Process must be followed
Auditor general conducts special audit of govt land acquisitions
In yesterday’s publication we brought you shocking findings on the performance of key Government departments, as outlined in the just-released Auditor General’s Report for 2013.
Among them, millions of dollars in overpayments and other evidence of misuse of State funds.
Today, we zoom in on Chapter 5 of the report and the results of a special audit of the land and acquistion process in Barbados.
As part of the land acquisition process, the Ministry of Housing, Lands and Rural Development (the ministry) is required to compensate land owners for properties acquired. Payment is made to the land owner after the necessary legal activities are completed. In managing this process, the Government needs to ensure that land owners are compensated within a reasonable time in order to minimize the cost to Government through interest and rising property values. In addition, the welfare of the landowners has to be taken into consideration.
The ministry, as stipulated under the Land Acquisition Act, is the sole agency mandated to acquire lands required by the Crown. Government agencies seeking to utilize land for a ‘public purpose’ are required to send a written request along with a draft Cabinet Paper to the Ministry to initiate the land acquisition process which, on completion, will result in the land owner being compensated. This policy ensures that the ministry has control over the process, and has a proper record of the lands owned by Government and the liability to landowners.
Although this policy is known by Government agencies, there were numerous instances where it was not followed. These are discussed below:
(a) Ministry of Transport and Works (MTW)
Of a sample of thirty-five (35) acquisitions selected from the records of the Ministry of Housing, Lands and Rural Development (the Ministry), three (3) instances were found where the Ministry of Transport and Works (MTW) utlilised private land to carry out road improvements but failed to notify the Ministry. The Ministry only became aware of MTW’s actions when the land owners sent written requests for compensation for the land used. It is at this point that the Ministry sought confirmation from MTW in order to start the acquisition process.
Ministry of Transport and Works response
This Ministry would wish to point out that under the Highways Act, Cap. 289 the Minister of Transport and Works can utilise land for the widening of the highway and to pay compensation if necessary. While the Ministry readily admits that for new highways or highway development which would involve the acquisition of whole properties (i.e. land and structures) the Land Acquisition Act would be used, it has found that the Highways Act is more appropriate in cases where an existing road and only a portion of land is involved.
However, the Ministry has taken cognizance of the conclusions and would endeavour to ensure that in future it does not breach the act.
Notwithstanding the Ministry’s comments it is not clear what amount of land has been utilized by this Ministry over the years and the number of land owners who have not been compensated. Under such circumstances, the land owners can legally argue for interest in addition to compensation.
In addition, when land is utilized without the requisite approval, it will have to be acquired by private treaty. Early completion of these matters is therefore critical to reducing Government’s exposure to future increases in land prices.
The Ministry of Transport and Works needs to follow the correct procedures when private land is required and should promptly supply the Ministry of Housing with information on all outstanding claims.
(b) Rural Development Commission (RDC)
During the period 1997 to 2009, the Rural Development Commission (RDC) constructed approximately two hundred and ninety – one (291) roads. A sample of twenty (20) of these roads revealed that the RDC used private land to carry out its road projects, but did not liaise with the Ministry to acquire the land as required by the Land Acquisition Act. The agency admitted that compensation is outstanding to the land owners affected by its road projects. It also stated that the extent of the liability is currently unknown.
To rectify its actions, the RDC needs to seek funding from Government to survey the roads constructed in order to determine the number of land owners affected by each project, and the area of land used. This information must be submitted to the Ministry of Housing to start the process of compensating the land owners.
To date, the RDC has surveyed fifty-one (51) of the roads it constructed. Information for six (6) of these roads was sent to the Ministry to facilitate the process of compensating the land owners. The agency has estimated that it would cost approximately $35,000 to $85,000 per road ($8.4 million to $20.4 million in total) to survey the land used for the remaining road projects. The agency stated that $1.5 million is requested annually in the budget to facilitate this process, but this amount has not been provided.
Comments of RDC
The Commission will draw the attention of the Ministry of Housing, Lands and Rural Development to this matter with a view to resolving the issue of funding for the surveying of the pieces of land used for road construction. This matter, it must be admitted, was not treated with the urgency it deserves and those responsible for this situation are no longer with the Commission.
However, every effort will be made on the part of the Rural Development Commission to resolve this issue. In the meantime the Commission has identified the remaining roads that need to be surveyed and will seek guidance and assistance of the Ministry of Housing, Lands and Rural Development.
The RDC in constructing roads proceeded to utilize private land without following the correct procedures. The Commission should have been aware of the procedures involved in acquiring private land; persons responsible for this situation should be held accountable for their actions.
Furthermore, land owners have been deprived of the use of their land and are still required to pay taxes for the part of the land taken up by the agency. Compensation to these owners does not appear likely to be available in the near future.
(c) Urban Development Commission (UDC)
The Urban Development Commission (UDC) constructed over two hundred and twenty-five (225) roads from its inception in 1997. A sample of twenty (20) of these roads revealed that the UDC used private land to carry out its road projects and proceeded to compensate land owners, but formal acquisition of the properties did not take place.
This agency has adopted its own approach to access land to construct roads but this is contrary to the provisions of the Land Acquisition Act. This process entailed:
. obtaining the permission from land owners to use their land to construct the roads;
. hiring a private valuer to assess the value of the land utilised;
. sending a written offer to the land owner based on the valuation submitted by the private valuer;
. making payment once the offer is accepted and proof of ownership is provided; and
. giving the land owner a residual plot plan when payment is made.
The ministry was not involved in this process and has no record of the land used by this agency, the compensation paid, or any liability to the land owners affected by UDC’s road projects.
(d) Transfer of Land to the Crown
It should be noted that there was also no transfer of title of the land utilized by the UDC to the Crown. Transfer of Title is a legal process which must be carried out to ensure that ownership of land has been passed from one party to the next. This process would now have to be undertaken for the eighty-two (82) land owners who have received compensation, as well as for those still to be compensated.
(e) Compensation paid by the UDC to land owners
The UDC has paid land owners for land used but the land has not been acquired as stipulated by the Land Acquisition Act. At July 2013, the UDC indicated that in excess of $1.1 million was due to land owners. This figure however related to compensation outstanding for forty-six (46) roads built during the period 2007 to 2013. The UDC could not provide information on whether compensation was paid or outstanding for the one hundred and seventy-nine (179) roads constructed prior to 2007. This places the UDC in a similar position to the RDC, in that the roads built would have to be surveyed to determine the extent of its liability to the land owners. Currently, this process is mainly carried out when a request is made for compensation by a land owner.
The UDC had no authority to acquire the land or to compensate the land owners except under the terms outlined in the Land Acquisition Act.
This action has exposed Government to the risk of litigation by the land owners since the action was not protected by the Act. It has also resulted in a large contingent liability being established. Given the amount of land used for which the Ministry has no record, Government’s current liability to land owners is significantly understated.
Absence of sanctions on government agencies
Although the Land Acquisition Act clearly requires that private land which has to be used by the Crown should be acquired by the Ministry, there is no sanction imposed on Government agencies using land without following the correct procedures. There was no evidence that action was taken to ensure that these agencies desist from using private land without the relevant authorisation.
This issue needs to be addressed; if Government agencies continue with this practice, Government will always find itself heavily indebted to land owners, some of whom will take legal action to address the issue. In addition, land owners will continue to be disadvantaged.
Although there is legislation which outlines the process for land acquisitions, there were no sanctions in place to deter these agencies from utilizing private land without the requisite approval. This subsequently led to the Rural and Urban Development Commissions disregarding set procedures. These agencies have also exposed Government to significant financial and legal risks.
Factors delaying the land acquisition process and accounting for compensation
Lack of time frames to acquire land and compensate land owners.
Section 7 of the Land Acquisition Act stipulates that, within three (3) months after entry has been made on the land after the publication of the Section 3 Notice (first notice), the land owner can request the ministry to either complete or abandon the acquisition of his/her land. Within one (1) month thereafter and the acquisition has not been completed, the acquisition can be deemed to have been abandoned. This places a time limit on the Ministry to complete acquisitions within four (4) months of the publication of the Section 3 Notice; but it is dependent on the land owner exercising the provision in the Act.
Significant time is taken to compulsorily acquire land and to complete the compensation process. Of a sample of thirty-five (35) acquisitions reviewed, sixteen (16) were done compulsorily. Of eight cases, between one (1) and four (4) years have passed since the Section 3 Notices have been issued and the land is yet to be transferred to the Crown in order to commence the compensation process.
Causes of the delays in the process
It should be noted that the compulsory acquisition of land is a step-by-step process which requires the prompt execution of procedures to ensure it is completed within a reasonable time. Delays encountered in carrying out a particular procedure in the process will impact on the progress of the acquisition. Such factors as reprinting of Section 3 Notices, amendments to Cabinet Papers, Notices, etc., and untimely responses from Government agencies were impeded by the land acquisition process in the sample reviewed.
An interview held with personnel from one of the Government agencies, the Lands and Surveys Department, revealed that the lack of information to prepare the survey plans and descriptions, and difficulties encountered in finding boundaries sometimes prevented it from responding to the Ministry’s request within a reasonable time. In the sample reviewed, information was submitted by this Department between three (3) months to two (2) years after the Ministry’s request was made. There were two (2) instances where the acquisition process has been stalled over two (2) years because the Ministry was awaiting survey plans from the Lands and Surveys Department.
Impact of the delays on the land owner and Government
Evidently, land owners are the ones being most disadvantaged when a prolonged period is taken to complete the acquisition process. This is because the land owner is deprived of the right to use the land from the time the Crown indicates its intent to acquire. In addition, it delays the process of compensating the land owner, as this cannot commence until the land is vested in the Crown. In this regard, the land owner is without both the use of the land and compensation.
The Ministry is also at a disadvantage as the land owner can request interest from the date of the publication of the Section 3 Notice. This can be costly to Government especially in cases where excessive time was taken to issue the Section 5 Notice which transfers the property to the Crown.
It is therefore essential that the compulsory acquisition process is completed within a reasonable time to ensure land owners are not without the use of their property or compensation; and that the Ministry avoids undue interest cost.
In order for a land owner to be compensated, the Ministry and the land owner must reach a settlement on the price for the land. The timely completion of this process is necessary to ensure that both the interests of Government and the land owner are protected. Audit inquiries found that protracted negotiations between the Ministry and the land owners delayed the compensation process and often resulted in Government incurring significant cost due to the accumulation of interest charges. The land owner was also inconvenienced as he/she was deprived of the use of the property and compensation. Factors such as the unwillingness by the land owners to compromise, and litigation contributed to the delays.
Examples are as follows:
(a) Compensation for land at Cottage, St George
In March 2003, the Ministry compulsorily acquired 4.58 hectares of land at Cottage, St. George. Over ten (10) years have passed and the Ministry has not commenced negotiations with the land owner. The Ministry has been awaiting the subsequent approval of the Minister responsible for Town Planning for the change of use of the land in order to commence negotiations.
The land was acquired for housing development, road improvement and the provision of a public access. However, approval sought from the Chief Town Planner for the change of use of the land from agricultural to housing development was refused. The recommendation was subsequently appealed and a decision is being awaited from the Minister responsible for Town Planning.
It has been over ten (10) years that this matter has been receiving the attention of Government, and to date there is still uncertainty as to when it will be completed. Given the time that has elapsed, Government will incur significant interest charges. It is therefore imperative that the necessary action is taken on this matter to avoid greater cost to Government.
(b) Compensation for land in St Philip
In July 2010, the Ministry compulsorily acquired 125 hectares of land in St. Philip and made an offer which was rejected by the land owner who subsequently took the matter before the court.
At the time of the audit, no decision had been made. As a result, the matter of compensation remains outstanding resulting in the accrual of interest of 6% annually from the date the Section 5 Notice was published until payment is made to the land owner. However, the Ministry can pay the compensation to the Court to cease the accumulation of interest. No such action has been taken and hence Government will continue to accrue interest charges from the date of compulsory acquisition until the payment is made.
(c) Compensation for land at Six Men’s, St Peter
In December 1997, the ministry compulsorily acquired 116,168 and 3,033 square meters of land at Six Men’s, St. Peter. The land owner, in February 1998, claimed compensation of $75 million for the land but objected to the acquisition. In this instance, over sixteen (16) years have passed since the land was compulsorily acquired, and the matter of compensation has not been resolved. This matter is still before the Court of Appeal.
Inadequate information system to monitor the land acquisition process
The ministry does not have the relevant information systems in place to facilitate the monitoring and tracking of land acquired. There is no centralised database to record information on the private land acquired, the stages of each acquisition, the compensation paid or payable, the interest accrued on outstanding amounts and the purpose for which the land was acquired. This information is essential for the Ministry to adequately manage the process.
The current system is deficient as it makes the Ministry highly susceptible to aspects of acquisitions being overlooked, information being mismanaged (e.g. misplaced files), and poor administration of the land acquisition process. This in turn creates delays in the processing of land acquisitions and the compensation of land owners.
During the course of the review, the Ministry was not in a position to determine the amount of land acquired, the compensation paid on each acquisition or Government’s liability to land owners for specific time periods.
Accounting for compensation due by the Government
As at March 31, 2013, the ministry recorded that it owed compensation at one hundred and twelve (112) locations and reported approximately $157 million as its contingent liability.
The method of negotiation used by the Ministry to determine compensation needs to be better managed to ensure the interests of Government and the land owner are protected. Measures to ensure that Government minimizes its payment of interest; and establishing a tribunal to adjudicate disputes, are required to ensure the land acquisition process is efficiently managed.
The timely payment of compensation to land owners is also critical to the successful administration of the land acquisition process. Hence, it is imperative that the funding received by Government annually allows the Ministry to pay the compensation when due. The current system used however does not allow the Ministry to adequately determine the compensation outstanding at the end of each financial year.
The Ministry has started to account for its liability from the financial year ended March 31, 2013 and has estimated that Government owes $157 million to over one hundred and twelve (112) locations for land acquired. However, this does not include compensation due to land owners whose property has been utilised by the Urban Development and Rural Development Commissions.
It is recommended that:
The ministry adopts a comprehensive database system to facilitate the proper monitoring of all land acquisitions.
The management of Government agencies ensures that the correct procedures are followed when land is required for a public purpose. This would protect Government from undue financial and legal risks.
Those Government agencies that proceed to utilize private land without the requisite approval be held accountable for their actions.
The Ministry put stipulations in place to ensure that compulsory acquisitions are completed within a specified time. This would ensure that land owners are not placed at a disadvantage; and promote efficiency.
The Ministry reviews the role and composition of the Standing Valuation Committee in relation to the adjudication of compensation disputes. The decisions of this Committee, which should be independent, should be binding on the parties.
In addition, stipulations should be put in place to control when negotiations are referred to the Committee for review. This would minimize the amount of time taken to reach a settlement and allow better control over the compensation process.
The Ministry liaises with Government agencies to ascertain land utilised without its knowledge and seek to regularize these situations.