Beginners Guide to Compulsory Acquisition (Part One) - VCAT Barrister

General Overview:

Federal, state and local authorities may acquire land for a range of public purposes. This process is referred to as Compulsory Acquisition. Under the provisions of the Land Acquisition and Compensation Act 1986, land required for a public purpose can be acquired/resumed by government departments and agencies. This can be done either compulsorily or by negotiation.

Those affected include land owners, tenants, businesses, licence holders and mortgagees.

Compulsory acquisition is legislated for under Section 51(xxxi) of the Constitution of Australia and can be carried out federally, or by the states, territories and local government agencies.

At the Commonwealth level, compulsory acquisition can be used whether or not an owner is willing to sell their interest in the land, when the land has no title, when an owner has difficulty establishing proof of title, or even if the owner cannot be found. Land can be acquired by “negotiated agreement” or, in cases of national emergency, by “urgent acquisition”.

In Victoria the government body most regularly exercising powers of compulsory acquisition in Victoria is Vic Roads or Roads Corporation. Others include the Education Department through the Minister for Education, local municipalities and the Minister for Planning.

Compulsory Acquisition Legislation:

Land Acquisition and Compensation Regulations 2010;
Land Acquisition and Compensation Act 1986;
Local Government Act 1986;
Planning and Environment Act 1987;
Lands Acquisition Act 1989;
Compulsory acquisition is legislated for under Section 51(xxxi) of the Constitution of Australia and can be carried out federally, or by the states, territories and local government agencies.

The Act defines acquisition by an Authority. Section 3 defines “the Authority” to mean:

A person or body who or which; and
Is authorised by or under the special Act to acquire land; or
In the special Act is expressed to be the Authority for the purposes of this Act.

The Act is concerned with acquisition of land and not personal or other property. It contemplates acquisition of freehold land and lesser interests in land. An “interest”, in relation to land, is defined in section 3 to mean:

A legal or equitable estate or interest in the land; or
An easement, right, charge, power or privilege in, under, over, affecting or in connection with land.
Section 5(1) provides, subject to a number of exceptions, as follows:
- The Authority must not commence to acquire any interest in land under the provisions of the special Act unless the land has been first reserved by or under a planning instrument for a public purpose.

Proper purpose argument is outlined in section 18 and 20 of the Subdivision Act outlines the restrictions that are imposed on Council if they acquire land for public open space.

Although Section 18 and 20 are not quite on point, as they refer to Public Open Space and not land for Public Purpose there are similarities in what Council may do.
To what extent do Council have a right to do what they want with the Land within the meaning of Public Works.

The Act provides the following definitions:

Section 41 under the heading “General principles on which compensation is to be based” provides:
- “Except as otherwise provided in this part, in assessing the amount of compensation payable to a claimant in respect of an interest in land which is acquired under this Act, regard must be had to the following factors:
  - The market value of the interest on the date of acquisition;
  - Any special value to the claimant on the date of acquisition;
  - Any loss attributable to severance;
  - Any loss attributable to disturbance;
  - The enhancement or depreciation in value of the interest of the claimant, at the date of acquisition, in other land adjoining or severed from the acquired land by reason of the implementation of the purpose for which the land was acquired;
  - Solatium;
  - Any legal, valuation and other professional expenses necessarily incurred by the claimant by reason of the acquisition of the interest.

Detailed explanation of the general principles of valuation:

Section 40 contains definitions of “loss attributable to disturbance”, “loss attributable to severance”, “market value” and “special value”. These are the main heads of claim which are the subject of claims for compensation and extensive Authority exists in relation to interpretation of these definitions and assessments of compensation thereunder. Although the principles are well understood, many cases involve consideration of the limits of the principles.
Section 40 defines “market value” to refers to the amount of money that would have been paid for that interest if it had been sold on that date by a willing but not anxious seller to a willing but not anxious purchaser known as the Spencer principle, as expressed in the High Court decision in Spencer v Commonwealth (1907) 5 CLR 418. Griffiths CJ at page 432 said:

“In my judgment the test of value of land is to be determined, not by enquiring what price a man desiring to sell could actually have obtained for it on a given day, that is, whether there was in fact on that day a willing buyer, but by enquiring “what would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?”

The notion of willing but not anxious is intended to eliminate any element of compulsion or forced sale.
The hypothetical purchaser is deemed to have made all necessary and reasonable enquiries.
- These enquiries would include enquiries as to planning controls and, in turn, potential for changing those controls.
- Further, a hypothetical vendor would be entitled to contemplate a subdivision of the subject land and sale to a number of different purchasers.
”Market value”, in relation to any interest in land on a particular date, means the amount of money that would have been paid for that interest if it had been sold on that date by a willing but not anxious seller to a willing but not anxious purchaser.
Inherent in the notion of market value is the notion of highest and best use. It finds statutory expression in section 5A of the Valuation of Land Act 1960 which provides under the heading “Determining value of land”:
- The use to which such land is being put at the relevant time, the highest and best use to which the land might reasonably expected be put at the relevant time and to any potential use.
- The issue of the potential highest and best use of land is a fertile ground for dispute.
- Expert valuers often seek advice from other professionals, particularly town planners, as to how the land in question might potentially be used or developed.
Section 40 defines “special value” to mean the value of any pecuniary advantage, in addition to market value, to a claimant which is incidental to his ownership or occupation of that land.
- Special value is a difficult concept; in relation to an interest in land, special value means the value of any pecuniary advantage, in addition to market value, to a claimant which is incidental to his ownership or occupation of that land.
- It is not easy to distinguish from market value and, on occasions, from the concept of disturbance.
- Examples of special value are a residence adapted with consulting rooms for a doctor, agricultural land worked in conjunction with a neighbouring residence or farm buildings and land adjacent to an existing business which the owner wishes to expand.
- Particularly in relation to farming properties, the ability to use a particular parcel in conjunction with other land is flexibility to an owner which might not necessarily be enjoyed by the new purchaser.
- Another example may be where the owner of land enjoyed the benefit of a particularly favourable funding arrangement which was not transferable to a substitute property. The difference between that favourable interest rate and the rate otherwise obtainable in the market place was accepted as an element of special value to that owner.
Section 41(1)(e) requires that regard must be had to any enhancement in the value of land by reason of the acquisition.
- Enhancement arguments generally arise in the context of a partial acquisition.
- If a new road or other piece of public infrastructure such as a school is to be provided after the acquisition, it can be reasonably said that the remaining land of that land owner will enjoy the benefit of the new infrastructure.
- In short, any added value to the remaining land must be taken into account.
Section 44 of the Act provides for a potential award of solatium, an additional sum for injured feelings, upset or insult arising out of the compulsory acquisition. Section 44(1) provides:
- The amount of compensation may be increased by such amount, not exceeding 10% of the market value of the land, by way of solatium as is reasonable to compensate the claimant for intangible and non pecuniary disadvantages resulting from the acquisition.
- An award of the maximum of 10% would only occur in circumstances of a traumatic dispossession of a person from a residence where the claimant had resided for a very lengthy period with no likelihood of moving for other reasons. An average award for acquisition of a residence would be 5 to 7%. Farming properties would involve a lesser sum and commercial properties and businesses a lesser sum again. Absentee landlords might not receive any award of solatium.
Section 47 deals with compensation for entry or temporary occupation.
Section 46 deals with compensation for an abandoned acquisition.

During this next stage the land must be valued and valuation reports are prepared. Valuation is governed by:

The Valuation of Land Act 1960;
Local Government Act 1958;
The Australian Property Institute & The Property Institute of New Zealand:
Valuation And Property Standards.
Valuation is an imprecise science with scope for differing opinions, valuation evidence must be treated with caution.

Compulsory Acquisition Application Process:

In Victoria after a project is given political backing, the next step would be a public acquisition overlay; a process which can last many years and is usually the precursor to the compulsory acquisition itself.

The Acquiring Authority must serve upon each person who has an interest in the land to be compulsory acquired a Notice of the Authority’s Intention to Acquire (“Notice of Intention”).

Acquisition is generally initiated by service of an appropriate notice or notices. The Act contemplates a two stage process:

First, the service of a notice of intention to acquire, and;
Secondly the service of a notice of acquisition.

The Notice of Intention needs to be in a prescribed form and contain information and details which includes the purpose of which the interest is to be acquired, the reasons why the land is thought to be suitable for that purpose and the approximate date upon which the Authority proposes to take possession of the land.

Section 6 of the Act provides for service of the Notice of Intention to acquire. Section 7 provides for limited circumstances in which it is not necessary to serve such a notice. Section 8 sets out the matters required to be provided in the notice. Sections 9 and 10 deal with service.
Section 11 provides that the service of a notice of intention to acquire does not constitute:
- An offer; or
- A binding agreement to acquire the interest in land to which the notice applies.
- The notice of intention to acquire must be acted upon within 6 months or such extension as is agreed with the land owner.
After the Notice of Acquisition the second step in the process is the actual acquisition.
- This is effected by causing a notice declaring a particular interest in land to be acquired to be published in the Government Gazette; see section 19.
- Sections 20 to 23 which deal inclusively with various procedural matters including service of the notice on the persons affected.
- Section 24 deals with the effect of the Notice of Acquisition.

Accordingly it can be seen that the process of taking the land is reasonably straight forward.

In most cases it only requires the service of a notice of intention to acquire; the lapse of a short period of time; the publication and service of notice of the actual acquisition and in due course the formal conveyance exercise.
Most Authorities are experienced in these formal processes and undertake them seamlessly.

The next step in the process is the taking of possession of the land. This is provided for in section 26 of the Act. The Authority has considerable flexibility as to requiring the owner to vacate the acquired land.

It is able to allow the owner to remain in possession, paying rent if appropriate.
It is generally the practice of the Responsible Authority to give as much notice of the taking of possession as possible and to assist in the orderly vacation of the premises.

Daniel Epstein of Counsel

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