When a claimant's land is resumed under the Acquisition of Land Act 1967, the value of the land taken for the purposes of assessing compensation is to be the amount for which the market would pay for the land as at the date of resumption. That market value is assessed by the test set out by the High Court at page 441 of its decision in Spencer v Commonwealth [1907] 5 CLR 418, where the Court said:
This test, which envisages that the prudent hypothetical parties are aware of all of the circumstances of the land which affect its use or potential use, requires an examination of the highest and best use of the land.
The highest and best use of particular parcel of land is the most advantageous use to which the land may be put having regard to relevant planning instruments and the circumstance of the land. Where a claimant contends that the highest and best use is a potential or future use, the claimant must establish that:
- it is likely that the relevant development approvals would be obtained;
- the use must be probable within a reasonable period of time (and not simply possible); and
- there is a demand for the use and economic conditions make it probable that the use would take place.
In assessing a claim for compensation that involves a potential use, the key question for determination is not whether a development approval would ultimately have been obtained, but rather what price the hypothetical parties, properly advised, would have agreed upon having regard to their assessment of the prospects of a development approval being obtained. While the concept of the parties being "properly advised" does not necessarily involve the engaging of experts to prepare detailed expert reports (of the type sufficient to support a detailed development application), it does involve the taking of advice from experts and when giving that advice it is incumbent on those experts to undertake all of the investigations necessary to ensure that the hypothetical parties are aware of all circumstances which might affect the achievement of that highest and best use, both positively and negatively.
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