On 31 May the Land Court of Queensland handed down its determination in the first matter brought under Queensland’s land access laws to proceed to a full hearing and decision. Importantly, the decision in Peabody West Burton Pty Ltd & Ors v Mason & Ors [2012 QLC 0023 (Peabody) looks at how to determine the compensation payable to a landholder in respect of ‘diminution of land value’.
Overview of the Land Access Laws
Queensland’s land access laws came into effect in October 2010 establishing a new regime governing the conduct and compensation conditions under which mining and resources companies could access private land.
A resource authority holder can not access land to carry out ‘advanced activities’ unless they have entered into a ‘conduct and compensation agreement’ (CCA) with the landholder (and any other ‘occupiers’ such as a registered lessee).
Landholders are entitled to be compensated for certain impacts on the landholder’s business and/or land use caused by resource exploration and development activities carried out by a resource authority holder. These impacts are referred to as ‘compensatable effects’ and include the following:
- deprivation of possession of land surface;
- diminution of land value;
- reduction in land use and potential land use;
- severance of any land from other parts of the land owned by the landholders;
- any cost, damage or loss arising from activities carried out under the land surface;
- accounting, legal or valuation costs reasonably incurred by the landholder to negotiate or prepare a CCA; and
- damages incurred by the landholder as a consequence of matters mentioned above.
The sum of all of the compensatable effects suffered by a landholder is the resource authority holder’s ‘compensation liability’.
What is ‘Diminution of Land Value’?
Diminution of land value has been a cause of confusion and apprehension for both landholders and resource authority holders attempting to calculate the compensation that should be paid of resource related activities carried out on land.
On a first glance, diminution of land value simply means the reduction in the value of land caused by the activities carried out by a resource authority holder. The issue however has been what things that might reduce the value of a property should be considered when calculating compensation liability.
In Peabody the Land Court has provided some guidance on this issue. In the case the resource authority holder planned to undertake ‘advanced exploration activities’ which included:
- 4 drill pads with drilling to last approximately 12 days;
- approximately 6 kilometres of tracks; and
- a total disturbance area of around 3.4 hectares on a 15,000 hectare property.
The landholder argued that the planned activities when viewed in conjunction with the following circumstances would cause a prudent purchaser to ‘perceive a risk’ and accordingly cause a reduction in the value of the land. Specifically:
- the proposed drilling would follow previous drilling on the land heightening a perception that viable coal deposits exist;
- the exploration area is similar to areas on nearby properties where coal deposits are currently being developed;
- a number of nearby and adjoining properties have been acquired by mining companies;a
- nearby proposed rail corridor increased the likelihood any coal deposits found on the land would be developed;t
- here is an ‘unprecedented’ coal mining boom in progress; and
- the rural property market is widely understood to be averse to the risk of mining.
The Land Court ruled that the nature of the above ‘risks’ identified by the landholder were outside the scope of diminution for the purposes of calculating the compensation liability. In his decision Member Smith ruled that diminution of land value as a compensatable effect does not include:
- a reduction of land value that might be caused by the mere existence of the resource authority; or
- the risk perceived by buyers associated with the possibility that activities might be carried out.
Instead Member Smith found that calculating the compensation liability with respect to diminution requires that a reduction in land value is actually caused by specific authorised activities carried out by a resource authority holder and is supported by appropriate evidence such as sales data.
What Would be an Example of ‘Diminution’?
To clarify his position Member Smith provided as one hypothetical example that if exploration activities inadvertently damaged a bore:
- so that the water supply from that bore was severely diminished;
- that bore was a major source of water on the land; ands
- ales data comparing properties with and without a similar bore showed that the value of the land would be reduced, then the landholder would be able to make a claim for diminution of land value.
Implications and Importance
This decision has direct implications for landholders and resource authority holders that enter into CCA negotiations. However it may also have important implications for accountants, valuers and lenders that work with landholder and resources clients.