If a statutory authority (such as a water authority) compulsorily acquires an individual's land, it must fairly compensate them. That much is clear from watching the film The Castle.

But what if the land is not actually acquired, but merely reserved for a public purpose under a planning scheme, such as for drainage infrastructure? In Victoria, reservations for public purposes are usually (but not always) given effect to by placing a Public Acquisition Overlay (PAO) over a particular parcel of land.

The purpose of placing a PAO is to identify land proposed to be acquired by a public authority for a public purpose. A PAO acts as a restriction on how the land may be used or developed, so that any proposed use or development does not prejudice the purpose for which the land is to be acquired. Typically, a PAO will restrict a landowner's ability to develop land, remove any vegetation or subdivide the land.

The right to compensation

It is obvious that a restriction on the ability to use or develop land for a particular purpose may have significant financial consequences for the owner if permission to use or develop is refused. In such case, a landowner may be able to claim compensation from an acquiring authority under the Planning and Environment Act 1987 (Vic) (P&E Act). Under the P&E Act, an owner or occupier of land may claim compensation from the acquiring authority for financial loss suffered as a natural, direct and reasonable consequence of:

  • land being reserved for a public purpose under a planning scheme, as well as under a proposed amendment to a planning scheme
  • a declaration of the Minister for Planning that land is proposed to be reserved for a public purpose
  • access to land being restricted by the closure of a road
  • a refusal by a responsible authority to grant a permit to use or develop land on the ground that it ‘is or will be’ needed for a public purpose.

What gives rise to the right to claim compensation?

In order for a landowner's right to claim compensation to arise under the P&E Act, the following requirements must be met:

  • the land must be reserved for a 'public purpose'    
  • the landowner must be the owner or occupier of the land at the time of the reservation    
  • the landowner must suffer financial loss    
  • the loss must be suffered as a natural, direct and reasonable consequence of the reservation.

Triggering compensation

Typically a landowner will use a permit application as a trigger for compensation. This will involve the landowner applying to the council for a permit to use and develop land. If the council refuses the application on the ground that the land is or may be needed for a public purpose, the right to claim compensation arises.

However, there are other possible triggers under the P&E Act, including:

  • where the Victorian Civil and Administrative Tribunal (on an application for review) directs that a permit must not be granted on the ground that the land is or may be required for a public purpose
  • where the land is sold at a lower price than might reasonably be expected if the land was not subject to PAO (also called ‘loss on sale’)
  • the coming into operation of a provision of a planning scheme which changes the land's access to a road.

Any one of these is a potential trigger for loss arising from the reservation of land for a public purpose.

Natural, direct and reasonable consequence of the reservation

In assessing compensation, it is a key requirement that any financial loss claimed has a causal connection with the reservation of the land: see Halwood Corporation Ltd v Roads Corporation (1995) 89 LGERA 280. Therefore, for example, if an owner of land purchased the land with knowledge of the reservation, the financial loss will not be casually connected to the reservation.

Similarly, if a permit is refused not on public purpose grounds but on ‘planning merits’, compensation will not be triggered. This issue is considered further below.

Multiple grounds?

In City of Nunawading v Day [1992] 1 VR 211, the Supreme Court of Victoria accepted that a refusal on multiple grounds, of which the public purpose ground is one, can still give rise to a right to claim compensation provided that one of those grounds is public purpose. However, multiple grounds are significant because there may be no financial loss suffered as the natural, direct and reasonable consequence of a refusal where the responsible authority might also have refused the application on planning considerations.

Importantly, if a council (as the responsible authority) determines to refuse a permit, it must do so on genuine grounds. Thus, for example, if a responsible authority refuses a permit for failure to comply with a precinct structure plan which has reserved land, this is likely to be regarded as an attempt to avoid compensation, or at least a failure to recognise the reservation of otherwise developable land.

Refusal of a permit on grounds other than public purpose may be reviewed in the Victorian Civil and Administrative Tribunal. The Tribunal is empowered to refuse on grounds triggering compensation, where appropriate.

Identifying the acquiring authority liable to pay compensation

If a planning scheme designates a public authority as the acquiring authority for land reserved for public purposes, then it is the public authority that is liable to pay compensation.  

All Victorian planning schemes contain clause 45.01 which deals with PAOs. Many planning schemes will also contain a schedule which will specify which authority is the acquiring authority. Where a water authority is the body in whose favour the land has been reserved, the schedule to clause 45.01 will show this.

If a planning permit is refused by a council because a water authority objected to the issuing of the permit, then the water authority is liable to pay the compensation, not council (as the responsible authority).