Australian Postal Corporation v Valuer-General
[2005] TASSC 78
•19 August 2005
[2005] TASSC 78
CITATION: Australian Postal Corporation v Valuer-General [2005] TASSC 78
PARTIES: AUSTRALIAN POSTAL CORPORATION
v
VALUER-GENERAL
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: APPELLATE
FILE NO/S: LCA 53/2004
DELIVERED ON: 19 August 2005
DELIVERED AT: Hobart
HEARING DATE: 11 August 2005
JUDGMENT OF: Blow J
CATCHWORDS:
Real Property – Valuation of land – Objections and appeal – Hearing – Generally – Necessity for error in principle.
Land Valuation Act 1971 (Tas), s28(4)(a).
Fenton Nominees Pty Ltd v Valuer-General (1981) 27 SASR 258, followed.
Aust Dig Real Property [218]
REPRESENTATION:
Counsel:
Appellant: D F M Zeeman
Respondent: L J Neasey
Solicitors:
Appellant: Butler McIntyre & Butler
Respondent: Director of Public Prosecutions
Judgment Number: [2005] TASSC 78
Number of paragraphs: 27
Serial No 78/2005
File No LCA 53/2004
AUSTRALIAN POSTAL CORPORATION v VALUER-GENERAL
REASONS FOR JUDGMENT BLOW J
19 August 2005
This appeal concerns the valuation of the Ulverstone Post Office. The applicant owns the property in question. Parts of it are let to tenants. The respondent made a valuation of the property as at 1 September 1999 pursuant to the Land Valuation Act 1971 ("the Act"). Following objections by the appellant, two reviews were undertaken by the respondent. Each objection was allowed. As a result of the second objection being allowed, the respondent made a new valuation by which it was determined that, as at 1 September 1999, the property had a capital value of $720,000, a land value of $315,000, and an assessed annual value of $96,200. Pursuant to the Act, s28(4)(a), the appellant required the respondent to refer its objection to the Land Valuation Court. After a hearing, a magistrate sitting as a commissioner of that court dismissed the objection. This is an appeal from that decision pursuant to the Act, s37(1). Such an appeal is an appeal by way of rehearing. Although the Act was repealed whilst the proceedings in the court below were pending, it has continued to apply in relation to that proceeding and this appeal because of transitional provisions in the Valuation of Land Act 2001, s66(3)(b)(ii).
The assessed annual value figure of $96,200 was not challenged in the court below and is not challenged in this appeal. However, it was contended in the court below and before me that the capital value figure of $720,000 and the land value figure of $315,000 were too high. Those figures were arrived at by a government valuer, Mr Grant, who gave evidence before the learned commissioner. The appellant called two valuers to give expert evidence at the hearing in the court below, Mr Reynolds and Mr Cubbins, but the learned commissioner upheld the valuation by Mr Grant.
Mr Grant's methodology involved the following steps:
(i)He estimated that the gross rental that the owner of the property would receive if all parts of it were let, and discounted the estimated gross rental by 5 per cent to allow for vacancies.
(ii)He made deductions to allow for statutory outgoings (rates and land tax), arriving at a hypothetical net rental figure of $83,059.
(iii)He considered information as to the sales of comparable leased commercial properties, and estimated the annual net rental that a landlord would receive, expressed as a percentage of the purchase price. The figure he arrived at was 11.5 per cent.
(iv)He estimated the capital value of the property by applying that percentage figure to his figure for a net annual rental. A net annual rental of $83,059 is equal to 11.5 per cent of $722,252. He rounded that figure down to arrive at a capital value of $720,000 for the property.
(v)He estimated the improvements to be worth $422,370.
(vi)He arrived at a land value for the property by deducting his figure for the value of the improvements from his figure for the capital value, and rounding down the balance figure to $315,000.
Mr Reynolds and Mr Cubbins each followed a similar methodology in calculating the capital value of the property. Mr Cubbins did not calculate a land value, but Mr Reynolds did, using a similar methodology to Mr Grant.
This appeal concerns three aspects of the calculations performed by Mr Grant:
·In calculating a hypothetical gross annual rental for the post office premises occupied by the appellant, he estimated the appropriate rents for different parts of those premises, expressed in dollars per square metre, and multiplied those figures by the areas of the different parts of the premises, expressed in square metres. For the purposes of those calculations, he treated the post office tea room and an area at the rear where post office box holders collect their mail as parts of the "net lettable area" of the premises. The appellant contends that he was wrong to do so.
·In calculating a figure for the hypothetical net annual rental, he made no allowance for non-statutory outgoings such as insurance premiums, electricity, repairs and maintenance. The appellant contends that he was wrong to do so.
·In considering comparable sales of leased commercial properties for the purpose of arriving at a percentage capitalisation rate, he did not take into account any information about properties sold after the valuation date, ie 1 September 1999. The appellant contends that he was wrong not to take into account sales after that date.
The appellant contends that these were errors that should have led the learned commissioner to reject Mr Grant's opinions as to the capital value and the land value, and that he therefore erred in dismissing the objection.
In Fenton Nominees Pty Ltd v Valuer-General (1981) 27 SASR 258, Wells J considered the role of a court determining an appeal from a Valuer-General's valuation under South Australian legislation. At 263 – 264, his Honour said the following:
"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."
I think it is clear that the same principles were required to be applied in this State by commissioners of the Land Valuation Court in determining objections under the Act. There is no significant difference between the wording of the relevant provisions of the Act and the wording of the legislation that was being applied by Wells J in that case.
A finding by a commissioner of the Land Valuation Court that the Valuer-General, or a valuer whose opinions the Valuer-General had adopted, had excluded relevant material, or applied an incorrect principle of valuation, or misapplied a correct principle of valuation, amounts to a finding of fact. This is an appeal by way of rehearing. In such an appeal, the appellate court "redetermines the issues raised upon the hearing of the appeal as at the date of the rehearing but upon the material before the court or tribunal at first instance": A v Law Society of Tasmania (2001) 10 Tas R 152 at 155. It is clear from the published reasons of the learned commissioner that his decision to dismiss the objection was based in part upon an assessment of the way in which each expert witness gave his evidence. His conclusions depended in part upon his assessment of their reliability or credibility as to matters of professional opinion. A court determining an appeal by way of rehearing will disturb a finding of fact based on assessments of credibility only in appropriate circumstances: Abalos v Australian Postal Commission (1990) 171 CLR 167; Devries v Australian National Railways Commission (1993) 177 CLR 472; State Rail Authority (NSW) v Earthline Constructions Pty Ltd (1999) 73 ALJR 306; Fox v Percy (2003) 214 CLR 118; Whisprun Pty Ltd v Dixon (2003) 77 ALJR 1598. In the last of those cases, Kirby J said the following, at 1616 (omitting footnotes):
"In SRA, I listed a number of cases, illustrated by decisions of this and other courts, in which, despite credibility findings, appellate intervention had occurred and been upheld. As I pointed out in that case, the instances cited were 'by no means exhaustive'. They included cases (1) where the primary judge's conclusion, although expressed in terms of credibility, was 'plainly wrong' as demonstrated by incontrovertible facts or uncontested testimony; (2) where the conclusion was based on evidence wrongly admitted, occasioning a substantial miscarriage of the trial; (3) where the reasons, going beyond credibility, indicated a consideration at trial of irrelevant matters or a failure to weigh all relevant issues; (4) where the circumstances in which evidence was given, relevant to credibility, was unsatisfactory; or (5) where the primary judge had made it plain that credibility considerations or impressions were not determinative for the judgment in question.
There were two further categories that I mentioned in SRA. They are relevant to the present appeal. They were: (6) where the credibility determination 'leaves untouched other evidence which requires separate evaluation with no obstacle of a credibility finding' and (7) where, notwithstanding the credibility finding, the 'extreme and overwhelming pressure' of the rest of the evidence at the trial is such as to render the conclusion expressed at first instance so 'glaringly improbable' or 'contrary to compelling inferences' of the case that it justifies and authorises appellate disturbance of the conclusion reached at trial and the judgment giving it effect. As Callinan J points out in his reasons, the categories of appellate intervention listed in SRA are not closed."
I must consider the appellant's contentions in relation to the net lettable area, non-statutory outgoings, and comparable sales in accordance with those authorities.
Net lettable area
Mr Grant calculated the hypothetical rental for the part of the property occupied by the respondent as follows:
"Shop 227.7m2 @
$160m2
=
$36,432
Rear 13.9m2 @
$120/m2
=
$ 1,668
Adopt
$38,100".
The "shop" area of 227.7m2 includes a tea room whose area is 8.7m2.. The appellant contends that that area should have been excluded, and that Mr Grant's calculation should have been undertaken on the basis of a "shop" area of 219m2. Before the learned commissioner, the respondent relied upon a publication by Property Council of Australia Ltd entitled "Method of Measurement for Lettable Area". The introduction to that document says that it "aims to promote consistency by providing a simple approach to floor space measurement that is both practical and cost effective", and that in its preparation the Property Council undertook extensive consultation with a number of bodies including the Australian Institute of Valuers. Part 3 of the document includes the following:
"3.1 The net lettable area of a building is the sum of its whole floor lettable areas.
3.2 Net Lettable Area - Whole Floors
Please see diagrams on Page 19 and 20.
The whole floor net lettable area is calculated by:
3.2.1taking measurements from the internal finished surfaces of permanent internal walls and the internal finished surfaces of dominant portions of the permanent outer building walls.
3.2.2 Included in the lettable area calculation are:
3.2.2.1 window mullions;
3.2.2.2 window frames;
3.2.2.3 structural columns;
3.2.2.4 engaged perimeter columns or piers;
3.2.2.5 fire hose reels attached to walls; and,
3.2.2.6additional facilities specially constructed for or used by individual tenants that are not covered in section 3.2.3 below.
3.2.3 Excluded from the lettable area of each tenancy are:
3.2.3.1. the following areas:
•stairs;
•accessways;
•fire stairs;
•toilets;
·recessed doorways;
•cupboards;
•telecommunications cupboards;
•fire hose reel cupboards;
•lift shafts;
•escalators;
•smoke lobbies;
•plant/motor rooms; and,
•tea rooms and other service areas;
where all are provided as standard facilities in the building;".
The following direction is contained amongst some pages of definitions near the beginning of the document:
"'Purpose built' facilities provided specifically for an individual tenant such as stairs, toilets, ducts, tea rooms and the like are to be included as part of the lettable area."
Mr Grant valued the property on the basis that the tea room was not provided as a standard facility in the building within the meaning of cl 3.2.3.1, and as if it was provided specifically for an individual tenant within the meaning of the definition of "Purpose built". There is a dispute as to whether he was right to do so.
The approach that both parties have taken to that dispute is absolutely absurd. Having regard to the size of the tea room, Mr Grant's rental figure of $160 per square metre, and his capitalisation rate of 11.5 per cent, its inclusion or exclusion from the net lettable area would make a difference of a little over $12,000 to the capital value of the property. The tea room exists. It is part of the building. Yet wise men from two professions have been locked in debate for years as to whether it should be ignored. For the resolution of this conundrum, it has been necessary to resort to a process akin to haruspication, with three of us donning ancient robes and examining the entrails of the Property Council's "Method of Measurement for Lettable Area" thoroughly, and from every angle, with a view to an almost magical solution to the problem becoming apparent.
This situation would not have arisen if the valuers in this case had simply adopted the assessed annual value, which is not in dispute, as the basis for calculating the capital value of the property according to the rental capitalisation method. But none of them did. Instead, each calculated a different figure of his own, and used that as the basis for calculating the capital value. The taking of that course is not challenged in this appeal.
There was insufficient evidence for the learned commissioner to make a finding as to the origin of the tea room. There was evidence that its walls, other than the external wall, were not structural. The position of the tea room suggests that it was not intended to be used by tenants of other parts of the building. The learned commissioner concluded that it was impossible to say that Mr Grant had "been shown to be wrong in his approach to this particular part of the valuation process". The evidence that it should have been excluded when calculating the net lettable area was not incontrovertible or overwhelming. In my view the conclusion reached by the learned commissioner is unimpeachable.
The other area in controversy is a glassed-in area at the rear of the property. People with post office boxes enter it, apparently using a key, to collect their mail. It would be of limited use to an occupant other than the respondent. Mr Grant said in cross-examination that it could be used for displays after limited alteration. He did not believe the area was purpose built. Mr Reynolds gave evidence that the area was of no additional rental value. He did not agree with the proposition that it could be used for storage. Mr Cubbins said that the question of whether the area was to be included or not was a matter of opinion. In my view, there was simply a difference of opinion between valuers as to whether this area should have been included. Once again, the evidence that it should have been excluded was not incontrovertible or overwhelming; the learned commissioner concluded that Mr Grant had not been shown to be wrong; and that conclusion is unimpeachable.
Non-statutory outgoings
Mr Reynolds and Mr Cubbins undertook their valuations, using the rental capitalisation method, on the basis of estimates of the net annual return that the property would yield to a landlord after the payment of all outgoings including such things as insurance, electricity, repairs and maintenance. Provided sufficient information about such outgoings is available, or reliable estimates as to such outgoings can be made, such an approach would no doubt have the advantage of being based on the actual net yield to a landlord, or at least an estimate of the actual net yield. Non-statutory outgoings must differ from property to property. This approach would make appropriate allowance for such differences.
However Mr Grant defended his approach, by which only statutory outgoings were taken into account, on the basis that information as to non-statutory outgoings is often not available. His approach had the advantage of certainty.
Mr Cubbins took non-statutory outgoings into account, and adopted a capitalisation rate of 10.5 per cent. On that basis, he reached the opinion that the capital value of the property was $630,000. Had he not taken building insurance, common area electricity, common area cleaning, fire services, miscellaneous expenditure of $154, or repairs and maintenance into account, he would have assessed the annual rental return, net of rates and land tax, as follows:
Gross rental
$99,000
Rates
(13,480)
Land tax
(5,913)
Vacancies
(2,405)
Net rental value per annum
$ 77,202
The figure of $77,202 represents about 12.25 per cent of $630,000. These figures demonstrate that a slightly higher capitalisation rate should be used if non-statutory outgoings are ignored, all other things being equal. In fact Mr Grant did use a slightly higher capitalisation rate than Mr Cubbins – 11.5 per cent instead of 10.5 per cent. In cases where it is difficult to establish or estimate non-statutory outgoings, it seems to me that there can be no logical reason not to base a rental capitalisation calculation on statutory outgoings only, provided an appropriate capitalisation rate is selected. No criticism has been made of Mr Grant's selection of a capitalisation rate of 11.5 per cent.
The learned commissioner concluded that he was not persuaded that Mr Grant's approach had been shown to be erroneous in principle. Having regard to the authorities that I have referred to, I think that conclusion is also unimpeachable.
Comparable sales
This is not a case in which the valuers formed opinions as to the capital value of a property simply by reference to the sale prices of other properties. All of the valuers took comparable sales figures into account only as part of the process of determining an appropriate capitalisation rate. They looked at information concerning the sale prices and rental returns of comparable leased commercial properties on the north-west coast. Mr Grant did not take into account any data in relation to such properties that were sold after 1 September 1999 because, in his view, market prices began to drop after that date, with the result that the sales were not comparable. Mr Reynolds and Mr Cubbins, on the other hand, believed that sales prices continued to remain steady for some years after 1 September 1999, and therefore took into account data relating to sales after that date. Mr Cubbins took into account data relating to only one property sold after that date, whereas Mr Reynolds took into account data relating to a number of such properties.
The appellant contends that the learned commissioner should have accepted the evidence of Mr Reynolds and Mr Cubbins as to the steadiness of the market in preference to Mr Grant's evidence of a decline in the market. It was submitted that Mr Grant did not substantiate his opinion with detailed evidence, whereas Mr Reynolds calculated the net yields from comparable properties, sold both before and after the valuation date.
The learned commissioner concluded that he could not see anything wrong in Mr Grant's approach as to the scope of comparable sales, nor any error in principle in his ultimate conclusion in adopting a capitalisation rate of 11.5 per cent. Once again, I think that conclusion is unimpeachable. There was certainly not an overwhelming body of evidence establishing that the market for leased commercial premises in or around Ulverstone had remained steady after 1 September 1999.
I think it is also very significant that the capitalisation rate arrived at by Mr Grant was the same as that arrived at by Mr Reynolds. His capitalisation rate was higher than that of 10.5 per cent arrived at by Mr Cubbins. Since the application of a higher capitalisation rate results in the calculation of a lower capital value, the appellant is not in a position to argue that any error on Mr Grant's part as to comparable sales resulted in it being disadvantaged.
Conclusion
There was no merit at all in this appeal. It is dismissed.
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