Estate of Anthi John Notaras v Commissioner for Act Revenue (Administrative Review)
[2016] ACAT 19
•16 March 2016
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
ESTATE OF ANTHI JOHN NOTARAS v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2016] ACAT 19
AT 22/2014
Catchwords: ADMINISTRATIVE REVIEW - land valuation – method of valuation – comparative sales approach – capitalisation of rents approach – hypothetical development approach
Legislation cited: Heritage Act 2004
Rates Act 2004 s 6
Subordinate
Legislation:Commercial Zones Development Code
Dickson Precinct Map and Code
Entry to the ACT Heritage Register: Blandfordia 5 Housing Precinct
Griffith Precinct Map and Code
Group Centres Development Code
Local Centres Development Code
City Precinct Map and Code
Parking and Vehicular Access General Code
Cases cited:Boland v YatesProperty Corporation Pty Ltd (1999) 74 ALJR 209
Bronzel v State Planning Authority (1979) 21 SASR 513
Challenger Property Asset Management Pty Ltd v Stonnington City Council [2011] VSC 184City Hill Pty Limited v ACT Planning and Land Authority and ACT Civil and Administrative Tribunal [2015] ACTSC 40
Commonwealth v Arklay (1951-1952) 87 CLR 159
ISPT Pty Ltd v City of Melbourne [2007] VCAT 652Lawrence John Nock and Valerie Nock v The Minister of the Capital Territory [1981] FCA 57
Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705
Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111
Secretary of State for Foreign Affairs v Charlesworth [1901] AC 373Spencer v Commonwealth (1907) 5 CLR 418
Stocks & Parkes Investments Pty Ltd v The Minister (1969) 72 SR (NSW) 104
List of
Texts/Papers cited: Butler, Susan (ed), Macquarie Dictionary (online ed, at 11 February 2016)
Tribunal: Senior Member P Spender (presiding)
Senior Member R PegrumDate of Orders: 16 March 2016
Date of Reasons for Decision: 16 March 2016
ACT CIVIL & ADMINISTRATIVE TRIBUNAL ) AT 22/2014
BETWEEN:
THE ESTATE OF ANTHI JOHN NOTARAS
Applicant
AND:
COMMISSIONER FOR ACT REVENUE
Respondent
TRIBUNAL: Senior Member P Spender (Presiding)
Senior Member R Pegrum
DATE: 16 March 2016
ORDER
1.The decision under review is set aside and substituted with a decision that the unimproved value of the Block 16 Section 1 Griffith as at 1 January 2013 was $2,365,000.
………………………………..
General President L Crebbin
for and on behalf of the Tribunal
REASONS FOR DECISION
1.The reasons below explain why the Tribunal has made the order set out above.
2.The decision under review has been set aside and substituted with a decision that the unimproved value of the Block 16 Section 1 Griffith at 32-34 Franklin Street (the ‘subject land’ or ‘subject property’ or subject site’) as at 1 January 2013 (the relevant date) was $2,365,000. The Tribunal has arrived at this valuation by considering relevant sales of comparable properties, particularly the sale referred to in the proceedings as ‘Sale 1’, which adjoins the subject property. The Tribunal has found that the value of the subject land at the relevant date was $2,365,000, which is based on the value of Sale 1 with adjustments for the area of the subject site and the depreciated cost of the main improvements.
3.In the reasons below, a reference to ‘ACAT’ or ‘tribunal’ refers to the ACT Civil and Administrative Tribunal generally, whereas ‘Tribunal’ refers to the current members.
BACKGROUND
4.The Estate of Anthi John Notaras (‘the applicant’) made an application to the tribunal to review the decision of the ACT Revenue Office (‘the respondent’) to disallow the applicant’s objection in respect of the determination of the unimproved value of the subject land as at 1 January 2013 in the sum of $2,482,000.[1] The respondent’s decision to disallow the applicant’s objection was made on 27 March 2014.
[1] Tribunal Documents T36-T37
5.On behalf of the applicant, Mr Phil Green of MMJ Real Estate had written to the respondent on 9 September 2013 objecting to the valuation.[2] Mr Green provided the respondent with a valuation report dated 4 September 2013 in which he reviewed “available vacant land sales of similar zoning” in four locations within the ACT and from which he contended that the valuation should be reduced to $1,800,000. By letter dated 17 October 2013, Mr Green was asked by the respondent to comment on the relevance to his objection of the sales of two improved commercial properties in the same street as the subject land.[3] Mr Green replied to the ACT Revenue Office that the first sale was of an improved property at Block 15 Section 1 Griffith adjoining the subject site. The building was of similar age and condition to the subject property and the site area was a little larger. Mr Green said that the sale was to two “sitting tenants comprising the Manuka Newsagency and the Bambusa Restaurant, so is a related party transaction not considered a sale at arm’s length. On this basis the sale should not be considered”.[4] Mr Green further advised that the second of these sales (Block 21 Section 21 Griffith) was an internal transfer “between two family members so is a related party transfer. On this basis this sale should not be considered”.[5]
[2] Tribunal Documents T37
[3] Tribunal Documents T66
[4] Tribunal Documents T69
[5] Tribunal Documents T69
6.The respondent undertook an internal review of its decision and also commissioned a review from the Australian Valuation Office (‘AVO’). In a report to the Commissioner dated 6 January 2014, the AVO recommended that the unimproved value of the subject land be confirmed at $2,482.000.[6] On 27 March 2014, the respondent advised Mr Green that it had disallowed the objection and confirmed the unimproved value at 1 January 2013 to be $2,482,000.[7] On 17 April 2014, the applicant lodged an application for a review of the decision (‘the reviewable decision’).
The hearing
[6] Tribunal Documents T27 ff
[7] Tribunal Documents T21
7.At the hearing of the application for review, the Tribunal had before it the documents provided by the respondent relevant to the decision under review (‘the Tribunal Documents’) together with statements of facts and contentions submitted by the parties and witness statements and other documents tendered in evidence during the hearing.
8.On the first day of hearing, the Tribunal, the parties and their representatives inspected the subject site and a number of properties in Griffith and Dickson and in the city centre. The sales of these properties had been nominated by the parties as relevant to the Tribunal’s consideration of the reviewable decision.
9.The Parties were both represented by counsel at the hearing: Mr Arthur for the applicant and Ms Robinson for the respondent. Evidence for the applicant was given by Mr Phil Green, who is an associate member of the Australian Property Institute and has been a certified practising valuer in Canberra for over 20 years. Evidence for the respondent was given by Mr Geoffrey McInerney, an associate member of the Australian Property Institute with extensive experience in the valuation of residential, commercial and industrial properties in NSW and the ACT.
THE LEGISLATIVE FRAMEWORK
10.The Rates Act 2004 (the Rates Act) regulates the matters dealt with in these proceedings.
11.Section 6 of the Rates Act sets out the meaning of the term ‘unimproved value of land’. It states as follows:
6Meaning of unimproved value
(1)The unimproved value of a parcel of land held under a lease from the Commonwealth is the capital amount that might be expected to have been offered on the relevant date for the lease of the parcel, assuming that—
(a)the only improvements on or to the parcel were the improvements (if any) by way of clearing, filling, grading, draining, levelling or excavating—
(i)if the Territory or Commonwealth had, before the parcel became rateable as a separate parcel, granted a development lease of land that included the parcel—made by the lessee under that lease or by the Territory or Commonwealth, or the cost of which was met by that lessee or by the Territory or Commonwealth; or
(ii)in any other case—made by the Territory or Commonwealth or the cost of which was met by the Territory or Commonwealth; and
(b)the circumstances that existed on the prescribed date also existed on the relevant date; and
(c)on the relevant date, the lease had an unexpired term of 99 years; and
(d)a nominal rent was payable under the lease for the 99 year term.
NoteRelevant date is defined in the dictionary.
(2)The unimproved value of a parcel of land held in fee simple is the capital amount that might be expected to have been offered for the parcel at a genuine sale on the relevant date on the reasonable terms and conditions that a genuine seller would require, assuming that no improvements had been made on or to the parcel.
(3)In this section:
prescribed date, for a parcel of land, means—
(a)for a determination of the unimproved value of the parcel—the date the parcel became rateable; or
(b)for an annual redetermination of the unimproved value of the parcel—the date the redetermination applies; or
(c)for a redetermination of the unimproved value of the parcel under section 11 (Redetermination—error) or section 11A (Redetermination—change of circumstances)—the date the redetermination begins to apply to the parcel.
relevant date, for a parcel of land, means a date when a determination of the unimproved value of the parcel is or is to be made
In the present case, the relevant date is 1 January 2013.
Methods for valuing land
12.Refshauge J noted in City Hill Pty Limited v ACT Planning and Land Authority and ACT Civil and Administrative Tribunal[8] that:
…there is no legal principle that requires any particular method (for valuing land) to be rejected or to be preferred … nevertheless the most common method is what is known as the comparable sales method.[9]
[8] [2015] ACTSC 40
[9] [2015] ACTSC 40 at [70], [72]
13.President Morris discussed degrees of comparability for property in ISPT Pty Ltd v City of Melbourne[10] (ISPT) as follows:
As the High Court has explained, the principal method of valuing land is to seek out relatively contemporaneous sales of comparable properties and to use those sales as a yardstick for the valuation of the relevant land. Thus if particular land was sold on the relevant date for valuation, and the land was in the form to be valued (for example, it was vacant land), and the sale was not affected by special factors (such as a distressed seller), then that sale would be a perfect yardstick in valuing that land. But rarely is the valuer that lucky. The more usual occurrence is that there are some sales that are comparable, but require either adjustment to be an accurate yardstick or to be given reduced weight in making a valuation judgment.
It is sometimes thought that sales are either comparable or not comparable: that is, a binary paradigm should be used to classify sales. In my opinion, this is a flawed approach. Rather there will be gradations of comparability: from identical to irrelevant. As this scale of comparability approaches the irrelevant end, there will be many sales that offer so little assistance that they ought be disregarded. Further, there will be circumstances where there is a sale or sales that are strongly comparable; in which case there will be no need to closely analyse other sales, even though these may be comparable in some way.
The strength of the comparison between a sale and the land to be valued will depend on a comparison of the different circumstances. Suppose the land to be valued was sold, in the same condition, one year before the date of valuation. The sale may or may not be directly useful in the valuation: whether it is will depend on evidence of general market movements over the period between the sale and the date of valuation. However, even if there is evidence of substantial market movements over that period, the sale may still be relevant provided adjustments are made for that general market movement. As a matter of logic, a sale after the valuation date is just as relevant as a sale before that date. [11]
[10] [2007] VCAT 652
[11] [2007] VCAT 652 at [50]-[52]
14.The expert valuers in this case have predominantly relied on the comparative sales approach. Although Mr Green relied on an approach which compared the sales of vacant land in his valuation report dated 4 September 2013, this approach was effectively abandoned by the applicant, who submitted that the Tribunal should give the relevant sales of vacant land ‘low weight’.[12] The respondent considered that there were no directly comparable sales of vacant land.[13]
[12] Applicant’s Submissions dated 11 March 2051 at [13]
[13] Respondent’s Submissions dated 7 April 2015 at page 5.
15.Mr Green also employed a rent capitalisation approach and a hypothetical development approach in the valuation report dated 4 September 2013[14] as an alternative means to arrive at an unimproved value for the subject site. The Tribunal has considered these alternative approaches below.
[14] Tribunal documents T38 ff
16.The approach to valuation that should be adopted by the Tribunal was summarised by Isaacs J in Spencer v Commonwealth (Spencer):[15]
[15] (1907) 5 CLR 418
To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognisant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for whatever reason soever in the amount which one would otherwise be willing to fix as the value of the property.[16]
[16] (1907) 5 CLR 418 at 441
In relation to the present case, the Tribunal emphasises Isaac J’s comments that neither party to the purchase of property could be assumed to “overlook any ordinary business consideration” and that both parties would be “perfectly acquainted with the land, and cognisant of all circumstances which might affect its value”. The Tribunal has reviewed the “circumstances which might affect [the] value” of the sites that the parties submitted as being comparable to the subject property. The Tribunal has paid particular attention to the small number of transactions which might be most directly compared with the hypothetical sale of the subject property.
Joint experts report
17.A joint experts report was submitted by Mr Green and Mr McInerney identifying issues upon which they agreed or disagreed.[17] The report provided details of ten sales of improved land nominated by one or other of the valuers as relevant to the determination of the unimproved value of the subject land. There was no dispute between the valuers on most matters of fact including rental evidence provided by Mr Green. Mr Green derived yields from the sales but Mr McInerney did not. The Tribunal has considered the information contained in the joint experts report together with witness statements and evidence provided by Mr Green and Mr McInerney at the hearing.
The expert valuers
[17] Joint Experts Report dated 28 November 2014, Exhibit A3
18.For the purposes of its consideration of the evidence of the expert valuers, the applicant invited the Tribunal to adopt the Framework and Requirements of the International Valuation Standards Council, referred to hereafter as the Standards or IVS.[18] The IVS states that “markets rarely operate perfectly with constant equilibrium between supply and demand and an even level of activity”.[19] The Tribunal notes particularly the IVS statement that “value is not a fact but an opinion”[20] and that applying the Standards to specific situations “will require the exercise of judgement”.[21] It is not the role of the Tribunal “to bring a third set of opinions into the arena” or to “piece together a valuation of [its] own”.[22] However, the Tribunal should “subject each valuer’s evidence to critical evaluation”.[23]
[18] Framework and Requirements of the International Valuation Standards Council, (2013) available at An earlier version of the Standards was provided in evidence - see Witness Statement of Phil Green 6/11/14 Annexure B – Ex A6 – members File Tab 9
[19] IVS at [14]
[20] IVS at [8]
[21] IVS at [1]
[22] Challenger Property Asset Management Pty Ltd v Stonnington City Council [2011] VSC 184 at [17] per Croft J
[23] Ibid
19.The Tribunal notes that the applicant argued that Mr McInerney was not an independent and reliable witness, because ‘his employment (effectively) by the respondent compromised his impartiality’ and that he was ‘seen in the course of the matter to be an advocate for the respondent.’[24] The Tribunal considered that both experts had a tendency to advocate so it is inappropriate to single out Mr McInerney.
[24] Applicant’s Submissions dated 11 March 2015 at [80]
20.The Tribunal expects the experts to explain the reasoning behind their conclusions but is also aware of the caveat made by the Privy Council that “in all valuations … there must be room for inferences and inclinations of opinion which … are difficult to reduce to exact reasoning or explain to others.”[25].
[25] Secretary of State for Foreign Affairs v Charlesworth, Pilling & Co [1901] AC 373 at 391
21.Notwithstanding the Privy Council’s caveat, the Tribunal had some difficulty in reviewing the evidence of the valuers in this matter because of confusing assumptions and a lack of clarity in their reasoning. The Tribunal notes the comments of Heydon J that expert witnesses should be confined to opinions “which are wholly or substantially based on their specialised knowledge”.[26] In this matter, opinions have been offered to the Tribunal by both valuers which were outside their demonstrated areas of expertise and this has not been helpful to the Tribunal. For example, in his discussion of the subject site, Mr Green stated that:
Emerging planning policy as embodied in the ACT Planning Strategy promotes Group Centres as locations for more intensive commercial and residential activity. Most existing Group Centre Territory Plan controls have not been reviewed since the introduction of the 2008 Territory Plan and consequently reflect an outmoded planning philosophy. Restricting built form to either two storeys or 100% plot ratio would represent a significant under development of the subject site and would not accord with broader planning policy.[27]
[26] Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at [85] per Heydon JA
[27] P Green, Valuation Report dated 18 September 2014, Applicant’s Tender Bundle, Ex A5, Tab 2, page 5
22.The Tribunal relies on the experts to consider all relevant impacts on the value of land but speculative comments did not assist the Tribunal. Regarding the relevant impacts, the Tribunal notes that only passing reference was made by the experts to applicable planning constraints and to the objectives of the Territory Plan.
The Subject Land
23.The subject land has an area of 607 square metres or thereabouts with frontages to Franklin Street and Palmerston Lane. It is zoned Commercial CZ1 Central Core in the Territory Plan (‘the Plan’) and forms part of the Manuka Group Centre, which is one of 17 group centres identified in the Plan. Manuka is one of Canberra’s earliest shopping centres and is surrounded by established residential suburbs with generous open space, landscaping and community facilities.
24.Development on the subject land must meet the objectives and other provisions applying to the CZ1 zone and must also comply with the Commercial Zones Development Code. The existing development on the subject site is single storey only. The terms of the lease permit residential use but the Commercial Zones Development Code prohibits residential use at ground level.[28] Building and site controls at Element 14 are intended to “ensure that buildings are compatible with the built form, siting and scale of development in adjacent areas or the desired future character of the area established within the Plan”. The rules in the Code state that the maximum building height is two storeys and the maximum plot ratio is 100%. However, the relevant criteria may be satisfied if the proposal is compatible with the desired character; is appropriate to the scale and function of the use and minimises detrimental impacts, including overshadowing and excessive scale. Any parking associated with residential use must be on-site. The Parking and Vehicular Access General Code requires long stay car parking for commercial uses to be provided on-site or within 400 metres of the site and short stay car parking to be provided on site or within 200 metres of the site.
Highest and Best Use
[28] R44 at Part C - Additional controls for group centres, Commercial Zones Development Code, Territory Plan
25.IVSC Standard 33 says that “the market value will reflect its highest and best use”. The IVSC definition of highest and best use is “the use of an asset that maximises its potential and that is physically possible, legally permissible and financially feasible”. “Physically possible” relates to location, topography and broader design or environmental issues. “Legally permissible” suggests the need for proper consideration of relevant plans, codes and regulations governing, among other things, the extent and form of development. “Financially feasible” assumes realistic calculations of costs and likely benefits and a clear understanding of real estate markets. The Tribunal has reviewed the evidence of the valuers and concludes that neither valuer has properly addressed the above issues nor offered a properly considered highest and best use scenario for the subject site
26.The terms “gross floor area” (‘GFA’) and “maximum gross floor area” were used inconsistently by both valuers, most often referring to the existing extent of a building (which might include garages, storerooms and service areas along with rentable space) but sometimes to an undefined development opportunity. Mr Green told the Tribunal the following during questioning by Mr Arthur on behalf of the applicant:
Just pausing there, what's the point of doing an analysis that produces a rate per square metre of GFA?---It provides an indicator of value that you can then compare across the variety of sales or the basket of sales that you're relying on in relation to comparison to the subject property. It also, by doing it on a rate of square metre of GFA, it takes out the issue associated with two-storey development as opposed to single storey development GFA.
Presumably also differences in size?---Yes, indeed it does.
It becomes a common unit of measurement?---That's right, a common unit.[29][29] Transcript of Proceedings 4 December 2014 pages 23-24
27.Mr McInerney, on behalf of the respondent, offered a contrary view about the utility of the GFA analysis when questioned by Ms Robinson on behalf of the respondent:
You've analysed the sales down to both rate per metre squared site area and rate per metre squared GFA. Could you explain the difference between those two terms and the significance of them?---There's three columns there. You'll see "analysed land value", which is also referred to as a site value which I think is probably the best means of comparison it takes out. Then the other one is the site value which is basically the analysed land value divided by the site area, and then the gross area where it actually takes into account the actual building that is on the property when you've analysed it. ... [I]t may not be the highest and best use of the site, so when you analyse those sales, that GFA could fluctuate. They may choose to actually knock down the building and do a completely different GFA. So using GFA is not a really good comparison, but if you actually see people selling real estate, they don't actually sell it on the rate per square metre or anything. You never see that.[30]
[30] Transcript of Proceedings 5 December 2014 page 71
28.On this point the Tribunal notes that the usefulness of ‘gross floor area’ as a comparator of value is limited also by the varied locations and sizes of the analysed properties and the fact that all have two storeys except for the subject site and Sale 1 next door. The Tribunal agrees with the respondent that assessing two properties by reference to their comparative GFA is meaningful only when the GFA is reflective of their highest and best use.
29.In his review of the rating objection dated 6 January 2014, Mr McInerney (at that time employed by the Australian Valuation Office) stated the following:
Gross Floor Area
No maximum GFA specified in the Crown Lease, however estimated maximum GFA of 1214 m2 based on Territory Plan guidelines of two storeys and 100% plot ratio[31]
[31] Tribunal Documents at T29
30.As noted previously, the respondent advised Mr Green on 27 March 2014 that it had disallowed his objection. An attached reasons statement signed by the delegate of the Commissioner for ACT Revenue said that:
The property has a site area of 607 square metres and both Mr Green and the AVO have accepted a maximum gross floor area (GFA) as double this figure, 1,214 square metres, as a GFA is not prescribed in the Crown lease and the improvement on the property is a two-storey building.[32]
[32] Tribunal Documents at T24
31.The delegate of the Commissioner for ACT Revenue made this statement on the advice of Mr McInerney, which was based on statements by Mr Green.
32.As previously noted, additional controls for group centres at Part C of the Commercial Zones Development Code stipulates a maximum plot ratio for the subject site of 100% and a maximum building height of two storeys. Plot ratio is defined in the Territory Plan as “the gross floor area in a building divided by the area of the site”. Subject to lodgement and assessment of a development application, it may be possible to comply with the relevant criteria with a proposal for a plot ratio greater than 100%, but neither valuer has provided the documentation to justify this conclusion. Mr McInerney made no mention of opportunities or limitations on the future use of the site or the form that any future development might take. In his proposal for a hypothetical redevelopment of the subject site, Mr Green stated that “this approach requires the valuer to assess the optimum gross development opportunity for the land” (ref is MMJ report 18 September 2013 page 30 [13.5]) but then proposed, without explanation, a “development scenario” which had retail at ground floor level, 6 residential units at first floor level and two levels of basement parking, each with 20 car spaces.
33.For clarity and consistency, the Tribunal has used the term ‘gross floor area’ to refer only to the existing floor area of the building from which can be deduced the value of the improvements and thence an unimproved value for the land. The Tribunal has used the term ‘maximum gross floor area’ where relevant to refer to a possible maximum building area allowed by the terms of the lease or the applicable development code but the Tribunal notes that, in the absence of a development application, the precise extent of any maximum allowable floor area cannot be determined.
Market movements
34.As noted in ISPT and elsewhere, the comparative approach requires sales to be “relatively contemporaneous”.[33] In a revised version of the valuation report, Mr Green said he had:
...adopted a two-year window from 1 January 2011 to the valuation date 1 January 2013. I know this is an arbitrary window but it reflects the depth of available comparable sales and anything outside this window I do not have sufficient confidence in due to changing market conditions.[34]
[33] [2007] VCAT 652 at [48]
[34] P Green, Valuation Report dated 18 September 2014, Applicant’s Tender Bundle, Ex A5, Tab 2, page 17
35.In evidence before the Tribunal, Mr Green confirmed that two years was a reasonable window “in a market when there hasn't been a whole lot of transactions.”[35]
[35] Transcript of Proceedings 4 December 2014 page 35
36.The valuers have referred to a small number of the analysed sales as “dated sales” but it was not clearly explained by either valuer to what degree, if any, this categorisation had influenced the usefulness of the relevant transaction. Mr McInerney said that the market had been “very firm or steady” from 2010 “right through to the current date…when you look at sales and resales of retail properties…the market has been very firm basically in recent years”.[36] Mr Green argued that the market had declined in the period 2009-2013 but this opinion was based on fairly generalised notions such as ‘yield softening’, the banks being ‘more discerning’ and a fall in rental values.[37] Mr Green tendered a report which contained the unimproved value of a sample of 17 properties from the Allhomes web page which he said showed that the market had declined. The respondent objected to the tender on the basis that the unimproved value of properties had been arrived at by a ‘bulk valuation’, which did not consider the individual circumstances of the relevant properties.[38] The Tribunal gives little weight to the Allhomes report, considers that there was insufficient evidence to support the proposition put by Mr Green that the market had declined in the relevant period and prefers the evidence of Mr McInerney on this point.
[36] Transcript of Proceedings 5 December 2014 page 72
[37] Transcript of Proceedings 4 December 2014 page 36
[38] Transcript of Proceedings 5 December 2014 page 73
37.Neither valuer relied upon transactions after the relevant date. For consistency, the Tribunal has not made any adjustment to the price of any transaction within the two-year window identified by Mr Green or within a reasonable time before that period.
The value of improvements
38.The comparative sales approach uses improved properties so it requires that sales prices be adjusted by deducting the value of built improvements. The Tribunal did not inspect closely nor enter any of the properties nominated by the valuers and must rely on the evidence of the valuers as to the condition of the existing buildings and services. The Tribunal notes that not all properties were inspected internally by the valuers.
39.The Tribunal sees an obvious danger in assumptions as to the condition of a property and calculation of an appropriate value for improvements when the property has not been inspected and factual conclusions have been drawn as to the soundness of its construction and its internal state of repair. In Stocks & Parkes Investments Pty Ltd v The Minister[39] the NSW Court of Appeal stated that “the determination of value is a question of fact … it is a question of evidence”.[40] However, in Lawrence John Nock and Valerie Nock v The Minister of the Capital Territory[41] Morling J of the Federal Court considered that the approach adopted by Administrative Appeals Tribunal (AAT) did not constitute an error of law. The AAT stated that:
...the absence of an internal inspection in all the circumstance does not invalidate the valuation; it does, however, indicate that in part the valuation necessarily includes a speculative element, which may be minimised by the availability of other sources of information.[42]
[39] (1969) 72 SR (NSW) 104
[40] (1969) 72 SR (NSW) 104 at 107
[41] [1981] FCA 57
[42] [1981] FCA 57 at page 4 of 6
40.Counsel acting for the respondent, Ms Robinson, asked Mr Green “when you have adopted a $2000 per square metre rate of depreciation, how did you go about doing that if you haven’t inspected the building?”[43] Mr Green replied that he relied on the ‘Rawlinson Construction Guide’ and that he was aware that “this particular building … was fully leased to two tenants … so if it was fully leased, then it couldn’t be in a substantially rundown poor condition”.[44] The Tribunal does not find this explanation to be satisfactory and is unsure as to the accuracy of the rates applied generally by both valuers to the value of improvements.
[43] Transcript of Proceedings 5 December 2014 page 112
[44] Transcript of Proceedings 5 December 2014 pages 112-113
41.For consistency, the Tribunal has applied the rate of $2000 per square metre of existing GFA in its calculations of the depreciated value of improvements for nominated properties generally other than for Sale 2 which is agreed by both valuers to be of low comparability and in very poor condition. For the subject site and for Sale 1, the Tribunal has applied a rate of $2500 per square metre in recognition of the unusually lofty ceiling heights at ground floor level.
Sale 1 and ‘special value’
42.As noted previously, the applicant argued that the sale of Block 15 Section 1 Griffith (Sale 1) should be disregarded because it was a ‘related parties’ transaction and therefore not a genuine market sale. Mr Green gave evidence that the ‘special value’ to the purchasers was that “they don't have to move or relocate ever. They can protect their business interests and also they can protect their fit-out that they've spent in the building, not for the duration of the lease, but beyond that, forever, because they own the asset itself”. When asked “how does that differentiate from an ordinary person in the marketplace?” Mr Green said “it differs immensely because they are paying what we would term a special value or premium based on their interest to acquire the premises over and above what market value is for the premises”.[45]
[45] Transcript of Proceedings 4 December 2014 page 26
43.Conversely, Mr McInerney on behalf of the respondent contended that the sale of commercial properties to existing tenants is “not unusual and should not be disregarded provided due consideration is given to any necessary adjustments that may be required”.[46]
[46] Witness Statement of G McInerney 22 October 2014 (Exhibit R3) page 4
44.Although the respondent conceded that a purchase by tenants may ‘raise alarm bells’, the applicant’s argument was predominantly based on the mere fact that the property was purchased by the tenants and that this was enough to taint the sale with a ‘special value’ that meant that the sale should be excluded from comparison. Another option was that the buyers were ‘anxious buyers’, ‘the implication being that they were sufficiently ‘anxious’ to overlook ordinary business considerations’.[47]
[47] Commonwealth v Arklay (1951-1952) 87 CLR 159, referred to in Respondent’s Submissions 7 April 2015 at [21]
45.The IVS defines special value as “an amount that reflects particular attributes of an asset that are only of value to a special purchaser”.[48] A special purchaser is “a particular buyer for whom a particular asset has special value because of advantages arising from its ownership that would not be available to other buyers in the market”.[49]
[48] IVS Definitions page 6
[49] IVS Definitions page 6
46.No evidence was presented to the Tribunal of instances of sales to sitting tenants which demonstrated the characteristics of ‘special value’ or a ‘special sale’ as defined in the International Valuation Standards.
47.The Rates Act requires the sale to be a ‘genuine sale’.[50] As discussed above, the High Court in Spencer held that it should be assumed that buyers would not overlook “any ordinary business consideration” and supposes that the buyers are “perfectly acquainted” with the land and “cognisant of all circumstances which might affect its value”.[51] No evidence was provided to the Tribunal that Sale 1 was not a ‘genuine sale’, nor that it had a ‘distressed seller’ or was a ‘forced’ sale. Similarly, no evidence was provided that the buyers were ‘anxious’. Evidence was given that the buyers in Sale 1 have long-term business interests in the area and applied ordinary business considerations to the purchase including obtaining finance from a bank, which required an independent valuation of the property. Clearly the buyers would have been well acquainted with the property and its immediate and larger context. They may have been more familiar with the property than (say) a buyer from interstate, but the Tribunal considers that this fact is not a reason to disqualify the sale from consideration.
[50] Section 6(2) of the Rates Act
[51] (1907) 5 CLR 418 at 441
48.The applicant contended that the existing tenants “paid a price which was worth it to them” and accordingly they paid “a premium above market”.[52] The Tribunal notes that the Macquarie Dictionary defines ‘worth’ as “good or important enough to justify”[53] something and notes that no evidence was given to support Mr Green’s claim that the buyers paid a premium above the market value. The respondent argued that Sale 1 is the most comparable sale and further contended that other analysed sales, in particular Sales 4 and 8, show that Sale 1 was at market value. Statements by the purchasers tendered to the Tribunal including the letter of offer from the Crown lessee support the argument that this was a genuine sale.[54]
[52] Applicant’s submissions 11 March 2015 at [17]
[53] Butler, Susan (ed), Macquarie Dictionary (online ed, at 11 February 2016)
[54] Exhibit A1 and A2 and letter dated 8 January 2010 from Charles Crossley to John Nobbs –attachment to Witness Statement of John Nobbs dated 22 September 2014 (Tab 4 of Applicants Bundle of Documents)
49.The Tribunal has considered the submissions of the applicant and the respondent on this point. The Tribunal finds that all known aspects of Sale 1 are consistent with the notion in Spencer of ‘voluntary bargaining’. The Tribunal agrees with the submission made by the respondent as to the proper characterisation of the sale and notes that there is no evidence that either purchaser felt any pressure to purchase the relevant property at some exorbitant, or even excessive, price. It is likely that they acted quickly out of a concern that the property would be placed on the market and they would have to compete with other purchasers. This is not consistent with the price reflecting a ‘special value’ that other members of the public would not be prepared to pay.[55]
[55] Respondent’s Submissions 7 April 2015 page 14
50.A comparison of the Sale 1 sale with other market evidence also confirms that the sale was within market parameters.
51.The Tribunal concludes that Sale 1 is not a ‘special sale’ in the terms of the IVS but that it is a ‘genuine sale’ in the terms of section 6 of the Rates Act.
52.As to the test of the sale being ‘relatively contemporaneous’, the Tribunal notes that the sale date of 18 March 2010 was nine months before the ‘window’ established by Mr Green and accepted in principle by Mr McInerney but also notes the finding made above that the commercial real estate market was firm during this period.
The comparable sales
53.The Tribunal has considered the ten sales nominated by the applicant and respondent as follows.
Sale 1
Description
54.Block 15 Section 1 Griffith (36–38 Franklin Street) – adjoins the subject site. Sold on 18 March 2010 for $4,000,000. Site area of 673 square metres. Estimated built GFA 568 sqm. No maximum GFA in lease. The lease allows for shop or shops and/or residence or residences and/or storeroom or storerooms.
Submissions
55.The respondent nominated this Sale and Sale 8 as comparable sales. Mr McInerney told the Tribunal that the “Griffith/Manuka area has got a very good reputation as regards to perhaps the prime area in the ACT.”[56] He adopted a capitalised value of $4,000,000, being the sale price for the property, from which he then deducted $1,081,500 ($2000/sqm of existing GFA) for improvements arriving at a rounded deduced land value of $2,900,000, which was translated as $5524/sqm of existing GFA or $4,309/sqm of site area.
[56] Transcript of Proceedings 5 December 2014 page 81
56.Mr Green did not adopt the comparative sales approach to Sale 1 because of what he regarded as the ‘special value’ element in the transaction.[57] This issue is discussed above. Instead Mr Green examined the rentals for the two leases on the subject property and for similar properties elsewhere. In his opinion, there was a “healthy range of evidence” to support the conclusion that the current rentals that are being paid for the two leases ($644/sqm and $676/sqm) are “representative of the appropriate rental for this location”.[58] The total net annual rent is $216,707, to which Mr Green applied a capitalisation rate of 6.75% to arrive at a capitalised value for the property of $3,210,000. From this figure he deducted $1,434,750 ($2250/sqm of existing GFA) for the value of improvements to arrive at a deduced land value of $1,780,000. Neither valuer gave an estimate of unimproved land value per square metre of allowable GFA.
Consideration of Sale 1
[57] Transcript of Proceedings 4 December 2014 page 43
[58] P Green, Valuation Report dated 18 September 2014, Applicant’s Tender Bundle, Ex A5, Tab 2, page 22
57.The site is zoned CZ1 Services Zone and the Griffith Precinct Map and Code in the Territory Plan applies. The site is identical to the subject site in all respects except site area. The sale took place two years and nine months before the relevant date, which places it beyond the dates considered by Mr Green to require adjustment for market movements. Nevertheless, the Tribunal considers the sale to have a high degree of comparability with a hypothetical sale of the subject land.
Sale 2
Description
58.Block 10 Section 32 Dickson (31–39 Woolley Street). Sold on 16 September 2010 for $4,000,000. Site area of 1124 square metres. Estimated built GFA 1256sqm/1354 sqm. No maximum GFA in lease. The lease allows for ground floor restaurants (not retail), plus personal services, commercial businesses and light industry (not noxious).
Submissions
59.Sale 2 was nominated by Mr Green in his valuation report dated 18 September 2014 as part of “improved sales evidence I have considered in our assessing the value of the subject property”. This sale became MMJ/AVO Sale 2 at Schedule C in the joint experts report. In the joint experts’ report, Mr Green deducted $990,000 ($1500/sqm of existing GFA) for improvements to this property plus allowances for letting up and agent’s fees arriving at a deduced land value of $2,781,904, which equated to $2215/sqm of existing GFA. Mr McInerney told the Tribunal that the first floor of this property is in poor condition and had been vacant for 20 years.[59] In the joint experts report, Mr McInerney deducted $1,280,000 for improvements to this property ($1600/sqm of existing GFA) for a deduced land value of $2,720,000, which equated to $2010/sqm of existing GFA. Neither valuer reduced these figures to a rate per square metre of allowable GFA.
Consideration of Sale 2
[59] Transcript of Proceedings 5 December 2014 page 80
60.The site is zoned CZ3 Services Zone and the Dickson Precinct Map and Code in the Territory Plan applies. The plot ratio must achieve “consistency with the desired character” and the maximum building height under rule 7 of the Dickson Precinct Map and Code is “the lesser of 21m or 6 storeys”. It is a slightly dated sale - two years and four months before the relevant date. The valuers have arrived at almost identical unimproved values for the land but the location is significantly inferior and the lease purposes are more restricted. The Tribunal considers the sale to have a low degree of comparability with the subject property.
Sale 3
Description
61.Block 32 Section 30 Dickson (57 Dickson Place). Sold on 20 December 2010 for $5,500,000. Site area of 891 square metres. Two storeys, estimated built GFA 1188 sqm, which is the maximum permitted in the lease. The lease allows for retail trade, professional offices, business, banking or consulting rooms (no noise or offensive odours).
Submissions
62.This Sale was nominated by Mr Green in his valuation report dated 18 September 2014. Mr Green and Mr McInerney have arrived at practically the same deduced land value ($2,827,000 / $2,825,000) which equates to $2380/$2378/sqm of existing (and maximum allowable) GFA. Neither valuer looked at occupancy, rents or yield.
Consideration of Sale 3
63.The site is zoned CZ1 Core Zone and the Dickson Precinct Map and Code in the Territory Plan applies. The Tribunal considers the property and the sale to have a low degree of comparability with the subject land. Neither valuer has pressed this sale as having particular usefulness.
Sale 4
Description
64.Block 12 Section 49 City (165 City Walk). Sold on 12 January 2011 for $2,500,000. Site area 230 square metres. Estimated built GFA 440 sqm. No maximum GFA in the lease. The lease allows for ground floor shops, restaurants or similar; upper floor shops, restaurants or non-noxious commercial uses or a caretaker’s residence.
Submissions
65.This Sale was nominated by Mr Green who considered this to be the most comparable sale in the basket of comparable sales. Mr Green deducted $990,000 ($2250/sqm of existing GFA) for improvements arriving at a deduced land value of $1,510,000. Mr McInerney stated it is “a very small site in a slightly inferior location”.[60] He deducted $1,400,000 for the improvements ($2500/sqm of existing GFA) for a deduced land value of $1,400,000. Neither valuer reduced this to a rate per square metre of GFA.
Consideration of Sale 4
[60] Transcript of Proceedings 5 December 2014 at page 81
66.The site is zoned CZ1 core zone and the City Precinct Map and Code in the Territory Plan applies. The frontage to a main pedestrian route requires that the building is “limited in height to ensure these areas remain substantially sunlit, particularly between 12 noon and 2pm at the winter solstice (21 June)”.[61] This means that floors above the second level must be set back, and this severely limits the possible building height. The ground floor has been untenanted for some time. On a casual view, the building is in poor condition. Neither valuer could explain the layout of the interiors.
[61] City Precinct Code: Element 2: Buildings Criterion C2
67.The Tribunal does not accept the rates per square metre allowed by either valuer for improvements to this property. Mr Green has used the same rate as for the clearly superior property in Sale 1 and Mr McInerney has a rate 25% greater than he applied to Sale 1. In the opinion of the Tribunal, the property and the sale have a low degree of comparability with the subject land. The location is significantly inferior and the site is less than half the area of the subject site with low public visibility. Opportunities for more than one ground floor tenancy are limited by the narrow frontage of less than 8 metres. Service and vehicular access is available only from a crowded public service court at the rear of the site. The sale date is almost exactly two years before the relevant date. In the opinion of the Tribunal, Sale 4 has limited use in a determination of the unimproved value of the subject land.
Sale 5
Description
68.Block 7 Section 2 Griffith (24 Bougainville Street). Sold on 31 August 2011 for $1,175,000. Site area of 663 square metres. Estimated built GFA 261 sqm. The lease is for residential purposes only but the site is included in a CZ2 business zone. The lease allows non-retail and commercial or professional uses with a requirement to provide on-site parking.
Submissions
69.This Sale was nominated by Mr McInerney (while at AVO) who commented that the property is inferior because it does not allow retail and is in a “secondary location” in Manuka.[62] Mr Green noted that the site area is similar to the subject site and includes this Sale, together with Sales 4 and 7, as “the improved sales I had most reliance on”.[63] Mr Green deducted $457,275 ($1750/sqm of existing GFA) for improvements arriving at a deduced land value of $718,000 which equates to $2747/sqm of existing GFA. Mr McInerney valued the improvements at only $1000/sqm of existing GFA for a deduced land value of $895,000 which equates to $3425/sqm of existing GFA. Neither valuer provided a rate per square metre of allowable GFA.
Consideration of Sale 5
[62] Transcript of Proceedings 4 December 2014 page 84
[63] P Green, Valuation Report dated 18 September 2014, Applicant’s Tender Bundle, Ex A5, Tab 2, page 17
70.The site is within the Blandfordia 5 Heritage Precinct, which is entered on the ACT Heritage Register under the Heritage Act 2004. Buildings on this site (other than garages and outbuildings) are classified as “identified original dwellings” and there are restrictions on alterations to those parts of the building visible from the public domain. Site coverage is restricted to 27.5% of the area of the block.[64] Development must also comply with the Group Centre Land Use Policy in the Territory Plan.
[64] ACT Heritage Register: Blandfordia 5 Garden City Heritage Precinct - Mandatory Requirement 2.1d
71.The Tribunal notes that Mr Green stated that this Sale is the most comparable to the subject land. However opportunities for use of the site and the existing building are severely limited by heritage constraints. Although within two hundred metres of the subject site, the location is significantly inferior with low public visibility. The Tribunal considers the property and the Sale to have a low degree of comparability with the subject land.
Sale 6
Description and consideration of Sale 6
72.Block 40 Section 2 Griffith (16 Bougainville Street). Sold on 7 December 2009 for $3,450,000. Site area of 1432 square metres. It was submitted by both valuers that this is an old sale and not useful.[65]
[65] Applicant’s Submissions 11 March 2015 at [41]-[43] and Respondents Submissions 7April 2015 at page 20
Sale 7
Description
73.Block 27 Section 22 Kingston (29 Jardine Street). Sold on 29 January 2014 for $2,250,000. Site area of 323 square metres. Estimated built GFA 572 sqm.
Submissions and consideration of Sale 7
74.This Sale was nominated by Mr Green.[66] Mr McInerney did not consider Sale 7 to be “readily comparable” and he did not analyse the sale. Mr McInerney gave evidence to the Tribunal that the sale did not proceed[67] and Sale 7 is therefore disregarded by the Tribunal.
[66] P Green, Valuation Report dated 18 September 2014, Applicant’s Tender Bundle, Ex A5, Tab 2, page 17
[67] Transcript of Proceedings 5 December 2015 at page 85
Sale 8
Description
75.Block 23 Section 78 Griffith (10 Barker Street). Sold on 18 March 2011 for $2,100,000. Site area of 408 square metres approximately. A two storey building, estimated built GFA 604 sqm. The lease allows for ground floor shop/s or offices; upper floor shops, offices or residential.
Submissions
76.Mr McInerney nominated this Sale and Sale 1 as comparable sales following his review of Mr Green’s objection to the redetermination of the unimproved value of the subject land. The buyer was a long-term tenant who operates a butchery at the ground floor level. In his witness statement, Mr McInerney stated the sale “did not involve a real estate agent but was an arms-length market transaction negotiated between the vendor and existing tenant.” [68]
[68] Witness Statement of G McInerney dated 22 October 2014 at page 17 (Exhibit R3)
77.In Mr McInerney’s opinion, the sale “is about as close as what you could get as being a vacant land sale.”[69] He became aware of the property when it was the subject of a development application and lease variation charges were being assessed. The buyer proposes to demolish part of the building, retaining about 133 square metres at the front of the building and redeveloping the remainder of the site. Mr McInerney’s witness statement[70] gave the proposed redevelopment a gross floor area of 814 sqm plus a basement of 125 sqm. The facade at two levels will also be retained.
Consideration of Sale 8
[69] Transcript of Proceedings 5 December 2014 page 86
[70] Witness Statement of G McInerney dated 24 November 2014 at page 20
78.The additional controls for local centres at Part D of the Commercial Zones Development Code state at Rule 62 that “the maximum number of storeys is 2”. Building heights other than 2 storeys may be approved if buildings achieve consistency with the desired character and allow reasonable solar access to dwellings on adjoining residential blocks and their associated private open space.. There is no applicable rule for plot ratios but Criterion 64 requires that buildings are “compatible with the desired character; are appropriate to the scale and function of the use; (and) minimise detrimental impacts including overshadowing and excessive scale” It would appear to the Tribunal that the existing building and the proposed redevelopment of this site are consistent with the relevant requirements of the Commercial Zones Development Code.[71]
[71] Part D – Additional controls for local centres, Commercial Zones Development Code, Territory Plan
79.The Tribunal considers this Sale to have a reasonable degree of comparability with the subject land. It is in an inferior location but is within the same suburb and may be fairly compared with the subject site as to the amenity of its immediate and larger setting. Lease purpose clauses for the site of Sale 8 are similar to the subject property. Although the site is smaller than the subject site, the maximum allowable gross floor area is greater.
80.The Tribunal has concerns as to the amounts allowed by both valuers for the value of improvements to the land. Mr McInerney told the Tribunal that the buyer intended to keep the “shell area of the front of the butchery which is 133 square metres and they have to retain a front upper wall facade as well…it’s a difficult thing to retain facades…something that developers don’t really want to do because it becomes an issue of supporting it… the majority of the improvements are to be demolished so then the question is, I take off the value of that section that is going to be retained, which was the shell section at the front of the butcher shop, take that away from the sale price and it shows a land value of $1.985 million.”[72]
[72] Transcript of Proceedings 5 December 2014 page 87
81.By this means, Mr McInerney valued the improvements at only $115,000. The applicant argued that the tenant’s redevelopment interest was ‘special’ and it does not follow that the market should be regarded as putting no value on the improvements.[73] The respondent submitted that the value of $115,000 reflected ‘both the outdated nature of the improvements, and the intention of the purchaser to demolish the majority of the improvements on the site’.[74] The Tribunal cannot easily follow this argument because in all other comparable sales Mr McInerney has multiplied the area of the building by a rate in dollars per square metre. Using Mr Green’s estimate for Sale 8 of an existing gross floor area of 604 sqm, which Mr McInerney has not disputed, and using his own rates of $1600 per square metre for the improvements at Sale 2 (Woolley Street) or $2500 per square metre at Sale 4 (City Walk), the value of the improvements at Sale 8 would be between $966,400 and $1,510,000 and the resulting land value for Block 23 Section 78 Griffith would be between $590,000 and $1,133,600.
[73] Applicant’s Submissions 11 March 2015 at [52]
[74] Respondent’s Submissions 7 April 2015 at page 22 at [28]
82.In the opinion of the Tribunal, Sale 8 is useful as an indicator of the capital value of a well-positioned South Canberra commercial property with a wide range of permissible uses. It may also be relevant in an analysis of possible future redevelopment opportunities for the subject site where there may be similar constraints including the need to retain or refurbish the building façade and streetscape. However, the Tribunal does not accept the calculations of either valuer in arriving at an unimproved capital value for the site of Sale 8 and cannot regard their conclusions as useful for determining an appropriate unimproved capital value for the subject site.
Sale 9
Description
83.Block 25 Section 2 Griffith (25 Murray Crescent). Sold 17 June 2014 for $1,470,000. Site area 578 square metres. Estimated built GFA 230 sqm.
Submissions and consideration of Sale 9
84.This sale was nominated by Mr McInerney who considered it “a superior quality building” but heard about it only “in the last week or so” by word of mouth from another valuer.[75] The lease conditions allow small scale professional offices or consulting rooms and residential use provided six carparking spaces are constructed on site. This is an inferior site removed from the main commercial areas of Manuka and retail use is not allowed. Mr Green has not analysed this sale. Neither valuer showed enthusiasm for the Sale,[76] which the Tribunal has accordingly disregarded.
[75] Transcript of Proceedings 5 December 2014 page 83 and page 127
[76] Applicant’s Submissions 11 March 2015 at [54]-[57] and Respondent’s Submissions 7 April 2015 at page 24 at [40]
Sale 10
Description
85.Block 21 Section 48 City (23-25 East Row). Sold on 18 September 2013 for $1,400,000. Site area of 202 square metres.
Submissions and consideration of Sale 10
86.The parties agreed that this sale is not comparable. The Tribunal has therefore disregarded it.
Further consideration of the comparable sales
87.For the reasons stated above, the Tribunal considers that Sales 2, 3, 4 and 5 offer little assistance and may be disregarded. Despite the claims of Mr Green that Sale 4 was the “most comparable” in his basket of sales, the Tribunal is of the opinion that the Sale on City Walk is not useful in this matter. Sale 6 is an old sale abandoned by both valuers and Sale 7 did not proceed. Neither valuer showed any enthusiasm for Sale 9 and neither valuer seriously considered the property involved in Sale 10. Sale 8 is only useful in general terms as an indicator of possible future redevelopment opportunities. The Tribunal has concluded that only one available sale is useful in the estimation of an unimproved value for the subject site, ie Sale 1: Block 15 Section 1 Griffith (36–38 Franklin Street).
88.Sale 1 has many points of similarity with the subject site and property. The two properties are of the same age, the lease conditions are identical and the sites are level and similar in size. The building fabric is in apparently similar condition in both instances and no evidence was provided to the contrary in this respect. Sale 1 is dated 18 March 2010, which is almost three years before the relevant date, but neither valuer has claimed any adjustment to the price to allow for the time difference.
Adjustments for Sale 1
89.The Tribunal has considered possible adjustments to the sale price for Sale 1 so as to arrive at a realistic hypothetical capital value and thence a correct and preferable unimproved value for the subject site.
Adjustment 1 – time: what allowances (if any) should be made for movements in real estate prices between the sale date (18 March 2010) and the relevant date provided by the Rates Act (1 January 2013)? As discussed above, the Tribunal has found that there was no significant movement in the relevant segment of real estate market in this period. The Tribunal therefore makes no adjustment to the sale price on account of time.
Adjustment 2 - site area: what allowance should be made to adjust for the difference in the area of the subject site (607 sqm) and the area of the adjoining site (673 sqm)? The area of the subject site is 90.193% of the area of the adjoining site. The Tribunal therefore adjusts the hypothetical capital value of the subject property down from $4,000,000 to $3,607,727.
Adjustment 3 - depreciated cost of main improvements: what rate should be used to calculate the value of improvements so as to arrive at an unimproved capital value for the subject site? As noted previously, the valuers applied a wide range of costs for improvements from $800 to $2500 per sqm. Mr McInerney had a rate of $2000 per sqm for Sale 1 but used a figure of $2500 per sqm for improvements at the inferior property on City Walk (Sale 5). As previously noted by the Tribunal, both the subject property and the adjoining property are of sound construction with ceiling heights in the order of 4 metres. The Tribunal has therefore allowed a rate of $2500 per sqm for improvements to the subject site (estimated built GFA of 497 sqm) which equates to $1,242,500 which it deducts from the hypothetical capital value of the subject property of $3,607,727 to arrive at an unimproved capital value for the subject site of $2,365,227 which it rounds down to $2,365,000.
In the opinion of the Tribunal, there are no other factors which should be considered and the Tribunal therefore confirms that the unimproved capital value for the subject site is determined as $2,365,000.
Capitalisation of rents approach
90.Mr Green told the Tribunal that the capitalisation of rents is a “measure of investment returns” from leased properties and can be used to arrive at a capital value for a property.[77] In support of this capitalisation of rents approach, Mr Green provided sales evidence for seven leased properties in various parts of Canberra. These included local shopping centres in Campbell and Torrens, both of which he said were “inferior” properties; two large hardware stores in Woden and Gungahlin which he conceded were “not directly comparable” with the subject property; and three strata titled retail/commercial properties in the central areas of Canberra and on one or more levels. Mr Green stated that these properties showed a “yield range of about 7% to 8.8%”. In his opinion, the subject property was superior to all of these properties and he therefore applied a yield “which is tighter or lower”.[78]
[77] Transcript of Proceedings 4 December 2014 page 45
[78] Transcript of Proceedings 4 December 2014 page 45
91.Mr Green concluded that “in all my experience, the subject property could not be capitalised at a yield tighter than 6.5% and no greater than 7% reflecting the property’s location, tenant profile, age, condition, the term and quality of the lease covenants. I have adopted a yield of 6.75% to the subject property”. Mr Green reported that the income from the tenants of the subject property when capitalised at 6.75% gave a capital value to the subject property of $2,955,000.[79] After subtracting the value of improvements, Mr Green concluded that the unimproved capital value of the site using the capitalisation approach was $1,815.000.[80]
[79] P Green, Valuation Report dated 18 September 2014, Applicant’s Tender Bundle Ex A5 Tab 2 p26
[80] P Green, Valuation Report dated 18 September 2014, Applicant’s Tender Bundle Ex A5 Tab 2 p32
92.The respondent argued that the analysed yields upon which the Mr Green relied were not of directly comparable sale properties with characteristics of value similar to the subject property.[81] Mr McInerney disagreed with these figures provided by Mr Green and said there was evidence of comparable properties in Griffith with yields of 5.5% (Sale 9) and 5% (Sale 6).[82] The Tribunal notes that if a yield of (say) 5.5% was to be applied to the income figures from the tenants of the subject property provided by Mr Green, the capital value of the site would be $3,626,945 and, after subtracting the improvements as valued by Mr Green, the unimproved capital value of the subject site would be $2,486,945.
[81] Respondent’s Submissions 7 April 2015 at page 6, [13]
[82] Transcript of Proceedings 4 December 2014 page 92
93.The Tribunal notes the suggestion by Callinan J that in its consideration of alternative valuations, the Tribunal should consider the particular features of each valuation “that are capable of yielding to adverse criticism”.[83] The Tribunal was not persuaded by Mr Green’s evidence regarding the financial yield. In the absence of plausible evidence as to a realistic financial yield, the Tribunal considers that the capitalisation of rent approach to be unreliable in the present proceedings. The Tribunal has accordingly given no further consideration to the capitalisation of rent approach proposed by Mr Green.
Hypothetical development approach
[83] Bronzel v State Planning Authority (1979) 21 SASR 513, 516 as quoted by Callinan J in Boland v YatesProperty Corporation Pty Ltd (1999) 74 ALJR 209 at [283]. See also Challenger Property Asset Management Pty Ltd v Stonnington City Council [2011] VSC 184
94.In his valuation report dated 18 September 2014, Mr Green referred also to a hypothetical development approach to valuation. This was described to the Tribunal by counsel acting for the applicant, Mr Arthur, as “a method designed to ascertain what somebody would pay for the site if they were to develop it from scratch in order to produce a building that represented the highest and best value”.[84] Mr Green gave evidence that he had “calculated that maximum development”.[85] Mr Green described his hypothetical building as having ground floor retail, upper floor residential and two levels of basement parking but there were no plans, sections or elevations and no planning analysis or architectural or structural feasibility studies. The Tribunal considers Mr Green’s assumptions in arriving at that maximum development to be unrealistic and impracticable. Mr Green gave evidence that, “out of all approaches”, the hypothetical development approach is “the least reliable”[86] and in its final submissions, the applicant did not press this approach.[87] The Tribunal accepts this concession and has accordingly not given further consideration to this approach.
Conclusion
[84] Transcript of Proceedings 4 December 2014 page 7
[85] Transcript of Proceedings 4 December 2014 page 48
[86] Transcript of Proceedings 4 December 2014 page 48
[87] Applicant’s Submissions 11 March 2015 at [5]
95.The value of the subject land should be calculated by comparing the value of Sale 1 with adjustments for the area of the subject site and the depreciated cost of the improvements. The Tribunal accordingly finds that the unimproved value of the subject land at 1 January 2013 was $2,365,000.
………………………………..
General President L Crebbin
for and on behalf of the Tribunal
HEARING DETAILS
FILE NUMBER:
AT 22/2014
PARTIES, APPLICANT:
The Estate of Anthi John Notaras
PARTIES, RESPONDENT:
Commissioner for ACT Revenue
COUNSEL APPEARING, APPLICANT
Mr R Arthur
COUNSEL APPEARING, RESPONDENT
Ms H Robinson
SOLICITORS FOR APPLICANT
Snedden Hall & Gallop
SOLICITORS FOR RESPONDENT
ACT Government Solicitor
TRIBUNAL MEMBERS:
Professor P Spender
Senior Member R Pegrum
DATES OF HEARING:
4 & 5 December 2014, 24 April 2015
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