Fourteenth Floor Agencies Pty Ltd v Chief Executive, Department of Natural Resources

[1997] QLC 31

[1997] QLC 31

 

  LAND COURT

BRISBANE

21 March 1997

Re:                Determination of Unimproved Value -
  City of Logan.
  (AV96-220)

Fourteenth Floor Agencies Pty Ltd
  v.
  Chief Executive, Department of Natural Resources

D E C I S I O N

This is an appeal against the determination by the Chief Executive of an unimproved value of $581,000 ($228 per square metre) for a "Service Industry" zoned site, situated on a service road at 3347 Pacific Highway, Slacks Creek.  The land is more particularly described as Lot 2 on RP 206551, Parish of Yeerongpilly, and contains an area of 2550 square metres.  The relevant date for the determination of the unimproved value is 1 January 1996.  The appellant company contends within the notice of appeal for an unimproved value of $285,000.
           The appellant company's case was conducted by Lionel Cedric Julian Lees, who is its Managing Director.  Mr Lees also furnished evidence at the hearing.  He claims that the unimproved value under appeal is not supported on the basis of the evidence of the sale by his company of the adjoining property situated at 3349 Pacific Highway in April 1996, for $825,000.  Erected upon this property is a substantial single level designed building which is utilised as retail showrooms and warehouses.  Mr Lees provided us in his written statement comprehensive details as to the type of construction for the building which appears to be to a good standard.  The buildings at the time of sale were fully leased.  For reasons outlined in his statement, Mr Lees says that the sale of 3349 Pacific Highway can be apportioned as to $536,000 to the structural improvements and $288,000 to the land.  This, it is to be observed, is the prime basis for the appellant company's estimate of land value (although marginally lower).
           Mr Lees is of the opinion that no developer of the subject site for "Service Industry" could economically pay more than $300,000 for the land, particularly in view of what he describes as their having been, since 1990, constant vacancies in buildings on the subject part of the western side of the Pacific Highway.
           There is a second limb to Mr Lees' appeal submissions.  It is that the valuation of the land is not supportable on the basis of what has, over the years, become known in this jurisdiction to be the notional development of it.  Mr Lees says that a developer at present would require a return of at least 10% per annum on the cost to the developed state.  He claims that a gross rent for a new building of 1243 square metres, assuming availability of Logan City consent to retail, would be $90 per square metre and that this equates a net rent of $91,200 per annum.  Capitalised at 10% per annum, then, the outlay for the property would be $912,000.  Mr Lees sees the cost of the actual building on the subject land to be about $627,000 plus holding costs of $8,000 plus interest, making the building replacement cost to $676,000.  On this exercise, Mr Lees concludes that a developer could pay no more than $236,000 for the land.
One additional matter is raised by Mr Lees. He claims that the subject land is not readily accessible from the Pacific Highway and in fact is difficult to find. Be this as it may, access difficulties are not a ground of appeal to which the appellant company is limited in the conduct of its case - vide section 56(2) of the Valuation of Land Act 1944.
           The respondent Chief Executive called in evidence registered valuer William John Crothers, who is in the employ of the Department of Natural Resources.  Mr Crothers says that the subject land has good vehicular access to the Pacific Highway Service Road.  Mr Crothers submits that his valuation of the subject land (at the rate of $228 per square metre) is the result of the Departmental decision to increase the valuation of all "Service Industry" zoned land within Logan City area in comparison with the 1995 relevant date valuation by a factor of 15%.  This decision was made consequent upon consideration of all the sales of "Service Industry" zoned sites within the city.  Mr Crothers lists three of those sales within his valuation report.  Details are in the hands of the parties for reference.  These sales (situated respectively in Dan Street Slacks Creek, Miller and Randall Streets Slacks Creek, and Cronulla Court, Slacks Creek) show unimproved values ranging from $76 per square metre to $108 per square metre.  Mr Crothers regards the sale lots to be considerably inferior to the subject land, with its significantly better exposure to the Pacific Highway.  Also introduced in evidence by Mr Crothers were two post-relevant date sales of "Service Industry" zoned sites in Kingston Road and Compton Road.  These sales were relied upon as part of his basis for the 1 January 1997 relevant date valuations in Logan City.  I do not place much weight on this evidence although, prima facie, it appears to support the valuation under appeal.
           Mr Crothers realises that the basic sales evidence referred to by him in evidence is not particularly comparable with the subject land.  As a result, he produced to the Court a 1 January 1996 relevant date unimproved value relativity map showing the values applied along the service road where the subject land is situated.  In general, these values range from $221 per square metre to $316 per square metre for lots of varying sizes and shapes.  It can be said that there appears to be no divergence in the unimproved value relativity struck by Mr Crothers as between the subject land and the neighbouring lots on the service road. 
           During the course of his evidence, Mr Crothers was examined as to his thoughts upon the basis of valuation relied upon by Mr Lees.  Mr Crothers is of the opinion that the sale of 3349 Pacific Highway in 1996 for $825,000 appeared to have taken place at a low price reflecting a yield of about 13% per annum on prevailing rents.  He believes a return of around 11% per annum would be more normal and suggests the sale price may have been influenced by insecure tenancies (one tenant, Repco, has a month-to-month tenancy).  In any case, Mr Crothers says that reliance upon unimproved sales constitutes a more reliable basis of valuation than the analyses of highly improved sales.
           Mr Crothers has investigated building leases in the subject area and finds himself at odds with Mr Lees in that, in 20 or so cases, leases seem to be relatively secure at fairly consistent rentals and there was only one vacancy in the immediate area.
There is no doubt that Mr Lees has considerable experience in commercial investment within the City of Brisbane but for reasons of Court precedent, to which I am bound and about to outline, there are virtually impassable obstacles in his path to discharging the onus resting upon him under the provisions of section 56(2) of the Valuation of Land Act.
           Firstly, the use of highly improved sales as a basis of valuation when the task at hand is to determine unimproved value has not received judicial endorsement.  In Re: Barnwell v. The Valuer-General (1990-91) 13 QLCR 13 at 17, the Land Appeal Court quoted with approval the following passage from an earlier decision of the Land Appeal Court:

"It has been judiciously laid down many times and in many jurisdictions that in ascertaining unimproved value, sales of unimproved land of comparable quality, situation, etc., to the subject parcel, if they are available, are to be preferred as the best guide for arriving at unimproved value.  The reason is obvious.  In applying such sales there is no room for error in analysing the value of the improvements.  "

Analyses of sales of highly improved properties is subject to inaccuracy and in this case, assuming Mr Crothers' view about the sale price of 3349 Pacific Highway was low due to insecure tenancy is correct (this notwithstanding the prolonged effort of the appellant company to sell the property), then further difficulties are encountered in analysing the sale.
           In Re:  Merivale Motel Investments Pty Ltd v. Brisbane Exposition and South Bank Redevelopment Authority (1984-85) 10 QLCR 268 p.281, in relation to the use of a notional development valuation exercise, the Land Appeal Court had this to say:

"Residual value (notional development) exercises of the type undertaken by the valuers in this case are well recognised as being fraught with difficulty.  The end result (land value) is subject to wide variation depending upon the accuracy of the statistics provided. "

Again in Clinker and Ash Limited v. Southern Gas Board (1967) 203 E.G. 735, R.C. Walmsley, a Member of the Lands Tribunal said:

"Each (valuer) produced a valuation and both valuations were prepared on the residual method.  Now the Tribunal has frequently rejected such valuations as having too many uncertain elements, and has almost invariably done so when some simpler method such as the use of comparables is available.  "

Now, in the circumstances of this case and in the absence of truly comparable sales evidence, I favour the use of the "relativity" basis of valuation used by Mr Crothers, supported by the vacant sales evidence which indicated to him that the value of "Service Industry" zoned sites within Logan City should be increased by a factor of 15% for the relevant valuation period. Further it is not in dispute that the valuation of the subject land is not anomalous with the values placed upon adjoining and nearby sites facing the service road on the western side of the Pacific Highway. These unimproved values are deemed to be correct since there are now outstanding appeals against them before the Court - vide section 33 of the Valuation of Land Act 1944.
           In all the circumstances, it follows that I cannot find that the onus resting upon the appellant company has been discharged.  The appeal is dismissed and the unimproved value of Lot 2 on RP 206551, Parish of Yeerongpilly, as determined by the respondent Chief Executive, in the sum of $581,000 is affirmed.

(CH Carter)        
  Member of the Land Court