City of Port Adelaide Enfield v Starboard Nominees Pty Ltd - [2008] SASC 20

SUPREME COURT OF SOUTH AUSTRALIA
(Land and Valuation Division)
CITY OF PORT ADELAIDE ENFIELD v STARBOARD NOMINEES PTY LTD
[2008] SASC 20
Judgment of The Honourable Justice Debelle
5 February 2008
REAL PROPERTY - VALUATION OF LAND - OBJECTIONS AND APPEAL
Appeal against decision of member of valuation review panel – land situated in industrial area – warehouse erected on site – valuation of land – relevant principles – whether member of valuation review panel has erred – appeal allowed.
Local Government Act 1999 s 169(5), s 169(8), s 169(15), referred to.
101 Collins Street v City of Melbourne (1995) 87 LGERA 207; Ardoch Pty Ltd v Valuer-General (No 2) (2006) 148 LGERA 408; Fenton Nominees Pty Ltd v Valuer-General (1981) 27 SASR 258, considered.

CITY OF PORT ADELAIDE ENFIELD v STARBOARD NOMINEES PTY LTD
[2008] SASC 20
Land and Valuation Division

DEBELLE J: This appeal against a decision of a valuer who is a member of a valuation review panel is brought pursuant to s 169(15) of the Local Government Act 1999 (“the Act”). The appeal was heard on 25 September 2007. I then allowed the appeal for reasons to be published. I ordered that the capital value of the land be assessed at $1,000,000. These are the reasons for that decision.
The respondent, Starboard Nominees Pty Ltd (“Starboard”) is the owner of land within the area of the City of Port Adelaide Enfield (“the Council”). The Council had adopted for the year ended 30 June 2007 an assessment of the land owned by Starboard and made by the Council’s valuer, Mr Simpson. He had valued the capital value of the land at $1,060,000. Through its agent, Starboard objected to the assessment. The Council referred the objection to its valuer for reconsideration pursuant to s 169(5) of the Act. By letter dated 14 September 2006 Mr Simpson informed Starboard that he adhered to his initial valuation.
Pursuant to s 169(8) of the Act, Starboard asked the Council to refer the valuation to the Valuer-General for a review. The review is not conducted by the Valuer-General but by a valuer selected from a panel of valuers: s 169(10) of the Act. The valuer was Mr M Potts. By letter dated 30 March 2007 to the Valuer-General, Mr Potts advised that he had determined that the capital value of the land was $640,000. Mr Potts did not provide a detailed report but expressed some brief opinions in his letter. Pursuant to s 169(15) the Council has appealed against the valuation of Mr Potts. After the Council had instituted the appeal, Starboard informed the court that it did not wish to contest the appeal.
The fact that Starboard did not wish to contest the Council’s appeal does not have the consequence that the appeal is, for that reason, allowed. There is a public as well as a private element in the valuation of the land. The considerations bearing on the public element were noted by Wells J in Fenton Nominees Pty Ltd v Valuer-General (1981) 27 SASR 258 at 260-263. More significantly, the valuation made by Mr Potts will stand unless and until it is set aside. That is because an appeal pursuant to s 169(15) is not an appeal in the strict sense or an appeal by way of re-hearing on the existing evidence. I examined this question in Ardoch Pty Ltd v Valuer-General (No 2) (2006) 148 LGERA 408 at [23]-[34]. The appeal is an appeal de novo on the footing that there has not been a prior hearing: Fenton Nominees Pty Ltd v Valuer-General at 260; 101 Collins Street v City of Melbourne (1995) 87 LGERA 207 at 213. If the Council is to succeed on this appeal, it must demonstrate why the court should set aside the valuation of Mr Potts. The court will only do so if the Council produces evidence to show what the value of the land ought to be.
The Land and its Zoning
The land owned by Starboard is situated on the northern side of St Vincent Street East, Port Adelaide just east of Crozier Street and close to the junction of a new bypass road, which provides greatly improved access from the land to arterial roads. It is located some 700 metres east of the Port Adelaide commercial centre. The land is close to the dock facilities at Port Adelaide. When an additional crossing of the Port River is provided in the next 12-18 months, it will have direct access to Outer Harbour. It has good access to major arterial roads to the north, east and south.
The land is almost square in shape. It has a frontage of almost 81 metres to St Vincent Street East. It is about 87 metres deep. It has an area of approximately 7,121 square metres. It is used as a heavy transport depot with warehouse facilities and general storage. A small warehouse with internal offices and amenities is erected on the site. It is a reasonably old structure that has been re-clad with Colorbond steel sheeting. The warehouse has an approximate area of 455 square metres with canopies covering a further 265 square metres. The warehouse is located at the frontage to St Vincent Street East leaving the rest of this large allotment vacant. The property is occupied by a tenant but the lease is not registered.
The land is within the Port Adelaide Centre Zone prescribed by the Council’s Development Plan. More particularly, it is Policy Area 29, the Woolstores Historic (Conservation) Policy Area. The area has an industrial character. The objectives for that policy area state that the existing industrial character of the policy area should be maintained (Objective 1) and that the area should be developed for mixed uses primarily comprising commercial, warehouse and storage activities (Objective 3). The first and second principles of development control are in these terms:
1.Offices, warehouse and storage activities are appropriate in the area, particularly located in recycled former woolstore buildings. Office uses generally should have frontage to Santo Parade or St Vincent Street (East).
2.Other commercial development, light industry and service industry developments may be appropriate within the area, particularly to the east of Crozier Road.
It is clear, therefore, that the land owned by Starboard could be developed for a range of commercial, warehousing and storage activities.
The date of valuation is 5 July 2006.
The Valuation Evidence
As already noted, Mr Potts did not prepare a valuation. Instead, he sent a letter setting out his opinion of the valuation prepared by the Council’s valuer, Mr Simpson. The material parts of his letter are in these terms:
Mr Simpson has analysed extensive sales evidence in various industrial zones within the Port Adelaide Enfield council area. Based on his analogy of valuation it would appear that he has disregarded the current existing zoning existing use of the property with regard his valuation. It is noted that the zoning in question is the Port Adelaide Centre Zone Policy Area 29: Woolstores Historic (Conservation) Policy Area.
Whilst this policy area recognises industrial use and existing use, it is a very restrictive zoning when compared to the nearby General Industrial Zone. I am concerned that he has not given enough merit to the Woolstores Historic Conservation Policy Area Zoning. I realise that there are very limited sales in this zone and the sales evidence comprises primarily former wool store buildings. Often they reflect either an alternate use or have been converted for storage and warehousing purposes.
It is duly acknowledged that the property is subject to a long term lease and the current market rental is reflective of that situation. I have also requested that the vendor’s representative Mr Kaesler provide further evidence regarding his objection to Mr Simpson’s valuation figure. However to date I have not received any further information.
Based on the evidence provided to date I am of the opinion that the determination of capital value by Mr Simpson is excessive for this property at this point in time. Where as the assessment by Mr Kaesler is considered to be somewhat understated.
Mr Kaesler also pointed out in his submission the current Capital Value as assessed by the Valuer General. It is noted that the current capital value for rating and taxing purposes has been assessed at $640,000.
Given that I have not received any further correspondence from either party I am of the opinion that the capital value for this property should therefore remain at $640,000. Which is the value determined as at the 1^st July 2006 by the Valuer General.
It appears that Mr Potts did not make a thorough valuation. He did not refer to comparable sales. His letter contains no reference to a method of valuation. His approach appears to be no more than a critique of the valuation of Mr Simpson and the letter from Mr Kaesler, who had made representations on behalf of Starboard. He does little more than adopt the Valuer-General’s valuation.
Mr Potts relied on two factors when reducing Mr Simpson’s valuation. The first is his assessment that the zoning is restrictive. I do not agree. While it is more restrictive than the nearby General Industrial Zone, it is apparent from the brief review above that it is, nevertheless, a form of zoning which permits a wide range of development. Certainly, there is nothing in the Development Plan which would significantly depreciate the value of the subject land. The second factor on which Mr Potts relied is that the property is subject to a lease for a long term. The term of the lease is not specified. The lease is not registered. In the absence of a registered lease, the existing lease is not a factor that significantly reduces the value of the land.
The Council relied on a valuation made by Mr Smithson. Mr Smithson is an experienced valuer. As the property is used for industrial purposes, Mr Smithson believed that the appropriate method of valuation was to capitalise imputed net rentals. He then checked that result by a summation method based on sales of comparable land.
According to Mr Smithson, the property is under-developed and is not being put to its highest and best use. The existing warehouse covers only about 6.5 per cent of the land. The land has potential for redevelopment as well as potential for subdivision into two or more allotments. Potential purchasers include transport companies or other owner occupiers seeking a site with a large amount of land to use as a hard stand-by area or on which to construct additional storage facilities. In Mr Smithson’s view the land was suitable to owner occupiers or investors. I accept his assessment that the land is not being put to its highest and best use and that the land has potential for further development. I also accept his evidence as to potential purchasers.
In Mr Smithson’s view, the current rental of $41,844 per annum does not reflect the full rental which the land could attract. The evidence of rental properties on which he relied justifies his conclusion. He increased the rental to $81,490 per annum. Mr Smithson then capitalised the imputed net return at 8.25 per cent, a rate that I accept as reasonable. That produced a capital value of $987,758.
By way of cross-check, Mr Smithson had regard to sales of comparable land, adopting a summation method to allow for the improvements on the subject land. He had regard to a number of sales of land of comparable size, the sales occurring in reasonable proximity to the date of valuation. In his view, those sales demonstrated that it would be reasonable to adopt a rate of $120 per square metre for the land. The sales evidence demonstrated that this is a realistic assessment. Mr Smithson then assessed the additional value for the building improvements at $300 per square metre for the main building and $100 per square metre for the canopies. That realised a value of $1,017,520 calculated as follows:
Land                 7,121m² @ $120/m²=      $854,520
Main building          455m² @ $300/m² =     $136,500
Canopies               265m² @ $100/m² =       $26,500
Total  $1,017,520
Given the two values reached by the two approaches he had adopted, Mr Smithson assessed the value of the land to be $1,000,000. I think that Mr Smithson’s approach is reasonable and should be accepted. I am encouraged to reach that conclusion because the evidence also demonstrates that Mr Potts’ valuation is quite unrealistic and fails to have regard to the value of comparable land.
Mr Costello submitted that the evidence of Mr Smithson demonstrated that the initial valuation by Mr Simpson on behalf of the Council should be adopted. This is an appeal against the valuation made by Mr Potts, not by Mr Simpson. The valuation of Mr Simpson was not formally in evidence and was not tested. It is appropriate to do no more than adopt the value assessed by Mr Smithson.
For these reasons, the appeal was allowed and the capital value of the subject land was assessed in the sum of $1,000,000.