No stamp duty compensation for passive investors
11 October 2016
A recent decision by the Land and Environment Court has clarified that stamp duty costs are not compensable where the acquisition of property has not resulted in relocation, or where the acquired property was used by the owner as a passive investment.
The Court's decision in Speter v Roads and Maritime Services  NSWLEC 128 also highlights the importance of using appropriate comparable sales to determine market value.
On 21 August 2015, Roads and Maritime Services (RMS) compulsorily acquired land at 467 Warringah Road, Frenchs Forest in Sydney from Harold and Deidre Speter as part of the Northern Beaches Hospital Connectivity and Network Enhancement Project.
At the date of acquisition, the property was leased to the Health Administration Corporation, which used the house for medical consulting rooms. The Speters stated that the property, and the income generated from it, formed their "superannuation".
Based on the Valuer General's assessment, RMS offered compensation of $1,522,000, comprising $1,425,000 for market value and $97,000 for disturbance.
The Speters sought compensation of $2,757,937.90, comprising $2,600,000 for market value and $157,937.90 for disturbance. This included a claim for stamp duty on the purchase of a replacement investment property under s 59(1)(d) or, in the alternative, under s 59(1)(f) of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (the Just Terms Act).
The Court held the evidence of RMS on the market value of the land was more persuasive. RMS' valuer relied upon six sales of land relatively close to the acquired property. The Speters' valuer relied on sales that were a significant distance from the acquired property and were used for different purposes to that of the acquired property. Only one of the sales was comparable to the acquired land.
The Court ultimately determined compensation for market value in the amount of $1,740,000 after adjusting the one common comparable sale.
Stamp duty: No 'relocation' and no 'actual use'
Section 59(1)(d) of the Just Terms Act allows a former owner to recover the stamp duty paid to acquire a new property to which they will relocate following an acquisition. The Speters argued 'relocation' was intended to be read broadly and should not be restricted to the actual relocation of persons. As their investment in the property was a business, they submitted that their investment business could be relocated.
The Court agreed that the relocation of something other than the applicants themselves could be claimed, including the relocation of a business. However, while some investments could be classified as a business, the operation of a business requires some "level of engagement with the commercial enterprise". While the Speters derived an income from leasing the property, they only passively received that income. Relocating the Speters' investment, for instance, would only involve the relocation of money, which would not fall within the ambit of s 59(1)(d).
The Court also found that the Speters' claim for stamp duty costs was not compensable under s 59(1)(f) of the Just Terms Act as the Speters were not able to establish that their involvement with the property went beyond deriving an income or making a capital gain, meaning there was no "actual use". The owners were merely passive investors.
The Court rejected the Speters' stamp duty claim and ultimately awarded them compensation for disturbance in the amount of $21,250 for legal costs and valuation costs reasonably incurred.
Key take outs
- Assessment of market value must rely on sales which can be directly compared to the acquired property. Therefore, sales of property a considerable distance from the acquired land and used for different purposes are unlikely to be comparable.
- Claims for stamp duty under s 59(1)(d) will not automatically be allowed where an investment is being relocated. The claimant must demonstrate more than a passive investment.
- Claims for stamp duty under s 59(1)(f) will only be allowed where that cost relates to "the actual use of the land". Passive investment in land will not amount to an actual use of that land.
- This decision follows on from the recent case of G. Suonaf Holdings Pty Ltd v Roads and Maritime Services  NSWLEC 116 where Preston CJ did not allow a claim for stamp duty under s 59(1)(f) for the purchase of a replacement residential investment property, because the applicant had not established an actual use of the land, having only received rental income from the acquired property.