Advisory Note on Public Works Act 1981 Compensation Changes
This note is to provide an overview of the impact of the Resource Legislation Amendment Act 2017 (RLAA) on aspects of the Public Works Act 1981 (PWA) compensation regime.
The RLAA has been widely discussed in the media and by industry commentators over the past few years, being in the main a reasonably controversial reshaping of certain Resource Management Act 1991 processes. However RLAA has also been used as means of incorporating changes to increase the level of solatium payable under the PWA. New Zealand continues to face a significant demand for, and indeed issues in achieving, some fairly large scale and challenging infrastructure works. The PWA therefore remains as a key tool to ensure project delivery. The RLAA was used as an opportunity by the National led Government to update solatium payments, to incentivise and better recognise some unwelcome effects of a private owner becoming subject to a PWA land requirement.
Prior to the RLAA there was a modest solatium payment of $2,000 available to PWA claimants who lost a private residence as a consequence of a PWA land acquisition. This sum had not been updated since the PWA was enacted, and has long been recognised as badly in need of an uplift. This has been addressed in the new legislation, but as part of wider rewriting of a significantly altered “additional compensation” scheme. The PWA as amended no longer uses the term 'solatium'.
These changes took effect from the commencement date of the RLAA which was 19 April 2017.
Additional PWA Compensation Changes
There are two key changes;
- The current payment to qualifying owners of residential dwellings increases to $35,000.00 and potentially up to $50,000.00;
- Non-residential property owners potentially qualify for a payment of up to $25,000.00 under an entirely separate assessment.
Detail of Requirements
Section 72(1) has been replaced and now provides that additional compensation of up to $50,000.00 must be paid to an owner of land if:
- The land has been notified (which includes where land is made subject to section 17 negotiations); and
- The land is taken or acquired for that public work; and
- The land contains a dwelling that is used for the owner's principal place of residence; and
- The payment is not excluded by subsection 72(2) or (3) – which are unchanged by the RLAA.
Briefly, subsections 72(2) and (3) provide that the additional compensation will not be paid unless:
- vacant possession is given; and
- the person giving vacant possession –
- was the owner/spouse/partner of the owner of the land when the land was notified; and
- was the owner of the land when vacant possession was given; and
- the dwelling was the principal place of residence for all or a substantial portion of the period between notification and giving of vacant possession; and
- the person was not a willing party to the acquisition or was a willing party principally because the land had been notified.
The $50,000.00 can be made from three possible payments (section 72A(1)):
- $35,000.00 is payable if the owner qualifies for compensation under section 72(1) being the criteria above;
- $10,000.00 is an incentive payment, payable where:
- a section 17 agreement is signed within six months after the negotiation start date; and
- the agreement specifies a date on which vacant possession will be given;
- $5,000.00 discretionary payment is available if the Minister or local authority decides that the personal circumstances of the owner warrant such payment or circumstances concerning the acquisition of the owner's principal place of residence warrant such a payment.
The negotiation start date is defined (section 72A(2)) as the earlier of:
- The date on which the notifying authority notifies the owner of land that it intends to acquire the and under section 17; and
- The date on which the notifying authority serves notice in relation to land in accordance with section 18(1)(a).
So where a PWA claimant's land that contains their personal residence is acquired for a public work and vacant possession is given, they will be entitled to $35,000.00. They will be entitled to an additional $10,000.00 incentive payment if they sign an agreement within 6 months. The $5,000.00 payment is discretionary and we will need to wait and see what types of circumstances justify payment under this section. As a starting proposition we suggest the approach should be to leave it to claimants to make a case as to why there are special circumstances.
Note the $5,000.00 payment is discretionary, so arguably proportions of this sum could be paid to allow distinctions to be made between levels of hardship, which will conceivably vary. However we suggest to clients they adopt a policy such that the full sum be paid or not, as costs of arguing points of distinction (to say move from a $2,000.00 case to a $3,000.00 case) will threaten to exceed the sum in dispute if to try to adopt a sliding scale.
Transition to New Regime
All three amounts are only payable in respect of agreements entered into after the commencement date of the Amendment Act (19 April 2017) and will not be paid to claimants who have signed an agreement prior to this (see new Schedule 1AA PWA, section 3). However, the negotiation start date can include dates that occur before 19 April 2017. So, if negotiations have started, the claimant may still be entitled to the extra $10,000.00 depending on when they sign an agreement.
The $10,000.00 can be paid if the negotiation start date is four months or more before 19 April if the agreement is signed within two months after 19 April (ie if section 17 PWA negotiations started on 30 November 2016, the Amendment Act commenced on 19 April and agreement is reached before 19 June, $10,000.00 is payable). There is effectively a "grace period" for claimants in long running negotiations to obtain the $10,000.00 incentive payment by signing an agreement prior to 18 June 2017.
The $10,000.00 will not be paid though if the negotiation start date is six months or more before 19 April and a section 18 notice is served within two months of 19 April.
Non- Residential Additional Compensation
New section 72C provides that additional compensation is payable where land does not contain a dwelling used as the owner's principal place of residence, or where a dwelling is used as a principal place of residence for less than a substantial part of the period between the notification date and vacant possession date (the latter being part of the ordinary criteria for the residential dwelling additional compensation).
This new form of compensation will equal 10% of the total land value at a minimum of $250.00 and a maximum of $25,000.00.
This essentially provides a universal entitlement (subject to meeting qualifying criteria) to all landowners, under a separate regime but which is less generous that the regime applying to persons dispossessed of their personal residence.
Note this will apply to partial acquisitions too. There will be circumstance where previously agreements have been negotiated for a notional (say $1.00) payment, but now if the owner gives vacant possession and otherwise qualifies there is seemingly a statutory obligation to pay at least $250.00.
Leases and Tenancies
An amendment is made to the definition of "Owner" at s59 PWA to make it clear that lessees can enjoy the benefit of the additional compensation payments. Where it is the lessee who gives vacant possession, not the fee simple owner, it is the lessee who will be entitled.
Short term leases are excluded from the definition of owner however, being weekly and monthly tenants, Residential Tenancy Act 1986 tenancies and s207 Property Law Act 2007 tenancies.
Tenants for life and beneficial owners are however expressly included as owners.
There will be circumstance where at face value no one will be entitled to additional compensation, for example where there is a residential tenant in possession where the acquiring authority would under previous practice purchase subject to the tenancy. Fee simple owners are likely to be motivated to delay settlement until after the tenancy has ended to obtain a $25,000.00 payment. However we foresee pragmatically recommendations may be made to allow this payment even if a tenancy is to remain, as it may conceivably provide a better overall solution.
There is a sliding scale for qualifying lessees. Section 72C(5) provides that the amount of compensation payable under section 72C to a lessee under a lease that will expire less than five years after the vacant possession date must be reduced in proportion to the period from the vacant possession date to the date of expiry of the lease. So say there are two years to run on a commercial tenancy where possession is required for the works program during the term of the lease, in this case the tenant is prima facie entitled to $10,000.00 and the fee simple owner nothing (the lessee being entitled to $5,000.00 for each of the two years left to run in their lease).
Rights of renewal are relevant to determine the length of lease term to run.
It is foreseeable that this will result in fee simple owners and tenants trying to manipulate matters to benefit from the additional payment, which may complicate and/or delay negotiations.
Note it is also provided that the amount must not be reduced to less than the lessee would receive under section 75 PWA. However we are not aware of any claims being paid under s75 PWA in recent times, which is a discretionary payment in the hands of the notifying authority. So this is speculated to be of little practical consequence.
A final issue is where there are multiple tenancies (or perhaps where land is part owner occupied and part leased), the compensation (being a maximum of $25,000.00) is split in accordance with the value of the qualifying interests. This will cause practical issues, as agreement may be reached to say relocate one tenant while still working through negotiation issues with others – so how would the respective values of other potentially qualifying lessees be known at the time?
Further the RLAA refers to the value of the land when considering the entitlement to the $25,000.00 payment. Where a lease is at market rent, the value of it will usually be nil. We believe the intention of the Act is that the business value would also be relevant, and propose to confirm this with LINZ who are understood to have been the primary advisors on the amendment. This may however mean in practice that business values may need to be explored in greater detail, to allow fair apportionment. This is commonly left to "high level" assessments where relocations are pursued. Again this is an area where we speculate some pragmatism may be needed to achieve efficient and effective results, where costs of determination threaten to exceed the benefits of the exercise.
While providing a long overdue increase to the former PWA solatium payment, and generally providing a new, good intentioned framework to assist PWA negotiations and claimants alike, the RLAA additional compensation scheme would seem to bring with it some starting questions and practical issues. Please feel free to contact your local TPG contact if you would like to discuss or learn more about how this might affect your organisation.