Changing planning rules: will government have to compensate owners to stop uglification?

Will developers have a right to ‘compensation’ if planning rules are changed to put a halt to the country’s uglification? A European Court of Justice case has already dealt with the matter

“Expecting the law not to change in the future is not considered a legitimate expectation under EU law...  this principle has been consistently adopted when faced by claims for compensation over changes in legislation”
“Expecting the law not to change in the future is not considered a legitimate expectation under EU law... this principle has been consistently adopted when faced by claims for compensation over changes in legislation”

Speaking on TVM’s Xtra, Environment Minister Aaron Farrugia warned that reversing ‘building rights’ acquired during the past two decades as a result of various policy changes, could result in hefty compensation claims against the Maltese State: “Shall we compensate these families with billions of euros to rescind the rights they acquired? Shall we take back those rights? This is why we need to sit down and have a mature discussion that goes beyond complaints of uglification and urban sprawl,” Farrugia claimed.

The minister has so far failed to answer MaltaToday’s question on who had provided him this legal advice and what it was. So this newspaper caught up with two experts for their opinion.

Government should not abscond

Dr John Ebejer, an academic and veteran urban planner, recalls that when back in 1989 the Temporary Provisions Scheme were prepared, there were many plots of land entitled to a development permit according to previous legislation, but which were left out of the new development boundaries. “Subsequently some of them were included in the development boundary revisions of 2006, but some others were left out… As far as I am aware, none of those owners sought compensation for loss of value.”

From a legal perspective, Ebejer acknowledges that there may be different interpretations. “I have no doubt in my mind, however, that different lawyers would give different advice on the matter of compensation. Ultimately, what matters is what a court of law would eventually decide, if and when there is a claim for compensation. The minister and the Planning Authority cannot, and must not, constrain the planning system because of the ‘risk’ of what may happen.”

But Ebejer cites a number of reasons why he believes a court of law would throw out a claim for compensation because of ‘decreased value’.

One reason is that the PA often changes regulations in a way that benefits property owners. For example, the Planning Authority sometimes endorses requests to change a villa area’s scheme into a four- or five-storey terraced development. This naturally increases the land’s value because of the extra residential units that can be developed. But though there might be a case for the authorities to seek to recoup some of the increased value, the idea is so absurd and nobody would recommend this. “By the same token, it would be wrong for a property owner to be compensated for alleged losses resulting from a planning decision by the PA.”

The second reason stems from the planning law itself, which provides for the payment of compensation if and when the PA revokes a valid development permit. This is the only instance that compensation is payable. “Changing planning rules that affect property value is a different situation and there is no provision in the legislation that contemplates the payment of compensation in such a situation.”

But the third and most important reason is that the payment of compensation for reduced property value would effectively render the planning process redundant as a planning tool.

“Unless there is an overwhelming reason to do so, the courts would be very reluctant to open a Pandora’s box. Would the owner of a house that has been scheduled, be entitled to compensation because of the decreased market value of the house?  Is the owner of solar panels entitled to compensation from the PA when his property is now overshadowed by a higher building?”

A similar question arises whenever properties whose open views are blocked by a PA-permitted development. Would these too be entitled for compensation? “Where do you draw the line? If a court decides in favour of compensation for lost value, it will render the PA unwilling to take any planning decision about anything. It would be as good as undoing substantial parts of the planning legislation and rendering them meaningless.”

Ebejer reminds Farrugia of his responsibilities according to the Planning Act: “to enhance the quality of life for the benefit of the present and future generations”. He warns that it would be a mistake to abdicate from such a responsibility because of legal advice that “may or may not be correct”.

“I’d advise him to be wary about taking advice from people with vested interests and to seek the advice of urban planners and not just lawyers and architects.

“The Maltese planning system is in a sorry mess because successive planning ministers took advice from people who are apt at using flowery legalistic jargon but who know nothing on how a proper modern-day planning system should operate.”

“Shall we compensate these families with billions of euros to rescind the rights they acquired?”... is Aaron Farrugia right?
“Shall we compensate these families with billions of euros to rescind the rights they acquired?”... is Aaron Farrugia right?

Matter still hotly debated – Stafrace

Ian Stafrace, a leading planning lawyer and former CEO of the Planning Authority, is more nuanced in his views, acknowledging that the matter is still “hotly debated by authors and academics” and has also been debated before the local courts.

“Minister Farrugia is known to be someone who does consult with his consultants and it is quite clear that he would have received quite a strong legal advice on this delicate and complex matter. It is very difficult to arrive at one answer on this query, and frankly I do not think the Minister actually answered this question.”

Stafrace thinks that Farrugia’s intention was “to raise or provoke the argument”.

What is clearly established in the law according to Stafrace is that “applications must be decided according to the policy in force, unless the policy itself states otherwise, at the time of decision.”

But he also notes that some judgments have actually gone as far as stating that the risk of a change in policy lies with the applicant. Compensation due to owners of property which are subjected to scheduling or protection, has also been dealt with, yet with some “conflicting judgments”.

And while judgements dealing with height limitations have “indicated that a height limitation, once established, gives the owner of the property a legitimate expectation that the development within the said height should be approved” even on this point jurisprudence did reach “slightly different conclusions” through the application of other policies read concurrently with the height limitation policy”.

Moreover according to Stafrace, policies regulating development “do enable the consideration of a development application which may lead to a legitimate decision that a selected and limited type of development should be lower than the height limitation established in the local plan.” This is even more the case when other planning policies, such as scheduling or conservation policies, limit development that may otherwise be realised into something profitable.

But according to Stafrace it is inconsistency in the application of rules, rather than policy changes, which can lead to claims for compensation. An example he cites are the 2015 development guidelines which cancelled all the height limitations established in the local plans in favour of a contextual approach. “Some sites gained and some sites lost their development potential. Whether this may lead to a claim for compensation is a moot point, yet I am of the opinion that such an intervention would not lead to an automatic claim for damages.”

Inconsistency is the problem

What could lead to claims for damages is inconsistency in the application of policies. Stafrace says the priority should be to avoid the situation where policies are applied liberally and in a discretionary way.

“The way certain rules and policies are applied, when compared to how the same rules and policies were applied weeks or months ago is what is creating this conflicting debate. It is difficult, if not impossible to explain how a development is afforded its full development limit on one side of the road (even when the adjacent properties have not yet been developed) and yet a similar application regulated by the same rules and policies in the same road is refused…. To me, this is what is, and will be, exposing the Authority to claims for damages.”

Stafrace augurs that policymakers will not ignore this reality and simply rely on the subjective assessment of the Planning boards. “The policies, even if needy of adjustments, must be clear and if a policy needs to be adjusted then it should be adjusted.”

For this reason, concerns on compensation claims should not preclude government from changing the rules if there is a need to do so.

For example, Stafrace notes that when the government formulated a fuel station policy and four years later realised it is not working, government changed that policy. The same applies with the Rural Policy Development Guidelines, which are being amended. Even development guidelines issued in 2007 were replaced through new ones issued in 2015. “Every time a policy changes, you either give more or you take away more. If that were not the case, then it is useless changing a policy. If you feel a change is necessary, you have to make that change as long as you do it correctly and fairly.”

Stafrace acknowledges that the issue of height limitations is very sensitive. Yet the debate can’t be simply ignored. “In allowing a very subjective interpretation and application of the rules now, in my mind this gives more room to contestations than if you just go along and do the necessary changes – always if you feel that those changes are needed.”

Former PA chief executive Ian Stafrace thinks that Farrugia’s intention was “to raise or provoke the argument”
Former PA chief executive Ian Stafrace thinks that Farrugia’s intention was “to raise or provoke the argument”

What does European law say?

Any claim for compensation made by developers, if rejected by local courts is bound to end up challenged in the European courts.

One such case involved an 11,000sq.m plot of land originally bought for Lm60,000 by Trimeg Limited for commercial purposes that was scheduled by the government.  When bought the land was still part of the development zone, being confirmed as a “white area” (where development parameters were still to be approved at a later date) in the temporary plans approved in 1989.

But the land was ‘scheduled’ in 1996 to be included in the valley protection zone and its buffer zone.

In the Maltese courts, the company claimed that its property had diminished in value allegedly from €11 million to just €230,000. In 2010, the Maltese constitutional court reversed an earlier decision by the law courts which had found grounds for compensation, in a decision which affirmed the “state’s margin of appreciation in imposing planning restrictions” and concluded that in this case the company did not have “a legitimate expectation that it would be granted such permits”, and that “no right to compensation arose” because when the site was bought planning parameters still had to be established for the site.

The case was appealed again, this time in front of the European Court of Justice, with Trimeg claiming their right for “the peaceful enjoyment of their possessions” was breached by the scheduling.

But the European Court threw away the case, arguing that the scheduling was based on the Development Planning Act and was, therefore, provided for by law and pursued “in the general interest, namely the conservation of areas of ecological and scientific value, in accordance with international requirements”.

A legal expert in the field confirmed that “expecting the law not to change in the future is not considered a legitimate expectation under EU law”.

The expert pointed out that this principle has been consistently adopted when European courts are faced by claims for compensation when business operators face changes in legislation.

In one particular case, the European Court of Justice declared that rights of ownership are always “subject to limitations laid down in accordance with the public interest.”

Moreover, the same case states that guarantees for property rights cannot be extended to protect mere commercial interests “the uncertainties of which are the very essence of economic activity.”