Edgarange Pty Ltd v Council of the Shire of Redland - [1997] QLC 173

No judgment structure available for this case.

[1997] QLC 173

LAND COURT

BRISBANE

29 October 1997

Re: Claim for Compensation - Acquisition of Land Act 1967

(A95-49)

Edgarange Pty Ltd
v.
Council of the Shire of Redland

JUDGMENT

Introduction

By proclamation dated 23 March 1995 and published in Queensland Government Gazette No. 61 on 24 March 1995, the Governor declared that certain land in Birkdale was taken by the Council of the Shire of Redland (the “respondent”) for Parks (Environmental Reserve and Open Space) purposes and vested in the respondent from 24 March 1995. The resumed land was Lot 207 on Plan S312736 (with an area of 2.226 hectares) and Lot 208 on Plan S312736 (with an area of 2.226 hectares) which together comprised the whole of the land in Deed of Grant 15669241 in the Parish of Capalaba (Exhibit 2). Subsequent to the proclamation, some of the resumed land adjacent to the western boundary of Lot 207 (with an area of 931 square metres) was transferred to Edgarange Pty Ltd which owns the adjoining land. Although the area of the land taken was reduced from about 4.452 hectares to about 4.359 hectares, there was no suggestion that the transfer had any effect on the assessment of compensation (Exhibit 13 page 2).

In December 1994, notice of intention to resume the land was given to Edgarange Pty Ltd (the “claimant”) although, at that date, the registered owner of the land was Lorna Maud Johnston, as executor of the will of Maud Sophia Major, deceased (Exhibit 1). Both on that date and the date on which the land was resumed, the claimant was the purchaser of the resumed land under a contract of purchase dated 22 February 1994. The contract also included other blocks of land, namely Lot 16 on RP 14149 and Lot 206 on Plan S312736, which together with the resumed land had an area of 6.475 hectares (Exhibit 35). The total purchase price was $1,800,000.00. The contract was due to settle on 22 April 1995.
           There was no dispute about the claimant’s right to bring these proceedings. The claimant had an equitable interest in the resumed land as it was the purchaser pursuant to a contract in writing at the date of resumption. The contract subsequently settled and the vendor assigned all rights of compensation to the claimant. The claimant’s rights were recognised by the respondent when it addressed the notice of intention to resume the land on the claimant in December 1994 (see Exhibit 1). If further evidence of the claimant’s entitlement be necessary, the respondent has paid a substantial sum of money by way of advance compensation to the claimant.
In its claim for compensation dated 11 April 1995, the claimant sought a total of $1,577,115.00, being a claim of $1,515,000.00 said to be the market value of the land and $62,115.00 for disturbance. At the start of the hearing, the claimant (with the leave of the Court pursuant to section 24(2) of the Acquisition of Land Act 1967 and with the consent of the respondent) amended the claim to a total of $1,278,990.20, comprising $1,263,000.00 for the loss of land and $15,990.20 for disturbance (being legal and valuation fees).
           The respondent’s contention about the appropriate amount of compensation changed during the hearing. The first of the valuation reports tendered on behalf of the respondent (Exhibit 14) assessed the compensation payable as a result of the resumption to be $612,000.00 plus reasonable legal and valuation fees if incurred and interest at the appropriate rate from the date of resumption to the date of settlement. Later versions of the report assessed the compensation to be $650,000.00 if, as it submitted, the respondent would only approve 32 residential lots on the land (Exhibit 38) or, alternatively, $830,000.00 if, as the claimant submitted, a 41 lot subdivision would have been approved (Exhibit 39). Again, reference was made to legal and valuation costs and to interest.
           By the end of the hearing the parties had agreed that the amount payable to the claimant for disturbance was $12,088.00, comprising $5,888.00 for valuation fees and $6,200.00 for legal and survey fees.
           The claimant was represented in these proceedings by Mr CL Hughes of counsel. Oral evidence was given on the claimant’s behalf by Mr RT Campbell (a civil engineer), Mr JL Fiteni (a registered builder and land developer who is the principal director of the claimant) and Mr MJ Slater (a registered valuer). The respondent was represented by Mr SM Ure of counsel. Oral evidence was given on the respondent’s behalf by Mr BF Wing (a consulting engineer), Mr BT Appleton (a civil engineer who is the Manager of Development Services of the respondent) and Mr BA Hall (a registered valuer).
           On the first day of the hearing, the representatives of the parties and the Land Court inspected the resumed land and neighbouring parcels owned by the claimant.
Assessing the amount of compensation payable - the statutory criteria
           The Acquisition of Land Act 1967 provides:

“Assessment of compensation
20.(1) In assessing the compensation to be paid, regard shall in every case be had not only to the value of land taken but also to the damage (if any) caused by either or both of the following, namely -
(a)the severing of the land taken from other land of the claimant;

(b)the exercise of any statutory powers by the constructing authority otherwise injuriously affecting such other land.

(2) Compensation shall be assessed according to the value of the estate or interest of the claimant in the land taken on the date when it was taken.
(3) In assessing the compensation to be paid, there shall be taken into consideration, by way of set-off or abatement, any enhancement of the value of the interest of the claimant in any land adjoining the land taken or severed therefrom by the carrying out of the works or purpose for which the land is taken.
(4) But in no case shall subsection (3) operate so as to require any payment to be made by the claimant in consideration of such enhancement of value.”

The claim did not include claims for damage (either by severance or injurious affection) or of enhancement but was confined to the value of the land taken and disturbance costs comprising legal and valuation fees.

Valuation methodology
           The parties’ valuers agreed on two key points in relation to the valuation of the resumed land. First, each valuer considered that the highest and best use of the land is for residential subdivision purposes (Exhibit 13 page 5, Exhibit 38 page 2, Exhibit 39 page 2).
           Second, each valuer stated that the most appropriate method of assessing the value of the resumed land was by reference to a hypothetical development of that land. Mr Slater explained that he had been unable to identify any sales of in globo residential development land which might provide a reliable guide to the value of the land by direct comparison. He considered that, in the circumstances of the subject land at the date of resumption, the uncertainties sometimes associated with this method are minimised because reliable data was available to formulate the elements used in the calculation (Exhibit 13 page 5). He suggested, however, that the value of $1,263,000.00 which he calculated for the resumed land, and which was an average of $283,693.00 per hectare (not the $270,000.00 he suggested), was “reasonable having regard to sale prices of englobo land in other areas of similar quality and considering the attributes of the subject land” (Exhibit 13 page 6).
           Similarly, Mr Hall stated that the appropriate and accepted method of valuation to take into account the specific features of the subject land is by the hypothetical valuation method. In the first three versions of his valuation report (Exhibits 44, 14 and 48) Mr Hall referred to three other in globo sales in the area in 1994 but wrote:

“At best, sales of inglobo future subdivision land, are only a general guide to the market value of other inglobo land as development costs, lot yield and council conditions vary considerably from block to block even when the blocks are adjoining.
Therefore, without the benefits of detailed Feasibility Studies on each block of inglobo land sold, it is not possible to make use of inglobo sales for direct comparison purposes.

In view of this inability to make an accurate comparison with sales evidence, the market relies on detailed feasibility studies to determine the price a developer is prepared to pay for inglobo subdivision development land, so as to achieve an acceptable profit and risk margin.
It is this perceived ability to achieve an acceptable profit margin and not the price someone else has paid for another block of land that determines the market value of inglobo subdivision land.
Therefore, the appropriate and accepted method of valuation to take into account the specific features of the subject land is by the hypothetical valuation method.”
In light of later detailed evidence concerning the subject land, Mr Hall said that the other in globo sales to which he had referred in the first three versions of his report lost any significance which they may have had.
Valuation - the competing calculations
The claimant’s final claim for $1,263,000.00 for the loss of land was based on the following calculations made by Mr Slater.

Gross realisation 41 Lots at $ 76,244 average $3 126 000
Less: Selling Costs

Commission  REIQ                  3.09%     $96 600
  Advertising & Promo       per lot                $650      $26 650
  Legals  per lot                $250      $10 250
  $133 500
  $2 992 500

Net realisation
Less: profit and risk 25.00% $598 500
$2 394 000
Less: Development costs

roadworks & drainage  $351 361
  sewerage reticulation  $ 84 454
  water reticulation  $ 38 230
  sewerage headworks  $ 98 400
  water headworks  $ 98 400
  underground electricity  $ 70 818
  Council fees  PAID
  tree planting  $ 2 050
  survey fees  $ 36 080
  engineering fees  $ 44 324
  contingencies     10 %     $ 544 863            $ 54 486
  titles & legals      per lot            $70               $2 870
  per lot     $ 21 499  $881 473
  $1 512 527
Less                  Interest on Development costs
  half of     17.7       months at           9.70%     $ 62 940
  $1 449 587

Less: holding charges
     Rates  $650 000
            0.94%     Hold. Per            $6 078 per annum average        $0
  Dev. Per  $10 973

Land Tax
            125% Hold. Per                $8 060 per annum average        $0
                   Dev. Per  $10 075
  $ 21 048
  $1 428 539
Less: Interest on land and acq costs
            Holding Period
  0 months           9.70%  $0
            Development and sale period half
  22 months           9.70%  $115 024
  $115 024
  $1 313 515
Less: Acquisition costs  4.00%     $50 520               SAY      $ 50 520

Value of land $1 262 995

ADOPT $1 263 000

It is appropriate to make a number of observations about Mr Slater’s approach. First, the 41 lot selling prices for the resumed land were adopted having regard to sale prices achieved principally in the subdivision immediately to the west of the resumed land. According to Mr Slater, each lot was priced separately and the notional gross realisation was $3,126,000.00 showing an average price of $76,244.00 (see Exhibit 13 page 5, Exhibit 43). Mr Fiteni’s evidence suggested that a less precise hypothetical method was used, so that the average price of 41 parcels developed on the land adjoining the resumed land (that is, $76,244.00) was applied to the 41 notional allotments on the resumed land. Whichever approach was used, the average figure was adopted by both parties in these proceedings. Second, the development cost estimates were prepared by Ross Campbell and Associates, consulting engineers. Mr Campbell gave evidence at the hearing and his figures were adopted by both parties. Third, Mr Slater adopted a profit and risk factor of 25%, about which more will be said later in these reasons for decision. Fourth, as noted earlier, Mr Slater considered that the resulting value of $1,263,000.00 was “reasonable having regard to sale prices of englobo land in other areas of similar quality and considering the attributes of the subject land” (Exhibit 13 page 6).
The respondent provided two sets of calculations of the value of the resumed land prepared by Mr Hall.
First, on the assumption that 32 lots would be approved, he valued the land at $650,000.00. His calculations were as follows:

Gross Sales

Gross sales of 32 lots at average price of $76,244 per lot $2,439,808

Less Selling Costs

Commission at $2,356 per lot  $ 75,390
Advertising at $650 per lot  $ 20,800
Legals at $250 per lot  $ 8,000  $ 104,190

NET REALISATION $2,335,618

Profit and Risk

Less Developers Profit and Risk at 57% $ 847,963

$1,487,655
Development Costs

Less Development Costs as per Michael Slater’s valuation
@ $21,499 per lot  $687,968
Plus interest on Development Costs for half
17.7 months @ 9.7%  $ 49,217  $ 737,185
  $ 750,470

Less Holding Charges - Rates & Land Tax allow $ 16,428
$ 734,042

Less Interest on Inglobo land value and acquisition
costs for half 22 months @ 9.7% $ 59,929
$ 674,113

Less Acquisition costs @ $4% $ 26,965
In Globo land value $ 647,148

ADOPT - $650,000.00

On the alternative basis that the resumed land would yield 41 residential lots, he calculated the value of the land to be $830,000.00. His calculations, contained in Exhibit 39, were as follows:
Gross Sales
Gross Sales of 41 lots at average price of $76,244 per lot  $3,126,000.00
Less Selling Costs
Commission at 3.09%  $96,600
Advertising at $650 per lot  $26,650
Legals at $250 per lot  $10,250  $ 133,550

NET REALISATION  $2,992,450
Profit and Risk
Less Developers Profit and Risk at 57%  $1,086,431
  $1,906,019
Development Costs
Less Development Costs as per Michael Slater’s valuation  $   881,473
  $1,024,546

Plus interest on Development Costs half of 17.7 months @ 9.7%  $     62,940
  $   961,606
Less Holding Charges - Rates & Land Tax  $     21,048
  $   940,558
Less Interest on Inglobo land value and acquisition
costs for half 22 months @ 9.7%  $    76,790
  $   863,768

Less Acquisition costs @ 4% $ 34,550
In Globo land value $ 829,217

ADOPT          -          $830,000.00
           As Mr Hall’s calculations show, he adopted the figures used by Mr Slater in relation to the average sale price of each allotment, the selling costs (that is, commission, advertising and legal costs), development costs, interest on development costs, holding charges (rates and land tax), the rates of interest on land and acquisition costs, and the percentage allowed for acquisition costs. He differed from Mr Slater in allowing a profit and risk factor of 57%.
           For the respondent it was submitted that two other checks support the valuation of the resumed land. First, the average rate per hectare on the purchase price paid by the claimant for 20.903 hectares of the resumed land and adjoining land was $186,576.00. Applying that rate to the subject land gives a total of $830,637.00. (There was other evidence that the area of the subject land was 20.902 hectares, which gives an average of $186,585.00 per hectare. The figure of 20.902 is used in these reasons for decision, but nothing turns on the difference.) That approach is premised on all parcels in the aggregation being of equal value. There was evidence about the relative value of the resumed land and other land within the aggregation. That evidence is discussed later in these reasons for decision. For immediate purposes I note that, in his valuation report on a 32 lot development, Mr Hall wrote:

Because of the amount of the subject resumed area susceptible to Q100 flooding and requiring a drainage reserve, it is considered that the resumed area is less valuable per hectare than the overall aggregation average rate. However, this valuation is based on the assumption that the subject land is similar to the average of the balance of the aggregate apart from the assumption that Council would only approve 32 lots.” (Exhibit 38 page 3)

Second, the respondent relied on Mr Fiteni’s statement that he does not pay more than $20,000 per lot for the raw land value of areas which he intends to develop. On that basis, if 41 lots could be developed, the value of the resumed land would be up to about $820,000.00. Mr Hall characterised that approach as a “developer’s rule of thumb method” and not one used by valuers. Nor, for present purposes, is it a method of determining the value of land with approvals in place for its highest and best use for residential subdivision purposes.

The issues
During the course of the hearing some of the matters in dispute between the parties were resolved. Consequently, by the end of the hearing, it was apparent that the determination of this claim depends on the answers to two questions namely:

(a)At the date of resumption, did the resumed land have potential to be developed for 32 residential blocks or 41 residential blocks?
(b)What is the appropriate rate to be allowed for profit and risk in determining the amount of compensation payable?

The answer to the first question turns on whether, if the land had not been resumed, part of the land which is below the Q100 floodline would have been subdivided and developed for sale for residential purposes.
           To answer these questions, it is necessary to consider the physical features of the resumed land and compare that land with the neighbouring blocks purchased by the claimant. It is also necessary to consider the respondent’s policy concerning development around watercourses, such as the one which traverses Lot 207 on the resumed land, and whether the respondent would have approved development of some of the watercourse land or, if the respondent would not have approved such development, whether proceedings in the Planning and Environment Court would have led to the development being approved.
The resumed land and the remaining land
Physical features: The resumed land comprises two of a seven lots aggregation in the suburb of Birkdale, bounded to the north by Collingwood Road and to the south by Burbank Road - namely Lots 204, 205, 206, 207 and 208 on Plan S 312736 and Lots 15 and 16 on RP 14149 (the “subject land”). The subject land has a total area of approximately 20.902 hectares.
           The resumed land is rectangular in shape. Its southern boundary has a frontage of 221 metres to Burbank Road, and it has a depth of 201 metres. Immediately to the west of the resumed land are (from east to west) Lots 206, 205 and 204. Immediately to the north of Lots 204-207 are Lots 15 and 16 which together have a northern boundary of approximately 350 metres to Collingwood Road. The claimant owns all of Lots 15, 16, 204, 205 and 206 (Exhibit 4).
           A report prepared by Brannock Humphreys, Planning and Environment Consultants, describes the subject land in the following terms:

“The topography of the subject land can be described as gently sloping and elevated. The land rises gradually in the north west from Burbank Road towards the south, and slopes from the west to the east, with a gully traversing Lot 207 in a north-east to south-west direction. The land rises gradually from Lot 207 to the east of the subject land. A slight ridge is evident on the subject land to the centre of Lot 205, and extending across the northern boundary of Lots 205 and 206.” (Exhibit 11, page 2)

The resumed land is of medium elevation with the highest area at about 30 metres AHD in the south-eastern corner. The land falls from here with an easy slope generally in a south-east to north-west direction at 1 in 15, or 6.5 %, gradient to the gully. The land is well drained, “well forested” or “reasonably heavily forested”, and is the subject of a Tree Preservation Order so that only selective clearing would be permitted and this would only be within the designated areas for construction purposes (Exhibits 13, 15, 17, 17A, 39).

           There was some disagreement about the relative merits (and hence the relative values) of the various Lots. When comparing the resumed land with the average of the other parts of the subject land Mr Hall said that, if a 41 lot subdivision was approved, the resumed land would be similar to that land but, if 32 lots were approved, it would be inferior. Mr Slater agreed that, if the land below the Q100 level was “undevelopable”, it would be correct to say that the resumed land is less valuable on a rate per hectare basis than the subject land generally on a rate per hectare basis. In his opinion, however, the low land could be developed.
           Mr Fiteni described the resumed land as “definitely better” than the adjacent Lot 206 and “slightly better” than Lot 16. In his opinion, Lot 206 is “definitely ... the worst parcel in the whole lot by far”. His assessment was influenced by “the quality of the land up top on the high side of 208” and by other factors, such as the need to cut into two of the blocks on Lot 206 where it was not possible to fill them.
           The expert valuers took a less extreme view, but were in general agreement about the relative worth of those parcels. As Mr Slater stated, the slope on the Lot 206 land is “somewhat steeper” than the slope across the resumed land (see Exhibit 13 Annexure C). In his opinion, the market for residential lots is becoming increasingly resistant to lots with a “significant slope across them”. Consequently, at least one developer has adopted the practice of “levelling and retaining” blocks for sale in that part of a residential estate where the land was “steeper but not greatly steeper” than Lot 206 (see photographs Exhibit 45). Most of the part of the resumed land which would have been developed has a more gradual slope and, because fill would be required on the blocks proposed to back on the watercourse traversing Lot 207, those blocks would have been relatively level before sale.
           Mr Hall considered that “overall” Lot 206 and the resumed land were “somewhat similar”, but that the resumed land is “slightly better” when the “advantage” of the higher land on the eastern side of Lot 208 and the “disadvantage” of the low land on the western side of Lot 207 are taken into account. He considered that the resumed land had a disadvantage of being on a westerly slope with more difficult access to the prevailing south-east breezes. Lot 206, although “slightly steeper”, had the advantage of an easterly slope and a smaller proportion of low lying, gully-type land.
           Mr Fiteni said that, as a house builder, he had no concerns that the westerly aspect provided by lots on the resumed land would affect the marketability of house blocks. In Mr Slater’s experience, the westerly aspect of allotments on the resumed land would not have had a “great impact” on the sale price. That assessment was confirmed by reference to the sale prices obtained for allotments with a westerly aspect on Stage 1 of the development of the subject land to the west of the resumed land.
           Mr Slater also stated that, so long as any fill material is of a reasonable quality and is properly placed and compacted, the presence of fill on land would not have “any effect at all on the end price”. Again there is some sales evidence from Stage 1 (as well as other developments) to support that observation. Mr Fiteni had not experienced any market resistance to blocks with fill and he did not expect that the proposed housing allotments which backed onto the watercourse on Lot 207 would have achieved dramatically lower prices because of the fill. He contended that he “would have got approximately the same prices” for the 41 developed blocks on the resumed land as were paid for the 41 blocks in Stage 1 of the development on the neighbouring land, which averaged $76,244.00 (see Exhibit 43).
           The evidence of relative value just summarised finds some support in marketing evidence. If the resumed land is to be valued on the basis that an average lot would sell for $76,244.00, it should be noted that that price is not significantly higher than the average price of $75,792.00 being asked for the 12 developed lots (which ranged in price from $72,000.00 to $80,000.00) on the Lot 206 land, even allowing that three of the blocks front the bushland park (see Exhibits 42, 47).
           No detailed comparison was made between the resumed land and each other part of the subject land. The question of how many allotments could have been developed on the resumed land will be discussed later in these reasons for decision.
Purchase price: The respondent sought to place some reliance on the purchase price for the subject land to indicate the value of the resumed land at the date of resumption. Although it was only to be used as a check on the result reached by Mr Hall, much attention was given to the purchase price in the course of the hearing.
           The various Lots comprising the subject land were all purchased by the claimant subject to three contracts for purchase dated 22 February 1994. Lots 204 and 205 were sold for $1,050,000.00 (Exhibit 33), Lots 206, 207, 208 and 16 were sold for $1,800,000.00 (Exhibit 35), and Lot 15 was sold for $1,050,000.00 (Exhibit 34). The total purchase price was $3,900,000.00, an average of almost $186,600 per hectare for all the land purchased. According to Mr Fiteni, he had had a price in mind for the whole aggregation and had offered separate amounts for the parcels purchased separately. In his opinion, the claimant paid a fair market price for the land.
           There was some discussion about whether the apportionment of the total purchase price among the aggregated parcels reflected the relative values of those parcels. The purchase price for the aggregation of lots which included the resumed land was an average of about $277,992.00 per hectare. A letter from the claimant’s solicitors to the vendor’s solicitors in February 1995, before settlement of the purchase, apportioned the total consideration for the land between Lot 206 ($240,000.00), Lot 16 ($640,000.00) and Lots 207 and 208 ($920,000.00 - an average $206,649.00 per hectare). That apportionment was made on the purchaser’s instructions “based on elevation of the land, the number of blocks which are approved by council in the subdivisional approval and based on the values and contract prices for the purchase of lots 15, 204 and 205” (Exhibit 14). It was also made after the claimant was aware of the respondent’s intention to resume the land. Mr Fiteni said that the amount apportioned to the resumed land was calculated taking into account the relative benefits of the various lots only in so far as the resumed land “was average land”.
           The average price per hectare in each of the three contracts is significantly different from the others, with the purchase price for the land including the resumed land having the highest average price per hectare. Without evidence about the features of all of the parcels other than Lot 206 it is not possible to ascertain whether the apportionment bore a direct relationship to the relative worth of the various parcels. Such an assessment is not crucial, however, to the determination of this case.
Having heard the evidence of Mr Fiteni about the purchase of the subject land (including the resumed land), Mr Hall formed the opinion that the claimant purchased the subject land at what the claimant considered to be fair market value and that the sale took place under conditions recognised to be conducive to a fair market value being paid.
Mr Hall placed “full credence” on the purchase price for the subject land but questioned whether the apportionment of prices between the three contracts reflected the relative values of the parcels so purchased. In his opinion, there is not the variance in value between the various parcels on a per hectare basis that the contract prices suggest. In particular, he did not accept that the price of $1,800,000.00 for land including the resumed land reflected the true value of that land. He preferred the average rate of $186,576.00 per hectare for the subject land rather than the average rate of $277,992.00 per hectare calculated by reference to the $1,800,000.00. I agree, and did not detect any strong disagreement on the part of the claimant. Accordingly, it is appropriate to consider only the purchase price of the whole of the subject land as any guide to the possible value of the resumed land at the date of resumption.
           It was suggested by the claimant’s representatives that, when determining the value of the resumed land at the date of resumption, two factors about the purchase price for the subject land must be borne in mind. First, because the date of the contract was about 13 months before the date of resumption, regard should be had to shifts in the market for in globo land through that period. Second, completion of the purchase was conditional on rezoning and subdivision approval being given, and the purchaser bore the cost of obtaining the relevant approvals. Having regard to those factors, Mr Slater commented that the contract price and the value of the resumed land at the date of resumption “are not necessarily reconcilable”. Indeed, he expressed the view that the property contracted for in 1994 was “a vastly different proposition” from the property resumed in 1995.
           With respect to the first factor, the claimant submitted that gains in the market for in globo land would have resulted in the resumed land being more valuable at the date of resumption than at the date of contract. By constrast the respondent submitted that given the lack of movement or decline in the market for residential land the date of the contract was sufficiently close to the date of resumption for the purchase price to provide clear guidance about the value of the resumed land at that later date.
           The claimant relied on opinion evidence from Mr Slater that the market for in globo land was “very very strong” and “was certainly increasing through that period” between the date of the contract and the date of resumption. Although firm in his opinion, Mr Slater conceded that it would not be possible to find evidence of movement in that market.
           Mr Hall acknowledged that at least eight developers (including the claimant) were competing for in globo parcels of land in the district of the subject land between 1994 and 1995, but he did not agree that there was a rising market for such land in the period between the date of the contract and the date of resumption. In his opinion, the market for residential sites was “quite strong” until May-June 1994 when it “started to downturn”. The number of sales of residential blocks started to drop, and the market continued to be “very tight, very subdued”. He said that the residential market “declined substantially” in that period and he expected that developers would not have been prepared to pay as much in early 1995 as they would have been in early 1994. In Mr Hall’s opinion, the markets for residential land and in globo land are essentially the same in the sense that the residential lot market is the product of the in globo development market.
           There was documentary evidence that interest rates increased between September 1993 and January 1995 and that, for the years 1993 to 1995 inclusive there was a steady drop in the annual number of vacant land sales in Redland Shire generally and Birkdale in particular (Exhibit 46). Mr Slater, however, stressed that that documentary evidence was of little relevance to these proceedings. First, it related to residential house lots rather than in globo land. Given the scarcity of in globo land, there had been no correlation between the rates of sales of residential lots and the value of in globo land. Second, the schedule did not show the availability of lots for sale and the absence of such information was relevant in assessing market factors.
           I am persuaded that, although there may be a strong link between the market for in globo land and the market for residential home sites developed from in globo land, Mr Slater drew an appropriate distinction between the two for the purposes of this case. Consequently, I conclude that the market for in globo land was not declining between the date of the contracts and the date of resumption. Although Mr Slater’s critique of that part of the respondent’s case is accepted, there was no sales evidence from the claimant to demonstrate the extent of the movement in the market for in globo land subsequent to the purchase of the subject land. In the absence of such evidence I can do no more than conclude that, although the market did not decline in the 13 months after the contracts for purchase, the extent of any rise in the market was not proved.
           There was also dispute about the second factor, namely the significance of the conditions in the contracts of purchase of the subject land for the purchase price of the land and the value of the resumed land at the date of resumption. To reach a conclusion about that matter, it is necessary to consider what factors the claimant took into account when agreeing to buy the subject land and the relevant conditions of the contracts of purchase.
           Before the claimant contracted to purchase the subject land, Mr Fiteni was aware that the then owner of the land had, in November 1993, obtained support from the respondent for an application for consideration in principle for the rezoning of the subject land from Rural/Non Urban to Residential A Zone and for subdivision of the land into 144 allotments (Exhibits 9, 10). Mr Fiteni had received advice from his surveyor that the subject land would yield in the order of 211 allotments. The latter figure, together with a preliminary estimate of development costs and of the price which developed lots would bring in the local market at that time, had influenced what he assessed to be a fair market price for the subject land. A total purchase price of $3,900,000.00 for land capable of yielding 211 blocks is an average price of about $18,500.00 per block and is consistent with his expressed willingness to pay up to about $20,000.00 per allotment for the raw land.
           Two of the three contracts to purchase lots in the subject land - including the contract for the purchase of the resumed land and adjoining Lots 206 and 16 - provided that the contract “has been entered into by the purchaser with the intent of developing the subject land” and accordingly was subject to certain conditions being satisfied within specified time periods. For present purposes it is relevant to note, in relation to the resumed land, that the special conditions included, in summary:
(a)rezoning of the land being recommended by the respondent (without objector appeals being filed with the Planning and Environment Court) within 300 days from the date of contract;
(b)publication in the Gazette of an Order in Council rezoning the land to the Residential A zone within 365 days from the date of the contract;
(c)approval being given by the respondent of subdivision of the land “into individual residential allotments of a design and in a number desired by the purchaser, such approval to be in terms and conditions totally satisfactory to the purchaser”.
The vendor authorised the claimant purchaser to “make all applications necessary to obtain the approvals referred to in these special conditions” and agreed to assist in specified ways. It was agreed that “all costs relative to such applications and plan registration shall be the costs of the purchaser including but not limited to consultants expenses, application fees, advertising fees and all other expenses properly and necessarily incurred in relation to such applications”. Evidence was given that the application costs incurred by the claimant in relation to seeking the rezoning and subdivision of the resumed land totalled $19,327.00 (Exhibit 36). One must be cautious in equating cost with value in these circumstances.
           In Mr Hall’s opinion, the subject land was not more valuable at completion than at the date of the contract because the price was subject to approvals being given and the price “was struck on the basis of a price for approved land”. The claimant’s activity between the date of the contract and the date of resumption amounts to being able to consummate a contract for approved land. That assessment, however, does not fully reflect the context or content of the contract.
           I am satisfied that the claimant paid a fair market price for the subject 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 the purchaser. The conditions of the contract relating to rezoning and subdivision approval, and the vendor’s agreement to do what was necessary and appropriate to assist the claimant to obtain the approvals, also show that the land was purchased on the understanding that the land had potential for development in the way contemplated by the claimant. The respondent’s response to the previous application for consideration in principle for the rezoning and subdivision of the subject land (albeit into fewer allotments than the claimant hoped to achieve) confirms that the potential was there. At the date of purchase, however, the land could not be said to have achieved its potential. Indeed, the fact that two contracts provided that the claimant was to bear the cost of obtaining approvals and the fact that the completion of those two contracts was conditional upon the approvals first being obtained, demonstrate that the purchase price could not 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.
           The picture is further complicated by the fact that, although two of the contracts were for delayed completion subject to conditions, the purchase of Lots 204 and 205 was settled 30 days from the date of the contract (Exhibit 33). It was suggested that:
(a)       the latter contract provided an incentive to the claimant to purchase all of the subject land;
(b)because the price paid for land in an unconditional contract might have been less than the price on a conditional contract where settlement was deferred for one year, the total price might have been influenced by the different conditions on which the various Lots were sold; and
(c)although the total price for the subject land may have reflected a fair market value for all that land at the date of contract, the three contract prices and the subsequent apportionment of values do not provide an accurate guide to the value of the respective Lots at the date of purchase.

For completeness, it should be noted that there were no separate valuations of the various parcels of land which were aggregated to comprise the subject land.
           I am satisfied that those factors should be taken into account when considering the relevance of the purchase price to the determination of the value of the resumed land at the date of resumption.
           Having regard to the market factors discussed earlier and the contractual conditions just described, that the value of the resumed land at the date of resumption cannot be determined simply by multiplying the average rate per hectare in the 1994 contract price for all the subject land by 4.452. If the matter had been so easy to resolve, it is unlikely that the parties would have brought the dispute to this Court.
           Consequently, it is necessary to deal with the matter in the way agreed by the parties, with the principal focus being on the development potential of the resumed land at the date of resumption and the appropriate profit and risk factor to be used in the calculations.

Development potential of the resumed land
           In deciding whether, if it had not been resumed, the resumed land could have been subdivided and developed for 41 or 32 residential allotments, it is possible to look at the respondent’s design standards, as well as plans, applications and approvals for the rezoning and subdivision of land which adjoins or, in relevant respects, is comparable to the resumed land.
           Although there was no dispute that the land, including the resumed land, had potential for residential development, the extent of the development potential of the resumed land can be determined by reference to the development of other parcels of the subject land.
           For present purposes it is appropriate to consider the subject land as three separate sites:
           Site 1 (comprising Lots 204 and 205) has an area of 4.046 hectares
           Site 2 (comprising Lots 207 and 208 - the resumed land) has an area of 4.452 hectares
           Site 3 (comprising Lots 206 and Lots 15 and 16) has an area of 12.404 hectares.
           For reasons associated with the different ownership circumstances of three sites that comprised the subject land, and the proposed staging of the development, three separate rezoning and subdivision applications (for a total of 207 allotments) were made.
           An application was made for the rezoning of the Site 1 land from Rural/Non Urban Zone to Residential A Zone and the subdivision of the land into 41 allotments. As the respondent had failed to decide the application within the statutory prescribed time limit, the claimant appealed to the Planning and Environment Court on the basis of a deemed refusal. It was Appeal No. 211 of 1994. Despite numerous objections to the rezoning (more objections, Mr Fiteni said, than for the application in relation to the resumed land), the matter was resolved by a consent order of the Court in January 1995 (Exhibit 5).
           The application for rezoning of the Site 2 land from Rural/Non Urban Zone to Residential A Zone and the subdivision of the land into 41 allotments was, on the basis of a deemed refusal, the subject of Appeal No. 252 of 1994 in the Planning and Environment Court. By consent, and on the respondent undertaking to take certain steps to facilitate the resumption, the Court did not decide the appeal but in January 1995 adjourned it to a date to be fixed (Exhibit 7). Consequently, at the date of resumption, the land was zoned Rural/Non Urban.
           The application for the rezoning of Site 3 from Rural/Non Urban Zone to Residential A Zone and the subdivision of the land into 125 allotments was, on the basis of a deemed refusal, the subject of Appeal No. 257 of 1994 in the Planning and Environment Court. It was resolved by a consent order of the Court in January 1995 (Exhibit 6).
           The relevance of the appeals to the Planning and Environment Court will be discussed a little later in these reasons for decision. However, it is important to note that, consistently with the application in relation to Site 2, the claimant’s application for compensation was calculated on the basis of a hypothetical subdivision of the resumed land into 41 allotments. The respondent contended that only 32 allotments could be permitted on the resumed land. Although there was some mention of the possibility that an intermediate number of allotments might have been approved, that possibility was not actively pursued by either party. Given the level of agreement between the parties on a range of relevant matters, I am content to adopt the two figures as the obvious alternative outcomes of the hypothetical subdivision exercise.
Use of land below the Q100 floodline: The number of allotments which might have been permitted on the resumed land is determined by deciding whether, if the land had not been resumed, approval would have been granted for that part of the resumed land below the Q100 floodline to have been subdivided and developed for sale for residential purposes. The location of the Q100 level across Lot 207 and the south-eastern corner of Lot 206 was clearly marked on a plan tendered by the claimant (Exhibit 18). Mr Campbell explained why the watercourse did not coincide at all points with a particular contour.
           Plans showing the proposed subdivision of the subject land, including the resumed land, demonstrated that at least nine of the proposed housing allotments would back on to the creek and would include areas requiring fill below the Q100 line. The fill would be placed not only on land below that line but, because of the respondent’s requirements that fill be 300 mm above the level of the Q100 line, would extend onto parts of the land above that line.

The evidence which suggested that the claimant would not have secured approval for the subdivision and development of Lots 207 and 208 in a way which would have involved the filling of some of the land below the Q100 line included:

various Council documents which contained design standards for such areas and which were operative at the date of resumption;
evidence of the technical advice which the respondent would have received from its staff about whether to approve the proposed subdivision and development of the resumed land;
the failure (amounting to a deemed refusal) of the respondent to approve other projects in the Shire which involved filling land below the Q100 line; and
the fact that the resumed land was taken for Parks (Environmental Reserve and Open Space) purposes.
Evidence indicating that the claimant might have secured approval for subdivision and development of Lots 207 and 208 in a way which would have involved the filling of some parts of the land below the Q100 line included:
early advice from some Council officers;
approvals given by the respondent to other proposed developments which involved filling areas below the Q100 line; and
as already mentioned, consent orders of the Planning and Environment Court allowing development of land in the district of the resumed land and which was below the Q100 line.

Because the evidence pointed to different conclusions, it is appropriate to consider in some detail the competing factors which are relevant to the determination.
Design standards: Various documents setting out the respondent’s design standards for subdivisions were tendered. The respondent highlighted those passages concerning watercourses, and it is appropriate to quote them.
The Design Standards for Subdivisions dated December 1991, which were operative at the time when the rezoning and subdivision applications were made, provided:

“5.0 NATURAL STREAMS

5.1 Existing watercourses and bank vegetation shall be maintained.
4.2 (sic) Filling shall not be permitted in land below the 100 year ARI flood level.

5.3 Allotment levels adjacent to streams shall not be lower than the higher of 500 mm above the 50 year ARI flood level or 300 mm above the 100 year ARI flood level.

5.4 ...” (Exhibit 21)

The Interim Design Standard for Developments dated January 1995, provided:
“5.0 NATURAL STREAMS

Existing watercourses and bank vegetation shall be maintained.

Filling shall not be permitted in land below the 100 year ARI flood level.
Allotment levels adjacent to streams shall not be lower than 300 mm above the 100 year ARI flood level.” (Exhibit 23)

Those Interim Design Standards were in operation at the date of resumption and were referred to in the consent orders of the Planning and Environment Court in relation to Site 1 and Site 3.
The revised version of the Interim Design Standards for Development, dated December 1995, stated:

“5.0 NATURAL GULLIES, DRAINAGE PATHS AND FLOOD PLAINS
Natural vegetation shall be maintained in all natural gullies or drainage paths and flood plains.

Filling shall not be permitted on land below the 100 year ARI flood level.
Allotment levels adjacent to watercourses and natural gullies, drainage paths and flood plains shall not be less than 300 mm above the 100 year ARI flood level.
For the purpose of this assessment a natural gully or drainage path shall be defined as land, primarily in a natural state, which is inundated from time to time by the passage of stormwater runoff from a catchment exceeding an area of 5 ha. Where the catchment is less than 5 ha. and the stormwater runoff from a development cannot be contained in the underground system combined with the overland flow for the ARI 100 year storm, the natural drainage path shall be retained upstream for the extent required. In such situations, the catchment may be less than 5 ha. Refer Section C of this Chapter, regarding limitations on proportions on underground drainage and overland flow.
Council is continually upgrading flood information in the Shire and, in the future, will endeavour to provide “regulation lines” which will define the limits of the ARI 100 year storms in various catchments. When available, this information will be obtainable on request.
It is Council’s intention, as stated in Local Planning Policies, that watercourses, flood plains and significant natural drainage paths be retained for environmental purposes.” (Exhibit 22)

A comparison of the January 1995 text with the subsequently revised version shows a change in terminology from “natural streams”, “watercourses” and “streams” to “natural gullies” and “drainage paths”, together with a definition of those two terms. Mr Campbell traced the change in terminology to an exchange of correspondence between himself and the respondent in which, he said, he drew the respondent’s attention to the “natural stream” provisions and, apparently, convinced the respondent to allow fill on the neighbouring Lot 206 because the watercourse crossing Lots 206 and 207 was not a “natural stream”.
           The claimant attempted to demonstrate that there was a substantial difference between natural streams, to which the design standard in operation on the date of resumption referred, and other watercourses covered by the subsequent standards. According to Mr Campbell, the appropriate design standards or interim draft design standards allowed (or did not prohibit) filling below the Q100 line.
           Mr Campbell described how water flowing through the watercourse on the resumed land comes from a fully urbanised area upstream of Burbank Road by way of a man-made open drain. Parts of the watercourse on the resumed land were previously cleared and are now revegetated. At the northern end of Lot 207 water is piped towards Palgold Court (with an overflow area) and on to Collingwood Road, from where it passes through various man-made channels and pipes to a canal estate then into the sea. Although he accepted that it is a tributary of Tarradarrapin Creek, Mr Campbell did not agree that the part of the watercourse on the subject land is a natural watercourse, or a “natural stream” of the type referred to in the relevant Design Standards in operation on the date of resumption.
           The respondent’s conditions on the approval of plans for works on Lot 206 describe that part of the watercourse on Lots 207 and 206 as an “open channel” (Exhibit 19A). Mr Appleton said that, in his opinion, the watercourse is “a natural stream” because it is “formed by well formed embankments and topography”. In Mr Wing’s view, the watercourse traversing Lot 207 was a natural stream.
In my opinion, the distinction between the types of watercourses referred to in the various versions of the design standards is not as significant as Mr Campbell suggested. Although the relevant parts of the 1991 and early 1995 documents were headed “Natural Streams”, the paragraphs referred, perhaps more inclusively, to “watercourses” and “streams”. The documents contained no definition of those terms. The subsequent 1995 revision of the standards seems to have added more examples of what, arguably, are the same class of geographical feature.
           There is, however, no need for a decision on that point. In my opinion, that part of the watercourse which traverses Lot 207 is a natural stream or watercourse. Although there may have been some clearing and revegetation of parts of the watercourse land, there was nothing in the evidence to suggest that that part of the course along which water flows was man-made. The fact that water enters the resumed land by way of a man-made open drain, and leaves the land through pipes does not prevent its route across the resumed land retaining its character as a natural stream.
On the basis that the design standards applied to the resumed land, the question is whether those standards as administered by the respondent could and would have permitted the filling of some parts of the eastern bank of the watercourse below the Q100 line.
           The documents to which reference has been made all stated that filling “shall not be permitted” on land below the 100 year ARI flood level. Mr Appleton explained that the consequence of allowing filling in flood plains is an incremental increase in the hydraulic grade which, if not controlled, can lead to flooding of upstream properties. He agreed that there have been developments in Redland Shire where an agreement has been struck between the respondent and the developer that there be no fill below the Q 100 line and where land below that line remains in the area set aside for park or drainage purposes.
           Mr Appleton said that, if the proposed plan of subdivision for Lots 207 and 208 had been lodged as an application to the respondent, he would have recommended, in relation to the allotments which are partially below the Q 100 line, that “the boundary between allotments and the drainage reserve be shifted away from the drainage reserve to a point which coincides with the Q 100 line”. Consequently, there would be no allotments or portions of allotments below the Q 100 line.
           A version of the preliminary report by consulting engineers Saunders & Partners Pty Ltd on the proposed residential subdivision of Lots 207 and 208, apparently prepared in about August 1995, stated:

“Council’s present Policy on Parks within new subdivisions will not permit filling below the Q100 level. From our assessment it appears that Lots 32-41 are significantly affected and Lots 31-41 in particular would not be approved for development.
All allotment levels are required to be 300mm above the Q100 level.

With the restrictions advised, Lots 33-41 may only be suitable for future Park land, although this land would be predominantly below the Q100 level. It would be necessary to consult with Council for their opinion on the suitability of this land and permissible uses.” (Exhibit 15)
Mr Appleton said that matters such as this were approached consistently with the Policy Statement of the respondent on “Parks Requirements in New Subdivisions” dated 30 June 1995 (after the date of resumption), the primary objectives of which included:

“It shall be a primary objective of Council to ensure that creeks and their flood plains should be returned as far as possible to their natural state and that filling of floodplains should not be permitted for any purpose.” (Exhibit 20, page 3)

Although the respondent’s policy on parks may not have been relevant to a decision whether to approve subdivision and development along the edge of the watercourse, the other documentary and oral evidence strongly suggests that, if the design standards and the advice of the relevant officer were followed, the respondent would not have approved the subdivision of the resumed land into 41 lots.
There is authority for the proposition that, even if the testimony of the relevant officers that an application for subdivision would be likely to be approved is accepted, and even if the evidence is unqualified in content and stood unchallenged in fact, that evidence is not decisive : De Ieso v Commissioner of Highways (SA) (1981) 47 LGRA 412 at 417-418. The converse must also be accepted. In other words, evidence that an application would be unlikely to be approved is not decisive, particularly where, as in this case, there is provision for appeal to the Planning and Environment Court.
Mr Appleton said that, if a rezoning application was refused in accordance with his recommendations and a developer appealed to the Planning and Environment Court, he would maintain his opposition to the application. Although his evidence is accepted it does not constitute unqualified and unchallenged evidence of what had occurred in relation to applications involving fill of areas below the Q100 line on land comparable to the resumed land. Indeed Mr Appleton agreed that, while it is generally accepted that residential allotments in south-east Queensland should be above the Q100 line, there were many examples of residential allotments filled to the Q100 level or above at the date of resumption. Approvals of engineering drawings for some such developments were in evidence in these proceedings.
Mr Appleton also acknowledged that a diagram illustrating a regulation line in a flood plain in the respondent’s policy statement on Park Requirements in new Subdivisions showed filling about 1 metre deep at an allotment, the boundary of which followed the Regulation line. In his opinion, however, the overriding principle is contained in the primary objectives of the policy. The diagram illustrates special circumstances where filling is permitted on residential allotments under the Q100 line, such as the circumstances which applied on the neighbouring Lot 206 land.
There was other evidence that the written policy was not always followed. In an undated version of the preliminary report on the proposed residential subdivision of Lots 207 and 208 - apparently prepared in June 1995 before the document marked Exhibit 15 quoted earlier in these reasons - Saunders & Partners Pty Ltd stated:

“From discussion with Council Planning and Works Department Officers it was indicated that the drainage channel adjacent to the proposed park should be retained in its natural state.
The Council considered that the 20m Drainage Reserve as shown was adequate for the design flows forecast. The Department Officer would not want piping or concrete inverts to the Drain Reserve.
We were advised that providing the Drainage flows can be contained within the Reserve the Council would permit development of the low lying lots fronting. It would however be necessary to fill the lots to 30mm (sic) above the determined Q100 level.” (Exhibits 17, 17A)
Mr Wing identified the source of the advice and said that changes in key passages of the preliminary report were made between the first version (Exhibit 17) and the second version tendered by the respondent (Exhibit 15) because the earlier document drew on discussions with the respondent’s Works Department and the later report drew on discussions with the respondent’s Planning Department which had “another idea of just what ... we should be working to in terms of ... that parks for that policy”.
Mr Campbell said that the statement in Exhibit 17 that the respondent would permit development of the low lying lots accorded with his understanding of the respondent’s policy at the time when he was working on the subdivision. Indeed, in his experience, “it was common practice to fill below Q100”. Thus it would have been possible for the proposed 41 lot subdivision to proceed while retaining the drainage channel (or 20 metres wide drainage reserve) in its natural state.
Two technical issues were raised, namely, whether the presence of fill would cause flooding on the land and what amount of fill would be necessary to create the allotments along the watercourse. First, Mr Campbell said that it would have been possible to fill the blocks to 300mm above the determined Q100 level and for the drainage flows to be contained in that area without causing problems to upstream allotments. He did not agree that such an intrusion would dramatically change the level of major storm flows in the drainage path. Nor did he agree that it would detrimentally affect existing allotments constructed by the claimant as part of the adjacent Stage 1 project or land upstream, south of Burbank Road.

           As the hearing of the case progressed there was an increasing convergence of opinion between the experts for each party about such things as the relevant costs for the (hypothetical) development of the resumed land. By adopting averages, however accurate they might have been, there was a real risk than some of the special features of the resumed land might not have been given full consideration. For example, if approval had been given to develop the nine blocks whose area included land below the Q100 line, it would have been necessary to provide fill (most, but not necessarily all of which would have come from elsewhere on the resumed land), to compact the fill and to construct retaining walls along the watercourse. Although the evidence suggests that, all other things being equal, such blocks would have been sold for the same amount as blocks which did not require fill, the cost of developing the blocks for sale would have been greater than for developing those other allotments. By comparison, most of the blocks developed on the claimant’s land adjoining the resumed land followed the natural land form and did not require cut or fill. Such matters were not dealt with, the parties agreeing to adopt average figures for substantially comparable developments. The parties are not to be criticised for that approach - indeed the narrowing of the matters in dispute between them (including development costs) has assisted in determining this case. But the more general the figures adopted, the less confident one can be that the profit and loss factor is sufficiently accurate.
           It is clear from the reasons given by Wells J in the Florence case that this is not a matter which is susceptible to determination by precise mathematical calculation apart from the circumstances of the hypothetical subdivision being considered. Opinions will vary about relevant factors. In dealing with the difference between the parties on this issue, it is useful to bear in mind the observation of Else-Mitchell J that “the percentage deduction made for profit and risk of realization ... is a matter upon which widely different estimates might be given by expert valuers” (The Minister v Matford Nominees Pty Ltd [1973] 2 NSWLR 58 at p 60). It is also useful to note the caution expressed by Gobbo J in Coastal Estates Pty Ltd v Bass Shire Council ((1993) 79 LGERA 188) about “analysing particular purchases of broad acre lands suitable for subdivision by reference to what the purchaser was said to have had in mind when it purchased the property” (at p 198).
Basis of the claimant’s calculations: In advancing the 25% profit and risk factor Mr Slater drew on his knowledge and experience as a valuer who is in constant contact with major developers. He has observed in recent years “considerable pressure on the profits that a developer can expect from subdivision or residential land”. That pressure comes from the difficulty which developers face to buy in globo land that is suitable for early subdivision and from the level of competition between “substantial players”. He gave examples of developers working in the region with profit and risk factors in the range of 21% to 25%. In Mr Slater’s opinion, a developer looking for profit in the range of 30% to 40% “would simply not be able to buy any land”.
           Mr Hall suggested that there may be differences between the way in which developers and valuers think about profit. In his experience, some developers speak of profit in terms of gross profit on gross selling price. Some support for that suggestion may be drawn from Mr Fiteni’s evidence that he had not initially adopted a notional profit and risk margin, but “had an idea in relation to sales from the other land I’d sold around, and I just worked out what I would sell the finished lots for”. He later said that he does not calculate a profit and risk factor when ascertaining whether or not to purchase land for a specific price. By contrast it is accepted valuation practice to work out the profit and risk factor as a percentage of the total of land and development costs, which can be a significantly higher figure. Even if Mr Hall’s suggestion is accurate, there is no reason to believe that Mr Slater misunderstood the notion of profit and risk. His 25% figure, being at the higher end of the range in which he considered the market to be operating, seems to adequately reflect a level that was appropriate for land with recognised subdivision potential at the date of resumption.

Basis of the respondent’s calculations: The last in a series of calculations done by Mr Hall to estimate the profit and risk factors (Exhibit 39) - the calculations on which the respondent relied - used the total purchase price of the subject land averaged on a rate per hectare basis of $186,576.00 over all that land to give a notional purchase price of $830,637.00 to the resumed land. The figure was used despite suggestions that the resumed land was less valuable than neighbouring parts of the subject land and although Mr Hall considered that it erred on the claimant’s side. He also adopted the bond rate and time used by Mr Slater, and the holding charges, land tax, rates and development costs calculated by reference to the neighbouring land and extrapolated onto the resumed land. On the basis that the net realisation of the 41 lots would have been $2,992,450.00 and the costs would have totalled $1,906,120.00, the potential profit was calculated to be $1,086,330.00 which provides a profit and risk figure of 57%.
           Mr Hall’s assessment of what would be an appropriate profit and risk factor developed as the preparation and presentation of the case progressed. In the first two versions of his valuation report, Mr Hall valued the resumed land as if it would yield 32 lots. He adopted a 30% profit and risk factor on the basis that subdivision developers were seeking a profit and risk return of between 30% and 40%. He had adopted 30% “to give the benefit of any doubt to the dispossessed owner” (Exhibit 44 page 7, Exhibit 14 page 7). In the third version of the report, Mr Hall valued the resumed land as if it would yield a 41 lot subdivision. He adopted a 30% profit and risk factor in relation to the 32 lots which the respondent advised would be the maximum number of lots permitted. He also adopted a 50% profit and risk factor for the extra 9 lots within the Q100 flood area due to the risk that the respondent would not approve the subdivision of these blocks to the average developer (Exhibit 48 page 7). In the latest versions of his valuation report (Exhibits 38 and 39), Mr Hall adopted the same profit and risk factor of 57% irrespective of whether 32 or 41 lots would have been approved and developed on the resumed land.
           Mr Hall noted the rarity of having the market price of in globo land set just before the date of resumption, as well as accurate costings and sale prices of very similar parcels of subdivided land. He acknowledged, however, that 57% is a high figure. Indeed he said it is “higher than I have experienced before.”
           The calculation of a 57% profit and risk factor proceeds on the basis that there was no shift in the market for in globo land in the year or so between the date of sale of the adjoining land and the date of resumption. As noted earlier, the evidence led to the conclusion that, although the market did not decline in the 13 months after the contracts for purchase, the extent of any rise in the market was not proved.
           Mr Hall’s calculation also assumes that the in globo price of the land reflected its value as land with subdivision and rezoning approvals in place at the date of resumption. As mentioned earlier, the purchase price for the subject land and the conditional contracts for purchase reflected the potential for the land to be rezoned and subdivided, but the purchase price could not be said to have shown the true value of the land ready for its highest and best use as at the date of resumption.
           Accordingly, Mr Slater took issue with Mr Hall’s approach because, in his opinion, an analysis which isolates the profit that the claimant would have achieved based on the average hectare value of in globo land at the date of purchase is not relevant.

Mr Hughes made various criticisms of the profit and loss factor being set at 57%. Among the most compelling were, first, that the figure is out of line with the level operating in the general market place at about the date of resumption - a fact acknowledged by Mr Hall in his oral evidence and evident from the earlier valuation reports which he had prepared (Exhibits 44, 14 and 48). Second, Mr Hall had relied on the contract price for the in globo land to calculate the profit and risk factor but, with Mr Slater, had relied on the hypothetical development approach rather than a direct comparison of in globo land to calculate the value of the resumed land. Furthermore, the contract price was not a reliable basis for calculating the value of the resumed land at the date of resumption because, although the contract was subject to approvals being in place, that work had been done and consent orders had been made in relation to the neighbouring parcels of the subject land as at the date of resumption. In other words, although the contract price may have reflected a risk, there was no risk as at the date of resumption. But for the resumption, the resumed land would have been rezoned as were the neighbouring Lots 204, 205, 206, 15 and 16.

Conclusion: There was no dispute that, but for the resumption, the resumed land was ripe for subdivision. There was, however, a risk that although approval would have been granted for a 32 allotment subdivision it would have been refused for a 41 allotment subdivision. I accept that, in assessing compensation, this Court is called upon to decide not whether a particular plan of subdivision would have received the respondent’s approval but how a hypothetical prospective developer would have viewed his or her potential financial return if he or she were considering a proposal that included the adoption of one or other of the suggested plans: De Ieso v Commissioner of Highways (SA) (1981) 47 LGRA 412 at 417.
It is apparent that Mr Fiteni was keen to develop the land to what he considered to be its maximum potential (that is, 41 allotments), that he would have taken all reasonable action to achieve that goal, and that he expected that either the respondent or the Planning and Environment Court would have approved the claimant’s proposal. At the date of resumption, approval had not been given and the Court had, by consent, adjourned the hearing of the appeal on the undertakings that the claimant would not object to the resumption and the respondent would facilitate the resumption.

Earlier in these reasons for decision, I concluded that it was more likely than not that an application for development of 41 lots on the resumed land would not have been approved by the respondent and that litigation in the Planning and Environment Court would have followed the respondent’s decision. As a consequence, it is appropriate to adopt a higher profit and risk factor than might ordinarily apply to such a development in the absence of such controversy and consequential cost and delay.
           I am satisfied that the issue is best resolved by following the approach taken by Mr Hall in the version of his valuation report marked Exhibit 48, that is, to adopt one profit and risk factor for the 32 lots whose approval was virtually assured and another for the nine lots for which there was a significant risk that approval would not be granted. I acknowledge that Mr Hall expressly disavowed that approach because he deduced from evidence given in these proceedings that it was “a clear case ... of either 32 being accepted or 41 being accepted without risk on either of them”. In order words, there was “either going to be a decision for 32 or 41 and I see no added risk in that case once that decision is made.” It will be apparent that I do not share his certainty on that point.
           The evidence of Mr Slater and the submissions made on behalf of the claimant cast doubt on both the method used to obtain the 57% figure and on the likelihood that the figure could be in the range of what might be found in the market for land such as the resumed land at the date of resumption. I am satisfied that the 25% figure adopted by Mr Slater is an appropriate sum for land where approval for redevelopment could be confidently predicted and there would be no more than the usual delays and costs in securing approval for rezoning and subdivision. That much can be said for the 32 allotments. With respect to the additional nine allotments, it is clear that the claimant would have incurred additional costs and delay to secure the required approvals. The risk would have been higher, though once approval had been given the return expected on the allotments would have been on a par with comparable blocks nearby. The cost and delay in gaining approval for the additional allotments would influence the time taken to secure approval for the development of the resumed land generally, and hence the costs and profitability of the whole enterprise. A profit and risk factor of 45% in relation to those additional nine blocks is appropriate. The parties seemed to proceed on the basis that the costs of development and the sale price for each block would be within a reasonably narrow range and the net return could be averaged across the hypothetical allotments. On that basis, it is possible to calculate from a 25% profit and risk factor for 32 blocks and 45% for nine allotments - an average of approximately 30% for the resumed land.
Conclusions and orders
           On the evidence before the Court I am satisfied that, as at the date of resumption:
(a)the highest and best use of the resumed land was for residential subdivision purposes;
(b)the claimant, or a developer in the claimant’s position, would have taken all reasonable steps to obtain approval for the subdivision of the resumed land into 41 residential allotments in order to maximise the profit from the development of the land;
(c)the respondent would probably have granted approval for the subdivision of the land into 32 allotments but it is more likely than not that the respondent would not have approved the additional nine allotments;
(d)it is likely that, if the respondent had refused to grant approval for 41 lots (or had not made a decision so that there was a deemed refusal) the claimant, or a developer in the claimant’s position, would have appealed to the Planning and Environment Court;
(e)it is more likely than not that either an agreement would have been reached in relation to the nine additional blocks or the Planning and Environment Court would, in light of engineering and other evidence of the type presented to this Court including evidence about fill on neighbouring land and comparable land in the district of the resumed land, have granted consent to the subdivision of the resumed land for 41 residential allotments;
(f)the claimant, or a developer in the claimant’s position, who purchased the land would have been taking a much greater risk in relation to the additional nine allotments and would have expected to incur costs in securing that approval and developing the land, as well as delays (particularly if the matter had gone to the Planning and Environment Court), which costs and delays would not have been incurred in relation to the approval and development of the 32 allotments;
(g)it is appropriate to factor in a higher rate of profit and risk in relation to the additional nine allotments (45%) than for the 32 allotments (25%), which - given the assumption apparently made by the parties that the lots would have an equal average net realisation - is an average profit and risk factor of approximately 30% for all of the resumed land.
Using the figures provided by the claimant and agreed to by the respondent, together with a profit and risk factor of 30%, the value of the resumed land is calculated to be as follows:

Gross realisation on 41 lots  $3,126,000
           Less: selling costs  $   133,500
           Net realisation  $2,992,500.00
           Less: profit and risk at 30%  $    690,577
           Less: development costs  $    881,473
           Less: interest on development costs  $     62,940
           Less: holding charges  $     21,048
           Less: interest on land and acquisition costs                   $     109,131
           Less: acquisition costs  $      47,205

Total costs and profit and risk $1,812,374.00

Value of land $1,180,126.00

To the amount of $1,180,126.00 must be added the sum of $12,088.00 for disturbance, making the total amount of compensation payable one million, one hundred and ninety two thousand and two hundred and fourteen dollars ($1,192,214.00).
           The interest payable must have regard to the payment by the respondent to the claimant of $490,000.00 on 28 July 1995. Consequently I order the respondent to pay to the claimant interest at the rate of 8.5% per annum on:
(a)       $1,180,126.00 for the period from 24 March 1995 until 28 July 1995; and
(b)$690,126.00 for the period from 28 July 1995 until the date upon which the final payment of compensation is made.
The claimant’s solicitors have advised the Deputy Registrar of the Land Court of the dates when accounts for legal, valuation and survey fees were paid by the claimant. In reliance on that advice, I further order that the respondent pay to the claimant interest on the items of disturbance calculated as follows:
(a)       on legal fees of $2,123.00 at the rate of 8.25% per annum from May 1995;
(b)       on survey fees of $4,077.00 at the rate of 7.75% per annum from June 1996; and
(c)       on valuation fees of $5,888.00 at the rate of 7.75% per annum from September 1996,
and ending on the date upon which final payment of compensation is made.
           The parties have liberty to apply on five days’ notice to the other in respect of any of the compensation and interest calculations.

GJ NEATE
MEMBER

Actions

Download as PDF Download as Word Document

Citations

Edgarange Pty Ltd v Council of the Shire of Redland [1997] QLC 173

Cases Citing This Decision

0

Cases Cited

0

Statutory Material Cited

0