Embassy of Belgium and and Minister for Regional Australia, Regional Development and Local Government
[2012] AATA 238
•27 April 2012
[2012] AATA 238
Division GENERAL ADMINISTRATIVE DIVISION File Number
2011/0007
Re
Embassy of Belgium
APPLICANT
And
Minister for Regional Australia, Regional Development and Local Government
RESPONDENT
File Number
2011/2663
Re
Embassy of Finland
APPLICANT
And
Minister for Regional Australia, Regional Development and Local Government
RESPONDENT
DECISION
Tribunal Justice Downes, President
Mr S. Webb, MemberDate 27 April 2012 Place Canberra Decisions affirmed.
............[sgd]............................................................
Justice Downes, President
CATCHWORDS
VALUATION – diplomatic mission land – restrictive Crown lease – annual land rent - reappraisement of the unimproved value of the leased land – assessment of ‘the capital sum that might be expected to have been offered for the lease on the relevant day’ – decisions affirmed
LEGISLATION
Leases (Special Purposes) Ordinance 1925 (ACT) ss 3, 5A, 5AD, 5BA
CASES
Hamilton v Demgold Pty Ltd (1990) 97 ALR 481
Spencer v The Commonwealth (1907) 5 CLR 418
REASONS FOR DECISION
Justice Downes, President
Mr S. Webb, Member27 April 2012
Introduction
The Kingdom of Belgium and the Republic of Finland hold 99-year Crown leases over two parcels of diplomatic mission land in the Australian Capital Territory. Their embassies are located on the land. The amount of annual rent payable under each lease is subject to reappraisal every 20 years. In both cases, recent rent reappraisals by the Minister for Regional Australia, Regional Development and Local Government led to an increase in the amount of rent that is payable. These decisions are the subject of review in the present proceedings. We have decided that the decisions should be affirmed.
There are two matters in dispute; the interpretation of the rent reappraisal legislation and the determination of the unimproved value of the lands subject to each lease. Before dealing with these issues, it is desirable to set out the background facts.
Leasehold System
A leasehold system applies in respect of land in the Australian Capital Territory, under which ownership of land resides with the Crown and property rights are conferred by lease. Commonly, leases are issued for 99-year renewable terms. Certain classes of lease - special purpose leases - are subject to statutory or planning restrictions, or restrictive terms, that limit land use. The leases held by Belgium and Finland are of this kind.
In the Territory, land that is determined to be ‘national land’ is administered by the National Capital Authority under the National Capital Plan; whereas ‘territory land’ is administered by the ACT Government in accordance with the Territory Plan. Land zoned for ‘diplomatic mission’ use under the National Capital Plan or the Territory Plan is administered by the National Capital Authority. Estates of diplomatic mission land have been established in Yarralumla, Deakin and O’Malley.
The National Capital Plan defines ‘diplomatic mission’ land use as
Any building, parts of buildings and the land ancillary thereto leased specifically for use for the purpose of an embassy, a high commission, a legation or a consulate. This includes chanceries or diplomatic mission, and combined chanceries and residences.
As can be seen, ‘diplomatic mission’ zoning permits the co-location of chanceries and residences.
Foreign governments may acquire Crown leases over land in the diplomatic estates for consular, diplomatic mission or official purposes. Alternatively, subject to land use zoning restrictions under the Territory Plan, foreign governments may privately acquire leases over Territory land, outside the diplomatic estates, for the purposes of establishing chanceries or residences: chanceries may be established in commercial premises or on Territory land zoned for commercial use, whereas diplomatic residences may be established on Territory land zoned for residential use. As a result of zoning restrictions under the Territory Plan, it appears that there are very few options for foreign governments to co-locate chanceries and residences on land outside the designated diplomatic estates.
Commercial and residential leasehold properties in the Territory are traded and valued in a similar manner to freehold properties elsewhere. But leases over land within the diplomatic estates, with ‘diplomatic mission’ zoning, may only be acquired from the Crown, through the National Capital Authority.
Uniquely, diplomatic leases were expressly excluded from the ‘reserve price’ land rent scheme that commenced in 1971. The reserve price scheme replaced annual land rental payments with the payment of a lump sum on acquisition of a lease, with a fixed nominal amount of annual land rent (5 cents per annum) being payable only if required. As these arrangements do not apply to diplomatic leases, the obligation of a diplomatic leaseholder to pay annual land rent subject to periodic reappraisement is ongoing.
The leases in question provide that rental after the first twenty years shall be:
… at the rate of two [pounds/dollars] per centum per annum of the unimproved value of the said land as determined from time to time upon re-appraisement of the said value under any statute ordinance or regulation.
It is agreed by the parties that the relevant statute for present purposes is the Leases (Special Purposes) Ordinance 1925 (ACT):
5A.(1) Where a lease to which this section applies provides for re-appraisement of the unimproved value of the leased land the unimproved value of that land shall be re-appraised by the Minister during the twentieth year of the term of the lease and during each twentieth year thereafter.
(2)During the period of twenty years next after the year of re-appraisement the rent payable in respect of the leased land shall be at such rate in relation to the unimproved value of the land, as determined in accordance with this or the next succeeding section, as is specified in the lease.
…
The Minister accordingly reappraises the unimproved value of the land as required and, by virtue of the terms of s 5A(2), and of the leases, an annual rental is derived.
In the past, the reassessment has been done by reference to unimproved land valuations conducted by the Australian Valuer-General (presently, the Australian Valuation Office). We note that the ACT Government determines annual rates that are payable in respect of all leases in the Territory on the basis of unimproved land values determined by the Australian Valuation Office.
The Subject Leases
The diplomatic lease held by the Kingdom of Belgium commenced on 1 January 1951 in respect of Block 2 Section 83 Yarralumla[1] (the Belgian land). The land comprises 28,813 square metres, aptly described by Mr Quaid, Canberra Regional Manager of the Australian Valuation Office and a registered valuer, in the following terms –
A large regular shaped inside block with access to Arkana Street at the front and Perth Avenue to the rear. The block rises from both streets to a hill top at the centre of the block. Outlook is extensive to the north over Lake Burley Griffin to Black Mountain and towards the City area.
The initial annual rental amount was £60. This was reappraised and increased on 1 January 1971. At that time, the Minister accepted the Chief-Valuer’s recommendation that the unimproved value of the leased land was $90,000 from which it followed that the annual rent was $1,800[2]. On 1 January 1991 the rent was again reappraised. On the advice of the Australian Valuation Office, the Minister determined that the unimproved value of the leased land was $1,000,000 which led to an annual rent of $20,000[3]. Rent reappraisement was again due on 1 January 2011. Notices were duly issued[4]. The Australian Valuation Office conducted a valuation[5]. The Minister, by Ms Alison Walker-Kaye as delegate, decided that the unimproved value of the leased land was $5,300,000 and the annual rent was $106,000. Application was made for review of this decision.
[1] Section 37 Documents in Embassy of Belgium and Minister for Regional Australia, Regional Development and Local Government, p 55.
[2] Ibid p 60-62.
[3] Ibid p 63-64.
[4] Ibid p 75-76.
[5] Section 37 Documents in Embassy of Belgium p 86-73.
The Kingdom of Belgium retained Colliers International Pty Ltd to conduct a separate valuation of the diplomatic lease it holds. This was undertaken by Mr Rixon, a registered valuer. The resulting reports were tendered and exhibited. Mr Rixon reported that “No market can be identified and no market value can be assessed”, but stated that the unimproved value of the land leased by Belgium was $3,190,000, “assuming the land may be legally transferred”[6].
[6] Exhibit A, Embassy of Belgium, p 19.
The diplomatic lease held by the Republic of Finland commenced on 22 June 1971 in respect of Block 10 Section 44 Yarralumla[7] (the Finnish land). The land comprises 6,166 square metres of which Mr Robertson, a registered valuer employed by the Australian Valuation Office, said –
The subject block is of a regular shaped allotment that is set below street level which rises towards the rear boundary that offers views towards Lake Burley Griffin.
The initial annual rental amount was $550. On 22 June 1991 the rent was reappraised. On advice from the Australian Valuation Office, the Minister determined that the unimproved value of the leased land was $420,000 and the annual rent was $8,400[8]. Rent reappraisement was again due on 22 June 2011. Notices were duly issued[9]. The Australian Valuation Office conducted a valuation[10]. The Minister, by Ms Alison Walker-Kaye as delegate, decided that the unimproved value of the leased land was $1,910,000 and the annual rent was $38,200. Application was made for review and, by agreement of the parties, the matter was brought forward for concurrent hearing with the Kingdom of Belgium application.
[7] Section 37 Documents in Embassy of Finland and Minister for Regional Australia, Regional Development and Local Government, p 7.
[8] Section 37 Documents in Embassy of Finland p 42-44.
[9] Section 37 Documents in Embassy of Finland p 58-59.
[10]Section 37 Documents in Embassy of Finland p 48-57.
The Construction Issue
The leases held by Belgium and Finland provide that after the first twenty years annual rent is to be determined on the basis of a periodic reappraisement of the unimproved value of the land under lease. Section 5AD provides guidance in respect of ‘the unimproved value of land’ for the purposes of s 5A, in the following terms -
5AD
1For the purposes of the next two succeeding sections, the unimproved value of land subject to a lease is the capital sum that might be expected to have been offered on the relevant date for the lease, it being assumed –
(a)that the only improvements on or to the land were the improvements (if any) by way of clearing, draining, grading, filling, levelling or excavating made by the Commonwealth or the cost of which the Commonwealth has paid;
(b)that on the relevant date the lease had an unexpired term of ninety-nine years; and
(c)that the rent payable under the lease was a nominal rent only.
2For the purposes of the last preceding subsection “the relevant date” is the date on which the unimproved value of the land is re-appraised under subsection (1) of section five A of this Ordinance.
As can be seen, the section is definitional – it gives meaning and content to the phrase ‘the unimproved value of the land subject to a lease’, being ‘the capital sum that might be expected to have been offered on the relevant date for the lease’, certain matters being assumed.
The applicants assert that ‘the lease’ to which the section refers is the actual lease granted by the Minister under s 3(2) of the Ordinance in each case, with all terms intact, including the lease purpose clause that restricts use of the subject land to a specified diplomatic mission, in these applications the Embassy of Belgium and the Embassy of Finland. In the applicants’ submission, s 5AD requires each lease to be valued in order to determine the sum that might be expected to have been offered on the reappraisal date when certain assumptions are made, as specified. But, the applicants say, as a matter of construction, when assessing the amount that might be offered for each lease it is not permissible to deviate from the specified assumptions or to introduce additional assumptions, such as altering the lease purpose clause to remove reference to a particular country. That would be contrary to the intention of the legislature and contrary to the clear combined purposes of ss 3(2) and (4) of the Ordinance. Only the country identified in the lease would have an interest in acquiring the lease, so that there would be no competitive interest. The named country would accordingly be able, so the argument goes, to acquire the lease without offering any sum.
The applicants’ argument is fatally flawed. The purpose of s 5AD is to determine the unimproved value of the land subject to lease. When considering a similarly constructed provision (s 5 of the Rates and Land Tax Act 1926 (ACT)) in Hamilton v Demgold Pty Ltd, Neaves and Wilcox JJ concluded that ‘the capital sum that might be expected to have been offered on the relevant date for the lease of the parcel of land’ assumed a Crown auction at the relevant date, in which the Commonwealth is assumed to be a willing vendor of the right to take the lease[11]: “The question is, how much would have been offered at the sale for that entitlement?”[12]. Section 5AD is to be construed in this way. It is appropriate immediately to say that, on the evidence before us, there is no basis for concluding that a diplomatic legation would do other than make a genuine and reasonable offer at such a sale even though it knew it was the only bidder and that the lease precluded the use of the land for the purposes of any other legation. Nor is there any basis for concluding that the Commonwealth would do other than decline to sell if any offer was less than reasonable. Accordingly, we see no reason why an embassy would not offer a capital sum representing reasonable value for the land notwithstanding the restriction on use to the embassy of the named country. Accordingly, the applicants’ argument fails to lead to a value of nil even if accepted in full.
[11] Hamilton v Demgold Pty Ltd (1990) 97 ALR 481, per Neaves J at 491 and per Wilcox J at 494.
[12] Ibid, per Wilcox J at 494.
The section requires an assessment of the sum that might be offered by a hypothetical or prospective lessee, including the actual lessee perhaps, to acquire the lease over the subject land on the assumed terms in a hypothetical sale on the reappraisal date. It is to be assumed that the land is unimproved by the actual lessee and the lease has a term of 99 years at a nominal rent. Wilcox J said in Hamilton’s case, “The valuer must assume a fresh lease, as at the relevant day”[13]; thus it is here - the section proceeds on the assumption of a hypothetical fresh lease, prior to grant, on the relevant date. When assessing the capital sum that might be expected to have been offered for the lease on that day, it is necessary to have regard to all of the relevant factors that may bear upon the value of the subject land, including the actual terms of the lease, so long as these do not conflict with the assumptions specified in ss 5AD(1)(a), (b) and (c).
[13] Hamilton v Demgold Pty Ltd (1990) 97 ALR 481, per Wilcox J at 494.
The nomination of a particular country in the purpose clause of each lease is a binding function of s 3(2) of the Ordinance in respect of the grant of a lease. The section permits the Minister to ‘grant to the Government of any country outside the Commonwealth’ a lease of land ‘for any diplomatic, consular or official purpose of that Government or for the purpose of an official residence for any accredited agent of that Government’. Once a lease is granted to a particular country under this section, the lessee may use the land for diplomatic purposes, or may return the lease to the Crown, whereupon compensation in respect of improvements may be payable. There is a real doubt about whether a lease of this kind, once issued, may be sold or transferred. The restriction on land use to a specified country is a function of the grant of lease under s 3(2) that is given effect by the terms of the lease.
The purpose clauses of each lease share two important but unexceptional elements. Firstly, clause 1(d) of the Belgian lease and clause 1(e) of the Finnish lease impose common ‘diplomatic mission’ restrictions on land use -
To use the said land for the purposes only of erecting the buildings hereinbefore referred to and to use such buildings only for diplomatic consular or official purposes of … and if so desired for residential purposes in connection with such diplomatic consular or official purposes;
Secondly, the common diplomatic mission restrictions are tied to a specific country on the grant of the lease by inserting the name of the leaseholder, presently – “… the Royal Belgian Legation …”, or “… the Embassy of Finland …” in the lease terms.
Another flaw in the applicants’ argument is exposed when it is noted that s 5AD requires an assessment of the unimproved value of the land subject to lease, rather than an assessment of the value of the lease granted to a specific country. As we have said, a fresh 99 year lease is to be assumed, prior to grant. A lease in those assumed terms would not include the name of the actual lessee and it would not be restricted to the country specified in the actual lease, although the common diplomatic mission restrictions would remain. An auction would be assumed with diplomatic bidders. Each would know that the clause restricting use to the legation of the successful bidder would be inserted before the lease was executed. Notional bids would be made on this basis. The name of the country of the successful bidder would be inserted in the lease immediately prior to execution. The section requires an assessment of the amount that might have been offered to acquire the lease over the subject land on the terms assumed, having regard to the common use purpose restrictions but in the knowledge that, on grant, the restrictions would apply specifically, and exclusively, to the leaseholder.
As we have said, even if we accept the construction contended for by the applicants, that the s 5AD assessment is directed to the leases held by Belgium and Finland, whereby the use purposes are restricted to the consular purposes of those countries, no different result would be obtained. The section requires an assessment of the sum that those countries might be expected to have offered on the particular day to acquire the lease they actually hold over the subject lands, albeit on assumed terms. There is every reason to accept that what would have been offered was value.
On either basis the amount that might be expected to have been offered is a reasonable sum to be assessed by reference to the factors which would influence the offer. As will already have appeared, the task of assessment is not an easy one. The difficulty of the task does not, however, relieve us of the obligation of undertaking it. We turn then to an assessment of value, free of any statutory obligation to find the value to be nil, but bound to take into account factors of the kind which caused the applicants to submit that the value should be nil.
The Valuation Issue
There are two aspects to consider. First, the applicants contend that the restrictive nature of each diplomatic lease renders the lease not tradeable, in consequence of which it will have a nil or nominal value only. Secondly, there is a dispute about what, in any event, would be the unimproved value of the subject lands.
Market for Leases over ‘Diplomatic Mission’ Land
By the applicants’ reasoning, as diplomatic leases are not tradeable there is no market and this stands in the way of a market-based valuation. Additionally, the manner in which the National Capital Authority administers leases of this kind does not permit any degree of competition or market-based pricing.
Much has been said in these proceedings about the existence and character of a market for diplomatic leases and the manner in which the valuation task should be approached. It may be accepted that there is no market for a diplomatic lease once it has been granted to a foreign government, as such leases are restricted to the diplomatic, consular or official purposes of the specified country and may not be varied. But that is not the end of the matter. Even though the demand for and supply of diplomatic mission land in the Territory may not accord with the traditional conception of a market, it is not correct to proceed on the basis that there is no market whatsoever.
It is important to stress that property rights in respect of land in the Territory are conferred by lease. Thus, when reference is made to a market for land of any kind in the Territory, the market is effected by lease transactions – the purchase of land proceeds by the purchase of a lease conferring rights to use the land and the sale or transfer of a lease effects the transfer of rights to use the land.
On the evidence of Ms Walker-Kaye, Executive Director of the National Capital Estate for the National Capital Authority, there is a waiting list of countries interested in acquiring a lease over national diplomatic mission land, being land within the diplomatic estates. Her evidence is that there is a limited supply of such land in the diplomatic estates, generally, but the supply constraints are greatest in the older central estates in Yarralumla and Deakin.
It appears that leases over diplomatic land are granted without overtly competitive processes. Foreign governments interested in obtaining diplomatic mission land approach the Protocol Branch of the Department of Foreign Affairs and Trade and the matter is referred to the National Capital Authority. The Authority treats with only one foreign government at a time in respect of available diplomatic land, proceeding on a first come, first served basis. Prices for leases over diplomatic land (in the form of premium payments or annual rental) are determined by reference to the unimproved value of the land, with particular reference being made to valuations conducted by the Australian Valuation Office. Ms Walker-Kaye referred to a process of negotiation between the Authority and each prospective lessee. Whatever the content of those negotiations may be, and price may be one element, it is very clear that the price of diplomatic land administered by the Authority is not determined by openly competitive market mechanisms.
It may well be that the diplomatic arrangement of international governmental relations, and the need for flexibility when addressing diplomatic priorities and political sensitivities in Australia’s bilateral relations with other nations, are matters that bear upon the administration of national land for diplomatic purposes. It is possibly for these reasons that the National Capital Authority does not administer the supply of diplomatic land and leases according to market principles, on an open competitive basis, or by selective tender or private treaty, but rather conducts negotiations in closed consultation with the Department of Foreign Affairs and Trade and foreign governments, on a case by case basis.
It does not follow, however, that no market mechanisms are applied. Foreign governments are not compelled to acquire leases over land in diplomatic estates administered by the National Capital Authority in order to establish diplomatic missions, but may privately acquire suitably zoned territory land for those purposes on the open market.
Mr Rixon reluctantly agreed with Mr Quaid that these arrangements over diplomatic mission land operate on the basis of supply and demand within a market, albeit one that is conducted in a highly regulated manner. It appears to us that this is correct; a restricted market for diplomatic mission land exists.
Furthermore, the orchestrated arrangement of supply and demand within this market is capable of supporting comparative pricing mechanisms. Even though prices are not determined by market mechanisms involving open competition, there is no compulsion on a prospective foreign government purchaser to establish a diplomatic mission in a diplomatic estate, and a form of comparative price testing against the open residential and commercial land markets may apply. It is reasonable to expect that a prospective purchaser might consider the price being asked for a particular diplomatic mission site and compare this to the price of suitable commercial or residential land on the open market. On that basis, if the price of diplomatic land is too high with reference to prices of commercial or residential land on the open market, demand may drop; whereas if the price of diplomatic land is relatively low, demand may increase. Of course, any differential restrictions applying to land zoned for residential, commercial or diplomatic mission purposes, particularly the ability to co-locate chancery and residential premises, may be expected to feature in any such comparative assessment.
It appears to us that these market processes, albeit somewhat unusual and constrained, nevertheless proceed in a manner where willing but not over-anxious parties desiring to treat, negotiate terms, including a price, where they may come together in order to strike a bargain. It is in this context, albeit hypothetically under s 5AD, that an assessment may be made of the amount a willing but not over-anxious foreign government ‘purchaser’ might be expected to have offered on the relevant date for each lease on the assumed terms in order to engage a willing but not over-anxious ‘seller’, the Crown Minister.
It is not necessary to recite in detail the numerous cases concerning principles of market valuation in various circumstances to which reference has been made and which, of course, we have carefully considered. The present task is not one of trawling through numerous cases, many of great authority, in search of applicable principle; it is rather to carefully consider and apply the particular legislation to the facts.
Nil or Nominal Value
By the applicants’ reasoning, even if one is to assume a market for the purposes of a hypothetical exercise under s 5AD, the ‘market’ is effectively neutered by the restrictive terms of each lease, being confined to the diplomatic mission purposes of Belgium and Finland, respectively. In these circumstances, the applicants contend, the capital amount a hypothetical purchaser might be expected to offer for a diplomatic lease that can only be used for Belgian or Finnish diplomatic facilities is nil, and there is no good reason to expect that the Belgian or the Finnish Governments might have offered a higher amount for their respective Commonwealth leases on the reappraisal dates in a ‘market’ denuded of competition.
As we have said, there is no market for diplomatic leases, once granted. It may be accepted that the present leases held by Belgium and Finland are effectively valueless to anyone else; but each leaseholder may use the subject land to the fullest extent permitted by the restrictive terms of the lease or may surrender the lease to the Commonwealth, whereupon compensation in respect of improvements may be payable. This is a function of the restrictive purpose clauses of each lease and the terms of s 3(2) of the Ordinance. Considerations of special value to each lessee are not to the point when determining the unimproved value of the land under ss 5A and 5AD, for the purposes of rent reappraisal.
The formulation of s 5AD requires an assessment of the ‘capital sum’ that might be expected to have been offered for a lease over the subject lands on the specific assumed terms in a hypothetical sale on the relevant date. The ‘capital sum’ is the amount a willing but not over-anxious purchaser might be expected to have offered for the lease held by Belgium on 1 January 2011, and the lease held by Finland on 22 June 2011. Even if each hypothetical ‘sale’ is confined to the actual lessees, it must proceed on the basis that each lessee is a willing but not over-anxious purchaser and the Commonwealth Minister is a willing but not over-anxious vendor. The important point of note is that the concept encapsulated in the words of s 5AD, albeit hypothetically, is essentially one of trade – the amount that somebody might be expected to offer for something in the particular circumstances in order to strike a bargain. This conception, and the valuation task posed by s 5AD, resonates with the words, separately expressed, of Griffith CJ and Isaacs J 105 years ago in Spencer v The Commonwealth[14] -
The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together.
…
… To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then not, by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration.
[14] (1907) 5 CLR 418 at 432 and 441.
When considered in that frame, it could reasonably be expected that parties to a hypothetical sale on the relevant day would have regard to the particular attributes of the subject land and the terms of lease, as well as to market variables, such as demand, supply and comparable sales. One consideration would be that the lease could not be assigned, but, at best, surrendered with compensation for improvements. Comparable sales may include other National Capital Authority sales of diplomatic mission land subject to restrictive special purpose leases, as well as sales of land on the open market subject to commercial or residential leases that permit diplomatic chancery or residential uses. It is very unlikely that consideration of these variables would result in the offer of a nil or negligible amount for either of the present leases. The reality is, as the evidence shows, that diplomatic legations regularly pay substantial sums to acquire leases of land in the diplomatic estates.
It is not correct to construe the rent reappraisal provisions, and s 5AD in particular, in a manner that is intended to produce a nil or negligible result. Under s 5A of the Ordinance (which was introduced by amendment on 27 April 1927) the mechanism by which rent was to be set on reappraisement is a rate determined by lease on the basis of the unimproved value of the subject land. This formulation would not have been necessary if the drafters at that time intended rent reappraisement of a lease issued under s 3(2) to produce a nil or nominal amount, as the applicants contend. Section 5AD was introduced by amendment of the Ordinance in 1970 and commenced on 1 January 1971. It is clearly intended to apply, with positive effect, to diplomatic leases which were expressly excluded from the reserve price land charging regime that commenced when the 1971 amendments came into effect. If the intention of the legislature in 1971 had been to reduce the rate of annual rent for leases over diplomatic mission land, on reappraisement, to nil or to a nominal amount, that could readily have been done without reference to the unimproved value of the subject land; but it was not.
The proposition that the drafters of the Ordinance simply adopted a rent reappraisal methodology derived from market-based fee simple transactions that had been applied in other places may possibly be true. But the applicants’ submission that it is not applicable to restrictive leases in the ACT that cannot be bought or sold, and in respect of which there is no market, lacks merit. While the unimproved value of land is commonly measured by market value, it does not follow that the rent reappraisement methodology must deliver a nil result when it is applied in respect of lands subject to diplomatic leases.
Comparative Assessment of Unimproved Land Value
While there is agreement that a comparative assessment methodology is desirable when determining the unimproved value of the Belgian and Finnish lands, the manner in which this is to be conducted, particularly with regard to comparable market segments and property sales, is a matter of controversy. The most useful and compelling comparisons are those most proximate in time, location and other attributes. Of course, where differences exist between comparators, allowances and adjustments must be made. The extent to which residential, commercial and community facility lease sales may inform the value of restricted diplomatic leases, if at all, is moot. Furthermore, the applicants cavil with comparisons to other diplomatic lease ‘sales’, as prices are said to be determined unilaterally by the Minister without transparency or proper market testing.
The lands held under lease by Belgium and Finland are both within the diplomatic estate at Yarralumla. Mr Rixon, Mr Quaid and Mr Robertson agree that land in this area has many qualities that render it desirable and support high prices in the residential property market. Yarralumla is proximate to the Federal Parliament and to Departments of State located in the Parliamentary Triangle. It is one of Canberra’s more expensive and prestigious areas, being a well-established leafy suburb on the southern shores of Lake Burley Griffin, adjoining Weston Park.
We are not persuaded by Mr Rixon’s evidence that these qualities, and the opportunity to co-locate chanceries and residences on diplomatic mission land in Yarralumla, would add little or no value to diplomatic land in this estate, or would be of little or no value to a foreign government seeking to establish or relocate a diplomatic mission. Ms Walker-Kaye’s evidence that there is strong interest from foreign governments for access to diplomatic estate land in this area points to a contrary conclusion. Furthermore, on the evidence of Ms Walker-Kaye, Mr Quaid and Mr Robertson, diplomatic mission land in Yarralumla is in more limited supply and, being located in closer proximity to Federal Government institutions, it is more prestigious and desirable than diplomatic land in O’Malley.
These are relevant matters to consider when assessing the amount that might be expected to have been offered for each of the leases held by Belgium and Finland.
Comparison with Diplomatic Mission Land Sales
Using comparable diplomatic mission land values when assessing the amount that might be expected to have been offered for a lease over diplomatic mission land has obvious attractions. Perhaps most significant among them is the consistency of generic land use restrictions that apply under diplomatic leases – it is most desirable to minimise points of difference when assessing value on a comparable sales basis.
Nonetheless, the difficulty with valuing the subject leased lands by comparing prices paid for other leases over diplomatic mission land is that prices for those other leases were significantly influenced by valuations conducted by the Australian Valuation Office. There is a troubling circularity about this. A valuation that is derived by comparison with another valuation, perhaps by the same valuer, may be said to lack objectivity and might carry little weight. On the other hand, as Mr Quaid and Mr Robertson maintain, each diplomatic site valuation is conducted afresh, with regard to movement in market prices for residential, commercial and community leased properties, as well as comparable diplomatic sales; and with little regard to preceding valuations for ACT Government rating purposes.
It appears that the prices paid for leases over diplomatic mission land are not the result of Australian Valuation Office valuations alone. As we have said, restricted market mechanisms operate to some extent, whereby the National Capital Authority treats with an interested foreign government in respect of diplomatic mission land and agreement is reached, including in relation to price. On Ms Walker-Kaye’s evidence it appears that transactions of this kind have a number of important characteristics: there is no compulsion on either party; there is a process of negotiation, including in relation to price; and the foreign government may choose to acquire land for diplomatic mission purposes privately, on the residential or commercial market, outside the diplomatic estates. This process has much in common with sales by private treaty on a commercial basis.
Thus, while one may cavil with the valuation methodology applied by the Australian Valuation Office in a particular case, the ultimate price paid by a foreign government for a diplomatic lease over national diplomatic mission land is a matter for agreement. It is reasonable to expect that a foreign government would consider all relevant factors and options when treating with the National Capital Authority, and those options would include the cost of acquiring suitable residential or commercial property privately.
On balance, the prices paid for leases over national diplomatic land provide one useful reference point among other relevant points of reference when determining the amount that might be expected to have been offered on the relevant dates for the leases held by Belgium and Finland.
The Valuations
Mr Rixon and Mr Quaid gave extensive evidence about their respective valuations of the land held under lease by Belgium. Mr Robertson gave evidence about related matters and his valuation of the land held under lease by Finland.
Mr Rixon’s assessment of the unimproved value of the Belgian land, on an assumption that his assessment of nil value was not accepted, was apparently based on sales of properties that he considered to be comparable[15] -
Westridge House – an extensive heritage listed house and garden on 19,210 square metres of national land in Yarralumla: sold for $3,200,000 on 1 December 2010 while held under a restricted community facility special purpose lease[16];
Forrest Riding School and Motel – a horse riding and motel complex on 54,800 square metres of semi-rural territory land in Curtin: sold for $3,950,000 in June 2010 subject to a restricted 50 year multipurpose lease at a nominal rent;
Symonston bird park - a bird and animal park on 97,200 square metres of territory land in Symonston: sold for $1,900,000 in June 2010 subject to a restricted multi-purpose lease; and
Bonner reservoir - a reservoir on 4,774 square metres of territory land in Bonner: sold for $258,000 in September 2009 subject to a restricted lease.
[15] Exhibit A, Embassy of Belgium pp 12-14.
[16] Exhibits C, D, E and F, Embassy of Belgium.
Mr Rixon and Mr Quaid agreed that the unimproved value of the Westridge House land is $2,400,000. We agree with this assessment, discounting the value of the improvements ($800,000) from the sale price ($3,200,000).[17]
[17] Exhibit A, Embassy of Belgium, p 12; Exhibit 4, Embassy of Belgium, p 14.
From this process, Mr Rixon assessed the unimproved value of the Belgian land at $225 per square metre for a “Notional Primary Site Area” of 10,000 square metres and $50 per square metre for a “Notional Surplus Land Area” of 18,810 square metres[18], resulting in an overall unimproved land valuation of $3,190,000. Having carefully examined Mr Rixon’s evidence, it is quite clear that his initial assessment of the value of the ‘notional primary site area’ ($225 per square metre) was based on comparison with the ‘primary site’ value of the Westridge House property, alone ($205 per square metre); the other comparable properties are expressly stated to be for the purpose of deriving the value of the surplus land only.
[18] Exhibit A, Embassy of Belgium pp 16, 18.
In the course of evidence Mr Rixon backed away from this dualistic ‘primary’ and ‘surplus’ land valuation methodology, but he staunchly defended his overall valuation by applying an average value of $111 per square metre over the whole of the Belgian land to achieve this result. He asked us to accept his expert opinion that the average amount of $111 per square metre is consistent with the unimproved land value of comparable properties, most notably Westridge House ($2,400,000 or $125 per square metre) and two diplomatic mission sites[19] –
diplomatic site 1 - comprising 11,526 square metres of unimproved national diplomatic mission land in Yarralumla: sold for $2,767,913 ($240 per square metre) on 24 December 2008 under a diplomatic lease; and
diplomatic site 2 – comprising 18,530 square metres of unimproved national diplomatic mission land in Yarralumla: sold for $2,600,000 ($140 per square metre) on 23 December 2004 under a diplomatic lease.
[19] Exhibits B, H and J, Embassy of Belgium.
Mr Rixon’s analysis of the differential attributes and land values of these properties with respect to the Belgian land is set out in Exhibits B, H and J. He assessed the unimproved value of the Belgian leased land to be between $3,000,000 ($104 per square metre) and $3,500,000 ($121 per square metre) as at 1 January 2011.
In their initial valuation report in respect of the land held under lease by Belgium, Mr Quaid and Mr Robertson referred to three comparable properties[20] -
Westridge House;
Tennyson Street - a residential property comprising 3,361 square metres of territory land at Tennyson Street in Forrest: sold for $2,850,000 on 17 June 2010; and
Torrens Street - a residential property comprising 5,417 square metres of territory land at Torrens Street in Red Hill: sold for $3,150,000 on 24 December 2009.
[20] Exhibit 3, Embassy of Belgium p 6 (Section 37 Documents, Embassy of Belgium, p 73).
From these sales, Mr Quaid and Mr Robertson assessed the unimproved value of the Belgian land to be $5,300,000 at 1 January 2011. In their report, they approached the valuation by “breaking the land into two components” that “were then combined and assessed as an overall unimproved value over the whole site”[21], as follows:
[21] Exhibit 3, Embassy of Belgium p 4 (Section 37 Documents, Embassy of Belgium, p 71).
Residential Component - $3.5M
Office Component - $1.8M
Total Unimproved Value - $5.3M
How these valuations were calculated remains a mystery. In their report no reference was made to any comparable commercial office property whatsoever. In the course of evidence, Mr Quaid and Mr Robertson backed away from this methodology: they each asserted that they had, in fact, first deduced the overall value of $5,300,000 and then apportioned this amount to residential and office components. The basis on which the apportionment was made remains very far from clear. A second report was produced[22] in which additional comparable properties were cited, including a number of diplomatic mission sites and additional residential sites -
diplomatic site 1;
diplomatic site 3 - comprising 8,805 square metres of unimproved national diplomatic mission land in O’Malley: sold for $1,665,000 on 10 October 2006 under a diplomatic lease;
diplomatic site 2;
Culgoa Circuit - comprising 1,542 square metres of unimproved territory land, zoned for diplomatic mission or residential use, at Culgoa Circuit in O’Malley (within the O’Malley diplomatic estate): sold to a foreign legation for $625,000 on 16 August 2005;
Dalman Crescent – comprising 13,476 square metres of unimproved territory land, zoned for diplomatic mission or medium density residential use (with approval for nine dwellings) at Dalman Crescent in O’Malley (within the O’Malley diplomatic estate): sold for $3,500,000 on 7 January 2005; and
Vancouver Street – a residential property comprising 11,300 square metres of territory land at Vancouver Street in Red Hill: sold for $7,300,000 on 22 April 2010.
[22] Exhibit 4, Embassy of Belgium.
In consideration of these properties and those identified in their initial report, it is suggested that Mr Quaid and Mr Robertson reduced the derived land values of comparable residential properties by 50 percent when assessing the value of the Belgian land. Mr Quaid explained that this reduction was based on his examination of “recent sales of unrestricted and restricted property in the immediate surrounding suburbs”[23], most notably Vancouver Street and Westridge House. It also appears that Mr Quaid and Mr Robertson reduced the amount paid per square metre for comparable diplomatic sites by an unknown factor on the basis of “economies of scale” relating to land area (in effect, the larger the area, the lower the value per square metre), stating “there is no known direct calculation that applies to these economies of scale” but these “are well known in valuation methodology”[24].
[23] Exhibit 4, Embassy of Belgium, p 18.
[24] Exhibit 4, Embassy of Belgium, p 15.
On this basis, Mr Quaid and Mr Robertson calculated the unimproved value of the land held under lease by Belgium as of 1 January 2011 in the following way:
Site area 28,813m² x $185m² = $5,330,405
Adopted value $5,300,000[25]
[25] Exhibit 4, Embassy of Belgium, p 19.
In the course of evidence, Mr Quaid attempted to explain how he had arrived at these values. This is set out in Exhibits 19 and 22. Mr Quaid’s analysis led him to conclude that:
(a)the overall unimproved value of the Belgian land was between $3,850,000 and $5,400,000 when compared with the adjusted land values of comparable diplomatic sites, and between $2,880,000 and $4,080,000 when compared with the deduced land value of Westridge House ($2,400,000);
(b)the unimproved value of the land calculated by area is between $252 per square metre and $382 per square metre when compared with the adjusted values per square metre of comparable diplomatic sites, although these values are reduced by 30 percent to $176 per square metre and $200 per square metre on the basis of “economies of scale”; and
(c)the unimproved value of the land calculated by area is between $150 per square metre and $212 per square metre when compared with the adjusted value per square metre of Westridge House.
We note that the Australian Valuation Office produced a valuation of $5,300,000 in respect of the Belgian land as of 1 January 2011 for the rating purposes of the ACT Government[26]. Mr Quaid’s evidence is that this was a separate process to the valuation he and Mr Robertson undertook.
[26] Exhibit G, Embassy of Belgium.
The only documentary evidence before us concerning the unimproved value of the Finnish land is the valuation report prepared by Mr Robertson[27]. He reviewed seven comparable property sales – diplomatic site 1, diplomatic site 3, diplomatic site 2, Tennyson Street, Torrens Street, Westridge House and Vancouver Street. It appears that he had regard to “the overall performance residential and commercial office sales evidence in the surrounding area”[28]. Mr Robertson observed that “the subject property allows both residential and office uses” and assessed the land value as follows –
Rate $310m² x Site area 6,166m² = $1,911,460
Adopt $1,910,000
[27] Exhibit 3, Embassy of Finland, (Section 37 Documents, Embassy of Finland, pp 48-57).
[28] Exhibit 3, Embassy of Finland, p 5 (Section 37 Documents, Embassy of Finland, p 52).
The Australian Valuation Office produced a valuation of $1,910,000 in respect of the Finnish land as of 1 January 2011 for the rating purposes of the ACT Government[29]. Mr Robertson’s evidence is that the annual rating valuation was a separate process to the valuation he undertook, although he may have had regard to it.
[29] Exhibit A, Embassy of Finland.
When evaluating the expert evidence (and addressing conflicts within it), identifying errors that may have been made, or determining the weight that should be given to controversial elements or opinions, we would have been greatly assisted if the expert reasoning process was clearly exposed and able to be understood by reference to relevant detail and logical analysis. Unfortunately, this was largely absent.
We have carefully examined the entirety of Mr Quaid’s evidence, including successive valuation reports and documents setting out explanations of the methods he employed, and his extensive oral evidence, in order to properly understand the basis for his valuation of the Belgian land.
Unfortunately, the methods and actual calculations Mr Quaid applied when valuing the Belgian land are obscured by convolutions of language that are difficult to follow. We note his explanation of the comparative valuation methodology he employed – “a professional opinion of “Direct Comparison” where the attributes of the sales are measured against the subject to find a % component that relates to the comparison of the components to the unimproved site value of the Belgian site to sales of Embassy sites and Westridge House”[30]. From this and from other evidence, we understand that Mr Quaid derived the value of the Belgian land by comparing its attributes to those of comparable properties where the value is known. The difficulty is establishing the basis on which he ‘measured’ the relative attributes of parcels of land he compared and derived percentage factors to apply.
[30] Exhibit 22, Embassy of Belgium, p 1.
Mr Quaid was closely examined on these points. He was asked to simply explain what he had done and how he had quantified different attributes when valuing the Belgian land; his answers were imprecise and unclear. He was asked to clarify his account and to provide more details a number of times; but his responses were not very illuminating. Unfortunately, Mr Quaid’s evidence on these important points is permeated with inconsistencies and unsupported conjectures. His purported “analysis of value” drawn from “the Direct Comparison method” in Exhibit 19 has no more substance than a chimera. Perhaps this may be convincing in the eyes of those that would believe it, but our inquiry reveals little of substance on which we can rely. This conclusion is amply demonstrated by the following account Mr Quaid provided in Exhibit 22:
The $/m² rate value of the Belgian site as $/m² comparison to Embassy sales indicates $252/m² as the low point and $382/m² for the highpoint. In any use of a $/m² rate method, a relativity exists whereby larger sites have to be provided professional thought about economies of scale. Therefore it is fair to say that a discount of 20-30% may be considered acceptable in determining this sales evidence due to the adjustment for area that increased the value for the Direct Comparison approach in the first example [a table setting out adjustments in respect of diplomatic sites 1 and 2 and Westridge House]. This reduction by 30% for economies of scale represents $176/m² as the low point and $267/m² for the highpoint
I adopt a range of $176/m² to $200/m² for the subject [the Belgian land] from this approach with a final figure of $185/m² for the unimproved site value of the subject.
We make three observations about this evidence. First, the 20 to 30 percent reduction is not explained or supported by evidence. Secondly, no explanation is provided for the reduction in the ‘highpoint’ from $267 to $200 per square metre. Thirdly, $185 per square metre is the approximate midpoint of the range Mr Quaid adopted, and it is the value he applied in his second valuation report[31], albeit without adequate explanation. We note that no reference to this methodology or to this value per square metre was made in the first valuation report he and Mr Robertson produced in November 2010.
[31] Exhibit 4, Embassy of Belgium, p 19.
Furthermore, the inconsistency in Mr Quaid’s evidence concerning the 50 percent discount he purported was reasonable when comparing “restricted and unrestricted sites” in his second valuation report[32] cannot pass without notice. During the hearing, Mr Quaid made no reference to this discount when deriving the value of the Belgian land with reference to Tennyson Street and Torrens Street. In respect of the former, he said:
… a fair analysis indicates that the subject [the Belgian land] due to its superior location would attract twice a selling price compared to this sale [Tennyson Street], resulting in a value in excess of $5,700,000. However, it was then considered that a reasonable discount would be required to the subject site to allow for the differing factors. A reduction of $400,000 was allowed for site area differences to assess what is considered an acceptable value that a Diplomatic site would attract.
We observe that doubling the sale price and discounting it by $400,000 is not consistent with any other method of comparative valuation we can find in Mr Quaid’s evidence, and it is not given any rational explanation. Furthermore, the $400,000 discount Mr Quaid applied equates to 7 percent, not 50 percent. We note that the value obtained by this method, $5,300,000, accords with the value Mr Quaid and Mr Robertson settled upon at first instance in November 2010.
[32] Exhibit 4, Embassy of Belgium, p 15.
Even though Mr Quaid failed to give a clear account of the calculus he applied when valuing the Belgian land at first instance, his evidence posits a number of methods by which a similar value may be obtained. While this, of itself, may not present any difficulty, unfortunately, Mr Quaid’s evidence in respect of these matters is disturbingly imprecise and inconsistent.
Turning to consider all that Mr Rixon and Mr Robertson had to say, no better evidence is found. Mr Rixon took issue with aspects of Mr Quaid’s evidence. While there is some disagreement on points of principle, in relation to assessments based on residential sales for example, in large measure, the points of disagreement he identified relate to the relative value of land attributes being compared. These are matters of degree: while Mr Quaid suggested one percentage or amount, Mr Rixon suggested another. The same confounded landscape of unsupported conjectures and convenient contrivance confronts us on either view.
At hearing, Mr Rixon quickly walked away from his original dualistic valuation methodology and his reliance on strikingly disparate comparators, including a bird park and a reservoir. We fail to see how one can sensibly derive the value of the Belgian land, in the heart of the Parliamentary zone in leafy Yarralumla, by comparison with a bird park in semi-rural Symonston, or a hill-top reservoir in newly-developed Bonner that may be accessed only via an unsealed track. But Mr Rixon staunchly defended the valuation he derived at first instance. Unfortunately, like Mr Quaid, the adjustment factors he suggested are all at sea without probative supporting evidence. If anything, the factors he applied have even less substance or reasonable explanation than the chimeric propositions put by Mr Quaid.
Mr Robertson’s evidence concerning the method he applied when valuing the Finnish land is simply elusory. His explanations are almost entirely devoid of relevant detail and offer no substantial explanation or evidence to support the valuation he formed.
All this is most unsatisfactory. Nevertheless, this is the evidence we have before us, and it is with this evidence we must proceed - we must do the best we can with it. We should note that all parties invited us to undertake our own valuations, assisted by the evidence, if we could not agree with the valuations determined by the experts, or their reasoning.
Comparative Valuation Assessment in Respect of Diplomatic Mission Land Sales
Each of the valuers agreed that diplomatic site 1 is the most comparable to the Belgian and Finnish lands. The evidence persuades us that this is, in any event, correct. Of the diplomatic mission sites referred to as comparable, diplomatic site 1 is the most proximate in time and location. This site is located in the Yarralumla diplomatic estate and it sold on 24 December 2008, approximately two years prior to the rent reappraisal dates of the leases held by Belgium and Finland.
Diplomatic site 2 is very close to diplomatic site 1. However, it sold on 23 December 2004, more than seven years prior to the dates we must consider. This factor increases the difficulty and uncertainty of using diplomatic site 2 as a comparator for the purposes of determining the unimproved value of the Belgian and Finnish lands on the relevant dates.
Diplomatic site 3 is located several kilometres away from the lands leased by Belgium and Finland, being located in the O’Malley diplomatic estate. It sold on 10 October 2006, more than 5 years prior to the relevant dates. We find that this site is more difficult to reliably compare when assessing the unimproved values of the Belgian and Finnish lands in Yarralumla. For the purposes of comparison, extensive adjustments to take account of differential attributes between these lands would be required. In the absence of probative evidence concerning the appropriate adjustment factors to apply we do not propose to consider this site any further.
For comparative assessment purposes, Mr Quaid, Mr Robertson and Mr Rixon adjusted the unimproved land value of diplomatic sites 1 and 2 to take account of differential attributes, namely: age of sale and changes in unimproved land values; size; location and topography; development potential and zoning.
We have considered these in detail. Mr Rixon and Mr Quaid applied a number of percentage adjustments, without relative weight or cumulative effect, to describe a value range. It appears to us that it is preferable to assess comparable property values by analysing comparative adjustments in a logical and sequential manner, and in so doing to attempt to shine light on the calculation of comparative values.
Age of Sale and Changes in Unimproved Land Values
Mr Rixon adopted an unimproved land value of $2,750,000 for diplomatic site 1. Mr Quaid addressed this in his evidence, but he initially adopted a sale price of $2,767,913. It appears that diplomatic site 1 was created from two parcels of Territory land that transferred from the ACT Government to the Commonwealth for the consideration of $2,750,000. The land was sold to the present lessee in December 2008 for $2,767,913. We will commence our analysis with this value.
Mr Quaid and Mr Rixon did not make any adjustment for variations in land value from December 2008 to January 2011. Considering the variations in land values in Yarralumla from 2009 to 2011[33], it appears that the value of residential land increased by 10 percent, commercial land increased by 15 percent and diplomatic mission land increased by 3 percent. If an increase of 3 percent is applied to the sale price of diplomatic site 1, the age-adjusted unimproved land value as of 1 January 2011 is $2,850,950.
[33] Exhibit 21, Embassy of Belgium.
With regard to the sale of diplomatic site 2, on Mr Robertson’s analysis of market movements in Yarralumla from 2005 to 2011, residential land increased by 26 percent, commercial land increased by 90 percent and diplomatic mission land increased by 36 percent. Applying an increase of 36 percent to the sale price of $2,600,000, the age adjusted land value of diplomatic site 2 would be $3,536,000. This was agreed by Mr Quaid and Mr Rixon.
Size
In order to derive a land value for the Belgian land and the Finnish land on a comparative basis, it is necessary to take differences in the land area of comparable properties into account. Such adjustments were made by each valuer, but as we have said there is very little probative evidence to support the adjustments Mr Quaid, Mr Robertson and Mr Rixon made.
Their evidence, albeit lacking any detailed explanation or analysis, shares one important feature: that area is a determinant of value – the larger the area, the greater the overall value and the lower the value per square metre. We interpolate that there will be circumstances, however, in which the demand for a large parcel of land will drive its value per square metre up just as there are circumstances in which the increased overall cost of a large parcel will drive the value per square metre down. The way in which these considerations operate in the Yarralumla diplomatic estate was not addressed in the evidence.
We are sceptical about the veracity of the evidence given by Mr Quaid, Mr Rixon and Mr Robertson on this point in respect of land in the Yarralumla diplomatic estate. The proposition that a foreign government might be expected to pay a greater amount per square metre in order to obtain a larger parcel of land on which to co-locate a chancery and diplomatic residences in the Yarralumla diplomatic estate, when large blocks are not often available in that estate, is just as plausible (or equally speculative) as the proposition put by Mr Quaid, Mr Rixon and Mr Robertson that the value per square metre would be lower.
Nevertheless, putting scepticism aside, the present evidence is that the larger the area, the greater the value, but the lower the value per square metre. We will proceed on this basis, assuming as a matter of principle that the contrary holds. Thus, a reduction in proportional value will apply when calculating the value of the Belgian land and the Finnish land in reference to a smaller comparator and an increase in proportional value will apply when referring to a larger comparator.
Mr Quaid applied discounts for ‘economies of scale’ of 20 to 30 percent when calculating the overall unimproved land value[34] as well as the value per square metre.[35] The basis on which these factors were determined is not clear. In effect, Mr Quaid’s method involves applying the ratio of the comparable land areas to determine a proportional value for the subject land as a whole, or per square metre, and then adjusting this value by a factor of 20 to 30 percent.
[34] Exhibit 22, Embassy of Belgium, p 1.
[35] Exhibit 22, Embassy of Belgium, pp 2-3.
Mr Rixon adopted a different approach, calculating the value of the subject land with reference to a comparator by applying percentage increases to determine a value range, but the percentage amounts differed in different cases – 25 to 50 percent increase in respect of diplomatic site 1 and 15 to 25 percent increase in respect of diplomatic site 2. We note that Mr Rixon’s increases equate to reductions in the proportional value of the Belgian land of 40 to 50 percent in respect of diplomatic site 1 and 20 to 26 percent in respect of diplomatic site 2. These effective reductions may be compared with Mr Quaid’s economies of scale.
As we have said, the bases on which Mr Quaid and Mr Rixon determined these factors is not clear.
Mr Robertson did not squarely address how he had adjusted the values of comparable properties on the basis of area with reference to the Finnish land, but he concurred, generally, with Mr Quaid’s evidence on the appropriate factors to apply.
The first step is to calculate the proportional value of the subject land by area. We will apply the following formula: $A = A/B x $B; where ‘$A’ is the resulting value of the subject; ‘$B’ is the known or derived value of the comparator; ‘A’ is the land area of the subject; and ‘B’ is the land area of the comparator.
The second step is to adjust the resulting value by a factor in respect of ‘economies of scale’. If the comparator is smaller than the subject, a negative factor will be applied, whereas if the comparator is larger than the subject, a positive factor will be applied. Having regard to the factors suggested by Mr Quaid and Mr Rixon, we will apply an adjustment percentage of 25 percent for indicative purposes.
Thus, applying the formula, the Belgian land ‘A’ is 28,813 square metres and diplomatic site 1 ‘B’ is 11,526 square metres. Applying this ratio to the age-adjusted sale value of diplomatic site 1 ‘$B’ ($2,850,950), without adjustment, gives a value of $7,126,880 to the Belgian land. If this is reduced by 25 percent for economies of scale, the value is $5,345,160. If this adjustment is applied only to the excess land the figure derived would, of course, be higher.
When comparing the area of the Finnish land and diplomatic site 1, we see no good reason why we should not apply similar methodologies to those adopted in respect of the Belgian land. We note that Mr Quaid and Mr Rixon did not express an opinion about the value of the Finnish land. Mr Robertson’s evidence on this point is not sufficiently detailed to advance the matter.
The Finnish land ‘A’ is 6,166 square metres and diplomatic site 1 ‘B’ is 11,526 square metres. Applying this ratio to the age-adjusted value of diplomatic site 1 ‘$B’ ($2,850,950), the proportional value of the Finnish land is $1,525,157. If this figure is increased by 25 percent, the value of the Finnish land is $1,906,446. Of course, there is significant doubt about the validity of these calculations, but they serve to indicate a value that may be derived in respect of the Finnish land with reference to diplomatic site 1.
Diplomatic site 2 is 18,530 square metres. Applying the formula using the age-adjusted value of diplomatic site 2 ($3,536,000), the proportional value of the Belgian land is $5,498,261 and the proportional value of the Finnish land is $1,176,631. If the proportional value of the Belgian land is reduced by 25 percent, a land value of $4,123,695 is obtained, whereas if the proportional value of the Finnish land is increased by 25 percent, the value is $1,470,789.
As can be seen, there is some variance in the range of unimproved values of the Belgian and Finnish lands that may be derived from the area-based adjustments suggested by reference to diplomatic sites 1 and 2. We prefer the comparative assessment values obtained in reference to diplomatic site 1, as this property sale is the most proximate in time and location.
That is not the end of the calculations – further adjustments may be required to account for other differential factors affecting value.
Location and Topography
Diplomatic site 1 is set below State Circle, a busy thoroughfare. It has access at the front and at the rear. We are not persuaded by Mr Rixon’s evidence that the land is superior to that held by Belgium. We prefer Mr Quaid’s evidence that the location and topography of diplomatic site 1 renders it inferior to the Belgian land, in terms of drainage and water retention, traffic flow, privacy, shape, aspect and general amenity. That is so, even though it is slightly closer to Parliament House than the Belgian land and it may be suited to a bunker-style development, making use of its dish-like topography.
Mr Rixon applied a reduction of 15 percent to the price of diplomatic site 1, whereas Mr Quaid applied an increase of 50 percent. The basis on which these percentages have been determined is not clear.
We have difficulty accepting either of these adjustments on the present evidence. Even though we accept that the Belgian land possesses some attributes that are superior to diplomatic site 1, the adjustment factors applied by Mr Quaid and Mr Rixon are not supported by probative evidence on which we can rely.
Mr Robertson considered diplomatic site 1 to be superior to the Finnish land, but he did not quantify this adjustment in percentage terms and he did not provide a detailed explanation of why he formed this opinion. It appears to us that Mr Robertson’s assessment may have related to the fact that diplomatic site 1 is almost twice the area of the Finnish land.
Size aside, it appears to us that the Finnish land has differential advantages over diplomatic site 1 in respect of reduced traffic flow, greater privacy, a more regular shape and, perhaps, reduced water retention and better drainage, being set on a gentle slope rising above a drainage culvert at the front of the block. Even so, the Finnish land is located slightly further away from the institutions of Government in the Parliamentary Triangle, although the variance with respect to diplomatic site 1 and the Belgian land is not great. Considering these differential factors, it appears to us that the advantages may out-weigh the disadvantages in terms of unimproved land value, but the overall variance would in all likelihood be very minor. On this basis there is no reason to reduce the estimate of unimproved value of the Finnish land with reference to diplomatic site 1; if anything, a marginal increase may be justified.
On Mr Quaid’s evidence, diplomatic site 2 is inferior to the Belgian site, the differential factors being drainage and water retention, traffic flow, privacy, shape and topographic aspect. Mr Rixon reported that the differential exposure and access factors cancel one another out. We prefer Mr Quaid’s evidence that the location and topography of diplomatic site 2 renders it inferior to the Belgian land. Diplomatic site 2 is more level than the Belgian and Finnish lands, both of which are elevated and gently sloping. Diplomatic site 2 is set below a busy road and it is exposed to high traffic flows, with reduced privacy. Furthermore, diplomatic site 2 has an irregular shape, whereas the Belgian and Finnish lands are regular in shape. Even though diplomatic site 2 is slightly closer to Parliament House than the Belgian and Finnish lands, it is set below diplomatic site 1 and may have inferior water retention and drainage than the Belgian land and the Finnish land.
Mr Quaid applied adjustment factors of 55 and 60 percent in respect of topography and location to obtain unimproved land values of $4,680,000 and $5,220,000 for the Belgian land with respect to diplomatic site 2[36]. Mr Rixon reported a comparative unimproved land value of $3,300,000 to $3,500,000[37]. As can be seen, Mr Quaid’s estimates are significantly greater than those estimated by Mr Rixon. These assessments are based on factors and assumptions that are not clearly explained or supported by probative evidence.
[36] Exhibit 22, Embassy of Belgium, p 1.
[37] Exhibit H, Embassy of Belgium, p 4.
There is no detailed evidence concerning the adjustment factors Mr Robertson applied when comparing the Finnish land and diplomatic site 2. We simply observe that, putting relative size to one side, the present evidence supports a conclusion that diplomatic site 2 is broadly comparable with diplomatic site 1, although there may be minor variances in respect of privacy, block shape and proximity to institutions of Government. That being so, the same adjustment factors that applied when comparing the location and topography of the Finnish land and diplomatic site 1 should also apply when comparing that land with diplomatic site 2.
It follows that there is no reason to reduce the estimate of unimproved value of the Finnish land with reference to diplomatic site 2; if anything, a marginal increase may be justified.
Development Potential and Zoning
The Belgian and Finnish lands, and diplomatic mission sites 1, 2 and 3, are subject to ‘diplomatic mission’ zoning and restrictive leases under s 3(2) of the Ordinance.
That being so, the issue of development potential as a determinant of differential value is a little vexed. The only development permitted on these lands is development for the purposes of the particular diplomatic mission, in the form of chanceries or residences. Clearly, subject to planning controls, the larger the land, the greater the capacity. Whether or to what extent development potential affects the price or value of diplomatic mission land is not clear on the present evidence.
Mr Rixon stated that the market for larger, more expensive sites may be narrower than that for smaller, less expensive sites. Insofar as that is a statement of general fact, it is not controversial; but it is less clear that it holds in respect of diplomatic mission land, where the only potential purchasers are foreign governments. To make such a finding, detailed analysis of the ‘market’ for diplomatic mission land would be required. Presently, on Ms Walker-Kaye’s evidence there is a waiting list of countries seeking access to diplomatic land; but the relative land requirements of those countries, and the level of demand for large blocks of diplomatic mission land, is not established. It is quite clear on her evidence that the supply of large blocks of diplomatic mission land for lease in Yarralumla is very limited. This is a relevant factor to consider when assessing the unimproved value of the Belgian land, but we can go no further on the present evidence.
There is another aspect to consider in respect of the Belgian land. Ms Walker-Kaye’s evidence is that the Belgian land may be sub-divided into smaller parcels of diplomatic land by negotiation with the National Capital Authority. Whether or not this affects the unimproved value of the land subject to lease is moot. Mr Quaid considered it to be a significant factor when compared with other properties, whereas Mr Rixon did not. Mr Quaid applied an adjustment factor of 90 percent and obtained a comparative value of $5,225,000.
The difficulty with this assessment is that if there is a value attaching to the potential for sub-division of diplomatic mission land, it is something for the National Capital Authority, rather than something that is likely to affect the unimproved value of the land under lease. There is no opportunity for the holder of a lease over diplomatic mission land to sub-divide and sell all or part of the land. The leaseholder may use the diplomatic land to the fullest extent or hand the land back to the Crown and seek compensation under s 5BA of the ordinance in respect of any improvements.
Comparison with Community Land Sales
Difficulties arise when comparing the value of land held under a diplomatic lease with the sale of land subject to special purpose community use leases. While physical attributes of the land to be compared may be similar, different legal conditions and restrictions may apply, and these may have a substantial bearing on respective land values.
Mr Rixon placed heavy reliance on the Westridge House property sale on 1 December 2010. On his evidence this property “shows a good level of comparability [to the Belgian land] with several similarities and a [sic] many of the differences cancelling each other out”[38]. In Mr Rixon’s opinion, the Belgian land warrants a higher overall unimproved land value but a lower value per square metre than the Westridge House land when the comparative size of each block is considered. Mr Quaid did not agree that the differential attributes cancelled each other out. His evidence is that the Westridge House land is inferior to the Belgian land as it is located further from the Parliamentary Triangle and has an irregular shape. It is in a residential area, but is “well placed” adjoining a golf course. Perhaps most significantly, it is subject to tight heritage restrictions that do not affect the Belgian or Finnish lands.
[38] Exhibit H, Embassy of Belgium, p 2.
We prefer Mr Quaid’s evidence on this point. Westridge House and the surrounding gardens are listed on the Heritage Register of the National Estate[39]. It appears that Mr Rixon may not have been fully apprised of the extent and nature of the heritage considerations and restrictions applying to Westridge House at the time of sale. It is very difficult to accept that no adjustment should be made to account for the heritage restrictions applying to Westridge House, where no comparable restrictions apply to the lands held by Belgium and Finland.
[39] Exhibit C, Embassy of Belgium, p 14 and Annexure 1; Exhibit F, Embassy of Belgium, p 13 Attachment 4.
Furthermore, Westridge House sold when it was subject to a restrictive special community facility lease[40], albeit with the prospect that the land use may be changed by the Minister to permit a single residence. The extent to which these factors affected the sale price is moot. We accept that the prospect of a land use variation may have counteracted the negative effect of the (then present) restrictive community lease to some degree, at least to the extent that a sale was achieved on 1 December 2010 at the price recorded - $3,200,000.
[40] Exhibit C, Embassy of Belgium, pp 12-13.
The lease purpose restrictions applying to Westridge House at the time of sale permitted a variety of activities of a potentially commercial nature, a school or a hospital with associated residential and office accommodation for example, whereas the leases held by Belgium and Finland restrict land use to diplomatic mission purposes. We note that, subject to heritage and other restrictions, Westridge House may be sold, whereas the Belgian and Finnish lands may not. While these points of difference may suggest a higher value for Westridge House, as the potential uses are broader that those applying to the Belgian and Finnish lands, and on Mr Rixon’s evidence there is a broader potential market, the additional heritage restrictions applying to Westridge House, that restrict further development, suggest a lower value than the lands leased by Belgium and Finland, where no such heritage restrictions and constraints on development apply under the terms of each lease.
Mr Quaid applied a 100 percent escalating factor when comparing Westridge House and the Belgian land in his report dated 2 November 2010, but he appears to have revised this adjustment percentage in his report dated 9 February 2012 to an increase of between 30 and 70 percent. In particular, Mr Quaid settled upon a 70 percent increase to account for zoning and land use restrictions when comparing Westridge House and the Belgian land. Applying Mr Quaid’s 70 percent increase in respect of variances in restrictions on land use to the unimproved land value of Westridge House, a value of $4,080,000 is obtained. We note that this would also apply in respect of the Finnish land.
Of course, other differential attributes may also need to be taken into account: size, location and topography for example.
Westridge House is 19,210 square metres, or 67 percent of the area of the Belgian land. Applying the area adjustment method we have adopted and a land value of $4,080,000 for Westridge House, the proportional value of the Belgian land is $6,119,575. If this figure is reduced by 25 percent for economies of scale, an area-adjusted value of $4,589,681 is obtained for the Belgian land when compared with Westridge House.
The Finnish land is 32 percent of the area of Westridge House. Mr Quaid and Mr Rixon did not expressly address valuation adjustments between Westridge House and the Finnish land. Mr Robertson was not specific in his evidence on this point. Applying the method we have adopted, the proportional value of the Finnish land with reference to Westridge House is $1,309,593. If this figure is increased by 25 percent, a value of $1,636,991 is obtained for the Finnish land in reference to Westridge House. While these calculations may not be reliable, they serve to indicate possible land values that may be derived from the Westridge House sale in respect of the Finnish land.
With regard to other differential attributes between Westridge House and the Belgian land, we note that Mr Quaid and Mr Rixon agree that the location of the Belgian land is superior for the purposes of a diplomatic mission, being located in closer proximity to institutions of Government than Westridge House. This would also apply in respect of the Finnish land.
We accept Mr Quaid’s evidence that the Belgian land is superior for other reasons, including a more regular shape with dual street frontage and greater privacy (Westridge House adjoins a golf course). No comparable assessment was made in respect of the land held by Finland.
We prefer Mr Quaid’s assessment of differential value in respect of these attributes than Mr Rixon’s assessment, where no net adjustment was made. Mr Quaid applied an adjustment factor of 30 to 40 percent in respect of these considerations.[41] Applying a 30 percent adjustment factor to the range of area-adjusted Belgian land values, the following results are obtained: $5,966,585 for the Belgian land, and $2,128,088 for the Finnish land.
[41] Exhibit 22, Embassy of Belgium, p 1.
Comparison with Residential Land Sales
As we have said, it is open for foreign governments to privately acquire land under commercial or residential leases in the Territory for the purposes of establishing chanceries or diplomatic residences outside the diplomatic estates. Comparing suitable properties on that basis is an entirely legitimate consideration for the purposes of s 5AD. The unambiguous evidence of Mr Rixon and Mr Quaid is that the costs of privately acquiring leases over residential or commercial land to establish diplomatic chanceries and residences would, in all likelihood, exceed the prices paid for leases over diplomatic mission land in the diplomatic estates.
Nevertheless, difficulties may arise when comparing the sale of land held under commercial or residential leases in the Territory with land held under a diplomatic lease. Clearly in those circumstances, different legal restrictions and values are likely to apply. Commercial and residential land may be on-sold, whereas diplomatic land may not. Mr Rixon formed the opinion that comparing residential leased land with diplomatic leased land was not appropriate, whereas Mr Quaid and Mr Robertson applied a discount factor of 50 percent when comparing residential sales with diplomatic leased land for valuation purposes.
There are a number of things to say about this.
The 50 percent discount Mr Quaid and Mr Robertson applied when comparing residential land and special purpose diplomatic mission land was based, in substantial part at least, on a comparative assessment of the Westridge House and Vancouver Street sales. The proposition that a rule of general application can reasonably be extrapolated from such a narrow basis of fact is troubling. This point is sharpened when the restrictions applying to Westridge House are compared with those applying to the Belgian and Finnish lands.
There is some dispute about the derived unimproved land value of Vancouver Street. Mr Rixon points to an Australian Valuation Office assessment on 1 January 2010 for rating purposes of $3,764,000, whereas Mr Quaid and Mr Robertson deduced an unimproved land value of $5,000,000[42]. The basis on which this calculation was made is not clear. In any event, for the purposes of comparison, the unimproved land value assessment on 1 January 2010 would need to be adjusted to account for variations in unimproved land values of residential properties in proximate areas to 1 December 2010, when Westridge House sold. Applying Mr Robertson’s figures in Exhibit 21, residential land values in areas proximate to Vancouver Street increased by 5 percent in 2010, and on that basis the unimproved land value of Vancouver Street would be $3,952,200.
[42] Exhibit 4, Embassy of Belgium, p 14; Exhibit 3, Embassy of Finland, p 10.
It is very clear that the unimproved land value of Westridge House ($2,400,000) is substantially lower than either the deduced land value ($5,000,000) or the age-adjusted land value ($3,952,200) of Vancouver Street. While there are some differences in the location, size and other attributes of Westridge House and Vancouver Street, Mr Quaid’s evidence is that when these properties are compared, the Westridge House sale represents a heavy discount of 40 to 50 percent if treated as a residential sale. We have no difficulty accepting that proposition. Furthermore, the discount is in all likelihood attributable to the special purpose lease and heritage restrictions applying to Westridge House at the time of sale. We accept Mr Quaid’s evidence on this point.
As a matter of logic, following Mr Quaid’s assessments, the zoning and land use differential between the Belgian land and Westridge House should be considered relative to the zoning differentials between Westridge House and Vancouver Street. On that basis, the 50 percent discount Mr Quaid applied to account for zoning and land use differentials between Vancouver Street and Westridge House would be partially offset by the 70 percent premium factor he applied when comparing zoning differentials between Westridge House and the Belgian land. Thus, a differential zoning discount factor of 15 percent, not 50 percent, should apply when deriving the unimproved value of the Belgian land by comparison with Vancouver Street.
Grappling with this anomaly in Mr Quaid’s evidence, we note Mr Rixon’s opinion, on the one hand, that the differential attributes between Westridge House and the Belgian land cancel each other out even though the Belgian lease cannot be sold, and on the other hand, that the unimproved value of the Belgian land should not be assessed by comparison with residential sales because the Belgian lease cannot be sold. Considering these apparent inconsistencies, the restrictions on sale that apply to the Belgian and Finnish leases, that do not apply in respect of residential leases, must be weighed against the opportunity to co-locate diplomatic chanceries and residences on the Belgian and Finnish lands, which does not exist on land zoned for residential purposes. It is probable that the negative effect on value of the former is likely to be partially offset, at least, by the positive effect of the latter. On that basis, the 15 percent discount derived from Mr Quaid’s evidence may be an appropriate estimate to apply.
Applying this figure, and having regard to the divergent evidence concerning the unimproved land value of Vancouver Street, a value of between $3,359,200 and $4,250,000 is obtained when zoning and land use differences are taken into account. We will consider the lower value for present purposes.
Vancouver Street (11,300 square metres) is 39 percent of the Belgian land area and 183 percent of the Finnish land. Applying the area adjustment method we have adopted, the proportional value of the Belgian land is $8,565,365 and the proportional value of the Finnish land is $1,832,994. If these figures are adjusted in respect to economies of scale, the proportional value of the Belgian land is reduced by 25 percent to $6,424,024; and the value of the Finnish land is increased by 25 percent to $2,291,242.
Other adjustments may be made in respect of differential attributes relating to location, topography, development potential and zoning. Having considered the present state of the evidence on these points of detail, there is little to suggest that other attributes would have a significant effect on comparative land values. We note that the Vancouver Street site would not permit chancery and diplomatic residences to be co-located, whereas the lands held under diplomatic lease are confined to those purposes. It is not necessary to proceed further on this point.
We have considered other residential property sales, including Torrens Street, Tennyson Street and other properties in O’Malley. These properties are less readily compared with the Belgian and Finnish lands. Furthermore, if the same methodologies for comparative assessment are applied, no substantially different result is obtained in respect of the land held by Belgium, and higher values are obtained in respect of the land held by Finland. We need not go further with those properties.
As we have said, foreign governments may privately acquire leases over commercial or residential land outside the diplomatic estates for diplomatic mission purposes, subject to zoning restrictions under the Territory Plan. On the sale prices of Vancouver Street, Tennyson Street and Torrens Street, it is clear enough that the cost of doing so may well exceed the price of acquiring a lease over diplomatic mission land in the diplomatic estates.
Conclusion
When the unimproved values of the Belgian and Finnish lands are assessed using the methodologies outlined by Mr Quaid, Mr Rixon and Mr Robertson a range of indicative values may be obtained, to which we have referred.
While there are questions about the basis of assumptions underlying these calculations, we must do the best with the present evidence. We are satisfied that the value of the Belgian and Finnish lands may be calculated with reference to comparable diplomatic, community facility and residential sales. Sales that are most proximate are diplomatic site 1, Westridge House and Vancouver Street. Of these, we consider diplomatic site 1 to be preferred, as it most closely reflects the legal and other characteristics attaching to the Belgian and the Finnish lands.
Mr Quaid’s area-related reductions for ‘economies of scale’ equate to an increase of 75 to 100 percent when calculating the value of the Belgian land with reference to diplomatic site 1. Mr Rixon applied an increase of 25 to 50 percent. Conversely, Mr Rixon’s area-related percentage increases in respect of diplomatic site 1 equate to reductions in the value per square metre of 40 to 50 percent when calculating the value of the Belgian land. Mr Quaid applied reductions of 20 to 30 percent. We are not persuaded by Mr Rixon’s evidence that a discount of 40 to 50 percent per square metre is justified or that an overall increase of no more than 50 percent should be applied when calculating the value of the Belgian land. The Belgian land is 150 percent larger than diplomatic site 1 and it has some superior attributes. For this reason we prefer Mr Quaid’s assessment of the appropriate area-related adjustments in reference to diplomatic site 1.
Considering all these matters, we find that the value of the Belgian land is appropriately calculated with reference to diplomatic site 1 on the following comparative basis. Diplomatic site 1 sold for $2,767,913. This amount is to be increased by 3 percent on the basis of age to $2,850,950. The proportional value of $7,126,880 is derived by applying the land area ratio of the Belgian land and diplomatic site 1. A reduction of 25 percent, being the midpoint of Mr Quaid’s adjustments for economies of scale, is reasonable to adjust for variance in land area. This results in a value of $5,345,160. It is possible that further adjustments in respect of variations in location, topography and other features could be made. Any further adjustment of this kind would increase the value of the Belgian land. But, to our minds, the present evidence is not sufficiently clear or reliable to justify any such further adjustment. While we consider the Belgian land to have some superior attributes to diplomatic site 1, we cannot, on balance, reliably quantify the respective value of these differences on the present evidence.
The value of the Finnish land may also be calculated by comparison to diplomatic site 1. The sale price of diplomatic site 1 is to be increased by 3 percent on the basis of age of sale. Applying the land area ratio of the Finnish land and diplomatic site 1, the proportional land value is $1,525,157. This amount may reasonably be increased by 25 percent on the basis of comparative economies of scale. The resulting value is $1,906,446. As with the Belgian land, further adjustment on the basis of other attributes of the Finnish land when compared with diplomatic site 1 is not presently justified.
In the first reviewable decision, Ms Walker-Kaye determined that the unimproved value of the land held under lease by Belgium was $5,300,000 as at 1 January 2011[43]. This value was derived by rounding Mr Quaid’s valuation of $5,330,405. We have found the unimproved value of the Belgian land is $5,345,160. That being so, it is appropriate to conclude that $5,300,000 is the capital sum that might be expected to have been offered for the Belgian lease on that day. We find that the unimproved value of the Belgian land on 1 January 2011 was $5,300,000. We affirm this decision. That being so, the annual land rent from 1 January 2011 is $106,000, being 2 percent of the unimproved value of the land.
[43] Section 37 Documents, Embassy of Belgium, p 75.
In the second reviewable decision, Ms Walker-Kaye determined that the unimproved value of the land held under lease by Finland was $1,910,000 as at 22 June 2011[44]. This amount was derived by rounding Mr Robertson’s valuation of $1,911,460. We have found the unimproved value of the Finnish land is $1,906,446. That being so, it is appropriate to conclude that $1,910,000 is the capital sum that might be expected to have been offered for the Finnish lease on that day. We find that the unimproved value of the Finnish land on 22 June 2011 was $1,910,000. We affirm this decision. It follows that from 22 June 2011 the 2 percent annual land rent for the Finnish land is $38,200.
[44] Section 37 Documents, Embassy of Finland, p 59.
Our conclusions relating to the values of both parcels of land are reinforced by our examination of the other bases discussed above which might also have led to a determination. Although those bases might have led to higher valuations for both parcels of land they all tend to affirm a valuation at least at the level of value which we have found. We accordingly find support for our valuation coming from each of the matters we have considered.
Postscripts
Noting the difficulty of the valuation tasks in this case, and they are certainly difficult, we feel compelled to make some observations about the valuation evidence.
We have left the name of the applicants unchanged although the true juridical entities would seem to be the Kingdom of Belgium and the Republic of Finland. This is how they are described in the leases. We note that the leasee of the Belgian land is actually stated to be to the Royal Belgian Legation. We have, however, changed the name of the respondent to the Minister for Regional Australia, Regional Development and Local Government because the decision under review was made by Ms Alison Walker-Kaye, who is the Executive Director of Estate at the National Capital Authority, on behalf of the Minister.
In performing its function the Tribunal is called upon to evaluate the evidence of expert witnesses and to resolve conflicts on controversial points. Doing so, it must explain why one piece of evidence is preferred or accepted, when another is not; why the evidence of one expert is given more weight than the evidence of another. Oftentimes, as in this case, the process of reasoning delves into detail. But when detail is lacking and facts are joined by assumptions in the thin air of abstraction, reason falters and no amount of exhortation to ‘Trust me, I am an expert’ will satisfy the obligation to explain.
In a case such as this, one might hope (and expect) to find detailed evidence of valuation principles, methodologies and processes being applied to the particular task; where property sales are subjected to detailed analysis and unimproved land values are carefully deduced; where differential factors affecting property prices or values are clearly identified; where positive or negative adjustments to be made are quantified and explained, factor by factor, case by case, to expose a process of reasoning and a transparent calculus, by which a comparative value may be arrived at. One might expect the National Capital Authority may be assisted in its decision-making by obtaining detailed information of this kind. And one might expect the Australian Valuation Office to provide it as a matter of common practice.
Had the expert evidence in this case complied with the above norms, the decisions might have been reached more easily and with reasons which were much less complex.
I certify that the preceding 151 (one hundred and fifty one) paragraphs are a true copy of the reasons for the decision herein of Justice Downes, President and Mr S. Webb, Member.
.....................[sgd]...................................................
Associate
Dated: 27 April 2012
Dates of hearing 6-9 February 2012 Date final submissions received 9 February 2012 Solicitors for the Applicant Meyer Vandenberg Lawyers Counsel for the Respondent Mr T Howe QC Solicitors for the Respondent Australian Government Solicitor
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