Overview
Planning compensation is a specialised area of Victorian property law that sits at the interface of planning scheme controls and compensation resulting from planning blights, being land reserved or otherwise required for a public project (ie pre-compulsory acquisition). It is designed to address a narrow but commercially significant problem: where land is effectively blighted by being reserved, or proposed to be reserved, for a public purpose, and the owner or occupier suffers actual financial loss as a natural, direct and reasonable consequence.
For developers and sophisticated landowners, planning compensation issues commonly arise in growth corridors and infrastructure influenced locations, including where a Public Acquisition Overlay (PAO) affects land needed for future roads, rail, drainage infrastructure or other public projects. The existence of a PAO can materially change development pathways, constrain permit outcomes, depress sale value and affect funding, even where acquisition may be years away.
This page outlines when planning compensation may be available, how claims are assessed, the procedural framework, and the strategic considerations that often matter in development and investment contexts.
What is planning compensation
Part 5 of the Planning and Environment Act 1987 (Vic) creates a right to interim compensation, commonly referred to as planning compensation, in certain limited circumstances linked to land being required for a public purpose.
The right is not a general entitlement whenever land value falls due to planning controls. It is directed to defined triggers, and it requires proof of actual financial loss that flows in a natural, direct and reasonable way from the relevant planning event.
The core triggers for a claim
Planning compensation can arise where financial loss is suffered as a natural, direct and reasonable consequence of one or more of the following circumstances:
- the land being reserved for a public purpose under a planning scheme, typically by inclusion in a PAO;
- a proposed planning scheme amendment to reserve the land for a public purpose, including where the land is shown as reserved in a notice of amendment;
- a Ministerial declaration that the land is proposed to be reserved for a public purpose;
- restriction of access to land due to closure of a road by a planning scheme; and
- refusal of a permit to use or develop land on the ground that the land is, or will be, needed for a public purpose.
In practice, the most common developer facing scenarios are loss on sale (planning blight), and permit refusal or effective refusal outcomes linked to the public purpose reservation.
When the right to compensation arises
The time when a right arises is critical because it affects eligibility, valuation dates, ownership requirements and limitation periods. In general terms, the right arises at the time the loss is suffered, for example when land is sold at a lower price than would have been expected but for the PAO.
Permit refusal based claims generally arise when the permit is refused (including by the Victorian Civil and Administrative Tribunal (VCAT) where the refusal basis is the public purpose) or, in some circumstances, where VCAT disallows a review because the land is, or may be, required for a public purpose.
For road closure restrictions, liability can arise once the relevant planning scheme provision comes into operation.
These timing rules are often determinative in transactions, particularly where ownership changes hands after a reservation is applied or proposed.
Who can claim and who is liable to pay
The compensation scheme is primarily available to an owner or occupier of the land who suffers the relevant financial loss.
Liability depends on the type of claim:
- claims linked to reservation under a planning scheme, a notice of amendment, or a Ministerial declaration are made against the planning authority; and
- claims linked to refusal of a permit are made against the responsible authority.
Another authority may become responsible for compensation, particularly where that authority is the driver of the reservation and the likely acquirer (for example, a road authority in the case of a future freeway corridor).
Loss on sale compensation
Loss on sale compensation is often the most commercially significant head of claim. It is payable where it can be shown that land sold at a lower price than would reasonably have been expected if the land had not been affected by inclusion, or proposed inclusion, in a PAO.
Eligibility can be process dependent. With limited exceptions, to claim loss on sale compensation the owner must give the relevant authority 60 days’ written notice of an intention to sell, and must have been the owner at the time the PAO (or earlier reservation) first came into effect.
For developers, this pre-sale notice requirement is frequently overlooked in high velocity transactions, particularly where land is sold under pressure due to funding, staging or portfolio rebalancing. It should be treated as a transaction critical step when planning compensation is in scope.
Compensation where a permit is refused due to a public purpose
A separate and common trigger is where a responsible authority refuses a permit (or VCAT effectively affirms a refusal or disallows a review) on the ground that the land is, or may be, required for a public purpose.
In a development context, this can arise even where the land is not yet within a PAO, if there is reasonable evidence that the land will need to be acquired for a public purpose in the future and the refusal turns on that basis.
These cases require careful framing. Developers typically need to isolate the public purpose basis of the refusal, separate it from other planning merits issues, and establish the causal link between that refusal and the financial loss claimed.
How compensation is assessed
Assessment is commonly approached on a before and after basis, comparing:
- the market value of the land as at the date liability first arose, assuming it had not been affected by the reservation or proposed reservation; and
- the actual value of the land as at the date liability first arose, with the reservation effect in place.
For loss on sale claims, valuation evidence is typically tied to the settlement date, and the comparison is between value without the PAO and the value with the PAO.
The Planning and Environment Act 1987 (Vic) also links the determination of compensation to aspects of the Land Acquisition and Compensation Act 1986 (Vic), which imports acquisition style valuation concepts and dispute pathways in appropriate cases.
Caps, costs and additional heads of compensation
Planning compensation is not unlimited. The Planning and Environment Act 1987 (Vic) includes a statutory cap on the maximum amount payable for financial loss. In addition, a claimant may be able to recover reasonable legal, valuation and other costs incurred in establishing the claim.
Where a residence is affected, a limited additional amount for intangible and non-financial disadvantage (a consolation style amount), capped at 10 per cent of the compensation otherwise payable.
For developer held land, this residential consolation component will often be irrelevant, but cost recovery and the statutory cap issues remain central.
Situations where planning compensation may not be available
There are exclusions and qualification rules that frequently affect developer claims.
Claims may be unavailable where:
- the planning authority has already bought or compulsorily acquired the land;
- a permit condition provides that compensation is not payable;
- the loss is minor in nature (minor loss rejection mechanisms exist); and
- the claimant was not the owner or occupier at the time the right first arose.
A further developer specific exclusion is that Part 5 of the Planning and Environment Act 1987 (Vic) does not apply to certain land within an Infrastructure Contributions Plan (ICP) area that is required to be set aside for a public purpose under an approved ICP, with a separate statutory mechanism applying in that context.
Procedure, timeframes and dispute resolution pathways
Claims must be made to the relevant authority and are then assessed, admitted or rejected. The authority has three months to respond to a claim and may reject it or admit it in part.
Where compensation is disputed, the dispute forum can be VCAT or the Supreme Court depending on the amount in dispute and the statutory pathways. VCAT determines disputes up to a threshold amount in dispute, and above that threshold the claimant may elect VCAT or the Supreme Court.
Developers should treat this as more than a legal endpoint. It affects cost, timing, expert evidence requirements and negotiation leverage.
Current reform context
Planning compensation has been the subject of recent and proposed reform. The Victorian Government’s planning reform material published in November 2025 notes amendments that introduced, among other things, a head of power to prescribe an interest rate applicable in disputes about compensation payable due to reservation of land for public purposes.
Separately, the Planning Amendment (Better Decisions Made Faster) Bill 2025 proposes further changes to Part 5, including changes to process and assessment concepts.
The practical implication is that the entitlement and process settings may be evolving. Project structuring, pre-sale notice steps, and claim preparation should be done with current law in view, rather than by reference to legacy assumptions.
Where developers typically need targeted advice
Planning compensation issues tend to become material in the following situations:
- Acquisition of PAO affected land
- verifying whether the PAO is in force or proposed
- modelling the impairment to development yield and timing
- negotiating risk allocation, including whether compensation rights remain with the vendor or are priced into the transaction
- Pre-sale strategy and notice compliance
- preserving eligibility for loss on sale claims through correct notice sequencing
- aligning sale process and evidence with valuation requirements
- Permit pathway management
- isolating the public purpose refusal basis
- managing parallel strategies such as alternative development outcomes, interim use or staged applications
- preparing a coherent financial loss case with appropriate expert support
Interface with future acquisition strategy
Planning compensation often operates as an interim measure before acquisition. Developers commonly need an integrated approach that considers planning compensation, acquisition compensation under the Land Acquisition and Compensation Act framework, and broader negotiation positioning with the likely acquiring authority.
Best Hooper Lawyers’ experience
Best Hooper Lawyers’ Property Team advises on planning compensation matters across Victoria, particularly where PAO controls and public purpose reservations intersect with development feasibility, permit strategy, staged delivery and transaction execution. We assist with entitlement assessment, preservation of claim rights (including notice steps), valuation and evidence strategy, negotiations with planning and acquiring authorities, and dispute pathways through VCAT or the Supreme Court where required.
In our experience, it is imperative to obtain Best Hooper’s legal advice as soon as a land owner or developer is aware of a reservation or proposed public project relating to the land.
Best Hooper has the largest, experienced and most active claimant-focused planning compensation (including loss on sale) and compulsory acquisition team in Victoria.
General information only
This page is general information only and is not legal advice. It is not intended to be relied on as a substitute for obtaining advice specific to your circumstances, project or transaction. Laws, policies and regulator practices can change, and the application of the law depends on the particular facts.
