Body Corporate for “147-153 Mary Street Gympie” CTS v Valuer-General
[2013] QLC 51
•23 August 2013
LAND COURT OF QUEENSLAND
CITATION: Body Corporate for “147-153 Mary Street Gympie” CTS v Valuer-General [2013] QLC 51 PARTIES: Body Corporate for “147-153 Mary Street Gympie” Community Titles Scheme
(appellant)v. Valuer-General
(respondent)FILE NO: LVA360-11 DIVISION: General Division PROCEEDING: Appeal against valuation under the Land Valuation Act 2010 DELIVERED ON: 23 August 2013 DELIVERED AT: Brisbane HEARD AT: Gympie HEARD ON:
MEMBER:
20 March 2013
Submissions closed 10 May 2013PA Smith
ORDER: 1. The appeal is allowed.
2. The site value of the subject land is fixed in the sum of Four Hundred and Twenty Thousand Dollars ($420,000) as at 1 October 2010.
CATCHWORDS: Practice and Procedure - onus of proof
Valuation - valuation methodology - no relevant sales - relativity of valuations of other blocks only relevant if those valuations are shown to be correct - assessment of disabilities
Valuation – site valuation – factors to be taken into account – method of calculation
Land Valuation Act 2010
Burnett v Department of Natural Resources and Water [2010] QLC 57
Donald Neil Meiers and Florence Myrtle Meiers v Valuer General [2012] QLC 0019
Fairfax v Department of Natural Resources and Mines [2005] QLC 11
Spencer v The Commonwealth (1907) 5 CLR 418
Steers v Valuer-General [2012] QLC 12APPEARANCES: Mrs Lorraine Broadley for the appellant
Mrs Thea Johnson, Senior Lawyer for the Department of Natural Resources and Mines, for the respondent
Background
This decision relates to an appeal by Body Corporate for “147-153 Mary Street Gympie” Community Titles Scheme (the appellant) against a valuation by the respondent, the Valuer-General, pursuant to the Land Valuation Act2010, (the LVA), which valued the appellant's property situated at 147 Mary Street, Gympie (the subject land), in the sum of $445,000 as at 1 October 2010. The appellant contends for a valuation of $300,000.
The subject land has received a site valuation pursuant to the provisions of the LVA.
The Subject Land
The subject land is described as Lots 1 & 2 on SP 128702, Parish of Gympie, and contains an area of 1,017 m².
Mary Street has long been accepted as the central business hub of Gympie, although there was evidence given during the hearing to suggest that that status has faded somewhat in recent years.
Mary Street is a fully paved bitumen road with concrete kerb and channelling, paved footpaths and marked carparking. The subject land is serviced by electricity, telephone, town water, sewerage and garbage collection.
It is not in dispute that, in an unimproved state, the subject land had a moderate fall from the rear of the property to its frontage on Mary Street. The subject land also slopes towards the low point of Mary Street where it intersects with Monkland Street.
The subject land falls within what is known in Gympie as the 20 metre flood zone[1] and is considered subject to flood inundation at 18.28 m.
[1] See Exhibit 2, p 6.
An area to the rear of the subject land has been levelled for carparking purposes. This area is reached from Nash Street via easements which burden Lots 2 and 3 on RP 51198.
Extensive earthworks have been undertaken from the Mary Street frontage of the subject land and working back towards the rear of the property so as to allow the construction on level ground of a two-storey brick and timber building.
The subject land is zoned "Central Business - Core Retail" under the Cooloola Shire Council Planning Scheme.
The retail business known as Gympie Toyworld operates from the subject land.
The Hearing
Mrs Lorraine Broadley represented the appellant and gave evidence at the hearing. Mrs Broadley has no legal or valuation qualifications. The respondent was represented by Mrs Thea Johnson and relied on the evidence of a registered valuer, Ms Patricia Quinlan.
An inspection of the subject and surrounding land, in the presence of both parties, was undertaken and the hearing was held at Gympie on 20 March 2013. Both parties provided written submissions to the Court following the hearing. Submissions closed on 10 May 2013.
The Valuation Process
It is the responsibility of the respondent to undertake a valuation of not only the subject property, but all properties throughout Queensland. Those valuations are the basis for rating, land tax and related purposes.
I note with approval what his Honour Isdale said in Steers v Valuer-General:[2]
“[8]The use of sales to provide comparisons of value is well established. In NR and PG Tow v Valuer-General (1978) 5 QLCR 378, the Land Appeal Court constituted by Stable SPJ, Mr Smith and Mr Carter said at page 381:
‘Courts of the highest authority have laid down that the best test of value is to be found in the sales of comparable properties, preferably unimproved, on the open market round about the relevant date of valuation and between prudent and willing, but not over-anxious parties.’
[9]This Court is required to follow the decisions of the Land Appeal Court and accordingly must prefer the evidence of comparable sales to the method contended for by the appellant, simply increasing a previous value by a factor of 10. Mr Steers did not explain why this particular multiplier and not some other one should be applied.”
[2] [2012] QLC 12.
Market value is also a relevant feature to consider under the LVA. As then President Trickett said in Fairfax v. Department of Natural Resources and Mines:[3]
“[11]The principles for determination of the ‘market value’ of land were established by the High Court in Spencer v The Commonwealth (1907) 5 CLR 418. In that case, the High Court found that the value of land is determined by the price that a willing but not over-anxious buyer would pay to a willing but not over-anxious seller, both of whom are aware of all the circumstances which might affect the value of the land, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding facilities, the then present demand for land and the likelihood of a rise or fall in the value of a property. (See Griffith CJ at 432 and Isaacs J at 441).
[12]It has been well established that the unimproved value of land is ascertained by reference to prices that have been paid for similar parcels of land in Waterhouse v The Valuer-General (1927) 8 LGR (NSW) 137 at 139, Pike J said that:
‘Land in my opinion differs in no way from any other commodity. It certainly is more difficult to ascertain the market value of it but - as with other commodities - the best way to ascertain the market value is by finding what lands comparable to the subject land were bringing in the market on the relevant date - and that is evidenced by sales.”
[3] [2005] QLC 11.
In essence, the Spencer test[4] has been codified in s.18 of the LVA, which provides as follows:
[4] Spencer v The Commonwealth (1907) 5 CLR 418.
“18 What is a bona fide sale
(1) A bona fide sale, for land, is its sale on reasonable terms and conditions that a bona fide seller and buyer would require assuming the following (the bona fide sale tests)—
(a)a willing, but not anxious, buyer and seller;
(b)a reasonable period within which to negotiate the sale;
(c)that the property was reasonably exposed to the market.
(2) For subsection (1), in considering whether terms and conditions are reasonable, regard must be had to—
(a)the land’s location and nature; and
(b)the state of the market for land of the same type.
(3) To remove any doubt, it is declared that if—
(a)there is a sale of the land in question; and
(b)the bona fide sale tests are complied with;
the sale is a bona fide sale.
(4) In this section—
land in question means land whose value is being decided.”
Importantly, the LVA casts the following duty on the appellant at the hearing in s.169(3):
“However, the appellant has the onus of proof for each of the grounds of appeal.”
It should also be noted that appeals under the LVA are to be determined on what is essentially the balance of probabilities.[5]
[5] See Donald Neil Meiers and Florence Myrtle Meiers v Valuer General [2012] QLC 19 at [27].
As previously indicated, the subject land has received a site valuation under the LVA. Section 19 of the LVA relevantly provides as follows:
“19 What is the site value of improved land
(1) If land is improved, its site value is its expected realisation under a bona fide sale assuming all non-site improvements for the land had not been made.
(2) However, the land’s site value is affected by any other relevant provisions of this chapter."
The LVA then goes on in s.23 to reveal what site improvements are:
"23 What are site improvements
(1) Site improvements, to land, means any of the following done to the land -
(a) clearing vegetation on the land;
(b) picking up and removing stones;
(c) improving soil fertility or soil structure;
(d) if the land was contaminated land as defined under the Environmental Protection Act 1994 -works to manage or remedy the contamination;
(e)restoring, rehabilitating or improving its surface by filling, grading or levelling, not being irrigation or conservation works;
(f)reclamation by draining or filling, including retaining walls and other works for the reclamation;
(g)underground drainage;
(h)any other works done to the land necessary to improve or prepare it for development.
(2) However, a thing done as mentioned in subsection (1) -
(a) is a site improvement only to the extent it increases the land’s value; and
(b) ceases to be a site improvement if the benefit was exhausted on the valuation day.
(3) Also, excavating the land for any of the following is not a site improvement -
(a) footings or foundations;
(b) underground building levels.
Example of an underground building level -
an underground car park
(4) In this section -
clearing vegetation on land -
(a) means removing, cutting down, ringbarking, pushing over, poisoning or destroying in any way, including by burning, flooding or draining; but
(b)does not include destroying standing vegetation by stock or lopping a tree."
It is also necessary to consider the provisions of s.25 of the LVA:
"25 Working out the value of site or non-site improvements
(1) This section applies if, under this division, it is necessary to work out the value of site improvements or non-site improvements (the existing improvements) to or on the land to decide its site value or unimproved value.
(2) The value of the actual improvements is the lesser of the following -
(a)the added value the existing improvements give to the land on the valuation day, regardless of their cost;
(b)the cost that should have reasonably been involved in effecting on to the land, on the valuation day, improvements of a nature and efficiency equivalent to the existing improvements.
(3) In this section -
added value, of non-site improvements, includes the value of any commercial hotel licence whose value has been included in the land’s value."
Grounds of appeal
In its notice of appeal,[6] the appellant sets out three grounds of appeal as follows:
Ground 1 - the statutory land valuation is not supported by property sales
Ground 2 - the statutory land valuation does not reflect the physical characteristics of the land and/or constraints on the use of the land.Ground 3 - de-valuation of CBD commercial real estate due to market saturation.[6] Exhibit 1.
The appellant provided approximately one typed page of information in support of each ground of appeal. Further, Mr and Mrs Broadley jointly signed a statement on behalf of the appellant[7] which went into some detail regarding each of the grounds of appeal. As already indicated, Mrs Broadley also gave oral evidence at the hearing.
[7] Exhibit 2.
No sales evidence
In what must amount to highly unusual circumstances, the respondent in this case has effectively conceded the force of the appellant's ground 1 of appeal; that is, it is the respondent's case that there are no genuine sales to support the valuation contended for by the respondent. In this regard I note the evidence of Ms Quinlan as follows:[8]
"… The problem was, there were no genuine sales to show an increase; there was no - there were no genuine sales to show a decrease. So, based on the Act as well, we can only value properties based on sales. There was no evidence of that, so it was recommended not to increase the actual - the increase was not a result of the market. It was a result of site value improvements, because there were no genuine sales to show an increase or a decrease in the market value, in Mary Street.
What is your view with respect to the appellant's comments that the market is depressed?-- I agree. Obviously there is lack of sales, but then the valuation, I think we've taken that into consideration because there's been no change in the value since 2007. the property has remained at $390,000 from 2007 to 2010, until the introduction of site value. And if that hadn't of come in, it would have remained at 390,000 again, and possibly through to 2011, because most properties at that stage were rewritten again, in 2011."
[8] T 1 - 22, lines 22-40.
Consistent with this evidence, Ms Quinlan set out the following as her basis of valuation in her valuation report:[9]
[9] Exhibit 3, p 3.
"BASIS OF VALUATION
Reference: Appeal: LVA360-11
Body Corporate for “147 – 153 Mary Street Gympie” CTS.Basis of Valuation: Based on my general knowledge and valuation experience within Gympie Regional Council, and with assistance from sales throughout the region, I have arrived at a site value of $445,000 for the subject land as at the date of valuation.
There were six sales transacted in Mary Street for the year 2010, five prior to the date of valuation being 1/10/2010 and none after March 2010. Due to a lack of genuine sales within the CBD area, within the valuation period, the existing valuation levels (which have remained unchanged since the 1/10/2007 revaluation) would have been rewritten.
Due to the lack of genuine sales evidence in Mary Street it was recommended that the current unimproved values remain unchanged. However with the new Land Valuation Act 2010, site improvements that were originally deducted from the valuation to form the unimproved value are now to be included in the valuation to create a new site value.
The only increases in valuations of properties in Mary Street are as a result of the addition of site works under the new Land Valuation Act 2010.
The site value is calculated as follows:
As at 1/10/2007 - 21.39m frontage @ $19,750/mf plus 5% extra depth = $443,575
Less 220m3 of excavation @ $250/m3 = $ 55,000
$ 388,575ADOPT $390,000
As at 1/10/2010 - 21.39m frontage @ $19,750/mf plus 5% extra depth = $443,575
ADOPT $445,000"
Decline of Gympie CBD
The appellant has produced evidence to the Court in support of its contention in appeal ground 3 that the value of the CBD of Gympie has been eroded due to market saturation.
There are of course a number of ways in which an appeal ground such as this can be quantified. One way would be a close analysis of rental agreements and returns to property holders in the CBD as at 2010 compared to earlier valuation periods. Unfortunately the appellant has not provided cogent evidence in this respect.
Another way of confirming a downturn in any retail area is through an analysis of sales in that retail area. However as has been shown, there are no reliable sales with respect to the Gympie CBD to either support or rebuke this ground of appeal.
During her evidence-in-chief, Ms Quinlan was questioned by Mrs Johnson as to her views of the contentions of the appellant in ground 3. The relevant transcript is as follows:[10]
"The appellant's statement also makes claims about the commercial hub of Gympie, having been impacted by the newer larger shopping centres, can you comment on that?‑-Yes, I agree with the appellant there; it has had some effect on Mary Street. But it doesn't just affect the appellant's property, it affects most of Mary Street, and that sort of thing. People tend to - like I say, tend to come back. If you had a one in 15 year flood, people do have short memories and will come back. It's unfortunate that we've had a couple since then, but because of the date of valuation, the last one was in '99. And it affects - it doesn’t just affect Mary Street, it affects - well, the shopping centres do. Some people will or won't - it depends where you do your banking and your business and that sort of thing as well. But people will still come back into Mary Street."
[10] T 1 - 31, lines 28 - 42.
In short, Ms Quinlan has essentially agreed with the basic thrust of the appellant's contention regarding the impact of shopping centres outside the CBD on business activity in the CBD of Gympie. However, as Ms Quinlan made clear throughout her evidence, she had taken factors such as that into account in determining not to increase the base valuation of the Gympie CBD from 2007 to 2010. In Ms Quinlan's view, the absence of sales represented evidence of neither an increase nor a decrease in business activity in the CBD.
The appellant has failed to produce detailed evidence in support of its conclusions which flow from ground 3 of its appeal. That is, they have failed to show that the impact of the regional shopping centres and other commercial factors have had a downward impact on the value of CBD properties in a valuation sense. The only evidence as to valuation impact that the Court has in this regard is that of Ms Quinlan, which this Court accepts.
Disabilities of the subject land
There is no dispute that the subject land is flood affected. Clearly, the evidence shows that the subject land has been subject to various degrees of flood inundation on numerous occasions since the development of the Gympie CBD in the 19th century.
Despite all of the evidence presented by the appellant, I am in no doubt that, absent the introduction of the LVA, the constraints on the land, particularly as a consequence of flooding, have been both understood by the respondent and reflected by the respondent in the previous unimproved valuations applied to the subject land. However, as the extracts from the LVA referred to earlier in this reason indicate, there has been a major shift in the way the subject land in this case is valued given the introduction of site valuation in the methodology of the LVA.
As my extract from Ms Quinlan's valuation report referred to earlier shows, the manner in which Ms Quinlan has proceeded in valuing the subject land under the LVA has been simply to adopt the valuation of the land as at the last valuation period, being 2007, and then, instead of deducting the costs of excavation as was previously done to arrive at an unimproved valuation, added on those costs of excavation in order to arrive at a site valuation. The question however remains; is this the correct approach to take given the provisions of the LVA?
Mrs Broadley went to the heart of this issue during her cross-examination of Ms Quinlan[11]
"… I'd like to bring you to section 23, subsection 2 of the Land Valuation Act of 2010, and it states: "A thing done is a site improvement only to the extent it increases the land's value". Would you consider that a seepage problem relating to excavation carried out on a flood-prone block, and given the sloping topography of 147 Mary Street, needs to be taken into account when assessing the added value that the excavation work has provided to this block?-- I would suggest that if you were doing excavation on - into a hill, that you would have to take into consideration that the seepage - there is going to be seepage from blocks higher above you and from run-off and that sort of thing, and that the - that appropriate drainage would be put in prior to the building being built.
Yes. And you inspected the drainage system today-----?-- Yes, I saw -----
-----didn't you?--- -----that today.
You saw the amount of work that has been done there. Are you aware of whether any account was taken into this situation in arriving at the excavation value for 147 Mary Street?-- The drainage has not been taken into consideration; it's only been an excavation-----
No, but the---?-- -----improvement.
-----seepage problem?-- Yes, I know; I understand."
[11] T 1 - 38, lines 3 - 31.
In my view, there is a flaw in the way in which Ms Quinlan has applied the relevant provisions of the LVA in order to determine the site value of the subject land. In my view it is not sufficient merely to start with an unimproved value under the previous legislation and add on the cost of excavation work as at the valuation date. What the LVA clearly requires is an analysis of the site improvements to determine whether or not those site improvements increase the value of the land and if they do, to determine the extent of that increase.[12] That is not to say that there will not be circumstances where the approach taken by Ms Quinlan is shown, after proper analysis, to be appropriate. In particular, it can be accepted that that would likely be the case in circumstances where excavation works are undertaken to create a level building pad and such excavation work, retained by properly constructed retaining walls and drainage system, and absent flooding of the site, result in a far superior building site emerging than would be the case on the land in its natural state. However, that is certainly not the case at hand.
[12] See s 23(2)(a) of the LVA.
It is accepted that the subject land in its natural state had a moderate rise from Mary Street upwards towards the rear of the block. This situation though changed markedly when the block was excavated, resulting in all of that excavated part of the block being inundated to the same depth as would otherwise have been the case only at the very front of the block. It is unfortunate that I do not have any definitive evidence before me to show what percentage of the excavated block is now subject to flood inundation which was not subject to flood inundation when the attributes of the subject land were considered in its unimproved state. However it is clearly apparent that at least part of the block which was previously flood free in an unimproved state is now subject to flood inundation in a site perspective state.
There is another difficulty that relates specifically to the subject land. That is seepage and drainage problems caused by the excavation. I am satisfied that the seepage and drainage problems experienced by the subject land are real and a feature which must have a negative impact on the site value of this land.
Relativity
The appellant has attempted to argue that the valuation of the subject land does not fit with the relativity of other commercial blocks on Mary Street. Ms Quinlan has given evidence that the relativities on Mary Street have been set over a very lengthy period of time.
Although the appellant did go someway in raising some questions over appropriate relativities on Mary Street, the appellant did not go that extra step to establish that the values of other Mary Street properties are correct, and that therefore the valuation from a relativity perspective of the subject land is incorrect.
As I pointed out in the case of Burnett v Department of Natural Resources and Water[13]
“[18] This is a difficulty often faced by appellants in VLA matters who rely on relativity as one of their grounds of appeal. It is not enough for an appellant to simply demonstrate that the value of the appeal block is out of kilter with other, nearby blocks. They need to go further to demonstrate that the values of those other blocks are correct, and that the value of the appeal block is incorrect. This is because it is the primary function of the Court to determine the unimproved value of the land subject to appeal. Changing an issued valuation simply because other valuations may be wrong would only tend to exacerbate the error. Of course, this is a generalised statement, and each case must be determined on its own facts.”
[13] [2010] QLC 57
Applying proper valuation principles and the use of sales which meet the Spencer test as codified by s.18 of the LVA, the appellant has not overcome the difficulties that I referred to in Burnett. Accordingly, the appellant is unable to overturn the respondent's valuation on the subject land on the basis of relativity with other Mary Street properties.
Conclusions
This is an unusual case given that there is a lack of appropriate sales from which to determine the valuation of the subject land as at 1 October 2010. Ms Quinlan has provided sworn evidence that the valuation as at 1 October 2007 was arrived at using appropriate sales evidence. Although no such sales evidence was produced to the Court, neither was the evidence of Ms Quinlan in this regard contradicted in any way by the appellant. I therefore find that the 2007 valuation was arrived at on the basis of appropriate sales and that the 2007 valuation represented the unimproved value of the subject land.
Due to the manner in which the evidence has been presented to the Court, or perhaps in light of the lack of evidence, although I have some difficulty in accepting that there has not been a downturn in patronage of the CBD of Gympie as at 1 October 2010 and therefore the resulting valuation of the properties in the CBD, there is expert evidence before me, given by Ms Quinlan, that the lack of sales is evidence of a static market. Accordingly, on the balance of probabilities, and not without some doubt, I accept the position of the respondent that the valuations of the CBD of Gympie remain static as between those valuations of 2007 and 2010, save for the impact of the LVA.
I am not satisfied that the cost of the excavation work undertaken on the subject land as at 1 October 2010 represents a total increase in the site value of the subject land. As I have indicated from my analysis of the evidence, the levelling of the site has led to a greater part of the land being subject to flood inundation, and has also resulted in not insignificant seepage and drainage issues on the subject land. To counter this, the subject land now has a level building site fronting Mary Street which, on balance, does add site value to the land over and above the previous unimproved value of the land.
Doing the best that I can with the evidence before me, in my view the site improvements have caused an overall increase to the site value of the land in the sum of $30,000. Put another way, the cost of excavation works on the subject land should be deducted by the sum of $25,000 to represent those aspects of the excavation works which have not resulted in a benefit, but rather a detriment, to the subject land. Applying this methodology, the site value of the subject land as at 1 October 2010 is the unimproved valuation of $390,000 plus $30,000 which equates to the sum of $420,000.
By way of check method, the disabilities of the land in its site value configuration mean that the site valuation adopted by the Valuer-General of $445,000 should be reduced by an amount of approximately 5%, which results in a valuation of $422,750. Such a sum fits neatly with my analysis which arrived at a valuation for the subject land of $420,000.
For completeness, I indicate that my decision is based on the evidence of Ms Quinlan that she effectively added the costs of excavation to the 2007 valuation in order to arrive at the 2010 valuation, rather than the calculation for 2010 as shown on p.3 of Exhibit 3.
In my view, the appeal should be allowed and the site valuation of the subject land as at 1 October 2010 should be fixed in the sum of $420,000.
ORDERS
1. The appeal is allowed.
2.The site value of the subject land is fixed in the sum of Four Hundred and Twenty-Thousand Dollars ($420,000) as at 1 October 2010.
PA SMITH
MEMBER OF THE LAND COURT
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