Understanding offer back obligations under the Public Works Act 1981
A minefield for PWA landowners in New Zealand
Monday, 3 April 2023
The Public Works Act 1981 (PWA) is a critical piece of legislation in New Zealand that enables the Government and local authorities to acquire land, either by agreement or through compulsory acquisition powers, for public works projects.
A crucial element of the PWA is that where land held for a public work is no longer required for a public work, it must be offered back to the former owner from whom it was acquired, or to their successor, at the current market value of the land.
The basic intention of this statutory requirement is to provide former owners with an opportunity to repurchase their land if it is no longer required for a public work, facilitating the return of land to its former owners and re-amalgamate land that may have been broken up by the acquisition for a public work.
While the intention sounds clear and straightforward, the application of offer back provisions across a range of varied circumstances has generated a large amount of case law with outcomes and repercussions that agencies holding PWA land may find surprising. Failure to correctly identify and discharge offer back obligations may give rise to significant reputational, operational, and financial risks for PWA landowners.
Why so much litigation over offer back?
Property is an emotive asset, and the bottom line for many former owners may simply be that they dearly wish to obtain their property back if it is no longer required for a public work. However, there is also the potential for significant financial benefits to former owners should the Crown or a local authority not discharge its offer back obligations within a reasonable time frame. On many occasions, PWA land holding agencies have been forced to offer back property at historic market values, often at significant discount to current market value. As a result, the propensity for litigation is understandably high and should be expected to continue to be so.
So how does offer back work?
As soon as a property is surplus to the public work for which it is held, and if there is no other public work requirement, the obligation to offer back is triggered.
Provided that none of the exemptions provided for in the PWA apply, case law indicates that an offer back should be made within 12 months from the date a property becomes surplus.
Two important points to note here are.
A property may be objectively judged to be surplus to the public work for which it is held, even if the PWA landowner has not made a decision itself that the land is surplus. This is an objective assessment based on facts of the individual circumstances. The actions or inactions of the landowner may have relevance, along with expert evidence. Landholding agencies must therefore proactively monitor their land holdings under the PWA.
In more than one recent case, the courts have held that a PWA landowner must act with reasonable speed to consider requirements for any other public work, and to consider if any of the exemptions to offer back apply. Failure to consider these aspects with reasonable speed may lead to these defenses to offer back effectively expiring. What was striking about a particular recent case was that these defenses expired, despite the Crown holding the belief that it held the land for a legitimate public work and that therefore offer back had not been triggered. Delaying consideration of alternative public work requirements or exemptions on the basis of a mistake does not appear to be a valid reason, especially when there is a challenge made by a former owner.
What are the exemptions from offer back?
A number of exemptions may apply to offer back, which can discharge offer back obligations. This is a brief summary, and decisions are generally made on a case by case basis based on the facts of a particular case.
s.40(2) (a) Impracticable: Impracticable means that offer back in not capable of being put into practice rather than just presenting practical difficulties. For example, the land holding agency may not be able to obtain a subdivision resource consent to enable the land to be offered back or the former owner may be a defunct company.
S.40 (2) (a) Unreasonable or unfair: Offer back may be exempt where it would be unreasonable or unfair for the land holding agency to be required to offer the land back. Examples include situations where the land was advertised to the open market prior to the land being of interest for a public work or where the land was acquired at the insistence of a former owner.
S.40(2) (b) significant change: Offer back may be exempt where there has been a significant change in the character of the land for the purposes of, or in connection with, the public work for which the land was acquired or is held. A fair measure of caution is applied to this rarely used exemption. Due, perhaps, to a lack of certainty as to its grounds for application, being a subjective assessment for which there is a lack of clear direction from the Courts.
S.40(3) Essential work: The original text to the 1981 Public Works Act did not provide powers of compulsory acquisition where a public work did not meet the definition of an “Essential Work”. Where land was acquired between 1 February 1982 and 1 April 1988 for a public work, which was not also an Essential Work, it is exempt from offer back obligations as the Crown could not have acquired the land by compulsory acquisition.
Section 40(4) – Size, Shape or Situation: This exemption may apply where there are reasonable grounds to exempt offer back due to the size, shape or situation of the land. If applied, the exemption provides for disposal to an adjacent land owner only. This provides a practical way of dealing with land holdings which are of no use or value to anyone other than an adjoining owner.
The former owner is deceased, what happens next?
Where all of the former owners land was acquired for a public work and the former owner is deceased, the term successor applies to a legal entity who would have been entitled to the land under the will or intestacy of the former owner.
Only one level of succession is provided for, therefore if the successors identified from the will or intestacy of the former owner are no longer alive, or cannot be located, then offer back would be at end.
Who qualifies as a successor under the will of a former owner has been an area of frequent litigation and was significantly redefined in the case of Williams v Auckland District Council  NZHC 479. Further scrutiny and guidance from the Courts can be anticipated.
Practical considerations for offers
There are a range of practical considerations that may need to be addressed in the making of an offer back. An Accredited Supplier such as APL can assist with guiding a PWA landowner through these questions. Questions we frequently see include.
Can I include land in an offer back that is not subject to s.40?
Can I stipulate a late settlement provision?
Can I offer a property back for less than market value?
Can I lease the property to a third party prior to offer back?
Can offer back be made subject to a lease back?
What is the form of agreement for an offer back and can I include special conditions?
The property is not safe to access, how do I manage that in an offer back context?
The offer back obligations under the Public Works Act 1981 can be a minefield for public landowners in New Zealand. Failure to correctly identify and discharge offer back obligations may give rise to significant reputational, operational, and financial risks for PWA landowners.
PWA land holding agencies must proactively monitor their land holdings and act with reasonable speed to consider their public work requirements and if necessary, make timely offer backs to former owners or their successors.