Motorways, metro extensions, transmission corridors and renewable energy zones often require land that is privately held, and must be compulsorily acquired. What an owner does in the first few months, particularly on valuation evidence and on the choice of pathway, often determines the outcome.

At the outset of the acquisition process, and before the land can be formally acquired, the landowner generally has two options: to negotiate a customised agreement (commonly referred to as a “section 30 agreement”), under which the parties agree on the compensation and the terms, or to submit a claim for compensation. Once the acquisition takes effect, the landowner may object to the compensation offered by the authority provided that it has previously submitted a claim for compensation.

Whichever path the landowner takes, the outcome turns on informed decisions, with the right guidance, in the context of any of the statutory timeframes and requirements.

Timeline

The Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Act) runs on a largely fixed timetable, and the landowner’s position is the strongest at the start of the timeline. The Act and the relevant acquisition standards specify the following critical time periods:

1. Commencement of negotiation:
   • First contact: the authority may reach out either informally or with a formal commencement letter. Once the authority has made first contact, the parties can begin negotiations.
   • 6 months: the authority must make a genuine attempt to acquire the land by agreement for at least 6 months before issuing a PAN.
2. Proposed Acquisition Notice (PAN)
   • PAN: if agreement cannot be reached on acquisition of the land within the 6-month period, the authority may issue a Proposed Acquisition Notice.
   • 90 days: the PAN must give at least 90 days’ notice before the land is compulsorily acquired, unless the landowner agrees to a shorter period in writing or the responsible Minister approves one on urgency grounds.
   • Negotiations: the landowner and the authority may continue to negotiate during this period.
   • 120 days: if the authority has not acquired the land or withdrawn the PAN within 120 days of giving it, or any longer period the authority and the landowner have agreed in writing, the PAN is taken to be withdrawn, and a further PAN cannot be given for 12 months after that withdrawal unless the Minister responsible for the authority is satisfied that a further notice is justified.
3. Interim divergence of paths
   • Option 1: section 30 agreement
     • If the landowner and the authority reach agreement, it will take the form of a section 30 agreement.
     • The change of ownership still takes effect when the authority publishes an acquisition notice in the Gazette, but the parties agree on the timing and the process that leads to it. See “Section 30 Agreements” below for more details.
   • Option 2: Landowner claim for compensation
     • 60 days: if the landowner prefers to claim compensation on its own valuation, it generally has 60 days after receiving the PAN to submit a claim for compensation. The period may differ but will be set out in the PAN.
     • During the 60-day period, and before submitting a claim for compensation, the landowner and the authority may continue to negotiate.
   • Acquisition notice
     • Notice in the NSW Government Gazette: the land is formally acquired (in whole or in part) when the authority publishes a notice in the Gazette. On publication, the acquiring authority becomes the owner of the land, freed and discharged from all interests in, over or in connection with the land.
     • 3 months (primary residence or business): if the acquired land includes a building that is the landowner’s principal place of residence or place of business, the landowner is entitled to remain in that building for 3 months after acquisition, subject to narrow exceptions.
   • Compensation notice
     • Preliminary Valuation Report: the report sets out the proposed amount of compensation.
     • Compensation Notice: within 45 days after the acquisition notice (a period the Minister may extend by no more than 60 days, and only where necessary), the authority must provide the Valuer-General’s determination of compensation to the landowner. The landowner may accept the determination or object to it.
   • Landowner objection
     • 90 days: if a landowner has claimed compensation (see paragraph 3b), it can lodge an objection with the NSW Land and Environment Court within 90 days after receiving the compensation notice.
     • After 90 days: the landowner may still lodge an objection. The Court may hear and dispose of it if satisfied that there was good cause for the landowner’s failure to lodge within the 90-day period.

When the timeline does not apply

The 6-month negotiation period (under Timeline, item 1b) does not apply to Crown land, an easement under the surface for construction or maintenance of works, or to a stratum below the surface taken for a tunnel. If your land sits above a proposed tunnel, or is affected by an underground cable or pipeline, the timeline set out above may not be available for you. Instead, your compensation position may be the one described below.

No compensation for subsurface easement

Where the acquisition is only of a subsurface easement, or right to use land for the construction and maintenance of works, compensation is not payable except for actual damage done in constructing the work, or caused by the work itself once built. This could include construction and maintenance of tunnels, pipes, conduits, or electrical cables.

In addition, where subsurface land is taken for a tunnel, compensation is not payable unless the work disturbs the surface, destroys or damages support, or renders mines or underground projects unworkable. Different rules apply to easements over the surface.

Where the acquisition includes a surface easement, or right to use the surface for works such as electrical cables, canals, drainage, stormwater channels, openings or ventilators, the easement is taken to include a standing power to enter the land for inspection and for any additions, renewals or repairs, and compensation is payable accordingly.

Section 30 agreements

Section 30 of the Act allows the landowner and the authority to agree in writing that the land be compulsorily acquired. The acquisition still takes effect by notice in the Gazette, however, the parties can agree on the compensation and the terms on which the process runs.

A section 30 agreement is often the better outcome: it provides certainty on the compensation amount and avoids the cost and delay of lodging an objection later. It also allows tailored arrangements for ownership, leasehold interests, and licences for entry and construction.

The agreement can also move the matter along more efficiently. The parties may fix a date for publication of the Gazette notice, or propose a timetable for compensation payments in tranches.

A few notable points:

1. The landowner should obtain its own professional valuation for two main reasons. The first is that it tells the landowner what the land is worth before negotiations begin. The second reason is statutory: if a section 30 agreement is executed, and the owner has agreed in writing on all relevant matters concerning the compulsory acquisition and the compensation, the pre-acquisition procedures (Part 2 Division 1 of the Act) and the entire compensation framework (Part 3 of the Act) cease to apply, including the PAN regime, the 90-day protection, the Valuer-General’s determination, and the right to lodge an objection after acquisition. The early valuation, therefore, is for the owner’s self-protection.
2. Time can be of the essence even in the early stages of negotiation. As noted above under Timeline, item 3b, the PAN sets a window for lodging a Claim for compensation. A claim may still be lodged afterwards, but only a landowner who has claimed compensation may object to the Land and Environment Court. If a formal agreement cannot be executed within that window, lodging a Claim for compensation is usually the safer course of action, as it preserves the landowner’s right to object and puts its valuation and concerns before the Valuer General.
3. A section 30 agreement may provide for physical works as well as monetary compensation, for example: replacement access, fencing, water and drainage works, and noise attenuation. Where relevant, these should form part of the negotiation as they are difficult to revisit once the agreement is executed.
4. The method of acquisition can carry tax consequences. Landowners should consult their tax adviser before agreeing to, for example, a contract of sale rather than a Gazette notice.

Valuation and costs

Authority valuations commonly understate highest and best use, severance and the effect on retained land. The compensation to which the landowner is entitled depends on six matters only, set out in section 55 of the Act:

1. market value on the date of acquisition,
2. special value to the person on the date of acquisition,
3. any loss attributable to severance,
4. any loss attributable to disturbance,
5. the disadvantage resulting from relocation, and
6. any increase or decrease in the value of any other land of the person at the date of acquisition that adjoins or is severed from the acquired land by reason of the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired.

Valuer’s fees: “disturbance loss” includes the valuation fees of a qualified valuer reasonably incurred, but excludes fees calculated by reference to the assessed value of the land, so a percentage or success-based engagement is not recoverable.

Stamp duty on relocation: “disturbance loss” also includes stamp duty costs reasonably incurred, or that might reasonably be incurred, on the purchase of land for relocation. The recoverable amount is capped at the duty payable on land of equivalent value to the land acquired. If the landowner purchases a more expensive replacement, it will bear the difference. Actual physical relocation is generally required before the landowner can make a claim for stamp duty costs, which narrows the circumstances in which investors and developers can recover the duty on replacement land.

Legal costs: “disturbance loss” also includes legal costs reasonably incurred by the person entitled to compensation, in connection with the compulsory acquisition of the land. This is worth clarifying with your legal adviser before you choose a pathway.

Disadvantage resulting from relocation: this means the disadvantage resulting from the necessity of the landowner to relocate its principal place of residence as a result of the acquisition. The maximum amount of compensation is capped at $75,000 (2017 figure, indexed to CPI).

Interest and advance payments: interest on compensation accrues from the date of acquisition until it is paid. If a landowner objects to the Land and Environment Court, the authority is generally required to pay 90% of the amount it offered as an advance within 28 days of being notified that proceedings have commenced, or, if the landowner does not accept that advance, pay the same amount into trust, in which case interest will not accrue on the amount held in trust. If a landowner accepts the advance payment, it is not automatically seen as acceptance of the authority’s offer. The risk is, however, that if the Court’s award, disregarding interest, does not exceed the authority’s offer by more than 10%, the Court may cancel or reduce the amount of interest that accrued from the beginning of the proceedings.

Strategic Benefit Payment (SBP) Scheme

Separately from the Act, private landholders hosting permanent transmission easements for eligible infrastructure may be entitled to a second benefit. A strategic benefit payment totalling $200,000 per kilometre (2022 figure, indexed to CPI) is available under guidelines. That figure is the whole of the 20-year entitlement, paid in annual instalments, so a landholder hosting 1 kilometre of line receives in the order of $10,000 a year. This Scheme does not reduce any Just Terms compensation.

Conclusion

If an authority wants to acquire privately owned land, the owner’s choices narrow significantly once an acquisition notice is issued. If an authority has approached you about compulsory acquisition or an easement, either formally or informally, the time to obtain legal advice and professional valuation is before you respond, not months after a Proposed Acquisition Notice.