A lot of our clients have entered into Conduct and Compensation Agreements (CCA’s) with coal seam gas (CSG) companies over the last 15 years or so.
A decision of the Land Appeal Court of Queensland which was handed down earlier this year potentially creates an unintended problem for those landowners who have existing CCA’s with CSG companies operating on their properties.
About the decision
The case involved a landowner on the Darling Downs who uses his property solely for grazing and cropping purposes. The property was previously owned by a CSG company and there were a number of gas wells as well as associated gas infrastructure on the property at the time it was acquired by the landowner.
The landowner’s property is situated in the local government area of Western Downs Regional Council (Council) and, when it was previously owned by the CSG company, it was categorised for rating purposes as being used for gas extraction which attracted a much higher rate per dollar of the unimproved land value when calculating the actual rates charged.
After the property was acquired by the current owner, he applied for a change of rating category to “rural” which he claimed was more in line with his use of the land and which would result in a much lower charge for rates.
The Council refused the new owner’s application for the change in rating category and the dispute ended up in the Land Court which found in favour of the landowner.
The Council appealed this decision to the Land Appeal Court of Queensland which held that:
- it is the use of the land, not solely the principal activity of the owner of the land, that determines a rating categorisation;
- the Council’s “gas extraction” rating category did not require the property to be used exclusively, wholly or predominately for gas extraction and associated activities – it was sufficient that these activities were carried out on the land and they did not need to be the predominate use; and
- as the land was used in part for gas extraction activities, the Council was within its rights to categorise the whole of the land as “gas extraction” which attracts a much higher rates category charge than the predominate “rural” use.
The effect of the decision
Any local government in Queensland which applies a differential rating system for land used solely for “rural” purposes on the one hand, and land which is used partly for “gas extraction” activities and partly for “rural purposes” on the other hand, will be entitled to categorise the latter land (and therefore rate it) under the “gas extraction” category and charge far more in rates.
The problem for the landowner is that the landowner will not be able to recover the additional rates charges (due to the presence of the gas wells or other gas infrastructure) from the CSG company unless this is specifically provided for the a CCA. As a general observation, this type of provision has not been historically included in CCA’s.
Where to from here?
Needless to say, landowners are not going to be able to convince CSG companies to amend any existing CCA’s to include this type of provision because it obviously works against the CSG companies.
However, if an existing CCA does need to be amended or revised because of some change to the activities authorized by the CCA, then this presents landowners with the opportunity of including this type of provision as a condition to agreeing to any other amendments or variations required by the CSG company.
It might also be possible for landowners to argue that any change to a property’s rating category and a corresponding increase in rates which result from the presence of gas wells or other infrastructure on the land amounts to “a material change in circumstances” under the relevant resources legislation.
This entitles a landowner to apply to the Land Court for a review of the compensation which it receives under a CCA. While this argument has yet to be tested, it is certainly not without reasonable prospect of succeeding.
These may be the only avenues which affected landowners have to impose a “claw back” obligation on CSG companies in respect of increases in rates arising from a change in rating categories.