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Valuing partial acquisitions: benefits and limits of the before and after method

Where only part of a property is required for a public purpose, what valuation methodology is most appropriate? The answer will depend upon the particular circumstances of each case unless you are valuing the acquisition of land under the Victorian legislation.

In all Australian state and territory jurisdictions (including acquisitions under the Commonwealth legislation), the impact of a partial taking on remaining or unacquired land is to be taken into account.

This includes an assessment of:

  • any loss by way of severance of the unacquired land remaining with the owner
  • any decrease in value (injurious affection) or any increase in value (enhancement) to the remaining land as a result of implementing the purpose for which the land was acquired.

In Victoria, compensation payable to the landowner for a partial acquisition must be valued using the ‘before and after’ method1. Mandating this method makes sense in most cases, although it is interesting that this is only required in Victoria.

Consideration of the method in Victoria

In CRG Nominees Pty Ltd v Department of Economic Development, Jobs, Transport and Resources, the Victorian Court of Appeal confirmed the market value derived from a ‘before and after’ method includes severance and other impacts on the retained land resulting from a partial acquisition.

CRG was a case where a sliver of land with residential development potential was compulsorily acquired for the Regional Rail Link project. The project involved a future train stabling facility with 24-hour operations being constructed on neighbouring land.

The future industrial use was said to have a significant effect on market value of the remaining land, in the words of the owner turning the land ‘from an A-grade site to a B-grade site’.

The future stabling facility was reflected in a conceptual plan commissioned before the acquisition which was not made publicly available. The plan in fact showed the stabling yards were to be located further north of the owner’s (claimant’s) land, which would have minimised the severance impact, and thus the compensation award.

The Authority sought to separate the severance component from the market value of the acquired land. It argued this was necessary for the following reasons:

  • To account for a matter which was not public knowledge until after the acquisition in order to minimise the impact on the value of the remaining land. Consideration of matters not known to a prospective purchaser at the date of acquisition are clearly not relevant to market value or severance2, but may be relevant when assessing loss by way of injurious affection.
  • To support a lower cap on solatium payable to the landowner. Solatium in Victoria is capped at 10 per cent of the market value of the acquired land.

The Court of Appeal confirmed the decision of Her Honour Emerton J below such that a valuation of a partial acquisition produced using the before and after method is a ‘rolled up’ assessment of the value of the interest acquired, including market value and severance. This effect on value is referrable solely to what was known at the date of acquisition. On this basis the concept plan could not be given any weight in assessing compensation.

Although a separate claim for injurious affection could be made to take into account matters after the acquisition (including the concept plan), no such claim was made in CRG.

Are there limitations to the method?

While the ‘before and after’ method of valuation is mandated for partial acquisitions only in Victoria, it is a widely accepted method of valuation in partial acquisition cases around Australia. Valuers practising outside Victoria need to decide the most appropriate method in each particular circumstance.

A before and after method will not be necessary, for instance, where there is no evident change to the market value of the remaining land following the acquisition of an insignificant part of the overall landholding, or where the effect of the acquisition is negligible.

In NSW, the legislation requires compensation to be no less than the value of the land acquired. While the ‘before and after’ method may produce no difference to the after value of the land, the land taken must be valued to set a minimum compensation figure in NSW. This serves to ensure fairness to the acquired owner.

The ‘before and after’ method may also be inappropriate where an acquiring authority has separately compensated the owner for disturbance costs resulting from the acquisition. An example might be a cost to replace infrastructure on the remaining land. In such instances, the acquired land should be valued separately from the remaining land to avoid double counting in the compensation process.

Where the ‘before and after’ method is not adopted, a valuer will need to separately value the land taken and then assess whether there has been any increase or decrease in the value of the remaining land. This can be by reason of the acquisition or the specific purpose (or project) for which the land was acquired 3. If there is an increase or decrease, the valuer will then need to justify that increase or decrease supported by evidence. This is likely to be a more difficult valuation exercise.

Authors
Chris Cantor | Partner
+61 3 9258 3870
chris.cantor@maddocks.com.au
Nancy Hua | Senior Associate
+61 3 9258 3514
nancy.hua@maddocks.com.au

Article published by Australia and New Zealand Property Journal, December 2018.

1 Section 41(3) of the Land Acquisition and Compensation Act 1986 (Vic)

2 Severance is referrable to market value of the whole of the land on a before and after basis. See for example s 58 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) and s 40 of the Land Acquisition and Compensation Act 1987 (Vic)

3 AMP Capital Investors Pty Ltd v Transport Infrastructure Development Corporation [2008] NSWCA 325

Where only part of a property is required for a public purpose, what valuation methodology is most appropriate? The answer will depend upon the particular circumstances of each case unless you are valuing the acquisition of land under the Victorian legislation.

In all Australian state and territory jurisdictions (including acquisitions under the Commonwealth legislation), the impact of a partial taking on remaining or unacquired land is to be taken into account.

This includes an assessment of:

  • any loss by way of severance of the unacquired land remaining with the owner
  • any decrease in value (injurious affection) or any increase in value (enhancement) to the remaining land as a result of implementing the purpose for which the land was acquired.

In Victoria, compensation payable to the landowner for a partial acquisition must be valued using the ‘before and after’ method1. Mandating this method makes sense in most cases, although it is interesting that this is only required in Victoria.

Consideration of the method in Victoria

In CRG Nominees Pty Ltd v Department of Economic Development, Jobs, Transport and Resources, the Victorian Court of Appeal confirmed the market value derived from a ‘before and after’ method includes severance and other impacts on the retained land resulting from a partial acquisition.

CRG was a case where a sliver of land with residential development potential was compulsorily acquired for the Regional Rail Link project. The project involved a future train stabling facility with 24-hour operations being constructed on neighbouring land.

The future industrial use was said to have a significant effect on market value of the remaining land, in the words of the owner turning the land ‘from an A-grade site to a B-grade site’.

The future stabling facility was reflected in a conceptual plan commissioned before the acquisition which was not made publicly available. The plan in fact showed the stabling yards were to be located further north of the owner’s (claimant’s) land, which would have minimised the severance impact, and thus the compensation award.

The Authority sought to separate the severance component from the market value of the acquired land. It argued this was necessary for the following reasons:

  • To account for a matter which was not public knowledge until after the acquisition in order to minimise the impact on the value of the remaining land. Consideration of matters not known to a prospective purchaser at the date of acquisition are clearly not relevant to market value or severance2, but may be relevant when assessing loss by way of injurious affection.
  • To support a lower cap on solatium payable to the landowner. Solatium in Victoria is capped at 10 per cent of the market value of the acquired land.

The Court of Appeal confirmed the decision of Her Honour Emerton J below such that a valuation of a partial acquisition produced using the before and after method is a ‘rolled up’ assessment of the value of the interest acquired, including market value and severance. This effect on value is referrable solely to what was known at the date of acquisition. On this basis the concept plan could not be given any weight in assessing compensation.

Although a separate claim for injurious affection could be made to take into account matters after the acquisition (including the concept plan), no such claim was made in CRG.

Are there limitations to the method?

While the ‘before and after’ method of valuation is mandated for partial acquisitions only in Victoria, it is a widely accepted method of valuation in partial acquisition cases around Australia. Valuers practising outside Victoria need to decide the most appropriate method in each particular circumstance.

A before and after method will not be necessary, for instance, where there is no evident change to the market value of the remaining land following the acquisition of an insignificant part of the overall landholding, or where the effect of the acquisition is negligible.

In NSW, the legislation requires compensation to be no less than the value of the land acquired. While the ‘before and after’ method may produce no difference to the after value of the land, the land taken must be valued to set a minimum compensation figure in NSW. This serves to ensure fairness to the acquired owner.

The ‘before and after’ method may also be inappropriate where an acquiring authority has separately compensated the owner for disturbance costs resulting from the acquisition. An example might be a cost to replace infrastructure on the remaining land. In such instances, the acquired land should be valued separately from the remaining land to avoid double counting in the compensation process.

Where the ‘before and after’ method is not adopted, a valuer will need to separately value the land taken and then assess whether there has been any increase or decrease in the value of the remaining land. This can be by reason of the acquisition or the specific purpose (or project) for which the land was acquired 3. If there is an increase or decrease, the valuer will then need to justify that increase or decrease supported by evidence. This is likely to be a more difficult valuation exercise.

Authors
Chris Cantor | Partner
+61 3 9258 3870
chris.cantor@maddocks.com.au
Nancy Hua | Senior Associate
+61 3 9258 3514
nancy.hua@maddocks.com.au

Article published by Australia and New Zealand Property Journal, December 2018.

1 Section 41(3) of the Land Acquisition and Compensation Act 1986 (Vic)

2 Severance is referrable to market value of the whole of the land on a before and after basis. See for example s 58 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) and s 40 of the Land Acquisition and Compensation Act 1987 (Vic)

3 AMP Capital Investors Pty Ltd v Transport Infrastructure Development Corporation [2008] NSWCA 325