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Compulsory Acquisition

In the acquisition process for a road project, a large retail business contacted us to assist in managing its acquisition process.

In this case, a long-standing family-owned business was being conducted on land also owned by the family. As is often the case, a separate company owned the land to the company that conducted the business, but the family ultimately owned both companies.

The Authority argued that the two companies should be treated as one entity for compensation.

The market value of the acquired property was agreed at more than $12m, and the costs of relocating the business at a little less than $3m. However, the Authority sought to deduct the agreed costs of relocation from the compensation to be paid for the loss of the property.

The matter was referred to the Supreme Court as a resolution could not be reached.

The Court found that both companies had an interest in the acquired land, and both were entitled to separate heads of compensation. Therefore, the landholding company was entitled to compensation for the property’s market value based on its highest and best use and, separately, the business operating the retail business from the property was entitled to be compensated for its relocation expenses as a result of the acquisition of the property.

Multiple points were brought into question in the trial, such as:

  • Whether there was compensation available for the tenanting business, such as disturbance losses.
  • Whether the cost of relocating the business was a ‘natural, direct and reasonable’ consequence of the acquisition.
  • Whether the Authority was bound by its initial offer to pay relocation costs.
  • Whether the offer made by the Authority to pay compensation to relocate the business was based on incorrect information.

In summary, the Court found:

  • The Act provides a statutory right to compensation to every person with interest in land acquired that is either divested or diminished by compulsory acquisition.
  • In accordance with the Act, each interested person is to be paid their full entitlement to compensation.
  • Related parties who each hold separate interests in the acquired land are entitled to compensation by reason of their respective interests.

The Authority appealed the decision to the Court of Appeal, and the decision was overturned. The appeal struck out the relocation payment to the business as it found that as the tenant did not have a lease, it only had an ephemeral interest in the land and was not entitled to compensation.

However, the landowning company still was entitled to compensation for the acquired land claim at a market value of a little more than $12m plus indemnity costs, including solatium, submission expenses and professional expenses, leading to a total claimable amount of nearly $12.5m.

This case is significant as it demonstrates that for compensation due to the compulsory acquisition of property, tenants need to have a lease to establish a legal interest in the land, even if the landlord is a related party and, in practical terms, there was otherwise no need for a lease.

Because of this case, special focus is put on the importance of security of tenure for the leasehold interest.

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