The Plunkett Decision – How it affects loss on sale claims
Known as a “planning blight”, the Planning and Environment Act 1987 (the Act) has long provided a right to owners of land to claim compensation where such land has been sold at a lower price than might have reasonably been expected had it not been reserved (or proposed to be reserved) for a public purpose. This is known as a “loss on sale claim”. The most common right to compensation arises out of the situation where a Public Acquisition Overlay is applied to a property during the ownership and then sold at a lower value due to the proposed acquisition.
Compensation for a loss on sale has been traditionally determined by reference to the affected value of the property, namely, the sale price, and the unaffected value, being the value of the land had it not been reserved or proposed to be reserved for the public purpose. In our experience the claim can range from a nominal amount to millions of dollars, depending on the extent and potential effects of the public purpose.
In a recent decision of the Honourable Melinda Richards of the Supreme Court of Victoria, the approach of loss on sale claims has been turned on its head away from traditional industry practices.
This article discusses how the decision in Plunkett v Roads Corporation  VSC 39 affects unresolved and future loss on sale claim.
The Plunkett Decision
The question that was placed before her Honour was as follows:1
When did the ‘sale of land’ for the purposes of sections 99 and 106 of the Planning and Environment Act 1987 occur?
Historically, all loss on sale claims had been taken as crystallised (by both claimants and authorities) on the day that a contract of sale is signed, being the “Day of Sale” as defined in the standard particulars of a contract of sale. However, where the contract provides for an extended settlement, there was always risk that compensation for a loss on sale claim is paid before settlement – meaning that a situation may arise where compensation is paid and the purchaser defaults, and the contract is not completed. This precarious situation has caused conflict between claimants and authorities in processing such claims.
In the decision, her Honour held that the ‘sale of land’ for the purpose of the Act occurred at the time upon which the purchaser becomes entitled to be registered as the proprietor of the land,2 namely at settlement. This was identified by her Honour as the moment upon which the contract becomes “unconditional”.3
Section 106(1)(b) of the Act requires a minimum of 60 days’ notice of an intention to sell be given to the relevant authority prior to “selling the land”. This notice provision was traditionally used by authorities to “supervise” the sale process to ensure that the owner takes steps to achieve the highest market price for the affected property (and, preferably, at arms length).
Her Honour has instead held that the purpose of the notice is to “bring an imminent compensation claim to the attention of the authority that will have to pay the compensation”. 4
This means that owners who have previously failed to give notice, and settlement has not yet occurred, may still have time to submit a claim without being statute barred.
Determination of Market Value
In our view, a problematic outcome of this categorisation of when a sale occurs, is that the affected market value is to now be determined as at settlement, not at the time of signing the contract. This means that, contrary to long-standing industry practice, the actual price upon which the property is sold potentially no longer has any bearing on the market value (other than possibly by reference to a relevant sale as considered by the assessing valuer).
The removes all transparency in the claim for compensation, and increases the risk for a vendor in market movements until settlement. The consequence is that we expect informed vendors to require short-term settlements despite the market requiring a longer term due to the nature of the land being sold. In our view, this will create a further hindrance for vendors selling land which would already have been difficult to sell due to the reservation or proposed reservation.
What if the Reservation is Removed?
Another inherent difficulty is the risk that a reservation will be removed, or proposed reservation no longer required, prior to settlement. While this will give a purchaser a potentially significant uplift in market value without requiring additional compensation, it also exposes a vendor to having its claim stymied and not receiving fair market value for the sale of the land.
We suggest that all vendors with affected properties seek informed legal advice prior to entering into any contract of sale given the potential issues created by this decision.
Her Honour did turn her mind to this scenario, however did “not accept that uncertainty in [such] circumstances is an inconvenient or absurd result”. 5
While we understand the pragmatism of this decision on a high level, and its purpose to remove risk to an authority in processing a claim where settlement has not yet occurred, in our view, the application is somewhat problematic.
Our key concern relates to the shift of risk to an owner where there is a long settlement and the value of land may change over that time. In other words, the loss on sale is not in fact a loss on sale, but a “loss on settlement” which market value is outside of the control of any party and would not be reflected in the contract documentation. While it may give some lawyers the opportunity to be creating in drafting special conditions, in our view, this concern should be immediately rectified through legislative change.
We note that the appeal period for this decision lapses on 7 March 2019. The decision will remain applicable in Victoria unless overturned by the Court of Appeal or revisited by the Supreme Court of Victoria in another proceeding.
About Best Hooper – Victoria’s Property, Planning and Land Development Advisory Law Firm
Best Hooper has a rich history and remains as one of Melbourne’s oldest law firms, dating back to 1886. Over the years, our clients have benefitted from our industry presence and pre-eminent reputation consisting of leading town planning and land development lawyers. We are continuously recognised as industry leaders in a variety of publications, including Doyles Guide and Best Lawyers.
Best Hooper regularly advises and represents land owners in planning and land compensation matters, and are well positioned to assist with any strategic advice that may be required.
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