Ardoch Pty Ltd v Valuer-General (No 2)
[2006] SASC 217
•25 July 2006
SUPREME COURT OF SOUTH AUSTRALIA
(Land and Valuation Division)
ARDOCH P/L v VALUER-GENERAL (No 2)
[2006] SASC 217
Judgment of The Honourable Justice Debelle
25 July 2006
REAL PROPERTY - VALUATION OF LAND - OBJECTIONS AND APPEAL
Appeal against the disallowance by Valuer-General to an objection - valuation of the land - buildings on land listed on State Heritage Register - effect of heritage listing upon subject land - valuation approaches - definition of "site value" - appeal dismissed.
Development Act 1993 (SA) s 4, s 32, s 37, Part 11; Heritage Act 1993 (SA) s 36; Heritage (Heritage Directions) Amendment Act 2005 (SA); Land Tax Assessment Act 1910 (Cth) s 3; Valuation of Land Act 1971 (SA) s 5, s 22A, s 22B, s 24, s 25C, Div 1, Div 2; Valuation of Land Act 1916 (NSW) s 6; Development Regulations 1993 (SA) reg 24, Sch 3, Sch 4, Sch 8, referred to.
Brisbane City Council v Valuer-General (Qld) (1978) 140 CLR 41; Builders Licensing Board v Sperway Constructions (Syd) Pty Ltd (1976) 135 CLR 616; Gollan v Randwick Municipal Council [1961] AC 82; Goode v Valuer-General (1979) 22 SASR 247; Perpetual Executors & Trustees Association of Australia Ltd v Federal Commissioner of Taxation (1948) 77 CLR 1; Refrigerated Express Lines (A/Asia) Pty Ltd v Australian Meat & Livestock Corporation (1980) 29 ALR 333, applied.
101 Collins Street v City of Melbourne (1995) 87 LGERA 207; Ballow Chambers Ltd v Valuer-General (1993) 14 QLCR 422; Campbell v Deputy Federal Commissioner of Land Tax (NSW) (1915) 20 CLR 49; Cooke v Chief Executive, Department of Natural Resources (1998) 19 QLCR 258; Fenton Nominees Pty Ltd v Valuer-General (1981) 27 SASR 258; Fenton Nominees Pty Ltd v Valuer-General (1982) 29 SASR 348; House v King (1936) 55 CLR 499; McEwin & Ors v Valuer-General (1993) 60 SASR 241; Myer (SA) Stores Ltd v Valuer-General (1986) 40 SASR 102; Phillips v Valuer-General (1964) 11 LGRA 87; Players Pty Ltd v Corporation of the City of Adelaide [2001] SASC 369; Roberts v Chief Executive, Department of Natural Resources (1998) 19 QLCR 186; Royal Sydney Golf Club v Federal Commissioner of Taxation (1955) 91 CLR 610; Stennett v Valuer-General (1965) 12 LGRA 269; Tilghman v Valuer-General (1966) 12 LGRA 380; Toohey's Ltd v Valuer-General [1925] AC 439; Valuer-General v Fenton Nominees Pty Ltd (1982) 150 CLR 160; Wigg v Architects Board of SA (1984) 36 SASR 111, considered.
WORDS AND PHRASES CONSIDERED/DEFINED
"site value"
ARDOCH P/L v VALUER-GENERAL (No 2)
[2006] SASC 217Land and Valuation Division
DEBELLE J. This is an appeal against the disallowance by the Valuer‑General of an objection to the assessment of the value of two allotments of land. The appeal is made pursuant to s 25C of the Valuation of Land Act 1971. The appeal was substantially out of time but the appellant was granted an extension of time within which to appeal: Ardoch Pty Ltd v Valuer-General (2006) 143 LGERA 306.
The Valuer-General assessed the two allotments as one and fixed a site value of $850,000. The appellant contends that the Valuer-General’s valuation of the site value of the land in question is excessive. Shortly stated, the appellant’s contention is that the Valuer-General has failed to have sufficient regard to the fact that buildings on the subject land form part of the State heritage. Each party called a valuer. They were Mr Aschberger for the appellant and Mr Smithson for the Valuer-General. Each is an experienced valuer.
Date of valuation
The issues concern site value of the land which has to be assessed as at 1 January 2003.
The subject land
The subject land is located on the northern side of Brougham Place, North Adelaide. It is bounded on the southern side by Brougham Place, on the western side by Margaret Street, and on the northern side by Ward Street. It comprises two allotments of land, each the subject of a separate certificate of title.
Brougham Place is one of the more prestigious residential streets in metropolitan Adelaide. It is part of an area of elevated land enjoying views to the south and east over Brougham Gardens and the Torrens Valley towards the City of Adelaide and the Adelaide Hills. It is close to residential shopping and restaurants in O’Connell Street, North Adelaide and in Melbourne Street, Lower North Adelaide. Brougham Place contains a number of substantial two‑storey dwellings. Some have been converted for use other than as dwellings. One example is Lincoln College, a residential university college which is situated on the western side of Margaret Street and has been developed around four substantial two‑storey dwellings. This part of North Adelaide is regarded as being one of the more sought after residential areas of metropolitan Adelaide.
The two allotments of land which comprise the appellant’s land border Margaret Street so that one parcel is north of the other. The southern parcel, which has a frontage to Brougham Place, is almost rectangular in shape, save that the northern boundary is indented. It is called allotment 3 in its certificate of title. I find that it has an area of about 1348 square metres. (The valuers called differed slightly as to the area of each allotment. The precise area of the allotments is not of any significance in this appeal.)
The northern allotment is smaller and, I find, contains 431 square metres. It has a frontage to Ward Street and is bordered on the west by Margaret Street. It is narrower than the subject land, being some 18.7 metres wide, a little more than half of the width of the larger southern allotment. It is described as allotment 1 in its certificate of title.
The use of the land
A large two‑storey bluestone mansion is erected on allotment 3, the southern allotment with the frontage to Brougham Place. It is known as “St Margaret’s” and was constructed in the late 1880s as a substantial residence. A separate and detached building is erected on the northern allotment, allotment 1. It was formerly stables and is now called “The Coach House”. It is also constructed of bluestone. In addition, there is a smaller shed also constructed of bluestone measuring some five metres by four metres. It is called the “Croquet Room” or the “Croquet Shed”. I will call it the “Croquet Shed”. It provides storage facilities and a toilet. There is no croquet lawn. Parts of the buildings are constructed on or near the boundaries of the land. For the purposes of this appeal, both valuers have assumed that there are no encroachments.
The two‑storey dwelling contains some twenty main rooms and a large cellar. A rather grand central staircase leads to the first floor. There is also another narrow staircase leading from the ground floor to the first. There are eight main rooms on the ground floor and six main rooms on the first floor, together with storage rooms, bathrooms and toilet facilities. The dwelling has been restored and renovated in recent years. A kitchen, a casual eating area and a dining room are located on the ground floor as well as living rooms. Bedrooms and living rooms are on the first floor. The main rooms in the dwelling are all of substantial proportion. Before it was acquired by the appellant, it had been used by the Anti‑Cancer Council of SA, which converted it to offices with modern facilities and amenities. The building was purchased by the appellant in January 1994. The appellant has made further renovations and has restored it for use as a dwelling and consulting rooms, providing what the appellant’s valuer fairly described as “high quality accommodation”.
The two directors of the appellant are medical practitioners specialising as psychiatrists. They use two rooms on the ground floor of the dwelling as consulting rooms. Part of the ground floor is also used as a reception area.
The Coach House, which is erected on the northern allotment, is a single‑storey building with a loft. It has been converted to office use but is not presently being used as such. It was not used for offices at the date of valuation. It has internal glass partitions which are capable of being readily removed to provide a shell which could be converted for residential use It provides office accommodation of good quality which is available for lease subject to the provision of adequate car parking. The appellant owns land adjoining the east boundary of the Coach House land which is currently used for car parking. There is no evidence whether it would be made available for car parking for the Coach House land. In short, the Coach House could be let for office use (if parking is available) or could be used for residential purposes.
Heritage listing
Both the dwelling “St Margaret’s” and the Coach House form part of the State heritage. By notice published in the South Australian Government Gazette dated 11 September 1986 they were entered on the State Heritage Register.
It is not clear whether St Margaret’s and the Coach House are listed on the State Heritage Register as two separate items or as one. The notice in the Government Gazette reads “Dwelling and Domestic Outbuilding – St Margaret’s and Stable (former)” and the addresses of each and the references to the certificates of title of each follow. The reference to the “Stable” is clearly a reference to what is now called the Coach House. The Statement of Significance on the State Heritage Register is in these terms:
This house is important for its representation of the reinforcement and growth of residential development in North Adelaide, particularly to Brougham and Palmer Places, which took place in the late nineteenth century. St Margaret’s demonstrates the attraction of the well‑to‑do to parkland frontages and remains an important illustration of high quality houses erected during a period which is otherwise not well represented in the city.
The notice in the Government Gazette and the Statement of Significance are the only evidence of the reason for the heritage listing. It is reasonable to infer that both St Margaret’s and the Coach House are listed as one item and I proceed on that footing. However, as the Statement of Significance refers only to St Margaret’s, it is reasonable to infer that there is no reason why each allotment should not be sold separately, each with its heritage listed building. Subsequent events re‑inforce that conclusion. Allotment 1 on which the Coach House is erected is currently being offered for sale, suggesting that there is no legal impediment to sale. Neither party contended that the heritage listing prevented the sale of that allotment. While this fact is relevant when determining value, it must be noted that both valuers valued the subject land as if it were in one certificate of title.
There is no evidence whether the Croquet Shed is listed on the State Heritage Register. Neither party attached any significance to the Croquet Shed. It is a small outbuilding and has little bearing on the issues in this appeal.
St Margaret’s is also listed on the Register of the National Estate created by the Australian Heritage Commission Act 1975 (Cth), which on 23 September 2003 was replaced by the Australian Heritage Council Act 2003 (Cth). There was no evidence as to the terms in which it is listed. Neither party relied on that listing and I have had no regard to it.
St Margaret’s is but one of a number of grand residences constructed in the 19th century in North Adelaide, particularly on the frontages to the parklands and in Brougham Place and Palmer Place. Eight properties on Brougham Place are listed in the State Heritage Register and there are some 241 properties in North Adelaide listed on that register.
I will later examine the effect of the heritage listing upon the subject land.
Zoning
The land is within the area of the City of Adelaide (“the Council”). It is within an area described in the Council’s Development Plan as “residential” and is within the R7 LeFevre Precinct.
The Development Plan states that the Objective for this precinct is that it should be maintained as a prime residential area of imposing buildings overlooking the parklands. The Plan contemplates that further development will be required to complement the predominantly 19th century townscape of the precinct and be compatible with the pattern, scale, design and siting of its traditional architecture. The Development Plan continues:
The Precinct is to form a predominantly medium scale residential built‑form edge to eastern and Upper North Adelaide. This is achieved by large buildings designed in the grand manner and set in generous landscaped grounds on LeFevre Terrace and Brougham Place, and low to medium scale dwellings along Barton Terrace East.
In relation to Brougham Place the Plan specifically provides:
The historical significance of the Brougham Place townscape requires that development along these frontages be subordinate to the prevailing and traditional built form already established. The distinctive townscape character is derived from the setting of large mansions in landscaped grounds.
…
Development on Brougham Place should conserve and enhance the townscape and be sympathetic to the form, design, detail, materials and colour of the existing large Victorian and Edwardian buildings. Large detached and semi‑detached dwelling forms which complement the existing historic houses and are set in landscaped grounds are desired.
Plainly, the intent is that all future development will be complementary to the scale and design of the 19th century dwellings in the area. The Development Plan supports and re‑inforces the fact that this part of North Adelaide is one of the prime residential areas of Adelaide.
The relevant issue
The issue on this appeal is whether the Valuer-General erred when assessing the site value of the subject land. Before examining the definition of “site value” and other relevant statutory provisions, it is appropriate to consider the nature of this appeal and what the appellant must demonstrate if it is to succeed.
The nature of the appeal
The nature of an appeal under the Land Valuation Act and the task for an appellant on such an appeal has been the subject of some debate in this Court. In Players Pty Ltd v Corporation of the City of Adelaide [2001] SASC 369, I commented on the decisions of this Court in Fenton Nominees Pty Ltd v Valuer‑General (1981) 27 SASR 258 (Fenton (No 1)) and on appeal in 29 SASR 348 (Fenton (No 2)) and in Myer (SA) Stores Ltd v Valuer-General (1986) 40 SASR 102 and expressed certain views. After re‑consideration, I believe I should slightly modify some aspects of those views. These are my revised views.
Section 24 of the Valuation of Land Act entitles an owner of land who is dissatisfied with the valuation of his land by the Valuer‑General under the Act to object to the valuation. That is an objection under Div 1 of the Act. If the Valuer‑General does not allow the objection, the dissatisfied owner is entitled either to appeal to this Court under s 25C of the Act or to seek a review of the valuation by a land valuer under Div 2 of the Act. If the owner is dissatisfied with the decision of the land valuer under Div 2, the owner may appeal to this Court under s 25C of the Act. In addition, if the Valuer-General is dissatisfied with the decision of the valuer under Div 2, the Valuer-General may also appeal to this Court. Section 25C provides:
(1)A person who is dissatisfied with -
(a) the decision of the Valuer-General upon an objection under Division 1; or
(b) the decision of a land valuer upon a review under Division 2,
may, in accordance with the appropriate rules of the Supreme Court, appeal to the Land and Valuation Court against the decision.
(2)The right of appeal conferred by subsection (1)(b) may be exercised by the Valuer‑General.
(3)Upon an appeal under this section, the Land and Valuation Court –
(a) may confirm, increase or decrease the valuation to which the appeal relates; and
(b) may make such orders in relation to incidental or ancillary matters (including costs) as it thinks just.
As is apparent, this Court may on an appeal confirm, increase or decrease the valuation.
The word “appeal” is not a technical term. That word and its cousin “review” are protean in nature: Fenton (No 1) per Wells J at 260. The nature of an appeal must be gleaned from the legislative context in which it appears. The various meanings of “appeal” were examined by Mason J in Builders Licensing Board v Sperway Constructions (Syd) Pty Ltd (1976) 135 CLR 616 at 621 and later by Cox J in Wigg v Architects Board of SA (1984) 36 SASR 111 at 112 ‑ 116. I respectfully adopt what was said in each decision and do not repeat it.
As Wells J pointed out in Fenton (No 1) at 260, the Valuer-General does not, when making the assessment, conduct a trial or hearing, receive evidence, or give reasons for disallowing an objection. He does not provide a valuation. For that reason, an appeal under the Valuation of Land Act is not an appeal in the strict sense or an appeal by way of re‑hearing on the existing evidence. It is an appeal de novo on the footing that there has not been a prior hearing: Fenton (No 1) at 260; 101 Collins Street v City of Melbourne (1995) 87 LGERA 207 at 213. In my view, the Valuation of Land Act contemplates a full hearing inter partes with each party leading evidence, including valuation evidence, testing the opposing evidence and making submissions. The court will then make its determination whether the valuation should be confirmed, increased or decreased: see s 25C(3) of the Act. Although in Fenton (No 2) Jacobs J as a member of the Full Court questioned other aspects of the reasoning of Wells J, I do not think he disagreed with the views of Wells J as to the nature of the appeal. Instead, he was critical of the analysis by Wells J of the grounds on which the assessment could be set aside.
When dealing with that latter issue, Wells J examined (at 261 – 264) the status of the Valuer-General’s assessment and concluded that the appellant had the onus of demonstrating that the Valuer‑General’s assessment was wrong and that the court would not interfere unless error in principle or application is clearly demonstrated. At 263 – 264 he said:
I am entitled - indeed, bound - to draw the inference that the legislature intends this Court ... to decline to interfere unless error in principle or application is clearly demonstrated. This Court would not, I apprehend, have sufficient warrant for allowing an appeal under s 25 if it found itself able to say no more than that the value to which the appellant’s expert testified is lesser than that fixed by the Valuer-General, and is not demonstrably wrong or inadequate. There is no such thing as an ideally correct value for a given piece of land; neither of two valuers may be incorrect in valuing land at a figure that differs from the figure arrived at by the other valuer.
In short, the appellant faces the practical necessity of showing that the Valuer-General’s value is too high for the subject land because the Valuer-General has made an error of law; has misapprehended, misused, or excluded, relevant material; has applied an incorrect principle of valuation or misapplied a correct principle; or is, in some other way, plainly guilty of error in discharging his statutory duties. I should add that, conformably with similar doctrine applicable to other appeals and reviews, an appellant will be entitled to succeed if he can show that the Valuer-General’s value is excessive to such an extent that it is explicable only on the ground that the Valuer-General has committed an error, although it is not possible precisely to identify the point at which the error occurred.
In the argument on the appeal to the Full Court in Fenton (No 2), this reasoning was questioned by counsel. The Full Court did not find it necessary to consider the issue. However, in his reasons Jacobs J made the following comment in Fenton (No 2) at 355 - 356:
At the threshold, a question has been raised as to the nature of an appeal to this Court against the assessment of the Valuer-General and in particular, whether it is an appeal stricto sensu, or an appeal by way of re‑hearing, or whether the issue is to be treated as being completely at large, with this Court approaching the matter de novo and making its own determination, based upon the evidence of the relevant value. This question was raised but apparently not argued before the learned Judge, although he expressed a reasoned conclusion upon it; but it has been fully argued before us. The learned Judge, upon a full consideration of the relevant statutory provisions, attributed to the appeal something of a hybrid nature. He held that it was, in a sense, a hearing de novo, upon the footing that there never had been a prior hearing, but that the issue went beyond lis inter partes. Having regard to the statutory role and function of the Valuer‑General, his Honour came to the conclusion that an appellate Court ought not to disturb his valuation, unless it was shown to be tainted by significant error either of law or fact.
Counsel for the appellant now contends that the valuation of the Valuer-General does not enjoy the status attributed to it by the learned Judge. He relies, inter alia, on the general principles stated in Builders Licensing Board v Sperway Constructions (Syd) Pty Ltd and Stennett v The Valuer-General, where Else-Mitchell J, on legislation in pari materia, apparently felt free to make his own determination based upon his preference for the opinion of the appellant’s valuer. It is said that, at least on one alternative view of the appellant’s case, the learned Judge might have come to a different conclusion, in favour of the appellant, had he felt free to give effect to his preference.
Upon the view I take as to the merits of the appeal, I do not think it is necessary to resolve this issue, and it would be preferable for this Court not to express any opinion on an issue which is not decisive. I venture to think, however, that the distinction which the learned Judge has discussed, though meaningful to lawyers, will have little practical significance, for it will not very often happen that a valuation that is not said to be either erroneous in principle, or tainted by significant error of fact, or so obviously excessive that some such taint or error must be inferred, will be the subject of appeal.
The Valuer-General appealed to the High Court against the decision of the Full Court. The High Court did not find it necessary to comment in any detail on the issue: Valuer-General v Fenton Nominees Pty Ltd (1982) 150 CLR 160.
The right of appeal considered by Wells J in Fenton (No 1) was a bare right of appeal expressed in these terms in s 25(3) of the Valuation of Land Act as it stood in 1981:
Where the Valuer-General disallows an objection wholly or in part, the person by whom the objection was made may in accordance with the appropriate rules of the Supreme Court, appeal against the decision of the Valuer-General to the Land and Valuation Court.
The Act then contained no other provision relating to appeals. In 1984 the Valuation of Land Act was amended to insert an amended form of review of valuations by the Valuer-General. The right of appeal was expressed in the terms of s 25C as quoted above. In Myer (SA) Stores Ltd v Valuer-General (1986) 40 SASR 102 at 103 – 105 Jacobs J repeated his comments in Fenton (No 2) which have been already mentioned and, after noting the addition of s 25C(3), said that in his view the language of s 25C(3) “very strongly suggests … that the scope of the appellate power of this Court is now wider than it was perceived to be by Wells J.” However, as the appeal by Myer (SA) Stores Ltd was governed by the old s 25(3), Jacobs J applied the reasoning of Wells J. As I understand his reasons, when Jacobs J referred to the scope of the appellate power of this Court being wider than as expressed in the reasoning of Wells J, he was essentially referring to what the appellant must do to succeed on appeal.
I respectfully agree with Wells J that the appellant has a burden of demonstrating that the valuation is erroneous, and with his analysis of what the appellant must do to set aside the valuation. However, I believe he has over‑stated the weight to be given to the Valuer-General’s valuation. I set out my reasons.
The remarks of Wells J in Fenton (No 1) were grounded on his view that the Valuer-General’s valuation was not simply a matter affecting the owner and others interested in the land but that it also had a public element. He said (at 263):
[E]ach valuation forms part of a closely integrated and interdependent series, or group, of valuations of all parcels of land within the local government area in which the subject land is situated. It would be impossible exhaustively to tabulate all the implications of varying materially (to follow the language of the draftsman) the value assigned to a given parcel of land separately valued under the Act. It may safely be affirmed that every valuation represents, not just a valuation in which alone the owner has an interest (because an impost may be exacted from him that is calculated by reference to its value), but an important act‑in‑law and act of Government that, rather like the entries in the Domesday Book compiled in the reign of William the Conqueror, contributes to an authoritative census and review of land, land ownership, and land values, throughout those areas of the State that have the benefit of local government, the contents of which is continuously relied on by Government, at State and local government levels, when imposing and assessing taxes and other imposts. A variation of even one valuation is likely, therefore, to affect many people.
A Court should, in my opinion, regard all valuations as having the characteristics and significance revealed by the above analysis and appraisal, and should assume that the Valuer‑General discharges his duties with a keen awareness of the weight of his responsibilities and of the implications of every determination of value under the Act.
With respect, Wells J has over‑stated the position. Broadly speaking, it is correct that valuations by the Valuer-General have the public element identified by Wells J. However, the Valuation of Land Act allows dissatisfied owners and others interested in the land to appeal to the court against the Valuer-General’s valuation and the court may confirm, increase, or decrease the valuation. Thus, if the appellant can demonstrate that the Valuer-General has erred, he is entitled to succeed.
As it is an appeal against an existing valuation, the appellant has the burden of demonstrating that the valuation is erroneous. The fact that the review procedure is an appeal to this Court from the assessment of the Valuer‑General compels that conclusion. If the appellant fails to adduce proper proof that the valuation is erroneous, the appeal must be dismissed and the valuation affirmed. This conclusion is consistent, not only with the scheme of the Act, but also with decisions in other States concerning like appeal procedures from assessments by Valuers-General: Phillips v Valuer-General (1964) 11 LGRA 87 at 88; Stennett v Valuer-General (1965) 12 LGRA 269 at 271; Tilghman v Valuer‑General (1966) 12 LGRA 380 at 383 and Brisbane City Council v Valuer-General (Qld) (1978) 140 CLR 41 at 57. I do not think that there is any onus on either party other than the obligation on the appellant to establish that the valuation is erroneous. The appellant will, generally speaking have the onus of proving a fact which is material to proving his grounds of appeal: Goode v Valuer‑General (1979) 22 SASR 247 at 266 – 267; Brisbane City Council v Valuer-General (Qld) at 57.
In Brisbane City Council v Valuer-General (Qld) the court was considering s 21(5) of the Valuation of Land Act 1944 (Qld) which in all material respects gave the same powers to the Land Appeal Court as s 25C of the South Australian Act gives to this Court. Gibbs J said:
The effect of these provisions is that an owner on appeal to the Land Appeal Court has the burden of proving the grounds of his appeal, but not the burden of proving that the amount which in his opinion should be the valuation is correct. Obviously the Court, if it allows an appeal, may determine the valuation at an amount different from that for which the owner contends.
On this basis, once an appellant has demonstrated that the valuation is erroneous, the question of what is the correct value is entirely for the court to decide. The court will consider the relevant merits (or demerits) of each valuation to decide what the value should be. As I understand Stennett v Valuer-General, Else‑Mitchell J proceeded to make his own assessment of the value based on the valuation evidence before him. It is not necessary in this appeal to resolve this issue. It was not argued and it is appropriate to defer it for later consideration. It is, however, appropriate to examine what is required to demonstrate that the valuation is erroneous
When considering what must be established to demonstrate that the valuation is erroneous, it must be remembered that valuation is an art, not a science. It is a field where reasonable and experienced valuers, both applying correct legal and valuation principle, may reasonably disagree as to the value of a parcel of land. As Wells J said in Fenton (No 1) (at 263), there is no such thing as an ideally correct value. Expressed another way, an assessment of the value of land is ultimately an opinion based on the available evidence drawn from comparable sales. Two valuers may quite reasonably and without error form a different opinion as to the value of a parcel of land. So an appeal should not be allowed because of a mere difference in the opinion of valuers.
In Players Pty Ltd v Corporation of the City of Adelaide I expressed the view that the forming of an opinion by a valuer is a process which might be likened to the exercise of a discretion by a judge. In each instance, a conclusion is formed after considering the relevant evidence and any issues of legal principle. Obviously, the analogy cannot be pressed too far. Nevertheless, I think that the principles applicable to the circumstances in which an appellate court will interfere with the exercise of a discretion provide some guidance as to the circumstances in which this Court will interfere with an assessment made by the Valuer-General. A court of appeal will not interfere with the exercise of a discretion unless some error has been made. It will interfere if the judge has acted upon a wrong principle, if he has allowed extraneous or irrelevant matters to guide or affect him, if he has mistaken the facts, if he did not take into account some material consideration, or if the decision is plainly unreasonable or plainly unjust: House v The King (1936) 55 CLR 499 at 505. Wells J was, I think, seeking to express a like principle in Fenton (No 1).
In my view, the court will not interfere with a valuation unless the appellant demonstrates that the valuer whose assessment is subject to appeal has made some error of law; has acted on a wrong principle of valuation; has misapprehended, misused or excluded relevant material, in other words, has failed to have had regard to relevant factors or has had regard to irrelevant factors; has misapplied principle or has in some other way erred in discharging the task of a valuer. The court will also interfere where the valuation is manifestly excessive or manifestly low. To adapt the observations of Jacobs J in Fenton (No 2) at 356, as a matter of practical reality the court will not be likely to interfere unless it is shown that the valuation is either erroneous in principle, or tainted by significant error of fact, or so obviously excessive or so obviously low that some such taint or error must be inferred. The court will have little difficulty where the valuer has made an error of principle or misapplied principles. An incorrect analysis of comparable sales or a failure to mention relevant comparable sales are instances of a misuse or exclusion or relevant material. To put the matter shortly, the court will not interfere if the difference between the Valuer‑General’s valuation and that of the appellant is essentially a difference of opinion. It will interfere only if the appellant demonstrates error of the kind just mentioned.
When making a valuation the Valuer-General does not give reasons. The notice of assessment simply states the value of the land, be it annual value, capital value, site value, or unimproved value. The court, therefore, does not have before it the reasons of the Valuer-General for that valuation. However, in practice, the Valuer-General instructs a valuer to make a valuation of the subject land which is in effect the Valuer-General’s valuation. That valuation will disclose whether there is an error of law or an error of valuation principle. It will also disclose whether relevant material has either been overlooked or incorrectly applied.
One issue which arose in the appeal concerned the court’s power to confirm, increase or decrease the valuation. It is appropriate to deal with this issue at the conclusion of these reasons.
Site Value
The expression “site value” is defined in these terms by s 5 of the Valuation of Land Act:
site value of land means the capital amount that an unencumbered estate in fee simple in the land might reasonably be expected to realise upon sale assuming that any improvements on the land, the benefit of which is unexhausted at the time of valuation, had not been made; for the purposes of this definition –
(a) improvements means –
(i) buildings and structures (but not including structures in the nature of site works); and
(ii) wells, dams and reservoirs; and
(iii) the planting of trees for commercial purposes;
It is not suggested that the benefit of any improvements on the land has been exhausted. Thus, for the purposes of this appeal, the effect of the definition is that site value is the market value of the unencumbered estate in fee simple in the land assuming the improvements had not been made. In the case of the subject land the site value of the land is to all intents and purposes the same as the unimproved value of land.
The definition of “site value” contains a clear direction that the land be valued on the assumption that any improvements have not been made. In the particular circumstances of this case, the definition requires that the valuation of the subject land is to be made on the footing that there are no buildings or other structures on the land. In Toohey’s Ltd v Valuer-General [1925] AC 439, the Judicial Committee of the Privy Council was considering the terms of s 6 of the Valuation of Land Act 1916 (NSW) which was in these terms:
The unimproved value of land is the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, and made or acquired by the owner or his predecessor in title, had not been made.
There is no material difference between the terms of s 6 and the definition of “site value” in s 5 of the Valuation of Land Act, especially in respect of the assumption that improvements have not been made. The Judicial Committee expressed the effect of the assumption in these terms:
Now, what [the valuer] has to consider is what the land would fetch as at the date of the valuation if the improvements made had not been made. Words could scarcely be clearer to show that the improvements were to be left entirely out of view. They are to be taken, not only as non‑existent, but as if they never had existed. It is, therefore, to approach the question from a completely wrong point of view to begin with a valuation which takes in the improvements and then proceed by means of subtraction of a sum arrived at by an independent valuation in order to find the required figure. What the Act requires is really quite simple. Here is a plot of land; assume that there is nothing on it in the way of improvement; what would it fetch in the market?
The decision in Toohey’s Limited v Valuer-General was followed and applied in Gollan v Randwick Municipal Council [1961] AC 82 at 94 where the Judicial Committee said:
Again, the valuer must not merely treat any improvements as not being there, he must proceed on the basis that they have never been there at all: see Toohey’s Limited v Valuer-General.
It was also applied by the High Court in Valuer-General v Fenton Nominees Pty Ltd. In that case the High Court was considering the definition of “unimproved value” in s 5 of the Act which was in these terms:
unimproved value of land means the capital amount that an unencumbered estate of fee simple in the land might reasonably be expected to realise upon sale assuming that any improvements on the land (except, in the case of land not used for primary production, any site improvements), the benefit of which is unexhausted at the time of valuation, had not been made;
It is apparent from this definition that, when dealing with urban land such as the subject land, there is no material difference between the definition of “unimproved value” and “site value”. In that case the High Court was considering the method by which to value unimproved land on which a large retail store and associated facilities had been erected. It said at 165:
It follows from the terms of this definition that the unimproved value of the respondent’s land on 11 June 1979 was to be ascertained by reference to the capital amount that an unencumbered estate in fee might reasonably be expected to realize upon sale, on the assumption that the improvements then existing on the land – the Target Store and associated facilities – had not been made. It is well settled that in establishing what that capital amount might be it is necessary to inquire what the hypothetical purchaser would pay for the land in a notional condition shorn of its improvements and that it is not permissible to arrive at the figure by identifying the value of the site in its improved state and then subtracting the value of the improvements. (Toohey’s Ltd v The Valuer-General (9)).
It is clear, therefore, that as a general rule improvements must be disregarded when determining site value. The question then arises whether different considerations apply in the case of land on which listed heritage buildings have been erected. The answer lies in the terms of s 22B of the Act.
As at 1 January 2003, s 22B(1) of the Valuation of Land Act was in these terms:
22B(1) Where land forms part of the State heritage, a valuing authority that values the land for the purpose of levying rates, taxes or imposts must, in making the valuation –
(a)take into account the fact that the land forms part of the State heritage; and
(b)disregard any potential use of the land that is inconsistent with its preservation as part of the State heritage.
Sub‑section (6) of s 22B prescribes when “land forms part of the State heritage” for the purposes of the Act:
(6) For the purposes of this Act, land forms part of the State heritage if –
(a)the land, or any building or structure on the land, is registered in the State Heritage Register under the Heritage Act 1993 or;
(b)the land forms part of a State Heritage Area; or
(c)the land is, by virtue of the regulations, to be treated as forming part of the State heritage.
The effect of sub‑s (6)(a) is that land is deemed to form part of the State heritage if a building on the land is registered on the State Heritage Register. It is to be contrasted with sub‑s (6)(b) which deals with the situation where land, as distinct from buildings, has been placed on the State Heritage Register. The clear intent of sub‑s (6) is to ensure that s 22B applies to any valuation of land under the Act for rating or taxing purposes, both where the land itself is heritage listed and where buildings on the land are heritage listed. As the buildings erected on the subject land have been registered on the State Heritage Register under the Heritage Act 1993, the land forms part of the State heritage and, by reason of s 22B(1) regard must be had to that fact when valuing the land under the Valuation of Land Act.
Dr Manetta, who appeared for the Valuer-General, submitted that the direction to assume improvements had not been made in the definition of “site value” had the consequence that s 22B(1) did not apply because in this case the land was not the subject of the heritage listing but the buildings upon it. Section 22B(1) would apply, he said, only where the land itself had been heritage listed. There is an inconsistency between the direction in the definition of “site value” to assume improvements have not been made and the terms of s 22B. That inconsistency is to be resolved by the principle that a general provision in a statute will yield to a special provision in the same statute: Perpetual Executors & Trustees Association of Australia Ltd v Federal Commissioner of Taxation (1948) 77 CLR 1, per Dixon J at 29; Refrigerated Express Lines (A/Asia) Pty Ltd v Australian Meat & Livestock Corporation (1980) 29 ALR 333 at 335. The definition of “site value” is of general application to all valuations. Section 22B(1) provides for the approach to be adopted in the special case of heritage buildings or land upon which heritage buildings have been constructed. The directions in s 22B(1), therefore, prevail over the direction in the definition of “site value”.
The conclusion in the last paragraph but one is consistent with the principle that restrictions upon the development and use of land are relevant when assessing site value and unimproved value of land: Royal Sydney Golf Club v Federal Commissioner of Taxation (1955) 91 CLR 610 where the High Court had to consider whether it was proper to have regard to planning controls when assessing the unimproved value of land under the Land Tax Assessment Act 1910 (Cth). “Unimproved value” was defined in s 3 of the Land Tax Assessment Act 1910 in these terms:
“Unimproved value,” in relation to land, means the capital sum which the fee simple of the land might be expected to realize if offered for sale on such reasonable terms and conditions as a bonâ fide seller would require, assuming that the improvements (if any) thereon or appertaining thereto and made or acquired by the owner or his predecessor in title had not been made.
That definition is in all material respects the same as the definition of “site value” in the Valuation of Land Act. The land was (and is still) used as a golf course. The land was subject to the County of Cumberland Planning Scheme Ordinance which imposed stringent reservations upon the development of that part of the land used as a golf course. The court held that the planning restrictions were a relevant factor when determining unimproved value.
For these reasons, when assessing the site value of land, it is necessary to have regard to any restriction upon the use and development of the subject land caused by the heritage listing of the improvements upon it. It is for these reasons also that I agree with the conclusion of Mullighan J in McEwin & Ors v Valuer‑General (1993) 60 SASR 241 at 247 that the restrictions caused by the heritage listing must be considered when determining the site value.
Before considering the consequences of the heritage listing for the subject land, I will examine the consequences for owners generally of buildings or structures subject to a heritage listing restriction on the subject land.
Heritage Protection
The heritage legislation in force on 1 January 2003 was the Heritage Act 1993. Section 36 of the Heritage Act made it an offence for a person intentionally to damage a registered place so as to destroy or reduce its heritage value. The offence was punishable by a fine of $60,000. For the purposes of this appeal, the amendments to the Heritage Act by the Heritage (Heritage Directions) Amendment Act 2005 must be ignored.
The protection of listed heritage items is supplemented by the terms of the Development Act 1993. Section 4 of the Development Act defines “development” to mean, among other things,
(e)in relation to a State heritage place – the demolition, removal, conversion, alteration or painting of, or addition to, the place, or any other work that could materially affect the heritage value of the place.
Section 4 of the Development Act defines “State heritage place” to mean, among other things, a place entered in the State Heritage Register. The definition of “development”, therefore, applies to work of the specified kind on St Margaret’s or the Coach House. Paragraph (f) of the definition of “development” has a similar definition for a local heritage place. There is no evidence that either St Margaret’s or the Coach House is a local heritage place. I therefore proceed on the footing that it is not.
Section 32 of the Development Act provides that no development may be undertaken unless the development is an approved development. Part 11 of the Development Act provides for enforcement of the terms of the Act. Thus, development consent must be obtained for any work which involves the demolition, removal, conversion, alteration or painting of, or addition to, the heritage listed place or any other work that could materially affect the heritage value of a State heritage place.
Reference must also be made to s 37 of the Development Act and to r 24 and Sch 8 of the Development Regulations 1993. Shortly stated, the effect of those provisions is to require that any application to a planning authority to develop a State Heritage place or any application which, in the opinion of the relevant planning authority, materially affects the context in which the State Heritage place is situated must be referred to the Minister administering the Heritage Act. The planning authority cannot approve the development until the Minister responds. The Minister must respond within eight weeks. If there is no response within that time, the Minister is deemed not to wish to respond. When the Minister responds, the planning authority is required only to have regard to that response. It is not bound by it and so is at liberty to accept or reject the terms of the response.
The only other relevant provisions in the Development Regulations are Sch 3 and Sch 4. Schedule 3 is particularly relevant. It lists a number of activities which are deemed not to be development including what it calls “Sundry Minor Operations” which in large part concern minor work in and around a dwelling. It must be noted that the owner of a dwelling which is not heritage listed does not have to obtain approval for minor operations of the land listed in para 4 of Sch 3. The owner of a heritage listed dwelling does not have the benefits of that exemption.
There was no evidence as to the extent to which, if at all, these requirements resulted in owners of dwellings which are heritage listed being subject to constraints that are any more onerous than in the case of unlisted dwellings. In one sense, the owner of a dwelling which is heritage listed is subject to the same constraints as the owner of a dwelling which is not so listed in respect of the necessity for development consent for alterations and additions to the building other than minor work. The owner of a heritage listed dwelling may encounter difficulty in obtaining development consent for work which directly affects those aspects of the dwelling which mark it out for heritage listing. Alternatively, the cost of the work might be increased in order to ensure that it does not adversely affect the heritage elements of the building. Owners have a right of appeal to the Environment, Resources and Development Court against the refusal of development consent. There was no evidence that there has been any such appeal.
It is not possible to draw a general conclusion of universal application as to the effect of a dwelling being subject to a heritage listing. The effect of the listing will vary from case to case depending on such matters as the nature of the works, the heritage characteristics of the dwelling, and the impact of the work upon the heritage characteristics.
In this appeal, the consequences of the heritage listing do not relate to the buildings themselves but to the land on which St Margaret’s and the Coach House stand. It is unnecessary, therefore, to be concerned with the detail of the controls upon the development of heritage buildings. I have only listed them for completeness and to demonstrate that they relate only to the buildings themselves. The only relevance of those controls in this appeal is that neither St Margaret’s nor the Coach House can be demolished. The site value must, therefore, be determined on the footing that the hypothetical purchaser of the land will be aware of the heritage listing and know that it is not possible to demolish either building.
Thus, although I have noted the controls which exist in relation to alterations or additions to a dwelling which is heritage listed, they do not assume a great deal of importance in this appeal. The matters on which the Minister reports under s 37 of the Development Act and Sch 8 of the Development Regulations, namely, whether the application materially affects the context on which the listed dwelling is situated, might be relevant if there is an application to develop the site in some way. But it was not suggested by either party that that was a relevant consideration in this appeal. I turn to examine the consequences for each allotment.
The Consequences of the Heritage Listing
Generally speaking, the fact that heritage listed buildings are erected on land will affect its site value. Both valuers proceeded on that footing. The extent to which the site value is affected will vary in each case. It is necessary, therefore, to determine how it affects the subject land. The evidence points to the conclusion that, notwithstanding the heritage listing of St Margaret’s and the Coach House, there is nothing to prevent a sale of each of the two allotments which constitute the subject land. Each has a separate certificate of title and each has a frontage to a public street or road. They are, therefore, readily marketable. Unless the heritage listing is a bar, each could be sold as a separate allotment. Both valuers agreed that the heritage listing did not prevent the northern and smaller allotment fronting Ward Street from being sold. They also agreed that, subject to all necessary development consents, the Coach House could be developed as a dwelling. I find, therefore, that there is nothing to prevent both allotments from being sold. As noted above, the northern allotment is being offered for sale. It is necessary, therefore, to consider the effect of the heritage listing in respect of each allotment.
The heritage listing has lesser consequences for the northern allotment (allotment 1) than for the larger southern allotment (allotment 3). As already noted, both valuers agreed that the allotment with its frontage to Ward Street could be sold and, subject to all necessary planning consents, the Coach House could be developed as a dwelling. I agree that it is reasonable to conclude that the land could be sold to a purchaser intending to redevelop the Coach House as a dwelling. The building is essentially a shell, at present disposed as an office with glass partitions dividing it. The heritage value appears to lie in its external appearance. I find that it could be developed as an attached dwelling as long as the development does not adversely affect its heritage features. The heritage listing does not, therefore, affect the unimproved value of that allotment except to the extent that the purchaser knows that the Coach House must remain.
The effect of the heritage listing upon the site value of the larger allotment, which is allotment 3, is greater. The allotment is large and, but for the heritage listing, has the potential to be redeveloped. Two possible means of redevelopment would be to divide the land into two allotments for detached dwellings or into three allotments for row dwellings under the City of Adelaide Plan. There might be other kinds of redevelopment.
A division of the land into smaller allotments is not possible because St Margaret’s is a large house occupying a good deal of the allotment, at least occupying so much of the allotment that it cannot be divided unless the house was demolished or otherwise redeveloped. Given the heritage listing that is plainly not possible. The heritage listing, therefore, affects the site value of the land because it prevents redevelopment of the site.
In this respect St Margaret’s is to be contrasted with the heritage listing of a dwelling or other building on one side of a large allotment where the heritage listing does not prevent the land from being divided into two or more allotments and in consequence the site value of the land would be affected to a far lesser extent. If, say, it is divided into two allotments, the site value of one will not be adversely affected and the effect of the heritage listing upon the site value of the other will depend on the type of building and its disposition on the land.
There was no evidence that purchasers of detached dwelling houses which are heritage listed pay any less for a house than for an equivalent house which is not heritage listed. However, if the heritage listing affects the capacity to redevelop the land on which a house stands, the site value is likely to be affected. Mr Aschberger did not give any evidence on this question. Mr Smithson’s evidence was that a heritage listing may affect a site which has redevelopment potential but, if the highest and best use of the land is as a single dwelling, there is no evidence to show whether purchasers pay less for a heritage listed dwelling than for a dwelling which is not so listed. As Mr Smithson acknowledged, the present case is an instance where the heritage listing adversely affects the site value because the listing prevents the potential for redevelopment of this large allotment.
Two Approaches
Both valuers agreed that the market value of the whole of the subject land and improvements was $3,000,000. The market value was the capital value of the land and improvements. However, they adopted quite different approaches to determining the site value.
The appellant’s valuer, Mr Aschberger, believed that he should not adopt a comparable sales approach but, instead, assessed a notional site value by using the residual land value approach which, he said, had been adopted in McEwin v Valuer-General. Mr Aschberger determined the market value of the property assuming that there was no further potential to develop the land other than for its current use in accordance with its heritage listing. That market value was $3,000,000. He then deducted the depreciated replacement cost of the building from the market value of the property to produce a notional site value. He proceeded on the footing that the cost of replacing St Margaret’s was $3,250 per square metre, a cost which should be discounted by 25 per cent to allow for depreciation. In his view, the cost of replacing the Coach House and Croquet Shed was $2,500 per square metre, which should be discounted by 40 per cent to allow for depreciation. He adopted the higher rate of depreciation for the Coach House and Croquet Shed because he believed that it was not intended that they should have the same lifespan of the large dwelling. He calculated the replacement value as follows:
Replacement cost of St Margaret’s 930 square metres @ $3,250 $3,022,500
per square metreLess 25% depreciation 755,625 $2,266,875
________
Replacement of Coach House 185 square metres @ $2,500 $ 462,500
per square metre
Less 40% depreciation 185,000 277,500_______ ________
Depreciated Replacement Value of Improvements $2,544,375
________
He then deducted the depreciated value of the improvements from the market value to produce the notional site value:
Market Value of St Margaret’s and Coach House $3,000,000
Less Depreciated Replacement Value of Improvements 2,544,375
________
Notional Heritage Site $ 455,625
________
He then rounded the site value down to $450,000.
Mr Smithson, who had been instructed on behalf of the Valuer-General, adopted the comparable sales method and allowed for the fact that St Margaret’s and the Coach House had been heritage listed. In his view, the reasoning in McEwin v Valuer-General was of limited assistance because of the unique nature of the heritage building in that case. He rejected the residual land value approach as being inappropriate to a dwelling such as St Margaret’s because, in his view, it was necessary to allow for functional obsolescence as well as depreciation and because of the fact that it was not in the Central Business District. In Mr Smithson’s view the subject land was not nearly so restricted by the heritage listing as the Adelaide Club. While acknowledging that St Margaret’s is unique in design, his view was that it is but one of a number of large and grand residential houses in North Adelaide. There were, therefore, sales of vacant land suitable for single residences and sales of heritage listed properties in the area of North Adelaide with which comparison could be made. He noted also that the two allotments could each be sold.
Mr Smithson acknowledged that the larger allotment on which St Margaret’s is erected could not be divided into smaller allotments. Its site value was further restricted because the size of the dwelling prevented any other residential facilities such as a tennis court or swimming pool which might be found in other large residential allotments.
After referring to his comparable sales and making necessary allowances, he valued the larger allotment on which St Margaret’s stands in the sum of $800,000 and the smaller allotment in the sum of $250,000. He then considered the value of the two allotments on the footing that they are held in one certificate of title, noting the need to provide separate services if they were to be sold separately. He therefore discounted the total value by $100,000 to produce a site value of $950,000.
Notwithstanding his unwillingness to use the residual value approach, Mr Smithson made his own assessment on that basis. Adopting that method, he determined a site value of $1,252,220. The difference between his assessment and that of Mr Aschberger on this basis essentially lies in their different estimates of the cost of construction and the fact that each adopted different rates of depreciation.
There are decisions in the Land Appeal Court and in the Land Court in Queensland which deal with the question of the unimproved value of land on which heritage listed improvements have been erected. Those decisions include Ballow Chambers Ltd v Valuer-General (1993) 14 QLCR 422, Roberts v Chief Executive, Department of Natural Resources (1998) 19 QLCR 186; and Cooke v Chief Executive, Department of Natural Resources (1998) 19 QLCR 258. In all of those decisions it was held that the fact that the heritage buildings were on the subject land was relevant when determining the unimproved value of the land. Beyond that, the decisions do not materially assist as a different method of valuation was adopted from the method in this appeal.
Criticism of Residual Value Approach
The residual value approach requires that an assessment be made of two key elements in the calculation, the cost of the replacement building and the rate of depreciation. Each involves a value judgment so that there is a singular capacity for reasonable differences of opinion both as to the cost of a replacement building and as to the rate of depreciation, with a consequential variation in the ultimate result. In that respect, it is quite a subjective assessment and can result in significant variations.
The residual value approach assumes that the depreciated present day replacement cost of the building, when added to the unimproved value, represents the market value of the land. It assumes that the depreciated cost is equal to the added value and so can be deducted from the market value to produce the residual land value. The reasoning is flawed. It is common knowledge that there is no necessary relationship between the cost of an improvement (be it depreciated or not) and the added value of the improvement. Griffith CJ expressed that fact in Campbell v Deputy Federal Commissioner of Land Tax (NSW) (1915) 20 CLR 49 at 53 in these terms:
The value of improvements may, of course, be greater or less than the cost of making them. A man may well spend ₤10 on improvements and produce an added value of ₤5 only, or vice versâ.
The entire cost of an expensively constructed house may not, therefore, necessarily be reflected in the value of the land and improvements. The residual value method is seriously flawed in that respect.
The capacity of that flaw to lead to significant variation is illustrated if it is assumed that the same building is erected at two different locations. An instance was put to Mr Aschberger in cross‑examination. He agreed that, if St Margaret’s was located at Gawler and not in North Adelaide, the market value of the land and improvements would be less than $3,000,000. The depreciated replacement cost would, however, remain the same. If the market value of the same house at Gawler was $2,5000,000 or less the site value would be nil. Common sense indicates that that is an unrealistic conclusion. The difference between the value of the same house in Adelaide and in Gawler derives from both the differences in site value and the difference in the value of the improvements.
An example which illustrates the subjective elements of the residual value method is the estimate of the replacement cost of the building. Mr Aschberger had assumed that the cost of rebuilding St Margaret’s was $3,250 per square metre. There are a number of facts which call the reliability of that estimate into question. He based his costs on information provided by a building design consultant. The consultant had not seen St Margaret’s and did not see it before advising the likely replacement cost. In addition, the consultant did not make a detailed costing and the absence of such detailed costing casts some doubt on the reliability of the estimates of replacement costs. More importantly, the consultant particularly informed Mr Aschberger that the bluestone with which the building is faced is extremely difficult to procure and suitable tradespersons to install it are difficult to obtain. The replacement cost could, therefore, be as high as $4,000 per square metre. Mr Aschberger also referred to Rawlinson’s Australian Construction Handbook, an authoritative handbook for estimating construction costs. The handbook stated that a prestige top‑of‑the‑range dwelling could cost as much as $3,170 per square metre in Adelaide. However, such a dwelling would exclude the heritage features of the subject property and the property would not be constructed with bluestone. As Mr Aschberger acknowledged in his valuation, a replacement cost of $3,170 per square metre estimate could, therefore, be significantly below the true cost of replacing St Margaret’s.
Another factor bearing upon the reliability of the replacement cost of $3,250 is that Mr Aschberger expressly noted in his valuation that it would be ideal if the replacement cost was calculated by a quantity surveyor. He added:
If replacement construction cost is an issue in the valuation and is not agreed between the valuers then to assist the court it would be appropriate that such advice be sought to better assist the court in its deliberations. A quantity surveyor could also make appropriate comment as to life cycle of the improvements and comment on the remaining live [sic] of the improvements.
The cost of replacing St Margaret’s was in issue. However, a quantity surveyor was not called. All of these factors call Mr Aschberger’s assessment of the replacement cost into question.
It is not surprising, therefore, that Mr Aschberger acknowledged in cross‑examination that the cost of rebuilding St Margaret’s might be higher than his figure of $3,250 per square metre and could be as high as $4,000 per square metre. If a cost of $4,000 per square metre is substituted as the cost of rebuilding St Margaret’s and no other correction is made to Mr Aschberger’s valuation, a nil site value results. The calculation is as follows:
Replacement cost of St Margaret’s 930 square metres @ $4,000 $3,720,000
per square metreLess 25% depreciation 930,000 $2,790,000
________
Replacement of Coach House 185 square metres @ $2,500 $ 462,500
per square metre
Less 40% depreciation 185,000 277,500_______ ________
Depreciated Replacement Value of Improvements $3,067,500
________
After deducting the depreciated value of the improvements from the market value, the arithmetical result is as follows:
Market Value of St Margaret’s and Coach House $3,000,000
Less Depreciated Replacement Value of Improvements 3,067,500
________
$ - 67,500
________
Equally, if the replacement cost is less than $3,250 per square metre, the site value will be correspondingly higher. Common sense indicates that the land will, as a general rule, have a site value which is greater than nil. There are instances when land may have a nil value, for example, where it is contaminated land. Mr Aschberger also identified other instances, namely, where land is subject to a mining lease and does not generate income for the owner or where land with heritage listed vegetation or land degraded by swamps or sand drifts. The validity of his examples may be debated but it is unnecessary to do so. It is sufficient to note that his examples are extreme cases. More significantly, the capacity of the residual value method to yield varying results and produce results which are not commercially realistic casts significant doubt upon its utility. The mere fact that Mr Aschberger’s calculation yields a positive site value of $450,00 does not establish that his assessment is reliable.
Mr Hayes QC, who appeared for the appellant, submitted that in the case of land on which a heritage building is erected, the fact that the building could not be demolished meant that the value is essentially in the building so that the site value would be very low or even of no value. The submission is of breathtaking generality and must be rejected. Each case will depend on its facts. In addition, if one assumes an identical heritage listed building at Gawler and one at North Adelaide, the dwelling in North Adelaide will have a significantly higher value. The reasons for that will include a superior location, the fact that it is in a prestigious residential area and other advantages, not the least of which will be it proximity to the City of Adelaide. All of those factors are reflected in site value as well as in capital value.
The appellant relied on s 22A for the purposes of justifying a nominal site value. Neither the terms of s 22A nor its proximity to s 22B in the Valuation of Land Act justifies that approach.
The inherent weakness of the residual value approach and the subjective nature of the assessment is further demonstrated by varying the depreciation rate on Mr Aschberger’s cost of rebuilding St Margaret’s. If the rate is reduced to 20 per cent, the notional site value falls to $304,5000. If the depreciation rate is increased, the site value will be higher. Again, taking Mr Aschberger’s replacement cost of $3,250 per square metre and adjusting the depreciation rate to 30 per cent, the notional site value will be $606,750.
The marked variations resulting from the changes in the assumptions fed into the calculations demonstrate two things. The first is the subjective elements in the process. The second is the fact that, at best, site value is in reality an arithmetical calculation which will vary according to the assumptions made. In that respect it is not truly a valuation of the site as such. There is no cross‑check to verify the result. Furthermore, as Mr Aschberger admitted in cross‑examination, he had made no attempt to determine the site value independently of the residual value method.
The decision in McEwin v Valuer-General does not require the residual value method to be employed in every case where a building has been heritage listed. It is quite apparent that the circumstances of that case were unique, a fact mentioned more than once by the trial judge (see, for example, 60 SASR at 244 and at 249) making the task of valuation “especially difficult”. One consequence was that it was not possible to use the comparable sales approach in that instance. By contrast, St Margaret’s is not unique in that it is but one example of a number of grand houses which are to be found in North Adelaide, some of which are heritage listed. There is no evidence to show that the market value of a dwelling which is heritage listed is markedly different from that of the same dwelling not listed. There are comparable sales available, although it must be acknowledged that there is nothing truly comparable in size which is heritage listed. In addition, the comparable sales method requires that care be taken to allow any differences between the sale or sales relied on and the subject land. Generally speaking, it is a preferred method of valuation. I find no reason why it should not be adopted in this case even acknowledging the difficulties created by the heritage listing. The residual value approach has the inherent weaknesses which have been mentioned. The fact that Mr Aschberger has not attempted to check his valuation against other evidence is a further defect in his approach. In the particular circumstances of this appeal, I find that the comparable sales method as implemented by Mr Smithson is a far more reliable means of assessing the site value and his approach is to be preferred.
It is possible to check Mr Smithson’s assessment against the comparable sales. Both valuers acknowledge that the smaller northern allotment (allotment 1) with the frontage to Ward Street could be sold and developed as a detached dwelling. It has an area of 431 square metres. Mr Smithson’s sale 3 in his Vacant Land Sales is comparable. Although the sale occurred late in 2002, it is a sale of a small site of 435 square metres with a 6.22 metre frontage and so is quite comparable. It sold for $500,000, yielding $1,149 per square metre. It is an allotment of similar size but with a narrower frontage of 6.22 metres compared with 18.64 metres which is the frontage for the northern allotment. Mr Smithson regarded the sale as comparable. It has its disadvantages when compared with allotment 1 but both are comparable in that they have frontage to similar kinds of streets in North Adelaide and do not enjoy extensive views. If the rate per square metre is simply applied to the area of allotment 1, the site value would be $495,219. Mr Smithson has assessed the site value of allotment 1 at $250,000, about one half of that amount. It is readily apparent that Mr Smithson’s assessment of the allowances for any dissimilarity is very conservative. That same comparable sale also demonstrates that, when assessing the site value of the larger allotment 3, Mr Smithson has again been very conservative, and has made all due allowances for the heritage listing of St Margaret’s.
Conclusion
In my view, Mr Smithson’s comparable sales approach is a good deal more likely to result in a more realistic assessment of site value than Mr Aschberger’s residual value approach. The flaws in the residual value approach are, I think, of such moment that it is quite an unsuitable approach in this case, no matter how useful it might have been in McEwin v Valuer-General.
Mr Smithson’s approach yielded a site value of $950,000, which is higher than the Valuer-General’s assessment of $850,000. This Court has the power on appeal to confirm, increase or decrease the Valuer-General’s valuation: Section 25(c)(3) of the Act. However, the question whether the assessment should be increased and the grounds on which it should be increased was not agitated in evidence nor in argument. It is not appropriate to increase the assessment unless the issue is agitated on the appeal. As it was not, the appropriate course in all the circumstances is simply to confirm the Valuer‑General’s valuation.
For these reasons, I dismiss the appeal and confirm the Valuer‑General’s valuation.
60
11
1