Fidler v Port Stephens Council
[2000] NSWLEC 114
•06/15/2000
Land and Environment Court
of New South Wales
CITATION: Fidler v Port Stephens Council [2000] NSWLEC 114 PARTIES: APPLICANT
RESPONDENT
Fidler
Port Stephens CouncilFILE NUMBER(S): 30156 of 1997 CORAM: Cowdroy J KEY ISSUES: Compensation :- hypothetical residential subdivision created having unique features - absence of directly comparable sales for four lots in hypothetical residential subdivision - comparable sales for one lot in hypothetical residential subdivision- gross value of hypothetical residential subdivision - profit and risk applicable to hypothetical residential subdivision - assessment of development costs for hypothetical residential subdivision- assessment of compensation. LEGISLATION CITED: Land Acquisition (Just Terms Compensation) Act 1991 CASES CITED: Commissioner of Stamp Duties (SA) v Execution Trustee Agency Company of SA Limited (1942) 74 CLR 374;
Hurdis v The Minister (1957) 2 LGRA 132 ;
Leichardt Municipal Council v Seatainer Terminals Pty Ltd (CA) (1981) 48 LGRA 409 ;
Minister for Environment v Florence (1979) 21 SASR 108 ;
Scarf & Ors v Canterbury Municipal Council unreported no 30279/88 9 August 1989;
Turner & Anor v Minister of Public Instruction (1956) 95 CLR 245DATES OF HEARING: 15/5/00 DATE OF JUDGMENT:
06/15/2000LEGAL REPRESENTATIVES:
APPLICANT
Mr W Davison SCSOLICITORS
Clayton UtzRESPONDENT
SOLICITORS
Mr J Kildea (Barrister)
Trevor Dunn Solicitors
JUDGMENT:
IN THE LAND AND
ENVIRONMENT COURT
OF NEW SOUTH WALESMATTER No. 30156 of 1997
CORAM: Cowdroy J
DECISION DATE: 15/6/00
Applicant
Respondent
History of proceedings
1. On 3 August 1999 in proceedings no CA40710 of 1998 (“the judgment”) the New South Wales Court of Appeal remitted this matter to the Land and Environment Court for further determination. At para [6] of the judgment the New South Wales Court of Appeal determined that it was appropriate to regard a hypothetical subdivision of the lands the subject of the proceedings (“the lands”); namely Lot 71 in deposited plan 861094 (“Lot 71”) off Ullora Road Nelson Bay and Lot 2 in deposited plan 854716 (“Lot 2”) at Lily Hill Road Nelson Bay as the highest and best use of such lands. The hypothetical subdivision of the lands was referred to by the Court of Appeal at para [3] of the judgment as the ‘ minimal residential subdivision ’ comprising a subdivision of four lots on Lot 71 and one lot on Lot 2.
2. The New South Wales Court of Appeal further determined at para [6] of the judgment that before the Court at first instance there had not been sufficient material concerning the profit and risk factors of the minimal residential subdivision of the lands to enable an accurate assessment of the compensation for such lands.
3. In consequence of the judgment the applicant submitted that these proceedings are confined to the issue of the profit and loss factor applicable to the minimum residential subdivision (“the subdivision”). Such submission cannot be sustained. Order no 3 of the judgment requires this Court to ascertain ‘ what compensation should be awarded for the minimum residential subdivision’. Accordingly the Court is to consider all aspects of valuation evidence in relation to the determination of compensation for the lands.
Differing Valuations of Lot 71
(a) Valuation of the applicant
4. Mr Frank Egan a valuer retained on behalf of Mr Tony Fidler trading as Howship Holdings (“the applicant”) completed a valuation report in relation to the subdivision on 10 May 2000. Mr Egan valued each lot in the subdivision of Lot 71 at $250,000 resulting in a gross valuation of $1,000,000 for Lot 71. Mr Egan applied a 15% profit and risk factor of $130, 430 and development expenses of $141,400 to leave a gross realization, of $728,165.
5. Mr Egan does not specially identify the source for his conclusion that the gross value of Lot 71 on a per lot basis is $250,000. However he does observe that Lot 71 is in a well established residential area and the hypothetical lots were large. In addition he states that that the nearby sale of lots at Corlette (“the Landcom lots”) which sold for an average price of $91,000 were removed from Nelsons Bay and had no views.
6. In arriving at a 15% profit and risk factor for Lot 71, Mr Egan had regard to two factors. Firstly he placed reliance on the market demand for the subdivided lots at nearby Corlette (“the Landcom lots”). Such lots were sold by Landcom in quantities of approximately 30 allotments. The Landcom lots sold rapidly and varied in price from $75,000 to $140,000. Mr Egan considered that Lot 71 as a small subdivision of very large lots approximately 8,000 m2 per lot would sell rapidly and suggested sales could be effected within a three month period in a developed area such as Nelson Bay. Mr Egan maintained that the large battle-axe blocks of Lot 71 would have considerable demand because of their size and private nature. Mr Egan believed the four lots of Lot 71 would be unique and equated the rate of sale of Lot 71 with the Landcom lots. Accordingly Mr Egan assessed the developer risk in relation to the sale time of Lot 71 as minimal.
7. The second factor relied upon by Mr Egan in his assessment of the profit and risk factor applicable to Lot 71 was a statement made by this Court at para [57] of its judgment of 21 August 1998. At para [57] of such judgment the Court adopted a profit and risk factor of 30% for a 26 lot subdivision of Lot 71 and a 20% profit and risk factor for a five lot subdivision of Lot 2. Utilising these figures Mr Egan reasoned that a four lot subdivision of Lot 71 would have a profit and risk factor below 20%. Mr Egan believed that given these figures and because of the likely rapid sale time of Lot 71, a profit and risk figure of 15% would be appropriate.
8. The figure of $141,400 for development expenses has been adopted by Mr Egan from a report by Pulver Cooper and Blackley Pty Limited consulting surveyors, project managers, planners & engineers which had been admitted into evidence during the original hearing.
9. In the report of 10 May 2000, with the exception of the profit and risk factor and the development expenses, Mr Egan made no other allowances for the costs associated with the development and sale of Lot 71.
(b) Valuation of the respondent
10. Mr Sorrenson valuer for the respondent completed a valuation report in relation to the subdivision which was filed in this Court on 22 December 1999. Mr Sorrenson assessed the gross realization of Lot 71 at $ 800,000 or $200,000 per lot. He calculated the profit and risk factor at 15 % and development expenses at $141,400. Mr Sorrenson also allowed for the deduction of purchase costs of $21,990, holding costs for half the anticipated development and sale period of $1,210, selling and legal expenses of $28,000, interest for half the development and sale period of $3,182 and interest on the purchase cost of $22,500.
11. Mr Sorrenson’s figure of $200,000 per lot for Lot 71 was derived from a number of factors. Mr Sorrenson considered the report of Mr Gardner Browne, planning consultant in relation to the suitability of Lot 71 for development. Additionally, Mr Sorrenson analysed the sales of residential lots in the locality of Lot 71. In undertaking such analysis Mr Sorrenson did not consider the Landcom lots as indicative of either the value or market demand for Lot 71. He contended the Landcom lots unlike Lot 71 enabled ready building were located close to the water and to the shops at Salamander Bay. Additionally the purchase of a Landcom lot provided specific financial advantages. The Landcom lots were released in quantities of thirty lots, thus the early sales of such lots produced funds which reduced the pressure to recoup the initial outlay on sales of the subsequent lots. He considered that this is not the situation with Lot 71, which would be a single release of four lots. Mr Sorrenson found it difficult to draw any comparison between the market for the Landcom lots sales and the lots in the subdivision of Lot 71. In his evidence he expressed the opinion that lots in the hypothetical subdivision of Lot 71 and Lot 2 represents “the top end” of the market. Additionally he considered that building costs would be higher on such lots than the Landcom lots.
12. Whilst Mr Sorrenson believed a gross value of Lot 71 should realistically be $800,000 or $200,000 per lot, Mr Sorrenson did acknowledge that a gross value of $250,000 per lot for Lot 71 could be achieved. In adopting a gross value of Lot 71 at $1,000,000, that is $250,000 per lot Mr Sorrenson allowed a higher profit and risk factor of 30%. If the gross value of Lot 71 was assessed at $800,000, namely at $200,000 per lot he would allow a 15% profit and risk factor. He considered that sales of $250,000 per lot would be ambitious taking into account the limited market, narrow access and high building costs. Mr Sorrenson contended any developer would approach the purchase of Lot 71 with caution. He considered that the cash flow from the sales of the lots of Lot 71, as a four lot development would not be rapid. Mr Sorrenson explained that the longer the holding period the greater is the holding costs and ‘risk factor’ for a developer. Mr Sorrenson concluded that at $250,000 per lot the sale of all four lots of Lot 71 could take up to twelve months. At $200,000 per lot Mr Sorrenson considered that a six month sale period would be required.
13. Mr Sorrenson relied upon the cost assessment report of Pulver Cooper and Blackley Pty Ltd in relation to the expected development costs of Lot 71 as did Mr Egan. Mr Sorrenson adopted the conclusion of such report namely $35,350 development cost per lot which totals $ 141,400 in development costs for Lot 71.
14. Mr Sorrenson allowed for other costs in relation to the sale and development of Lot 71 calculated a gross value of $800,000 namely purchase costs of $21,990, holding costs for half the anticipated development and sale period of $1,210, selling and legal expenses of $28,000, interest for half the development and sale period of $3,182 and interest on the purchase cost of $22,500.
Determination of the value of Lot 71
15. There are three areas of difference in the approaches to the valuation of Lot 71. Such areas are the gross value of Lot 71; the appropriate profit and risk factor for such lot and the development costs associated with the subdivision of Lot 71.
16. When there is conflicting valuation evidence the Court is entitled to adopt the valuation most favorable to a claimant: Commissioner of Stamp Duties (SA) v Execution Trustee Agency Company of SA Limited (1942) 74 CLR 374. Applying such valuation principle the Court adopts the gross value for Lot 71 of $1,000,000. The four lots of Lot 71 would be very large lots in an established residential area with possible water views.
17. Mr Egan’s profit and risk assessment of 15% for Lot 71 has not been calculated pursuant to sound valuation practices. The Landcom lots relied upon by Mr Egan to demonstrate the strength of the real estate market in 1997 and which sold for an average of $91,000 per lot were sold in a different market as both valuers acknowledge. According to Mr Sorrenson the Landcom lots afforded purchasers financial benefits and such lots were normal residential lots with easy access and minimal building cost. Whilst comparable sales can be utilized in the assessment of profit and risk factor for a hypothetical subdivision ( Minister for Environment v Florence (1979) 21 SASR 108 at 146). To rely upon a comparable sale for valuation purposes there must be similarity between the comparable sale and the subject land: Leichardt Municipal Council v Seatainer Terminals Pty Ltd (CA) (1981) 48 LGRA 409 at 435. In these proceedings there is not sufficient similarity between the Landcom lots and Lot 71 to enable the Landcom lots to be relied upon as a comparable sale.
18. The remaining evidence relied upon by Mr Egan for his profit and risk assessment of Lot 71 were profit and risk figures approved by this Court at para [57] of its judgment of 21 August 1998. The figures approved by the Court were for a hypothetical 26 lot subdivision of Lot 71 and a 5 lot subdivision of Lot 2. Mr Egan adopted such figures and adapted them to take account of the reduced number of lots. Adapting profit and risk factors from decided cases is not a sound valuation practice and to use data which was relevant to a different subdivision proposal albeit for the identical land is equally unsound. In Minister For the Environment v Florence Wells J observed:-
There seems to be a suggestion in some writings that a valuer is at liberty to take from valuations based on the hypothetical subdivision that have been examined or approved in decided cases the figure there stated, and use it in the valuation then being prepared. With all respect to those holding or advancing that view, that cannot be right. The actual obstacles to subdivision at the relevant time; the actual price set upon the lots; the actual period decided upon for selling the subject land in it hypothetical form; and the type of land and the state of the market with respect to it, must all be looked at as a united whole in particular circumstances of the case, and a percentage fixed accordingly.
(See also RO Rost, H G Collins, Land Valuation and Compensation , Simpson & Sons, Sydney 1984 at 153-154). As a consequence of the methodology adopted by Mr Egan in his assessment of a profit and risk factor for Lot 71 the Court rejects the profit and risk factor of 15% for Lot 71.
19. In his profit and risk assessment of 30% for Lot 71 Mr Sorrenson considered the anticipated development costs of such lot and the unknown development costs specially applicable to the battle axe blocks of the subdivision. He took account of the state of the real estate market and from such analysis calculated a holding period of twelve months. The profit and risk figure of 30% for Lot 71 was calculated by Mr Sorrenson pursuant to established valuation principles, as expounded by the High Court of Australia in Turner & Anor v Minister of Public Instruction (1956) 95 CLR 245 at 260. The Court adopts a profit and risk factor of 30% for Lot 71.
20. Mr Egan has allowed for $141,400 in development cost for Lot 71. Mr Sorrenson has allowed for holding costs, interest payments during the period of sale and development as well as legal and purchase costs associated with the development of Lot 71. Mr Egan omits any allowance for such items and thereby underestimates the cost of establishing a residential subdivision upon Lot 71. Accordingly the Court rejects the quantum of deductions suggested by Mr Egan and adopts the figure for development costs of Lot 71 as calculated by Mr Sorrenson. The calculation of such figure accords with accepted valuation techniques: See RO Rost, H G Collins, Land Valuation and Compensation , Simpson & Sons, Sydney 1984 at 155-156.
21. The Court assesses the gross value of Lot 71 at $1,000,000. The deductions are to include a profit and risk factor of 30%. The respondent’s calculations for all expenses are adopted as follows:-
Gross Realisation 4 allotments @ average $250,000 each: Less: Realisation expenses being costs for selling and legal expenses @ 3.5% of gross realisation: Net Realisation: Less: Margin for entrepreneurial ‘profit and risk’ estimated at 30% on total outlay: True Net Realisation: Less: Development Costs allowed at the rate of $35,350 per potential lot: Plus: Interest @ 9% per annum for half the anticipated development and sale period estimated at 6 months: Holding costs for half the anticipated development and sales period (say 6 months) being:- Council rates @ $2,500 p.a. Water Rates @ $1,500 p.a. Land Tax on $200,000 ($840): Less: Purchase Costs - Stamp Duty (allow): Legal on Purchase (allow) Preparation of Mortgage: Valuation: Plus: Loss of interest on purchase of land en-globo over development and sale period (say 12 months)
Differing Valuations of Lot 2
a) Valuation of the applicant
22. In his valuation of Lot 2 Mr Egan relied upon a comparable sale; namely 2 Pillinda Court Nelson Bay (“Pillinda Court”). Mr Egan assessed the valuation of Lot 2 at $250,000. The Court in its judgment of 21 August 1998 adopted such a method of valuation for Lot 2.
b) Valuation of the respondent
23. Mr Sorrenson in reliance upon a report by Mr Gardner Browne, planning consultant maintains that the physical constraints of Lot 2 would make development difficult. Additionally Mr Sorrenson relied on comparable sales of single residential allotments in the Port Stephens area including Pillinda Court. The sale price of the residential allotments ranged from $160,000 to $185,000. Such lots were easier to develop but smaller in size than Lot 2. Mr Sorrenson assessed the value of Lot 2 at $200,000.
Determination of the value of Lot 2
24. The sale of Pillinda Court for $ 250,000 was unrealised at the time of resumption of Lot 71 and Lot 2. However Pillinda Court had the potential for sale at the time of the resumption of such lots. The Court therefore is entitled to consider the sale of Pillinda Court in assessing the value of Lot 2: see Scarf & Ors v Canterbury Municipal Council unreported no 30279/88 9 August 1989.
25. Mr Sorrenson annexed a list of comparable sales for Lot 2 to his valuation report. Whilst Pillinda Court is included in such list Mr Sorrenson adopted an aggregate approach. Such an approach is an acceptable valuation practice: see RO Rost, H G Collins, Land Valuation and Compensation , Simpson & Sons, Sydney 1984 at 150. The sale of Pillinda Court which was virtually adjacent to Lot 2 should have been given more weight by Mr Sorrenson: see Hurdis v The Minister (1957) 2 LGRA 132 at 140-141.
26. Pillinda Court and Lot 2 considered as adjacent residential lots with direct street access and water views are part of the same real estate market. Pillinda Court is 1361 m2 it has a level building platform and spectacular water views. At 3,374 m2 Lot 2 is larger than Pillinda Court but it does not have a level building platform and consequently water views after development would be limited. Despite the increased size of Lot 2 compared to Pillinda Court the building constraint and limited water views serve to equate the value of such lot with Pillinda Court. Accordingly the Court adopts Mr Egan’s valuation of Lot 2 at $250,000
Conclusion
27. The Court assesses the value of Lot 71 at $520,025 and the value of Lot 2 at $250,000. In total the applicant is entitled to receive for such lands the sum of $770,025 as compensation pursuant to s 55 of the Land Acquisition (Just Terms Compensation) Act 1991.
Costs
28. If any order for costs is sought in these proceedings liberty is granted to the parties to approach the Registrar to obtain a date for a cost hearing.
29. The Court orders the exhibits be returned.
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