Bellbird Park Developments Pty Ltd v Department of Natural Resources and Water
[2009] QLC 111
•31 July 2009
LAND COURT OF QUEENSLAND
CITATION: Bellbird Park Developments Pty Ltd v Department of Natural Resources and Water [2009] QLC 0111 PARTIES: Bellbird Park Developments Pty Ltd
(appellant)v. Chief Executive, Department of Natural Resources and Water
(respondent)FILE NO: RV2006/0116, RV2006/0117, RV2006/0118, RV2006/0119, AV2006/0120, AV2006/0121, RV2007/0087, RV2007/0088, AV2007/0089, AV2007/0090, RV2007/0091, RV2007/0092 DIVISION: Land Court of Queensland PROCEEDING: Appeals against the Annual Valuations of land and the valuations for rental purposes under the Valuation of Land Act1944
DELIVERED ON: 31 July 2009 DELIVERED AT: Brisbane HEARD AT: Cairns MEMBER: Mr RP Scott ORDER: The appeals are each allowed and the valuation in each appeal is determined as follows:
RV2006/0116 $932,000
RV2006/0117 $143,500
RV2006/0118 $72,500
RV2006/0119 $600,000
AV2006/0120 $1,148,000
AV2006/0121 $600,000
RV2007/0087 $143,500
RV2007/0088 $72,500
AV2007/0089 $600,000
AV2007/0090 $1,148,000
RV2007/0091 $932,000
RV2007/0092 $600,000CATCHWORDS: Valuation of Land Act1944 – s.35(3) permits the value of aggregation to be apportioned to individual tenures held from the State
Valuation of Land Act 1944 – s.3(1)(b) – permitted to take account of common ownership of lands in valuing land unimproved
APPEARANCES: Mr D O’Brien (instructed by Mr P Bittner of HWL Ebsworth Lawyers) for the appellant in each appeal
Mr SP Fynes-Clinton (instructed by Director, Legal Services, Department of Natural Resources and Water) for the respondent in each appealBackground
Ellis Beach lies about 30 km north of Cairns Central Business District and about 3 km north of Palm Cove. On the eastern side and fronting the Captain Cook Highway at Ellis Beach lies a caravan park site whilst on the opposite side of the highway there is a bar and grill (also referred to as a kiosk) together with accommodation units (the bar and grill site). Valuations concerning these two sites were carried out by the Chief Executive as at relevant dates of 1 October 2004 and 1 October 2006 pursuant to the provisions of the Valuation of Land Act 1944. Both the caravan park and bar and grill sites comprise tenures granted under the provisions of the Land Act 1994. Accordingly, valuations are required for the purposes of assessing rental of the relevant tenures in addition to the usual annual valuation which is employed for local authority rating purposes and land tax, where applicable.
These reasons are concerned with a number of appeals arising with respect to the caravan park and bar and grill sites. The bar and grill site is described as Lot 13 on CP NR 5512 having an area of 9.763 ha. The whole of the bar and grill site is held as a lease in perpetuity commencing on 1 January 1973.
The caravan park site comprises a larger Term Lease together with a number of smaller Road Licences. The Term Lease is described as Lot 22 on SP 147762-TL 18347 having an area of 1.0030 ha. Abutting the east of the Term Lease lies Road Licence 218811 (the beachfront Road Licence). It comprises Lot 1 on AP 8322 and Lot 3 on AP 8322 having areas of 0.1380 ha and 0.1050 ha (totalling 2,430m²) respectively. Abutting the west of the Term Lease is Road Licence 218344 being Lot 2 on AP 8332 having an area of 0.7160 ha (the highway frontage Road Licence). In company with Counsel I inspected the subject lands as well as various sales properties referred to in the evidence. These inspections assisted me in my appreciation of the evidence.
The bar and grill site is of irregular shape with a narrow strip of near level land available for development abutting the road frontage of the Captain Cook Highway, the balance being heavily timbered very steep land. The Term Lease in the caravan park site is a narrow site with an average length of 385 metres and average width of 24 metres. The beachfront Road Licence where it is described as Lot 1 (the northern part of the Road Licence) is very narrow with a length of about 310 metres and an average depth of 4.5 metres. Lot 3 in the beachfront Road Licence towards the south has a length of about 66 metres and an average depth of 16 metres. The highway frontage Road Licence is also narrow, having an average length of about 400 metres and an average width of 18 metres.
Improvements on the caravan park site include 24 demountable beachfront cabins; 35 non-beachfront caravan sites; 20 non-beachfront tent sites; three amenities blocks; and a reception and shop with staff facilities and storage together with an in-ground swimming pool. The bar and grill site is improved by four permanent non-beachfront cabins; the bar and grill building; and a package sewerage treatment plant and water supply tanks and equipment, both of which also service the caravan park.
The use of the two sites is described in exhibit 5 page 5 as follows:
“The Ellis Beach Caravan Park is limited to Tourist Accommodation pursuant to the terms of its lease, it is an operation that is seasonal and relies on short stays from tourists who are generally on extended tours of North Queensland, from some backpackers and budget holidaymakers. Permanent occupation of the site for long term accommodation is not permitted pursuant to the limitations on use.
The business provides Cabin Accommodation, caravan and tent sites. The location of the property being subject to the vagaries of the weather is subject to low occupancy rates during times of high winds and inclement weather.
The winter months and school holidays are the High Season for this business, and low seasons see occupancies fall to a range of 15-20%.
The Bar and Grill is run with the caravan park as this is the only commercial food outlet within the Ellis Beach area, I am advised by the Lessee that a large proportion of the custom for the Bar and Grill operation is from the Caravan Park clientele.
The Caravan Park and Bar and Grill are interdependent components of the same business and each one is interdependent upon the other, individually they would struggle to be viable independently of the other.”
Appeals[1] relating to the bar and grill site, which are the subject of these reasons, were as follows: valuations as at 1 October 2004: AV2006/0121 and RV2006/0119; valuations as at 1 October 2006: AV2007/0089 and RV2007/0092.
[1] AV means annual valuation for rating and taxing purposes; RV means rental valuation for the purposes of rental under the Land Act 1994.
For the bar and grill site the notified valuation[2] as at 1 October 2004 was $1,100,000 whilst before me the Chief Executive led evidence to a valuation of $900,000. In the appellant’s notice of appeal the estimate of value was $485,000 whilst before me the appellant contended to a figure of $500,000. For the valuation as at 1 October 2006 the notified valuation was $900,000 whilst the appellant’s figure in the notice of appeal was $485,000. Before me the parties led evidence to the same valuation figures contended for with respect to the 2004 valuations. That is, the parties drew no distinction between the level of values which should apply for the 2004 and 2006 valuations for either the annual valuation or the rental valuation. Accordingly, I simply refer in discussion in these reasons to the appeals as being with respect to the bar and grill site.
[2] In the Notice of Valuation provided by the Chief Executive to the appellant.
For both 1 October 2004 and 1 October 2006 there are four appeals with respect to the caravan park site. One appeal for each relevant date relates to the aggregated site for the annual valuation whilst the other three relate to the rental valuation for each of the Term Lease and the two Road Licences.
The appeals with respect to the caravan park site for the 1 October 2004 valuation were: AV2006/0120 relating to the aggregated site for the purpose of the annual valuation; RV2006/0116 relating to the Term Lease; RV2006/0117 relating to the beachfront Road Licence and RV2006/0118 relating to the highway frontage Road Licence. For the valuations as at 1 October 2006 the respective appeals for each of the properties in the same order as that just listed is AV2007/0090; RV2007/0091; RV2007/0088 and RV2007/0087.
For AV2006/0120 and AV2007/0090 the notified valuation for the annual valuation for the aggregated site was $1,800,000 and $1,600,000 whilst the appellant said in its notice of appeal that the figure ought to be $660,000. Before me, the Chief Executive led evidence to a value of $1,600,000 whilst the appellant contended for a valuation of $670,000.
For appeal RV2006/0116 the 2004 notified valuation for the Term Lease was $1,400,000, the appellant including a figure of $480,000 in its notice of appeal. The Chief Executive led evidence to a value of $1,300,000 and the appellant to $500,000. For the 1 October 2006 valuation of this lease (RV2007/0091) the notified rental valuation was $1,300,000 and the notice of appeal included a figure of $480,000 for the appellant. Before me, the parties led evidence to the same valuation figures as for the 2004 appeal.
For appeal RV2006/0117 the 1 October 2004 notified valuation for rental purposes for the beachfront Road Licence was $270,000, the appellant including a figure of $120,000 in its notice of appeal. Before me, the Chief Executive contended to a figure of $100,000 and the appellant to $60,000. In the 2006 valuation of this tenure (RV2007/0088) the notified statutory valuation was $100,000 and the appellant’s notified figure was $60,000. Each led evidence to those figures before me.
In appeal RV2006/0118 the notified valuation for 1 October 2004 for the highway frontage Road Licence was $130,000, the appellant notifying a figure of $60,000. The Chief Executive led evidence to a valuation of $200,000 and the appellant to a figure of $110,000. In the 2006 valuation of this tenure (RV2007/0087) the notified valuation was $200,000 and the appellant’s figure in its notice of appeal was $120,000. Before me the parties led evidence to the same valuation figures as for the 2004 valuations.
The appellant called the following witnesses:
Mr John Olive a registered valuer provided valuation evidence including a combined report with respect to both the bar and grill site and the caravan park site.
Mr Peter Norman Leslie Perkins, civil engineer, provided evidence flowing from his work as a consultant to the owners of the bar and grill site regarding a proposed development.
Professor John Robert Brannock, town planner, provided evidence concerning the potential for development of the bar and grill site focusing particularly on the valuation for the Chief Executive.
Mr Peter James MacNamara, acting manager of Corridor Management, Department of Main Roads, provided evidence concerning that Department’s intentions regarding the Cook Highway in the area of the subject lands.The respondent called the following witnesses:
Mr Edesio Michele Migliorini a registered valuer provided valuation evidence including reports with respect to both the bar and grill site and the caravan park site.
Mr Gary John Innis, Manager Planning for the Environmental Protection Agency in Cairns gave evidence relating to EPA interest in a development of the bar and grill site.
Mr Peter Robinson, town planner, gave evidence touching on issues in common with the evidence of Professor Brannock.
CaravanPark – legal basis of valuation
The parties approached their valuations for the caravan park site on different bases. Mr Olive’s instructions required him to “undertake separate valuations of the land the subject of each lease or licence”. Mr Olive prepared his valuation on the basis of that instruction and in so doing saw himself to be bound by s.14 of the Valuation of Land Act which relevantly provides:
(1)For the purpose of deciding the unimproved value of land that is not granted in fee simple, the land is taken to be land granted in fee simple.
(2)In deciding the unimproved value of land held under a lease from the State that is subject to a restriction, limitation or other onerous covenant or condition, the chief executive must not take into account the restriction, limitation, covenant or condition.
…
(5)In making, under this part, the valuation of the unimproved value of any land—
…
(b) in a lease, licence, permit or permission to occupy under the Land Act 1994 or granted or issued by the coordinator-general or the chief executive of the department responsible for the administration of the Forestry Act 1959; or
…
the unimproved value of that land shall be determined having regard to and making proper allowance for any restriction or limitation of use having regard to the purpose and conditions to which that permit, lease, licence permission to occupy, agreement or determination is subject.
In carrying out his valuation task, having in mind the relevant parts of s.14 together with his instructions, Mr Olive valued each of the tenures in the caravan park site as if granted in fee-simple and “making proper allowance for any restrictions or limitation of use of each”. Proceeding in this manner he valued each tenure on the understanding that other tenures in the caravan park site were not treated as freehold and suffered all of the limitations of which he was aware, not being limitations confined to those provided for in s.14(5)(b). He said in his valuation report that “none of the sites represents a viable holding in isolation from adjoining sites and therefore any marriage value”, which might be said to apply if the caravan park site with its aggregated components formed the basis of the valuation, was disregarded.
In conducting his valuation in that manner, Mr Olive arrived at a valuation for the Term Lease in the caravan park site at $500,000/ha, for the beachfront Road Licence at $250,000/ha and for the highway Road Licence at $150,000/ha. His valuations for the component tenures of the caravan park site were: the beachfront Road Licence $60,000; for the highway frontage Road Licence $110,000; for the Term Lease $500,000; and for the aggregated caravan park site a figure of $670,000.
Whereas Mr Olive’s aggregated valuation of the caravan park site of $670,000 was arrived at by adding the individual value of each component tenure in that site, Mr Migliorini approached his valuation by first valuing the aggregated site upon which he placed a figure of $1,600,000 on the basis that it was fee-simple (s.14(1)) but having regard to “any restriction or limitation of use” (s.14(5)(b)). Following that and employing a methodology that I come to in due course, he then broke that valuation figure into the various figures which the Chief Executive applied to the tenure components of the caravan park site: $1,300,000 for the Term Lease; $200,000 for the beachfront Road Licence and $100,000 for the highway frontage Road Licence.
Before I come to the purported statutory basis of Mr Migliorini’s valuation method, useful reference should be made to some fundamental provisions in the Act. Section 13 imposes the duty and the power in the Chief Executive to make statutory valuations:
13 Chief executive to make valuation
The chief executive must decide the unimproved value of the land to be valued for the Acts under which local authorities are established.
Section 15(1) provides that it is the unimproved value that is the value used to determine rent applying to a lease, licence or permit:
15Valuation for rental purposes
(1) The value to be used to determine the rent applying to a lease, licence or permit under the Land Act 1994 is the unimproved value under this Act.
I understand s.15(1) to mean that it is the unimproved value of the individual lease, licence or permit that is the source of the value for rental purposes. The idea that it is the value of the individual lease, licence or permit that is the relevant value for rental purposes is repeated elsewhere in the Act; namely ss34 and 35. For example, s.35(2) provides:
(2)The valuation for rental purposes of land in a lease, licence or permit under the Land Act 1994 is to be a valuation of all the land even if separate valuations of parts of the land are made for another purpose.
I have included the headings from s.13 and s.15 quoted above. The terms “valuation”, and “valuation for rental purposes” are defined in s.2:
valuation means valuation under this Act.
valuation for rental purposes means the valuation under section 15 of land in a lease, licence or permit granted or issued under the Land Act 1994.
Whilst the term “valuation” can be used to refer to a report prepared by a valuer or the method employed by him, in the present context it is clear that it refers to the final monetary figure decided by the Chief Executive.
It is clear then that the valuation for rental purposes is the single value of the individual lease, licence or permit, even though for other purposes, such as local authority rating, the value of a lease, licence or permit, may, if justified by the Act, be incorporated with other parcels of land in an aggregate valuation.
Mr Migliorini’s approach was submitted for the respondent to be supported directly by s.35 of the Valuation of Land Act which relevantly provides:
35Separate valuation
(1) Unless the chief executive otherwise directs—
…
(c)where land in respect of which 1 valuation would otherwise be made under this Act—
…
(iv) is being valued for rental purposes;
…
the parts that are in such separate areas, divisions or categories, or the part that is rateable, or the part that is valued for land tax or rental purposes, shall be separately valued.
…
(3) Where, by direction of the chief executive, the 1 valuation is made of any land to which subsection (1)(c) applies, that valuation shall be apportioned amongst the parts of that land specified in the applicable provisions of that subsection and, subject to this subsection, the amount of that valuation apportioned to such a part shall be deemed to be the valuation thereof made under this Act.
In Barbon v Chief Executive, Department of Lands[3] the Learned Member expressed the view, with which I agree, that “… where a direction by the Chief Executive is required under the Act, that should be interpreted to the effect that he directs or instructs himself”. It is not disputed by the appellant that Mr Migliorini holds a statutory delegation from the Chief Executive under the Act to direct himself with respect to s.35(3), but the appellant’s position is that no discretion arose permitting the operation of s.35(3).
[3] (AV95/385 & Ors) 22 March 1996.
It was submitted, correctly in my view, that for s.35(3) to be activated by Mr Migiliorini, s.35(1)(c) must first be satisfied. That is, the circumstances must be such that “… 1 valuation would otherwise be made under this Act”. Reference should now be made to s.34 which relevantly provides:
34Lands to be included in 1 valuation
(1) Unless the chief executive otherwise directs, there shall be included in 1 valuation—
(a)several parcels of land which adjoin, and are owned by the same person, and where either no part is leased or all the parcels are let to 1 person;
For s.34(1)(a) to authorise the 1 valuation a number of requirements must be met:
1.There must be no contrary direction by the Chief Executive.
2.There must be several parcels of land which adjoin.
3.They must be owned by the same person.
4.No part is leased or all of the parcels are let to 1 person.
The parties agree that requirements 1 and 2 are met in this case. They also agree that requirement 3 is met, but for different reasons. I will first deal with the reasoning relied upon by the respondent. That requires reference to the definition of “owner” in s.7 which relevantly provides:
7Meaning of owner
(1) An owner of land is the person who—
(a)is entitled to receive the rent for the land; or
(b)would be entitled to receive the rent for the land if it were leased at a rack-rent.
(2) However, an owner does not include the State, but includes—
…
(c)a lessee of land held from the State, and any manager, overseer or superintendent of the lessee who resides on the land;
…
(f)the holder of—
(i) an occupation permit or stock grazing permit under the Forestry Act 1959; or
(ii) a permission to occupy under the Land Act 1994; and
(g)a licensee under the Land Act 1994.
The leases of the bar and grill site and the Term Lease in the caravan park site, respectively, are covered by s.7(2)(c), whilst either s.7(2)(f)(ii) or (g) deal with the Road Licences. The submissions for the respondent is therefore that as these tenures are owned by the appellant, requirement 3[4] of s.34(1)(a) is satisfied.
[4] See [29].
The reasoning put for the appellant makes no reference to the definition of “owner”, but proceeds on the basis that the subject parcels of land are “owned” by the State and are leased/licensed to the appellant. That submission places some reliance on s.34(2), (2A) and (2B):
(2)However, any such parcels of land shall be valued separately if buildings are erected thereon which are obviously adapted to separate occupation and which may respectively be lawfully held under separate ownerships.
(2A)Subsection (2) applies to—
(a) a lease from a GOC, of land leased by the GOC—
(i)from the State; or
(ii)from a lessee of the State; and
(b) a lease from a department of the State or an entity representing the State, of land leased by the department or entity from the State.
(2B)Otherwise, subsection (2) does not apply to a lease of land from the State.
It was submitted that s.34(2B) would not be necessary unless s.34(1)(a) is understood as referring to the State as the owner. I do not accept that reasoning. It seems to me that s.34(2) provides an exception to s.34(1) but only with respect to tenures of the type referred to in s.34(2A) and not to leases from the State (s.34(2B)).
A significant difficulty resulting from the construction placed on s.34(1)(a) by the appellant is that it would lead to s.35(3) being a redundant provision – one that could not be employed. The construction suggested by the respondent does not suffer that defect. In addition, the respondent’s approach does not start from the novel basis that the State as owner could have its State land valued for the purpose of local authority rates or State land tax to which it is not subject.[5]
[5] See s.13.
There were further submissions from the appellant as to the meaning of “leased” and “let” in s.34(1)(a). I need not deal with those submissions as their utility depends on the notion of the owner of the land, for the purposes of that provision, being the State. The evidence is that the appellant owns each of the adjoining parcels of land in the caravan park and that none of it is leased or let.
I should, before leaving this topic, refer to s.34(3):
(3)Despite section 35, subsection (1) applies to valuations used for rating and land tax purposes and does not apply to valuations for rental purposes.
The effect of this provision is clearly not one of nullifying the effect of s.35(3). I have referred above to s.15(1) and s.35(2) which indicate that the rental value of a lease, licence or permit is to be based on the valuation of the individual tenure. Section 34(3) reinforces that by providing that a single valuation of a number of adjoining parcels is not a valuation for rental purposes. Section 35(3) on the other hand, permits a method of valuation for rental purposes where a single valuation exercise is carried out and where “the Chief Executive … directs”. The result of the use of the method authorised by s.35(3) is the production of individual valuations of individual leases, licences or permits.
It follows that I accept that Mr Migliorini’s valuation of the caravan park proceeded on a basis accepted by the statute as being valid. He held a statutory delegation to initiate the operation of s.35(3) and the statutory pre-requisites were in place permitting his exercise of that delegated power. Whilst the method employed by Mr Olive would be valid if Mr Migliorini had not so acted, the effect of Mr Migliorini’s decision to implement s.35(3) is to render Mr Olive’s approach statutorily invalid.
Water and sewerage services to caravan park
Mr Migliorini approached his valuation of the caravan park land on the assumption that sewerage and water services made available to that land from the bar and grill site would continue, although he says in his valuation report that he has conservatively valued the caravan park land for reasons including the “co-dependency (with the bar and grill site) in the provision of potable water and treatment of waste water (sewerage)”. It was submitted for the appellant, without reference to authority, that Mr Migliorini should have valued each of the sites as if they were owned separately.[6] The respondent did not cavil with that proposition, but submitted that there was authority to support Mr Migliorini’s approach. Various authorities,[7] were referred to by the parties as being relevant to this issue. Each of these authorities was concerned with the question of the continuation of access to the land being valued over adjoining land owned by someone other than the owner of the land being valued. I do not think that any of those authorities are relevant to the question before me.
[6] Accepting for the purpose of that submission his valuation of the caravan park tenures as an aggregation.
[7] Olm v Department of Natural Resources and Water [2008] QLC 004, Beckingham v Department of Natural Resources, Mines and Energy [2004] QLC 0018, Logform Industries Pty Ltd v Chief Executive, Department of Lands [1994] 15 QLCR 141 and Tardent v Department of Natural Resources, Mines and Water [2008] QLC 0186.
Unimproved value of improved land for the purposes of the Valuation of Land Act is defined in s.3(1)(b):
(1)For the purposes of this Act—
unimproved value of land means—
…
(b) in relation to improved land—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, at the time as at which the value is required to be ascertained for the purposes of this Act, the improvements did not exist.
The test of value supplied by the statute, putting aside the requirement to assume that any improvements did not exist, is reflective of the test enunciated by the High Court in Spencer v Commonwealth.[8] The most frequently quoted expressions as to the nature of the test value of value are those provided by Griffith CJ at 432 and by Isaacs J at 441 from whose judgment I quote:
“To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property.” [my emphasis]
[8] [1907] 5 CLR 418.
Whilst both Griffith CJ and Isaacs J provide a test of valuation which necessarily assumes a hypothetical transaction, there was no suggestion by the court that the assumed transaction should proceed on the basis that the owner is purely hypothetical. The language of Isaacs J is quite to the contrary. That is not to say that the personal characteristics or reputation of the actual owner should be taken into account to the extent that they may influence the course of the hypothetical transaction, but that it is appropriate to consider the vendor to that transaction being in the position of the owner. Whilst I do not suggest that the value of land under s.3(1)(b) ought to be anything other than market value, useful reference I think can be made to Pastoral Finance Association Ltd v Minister[9] which, though a case concerned with “special value” springs from the same well as Spencer. In Pastoral Finance at 1088 the Privy Council said, “probably the most practical form in which the matter can be put is that they were entitled to that which a prudent man in their position would have been willing to give for the land sooner than fail to obtain it”.[10]
[9] [1914] AC 1083.
[10] “they” refers to the landowner.
The notion of the owner of land being treated as a potential purchaser was held to be consistent with principle in CSR Ltd v Valuer-General[11] where Wells J said at 56:
“Counsel debated the question whether valuers were, for the purposes of arriving at a capital value, obliged by law to treat the present tenant in fee simple, C.S.R., as a potential buyer. In my opinion, the natural implication of the definition is that it should be so treated; but I find it difficult to understand how the addition of the present tenant to the class of potential purchasers can have any appreciable influence on the hypothetical price to be expected on sale…” [my emphasis]
[11] [1977] 42 LGRA 52.
His Honour placed some reliance on the Privy Council decision in City of Montreal v Sunlife Assurance Co of Canada.[12] I take the following quotation from p.126:
“In these observations their Lordships are in no way acceding to a suggestion that the subjective value to the owner of the premises is to be regarded. Cases such as Great Central Railway v. Banbury Union show that such a consideration is inadmissible. It is the objective not the subjective value which has to be determined though, as has been said, the owner is to be regarded as one of a possible number of buyers, and subject to careful criticism and a sufficient qualification of price, the cost which he chose to incur is a relevant factor.”
[12] (195) The Valuer vol. 13 p.116
Whilst the two authorities to which I have referred above are to the effect that the owner as purchaser is a valid element of applying a test of value such as that supplied by Spencer, the proposition applies equally to the owner as vendor. Indeed, the judgment of Isaacs J indicates as much. An owner as vendor would expect a price that the owner as purchaser would pay. There is no requirement in s.3(1)(b) that the owner of the land can be assumed to not exist nor can I construe that provision to the effect that CSR Ltd and City of Montreal and my reasoning above do not apply to s.3(1)(b).
The “difficulty” adverted to by Wells J can be answered by the facts of the present case in which the owner of the caravan park land also owned the bar and grill site and their common ownership has, as I conclude below, an impact on the value of the caravan park land. Such practicalities and their relevance to value is the subject of the judgment of Callinan J in Boland v Yates Property Corp Pty Ltd[13] where His Honour said:
“[272] An intending prudent developer of a project such as the respondent here had in mind would inevitably require investigations, studies, plans and information of the kind to which I have referred and which would necessarily involve the services of professionals such as town planners, engineers and others, not only perhaps to obtain, or enhance the chances of obtaining, planning approval but also to place itself in a position to satisfy financiers if it has to borrow to complete the development, and prospective tenants or licensees that a tenancy or a licence in it would be an obligation worth incurring.
[273] … If what the respondent did [had] not been done, then it would be unlikely that any purchaser would pay a price which included a component for the by now demonstrable, realisable, potential of the property for its highest and best use as a market. And a purchaser would have been in as good a position to take advantage of the site in its cleared state as the respondent. None of this is in disparagement of the respondent’s efforts. But their site-specific nature meant that Yates would have no interest in withholding their fruits from a purchaser and every reason to provide them to ‘talk up’ the price of the land.[274] Any vendor who failed to capitalise on this work by not extolling to a purchaser its consequential, demonstrable, realisable potential would be highly imprudent. And any reasonable purchaser would expect, and know that the price would reflect this potential. It is not a case of the purchaser’s buying, as it were, the plans and the work done in respect of proving up the potential as one of the examples given by the Full Federal Court would suggest. It is merely that, to use the language of Griffith CJ in Spencer’s case, each party to the transaction should be regarded as being fully conversant, or as Isaacs J said, perfectly acquainted with the subject, that is to say the subject land with all of its potential. It follows that the more work, the more proving up that is done by the vendor before the sale, the more any uncertainty as to the realisation of the potential will be reduced, and the higher the price will be.” [my emphasis][13] [1999] 74 ALJR 209.
What is clear from the evidence is that the unavailability of sewerage and water services to the caravan park site would have a substantial depreciating effect on its value. It is also the case that there is no evidence to indicate why, in practical terms, the owner of the bar and grill site would not make these services available to the caravan park site.
Whilst it is clear that the improvements on the caravan park land must, for the purpose of striking its unimproved value, be assumed to not exist as at the date of valuation and that this is confirmed by s.3(2A) there is authority[14] to the effect that the environment within which the land being valued must be viewed includes all of the services, facilities and disabilities external to the boundaries of the land. In this case, that includes the improvements on the bar and grill site. In my opinion it is appropriate in ascertaining unimproved value in accordance with s.3(1)(b) of the Valuation of Land Act to take into account the fact that the owner of the caravan park also owns the bar and grill site and that the improvements on the bar and grill site, including the sewer and water services to the boundary of the caravan park, are open to be taken into account in applying the Spencer test of value in valuing the caravan park land. In my view a prudent vendor of the caravan park land would “capitalise on” his ownership of the bar and grill site by selling the caravan park land either jointly with the bar and grill site or conditioned in such a way that the sewerage and water facilities to the caravan park site would continue to be lawfully available to that land.
[14] Tetzner v Colonial Sugar Refining Co Ltd [1958] AC 50 at 52, 155.
Caravan Park site valuation
Mr Olive said that if the aggregate value method of valuation employed by Mr Migliorini was adopted his total value for the caravan park site of $670,000 would increase by 10 to 15%, that is to a figure of $737,000 to $770,500. Whilst I acknowledge that Mr Olive had not fully turned his mind to this issue I find it difficult to appreciate the small amount of increase suggested by him. In the circumstances I conclude that I cannot place reliance on Mr Olive’s valuation of the caravan park given the legal basis upon which it was carried out. That conclusion extends to the individual values placed on the Term Lease and the two Road Licences.
Mr Migliorini employed two methods in his valuation of the caravan park. His primary method was to apply values to the caravan and cabin sites. He applied no independent value to the tent sites. In arriving at the value of the two classes of site he relied on the same development site sales in Palm Cove employed in his bar and grill site valuation which I come to below. There was agreement between the valuers that the development site sales evidence supported a value of $70,000 for each two bedroom equivalent unit on the bar and grill site.
In his secondary method of valuation Mr Migliorini attempted to establish a “floor level” of value for the caravan park as a residential site. I understand the reasoning to be that if one were to pay X dollars for the land as a residential site then its value as a caravan park would be something greater than X dollars. One particular difficulty with that approach identified by the appellants is that it seems to disregard the conditions of the Term Lease and the Road Licences which do not permit a residential use. Mr Migliorini conceded as much in cross-examination[15] agreeing that the methodology was inappropriate. Notwithstanding that apparent retreat from this method I do not consider it to be totally without merit. At best it might be employed to provide an indicative value only.
[15] T.202.
Mr Olive utilised the sale of the Trinity Caravan Park which he heavily discounted to attempt to value the Term Lease on the basis described earlier. He conceded in cross-examination that use of that sale in that manner was problematic and advanced the opinion that there were no comparable sales to value the caravan park. That proposition is, I think, evident from the fact that Mr Olive was unable to articulate, in the manner that a valuer might ordinarily do, the reasoning which led to his valuation conclusions using the Trinity Caravan Park sale.
In the circumstances it seems to me that the best evidence of value and the least controversial is that supplied by the agreement between the valuers as to the unit site value on the bar and grill site of $70,000/unit. That is for land near, but not fronting, the beach. It does not therefore suffer the environmental impact of the sea to the same extent, but neither does it enjoy the same aspect as the caravan park land. In his valuation Mr Migliorini recognised the reduced value that would apply to a cabin or caravan park site by applying an average value of $35,000 to such sites in comparison with the $70,000 value for a unit site. Notwithstanding that average value per site included in his valuation report, Mr Migliorini provided a more detailed analysis in oral evidence:
24 beachfront cabins - $62,500 each
4 rear beachfront cabins/office - $35,000 each
8 beachfront caravan sites - $35,000 each
36 rear caravan sites - $15,000 each
Average $35,000 each
Unfortunately, that analysis was not provided to Mr Olive as part of the valuers’ meeting to prepare the joint statement that became Exhibit 3. It should have been. Nevertheless, Mr Olive indicated in the joint statement that on his appreciation of this approach the caravan park site would be half of a cabin site. In effect he was foreshadowing in a less detailed manner the approach that Mr Migliorini did not reveal until trial.
I think it useful to commence the comparison between the $70,000 unit figure and the beachfront cabins. I have noted above a broad comparison between the two sites and would add to that the need to bear in mind that the caravan park tenures are conditioned such that the land can be used for caravan park only. Now a two bedroom unit would, on Mr Olive’s evidence, be about 100m² in size whereas a cabin would be approximately 20m². He posited that on that basis it may be appropriate to apply 1/5th of the $70,000 base figure to a caravan park site. I think it preferable to employ a “site” value approach as Mr Migliorini appears to have done, but influenced by the matter of size and use. A figure of $62,500 involves insufficient discount from the $70,000 base figure in my view when one takes into account all of the relevant points of comparison. I have formed the view that a figure of $50,000 should apply to the beachfront cabins sites on the caravan park land and that the other sites should be valued by reference to that figure, employing a similar gradation in value to that provided by Mr Migliorini. The net result is:
24 beachfront cabins - $50,000 each $1,200,000
4 rear beachfront cabins/office - $28,000 each $ 112,000
8 beachfront caravan sites - $28,000 each $ 224,000
36 rear caravan sites - $12,000 each $ 432,000
$1,968,000
Less allowances:
site works $100,000
Water and sewer $720,000[16] $ 820,000
$1,148,000
[16] Discussed further at [79].
The overall valuation for the caravan park land is therefore $1,148,000 which needs to be apportioned to the three tenures that make up the land. The best evidence of apportionment is that provided by Mr Migliorini which I adopt in round terms to conclude that the following values apply:
Term Lease $932,000
Highway Road Licence $143,500
Beachfront Road Licence $ 72,500
Bar and Grill site valuation
Mr Olive placed a value of $500,000 on the bar and grill land as a “site” value. In his valuation report[17] he wrote:
“Having regard to the limitations on use within the lease documents, and the significant restrictions placed on the lands by the relevant planning instruments and State and Federal Acts it is my view that the existing development and use is the Highest and Best use to which the subject sites may be put in accordance with s.3(4)(a) of the Valuation of Land Act 1944.”
[17] Exh.5 p.29.
In the valuers’ joint statement[18] it is recorded that Mr Olive considers the provisions of the Wet Tropic Coast Regional Management Plan preclude the construction of further improvements. It was also noted that the conditions of the lease require the land to be used as a kiosk and motel and do not allow the construction and sale of residential units. Nevertheless the statement went on to say that the bar and grill footprint represents three to four two bedroom unit equivalent and the existing motel units represent four unit equivalents. The reference to those unit equivalents arises from the manner in which Mr Migliorini has struck a value for the bar and grill site.
[18] Exh.3.
In Mr Migliorini’s opinion the kiosk footprint[19] (2,000m²) represents 12 unit equivalents and the existing unit footprint (1,000m²) represents six unit equivalents. The valuers agreed in their joint statement that the gross unimproved value of a two bedroom unit equivalent on the bar and grill site would be $70,000 for the land content.
[19] The term “footprint” represents the area occupied by the existing structure plus curtilage. The building footprint for the kiosk building was something in the order of 500 – 540m² and for the existing units something in excess of 180m² (possibly up to 230m²).
In his valuation report[20] Mr Migliorini wrote:
“The primary method of valuation considers the Non Competitive Lease with development potential with regard to lease conditions, location, zoning, services availability and site topography characteristics including benefits and burdens.
The lease conditions allows for tourist accommodation, motel and kiosk (accommodation and/or recreation facilities for tourists – conduct a tourist resort).
This method refers to the two footprints currently established on the kiosk footprint of 2000 m² and the unit’s footprint of 1000 m².”
[20] Exh.9.
He then went on to say:
“A development based on 200 persons per hectare would yield:
12 unit hypothetical 2 bedroom potential on the 2000m² footprint.
6 unit hypothetical 2 bedroom potential on the 1000m² footprint.This potential could be in the mixed form of kiosk, motel, one (studio) and/or two bedroom (dual key) units in relation to the planning densities listed above.”
There was no challenge to Mr Migliorini’s suggested potential on the basis of such a use not being supported by the market. The challenge to the potential suggested by Mr Migliorini was confined to the question of whether an 18 two bedroom unit development on the bar and grill site would be permitted on land planning/use terms. The question therefore resolves down to whether a higher order use as proposed by Mr Migliorini would be permitted by the relevant authorities. The appellant raised a number of hurdles said to either inhibit development in the manner proposed by Mr Migliorini or to raise in the mind of a hypothetical prudent purchaser a serious question as to whether more intensive development than that presently on the subject land would have been permitted.
The first hurdle raised by the appellant lies in the submission that Mr Migliorini’s hypothetical development would be unlawful on the land given that the terms of the lease limit the use of the land. Mr Migliorini summarises the lease terms thus:
“The Non Competitive Lease includes inter alia conditions that the lessee shall at all times provide and maintain tourist accommodation, conduct a tourist resort, kiosk and motel on the leased land. The lessee shall not in any way interfere or use the natural water in Cascade Creek.”
The appellant’s submission goes on to say that a development of 18 two bedroom units on the land would be a “multiple dwelling” as defined by the Douglas Planning Scheme, whereas the lease condition permits a “motel” – a use of a quite different order. That submission proceeds on a wrong foundation in my view. Mr Migliorini does not propose the actual development of 18 two bedroom units as representing the highest and best use of the land. His valuation rationale proceeds on the basis that the subject land has a highest and best use of a greater intensity than existed at the relevant date, but confined to the same use as is permitted by the lease conditions. In valuing the land for that highest and best use he has employed a surrogate method by assuming an 18 two bedroom development, placing a value on the land for that use and applying that proxy value to the land. There is therefore no issue with respect to any departure from the terms of the lease.
Whilst Mr Olive agreed, employing the Migliorini method of valuation, that based on the current use and intensity on the bar and grill site the current development represents seven to eight units and that the land value of those units is $70,000 each, he did proffer some passing criticism of Mr Migliorini’s method of using unit development sales to value a “motel site”. Whilst that criticism can be made, it is clearly the case with respect to the bar and grill site that its valuation by reference to comparable sales is problematic and that utilisation of a surrogate method such as that employed by Mr Migliorini represents a considered attempt by the valuer to ascertain a value by means other than direct comparison with sales. The method supports Mr Olive’s value of $500,000 on the assumption that the highest and best use of the site is represented by the current use.
The appellant complained about the fact that the respondent did not produce a plan of the proposed development such that the appellant would have a clear focus on what was intended. The highest and best use adopted by Mr Migliorini was not based on a particular form of development but was based simply on the idea of a more intensive use to that presently on the site and in accordance with the lease conditions. Mr Migliorini was not specific as to whether such a use would be dominated by accommodation or by a kiosk, but that it “could be in the mixed form of kiosk, motel, one (studio) and/or two bedroom (dual key) units in relation to” a planning density of 200 persons per hectare. His use of 18 two bedroom units to establish a proxy valuation was adopted because the population yield would equate to 200 persons per hectare. As I observe below, some architectural representation of the higher order use intended would have assisted in my consideration of the evidence.
The adoption of an 18 two bedroom units use by Mr Migliorini led both planners to focus on that development and to evaluate the prospect of its feasibility in planning/land use terms. Professor Bannock’s approach was to identify various matters that would, in his view, militate against such a development being approved. Whilst Mr Robinson had opinions about the various matters raised by Professor Bannock, he commenced his task with instructions that an 18 x two bedroom unit development was proposed. He considered those instructions and formed the view that such a development was feasible.
My approach will be to deal with the planning/use debate by assuming a proposed development of the order of 18 two bedroom units. That is the form of development identified by the respondent. I will refer to the actual highest and best use identified by Mr Migliorini to the extent needed to identify how in planning/land use terms such a development might be understood as being different from an 18 two bedroom unit development.
It was submitted for the appellant that development of the subject land as proposed by Mr Migliorini would have been frustrated by the Department of Main Roads (DMR) road widening requirements. Exhibit 7 comprises a “preliminary” plan depicting “indicative DMR four lanes …” for widening of the Captain Cook Highway along the length of the subject land. The plan records that “all or part of land containing existing kiosk maybe required for DMR road reserve. Extents to be determined in detail design phase.” (sic) The plan was dated 3 October 2005 and was produced in response to a proposed development of the bar and grill site to a level much more intensive than proposed in Mr Migliorini’s valuation. That proposal did not proceed, nor have the road upgrades. Whilst the plan post-dated the 2004 valuation date, it represents the wishes of its authors at that date and subsequently.
As at 1 October 2004 the bar and grill land was zoned “resort business” with the result that “motel” and “refreshment premises” may be developed on the land without any requirement for an application for a material change of use. That is an important consideration as a major plank in the appellant’s case was that DMR acting as a concurrence agency would have blocked the proposed 18 unit development in order to maintain the road corridor for future expansion/widening. As at the 2004 relevant date, no concurrence agency opportunity would have been presented to DMR. At 2006 the developable part of the subject land was zoned “tourist and residential” under which the development of a more intensive use of the land for the uses permitted under the lease would have been a code assessable development. Accordingly, DMR would have become a concurrence agency. In that respect, the position in 2006 differs from that which obtained in 2004. I need to consider whether that might be expected to lead to a different outcome.
The proposal to widen the Captain Cook Highway generally and in particular in the location of the subject land, has no official status in terms of endorsement by the DMR Chief Executive, the Minister or Cabinet, no funding allocation and no certainty as to whether it will ever happen at all. Indeed one option with respect to the Captain Cook Highway is the provision of overtaking lanes as and when required into the future. No details of traffic flow, nor projected population increase to the north of the subject land was provided in evidence or even broadly referred to. Neither had any environmental assessment process been undertaken – a matter of some significance in an area managed by the Wet Tropics World Heritage Area Authority. The proposal is therefore theoretical or speculative and could not form the legal basis in my view of any legal power for DMR to restrict development of the subject land.[21] Apart from that it is my opinion that a requirement for the landholder of the bar and grill site to dedicate without cost, land for a major highway upgrade could not lawfully be imposed on a small development whose contribution to traffic demand is best described as insignificant. If it were the case that DMR did require land from the bar and grill site to widen the Captain Cook Highway at some undetermined future date, the department would need to proceed by compulsory acquisition and on that basis, to pay compensation. I need not go into the question of the quantum of compensation as any reduction in value of the subject land for the purpose of such a road would be equivalent to the reduction in value brought about by the resumption. In effect the impact upon the unimproved value of the subject land would be nil.
[21] See for example Kabale Holdings Pty Ltd v Albert Shire Council [1993] QPLR 252 and Yalgan Investments Pty Ltd v Albert Shire Council [1995] QPLR 127.
The bar and grill building is actually located so close to the road reserve that the current road frontage is right on the edge of the building. The current parking area and landscaping is located on the road reserve. The appellant suggested that DMR would require setbacks of a minimum of 10 metres from the road alignment, essentially for the purpose of managing any noise impacts on the subject land arising from the Captain Cook Highway. Professor Bannock suggested that, in addition, extensive noise attenuation measures would be required, though I observe that he had not consulted with DMR on this issue. Evidence from Mr McNamara, a senior DMR officer, led me to the conclusion that the department would take a common sense approach regarding development on the subject land, having regard to the limited flat area available and would pursue its noise attenuation objectives though acoustic building solutions, rather than through what I perceive to be clearly unachievable setbacks or the construction of mounds or other acoustic barriers. Nevertheless, some setback from the road reserve would be expected, given the fact that the current bar and grill development impinges on the road reserve and Mr Migliorini’s proposal that the higher order development be within the current building footprint.
Professor Bannock noted that for a multi-unit building the relevant minimum planning setback would be six metres. He demonstrated that with that setback and with an assumed 35.1 car spaces at ground level, the 18 unit development simply would not fit on the available area of the subject land. There were three responses to that evidence from the respondent. First, that only 13.5 car spaces would be needed for a motel type development. I cannot accept that as being correct as the actual form of development to Mr Migliorini’s highest and best use was not precisely described. I would think that an intensification of use would lead to a greater car parking requirement than 13.5. Indeed, it could be greater than for an 18 unit development. Second, that car parking could be accommodated under ground; that is, by excavation and/or by locating some parking to the southern end. I return to this point below. The third response was to say that there is no six metre setback requirement for a motel development. That is the type of development proposed by Mr Migliorini. That appears to be the case, but there is a requirement to maintain an “open character” in a development by maximising landscaping “around” the building or by having a six metre set back. The two buildings in Mr Migliorini’s development proposal would be two storey structures some 50 metres apart. The steep virtually un-developable land at the rear of the buildings would contribute to the landscaping around the buildings as would the minimum development towards the north and south of the flat area. Landscaping towards the front of the building could only be achieved, however, by some setback from the boundary of the land. Some relaxation to the six metre requirement would, I think, be expected based on the development environment I have supplied.
Mr Robinson made it clear that any setback requirements would raise a challenge for the architect but one that in his opinion could be met. The solution he proposed of constructing underground parking would appreciably add to the cost of construction. The solution of placing car park to the south would mean that any occupants/guests located in the northern and larger part of the development would have quite a distance to walk to their cars. Setback and landscaping needs could impact on the architectural solutions such that the quality of the development could be compromised. The inclusion of a swimming pool, for example, in a suitable location and environment might be difficult. Mr Robinson’s reasoning was characterised by the respondent as being commonsense and practical. Mr Robinson was not sworn as an architectural expert. His evidence as to the design is therefore not expert opinion evidence nor was his reasoning portrayed in such a way that it could be properly examined. His evidence is best characterised as being an assurance that the car parking problem could be solved. Even a rough architectural plan would have helped.
The bar and grill site is located within an erosion prone area in the Wet Tropics Coastal Management Plan. I accept the evidence of Mr Innis that erosion concerns would not form the basis of any objection by the EPA to the development proposal advanced by Mr Migliorini. Mr Innis gave evidence to indicate that the EPA would expect the Captain Cook Highway to be preserved and since the subject land is to the west of that road structure, no practical erosion concern would arise on the land.
The appellant raised the concern that the Cairns City Council would require the construction of trunk water supply and sewerage connections to the site at the cost of some millions of dollars. Mr Robinson, who was called by the respondent, made enquiries of the Council and those enquiries confirmed his opinion that such connections would not be required. Similar enquiries were not made by the appellant. The proposed development of the bar and grill site would lead to an addition of about 35 new equivalent persons, a number well within the capacity of the existing plant. The subject land is outside the Council’s planned water and sewerage supply areas. I see no need to rely on s.3(4) of the Valuation of Land Act regarding this issue. It would be inherently unreasonable for trunk connections to be required. The current system is licensed[22] so its environmental impact within the World Heritage Area would appear to be acceptable. There remains a potential that the EPA would not permit a system such as the current system to be placed on the land viewed as unimproved, but that potential is low on the evidence that I heard. Indeed, if such a system were not to be permitted, the highest and best use of the land would be substantially less than its present use.
[22] Environmental Relevant Activity Licence.
The appellant raised a suggestion of possible conflict with the scenic amenity provisions of the Wet Tropical Coast Regional Coastal Management Plan concerned with the visibility of the proposed development from external vantage points. Ellis Beach is recognised as an area of State significance in the scenic coastal landscape in the Wet Tropics Plan. That plan is a State Planning Policy and Council is required to take it into account in any development application. Together with Counsel I viewed the caravan park and the bar and grill site from a number of vantage points on the beach and from an elevated point to the south. To the extent that a two storey development would be more visible than the current development on the land there would be some slight increase in the level of visual impact, but mainly from a position on the beach directly in front of the site. The appellant adopted a quite strict view that any increase would be unacceptable. The level of increase is such that in my view the adoption of such a strict view in a development application is of low risk.
I have leant or decided in favour of the respondent with respect to many of the hurdles raised by the appellant to the highest and best use proposal which formed the basis of Mr Migliorini’s valuation and in favour of the appellant with respect to others. I am left with the view that a hypothetical prudent purchaser would not adopt the position that development to the intensity proposed by Mr Migliorini would be risk free. I have attempted to convey my view as to the level of risk that each hurdle presents and I now need to convert those opinions into an overall conclusion. I start with the position that more intensive development than that which is presently found on the bar and grill site is clearly feasible. The highest and best use is therefore not the present level of use as proposed by Mr Olive but is something greater. The maximum level of value for that greater use would equate to 18 two bedroom units at $70,000 per unit of land value less site works, water and sewerage costs. The quantum of risk in achieving that greater level of development is what I would describe as substantial but not great. I have settled on a risk component of 25%. The value before site deductions would therefore be 18 x $70,000 x 75% that is $945,000. From that I would deduct water and sewerage and site works totalling $330,000 (see below) resulting in a net figure of $615,000. I will follow Mr Migliorini’s lead and round that down to $600,000.
Mr Migliorini had calculated the value of site works at $150,000. That figure was not challenged. He calculated the water and sewerage requirements based on an earlier cost upgraded broadly for inflation. He then allocated that cost to the bar and grill site and the caravan park site on the basis of population/usage resulting in an amount of $180,000 applying to the bar and grill site and $720,000 to the caravan park site. His method was challenged as being imprecise and not soundly based. The difficulty I have is that Mr Olive was not asked to address this issue, nor did the appellant, who presumably would have detailed information as to costs, lead evidence as to the cost that should apply. I accept Mr Migliorini’s figures for the purpose of this appeal.
Order
The appeals are each allowed and the valuation in each appeal is determined as follows:
RV2006/0116 $932,000
RV2006/0117 $143,500
RV2006/0118 $72,500
RV2006/0119 $600,000
AV2006/0120 $1,148,000
AV2006/0121 $600,000
RV2007/0087 $143,500
RV2007/0088 $72,500
AV2007/0089 $600,000
AV2007/0090 $1,148,000
RV2007/0091 $932,000RV2007/0092 $600,000
RP SCOTT
MEMBER OF THE LAND COURT
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