Case note: Sydney Metro v C & P Automotive Engineers Pty Ltd [2024] NSWCA 186

Introduction

On 31 July 2024, the New South Wales Court of Appeal (Court) handed down a very important decision on the scope of costs that can be claimed as relocation costs under section 59(1)(c) of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (Just Terms Act).

Sydney Metro appealed the decision of Pain J of the NSW Land and Environment Court who awarded the former lessee costs associated with the relocation of landlord’s fixtures and the difference in rent between what it paid at the acquired premises and its new premises.

By way of background, on 19 March 2021, Sydney Metro compulsorily acquired land at Clyde, New South Wales. The land was owned by Ms Nohra and Ms Carpenter. The husband of Ms Nohra was a director of the respondent, C&P Automotive Engineers Pty Ltd (C&P), which had a lease over the acquired land for a term of five years from 1 April 2020, with an option to renew for another five years.

Following the acquisition by Sydney Metro, C&P relocated its hire, storage, sale and repair business from the acquired land, first to three temporary premises and then to rental premises in Granville.

The NSW Land and Environment Court decision

In the NSW Land and Environment Court, C&P were awarded compensation of $2,418,759.99 (plus statutory interest and costs) including:

1. $1,914,404.00 (GST exclusive) for costs of constructing new landlord’s fixtures at the replacement permanent lease site; and
2. $88,173.00 (GST exclusive) for the difference in rent between the acquired premises and the new premises for the remainder of the term under the lease (i.e. four years).

The costs of $1,914,404.00 for new fixtures comprised the following:

• Office building - $138,564;
• Awning replacement - $352,165;
• New hardstand and miscellaneous works - $266,660;
• New warehouse - $428,840;
• Preliminaries/site management/labour - $201,659;
• Design, professional fees and management - $166,546;
• Authority or planning approval/council fees, permits and charges - $27,980;
• Contingency (15%) - $237,362; and
• Escalation allowance (5.2%) - $94,628.

Relying on the decision of Preston CJ in George D Angus v Health Administration Corporation (2013) 205 LGERA 357; [2013] NSWLEC 212, and Pain J’s decision in Hua v Hurstville City Council [2010] NSWLEC 61 at [59], Pain J considered the costs were ‘fit out costs’. The only relevant test was whether the costs claimed were reasonable. Somewhat strangely, Pain J did not follow her decision in The Trustee for Whitcurt Unit Trust v Transport for NSW [2021] NSWLEC 82 (where relocation of the lessor’s improvements was claimed) on the basis that the lease in that matter was terminable on two months’ notice whereas C&P’s lease in this matter was for five years with an option to renew for five years.

C&P also claimed the cost of increased rent arising from its relocation to temporary sites. The claimed rent differential between the acquired premises and temporary locations was $88,173. Pain J found that Sydney Metro’s submission that compensation is only payable for a like-for-like rental, calculated by area of land, ignored the practical reality of finding alternative rental sites. Her Honour distinguished Road and Maritime Services (NSW) v United Petroleum Pty Ltd (2019) 99 NSWLR 279; [2019] NSWCA 41, which her Honour found was directed to s 59(1)(f), not s 59(1)(c). C&P’s claim for the rental differential of $88,173 (GST exclusive) was allowed.

Sydney Metro then lodged an appeal identifying four key issues being:

1. What was the correct construction of s 59(1)(c) of the Just Terms Act;
2. Was C&P entitled to compensation under s 59(1)(c) for the costs incurred in constructing new landlord’s fixtures at the replacement premises;
3. Was C&P entitled to compensation for relocating the landlord’s fixtures, given that C&P had been compensated for the loss of the right to use the landlord’s fixtures as part of the market value of the acquired leasehold interest; and
4. Was C&P entitled to compensation under s 59(1)(c) for the increased rent at the replacement premises.

The Court of Appeal decision

What is the correct construction of s 59(1)(c) of the Just Terms Act?

The Court of Appeal first examined the text of the Just Terms Act. It noted that given s 56(3) expressly deals with the limited situation where market value can be determined on a reinstatement basis, it undertook a detailed examination of a range of Land and Environment Court cases. The Court noted that compensation for “reinstatement” and compensation for loss attributable to disturbance under s 55(b) cannot overlap. That is underlined by the terms of s 56(3) which requires any compensation payable for loss attributable to disturbance to be subtracted from an amount payable under s 56(3).

Then the Court noted that the answers to the questions in this case are determined by the precise wording in the relevant sections of the Just Terms Act, and in particular ss 54, 55, 56 and 59. The Court noted that many of the cases relied on to support the findings of Pain J adopted concepts of ‘judicial gloss’ from earlier cases which pre-dated the Just Terms Act. Many of these cases involved the ‘value to the owner principle’ and reliance on these cases was inappropriate.

The Court also noted that many of the earlier decisions had not examined the law relating to ‘fixtures’. In summary, the rules provide that where a building is erected on land and objects are permanently attached to the building, then the soil, the building and the objects affixed to it are all in law “land”, that is, they are real property, not chattels. They will become the property of the owner of the land, unless otherwise granted or conveyed. All fixtures attached by the tenant are prima facie ‘landlord’s fixtures’, that is, they must be left for the landlord at the end of the lease. Certain exceptions to this rule exist, but C&P did not prove they met those exceptions. In this case, the Court noted that the fixtures used by C&P, the subject of this appeal, were landlord’s fixtures. All were affixed to the land before the lease was entered. No right to sever the fixtures was granted by the lease.

Based on the context and text of the Just Terms Act, the Court held that the word “relocation” under s 59(1)(c) of the Just Terms Act is to be given its ordinary meaning. That is, it involves the act of moving something or someone from one place to another.

Building new capital works, which then accrue to the value of the owner at the new premises, on its face does not involve the act of moving something or someone from one place to another. C&P argued that “relocation” means relocation to suitable premises or premises having particular characteristics that are appropriate for the conduct of the enterprise that is moved. This construction was accepted by Pain J in finding that C&P was entitled to compensation for expenditure given the “nature of the business that needs to be replaced”. However, the Court found that both the context of s 59 and the actual text of s 59(1)(c) did not support this approach.

Was the lessee entitled to compensation for costs incurred in constructing new landlord’s fixtures?

The Court held the answer is no. It found there is no support in the text of s 59(1)(c) of the Just Terms Act that “relocation” means relocation to suitable premises or premises have particular characteristics. Having regard to the statutory context, “relocation” of a business refers to movement of the relocated business. The physical characteristics of the leasehold premises such as fixtures belonging to the landlord, are not aspects of the tenant’s business which are capable of movement by the tenant.

The Court noted that while fit out costs could be claimed, this did not extend to financial costs of reinstating or replacing landlord’s fixtures which formed part of the acquired premises in the new premises. In making this finding, the Court examined a number of previous decisions. It noted that many findings were based on concepts from the earlier legislation or comprised a ‘judicial gloss’, including:

• Certain findings of Biscoe J in McDonald v Roads & Traffic Authority of NSW [2009] NSWLEC 105;
• A range of conclusions of Bignold J in Peter Croke Holdings Pty Ltd v Roads and Traffic Authority of NSW (1998) 101 LGERA 30; and
• Certain findings of Pain J in Hua v Hurstville City Council [2010] NSWLEC 61.

The Court also confirmed that the decision in The Trustee for Whitcurt Unit Trust v Transport for NSW [2021] NSWLEC 82 (a case in which we acted for Transport) was correct. That is, whether the relevant improvements sought to be reinstated were owned by someone else was critical. Whitcurt, on the central issue in this case, was correct.

The Court held that the words “financial costs reasonably incurred in connection with the relocation” cannot be read as permitting compensation to a lessee who spends money on landlord’s fixtures which enhance the value of the new landlord’s property.

If C&P received the costs of reinstating all that was necessary to make the new premises replicate the old, it would not be compensated for “relocation”. Instead, C&P would be receiving compensation for the purpose of improving new premises for the benefit of the new landlord.

The Court held that “the Just Terms Act does not provide compensation for relocating something that a person or a company never had any right to relocate.” The Just Terms Act also does not provide for relocation to “like-for-like” premises. It does not guarantee that the relocation will have the same fixtures. The Just Terms Act is neutral about the quality of the replacement premises. The Court held that the only asset of C&P’s business that was affected by the acquisition was the lease. It was compensated for market value of the lease including the right to use the improvements under s 55(a) of the Just Terms Act.

Awarding compensation for relocation costs, including constructing equivalent buildings and hardstands at another site, would effectively compensate for the loss of the same thing twice.

Is a lessee entitled to compensation for the increased rent at the replacement premises?

This claim was made on the basis C&P could not find another suitable site and the practical reality of finding a suitable alternative site justifies compensation for the rent differential. C&P claimed that the rent was “reasonably incurred” notwithstanding the new premises was larger than the old premises. C&P contended that what is “reasonably incurred” is a question of fact as to whether another site was available.

The Court held that the claim for the difference in rent payments is contrary to principle. C&P is entitled to compensation for the market value of the leasehold interest together with, in some cases, compensation for special value. If C&P decides to relocate their business to new premises, the choice of premises is in their hands. Compensation is not payment for the difference in the market rents between the old premises and new premises. The rental payment at the new premises will reflect the qualities of those premises including location, size, potential use and landlord’s fixtures available for use.

Summary

This case continues the trend of decisions from the Court that narrow the scope of disturbance claims. It is important because it examines a number of earlier decisions and gives clear direction as to where those decisions fell into error. The decision provides a very useful guide as to what can be claimed under s 59(1)(c).

Please contact our Environment and Planning team if you would like further information about how this case law update might impact your particular situation.