Filmwing Pty Ltd v Commissioner for Act Revenue
[2023] ACAT 28
•5 May 2023
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
FILMWING PTY LTD v COMMISSIONER FOR ACT REVENUE [2023] ACAT 28
AT 24/ 2022
Catchwords: ADMINISTRATIVE REVIEW – lease variation charge – where land sold with other neighbouring land to a developer – neighbouring land owned by company related to owner of subject block – feasibility study of possible uses of the land without regard to development with the neighbouring property – relevance of sale price to valuation of the after value (V1) of the subject block
Legislation cited: Planning and Development Act 2007 ss 276E, 277, 277A
Subordinate
Legislation cited: Territory Plan 2008 NI2008-27
Planning and Development Regulation 2008 r 170A
Cases cited:3 Property Group Pty Ltd v Commissioner for ACT Revenue [2019] ACAT 67
Bopark Building Pty Ltd v Minister for Lands (1970) 70 SR NSW 336
Bronzel v State Planning Authority (1979) 44 LGRA 34
Challenger Property Asset Management Pty Ltd v Stonnington City Council [2011] VSC 184Commissioner for ACT Revenue v Rosnet Pty Ltd (1994) LGREA 440
HTI Watson Pty Limited v Commissioner for ACT Revenue [2020] ACAT 30
Kelly v Western Australian Planning Commission [2006] WASC 208
McKay v Commissioner of Main Roads [2013] WASCA 135
Minister of Environment v Petroccia (1982) 30 SASR 333
Mir and ors v Valuer General [2009] NSW LEC 1309Myer (SA) Stores Limited v Valuer General (1986) 60 LGERA 440
Spencer v Commonwealth [1907] HCA 82
The Commonwealth v Milledge (1953) 90 CLR 157
Toohey’s Ltd v Valuer-General(1925) AC 439
List of
Texts/papers cited Alan Hyam, The Law Affecting Valuation in Australia (Federation Press, 6th ed, 2020)
Des Nicholls and Stephen Anthony, Final Report on the Review of the Change of Use Charges System in the ACT (29 November 2010) < align="left">Tribunal: Senior Member B Meagher SC
Date of Orders: 5 May 2023
Date of Reasons for Decision:
5 May 2023
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AT 24/2022
BETWEEN:
FILMWING PTY LTD
Applicant
AND:
COMMISSIONER FOR ACT REVENUE
Respondent
TRIBUNAL:Senior Member B Meagher SC
DATE:5 May 2023
ORDER
The decision under review, namely the reconsideration decision of 1 April 2022, is set aside and the matter that is the subject of the decision, namely the determination of the Lease Variation Charge under section 277 of the Planning and Development Act 2007, in respect of the land being Block 5 Section 12 Phillip, is remitted for reconsideration by the respondent in accordance with these reasons and recommendations.
Pursuant to section 48(2)(a) of the ACT Civil and Administrative Tribunal Act2008, the respondent pay to the applicant the cost of the filing fee of $744 and hearing fees of $334 and $668, totalling $1746.
………………………………..
Senior Member B Meagher SC
REASONS FOR DECISION
LVCThis is an application for review of a Lease Variation Charge (PDA) made under section 277 of the Planning and Development Act 2007 ().
The applicant was at the relevant time the lessee of land, Block 5 Section 12 Phillip. The land is on the corner of Corinna Street and Brewer Street[1] opposite the Woden Town Centre. The company is associated with Robert Maidment.[2] He is also associated with another company – Junstamp Pty Ltd, which was the lessee of land known as Block 4 Section 12 Phillip. This land is in the same block facing Melrose Drive. The two blocks are separated by Block 7 Section 12 which is a narrow laneway owned at the relevant times by the ACT.
[1] It does not face Melrose Drive as asserted in an early valuer’s report and it is Brewer Street not Bowes Street as described in Canberra Town Planning reports
[2] The evidence does not extend to a company search but Mr Maidment is described in correspondence as the owner of the companies, and it has been assumed by the parties that the companies are related and that they are companies owned by Mr Maidment. Contracts for the sale of the blocks referred to later are signed by the same individuals – Mr Maidment and Mr Breeze – on behalf of the sellers
The Crown Lease in evidence[3] postdates self-government prior to the development approval. It provided, initially:
3(a) To use the premises only for the purpose of one or more of the following commercial offices, personal services agencies professional chambers and residential.
(b) That the gross floor area of the building erected on the land shall not be less than 1000 and shall not exceed 1700 square metres. The maximum residential component allowable is 350[4] square metres.
(c) That the Lessee shall provide one covered car space per residential unit and in addition may provide an approved hardstanding parking area for operational parking not exceeding 1 car space per 200 square metres of gross commercial floor area.
[3] T-docs page 316
[4] This limit was removed by the Approval here
GFAGross floor area () is defined at clause 1(b) of the Crown Lease as “the sum of the gross areas of the floor or floors of the building measured from the external faces of the exterior walls or from the centre line of walls separating the building from any other building.”
In the Territory Plan,[5] the definition is a bit wider. It is as follows:
Gross floor area (GFA) means the sum of the area of all floors of the building measured from the external faces of the exterior walls, or from the centre lines of walls separating the building from any other building, excluding any floor area reasonably used and necessary solely for fixed mechanical plant, bicycle parking and associated end-of-trip facilities, and/or basement car parking.
[5] Territory Plan 2008 NI2008-27
The lease was varied in December 2007 so that the maximum GFA became 1950m² and the uses modified to add that there might be a restaurant limited to 550m² and a shop limited to 550m².[6] The requirement to provide one car space for a residential unit remained.
[6] T-docs page 137
The land is zoned CZ2 Business Zone and has an area of 690m². It is longer facing Corinna Street[7] and has a rounded corner on the Southeast side. There is a large tree that has been thought to be protected on the side facing Corinna Street.
[7] Thought to be approximately 23m by 30m
I was invited to have a view of it and have done. It appears on the outside to be in good condition and to my eyes, at least, is a much more attractive building than those around it. The tree looks healthy and is not insignificant in size.
In the Knight Frank Valuers report[8] prepared by Mr Cummins for the applicant in respect of the reconsideration, he describes the existing building as having a basement carpark with 22 car spaces and constructed in about 1984.[9] The report was said to be dated 18 May 2021 but apparently was written in early 2022. It is configured to accommodate several tenancies and at the time before the variation here was used for commercial purposes only. As the asserted existence of a 22 bay carpark would make most of the reports about what can be provided by way of parking wrong, I have assumed that the figure is wrong.
[8] T-docs page 128ff
[9] Prior to self-government Territory plans or other current planning controls
On a site view, there are underground carparks for this block and for Block 4. They are accessed from a public carpark on the north side of the subject block and the East side of Block 4. The maximum number of carparks on a floor as imagined by the Town Planning experts is 11.[10] In the subpoenaed material tendered by the applicant as Exhibit A3, there is a detailed valuation report prepared by CBRE in 2006 when the applicant bought the building. It was done for a bank. It describes the carpark on this block as having 14 spaces.[11]NLA There is no reason not to accept this. I assume that Mr Cummins may be referring to what is on Block 4 or has otherwise made an error in asserting there were 22 spaces. The disparity between 14 spaces and the maximum number assumed by the planners can be explained by the fact that there is only one level and there are no restrictions caused by extra ramps to join the levels. This carpark is accessed by a single ramp wide enough to take two cars. It appears to have all the space for the ramp on the outside of the building. According to CBRE there is storage as well for bikes and end of trip facilities. They also say that the current building is a bit more than had been originally allowed under the lease at 1711m² of net lettable area ().[12] It has NLA of 542m² on ground level, 644m² on level 1 and 525m² on level two. I haven’t found in the documents the actual GFA occupied by the existing building but assume it is more than the NLA and close to the maximum allowed before the latest approval, namely 1950m2.
[10] This is on the lower or lowest level where there is only a need for one ramp but starting inside the area
[11] Item 2 page 9
[12] As the name suggests this is less than the GFA as it only includes the areas that can be leased not common property serviced areas and the like. The ratio between these measurements may vary but I think Mr Cummins the Valuer for the Applicant may have used a formula for some conversions
Mr Van Der Walt[13] in a recent report attaches a plan of the basement to show its dimensions. The plan may depict parking spaces to an expert eye aided by a magnifying glass, but I could not detect that information. No one drew attention to this during the hearing but to the extent that it matters, I have assumed the reference to 14 spaces is correct. When considering issues like what might be built without the new approval, the restriction created by current parking requirements may have less impact than imagined. This is particularly so if there is added another four spaces from nearby public parking. It will be seen that this was an assumption made by planners in three scenarios of post approval building on the site.
[13] The town planner assisting the applicant
There are planning restrictions that may be relevant that were not always present. Currently, it is required that for every 100m² of GFA of office space there must be 1 car park.[14] There is a height restriction of 12 stories but that might be extended by four stories but only in special circumstances.
Written evidence
[14] This is explained in a report from a Town Planner Kip Tanner
Several documents were provided to the Tribunal before the hearing. Rather than mark them all, I identified them as documents that will be considered either as submissions or evidence. During the hearing, documents were tendered, and they were marked.
Following is a list of documents provided to the Tribunal before the hearing:
Application for review dated 12 April 2022 with annexure being the Notice of Decision approving the Development dated 18 May 2021, The Application for Development, a report of Knight Frank in support of a reconsideration of LVC,(a) [15] ACT Valuation Office Report dated 22 March 2022, LVC Reconsideration decision dated 1 April 2022.
[15] T-docs pages 129-172
Submissions of the applicant 27 August 2022.(b)
Bundle of Evidence of the applicant consisting of:(c)
Witness Statement of Mr Van der Walt dated 26 August 2022 and his CV.(i)
Three reports of Canberra Town Planning of 9 February 2022, 22 August 2022 and 25 August 2022.(ii)
Valuation reports of Greg Cummins of 18 June 2021 and 25 August 2022, and his CV.(iii)
Applicant’s submissions of 27 October 2022.(d)
Report of Mr Van der Walt of 27 October 2022.(e)
Report of James Osenton Quantity Surveyor dated 27 October 2022.(f)
Report of Mr Cummins of 27 October 2022.(g)
T documents and supplementary T documents.(h)
Outline of submissions of the respondent.(i)
Witness Statement of Mirek Pilat of 30 November 2022.(j)
Report of Kip Tanner, the respondent’s planning expert, of 23 November 2022.(k)
Authorities from both sides.(l)
At the first day of the hearing there was an application by the applicant to adjourn, and, with that application, there were submissions, affidavits from Mr Cummins and Mr Wheeler (the solicitor for the applicant), and an interim reply.
During the hearing the following Exhibits were tendered:
Applicants Exhibits
A1 Report of Mr Van der Walt of 6 January 2023.(a)
A2 Further Report of Mr Osenton of 9 December 2022.(b)
A3 Bundle of subpoenaed material relating to sales of Block 5 in 2004 and 2005.(c)
A4 Further reports of Greg Cummins of 5 December 2022 and 15 February 2023.(d)
A5 Further report of Mr Van der Walt of 20 March 2023 with portion blacked out.(e)
A6 working notes of Mr Pilat on A4 and A3 paper including spreadsheets.(f)
Respondents Exhibits
R1 Bundle of documents relating to the contracts of sale of Block 4 and Block 5 to Zapari Property Corinna Street Pty Ltd.(a)
R2 There was no R2.(b)
R3 Letter of instructions to Mr Cummins dated 29 September 2022.(c)
Further submissions
After the decision was reserved, both parties provided further and very helpful written submissions with leave. They are lengthy and rather than try and paraphrase them all, I will attach them to these reasons. I have in my consideration referred to the substance in them but that may not do justice to their eloquence or precise detail.
Oral evidence
The two planners gave concurrent evidence. Mr Osenton gave evidence and both Mr Cummins and Mr Pilat gave evidence.
Comments on the witnesses
The two planners were both good witnesses. Any choice I make between their opinions will depend entirely on what I think is more certain having regard to all the evidence. Mr Osenton was not seriously challenged, and his general views and his expertise were not attacked.[16] Counsel for the respondent made some points with which Mr Osenton readily agreed and I found him to be a good witness.
[16] Even though Mr Pilat had argued that there were errors. He discounted the expenses arrived at in his assessment for reasons not pursued nor available
The two valuers were in the witness box for some time. Both men had done a lot of work to try and work out what is a very difficult problem. In submissions, it was suggested that I might find one more persuasive than the other. My response was I did not, which was no reflection on them but was a product of the difficulties they had to face in trying to put a number on quite elusive values. Mr Cummins was cross examined, and it was suggested to him that he had made up his mind and did not want to reach a different conclusion. In case there is any doubt, I do not think that is so. He certainly had formed a strong view, but I accept that was what he thought.
Mr Pilat was cross examined differently, and no suggestion was made that he was not trying his best to find an answer. The questions were aimed at ascertaining his thought processes and calculations with a view to demonstrating logical problems with his conclusions.
The relevant legislation[17]
[17] I have highlighted some parts in bold
Sections 277 and 277A of the PDA are applicable. They are as follows:
Lease variation charges—s 277 chargeable variations
(1) The commissioner for revenue works out the lease variation charge for a s 277 chargeable variation of a nominal rent lease as follows:
LVC = (V1 – V2) x 75%
(2) In this section:
LVC means the lease variation charge payable for the s 277 chargeable variation of the lease.
V1—
(a)for a variation other than a consolidation or subdivision, means the capital sum that the lease might be expected to realise if—
(i)the lease were varied as proposed; and
(ii)the lease were genuinely offered for sale immediately after the variation on the reasonable terms and conditions that a genuine seller would require; and
(iii)the rent payable throughout the term of the lease or, for a variation that involves the surrender of a lease and issue of a new lease, the new lease, were a nominal rent; or
(b)for a variation that is a consolidation or subdivision, means the capital sum that the new lease or leases to be granted under the consolidation or subdivision might be expected to realise if—
(i)the consolidation or subdivision were to take place as proposed; and
(ii)the new lease or leases were genuinely offered for sale immediately after the variation on the reasonable terms and conditions that a genuine seller would require; and
(iii)the rent payable throughout the term of the new lease or leases were a nominal rent.
V2—
(a)for a variation other than a consolidation or subdivision, means the capital sum that the lease might be expected to realise if—
(i)the lease were not varied during the remainder of its term; and
(ii)the lease were genuinely offered for sale immediately before the variation on the reasonable terms and conditions that a genuine seller would require; and
(iii)the rent payable throughout the term of the lease, or lease to be surrendered, were a nominal rent; or
(b)for a variation that is a consolidation or subdivision, means the capital sum that the lease or leases to be surrendered under the consolidation or subdivision might be expected to realise if—
(i)no consolidation or subdivision were to take place during the remainder of the term of the surrendered lease or leases; and
(ii)the lease or leases were genuinely offered for sale immediately before the consolidation or subdivision on the reasonable terms and conditions that a genuine seller would require; and
(iii)the rent payable throughout the term of the lease or leases to be surrendered were a nominal rent.
(3) If the amount worked out as V1 is equal to or less than the amount worked out as V2, no lease variation charge is payable.
(4) If the development approval for the relevant development application relates to 2 or more s 277 chargeable variations, V1 and LVC are worked out as if the s 277 chargeable variations were a single s 277 chargeable variation of the lease.
277A Lease variation charge under s 277—improvements
(1) In working out V1 and V2 under section 277, an improvement in relation to the land comprised in the lease must not be taken into account.
Note Power to make a regulation in relation to a matter includes power to make provision in relation to a class of a matter (see Legislation Act, s 48 (2)).
(2) However, an existing improvement by way of clearing, filling, grading, draining, levelling or excavating the land may be taken into account.[18]
[18] As there is an existing level of carparking excavated, that excavation can be taken into account
(3) In this section:
improvement, in relation to land, means an existing or proposed improvement and includes any of the following:
(a)a building or structure on or under the land;
(b)an alteration or demolition of an existing building or structure on or under the land;
(c)the remediation of the land;
(d)earthworks, planting or other work that affects the landscape of the land;
(e)anything mentioned in paragraphs (a) to (d) that is required—
(i)as a condition of a development approval; or
(ii)by a statutory approval obtained or required for a development proposal; or
(iii)under an agreement between the Territory or a territory entity and—
(A)the lessee; or
(B)if the lessee is not the applicant for the development approval—the applicant.
(f)anything mentioned in paragraphs (a) to (d) proposed in a development application in relation to a chargeable variation of a nominal rent lease to be carried out on land outside of the land under the lease.
remediation—see the Environment Protection Act.
In addition, section 276E of PDA was referred to as it was said that the consolidation of Blocks 4, 5 and 7 was assessed under this section. What is covered by section 276E is set out in regulation 170A of the Regulation and they are as follows:
276E Lease variation charges—s 276E chargeable variations
(1) The Treasurer may, after consulting with the Minister, determine a lease variation charge for a s 276E chargeable variation.
Note 1 The Legislation Act contains provisions about the making of determinations and regulations relating to fees (see pt 6.3).
Note 2 Power to make a statutory instrument (including a determination) includes the power to make different provision for different categories (see Legislation Act, s 48).
(2) In considering whether to determine a lease variation charge for a s 276E chargeable variation, the Treasurer must—
(a)obtain advice from an accredited valuer at least once every 3 years; and
(b)have regard to that advice; and
(c)comply with any other requirement prescribed by regulation.
(3) A determination must—
(a)as far as is practicable, represent the average market value in relation to the variation; and
(b)if a variation increases the number of dwellings permitted on the land under the lease—state an amount for each additional dwelling permitted on the land under the lease; and
(c)if a variation increases, or has the effect of increasing, the maximum gross floor area of any building or structure permitted for non-residential use on the land under the lease—state an amount for each additional square metre of gross floor area permitted on the land under the lease.
(4) The determination must state—
(a) the reasons for determining the lease variation charge; and
(b) how the charge was determined.
(5) A determination is a disallowable instrument.
Note A disallowable instrument must be notified, and presented to the Legislative Assembly, under the Legislation Act.
170A S 276E chargeable variations—Act, s 276, def s 276E chargeable variation
(1) The following chargeable variations are prescribed:
(a)if a development application relates to the chargeable variation of only 1 residential lease—a variation to increase the number of dwellings permitted on the land under the lease;
Example
a variation of a nominal rent lease to increase the maximum number of 20 residential units permitted on the land under the lease to 40 units
(b)if a development application relates to the chargeable variation of only 1 residential lease—a variation to limit the number of dwellings permitted on the land under the lease;
Example
A lease permits land to be used for residential purposes but does not state any limit on the number of permitted residences on the land. The lessee proposes to subdivide the land under the Unit Titles Act 2001. That Act, s 20 (4) does not allow the lease to be subdivided unless the lease provides for the number of dwellings on the land. The lessee must vary the lease to limit the number of dwellings permitted on the land before subdividing the land.
(c)if a development application relates to the chargeable variation of only 1 non-residential lease—a chargeable variation of the lease that—
(i) increases or limits the number of dwellings permitted on the land under the lease; or
(ii) increases, or has the effect of increasing, the maximum gross floor area of any building or structure permitted for non-residential use on the land under the lease;
(d)the consolidation of 2 or more nominal rent leases;
(e)the subdivision of 1 or more nominal rent leases;
(f)if 2 or more nominal rent leases are consolidated—a variation that—
(i) increases the number of dwellings permitted on the land under the consolidated lease; or
(ii) increases, or has the effect of increasing, the maximum gross floor area of any building or structure permitted for non-residential use on the land under the consolidated lease;
(g)if 1 or more nominal rent leases are subdivided—a variation that—
(i)increases the number of dwellings permitted on the land under the subdivided lease; or
(ii)increases, or has the effect of increasing, the maximum gross floor area of any building or structure permitted for non-residential use on the land under the subdivided lease;
(h)if the development application relates to a retirement complex—a variation to increase the maximum number of—
(i)self-care units in the complex permitted under the lease; or
(ii)care beds in the complex permitted under the lease;
(j)if a nominal rent lease authorises an incorporated association to use the land in the lease for a stated purpose—a variation to remove the reference in the lease to the association in relation to the stated purpose;
Example
A lease authorises an incorporated association to use land for office accommodation. The lessee applies for development approval to vary the lease to remove the reference to the association so that the lease may be used for office accommodation by anyone.
(k)a variation to limit the number of non-residential units (however described) permitted on the land under a non‑residential lease.
Example
A non-residential lease authorises commercial use of the land under the lease but does not limit the number of permitted buildings, units or structures on the land. The lessee proposes to subdivide the land under the Unit Titles Act 2001 and to develop a warehouse on the land into commercial and retail units. That Act, s 20 (4) does not allow the lease to be subdivided unless the lease states the number of units (however described) permitted on the land. The lessee must vary the lease to limit the number of units permitted on the land before subdividing the land.
Note If a chargeable variation is not a s 276E chargeable variation the lease variation charge is worked out under the Act, s 277 (see the Act, s 276C).
(2) In this section:
…consolidated lease means a lease granted during a consolidation involving the surrender of 1 or more nominal rent leases.
…
l rent leases.
What follows is a history of relevant events which explains the background, the issues, and the various contentions.
Background
Contracts were exchanged for the sale of the two blocks on 24 February 2020.[19] The contracts are interdependent. Clause 65 of the Block 5 contract makes the completion by either party to be not enforceable should the Block 4 contract not proceed. Clause 61 of the Block 4 contract is slightly differently worded. As submitted by Counsel for the applicant, it is designed to ensure that neither party is stuck with Block 5 should Block 4 not proceed, whereas the reverse is not so.
[19] The contracts and associated documents are contained in exhibit R1
Block 4 is a much larger block with less restrictions on what may be achieved on it, as will be seen later.
ZapariThe contract enabled the buyer a developer Zapari Property Corinna Street Pty Ltd (), in the name of the seller, to make a development application in respect of the blocks. In the case of Block 5, this is contained in clause 63. There is a similar clause in the contract for Block 4. The original offer was for $12,000,000 but the contracts were for $7,200,000 for Block 5 and $4,300,000 for Block 4.[20]
[20] Contracts tendered as part of exhibit R1 show $4,800,000 for Block 4 but the exchanged contract showed was for the lower figure
DAIt appears that the nature of the Development Application () was not specified, and the contract was not dependent on its success.[21]ACTPLA However, what then transpired was this application was made to alter the restrictions on Block 5 and an application to get Block 7. Although it is not in evidence, it seems probable that there was a similar application for Block 4. Exhibit R1 shows an initial agreement to enable due diligence to be carried out and it must be inferred that the developer did this and that it included discussions with ACT Planning and Land Authority () as is foreshadowed.[22] As will be seen later, Mr Cummins found the sales, however they might be allocated between the two blocks as well above market if no regard is paid to the capacity to redevelop the two blocks together. It is clear that Zapari agreed to this sale because it had satisfied itself that the necessary approvals which include this approval would be forthcoming.
[21] I am not certain of this as the exhibit does not include the standard terms from the ACT Law Society precedent which are part of the two contracts.
[22] Exhibit R1 page 164
At an unspecified date there was an application to consolidate the three blocks. It could not occur until Block 7 was acquired and the groundwork was laid to remove any constraints by this development application and a similar one for Block 4. The details of the consolidation application are not in evidence. Mr Buckland who appears for the respondent said from the bar table that it is not a section 277[23] application but a section 276E application that attracts a Schedule fee of about $30,000.[24] This hadn’t been challenged nor further explained. This may have occurred already and may well have been after completion.
[23] Referring to the PDA
[24] Transcript of proceedings, 12 December 2022, page 8
the RegulationThe way the PDA might apply here is not, clear and has not been the subject of argument. From some reading, the general policy behind the two types of applications can be gleaned but I am unable to determine conclusively why the application in this case was dealt with under section 276E and not section 277. Section 277 sets out approvals that are chargeable. It includes a consolidation or subdivision. Section 276E charges are different and apply to applications defined by reason of Regulation 170A of Planning and Development Regulations 2008 (). The expression ‘consolidation’ occurs in that Regulation as well as in section 277. It is either one or the other, but it cannot be both. If it is, as has been decided to be a section 276E charge then it cannot also be a charge under section 277. There is an argument that the approval here under section 277 cannot include improvements by way of consolidation. It has force, if it is a separate application under section 277 as the section refers to both to a consolidation and a change of use but at least in terms of a statutory interpretation argument, it does not, if it is a section 276E charge.
As no submissions or information was received in respect of how the charges may apply, I will not make any conclusions about it. However, it seems that the current form of the PDA occurred in 2011 and followed a detailed report being a “Final Report on the Review of the Change of Use Charges System in the ACT dated 29 November 2010”.[25]
[25] Des Nicholls and Stephen Anthony, Final Report on the Review of the Change of Use Charges System in the ACT (29 November 2010) < >
An explanatory statement that accompanied the proposed amendments and the Treasurers latest Guidelines[26] for section 276E shed light on what was envisaged. As I understand it,[27] there will be events that do not attract a section 277 LVC where there is no additional benefit such as increased GFA. Here the increase might be seen as having been achieved by the approval that is the subject of this matter. There is likely to be a parallel approval for Block 4. Their consolidation does not add to the GFA already unlimited and hence the consolidation might be dealt with under section 276E. This does not explain the additional impact of Block 7 but, maybe, it had no limit. On the other hand, there may be consolidations where there are additional benefits that require them to be dealt with under section 277. There are of course additional benefits by consolidation that may be generated by the removal of setback limits, ease of construction, and provision of required parking servicing all blocks that could not have been done if treated separately in the case of Block 5. It is not necessary to know precisely why a consolidation is treated as a section 276E transaction rather than a section 277 one. What is clear is if it is treated as a section 276E event it cannot also be a section 277 one.
[26] A disallowable instrument
[27] I acknowledge that my understanding of how this is meant to work is incomplete and was not the subject of argument or evidence.
‘Consolidation’ is defined in the PDA. It means the surrender of two or more leases held by the same lessee and the grant of a new lease or leases to the lessee to consolidate the parcels of land comprised in the surrendered leases. The new lease is not in evidence.
Another $200,000 was added to the price of Block 4 and deeds of variation were done. This was in conjunction with an extension of time to pay the balance of the deposit and delays in settlement. There was disagreement between the parties as to whether the price for valuation purposes included the extra $200,000. It is clear to me that it does not as it is the price of extended payment not of the land itself.[28]
[28] See Exhibit R1 page 147
ACTVOThe allocation between the two blocks was at the request of the seller. The reason appears to be related to internal financial arrangements and is not related to respective values of each block. This is now not disputed although it was not understood until the provision of documents on subpoena. The ACT Valuation Office () had tried to enlist in aid of an opinion, the unexplained figure for Block 5 based on its contract price but that has not been seriously persisted in. It will be seen that the respondent in final written submission left that open as an alternative conclusion, but it cannot be maintained in light if the clear evidence it has provided in Exhibit R1.
A development application was made and granted. The approval was granted on 18 May 2021.[29]
[29] T-docs page 10
The changes were to “remove the uses agencies, commercial offices, professional chambers and personal services; remove all the gross floor area limitations; add the uses carpark, commercial accommodation[30] use EXCLUDING tourist resort. community use LIMITED TO health facility and non-retail commercial use.”
[30] I was told by counsel that this is a fancy name for office but it is defined and refers to short term use and that may extend to a dwelling. The parties have assumed with planning advice that the wording of the whole change would include an office. I have no reason to disagree.
JLLThe application was accompanied by a valuer’s report from Jones Lang Lasalle () dated 22 January 2021.
The plan for the buyer was to obtain Block 7 (the laneway) as well and consolidate them and build residential units on the blocks as consolidated.
The first JLL report appears to proceed on the assumption that the actual plan of the buyer was followed and assumed a level of residential units attributable to Block 5. No one now contends that this is the correct approach, but it started a process that infected later valuations including the one being appealed here.
This valuation assessed the V1 as $ 1,440,000 and the V2 as $1,380,000. The after value assumed there would be 8270m² of space, that a multi residential unit was the highest and best use, and that this would produce 80 units at a value assessed at $18,000 per unit. The V2 was assessed by deducing from sales evidence that the rate per m² of land area (not GFA) was $2000.
The conclusion about the GFA available after approval proceeded from information about what was proposed to be built on all three blocks.
After some queries by ACTVO a revised report was provided by JLL.[31] It was the same except it revised up the number of units based on plans that had been submitted by Zapari. The V1 became $1,584,000 based on 88 units but otherwise was the same.
[31] T-docs page 14
On 6 September 2021, the first ACTVO valuation report was done.[32] It concluded in the same way that 88 units could be built but the value attributed to each unit was $45,000.
[32] T-docs page 206-224
The LVC was determined by reference to that report on 23 September 2021.[33]
[33] T-docs pages 187-189
A request for reconsideration was made accompanied by a valuation report from Greg Cummins of Knight Frank that is said to be dated 18 May 2021 but was done in early 2022.[34]
[34] T-docs pages 128-172
CTPMr Cummins relied on a report from Canberra Town Planning () of 9 February 2022[35] that had concluded that all that could be built on the subject block on its own and not as part of a development of all three blocks was 22 units. From early on, the planner advised that this was subject to a feasibility report. This valuation approach of ignoring the actual plans for the three blocks and seeing what could be built on Block 5 alone, attracted the interest of the respondent’s planner Mr Tanner and led to a joint planning report that set out three scenarios for use of the block without regard to the actual use proposed. By this time the highest use was seen as offices. Again, reference was made to the need for a feasibility report.
[35] T-docs page 68
In final written submissions of the applicant, it is suggested that this joint planners’ approach to what could be developed on Block 5 without regard to Block 4 was at the behest of the respondent and that the applicant may have been denied natural justice because of the way the matter has proceeded. To the extent that this relies on a suggestion that the joint planner approach was initiated by the respondent that is wrong. The idea stems from the CTP from its first involvement.
Mr Cummins in this first report had regard to some comparable sales of eight older properties and concluded that the rate per GFA per m² for V2 was $1350. He used the maximum permissible GFA before the variation of 1950m² to arrive at a V2 of $2,635,000. Some of these sales also feature in reports of ACTVO. He explained the CTP Report. It showed a GFA of 3650m², 22 parking spaces for residences and two for commercial. It was nine levels with 22 units and 50m² of commercial accommodation. It showed a project density of 31m². The units were four studios, 11 with one bedroom, and seven with two bedrooms.
He assessed V1 by reference to five newer building sales. He explained several difficulties in adapting the sales figures to the site. He highlighted parking issues. He estimated that the units would be $70,000 each and $1,000 per m² for the commercial space. His total for an after value was $1,600,000. He concluded that units were not the best use and offices were. As that had been its prior use, he estimated that the V1 was no higher than the before value.
As part of the reconsideration, a second report was done by the ACTVO, this time by Mr Mirek Pilat on 22 March 2022.[36]
[36] T-docs pages 98-101
He disagreed with the before value sales analysis of Mr Cummins saying the rate arrived at was too high. At this stage, Mr Pilat was considering this as if it were residential use beforehand, but the sales used by Mr Cummins and later used by Mr Pilat were offices. He assumed that before there could only be four units and concluded that the before value was $800 per GFA.
Later in his report he used the same method as Mr Cummins and references some of the same sales and arrives at a before rate of $1100m² and a V2 of $2,145,000.
In his V1 calculation he assumed 83 units are possible and concluded that a rate per unit should be $45,000. He does not factor in any town planning constraints or the need to provide one car space per residential unit. As he later explained in his evidence, he overlooked the requirement in the Crown Lease and relied on the fact that the Territory plan imposed no such restriction. His V1 calculation was $3,735,000.
The reconsideration decision was made on 1 April 2022.[37]
[37] T-docs pages 98-101
This is the decision under review here.
Events between the reconsideration and the hearing
CTPBetween the application for review and the hearing, there had been a mediation which led to a further change of approach. The respondent had engaged Kip Tanner, a town planner of Planit and the applicant had engaged Pieter Van der Walt of Canberra Town Planners (). They worked out three possible scenarios that enable maximum space to be obtained on Block 5 alone without regard to the proposed consolidation. They did not agree on this entirely but what has been called a joint report was provided by Mr Van der Walt dated 20 October 2022. They agreed that the highest and best use was potential commercial development (mainly offices), considering the current key planning provisions applicable to the site and the site’s constraints and opportunities.
Mr Tanner believed the tree may not need to be retained. CTP thought it would need to be accommodated. This would require set back for two lower levels.
The plan assumed that the ground floor would have a commercial lobby with a café or restaurant, stairs, waste collection, a waste vehicle turn-table, services areas, ramps, and circulation spaces. It would have vehicular access.
Parking in Arrangement A would be one podium parking level above ground and two basement levels. In Arrangement B there would be no podium levels and four basement levels. The upper levels would be offices. The height of the ground floor was assessed at seven metres bearing in mind its need to service waste removal and as a commercial lobby. The upper levels were to be four metres in height.
It was assumed that four parking spaces would be allowed to be in public parking.[38] The Code would require one space for every 100m2 of office space and for the commercial space four or five depending on whether it was a shop or restaurant on the ground floor. They both thought that three to four levels of parking might be needed. Due to the small size of the area and ramps required to access basement levels and/or podium levels, parking efficiency was low. An average of 85m² per space was thought to be needed which included space for ramps circulation space and required end of trip facilities.
[38] This was seen as difficult as the adjacent public parking might be reduced by the need to accommodate the waste vehicle.
There was disagreement about the number of spaces that could be fitted on the podium level. CTP thought seven, Planit nine. The basement levels would fit 11 on the lowest floor as there was less space in ramps but nine on other levels. Some reservation was expressed about these numbers being certain due to building code and like requirements.
If the tree was to be retained, a 3.5m setback was thought to be needed but Mr Tanner thought the tree was not an issue, as the existing building went to the boundary and the tree was healthy.
On upper floors they both thought some setback would be needed to allow for light and avoidance of overshadowing on neighbouring properties.
Mr Tanner thought 12 levels might be achieved but Mr Van der Walt saw this as too ambitious.
Scenario A favoured by CTP – and seen as possible by Mr Tanner – had a ground floor with 50m² GFA use for commercial use and the rest for services. This was common to all arrangements. There would be 9 levels including the ground floor and a podium and 7 floors of offices. The podium level was 600m² GFA. Floors 2-8 would have 2,766m². This added up to a total of GFA of 3,706m². the number of onsite parking spaces needed and provided was 25 plus 4 offsite.
Arrangement B, which Mr Tanner thought possible, but Mr Van der Walt did not, was 10‑12 stories, had 4,340m² GFA of which 4,000m² was available on the floors above the ground as there was no podium parking and four underground levels that provided 38 spaces. The number of levels might be more than ten if there were setbacks as the building got higher.
Arrangement C was also supported by Mr Tanner but not by Mr Van der Walt. It was ten floors, had the same parking as Arrangement A except another two spaces on the podium which generates another 200m² GFA of offices on the10th floor.
The report concluded that this was theoretical and ought to be tested by a feasibility test with reference to the costs of the arrangements.
The applicant obtained a report from James Osenton a Quantity Surveyor who provided calculations of costing for each scenario. The total for Arrangement A was $33,959,164; B was $47,055,378 and C was $35,958,839.
Mr Cummins provided a report dated 25 October 2022 for the tribunal application after the above reports were obtained. In that report he maintained his previous opinion about V1 and V2.
He adverted to the actual sales of Blocks 4 and 5 for $11,500,000. He ignored the sale price allocation but had regard to the permitted GFA on each block at the time of sale being 1950m² for Block 5 and 3500m²for Block 4 making a total of 5450m². He calculated that each Block had a GFA improved rate of $2110 per m². He observed that the amount paid was above market. He favoured an adjustment of the real price paid by reference to the respective GFA allowed prior to development approval.[39]
[39] The respondent later submitted that the adjustment should be by refence to land area
He then introduced an NLA[40] analysis but in a later document converted that to GFA.
[40] Net Lettable Area
He observed that the actual contract price was so far out of step it should be set aside. In assessing V2, he observed that there were no vacant land sales he could compare and looked at some sales of improved land to try and calculate a V2. He assessed V2 at $2,632 as he thought the unimproved rate per GFA prior to the Development Approval was $1,360 per m². At that time the ACTVO figure was $1100m² which he thought was too low. Mr Pilat has since revised that down.
He then analysed the three scenarios in the joint report[41] of the planners. I am not sure he captured scenario A correctly, but it was close and to the extent there might be differences they make no difference to the conclusion he reached.
[41]Canberra Town Planners (CTP) of 20 October 2022
He made assessments of NLA generated by each arrangement.
This is an estimate as he has taken off amounts for common areas and other non-lettable spaces for GFA.
He then looked at a number of sales of new offices to deduce a market rate of a net lettable area for a new office (that is its improved value). As it was a feasibility analysis, he also deducted agent commission and holding charges He adopted the Quantity Surveyors cost figures but left out escalation costs. This showed there would be a net loss for Arrangement A of $13,459487, B of $17,537,165 and C of $15,326,223.
He concluded that the office rate is not the highest and best use of the property and there is no increase in value unless one considers the opportunity for redevelopment with Block 4. This does not mean the site has a negative value just that this approach is not feasible.
He has since provided a report and an affidavit that explains why assumptions made by Mr Pilat about sales of the property in 2004 and 2006 are not consistent and so aged as to be irrelevant.
In his report, said to be an addendum and dated 25 August 2022, he allocated $4,115,000 to Block 4 and $7,385,000 for Block 4 from the total sale of $11,500,000. They are values, he says, that are higher than a prudent buyer would pay assuming there was no future development potential. He says a prudent buyer would not buy Block 5 alone as a single development site as it has significant limitations. It is only feasible with Blocks 4 and 7 assuming they are available.
Mr Pilat provided a witness statement in which he adopted scenario B as the highest and best use of the land. He multiplied all the GFA (usable or not) by a rate per m² of $792. This amounted to $3,437,280. He then added $160,000 which he reasoned might be added due to findings on his analysis, larger setbacks for this scenario than would be the case in the actual redevelopment, and the sales history of the property.
The rate of $792 (not $900) was used because it was more expensive to build. In cross examination he said he had allowed a reduction of 15% to allow for the parking issues. He also said he thought four levels of underground carparking as contemplated here was unattractive. Mr Walker SC, for the applicant. described it more colourfully as getting the cars to exit as if drawn by a corkscrew.
The earlier values of the property refer to sales in 2004 and 2006, which are described later.
Mr Pilat used four properties to work out the V2 rate per m². The first sale selected was a building in the Phillip industrial area at 2 Shea Street. It had a significant tenant and no adjustment had been made to the market rate to discount for what is called the WALE or weighted average lease expiry. It was conceded that there was a significant lift in market rate because there was a long-term government tenant. There was another sale in Farrell Place that was much lower in GFA rate. In his oral evidence, Mr Pilat said he had spoken to the buyer and inferred that he got it for a less than market value. That property may have planning restrictions if it were to be built now. The buyer must have seen value in buying the building, as is, taking into account its likely lifespan, and rents that might be collected.
The rate of $900 per m² was derived in this way. There is no explanation of how any reduction was made for modern planning constraints. There were arguable differences with the other two properties that had higher GFA rates.
Much cross examination occurred with a view to showing the rate was too high. The only discernible forensic purpose in this is to reduce the multiplier in calculating the V1 amount. It tends to decrease the V2 rate and thus enlarge the difference between V1 and V2.
Mr Pilat pointed out that there was no hypothetical V2 scenario. Mr Tanner was asked to prepare a scenario that enabled the existing building to be built and be compliant with current planning requirements. He produced a scenario that required two levels of parking as the current use would need to find 14 spaces on site. He assumed that would be nine on one level and five on the second. The current planning rules require a space for waste removal which would impact on the number of levels needed to fit in the GFA allowed before the development approval. That is 1950m². He therefore concluded that another floor was needed.
This arrangement described by Mr Tanner was put to Mr Osenton in cross examination, and he agreed that using his figures the cost would still be significant and, as submitted by Mr Buckland for the respondent, be more than a possible value per m².
This was suggested to be a reason to distrust the feasibility test for the three scenarios as it was suggested that the land would have a negative value if what was proposed was to re-erect the present building.
As can readily be seen the assumptions made by Mr Tanner are wrong as there is already an excavation allowing 14 parking spaces on one level.
Mr Pilat expressed reservations about the costings of Mr Osenton and as can be seen effectively ignores them. Mr Odenton’s evidence was not seriously challenged in cross examination, however.
Mr Pilat suggested that the area allowed per car space of 85m² was excessive and that his costings may be overstated by 27.5%. In response to this, Mr Van Der Walt provided a report that explained why the area for the space was correct when taking into account the turning circles and other similar issues. This has not been contradicted by Mr Tanner. This reservation may also explain the disregard that Mr Pilat has for the results of the feasibility study.
He also pointed out a discrepancy in area made by Mr Osenton. Mr Osenton provided a further report of 9 December 2022 which responded to Mr Pilat’s remarks and the explanation by CTP in its report of 5 December 2022. He amended the totals for each scenario accordingly. This reduces the costs for Scenario A from $33,959,164 to $33,645,284; for B from $47,055,378 to $45,747,589, and for C from $35,958,839 to $35,646,181.
Mr Pilat discounted the utility of feasibility reports as a method of valuing and extolled the direct comparison approach.
For V2 he referred to the four sales in the earlier report of ACTVO and added a fifth. He deduced an unimproved rate for GFA of $900 per m². His analysis does not express any reduction for planning restrictions but says current planning rules are a factor. It has been the subject of much cross examination with a view to showing his figures are too high.
He criticised the higher rate of $1350m² adopted by Mr Cummins as he said it does not account for current planning rules such as the need for 300m² of service area and the costs involved in rebuilding what is there. He finds fault with using NLA figures as he says they will generate a higher number.
He also saw the figures put on GFA rates on the comparable rates as being too high for different reasons.
He said that the sales history of the block reinforced his views. The land was sold in 2004 for $4,000,000, in 2006 for $7,100,000, and in 2020 for $7,200.000.
At that stage, he had not seen the documents in Exhibit R1 and until being told in the witness box, did not know the seller of Block 5 was a company controlled by the same person as the seller of Block 4. The comparison led to an adjourned application as a submission was made that the V1 was $7,200,000 plus demolition costs. This would be a significantly higher figure than the reconsideration figure and the applicants argued more information was needed. The case proceeded on the first day of hearing with witnesses other than the valuers and was adjourned to allow subpoenas to issue. This resulted in Exhibit R1 and Exhibit A3. In short, the allocation of values between the two blocks in 2020 was not reflective of their value and if regard was had to permitted GFA of each block prior to the Development Approvals or land area the true values were closer to 2/3rd of $11,500,000 for Block 4 and 1/3rd for Block 5. How these numbers should really be allocated assumes significant importance in resolving the case as will be seen.
Exhibit A3 provides some insight into why the values were higher in 2004 and 2006. In 2004 a fire had caused significant damage, but a considerable sum was spent on it and in 2007 it was in good condition with a significant long-term tenant.
CTP have provided a further report, explaining the gradual change in the nature of Woden and the increasing parking issues and new planning rules introduced with the Territory Plan.
Mr Cummins provided a further report about these sales saying, correctly and without demur, that the sales in 2004 and 2006 are of an era that make their then value of no assistance in working out current values.
Mr Pilat asserted that there are other uses that don’t require parking, but no such proposal has been explored or suggested by the planners. In any event he then used the scenarios that were examined and adopted scenario B asserting it was the highest and best use. It certainly generates the most revenue for the respondent.
No account is taken of the disagreement of CTP to B and C.
He dismissed the lack of feasibility shown by Mr Cummins.
He argued that it can be overlooked because the same analysis is not done for the V2 figure. If it were he asserted the residual land value would be nil for V1 and V2.
He also relied on what he thought was the recent sale value as supporting his view.
He provided discounts of the V2 rate in assessing the V1 rate.
Mr Cummins had used a higher rate for V1 based on new buildings not older properties as they produce bigger rates for unimproved GFA.
Mr Pilat still used the V2 rate but discounted it in ways unexplained but elaborated on in cross examination and with production of his notes that became Exhibit A5. The notes show he changed his thinking a number of times and wrestled with the problem but are not enlightening. In working out all three scenarios, he discounted more for scenario B taking $180 per m² off the GFA rate. This was intended to include about 15% for parking and other discounts for the extra cost of building so many levels.
Submissions
Initially, the applicant argued that the reconsidered decision was wrong as it assumed a consolidation and made no allowance for the fact that this was an additional approval and had benefits not included in a mere removal of GFA restriction such as less setbacks ease of working economies of scale and the like.
This assumed that the original valuation and the reconsidered valuation were based on the planned development being implemented. In fact, the reason that Mr Pilat had decided that the reconsidered decision was not right was the need for one parking space per unit on the block. This would not be the case if the assumption was the consolidated block as the parking would be provided in that completed plan. As the original decision and the reconsideration are not defended, there is no need to explain this in any great detail. However, a reason why it would be wrong to assume the plan was in place and the parking provided that way was because it was valuing something else, namely the value to the developer of the finished development with the benefit of all approvals, the risk in debt exposure during the building, and the work needed. In some cases that might be possible but in this case it is not. What the LVC is aimed at, according to the speech made by the treasurer when it was introduced, and the report on which it is based, was to enable the Territory to take a proportion of the windfall to the lessee resulting from the approval.
The respondent initially submitted that the LVC was at least that contained in the statement of Mr Pilat but was the amount shown on the recent contract of sale namely $7,200,000 plus demolition costs. The demolition costs were later said to be $200,000.
Later the respondent changed the approach once the true nature of the two sales was understood and submitted that the sale price for both blocks was $11,700,000 and the sales amount to be allocated to Block 5 was arrived at by dividing the total price by the total area and allocating to Block 5 a proportion of the total being its area divided by the total area. The calculation amounted to $3,254,730 plus $200,000 for demolition which is $3,455,000 for V1.
In closing submissions, the respondent drew attention to extracts in Hyam and the case of Mir and ors v Valuer General.[42]
[42] Alan Hyam, The Law Affecting Valuation in Australia (Federation Press, 6th ed, 2020) (Hyam); [2009] NSW LEC 1309
The amount sought based on Scenario B for V1 is $3,600,000.
The respondent repeated its alternative submission based on the contract price paid for Block 5 of $7,200,000 but this was not pressed seriously. It is clearly wrong once the documents in Exhibit R1 are taken into account.
No real argument was made to justify the scenario B option but as the arguments are set out in Mr Pilat’s statement, I will need to deal with them.
A V2 of $1,760,000 was conceded by Mr Cummins after seeing the remarks by Mr Pilat in his witness statement and discussion with him. For reasons that I will come to, this number may well be less than the correct amount.
The applicant argued that the correct amount of the sales was $11,500,000. The sales did not include the extra advantages of consolidation. The value of Block 5 was only of use to the owner of Block 4, This was a special value and not a market value. The amount that a buyer of Block 5 would need to pay was only a little bit more than the next buyer and any increase would therefore be minimal due to the restricted way the market would work. No evidence was called to show what that might be.
It submitted that apportioning the total sale for both blocks was problematic as the whole is greater than the sum of its component parts. It also submitted that it paid no regard to the advantages, when the blocks are all consolidated. This was what had led to Mr Pilat’s reservations about using this approach.
More submissions, in writing, were received from both parties after the matter was adjourned. I will refer to them where relevant in my consideration of the issues.
Consideration
Some general remarks need to be made.
A no evidence submission
The Tribunal is not sitting as a Court requiring a moving party to discharge an onus at the risk of failure if there is inadequate evidence. The Tribunal stands in the shoes of the decision maker and must find the preferable solution. If it is obvious that evidence might exist, but it is not adduced then, if it is decisive, the decision should be remitted so that evidence can be obtained. As an example, in this case there is inadequate evidence available to the tribunal of what “the little bit more”[43] might be. There is not an onus on either party other than an evidential one and it is wrong to assert that because the respondent might have changed its approach and not made available evidence that both parties might adduce that it should lose. Arguments about asserted procedural fairness suffer from the same problem.
Transparency
[43] The applicant’s counsel’s description if what a developer might pay for Block 5 over a competing buyer who does not have Block 4
Before I explain this, it is apparent that the valuers have in many of their tasks sought to adjust raw numbers in ways that attribute additions or subtractions by reason of varying factors that might affect the raw number. They both subtract the value of improvements[44] without any explanation of how that is done or why it is right. They deduct or add depending on whether a site is judged as inferior or superior. They discount for varying contingencies such as the extra costs imagined in complying with current planning rules.
[44] This is not prevented by Toohey’s Ltd v Valuer-General(1925) AC 439 – see the discussion in HTI Watson Pty Limited v Commissioner for ACT Revenue [2020] ACAT 30. It is not relevant here, but I do not think the embargo on doing the same for the subject land applies here as the section does not require that it be assumed that there are no improvements merely that they not be taken into account Cf HTI Watson Pty Limited v Commissioner for ACT Revenue [2020] ACAT30.
This is common in many valuation reports but usually the approach is not controversial because the valuers broadly agree about such unexplained adjustments. There is persuasive case law exhorting transparency.[45] It was particularly problematic here, leading to calls being made for working notes. The Tribunal needs to be in a position where it can understand the logic of any adjustments, not only that they be made but why the amount ought to be accepted. In its absence, it is difficult to escape the conclusion that it is an arbitrary number not capable of being justified by logic or fact.
A V2 of $7,400,000
[45] Alan Hyam, The Law Affecting Valuation in Australia (Federation Press, 6th ed, 2020) 247-248
This is clearly wrong. It is now common ground that the prices on the contracts were not intended to reflect the relative values of the two blocks. It is also clear that Block 4 would be more valuable than Block 5. No valuer suggested this approach and it was suggested by the respondent’s counsel before the subpoenaed material was found. It is also of no use as reassurance of the merits of scenario B or the additional $160,000 added by Mr Pilat.
I agree with the applicant’s written submissions paragraph 15 on that point and disagree with the respondent’s paragraph 13 in so far as it assumes otherwise.
Highest and best use as offices
The respective valuers changed their approach several times. Whilst the history of how this happened might explain the changes in thinking, the decision I have to make is now confined to their current positions as well as an argument made by the respondent’s counsel unsupported by either valuer based on a totally different basis.
The town planners only disagree about the practicality of scenarios all of which assume the highest use of the land is offices. It pays no regard to a use namely to be developed in conjunction with the owner of Block 4 – combined with Block 7 the laneway – for multi residential units.
This issue took up most of the hearing time of over 3.5 days. I have concluded that this is not the best use or alternatively if it is there is no increase in value generated by the additional GFA enabled by the Development Approval. There are multiple sub issues in this analysis and as so much time was spent on them, I will have to describe them and what I think about each one.
A V2 hypothetical valuation
It was thought by Mr Pilat that he might ignore the Quantity Surveyors calculations in the absence of a V2 corresponding assessment and concluded that if it were done the V2 would be nil as would the V1.
This is wrong as the assumptions made by Mr Tanner are wrong. The building as is and its excavation, an improvement that can be considered, enables 14 car spaces on one level and the imagined extra costs required because of the parking requirements are not present. In addition, the scenarios had assumed unlimited GFA. If the GFA is still limited to 1950m², a less extravagant use of GFA to allow for waste removal would be explored. It is possible that some part of the use of the ground floor for services using the scenarios developed is not included in the definition of GFA, as it may include plant and end of trip facilities. What has not been considered is a design that puts the waste removal requirement outside the building. There would need to be a design that provided structural support for higher floors, but any lessee would not waste GFA if there was an alternative. Assuming this is right it would be necessary to build another (4th) level. An analysis of the Quantity Surveyors costings show that it is much cheaper to go up than down.
Second, Mr Pilat assumed that the Quantity Surveyor’s figures were wrong and overstated. That is incorrect and Mr Osenton did some revised figures that reduced the cost but by a very small amount. There is no reason not to accept his evidence.
The effect of the calculations does not lead to a conclusion that the land has a negative or no value. The expression residual land value might elicit that response but all it says is that is not the highest and best use as it is not economic. The land may still be used in a less intense way leaving a positive residual land value. The planners’ model was to squeeze the maximum amount of GFA from the use not to find a sweet spot where the outlay did not outweigh the benefit. In addition, even if there was a small deficit in terms of capital an investor may well want to buy the land to benefit from the potential income stream it would engender.
Option B is an unattractive development with four basement carparks in a very small area. Of the other two scenarios there is not much to choose between them. I would prefer scenario A, if it were necessary to choose as it does not require another level and is more conservative. I am inclined to agree with Mr Tanner about fitting another two spaces on the podium. There is no evidence that the tree will be a problem. It is likely that in seeking approval some reference was made to it as the Planning Authority needs to consult a number of entities including the Conservator of Flora and Fauna. It may be it was not an issue, as the proposed development of all the blocks was intended to set back from the boundary anyway. It appears not to be on the subject land and may arguably be controlled by Access Canberra. In addition, the tree looks happy with the building extended to the boundary.
Assuming that scenario B was otherwise a possibility there is no persuasive reason to round it up by $160,000.
The approach of using the before rate per GFA which itself was arguably wrong and discount it by small amounts without regard to the obvious problems is wrong also. A reduction of 15% for four levels of basement is impossible to assess in any meaningful way and must be wrong.
In short, none of the options modelled by the planners are viable and any valuation, assuming they are, is wrong.
I should mention that to test the feasibility, Mr Cummins used more generous rates per GFA based on post-building comparable sales. There was some suggestion that Mr Pilat had the better approach as he was using comparable sales for both values. In truth the V1 numbers of Mr Pilat, although using numbers developed from other sales, was itself a hypothetical exercise and Mr Cummins did use comparable sales in assessing feasibility. There was no attempt to challenge the post-development comparable sale figures of Mr Cummins and they appear to be fair to me. Even if they are not exactly right, they are close enough and on any view the options are not feasible.
The additional written submissions have more to say on this topic. I agree with the submissions of the applicant on this topic, and there is nothing in the respondents’ submissions on this topic, that would alter that conclusion.
The opportunity for redevelopment as part of a plan involving three blocks.
I have concluded that it is unlikely that much, if any, value has been added to Block 5 if it is assessed without regard to the redevelopment potential with Block 4 that is now being realised. If regard is had to that then there seems to be. There are two issues that stem from that conclusion. Firstly. is it legally permissible to value this under the legislation. The second is how is that value to be assessed here.
In my opinion, the highest and best use must include the value put on the land including any premium paid for the opportunity to use it with an adjoining block or blocks. This conclusion is made notwithstanding the considerable force of submissions by Mr Walker SC, appearing for the applicant, about quite nuanced issues of principle.
There appears to be an increase as Mr Cummins says there is. He did not consider that he could use that as he thought the need to cooperate with another owner prevented it. Bearing in mind that the owners are effectively the same, this is not right. I have concluded that I am ill equipped to determine what that increase is and do not accept the back of the envelope approach urged on me by the respondent’s counsel. I also have little evidence about Block 4. I will explain why I find his calculations unreliable and what principles and facts are relevant to any reconsideration.
Tribunal as valuer?
In 3 Property Group 5 Pty Ltd v Commissioner for ACT Revenue,[46] Presidential Member McCarthy at paragraph 198[47]explained that the tribunal should not act as a valuer. Strictly what the tribunal is doing is different from an appeal to a Court and involves standing in the shoes of the Commissioner and reaching a preferable decision so as to the determine the correct LVC. The Commissioner relies on expert evidence of value. So must I. In his submissions provided to the Tribunal, Mr Buckland said I was the valuer and might insert my own value. This is not right. There is scope, particularly for an expert tribunal to piece together from evidence a third value but even an expert tribunal can only go so far. This Tribunal might be an expert one, if I was to sit with one its members that is a valuer. There is a lengthy discussion of these matters in Hyam.[48] Further references were provided by the applicant that support this.[49]
[46] [2019] ACAT 67
[47] See also: Challenger Property Asset Management Pty Ltd v Stonnington City Council [2011] VSC 184 at [17]
[48] Alan Hyam, The Law Affecting Valuation in Australia (Federation Press, 6th ed, 2020) 704-711
[49] The Commonwealth v Milledge (1953) 90 CLR 157 at 160-161; Bronzel v State Planning Authority (1979) 44 LGRA 34 at 45; Minister of Environment v Petroccia (1982) 30 SASR 333 at 362; Kelly v Western Australia Planning Commission [2006] WASC 208 at 158; McKay v Commissioner of Main Roads [2013] WASCA 135 at 139-140.
There are cases in this tribunal where a third value was reached by selecting preferred evidence from the various witnesses. I would do that here if I had enough information but I do not.
I will set aside the determination and send it back for reconsideration in accordance with my findings. Whilst this approach is unattractive, as it has the potential to revive the dispute and add to the already considerable costs, it need not. If the parties do not want to challenge my reasoning here, experienced valuers should be able to crunch the numbers left unanswered. There is scope for the Commissioner to appoint an independent valuer as provided for by the regulations and consideration might be given to doing so and appointing someone that the applicant agrees to. The outcome, I expect, will result in an increase in value but by an amount that is significantly below the current valuation of Mr Pilat or the alternative submission of the respondent’s counsel.
One thing is clear – the current valuation is wrong it must be set aside. Both sides agree that is so. The proposed replacement, namely nil, suggested by the applicant’s valuer is also most probably wrong if the development potential is not ignored.
Mr Cummins did not take it into account as he thought that it was not valuing the block as is. Mr Pilat in evidence said he did not as he was hesitant to do so as he was concerned it might lead to error.
Before going to the specific arguments, it is useful to reflect on the legislative mandate.
What is being assessed is quite artificial. In 3 Property Group Pty Ltd v Commissioner for ACT Revenue,[50] Presidential Member McCarthy explained the constraint imposed in valuing V2.
[50][2019] ACAT 67
The land always had development potential with the nearby site. This was adverted to by CBRE in 2006 in Exhibit A3 at page 13.[51] Indeed, it was recognised then that the property was being acquired by an adjoining owner for more than it was worth. Presumably this refers to Junstamp Pty Ltd. The valuer makes no distinction between the name of the companies because as is evident from Exhibit R1, Mr Maidment is the decision maker in respect of both properties.
[51] 5% more was paid
For the purposes of V2 this must be ignored.
As was submitted by the applicant, in order to realise that potential, a number of steps are involved. One is the approval here. Another is an approval for Block 4. A third is the acquisition of Block 7 (which may not be crucial but is what was contemplated). A fourth is the consolidation. The calculation of V1 requires a value that is attributable to step one only. However, the value will reflect the potential that can be added if the other steps are accomplished.
Another way of looking at it is to take into account the fact that, even without the approval yet in place, because V1 is not hampered as V2, is there is a higher value because changes can be considered.
The event that triggers that consideration for LVC purposes is the approval.
It is known what was paid for that potential that must have included contemplation of all four steps and a confidence in their outcome. It is not known what part of the total is attributable to Block 5 alone. As was submitted the consolidation following each step is greater than its parts.
It may be that finding a logical way to attribute respective values from the total for both blocks is elusive, but it does not make the search for it impermissible.
Natural justice
In the applicant’s final written submissions, it submitted that it was unfair to allow the argument that considered that the owners of the two blocks might sell to a third person. It was argued that there was procedural unfairness in that. This is wrong. It was no secret to the applicant, after the subpoena that resulted in Exhibit R1, that the owner of the two blocks was effectively Mr Maidment. What further evidence could he produce to show he would not have cooperated with himself. It is possible to argue that there maybe impediments to him doing so but not that he would not wish to. This was obvious and I reject the argument that there would be procedural unfairness in considering it. If it was thought that there may be more evidence that might change the outcome, then however that came to be I would not make a conclusion that shut out an opportunity for that to be considered. As I have said I propose to set aside the existing decision and send it back for reconsideration and it would be open to the applicant to provide any additional evidence assuming there could be any. I generally agree with the respondent’s written submissions on this point.
In paragraph 24 of the submissions, the applicant says the owner of Block 4 would be in a powerful bargaining position and there would not be much added value. There are two problems with that. The first is that the bit more required is a bit more than the improved value, not the unimproved value. The second is that in 2006, the owner of Block 4 paid a 5% premium.[52]
[52] Exhibit A3 page 18
I find this aspect of the assumptions required by the legislation to work unfairly. It may be that irrespective of any potential the owner might sell to an investor in older buildings for say $3,000,000 but sells to Zapari for say $3,100,000. The first sale included the improvements the second does not. The real value of the windfall is $100,000 but the Commissioner for ACT Revenue says the unimproved value is the total and all that is deducted is the unimproved value as an office. There may be an argument showing why that is not so, but it hasn’t been advanced here. On any reconsideration a submission might be put on this if available. I haven’t found one.
Another argument, by the applicant, was the existence of subleases on Block 4. It is clear that this was no impediment to Zapari. It knew of them as they were disclosed in the Contract and arrived at the price with that knowledge and a confident belief of success. I agree with the respondent’s arguments about this.
The respondent submitted as an alternative a figure he had calculated to represent an increase in value attributable to the proposed development based on apportionment by respective areas.
An attempt is made to distinguish the Mir case on the facts. As I explain later the case is but an example of the clear authority that requires me to take into account the special interest of an adjoining owner. Here the adjoining owner whilst a different legal person is same man as the owner of Block 5.
As I have already indicated the development potential of the land to be used in this way must be assessed and it has not been. Mr Buckland’s figures (which he put to Mr Cummins) take the total price for both blocks divided by the total area to arrive at a rate per m² then multiply that by the area of Block 5. The calculation he did assumed the sale price was $11,700,000. The total area is 2480m². The rate per m² is $4,717 and he added to the product of 690 x 4717 another $200,000 for demolition. The V1 he then assesses as $3,455,000. Mr Cummins agreed that it was appropriate to add the costs of demolition and did not disagree that $200,000 was fair. He didn’t agree that this value could be ascribed as the value of the Block with the development approval. Mr Cummins in his report had allocated values based on adding permitted GFAs for both blocks and apportioning the respective sales real figures by reference to permitted GFAs for each block.
Neither really allocate the value appropriately.
As I have said already, the total price paid for the land was $11,500,00 as the extra $200000 was the price of time to pay.
Whilst the allocation by reference to areas is the starting point it makes no allowance for the fact that Block 4 was a much larger block which might be redeveloped on its own without the same restrictions that affect Block 5. That this was a consideration was reflected in the contract ensuring that no one got stuck with Block 5. While it does not discount the number by reference to the consideration that the sale might fall through, the sale is not dependent on the approvals and reflects the value the buyer put on the opportunity. It doesn’t ensure that such extra benefits that accompany consolidation are discounted but it need not. The whole price must contemplate the aggregated areas. The acquisition of Block 7 was not certain, but the parties accept that it was a fair bet. The value of getting both blocks to the buyer was being able to aggregate them. There are cases where there is no need to consolidate but there is still extra value in having all blocks.
The price attributed to Block 5 from the sale reflects the value put on the land by the buyer who accepts the risk that all the necessary approvals may not be forthcoming. It is likely that the buyer had reason to be confident that they would. It reflects all the benefits that might flow including benefits for consolidation.
While Mr Pilat in the second ACTVO report was not assuming that the whole development was approved, the valuer in the first ACTVO report was. He described the ultimate proposal and based his valuation on it being done. This is wrong because it assumes the potential is realised and values it as if it was completed and the developer had spent the costs and profits were available. There is insight to what the developer had to consider in Exhibit R1 items 6 and 7. It had a healthy profit projection, but it meant being exposed financially for a significant sum for some time until the units were finished. It seems to me that the value should reflect what a prudent buyer would pay for the opportunity not what he would make, if he bought, and the opportunity turned out well.
Even if I am wrong about that, the first ACTVO report was wrong for other reasons and the respondent does not now contend otherwise. There are other issues with it, such as not making allowance for all the other steps that need to be taken to get to that point. Apart from the risk that this may not occur as planned it depends on three other approvals. They are acquisition of Block 7, the same removal of restrictions for Block 4, including removing any height limitations, as well as the consolidation approval.
In other words, the increase in the total value over market was attributable to Block 4 having a significant uplift in value by getting its approval. In any allocation of the sale price, this must be factored in. The relative values are not determined by land size.
The benefits of Block 7 and of consolidation are likely to impact on the two blocks equally but the impact of the approval for Block 4 may well dwarf the impact on Block 5.
An example of why that might be so might be tested by considering what the sale proceeds of each block to a buyer of office space who does not intend to remove the buildings. Block 4 is likely to attract a higher price because of its size and some potential without any Development Approval but the difference between the sale of the blocks as improved is unlikely to be large. On the other hand, the impact on Block 4 is likely to increase its value much more than Block 5. The cream in the sale from the point of view of the seller is quite likely to be the increase in Block 4 value and it is unlikely to be referable only to land size.
The charge to be levied is referrable to the approval of Block 5 not Block 4 which will and probably has had its own LVC levied.
The price will have an element in it that values the opportunity of acquiring Block 7 and of consolidation. This is different from valuing a consolidation when it happens and as both of these matters might affect Blocks 4 and 5 equally may not impact significantly on how the allocation of the sale price is done.
On the topic of consolidation there can be a situation where the developer could be charged twice if the consolidation application is dealt with under section 377 but here it was not, we are told. Nonetheless it does not prevent its potential benefits being considered.
Other arguments of the applicant
The expression special value is used in valuation cases and may make a sale that was to be used as a comparable sale insufficiently comparable.
It does not prevent account being taken of a special value to an adjoining owner. An issue may arise if the adjoining owner with the special interest is anxious but there is no suggestion of that here.
The sale was negotiated through an agent. The parties are both sophisticated commercial companies and are likely to be well aware of what they ought to pay or be paid. The transaction is clearly at arm’s length and will be evidence of market value.
In an early compulsory acquisition case[53] Isaacs J said:
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 cognizant 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 what reason soever in the amount which one would otherwise be willing to fix as the value of the property.
[53] Spencer v Commonwealth [1907] HCA 82
This test applies here.[54]
[54] 3 Property Group Pty Ltd v Commissioner for ACT Revenue [2019] ACAT 67 at [60]
Mr Walker SC for the respondent submitted that only the owner of Block 4 would benefit from the land. There was no other land that either block could be joined with. The larger, Block 4, could be developed by itself. Here we know there was not much that Block 5 could do and the contracts were expressed to make sure that no one got stuck with Block 5 but the seller could still enforce the sale of Block 4 without Block 5.
All of this is true as far as it goes. Mr Walker sought to minimise the premium that might be paid because it was only the Block 4 owner that would want it and all he had to do was add one little bit more to buy it.
Both sites here were improved. The Planning and Development Act 2007 (ACT) (Act) requires the Tribunal to assume an unimproved sale of Block 5. Under the respondent’s hypothesis, is a combined sale with Block 4 to a developer on the assumption that Block 4 is improved or unimproved?
The assumption that the owner of Block 5 would be able to organise some form of joint venture with the owner of Block 4 rests on the assumption that Block 4 would be available for sale for redevelopment at the time of the hypothetical sale of Block 5. That assumption cannot be made. There is evidence of the letting arrangements about Block 4 in the Title Search in the Respondent’s Tender Bundle.[69] That showed the following:
[69] Title Search, Respondent’s Tender Bundle, pages 128-129.
(a)Sublease to Suncorp Corporate Services Pty Limited expiring on 31 October 2022;
(b)Sublease to Pacific Smiles Group Limited expiring 31 March 2028; and
(c)Sublease to The Optical Company (NSW) Pty Limited expiring on 20 May 2023.
Paragraph 277(a)(ii) of the Act requires that the lease is genuinely offered for sale immediately after the variation on the reasonable terms and conditions that a genuine seller would require. There is no evidence that Block 4 could even be sold for redevelopment or at all at the time that the Act required the hypothetical sale of Block 5. The owners of Blocks 4 and 5 would have to deal with the need to acquire Block 7 with some degree of certainty. The owner of Block 4 would have to be in a position to sell which may not be possible at all, but certainly would be extremely difficult given the letting arrangements on that block.
As mentioned in Rosnet (below), whatever normal business processes may be, the court (tribunal) is bound to follow the statutory assumptions. These facts means that the Tribunal could not make a finding that it was open for the owner of Block 5 to reach an agreement with the owner of Block 4 as suggested in Mir. The Tribunal could also not safely assume the 2020 sale price can be adopted as a basis for a valuation on the statutory assumptions.
Importantly, no valuation evidence was adduced from which it would be possible to apportion any particular value to Block 5 based on a consolidation of the two blocks. The respondent’s valuer, Mr Pilat, was cautious to avoid doing exactly that.
Notionally attributing a value to Block 5 based on an apportionment of a consolidated site square meterage (Option 2 in the respondent’s calculations handed up during its oral closing submissions) does not establish a market value for Block 5.
Further, the respondent expressed this alternative submission for the first time in closing. The applicant was not afforded the opportunity to call evidence of the kind outlined and going to the circumstances of the sales. If the applicant had known that the respondent would suggest that the vendors of the Blocks had co-operated to extract the highest possible price for Block 5 it would have explored whether it wished to adduce evidence to contradict that assumption.
The decision in Rosnet
Rosnet was the other case to which counsel for the respondent referred.
Rosnet was an unimproved value case of the Canberra Centre for rating purposes. Rosnet involved the valuation of various leases comprising the Canberra Centre shortly after it had been developed. The parcels of land in question formed part of the shopping centre, office and parking station complex. There was a further block of land involved in the Canberra Centre, namely Block 1 Section 70 Division of the City (1/70 City). That parcel of land was formed out of the closure of Ainslie Avenue.
The situation in Rosnet was the opposite to what the respondent is positing in this case. It did not deal directly with anything like the respondent’s recent oral submission that the owner of Block 5 would reach some form of accommodation with the owner of Block 4 to sell the blocks for redevelopment together to best advantage. In addition, the Contract for Sale for Blocks 4 and 5 that is included in the Respondent’s Tender Bundle stated that the properties were sold as ‘GST-free supply of going concern’.[70]
[70] Contract for Sale (Block 5) – Respondent’s Tender Bundle, pages 2, 25; Contract for Sale (Block 4) – Respondent’s Tender Bundle, pages 70-71.
There was no suggestion of any redevelopment of the neighbouring leases in conjunction with the lease being valued. There was a shopping centre constructed on the neighbouring leases and it was assumed that the improvements on those other leases would continue to exist to the advantage of the subject block.
There were a number of valuation issues in the matter but a critical issue was whether it was appropriate to use a sale for a 50% interest in the entire shopping centre to QTC as a basis for determining the unimproved value of the leases comprising the centre.
The respondent’s valuer, Mr Wilkinson, relied on this sale. He noted that if the sites had to be considered individually, they may have resulted in a lesser value than the sale of the whole site.[71] The appellant’s valuer, Mr Charlton, valued the various leases of the site.[72]
[71] Ibid at [9].
[72] Ibid at [11].
Mr Woodley, a valuer member on the Administrative Appeals Tribunal dissented. He did not consider the sale of the 50% of all the sites to QTC to be an appropriate method of valuing the several leases.[73] His opinion was ultimately upheld in the Supreme Court.[74]
[73] Ibid at [16].
[74] Ibid at [68].
Higgins J said:
However, as is the case under the Territory legislation, unimproved value had to be ascertained in respect of each separate site. Thus, whilst the value of the whole site might reflect the highest and best use of the aggregated sites, that value has to reflect the possibility that the site in question, viewed separately, might not be incorporated in a retail shopping mall. Whether or not that approach depresses the value of that separate site is, of course, a matter of expert opinion.[75]
[75] Ibid at [57].
Although it was theoretically possible to adjust and aggregate the sale so as to conform with the legislation and to produce a separate value for each block, that could not occur without difficulty. Higgins J said:
It follows that, at least to that extent, the appeal and the cross-appeal must each succeed. There is, however, the question of adjustment of the aggregate site value so as to reflect the separate value of each block.
The process of deduction of unimproved value from the sale to QTC, whilst no doubt capable of yielding the value placed by QTC on the whole aggregated site does not, without a difficult adjustment, yield the statutorily required result. It does not seem to me that the majority of the AAT satisfactorily addressed that issue. No doubt, correctly applied, it could be concluded that, if separate valuations produced a total for the several unimproved values exceeding that aggregate, some error would have occurred.[76]
[76] Ibid at [66] and [67].
On the authority of Rosnet, Mr Cummins and Mr Pilat were justified in not relying on the 2020 sale.
Myer (SA) Stores Limited v Valuer General (1986) 60 LGERA 440 preceded Rosnet but followed a similar approach. It concerned the determination of the unimproved value of a site in Rundle Mall in Adelaide. There were several areas in the mall. Jacobs J held that they had to be separately valued.
In 1983 there had been a sale of a substantial part of the Myer Emporium. This included the subject site. Jacobs J rejected the valuation of Mr Taylor because it involved viewing the subject as ‘part and parcel’ of the total site.[77]
[77] See: Jacobs J at 164, 165, 167.
The correct approach
The Tribunal should not accept any of the three after value calculations put forward by the respondent. The first two options have been addressed above.
The respondent’s third option should not be accepted because it relies upon the flawed assessment methodology adopted by Mr Pilat. The flaws in that analysis are exposed in the transcript at pages 390 to 397. They include a reliance on some unexplained “gut feel” to adjust an after value from his before value analysis[78], a failure to take into account long term leases of premises when assessing value, and an uncritical reliance on another colleague’s analysis when he was supposed to be conducting an independent reconsideration.[79]
[78] Mr Pilat – Transcript, page 245, line 6.
[79] Mr Walker – Transcript, page 391 line 45.
Whilst it is true that the Tribunal is not bound to accept one or the other of the valuations expressed by the expert valuers, if it has difficulty with either of them, it must act rationally and fairly and apply the evidence to the correct statutory test. It cannot be a “third valuer”[80].
[80] The Commonwealth v Milledge (1953) 90 CLR 157 at 160-161; Bronzel v State Planning Authority (1979) 44 LGRA 34 at 45; Minister of Environment v Petroccia (1982) 30 SASR 333 at 362; Kelly v Western Australia Planning Commission [2006] WASC 208 at 158; McKay v Commissioner of Main Roads [2013] WASCA 135 at 139-140.
The respondent submits that the Tribunal should accept the critical conclusions of Mr Cummins. He found that the significant constraints in being able to develop Block 5 meant that a variation to the purpose clause to add development rights would not increase the value of the Block.
As Mr Cummins observed, the theoretical maximum GFA available to be exploited for a site does not necessarily represent its highest and best use[81].
[81] Mr Cummins – Transcript, page 185, line 47.
ANNEXURE 2
Respondent’s Submissions in Reply dated 11 April 2023Introduction
These submissions respond to the Applicant’s submissions in reply, filed 31 March 2023, which supplement the Applicant’s oral closing submissions from the final day of hearing of 16 March 2023.
Evidence before the Tribunal
The Applicant submits that the Respondent’s submission that the owners of the Block 5 Section 12 Phillip (Block 5) and Block 4 Section 12 Phillip (Block 4) would undertake a combined effort to sell their properties together for best advantage ought not be considered by the Tribunal, for both lack of evidence and lack of procedural fairness.
This submission is incorrect, and ought not be accepted on either ground.
The Applicant invites the Tribunal to completely disregard the facts, matters and circumstances from that transaction of which both the Applicant and the purchaser, Zapari Property Corinna Street Pty Ltd (Zapari), were intimately aware of.
On 9 December 2022, the Applicant was served with a copy of the Respondent’s tender bundle. That bundle consisted of material produced under subpoena by the Applicant and Zapari and included, amongst other material:
a.the Contracts of Sale and subsequent deed of variation for both the Subject Property;[82]
[82] Exhibit R1, Respondent’s Tender Bundle, pages 1-125.
b.communication from the representative of the Applicant (and vendor of Block 4) directing the apportionment of purchase price between the Subject Property and Block 4;[83]
[83] Exhibit R1, Respondent’s Tender Bundle, pages 130-134.
c.an offer dated 19 November 2019 for the purchase of the Subject Property and Block 4.[84]
[84] Exhibit R1, Respondent’s Tender Bundle, pages 172-174.
The following conclusions of fact emerge from that material, and the remainder of the Respondent’s tender bundle:
a.that the vendors of Blocks 4 and 5 were related corporate entities associated with the same natural person, Robert Maidment;
b.the offer which was made to purchase both blocks were made on a combined basis;
c.the price assigned to each block appears to have been assigned for taxation reasons;
d.both contracts for sale were entered into at the same time, for the purpose of redevelopment; and
e.the purchaser was the same for each block.
Indeed, it is that purchaser, Zapari, that is conducting these proceedings in the name of the Applicant. Further, the source of the material in the Respondent’s tender bundle was subpoena documents produced by Zapari and the Applicant.
That material is evidence of the actual circumstances of the sale including how it arose, the relationship between the vendors and the apportionment of the sale price obtained for each block. Evidence of a hypothetical combined effort between the owners of the Subject Property and Block 4 to sell those properties for best advantage is not required where there is actual evidence which clearly demonstrates that the owner of Block 5 and Block 4 worked together to sell the combined properties for best advantage which resulted in the combined purchase price of $11,700,000.
Expressed another way, and contrary to the Applicant’s submission at [23] and following, there is no need for evidence of a hypothetical when there is evidence of what actually took place. As quoted to the Tribunal in closing submissions, “where facts are available they are to be preferred to prophecies.”[85]
[85] Executors of the Will of Panagiotis Samios Deceased v The Commissioner of Taxation (1972) 22 the Valuer 324 at 328, discussing the utility of sales subsequent to the relevant date.
The circumstances surrounding the 2020 sale are not matters of mere hypothesis, but rather factual matters which the Tribunal must consider when fulfilling the task set for it in Spencer’s case. It is worth recalling the judgment of Isaacs J in that case ((1907) 5 CLR 418 at 441):
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 cognizant 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 what reason soever in the amount which one would otherwise be willing to fix as the value of the property.
It is these matters to which the Tribunal must turn when it is sitting as judicial valuer, as it is in the present case.[86] All of these matters are captured in the 2020 sales of Blocks 4 and 5, as understood from the material in the Respondent’s tender bundle. This includes evidence of the coordination of the two vendors of Blocks 4 and 5 to obtain the best combined price.
[86] See NG Woden Pty Limited ACN 620 839 834 v Commissioner for ACT Revenue (Administrative Review) [2020] ACAT 77 at [6(k)] citing Giusida Pty Ltd v Commissioner for ACT Revenue (No 2) [2018] ACTSC 178 at [22]- [23]; and Giusida Pty Ltd v Commissioner for ACT Revenue [2016] ACTSC 275 at [157] citing Doherty v Commissioner of Highways (1974) 7 SASR 57 at [83]. See also ISPT Pty Ltd, cited at fn 16 below.
The reasoning in Mir to which the Tribunal’s attention was drawn was a method of aligning the hypothetical assumptions in the statute with the evidence affecting value. In Mir, as in the present case, the method by which those two matters were aligned was by assuming coordination between the vendors of each separate parcel of land. Such an assumption need not be made where there is evidence of a sale arising directly from such coordination, as is the case with the 2020 sales of Blocks 4 and 5.
To that extent, the 2020 sale of Block 5 is the most persuasive evidence of value of that land on an unimproved basis on the relevant date. The alternative basis of a re-apportionment of the combined sale prices across Blocks 4 and 5, which was explored in cross-examination with Mr Cummins,[87] is only necessary if the Tribunal forms a view that the sale prices agreed do not represent the actual market values of Blocks 4 and 5. There is thus not only ample but persuasive evidence supporting the Respondent’s position.
[87] The transcript references to this evidence are set out in the Respondent’s calculations table, which was provided to the Tribunal on the final hearing day.
The Applicant’s complaints about a lack of procedural fairness are also illfounded. As noted above, the basis for the Respondent’s position arose from material produced on subpoena by the Applicant and entities related to it. When this material was served, the Applicant sought and was granted an adjournment of several months to allow it to investigate the matters therein further. In the course of that adjournment, no additional witness evidence regarding the 2020 sale was served and no further documents were produced to qualify the conclusions apparent from the Respondent’s tender bundle.
The valuation basis for the Respondent’s position came from Mr Cummins, the Applicant’s valuer. Evidence of the apportionment analysis of the sale price of Block 5 and Block 4, first emerged from Mr Cummins’ evidence in August 2022, in the form of an addendum to an earlier valuation report produced by him.[88] This apportionment was reproduced by Mr Cummins in his October 2022 report.[89] In cross examination, Mr Cummins revisited this apportionment.[90]
[88] Greg Cummins of Knight Frank Addendum of Reconsideration of LVC 18 May 2021, dated 25 August 2022 (page 94-96 of Applicant’s evidence bundle filed 26 August 2022).
[89] Report of Greg Cummins of Knight Frank dated 25 October 2022 -Reconsideration of Lease Variation Charge, page 12.
[90] Transcript of Proceedings, 14 March 2023, pages 161-163.
Mr Cummins refused to consider the reapportioned purchase price as relevant evidence in the after value scenario,[91] despite recognising that Block 5 was purchased with significant development potential – a matter which could and should be taken into account in the after scenario.[92]
[91] Transcript of Proceedings, 14 March 2023, pages 164-166.
[92] Transcript of Proceedings, 14 March 2023, page 155.
Mr Cummins was also cross-examined on the contracts of sale, and the use of the reapportioned value in the after value scenario.[93] What is apparent from that cross-examination is that Mr Cummins simply discarded the 2020 sales, and chose not to utilise them at all in the after scenario. Not only was it not necessary to put the hypothetical to Mr Cummins, but in circumstances where he had deliberately disregarded the 2020 sales, such evidence would have been useless.
[93] Transcript of Proceedings, 14 March 2023, pages 137- 140, 148-163, 168-172, 176-178.
In this respect, the Respondent notes the evidence led from Mr Cummins in reexamination regarding special value, to the effect that all a special purchaser would have to bid would be “one more bid at auction or a better tender price”.[94] As noted in oral closing, there was no attempt to quantify this further bid, or to provide the Tribunal with any meaningful evidence regarding that hypothetical. When compared to the actual evidence supporting the Respondent’s position, and the weakness of the evidence adduced in support of its hypothetical, the Applicant’s criticisms of the Respondent’s case in truth apply with greater force to its case. If, in these circumstances, the transaction is unexplained in some respect, it ought be inferred that it remains that way because the Applicant did not wish to explain it further. But this does not mean that the Applicant was denied procedural fairness in relation to this issue.
[94] Transcript of Proceedings, 14 March 2023, page 207.
In this respect, the Respondent notes that the Applicant made no submission that it had been denied procedural fairness in the course of oral closing submissions, and did not seek leave to put on further written submissions on that basis. Had the Applicant actually been prejudiced, as is now claimed, an application for leave to re-open or a submission that the Respondent had exceeded the bounds of its case would have been made at that time. The fact that neither was forthcoming suggests that the Applicant’s complaint is not as well-founded in its own mind as it would have the Tribunal believe.
Block 7
The Applicant notes at [18] and [35] a “feature of distinction”, being that Block 5 and Block 4 were separated by unleased Territory Land (Block 7) that was not for sale at the relevant valuation date.
The contracts for sale for the purchase of Block 5 and Block 4 were interdependent, but were not dependent upon the purchaser acquiring Block 7. The evidence of contracts for sale and subsequent variations, is that those contracts were entered into without the guarantee of the acquisition of Block 7. In circumstances where the acquisition of Block 7 was definite, it is likely this would have been reflected in a greater contract sale price.
Put another way, Zapari was willing to pay what it did for Blocks 4 and 5 notwithstanding that it did not own Block 7 and was not guaranteed to get it. To that extent, the 2020 price should be understood as moderated by the risk that Block 7 would not be sold once the purchases for Blocks 4 and 5 were complete.
In any event, the Applicant led evidence from Mr Cummins that there was a likely chance that a direct sale of Block 7 would be granted.[95] If this evidence is accepted, then the risk associated with the purchase of Block 7 is a non-issue, and the Applicant’s submission in relation to it ought be rejected.
[95] Transcript of Proceedings, 14 March 2023, page 204.
Mir
The Applicant’s contentions that Mir is distinguishable on its facts at [31] and following ought be rejected.
Mir concerned the valuation of four parcels of land, which could hypothetically be combined to form a greenfields development of 202 lots. What was being valued was not the 202 lots, but rather each individual parcel which made up the hypothetical subdivision.
It was an express requirement of the relevant NSW legislation that the blocks be separately valued. Notwithstanding this, the approach adopted by the Commissioner in Mir did not contravene this assumption, as it merely assumed cooperation by the hypothetical vendors to achieve the best price.
If anything, the features identified by the Applicant at [31]-[34] are features of commonality between Mir and the present circumstance, not features of distinction. The Respondent submits that a complete reading of Mir reveals the appropriateness of its reliance upon that case.
Improvements
As noted above, both Blocks 4 and 5 were purchased for re-development. So much is clear from the contracts for sale, with the special conditions granting Zapari the right to lodge DAs and pursue the purchase of Block 7 prior to completion of the sales.
Further, the material in the Respondent’s tender bundle discloses that the leases in place over Block 4 were matters which were known to and considered by Zapari in agreeing to purchase that block. Indeed, these leases appear to have resulted in a reduction in the price paid by Zapari.[96]
[96] Exhibit R1, Respondent’s Tender Bundle, pages 143-145.
Thus, the improvements on each of Block 4 and 5 were not matters to which value was ascribed, but rather detriments which were overcome as part of the 2020 sale. There is no basis for disregarding or discounting the 2020 sale on the basis of improvements as the obstacle presented by the improvements on both blocks was averted to in arriving at the 2020 sale price.
The “correct approach”
The Applicant makes a number of submissions at [55] and following regarding the correct approach which require further consideration.
The Applicant’s submissions do not grapple with the full effect of its submissions in regards to Mr Pilat’s evidence at [56]. As noted in oral closing submissions, the Applicant has conceded before value. That aspect of the decision is not the subject of a separate agreement between the parties. The observations which the Applicant makes regarding Mr Pilat’s approach apply equally in relation to his before value, to the effect that any reduction in the after value adopted by Mr Pilat on the basis stated also results in a reduction in his before value.
Despite being put squarely in oral submissions, this is an issue with which the Applicant refuses to grapple. Rather, the Applicant suggests, apparently, that Mr Pilat’s after value ought be thrown out completely but his before value can stand without amendment. Those two propositions cannot co-exist in the facts of this case.
To the extent that there is any reduction made by the Tribunal to Mr Pilat’s after value, the Respondent submits that a similar reduction ought be made to the before value, thus preserving the added value determined by him. In light of the Applicant’s clear election not to contest before value, it can make no complaint about this result, especially in circumstances where this is the logical and natural consequence of its cross-examination of Mr Pilat.
The Applicant submits at [57] that the Tribunal cannot be a third valuer. To the extent that the Applicant is submitting that the Tribunal cannot come to its own conclusions based on the evidence, that submission ought be rejected as it is inconsistent with authority and the statute.
The Tribunal is tasked with review of a reconsideration of lease variation charge. It is therefore considering what the correct and preferable values for before value and after value are, consistent with section 277 of the Planning and Development Act 2007. The Tribunal is obliged to conduct a complete re-assessment to determine the correct and preferable values.[97]
[97] 3 Property Group 5 Pty Ltd v Commissioner for ACT Revenue [2019] ACAT 67 at [22]; ISPT Pty Ltd
v City of Melbourne [2007] VCAT 652 at [16]-[19] (‘ISPT Pty Ltd’).
It is therefore open, subject to the requirements of natural justice, for the Tribunal to adopt an approach not taken by either valuer.[98] It is that course which the Respondent advanced in relation to the 2020 sale on the basis of evidence in the course of the hearing and to which, for the reasons set out above, the Applicant was afforded the opportunity to respond. It is therefore open to the Tribunal to adopt a value on the basis of the 2020 sales evidence in either of the manners advanced by the Respondent.
[98] ISPT Pty Ltd at [18].
Finally, the Applicant, at [58]-[59], submits that Mr Cummins evidence was persuasive, and ought be adopted. That submission ignores the key flaws in the hypothetical development model used by him. That method, when applied to the before scenario, also yields a negative value for the subject site in circumstances where Mr Cummings adopted a before value based upon his analysis of the sales evidence of $2.635 million.
As emerged from the cross-examination of Mr Cummins, the hypothetical development tool can yield skewed results which, if not checked against another method such as comparable sales, is likely to result in a value being adopted which is not consistent with market parameters. Mr Cummins did not adopt any check method; rather, he appears to have been comfortable relying upon the hypothetical development method alone as it confirmed his view that there was no added value in the after scenario.
The flaws in Mr Cummins’ approach are obvious. His evidence ought not be accepted by the Tribunal in the manner suggested.
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