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Compensation for Property Investors

18/10/2016

Landowners displaced by Government infrastructure projects are entitled to just compensation. They can recover not only the market value of the freehold or leasehold property taken from them but also other losses attributable to the consequential disturbance to their operations.

For example, landowners who operate a business from the resumed property can recover stamp duty, mortgage costs, relocation expenses, lost goodwill and other costs incurred in connection with moving to alternative accommodation.  Business operators who occupy premises, off balance sheet, under lease, are equally entitled to recover financial losses caused by the disturbance to their business – George D Angus Pty Ltd v HAC [2013] NSWLEC 212.
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On the other hand, passive investors who do not actually occupy their property will not be able to recover the on-costs of buying another investment property.  A claim for stamp duty spent on purchasing a replacement residential investment property was disallowed in G. Suonaf Holdings Pty Ltd v RMS [2016] NSWLEC 116  because the applicant had not established it had actually used the house, having only received rental income from it.  And, in another recent case, Speter v RMS [2016] NSWLEC 128,  Mr and Mrs Speter presented as classic examples of passive investors.  They did nothing with their property other than taking rental income and hoping for a capital gain.  They had never occupied it and had not been forced by the compulsory acquisition to physically remove anything from it.  In that case, they were not entitled to compensation for the cost of stamp duty, mortgage establishment and other expenses associated with acquisition of a replacement property.

A property owner can recover compensation for these on-costs if it proves it is in the business of property development and the acquired land is part of its stock-in-trade.  In one case, the claimants had received the resumed land as a gift from their father. They had nothing more than vague and unstructured visions about its future development.  As a result, they were unable to recover the on-costs  of buying another property – Cannavo & anor v RTA [2004] NSWLEC 570. The dispossessed landowner was more successful in Blacktown Council v Fitzpatrick Investments [2001] NSWCA 259, because it was able to prove that it held the resumed property for the purpose, when the time was ripe, of subdivision and sale at a profit.  The costs of replacing that land bank were recoverable as “financial costs … relating the actual use of the land.”

These kinds of consequential expenses are often overlooked.  But the distinctions discussed above need careful thought and dispassionate advice from a lawyer with specialist experience.    The right advice can add tens or hundreds of thousands of dollars to compensation.

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