Just Terms Act Update: Compensation for open space land in Willoughby, NSW, found not to equate to residential land rates - Land Law & Agriculture

On 10 February 2014, the NSW Land and Environment Court handed down its decision in Willoughby City Council v Roads and Maritime Services [2014] NSWLEC 6. The decision is significant for a number of reasons.

Firstly, the Court found that, on the facts of the case, the value of open space land in the Willoughby local government area (LGA) did not equate to residential land values. This is the first time that the Court has made such a finding following a long line of decisions where open space land in LGAs across Sydney have been valued at (or near) residential land rates.

Secondly, the Court also found that where compulsorily acquired land is subject to a trust or a reservation in a Crown grant at the date of acquisition, such restrictions are effectively to be disregarded for the purpose of assessing market value compensation.

Finally, the Court also awarded compensation for a lost mesne profits claim finding that such a claim fell within the scope of section 59(f) of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Just Terms Act).

FACTS

On 24 June 2011, Roads and Maritime Services (RMS) compulsorily acquired public open space lands including easements from Willoughby City Council (Council) for the purposes of the Roads Act 1993 (NSW). The public purpose of the acquisition was a road corridor, first identified in planning instruments in 1951, which accommodated part of an arterial road system providing east west connectivity generally between the Bradfield Highway and Lane Cove River. The Gore Hill Freeway (GHF) and Lane Cove Tunnel (LCT) had been constructed within this road corridor.

The acquired lands were identified as Sites 1, 2, 3, 4.1, 4.2 and 5, and were predominantly partial acquisitions resulting in the creation of residue lots (collectively, the Acquired Lands). The acquired easements were required for the drainage of water over the residue land of Site 2 (Easement E) and the installation of services over the residue land of Site 3 (Easement F) (collectively, the Acquired Easements).

The parties agreed that at the date of acquisition:

Absent the public purpose, the Acquired Lands and Acquired Easements had an underlying zoning of public recreation open space.
Within the Willoughby LGA open space land was to be classified as:
- no recreation: open space land that is generally inaccessible and serves no formal or active function. It may, or may not, be in a vegetated or bushland condition.
- passive recreation: open space land that has limited accessibility, primarily for pedestrians, used for informal recreation purposes, such as walking, sitting, small local parks, playgrounds and BBQS. It may also include "no recreation" areas.
- active recreation: open space land that has good accessibility, providing formal recreation purposes. It may or may not include buildings/formalised facilities and it may include areas of passive recreation and no recreation.
The Acquired Lands and Acquired Easements were characterised as "passive recreation open space".
The Council had held Site 1 on trust for the purpose of "a public park, public reserve or public recreation area" since 1959.
The Council had held Site 2 on trust for "park and recreation purposes" since 1960.
The Council had owned Site 4.1 pursuant to a Crown grant under section 37AAA of the Crown Land Consolidation Act 1913 (NSW) (now repealed) since 1977. The Crown grant was subject to a reservation for "public ways" (eg. a public road).

The Council objected to RMS' statutory offer of compensation of $3,301,000 and brought proceedings pursuant to section 66 of the Just Terms Act. It claimed compensation of more than $66 million. RMS contended that the compensation payable was between $2.1 - $3.7 million.

Prior to the hearing, the parties agreed the market value of Site 3 ($10,000) and Site 5 ($55,000), the decrease in value of the residue of Site 5 ($180,243) and disturbance under section 59(a)-(e) ($12,228.08).

Ultimately, the Court determined that the compensation payable by RMS to the Council was $12,746,000.

ISSUES FOR DETERMINATION

The primary issues for determination in the proceedings were:

Are the Site 1 and Site 2 trusts for public charitable purposes relevant to the identification of the interest acquired by RMS and the determination of the compensation payable to the Council?
Is the public ways reservation in the Site 4.1 Crown grant relevant to the identification of the interest acquired by RMS and the determination of the compensation payable to the Council?
On the comparable sales valuation methodology, are the parties' identified open space sales or residential sales reliable comparables and what are the appropriate adjustments to be made?
Did the acquisition cause the Council to lose a cause of action for mesne profits prior to the date of acquisition? If so, is the loss compensable under sections 55(b) and 57 or, alternatively, under sections 55(d) and 59(f) of the Just Terms Act? If so, what is the quantum of the compensation?

FINDINGS

Issue 1: Trusts for public charitable purposes

In respect of Sites 1 and 2, RMS submitted that the Council (as trustee of a public purpose charitable trust) had a bare legal "interest in land" for the purpose of the Just Terms Act. This limited interest had no or nominal market value and constituted a burden rather than a benefit (eg. due to ongoing maintenance costs).

Further, RMS submitted that the NSW Attorney-General (as protector of all charitable trusts) was the appropriate person to bring proceedings in respect of any compensation payable for the compulsory acquisition of the trust property, not the Council.

Ultimately, the Court held that the Council was entitled to compensation for the full market value of Sites 1 and 2. Although the Court acknowledged that there are no beneficial owners of land held on trust for a public purpose, it held that in the case of public purpose trust:

... the full ownership is vested in the trustee and there is no need to distinguish between legal and equitable interests, any more than there is for the property of a full beneficial owner. What matters is that the Supreme Court will control the trustee's use of property that comes to the trustee in that capacity, in a suit to enforce the trust of its due administration brought by the Attorney-General....In the case of a trust for a charitable purpose where there are no beneficiaries, that task falls to the Attorney-General (with or without a relator) on behalf of the Crown as parens patriae (parent of the country) and protector of all charitable trusts. [at 29] (our emphasis)

The Court also found that the Council was entitled to full market value compensation for Sites 1 and 2 because:

...there should be no discount for a restriction that is peculiar to the owner, such as the legislative prohibition on the sale by a council of "community land", as distinct from restrictions that are of general application such as zoning restrictions; Leichhardt Council v Roads and Traffic Authority (NSW) [2006] NSWCA 353, (2006) 149 LGERA 439 at [32], [43] and [44] per Spigelman CJ (Beazley, Bryson and Basten JJA and Campbell J agreeing) [(Leichhardt)]; applied to a trust in Sutherland Shire Council v Sydney Water Corporation [2008] NSWLEC 303 at [68] per Sheahan J). [at 37] (our emphasis)

Notably, the Court concluded that any compensation awarded to Council will be impressed with the trust and that the Council and the Attorney-General should consider whether a cy-pres scheme should apply to the compensation payable by RMS.

Issue 2: Reservation in the Crown grant for public ways

RMS submitted that the Council's interest in Site 4.1 was a fee simple subject to the reservation in the Crown grant and that such an interest had no or nominal value. Further, RMS submitted that only the Crown was entitled to be awarded compensation under the Just Terms Act for the full fee simple interest in Site 4.1.

The Court did not accept RMS' submission because, in the Court's view, the principle in Leichhardt applied to the reservation as it was a restriction that affects only the person whose land has been acquired. Therefore, the Court held that the restriction should be disregarded when determining the market value for Site 4.1.

Issue 3: Comparable sales and adjustments

The Council's valuer relied upon sales of residential land within and outside Willoughby LGA to determine the value of the Acquired Lands and Acquired Easements. This approach was justified by reference to a line of previous cases where Councils across Sydney were found to have paid residential values for open space land. The Council's valuer also relied upon more recent examples of Councils (but not including Willoughby Council) purchasing residential land for open space use.

Based on this approach, the Council's valuer adopted the following rates:

$1,000/m² for Sites 1, 4.1 and 4.2;
$900/m² for Site 2 and Easement E; and
up to $1,800/m² for the residue of Site 3 and Easement F.

RMS' valuer relied upon sales of open space land, in particular the sale of 12A Tyneside Avenue, North Willoughby (Tyneside) which was located within Willoughby LGA. There had been two sales of the Tyneside land following the date of acquisition. RMS' valuer relied upon the first sale. The second sale, in which the Council was the purchaser, was rejected by RMS' valuer on the basis that the Council was an anxious purchaser, acting under political pressure to make the purchase.

RMS' valuer adopted rates for the Acquired Lands of between $130/m2 - $175/m2 for Sites 1, 2, 4.1 and 4.2, and $17.50/m2 for the Acquired Easements.

Legal principles: valuing open space land

The Court confirmed that the best evidence of the market value of compulsorily acquired open space land is comparable sales, with no compulsion to purchase, of other open space lands in the locality requiring very few adjustments (Penrith City Council v Sydney Water Corporation [2009] NSWLEC 2 at [7]).

The Court observed that residential sales may be relevant where there are no reliable comparable sales of open space land, subject to a discount for the fact that the acquired land was zoned open space (Sutherland and Roads and Traffic Authority v Blacktown City Council [2007] NSWCA 20). However, where a dispossessed council has been active in purchasing residential land at residential values for open space purposes due to a shortage of open space land in the locality, then in assessing market value compensation there should be no discount from comparable residential sales to account for the open space zoning (Leichhardt Council v Roads and Traffic Authority of New South Wales (No 3) [2009] NSWLEC 3 and Marrickville Council v Sydney Water Corporation [2013] NSWLEC 222]).

In this regard, the Court found that:

local markets for open space land are generally dominated by the relevant local council and the Department of Planning. In this case, the Council was the most obvious hypothetical purchaser;
there is a demand within Willoughby LGA for additional active open space;
there is a quantum surplus of passive recreation and no recreation open space in Willoughby LGA;
Council has not demonstrably added to the total area of open space land in its ownership since 1985; and
the valuers were unable to identify any buyers of comparable open space land at or close to residential values in Willoughby LGA.

Based on these facts, the Court adopted the Tyneside comparable sale and determined that the second sale (rather than the first sale) was the most reliable, finding that, even if the Council was an anxious purchaser, there was no evidence that the Council paid above market value for the Tyneside land.

Market value of Acquired Lands (s.56)

Based on the second Tyneside sale, the Court noted that the valuers adopted an initial agreed rate of $345/m². The Court increased this rate to $370/m² by deducting the unusable area of the land's pedestrian pathways from the total area of the land (an approach applied by the Council's valuer).

The Court then adjusted the rate of $370/m² upwards by one third to account for the "greater use potential" of the Acquired Lands. On this basis, the Court adopted rates of:

$500/m² for Site 2, the residue of Site 3 and the Acquired Easements; and
400/m² for Sites 1 and 4 and their residues (based on a 20% downward adjustment to account for the larger size of these Sites).

Market value of Acquired Easements (s.56)

The Court confirmed that the rights taken away by an easement must be measured by the terms of the instrument (Besmaw Pty Ltd v Sydney Water Corporation (2001) 113 LGERA 246 at [55]-[56]). Further, the compensation payable for the acquisition of an easement should reflect the diminution in value of the claimant's property by dint of the easement, which depends upon the nature of the restriction imposed by the easement (Penrith at [28]-[29]).

Having regard to the terms of the Acquired Easements, his Honour held that the adopted rate of $500/m² for the residue of:

Site 2 affected by Easement E to drain water was reduced by 80% ($80,000); and
Site 3 affected by Easement F for services was reduced by 10% ($33,355).

Injurious affection (s 55(f))

The Council also claimed compensation for the decrease in value of the residue lands of Sites 1, 3 and 4.1. The Council's valuer opined that the value of the residue lands had been reduced by between 25-75% due to noise and loss of amenity caused by the carrying out of the public purpose. RMS' valuer opined that there had been no reduction in the value of the residue lands having regard to their passive open space use.

The Court accepted that the carrying out of the public purpose had decreased the value of the residue lands as follows:

Site 1, based on adopted rates of between $200-$400/m², by between 20-40% ($647,040);
Site 3, based on an adopted rate of $500/m², by between 25-75% ($641,000); and
Site 4.1, based on an adopted rate of $400/m², by 50% ($655,000).

Issue 4: Mesne profits claim

RMS had occupied the Acquired Lands from 1988, when the construction of the GHF commenced, until the date of acquisition in 2011. It did not pay any occupation fees to the Council during this period. Between 2003 and 2008, RMS had compulsorily acquired leases of the Acquired Lands under the Just Terms Act to facilitate the construction of the LCT and upgrades to the GHF.

The Council claimed almost $33 million compensation for RMS' occupation of the Acquired Lands from 1988-2003 and 2008-2011 on the basis that the compulsory acquisition had deprived it of a cause of action against RMS for mesne profits during those periods.

Based on the evidence, the Court held that the Council impliedly consented to RMS' occupation between 1988-2003. Further, the Court held that even if the Council had a cause of action for this initial period, it had accrued at the time of the conduct alleged to constitute the trespass and so became statute barred in 2009 at the latest.

However, the Court found that the intervening compulsorily acquired leases gave rise to different considerations for the second period of RMS' occupation and the Council was entitled to compensation for the loss of its ability to recover mesne profits during that period. In so finding, the Court held that the loss of the mesne profits claim is compensable under section 59(f) of the Just Terms Act as a financial loss reasonably incurred, relating to the actual use of the land, suffered as a direct and nature consequence of the acquisition.

In determining the compensation payable for the value of the Council's lost cause of action, the Court found that the 2003 compulsorily acquired leases were "highly probative evidence" of the rental compensation payable. The amount of compensation payable was calculated to be $469,115.

IMPLICATIONS

This decision provides useful guidance to resuming authorities, dispossessed landowners and experts (particularly town planners and valuers) on the approach to be adopted when valuing compulsorily acquired open space land. The judgment confirms that:

it may be necessary to characterise the different types of open space land which exist within a locality (eg. active, passive, no recreation/bushland) in order to characterise the type of open space land which was acquired;
the market within the locality must then be examined to determine whether there have been any sales of open space land of the same type as that which was acquired (close to the date of acquisition). This will be the best evidence of the market value of the acquired land;
reliance on sales of residential land should only occur if there are no reliable comparable sales of open space land within the locality, subject to a discount for the open space zoning of the acquired land; and
where there is market evidence that residential land is being acquired for open space purposes due to a shortage of the type of open space land acquired, then generally there should be no discount in assessing the market value compensation from those residential sales for the fact that the acquired land was open space.

The Court's finding that trusts and reservations in a Crown grant are to, in effect, be ignored when assessing market value compensation is particularly significant. The Court's decision on these issues was based on its interpretation of the Court of Appeal decision in Leichhardt.

Finally, the scope of the section 59(f) of the Just Terms Act has been expanded by the Court's finding that a mesne profits claim, lost as a consequence of a compulsory acquisition, is compensable under this "catch-all" head of disturbance compensation.

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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