Compulsory Acquisition - Reinstatement claim for open space goes down the drain

In Inner West Council v Transport for NSW [2024] NSWLEC 138, the Land and Environment Court of NSW has provided useful guidance on the correct approach to valuing open space land under the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act).

This is just the second judgment, following The Trustee for Whitcurt Unit Trust v Transport for NSW [2021] NSWLEC 82, where the court has been required to consider the determination of market value on a 'reinstatement' basis under s 56(3) of the Just Terms Act.

Facts

Transport for NSW (TfNSW) compulsorily acquired 1,687m2 of land owned by Inner West Council (IWC) for the purpose of the WestConnex Project. The acquired land was an irregular "L" shaped parcel that formed part of Camdenville Park and was situated at the corner of May Street and Bedwin Road in St Peters. The part of the acquired land closest to the road was vegetated with trees and shrubs. Most of the acquired land was not publicly accessible, was grassed, and sloped down towards drainage infrastructure. The acquired land was contaminated by previous industrial uses and fill with waste materials. An image extracted from the judgment below depicts the acquired land hatched pink.

Prior to the acquisition, TfNSW had occupied parts of Camdenville Park, including the acquired land, pursuant to construction leases to enable the road works to be constructed (as can be seen partially completed in the above image) prior to the final infrastructure footprint being resumed.

IWC claimed that the market value of the acquired land was $13,550,000 whereas TfNSW contented for $675,613. IWC's primary claim was on a 'reinstatement' basis.

Reinstatement under s 56(3)

This section of the Just Terms Act is engaged to determine market value in unique circumstances where land is used of a particular purpose, there is no general market for land used for that purpose and the owner genuinely proposes to use other land for that purpose. The section provides:

(3) If—

• (a) the land is used for a particular purpose and there is no general market for land used for that purpose, and
• (b) the owner genuinely proposes to continue after the acquisition to use other land for that purpose, the market value of the land is taken, for the purpose of paying compensation, to be the reasonable cost to the owner of equivalent reinstatement in some other location. That cost is to be reduced by any costs for which compensation is payable for loss attributable to disturbance and by any likely improvement in the owner’s financial position because of the relocation.

The main issue for determination in this case was the proper characterisation of the "particular purpose" for which the land was used.

At the date of acquisition, the acquired land was being used by TfNSW for road works conducted under the construction leases. The parties agreed, and the court accepted, that it was appropriate to determine the "particular purpose" at the date IWC was last in occupation of the acquired land.

IWC contended that:

1. the particular purpose that the land was used for was as active and passive public recreation;
2. there is no general market for land used for that purpose; and
3. it genuinely proposed to use other land for the purpose of active and passive recreation.

TfNSW argued that the acquired land was used as a stormwater detention basin and that there was no evidence that the Council genuinely proposed to continue to use other land for that purpose.

The court found that:

1. The nature of the "use" referred to in s 56(3) is of a narrow scope, and should be characterised according to how the land was actually used, rather than by reference to its potential "use" in a broad planning sense;
2. IWC actually used the acquired land for the particular purpose of a stormwater detention basin, as evidenced by the fact that a large portion of the acquired land was fenced to prevent public access and was thus incapable of use by members of the public for either active or passive recreation.;
3. There was no evidence that IWC genuinely proposes to use other land for the purpose of a stormwater detention basin, with a council resolution noting that any compensation received would be used for the sole purpose of acquiring land for public open space;
4. On this basis, IWC was not entitled to market value on a reinstatement basis under s 56(3) of the Just Terms Act.

Market value of open space land

In the alternative, IWC sought compensation for market value in the amount of $12,200,000 under s 56(1), which provides:

(1) In this Act—

market valuetext in italic of land at any time means 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, disregarding (for the purpose of determining the amount that would have been paid)—

• (a) any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired, and
• (b) any increase in the value of the land caused by the carrying out by the authority of the State, before the land is acquired, of improvements for the public purpose for which the land is to be acquired, and
• (c) any increase in the value of the land caused by its use in a manner or for a purpose contrary to law.

The parties agreed that the comparable sales approach should be adopted and that the highest and best use of the acquired land was for uses permitted in the RE1 Local Open Space zone. However, they did not agree on what sales were comparable and how those sales should be adjusted to determine the market value of the acquired land.

IWC submitted that the acquired land should be valued by reference to residential properties and development sites, on the basis that those are the types of properties IWC would acquire to replace the acquired land. TfNSW argued that sales of constrained public recreation land were the most comparable and should form the basis of the determination.

The court noted: "Where an inherent characteristic of the Acquired Land has the capacity to affect its value in the market, it must be relevant. Where a comparable sale does not reflect such characteristic, an adjustment must be made to the sale so as to render the sale comparable to the Acquired Land."

The court rejected IWC's approach, finding that "by taking the approach of asking what Council would pay to replace the Acquired Land rather than what a purchaser would pay to acquire the Acquired Land, [IWC's valuer] is not performing the necessary valuation approach required and dictated by s 56(1).".

TfNSW's approach was preferred, with the court finding the sale of part of a former landfill at Tempe to be the most comparable. Adjustments were made for size (30%), location (10%), market movement (50%) and contamination (30%). The court ultimately adopted a rate of $672/m2 which derived a market value of $1,133,664.

Key takeaways

This judgment provides a much-needed determination of a claim under s56(3) of the Just Terms Act, and confirms that a use must be characterised particularly, rather than generally, when considering the test for 'reinstatement' under s 56(3). It also provides useful guidance on the correct approach to valuing open space land, and highlights that constrained open space land must be valued having regard to sales of properties comparable to the acquired land, and not based on the price of properties that might be purchased to replace the land that has been acquired.

If you would like assistance in relation to land use and acquisition law, please contact our Environment & Planning partner, Tom White or special counsel, Alex Beale.