07 Mar Need To Know: Residential Property Acquisition
Unprecedented growth in is fuelling an infrastructure transformation that is rearranging cityscapes in every major metropolitan city. Large-scale developments tend to acquire properties, so what do you do if the government notifies you that they need to acquire your property?
It’s a scenario that anyone with a property near a rail line or motorway should take into consideration as a risk they could face if the government decided to invest, for example, in the redevelopment of a hospital, or a tunnel to connect motorways or business hubs. It’s important to investigate all the options that relate to potential use of your property in case of any possible acquisition in the future. For instance, one option to consider would be for neighbours to combine their interests in the total land area. It may be possible to enter into a joint venture for a development application that can be worked through with properties behind or to the side of your own. Sometimes evidence of intending to and of having obtained town planning advice can be crucial to a better outcome.
You could also consider doing a development on your own and source preliminary advice about your property. The property is always valued at its highest and best use – what it is currently used for and anything lawful that would provide a higher value. Zoning may allow for the property to be developed as a three-storey apartment block, which is then valued based on what the site would be worth.
What does a developer pay for the site, given that approval? For residential property, it depends on whether a DA could be obtained for extra bedrooms/granny flats and if it would provide an argument for additional value.
The situation regarding acquisition is different for owners or tenants of commercial properties where the location involves distribution to customers and transport hubs. Valuing a business that has to relocate from an inner-city position where its value depends on transport logistics in that area can affect profitability.
There can be a significant difference in rental paid on a commercial lease from area to area – when many acquisitions happen in one area, the rental income and value of adjoining properties can dramatically increase. The compensation package can be very complex when acquisition negotiations begin. The situation can be doubly problematic when lease agreements have expired or are based solely on verbal assurances.
With both residential and commercial properties, investors and owners often request a premium to be applied to the value of their land, because it is being acquired rather than simply being given an ‘arm’s length’ market valuation. There is a big difference in legal terms between actual economic loss and compensation, but the government is a tough negotiator, with considerable power that it wields by virtue of its actions as enshrined in terms of the public good. It is always sensible to have an up-to-date review of any lease in place, and to ensure that the terms allow for the full rental yield, as the income and the length of the lease can affect the market value.
» In NSW, the state government announced changes to the law in March 2017. Under these new laws, property owners have six months to negotiate claims before the government can legally serve notice to acquire their interest. The total time frame is at least nine months before they take legal ownership.
» The minister concerned has the power to reduce the minimum time frame should they decide that the acquisition is urgent or there are other circumstances that make negotiating for that length of time impractical.
» Any statements from a property owner that the government interprets as a refusal to negotiate could mean that owners lose the six-month negotiation period altogether and find themselves acquired in any case.
» Other aspects of this change allow for claims for damages of up to $75,000 if there is a disadvantage associated with relocation, but only if the property is your primary residence before the acquisition.
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