“It’s not a house, it’s a home”: Compulsory Acquisition and Compensation in Victoria

1. In 1997, the quirky Melbourne-based Kerrigan family became a national icon on the release of “The Castle”, in which the Kerrigan’s were faced with the compulsory acquisition of their family home by the Victorian Government exercising its powers under the Land Acquisition and Compensation Act 1986 (Vic) (LAC Act).
2. Off the silver screen, the LAC Act governs the process for compulsory acquisition of property in Victoria by an authority (the acquiring authority) and the basis upon which compensation may be sought from the acquiring authority by an interest holder in the acquired land (the claimant).
3. A claimant has several potential limbs under which compensation may be sought.¹ This article considers the market value and disturbance heads of compensation in the case of partial acquisitions of land in Victoria.

“Tell him he’s dreaming”: Market value

1. Where only a portion of the property is acquired (partial acquisition), the LAC Act mandates a “before and after” valuation,² which requires an “assessment of the difference in market value of the whole pie in which the claimant has an interest in the before and after situation and not a direct assessment of the value of the piece bitten out of it”.³
2. This forms a ‘rolled up’ assessment of the value of the interest acquired, including considerations as to market value, severance and depreciation in value of the interest of the claimant.⁴
3. In all Australian jurisdictions, the guiding principle of ‘market value’ of land is the land’s most advantageous use, otherwise known as the “highest and best use”,⁵ which may or may not be the current use of the property.
4. In Victoria, market valuation is assessed as at the date of acquisition. By valuing land in this way, the effect of the acquisition on the market value of the land as a whole is captured and the claimant is afforded a much greater potential for compensation than would be afforded if the market valuation was conducted on the acquired portion only. For example, the acquired portion may have an odd shape or dimensions that are suitable for a pipeline or other utilities, but which would mean that its potential highest and best use when considered in isolation is very limited.

“The law of common sense”: Loss attributable to disturbance

1. Disturbance under the LAC Act is narrowly defined as any pecuniary loss suffered by a claimant as a natural, direct and reasonable consequence⁶ of the acquisition of the land, which requires a “very close and limited connection between the event giving rise to a right to compensation and the financial loss suffered.7
2. In practical terms this means:
   1. the acquiring authority will focus on the wording “very close and limited connection” to restrictively construe disturbance loss; and
   2. the loss must be suffered, potential loss is not sufficient. For example, even though the surrounding property (i.e., the unacquired portion) may be significantly disturbed by works on the acquired land in the future, there is no claim for disturbance loss until the loss has been suffered.
3. As the effects of disturbance may only be quantifiable well after the land has been acquired, the claimant may be unable to claim disturbance as part of its notice of claim for negotiation with the acquiring authority.
4.  However, if a claimant is willing to litigate its claim for disturbance loss, Courts have adopted a more favourable interpretation of the term “consequence” in section 40 of the LAC Act. Courts consider the term should not be read in any narrow or restrictive fashion,⁸ rather a claimant must be able to establish a factual link between causation of the loss and the loss following acquisition, and be able to quantify the loss.
5. Traditionally, the following items may support a claim for disturbance losses:
   1. removal expenses;
   2. costs associated with the purchase of replacement property, including stamp duty and financial costs associated with the discharge of a mortgage and executing a new mortgage; and
   3. costs arising from business interruptions incurred due to the acquisition of land;
6. Conversely, the Courts have rejected claims for disturbance loss for:
   1. Loss of opportunity relating to interest payable by the Victorian Government on the offer for compensation;⁹
   2. executive time diverted to the issue of acquisition, in circumstances where the claimants failed to establish a reduction in taxable income or partnership income;¹⁰ and
   3. replacement property, where the claimant did not adduce any evidence of an active effort to search for replacement property.¹¹

“How’s the Serenity? So much serenity”: Solatium

1. Solatium is claimable for intangible and non-pecuniary disadvantages resulting from the compulsory acquisition of the property. The LAC Act provides examples of relevant factors when calculating solatium, such as the inconvenience likely to be suffered by the claimant by reason of acquisition of the land.¹²
2. Solatium is capped at 10% of the market value of the land assessed pursuant to section 41(3) of the LAC Act,¹³ being the “rolled up” market value which may include severance and special value to the claimant. This will result in a higher value of solatium than an assessment based on the market value of the acquired portion only.
3. Although solatium is capped at 10% of the market value, in practice such a high percentage is likely to apply only to individuals being traumatically dispossessed of their long-held residence. An owner of a commercial property is likely to be awarded less than 5% of market value as solatium.

“It’s Justice. It’s Law. It’s the vibe, no that’s it”: Conclusion

1. For the Kerrigan’s hope comes in the form of retired Queen’s Counsel Lawrence Hammil, who provides a rousing argument based on section 51(xxxi) of the Constitution. Outside of Hollywood, just compensation is best achieved by claiming compensation under Part 4 of the LAC Act.
2. For partial acquisitions in Victoria, valuations are required to apply a “before and after” method. Valuations must consider the difference between the market value of the interest before the acquisition and the market value of the interest after the acquisition (being the entire block of land less the acquired portion).
3. Claiming disturbance losses can be tricky. Whilst the claimant may have knowledge of future losses that are likely or certain to occur, if losses cannot be quantified the authority (or Court) is unlikely to entertain a disturbance loss claim.
4. Solatium imposes discrete issues upon claimants. Owing to the nature of solatium, occupiers of the land may need to negotiate with landlords regarding entitlements to compensation under this head of loss.

Secure your rights

Whether you’re dealing with market value assessments, disturbance losses, or solatium claims, it’s essential to be well-informed and prepared. Taking action when faced with compulsory acquisition is crucial.

If you’re facing a compulsory acquisition, don’t hesitate to seek expert advice to ensure you receive the full compensation you deserve. If you have any questions or would like any more information, please reach out to Brit Ibanez.

¹Part 4, sections 41(1)(a)-(f), 44 of the LAC Act

²Section 41(3) LAC Act.

³Secretary, Dept of Economic Development, Jobs, Transport and Resources v Avid Property Group Nominees Pty Ltd (Avid Group) (2017) 53 VR 490 at [59].

⁴Avid Group at [64]-[66].

⁵Section 5A Valuation of Land Act 1960 (Vic)

⁶Section 40 LAC Act.

⁷Roads Corp v Love (Love) (2010) 1790 LGERA 113 at [182].

⁸King v Minister for Planning and Housing [1993] 1 VR 159 at 160.

⁹Wilson v Melbourne Water Corporation [2018] VSC 555 at [181]

¹⁰Ibid at [206].

¹¹Secretary to Dept of Economic Development, Jobs, Transport and Resources v Caradi Pty Ltd [2018] VSC 696 at [331].

¹²LAC Act s 44(2).

¹³Section 44 LAC Act.