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Mr Fluffy – Is the ACT Government’s buy back scheme a viable option for the affected property owners?

On 28 October, the Federal Government announced it would provide a $1 billion concession loan to the ACT Government for its Loose Fill Asbestos Insulation Eradication Scheme. The 10 year loan is subject to the Commonwealth interest rate (with a 0.6 percentage point discount).

A loan is not what Territorians were hoping for.

The scheme is described as a voluntary buyback, under which the ACT Government intends to purchase and demolish all 1021 Mr Fluffy houses. The aim of the scheme is that within 5 years none of these 1021 housing will be left standing. This is in line with the advice of the Asbestos Response Taskforce that ‘there is no effective, practical and affordable method to render homes containing loose fill asbestos insulation safe to occupy in the long term’.

Mr Fluffy owners have until 30 June 2015 to decide whether or not to opt into the buyback program (the Scheme).

The Scheme

Homeowners who opt into the Scheme will surrender their Crown Lease to the ACT Government.

In exchange, the homeowner will receive:

-Market Value-

The government will pay the market value of the affected block (house and land) as at 28 October 2014

This valuation date will be the same for all of the 1021 properties – regardless of the timing of their buyback and demolition.

Importantly this valuation will ignore the presence of loose fill asbestos

-Stamp Duty Waiver-

A once only right to a waiver of stamp duty (up to the value of that payable on a transfer of the affected home) for the purchase a residential property in the ACT

-Legals-

$1000 to obtain independent legal advice on the deed of surrender of the crown lease.

-Emergency Financial Assistance-

Homeowners can also access emergency financial assistance when they move out of their home – being $10,000 plus $2,000 per dependant child.  This assistance is only available while the Scheme remains open, and is available whether or not you opt into the Scheme.

-First Option on your Land-

Each homeowner will also get a right of first refusal to re-purchase their affected block at market value, on which they must build a residential premises and live in it. There is mention that large blocks will be subdivided, and that homeowners may only be able to re-purchase part of their block if it is subdivided.

What’s the downside to all this?

-Waiver of all rights to sue the Government-

Homeowners will sign a deed of surrender, waiving any right to pursue legal action against the ACT and/or the Commonwealth in relation to the property. This waiver does not include any action you have for personal injury i.e. asbestos related diseases.

-Surrender value of your land as at 28 October 2014-

If you opt into the Scheme, it is not clear what the timing of settlement of your surrender will be. This is the date that you handover your land and receive your money. If this occurs up to 5 years down the track – market value then may be well above what it was on 28 October 2014.

-First Option on your land is market value at that time-

The date when your block becomes available for re-purchase could be up to 5 years down the track – well after you have received your surrender payment. If the market increases, homeowners who are paid 2014 values for their house and land may be priced out of the market for their land buyback.

And where will you live in the meantime? The financial assistance on offer will not cover residential rental for the years that may pass before your block is remediated and ready for purchase.

-Block may be halved-

Big blocks may be subdivided by the ACT Government, to increase the return, better for repayment of the Commonwealth loan. So a homeowner’s first option to buy back their land is not guaranteed to be the whole block.

-Compensation is limited-

Homeowners will have to bear the costs of engaging a licensed asbestos removalist to recover any goods that may be affected by asbestos (i.e. those in the ceiling or subfloor). You will not be provided with compensation for contaminated contents.

The compensation offered for rental and relocation assistance may not be adequate.

ACT Government will not compensate for mortgage early repayment fees – although they will advocate for the banks to waive these fees. Homeowners also will not be compensated for future financing costs for the purchase of their replacement home.

What if you don’t agree with your valuation?

The ACT Government will arrange two independent valuations, and will not select the valuers in each instance. If a homeowner doesn’t agree with the valuation amount, the homeowner must pay for further valuations to be carried out.

What Happens If You Don’t Opt In

There are two key consequences of deciding not to participate in the buy-back.

1. Likely Compulsory Acquisition

Given the ACT Government’s expressed desire to demolish all Mr Fluffy houses within 5 years, it is possible (if not likely) that it will utilise its compulsory acquisition powers under the Land Acquisition Act 1994 (ACT). Indeed, this has been alluded to in the various Taskforce Reports and Chief Minister Gallagher’s speeches.

2. Mandatory Home Safety Requirements

The Government has indicated that in 2015, mandatory legislative obligations will be in place regarding Mr Fluffy houses. These requirements, under an amended Dangerous Substances Act 2004 are designed to minimise the risk of entry of asbestos fibres into the living areas. Homeowners choosing to remain in their homes will have to, at their own expense:

– Seal, remediate and clean their home. This will include restricting and sealing access to ceiling cavity and subfloor, and all entry paths from wall cavities to living areas e.g. door frames, light switches, window frames, external or internal vents and grills.

 – Obtain regular asbestos assessments to ensure ongoing efficacy of the remediation.

 – Obtain building approval for any kind of maintenance or renovation works. It is noted that maintenance or renovation works are unlikely to be approved unless associated with the minimisation of asbestos risks.

 – Inform every person who enters the home of its status and condition.

These requirements will not only impose considerable costs on homeowners but will likely:

 – limit air flow, contributing to condensation, mould, damp and potentially termite activity

 – render downlights inoperable

 – render underground storage areas (including garages) unusable

 – affect privacy

 – render exhaust fans, air conditioning and heating systems inoperable

Will compulsory acquisition be better than the buy back scheme?

Everyone knows the mantra of “The Castle” – a compulsory acquisition of a home must be “on just terms”. This is not just a “vibe” but a constitutional right.

Homeowners who hold out for compulsory acquisition under the Land Acquisition Act 1994 (ACT) are entitled to a range of compensation, including:

– market value of the property

 – any loss, injury or damage suffered as a consequence of the acquisition (section 45(2)(c)

– legal costs associated with getting advice regarding the acquisition (section45(2)(e))(with no cap of $1000)

– lump sum payment of $15,000 (section 51) if you were residing in the premises prior to the acquisition

And thanks to the constitution, a court could be asked to consider in each individual case whether the above compensation represents “just terms”.

BUT:

– the compensation would be payable of the ‘market value’ of the land taking into account the presence of asbestos. Market value is defined by the Act to mean the market value of an interest in land at a particular time – being the amount that would have been paid for the interest if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer. The stigma attached to Mr Fluffy houses means market value could be substantially lower than the valuation under the Scheme

– access to any compensation is likely to be more time consuming and costly than under the Scheme

– the Government may be able to change the legislation regarding compulsory acquisition to limit the amount of compensation available

– the Government may opt not to compulsory acquire properties, leaving home owners to bear the costs of mandatory safety requirements mentioned above.

The Take Home Message

The ACT Government is consistently describing the buyback scheme as “voluntary”. Given the risks associated with failing to opt in to the Scheme it is unclear however, whether there are in fact other viable options available to these 1021 home owners other than signing up before 30 June 2015.

Written by Cassandra Emmett  – Practice Leader Property and Commercial – and Sarah Harris

Chamberlains Law Firm

P 02 6215 9100

E Cassandra.emmett@chamberlains.com.au

 

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