The Sydney metropolitan region is undergoing the greatest infrastructure upgrade in a generation.

If you commute in Sydney, you’ll likely experience construction work. There are the WestConnex and NorthConnex toll road developments, the North-West Rail Link and the South East Light Rail project. These projects are frequently disrupting people and businesses.

An increasing number of our clients are asking how to respond to letters explaining that these projects will affect their businesses. We address this below, specifically what happens to businesses leasing and occupying premises which the NSW Government proposes to compulsorily acquire.

Glossary

Term Definition
Acquiring Authority The body acquiring the land (typically a government body such as Transport NSW).
Land Includes the whole of the property, part of the property or an interest in the property.
Proposed Acquisition Notice Written notice that the acquiring authority intends to compulsorily acquire the land.
Valuer-General An independent statutory officer that oversees the state’s valuation system. The Valuer-General is required to independently determine the amount of compensation the acquiring authority must pay the former land owner.

What is Compulsory Acquisition?

Compulsory acquisition is when an authority acquires privately-owned land for public purposes (e.g. to build roads). Under the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Just Terms Act), an authority can acquire either:

  • the whole of the property,
  • part of the property, or
  • an interest in the property.

The acquiring authority then sends the landowners affected (and all parties with an interest in the land such as tenants with leases) a proposed acquisition notice. If parties do not reach a commercial resolution, those affected can make a claim for compensation. The valuer-general must then independently determine the amount that the acquiring authority must offer the owner.

Generally, a lessee has an ‘interest’ in the land and is entitled to compensation under the Just Terms Act. However, if you are a lessee and do not have any documentation, you may not have an interest in the land sufficient to justify compensation.

It’s important to document in writing any lease that you enter into (even if that landlord is a friend or family member). In so doing, you ensure that you have a written agreement that confirms your leasehold interest in the land.

Assuming you have a written lease, Transport NSW will send you a letter informing you that they are about to acquire the property you are leasing for one of its transport projects.

If you have received a letter from Transport NSW, don’t panic. Notifications are typically issued well in advance of the proposed acquisition, and so you should have plenty of time to plan your relocation before the bulldozers arrive.

Next, read the letter carefully and work out an action plan. Disruption to your business can be an unwelcome shock, especially if you must leave in the middle of your lease. The Just Terms Act exists, however, to ensure that you receive adequate compensation for relocation costs. Provided you are prepared to negotiate with Transport NSW, the process should not result in you or your business sustaining substantial losses from the move.

As soon as you receive the proposed acquisition notice, speak with a lawyer. Ensure that you obtain a costs agreement as you should be able to recover all reasonable legal costs from Transport NSW including an initial advice.

You should then list all the costs you are likely to incur in the move including fit-out costs and relocation expenses. Try to obtain written quotes where possible.

Finally, you should engage a qualified valuer. The letter you receive should describe the valuer’s qualifications. Again, don’t hesitate to engage a valuer in advising you as these costs are recoverable from Transport NSW.

How Do I Value My Lease?

The legislation is vague in setting out the basis of the valuation, only saying that the compensation should be “just”. However, the practical application of the principle is straightforward:

You should be compensated for the additional lease costs that you may incur by relocating to a new premises. In other words, the higher rent you will pay when you move to a similar premise in the local area.

For example, assume that you signed a five-year lease two years ago, and the rental costs for similar businesses in your area have increased dramatically (let’s say, 50%). In principle, you should receive compensation for the ‘gap’ you will have to pay for the remaining term of the lease at a higher rent.

Of course, if the Valuer-General finds that the rental values in your area have not moved, then you will only receive relocation costs, rather than the ‘valuation’ costs of the lease.

We recommend the valuation take place as close to the point when you wish to relocate as possible. You may even receive an offer to lease on similar sized premises that Transport NSW can approve before you sign the lease.

The reason we suggest you ensure the valuation takes place as close as possible to signing your new lease is simple. In our experience, rents shoot up just as everyone moves at the same time.

As a result, rental estimates early in the process may be lower (sometimes dramatically so). Look for alternative premises early, but don’t rush the valuation process. Rent is almost certain to increase around the area where Transport NSW is compulsorily acquiring land.

One final point is to negotiate early with the current landlord to ensure your new lease aligns with the current lease’s termination. You want to avoid paying double rent.

Again, we advise waiting to lodge your claim, so you are fully informed of your circumstances. The landlord will want to know if you need to terminate your lease early as this may factor into their compensation.

It’s important to maintain open communication between you and the landlord, and coordinate your responses to Transport NSW, so you are all on the same page. There is little point agreeing to compensation with Transport NSW only to discover the landlord is unwilling to break the lease, consequently requiring you to pay double rent for several months. If this occurs, be sure to include these costs in your claim before signing off on any compensation.

If construction disrupts your trade before you leave the premises, you will require substantial evidence to establish the amount of loss.

In Zacsam Pty Ltd v Moreton Bay Regional Council [2016] QLC 12, Council roadworks affected an Eagle Boys pizza business. The roadworks took place in a common area within the Castle Hill Shopping Centre in Moreton Bay. Eagle Boys pizza made a claim against the Council for costs attributable to the disturbance the roadworks caused.

The Court scrutinised the pizza business’ claims and awarded compensation. However, the Court also noted that the lack of reliable financial records affected their ability to determine the effect the roadworks had on the business accurately.

This suggests that accurate financial record keeping before and during any disruption will be crucial in establishing your claim for compensation arising due to “general” disruption. The case also reinforces the need to accurately document your occupancy right in the form of a written lease to be eligible to claim compensation.

***

In short, don’t skimp on any professional advice. The process is complex and it’s important you speak with professionals familiar with this area before signing any documents.