Australia: Cattle ahead: Claiming compensation for the compulsory acquisition of rural land

A recent decision of the New South Wales Land and Environment Court in Parfett v Roads and Maritime Services [2014] NSWLEC 1182 (5 September 2014) highlights the complexity of claiming compensation for the compulsory acquisition of income producing land, particularly rural land, under the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (the Act).

Facts

On 14 December 2012 the Roads and Maritime Service (RMS) compulsorily acquired 6.953 hectares of Mr Parfett's 148.943 hectare rural landholding known as "Springlawn" for the widening of the Mid Western Highway. Springlawn was used primarily for the "growing out and fattening of cattle".

Prior to the hearing, most heads of claim including land value, were settled. The only issues remaining for determination were claims for:

• Business disturbance for loss of profit - $39,847, and
• Foregone capital growth - $90,099.

Loss of profit v "special value"

The area of land compulsorily acquired amounted to 4.67% of the property, which the Court accepted reduced the carrying capacity and productivity of the property. Mr Parfett sought to claim compensation for disturbance for the loss of profit caused as a result.

The Court considered that an alternative claim for "special value" was more appropriate. The rationale was that whilst income generated by a property is a component of determining its market value, the income generated by Mr Parfett was "over and above the level of income expected to be derived by other persons utilising the land to its highest and best use" because Mr Parfett's other farm holdings "effectively guaranteed" the supply of steers to the property.

By accepting that the land had a special value, the usual basis for determining market value, being what a reasonable prudent purchaser would pay, became "what would the dispossessed owner, as a potential purchaser, be prepared to pay for the acquired land rather than not obtain it".

The Court awarded the sum of $30,171 to Mr Parfett as the special value to him of the acquired land. Interestingly, the Court noted that had it decided to determine this aspect of compensation on the basis of disturbance for loss of profit, it would have awarded the same amount.

Foregone capital growth

It was claimed that as a direct result of the compulsory acquisition Mr Parfett lost the right to an operating return for the acquired land and any future capital growth.

The Court dismissed this claim on the basis that:

• market value takes into account the likelihood or otherwise of capital appreciation in the future, so allowing this claim would amount to "double dipping", and
• under the Act, disturbance claims are limited to those relating to the "actual use of the land", and capital growth cannot be described as such.

Key considerations

Claiming compensation under the Act for the compulsory acquisition of land is notoriously complex. Where commercial interests, and particularly rural interests, are involved, the range of potential claims can be substantial and do not always fit neatly within the heads of claim the Act provides for.

The decision in Parfett demonstrates that it is necessary to consider whether there is any special value attributed to the particular business operations of the owner, rather than limiting an assessment to loss of profit. Whilst, in this case, the Court determined that compensation under either head would have been the same, that is not always the case.

Whilst foregone capital growth was dismissed as a basis for compensation, it is an example of the range of issues that need to be considered when formulating a claim.

Although this is a NSW decision it is possible that it will have application in other States for assessing compensation for the compulsory acquisition of rural land.

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.