Council of the Shire of Redland v Edgarange Pty Ltd
[1998] QLAC 59
•27 May 1998
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Re: A95-49 -
Claim for Compensation - Acquisition of Land Act 1967
BETWEEN:
Council of the Shire of Redland and Edgarange Pty Ltd
Appellant
Claimant/Respondent
REASONS FOR JUDGMENT
Delivered this Twenty-seventh day of May 1998
By proclamation dated 23 March 1995 land under contract of sale to Edgarange Pty Ltd (Edgarange) and described as Lot 207 on Plan S312736 (area 2.226 ha) and Lot 208 on Plan S312736 (area 2.226 ha), Parish of Capalaba, was taken by the Council of the Shire of Redland for Parks (Environmental Reserve and Open Space) purposes.
In the Land Court, Edgarange's claim for compensation, as amended by leave of the Court, was in the amount of $1,263,000 under the heading of "Loss of Land", together with disturbance items (legal, valuation and survey fees) ultimately agreed between the parties in the amount of $12,088. The respondent Council's final valuation for loss of land was in the amount of $650,000 on the basis that the potential of the land was for rezoning and subdivision into 32 residential lots as the Council had submitted, or alternatively, $830,000 on the basis that the potential was for rezoning and subdivision into 41 lots - as submitted by the claimant.
The subject land formed part of an aggregation of seven surveyed lots containing a total area of 20.902 ha, zoned "Rural/Non Urban". Edgarange had contracted to purchase the aggregation from the one vendor, in three separate contracts, each dated 22 February 1994. The total purchase price was $3,900,000. One of the contracts, for two lots with total area of 4.047 ha was unconditional and the contract price $1,050,000. Settlement was effected in terms of that contract, within 30 days. Another contract was for one surveyed lot containing 5.194 ha at a purchase price also of $1,050,000. That contract however was conditional first upon rezoning and second upon subdivisional approval "totally satisfactory to the purchaser" within 220 days
and 280 days respectively from the date of contract, then settlement 30 days thereafter. The third contract which related to both the subject lots and another two surveyed lots with total area of 11.661 ha (incorrectly shown in the contract as 6.475 ha) was at a purchase price of $1,800,000. That contract was also conditional upon rezoning and subdivisional approval but, in this instance within 300 days and 365 days respectively.
During the course of the Land Court hearing, some of the matters in dispute between the parties were accepted as having been resolved. By the end of the hearing the learned Member had decided that the determination of the claim depended on the answers to two questions: (1) what was the residential lot yield capable of being achieved? and (2) what allowance should be made for "profit and risk" in the hypothetical development exercise? In the Land Court, hypothetical development had been the valuation methodology adopted by the valuers engaged by each party.
The lot yield depended on whether or not part of the resumed land which lay below the Q100 flood line could have received rezoning and subdivisional approval. The land above the Q100 flood line was capable of yielding only 32 lots. The Member found that while the respondent Council would likely have limited its approval to 32 lots, Edgarange could have achieved the 41-lot yield through challenging, in the Planning and Environment Court, a Council refusal of an application for rezoning and subdivision of the land which would have yielded the additional nine lots. That finding was based on the fact that Edgarange had been successful in having consent orders obtained from the Planning and Environment Court, allowing the rezoning and subdivision of the balance of the aggregation, including land below the Q100 flood line. Those consent orders had been obtained prior to the date of resumption. An appeal before the Planning and Environment Court against a deemed refusal of the Council to approve the rezoning and 41-lot subdivision of the subject lands had been adjourned as a direct consequence of the intention of the Council to resume the lands.
The hypothetical development valuation exercise as carried out by Edgarange's valuer, Mr M Slater, and based on a yield of 41 lots, adopted an allowance of 25% for profit and risk of realisation. The respondent Council's valuer, Mr B Hall, ultimately agreed with all other relevant criteria in Mr Slater's valuation exercise, but adopted an allowance of 57% for profit and risk of realisation. That allowance had been derived from an analysis of the actual profit obtained by Edgarange, based on the pro rata purchase price, and development of the first 42 lot stage of the aggregation. The Member found that a profit and risk allowance of 25% was reasonable, based
on the evidence of Mr Slater, but only for the 32 lots above the Q100 flood line. The risk involved in obtaining approval for the balance nine lots was seen to be significantly higher and was increased by the Member to 45% for that part of the development. In the result, an overall profit and risk allowance of 30% was made for the total 41 lots.
When the profit and risk allowance of 30% was incorporated with the balance criteria common to the valuers' hypothetical development exercise, an in globo value for the resumed land of $1,180,126 was produced. Compensation under the heading of "Loss of Land" was then determined accordingly.
The Council appealed to this Court from the judgment of the Land Court and sought to have compensation determined in the amount of $650,000. Subsequent to a Directions Hearing written outlines of submission were filed by both the appellant Council and claimant/respondent. Mr S Ure of counsel represented the appellant and Mr C Hughes of counsel, the respondent.
While two of the grounds of appeal related to the lot yield which had been adopted by the Member, those grounds were effectively abandoned, if not in the written submission, then in Mr Ure's oral submission. Another ground of appeal which related to the allowance for profit and risk and addressed in the written submission was not relied upon.
The appellant chose instead to rely on a submission that the best evidence of the value of the land taken was to be obtained from the claimant's purchase, on 22 February 1994, of that land as part of the total aggregation. The aggregated purchase indicated a price of $186,585 per ha. Mr JL Fiteni, a director of Edgarange, had given evidence in the Land Court that the price paid for the aggregation had been fair. It was submitted that, on the evidence, no reliance could be placed on the individual contract prices. If it was to be accepted that the subject land, as part of the aggregation, had the potential to produce 41 lots, as had been the claimant's case and accepted by the Land Court, then the subject land could be regarded, giving the benefit of doubt to the claimant, as representing fair average land as part of the aggregation. Application of the pro rata value of $186,585 per ha, resulted in the 4.452 ha of subject land having a rounded valuation of $830,000. That amount became the determination of compensation for loss of land, sought by the appellant.
It was submitted that as two of the contracts had been conditional on rezoning and subdivisional approval into the number of lots desired by the purchaser, and on terms and conditions totally satisfactory to the purchaser, once the contracts were settled then the overall price of $3,900,000 was equivalent to the in globo value of the 211 lots sought to be approved by
Edgarange through the rezoning and subdivisional approval procedure. It followed then, so it was submitted, that if there had been no demonstrated movement in the market value of in globo land in the period from the date of sale of the aggregation to the date of the resumption, as the Member had found, the claimant's loss could be no greater than the price paid for the land.
The Member had been satisfied that the claimant had paid a fair market price for the land and that "the price was fixed having regard to the potential for the land to be developed in a way which, in general terms at least, was known to the vendor and purchaser".
It should be said at this point that the vendor, a short time prior to contracting to sell the land to Edgarange, had secured favourable consideration in principle from the appellant Council, for the rezoning of the land and its subdivision. We see it as relevant, however, in considering the evidentiary weight which might be placed on the sale of the total aggregation, that the consideration in principle was in response to an application seeking only 144 residential lots. Mr Fiteni was aware of that consideration in principle. However, he had sought independent professional advice which indicated potential for subdivision into about 211 lots. To achieve such a yield it was clearly necessary to gain approval, against Council policy, for development of land below the Q100 flood line.
While we agree that both the vendor and purchaser would have been on common ground as to potential, in general terms, it seems unlikely that the common ground extended to the yield which the purchaser set out to achieve.
The Member below perceived "that the land was purchased on the understanding that the land had potential for development in the way contemplated by the claimant". That may be so, but our attention was not directed to any evidence that the vendor, whilst agreeing to what was necessary and appropriate to assist the purchaser to obtain the approvals as specified, had, at the time of signing the contracts, any knowledge of the allotment yield contemplated by the purchaser. The Member did not accept however, that the completion of the two conditional contracts demonstrated that the purchase price could "be characterised as reflecting the value of the land in a state where all relevant approvals were in place. Had the approvals been granted on or before the date of resumption, the land would, for that reason alone, have been more valuable than the purchase price suggests." We could accept that such could have been the case had the contracts been subject to deferred settlements alone, but not so when they were conditional on approvals being put in place.
The one contract to which both the vendor and purchaser were bound was the unconditional contract for the sale of the 4.047 ha in close proximity to the subject land, which on the purchaser's perception had potential to also produce 41 allotments, but which also required rezoning and subdivisional approval. It would be a logical expectation that land with uncertain development potential should fetch a higher price under a contract subject to conditions which allowed establishment of the maximum potential, than under an unconditional contract where the purchaser would take the risk involved in achieving approval for that maximum potential. However, in the subject case, the unconditional contract represented the highest pro rata hectarage price of the three contracts. This would have been on the appellant's argument, for fair average land within the aggregation. That higher price was explained by Mr Slater as being the inducement offered to the vendor to enter into the total transaction. The unconditional contract reflected a purchase price of $259,450 per ha.
It is not suggested by either party, that this Court should consider whether or not that unconditional sale offered independent evidence of value. Instead, the appellant sought to have it accepted that the best evidence of value is afforded by the amalgam of contracts over a much larger area of land of which the subject forms an "average" part. It was submitted that, on the evidence, Edgarange had been confident, when entering into all contracts, that rezoning and subdivisional approval to allow development of about 211 lots would be obtained. That confidence had been vindicated, although the Planning and Environment Court appeal process had to be invoked. Each contract had settled. It was submitted that as the purchaser believed the total purchase price to have been fair, the Court should go no further than adopt that evidence of value. The appellant took comfort from the comments of Rich J in Jowett v. Federal Commissioner of Taxation (1926) 38 CLR 325 at 329 -
"A sale of the subject land or of comparable land, affords the best means of arriving at the fee simple value of any land ..."
andof Carmichael J in Inez Investments Pty Ltd v. J.L. Dodd (1979) 26 The Valuer No. 6 -
"Where a valuation of a piece of real estate is sought as at a particular date, the most relevant information for analysis is the sale of the very property, if there be one, at or close to that date."
In Inez a valuer was found to have been negligent in the making of a valuation, for mortgage security purposes, of land without having had regard to the purchase price. In the making of a valuation of land, for any purpose, we would obviously agree that a recently
concluded sale of that land would be the most relevant information for analysis. However, for the sale to be accepted as the best evidence of market value, its analysis would need to show that the transaction met the often quoted Spencer test (Spencer v. The Commonwealth of Australia [1907] 5 CLR 418) as referred to in Inez by Carmichael J in quoting the dicta of Isaacs J in Spencer, at p.441:
"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 cognisant 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."
We are able to accept, on the evidence, that the individual contract prices were negotiated so that both parties may have achieved their ultimate goals. However, it seems highly likely that the vendor would have considered the potential yield of the aggregation as being 144 lots and if the purchaser could achieve more, then so be it. No doubt critical to the vendor's acceptance of the conditional contracts, was the fact that both parties were bound to the unconditional contract. The vendor would have had the comfort of knowing that if the conditional contracts failed, then the settled unconditional contract would have set a market level of value for the balance of the land, arguably based on the yield potential suggested by the consideration in principle. There is no evidence before us to suggest that the vendor would have become a party to a single contract for the price of $3,900,000, had that contract been conditional on the terms, including allotment yield, as sought by the purchaser. Indeed the evidence is to the contrary, with the unconditional contract and its price being the inducement to the vendor to sign the other two contracts.
We are not convinced therefore that it should be accepted that the aggregation of contract prices totalling $3,900,000 represented "a fair price" for a guaranteed allotment yield of 211 lots. However, even if there had been a single contract, conditional on such specified yield, we would still have had difficulty in accepting that the evidence of a sale of 20.902 ha capable of producing 211 lots was, in the absence of further supporting evidence, a sound basis for the valuation of 4.452 ha capable of producing 41 lots.
The sale of the aggregation when "analysed" was said by Mr Hall to show that on the indicated pro rata hectarage value for average land, a profit of 57% was available to the developer. Such a level of profit would seem extraordinarily high, on the totality of evidence, including the overall opinions expressed by Mr Hall. That would be particularly so in circumstances where the risk of achieving the purchaser's desired lot yield had been eliminated for the land purchased under conditional contract.
In considering the question of profit/risk, it is apparent that Mr Hall's "analysis" of the sale to Edgarange, involved "a mix of fact and supposition". The analysis was conducted on the basis of the actual results of the first stage development of 42 lots using actual lot sale prices and actual development costs, related back to a pro rata average purchase price per ha. In the first place Mr Hall would have found it necessary to assume that the land was purchased on the basis that those specific sale prices would be achieved and that all other criteria in the "hypothetical development" exercise, were as estimated by the developer at the date of purchase. As an example, however, Mr Fiteni gave evidence to suggest that at the time of purchase the development costs had been estimated to be higher than were actual for the first stage. In The Council of the City of Townsville v. J.S. Plant (1976) 3 QLCR 238, the Land Appeal Court, after considering evidence of the profit and risk factor obtained from the analysis of an actual development, said at p.243:
"However we feel we should say that in our opinion the valuers' endeavours in this respect are both misplaced and incorrect as it is obviously unsound to mix fact with supposition as required by such a reverse calculation."
It has been judicially suggested that evidence of the profit sought by professional developers should be used in hypothetical development valuation exercises in arriving at the profit and risk factor - see Coastal Estates Pty Ltd v. Bass Shire Council (1993) 79 LGERA 188, Gobbo J at p.198. This was the approach taken by the claimant's valuer, Mr Slater, although he relied, it seems, on anecdotal evidence from professional subdividers.
It was the submission of the claimant/respondent before us that it was open to this Court, on the evidence as to an appropriate profit and risk allowance, to accept Mr Slater's evidence in the Land Court in support of an allowance of 25%.
It is the task of the valuer to interpret the market and it would be expected that the principles of valuation would remain constant whether the property to be valued is in globo land or some other type of real estate. If, as was said at least in the Land Court, the hypothetical development exercise was the best valuation approach available in this matter, then it should
have been patently clear to the valuers that the allowance for profit and risk was one of the critical factors in establishing the correct in globo value. It would seem to follow that if anecdotal evidence was available as to developers' specific profit requirements, then enquiry could have been directed to allow analysis of the acquisition examples, the subject of that evidence. Any analysis must be based however, on criteria relevant at the date of the purchase and not at the later development stage.
Costs Decision by Land Court
The appellant Council also appealed to this Court from the decision of the Land Court that the Council pay the claimant's costs of and incidental to the hearing and determination of the Land Court, of the claim for compensation. Before us, Mr Ure conceded that if the appellant was unsuccessful, costs would follow the event and the order below with respect to costs would not be disturbed.
Findings
We do not accept that the evidence of the pro rata price paid by the claimant for the total aggregation was, for the reasons given, the best, or reliable, evidence as to the value of the land taken.
Both valuers had adopted the hypothetical development exercise as their valuation basis in the Land Court and all criteria other than the profit and risk allowance had been agreed. The learned Member's reasoning in adopting an allowance of 30% for profit and risk, is seen to be well founded on the evidence presented to him and we find no reason to disturb his determination of compensation which resulted.
Orders
The appeal from the determination of compensation by the Land Court is dismissed.
The appeal from the decision of the Land Court that the constructing authority pay the claimant's costs of and incidental to the hearing and determination of the Land Court of the claim for compensation, is dismissed.
The appellant is ordered to pay the respondent's costs of and incidental to the hearing and determination of the appeals to the Land Appeal Court, including those for the Directions Hearing. The amount of such costs shall be ascertained and fixed by the taxing officer of the
Supreme Court at Brisbane according to the scale of costs prescribed by law for the time being in respect of proceedings in the Supreme Court and in accordance with the provisions of s.44(16) of the Land Act 1962.
MUIR J JUSTICE OF THE SUPREME COURT
RE WENCK MEMBER OF THE LAND COURT
CH CARTER MEMBER OF THE LAND COURT
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