When a government authority compulsorily acquires land in Victoria, affected owners and other interest holders are entitled to compensation under the Land Acquisition and Compensation Act 1986 (Vic) (LACA). While the concept of compensation is well understood at a high level, the way compensation is assessed and claimed in practice is often more complex than expected.

This article provides a general overview of the main heads of compensation available under Victorian law, how a compensation claim is made in practice, and the key principles that guide the assessment of compensation.

The statutory compensation framework

Compensation for compulsory acquisition in Victoria is governed by Part 3 of the LACA. Rather than allowing for a single, general payment, the Act requires compensation to be assessed by reference to specific heads of loss, most of which are set out in section 41.

The overarching principle is that a dispossessed owner should be fairly and reasonably compensated for losses suffered as a result of the acquisition. Compensation is intended to place the claimant, so far as money can do so, in the position they would have been in but for the acquisition.

Compensation is not intended to be punitive, nor does it take into account the public purpose for which the land is acquired.

Who may be entitled to compensation?

Entitlement to compensation is not limited to registered landowners. Depending on the circumstances, claims may be made by parties who hold a compensable interest in the land, including:

• freehold owners
• mortgagees
• lessees and sub‑lessees
• holders of easements or other proprietary interests

Each claimant must establish both the existence of a compensable interest and a loss arising from the acquisition of that interest.

Key heads of compensation

• Market value of the interest acquired

The starting point for any compensation claim is the market value of the estate or interest acquired.

Market value is assessed by reference to what a willing (but not anxious) buyer would pay to a willing (but not anxious) seller for the interest at the relevant valuation date. The assessment is undertaken ignoring any increase or decrease in value attributable to the project or “scheme” for which the land is acquired.

Independent valuation evidence is usually critical to determining this aspect of compensation.

• Severence

Where only part of a landholding is acquired, compensation may also be payable for severance.

Severance addresses the reduction in value of the retained land caused by the fact that it has been physically severed from the land that has been acquired. Common examples include loss of access, loss of frontage, reduced development potential or the creation of awkward or unusable land remnants.

Severance is typically assessed by comparing the market value of the retained land immediately before and after the acquisition.

• Injurious affection

Injurious affection refers to the reduction in the value of the retained land caused by the use of the acquired land for the purpose for which it is taken.

This head of compensation may arise where, for example, the completed public work causes ongoing noise, visual impact, traffic changes or loss of amenity that diminishes the value of the land that remains with the owner.

Injurious affection differs from severance in that the loss flows from the use of the acquired land, rather than from the act of severing it.

• Disturbance

Disturbance compensation addresses financial losses directly caused by the acquisition, beyond the value of the land itself.

Depending on the circumstances, disturbance may include reasonable costs and expenses such as:

• legal and valuation fees
• relocation and removal costs
• stamp duty and transaction costs incurred in acquiring a replacement property
• business relocation expenses
• costs associated with dismantling and reinstating plant or fit‑out

To be compensable, disturbance losses must be a natural and reasonable consequence of the acquisition and properly supported by evidence.

• Additional entitlements for displacement

Where the acquired land is a person’s principal place of residence, the Act provides for additional compensation and relocation‑related entitlements in certain circumstances. These sit alongside, rather than replace, the general compensation available under section 41.

The compensation process in practice

What follows is a high level explanation of the way the process generally works in Victoria. Our readers should note that each matter will turn on its facts.

Notice of intention to acquire – The compulsory acquisition process usually begins with the service of a Notice of Intention to Acquire (NOI). While an NOI does not itself trigger a right to compensation, it signals that acquisition is proposed and often marks the point from which affected owners begin incurring compensable disturbance costs.

Acquisition and vesting – The right to compensation formally arises when the land is acquired, typically upon publication of a Notice of Acquisition, at which point title vests in the acquiring authority.

Making a claim for compensation –  After acquisition, a dispossessed owner or interest holder may lodge a written claim for compensation.

The claim must identify the interest affected and specify the amount claimed, together with the basis on which compensation is sought.Although the LACA does not prescribe a mandatory claim form, claims are commonly structured by reference to the statutory heads of compensation.

Offer and negotiation – The acquiring authority is required to consider the claim and make a written offer of compensation (if it has not already provided its offer). In practice, most claims proceed through a period of negotiation, often involving exchanges of expert valuation and accounting evidence.Partial or advance payments may be made in some cases, particularly where an owner would otherwise suffer financial hardship.

Final observations

While the compensation framework under the LACA is structured and well established, the application of that framework to individual properties and circumstances can be highly fact specific. Market value disputes, severance impacts and disturbance claims frequently require careful analysis and expert input.

Early engagement with the process and a clear understanding of the available heads of compensation can materially affect outcomes for affected landowners and interest holders.

For guidance on your entitlements and the compensation process under the Act, please contact James Christodoulakis, Principal: james.christodoulakis@madgwicks.com.au to discuss your circumstances and how best to protect your position.

The information provided in this article is general in nature and cannot be relied on as legal advice, nor does it create an engagement. Please contact one our lawyers listed above for advice about your specific situation.