Posted on 24 May 2012
Top five things to consider - compulsory acquisition of a business
By Slater and Gordon
The recent Regional Rail Link compulsory acquisitions in Footscray provide a reminder of the difficulties faced by business owners when government departments acquire land for public infrastructure projects.
Slater and Gordon represents a number of business owners in Footscray who’ve been affected by this project – and the process of proving a claim for compensation is by no means smooth sailing for business claimants.
If your business operates on land that is, or is potentially, earmarked for compulsory acquisition, or if you provide professional advice to a business owner who is likely to be affected by compulsory acquisition, there are a number of issues to grapple with – and in most cases, you will need to address these matters as early as possible.
1. Start looking for an alternative property
This is particularly important if you own the land on which your business operates and if there is a rising property market. One of the largest parts of your compensation claim is likely to be a claim for market value. You are entitled to receive compensation for the value of the land that is acquired. The market value is assessed at the date of acquisition, not the potential value in 12 months’ time when you are still looking for an alternative property, and not what you might have to pay to purchase an equivalent property. Compensation is generally based, on what your property was worth and not on the replacement property value. So when you’re served with a Notice of Intention to Acquire, it is time to start looking for alternatives.
If you’re a tenant in a commercial premise, it’s also important to consider your alternatives early. If you intend to relocate, the more evidence that is available of your intention to move, your attempts to find a suitable alternative and the likely costs you will incur, the stronger your claim for relocation costs will be. What’s more, if the acquiring authority needs possession of the property within a short time frame, you may find yourself without a business premise – and with no guarantee of your storage or other interim costs being recoverable.
2. Get your lease in order
If you’re a commercial tenant, the length of your lease, any options for renewal and the market value of your rental will all be relevant issues in determining your compensation claim. Ideally, your lease is already in progress and the terms are documented. And once the property is acquired, it is likely to be too late to finalise any lease arrangements, because of the landlord’s power to deal with the land ceases. However, if you’re aware that an acquisition might occur, check that your lease documents are in order, that both parties have signed the relevant paperwork and that there is evidence of your intention to remain at the property into the future (if that is in fact the case). If you have no paperwork, have only been at the property a short time or have a monthly tenancy terminable at will by the landlord, then you may not have an entitlement to claim compensation for the acquisition.
3. Finalise your tax returns and provide financial records
The profitability or market value of your business is a relevant factor in assessing the ‘reasonableness’ of your claim. You may be interested in claiming removalists’ costs, fit out of a new premise or marketing a new address, for example – and this claim will be assessed, among other things, in light of the value of the business that has been forced to move. Similarly, any potential claim for loss in profits suffered as a result of an acquisition must be supported by detailed accounting records and probably an expert accountant’s report.
It is therefore important that your lawyer and professional advisers are provided with a proper picture of your business: what it cost you to buy (if you purchased the business recently); your profit and loss statements; the value or at least a list of its assets; and the income you take from the business from year to year. Complete your recent years’ tax returns and financial statements and provide them as soon as possible to your advisers. The Authority will only work on the information in your tax returns and if they disclose a low profit this will result in a low valuation of the business for acquisition purposes.
4. Keep records of all expenses
In support of any claim for reimbursement of costs or expenses, you will need to provide invoices or receipts which prove that you have met the expense and which demonstrate the nature of the services or goods provided. Government departments will be reluctant to pay money only on the basis of a bald statement of expenditure made by your lawyer.
Keep receipts and invoices relating to any removalist fees, utility costs, construction work, stationery or any of the other multitude of expenses that may be incurred in a business relocation. If you hold a closing down sale or otherwise discount stock prior to a relocation, be sure to keep detailed cash books which show the changed margin on your stock sales, so that your advisers can if necessary explain any change to your business profits. If news of a proposed acquisition begins to affect the number of customers who visit, keep a record of this.
5. Get a lawyer
It is important to get individual, detailed legal advice when faced with an acquisition. A lawyer will be able to advise you about any entitlement to claim compensation, any potential difficulties with your claim, and will assist in guiding you through the process and liaising with the acquiring authority and any experts.
You are entitled to seek independent advice about an acquisition and its affect on you. The legislation provides for the reimbursement of your reasonable legal expenses if land has been acquired. Contact a solicitor early to discuss your circumstances and the options available to you.
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