Esberey and ANOR and Shire of Kalamunda
[2008] WASAT 203
•3 SEPTEMBER 2008
ESBEREY & ANOR and SHIRE OF KALAMUNDA [2008] WASAT 203
| STATE ADMINISTRATIVE TRIBUNAL | Citation No: | [2008] WASAT 203 | |
| LAND ADMINISTRATION ACT 1997 (WA) | |||
| Case No: | DR:620/2005 | 13, 14 AUGUST 2007 29 SEPTEMBER 2007 10, 11, 14 DECEMBER 2007 11 - 14 MARCH 2008 17 MARCH 2008 | |
| Coram: | JUDGE J CHANEY (DEPUTY PRESIDENT) MR S MCMAHON (ASSESSOR) MS R RICHMOND (ASSESSOR) | 3/09/08 | |
| 44 | Judgment Part: | 1 of 1 | |
| Result: | Compensation provisionally assessed at $308,555 plus interest subject to any set-off for betterment pursuant to s 241(7) of the Land Administration Act 1997 (WA) | ||
| B | |||
| PDF Version |
| Parties: | WILLIAM JOHN ESBEREY PENELOPE ANNE ESBEREY SHIRE OF KALAMUNDA |
Catchwords: | Compensation Taking of land for the purposes of roadways Value of land Whether comparable sales or static analysis of hypothetical subdivision is appropriate methodology Whether sales of en globo parcels of land sufficiently comparable Choice of comparable sales of subdivided lots Assessment of costs of hypothetical subdivision Treatment of GST Assessment of value Whether injurious affection Whether damage to land by carrying out of the public work compensable under Land Administration Act Appropriate award of solatium |
Legislation: | Land Administration Act 1997 (WA), Part 10, s 168, s 241 State Administrative Tribunal Act 2004 (WA), s 9 Supreme Court Act 1935 (WA), s 142 |
Case References: | Brewarrana Pty Ltd v Commissioner of Highways (1973) 32 LGRA 170 Flotilla Nominees Pty Ltd v Western Australian Land Authority (2003) 27 WAR 403 Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111 Pastoral Finance Association Limited v Minister [1914] AC 1083 Point Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands (Trinidad) (1947) AC 565 Western Australian Planning Commission v Arcus Shopfitters Pty Ltd [2003] WASCA 295 |
Orders | The matter is listed for directions at a time to be arranged between the parties and the Tribunal. |
Summary | The Shire of Kalamunda compulsorily acquired some land owned by Mr and Mrs Esberey in Maida Vale. The land was required for roadworks. The Esbereys claimed compensation. ,The claimants and the Shire each engaged a valuer to assess the value of the land taken. The valuers disagreed as to the appropriate method of valuation, and by using different methods, arrived at significantly different values for the land.,The Tribunal examined the valuations and made an assessment as to which method should be used, and the appropriate value to be attributed to the land. It also considered whether Mr and Mrs Esberey were entitled to compensation for damage done to a creek bank when construction works were underway, and whether the usual allowance of solatium should be awarded. |
JURISDICTION : STATE ADMINISTRATIVE TRIBUNAL STREAM : DEVELOPMENT & RESOURCES ACT : LAND ADMINISTRATION ACT 1997 (WA) CITATION : ESBEREY & ANOR and SHIRE OF KALAMUNDA [2008] WASAT 203 MEMBER : JUDGE J CHANEY (DEPUTY PRESIDENT)
- MR S MCMAHON (ASSESSOR)
MS R RICHMOND (ASSESSOR)
- 29 SEPTEMBER 2007
10, 11, 14 DECEMBER 2007
11 - 14 MARCH 2008
17 MARCH 2008
- PENELOPE ANNE ESBEREY
Applicant
AND
SHIRE OF KALAMUNDA
Respondent
Catchwords:
Compensation Taking of land for the purposes of roadways Value of land Whether comparable sales or static analysis of hypothetical subdivision is appropriate methodology Whether sales of en globo parcels of land sufficiently comparable Choice of comparable sales of subdivided lots Assessment of
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costs of hypothetical subdivision Treatment of GST Assessment of value Whether injurious affection Whether damage to land by carrying out of the public work compensable under Land Administration Act Appropriate award of solatium
Legislation:
Land Administration Act 1997 (WA), Part 10, s 168, s 241
State Administrative Tribunal Act 2004 (WA), s 9
Supreme Court Act 1935 (WA), s 142
Result:
Compensation provisionally assessed at $308,555 plus interest subject to any set-off for betterment pursuant to s 241(7) of the Land Administration Act 1997 (WA)
Category: B
Representation:
Counsel:
Applicant : Ms L Rowley
Respondent : Mr M Solomon
Solicitors:
Applicant : Deacons
Respondent : Corrs Chambers Westgarth
Case(s) referred to in decision(s):
Brewarrana Pty Ltd v Commissioner of Highways (1973) 32 LGRA 170
Flotilla Nominees Pty Ltd v Western Australian Land Authority (2003) 27 WAR 403
Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111
Pastoral Finance Association Limited v Minister [1914] AC 1083
Point Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands (Trinidad) (1947) AC 565
Western Australian Planning Commission v Arcus Shopfitters Pty Ltd [2003] WASCA 295
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Summary of Tribunal's decision
1 The Shire of Kalamunda compulsorily acquired some land owned by Mr and Mrs Esberey in Maida Vale. The land was required for roadworks. The Esbereys claimed compensation.
2 The claimants and the Shire each engaged a valuer to assess the value of the land taken. The valuers disagreed as to the appropriate method of valuation, and by using different methods, arrived at significantly different values for the land.
3 The Tribunal examined the valuations and made an assessment as to which method should be used, and the appropriate value to be attributed to the land. It also considered whether Mr and Mrs Esberey were entitled to compensation for damage done to a creek bank when construction works were underway, and whether the usual allowance of solatium should be awarded.
Introduction
4 On 7 June 1985, Mr and Mrs Esberey purchased land which was then Lot 21 Hawtin Road, Maida Vale (Lot 21 or the Esberey land). The land area of Lot 21 was 1.5049 hectares. When they purchased it, the property had an old residence constructed on it. In 1999, the Esbereys completed the construction of a new house, and later that year commenced demolition of the old residence.
5 Mr Esberey said that the land was purchased as a "lifestyle block", but in the late 1980s proposals emerged for the urbanisation of the locality. Eventually, an amendment to the local planning scheme was enacted resulting in the rezoning of the locality from rural to urban. In the early 1990s, an outline development plan (ODP) was developed, and it was adopted in 1994. The ODP was developed anticipating an extension of Maida Vale Road, passing through Mr and Mrs Esberey's land and intersecting with Hawtin Road on the Esbereys' southern boundary. In 1994, a change to the ODP involving a widening of Hawtin Road was foreshadowed. Initially, a ten metre road widening was proposed, although ultimately that was reduced to seven metres.
6 In 2001, the Shire of Kalamunda indicated to Mr and Mrs Esberey that it wished to purchase that part of their land required for the Maida Vale Road extension. Negotiations in that regard then took place over a number of years. According to Mr Esberey, by 2003, the Shire was
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- anxious to acquire the land necessary for the Maida Vale extension and the Hawtin Road widening in order to take advantage of funding from Main Roads. Although, by that time the parties had not reached agreement as to the amount to be paid for the acquisition, they entered into a deed pursuant to s 168 of the Land Administration Act 1997 (WA) (the LA Act). The agreement was dated 23 October 2003. The parties agreed to the Shire acquiring the portion of the land required comprising an area of 3288 square metres for the extension of the Maida Vale Road, and 1005 square metres for a seven metre widening of the existing Hawtin Road road reserve. The agreement provided that, if compensation could not be agreed, it was to be assessed under Part 10 of the LA Act. In addition, the agreement provided that the Shire would, at its cost, conduct certain works set out in the agreement, being:
(i) installation of a sewer connection to the dwelling on the land;
(ii) demolition of the old house and sheds on the land, removal of all materials and debris;
(iii) relocation of the water meter clear of the road construction works;
(iv) relocation of the post, rail and wire fence along Hawtin Road to the new boundary of the land and the recreation of the entry to the land;
(v) installation of temporary fence on both sides of the newly created road reserve with gate entries to both parts of the land; and
(vi) relocation of the electricity service clear of the road construction works.
8 The northern boundary of Lot 21 comprises a deeply incised creek bed known as Poison Gully Creek. The extension of Maida Vale Road involved crossing Poison Gully Creek, and therefore the construction of a culvert. Works on the construction of the road, and the creek crossing, were completed during 2004.
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9 The Esbereys and the Shire were unable to agree the amount of compensation for the acquisition of the land. Accordingly, Mr and Mrs Esberey applied to the Tribunal for a determination of the compensation payable. Compensation is to be assessed with accordance s 241 of the LA Act. The issues which fall for determination by the Tribunal are:
(1) What is the value of the land taken as at 23 October 2003 (s 241(1) of the LA Act);
(2) Have Mr and Mrs Esberey suffered damage due to a reduction in the value of the balance of their land as a result of the taking (s 241(7) of the LA Act); and
(3) Are Mr and Mrs Esberey entitled to any compensation for loss or damage sustained by reason of damage allegedly caused to the banks of Poison Gully Creek (s 241(6) of the LA Act);
(4) Should compensation include an award of "solatium" to compensate for the taking, and if so, what amount should be awarded (s 241(8) and s 241(9) of the LA Act).
10 As the applicants put their claim, no compensation for "injurious affection" under s 241(7) of the LA Act was made. That was because they relied on valuation evidence which indicated that the difference between the value of the land in its original state, and the value of the land left after the taking, was less than the value of the land taken. It is contended, however, that were the Tribunal to find that the difference in values before and after the taking was greater than the value of the land taken, then a claim for injurious affection would arise. Under s 241(7) of the LA Act, any increase in the value of the fee simple in the remaining land occurring by reason of the public work must be set off against an amount of compensation which would be payable for injurious affection. The respondent did not agitate a claim for "betterment" at the hearing, given the absence of any quantified claim for injurious affection. The Shire did, however, reserve its position on betterment in the event that the Tribunal were to find that injurious affection, in the sense described above, had occurred.
The value of the land taken
11 The principal issue in the proceedings was as to the value of the land taken. The applicants relied upon the evidence of Mr Terry Dix, a
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- licensed valuer. The respondent relied upon the evidence of another licensed valuer, Mr Brian Zucal. The valuers were fundamentally opposed as to the appropriate method by which the value of the land as at 23 October 2003 should be determined. Mr Zucal contended that the value should be ascertained by reference to sales of comparable "en globo" parcels of land. Mr Dix rejected that approach, and contended that the land should be valued by reference to a static analysis of a hypothetical subdivision of the land. Mr Zucal accepted that it may be appropriate to utilise the hypothetical subdivision approach as a check on the validity of the value ascertained by reference to comparable sales. It undertook a hypothetic subdivisional analysis principally for the purpose of responding to Mr Dix's analysis, rather than for the purpose of informing his opinion as to the value of the land.
12 Despite extensive mediation in the pre-hearing stages of the proceedings, and conferral between experts prior to hearing, Mr Dix and Mr Zucal agreed on very little. During their extensive concurrent evidence, we formed the view that neither was prepared to make any significant concession which might be detrimental to the case of the party calling them. Where assumptions were required for the purposes of a particular valuation methodology, each of them made or relied upon assumptions which favoured the case of the party calling them. While it is to be expected that different valuers will take differing approaches to certain assumptions, objectiveness is called into question where disagreements between valuers over assumptions are, almost without exception, divided consistently with the interests of the party who engaged the expert. The point was most starkly illustrated when Mr Dix denied propositions put to him by counsel for the respondent, notwithstanding that those propositions emerged from Mr Dix's own reports. In the circumstances, we have significant reservations in accepting the objectivity of the evidence of either valuer.
13 One important matter was agreed by the valuers and the parties at hearing. That was that the value of the land taken should be assessed by determining the value of the whole of Lot 21, then on the basis of that value, assessing the value per square metre of the land, and then applying that value to the area of land taken.
14 One other matter which was not an issue was that, in assessing the value of the land taken, s 241(2) of the LA Act requires regard to be had to the value of the land "discounting any increase or decrease in value attributable to the proposed public work". This is generally referred to as the statutory embodiment of the "Point Gourde principle" – see Point
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- Gourde Quarrying and Transport Co Ltd v Sub-Intendent of Crown Lands(Trinidad) (1947) AC 565. It follows that the Tribunal is required to ignore the effect on the value of the land, prior to the taking of, the proposed extension of Maida Vale Road and widening of Hawtin Road.
Comparable sales of en globo parcels of land
15 Mr Zucal approached his valuation by assessing the value of the land having regard to the sales of other parcels of land, which he considered comparable, within a reasonable proximity to the subject site. In doing so, he identified eight properties, five of which he considered relevant to assessment of the value of Lot 21 prior to the taking. The other three he considered relevant to assessing the value of the land after the taking. Those properties, and his summary of each, are as follows:
"1. Lot 9005 Maida Vale Road, Maida Vale
Sale Price: $322,000
Date of Sale: June 2003
Land Area: 3,372 m2
Zoning: Urban Development
Improvements: Vacant land.
Analysis: Land Value: $95.49/m2
Comments: A through lot with frontages to Maida Vale Road and Pinker Crescent.
A prominent redevelopment site in close vicinity and similar to the subject land.
2. 62 Stirling Crescent, High Wycombe
Sale Price: $298,000
Date of Sale: April 2003
Land Area: 4,047 m2
Zoning: Urban Development
Improvements: A 4 x 1 brick and tile residence constructed in 1977 with an assessed added value of $130,000.
Analysis: Land Value: $41.50/m2
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- Improved Site Value: $73.60/m2
Comments: A substantial residence is erected on the site. The site is in a rapidly developing residential area.
3. 260 Adelaide Street, High Wycombe
Sale Price: $421,218
Date of Sale: June 2003
Land Area: 10,816 m2
Zoning: Urban Development
Improvements: A large 4 x 2 brick and tile residence constructed in 1992 with an added value estimated to be $120,000.
Analysis: Land Value: $27.85/m2
Improved Site Value: 38.94/m2
Comments: An attractive residence located on a redevelopment site in a rapidly developing area.
4. 318 Sultana Road, Maida Vale
Sale Price: $275,000
Date of Sale: November 2003
Land Area: 6,006 m2
Zoning: Urban Development
Improvements: Brick and tile 2 x 1 residence with an added value estimated to be $100,000.
Analysis: Land Value: $29. 13/m2
Improved SiteValue: $45.80/m2
Comments: A well regarded, rapidly developing residential area.
5. 244 Sultana Road, Maida Vale
Sale Price: $510,000
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- Date of Sale: October 2003
Land Area: 10,001 m2
Zoning: Urban Development
Improvements: A 4 x 2 brick .and tile residence constructed in 1994 with an area of 243 square metres. The added value of the residence and outbuildings is assessed at $150,000.
Analysis: Land Value: $36.00/m2
Improved Site Value: $51.00/m2
Comments: A well located property with prestigious improvements erected in a growth area.
6. 21 Larwood Crescent, High Wycombe
Sale Price: $300,000
Date of Sale: February 2004
Land Area: 10,966 m2
Zoning: Urban Development
Improvements: Vacant land
Analysis: Land Value:$27.35/m2
Comments: A well located site in a developing part of High Wycombe with good quality homes in the process of development and subdivision.
7. 18 Larwood Crescent, High Wycombe
Sale Price: $365,000
Date of Sale: June 2003
Land Area: 10,106 m2
Zoning: Urban Development
Improvements: A 4 x 2 brick and tile residence constructed in 1989 with an added value of approximately $110,000.
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- Analysis: Land Value: $25.23/m2
Improved Site Value: $36.12m2
Comments: A well located site in a developing part of High Wycombe with good quality homes in the process of development and subdivision.
8. Lot 16 Pimelea Street, Maida Vale
Sale Price: $368,000
Date of Sale: June 2003
Land Area: 8,096 m2
Zoning: Urban Development
Improvements: Aged asbestos and tile residence with outbuildings and an added value assessed at $75,000.
Analysis: Land Value: $36.20/m2
Improved Site Value: $45.45/m2
Comments: A well located site in a developing part of High Wycombe with 'good quality homes in the process of development and subdivision.'"
16 Mr Zucal's report concluded that "following consideration of the above evidence" the value of Lot 21 as at 23 October 2007 should be based upon a land value of $32.50 per square metre with an added value of improvements of $130,000. Taking the total land area of 1.5049 hectares, that produced a value of $489, 093 for the land component of Lot 21, and a total value of the land with improvements of $619,093, which Mr Zucal rounded up to $620,000.
17 Based on the land value of $32.50 per square metre, Mr Zucal assessed the value of the 4293.4 square metres taken at $139,536, which he rounded up to $140,000.
18 As already observed, Mr Dix considered that the appropriate approach to valuation of the land taken was by the hypothetical subdivision method. In his initial report of 13 December 2005, he gave as his reason for preferring a hypothetical subdivision method the fact that "the land is irregular in shape and has Poison Gully Creek severing the
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- parcel". Subsequently, as the proceedings progressed, Mr Dix prepared a further report dated 15 May 2007. He acknowledged that the valuation could either be by comparison with other en globo parcels that have sold, or by undertaking a hypothetical subdivision. In relation to en globo land, he said, however that "the critical requirement for the valuer is the availability of what is normally personal and private information regarding the development potential of any of the super lots that may have sold in the locality contemporaneously with the date of valuation of the subject land". He acknowledged that there were "sales of a number of super lots" but because of the lack of access to the "critical information" he determined that it was impossible to compare the sales with the subject land. He expressed the view that "in the absence of that information and as the subject land is significantly different in location and being irregular in shape and severed by Poison Gully Creek", it was his view that the most appropriate method of valuation is by hypothetical subdivision.
19 Courts have generally preferred a comparative sales approach to valuation, although the hypothetical subdivision method is commonly employed in respect of subdivisable land where comparable sales are not available, or as a check on the value obtained by consideration of comparative sales (see for example Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111 at [16]; Flotilla Nominees Pty Ltd v Western Australian Land Authority (2003) 27 WAR 403 at [20] to [23] per Pullin J.
20 In Western Australian Planning Commission v Arcus Shopfitters Pty Ltd [2003] WASCA 295 at [49] McLure J referred with approval to the description of the comparable sales method given by Wells J in Brewarrana Pty Ltd v Commissioner of Highways (1973) 32 LGRA 170 when he said:
"It is general valuation practice for sales characterized as comparable sales to be used as bases for the valuation of lands said to be similar. But allowances must always be made before such sales can be so used. No two parcels of land are identical in all respects: the sale price of any given piece of land is not necessarily the price at which it ought to have been sold, or the same thing as its true value. Before using any allegedly comparable sale, therefore, the valuer must consider whether, having regard to the circumstances … appertaining to the parcel of land in question, and to the transaction of sale, there are sufficient similarities to the circumstances appertaining to the subject land and to the notional sale presupposed by the test formulated in Spencer v The Commonwealth of Australia … to warrant a court's reasoning from the sale price paid under the allegedly comparable sale, with or without other evidence, to a value for the subject land. Adjustments must, of course, be made every time
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- reasoning of that kind is undertaken. For example, in relation to the land itself and the circumstances appertaining to it, it may be necessary to consider such matters as topography, location, size, shape … land use (actual and potential), scope for, and difficulties of, development, …; and in relation to the transaction of sale, the valuer must weigh such things as the character, business and relationships of the parties, their motives, the terms and conditions in their contract of sale, and any other special considerations that induced or may have induced them to conclude the contract at the selling price agreed, as well as the dates when the contract of sale and the transfer were concluded or effected."
21 It follows that it is appropriate to have regard to other sales of en globo land in the vicinity of the subject land provided those sales are of comparable land or at least land sufficiently comparable to enable appropriate adjustments to be made to cater for differences. Differences between pieces of land will almost always exist requiring a valuer to apply his or her expertise by assessing the impact of those differences on the price a hypothetical purchaser would pay, and a hypothetical vendor would accept, for the land the subject of the valuation.
22 Of the eight sales of en globo parcels identified by Mr Zucal, he considered five particularly relevant to the assessment of the "before" value of Lot 21. They were 18 Larwood Crescent, High Wycombe, 21 Larwood Crescent, High Wycombe, 16 Pimelea Street, Maida Vale, 244 Sultana Road, Maida Vale and 260 Adelaide Street, High Wycombe. In his written report, Mr Zucal did not explain his process of reasoning by which he utilised those sales to reach his ultimate opinion as to the value of the subject site. In his oral evidence he explained what he saw as the advantages or disadvantages of the other sites compared to the subject property.
23 In respect of those sites which were developed with a residence, Mr Zucal's approach was to assess a value of the improvements and deduct that value from the sale price to assess a land value. In our view, where land is being purchased for the purpose of subdivision, that is not always an appropriate approach. That is because it will frequently be the case that, in order to obtain the optimal subdivisional design, it will be necessary to demolish existing improvements on the en globo lot. A hypothetical purchaser of land for subdivision will, therefore, attribute no value to the improvements and will treat the cost of demolition of the improvements as an additional cost of the land over and above the price paid to the vendor. The effect of not deducting the value of the improvements, but adding the cost of demolition, will serve to increase the value of the land for comparison purposes. Whether, in any given
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- case, the value of improvements should be deducted from the price paid for the land will depend upon whether or not, in the ultimate subdivision of the land, the improvements are likely to be retained or demolished. That is one of the factors which needs to be considered as a potential adjustment to the purchase price for the purpose of comparison to the subject site.
24 It is necessary to consider each of the parcels relied upon by Mr Zucal to ascertain its comparibility to the subject site.
18 Larwood Crescent, High Wycombe
25 Criticism of the comparibility of this Lot was made by the applicants on the basis of the effect on the value of the land and various conditions of its ultimate subdivisional approval granted in June 2005. Whether those matters could be said to have been in the mind of the purchaser when the land was purchased in June 2003 is both speculative and doubtful. It provides no assistance as to whether, on the basis of known factors as at the transaction date, the land could be said to be comparable to Lot 21.
26 What was known in June 2003 was that, whilst the land was zoned urban development, no outline development plan was in place. It was the case that a plan existed for adjoining land which contained an indicative layout of subdivision of the land including Lots 18 and 21 Larwood Cresent. Mr Dix conceded that the existence of that indicative plan may have provided some comfort to a purchaser. It was inevitable, however, that a significant deferment period would be required to render 18 Larwood comparable to the subject site. That is because the subject site was the subject of an adopted outline development plan and was capable of immediate subdivision subject only to obtaining the necessary approvals.
27 Mr Zucal deducted $110,000 which he assessed as the added value of the four bedroom home constructed on the property. The proper adjustment for the existence of those improvements is an issue which requires detailed consideration for the purpose of comparison. If demolition of the house was required for subdivision, then it may be that the purchaser would have regarded the value of the land as the price paid plus the cost of demolition.
28 The Esberey land has the advantage over 18 Larwood Crescent because of the existence of the ODP as at the valuation date.
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21 Larwood Crescent, High Wycombe
29 Similar observations can be made in relation to this Lot as were made in relation to 18 Larwood Crescent, save that 21 Larwood Crescent was vacant land.
16 Pimelea Street, Maida Vale
30 Lot 16 Pimelea Street is in close proximity to Lot 21. It formed part of the same outline development plan as the Esberey land. It was approximately half the size of Lot 21, and was more remote from Poison Gully Creek which would provide public open space (POS) following subdivision. The sale of Lot 16 Pimelea Street occurred some four months before the valuation date.
31 The ODP showed two roads crossing Lot 16 as part of a road system passing through adjoining landholdings. As a consequence, subdivision of Lot 16 was constrained by the requirement that subdivision occur on adjoining lots, or alternatively, arrangements being made with adjoining owners so as to enable access to be provided. For the purposes of valuation of Lot 21 in accordance with the Point Gourde principle, the parties and valuers have assumed that the subject land was capable of subdivision independently of any subdivision of adjoining land. In that sense, the subject site is superior to Lot 16. Furthermore, under the ODP, the subject site had an area of residential R30 zoning, whereas Lot 16, under the ODP, comprised only R20.
32 All of those factors suggest that the Esberey land is superior to Lot 16 Pimelea Street.
33 Mr Zucal deducted $75,000 being his assessment of the value of an aged asbestos and tile residence and outbuildings on the site. He did so on the basis that the existence of the house would present an opportunity for negative gearing for a period. We do not accept that that deduction is appropriate. The underlying assumption in relation to the sale is that subdivision could progress quickly. It seems clear that the aged residence and outbuildings would not be retained in the subdivision. A hypothetical purchaser would, in our view, attribute no value to the improvements, but rather is likely to see demolition of the house as an additional cost of the land.
34 On the basis of the sale price alone, the value of Lot 16 Pimelea Street as on June 2003 was $45.45 per square metre. In our view, Lot 21 is superior for the reasons we have indicated.
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244 (Lot 14) Sultana Road, Forrestfield
35 This lot, comprising 10,001 square metres was sold in October 2003 for $510,000. It has a substantial brick and tile residence constructed in 1994. It is approximately five kilometres from Lot 21.
36 Counsel for the applicants was critical of the description of the land as being within Maida Vale rather than within Forrestfield. She submits that "he would appear to be confused on locality or perhaps to have given the distinctions little thought". What the alleged distinctions between the two suburbs is said to be is not identified. Recourse to the 2008 Perth UBD street directory suggests that the border between Maida Vale and Forrestfield is Sultana Road East. Lot 244 falls on the Forrestfield side of the road, with the lots on the opposite side being apparently in Maida Vale. We do not consider the distinction in suburbs material to the question of whether or not the land is comparable.
37 There are, however, uncertainties as to the reliability of 244 Sultana Road as a comparison to the subject site. The two lots do have the same zoning. From the view undertaken by the Tribunal in the company of the parties during the course of the hearing, it was apparent, however, that the other side of Sultana Road appears developed for special rural purposes. As a consequence, there is a tranquillity to the surrounding area not present in relation to the subject site. As of the sale date, no approved outline development plan was in place for the land in Sultana Road. As a result, a purchaser would be faced with considerable uncertainty as to the timing of possible subdivision, and the extent to which subdivision may be dependent upon the cooperation of adjoining landowners for the provision of access or services.
38 In analysing the sale, Mr Zucal assessed a value of $150,000 as the value of the residence and outbuildings on the land, and deducted that amount from the sale price in order to assess the land value. While we accept that the house on the land was substantial and in quite good repair, and may have been capable of retention in the ultimate subdivision of the land, we are concerned that the fairly arbitrary approach to the assessment of the value of the improvements and the uncertainty as to how the purchaser of that land may have had regard to the improvements.
39 All of those factors cause concerns for us as to the comparability between 244 Sultana Road and the subject site.
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260 Adelaide Street, High Wycombe
40 This property was sold in June 2003 for $421,218. It comprises a land area of 10,816 square metres. At the time of sale there was in place a subdivisional approval of this site and a larger 9 hectare lot which surrounded 260 Adelaide Street on three sides. There is a very substantial and neatly presented residence on the site, close to Adelaide Street. As is evidenced from the subdivision which has now taken place, the residence was capable of retention within the subdivision of 260 Adelaide Street.
41 The circumstances of the identified sale are not clear. Whether the larger surrounding lot which was the subject of the approved subdivision was also sold to the same purchaser for the purposes of carrying out the subdivision is not apparent on the papers submitted at the hearing. It is, however, apparent that subdivision of 260 Adelaide Street would require the cooperation of the owner of the adjoining larger lot if it were to occur in accordance with the approval granted in April 2003.
42 The applicants contended that 260 Adelaide Street was inferior to the subject site in that there is an industrial waste landfill area on the land on the other side of Adelaide Street and beyond that a bitumen plant. Having viewed the site, neither of those land uses was visible from Adelaide Street. A review of the "tax maps" showing sales of subdivided lots in the vicinity during 2004 shows that the lots created from the former 260 Adelaide Street tended generally to have sale prices similar to those for lots achieved further from the landfill area. On the basis of those observations, and the subsequent sales evidence of subdivided lots, we do not consider that the land uses to the north of the site are significant for the purposes of assessing the comparability of the land to the subject site.
43 We note, however, that Mr Zucal's assessment suggests an unimproved land value for this site of $27.85 per square metre, significantly below the land value assessed by him for Lot 16 Pimelea Street and even more significantly below the value of Lot 16 if no deduction is made for the value of improvements.
Reliability of the en globo comparisons
44 There are significant uncertainties in relation to the adjustments which would be appropriate to take account of the differing situations between the five properties identified by Mr Zucal and the subject site. Mr Zucal provided no analysis of adjustments between the sales selected and the value of the Esberey land in arriving at his figure of $32.50 per square metre. All that can be said is that the figure selected falls between
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- his assessed land value for 244 Sultana Road and Lot 16 Pimelea Street on the one hand, and 18 and 21 Larwood Crescent and 260 Adelaide Street on the other hand. Given our conclusion as to the relative attributes of the Esberey land as against Lot 16 Pimelea Street, and our reservations as to the comparability of the other sites, we do not accept the value chosen by Mr Zucal on the basis of his comparative analysis of en globo sites.
45 In all the circumstances, we are not satisfied that the comparable sales method should be used as the primary method of valuation in this case. We are not confident that it is possible, on the information before us, to accurately assess adjustments that should be made to cater for the difference between the sales relied upon and the Esberey land. The analysis of the sales of the en globo lots is, however, potentially useful in reviewing the value of Lot 21 obtained through a hypothetical subdivision method. Having assessed a valuation by the hypothetical subdivision method, it is appropriate to see whether, if the value produced is substantially outside of the range of values revealed from the en globo sales, that difference can be adequately explained.
Hypothetical subdivision method
46 The hypothetical subdivision method of valuation consists firstly of calculating the gross realisation that could be achieved from sale of the lots yielded by a notional subdivision of the parent landholding. It is then necessary to deduct from that figure the development costs, an allowance for profit and risk, selling commission, legal expenses, advertising, interest over the development and selling period, rates and taxes and any other expenses that might be incurred prior to sale of the land. The end figure is then adopted as being the price that a hypothetical purchaser would pay for the land for subdivision purposes.
47 In order to assess the potential gross realisation of the land, it is necessary to determine the most likely form of subdivision that would be undertaken. It is then necessary to attribute a value to the lots which would be created on that subdivision.
The likely form of subdivision
48 The parties agreed that, for the purposes of assessing the value of the land prior to the taking, it is necessary to ignore the effect on the value of the extension of Maida Vale Road and the widening of Hawtin Road (although that position appears to have been accepted by the respondent shortly before the hearing). That requirement makes more difficult the determination of the likely form of subdivision. That is because the ODP,
(Page 18)
- which facilitated the timely subdivision of Lot 21 had, as an important component, the extension of Maida Vale Road through Lot 21. The parties were agreed that the hypothetical exercise should be undertaken on the assumption that an outline development plan did apply to the land, but did not involve the extension of Maida Vale Road through the subject site (nor the widening of Hawtin Road adjacent to the subject site). If Maida Vale Road had not been extended at all, or had been extended through a different part of the ODP area, it is impossible to say with any degree of certainty what effect that would have had on the form of subdivision which some hypothetical ODP would have applied to the subject site.
49 Each of the parties engaged planners to express opinions as to the likely form of subdivision which would have been available for the Esberey land if Maida Vale Road was not to pass through it, and Hawtin Road was not to be widened.
50 Ms Pandora Heydenrych was engaged by the applicant. In 2003, she prepared two plans of subdivisions. The first was a plan of what she considered the likely subdivision of the land ignoring the extension of Maida Vale Road and the widening of Hawtin Road (the Heydenrych before plan). The second was a plan of the likely subdivision of the land after the taking of the portion for Maida Vale Road and Hawtin Road widening (the Heydenrych after plan).
51 The Heydenrych before plan is depicted as follows:
(Page 19)
52 In the Heydenrych before plan, Ms Heydenrych proposed that access to all but one of the subdivided lots would be from a cul-de-sac entering the land from Hawtin Road. The plan provides for 12 lots at R20 density, and a group dwelling site at R30 density adjoining Hawtin Road. One of the twelve R20 lots was a larger lot on which the existing dwelling was to be retained. One lot, Lot 8, did not have access from the cul-de-sac. Lot 8 is situated at the north-western corner of the subject site adjoining Poison Gully Creek. Ms Heydenrych assumed, for the purposes of her plan, that access to that lot could be provided from an "estate road", being a road depicted on a hypothetical outline development plan and located in the same position as a proposed road under the actual ODP. She also assumed, for the purposes of her opinion, that access to services could be provided from roads constructed by others on adjoining land in accordance with the hypothetical outline development plan.
53 Mr Stephen Allerding is a planner engaged, relatively late in the proceedings, by the respondent. He did not consider that the extension of Maida Vale Road could sensibly be ignored in the context of considering the subdivisional potential of the land. Apart from that point, he did not consider that the Heydenrych before plan was likely to have obtained approval of the WA Planning Commission because of the fact that it did not provide road access to the proposed Lot 8. He did not consider it possible to assume any particular form of hypothetical ODP, if the Maida Vale extension through the subject site was assumed not to exist.
54 It appears that, as a result of the mediation process between experts undertaken by the Tribunal, an alternative "before plan" was developed (the battleaxe before plan). Essentially, the battleaxe before plan took the same form as the Heydenrych before plan, save that a battleaxe access was provided to Lot 8 from the head of the cul-de-sac, rather than relying upon some road access from adjoining subdivisions. As a consequence of that change, the areas and shape of other lots varied. The battleaxe before plan yielded, however, the same number of lots, including the R30 group dwelling site, as the Heydenrych before plan. The battleaxe before plan is depicted as follows:
(Page 20)
55 It is necessary, for the purposes of progressing the hypothetical subdivision valuation method, to settle upon which of the Heydenrych before plan or the battleaxe before plan should be assumed as the plan which a hypothetical purchaser would have contemplated as the likely form of subdivision of the subject site, if the Maida Vale extension and the widening of Hawtin Road were not the subject of the ODP applicable to the land.
56 In our view, the battleaxe before plan is to be preferred. It has the advantage of being completely independent of activities on adjoining lots. The Heydenrych before plan depends upon an assumption as to the existence of an "estate road" on adjoining land, and on the fact that development of the estate road would have occurred in a timely way so as to enable the subdivision to have been completed without delay. The very great uncertainty as to the form of any ODP, if Maida Vale Road were not to pass through the subject site, makes it, in our view, safer to simply treat the Esberey land as a self-contained subdivisable area. For that to occur, access would be required to all lots within the subdivision, and that access is provided in the battleaxe before plan. We propose therefore to take that plan as the likely plan of subdivision for the purposes of assessing the potential gross realisation of the hypothetical subdivision.
(Page 21)
Potential gross realisation of the battleaxe before plan
57 Mr Zucal and Mr Dix each assessed the likely gross realisation of the battleaxe before plan. Their relative positions as to the value of the 13 lots is set out in the following table:
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58 The values attributed to Mr Dix in the table above are extracted from a table attached to a letter of 12 March 2008 in which Mr Dix assessed
(Page 22)
- various alternative values to different subdivisional plans. The lots sizes referred to in Mr Dix's 12 March 2008 table differ slightly from the lot sizes depicted upon the battleaxe before plan dated 3 July 2006. The source of the lot sizes referred to by Mr Dix is not clear, but in our view the discrepancies are not such as to substantially affect the likely value of the lots concerned. Accordingly, we have simply adopted the values attributed to the various lots by Mr Dix, and calculated the rate per square metre on the basis of the lot areas depicted on the battleaxe before plan.
59 It can be seen that there is a substantial discrepancy between the values attributable to the hypothetical lots by each of Mr Dix and Mr Zucal. Each has relied upon sales evidence of subdivided lots in the vicinity to reach their view as to the likely sale prices of lots as at October 2003.
60 Urban subdivision of the area immediately surrounding the subject site was extensive during 2003 and 2004. The "tax maps" produced at the hearing demonstrated that in 2003 and early 2004, sales of newly subdivided lots in close proximity to the subject site occurred in three locational pockets.
61 During 2003, a pocket located to the south-east of the subject land, including Kunzea Close and Pimelea Street was sold. This area is close to, and some lots back onto, Hawtin Road. Relevant sales indicated for this location include the following:
• Lot 604 Kunzea Close which sold for $68,000 in September 2003, indicating a sales rate of $125.50 per square metre.
• Lot 608 Kunzea Close which sold for $72,500 in April 2003, indicating a sales rate of $117.80 per square metre. This lot backs onto Hawtin Road which may explain its particularly low land value rate.
• Lot 320 on the corner of Pimelea and Jecks Streets which sold for $69,500 in March 2003, indicating a sales rate of $122.40 per square metre.
• Lot 353 Myerson Crescent which sold for $79,500 in March 2003, indicating a sales rate of $132.50 per square metre.
62 Mr Zucal placed reliance upon sales in this area to support the values which he attributed to the lots in the battleaxe before plan subdivision.
(Page 23)
63 A second pocket is located to the north-east of the subject land and bordered by Maida Vale Road,Myerson Crescent and Poison Gully Creek. This location is known as the Crystal Brook Estate and includes Pinker Crescent, Yirrdah Court and Verdin Close.
64 Relevant sales indicated for this location include the following:
• Lot 289 on the corner of Verdin Close and Yirrdah Court, which sold for $113,000 in June 2004, indicating a sales rate of $182 per square metre.
• Lot 288 Yirrdah Court, which sold for $132,000 in April 2004, indicating a sales rate of $218.90 per square metre. Lot 288 has an aspect over a wide area of public open space which includes the Poison Gully Creek.
• Lot 267 Pinker Crescent, which sold for $107,000 in October 2003, indicating a sales rate of $182.60 per square metre.
• Lot 291 Verdin Close, which sold for $114,000 in March 2004, indicating a sales rate of $188.43 per square metres.
• Lot 302 Verdin Close, which sold for $139, 000 in August 2004, indicating a sales rate of $206.23. While that sale was relied upon by Mr Dix, the Tribunal notes that the sale took place ten months after October 2003 which, in the absence of reliable evidence as to general market conditions, makes its reliability for comparison purposes suspect.
65 There are a number of other sales noted on the tax plan occurring in the first half of 2004 which generally indicate a fairly consistent rate of $180 to $218 per square metre.
66 Mr Dix relied upon sales in this area in his assessment of the value of the battleaxe before plan lots. He considered that the proximity of the lots in the battleaxe before plan to Poison Gully Creek was a particular advantage, and a factor which made those lots comparable particularly to Lot 288 Yirrdah Court and Lots 291 and 302 Verdin Close.
67 A third pocket includes land immediately to the north of the subject land comprising Babbler Court and Matuka Mews. Relevant sales in this location include the following:
• Lot 87 Matuka Mews which sold for $82,000 in May 2003, indicating a sales rate of $150.70 per square metre
(Page 24)
- • Lot 55 Babbler Court which sold for $75,000 in July 2003, indicating a sales rate of $149.10 per square metre.
68 It can be noted that the rate per square metre adopted by Mr Dix for lots in the battleaxe before plan is very significantly above any of the rates per square metre of the identified sales evidence. The only lot close to the value per square metre identified in the sales evidence of subdivided lots is Lot 288 Yirrdah Court, and it is clear that Mr Dix placed substantial weight on that sale for comparison purposes.
69 Mr Dix's justification for the high values chosen for the battleaxe before plan and lot values involved several components. First, he noted that the before plan lots were generally smaller than the lots to which comparison was being made. He said, and we accept, that the rate per square metre in respect to urban lots might be expected to be higher for smaller lots. More significantly, Mr Dix considered that the proximity to Poison Gully Creek was a very significant feature of the subject site, and would result in higher lot values of subdivided lots. He considered that the battleaxe before plan could be marketed as a "gated subdivision". He considered that the lots which adjoin the public open space which would be created along Poison Gully Creek would attract prices similar to that achieved in Lot 288 Yirrdah Court. He considered that, having established a high price on the premium lot, the prices of other lots in the subdivision would be set in relation to the high value of the lots adjoining the POS. We do not share Mr Dix's opinion. In our view, Lots 288 Yirrdah Court and 291 and 302 Verdin Close are in a superior location. That is because the POS which those lots adjoin comprises a substantial open area extending from the lots to the banks of Poison Gully Creek. That area provides both a pleasing aspect and potentially useable public open space. By contrast, where Poison Gully Creek passes through the subject site, it is deeply incised. The POS contemplated in the battleaxe before plan comprises steeply sloping banks which have limited capacity for active use. Mr Zucal expressed the view that purchasers, who he considered would be young families, may consider the presence of the steep slopes of the banks a negative aspect of the lots. Whether or not that may be so, we do not consider that the public open space provided by the subdivision of the subject site is as advantageous as the public open space adjoining the identified lots in the Crystal Brook subdivision.
70 Nor do we agree that, even if the POS is a benefit, that benefit will extend to the value of the lots which do not adjoin it. Lots 1 to 6 of the subdivision are separated from the creek by other lots. If those lots were created and built upon, there would be substantial visual separation as
(Page 25)
- well as physical separation from the creek. There would be no ready means of access to the POS from those lots not adjoining it. Lot 1 of the battleaxe before plan adjoins Hawtin Road and Lots 2 to 5 are in reasonable proximity to that busy road. We consider that the presence of Hawtin Road would be a significant factor for proposed purchasers, and probably a more significant factor than the presence of the inaccessible public open space a similar or greater distance away. In the context of the extensive subdivision at the relevant time in the general vicinity of the Esberey land, we do not agree that marketing subdivision of Lot 21 as a "gated subdivision" would be particularly meaningful or would enable achievement of substantially higher prices than other lots in the vicinity.
71 On the other hand, we consider that the lots in the battleaxe before plan are superior to the lots in Kunzea Close and Pimelea Street identified as sales in the first pocket referred to above. The proximity of the battleaxe before plan lots to the public open space, and to the generally better located Crystal Brook subdivision renders Lot 21, in our view, preferable to the area comprising Kunzea Close and Pimelea Street. Lot 608 Kunzea Close has Hawtin Road at its back fence which we consider to be a significant disadvantage.
72 The lots in the Matuka Mews, Babbler Court area have similar attributes to the lots in the battleaxe before plan but are more remote from the public open space. Those lots in the battleaxe before plan which adjoin, or are very close to, the public open space are, in our view, superior to those in the "third pocket" referred to above.
73 On the basis of the above observations, and having regard to the Tribunal's own view of the various lots identified by the parties for comparison, the Tribunal's view as to the potential gross realisation of the lots in the battleaxe before plan is as follows:
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(Page 26)
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74 It will be noted that the value attributed to Lot 12 in the above table includes the value of the improvements. There was little in the way of satisfactory evidence upon which an assessment could be made as to the value which should be attributed to the residence. In our view, it is appropriate to attribute a figure of $200,000 to the value of the house for the purposes of assessing the land value of lots under the battleaxe before plan. It is then necessary to deduct that sum from the gross realisation in order to establish the value of the land taken. The portion of land taken was unimproved. It would be to inflate the value of the land taken to include a proportionate component of the value of the house which remained on the balance of the land after taking.
75 We would observe in passing that we do not consider that the total value of lots under the Heydenrych before plan would differ substantially from the total value we have attributed to the battleaxe before plan. It is not necessary, for the purposes of these reasons, to set out the values we
(Page 27)
- would have attributed to the lots in the Heydenrych before plan. It is quite apparent to us, however, that the amount of time and effort expended in the steps leading up to hearing, and at hearing, in relation to the different plans, and the numerous alternative calculations undertaken by the valuers in relation to different plans was disproportionate to the amount which turned upon that issue.
Costs of the hypothetical subdivision
76 There were a number of issues between the parties as to the likely cost of subdivision. The valuers were able to agree some components, but disagreed on others. It is necessary to resolve the differences as to the costs adopted by the valuers.
GST
77 Mr Zucal considered that a hypothetical purchaser of the land for subdivision would deduct from the gross realisation one-eleventh of the sale price being the GST payable on sale of the land. Mr Dix considered that no deduction for GST should be made, because, if Mr and Mrs Esberey were to subdivide the land, they not being in the business of land subdivision, and the land not having been purchased by them for that purpose, they would not have been liable for GST on sale of lots. Accordingly, Mr Dix considered that the value to them as hypothetical vendors of the property would not involve a reduction of the realisable value of the land of an amount in respect of GST.
78 Neither the submissions of counsel nor the evidence on this issue was particularly thorough or helpful. The threshold assumption underlying the applicants' position was that, were they to subdivide the land, they would not have been liable for GST on sale. The applicants' counsel, and Mr Dix, simply asserted that proposition without reference to the applicable legislation. The applicants then relied upon Pastoral Finance Association Limited v Minister [1914] AC 1083 to suggest that the absence of liability for GST gave the land special value to the dispossessed landowners, that being the capacity to sell lots free of GST.
79 In response, the respondent's counsel attached to his closing submissions a copy of a private ruling No 67853 issued by the Australian Taxation Office. That ruling suggests that the assumption underlying the applicants' position is not correct, and that Mr and Mrs Esberey would have been liable to GST were they to subdivide and sell their land. On the basis of that ruling, the respondent contended that the applicants' assumption is "at the very least, open to considerable doubt". The
(Page 28)
- question of the applicants' liability to GST was not, however, further developed.
80 In dealing with GST in his report, Mr Zucal simply assumed that one-eleventh of the gross realisation on sale of the lots would be payable by way of GST. In his oral evidence, however, he agreed that the likelihood is that, if Mr and Mrs Esberey were liable to GST, they would have utilised what is known as the "margin scheme" which enables a vendor of land to elect to pay GST calculated on the basis of one-eleventh of the difference between the value of the land on 1 July 2000 and the selling price of the land. No evidence as to the value of the land as at 1 July 2000 was put forward at the hearing. It is impossible for the Tribunal to calculate, therefore, the GST which would have been payable were the Esbereys liable to pay GST, and were they to elect, as they almost certainly would have, to apply the margin scheme.
81 From the hypothetical purchaser's perspective, a consequence of liability for GST is that there would have been an entitlement to claim input credits in relation to the GST paid on the costs of development on sale of the subdivided lots. There would be no entitlement to input credits if the subdivider was not liable for GST on the sale of the subdivided lots. The consequence of that is that if the Esbereys were liable for GST, their ultimate receipts from the sale of the subdivided lots would be reduced by one-eleventh of the difference between the amount received and the value of the land as at 1 July 2000, less the value of input credits which could be set off against the GST liability arising from sale of the subdivided lots.
82 That liability, if it were to exist, would be substantially less than the one-eleventh of the gross selling price of the lots, being the amount deducted by Mr Zucal as a development cost.
83 A consequence of the application of the margin scheme is that no GST paid on purchase of the land is available to a purchaser of the land as an input credit. It is the seller who makes the choice to apply the margin scheme. A fact sheet, entitled "GST and the Margin Scheme – Real Property Acquired Before 1 July 2000" published by the Australian Taxation Office suggests that because the application of the margin scheme is an important issue for both seller and purchaser, "it is essential that the parties give careful consideration to the implications of using the margin scheme". The gross realisation of lots from the battleaxe before plan has been estimated based upon sales of subdivided lots in the general vicinity of the subject land. There is no evidence before the Tribunal as to
(Page 29)
- the approach to GST that applied to those sales, and therefore the impact, if any, on GST liability on the price set by the vendor.
84 In light of the fairly unsatisfactory state of the information available to the Tribunal on this issue, we have reached the view that there should be no deduction applied to the gross realisations to take account of the GST liability. There is a fundamental difficulty in that the Tribunal cannot, on the basis of the information before it, make any sensible assessment of the amount of GST that might have been payable. The application of the margin scheme and the availability of input credits are likely to have had the effect of rendering the net GST effect relatively small. In the circumstances, the effect of GST should be ignored.
Profit and risk
85 There was a disagreement between Mr Dix and Mr Zucal as to the allowance which should be provided for profit and risk in the static analysis of the hypothetical subdivision. In his initial report, Mr Zucal suggested that an appropriate allowance was 15%, but during the course of the mediation process leading up to hearing, he adopted a suggested rate of 12.5%. Mr Dix suggested an appropriate allowance for profit and risk was 10%.
86 In our view, the rate of 12.5% suggested by Mr Zucal is to be preferred. Mr Dix, in his evidence, acknowledged that his approach to the hypothetical subdivision valuation assumed, in effect, certainty in relation to the costs of development and the capacity to proceed immediately to subdivision (subject to an allowance for a deferral period to enable an appeal over any condition for the requirement to fill the land). A notional hypothetical purchaser would, in our view, have considered there to be some uncertainty and risks in relation to the proposed subdivision including as to the conditions of subdivision and as to the availability and timing of deep sewer connection. The figure of 12.5% is to be preferred.
Development costs
87 Estimates of the likely development costs of the cul-de-sac before subdivision were undertaken by engineers for each of the parties. The applicants engaged Mr Michele Ferritto, an engineer in private practice with McDowell Affleck. The respondent relied upon Mr Douglas Elkins who, at the time of preparing his report, was an employee of the Shire of Kalamunda and occupied the position of manager engineering service. Through the mediation process undertaken in the Tribunal, the engineers agreed a large number of the development cost items. There were,
(Page 30)
- however, some significant discrepancies between them as to certain items of development cost, with the ultimate result that Mr Ferritto estimated the total development costs, exclusive of GST, at $331,793. Mr Elkins estimated the total development costs at $557,963. The difference between them was $226,170.
88 Almost half of the difference between the engineers related to a figure of $100,000, which Mr Elkins considered would be necessary for sandfill. Mr Ferritto did not consider that sandfill would be necessary. He did, however, undertake a costing of sandfill, if it were to be provided, which he assessed at $66,299.
89 A second major difference between the engineers was the cost of demolition of the old house. The Shire had in fact undertaken demolition of the house, and Mr Elkins provided for a cost of demolition of $54,100. Mr Ferritto, based on his experience of demolition of old houses, made an estimate of $16,500, which he considered a generous amount that a hypothetical purchaser would allow for demolition costs.
90 A third major area of discrepancy related to the allowance for contingencies, which Mr Elkins put at $42,403, and Mr Ferritto assessed at $11,553.
91 The balance of the discrepancy was made up of relatively small items such as tree lopping, sewerage works and a retaining wall.
92 In our view, a prudent purchaser would have allowed the cost of sand fill in his development cost estimates. Mr Elkins said, and it was not contested by the applicants, that the Shire would have requested that the Western Australian Planning Commission impose a condition of subdivisional approval requiring fill. The applicants' position was that fill was not, in fact, required, and any such condition would have been the subject of an appeal to this Tribunal. To take account of that likelihood, Mr Dix allowed for a six month deferral period for the development to enable that appeal to be concluded. The applicants' assumption was that the appeal would have succeeded.
93 It is apparent that, were a hypothetical purchaser to make enquiry in 2003 of the Shire as to the likely conditions of subdivision, he or she would have been advised that the Shire would require fill. Colin Fingher is an engineer who provided advice to Boldsilk Developments, the developer of land adjoining the Esberey land. On instructions from Boldsilk, Mr Fingher obtained a geotechnical report on the surrounding land, including part of the Esberey land. He said that that report indicated
(Page 31)
- that sandfill was required for a minority of the Boldsilk land, on areas not close to the Esberey land. A condition requiring fill was placed on Boldsilk's subdivisional approval. Mr Fingher said that the report was commissioned with the intent that Boldsilk would appeal the conditions but "commercial reality took over and Boldsilk ultimately decided not to contest the condition because it wished to get the lots on the market and not to delay the development." That "commercial reality" would, in our view, be likely to influence a hypothetical purchaser of the Esberey land in October 2003 to factor in the cost of fill as a development cost. Whether or not the fill might, from a geotechnical point of view, be necessary, it is likely to have assisted in the marketing of the lots. Certainly, those lots which we have assessed as comparable to the lots produced by the battleaxe before plan were filled. Unfilled lots would have the consequence that it is likely that purchasers of the lots would be required to meet the cost of sand pads prior to construction of a home. If that were necessary, than that requirement is likely to depreciate the values which could be obtained for the lots following subdivision.
94 The figure ultimately adopted by Mr Ferritto for the cost of fill, was one done after a considered analysis of the amount of fill that would be required. Mr Ferritto indicated that, were he to receive a general enquiry as to the likely cost of fill over the area concerned, it is likely that he would have given a more conservative figure than that which he arrived at after detailed assessment. The applicants contend that the more conservative (ie higher) figure for fill should be adopted for the purposes of assessing what figure a hypothetical purchaser would adopt. They contended, therefore, that the figure of $100,000 adopted by Mr Elkins should be preferred.
95 It is true that, through the course of these proceedings, a far more detailed analysis of development costs has been undertaken than might usually be expected by a hypothetical purchaser proposing development. We do not, however, consider that where a relatively accurate figure is available for an item of cost, that figure should be ignored on the assumption that a less detailed estimate of costs would necessarily be higher. In our view, it is appropriate for the Tribunal to assess the value of the land by reference to the known information at the time of the assessment. On that basis, and because Mr Elkins' figure did not result from any detailed assessment the actual costs of fill on this site, we prefer the evidence of Mr Ferritto as to the cost of fill. The figure of $66,299 should be adopted for that purpose.
(Page 32)
96 With respect to the other matters of discrepancy, we also prefer the evidence of Mr Ferritto. As to the demolition costs, Mr Elkins based his figure on a review of the Shire's records relating to the costs of clearing, tree lopping and demolition of the old house. He considered the figures he adopted to be conservative having regard to those costs.
97 Mr Ferritto's estimates were based upon his experience as to the likely cost of removal of a structure of the nature of the house on the Esberey land.
98 There was some uncertainty as to precisely what costs were involved in the materials looked at by Mr Elkins. The figure for demolition which he had arrived at seems extraordinarily high. The basis of the costings upon which Mr Elkins relied is not clear. We consider it excessive. The figures adopted by Mr Ferritto are to be preferred.
99 With respect to the other discrepancies in development costs, we also prefer the evidence of Mr Ferritto. As an engineer in private practice, he is experienced in development costings for subdivisional work. Although Mr Elkins, in his employment with the Shire, was involved in subdivisional works, his experience of actual costs encountered by developers is limited. On that basis, we accept the costings by Mr Ferritto subject to the addition of the cost of fill.
100 The costings were made net of GST. In light of our conclusion that GST should not be deducted from the gross selling price, we consider that it should be added to the development costs, since it would have been payable on those costs, regardless of who carried out the subdivision. Having made no allowance for payment of GST on sales, the input credit which would have been allowable on GST for development costs is not available. GST should therefore be added for the purposes of the present calculation.
101 As a result, we assess the development costs of the battleaxe before subdivision at Mr Ferritto's figure of $331,793, plus cost to fill at $66,229, plus GST on the total of those two amounts, giving a total development cost of $437,824.
102 In calculating the interest on both development costs and land costs, both valuers agreed that the appropriate rate to be applied was 8%. Mr Dix assumed a development period of three months, and a selling period of six months, and we consider it appropriate to adopt those periods for the purpose of the static analysis. Interest should be calculated on half of each of those periods to take account of the progressive
(Page 33)
- expenditure on development costs, and the progressive receipt of funds throughout the selling period.
103 The valuers were in agreement as to an allowance of $3000 for rates and taxes, and an allowance of 5% for stamp duty and acquisition costs.
104 On the basis of those agreed matters, and our conclusions in relation to the disputed costs, our calculation as to the value of the land taken is as follows:
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Value of land taken (4,293 square metres) is $251,183 rounded to $251,200 |
(Page 34)
- Mr Zucal. We have set out above our reservations as to the reliability of comparisons with those en globo parcels, or more particularly the adjustments which are required to make the properties truly comparable. We consider, however, that the rate per metre arrived at by way of the static analysis set out above is consistent with our view that the Esberey land is superior to Lot 16 Pimelea Street, the land value of which we assessed at something more than $45.45 per square metre. Having regard to the superior location of the Esberey land and the constraints on immediate subdivision of 16 Pimelea Street, we consider that the difference between $58.51 per square metre and with the price paid for 16 Pimelea Street is reasonably explicable.
106 It follows that, in our view, the value of the 4,293 square metres of land taken, at $58.51 per square metre is $251,183, which we would round to $251,200.
Value of the land after the taking
107 As previously observed, Mr Dix undertook an assessment of the value of the land remaining after the taking for the extension of Maida Vale Road and the widening of Hawtin Road. To do that he relied upon the Heydenrych after plan.
(Page 35)
108 The parties agreed that that plan represented the likely subdivision of the land with the Maida Vale Road subdivision passing through it.
109 Mr Dix and Mr Zucal undertook valuations of the Heydenrych after plan and produced the following opinions as to the lots which would be created.
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110 The approach taken to the valuation of lots in the Heydenrych after plan by each valuer is broadly consistent with the approach taken to their valuations of lots in the battleaxe before plan. That is, Mr Dix adopted values generally higher, on a rate per square metre basis, than sales in the Crystal Brook Estate. The values were not, however, as high as those attributed to the lots in the battleaxe before plan because of the impact of
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- the busy Maida Vale extension on the amenity of the lots, when compared to the cul-de-sac access in the battleaxe before plan.
111 Mr Zucal's approach was to adopt values, on a rate per square metre basis, similar to those in the Babbler Place and Matuka Mews area.
112 The values adopted by Mr Dix for the Heydenrych after plan lots are too high. Given that the lots front the busy Maida Vale Road, we do not that the values achieved for lots in the Crystal Brook subdivision would be likely to be achieved in the lots in the after plan. The rates adopted by Mr Zucal are, in our view, more realistic, although we would consider that the proximity of the Esberey land to the Crystal Brook subdivision, and the presence of the POS within the subdivision area is likely to produce values higher than the prices achieved by the selected sales in Babbler Court and Matuka Mews.
113 Having regard to those factors, values which we would conclude should be attributed to the lots in the after plan are as follows:
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(Page 37)
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114 For the sake of consistency for comparison purposes with the value we have adopted for the land prior to the taking, we have included the value of the house on Lot 9 at $200,000. Since the house would be retained in all subdivision scenarios considered, its value can be assessed as constant for the purposes of calculating the value of the land before and after the taking.
115 Having assessed the realisable value of lots in the after plan, it is necessary to undertake a static analysis of the after plan subdivision to assess the value of the land after the taking. Mr Zucal sought to assess the value of the land after the taking by reference to certain comparable sales, but we do not consider that the sales identified are reliable for comparison purposes. It is more reliable, in our view, to undertake the same method of analysis as occurred for the purposes of assessing the value of the land before the taking.
116 In order to undertake the static analysis, it is necessary to assess the likely development costs, and the other costs likely to be incurred. The same percentages should be applied in relation to commission and marketing costs, profit and risk, interest and acquisition costs as applied in relation to the analysis of the battleaxe before plan. Again, we would adopt the development costs as identified by Mr Ferritto, save that the costs of fill and GST need to be added.
117 No detailed examination of the cost of fill of the Heydenrych after plan was undertaken by Mr Ferritto. The total area of subdivided lots in the Heydenrych after plan is 8,976 square metres. The total area of lots in the battleaxe before plan was 10,382 square metres. The area to be filled in the Heydenrych after plan is, therefore, approximately 14% less than would be required to be filled in the battleaxe before plan. It is reasonable
(Page 38)
- to reduce the figure of $66,299 assessed by Mr Ferritto as the cost of fill for the before plan by 14% giving a cost to fill (rounded to) $57,000. Mr Ferritto assessed the development costs at $262,000, which together with $57,000 for fill, and $31,900 for GST gives a total development cost figure of $350,900.
118 Mr Dix and Mr Zucal disagreed as to the deduction for rates and taxes in the Heydenrych after plan, with Mr Dix adopted a lower figure of $2,250 than Mr Zucal, who adopted $3,000. The figure of $3,000 was the figure for rates and taxes attributed to the battleaxe before plan subdivision. In our view, given the lower number of lots and the lower value of the land, it is reasonable to assume a lower value for rates and taxes, and accordingly we have adopted the figure suggested by Mr Dix.
119 On the basis of those conclusions, the static analysis of the value of the land as shown on the after plan is as follows:
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(Page 39)
120 The difference between our assessed value of the land before the taking ($880,573) and after the taking ($611,200) is $269,373 rounded to $269,500. Given our conclusion that the value of the land taken was $251,200, those figures suggest a reduction in value of the remaining land of $18,300.
121 As earlier indicated, because of their assessments of the value of the land before and after the taking, both Mr Dix and Mr Zucal concluded that there was no injurious affection to the remaining land. On that basis, no claim was made under s 241(7) of the LA Act by the applicants, save that the applicants left open such a claim if the values as ultimately determined by the Tribunal were to reveal that injurious affection had occurred. In the face of that position, which was the subject of much debate during the course of the hearing, the Tribunal left open the possibility of an award being made under s 241(7) of the LA Act, subject to the respondent's entitlement to assert an off-set for "betterment" if the possibility of set-off against an award under s 241(7) of the LA Act arose.
122 The respondent argued that it was not open to the Tribunal to arrive at a figure for injurious affection on the basis of a comparison of the value of the land ignoring the proposed public work (the battleaxe before plan) and the value of the land after the taking. This is said to be impermissible because the statutory embodiment of the Pointe Gourde principle applies only to s 241(2). The respondent argued that, because the ODP had always contemplated the extension of Maida Vale Road, the value of the land before the taking should assume that the extension was a necessary feature of the potential to exploit the development potential of the land.
123 We do not accept those contentions. The question to be addressed under s 241(7) is the damage due to the severing of the land, or a reduction in value of adjoining land by reason of the taking. That necessarily requires an examination of the value of the adjoining land if there was no taking. It is inconsistent with that requirement to assess the value of the adjoining land as if the taking is inevitable. In our view, it is appropriate to consider the value of the land if the taking had not occurred, and compare it with the value of the land remaining after the taking, to ascertain whether there is a reduction in the value of the remaining land.
124 The difference between the value of the land taken, and the figure we have arrived at as the difference between the before and after values of the land, is relatively small. This case has already occupied an extraordinary amount of time and resources, and undoubtedly each party has incurred
(Page 40)
- very significant legal and expert witness costs. It would be extremely undesirable to permit those costs to further escalate by reopening the hearing of the matter to deal with the foreshadowed claim by the respondent for a set-off by reason of any increase in the value of the land as a result of the public work.
125 There was some suggestion during the hearing that some set-off might arise because the applicant has been saved the costs of constructing a subdivisional road because the cost of the Maida Vale extension was met by the respondent. Although that proposition was not argued in the absence of a quantified claim for compensation under s 241(7)(b), our preliminary view is that that "saving" is brought to account in the engineering costs used in the static analysis and do not reflect an increase in the value of the land by reason of the carrying out of the public work.
126 The distinction between compensation under s 241(7)(a) and s 241(7)(b) is by no means clear-cut, and the legislative reasoning for bringing "betterment" to account in relation to the latter, but not the former, is difficult to comprehend. There may be an argument as to whether the loss we have identified by the comparison of before and after values falls under s 241(7)(a) or s 241(7)(b).
127 In the circumstances, we will hear the parties on the question of appropriate directions, if any, to be made to restore the question of any set-off under s 241(7) against the figures of $18,800 which we would otherwise allow as compensation.
Damage to creek bed
128 Mr Esberey explained that in about November 2003, workmen came on site with a view to constructing the Maida Vale extension road and the culvert over Poison Gully Creek. He said that, despite warnings by him, they drove a grader into the creek where it became bogged. They then attempted to remove the grader by towing it out with other heavy vehicles on site. In doing so, according to Mr Esberey, an area of the creek bank on his land was damaged and collapsed into the creek bed.
129 We accept Mr Esberey's evidence that, in the course of construction of the bridgeworks, damage occurred in the manner described by him to the creek bed. We also accept that that damage may have destabilised the creek bank, resulting in a degree of erosion at a point where the water flow was redirected through the culvert constructed by the respondent.
(Page 41)
130 In response to the damage to the creek bank, the Shire placed some stone pitching on the embankment. Mr Esberey contends that the work done by the Shire is inadequate to contain the ongoing erosion of the creek bank. Mr Ferritto undertook an examination of the creek bank. He formed the view that the flow of the creek through the pipe and culvert may undermine the rock pitching and may cause the embankment ultimately to fail.
131 Mr Esberey claims an amount of $27,500, being Mr Ferritto's costing for the construction of retaining walls and backfill. That claim is made pursuant to s 241(6)(e) of the LA Act, being a claim for loss or damage sustained by Mr Esberey by "reason of facts which the [Tribunal] considers it just to take into account in the circumstances of the case".
132 The claim for $27,500 was based on an estimate by Mr Ferritto contained in a letter dated 2 February 2007. He assessed the cost to remove the existing rock, place a concrete footing on which to sit a retaining wall, and built a block retaining wall would be in the order of $25,000 plus GST, based on prices as at October 2003. Mr Ferritto had earlier provided an estimation for rectification costs of the batter along the creek line in a letter dated 24 March 2005. At that time, he assessed the cost of removal of existing rocks, placement of a concrete footing, and replacing rock pitching with a more stable wall or rock pitching to be in the order of $10,000 plus GST.
133 The difference between Mr Ferritto's two estimates of costs is that, in the later estimate, he included the construction of an additional length of retaining wall extending across the likely future boundary of the Esberey land following subdivision. The additional retaining wall extended beyond the area in respect of which erosion had occurred.
134 In our view, for the additional length of retaining wall cannot be attributed to creek damage caused by the damage done during culvert works or erosion resulting from the realignment of the creek flow through the culvert. Rather, the suggestion of the need to construct that additional length of retaining wall appears to relate to providing stability for future construction on the newly created lot following subdivision. The need for that retaining wall is not, in our view, related to any damage done to Mr Esberey's land by reason of the carrying out of a public work.
135 We do accept that damage was done to the bank of the creek by reason of the works undertaken by the respondent in carrying out the
(Page 42)
- public work. On balance, we accept that that damage contributed to some further erosion of the bank.
136 Following the taking, Mr and Mrs Esberey remain the proprietors of the balance of the land. Although we have assessed the value of the land by reference to hypothetical subdivisions, it is a matter for Mr Esberey as to whether the land is ultimately subdivided. In the meantime, we consider that it is just, in the circumstances of this case, to compensate Mr Esberey for the damage which was occasioned to the creek bank. We accept Mr Ferritto's evidence that the placement of rocks on the bank by the Shire following the damage was not adequate to ensure that future erosion would not occur. We consider that an allowance of $11,000, being the amount originally estimated to by Mr Ferritto to remedy the damage to the creek bank, should be allowed as compensation pursuant to s 241(6)(e) of the LA Act.
137 The respondent argues that the applicant has not demonstrated any loss in relation to the damage to the creek bank, but rather the claim was directed to the prevention of future erosion. In our view, s 241(6)(e) of the LA Act is sufficiently wide to cover the cost of rectifying damage to a claimant's land so as to substantially restore the land to its condition prior to the taking. That is so, notwithstanding that it may not be possible to demonstrate that the value of the land after the taking is diminished to the extent of the cost of rectifying the damage. It would not seem just to leave a claimant without any compensation where the public works have resulted in physical damage to the claimant's land.
Loss of trees
138 There was a suggestion in Mr Esberey's evidence and claim that, in the course of clearing the land for the public works, a number of trees were removed. It was suggested that the trees would normally have been retained on-site by a developer.
139 In our view, nothing in the evidence supports a conclusion that any loss of trees affected the valuation of the land, or that a hypothetical purchaser would attach any value to the trees.
140 We would make no allowance in relation to this item of claim.
Solatium
141 Sections 241(8) and (9) of the LA Act permit the Tribunal to allow an amount to compensate the claimants for the taking of their land in an amount up to 10% of the amount otherwise awarded, or in exceptional circumstances, a higher amount.
142 In closing submissions, the applicants described (for the first time) their claim as including an additional award of solatium beyond 10%. The written submissions did not however identify any "exceptional circumstances" that might support an additional award.
143 The respondent's position that also emerged during the hearing and in closing submissions was that:
(Page 43)
- (a) because the applicants had not been required to relocate their residence;
(b) because the public work had been disclosed in public documents for a long time and must have been known to the applicants, and
(c) because of an asserted financial advantage in having the cost of the road met by others,
the full 10% solatium should not be allowed.
144 In our view, none of those matters provide a basis to depart from the usual allowance for solatium.
145 It was quite apparent from Mr Esberey's oral evidence that the long involved history leading to the taking of a portion of his land has been a matter of significant concern and even distress for him. It is appropriate that the applicants be compensated for the taking of the land by an award of 10% of the compensation otherwise assessed.
Assessment of compensation
146 For the foregoing reasons, the applicants should be awarded compensation of $251,200 for the taking of the land, $18,300 for compensation under s 241(7) (subject to any set-off for increased value by reason of the public works), $11,000 for compensation under s 241(6) of the LA Act, and compensation under s 241(8) of the LA Act of $28,050, making total compensation of $308,555. Obviously the amount now payable by the respondent is reduced by the amount of any advance payments already made. To that should be added interest at the rate of 8% per annum, being the rate of interest pursuant to s 142 of the Supreme Court Act 1935 (WA) applicable as at 23 October 2003. Interest should be calculated from 23 October 2003 to the date of payment, and should be calculated on the total compensation taking account of any advance payments.
147 The matter will be listed for directions as to any claim for set-off under s 241(7) or for final orders.
Orders
148 The matter is listed for directions at a time to be arranged between the parties and the Tribunal.
I certify that this and the preceding [148] paragraphs comprise the reasons for decision of the State Administrative Tribunal.
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JUDGE J CHANEY, DEPUTY PRESIDENT
(Page 44)
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