In Australia, both Commonwealth and State government agencies and authorities can compulsorily acquire private property for a public purpose. During this process, the agency acquiring the property is required to pay compensation to the affected landowner and any other parties that may have an interest in the land, including tenants and business owners. In New South Wales, this is governed by the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (the “Just Terms Act”).
Typically, business owners can claim compensation under section 59(1)(f) of the Just Terms Act for the “loss attributable to disturbance of land” which includes “any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition.” Until recently, business relied upon this section in claiming loss of profits as a result of the acquisition.
In the decision in Roads and Maritime Services v United Petroleum Pty Ltd  NSWCA 41, the Court of Appeal significantly narrowed the scope of claims that business owners can make under section 59(1)(f) of the Just Terms Act. The issues considered under appeal were: (a) the business owner’s claim for loss of ongoing business profits; and (b) the business owner’s increased rent paid to the acquiring authority.
A key fact in this case was that United Petroleum operated a service station and restaurant business on the acquired land under an oral lease agreement with the landlord. This type of lease (known as a “tenancy at will”) can be terminated upon the landlord giving the tenant one month’s notice. When this case was heard at first instance in the Land and Environment Court of NSW, the acquiring authority, Roads & Maritime Services (RMS), was ordered to pay compensation to United Petroleum almost $2,000,000 for loss of future profits and an additional sum for the rent paid RMS for the continuation of its lease.
On appeal, the RMS successfully challenged the amount of compensation payable to United Petroleum. The Court’s considered the following:
- Although the closure of United Petroleum’s business was a direct and natural consequence of the acquisition, it was determined that the “principal cause” of the loss of profits was United Petroleum’s “decision to conduct a business intended to operate in the long term under a lease which could be terminated at any time on very short notice.” The long-term loss of profits was not a direct and natural consequence of the acquisition of its interest but instead, a consequence of the lease arrangement it had with the landlord.
- Even though the landlord was a related company and the nature of its relationship with the tenant suggested that the landlord would not terminate the lease in the short-term and that there would be a continued operation of the lease in the long-term, this was not a factor to be taken into account in assessing United Petroleum’s current interest.
- As a result, only one month’s notice was required to terminate the tenancy at will. In those circumstances, the Court found that “only the loss of one month’s profits can fairly be said to be the “direct and natural consequence of the acquisition” for the purposes of s 59(1)(f) of the Just Terms Act.
- Further, it was determined that United Petroleum could not claim for the additional rent paid to the RMS as it was not a direct and natural consequence of the acquisition. Although the Court found that it was “causally related to that event”, it also found that the additional rent paid was a “direct and natural consequence of the decision of the tenant to stay in the occupation for the agreed occupation fee”.
The matters raised and considered in United Petroleum have caused uncertainty for affected business owners as to what compensation they can claim for future loss of profits. There are numerous government projects across NSW where a government agency or authority is seeking to acquire private property. If you are an affected business owner needing advice about your rights, get in touch with our experienced solicitors today.