Jenny Turner and Mike Doesburg, Partners at Wynn Williams who have expertise in negotiations and acquisition of land under the PWA.
Valuing land that is to be taken for any public work under the Public Works Act 1981 (PWA) is a complex process.
The PWA attempts to strike a delicate balance between achieving public benefits by allowing compulsory acquisition of land for the efficient development of infrastructure at a reasonable cost, and fairly compensating owners for the loss of their private property rights.
Section 60 of the PWA acknowledges that dispossessed landowners have a basic entitlement to “full compensation” for land acquired for public work, while section 62 sets out the principles that define the valuation methodology for determining that compensation.
The finer points of the valuation methodology, and how the Land Valuation Tribunal puts it to work in practice, was recently examined by the High Court in Flath v The Minister for Land Information [2024] NZHC 36.
Flath concerned a partially successful appeal from a Tribunal decision, relating to the assessment of compensation under section 62 for the taking of part of a property in Raumati South for the Mackay’s to Peka Peka Expressway.
The Tribunal assessed compensation payable at $38,000 for the value of the land taken, together with $32,000 for injurious affection. The $38,000 figure was arrived at by using a start point of $130,000 (being the adjusted site value for the land taken) and deducting $92,000 for what would be subdivision costs and other intangibles.
The Tribunal rejected the proposition that where land is taken compulsorily, the valuer was entitled to assume that clear title, and therefore ignore the subdivision costs when determining the compensation amount.
The owners appealed on a number of grounds. Of particular interest, the owners argued that the Tribunal failed to correctly follow the statutory requirements in assessing compensation for the taking of land as required under sections 60-62 of the PWA.
The High Court’s decision on this point acts as a helpful guide in how valuations should be approached when negotiating with an owner.
Failure to follow statutory requirements
The parties agreed that section 62(1)(b) of the PWA requires that the assessment of the value of land taken is, subject to specified exceptions, an assessment of the value realised if sold on the open market between a willing buyer and willing seller.
The Crown argued before the Tribunal that one of those exceptions to the willing buyer/seller approach applied, on the basis that the land taken was of a “size, shape, or nature for which there is a general demand or market…” and could not be subdivided economically.
This exception would allow the Crown to instead apply the “before/after method” of valuation, where a market valuation of the owner’s entire landholding is assessed before the taking, from which the market value ofthe land after the taking is deducted.
The Tribunal rejected this approach on the basis that there was a general demand for the taken land. On appeal, both parties took a willing buyer/seller approach to the valuation.
The High Court outlined several principles that are relevant when applying the willing seller/buyer methodology, including the following.
Imaginary market: the PWA requires that the valuer apply the concept of a willing buyer/seller in an open market on the specified date as the property then existed including zoning without the prospect of a public work.
Principle of equivalence: the compensation figure cannot exceed the owner’s total loss.
Potentialities: it must be assumed that both parties are deemed to be reasonable and prepared to weigh up all relevant circumstances. This means that all potential use of the taken land must be considered.
Liberality: notwithstanding the principle of equivalence, any cases of doubt should be resolved in favour of the owner.
In applying the above methodology, the High Court confirmed that the Tribunal had reached the correct valuation result.
This was despite some irregularities in its reasoning (which included typographical errors) and in failing to properly articulate its reasoning. This was because the Tribunal applied the willing buyer/seller methodology correctly and, in particular, correctly determined a transfer
price factoring in the costs of obtaining a subdivision of the taken land.
Comment
Land valuation law is notoriously difficult. General principles have developed based on English common law, albeit with a special Kiwi flavour reflective of NZ legislation.
The real challenge is applying those general principles to complex fact scenarios, including where dispossessed landowners are often chasing something more than the “full compensation” the PWA offers.
Flath is a worthwhile read for those with an interest in the finer points of valuation methodologies for land acquisition and injurious affection.
It is also a useful reminder that “full compensation” is often less than the “special value” land may have to its owner.