Compulsory Acquisition Of Land In Victoria And Basis For Compensation

Our forensic accounting & valuation services are well suited to compulsory acquisition of land affecting a business

Growing population across Victoria, including greater housing density and urban sprawl in regional Melbourne requires roads, rail, hospitals, schools and other infrastructure.  New infrastructure projects require acquisition by government authorities of privately-owned land.  This article looks at the key implications for business owners who are impacted when an acquiring authority requires land for a public works project.

Section 41(1) of the Land Acquisition and Compensation Act 1986 (Vic)

In Victoria, section 41(1) of the Land Acquisition and Compensation Act 1986 (Vic) sets out the general principles on which compensation is to be based, that is, compensation should have regards to:

• the market value of the interest on the date of acquisition;
• any special value to the claimant on the date of acquisition;
• any loss attributable to severance;
• any loss attributable to disturbance;
• the enhancement or depreciation in value of the interest of the claimant, at the date of acquisition, in other land adjoining or severed from the acquired land by reason of the implementation of the purpose for which the land was acquired;
• any legal, valuation and other professional expenses necessarily incurred by the claimant by reason of the acquisition of the interest.

Disturbance and claims for loss of profit

Typically, the largest component of total compensation payable under s41(1) of the Land Acquisition and Compensation Act 1986 (Vic) to affected business owners relates to disturbance compensation which is defined as “any pecuniary loss suffered by a claimant as the natural, direct and reasonable consequence of:

• the service upon the claimant of a notice of intention to acquire, where the Authority has refused or failed to give consent to the carrying out of improvements to the land in respect of which that notice has been served or the effecting or obtaining of any sales, transactions, licences or approvals in respect of that land; and

• the fact that an interest of the claimant in that land has been divested or diminished, being a pecuniary loss for which provision is not otherwise made in this Part”;

While the legislation appears to be specific on what compensation affected business owners are entitled to under section 41(1) of the Land Acquisition and Compensation Act 1986 (Vic) it is typically meaningless to most business owners because it requires an understanding of common law principles decided by the courts (such as the Victorian Civil Administrative Tribunal and the Supreme Court of Victoria).  A forensic accountant, with business valuation qualifications, will be required to work with you and your lawyer to quantify the correct amount of compensation, particularly focusing on disturbance compensation the business is entitled to.

The amount of disturbance compensation a business will be entitled to will depend on many different factors, largely based on the evidence to support the facts.  Businesses operating in the same industry should not expect similar compensation, nor should neighbouring businesses.  This is because the ‘pecuniary loss’ suffered by a business will depend on whether the business can relocate and where it will relocate, whether this happens before or after the acquisition of the land by the acquiring authority.  Most businesses will express a preference to relocate in order to continue trading rather than shutting down, however whether a business is able to relocate will depend on the availability of suitable alternative premises and even if there are alternative premises, they rarely present the same features as the existing premises (e.g. size will typically be different, it will often not be in the same locale, and the annual rent will be different).  The ‘pecuniary loss’ in a relocation scenario will typically include the costs required to relocate the business and the reduced profits before and after the relocation of the business. 

If you receive a ‘Notice of Intention to Acquire’ from an acquiring authority (often being VicRoads, the State Government or a Council) and the land is used for a business purpose, contact AVG Forensic for advice.