The NSW Court of Appeal in its August 2024 decision of oOh!Media Fly Pty Ltd v Transport for NSW handed down an interesting decision on the assessment of market value of a lessee’s commercial leasehold interest for the purpose of compulsory acquisition; a decision that will be of interest to lessors and lessees.
The lessee had a leasehold interest in a strip of land adjacent to Qantas Drive, near Sydney Airport. The lease enabled the lessee to erect 18 large billboard signs directed at motorists travelling along the road. The lease was compulsorily acquired by Transport for NSW for the purpose of facilitating construction, operation and maintenance of the “Sydney Gateway” road project.
The dispute centred on the compensation payable to the lessee under the Land Acquisition (Just Terms Compensation) Act 1991 for acquisition of the lease. The lessee had been planning to digitise some of its signs which would have increased their value but decided not to proceed with those plans upon learning of the potential impact on the lease of the Sydney Gateway project.
The argument of the lessee was relevantly that the market value of its interest in the land (arising by virtue of the lease) should be assessed on the basis that the development that had not been undertaken (i.e. the digitisation of the signs) as at the date of acquisition, had been undertaken.
The lessee’s appeal was dismissed. The Court held that it is the land as it is on the date of acquisition which is valued not the land as it would have been if development had been undertaken which was not pursued because of the proposed compulsory acquisition. The lessee made its own choices prior to the date of acquisition, contemplating the possibility or certainty of its interest in the land being acquired.
This decision assists to clarify the approach to valuing leasehold interests in the event of compulsory acquisition and provides important guidance on this often-contentious issue.
