Am I Paid for My Improvements When My Lease Expires?

A lessee who has spent thirty years building on land faces one question at the end of the term: do I get anything for it? Section 119 of the Land Act 1996 answers it, and the answer turns almost entirely on one act — whether you applied for a further lease.

Section 119(1) — two definitions that matter

Three points follow. Improvements you paid for under section 84 when you took the lease count as yours. Improvements must be suitable to the land and add to its leasing value — an unsuitable or value-destroying structure is not compensable. And valuation is at a fixed date: the day after expiry, not the date of payment or of any dispute.

Section 119(3) — the central rule

Note “shall”. Where the condition is met this is an obligation, not a discretion, and it carries its own six-month deadline.

Section 119(4) — if the land goes to someone else

Where, within the six months, a State lease of the land (or part) is granted to a person other than the outgoing lessee, the Minister shall pay the outgoing lessee, on or before the date of grant of the new lease, the value of the improvements on that land or part.

So the payment date is pulled forward: it must be made on or before the new grant. The State cannot hand the improved land to an incoming lessee and settle with the outgoing one later.

Sections 119(5) and (6) — the right of removal

A lessee who is not entitled to payment is not left with nothing. In both of these cases the lessee may remove such of the improvements as are severable, on or before expiration or surrender, doing as little damage as may reasonably be to the land:

• where the lessee did not apply for a further lease (s 119(5)); and
• where the lease is surrendered under the Act (s 119(6)).

“Severable” is doing the work. Plant, machinery, demountable buildings, fencing and fittings are usually severable. Concrete slabs, permanent buildings, roads, drains and planted crops generally are not. Removal must be done on or before the expiry or surrender — not afterwards.

Section 119(2) — if you are granted a further lease

Where the lessee is granted a further lease of the land, or of part, section 84 does not apply to those improvements for the further lease — unless the lessee has received payment for them under section 119.

This prevents an obvious injustice. Section 84 allows the Minister to require an incoming lessee to pay for improvements already on the land. Without section 119(2), a continuing lessee could be made to buy their own buildings back. The exception is where they have already been paid out under section 119 — in which case the improvements are no longer theirs, and section 84 applies normally.

Section 119(7) — agreement with the incoming lessee

If the outgoing and incoming lessees agree on the amount to be paid for the improvements — whether improvements the outgoing lessee is entitled to be paid for by the State, or entitled to remove — and on the time and manner of payment, and they notify the Minister in writing of the agreement before the date the new lease is granted, that agreement governs.

What to do as your lease approaches expiry

1. Diarise the expiry date from your title, and work back at least a year.
2. Apply for a further lease — the section 119(3) entitlement depends on it. Note that a lessee applying for a further lease is a ground for exemption from advertisement under section 69(2)(c).
3. Check whether the land has been reserved from further lease under section 49 — that signals no renewal is intended, and makes the section 119 claim the main event.
4. Get a valuation of the improvements as at the day after expiry, addressing suitability to the land and the addition to leasing value.
5. Inventory what is severable, in case removal becomes the fallback.
6. Talk to the incoming lessee if one is known, and consider a section 119(7) agreement notified in writing before the new grant.
7. Diarise the six months from expiry for the Minister’s payment obligation.