As the City Rail Link inches closer to completion and substantive funding issues have been worked through, Central Government is looking at property disputes stemming from the project as financial risks.
Property claims relating to the $5.5 billion transport project were added as a new risk in the Treasury’s pre-election fiscal update (Prefu) last week.
The claims were classed as unquantified contingent liabilities, which are non-remote risks that have the potential to exceed $20 million in costs.
The City Rail Link is currently involved, directly or indirectly, in eight legal disputes. Its chief executive, Dr Sean Sweeney, says that’s an inevitability.
“The Resource Management Act and Public Works Act are a standard component of any large-scale project that indirectly affects and/or requires the acquisition of property above and below ground.”
The group has been reporting on claims and legal issues consistently throughout the build, but this is its first time being included as a contingent liability in and a potential risk to the Government’s financial forecasts.
A spokesperson for the Treasury said the disputes had previously been wrapped into a wider fiscal risk to the Crown relating to the entire project, focusing on the live claim for an extra $1b in funding.
With that claim settled, costs potentially incurred by the Ministry of Transport under the Public Works Act were added to the Prefu on their own.
The disputes include a subterranean land and injurious affection case with the YMCA heading to the Court of Appeal, five public works act compensation cases, including with the wealthy Friedlander family, a compensation case with Wilson Parking where no land was taken, and an environment court hearing over ventilation and loading arrangements on Albert St.
Sweeney says costs associated by the eight live disputes are covered.
“The large majority of heavy construction work is now complete on the project. Costs associated with all these cases are within City Rail Link’s current funding envelope and will not be disruptive to the completion and operation of the City Rail Link.”
Though inclusion as a financial forecast risk sounds like this could mean another cost blowout, contingent liabilities can indeed be considered by the Treasury even if there is funding in place to cover them.
There is still scope for the amount being spent on property claims to grow exponentially, with a potential variance in what could be payable by City Rail Link under the cases, and the number of future cases.
A 2021 decision out of the Land Valuation Tribunal relating to Sir Michael Friedlander’s Samson Group lends credence to both these possibilities.
The tribunal awarded the company $140,000 for the City Rail Link tunnel being built underground through land it owns on upper Symonds St in Auckland.
The council had originally proposed $39,000 in compensation, though Samson Group was looking for $300,000, being a tenth of the property’s value.
The test case saw the tribunal settle for $140,000, 5 percent of the property’s value, with the Council order to pay the remaining $101,000.
The tribunal, chaired by Judge Jeff Smith, said there would be a lot of property owner interest in the case, giving guidance that the owners of properties with the rail tunnel running below it could get between 5 percent and 10 percent of the property value.
This could amount to hundreds of millions across the entire project.
“It is clear, and the parties accept, that this is the first decision and there are a number of other parties (several of whom gave evidence to us) who have an interest and/or may be pursuing claims before the tribunal.”
It is yet to be seen where the wider land valuation issue will end up, but there are other future expenses for the City Rail Link project.
At the end, ownership of the project will have to be hashed out between the Government and Auckland Council, potentially resulting in some write-downs, but some enabling works surrounding the CRL are yet to have funding designated.