On 11 February 2020, the New South Wales Supreme Court in the case of Armidale Regional Council v Vorhauer (No 2) [2020] NSWSC 56 expanded the costs that are recoverable by a local council under section 718 of the Local Government Act 1993 (LG Act) as part of the sale of land for unpaid rates. A council can now seek to recover their costs incurred whilst securing vacant possession of a property.

Background

In this case, Vorhauer had owned his Armidale property since he purchased it in 1986. After years of receiving notices, Vorhauer had $70,645.11 in outstanding rates and charges for water services for the period between July 2012 and July 2018.

Armidale Regional Council (Council) relied on section 713(2)(a) of the LG Act, which allows a council to sell any land on which a rate or charge has remained unpaid for more than five years, and listed the property for sale. However, after the property sold for $108,000, Vorhauer refused to move out, preventing the Council from providing vacant possession to the purchaser on the date of completion.

Decision

The Council initiated proceedings to obtain vacant possession. Vorhauer was self-represented and did not submit a defence but instead provided to the Court documents that outlined various reasons why the property could not be sold.

The Court established quite early that the Council was in fact legally entitled to vacant possession of the property and in doing so the Court rejected the array of arguments put forward by Vorhauer, including that a caveat had been placed over the property and the lack of a court application for vacant possession during the sale.

Following this finding, the Court was tasked with interpreting the extent of section 718 of the LG Act, which allows councils to further retain sale money for ‘the expenses the council incurred in connection with the sale’. In interpreting if that section could apply to the costs associated with legal proceeding to obtain vacant possession of the property, the Court reasoned that:

  • the Council had sold the property with vacant possession to acquire the best available price for Vorhauer and were acting ‘chiefly for the benefit of the registered proprietor of that land’, being Vorhauer;
  • without vacant possession, the sale contract would not be completed; and
  • obtaining vacant possession, including through initiating proceedings could then be considered to be ‘in connection with the sale’.

The Court ordered Vorhauer to pay the Council’s costs, and allowed the Council to take the owed amount from the proceeds of the sale.

Implications

This decision of the NSW Supreme Court broadens what constitutes expenses ‘incurred in connection with the sale’ under section 718(a) of the LG Act to include expenses incurred in obtaining vacant possession of the property being sold. Prior to this decision, section 718(a) of the LG Act had rarely been judicially considered and the extent of its application to various costs incurred by local councils in connection with the sale remained unclear.

In future, local councils may be able to claim other legal expenses they have incurred in the completion of a contract in similar circumstances.

For further information on any of the issues raised in this alert, please contact one of our authors below.