Land Acquisition – Businesses and Family Businesses

The Problem

Help !  The South Australian Government wants to acquire the land on which I run my business.

What Can I Do?

When the SA Government compulsorily acquires land, it must comply with the Land Acquisition Act and pay compensation according to that Act.

The SA Government has to pay compensation not only to the landowner, but to anyone who has an “interest” in the land.  This includes any business which leases, rents or has an arrangement under which the business operates from the land.  Often the business operator is the same as or is related to the landowner, or is a company controlled by the land owner.

Procedure to Acquire Land

Notice of Intention to Acquire Land

Under the Act, the SA Government, often in the form of the Commissioner of Highways, must first serve a notice that it intends to acquire the land.  The land may be all or part of the land of the landowner.  The SA Government must serve a notice not only on the landowner but also on all tenants and other people with an interest in the land.

A person who receives such a notice may require the SA Government to give an explanation and further details of why it is purchasing the land.  They can also request that the SA Government not proceed with the acquisition, or that only part of the land be acquired.  Generally there is little point in either seeking further details or requesting that the acquisition of the land not proceed.

Once a landowner receives a Notice of intention to acquire land, the landowner cannot sell the property.

A Notice of intention to acquire land will not generally set a date when the compulsory acquisition will occur.  The SA Government however cannot compulsorily acquire the land until at least three months after it serves the Notice of intention to acquire the land.  If the SA Government does not acquire the land within 18 months after service of the Notice of intention, it is presumed that the SA Government has decided not to proceed with the acquisition and the Notice of intention lapses.  If the SA Government decides not to proceed with an acquisition, the landowner may seek compensation.

When the SA Government serves a Notice of intention to acquire land it will also lodge a caveat on the title of the land prohibiting any transfer or dealing with the land without the consent of the SA Government. 

Often the Notice of intention to acquire land is served approximately six months before the formal compulsory acquisition of the land, although there is no fixed period.  The Notice of intention and accompanying letter will state that the SA Government wishes to negotiate a settlement of the compensation to be paid.

The SA Government will often pay $10,000 to the owner of the land when it serves the Notice of intention.  The payment is to enable the owner to meet legal, valuation and other professional costs in connection with the acquisition of the land.

Often the SA Government will pay up to $10,000 to residential tenants of land being acquired, toward their relocation costs.  If the tenant accepts the payment the tenant forfeits any right to further payment.

The SA Government will generally seek to negotiate with the people with an interest in the land.  If the parties can reach agreement, the SA Government will acquire the land or interest in the land under the terms of the agreement.  If not, the Government will serve a Notice of Acquisition.

Notice of Acquisition

To compulsorily acquire land the SA Government must serve a Notice of acquisition and insert an advertisement in the Government Gazette.  By taking these steps it immediately acquires ownership of the land.  At the same time, the Government must, except in extraordinary circumstances, make an offer of compensation, which will likely be for the highest offer made during the negotiations.  The offer must breakdown its components for the value of the land, disturbance, and other compensation.  Within seven days it must lodge the money offered in the Supreme Court. 

The landowner or other person can then take the monies from the Supreme Court without prejudicing their rights to claim further compensation if he or she feels that the offer is inadequate. The landowner or other person must respond to the offer in writing within six months saying whether the offer is accepted or rejected.

What Compensation Am I Entitled To?

Some Technical Stuff

The Act provides that the land acquisition is to be on “just terms”.  The compensation payable is not necessarily the “market value”.  The compensation must “adequately…compensate…for any loss that [the person with an interest in the land] has suffered by reason of the acquisition”.

Courts recognise the difference between “market value” of land and its “value to the owner“.  The difference between the two is often referred to as “special value“, in the sense that the “market value” plus the “special value” equals the “value to the owner“.  An example of special value might be a doctor who owns specialised consulting rooms adjacent to a hospital.

The Act provides that in addition to compensation for the value of the land, compensation can also be awarded for losses due to “severance“, “disturbance“, or “injurious affection“.

“Severance” is the reduction in value of land retained by the landowner caused by the compulsorily acquired land being severed from the retained land.

“Disturbance” relates to economic losses caused by the acquisition.  It may relate to the destruction of or interference with some business or other activity carried on or proposed to be carried out on the land.  It is designed to cover such matters as removal expenses, cost of necessary replacement of furniture and fittings, legal and other costs of purchasing or leasing an alternative site or comparable property, increased rent, loss of profits during re-establishment of the business on another site, loss of local goodwill, and other like expenses.

“Injurious affection” is where the activities to be carried out on the acquired land will reduce the value of the retained land that has not been acquired.  For example if part of an owner’s land is acquired for a new road, this may reduce the value of the remaining land because of the noise and disruption caused by the construction and use of the road.  

Landowners or people with an interest in the acquired land are entitled to reimbursement for reasonable costs they incur in obtaining legal advice and valuations.

Land or Home Owner – Entitlement to Compensation

A landowner or homeowner, assuming the whole of his or her land is acquired, will be entitled to the actual value of the land and/or home, together with losses due to disturbance such as removal expenses, costs of any necessary replacement of fittings and furniture, legal and other costs of purchasing an alternative home or land or alternatively potentially increased rent.

A person whose principal place of residence is acquired may also receive an additional payment of the lesser of 10% of the market value of the home or $50,000.

Where there is doubt regarding estimates of compensation payable to a dispossessed landowner, the doubt should be resolved in favour of a liberal estimate.

The SA Government has introduced a scheme under which the SA Government may reimburse stamp duty, transfer and other costs (excluding capital gains tax) to an owner whose land has been acquired, if the owner acquires replacement land in South Australia within 12 months and applies for reimbursement of the costs within 2 years after acquiring the land.  We believe that generally such costs will be claimable in any event as part of the disturbance caused by the acquisition.

Business Owners – Entitlement to Compensation

Business losses are a form of “disturbance“.  Business-related compensation applies whether the business owner is the landowner, a tenant, or has some other interest in the acquired land.

Where the Business is Able to Move

In most cases a business will be able to move to an alternative location.  In these circumstances the business will be entitled to claim for its economic losses in relation to the move and the interference to the business caused by the acquisition.  A claim would cover such things as moving costs, costs and losses in relation to the re-siting, diminution of value or loss of fixtures and fittings, costs in relation to the re-siting of services and notifications in relation to the change of location, legal and other costs of purchasing or renting an alternative site or comparable property, increased rent, loss of local goodwill, and loss of business suffered through the transfer to the alternative location.

Often the SA Government will attempt to ease the losses of the business owner suffered due to the relocation by allowing the business owner to remain at the acquired site for some time after the acquisition.

Where a Business Cannot Move

In some circumstances it is not possible for or reasonable to expect a business to move from the location which is compulsorily acquired by the SA Government.

In the case of a business which is destroyed by the acquisition, the amount of compensation is the actual financial cost to the business owner.  In certain circumstances the financial cost of the loss of the business is assessed primarily as the market value of the business.  Losses may also be claimable for loss of profits due to the running down of stock prior to the cessation of the business, and for adjustments to rates and taxes.

In some circumstances the actual losses suffered by the business owner will be significantly greater than the business’s market value.

Family Businesses

Fundamental principles of the Land Acquisition Act are to provide for the acquisition of land on “just terms” and that the compensation payable is not necessarily to be assessed in relation to the “market value” of what has been acquired or lost, but rather so as to adequately compensate the person or company which has suffered the loss.

Losses in addition to the “market value” may be particularly significant in the case of family businesses.  Often the business not only employs the owner, but also other members and relatives of the family.  Significant losses may be suffered by the family due to the business being destroyed.

The legal principle is that the amount of compensation to be paid is the “value to the owner” which is not necessarily the “market value“.  Does this principle apply to family businesses so as to increase the amount of compensation payable to the business owner above the “market value” ?

The 2011 New South Wales decision of Bligh concerned a claim for compensation for the destruction of a 50 year old family business by a compulsory land acquisition.  The business employed two brothers and four other members of their families. 

The Court found that a dispossessed family business owner was not only entitled to the market value of the extinguished business, but was entitled to special value which took into account various strengths and financial advantages of the family business.  The Court assessed a premium of 25% over market value for compensation.

Radbone and Associates ran the recent ground-breaking Supreme Court case of Nelson v Commissioner of Highways, which was the first case in South Australia to confirm this principle.  Mr Nelson owned land on which his company conducted a retail business. The business employed Mr Nelson and members of his family. The Commissioner of Highways compulsorily acquired the land, and the business could not continue. Mr Nelson and his family therefore suffered not only the loss of the land and business (through the company), but also the income and benefits gained through the involvement of him and his family in the business.

The ground-breaking determinations made by the Supreme Court in this case included:-

• That businesses in this situation were not limited to claiming the market value of the business, but could advance a claim for the lost future earnings of the business;
• That it was open for people in the situation of Mr Nelson, and his family (through the company), to advance claims for income and benefits lost through the compulsory acquisition. 
• That in certain circumstances it was possible to claim for storage and warehousing costs after the compulsory acquisition, even though the business had been destroyed by the compulsory acquisition.

The decision also gave useful guidance on the calculation of compensation for time lost due to an acquisition and for reimbursement of rates and taxes.   

Please feel free to contact or telephone me to discuss any of the matters in this article.

John Radbone