“This is a case study on how to compulsorily acquire property without being subject to the compensatory statutes.” JON STANHOPE & KHALID AHMED defend vulnerable Mr Fluffy home owners who deserved to be treated with care and compassion.
The 2014 asbestos remediation program was necessitated by the failure of an earlier attempt in the 1990s to completely remove all asbestos from all the properties that were treated.
In addition, some properties were overlooked altogether.
It is generally agreed that the dwellings were unsafe due to the presence of loose-fill asbestos and that demolition – a hard clean-up – was the only reasonable option.
However, a regulatory decision on the hard clean-up or at the very least a market advisory, should have been taken much earlier than was the case, to protect unsuspecting buyers and families.
It is surely unnecessary to labour the point that an affected household should not be held responsible for the cost of clean-up by whichever lens – ethical, social or regulatory – the matter is viewed.
The clean-up involved vacating an affected dwelling for an extended period of time, and so a model based on acquisition was clearly the most reasonable.
Acquisition and fair compensation
The Carvalhos (who we referenced in an earlier article) say they did not sign up to the eradication scheme for their Lyons home because it was not on “just terms”.
Highlighted, as it is, in bold font in their correspondence, it has all the appearance of the courtroom scene in the classic Australian film The Castle in which the provisions of Section 51 of the Australian Constitution, which detail the legal requirements pertaining to the acquisition of property by government, are dissected.
While the Kerrigans, the heroes of The Castle, simply did not want to move, there was no resistance from the Carvalhos, or for that matter a number of others, on that count.
The Carvalhos have a home, and yet they are “homeless”. They are victims of challenging the ACT government’s asbestos eradication program valuation.
The Carvalhos bought their Lyons home not knowing that it was what is generally known as a “Mr Fluffy” house.
The ACT government knew, but at the time did not publicly identify the properties affected by loose fill asbestos. Nor did it require, at that time, that that information be disclosed in contracts for sale
In fact, to our knowledge, neither those who along with Carvalhos did not sign up, or those who did sign up to the government’s “scheme”, ever argued that their dwellings were liveable and should be left alone or did not require remediation.
This is an important point: their argument is not that you cannot put a value on a home, but that their house should be valued properly.
For that they did not need to go to the High Court seeking an interpretation of the Constitution and its applicability in their case.
A law – The Lands Acquisition Act 1994 relating to the acquisition of interests in land by the executive – already existed and was relevant, for example, in the calculation of just terms.
Section 51 (coincidentally) of the Act provides for compensation where an interest in land is acquired from a person by compulsory process, and prescribes the calculation of the relevant amount in Subsection (2) as follows:
(2) The amount of compensation to which the person is entitled in respect of the acquisition is the sum of $15,000 (or that amount as indexed by section 105) and the greater of the following amounts:
(a) the amount of compensation to which the person would, apart from this section, be entitled;
(b) the aggregate of the costs to the person of acquiring a reasonably equivalent interest in land that entitles the person to occupation of a reasonably equivalent dwelling.
The 1994 Act therefore provided for financial compensation to meet the costs of acquiring an equivalent dwelling, plus an amount of $15,000 as indexed at the relevant time.
Section 105 of the Act prescribes a very detailed method for calculating the degree of indexation. Using the ABS index as prescribed, we estimate the indexed amount as being about $26,000.
The cost of like-for-like acquisition would obviously include costs related to government fees and taxes, such as stamp duty. The legislation does not appear to limit where such costs are incurred, and it is reasonable to assume that stamp duty costs would be included in the compensation, irrespective of where they are incurred.
The model of compensation, as provided in the legislation, appears to be reasonable and fair. It does not, for example, convert any potential future gains, or any benefits from possible enhanced uses beyond the current lease conditions, into monetary compensation. In a similar vein, it does not provide for speculation, so common in market valuations where supply is constrained.
Case for public spending and financial modelling
The then Standing Committee on Public Accounts in its Report on the Inquiry into the proposed Appropriation Bill reiterated the need for the scheme and public spending as follows:
2.18 The Scheme has become necessary to ensure that the legacy of the potentially deadly loose‐fill asbestos insulation (Mr Fluffy) that has plagued Canberra since the early 1960s is extinguished.
2.19 Eradication of the loose‐fill asbestos insulation from affected homes is necessary because there is no known safe level of exposure to asbestos and, in the case of residential dwellings, there is no way to make homes contaminated with loose‐fill asbestos safe to live.
The then Treasurer, Andrew Barr, provided financial modelling to the Committee that concluded that the scheme was expected to have a net cash cost to the ACT government of about $366 million not including the interest costs on the loan from the Commonwealth.
The government expected to spend around $897 million purchasing and remediating properties and undertaking the administrative tasks associated with the scheme, to be partly offset by the proceeds from the resale of remediated land estimated at around $531 million.
However, the actual outcomes were fundamentally, not just marginally, different from the estimates provided to the Committee.
We will discuss in detail the original financial estimates and the actual outcomes in a separate article. Broadly speaking, however, the government spent much less on acquisition, less on clean-up, earned more from resales, and has some land to spare (ie, yet to be sold).
With the exception of the relatively lower remediation costs – savings – the improvement in financials did not materialise out of thin air.
The case for compulsory acquisition was reasonably clear. A paper published in the Canberra Law Review in 2015 stated: “In the ACT, there already are reported cases of people who have lived in loose fill asbestos affected houses being diagnosed with mesothelioma.
“Consequently, the argument of public safety will likely satisfy the public purpose test. Furthermore, acquiring Mr Fluffy homes in order to demolish their structures and remove extant asbestos seems to be the kind of public purpose endorsed by the High Court.”
Compulsory acquisition or voluntary surrender?
Within a few weeks of the Taskforce being established, the government had taken a position on the working model for the acquisition and clean-up.
The Standing Committee on Public Accounts was advised in October 2014 that the scheme would be “voluntary”.
The government noted it had the ability, pursuant to the Lands Acquisition Act 1994, to compulsorily acquire land and/or order the demolition of buildings that pose a significant risk to health and safety. The government advised the Committee that it reserved the right to exercise powers to compulsorily acquire and/or condemn affected homes in the future in accordance with the relevant statutory processes.
The government’s advice to the Committee regarding the potential compensation in such a case is at best misinformed, and possibly misleading. We will discuss it in detail in a subsequent article.
The Committee observed that the buyback program was the only offer available to households and went on to recommend that “the ACT government clarify its position with respect to section 51 of the Lands Acquisition Act 1994 by 1 February 2015”.
The government’s response was a terse reference to its advice to the Committee that the scheme was “voluntary”.
It is clear that there was no consultation with affected homeowners regarding the acquisition and compensation model. It is also clear that the government wanted to avoid the provisions of the Lands Acquisition Act 1994, regarding compensation.
The framework and the modus of implementation developed and adopted by the Taskforce appears to us as a case study on how to compulsorily acquire property without being subject to the compensatory statutes; or how to step around requirements of the law without breaching it.
It is also one for the ethics classes on how not to act generally, but especially, towards people who are vulnerable and deserve to be treated with care and compassion.
We will discuss the scheme in detail in our next article, noting that in our opinion the government has almost certainly shortchanged those residents saddled with a Mr Fluffy home.
Jon Stanhope is a former chief minister of the ACT and Dr Khalid Ahmed a former senior ACT Treasury official.
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