Director-General, Department of Transport v Hibiscus Holdings Pty Ltd
[1997] QLAC 124
•15 August 1997
|
BRISBANE
Re:An appeal from a determination of the Land Court - Acquisition of Land Act 1967 - Compensation payable consequent upon a resumption of land - A92-5.
BETWEEN:
Director-General, Department of Transport and Hibiscus Holdings Pty Ltd
Appellant
Respondent
REASONS FOR JUDGMENT - RE WENCK
Delivered this Fifteenth day of August 1997
This is an appeal from a decision of the Land Court in determining compensation payable as a result of resumption of land for road purposes.
As at 1st April, 1989, Hibiscus Holdings Pty Ltd owned an aggregated area of about 3.6456 hectares fronting, but without direct access to, the northbound lanes of the Pacific Highway, about 1.5 kilometres south-easterly of the business centre of Beenleigh. Access to the land was gained from the north by way of a service road (Reisers Road) which terminated at a point along the north-eastern boundary where the highway reserve narrowed. A short frontage was surveyed to Main Street at the southern extremity of the property, adjacent to which Main Street under passed the highway towards the north-east. Physical access was not available, except at prohibitive cost, to Main Street. An electricity transmission line easement traversed the southern section of the land, leaving a relatively small unencumbered area at the Main Street frontage.
The land, except for the southern section, was developed as the Tandarra Caravan Park which provided 110 sites for caravan accommodation. The caravan park use was a legal non- conforming use, the land subsequent to its development having been included in the "Rural B" zone within the Albert Shire Council Town Planning Scheme of 19th March, 1988.
By proclamation published in the Government Gazette on 1st April, 1989, an area subsequently surveyed as containing 3,333 m2 was taken for road purposes. The land taken was of wedge shape, being an effective widening of the highway reserve, commencing at the extremity of Reisers Road, then widening towards and including a truncation of the Main Street
frontage.
Subsequent to the resumption an "on-ramp" was constructed from the Main Street frontage to the northbound highway lanes. At the owner's cost, a left in-left out access point was provided to the southern section of the balance area of the subject land, off the ramp. As part of the roadworks scheme, an off-ramp was constructed from the southbound lanes to the Main Street underpass. A small roundabout in Main Street was constructed and this allowed traffic to access the northbound on-ramp from the underpass. Also, traffic from an existing off-ramp from the northbound lanes, southerly of Main Street, was able to access the on-ramp through the roundabout.
Before the Land Court, the claimant sought compensation for the taking of the land, in the amount of $500,000. This was on the basis of potential use for more valuable purposes than caravan park. As an alternative, the loss in value caused to the existing caravan park development, was claimed as being $257,000 together with "disturbance" items totalling
$57,215.19. The respondent constructing authority contended that no compensation was payable on the basis that the value of the property had been enhanced by the scheme of works.
In the Land Court, valuation evidence was led through Mr T. Verebes, for the claimant. Suffice to say that the learned Member below rejected the claim based on the value of the land before resumption being for use higher and better than caravan park. In the alternative, Mr Verebes valued the caravan park before resumption in the amount of $1,270,000 based on an occupancy rate of 85% and a maintainable net income of $203,096, capitalised to show a yield of 16% per annum. After the resumption, based on his acceptance of an occupancy rate of 70% and a maintainable net income of $162,106.91 and maintaining a capitalisation rate to show a yield of 16% per annum, Mr Verebes' "after" valuation became a rounded amount of $1,013,000. The
"disturbance" items as claimed were:
Relocation of five slabs (as associated with five caravan
sites said to infringe Council setback by-laws) $15,000 Loss of income (temporary) from an Australian Posters
sign panel $1,298 Cost to replace 18 cadagi trees
$32,400
Costs incurred in application to rezone property
$8,517.19
Mr M. Slater, a registered valuer in private practice, gave evidence for the constructing authority. Mr Slater considered that before the resumption, the existing caravan park use was an "under-development of the site" and "an interim use only". Nevertheless, until it became ripe for redevelopment, its market value as a caravan park remained, in his opinion, as its highest and best use. As he saw it, redevelopment would have required roadworks "of a significant order".
Construction of the works completed by the constructing authority "cost in the order of
$300,000". In his opinion, had it not been for the resumption scheme, redevelopment for commercial type use would have entailed roadworks of the same monetary order.
Even so, in his opinion, after resumption, the market value of that part of the land actually used for caravan park purposes, still reflected the continuation of that use but, because the potential for higher use had been brought forward by the roadworks, the market value of the caravan park had also increased. In addition to this perception of enhancement, the surplus southern area of the land to which he had attributed no added value before resumption, had become of added value due to its access potential, albeit at cost to the claimant.
Mr Slater valued the total area before the resumption on the basis of 110 sites at $8,000 per site. He had adopted a site unit value based on caravan park sales. Difficulty had existed in his obtaining accurate trading figures for the sale properties. After the resumption his valuation of the 110 sites became $8,500 per site or a total $935,000. In addition however, the surplus southern area now reduced in area by the resumption had in his opinion improved from adding no value before resumption to adding $65,200 after the resumption. This surplus land after
resumption comprised an area of 3,260 m2 (much of which was encumbered by the electricity
transmission line easement), which he valued at $20 per m2 overall.
His before resumption valuation of $880,000 had therefore increased after the loss of land and the effects of the scheme to a valuation which he rounded to $1,000,000.
The findings of fact by the Member below were:
"(a)the highest and best use of the land immediately before the resumption was as a caravan park with some future potential for light industrial/retail warehouse development;
(b)there was a drop in the occupancy rate (and hence the income) of the Tandarra Caravan Park which was substantially, if not entirely, attributable to the noise and fumes from vehicles using the on-ramp on the resumed land (particularly the heavy vehicles that change gears or brake as they are driven along the on-ramp and onto the highway) but not from the construction activity;
(c)after resumption the highest and best use of the remaining land is as a caravan park but at least some of the land has improved potential for a higher use, and that potential provides some enhancement of the value of the remaining land;
(d)the claimant is entitled to compensation for the diminution in the value of the remaining land due to the loss of the resumed land and damage from activity on the resumed land, as well as some other items of disturbance;
(e)the amount of compensation otherwise payable is reduced by set-off or abatement calculated by reference to the enhancement of part of the remaining land attributable to the carrying out of works on the resumed land and the purpose for which the land was taken."
Compensation was determined on the basis of a before resumption valuation of the
caravan park of $937,000 (on an estimated net return of $178,096 per annum and a capitalisation rate of 19%) and an after resumption valuation of the caravan park of $722,000 (on an estimated net return of $137,106.91 and a capitalisation rate of 19%).
To the difference in the before and after valuations which was $215,000 were added:
Loss of income from Australian Posters $1,298.88 Cost of replacing trees $7,000.00 Cost of landscaping $5,000.00 The total loss excluding enhancement amounted to $228,298.88 Enhancement was then deducted in the amount of $27,200. From the enhancement
calculated as $65,200 by Mr Slater, the Member had deducted an amount of $38,000 as an assessment of the added value of that land before the resumption.
The determination of compensation was then rounded to the amount of $201,000.
Judgment was delivered on 28th October, 1993.
The Director-General appealed to this Court against that decision on 8th December, 1993. Appeal provisions had subsequently been amended by s.525 and schedule 3 of the Land Act 1994 with the effect that the Land Appeal Court may admit further evidence only if:
(i)it is satisfied that admission of the evidence is necessary to avoid grave injustice
and there is adequate reason that the evidence was not previously given; or
(ii)the appellant and respondent agree to its admission.
This matter initially came before the Court for directions. A submission on behalf of the appellant that the appeal should be heard pursuant to the legislation at the time the appeal was instituted, failed. In the absence of agreement between the parties, so did an application for directions that further evidence be admitted. Reasons for judgment in those matters were delivered on 9th June, 1995 (not yet reported). On 18th September, 1995, the appeal was heard on the record of proceedings in the Land Court, with submissions being received from Mr G. Gibson QC for the appellant and Mr P Lyons QC for the respondent.
The issues on appeal
The appellant pressed five issues on the appeal namely:
"(a)That there was no or no sufficient, evidence to warrant a finding of a causal relationship between the works carried out in consequence of the resumption, and any reduction in income of the caravan park.
(b)Alternatively, if there was any causal relationship between the works carried out in consequence of the resumption and any reduction in income of the caravan park, there was no evidence to support the Member's adoption of a 70% occupancy rate in the caravan park in the "after" situation, in consequence of which the Member erred in assessing compensation for loss of land in the sum of
$215,000.
(c)That, a component having been included in the calculation of compensation for
the cost of erecting a boundary fence and replanting destroyed trees, no further allowance should have been included in the compensation in respect of future loss of income.
(d)That the Member erred in allowing a component of $5,000 for the cost of landscaping to meet local authority requirements.
(e)That the Member adopted an erroneous approach to the issue of the enhancement of the remaining land in the "after" situation, and should have concluded that the enhancement of the value of the remaining land was such as to totally offset any loss occasioned by the resumption.
After consideration of the submissions by Mr Gibson and Mr Lyons, and the relevant evidence, I would find in respect of the issues, as follows:
(a)I agree with the appellant’s submission that there was insufficient evidence for a
conclusion to be reached on causation of decreased caravan park income as a consequence of the resumption and the works effected on the resumed land, through the reduced bond moneys held or the recorded income receipts of the caravan park business.
The evidence is that in 1993, 1,679 vehicles used the roadworks on one day, being about 3.3% of the traffic in the same recorded period on the adjacent Pacific Highway. The expert evidence was that there was an increase in the traffic generated noise on the residual land, as a result of the resumption works, but the level of increase would be imperceptible to occupants of the caravan park. I accept that evidence, on the basis it was produced, condensed to an increase in background noise by an average of 1 decibel over an 18-hour period being the average of the noisiest 6 minutes per hour. Although individual vehicle traffic noise is a factor influencing the result of the investigation, that result does not specify the actual noise generated from individual vehicles. The expert evidence is that on the recorded day in 1993 84 heavy vehicles used the ramp and potential existed for the noise from the actions of individual vehicles to cause irritation to some occupants of the park. That is in keeping with some of the anecdotal lay evidence provided on behalf of the claimant/respondent.
It is seen as logical that while any vehicle-generated fume problem suffered by the caravan park was, and is, dominated by the much heavier volume of traffic on the highway, any further introduction of traffic on the ramp, including heavy vehicles, would add in some way, to the level of fumes able to drift into the park.
I do not accept, on the evidence, that the existence of tree plantings prior to the resumption acted as a retardant to traffic noise or fumes. It follows that while there is potential deleterious effect relative to the removal of trees, as a consequence of the resumption, that effect does not extend to any measurable increase in noise or fumes.
In summary, on this issue, while the evidence is not conclusive as to degree, there is sufficient evidence to allow a conclusion that introduction of traffic of the nature which has used and might have been anticipated to use, the ramp
roadworks, caused intermittent irritable noises and added to both an existing traffic noise and fumes problem. Potential existed for a causal relationship between introduced traffic, decreased occupancy and consequently decreased returns.
(b)It follows from the preceding findings that the reduction in income which subsequently occurred may have been caused as a consequence of the resumption.
The trading evidence was capable of interpretation to the effect that, subsequent to the resumption, and subsequent to the construction of the roadworks, but not during that construction, caravan park occupancy of about 85% trended in a decline towards 70%.
However, in my opinion, there could have been no certainty on the evidence, that the declining trend in occupancy and income was solely a consequence of the resumption, or that the decline was "substantially, if not entirely attributable to the noise and fumes" generated from the traffic introduced to the resumed land.
Income actually increased during the period of construction work, a result which would have been an unlikely expectation. Then, when traffic commenced using the ramp, trading figures increased for a short period. This result was however clouded by a management decision to increase rentals. That rental increase was subsequently withdrawn. However, the initial decision is not, in my opinion, supportive of any management perception that the resumption was likely to have the significant effect which it was alleged to eventually have had on the desirability and occupancy of the caravan park.
It was suggested by the claimant/respondent that the decline in trading was against trends which were expected within the particular accommodation industry. However, no evidence was produced to show that the experience of the subject caravan park was in fact against industry experience for comparable premises.
Meanwhile, traffic volume continued to increase on the highway.
I am able to accept that the introduction of ramp traffic and the resultant intermittent irritating noise and additional fumes attributable to that traffic specifically, would have been expected to cause further nuisance to an existing problem.
Those factors may have caused decline. However, it was not proved to my satisfaction, although open to be proved if it was factual, that those factors were the sole cause of the actual decline rather than contributing towards it.
(c)A recognised advantage of the before and after method of valuation in the assessment of compensation, when part only of a property is taken, is that all elements of loss, other than items more commonly falling under the description of disturbance, but including any effect of enhancement flowing from the
scheme, are dealt with as a single concept, rather than by piecemeal or individual assessment of the component parts.
As Rath J said in Parramatta City Council v. Gestetner Pty Ltd (1978) 37 LGRA 246 at 253, 254:
"One of the grounds of appeal relates to the acceptance by the local land board of the 'before and after' method. In Realty Corporation Ltd v. Commissioner for Main Roads (1912) 14 CLR 207 Roper J. held that where a strip of land has been resumed for the purpose of widening a road the easiest and the proper way to determine the value of the land resumed and the damage to the residue by severance is to ascertain the difference between the value of the land before resumption and the value of the residue after resumption. It has been said that the 'before and after' method, in comparison with the 'value plus damages' formula 'more easily skirts the danger of double counting of damages and comes closer to a true approximation of the actual damage suffered by the owner': Orgel Valuation under the Law of Eminent Domain (1953) vol. 1, par. 64, p.290. The same author points out that literally interpreted the 'before and after' rule would require a consideration of all the elements of damage and benefit (ibid.). It seems to me that the 'before and after' method, properly applied, should measure the damage sustained by reason of severance, and at the same time provide for the reduction where the value of the residue is increased by the opening of the road or by any additional facilities of access afforded thereby:"
The Member below adopted a before and after method of valuation, then added an assessment of loss identified as "cost of replacing trees". While that loss was suggested as being an item of disturbance, it was assessed on the basis of the cost of replacing trees with a screen/acoustic fence and associated landscaping.
I am of the opinion that the methodology employed in the before and after approach had the capacity to identify any such loss as part of a single concept. Counsel for the claimant/respondent submitted that unless any such loss was specifically identified, there was danger that it would be glossed over in a broader before and after capitalisation approach, to the detriment of the claimant.
While valuation is recognised as "a matter of estimation, not of precise mathematical calculation" (Mason J in Federal Commissioner of Taxation v. St Helens Farm (ACT) Pty Ltd (1980-1981) 146 CLR 336 at 381), it is a professional interpretation of forces which create market value. It is recognised in compensation cases that assessment of loss should lean to a generous rather than a niggardly approach. At the end of the day it remained a market interpretation, and I accept that the market would be more likely to reflect a global single concept approach in interpretation of the value of the subject property before and after resumption.
(d)I am not convinced on the evidence, including relevant correspondence between the Albert Shire Council and the constructing authority that compliance with Council requirements relevant to site setback and landscaping, had been met, or would have been seen otherwise in the marketplace. Then again, the evidence indicated that the management had not necessarily complied with Council requirements before the resumption.
As in (c), I am of the opinion that the before and after method of valuation might have dealt with this aspect of the claim.
(e)Once the claimant’s valuer’s primary approach to highest and best use of the land was put aside, there was no disagreement that the subject property had potential for future redevelopment for more valuable use than as a caravan park. That potential had not ripened at the relevant date.
It seems clear, from the capitalisation rate used by the claimant’s valuer, in comparison with the sales evidence, that the higher use potential and land surplus to the caravan park development, had been inherently included in his before valuation. This is indicated at least by the evidence provided with regard to the sale of the Blue Gums Caravan Park at Slacks Creek.
It is not clear from the approach taken by the respondent/appellant’s valuer, whether the potential for future development was expressed in the caravan park before valuation. It is certainly clear that the valuer attributed no added value for the surplus land. That, in my opinion, could not have been a correct approach.
It is not clear from the Member’s discussion relative to adoption of a capitalisation rate, whether the rate selected was intended to reflect the potential for future redevelopment and the existence of the surplus land. It is clear that the Member accepted that the surplus land possessed value, because he deducted the before value (but only of the residual surplus land) from the after value of that residual area, which he accepted as having been separately enhanced.
I have been convinced, again based on the evidence, that the dominant feature of the subject property was the fact that its market value, both before and after the resumption, was related primarily to the existence of the caravan park development. Then, as a secondary issue, but as features influencing that market value, the site possessed land surplus to the economic development requirements of a caravan park in that location, and importantly, the whole of the land possessed potential for future higher and better use than as a caravan park.
In my opinion, the before and after valuations should have embraced the worth of the property as a caravan park, including features both negative and positive.
Just as there was potential for a piecemeal approach to double-count loss, there was in my opinion, potential to exaggerate the effect of enhancement based on separate assessment of the component parts.
The role of the Land Appeal Court
As this was not a hearing de novo, the question arises as to the circumstances under which alteration to the determination of the Land Court would be warranted. There seems to be no disagreement between the parties that an appeal to this Court by way of re-hearing on the record, is analogous to an appeal to the Court of Appeal.
The respondent claimant urges that this Court not disturb the valuation findings of the Land Court, unless there was found to be some error of principle or the approach taken was entirely erroneous. Support for this submission was found in the following comments of Gibbs J in Emerald Quarry Industries Pty Ltd v. Commissioner of Highways (SA) [1978-1979] 142 CLR 351 at pp. 355, 356:
"An appellant who seeks to disturb the assessment of compensation made by a
court in a case of compulsory acquisition will not succeed merely by showing that one of the valuations on which the assessment was based contained some errors, particularly when it has not been shown either precisely what effect those errors had on the valuation, or that the errors were repeated by the court in making the assessment. The principles to be applied by an appellate court in such a case were discussed by Dixon J in The Commonwealth v. Reeve (11), as follows:
'In Commissioners of Succession Duties (S.A) v. Executor Trustee and Agency Co of South Australia Ltd. (12), the following passage occurs in the judgment of Latham C.J., Rich and Williams JJ.: "It would not be proper for this court on an appeal of this nature to substitute its own opinion for that of the court below unless it were satisfied that the court below acted on some wrong principle of law, or that the value was entirely erroneous." Their Honours then refer to the statement of Lord Buckmaster in Charan Das v. Amir Khan (13) that the "Board will not interfere with any question of valuation unless it can be shown that some item has improperly been made the subject of valuation or excluded therefrom, or that there is some fundamental principle affecting the valuation which renders it unsound."
The rule thus laid down is almost indispensable to the administration of justice in compensation cases. For the estimation of a money sum is usually so much a result of judgment and sound discretion and so little the product of analytical reasoning, that, were it otherwise, every appeal would mean an assessment of compensation de novo, without any assignment of error in the reasoning or conclusions of the court appealed from.'
Also in Federal Commissioner of Taxation v. St. Helens Farm (A.C.T.) Pty Ltd, (supra), Mason J had said at p.381:
"Nevertheless, I am unwilling to disturb his Honour's finding on valuation. This
Court has consistently applied the rule that on a question of valuation an appellate
tribunal is not justified in substituting its own opinion for that of the court below unless it is satisfied that the court below acted on a wrong principle of law or that its valuation was entirely erroneous (The Commonwealth v. Milledge (98); Commissioner of Succession Duties (S.A.) v. Executor Trustee and Agency Co. of South Australia Ltd. (99); The Commonwealth v. Reeve (1)). See also Emerald Quarry Industries Pty Ltd v. Commissioner of Highways (2). As with the assessment of damages, especially in personal injury cases, the valuation of property by a court has many of the characteristics of a discretionary judgment."
It was submitted that, for example, the selection by the Member of the capitalisation rate in the valuation approach was an exercise of discretion and that an analogy existed between assessment of damages in personal injuries cases and compensation matters involving valuation. Reference was made to Hawkins and Anor v. Lindsley [1975] 49 ALJR 5 where Gibbs, Stephen and Mason JJ in a joint majority judgment said at p.8:
"It is to be borne in mind, as the learned trial judge said, that the ultimate task as
the law stands is to assess a lump sum, and if it be that the sum fixed in any particular case is one within the limits of a sound discretion then it matters not that in making his assessment a judge had regard to a rate of interest which other judges may for the time being consider is one per cent too high."
It should be said that the judgment went on:
"It is not possible either by law or by mathematics to determine a formula according to which the rate of interest which may be used at a particular time is to be determined. Could that be done there would be some basis for judging whether or not there had been error in choosing a particular rate in any particular case."
While the capitalisation rate selected in a particular case is a matter of judgment in assessing the acceptable yield which the market indicates for a particular investment, the capitalisation rate is nothing more than the mathematical calculation which should first be evidenced by the division of the sale price of a comparable property by the actual (or estimated) maintainable net income, with the result expressed in percentage terms.
The valuation process involves the comparison of the market evidence with the property subject of the valuation. The capitalisation method of valuation is an acceptable way of interpreting market value. The capitalisation rate adopted is a discretion but only in the sense that valuation is not an exact science. That yield or capitalisation rate must relate to market value or an erroneous valuation will surely result.
The appellant's submission is that, just as the Court below was able to draw inferences from facts either proved or not in dispute, so is this Court. With both parties having drawn attention to the relevant parts of the evidence, it was submitted that it was not only open for this Court to form its own view, but the Court was indeed obliged so to do. Issue was not taken with the principle that an appellate court ought not to interfere with the exercise of a discretion by the Court below, unless it could be shown that, in some way, a mis-application of principle was
involved. Also, no issue was taken with the suggestion that, as a matter of principle, an analogy could be drawn between appeals on compensation matters involving valuation and personal injury cases, but with the proviso that the appellate court considered the evidence for itself.
In terms of the correct approach of an appellate court, in personal injuries matters, the comments of Williams J in Keefe v. R.T. & D.M. Spring Pty Ltd (1985) 2 QdR 363 were seen to be relevant. At p.366 His Honour said:
"Recently the Privy Council examined this question on appeal from the Court of
Appeal of Singapore. (Lai Wee Lian v. Singapore Bus Service (1978) [1984] 3
W.L.R. 63) Though there was no specific reference to Gamser's case in the judgment the statement of principle by Their Lordships indicates, in my view, the approach which should be adopted by this Court - an approach which I do not consider is contrary to any decision of the High Court. In delivering judgment Lord Fraser of Tullybelton said:
'Before considering the facts of the appeal in more detail, Their Lordships will refer to a question of general importance which arises. Mr. Rashid, on behalf of the respondent, submitted that the Court of Appeal had rightly held that what matters is the global figure and that, if the global figure was reasonable and fair, an appellate court should not increase or diminish a component item of damages on the basis that that item was either too low or excessive. He sought to support that contention by reference to the advice of this Board, delivered by Lord Diplock, in Paul v. Rendell (1981) 55 A.L.J.R. 371. It is of course true that at the end of the day the total sum awarded is what matters to both parties. But that does not mean that the component items do not have to be separately considered. They are the necessary parts which make up the whole, and the only proper way of deciding whether the global award is too low or too high is by assessing the separate items and arriving at a fair total ... Of course the assessing Judge has a considerable range of choice because many of the variable elements in the damages cannot be precisely quantified. This applies notably to a plaintiff's loss of future earning capacity, the assessment of which "involves a double exercise in the art of prophesying not only what the future holds for the injured plaintiff but also what the future would have held for him if he had not been injured"; See Paul v. Rendell 55
A.L.J.R. 371, 372.
But if the award for loss of future earnings, or for any of the other items, is so far out of line with what the appellate court considers appropriate as to indicate that the assessing Judge has erred in principle, and if the substitution of an appropriate award for that item would make a substantial alteration in the total award, then the appellate court has the duty to make the substitution and to alter the total accordingly.' (p.67)."
Then, in dealing with the words "wholly erroneous" reference was made to the comments
of the Court of Appeal in Elford v. FAI General Insurance Company Limited (1994) 1 QdR 258 at p.264:
"Mr Williams contended that because the estimate made was not a wholly
erroneous one, the Master's decision must stand, even if affected by errors; he referred to the decision of the Full Court in Calder v. Boyne Smelters Limited [1991] 1 Qd.R. 325.
It may commonly occur that if there is an error in the estimation of one component of the award, as there has been here, it proves unnecessary to alter the whole award because a counter-balancing error in another component can be discerned."
and at p.265:
"There are other questions, as to the proper approach of appellate courts to awards of damages for personal injuries or death, than those dealt with in Keefe. But it is our opinion that this Court should not be deterred by Calder from continuing to apply Keefe, as authority for the view that, if a particular component of such an award is plainly an under-estimate or over-estimate and if substituting a proper figure for that component will substantially alter the total, then the substitution should be made; but if there is nothing more than a wrong estimate of one component which has no substantial effect on the total, the award stands. The pointing out of a relatively small error in one estimated component of a judgment which is in substance a sum of estimates does not necessarily make the judgment as a whole wrong."
Findings relative to compensation
It is not accepted as being proved that a critical component in the Land Court determination - the estimate of reduced maintainable income from the caravan park business - was "substantially, if not entirely" a consequence of the resumption. Other factors were at play by the time the adopted estimate of income was capable of support. The estimate was then the interpretation of a trend, rather than reliance on actual figures over a reasonable trading period.
While subsequent events are not excluded from consideration, a determination should not be made based on subsequent events which might not have been reasonably foreseeable by experienced persons at the date at which the determination is required to be made - the date of resumption. It is a mathematical fact that in this matter the determination would be weighted too heavily in favour of the claimant, if the estimate of maintainable income is less than might have reasonably been predicted at the date of resumption, and as a direct consequence of the resumption.
Nevertheless, I have no difficulty in accepting that, at the date of resumption, prudent experienced persons would have been anticipating difficulty in maintaining the previous level of caravan park income, due to the introduction of ramp traffic, including heavy vehicles, and the worsened visual amenity which resulted from the removal of established trees.
There seems no doubt that such persons who would have recognised the potential for future redevelopment of the total amalgamated site for commercial-industry type use, before the
resumption, would have seen some future advantage for such redevelopment flowing from the purpose for which the land was resumed. It is logical that future potential for a higher use would be recognised in the marketplace as an element influencing the yield which might be seen as acceptable to an investor.
Accepting that the before resumption income was known, and added risk attached to maintaining that income, consideration of the increased yield which might have been sought by experienced persons is an alternative to an estimation of the unknown future income which will directly result from the effect of the resumption. Similarly, the benefits which might flow from the resumption scheme, and the resultant effect on capital value, is capable of consideration in terms of the acceptable yield to an investor.
With these considerations in mind it is helpful then to analyse the global result of the Land Court’s piecemeal determination. I accept as a critical criterion the net income capable of being proved immediately before the date of resumption, with the adjustments that were made, as being an amount of $178,000 per annum.
A capitalisation rate of 19% per annum was adopted on the evidence. It has been observed, as mentioned, that while value was apportioned to the land surplus to the actual caravan park business, after resumption, neither the surplus land nor any future redevelopment potential were clearly identified as specific considerations in the adoption of the 19% capitalisation rate before the resumption.
A capital value of $937,000 was adopted, before resumption. The before value of the reduced area of surplus land was found to be $38,000 when the question of enhancement was being considered. The claimant/respondent submitted (correctly, in my opinion) that in the before valuation, the area of surplus land should have been 6,251 m² and not the 3,260 m² of residual surplus accepted by the Member as being enhanced after the resumption. That increased area would suggest a before valuation of about $73,000 for the surplus land. If the Member had intended that the surplus land be included in the before valuation of the property, as seems obvious, then the actual area occupied by the caravan park would have been valued at about
$864,000 ($937,000 minus $73,000) which would then indicate a capitalisation rate of 20.6% on a maintainable net income of $178,000. On the evidence, such a yield would be excessive, resulting in a valuation lower than that of Mr Slater, whose opinion it was that the surplus land added no value to the caravan park.
Before consideration of enhancement, an after resumption valuation of $710,000 was found ($722,000 less the allowances totalling $12,000 for the estimated cost of fencing and landscaping in lieu of replacement of trees and Council setback requirements). That valuation also included the smaller area of surplus land, valued at $38,000, reducing the caravan park component to $672,000. The estimated maintainable income before resumption ($178,000), on an after resumption valuation of $710,000, reflects a rounded yield of 25%, and on a valuation of
$672,000 a yield of 26.5%.
It is to be remembered that the opportunity for some mitigation of the deleterious effects of the resumption existed through the expenditure assessed as being $12,000. I have formed the opinion that while a reduction in income might have been anticipated, the increase in acceptable yield from 19% to 25%, (or 20.6% to 26.5%) reflects an exaggerated interpretation of what might have been seen as reasonable market expectations. I am assisted in this view by consideration of the management decision to increase rentals, at about the time when traffic commenced using the ramp.
The following analysis relates to the question of enhancement. The Land Court determination effectively increased the after resumption valuation to $737,200 ($710,000 plus
$27,200 enhancement flowing from the surplus land). This valuation, based on the before resumption income of $178,000 indicates a yield of 24.15% decreasing from 25% as a result of the enhancement. The enhancement was held however to be identified only with regard to the surplus land. In my opinion, due to the future potential, enhancement considerations should extend to include the whole of the land.
In comparison, as an example, Mr Verebes saw no enhancing influence from the purpose of the resumption, while Mr Slater's before valuation of $880,000 increased to $1,000,000. If the maintainable income of $178,000 before resumption was adopted for comparison purposes, then Mr Slater's valuations of the total property reflected yields of 20.2% and 17.8% respectively, or a reduction of 2.4% in yield as a result of the enhanced capital value.
After consideration of the evidence, I see the following valuation criteria as reflecting what I would expect to be reasonable interpretation of market considerations, on a global rather than piecemeal approach:
Maintainable income before resumption - $178,000
Yield excluding surplus land - before resumption 19% (Capital Value $937,000) Yield including surplus land - before resumption 18% (Capital Value $990,000) Yield - assuming no enhancement but with
increased risk of maintaining income after
resumption 21.5% (Capital Value $828,000)
Yield after resumption with enhancement
considerations 19.5% (Capital Value $913,000)
Adoption of these criteria would result in a valuation, before the resumption of $990,000 then $913,000 after the resumption.
The determination of the Land Court is indicated as being too generous in favour of the claimant, and in my opinion adjustment is warranted.
I adopt the following assessment:
Valuation before resumption $990,000
Valuation after resumption $913,000 Compensation including loss of land, injurious
affection and enhancement set-off $77,000 Temporary loss of Australian Posters rental
for signage - allow $1,300
Total compensation $78,300
Finding
I would allow the appeal with compensation determined in the amount of Seventy-eight Thousand Three Hundred Dollars ($78,300). I would order that the constructing authority pay the claimant interest on the amount of $78,300 at the rate of 9.5% for the period commencing on 1st April, 1989 and ending on the day immediately preceding the date upon which the compensation is paid.
RE WENCK MEMBER OF THE LAND COURT
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