The High Court has recently clarified that compensation for injurious affection for the reservation of land under a planning scheme is not available for a person who was not the owner of the land at the time the relevant reservation came into effect.
The High Court, in a 4:1 decision, determined that a subsequent owner did not have a right to compensation for injurious affection in joint decisions in Western Australian Planning Commission v Southregal Pty Ltd and Western Australian Planning Commission v Leith  HCA 7 (Southregal and Leith).
Injurious affection generally
Injurious affection is the diminution of value of land due to certain restrictions on the use of land arising out of the imposition of planning schemes. If part of a person's land has been reserved for public open space under a planning scheme, and that part may not be developed, then it is likely that the commercial value of that land will be less than if there was no such reservation.
Under s.173(1) of the Planning and Development Act 2005 (WA) (PD Act) "...any person whose land is injuriously affected by the making or amendment of a planning scheme is entitled to obtain compensation in respect of the injurious affection from the responsible authority."
Section 174 of the PD Act provides that land is injuriously affected by reason of the making or amendment of a public scheme if that land is reserved for a public purpose, the scheme permits development on the land for no purpose other than a public purpose, or the scheme affects the non-conforming use of the land in the way described in s.174(1)(c).
Section 177(1) of the PD Act defers the time a responsible authority becomes liable to pay compensation for injurious affection. Under that provision compensation will not be payable until (a) the land is first sold following the date of reservation, or (b) the responsible authority refuses an application for development approval or grants development approval on unacceptable conditions.
Under s.177(2) of the PD Act compensation for injurious affection to any land is payable only once under s.177(1), and is so payable:
- under subsection (1)(a) (where the land is first sold following the date of reservation) to the person who was the owner of the land at the date of the reservation; or
- under subsection (1)(b) (where the development application is refused or subject to unacceptable conditions) to the person who was the owner of the land at the date of the application for development.
The High Court in Southregal and Leith
In Southregal and Leith both respondent landowners owned land that was reserved under the Peel Regional Scheme (PRS) for regional open space. Neither was the owner of the land at the time the RPS (and land reservation) came into effect, and both subsequently made an application for development approval which was refused, and then claimed compensation for injurious affection pursuant to the PD Act.
The High Court held that these subsequent owners had no right to claim compensation for injurious affection.
The High Court rejected the respondent landowner's argument that the words 'the first to occur of' should be read into s.177(1), and that a subsequent purchaser could claim for compensation if the vendor had not previously claimed for compensation.
The High Court held that s.173(1) identified the person entitled to obtain compensation as the owner of the land when it is reserved, as evidenced by the words "any person whose land". Section 173(1) did not suggest that anyone but a landowner at the time of reservation was entitled to compensation, and a purchaser did not fall within the description of a person whose land is affected by "the making" of a planning scheme.
It is only when one of the three events described in in s.177(1) occurs (the land is first sold following reservation, or a development approval is refused or subject to unacceptable conditions) that a claim may be made for compensation. Once one of the three events has occurred, the later occurrence of the other two events cannot trigger a further claim. The High Court considered that the reference in s.177(2) to compensation being "payable only once" supported this construction. It followed that since the land had been 'first sold' to the respondents, the refusal of their development application could not trigger a further claim.
The High Court held that s.177(2), on its proper construction, is not concerned with the identification of persons who may claim compensation, this is done by s.173(1). Rather, the purpose of s.177(2) is to identify the person to whom payment is made, being the owner of the land at the time of reservation rather than the applicant for development (who may not necessarily be the owner). A refusal of an application for development or its approval on unacceptable conditions could only trigger a claim for compensation if the land had not been first sold by the owner at the date of reservation. In that case it would be retained by that owner.
The High Court observed that a purchaser of land that is subject to reservation may be expected to adjust the purchase price accordingly, and therefore obtain the land at a lower price and avoid the loss the statute predicts the original owner will suffer. Therefore compensation is payable to the person who owns the land at the time of reservation, and not to a buyer of injuriously affected land.
Clarification of the legal position
This High Court decision clarifies that compensation for injurious affection for the reservation of land under a planning scheme is only available for a person who was the owner at the time the relevant reservation came into effect. Any subsequent owners of the land have no claim for injurious affection.
The ability to establish public purpose reservations under a planning scheme is important. On the basis of the Southregal and Leith decision a relevant responsible authority (such as the Western Australian Planning Commission or a local government) may reject a claim for injurious affection from subsequent owners of the affected 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.
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