Guidance by Courts on valuation principles for Public Works Act claims
Section 62 of the Public Works Act sets out how compensation is to be assessed when land is acquired by an authority under the Act.
The value of the land for compensation purposes is the amount it would be expected to realise if sold in the open market by a willing seller to a willing buyer.
This is subject to exceptions including land for which there is no general demand in which case it may be valued on a ‘before and after’ methodology.
Any increase or decrease in the value of the land arising from the prospect of the work is not to be considered.
The application of these principles to the facts of each case can be complex. We summarise key points from three recent Court decisions which consider the interpretation of section 62.
Flath v Minister for Land Information
The claimants owned semi-rural property north of Wellington, part of which was acquired for the Peka Peka Expressway. An issue arose as to the correct method of valuing their land including subdivision opportunities. The High Court found:
Valuing the land on a willing seller/buyer basis requires determination of the “highest and best use” (HABU) of the land, amongst other things.
Where there is no general demand for land the “before/after’ method may be used (it is not compulsory) but even where there is such demand that method can be used as a cross-check.
It is reasonable to consider hypothetical subdivision opportunities, but in doing so it is necessary to factor in the costs and intangibles of the subdivision.
Casata Ltd v Minister for Land Information
The claimant owned properties required for the Petone-Link Rd. It claimed the announcement of the roading project, some years prior to the acquisitions, cost it an opportunity to sell or redevelop two properties. It sought compensation for its loss during this so called ‘shadow period’.
The Court of Appeal held:
The loss claimed during the ‘shadow period’ was not claimable, as compensation is only payable in response to the exercise of a statutory power, and any effects from the prospect of the work is not relevant to the assessment of compensation under section 62.
The potential for development, as it was prior to the announcement, was however relevant to determining the value of the land for the purposes of compensation.
Attorney-General v Auckland Council
To construct the motorway connection between State Highways 1 and 18 in northwest Auckland, Waka Kotahi NZTA acquired two recreation reserves vested in the Council.
The issue was whether market value should be assessed with reference to limitations placed on the reserves by the Reserves Act and consequent land use zoning. This would mean making an allowance for the expense of revoking the land’s reserve’s status and rezoning for alternative use.
The High Court held the purpose of the Act is to assess full compensation for land in the counterfactual of the parties’ compromising their position on price for the sale. That compromise necessarily factors in both limitations to and prospects for achieving the land’s potential. The restrictions on the reserves therefore had to be taken into account in assessing value.