Balgra Office Enterprises v Commissioner of State Taxation - [2008] SASC 50

SUPREME COURT OF SOUTH AUSTRALIA
(Appeals to a Single Judge: Civil)
BALGRA OFFICE ENTERPRISES v COMMISSIONER OF STATE TAXATION
[2008] SASC 50
Judgment of The Honourable Justice Gray
29 February 2008
TAXES AND DUTIES - STAMP DUTIES - WHAT TRANSACTIONS OR INSTRUMENTS ARE LIABLE - CONVEYANCE OR TRANSFER ON SALE
Appeal against an assessment of stamp duty - appellant acquired a majority interest in a company that owned real estate - areas of the property were leased to tenants - appellant arranged a valuation of the real estate on the basis that there were no tenants in the property - this valuation claimed that the value of the property without tenants was less than 80% of the value of the price paid for the shares - whether the transfer of shares was a transfer of a "land-rich entity" for the purposes of section 94 of the Stamp Duties Act 1923 (SA) - Held (dismissing the appeal): - "real property" includes leasehold interests - the transfer was a transfer of a "land-rich entity" for the purposes of section 94 of the Stamp Duties Act - stamp duty is payable.
Stamp Duties Act 1923 (SA) s 2, s 3, s 91, s 94 and s 95; Stamp Duties Act Amendment Act (No 3) 1990 (SA); Taxation Administration Act 1996 (SA) s 82, s 92 and s 93; Valuation of Land Act 1971 (SA); Real Property Act 1990 (NSW) s 25, referred to.
Fenton Nominees v Valuer-General (1982) 29 SASR 348; Myer v SA Stores Pty Ltd (1986) 40 SASR 102; Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651; Cooper Brooks (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1980) 147 CLR 297; City Mutual Life Assurance Society Ltd v Smith (1932) 48 CLR 532; Perpetual Trustee Co Ltd v Valuer-General; Trust Co of Australia Ltd v Valuer-General (No 2) [2007] SASC 340; Commissioner of Stamp Duties v Commonwealth Funds Management Ltd (1995) 38 NSWLR 173, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"real property"

BALGRA OFFICE ENTERPRISES v COMMISSIONER OF STATE TAXATION
[2008] SASC 50
Miscellaneous Appeal
GRAY J

This is an appeal against an assessment of stamp duty.
The primary question for determination is whether stamp duty is payable on the transfer of real property effected through an acquisition of shares. More particularly, the question is whether the purchase of all of the issued shares in Longreef Pty Ltd by the appellant, Balgra Office Enterprises Pty Ltd, was an acquisition of shares to which section 94 of the Stamp Duties Act 1923 (SA) applied, such that there was an obligation to lodge with the respondent, the Commissioner of State Taxation, a statement in respect of the acquisition.
The Legislation
Part 4 of the Stamp Duties Act containing sections 91, 94 and 95 was enacted by the Stamp Duties Act Amendment Act (No. 3) 1990 (SA). The purpose of the amendment was to counter schemes designed to reduce the amount of stamp duty on transactions that were effectively conveyances of real property by structuring them to take advantage of the lower rate of duty charged on the transfers of company shares or units in a unit trust.
Section 94 of the Stamp Duties Act, as at October 1999, relevantly provided:
(1)     If—
(a)     a person—
(i)acquires a majority interest in a private company or scheme;
… and
(b)     the private company or scheme is, at the time of the acquisition, entitled to real property—
(i)the unencumbered value of which comprises not less than 80 per cent of the unencumbered value of all property to which it is entitled, whether in South Australia or elsewhere (other than property referred to in subsection (5)); and
(ii)the unencumbered value of which, insofar as the real property is situated in South Australia, is not less than $1 000 000,
the person must lodge with the Commissioner a statement in respect of the acquisition.
In the course of the second reading speech introducing the Stamp Duties Act Amendment Bill (No 3) 1990 (SA). The Minister observed:[1]
For the scheme to operate land is placed in company ownership. Prospective purchasers of the land are invited to take a transfer of the shares in the company rather than the land directly. By this means duty is not paid on the value of the land as occurs in respect of the overwhelming majority of land purchases but instead duty is paid on the net value of shares. ... This Bill seeks to counter the above-mentioned scheme by providing that certain transfers involving the transfer of real property by way of shares in an unlisted company ... be taxed at land conveyance rates in respect of the underlying land.
[1] South Australia, Parliamentary Debates, Legislative Council, 3 April 1990, 1064 (Christopher Sumner, Attorney-General).
It is convenient at this point, to refer to other relevant provisions. Section 91 enacts that unless the contrary intention appears, for the purposes of Part 4 of the Stamp Duties Act, real property:
includes any estate or interest in land (including a mining tenement), whether the land is situated in the State or elsewhere, but does not include the estate or interest of a mortgagee, chargee or other encumbrancee in land or an interest arising by virtue of a warrant, writ or lien.
Section 95 provides that where section 94 has application, duty is to be assessed “as if the statement were a conveyance operating as a voluntary disposition inter vivos of property”.
In the context of the legislation, it is clear that section 94 was intended to ensure that the duty that would have been payable if the property itself had been sold, is recoverable where the conveyance of that real property is effected by the transfer of shares or units. The meaning of the unencumbered value of the real property of a company in the context of section 94 should be consistent with the way in which the transaction would have been treated had the underlying property been conveyed.
The Facts
The parties filed an agreed statement of facts and an agreed book of documents. The following findings have been made drawing on those agreed facts and documents.
On 18 October 1999, Peter John Stapleton and Hazama Corporation, as transferors, and Balgra and PI Enterprises Pty Ltd, as transferees, entered into an agreement for the sale and purchase of all of the shares in Longreef. The shares were transferred on 20 October 1999. The transfer was registered in Hong Kong, which was at all relevant times a proclaimed country for the purposes of the Stamp Duties Act. The transfer resulted in Balgra acquiring a majority interest in Longreef.
At the date of transfer, property to which Longreef was entitled included land situated at King William Street, Adelaide, South Australia, on which was erected a building known as Optus House. Areas of Optus House were leased to tenants. Longreef was the landlord.
The unencumbered value of all real property situated in South Australia to which Longreef was entitled on 20 October 1999 exceeded $1,000,000. The unencumbered value of all property to which Longreef was entitled at the date of transfer was not materially greater than the unencumbered value of Optus House subject to the Optus House leases.
In September 1999, First Pacific Davies prepared a valuation report of Optus House. Optus House was valued at $20,000,000. The valuation took account of the rental income from the leases.
In December 2004, Jones Lang LaSalle, at the request of Balgra, provided two valuations of Optus House as at October 1999 – a valuation of $10,400,000 on a vacant possession basis, and a valuation of $18,658,453 on the basis of the leases existing at that date.
Balgra did not lodge a statement under section 94 of the Stamp Duties Act in respect of the transaction or otherwise notify the State of the transaction.
On 22 September 2004, the State wrote to Longreef inviting submissions as to why stamp duty was not payable in South Australia in respect of the transfer. The solicitors for both Longreef and Balgra then entered into correspondence with the State, regarding liability to pay stamp duty in South Australia.
On 28 July 2005 the State gave notice that Balgra was required to lodge a statement under section 94 of the Stamp Duties Act in respect of the acquisition of the Longreef shares. On 10 October 2005 Balgra lodged a section 94 statement which inter alia declared that Balgra had acquired a majority interest in a private company, Longreef. The statement provided information in regard to the acquisition, that included the assertion that the unencumbered value of all real property in South Australia to which Longreef was entitled as at the date of acquisition was $10,400,000.
On 18 January 2006, an assessment following Balgra’s section 94 statement was issued by the Commissioner in the amount of $1,321,633.48. This comprised: stamp duty on the transfer in the amount of $987,450; interest in the amount of $284,810.98 and penalty tax in the amount of $49,372.50. A letter from the Commissioner accompanying the notice of assessment advised inter alia:
Following investigation, it was found that the land rich entities provisions in Part 4 of the Stamp Duties Act 1923 apply to the acquisition of shares by Balgra and PI Enterprises and that an outstanding liability to stamp duty exists.
As previously mentioned, this Office does not accept that the $8,293,531 difference in the valuations of Optus House by Jones Lang LaSalle in their report dated 8 December 2004 relates to the value of tenancies. Rather, this Office has used the value of Optus House as determined by First Pacific Davies in their Valuation Report dated September 1999 in the stamp duty calculation.
On 24 February 2006, pursuant to section 82 of the Taxation Administration Act 1996 (SA), Balgra objected to the assessment the subject of this appeal. As required by section 93 of the Taxation Administration Act, Balgra has paid the stamp duty, penalty tax and interest that is the subject of this appeal.
Preliminary Observations
The Nature of the Appeal
Section 3 of the Stamp Duties Act provides that it should be read in conjunction with the Taxation Administration Act. Section 2 of the Stamp Duties Act defines an assessment to be as defined in the Taxation Administration Act. The notice of objection was lodged. The Treasurer made a determination. An appeal to this court from the Treasurer’s determination lies as of right pursuant to section 92 of the Taxation Administration Act. This Court is empowered to confirm or revoke the assessment, make a new assessment, make an order for payment of tax or any further order as to costs or otherwise as this Court thinks fit.
This appeal is not an appeal strictly so-called. It is an appeal de novo, to be conducted against the background that there has been no prior hearing. The Stamp Duties Act contemplates a full hearing inter partes, with each party having the opportunity to tender evidence, to test opposing evidence, and to present submissions. An analogous situation arises in regard to appeals under the Valuation of Land Act 1971 (SA), and guidance can be obtained from authorities dealing with appeals under that Act. In Fenton Nominees v Valuer-General,[2] Jacobs J observed:
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.
[2] Fenton Nominees v Valuer-General (1982) 29 SASR 348 at 355. See also Myer v SA Stores Pty Ltd (1986) 40 SASR 102.
Stamp Duties Legislation
In Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd,[3] Gleeson CJ and Gummow, Kirby and Hayne JJ restated certain fundamental principles concerning stamp duties legislation:
In considering the true construction of [Stamp Duties Legislation] two principles must be kept in mind. First, the statutory provisions in question in this case impose a duty on instruments, not on transactions. Secondly, liability to duty arises because the dutiable instrument transfers an estate or interest in real property, and it is by reference to the value of that which is transferred that duty is imposed.
Those two principles were applied by Mason J in DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW):
“It is a fundamental principle of the law relating to stamp duties that duty is levied on instruments, not on the underlying transactions to which they give effect ... [I]n the case of a conveyance the statutory command is that it attracts duty on the property conveyed; in the case of the declaration it attracts duty on 'the property comprised therein'. Consequently the issues are: (1) What was the property conveyed by the transfer?; and (2) What was the property comprised in the declaration? The decision on these issues hinges on the interpretation of the two instruments, that is, on the description given by them of the relevant estate or interest as applied to the facts of the case. It is a matter of ascertaining what is the property with which each instrument deals, according to its terms.
We cannot substitute for the issues prescribed by the statute a different issue having no foundation in the statutory provisions. Nor can we substitute for the property which the parties have chosen by their instruments to convey and make the subject of a declaration of trust the interest in property which in a practical sense represents the alteration in [the transferor's] position brought about by the combined operation of the two instruments.”
[3] Commissioner of State Revenue v Pioneer Concrete (Vic) Pty Ltd (2002) 209 CLR 651 at [34]–[35] (footnotes omitted).
The approach to the interpretation to taxing or fiscal statutory provisions has been the subject of extensive judicial comment. In Cooper Brooks (Wollongong) Pty Ltd v Federal Commissioner of Taxation,[4] Mason and Wilson JJ confirmed the approach to be taken to the interpretation of a taxing statute:[5]
The fundamental object of statutory construction in every case is to ascertain the legislative intention by reference to the language of the instrument viewed as a whole. But in performing that task the courts look to the operation of the statute according to its terms and to legitimate aids to construction.
The rules, as D C Pearce says in Statutory Interpretation, p 14, are no more than rules of common sense, designed to achieve this object. They are not rules of law. If the judge applies the literal rule it is because it gives emphasis to the factor which in the particular case he thinks is decisive. When he considers that the statute admits of no reasonable alternative construction it is because (a) the language is intractable or (b) although the language is not intractable, the operation of the statute, read literally, is not such as to indicate that it could not have been intended by the legislature.
On the other hand, when the judge labels the operation of the statute as “absurd”, “extraordinary”, “capricious”, “irrational” or “obscure” he assigns a ground for concluding that the legislature could not have intended such an operation and that an alternative interpretation must be preferred. But the propriety of departing from the literal interpretation is not confined to situations described by these labels. It extends to any situation in which for good reason the operation of the statute on a literal reading does not conform to the legislative intent as ascertained from the provisions of the statute, including the policy which may be discerned from those provisions.
…
The fact that the Act is a taxing statute does not make it immune to the general principles governing the interpretation of statutes. The courts are as much concerned in the interpretation of revenue statutes as in the case of other statutes to ascertain the legislative intention from the terms of the instrument viewed as a whole.
[4] Cooper Brooks (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1980) 147 CLR 297.
[5] Cooper Brooks (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1980) 147 CLR 297 at 320-321, 323. See also Pearce & Geddes, Statutory Interpretation (6^th ed, 2004) at [9.40].
The Nature of a Leasehold Interest
A lease is an estate or interest in land. An estate is something separate from land and originally connoted an interest that entitled the holder to seisin, that is, legal possession, of the land.[6] Texts categorise estates into freehold and less than freehold. Freehold estates are of indefinite duration. A leasehold estate is of certain duration.[7] The correct nomenclature for a lease as an estate or interest has been the subject of some academic discourse. A lease, at times, has somewhat anomalously been classified as personalty, in particular as a chattel real, as a consequence of its historical development.[8]
[6]    Butt, Land Law (5th ed, 2006) at [603]-[605].
[7]    Butt, Land Law (5th ed, 2006) at [615].
[8]    Butt, Land Law (5th ed, 2006) at [617].
A lease was considered to be personal property or a chattel because the old common law “real actions” would not allow a dispossessed lessee to recover possession, but restricted a lessee to a claim for a breach of the lease contract and consequentially to claims for money or damages. Only a person entitled to seisin could recover possession by way of a real action. The “res” itself, hence property which could be recovered in this manner became “real property”.[9] This situation changed with the evolution of real actions, and in particular the action of ejectment, to allow a dispossessed lessee to bring an action for possession of land.[10]
[9] Butt, Land Law (5th ed, 2006) at [618].
[10] Butt, Land Law (5th ed, 2006) at [619].
The non-payment of rent may still entitle a lessor to bring causes of action of a proprietary nature. Examples include an action for forfeiture of a lease or, as is still possible in South Australia, distress for rent. The means of enforcing a covenant to pay rent are broader than those available for a simple breach of contract. This evidences the fundamental proprietary nature of a lease and the concomitant rights and obligations that arise from a lease.
If a lessor assigns the “reversion” to leased land and thereby conveys the estate in fee simple subject to the existence of the lease, the benefit of the obligation to pay rent under the lease is conveyed to the assignee of the reversion such that there is privity of estate between the assignee and the lessee. The obligation to pay rent is an obligation that has reference to the subject-matter of the lease, or in what has been held to be a synonymous formula, that “touches and concerns” the land.[11]
[11] Butt, Land Law (5th ed, 2006) at [15159].

For the purpose of the doctrine of estates the lessor’s estate is not strictly a reversion, although commonly referred to as one, or, alternatively, a reversion in a restricted sense.[12] A reversion is a future interest.[13] A lessor always has seisin or legal possession of an estate, but only has a “reversion” in relation to physical possession.
[12] Butt, Land Law, (5th ed, 2006) at [606] and [623].
[13] Megarry and Wade, The Law of Real Property, [3-017].
The Valuation Evidence
The authors of the valuation reports were called to give evidence on the appeal. Both were appropriately qualified experts.
The First Pacific Davies valuation was prepared in September 1999. The author had regard to the income stream generated from the leasing of the property in reaching his valuation. He treated that information as directly relevant to his valuation of real property. The author gave evidence that this was the usual and appropriate method of valuation of a property of this nature. There was no challenge to the appropriateness of his conclusion of a value of $20,000,000 using this methodology.
The Jones Lang LaSalle valuations were prepared in December 2004. The valuation, performed on the basis of the leases in existence in October 1999, led to a valuation of $18,658,453. This figure was accepted as comparable to that arrived at by First Pacific Davies. The author considered the First Pacific Davies valuation as reasonable. If this was the appropriate valuation methodology, Balgra accepted that $20,000,000 was the appropriate valuation.
The Jones Lang LaSalle alternative valuation was made on the instructed assumption that Optus House was untenanted in October 1999. The author explained that he did not know why he had been so instructed but he proceeded to prepare a valuation on this hypothesis. The instruction was presumably given in an attempt to simulate a situation where rental income was not treated as relevant to the valuation of the real property.
The instructions presented a methodology difficulty. The author had on no prior occasion been asked to make a valuation on such an assumption. Notwithstanding the assumption the author employed the valuation methodology of assessing the present day value of a future rental income stream. This methodology paradoxically appeared to directly contradict his instruction. However, this was the only methodology that could, in the author’s view, be adopted. He assumed the building to be untenanted and then assessed value having regard to the period over which and the terms on which the building could be tenanted. The author explained that the hypothesis meant that one had to consider the difficulty of finding tenants, offering incentives and then to allow for the delays in tenanting the building. Unsurprisingly, this led to the much reduced value. Counsel for Balgra accepted the apparent paradox but contended that this was a direct result of the relevant wording of the Stamp Duties Act. The hypothetical valuation exercise conducted by Jones Lang LaSalle and the difficulties confronted might suggest that Balgra’s approach to the case involved a fundamental misapprehension of the meaning of real property.
The Appeal
Two principal issues arise for determination - whether Balgra was obliged to lodge a statement with the Commissioner with respect to the acquisition of the Longreef shares - and if Balgra was correct that the only real property acquired was the owner’s right of reversion, what was the value of that right? At the core of this appeal lies the construction of section 94 of the Stamp Duties Act, and in particular, the meaning and reach of the expression “real property”.
Balgra’s case turned on the meaning of the expression “real property”, used in section 94 of the Stamp Duties Act. It was contended that Longreef’s interests in Optus House as lessor in respect of the leases to tenants had two separate and distinct components – the present value of rental entitlements and the present value of the interest in the reversion.
Balgra submitted that the totality of the real property to which Longreef was entitled at the date of the transfer was the estate in reversion, being the present right to resume the exclusive possession of Optus House at the end of the term of each lease. It was argued that the entitlement to rent was not real property, and accordingly, should be excluded from any valuation of the real property. It was said that Longreef had a mere contractual entitlement to receive rent, that this was given in exchange for the transfer of the real property, and was not real property. It was contended that therefore the entitlement to a rental income stream should be excluded from a consideration of the unencumbered value of the real property under section 94 of the Stamp Duties Act.
Balgra accepted that the relevant dutiable instrument was the statement lodged pursuant to section 94 of the Stamp Duties Act. It was also accepted that a statement was required to be lodged and assessed on the satisfaction of all of the conditions pursuant to section 94. Balgra submitted, however, that the requirement of section 94(b)(i) had not been fulfilled as the unencumbered value of the real property to which it was entitled was less than 80 per cent of the unencumbered value of all of the property to which it was entitled. Accordingly, Balgra contended that it should not have been required to lodge with the Commissioner a statement in respect of the acquisition.
The Commissioner submitted that a lease is an estate or interest in land. A leasehold estate is of certain duration, and is to be contrasted with a freehold estate, which is of indefinite duration. It was said that the nature of a lessor’s and a lessee’s rights and interests in land are proprietary in the sense that either can, in appropriate circumstances, take action to recover possession of the land. It was contended that for the purposes of Part 4 of the Stamp Duties Act, a lease, as a species of real property, should be understood as denoting the entirety of the constellation of rights and obligations created by the lease.
The Commissioner further submitted that a lessor of leased fee simple land has an estate in fee simple in possession, that is seisin, but not physical possession. It is the estate in fee simple that gave the owner the advantage of an ability to lease land for profit, and entitled the owner as lessor, holding an estate in fee simple in possession, to the rents and profits of the leased land. It was argued that the receipt of rents and profits was an incidence of ownership of an estate in fee simple, and to characterise the right as merely contractual was artificial, unjustified, and wrong in law.
In City Mutual Life Assurance Society Ltd v Smith,[14] the High Court was required to determine whether a mortgage of land was to be regarded as real property for the purpose of section 25 of the Real Property Act 1900 (NSW). Dixon J observed:[15]
“Real property” is an expression of known legal import equivalent to “real estate,” which is a term of art. Unless the context or subject matter requires some other interpretation, it should be understood in a statute according to its legal meaning.
[Emphasis added]
[14] City Mutual Life Assurance Society Ltd v Smith (1932) 48 CLR 532.
[15] City Mutual Life Assurance Society Ltd v Smith (1932) 48 CLR 532 at 541.
Starke J, with whom Evatt J agreed, summarised the common law position as follows:[16]
Lands, tenements and hereditaments are at common law subjects in which estates may subsist, and “it was not until the feudal system had lost its hold that lands and tenements were called real property and goods and chattels personal property.” … Consequently the expressions real property, real estate, land, had in common (subject to any special context) a technical meaning in the law, and all denoted rights in property that could be recovered by real actions, long since abolished. These actions were applicable only to land, and only to such interests in land as carried seisin or the possession of freeholders. … A mortgage of real property was therefore a conveyance of land as a security for the payment of a debt or the discharge of some other obligation. … “It consists of two things; it is a personal contract for a debt secured by an estate, and in equity, the estate is no more than a pledge or security for the debt.” ... A sub-mortgage, in its usual form, transferred the original mortgage debt and mortgaged property subject to redemption, with the benefit of the power of sale and other powers and remedial clauses contained in the original mortgage, and also contained the personal covenant of the mortgagor. .... If the mortgaged property transferred or conveyed consisted of land, then the transaction in my opinion constituted a mortgage of the real property.
[16] City Mutual Life Assurance Society Ltd v Smith (1932) 48 CLR 532 at 539.
Under section 91 of the Stamp Duties Act, as earlier observed, real property is defined, unless the contrary intention appears, to include for the purposes of Part 4 any estate or interest in land (including a mining tenement), whether the land is situated in the State or elsewhere, but does not include the estate or interest of a mortgagee, chargee or other encumbrancee in land or an interest arising by virtue of a warrant, writ or lien.
This definition of “real property” includes leasehold interests. A lease creates a proprietary estate in the lease of land in favour of the lessee. A lessor of a valid grant of a lease already holds a proprietary interest, usually an estate in fee simple, but a lease can be granted by the holder of some other estate such as a lessee or the holder of a life estate. The nature of the lessor’s and lessee’s rights or interests in land are proprietary in the sense that either can, in appropriate circumstances, bring an action to recover possession to land.
In terms of its classification as real or personal property, a lease is a hybrid form exhibiting features of both categories. A lease is a contract and as such has a “personalty” nature as a “chattel”, but it also creates proprietary interests in land and as such has a “real” nature. A rental entitlement is proprietary in nature as it stems directly from the proprietary rights or incidents of the reversionary estate in fee simple of a lessor to exploit and profit from ownership of land.
The lessor of fee simple land has an estate in fee simple in possession, but not physical possession. Historically this has been called seisin. That estate gives the lessor the advantage of an ability to lease the land for profit and entitles the lessor to the rents and profits from the leased land.[17] The receipt of rents and profits are an incidence of ownership of an estate in fee simple. Defining the right to receive rent as a contractual right is incomplete, theoretically unjustified, and could be described as artificial.
[17] Perpetual Trustee Co Ltd v Valuer-General; Trust Co of Australia Ltd v Valuer-General (No 2) [2007] SASC 340 [20]-[23].
At times land law has characterised the obligation to pay rent as arising on a contractual basis from an agreement between lessor and lessee to lease land, in comparison to the stricter, medieval common law notion of rent as being “reserved or arising out of” the land itself.[18] But this view of how an obligation to pay rent is created does not entail the conclusion that such an obligation in a lease should be characterised as personalty, rather than proprietary in nature. To the contrary, the right to receive rents from land is properly characterised as an incidence of the ownership of an estate in fee simple. Contracting with a lessee to create an obligation for the payment of rent is a means of exploiting this proprietary right.
[18] Butt, Land Law (5th ed, 2006) at [1588]; Commissioner of Stamp Duties v Commonwealth Funds Management Ltd (1995) 38 NSWLR 173 at 176 and 180-181.
An estate in fee simple gives to the holder a bundle or constellation of rights. Possession, or the right to it, is one of the incidence of ownership of an estate, in fee, albeit a very important and valuable one. The rights to lease, to receive rents and profits, to mortgage or charge, and to develop are further examples. A right to physical possession when granted in exchange for rent does not reduce the estate in fee simple or its value in the hands of the owner. It is correctly viewed as the way in which the owner has chosen to exploit the undiminished estate in fee simple.
Conclusion
The property known as Optus House is real property. The owner as the holder of the fee has a bundle of rights. These include the right to lease the property for consideration. The lessor’s right to lease the property, when exercised, is an incidence of and forms part of the real property. The Jones Lang LaSalle valuation of $10,400,000, which does not take into account rental income, is rejected as an inappropriate valuation. The First Pacific Davies $20,000,000 valuation is the appropriate and correct valuation for the purposes of ascertaining Balgra’s section 94 obligations. It is the relevant valuation for assessing stamp duty.
Balgra was legally required to lodge a statement with the Commissioner in respect of its acquisition of the Longreef shares. The Commissioner’s assessment of stamp duty was correct.
This appeal is dismissed.