The High Court has rejected a claim for planning compensation by owners of land who purchased the land after it had been reserved, confirming the established principle that purchasers of reserved land are not entitled to such compensation.

Authorities and claimants alike need to be aware of the circumstances in which planning compensation is payable, or stands to be lawfully refused.

We have previously written about the requirement in Victoria for planning authorities to compensate land owners or occupiers whose land is reserved for a public purpose under a planning scheme. This is provided for by Part 5 of the Planning and Environment Act 1987 (Vic) (P&E Act). Part 5 enables an owner or occupier to recover financial loss caused by the reservation of land before it is compulsorily acquired, which may not occur for an uncertain period.

Who can claim planning compensation?

A key feature of this compensation regime is that only the owner or occupier of the land at the time the reservation was made is entitled to compensation. The meaning of ‘owner’ in the P&E Act is not restricted only to registered proprietors.

A person who has purchased land with knowledge that it was already subject to a public purpose reservation cannot receive compensation on the basis that any loss is not caused by the reservation. The Victorian Supreme Court ruled on this issue some years ago in Halwood Corporation Ltd v Roads Corporation (1995) 89 LGERA 280.

On 8 February 2017, the High Court of Australia delivered a decision that considered this issue with respect to Western Australia’s equivalent legislation, the Planning and Development Act 2005 (WA) (P&D Act). The fact that the issue ascended to the High Court is significant.

The High Court previously considered, but did not finally resolve, this same issue as it applied to the legislation preceding the P&D Act. In that case, the High Court was divided:

• McHugh and Callinan JJ ruled that, where the owner of land at the time of the reservation had not already claimed compensation, the legislation entitled subsequent owners to claim compensation
• Gummow and Hayne JJ ruled that entitlement to compensation only arose in favour of the owner of the land at the time of the reservation
• Heydon J’s decision did not consider this issue.

Accordingly, the important question of who is entitled to compensation in these circumstances was left unresolved.

What is the issue?

Where planning compensation has not previously been paid, from an equitable perspective, it might be said that the value of reserved land remains undiminished – at least until such time as the land is acquired compulsorily.

Conversely, it is also fair to suggest that a purchaser of reserved land should not be compensated for land already known to have lost its development potential.

As it turns out, both arguments are correct. So how did the High Court decide the matter?

The facts

Southregal involved land that had been reserved for a public purpose under the Peel Region Planning Scheme in March 2003. The Respondents purchased the land in June and October 2003 (i.e. after the reservation) and applied for permits to develop the land in 2008 and 2009. The permits were refused on account of the public purpose reservation – ordinarily a trigger for a compensation claim. The owner of the land at the time it was reserved had not claimed compensation under the P&D Act.

The Respondents made planning compensation claims. The Western Australia Planning Commission rejected the claims on the basis that compensation is only available to the owner of the land at the time of the reservation, in accordance with the High Court’s decision in Temwood.

The Respondents appealed to the Western Australia Supreme Court (WASC). They relied on the converse views of McHugh and Callinan JJ in Temwood in claiming that, because the owner at the time of the reservation had not claimed compensation and the Respondents had had permit applications rejected on account of the reservation, they were entitled to compensation.

The WASC decided in the Respondents’ favour, and this decision was upheld by the Western Australia Court of Appeal (WACoA). The Western Australia Planning Commission appealed to the High Court.

The High Court’s decision

By a 4 to 1 majority, the High Court overturned the lower decisions and allowed the appeal. In doing so, it ruled that the proper interpretation of the relevant provisions was, effectively, that of Gummow and Hayne JJ in Temwood.

Accordingly, the right to compensation with respect to the land arose in favour of the owner of the land at the time of reservation when the land was sold to the Respondents. The effect of this interpretation was that no entitlement to planning compensation arose in favour of the Respondents, regardless of the fact that the owner at the time of the reservation had not claimed compensation.

As indicated above, the right of Victorian owners to planning compensation was resolved in Halwood. Although the relevant provisions of the P&E Act are slightly different to the equivalent provisions in the P&D Act, the High Court’s decision in Southregal has effectively aligned Western Australia with the Victorian position.

It is important to note that, at least in Victoria, there is no doubt that where planning compensation has not been previously paid, the full unaffected value of land is payable upon compulsory acquisition. The value of the reserved land remains undiminished. Even though the current owner may not be entitled to planning compensation, compensation rights for compulsory acquisition are unaffected.

A copy of the High Court’s full decision in Southregal can be found here.