In the Shadow of Compulsory Acquisition: Can Sales to the Acquiring Authority be Taken into Account in Assessing Market Value?

Recent case law clarifies that sales by agreement to the acquiring authority are relevant to the assessment of market value and can be taken into account when assessing market value of nearby properties in the context of compulsory acquisition. Although these sales may require adjustment, where no comparable sales in the open market exist, valuers can rely solely on sales to the acquiring authority as the basis for valuing a property.

The decision of Justice Robson in Rocco Fraietta v Roads and Maritime Services [2017] NSWLEC 11 (Rocco) in the Land and Environment Court has clarified that sales to the acquiring authority are relevant and can be taken into account when assessing compensation to be paid to nearby owners whose properties are also to be acquired for the public purpose. Rocco further supports the position adopted in longstanding case law that sales by agreement can be taken into account in determining market value of other properties being acquired for a public purpose. For example, in Woollams v The Minister (1957) 2 LGRA 338, Hardie J found that there was no principle of law requiring him to reject sales to the acquiring authority.

The majority of owners whose properties are compulsorily acquired settle their claims for compensation before formal compulsory acquisition processes commence. These are treated as “sales” to the acquiring authority (“negotiated sales” or “sales by agreement”). There has been some debate as to how sales by agreement should be treated when assessing the compensation to be paid to other affected landowners in the area.

Rocco provides recent authority that often these sales may require adjustment to reflect the particular circumstances of the acquisition – including the relative imbalance in bargaining power between the acquiring authority and the dispossessed owner. In fact, his Honour suggested that properties acquired or “sold” to the acquiring authority in the shadow of compulsory acquisition are likely to have a “depressed” or lower value than what would otherwise occur on the open market.

The Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act) requires that the Government have regard to several heads of compensation, including market value. Market value is defined in the Just Terms Act as “the amount that would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer…” This definition is difficult to apply to sales made by agreement to the acquiring authority, which occur in the shadow of compulsory acquisition and therefore often do not involve a willing seller.

Cases such as Rocco and Woollams are of increasing relevance given that recent acquisitions for large scale infrastructure projects such as WestConnex, NorthConnex and the Sydney Metro have led to large numbers of properties being compulsorily acquired in streets and suburbs. We briefly analyse the key cases and take-home messages below.

Decision in Rocco and preceding case law

The Court in Rocco ultimately found that four sales to the acquiring authority should be taken into account when determining market value of the property the subject of those proceedings. In doing so, Robson J referred to the history of case law on the subject, including Chaudry v Liverpool City Council [2008] NSWLEC 251.

In Chaudry, the applicant referred to case law which suggested that, because public authorities have an unnatural advantage in the bargaining process, they can obtain a discounted price due to the threat of acquisition, a proposition which has found support in the Court of Appeal in Koutsouras v State Rail Authority of New South Wales (unreported, NSW Court of Appeal, Meagher JA, 29 November 1991). Pain J also referred to the decision in Redeam v South Australian Land Commission, per Jacobs J at 158, who found that “there was no principle of law which requires the court to reject completely the evidence of sales to the acquiring authority”: see [25] of Chaudry.

Ultimately, Pain J found in Chaudry that sales to public authorities can have both a depressive and an enhancing effect on a sale price: [28]. Her Honour took into account the sales to the acquiring authority, but with some adjustment.

Adopting a somewhat stronger position, Robson J concluded recently in Rocco that all four sales should be taken into account, finding at [98] that:

“the public authority [is] in a stronger negotiating position than a private purchaser, as the vendor knows that if they walk away, their best alternative to a negotiated agreement is that the valuer-general (another public authority) will determine the value of their property…This means that such negotiations will…often result in sale prices that are lower than those which would have been obtained on the market.”

Notably, Robson J found that the four sales should be considered, “particularly given their sale dates and their proximity to the subject property”: [101].

Accordingly, recent case law makes it even clearer that sales by agreement are relevant to the assessment of market value, but that in some circumstances these sales may require some adjustment or be afforded a lesser weight.

Significance for dispossessed land owners

  1. Where no comparable sales in the open market exist in the locality, valuers can rely solely on sales to the acquiring authority as the basis for valuing a property.
  2. In some circumstances, sales by agreement to the acquiring authority can be depressed by the impending acquisition. Landowners who agree to accept an offer at below market rates could therefore prejudice the ability of other landowners in the same street or area to receive compensation for the true market value of their properties.
  3. Valuers must be careful to ensure that all relevant circumstances are taken into account and appropriate adjustments are made, including, in some cases, an upward adjustment to reflect the shadow of compulsory acquisition.

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