Franklin General (ACT) Pty Ltd ACN 612 950 204 v Commissioner for Act Revenue (Administrative Review)
[2019] ACAT 30
•5 March 2019
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
FRANKLIN GENERAL (ACT) PTY LTD ACN 612 950 204 v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2019] ACAT 30
AT 76/2018
Catchwords: ADMINISTRATIVE REVIEW – method of assessing unimproved value – childcare centre – comparable sales – rate/childcare place method – deduction of hypothetical development method – highest and best use – basket of sales – lay opinion – hardship
Legislation cited: ACTCivil and Administrative Tribunal Act 2008 ss 8, 26, 68
Rates Act 2004 ss 6, 8, 9, 10, 14, 70, 73
Taxation Administration Act 1999 s 101
Cases cited:Arcus Shopfitters Pty Ltd v Western Australian Planning Commissioner [2002] WASC 174
Chen & Zhang v Commissioner for ACT Revenue [2014] ACAT 70
Chowdhury v Commissioner for ACT Revenue [2014] ACAT 15
City Hill Pty Limited v ACT Planning and Land Authority and ACT Civil and Administrative Tribunal[2015] ACTSC 40Commissioner for ACT Revenue v Rosnet Pty Ltd and Ors (1994) 116 FLR 275
Commonwealth v Arklay (1951-1952) 87 CLR 159
Co-Ordinated Resources Pty Ltd v Valuer-General (1983) The Valuer 779 [780]
Dasreef Pty Limited v Hawchar [2011] HCA 21
Dexter and Minister for the Capital Territory [1979] AATA 115
Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577
Elliott v Commissioner for ACT Revenue [2018] ACAT 70
Estate of Anthi John Notaras v Commissioner of ACT Revenue [2017] ACAT 2
FANDS (ACT) Pty Ltd vCommissioner for ACT Revenue (No 2) [2017] ACAT 112
Gungahlin Golf Investments Pty Ltd v Commissioner for ACT Revenue [2017] ACAT 96ISPT Pty Ltd v City of Melbourne [2007] VCAT 652
ISPT Pty Ltd v Melbourne City Council& Anor [2008] VSCA 180Junstamp Pty Ltd and Ors & Commissioner for ACT Revenue [2013] ACAT 50
Leichardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGRA 409
Makita (Australia) Pty Ltd v Sprowles [2001] NSWCA 305
Maurici v Chief Commissioner of State Revenue [2003] HCA 8Shi v Migration Agents Registration Authority [2008] HCA 31
List of
Texts/Papers cited: Alan Hyam, The Law Affecting Valuation of Land in Australia (The Federation Press, 5th ed, 2014).
Tribunal:Senior Member H Robinson
Date of Orders: 5 March 2019
Date of Reasons for Decision: 5 March 2019
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AT 76/2018
BETWEEN:
FRANKLIN GENERAL (ACT) PTY LTD
ACN 612 950 204
Applicant
AND:
COMMISSIONER FOR ACT REVENUE
Respondent
TRIBUNAL:Senior Member H Robinson
DATE:5 March 2019
ORDER
The Tribunal orders that:
1.The decision under review is confirmed.
………………………………..
Senior Member H Robinson
REASONS FOR DECISION
1.By way of this application, the applicant company seeks review of a decision by the respondent, the Commissioner for Revenue (Commissioner), to disallow its objection to an assessment of the unimproved value (UV) of a property it owns at Block 5, Section 31 Franklin (the subject property).
2.The UV assessment has, of course, greatly increased the applicant’s rates, which it says will have a detriment on its business. One of the distinctive aspects of this case is that the Commissioner assessed the UV of the subject property using a comparative assessment based on the number of childcare places permitted under the relevant development application (the rate/childcare place methodology). Among other things, the applicant has asked that the Tribunal consider whether this methodology is appropriate.
The hearing
3.At the hearing the applicant was represented by one of its shareholders, Mr Kumar. Mr Kumar is a public servant and businessman, with substantial experience in the childcare business.[1] He is well educated in a number of fields, but not in actuarial studies or valuation (or law). Mr Kumar gave evidence and was cross-examined but called no other witnesses. He relied on written valuations by three valuation companies, documentary evidence, and on his cross‑examination of the respondent’s expert witness, Mr McInerney.
[1] Transcript of proceedings 11 December 2018 page 8
4.The Commissioner was represented by Ms Bindon of Counsel, instructed by Ms Chandra of the ACT Government Solicitor. Ms Bindon called evidence from Mr McInerney, a senior valuer with the ACT Valuation Office (ACTVO). Mr McInerney’s curriculum vitae was in evidence before the Tribunal and his expertise was not in question.
Background
5.The subject property is 2,264 square metres and located in a newly developed area in the Gungahlin suburb of Franklin. The applicant is in the process of constructing a 125 place childcare centre on the site. At the time of the hearing, negotiations were ongoing to secure an operator for the centre.
6.Initially, both the subject property and Block 4, Section 31 Franklin (Block 4) were a combined parcel of land of some 3,558 square metres known as Block 3, Section 31 Franklin (the original block). The subject property, and Block 4, were created by a subdivision of the original block in 2017.
7.The applicant purchased the original block on 15 June 2016 for $2,510,000. On 23 November 2017, following the subdivision, the applicant sold Block 4 for $855,000.
8.On 2 August 2017 the ACT Planning and Land Authority (Authority) granted a Crown lease for the subject property (Crown lease). The Crown lease has a broad purpose clause that allows the subject property to be used for many community purposes, including a childcare centre. It is common ground between the parties that a childcare centre is the ‘highest and best’ use permissible under the lease.
9.On 5 January 2018 the Commissioner assessed the UV for the subject property as $1,550,000 as at 1 January 2017 (original valuation).
10.On 21 March 2018, the applicant sent an email to the Commissioner’s objections team objecting to the assessed UV of $1,550,000 on the basis that it was excessive. This email was accepted by the Commissioner as an objection. The Commissioner proceeded to seek valuation advice from the ACTVO as to the UV for the property.
11.On 23 March 2017 a development application (DA) was approved for a 125 place childcare centre on the subject site[2]. The applicant advised the Commissioner of this approval.[3]
[2] DA 201630383
[3] Respondent’s Tribunal documents filed 31 August 2018 page 051 (ACT Revenue website feedback)
12.On 27 March 2018 Mr McInerney of the ACTVO completed his valuation advice to the Commissioner. ACTVO recommended that the UV for the property be confirmed at $1,550,000 (the ACTVO valuation advice). As it now had access to the information in the DA, the ACTVO relied upon market sales evidence analysed using both the rate square/metre of the original decision, and a rate/childcare place methodology to confirm the original valuation. The comparable sale for the rate/square metre was cited as the original block, which at the time of sale on 15 June 2016 showed a value of $747.47 per metre squared, against the assessed UV of the subject property of $685 per metre squared.
13.The rate/childcare place methodology involves comparing market sales of comparable vacant blocks or undeveloped blocks that have approved DAs for the construction of dedicated childcare centres. The sale value of each comparable block is divided by the number of approved childcare places permitted under its DA, to reach a rate/per childcare place for that block. The subject block is then compared to the other comparable sales to determine an appropriate rate/childcare place for that block, having to regard to the numerous other qualities of the block (for example, location), and this rate/childcare place is then used to deduce an assessed UV. The analysis of the contended comparable sales is set out in more detail below.
14.The delegate of the Commissioner accepted the ACTVO valuation advice and, on 10 July 2018, made a decision refusing the applicant’s objection to the UV.[4] It is this decision (the reviewable decision) which is now the subject of a merits review in the tribunal.
The role of the Tribunal
[4] Respondent’s Tribunal documents filed 31 August 2018 pages 020-022 (Notice of Reviewable Decision dated 10 July 2018)
15.The Tribunal’s role is to consider whether the Commissioner has arrived at the correct or preferable UV pursuant to section 6 of the Rates Act 2004 (Rates Act), as at 1 January 2017. This involves two distinct but interrelated issues:
(a)whether the Commissioner’s valuation is “within margins reasonably open to the Commissioner”;[5] and
(b)if the valuation is too high, what the correct valuation is — in deciding this, the Tribunal can use the opinions of valuers in order to reach its own decision on that evidence.[6]
[5] Planet Red Pty Ltd v Commissioner Of Act Revenue [2017] ACAT 18 (Planet Red) [23]
[6] Estate of Anthi John Notaras v Commissioner Of ACT Revenue [2017] ACAT 2 (Notaras appeal) [74]
16.The applicant bears the onus of convincing the Tribunal that the Commissioner’s valuation is too high.[7] This is made clear by section 101(3) of the Taxation Administration Act 1999 which provides that:
The burden of showing that an objection should be sustained lies with the taxpayer making the objection.
[7] See also Planet Red [13]-[26]
17.Only if this onus is discharged may the Tribunal proceed to decide the extent to which the valuation is too high and substitute a different valuation.[8]
The reviewable decision and the Commissioner’s position
[8] Planet Red [24]
18.Notwithstanding that the burden lies on the applicant, it is useful, as a starting point, to set out the basis for the Commissioner’s valuation.
19.The Commissioner’s position at the hearing was set out in the reviewable decision notice[9] and attached ACTVO recommendation[10], and in Mr McInerney’s witness statement[11] and oral evidence.
[9] Respondent’s Tribunal documents filed 31 August 2018 pages 020-021 (Notice of Reviewable Decision dated 10 July 2018)
[10] Respondent’s Tribunal documents filed 31 August 2018 pages 023-030 (Review of Objection)
[11] Exhibit R1 (Witness Statement of Geoff McInerney dated 26 November 2018)
20.Mr McInerney’s witness statement included new material not before the Commissioner at the time the reviewable decision was made, and apparently not considered by the ACTVO when making its recommendation. It is not unusual for parties to merits review applications to submit new evidence, and indeed such evidence is often necessary as the Tribunal role is to determine the correct or preferable decision on the material before the Tribunal at the time of the hearing.[12]
[12] Shi v Migration Agents Registration Authority [2008] HCA 31; Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577 [589] per Bowen CJ and Deane J
21.Briefly stated, and having regard to all the evidence before the Tribunal at the time of the hearing, the Commissioner’s reasons for the valuation were as follows:
(a)At the time the original block was first valued it was a vacant block, and it was “looked at on a GFA [gross floor area] basis reflective of all the different uses there.”[13] In other words, the subject property was assessed by reference to sales of comparable properties, evaluated by reference to gross floor area (GFA) having regard to the uses permitted under the relevant Crown leases and other relevant considerations.
(b)Once a DA was lodged, and it was known that the subject site was intended for use as a childcare centre and how many places it would be licensed for, the rate/childcare place methodology was adopted.[14]
(c)The reason for this is that childcare is usually a more profitable use of the land than other community facilities, and as such childcare is generally accepted as the “highest and best use” of such a property[15] (that is, the best and most profitable potential use).[16]
(d)At the time the reviewable decision was made, the ACTVO identified three comparable sales of premises with DAs permitting purpose built childcare centres.[17]
(e)The rate/childcare place methodology was adopted as the suitable method for evaluating and comparing sales in a manner that has regard to the highest and best use of the property.[18] The value of the original block was also considered. These confirmed the original valuation of $1,500,000.
[13] Transcript of proceedings 11 December 2018 page 46, lines 31-32
[14] Transcript of proceedings 11 December 2018 page 46, lines 35-36
[15] Transcript of proceedings 11 December 2018 page 51, lines 40-45
[16] Spicer v Valuer-General (1963) 10 LGRA 319 [320] per Else-Mitchell J quoted in Alan Hyam, The Law Affecting Valuation of Land in Australia (The Federation Press¸5th ed, 2014) (Hyam) page 175
[17] Transcript of proceedings 11 December 2018 page 51, lines 32 and 43
[18] Transcript of proceedings 11 December 2018 page 69, lines 30-45
22.The four ‘comparable sales’ relied upon by the Commissioner in the reviewable notice were:
(a)The original block, which was analysed on a GFA basis at $747.77 per square metre basis.
(b)Sale 2: Block 67, Section 51 Holt. This block has an area of 1,772 square metres and development approval for a childcare centre licensed for 122 places. It sold for $1,842,500 on 23 December 2015. The rate per childcare place analysis shows $15,102 per licensed childcare place.
(c)Sale 3: Block 3, Section 11 Higgins. This block has as an area of 4575 square metres and a purpose clause that allows a childcare centre. It was licensed for 187 childcare places and sold for $2,605,000 on 16 March 2016. The rate per childcare place analysis shows $13,930 per licensed childcare place.
(d)Sale 4: Block 22, Section 97 Charnwood. This block has an area of 3600 square metres and a purpose clause that allows only a childcare centre. It was licensed for 179 childcare places and sold for $2,145,000 on 30 November 2016. The rate per childcare place analysis shows $12,187 per licensed childcare place.
23.By the time of the hearing, the ACTVO had identified five additional ‘comparable sales’ since 1 January 2017. The ACTVO no longer relied upon the sale of the original property. It is convenient to refer to a new sale — a block in Aranda — as ‘Sale 1’ for the purposes of these reasons. The additional five sales relied upon at the hearing were:
(a)Sale 1: Block 11, Section 1 Aranda. This block is 2,348 square metres with a Crown lease that permits it to be used for a childcare centre only. It was sold for $2,007,500 on 15 June 2017. The DA permitted 138 childcare places. The Commissioner described it as an “[i]nferior battle axe shaped block which backs onto a public reserve.”[19] It is also a former Mr Fluffy site. The rate per childcare place analysis shows $14,547 per licensed childcare place.
(b)Sale 5: Block 9, Section 140 MacGregor. This block is 3,503 square metres with a Crown lease that permits a broad range of uses, but for which there was a DA for a 150 place childcare centre. The property sold in December 2017 for $1,785,000. On a rate per childcare place analysis this is $11,900 per childcare place. The Commissioner contended that this is an inferior location in an outer suburb and distant from commercial centres when compared to the subject property.
(c)Sale 6: Block 22, Section 28 Rivett. This is a 1,994 square metre site with a broad purpose clause. There is a DA for a 110 place childcare centre. The property sold on 14 September 2016 for $1,450,000. The rate per childcare place analysis shows $13,182 per childcare place. The Commissioner contends this is an inferior location in an outer suburb.
(d)Sale 7: Block 5, Section 517 Gordon. This site is 1,713 square metres with a purpose clause that permits a broad range of uses. There was a DA for a 119 place childcare centre. The property sold on 30 May 2017 for $1,475,000. A rate per childcare place analysis shows $12,395 per childcare place. The Commissioner contended that this was a smaller site, subject to a requirement for basement car parking, and in a far inferior outer suburban location stop.
(e)Sale 8: Block 21, Section 443 Kambah. This is a 3,506 square metre site with a purpose clause that limits use to a childcare centre only for 10 years. There was a DA for an 84 place childcare centre. The property was sold in February 2015 for $933,000, but the DA included a requirement that the developer undertake additional off-site works. The rate per childcare place analysis shows $11,107 per childcare place. The Commissioner contends this is an inferior location.
(f)Sale 9: Block 26, Section 14 Red Hill. This block is 1,991 square metres with a broad purpose clause. There was a DA for a two storey, 120 place childcare centre. The property was sold in April 2018 for $1,800,000. The rate per childcare place analysis shows $15,000 per childcare place. The Commissioner concedes this is a superior location compared to the subject property, although it is a small block.
[19] Exhibit R1 page 14
24.On the basis of these sales, and a comparison of the superiority or otherwise of each of these sites, Mr McInerney contended that “there’s one [sale] a bit out of line, the one in Kambah, but the majority of them are in that $12,000 to $15,000 [per childcare place] range”.[20] The Kambah sale, Mr McInerney contended, was out of line due to the requirement that the purchasers undertake costly off-site works, which reduced the value of the block.[21]
[20] Transcript of proceedings 11 December 2018 page 46, lines 43-45
[21] Transcript of proceedings 11 December 2018 page 54, lines 38-39
25.Mr McInerney contended that when comparable sales are analysed by reference to the rate/childcare place methodology and compared by reference to their other relevant characteristics (for example, purpose clauses, size, and location), this analysis confirms the original valuation of the property at $1,550,000, or $12,400 per licensed childcare place.[22]
[22] Transcript of proceedings 11 December 2018 page 46, lines 43-45 — a rate/childcare place value of the subject property of $12,400 per childcare place, for a UV in this case of $1,550,000 ($12,400 x the 125 places).
26.Mr McInerney also gave evidence addressing some of the applicant’s concerns about a number of the proposed ‘comparable sales’. His evidence in this regard is considered further below.
The applicant’s position
27.The applicant’s position was set out in its written submission and elaborated upon in Mr Kumar’s oral evidence.
28.The applicant’s argument consisted of a number of grounds. They may be summarised as follows:
(a)The rate/childcare place methodology is reliant upon there being comparable sales — and in the applicant’s submission, there are no sufficiently comparable sales of properties of a similar size in a “highly competitive area like Franklin and Harrison”,[23] and no sales of comparable subdivisions.
(b)Alternatively, even if the Tribunal is to accept that some or all of the sales relied upon by the ACTVO are comparable, there are other sales that should have been analysed by way of comparison — and that these sales were ignored by the ACTVO.[24]
(c)Even if the selected sales are comparable, the rate/childcare place methodology used by the ACTVO to compare the sales and assess the UV of the subject property should be rejected.
[23] Transcript of proceedings 11 December 2018 page 37
[24] Transcript of proceedings 11 December 2018 page 35, line 25
29.In relation to the latter point — that the Commissioner’s methodology was flawed — the applicant submitted that the application of the rate/childcare place methodology was applied in an arbitrary manner and resulted in artificially high valuations:
There are many way[s] to determine the UAV of a childcare site and in my experience dealing with the ACT Revenue Office, it is clear that their preferred approach is to assess the UAV based on the per child the centre is licenced for when it suits the higher valuation and in other cases it is based on the GFA.[25]
[25] Applicant’s Submissions filed 4 November 2018
30.Further, the applicant contended, the rate/childcare place methodology was in any case unreliable. The DA will, at best, reflect the number of licensed places permitted at one point in time. The number of licensed places can vary, depending on a number of variables, from time to time. Moreover, market forces may mean that the number of licensed places is never realised in practice. The applicant submitted, on this basis, that the number of licensed places, and indeed actual number of places that can be filled, is so variable the rate/childcare place methodology “is not the method that should be used to determine the value of a fixed asset” such as land.[26]
[26] Transcript of proceedings 11 December 2018 page 9, lines 38-39; page 21, line 21
31.Mr Kumar elaborated as follows:
the matter before us is [the] unimproved value of the valuation of block 5. It’s a fixed asset. The land doesn’t grow or shrink. If the valuation method used to value that block is based on the speculation of … which number of children are there, which may change, may not change, could be built, could not be built. A fixed asset, in my opinion, should be valued and all three valuations which I presented, [they’ve] all used per square metre rate or per square GFA rate and if those were automatically used then still the unimproved value of the subject site would come to around $700,000.[27]
[27] Transcript of proceedings 11 December 2018 page 76
32.Further to this submission, Mr Kumar suggested a number of alternative means by which the subject property could be more accurately valued. Amongst other things, he submitted that the Tribunal need not apply any one particular method, because when compared with any of the alternative methods, the result reached on the rate/childcare place valuation is too high:
We can take a direct comparison. We can take deduction method, we can take it [as] comparable sales, we can take it [as] other property around that area and none of them, in my view, supports the unimproved value of $1.55 million.[28]
[28] Transcript of proceedings 11 December 2018 page 8, line 37
33.As I understand the applicant’s position in relation to alternative approaches it is that, in the absence of comparable sales, the best approach to the assessment of the subject property’s UV is to average or moderate the results reached through two or perhaps three alternative methods:
(a)the deductive method, using either a capitalisation of valuation or market income, or a hypothetical development method;
(b)a comparable sales method, using a more comparable basket of sales, evaluated on a GFA basis; and
(c)(perhaps) an alternative approach of calculating the value of the subject property by reference to the market value of the original block minus the market sale price of block 4 (the subdivision method).
34.In support of its contentions, the applicant, through Mr Kumar, relied upon three expert reports. Unfortunately the authors of these reports were not called to give evidence. This not only denied the Commissioner the opportunity to cross‑examine them, but it also meant that neither the applicant nor the Tribunal could question them to address the criticisms made by the Commissioner and its witness, Mr McInerney.
35.The first report was prepared by CBRE and is dated 31 August 2016 (CBRE Report). It was prepared for mortgage purposes and related to the original block, which the report describes as a “vacant parcel of commercial land zoned Community Facilities.” This report assessed the UV of the entire block to be valued at $2,100,000. This valuation was based on comparative sales of community facility zoned land. The valuation is notably less than the $2,510,000 the applicant paid for the subject property — the relevance of this is considered below.
36.The second report was prepared by Herron Todd White and is dated 29 May 2017 and values the subject property as at 29 May 2017 (that is, post the subdivision) (HTW Report).[29] Again, it was prepared for mortgage lending purposes. It values the UV of the subject property at $1,480,000, based on an assessment of the value as $550 and $650 per square metre on a comparable sales basis and a “summation approach”.[30]
[29] The Tribunal relied on the amended version of the HTW Report
[30] HTW Report page 11
37.The third report was prepared by Opteon (Opteon Report) and values the subject property as at 2 October 2018. By this time, the development of a 125 place childcare centre was well underway. This report was prepared for “pre-sale purposes”. It values the entire development at $5,100,000, a figure determined after reconciling valuations reached through a direct comparison approach ($5,325,000) and a market yield approach ($4,875,000) calculated by estimating revenue from operating a 125 place childcare centre.
38.The valuation in the Opteon Report was the basis for the applicant’s first alternative means for valuing the property, the deductive or hypothetical development method.
39.The hypothetical development is a recognised approach for valuing land where there are no comparable sales.[31] The applicant cited Maurici v Chief Commissioner for State Revenue[32] and summarised the approach adopted in that case in the following terms:
Estimate the net rental which could be obtained from a hypothetical building which represents the highest and best use of the land.
Capitalise the estimated net rental to arrive at the improved value of the site.
Deduct the estimated cost of developing the site (including holding costs and the developer’s margin) from the improved value of the land.[33]
[31] See the discussion in Hyam pages 183-185
[32] [2003] HCA 8
[33] Applicant’s Submissions filed 4 November 2018
40.Relying on the Opteon Report, the applicant contended that the estimated rental income that could be derived from the completed childcare centre on the subject property to be $375,000 per annum. It calculated the cost of constructing the childcare centre at $5.1 million – the relevant calculations for those building works were set out in the applicant’s submissions and do not need to be repeated here. Deducting the cost of developing the site from the assessed value of the developed site, the applicant calculated the UV value of the subject land as $355,000.[34]
[34] Applicant’s Submissions filed 4 November 2018
41.A valuation of $355,000 is significantly lower than that contended for not only by the Commissioner, but also in the CBRE Report and the HTW Report relied upon by the applicant. It is also a lower valuation than that reached by any of the applicant’s other suggested methods. Mr Kumar rightly acknowledged this. He suggested that the low valuation may be reflective of values “coming down”,[35] but he also acknowledged that the hypothetical development method allowed some room for leeway.[36] He said that the applicant would “accept $700,000” as a compromise figure.[37]
[35] Transcript of proceedings 11 December 2018 page 38, lines 22-23
[36] Transcript of proceedings 11 December 2018 page 38, line 37
[37] Transcript of proceedings 11 December 2018 page 38, line 28
42.What I took from this concession by Mr Kumar was this: he did not suggest that the Tribunal should necessarily adopt $355,000 as the valuation of the property, but rather asked the Tribunal to view that sum as either setting the lower end of an acceptable range, or operating as a check or balance that illustrates how excessively high the ACTVO’s valuation is when considered in light of the actual rent (and profit) achievable from the subject site.[38]
[38] Transcript of proceedings 11 December 2018 pages 38 and 69
43.The applicant also contended that the Commissioner’s valuation of the subject site was self-evidently excessive when compared to the market price of the original block and the other part of the subdivision, Block 4. The applicant argued that, when considering the market value of the subject property, the sale price of the original block should be reduced to reflect that the previous owners has spent some $700,000 on various reports and statutory charges, and that the market cost was inflated accordingly: “If those costs are to be considered, then the value of the land …. was approx. 1.7M.”[39]
[39] Applicant’s Submissions filed 4 November 2018
44.I understand the applicant’s position on this point to be this — Block 4 sold in November 2017 for $855,000. This block, it appeared to be agreed, was affected by a detriment, being an easement. On the Commissioner’s valuation of the subject block and Block 4 “[p]rior to the subdivision, the [original] site was valued at $2 million. After subdivision, suddenly it’s gone up $2.5 million”[40] (that $2.5 million being the combined value of the assessed UV for the subject block and the market sale price of Block 4). This is despite the detriment to Block 4, which one would think would reduce the value of the block. This, the applicant appeared to suggest, was demonstrative of a flaw in the Commissioner’s reasoning, although it does not necessarily lead to any conclusion about what the block should otherwise be valued at.
[40] Transcript of proceedings 11 December 2018 page 52
45.The applicant’s alternative approach to the valuation process was a comparative sales analysis, based on a different ‘basket of sales’ to that chosen by the Commissioner.
46.As a starting point, Mr Kumar contended that the Commissioner’s initial comparative sales selection “happen to be the three most unusual and inflated sales recorded in the ACT and all three of the projects [have] financial problem[s].”[41] He gave written and oral evidence as to the broad nature of those financial problems in relation to Sales 3 and 4. These contentions are considered further below.
[41] Applicant’s Submissions filed 4 November 2018
47.Nonetheless, Mr Kumar conceded that some of the new sales relied upon at hearing — Sales 5, 8 and 9 — were, or perhaps may be, comparable sales. However, he rejected the contention that they should be analysed on a rate/childcare place basis, suggesting instead that they should be analysed on a price square metre basis as follows:[42]
(a)Sale 5 — $509.56 per square metre;
(b)Sale 8 — $228.18 per square metre; and
(c)Sale 9 — $904.07 per square metre.
[42] Applicant’s Submissions filed 4 November 2018
48.The applicant also contended for three additional sales to be considered:
(a)Sale 10: Block 5, Section 239 Kambah is a 4,652 square metre site with a community use purpose clause. It sold for $940,000 on 11 February 2015, which the applicant analysed at $202.06 per square metre.
(b)Sale 11: Block 2, Section 517 Gordon, a 3,615 square metre site with a community use purpose clause, sold for $660,000 on 19 November 2014, which the applicant analysed at $182.57 per square metre.
(c)Sale 12: This is the same property as that in Sale 6, but the applicant relies upon an earlier sale of the property on 29 April 2016 for $801,000.
49.Mr Kumar contended that the analysis of this basket of sales on a ‘per square metre’ basis was consistent with the methodology used in the CRBE and HTW Reports. The average of this basket of sales is $406.45 per square metre. On this basis, he suggested that the UV for the subject block should be $920,202.
50.I note here that the Commissioner effectively submitted that, in light of the concession by the applicant that there were comparable sales, he was no longer able to press a hypothetical development model, the authorities being consistent in the position that the hypothetical development approach is not appropriate where comparable sales are available.[43] However, what I took the applicant to be arguing was an alternative position that (a) the Tribunal should accept that there are no (or insufficient) truly comparable sales, but that if it does not accept this then (b) the applicant’s comparable sales are more reliable, and his analysis should be taken as representing the upper value of the range of acceptable values, with $800,000 representing a figure in the middle of the acceptable range between the low (hypothetical development) assessment and the higher comparable sales assessment.
[43] Exhibit R1 pages 12-13 [59], citing Tuggeranong Town Centre Pty Ltd v Commissioner for ACT Revenue (2008) ACTAAT 22 quoting Gyynwill Properties Pty Ltd v Commissioner for Main Roads (1983) 50 LGRA 322
51.The applicant also sought to compare the assessed UV of the subject property to the UVs of other properties — most particularly a site in Amaroo and another in Franklin. He tendered a document that applied the rate/childcare place methodology to the UVs of a significant number of other childcare centres in the Gungahlin area[44] — the diagram indicates a range of $3,446 per child through to $7,710 per child. He suggested that these premises, his direct competitors, will all be paying much lower rates, with his business being uncompetitive as a consequence.
[44] Exhibit A2
52.Following from this, the applicant advanced a number of policy arguments in support of his position. He pointed out that the assessment of UV advanced by the Commissioner was substantially higher than he had anticipated and, he contends, it puts the project at risk – he suggested that the assessment was a matter of “sovereign risk”,[45] as the business cannot be viable.
The legislative framework
[45] Applicant’s Submissions filed 4 November 2018
53.Section 68 of the ACTCivil and Administrative Tribunal Act 2008 (ACAT Act) provides:
68 Review of decisions
(1) This section applies if the tribunal reviews a decision by an entity.
(2) The tribunal may exercise any function given by an Act to the entity for making the decision.
(3) The tribunal must, by order—
(a)confirm the decision; or
(b)vary the decision; or
(c)set aside the decision and—
(i)make a substitute decision; or
(ii)remit the matter that is the subject of the decision for reconsideration by the decision-maker in accordance with any direction or recommendation of the tribunal.
54.Pursuant to section 70 of the Rates Act the taxpayer can seek review by this tribunal of a determination by the Commissioner of an objection to a decision mentioned in section 70. Section 73(1) provides:
73 Review by ACAT
(1) This section applies to a determination by the commissioner of an objection to a decision mentioned in section 70, other than a decision mentioned in section 70 (a).
(2) The determination is prescribed for the Taxation Administration Act, section 107A (Meaning of reviewable decision etc—div 10.2).
Note Applications for review by the ACAT may be made in relation to a determination by the commissioner of a decision on an objection to an assessment.
55.Section 14 of the Rates Act provides that rates are imposed for a parcel of ‘rateable land’ in accordance with the applicable formula.
56.‘Rateable land’ is defined in section 8 of the Rates Act as:
8 Meaning of rateable land
(1) In this Act:
“rateable land”—
(a) means all land in the ACT, including Commonwealth land; but
(b) does not include—
…
(vii)Commonwealth land that is not leased and is unoccupied (other than land that, immediately before becoming unoccupied, was occupied by a lessee of the Territory or Commonwealth on a weekly or fortnightly tenancy).
57.Sections 9 and 10 of the Rates Act provide for the determination and annual redetermination of UV’s for parcels of land in the ACT. They provide:
9 First determination of unimproved value
(1) This section applies to a parcel of land that becomes rateable in a financial year (the first financial year ).
(2) The commissioner must determine the unimproved value of the parcel of land for the first financial year as at 1 January in the immediately preceding financial year.
(3) If the determination for the first financial year is not made in that year, the commissioner must also determine the unimproved value of the parcel for each subsequent financial year.
Example
A parcel of land became rateable on 28 September 2009. However, the first determination of the unimproved value of the parcel of land was not made until 2016. The first determination of the unimproved value of the parcel of land is for the unimproved value as at 1 January 2009 and applies to the parcel for the financial year beginning on 1 July 2009.
The commissioner must redetermine the unimproved value of the parcel of land for each of the financial years from 2010 to 2016.
Note An example is part of the Act, is not exhaustive and may extend, but does not limit, the meaning of the provision in which it appears (see Legislation Act, s 126 and s 132).
10 Annual redeterminations
(1) This section applies to a parcel of land that is rateable on 1 January in a year.
(2) The commissioner must, as soon as practicable after 1 January, redetermine the unimproved value of the parcel of land as at that date for the financial year immediately following that date.
58.Section 6 defines ‘unimproved value’ as follows:
6Meaning of unimproved value
(1) The unimproved value of a parcel of land held under a lease from the Commonwealth is the capital amount that might be expected to have been offered on a date (the base date), for the lease of the parcel, assuming that—
(a)the only improvements on or to the parcel were the improvements (if any) by way of clearing, filling, grading, draining, levelling or excavating—
(i)if the Territory or Commonwealth had, before the parcel became rateable as a separate parcel, granted a development lease of land that included the parcel—made by the lessee under that lease or by the Territory or Commonwealth, or the cost of which was met by that lessee or by the Territory or Commonwealth; or
(ii)in any other case—made by the Territory or Commonwealth or the cost of which was met by the Territory or Commonwealth; and
(b)he circumstances that existed on the prescribed date also existed on the base date; and
(c)on the base date, the lease had an unexpired term of 99 years; and
(d)a nominal rent was payable under the lease for the 99 year term.
59.It is common ground between the parties that, absent any special circumstances, the value of a parcel of land in an open market situation is its market value. It is also common ground that the best evidence of a parcel of land’s market value is that of comparable sales of other land, at least where there are sufficient sales to make the comparison meaningful.[46]
[46] Commonwealth v Arklay (1951-1952) 87 CLR 159 [169-170]
60.As noted above, it is a well-established valuation principle that in determining the value of land, a valuer is required to consider the land’s ‘highest and best use’.[47] It was agreed between the parties that a childcare centre is the highest and best use of the property.
[47] See for example Junstamp Pty Ltd and Ors & Commissioner for ACT Revenue [2013] ACAT 50
Consideration
The weight to be given to the applicant’s evidence
61.The applicant’s only witness, Mr Kumar, is clearly an experienced businessman and investor, but he is not a professional valuer. Consequently, a preliminary question before the Tribunal is what weight, if any, it can give the evidence and submissions of Mr Kumar as to the unimproved value of the subject property, and the identification of other comparable sales.
62.The Tribunal is not bound by the rules of evidence.[48] There is no requirement for expert or opinion evidence to comply with the rigorous requirements set out in, for example, Makita (Australia) Pty Ltd v Sprowles[49] in order to be considered. However, the Tribunal’s liberation from the rules of evidence does not mean that it is completely without constraint. Amongst other things, the Tribunal is still required to make findings of fact based upon material which is both relevant and logically probative, as opposed to relying on mere “suspicion or speculation.”[50] The rules of evidence, while not binding, provide at least a guide to whether testimony or documents meet this test, and the weight to be given to them if they do.[51]
[48] Act Civil and Administrative Tribunal Act 2008 section 8
[49] [2001] NSWCA 305; also Dasreef Pty Ltd v Hawchar [2011] HCA 21 [30]-[32]
[50] Minister for Immigration and Ethnic Affairs v Pochi (1980) 31 ALR 666 [685]; cited in Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26 [62]; see also Sarbandi v Sharif [2017] ACAT 57
[51] Sarbandi v Sharif [2017] ACAT 57 [57];
63.The applicant submitted little in the way of expert evidence, relying only on valuation reports prepared for mortgage purposes, and Mr Kumar’s informed, but lay, opinions as to the nature of the market and the childcare industry. While I have no doubt that Mr Kumar is well informed in his area of business, including the broader market movements within the childcare industry, he is not a valuer and has no experience with the kind of unimproved valuations conducted by the ACTVO.
64.In Chen & Zhang v Commissioner for ACT Revenue [2014] ACAT 70, Presidential Member Symons considered a similar issue regarding the weight to be given to lay evidence when the expert evidence of a valuer is available. Presidential Member Symons observed that:
50. The AAT in Trewhella and Minister for the Capital Territory said:
The applicant himself is not a professional valuer and he did not adduce any evidence from anyone qualified as such. This is a situation which has quite often arisen before the Tribunal in Australian Capital Territory rating cases. It has been said by the Tribunal in a number of cases that opinions of lay applicants upon matters requiring professional qualifications and experience can carry little if any weight when opposed to opinions expressed by a qualified expert. (See for example Firth and the Minister for the Capital Territory (No 78/5073) and Boyle, Boyd and Liu and the Minister for the Capital Territory (Nos. 78/5072, 5077 and 5078)
51. For these reasons, the Tribunal had no hesitation in preferring Mr McInerney’s evidence to that of the applicants in relation to assessing the value of houses and their effect upon the UV of the blocks on which they stand or have stood.
65.The same observations may be made here. Lay opinions on topics of expertise can rarely (if ever) be given the same weight as expert opinions, at least unless some genuine doubt is cast on the validity of the expert’s opinion, or the accuracy of the information relied upon to form it. The only questions that were raised in relation to Mr McInerney’s evidence was the suggestion that he may not have had the full information about some of the sales, considered below. Therefore, where there is a conflict of opinion, I prefer the evidence of Mr McInerney.
66.I should emphasise that this conclusion is in no way intended to criticise the submissions of Mr Kumar — his evidence was clear and thoughtful and I have no doubt that he knows his business well, but he is neither experienced nor a qualified valuer. Given the nature of his arguments, it is perhaps unfortunate that he chose not to call evidence from an expert who is.
The comparable sales method
67.While there is no one method of valuing land,[52] the comparable sales method is usually the preferred method.[53] Under the comparable sales method, the assessment of the UV of a parcel of land involves consideration of sales of parcels of land that are sufficiently comparable to the subject parcel, and an analysis of those sales using appropriate valuation methodology.[54]
[52] City Hill Pty Limited v ACT Planning and Land Authority and ACT Civil and Administrative Tribunal[2015] ACTSC 40 [69]; Notaras appeal [30]
[53] City Hill Pty Limited v ACT Planning and Land Authority and ACT Civil and Administrative Tribunal [2015] ACTSC [70] and [72] per Refshauge J; Commonwealth v Arklay (1952) 87 CLR 159 [169]-[170]; Maurici v Chief Commissioner of State Revenue [2003] HCA 8 [17]
[54] FANDS (ACT) Pty Ltd v Commissioner for ACT Revenue (No 2) [2017] ACAT 112 [58]
68.The comparable sales method requires a ‘sufficient basket’ of comparative sales.[55] What is ‘sufficient’ will vary from case to case.[56] Accordingly, the first question in this case is whether there are sufficient comparable sales to apply the comparable sales method.
[55] Notaras appeal [39]; Planet Red [34]
[56] Arcus Shopfitters Pty Ltd v Western Australian Planning Commissioner [2002] WASC 174 [52] – [53]; Notaras v Commissioner for ACT Revenue (Appeal) [2017] ACAT 2 [39]-[40]
69.In the reviewable decision, the ACTVO identified three comparable sales of childcare centres that were either developed or under development. The applicant suggested that Sale 2, Sale 3 and Sale 4 may be affected by special circumstances and may not be truly comparable. Arguably it follows that if these concerns were substantiated, then the single remaining sale, of the original block, may not have been sufficient to enable a satisfactory comparable analysis.[57]
[57] For example Maurici v Chief Commissioner of State Revenue [18]; but see also ISPT Pty Ltd v City of Melbourne [2007] VCAT 652 [51] per Morris J (upheld on review by the Victorian Court of Appeal in ISPT Pty Ltd v Melbourne City Council & Anor [2008] VSCA 180 in relation to a highly compatible single sale
70.A judgement as to whether a sale is sufficiently comparable is a matter of expert opinion: Commissioner for ACT Revenue v Rosnet Pty Ltd and Ors (1994) 116 FLR 275, citing Leichardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGRA 409. The only expert evidence available is that of Mr McInerney, who set out why he considered the sales comparable sales. Nonetheless, the Tribunal can, and must, consider whether Mr McInerney’s inclusion of these sales is tainted by error.
71.In relation to Sale 2, the applicant contended that the purchaser’s business model distorted the price:
I know the person who bought that site. Their business model is based on buy a site at whatever cost, build the biggest number of centre[s] you can build, rent it back, sell the building. Under section 6 of the Rates Act, I wouldn’t call that a genuine buyer of the land. A genuine buyer will buy the land, hold it for a longer term. All those three sales which are mentioned in my statement are short seller.[58]
[58] Transcript of proceedings 11 December 2018 page 26
72.Unfortunately, the applicant did not call any representative of the seller of Sale 2 to give evidence, and therefore this evidence cannot be properly tested. I do note that the market sale price does appear to be high in comparison to other sites, although it is a very large block.
73.In relation to Sale 3, the applicant contended that the premises had in fact been developed for a 184 place childcare centre and, at the time of the hearing, it been on the market for six months, with the selling agent having had to reduce the asking price which, Mr Kumar suggested, may suggest a drop in land value. Mr Kumar gave oral evidence as to this state of affairs, but again he had no documentary substantiation. The ACTVO’s position in relation to Sale 3 was that it relied upon the actual sale of the undeveloped premises in March 2016, not the current sale of the developed property. Mr McInerney stated that “[i]n any event, an ‘asking price’ does not equate to actual market sales evidence and could merely be speculative.”[59]
[59] Respondent’s Submissions dated 30 November 2018 page 7
74.The Tribunal is able to inform itself,[60] and I have had regard to local real estate listings. It appears the property that was Sale 3 has been marketed in 2017 and possibly again in 2018. In both cases, it was sold as a going concern with a developed childcare facility on-site. I do not have sufficient information about the sale to draw any conclusions about the circumstances of the more recent sale (or attempted sale) and what effect it had on the valuation, but I am satisfied that the recent sale of the undeveloped facility is likely to be more comparable that the current sale of the developed complex, for which allowances need to be made for the improvements. I am not satisfied that the arrangements surrounding the sale of the completed development, including the delay, necessarily have any bearing on the market value of the land. In the absence of any other evidence, I accept Sale 3 is a comparable sale.
[60] Act Civil and Administrative Tribunal Act 2008 section 26
75.In relation to Sale 4, the applicant contended that this was not a comparable sale as this site was sold with a substantial building structure already on it. There was evidence, which I accept, that there was a substantial building on the land at the time of the sale. The Commissioner submitted evidence that the existing building structure (an old fire brigade station) was intended to be demolished in order to facilitate the childcare development. Aerial photos from ACTmapi[61] relied upon by the Commissioner show that the original building has indeed been demolished and another building is under construction. In such circumstances, I accept that it is unlikely that the existence of the original structure would have materially increased the market sale price.
[61] Exhibit R1 Annexures 3 and 4
76.On balance, I accept the evidence of Mr McInerney that Sales 3 and 4 are comparable sales, albeit with consideration needing to be given to their distinctive characteristics. Sale 2 is more complicated, but the applicant’s evidence is too vague to conclude that the Commissioner is in error and the sale is not a sufficiently comparable sale.
77.However, even if I did have concerns about one or more of the original sales, the ACTVO has now identified six additional recent sales of blocks with similar DAs to construct childcare centres. While the sales vary as to their size, location and, in some cases, uses, there is no evidence before the Tribunal upon which I could conclude that these sales were not comparable sales, albeit with the usual need to make adjustments for location, site characteristics, purpose and use as set out in the Commissioner’s evidence. This provides a more robust basket of sales, even if some of the sales are excluded.
78.I do not accept that all the sales should be rejected because they do not relate to subdivisions.
79.Accordingly, the comparable sales method was the appropriate method to determine to determine the UV of the subject property.
80.In relation to the other sales identified by the applicant as potentially comparable, the Commissioner submitted as follows:
(a)Sale 10: Block 5, Section 239 Kambah — this was an out of line sale that should be discounted.
(b)Sale 11: Block 2, Section 517 Gordon — this was not a comparable sale because this was a direct sale by the ACT Government for ‘supportable housing’ purposes and not a sale on the open market.
(c)Sale 12: Block 5, Section 517 Gordon — this block was subsequently resold in May 2017 and there is a DA for a 119 place childcare centre, which on a rate/childcare place analysis puts it in line with the other comparable market sales evidence.
(d)Sale 13: Block 22, Section 28 Rivett — the sale price cited by the applicant was not accurate because that sale was rescinded. There was a subsequent sale in September 2016 with a subsequent DA for a 110 place childcare centre which puts it in line with the other comparable market sales evidence of child care centre sites.
81.Again, the issue of the comparability of sales is a matter of expert opinion, and I must give weight to Mr McInerney’s expertise. I accept that the circumstances surrounding Sales 10 and 11 do appear to give them special characteristics that at least reduce the comparability of the sites to the subject site. I also accept that the more recent sales of properties at Sales 12 and 13 are likely more indicative of current market circumstance.
82.Ultimately, the comparability of any individual sale is not likely to be decisive. Most of these sales, with the exception of Sales 10 and 11, support the Commissioner’s position, at least as far as it is based upon a rate/childcare place analysis. The discrepancies in Sales 10 and 11 are explainable. The real question, it seems to me, is less the comparability of any particular sale than the appropriateness of the method adopted to compare the sales to each other and to calculate the UV.
83.However, before considering this issue, it is opportune to consider the other models suggested by the applicant.
The first alternative approach: the deductive or hypothetical development method
84.The authorities are clear that the deductive or hypothetical development method is only used when there is an absence of comparable sales evidence, and even then only with some caution. As was recognised by the Land and Environment Court of New South Wales in Co-Ordinated Resources Pty Ltd v Valuer‑General:[62]
Although this is a recognised method of valuation, its use, otherwise than for the purpose of valuing land suitable for subdivision which has to be valued in its unsubdivided state, has always been regarded as suspect. If the estimates of assumed improvement costs, gross rentals and outgoings are not accurate, the whole exercise leads to an unreliable result. A small difference in the rate of capitalisation from that assumed has significant consequences.
[62] Co-Ordinated Resources Pty Ltd v Valuer-General (1983) The Valuer 779 [780] per Cripps J
85.As I am satisfied that there are comparable sales, the methodology is not appropriate here as an alternative method of valuation.
86.The hypothetical development model may be appropriately used as a ‘check’ on other methodologies, particularly where other methods result in surprising results. The difficulty in this case, however, is that it is the valuation reached by the hypothetical development or deduction method suggested by the applicant is well outside the range of any of the other UVs contended for. That alone is cause for concern about the accuracy of the hypothetical development valuation submitted by the applicant, rather than the accuracy of any of the other methodologies.
A second possible approach: sales evidence and the original block
87.Although it is not entirely clear on the face of the submissions, it appears that one of the applicant’s proposed methodologies is to compare the value of the sub‑divided blocks to the market value of the original blocks — see paragraphs 43 to 44 above. Consideration of this kind does not suggest an alternative value, but it could suggest that the Commissioner’s valuation is well outside the margins reasonably open to it.
88.The difficulty is that this analysis is premised on the Tribunal accepting that the value of the original block should not be the $2,500,000 market price, but rather $1,700,000 — a figure that takes into account the costs incurred by a previous owner in obtaining approvals. Unfortunately, there was little evidence before the Tribunal as to the nature of the fees and charges incurred by the original owner. There is no evidence that the proposed DA in issue was progressed or approved in a manner that would affect the value of the block (although, in fairness, there was little evidence either way). In the absence of such evidence, the Tribunal cannot explore it further.
89.I also note for completeness that there is also no evidentiary or expert support of this valuation of $1,700,000 — the applicant’s own valuations by private valuers put the value of the original property at $2.1 million.[63] This suggests the applicant paid a premium, but does not go as far as to support any sub–1 million dollar valuations.
[63] Applicant’s Submissions filed 4 November 2018. The CBRE report dated 31 August 2016 gave a value of $2.1M for the original block
90.In any case, it does not follow that when dividing a property in two the individual values will be the same as the cumulative value prior to division.
The third approach: the UV of other properties
91.The applicant filed a document that set out the published UVs of similar childcare centres in Gungahlin and Belconnen. The assessed UV of the subject property appears to be much higher than that of these other, similar properties in the area, including other childcare centres. The consequence, the applicant submitted, is that its rates will be higher and the competitiveness of its business lower. This was not seriously disputed.
92.In response to this contention, Mr McInerney stated that no comparison should be made between the assessed UVs of other properties. His evidence was that the Commissioner must re-evaluate the UV of each property every year — that amounts to some 180,000 valuations per annum.[64] Inevitably, most of these valuations are part of a mass valuation process that requires that the ACTVO make deductions based on assumptions rather than examining individual blocks. This is one reason why comparisons with other UVs are not a solid basis upon which to assess UVs. He also indicated that the UV of other sites may be re‑assessed in due course.
[64] Transcript of proceedings 11 December 2019 page 53, line 5
93.The Commissioner’s position that the UV of nearby parcels of land is not a relevant consideration in determining the UV of a particular parcel is supported by numerous authorities.[65] These authorities emphasise that comparison must be against available sales evidence, not against other UV valuations. The recent decision of this tribunal in Elliott v Commissioner for ACT Revenue [2018] ACAT 70 confirmed that it is inappropriate to assess UV by comparison with UVs of other properties. There is no basis for this Tribunal to take a different view.
Fourth approach: Hardship
[65] Chowdhury v Commissioner for ACT Revenue [2014] ACAT 15 [35]
94.The applicant suggested that the valuation will place a rates burden upon its property that is so high that it will make its childcare centre uncompetitive. I acknowledge that there is some evidence before the Tribunal that suggests that the UV for the subject block is out of line with other properties, and on this basis I accept that the applicant may well be placed at a commercial disadvantage. This is a hardship.
95.However, in Dexter and Minister for the Capital Territory the then Administrative Appeals Tribunal of the ACT said:
With respect to the remaining ground, namely, hardship, whilst recognising that there may be difficulties facing the applicants, hardship is not a matter which the Tribunal can take cognizance in determining the unimproved value of the land in accordance with the provisions of the Rates Ordinance: see Re O’Brien and the Minister for the Capital Territory (No 78/5050). Any relief to which the applicants may be entitled in this regard is outside the jurisdiction of this Tribunal.[66]
[66] Cited in Chen & Zhang v Commissioner for ACT Revenue [2014] ACAT 70 [53]
96.I agree. While I can understand Mr Kumar’s frustration, the fact that the valuation causes the applicant hardship is not of itself a basis for the Tribunal allowing an objection.
The final issue: The rate/childcare place methodology and the relevance of the lease
97.This leaves the final issue — that of the methodology of comparing the comparable sales by reference to the number of approved childcare places.
98.The number of childcare places is not attached to or noted in the lease itself, but rather in a DA associated with the lease which permits the building of a childcare centre. A licence or licences are apparently obtained separately from the Commonwealth.
99.However, there was little evidence before the Tribunal as to how a potential developer obtains childcare licences, or how the number of licences assigned to a development is determined, or the relationship between licence numbers and the DA. Mr McInerney agreed that there may be a difference in the numbers between those in the DA lodged and the licences actually granted,[67] and Mr Kumar’s evidence was that, in relation to another development:
in Amaroo, we have the DA for 125 place[s]. We got the licence for 109 place[s]. So what we applied for and what we get licence[d] is two different thing.[68]
[67] Transcript of proceedings 11 December 2019 page 50
[68] Transcript of proceedings 11 December 2019 page 51
100.Notwithstanding these uncertainties, however, what I take from the Commissioner’s evidence is that the DA defines the maximum number of places for which the buildings on the site may be constructed. It is the theoretical highest and best use of the land.
101.Does this number have a sufficient connection with the land itself to be relevant to the calculation of the UV?
102.Neither party could point to any case law, in any jurisdiction, that considers the rate/childcare place methodology, or indeed any similar methodology (for example, valuation by reference to licence numbers). I am left only with Mr McInerney’s evidence that it is a method used in the industry,[69] but in light of his expertise, I accept this evidence.
[69] Transcript of proceedings 11 December 2019 page 59
103.In Gungahlin Golf Investments Pty Ltd v Commissioner for ACT Revenue [2017] ACAT 96 the tribunal considered whether restrictions on the lease were relevant considerations. It observed:
42. The Court of Appeal of the ACT Supreme Court stated in Macedonian Orthodox Church Incorporated v ACT Planning & Land Authority:
It is agreed that certain matters external to the leases are properly taken into account in valuing each lease; these include “public laws which affect the value of the land, ... including restrictions imposed by planning laws and instruments made thereunder” (Valuer-General v New South Wales Golf Club [2012] NSWCA 355;(2012) 192 LGERA 105 at 114; [36], applying Royal Sydney Golf Club v Federal Commissioner of Taxation [1955] HCA 13; (1995) 91 CLR 610 at 624). In the ACT this would include the Territory Plan as well as zoning rules and requirements and certain other instruments made under or for the purposes of the Plan, and possibly other restrictions such as tree preservation orders or heritage listings.
43. The terms of the Lease, as legal restrictions on the use of the Land, are relevant to the valuation of the Land. Other legal restrictions will also be relevant. Both factors may be relevant to the “the capital amount that might be expected to have been offered on ... the base date... for the lease of the parcel” (section 6(1) of the Rates Act).
104.On the evidence I have before me, the DA is a ‘legal restriction’ on the use of the land. It is publically available information that determines what may be built on it. Given that the subject property has a DA that permits the construction of a 125 place childcare centre, and a childcare centre is (as all parties agree) the highest and best use, the number of approved childcare places, under the DA, is likely to influence a buyer, and serves as a useful and common way to compare properties with the same purpose.
105.A key point is that all parties agree that the highest and best use of the land is, currently, a childcare centre. Assuming that this remains correct, then the relative values of properties may rationally be evaluated by reference to their relative capacities for being used as childcare centres.
106.Although I have little evidence as to the process for obtaining childcare licences, I accept the applicant’s evidence that the numbers permitted under a licence may be variable. It is possible that changes to Commonwealth policy may reduce the number of licensed places available, notwithstanding that the DA permits more. It may also be, for example, that a developer will never be able to realise the approved number of licence positions because of other market factors, meaning that the licensed number is of less relevance than other considerations. However, there was little evidence of these concerns before the Tribunal, and no expert evidence on how they would impact the market value of the property.
107.In conclusion, the Tribunal accepts the evidence from the one expert called, Mr McInerney. That evidence is to the effect that, both generally and in the particular industry, the rate/childcare place methodology is an appropriate means of analysing sufficiently comparable sales of properties that have approved DAs permitting the development of childcare centres. There appears to be a rational connection between the methodology and the use of the land. There is no compelling or persuasive evidence from the applicant, nor any legal authority, that suggests otherwise (notwithstanding Mr Kumar’s genuine concerns about the impact on his business). In any case, the valuation reached through this methodology matches the GFA approach taken in the original valuation. In these circumstances, there is no reasonable basis upon which I could reject the methodology.
108.I therefore accept the rate/childcare place methodology as an appropriate methodology in this case. The evidence before the Tribunal therefore supports the analysis undertaken by the ACTVO and accepted by the Commissioner. Accordingly, the decision under review is confirmed.
………………………………..
Senior Member H Robinson
HEARING DETAILS
FILE NUMBER:
AT 76/2018
PARTIES, APPLICANT:
Franklin General (ACT) Pty Ltd
PARTIES, RESPONDENT:
Commissioner for ACT Revenue
COUNSEL APPEARING, APPLICANT
N/A
COUNSEL APPEARING, RESPONDENT
Ms Prue Bindon
SOLICITORS FOR APPLICANT
N/A
SOLICITORS FOR RESPONDENT
ACT Government Solicitor
TRIBUNAL MEMBERS:
Senior Member H Robinson
DATES OF HEARING:
11 December 2018
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