Local government or various crown entities such as Transit may take private land for public works. They always attempt to negotiate with the landowner in the first instance. However if the parties fail to reach agreement the crown has the right to acquire the land under the terms outlined in the Public Works.
So why does the crown have this right? In strict legal terms it has absolute ownership of all land; individual citizens have a subservient right only.
Doctrine of Eminent Domain
The crown retains the Allodial Estate or absolute ownership of all land to which the ownership rights of individual citizens are subservient. This Allodial Estate is expressed by the Crowns power to resume privately owned land under the Doctrine of Eminent Domain.
The Crown sometimes exercises this right under the Public Works Act where privately owned land is taken for public uses.
Right to Compensation
The Public Works Act provides for the payment of compensation for losses arising from the acquisition of land by the Crown. Entitlement to compensation is set out in Part V of the Act. Section 60(1) provides that affected landowners are entitled to “full compensation” so that they are left in a no better or worse position afterwards than they were before the public work commenced. This means that landowners will not be deprived of their land without fair compensation but will not be compensated so as to make a profit from the public work.
Only persons who have an interest in the land are entitled to compensation. Owners of interests that are less than freehold (e.g. a lessee’s interest) are also entitled to compensation if their interests are acquired. An interest in chattels or personal rights does not give a right to compensation.
Basic Entitlements to Compensation
Compensation is not limited to the value of the land acquired or taken. In addition to the value of the land taken, the Public Works Act entitles you to be fairly compensated for losses that may include:
Obligation to Minimise Losses
The Courts have ruled that there is an obligation on landowners to take all reasonable steps to ensure that their losses are kept to a minimum. It is important you keep a record of all communications and detailed records of all expenses incurred and losses sustained, as you may be able to recover these as part of your claim for compensation. You may only receive compensation for expenses and losses that occur as a direct consequence of the acquisition of your land.
General Provisions for Compensation
The assessment of compensation is governed by section 62 of the Public Works Act. The various terms are clearly defined.
Market Value is defined as the value of land based upon the amount the land would be expected to sell for if sold on the open market by a willing seller to a willing buyer on a specified date. No increase in compensation will be paid due to the fact that land is to be taken for a public work.
Damage If any physical damage to land caused by or in connection with a public work interferes with the landowner’s rights compensation may be payable for the cost or reinstatement.
Change in Value after the Specified Date of Acquisition
Where after the specified date of acquisition the value of the land required from you increases or decreases as a result of any designation or requirement for the public work, any effect on the land value is to be disregarded. The “specified date” can be the date on which the land was vested in the Crown or the date on which the land was first entered upon for the public work.
The intention of this principle is that you should not suffer loss from the adverse effect of the public work (if it lowers the value of your land that is required), nor profit from the beneficial effect of the public work (if it increases the value of your land).
Special Suitability or Adaptability
The special suitability or adaptability of your land for any purpose is not to be taken into account if:
The key factor in the application of “special suitability” is the term “no market”. If there is a reasonable possibility of a market, apart from the particular work of an Acquiring Authority, then that potential will be taken into account in valuing the land.
Increase in Value resulting from the Public Work
Where the public work being undertaken increases the value of land you retain, or the value of any other land in which you have an interest, this increase in value may be deducted from the total amount of compensation that would otherwise be paid to you. This is known as “betterment”. Betterment applies whether the increase in value occurs before the specified date or is likely to occur after the public work commences. This means that in assessing your compensation any betterment will be deducted from any increase in value of your retained land caused by the public work.
Increase in Value because of Improved Access
Transit New Zealand, as a Requiring Authority, sometimes exercises power under Section 91 of the Transit New Zealand Act 1989 to create crossing places to give access to “Limited Access Roads”. Where this increases the value of your retained land, this increase in value will normally be deducted from any compensation to be paid to you.
If there is an adverse effect on the land you retain you may be entitled to additional compensation. The compensation for depreciation in value of the retained land is called “injurious affection”. Compensation for injurious affection is provided by Section 64 of the Public Works Act and where only part of your land is taken or acquired the compensation is assessed by adopting a “before and after” approach. This means agreeing to the value of the whole property disregarding any public or proposed work prior to acquisition and comparing this with the value of the land you are left with after the taking or acquisition.
Advance Payment of Compensation
An advance on compensation will be paid if:
Compensation When No Land is Taken
A right to compensation under the Public Works Act may also arise in certain circumstances when no land is taken. Section 63 of the Act provides for compensation for substantial injurious affection to your land caused by the construction of the public work.
In addition to being compensated for the value of land taken or acquired you may be entitled to reimbursement for “disturbance”. This is payment for actual monetary loss or costs incurred of a temporary non-recurring nature. Compensation for disturbance is covered in Section 66 of the Public Works Act. Any compensation under this section must be as a direct result of your land being taken by the Crown the cost of which you could not have avoided by taking reasonable precautions. Disturbance payments are not a ‘general amount’ to cover possible unspecified contingencies such as ‘inconvenience’.
In order to qualify for disturbance payments:
Valuation Legal and other Professional Costs
If you obtain professional advice, you are entitled to reasonable costs (valuation, legal and other professional costs) incurred as a result of negotiating compensation for your land.
If you intend to seek professional advice, you should first discuss this with the accredited supplier who will outline the criteria for approving professional costs. This discussion will avoid any misunderstanding about what sort of costs you are entitled to and who will pay.
If you engage a Registered Valuer you must instruct the Valuer that the valuation is required for compensation purposes under the Public Works Act 1981. You should make the valuation report available to the accredited supplier, if requested to facilitate discussions.
Any costs incurred for professional advice for the purposes of negotiating of compensation for your land must be reasonable.
You are not able to claim the cost of your personal spare time spent in negotiations.
If your land is taken or acquired, you are entitled to the reasonable costs incurred in transporting your movable property to other land. This is subject to the other land being within the same general locality or such greater distance as is necessary to reach the nearest land that could have been reasonably acquired in substitution for your land.
Any claim is subject to the following:
Allowances for Special Improvements
Where your land is taken or acquired, there is no obligation on an Acquiring Authority, either to take over removable improvements or to pay for such items. Removable improvements are not normally part of the land acquired. However, if the improvements are not readily removable and are of use to a disabled owner or a disabled member of an owner’s family and are not reflected in the value of the land, this loss is a recoverable compensatable loss.
Loss on Mortgage Repayment
Where a loss occurs in having to transfer a mortgage as a direct result of land being taken or acquired, you as the borrower are entitled to compensation for the loss where you have to take a mortgage at a higher rate which will be more expensive than the existing mortgage over your land.
If you have a business located on your land, you may claim compensation for business loss resulting from the relocation of the business. The loss may include loss of profits and goodwill. However, the loss of profits must relate to proven loss of “actual profits”. Loss of “anticipated profits” is not provided for in the Public Works Act.
During the period of changeover from business premises that have been acquired for a public work, to alternative business premises, you may be forced to close down your business for the time being, resulting in your business not earning during that period. You may claim the net loss suffered, under the heading of “business loss”. The main point to note is that it is the net loss of profit that is compensatable, not the loss of revenue.
If you intend to claim for “loss of profits” or goodwill you should ask your accountant to assist with preparation of your claim. It is important to support such claims with verifiable proof of loss by reference to the last three year’s annual accounts of your business.
Solatium Payment for Homeowners
If the land to be acquired contains your home that you live in, and the Crown takes the initiative to purchase it as subject to its requirement or designation for a public work and requires you to give vacant possession, you are entitled to be paid a “solatium” (or home-loss payment) of $2,000.
Payment of the solatium is conditional on the ownership of the land not having changed since it was made subject to a requirement or designated for a public work.
Assistance to Purchase
Part V of the Public Works Act also provides for other types of reasonable assistance in addition to compensation payable under the Act.
If you wish to seek assistance under Part V of the Act, or if you believe you are entitled to any additional compensation, you should discuss this with the accredited supplier.
If you consider that your Council Rating assessment is incorrect or unfair VCL can assist.
Councils periodically reassess property values in their territory. Annual rates are based on these assessments.
The old government valuations (GVs) were carried out periodically by the Valuation Department on behalf of the various Local authorities. The Valuation Department became an SOE in the late 1990’s and was renamed Quotable Value (QV). The GVs of old are now called Rating Valuations or RVs.
Purpose of RVs
The periodic reassessments are carried out for and on behalf of the local authorities primarily for the apportionment of rates. The requirement to do this is mandated by the Rating Valuations Act 1998.
Who carries out the assessment?
Some authorities contract out the rating assessments to private valuation practices but the vast majority of these assessments are still carried out by Quotable Value (QV).
How often are they carried out?
All 78 local authorities in New Zealand reassess values every three years.
What do the terms on your assessment form mean?
When you are sent your new assessment every three years there are a number of terms stated on the form of which you should be aware.
Capital Value is the price that would have been paid for the property if it had sold at the date recorded as the assessment date. For all intents and purposes it is the same as Market Value (minus chattels). Capital Value specifically excludes chattels, stocks, crops, machinery, goodwill or plantation trees.
Land Value is the price that would have been paid for just the land as at the valuation date. The Land Value includes any development work which may have been carried out, such as draining, excavation, filling, retaining walls and reclamation, grading, levelling, clearing of vegetation, fertility build-up, or protection from erosion or flooding.
Value of Improvements is the difference between the Capital and Land Values. It reflects the additional value given to the land by any buildings, other structures or cropping trees, vines, and any landscaping that adds value to the land.
A local council also have the option of using Annual Value as a basis for levying rates. Annual Value is the greater value of either the estimated gross annual rental less 20% (or 10% if there are no buildings on the land) or 5% of the property’s Capital Value.
How accurate are RVs?
It is fair to say that since the GFC rating values have taken on more significance to setting asking prices for residential houses. A plausible explanation for this is that in many areas house sales had been few or non-existent. The only benchmark available had been the RVs. It is our view that this is a mistake and many RVs unreliable.
A common refrain by building owners and purchasers is how much above GV (RV) do houses sell in this location? If you use this as a measure of value, there is an implicit assumption that the RV is uniformly accurate.
The facts are:
What happens if you disagree with your RV?
You will be sent a notice of your new RV. If you disagree with the assessed amount, there is a date indicated at the back of the form within which time your objection must be lodged.
You have two possible avenues at your disposal:
VCL can assist Body Corporates to establish Ownership Interests. In accordance with the provisions of the Unit Titles Act 2010 (“Act”) these relative values can be reviewed periodically.
The Act came into effect as at June 2011 and replaced the Unit Titles Act 1972 (“1972 Act”) which is now repealed.
The Act is more flexible than the 1972 Act which has long been criticised for its inflexibility. In summary the Act:
Both new unit title developments and existing unit title developments are obliged to comply with the Act and associated Regulations.
The major problem with the 1972 Act was once as the Unit Entitlements were set it was very difficult to change them. This often led to large inequities, particularly where the relative values between units changed over time. The new Act redefines these as Ownership Interests and there is now a provision to review these periodically. Ownership Interests are to be determined by reference to relative value of the unit in relation to each other unit in the complex. The Ownership Interest is used to determine matters such as the beneficial interest in the common property, voting rights, and their responsibility to contribute to Body Corporate costs.
This is the same as the Ownership Interest unless it is reviewed. The utility interest is used to determine matters such as unit contributions to the long-term maintenance fund, contingency fund, operating account.
Ownership and Utility Interests may be reviewed provided a special resolution is passed at the general meeting of a Body Corporate; however, they must not be reviewed more than once every 36 months.
Ownership Interest Calculation
The assessment is usually based on the relative value of each unit plus their associated Accessory Units within the complex. For example: say they were three units in a development (no Accessory Units for simplicity). These were valued at $300,000; $350,000 and $450,000 respectively. Their ownership interests would be 27.27%; 31.81% and 40.9%.
As with the old unit entitlements they are traditionally not recorded on the title as a percentage but as a number. The usual overall number is either 1000 or 10,000. If we select 1000 for this example, the above ownership interests would be 272; 318 and 418 respectively.
How are these figures applied in practical terms?
Following on from the above example, say the annual expenses incurred by the Body Corporate was $5,000. Unit 1 would pay $1,360 (or $5,000/$1,000 * 272); Unit 2 – $1,590 & Unit 3 – $2,050.
Practical problem associated with the old Unit Entitlements
The new Act sets out to rectify a very real problem associated with the 1972 Act. Once the Unit Entitlements are set by the Valuer at the outset and are recorded on the Unit Plan they became fixed. There is no simple mechanism within the act to allow for the relative percentages between the units to be changed.
The Unit Entitlement share had a very practical purpose apart from the apportionment of costs. If there was a disaster, say the complex burned down it would set the level of payout for each individual owner.
Experience has shown us that the relative values of individual properties may change over time. Some may appreciate more than others and others depreciate. This in turn has led to inequities.
The Act introduces a new concept of layered developments. This allows for grouping of a number of individual Unit Title developments, which all subscribe to a parent Unit Title development. Each subsidiary development forms a subsidiary body corporate to manage the affairs of their units and any associated common property.
The layered scheme approach is most likely to be used in larger staged developments.
Urban legends abound with regard to home owners being scammed by unscrupulous agents acquiring their property at a fraction of its true value and then selling them for a whopping profit. This might be the case in some countries but, in our experience, it is not common in New Zealand. Indeed you are probably more at risk if you sell your house privately than through a licensed agent.
The law governing the behavior of Real Estate Agents is set down in the Real Estate Agents Act 2008. Both the current version of the Act and the previous version being the Real Estate Agents Act 1976 recognised that there is a possibility that sellers might be misled and therefore the legislation has certain measures in place to prevent this from happening.
For that reason, if an agent employed by you to sell your property wishes to purchase the property for themselves, the law afford you additional protections.
It recognises that the agent may be in a more knowledgeable position in that they may be in possession of information denied to you, the lay person. This stronger position in law is known as a ‘fiduciary relationship’.
If the agent, a close relation of the agent or another employee of the Real Estate Agency marketing your home wishes to purchase the property for themselves your rights are set down in Sections 134 & 135 of the Real Estate Agents Act 2008.
Let us look at a possible scenario.
Your property has been on the market for some weeks. The listing agent decides that they would like to purchase the property for themselves. The parties negotiate a price which both find acceptable and an unconditional agreement is signed. You subsequently learn that another party might have been willing to pay you more. Can you cancel the contract?
Clearly if you had entered into an unconditional agreement with an unrelated party, it would have been tough luck. A deal is a deal.
However before the real estate agents offer is unconditional they have to jump through another few hoops. If they fail to follow due process the contract may voidable at your discretion.
The process is as follows:
(1) The agent must obtain written consent from you the client on the prescribed form.
(2) They must provide you with a valuation from a Registered Valuer at their cost. If you are selling a business then the valuation must be from an independent chartered accountant.
(3) The valuation must be provided to you either before obtaining written consent or, with your agreement, within 14 days of obtaining your written consent.
You, the client may void the contract in the following circumstances:
(1) They fail to follow the above process (i.e. don’t get written consent or provide the valuation), or
(2) The registered valuation amount is greater than the value specified in the consent form.