion from Benantra.
3. The maximum duration of a lease must be certain or ascertainable at the time it commences.
4. Under s 127 of the Conveyancing Act 1919 (NSW), if there was a subsisting lease then it could only be a tenancy determinable at the will of either party by one month's notice.

The Court found that there was an express tenancy agreement between Benantra and GDA where GDA was given exclusive possession to conduct its medical practice. However, as its duration was uncertain, s 127 did indeed apply.

The statutory tenancy at will amounted to a right or privilege within paragraph (b) of the definition of interest in land and when extinguished, GDA became entitled to be paid compensation.

The Court held that while the nature of the extinguished interest might affect certain matters of compensation such as market value and special value, it did not affect other matters, notably loss attributable to disturbance. Compensation was determined at $16,129 for relocation of the practice and $1,539,688 for loss of profits.

Take away

It should be noted that the outcome of each case will depend upon its particular facts. While GDA enjoyed some success despite there being no written lease, it is prudent to ensure that proper legal documentation is in place which accurately records the commercial agreement between the parties. This is particularly important in the event of a change in title to the land which is subject to the lease.

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.