Wind farm dispute: are tenant’s fixtures ‘land’?
14th June, 2021
By Matthew Cridland, Contributor- Opinion, Financial Review.
A recent NSW Supreme Court decision highlights the twin challenges of determining whether an item affixed to land by a tenant is a fixture and, if it is, the value of the tenant’s interests in that fixture.
The case involved SPIC Pacific Hydro which, in July 2017, acquired all of the units in a trust that indirectly holds the assets for the Taralga wind farm. At issue was whether SPIC was liable for “landholder duty” on the purchase of the units and, if so, the quantum of that liability.
The wind farm is situated on a property used by the landowners for grazing. Parts of the land are leased to a sub-trust (part of the group SPIC acquired) for 30 years. The wind farm comprises 51 large wind turbines and related plant which were valued at $227.2 million in May 2016. The chief commissioner assessed SPIC for landholder duty of about $12.4 million on this value.
Under the doctrine of fixtures an item that is affixed to land, other than by its own weight, may be treated as a part of the land. Whether such an item is a “fixture” is generally determined based on the degree of annexation and the objective intention of the parties at the time of annexation.
A fixture is the property of the landowner, regardless of the fact it may have been installed by a tenant or at the tenant’s cost. This is also notwithstanding that in respect of one class of fixtures, “tenant’s fixtures”, the tenant has a contractual right to remove the items during or shortly after the end of the lease term.
SPIC argued that the turbines are chattels (goods) and not fixtures. This is on the basis the wind turbines are designed to be removed at the end of their effective life of about 20 years. The leases provide SPIC with a right to remove the items (and SPIC is obliged to remove them at the end of the lease).
Justice Anthony Payne held that the wind turbines and other affixed plant are tenant’s fixtures. He noted that each wind turbine is secured to foundations comprising up to 400 cubic metres of concrete and 50 tonnes of steel reinforcement. He concluded the turbines are “very strongly affixed to the land”. In terms of intention, he found that the items are affixed “for the better enjoyment by the tenant of the land as an integrated wind farm operated on the land”.
Justice Payne also concluded that a tenant’s interest in unsevered leasehold improvements is “a purely legal interest in land”, not an equitable interest. This point is relevant to the value of the tenant’s fixtures, which Justice Payne held is included in the value of the leasehold interests.
Justice Payne accepted submissions by SPIC that the correct value of the land interests was $201.6 million, which is lower than the value used by the chief commissioner.
This decision stands in contrast with a recent Victorian Supreme Court decision involving the Ararat Wind Farm in Victoria.
In that case “fire service levies” had been calculated for the property based on a capital improved value of $407.4 million. However, Justice Melinda Richards concluded that the wind turbines and other plant “are chattels, not fixtures, at common law” and held the land’s value at $14.6 million – more than 96 per cent lower.
It should be noted that the two cases related to different taxes and legislative regimes. Justice Payne distinguished the Victorian decision and clearly arrived at a different conclusion on the fixtures issue.
If the decision stands, farmers who are considering leasing their land to wind or solar farm operators will have to consider the potential implications for themselves.
If a farmer decides to sell the land during the lease term, any potential purchaser will be liable for transfer duty based on the higher of the purchase price and the unencumbered value of the land, including any tenant’s fixtures.
High valuations and duty costs may result in lower price bids from potential purchasers. Arguably the farmer’s interest in the land should be reduced to take account of the lease and the tenant’s interest in the fixtures. However, this is ultimately a valuation question.
In NSW, the landholder duty rules were amended from June 24 last year to expressly extend the concept of “land” to include anything that is fixed to the land, regardless of whether it is a fixture at common law and separately owned to the land.
So if SPIC had purchased the same units today, there is no doubt the wind turbines and related plant would be assessed for landholder duty. But complex issues remain in relation to transfer duty and when determining the value of such assets.