Sale contracts for property typically make provision for the adjustment of land tax, amongst numerous other adjustments, for the purposes of ensuring that the property is transferred free of any tax or charge against the incoming purchaser.  Where land is compulsorily acquired by a government authority, the acquiring authority will require any unpaid land tax to be deducted from the compensation payable, and will not “refund” prior land tax payments by the dispossessed land owner.  In the recent decision of Carlewie Pty Ltd v Roads and Maritime Services [2017] NSWLEC 78, the former land owner made a relatively novel claim that, in the circumstances, it was entitled to prior land tax payments made in connection with the acquired property, arguing that it was recoverable under s55 of Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act).

Carlewie Pty Ltd v Roads and Maritime Services [2017] NSWLEC 78

The WestConnex Delivery Authority, under the RMS, compulsorily acquired a major industrial site at St Peters on 3 July 2015, associated with the proposed (but now under construction) St Peters Interchange component of the “WestConnex” motorway project.  The former the land owner, the Applicant in the proceedings, claimed compensation for market value and disturbance totaling approximately $34m.  As part of its overall claim, it claimed land tax in the sum of $73,735.00, which it paid in two prior instalments in February and April 2015, prior to the compulsorily acquisition.

The Applicant contended that the terms of the “standard contract for sale” made express provision for land tax adjustment, which the Applicant contended was exercised in favour of the vendor in several comparable sales of “large industrial sites”.  It referred to clause 16.6 of the standard contract, which specifically identified:

16.6 If the purchaser serves a land tax certificate showing a charge on any of the land, on completion the vendor must give the purchaser a land tax certificate showing the charge is no longer effective against the land.

Accordingly, the Applicant submitted, the Court should accept it as “general practice” that land tax will have been “paid in advance” by a vendor and “recovered by way of an adjustment carried out at settlement” in connection with large industrial sites.  It was therefore either an express or implied component of the amount that would have been paid for the land if it had been sold in the usual way.

The Applicant argued that, if the Court were not to make that adjustment, this would result in “a windfall gain to the State (or unjust enrichment at the expense of the taxpayer)” and result in an “amount” that is not consistent with s56(1) of the Just Terms Act because it would not be consistent with market practice.

The RMS put forward a number of arguments in opposition to the land tax claim, including:

  • compensation for the market value of the land is to be determined by reference to the purchase price of a notional sale, “not the purchase prices as subsequently adjusted by the parties to reflect whatever agreement they might come to about liability for land tax and other adjustments.”
  • it was not open on the evidence to find that a prospective purchaser would have been willing to pay to the vendor, as part of the market value of the land, an “adjustment” amount of $73,735 as a notional repayment to the vendor of its previous payments of land tax.
  • the Applicant has not referred to any decided case in which compensation for market value has been held to include as a component an amount that reflects repayment to the Applicant of an amount of land tax previously paid by the Applicant in respect of the land.
  • there was no default position under the standard contract for sale of land, since in each case the parties must agree “yes” or “no” to the proposition that land tax is adjustable under the contract;
  • there was no evidence about any general practice – if there was one – regarding sales of substantial industrial land, so far as payment of land tax is concerned.

Judgment

The Court was not satisfied, on the evidence, that there was any consistent practice of purchasers, by way of contractual adjustment, agreeing to pay a vendor’s previous land tax payments in connection with large industrial sites.  The Court accepted that, had the evidence been otherwise, further consideration of the claim might have been warranted:

[177] Had there been any evidence that it is a consistent practice in the market, with respect to the sale of industrial property, that land tax is adjusted in a particular way, there might have been some basis for the Applicant’s claim.

The Court rejected the Applicant’s claim for land tax.

Comment

The decision of Carlewie is consistent with the Court’s long standing approach to land tax in the context of compensation claims under the Just Terms Act.  However, what Carlewie does suggest is that, if a claimant can establish that its property falls within a class of properties that, upon sale, treats “adjustments” in a particular or consistent way, including land tax, then the Court may consider such an application.  In practice, however, it is difficult to conceived of circumstances (other than between “related entities” – which would not constitute market evidence) in which a purchaser would agree to pay, in addition to market value, previous land tax payments made by the vendor.