Gibbs Traders Pty Ltd v Council of the City of Gold Coast
[1997] QLC 34
•27 March 1997
|
BRISBANE
27 MARCH 1997
Re: A95-81
Determination of Compensation -
Resumption for Road Purposes -
Acquisition of Land Act 1967
BETWEEN:
Gibbs Traders Pty Ltd
Claimant
and
Council of the City of Gold Coast
Respondent Constructing Authority
J U D G M E N T
By proclamation published in the Government Gazette, the Council of the City of Gold Coast took for road purposes, on 7 April 1995, land described as Lot 99 on Plan 880416, containing 1,296 m², being part of the land contained in Certificate of Title Volume 7444, Folio 145, Parish of Barrow.
The land was taken from Lot 8 on RP 223910 which contained an area of 2.908 ha, zoned “General Industry”. The land comprised a near rectangular lot with a slightly angular frontage of 67.23 metres to Brisbane Road (the Gold Coast Highway) at Labrador, as its northern boundary, average depth of about 434 metres to a frontage of 66.989 metres to Ivan Street as its southern boundary. Generally parallel to the eastern boundary and about 12.5 metres within it, was Easement B, which, together with Easement A over adjoining property to the east was developed as Sinclair Street constructed to modern industrial standard. Although not dedicated as such Sinclair Street was for all intents and purposes used as a public road connecting Brisbane Road and Ivan Street. The carriageway of Sinclair Street opened directly onto the then existing carriageway of Brisbane Road as did the frontage driveway of the balance of the subject frontage.
The parent parcel through to Ivan Street accommodated various structures and enclosed yard areas. However, set back about 16 metres at the closest point, from the Brisbane Road frontage and centrally between Sinclair Street and the western boundary was a single level brick and metal industrial building which had been constructed in various stages and divided into four tenancy areas. The presentation of the building was said to be fair although of older style dated by a stepped brick facade to the Brisbane Street alignment. Two tenancy areas were provided to that frontage with direct access to a sealed car park, which in turn merged with the direct access to the southern (westbound) carriageway of Brisbane Road. Ingress and egress from and to the eastbound carriageway was available, limited only by the disability of turning in the face of intermittent high volume traffic. Within the site there was also driveway access and parking areas along the western boundary from the frontage car park and also on the eastern side from the front car park to a footpath crossing into Sinclair Street. The frontage complex was contained within an area said to be about 5,135 m² excluding the Sinclair Street easement, delineated on the southern “boundary” by a security fence.
The resumption was in connection with a scheme for the construction of a dual carriageway service road on the southern side of the Brisbane Road carriageway. On the subject parent parcel, the land taken was of dog-leg shape, widening the Brisbane Road reserve by about 18.5 metres on the western boundary with three chords along the building frontage then truncated into Sinclair Street to a total depth of 35.46 metres along the eastern boundary from the surveyed Brisbane Road frontage. The resumption effectively removed the frontage car park with the new alignment adjacent to an original narrow concrete patio on the eastern half of the frontage. It then extended to include part of the Sinclair Street carriageway and landscaped verge. Erected within the car-park area had been a large advertising sign, owned by others, and accommodated under a licence agreement.
Claim for Compensation
The claim filed in the Court was in the total amount of $652,323.76. Leave was sought, and granted without objection, for the claim to be amended as follows:
1.Compensation particularised by valuation $497,500
Preparation of Claim:
Legals $2,000
Valuation Fee $5,000
Town Planning Fee $1,000
Survey of Lessee’s areas $800$506,300
The professional fees expended in the preparation of the claim (totalling $8,800) were agreed between the parties.
Valuation Evidence
Claimant
The first item in the claim was as particularised in a valuation carried out by Mr L.J. Hamilton, registered valuer. Mr Hamilton had approached the assessment of compensation on two bases, both adopting a value for the land referred to as the “northern lot” accommodating the structure and various driveways and parking areas as earlier described, in the amount of $1,065,000, before the resumption.
In his opinion, the effect of the resumption was contained within that northern lot and although that land formed part of a much larger balance area, it was seen to be inappropriate to confuse the issue by conducting a valuation of the total area before and after resumption.
In the after resumption situation he saw the loss of the highway frontage car parking and direct highway access as dominating the effect on the value of the northern lot. The frontage showroom-type tenancies had, in his opinion, lost their utility and desirability as such. Although aged, he was of the opinion that the structure would have been seen in the marketplace as providing adequate accommodation for the existing tenancy mix.
While the structures remained after the resumption, the property presented as an aged building immediately adjacent to the service road alignment with no direct vehicular access and no on-site showroom frontage customer parking.
In Mr Hamilton’s opinion, any undesirable features of the aged showroom presentation were previously largely negated by the adequate setback, direct highway access and exposure and the spacious on-site customer car parking. Subsequent to the roadwork construction, the aged brick building bulk dominated the alignment, caused service road line of sight disabilities which in turn restricted internal traffic movement to the eastern side and Sinclair Street. Furthermore, in Mr Hamilton’s opinion, the once-dominant highway exposure has lessened in intensity through the separation of the property from the highway by the service road construction. Access to the site from Brisbane Road is, subsequent to the resumption, via the traffic light controlled intersection with Ereton Drive about 100 m to the east or at another intersection about 500 m to the west. In his opinion the after resumption position will be that the site will have inferior, less direct but safer access compared to the before situation.
The owners had, subsequent to the resumption, decided to “downsize” the showroom tenancy areas and at the same time carry out renovations and refurbishment. The showroom frontage will be once again set back sufficiently to allow on-site frontage car parking together with Council landscaping requirements. Mr Hamilton took the view that the downsizing of the showroom was an appropriate response in an attempt to mitigate the dominant deleterious effects of the resumption.
His “after resumption” valuation approach considered two options. The first was based on the downsizing proposal, but only to the degree that the building shell would be reduced in size, with the standard of tenancy accommodation remaining in like condition to that which existed previously. On completion of that proposal, and on a tenanted basis, he valued the premises in the amount of $765,000. The cost of remodelling was estimated as $115,000. Mr Hamilton estimated that the downsizing construction would involve a period of six months. During that period, together with a letting-up period of a further three months, he estimated that the owner would lose $75,000 in rental, together with letting-up expenses of $7,500. By deducting from the valuation of the downsized premises in a fully tenanted situation, first the downsizing costs then loss of rental and letting-up costs, his after resumption valuation became $567,500. This option was his preferred approach and one which he believed was practical, desirable and one which would be seen as reasonable in the marketplace. The difference between the before valuation of the northern section ($1,065,000) and the after valuation in Option 1 ($567,500) resulted in the compensation claimed in the amount of $497,500. The second “after resumption” valuation approach considered by Mr Hamilton was to leave the premises unaltered and as presented after the resumption, except for the site works considered necessary to restore the land to its previous condition (drainage etc) at an estimated cost of $5,000. In a fully tenanted condition, but with rent levels reduced in recognition of the effects of the resumption, Mr Hamilton valued the northern lot in the amount of $680,000. However, as one tenant had been lost, in his opinion as a direct consequence of the resumption, and that tenancy area together with another vacant unit were considered impossible to let during the roadworks construction period, the rental loss to the owner including letting-up costs, was calculated by Mr Hamilton to be $64,300. That amount, together with the $5,000 estimate for “making good” the site, was deducted from the after valuation to leave an amount rounded to $610,000. On this second approach, the compensation would have reduced to $455,000 ($1,065,000 minus $610,000).
Respondent
The final valuation put in evidence by the constructing authority was that of Mr. L.S. Parsons, registered valuer. Mr Parsons had been engaged by the Council to provide valuation advice prior to and subsequent to the formal resumption of the subject land.
Mr Parsons had carried out various calculations during the course of the hearing, based on suggested rental adjustments, but these had the effect of reducing the assessment of compensation. For the purpose of deciding “the amount of the valuation finally put in evidence by the constructing authority” (see s.27(2) of the Acquisition of Land Act), the respondent did not resile from the amount of $145,000 as contained in the formal valuation report of Mr Parsons. That amount had been a significant increase on an earlier valuation on which the first advance payment of $86,000 had been made.
Mr Parsons’ primary valuation approach had also been to consider the before and after resumption valuations of the “northern lot”. In Mr Parsons’ opinion the highest and best use of the parent parcel had been, and remained, for subdivision into smaller lots. Mr Parsons’ before resumption formal valuation of that northern lot was $925,000 as opposed to Mr Hamilton’s $1,065,000. Both had adopted the capitalisation of estimated net rental income as the appropriate valuation method.
In the after resumption situation, Mr Parsons had concluded that the highest and best use of the balance area of the northern parcel remained as before, as an investment property utilising the existing structures, although deleteriously affected by the loss of the on-site frontage parking. He concluded that any adverse effect through loss of direct highway access had been negated through the service road generally enhancing “accessibility and visibility to properties located on the southern side of Brisbane Road”. He agreed under cross-examination that the visibility of the subject property would not have been improved. However, he saw the service road feeding to safer, traffic controlled intersections with the highway as enhancing the accessibility of the general locality south of the highway.
Mr Parsons was of the opinion that the frontage structure was nearing “the end of its useful life” and redevelopment would have been an option available to an owner both before and after the resumption. He agreed under cross-examination, that the resumption had “accelerated the perception of the necessity to do something with the premises. He believed that the loss of the car parking at the front would “make the owner reconsider his options and perhaps bring forward a redevelopment of the site”. Nevertheless, he did not alter his opinion that the effect of the resumption on the value of the northern lot had not been so significant as to necessitate redevelopment or remodelling of the existing structure. He had not attempted such a valuation exercise.
Mr Parsons’ after resumption valuation was in the amount of $780,000, being $145,000 less than his before resumption valuation.
As a check on that result Mr Parsons had considered a “piecemeal” approach. Based on sales of in globo land, the details of which were provided, and after giving consideration to the worth of the subject land in subdivision, he valued the land taken at “approximately $55/m²” as partly encumbered by easements (including the Sinclair Street easement), or $70,000; the bitumen sealed road, driveway and car-parking areas at $20,000; the diminution of building utility $50,000 - totalling $140,000.
Valuation Criteria
Town Planning
Mr H.A. Parker, town planner in private practice, had been engaged by the claimant to provide a town planning report which was tendered to the Court.
He advised that at the date of resumption a business of tyre fitting and sales was conducted from the southern tenancy. That use was considered to be as of right in the “General Industry” zone. A pool chemicals business was being conducted from the tenancy at the western highway frontage. That use was defined as a “shop” which activity was a prohibited use in the “General Industry” zone. Two tenancy areas comprising the balance of the building were vacant.
Mr Parker advised that for uses defined as “General Industry” and “Light Industry”, parking was calculated at the rate of 1 space/50 m² of total use area. The existing building would generate parking requirement for 33 spaces for lawful uses. At the date of resumption formal parking (line marked) was available for nine spaces with informal parking available at the highway frontage and Sinclair Street frontage for 24 spaces.
Under the Town Planning Scheme current at the date of resumption, landscaping requirements were:
“.a landscaped open space at least 6 m in width adjoining the main frontage and at least 3 m in width adjoining any secondary road frontage;
.where the area required above does not exceed 12% of the net area, then a further 2% of the net area of the net site area shall be provided for the planting of substantial trees.”
Before resumption the site did not provide the 6 m landscaped setback on the main road frontage and did not provide the minimum 12% of the net site area as landscaping, according to Mr Parker. His report noted that “the building was however established some 30-35 years ago at which time these requirements did not apply”.
Subsequent to the resumption Mr Parker observed that the site would not comply with the provisions of the Scheme for parking. Accompanying Mr Parker’s report was a plan showing a layout for a downsized building with provision for 31 car-parking spaces and more than adequate landscaping.
The respondent Council tendered a letter dated 2 August 1996, addressed to the claimant. This letter confirmed “that the resumption of land for road widening purposes which was effected on 7 April 1995 does not affect the status of Town Planning Permits applying to your land prior to resumption. It is accepted by Council that the status of Town Planning Permits are still in force and effective.”
Valuation Methodology
The “northern lot” is not capable of separate sale except in subdivision. The valuers have, in effect, arrived at valuations of a notional separate parcel. It was accepted that there was no necessity to finetune the results to find the actual value which the northern parcel might add to the balance of the in globo parent parcel. It was agreed that the amount of compensation would not alter.
It is accepted that the primary valuation methodology, based on a notional individual site, is an appropriate approach.
Gross Rental Income - Before Resumption
Mr Hamilton assessed the gross maintainable income from the tenancies, fully occupied, as being $143,387, while Mr Parsons estimated that income to be $132,839.
Individual annual tenancy rentals had been estimated as follows:
Tenancy 1-
534 m² - highway exposure and direct access - vacant
Mr Hamilton - $49,127 Mr Parsons - $40,050
This tenancy had been subject to a three-year lease which terminated on 30 November 1994, but with two three-year options; the use being manufacturing and selling of sheepskin car seat covers. The first option had not been exercised. Mr Parsons thought that the tenant had vacated in December 1994 although he was aware that the tenant wanted to remain in occupation of the premises on a monthly tenancy “to see how the business would perform during construction of the service road”. Mr Parsons understood that “circumstances subsequently occurred which resulted in a disillusionment of the partnership which ultimated resulted in the business ceasing trading”.
Mr Hamilton had understood that the tenant had remained on a month-to-month tenancy until April 1995. A partner had been taken on in the latter half of 1994 and that indicated to Mr Hamilton that the business was growing. He speculated that had there been no suggestion of the resumption scheme or any perception of interference to access to the premises and the business, from the construction works, the option would have been exercised. The tenant would then have been committed to paying the increased rental which would have been $49,127 at the date relevant to this matter. The tenant was not called to be examined but a letter from him was tendered, stating that the option had not been exercised “because of the lack of access and the interference to be caused by the resumption and impending interruptions. My partnership difficulties came later in the piece and were not the cause of vacating the premises”.
The fact is that at or about the date of resumption, some four months after the lease expired and before construction of the roadworks had commenced, the tenancy area was vacant. The month-to-month tenancy and lack of lease commitments may have made the decision to vacate easier, but it seems the business ceased to trade, for reasons unrelated to the resumption. It seems pure speculation on Mr Hamilton’s part to suggest that the market, at least, would have viewed vacant premises, under lease but for the purposes of a defunct business, as affording a committed rental stream. That would be particularly so, if, as Mr Parsons suggested, the level of rental commitment would have been in excess of fair market rental.
Mr Parsons’ assessment equated a rental of $75 per m². He did not see the standard of premises as readily attracting a “key” tenant (as Mr Hamilton had seen the previous tenant) and pointed out that a “manufacturer’s shop under the Town Plan is only able to occupy 20% of the premises”. Mr Parsons had carried out an exercise of adjusting his market rental assessment on these premises up to that which had been paid prior to expiry of the lease. At the same time he had adjusted downwards the rental in another tenancy for reasons which will be explained later. Although he indicated that flexibility, I saw his reasoning in adopting $75 per m² as fair market rental, as having evidentiary support. He had made comparisons with other tenancy areas in the general locality. However, bearing in mind the rental for Tenancy 2 which I propose to adopt; the quotient of “manufacturer’s shop” permitted in the subject area; the market rental agreed between the valuers for Tenancy 3 with its secondary location; I will adopt a market rental of $80 per m² for Tenancy 1. This equates an annual rental of $42,720.
Tenancy 2 -
100 m², western frontage, highway exposure and direct access - pool chemicals
Mr Hamilton - $12,879 Mr Parsons - $11,708
The previous lease expired on 31 December 1994 and agreement had been reached for a new three-year lease with a three-year option, to commence from 1 January 1995 at a rental of $12,879. This lease had not been executed due to the pending resumption. Occupation has however continued at the previous rental of $11,708, pending refurbishment of the premises and a renegotiated lease.
In this instance, I agree with Mr Hamilton that the rental as agreed for the new lease of the old premises, ie $12,879, should be adopted. There was no evidence to suggest that the respondent Council was concerned with the use made of the premises.
Tenancy 3 -
533 m² - Sinclair Street frontage - vacant
Mr Hamilton - $26,500 Mr Parsons - $26,650
This tenancy was vacant and had been since expiry of a previous lease on 31 December 1994.
Mr Parsons’ assessment of market rent is in the rounded equivalent of $50/m² being essentially the same as that of Mr Hamilton’s and I will adopt the amount of $26,650.
Tenancy 4 -
447 m² plus annexe plus yard space - tyre sales and fitting
Mr Hamilton and Mr Parsons both $50,881
This was the existing rental under a three-year lease which had commenced 1 February 1993, expiring 31 January 1996, but with a two-year option. Both valuers had adopted the rental under lease as at the relevant date. Although more relevant to the after resumption valuation, Mr Parsons held the opinion that this tenancy was unaffected by the resumpton. However, the option was not exercised and a lease to another tenant was negotiated at a rental of $36,000 per annum. Mr Hamilton amended his after resumption valuation to accord with the rental under that new lease. Mr Parsons’ opinion was that if the rental after resumption was to be so adjusted then so should the before resumption rental assessment.
This was part of the rental adjustment exercise which Mr parsons had carried out during the hearing and referred to under Tenancy 1.
An existing rental under lease, albeit one with a relatively short unexpired term, but to a national tenant, would hardly be ignored in any valuation at the relevant date. If that rental could be shown to be in excess of market rental then care would need to be taken in the assessment of capital value either by adjusting the rental to market or adopting a yield commensurate with the perceived risk of maintaining that income.
More will be said of this rental in the after resumption exercise but I propose to adopt the rent to the sitting tenant at the date of resumption.
Signage Rental
Mr Hamilton - $4,000 Mr Parsons - $3,550
A licence agreement for accommodation of a sign structure was to terminate on 18 March 1995. A new licence had been drawn for a three-year term commencing 19 March 1995 at a rental of $4,000 per annum. The sign was located on the land to be resumed and was removed as a result of the resumption.
I adopt the rental of $4,000 which would have been payable had the land not been resumed.
Gross Rental Adopted Before Resumption is as follows:
Tenancy 1 - $42,720
Tenancy 2 - $12,879
Tenancy 3 - $26,650
Tenancy 4 - $50,881
Signage Rights - $4,000
$137,130
Gross Rental Income - After Resumption - Existing Building
Tenancy 1 -
Mr Hamilton - $37,380 Mr Parsons - $32,040
Mr Hamilton had allowed a reduction of 25% on his before resumption estimate to reflect what he described as the “significantly inferior access and car-parking arrangements”.
Mr Parsons had allowed a reduction of 20% limited to the loss of frontage car parking.
I am persuaded that the change from direct highway access to service road location has not been sufficiently recognised by Mr Parsons.
I will adopt Mr Parsons’ rental estimate, on the basis that, as it happens, it represents 75% of the rental which I have adopted in the before resumption exercise.
Tenancy 2
Mr Hamilton - $9,000 Mr Parsons - $11,000
Again, Mr Hamilton reduced his before resumption rental by 25%. Mr Parsons reduced his rental estimate by $708 or about 6%, taking comfort from the fact that the tenant had held over at the higher rental.
The evidence indicates to me that this tenancy area would not have been as seriously affected by the loss of direct frontage parking, with internal driveway access and limited parking remaining adjacent along the western side although now from the service road instead of the highway. I will adopt Mr Parsons’ rental estimate of $11,000 on the basis that that reflects a reduction of about 15% on the rental which I have adopted in the before resumption exercise.
Tenancy 3
Mr Hamilton - $24,000 Mr Parsons - $26,650
Mr Hamilton allowed a 10% reduction in rental to reflect the inferior access to this tenancy from the internal drive. As I understood the evidence, the tenancy was accessible via an internal driveway exiting into the frontage car-parking and driveway area thence to the highway prior to the resumption. Access via that internal driveway or to the service road is not permitted subsequent to the resumption, the driveway becoming a “dead end”.
Resolving doubts in favour of the claimant and recognising what I see still to be some effect from the loss of direct highway access, I will adopt Mr Hamilton’s rental assessment of $24,000.
Tenancy 4
Mr Hamilton - $36,000 Mr Parsons -$50,881
The after resumption rental for this tenancy has been partly discussed in the before situation but became a matter of controversy. It is clear that Mr Hamilton had, until immediately prior to the hearing, agreed with Mr Parsons that the tenancy and the business conducted from it, was unaffected by the resumption.
However, when he became aware that the previous lessee, Boral Tyres, had not exercised the option under the lease and the tenancy area had subsequently been leased to another tenant for tyre sales and fitting use, but at the substantially reduced rental of $36,000 per annum, he decided to adopt that lower rental as representing the rental value of the tenancy area in the after resumption situation. Mr Hamilton had made contact with Boral Tyres’ operational manager who had had some previous experience of similar business tenancies going “from a highway frontage or a main road’s frontage to a service road frontage”. In his examination-in-chief Mr Hamilton was asked the following question (transcript p.28):
“...was his decision to depart as a result of his apprehension of what was going to happen with the service road?” to which Mr Hamilton replied:
“Yes, what was going to happen in terms of the construction phase and what was going to happen on completion of the service road.”
There is no evidence to suggest that there were any requests for or offers of reduced rental during the construction phase. According to Mr Hamilton, and as might have been expected, Boral Tyres advised that a change had taken place in the business performance of the site during that construction. However construction had been completed prior to the expiry of the lease. There is no evidence of any negotiations allowing occupancy to continue on a month-to-month tenancy until the effect of the loss of direct highway access might have been experienced. Boral Tyres did not retain a presence at an alternative site in the immediate locality. Instead the outlet was closed and the business merged with other existing outlets in the region.
The evidence is not conclusive, one way or the other, that Boral Tyres would have taken up the option for renewal, in the absence of the resumption. Had there been a business-related reason to maintain a presence at the site, it is seen as unusual that no negotiations would have taken place with the owner in recognition of the changed circumstances. It would have been seen as compelling evidence as to the effect on rental value had Boral Tyres, instead of another tyre merchant, continued in occupation at a reduced rental.
The information contained in Mr Parsons’ report indicated that, at the date of resumption, the rental being paid by Boral Tyres was only marginally higher than the commencing rental as at 1 February 1993, ie $49,911.75. There is nothing to suggest that the commencement rental did not reflect fair market rental at that date, equating $111.65/m² for the main tenancy area, exclusive of the annexe and exclusive yard space.
The rental to the new lessee equated $80.54/m² on the same basis, being about 28% less than the rental payable in 1993, or about 29.3% less than the rental being paid at the date of resumption. It is the claimant’s submission that the single cause of the new rent level was the effect of the resumption. Mr Hamilton may have identified another cause, however. He spoke of the potential taint on purpose-built tenancies resulting from the closure of an existing business, and particularly one with the stature of Boral Tyres.
It is observed that Boral Tyres’ lease expired on 31 January 1996. No doubt with prior notice that the option was not to be taken up, the landlord had negotiated an agreement to lease the premises to another tenant, on 21 February 1996, the new lease to commence on 1 April 1996. If any taint did exist from Boral Tyres’ departure, it was not expressed in loss of rental through a vacancy factor. It would not be seen as imprudent for a landlord to accept a rental below fair market rental for somewhat specialised premises, rather than allow any potential taint to be expressed in loss of rental over a long period of vacancy.
Whether that was the case or not is unknown. In coming to a decision as to whether the actual rental under the new lease was fair market rental, the Court was not assisted by the valuers by the provision of any external comparable rental evidence. There was evidence that a tyre merchant in adjacent premises (Gibbs Holdings Pty Ltd) also affected by the resumption scheme, had declined to exercise an option for a renewal of a lease which had expired in August 1994. However that tenant had continued occupying on a month-to-month basis at a rental equivalent to that paid previously, being $133/m² for a smaller tenancy in a superior building. The rental had been reduced by 25% for the period of road construction disturbance.
On the overall evidence, I am not persuaded that the rental being paid by Boral Tyres has been demonstrated to be excessively high, before resumption for the somewhat specialised accommodation provided. However, I am also not persuaded that the loss of direct highway access to a secondary street location would reasonably have deleteriously affected that rental by near 30%. If there were compelling reasons for the owner to accept that reduction in rental, then I am not convinced that the total reduction could reasonably be attributed to a direct or natural consequence of the resumption. I have been assisted in coming to that conclusion by the initial, and no doubt well considered opinion of Mr Hamilton, that no effect would have been expected.
I will reduce the adopted level of rent before resumption by 10% to $45,793, as a reflection of the consequence of the resumption. I take the view that doubt has been decided in favour of the claimant, particularly when Mr Hamilton’s initial opinion is considered.
Gross Fair Rental Income After Resumption - Existing Building
In summary the rentals which I will adopt in the after situation, for the existing building are as follows:
Tenancy 1 - $32,040
Tenancy 2 - $11,000
Tenancy 3 - $24,000
Tenancy 4 - $45,793
$112,833
Outgoings
During the course of the hearing agreement was reached as to the outgoings which should be allowed for the northern lot, for rates, land tax, insurance, repairs and maintenance, being $14,300 before resumption and $11,867 after.
Mr Parsons in addition, made an allowance for management rounded as 4% of gross income, after vacancies. Mr Hamilton made no allowance for management. It was the claimant’s submission that the overall property was managed “in-house” and it was the “value to the owner” which was required to be assessed. While it does not make a significant difference in the end result, the criteria remaining the same before and after, the question of “value to the owner” needs to be addressed. As a matter of principle, value to the owner at this stage of the assessment is seen to be no different than the amount the owner, as a prudent person would pay for the property, rather than fail to obtain it. The owner would hardly pay more for a property than its market value simply because of an ability to manage the property in-house. In any event internal management must be at some cost, even if not a direct cost. Market value of investment property is related to maintainable net income and the yield sought by investors. In valuation of investment properties, yield is established from analysis of sales of comparable property. If that income is established after allowance for outgoings including management, whether notional or not, as the evidence indicates, then the same criterion should be adopted in the calculation of net maintainable income for the property subject of the valuation.
In my opinion it is correct in principle to allow a management allowance, provided the sales evidence is analysed on a like basis.
Vacancies
Mr Hamilton allowed a vacancy factor of 5% in the before resumption calculation but 7.5% in the after resumption existing building option. His reasoning was that tenants in the after situation would be seen to be less secure as a result of the impediments caused by the resumption.
Mr Parsons allowed a vacancy factor of 5% both before and after the resumption.
I am not persuaded that the opportunity for comparable tenant security after resumption is not provided adequately by consideration of fair market rental for the tenancy areas, together with adoption of a market orientated yield.
I will adopt a vacancy factor of 5% before and after resumption.
Yield
Both Mr Hamilton and Mr Parsons adopted a yield of 11.5% as interpreting the market value of the premises before resumption.
Mr Hamilton adopted a yield of 13% in his after resumption valuation with the building remaining as is, while Mr Parsons adopted 12.5%.
Both valuers referred to sales of tenanted industrial properties, only one of which was common to both. Mr Hamilton analysed that common sale to show a yield of 11.5% while Mr Parsons’ analysis showed 11.3%, with, in my opinion, a demonstrated more precise knowledge of the sale property.
The fact that both valuers agreed on 11.5% before the resumption is relevant to the degree that both believed they had properly assessed the net maintainable rental income for the property although in different amounts. For the same reason, I will adopt 11.5% before resumption, based on the rental income as adjusted.
It was the claimant’s submission that insufficient regard had been paid by Mr Parsons to the effect on the post-resumption property, through its inability to provide sufficient on-site parking and landscaping. Mr Parsons felt that even in the before resumption situation major alteration to the existing building could not have been achieved if the landscaping requirement as prescribed in the Planning Scheme was met. He felt that, in combination with the reduced rental potential, he had allowed by market standards, a generous yield in the after resumption situation.
The difference in professional opinion in the after situation is probably not excessive and indicative of the doubt which would realistically face the market, in the absence of rental history for the worst affected tenancies. Nevertheless, at the relevant date, the lessee of the smaller frontage tenancy had shown willingness to remain in occupation at a similar holding rental as had been paid prior to the resumption and with knowledge of the proposed roadworks and disturbance to the business.
I have decided to adopt Mr Hamilton’s assessment of yield in the after situation, with the existing building, as that which a prudent vendor might have to offer to an equally prudent purchaser but on the basis that the purchaser might also need to negotiate some temporary rental relief and suffer some temporary loss of income during the road construction period. It could not be ignored that two large tenancy areas were vacant, one not due to the resumption, and the other not necessarily so, at the date of resumption yet the before valuation had been based on a yield of 11.5%. However, the potential for a longer letting period, even at the reduced rentals, would realistically be another consideration for a purchaser at the resumption date.
Summary of Before and After Valuations - With Existing Buildings
Following is a tabulated summary of the valuation criteria adopted by Mr Hamilton and Mr Parsons together with that on which the determination will be based.
BEFORE AFTER
| Mr Hamilton | Mr Parsons | Court | Mr Hamilton | Mr Parsons | Court | |
| Gross Rental | ||||||
| Tenancy 1 | 49,127 | 40,050 | 42,720 | 37,380 | 32,040 | 32,040 |
| Tenancy 2 | 12,879 | 11,708 | 12,879 | 9,000 | 11,000 | 11,000 |
| Tenancy 3 | 26,500 | 26,650 | 26,650 | 24,000 | 26,650 | 24,000 |
| Tenancy 4 | 50,881 | 50,881 | 50,881 | 36,000 | 50,881 | 45,793 |
| Signage | 4,000 | 3,550 | 4,000 | |||
| TOTAL | 143,387 | 132,839 | 137,130 | 106,380 | 120,571 | 112,833 |
| Vacancy Allowance | 7,169 | 6,642 | 6,856 | 7,078 | 6,028 | 5,642 |
| Outgoings | 13,700 | 14,894 | 14,300 | 11,000 | 12,735 | 11,867 |
| Management | -- | 5,000 | 5,210 | -- | 4,500 | 4,288 |
| Net Income | 122,518 | 106,303 | 110,764 | 88,302 | 97,308 | 91,036 |
| Yield % | 11.5 | 11.5 | 11.5 | 13 | 12.5 | 13 |
| Valuation | $1 065 000 | $925,000 | $965,000 | $680,000 | $780,000 | 700,000 |
| Before and After Difference | $385 000 | $145,000 | $265,000 |
The Downsizing Option
The owner of the subject property is experienced in property development. The building is actually being downsized and it is reasonable to accept that the redevelopment is a prudent response to the effects of the resumption.
As I understand it, the redevelopment goes further than reinstatement of frontage car parking which necessitated the downsizing of the building. The resultant “shell” will be redesigned internally and the tenancy areas upgraded and generally refurbished. A large secondary street tenancy area will be incorporated within the more desirable frontage tenancy area.
Mr Hamilton’s “preferred option” was to reinstate the car parking by downsizing the building but notionally stopping there to provide rental accommodation of the inferior quality which previously existed ie before redesign and refurbishment. In fact his option was the first stage of a partial redevelopment.
His valuation figures proved that such a limited “reinstatement” was economically unviable. The owners, even with significant cost cutting, would end up, on his preferred option, a minimum of $30,000 worse off than by leaving the post resumption building “as is”. By spending $115,000, the market value of the property increased in value by $85,000. And that would be before consideration of matters such as loss of income during the reinstatement.
The substantial complete work which is actually being undertaken, may well represent the highest and best use of the “northern lot” after resumption, but the Court was not provided with any valuation exercise other than that relating to limited “reinstatement”. A more meaningful “like with like” comparison may have embraced a refurbished highest and best use before and after the resumption.
Counsel for the claimant urged the Court not to be pre-occupied by market value considerations but to be guided by principles of reinstatement as have been judicially applied in compensation matters. However market value considerations have revealed that reinstatement of the previous car-parking facility was not, by itself, a necessary, viable or prudent response to the resumption.
I am therefore unable to take Mr Hamilton’s limited downsizing valuation exercise any further and it is rejected accordingly.
Other Claimed Losses
In the before and after valuation approach which I am adopting, with the existing building retained, Mr Hamilton included in his calculation an amount of $64,300 being for “loss of rental during the construction and letting-up phase” for the Tenancy Areas 1 and 3, together with letting-up costs.
As I understood his approach, it would, in his opinion, have been unrealistic at the date of resumption to expect any prudent potential tenant to move into the vacant premises (Units 1 and 3) until after the disruption to access from the roadworks had ended. It seems however that he calculated the loss of rental on the before resumption levels and not on the after. On my calculations the amount should have been, on his rental estimates $52,175, or $47,635 on my adopted rentals. Even so, both tenancies were vacant at the date of resumption and letting-up costs would have been involved, resumption or not.
I am sympathetic towards the view that there would be concern in the marketplace that rental income could be lost through difficulty in letting vacant premises and indeed through any relief which might be sought by sitting tenants, when future roadworks and consequent disruption to access and the business operation of the tenants is imminent. As it happened in the subject matter, it appears that no rental relief was sought or given to the sitting tenants.
When considering the yield which would have been sought and allowed in the marketplace, the potential loss of income through vacancies both in the short and long term, influenced my decision to adopt Mr Hamilton’s assessment of 13% rather than Mr Parsons’ 12.5%. A difference of .5% amounted in the end result to about $30,000. To make some further allowance would be on the basis of my considerations double accounting.
Making Good
Mr Hamilton allowed an amount of $5,000 to make good the retained land on completion of the roadworks, “due to variation in road height, drainage grates and other site works”.
Had the property been retained in its post-resumption situation, the respondent had the responsibility (and has accepted that responsibility in its submissions) for attending to any such problems, which as I understand it, are now restricted to the footpath area. No compensation is awarded under this heading.
Piecemeal Assessment of Compensation
Mr Parsons took comfort from having considered this alternative to allow him to “stand back and consider” the reasonableness of the result of his primary before and after valuation. I do not find it of any assistance however. In this method he seemed to revert to the whole parent parcel when considering the land value component. I think in this case the loss of land was strictly capable of identification as being the frontage land to the highway running back to the structure albeit part comprising a road, in any formal subdivision. Second, he did not accept that injurious affection resulted from the resumption scheme, having formed the opinion that the safer access through connection to signalised intersections via the more circuitous service road, offset the loss of direct highway access. In the particular circumstances of the subject property, I have not accepted that proposition although there is no dispute that access through the signalised intersections external to the “scheme” will in some cases be safer than that which existed before. Finally I was not persuaded that there was any cogent support for a broad-based $50,000, for the suggested diminution in value to the building utility. The piecemeal calculation seemed to be reliant on the primary result, rather than a check against that result.
Summary of Determination
Compensation is awarded based on the following calculation:
Added value of northern section of parent parcel - before resumption
Estimated net maintainable rental $110,764
Capitalised at 11.5% = $963,165
Adopt $965,000
Added value of balance of northern portion of parent parcel - after resumption
Estimated net maintainable rental from
premises as retained $91,036
Capitalised at 13% = $700,277
Adopt $700,000
Compensation for loss of land, severance and injurious affection $265,000Disturbance as agreed $8,800
Total Compensation $273,800
Interest
An advance payment of $86000 was made on 25 August 1995 and the Court was advised that subsequent to the hearing, a further payment of $67,800 was made on 13 September 1996. That second payment was clearly the balance of the respondent’s valuation together with the agreed disturbance items.
The Court was not advised the dates of payment by the claimant of the professional fees which have been allowed.
It is ordered that interest at the rate of 8.75% per annum be paid on the amount of $265,000 from 7 April 1995 up to and including 25 August 1995 then from that date up to and including 13 September 1996 on the amount of $179,000 and from 13 September 1996 up to and including the date on which final payment is made, on the amount of $120,000.
RE WENCK
MEMBER OF THE LAND COURT
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