Hidden costs and underlying zoning issues with compulsory acquisition
29 July 2016
The recent case of Constantine v Blacktown City Council (No 2)  NSWLEC 81 is the first to consider whether the costs of non-valuation expert reports are compensable under s59(1)(b) or s59(1)(f), following an amendment to the Land Acquisition (Just Terms Compensation) Act 1991 on 1 March 2016. It also highlights the impact that ecological constraints can have on market value.
Blacktown City Council compulsorily acquired 8.6573Ha of land in Marsden Park from Mario Constantine for drainage, road and public recreation purposes.
Mr Constantine sought advice from a lawyer, a second lawyer (after the first could no longer act), an ecologist, a town planner and two valuers.
A dispute arose in relation to the assessment of market value and Mr Constantine's entitlement to recover pre-litigation legal costs, valuation fees and ecologist fees under s59 of the Just Terms Act.
Ecological conservation slashes market value
The dispute in relation to market value centred on the underlying zoning to be attributed to 5.635Ha on the western portion of the acquired land (Western Portion). Council's town planner asserted that the underlying zoning of the Western Portion should be E2 Environmental Conservation, while Mr Constantine's town planner asserted that the underlying zoning should be R2 Low Density Residential, the same underlying zoning as the rest of the acquired land.
A Shale Gravel Transition Forest, a listed endangered ecological community, existed on the Western Portion. The Court found that the Western Portion had a greater conservation value than other areas that had been protected by the E2 zone in the Marsden Park Industrial Precinct. On this basis, the Court found that, absent the public purpose, the Western Portion would also have been zoned E2 and that there were no prospects of up-zoning the Western Portion to R2.
The Court adopted a rate of $250/m2 for the Eastern Portion of land zoned R2, $100/m2 for land within a transmission line easement and $80/m2 for the Western Portion zoned E2, awarding $7,818,900 in compensation for market value.
The challenge of claiming pre-litigation costs
Mr Constantine's claim for legal fees was allowed (despite engaging two lawyers) on the basis that the work completed by the two lawyers did not overlap, and the total legal fees claimed were not "manifestly unreasonable" given the complexity of the matter.
His claim for valuation costs of the first valuer engaged, whose report was not relied upon, was denied on the basis that the lawyers "did not appear to engage with this document as part of the legal assistance provided… during the preparation for acquisition process". The second valuer's costs were allowed.
His claim for the ecologist's costs, made first under s59(1)(b) and then under s59(1)(f), was also denied on the basis that:
- The ecologist's costs do not fall within s59(1)(b) as that section related only to the costs of "qualified valuers"; and
- The ecologist's costs are not compensable under s59(1)(f), the "catch all" provision, as they do not relate "to the actual use of the land" as the ecologist's report dealt with the potential future use of the land.
Key take outs
- An understanding of the ecological context is needed in conservation areas before underlying zoning can be determined. Ecological constraints can have a huge impact on the market value of land.
- Where a valuer provides a report and that is not used as the basis of a claim for compensation, that cost is unlikely to be allowed under s59(1)(b).
- The costs associated with ecologists may not be claimable unless those costs were "reasonably incurred" and relate "to the actual use of the land". In this case, the ecologists advice on a future potential use of the land are not recoverable under s59(1)(f). That was not the "actual use" at the date of acquisition.