Posted on April 10, 2014 by
Compensation for relocation costs when land is compulsorily acquired
Whether ‘relocation’ costs are payable as a ‘loss attributable to disturbance‘ following the compulsory acquisition of land, depends on whether the market value of the land is assessed based on a use of land that is different to the purpose for which it is currently being used.
In El Boustani v The Minister administering the Environmental Planning and Assessment Act 1979  NSWCA 33, the Court of Appeal considered s61 of the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act) to determine when such relocation costs are payable by way of compensation and when they are not.
The majority of the El Boustanis’ land was acquired for the purposes of the South West Rail Link project, leaving the El Boustanis unable to continue to carry out their horticultural business on the residual land.
The El Boustanis wished to re-establish their business elsewhere and sought their relocation costs of doing so by way of ‘disturbance’ under s55(d) of the Just Terms Act.
At first instance, the Land and Environment Court held that the relocation costs were not payable because of the operation of s61 of the Just Terms Act as follows:
‘If the market value of land is assessed on the basis that the land had potential to be used for a purpose other than that for which it is currently used, compensation is not payable in respect of:
- any financial advantage that would necessarily have been forgone in realising that potential [s61(a)], and
- any financial loss that would necessarily have been incurred in realising that potential [s61(b)]’.
Having considered the evidence of the parties’ valuers, and in summary, the primary judge held that s61(b) precluded the claim for relocation costs because:
- the market value of the land based on the highest and best use as intensive horticulture ($70/m2) nevertheless reflected an increased value ($30/m2) relating to its potential to be used for “urban development”;
- the potential was a purpose other than that for which it was being used at the time of acquisition, and
- the relocation costs would necessarily have been incurred in realising that potential.
The El Boustanis challenged the primary judge’s decision not to award the relocation costs.
In the Court of Appeal
The Court of Appeal allowed the appeal and held that the Land and Environment Court had approached the matter in quite the wrong way. In summary, the Court held that s61 is inapplicable unless the potential for the alternative purpose of use exists or is ripe as at the date of acquisition .
In terms of the opening words of s61, the Court held that the market value of land is not assessed on ‘the basis‘ of another potential use unless that alternative is the fundamental foundation of the assessment . That was not the case here.
For one thing, it had been agreed between the valuers that the highest and best use of the land remained intensive horticulture not some kind of urban redevelopment.
If so, and even if there is included in the assessed market value of land an uplift due to a future potential for redevelopment (however remote), at least one of the bases of that assessment of market value will be the current use . If so, the alternative potential is not ‘the’ [sole] basis of assessment as referred to in s61.
The flip side of that approach to s61 in view of the Court was that the relevant ‘potential’ needs to be one that is temporarily proximate in the sense that the land is ripe for the potential. If land is not likely or fully ripe to be developed for the potential purpose for a considerable time after the date of acquisition, the Court held that its market value will necessarily be assessed on the basis of the current use, even if perhaps with some additional value placed on it on account of the hope that it will be able to be developed for that other purpose in the future .
The Court found that the subject land did not have ‘potential’ for use for urban redevelopment as at the date of the acquisition because the potential for redevelopment of the land wasn’t ‘temporally proximate’. In fact, it was not known whether and when the development for another purpose would be likely to occur  and there were significant impediments to it occurring in less than 10 years.
Lessons from the case
Acquiring authorities must not assume that relocation costs will not be payable on land simply because the assessment of market value of the land includes some uplift on account of the land’s potential for redevelopment.
Only when the land is ‘ripe’ for redevelopment, in the sense of being ‘virtually certain to be [redeveloped] within the very near future‘ can it be said that the market value can be assessed on the basis that the land has a potential to be used for a purpose other than that for which it is currently used, and only then will the relocation costs be considered to be a financial loss under s61(b) that would have been ‘necessarily incurred in realising that potential‘ for redevelopment.