Haas and Secretary, Department of Families, Community Services and Indigenous Affairs

[2006] AATA 1022

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 1022

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No S2005/280

GENERAL ADMINISTRATIVE DIVISION		)
Re		ENDEL HAAS

Applicant

And SECRETARY, DEPARTMENT OF FAMILIES, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS

Respondent

DECISION

Tribunal Senior Member R W Dunne

Date30 November 2006

PlaceAdelaide

Decision The Tribunal sets aside the decision under review and substitutes a valuation of the Property, as at 1 February 2003, of $125,000.

..............................................

R W DUNNE
  (Senior Member)

CATCHWORDS

SOCIAL SECURITY – pensions, benefits and allowances – Age Pension – sale of leasehold property at less than Centrelink valuation – overpayment of pension – whether Centrelink valuation is correct – decision set aside

Social Security Act 1991 ss 11(1), 1064(1), 1123(1)

Karenlee Nominees Pty Ltd v Gollin & Co Ltd [1983] 1 VR 657

Harris v Minister for Public Works (1912) 12 SR (NSW) 149

REASONS FOR DECISION

30 November 2006   Senior Member R W Dunne   

1.      This is an application by Mr Endel Haas (the “applicant”) for review of a decision of the Social Security Appeals Tribunal (“SSAT”) made on 15 September 2005.  The SSAT affirmed a decision of an Authorised Review Officer of Centrelink made on 14 June 2005 which found that a leasehold property sold (or disposed of) by the applicant on 1 February 2003 had been correctly valued by the Australian Valuation Office (“AVO”).

2.      At the hearing, the applicant represented himself, with the assistance of an interpreter in the Estonian language, and Mr C Goldsworthy, a Centrelink advocate, represented the respondent (the “Department”).  With the agreement of the parties, concurrent evidence was given by Mr G Kurtze, a qualified and certified real estate valuer and consultant, and Mr S Hinkelthein, a valuer with the AVO.

3. The Tribunal received into evidence the documents lodged under s 37 of the Administrative Appeals Tribunal Act 1975 (exhibit R1), together with the following:

·a valuation as at 1 February 2003 by Mr G Kurtze of the property situated at Lot 1, Marks Landing, Swan Reach (the “Property”) (exhibit A1);

·a written statement by the applicant (undated) (exhibit A2);

·a written statement by P A and E F Helm dated 29 May 2006 (exhibit A3); and

·a review of valuation appeal report of the Property by Mr S Hinkelthein, AVO dated 19 May 2006 (exhibit R2).

issue for the tribunal

4.      The issue for the Tribunal is whether the valuation of the Property as at 1 February 2003, adopted by Centrelink and based upon reports prepared the AVO, was correct.

legislation

5.      The legislation that relevantly applies to the issue for the Tribunal is contained in the Social Security Act 1991 (the “Act”) and relevantly reads as follows:

Section 11(1):

“11(1)  In this Act, unless the contrary intention appears:

…

asset means property or money (including property or money outside Australia).

…

disposes of assets has the meaning given by section 1123.

…”

Section 1064(1):

“1064(1) The rate of:

(a)      age pension; and

(b)disability support pension or disability wage supplement of a person who has turned 21; and

(c)      wife pension; and

(d)      carer payment; and

(f)       mature age allowance under Part 2.12A; and

(g)      mature age partner allowance;

is, subject to subsection (2), to be calculated in accordance with the Rate Calculator at the end of this section.

Note 1:  Module A of the Rate Calculator establishes the overall rate calculation process and the remaining Modules provide for the calculation of the component amounts used in the overall rate calculation.

Note 2:  The rate obtained by applying the Rate Calculator may be reduced because of:

·the receipt of compensation (see Part 3.14); or

·overseas portability (see Part 4.2—Division 3); or

·the receipt of payments under the New Enterprise Incentive Scheme (see Part 3.15).”

Section 1123(1):

“1123(1) For the purposes of this Act, a person disposes of assets of the person if:

(a)      the person engages in a course of conduct that directly or indirectly:

(i)        destroys all or some of the person’s assets; or

(ii)       disposes of all or some of the person’s assets; or

(iii)      diminishes the value of all or some of the person’s assets; and

(b)      one of the following subparagraphs is satisfied:

(i)the person receives no consideration in money or money’s worth for the destruction, disposal or diminution;

(ii)the person receives inadequate consideration in money or money’s worth for the destruction, disposal or diminution;

(iii)the Secretary is satisfied that the person’s purpose, or the dominant purpose, in engaging in that course of conduct was to obtain a social security advantage.

Note:   If Part 3.14A or 3.14B applies in relation to the transfer by a person of a qualifying interest or an eligible interest in a farm or relevant farm asset, that transfer and certain transfers by the person’s partner are taken not to be disposal of assets (see sections 1185D and 1185T).”

background

6.      In mid-2002, Mr Haas was in receipt of Age Pension and he owned the Property, which was also described as Shack Site 1.  To be more precise, Mr Haas and his wife held a leasehold interest in the Property pursuant to a 6 year lease granted by the Marks Landing Progress Association Incorporated (“Association”) (as lessor) and dated 1 July 2000.  On 1 February 2003, he sold the Property to his wife’s godson for $100,000.  Again, to be more precise, Mr Haas and his wife assigned the lease of the Property to the wife’s godson (Mr Peter Helm) and his wife for $100,000.  By further agreements made between Mr Haas and his wife (as the vendors) and P A and E F Helm (as the purchasers), additional repayment terms were included in the Deed of Assignment of Lease made on 1 February 2003.  Amongst other things, the consideration for the assignment was by way of interest-free vendor finance to be paid over a term of 5 years, commencing at the rate of $500 per calendar month for the first 24 months of the term. 

7.      It appears that the Valuer-General’s capital valuation of the Property, declared at 25 June 2002, was $111,000.  The Valuer-General’s capital valuation of the Property, declared at 7 July 2003, was $161,000.  At Centrelink’s request, on 27 January 2005 the AVO valued the Property, as at 1 February 2003, at $160,000.  A valuation report was subsequently furnished by the AVO to Centrelink on 26 April 2005 (exhibit R1, T12).  Centrelink advised Mr Haas of the valuation, of the reduction in his entitlement and the overpayment of his Age Pension and of the debt to Centrelink that had resulted.  On 15 February 2005, Mr Haas requested a review of the decision to reduce his pension.  The review was carried out and the decision was found to be correct.  The Authorised Review Officer affirmed the decision and found that the Property had been correctly valued by the AVO, as at 1 February 2003, at $160,000.

the evidence

8.      The Property in this case was a two storey “shack” situated on Lease Site 1 at Marks Landing, Swan Reach, approximately 127 kilometres north-east from Adelaide.  Associated with the Property was an annual licence for an established jetty for the purposes of mooring and launching water craft.  The jetty did not belong to the lessees of the Property, but was for their exclusive use and was directly in front of the shack, with a Crown reserve between it and the Property.  The shack was of timber frame construction, asbestos clad walls with a galvanised iron roof.  There was some disagreement as to the size of the shack, which it was suggested was between approximately 75 square metres and 103 square metres in area.  The land upon which the Property was situated was one of some 119 lease sites along the River Murray at Swan Reach.  The leases are all unregistered and the only security of tenure is maintained by the lessees being members of the Association, which is the lessor of the lease sites.  A “peppercorn” rental only is paid by the lessees in respect of the lease sites.

9.      The applicant’s evidence was that, in mid-2002 he was trying to sell the Property.  The Valuer-General’s valuation at the time was around $110,000.  The then president of the Association was a Mr Des Stanbury, who appears to have also been a local agent.  He had looked at the Property and had told the applicant that it was valued at $85,000.  Lease Site 2, which was also a two-storey shack but had a larger first floor area than the Property, had been sold at the beginning of 2002 for $64,000.  Mr Stanbury had offered to purchase the Property for $85,000, but the offer had not been made in writing.  Mr Helm had offered to purchase the Property for $100,000.  Mr Stanbury rang the applicant several times expressing interest in the Property and, to stop his telephone calls, the applicant said he was selling the Property to a relative.  As there was a proposal to connect the Property to a Septic Tank Effluent Disposal Scheme, which the applicant understood would cost about $10,000, the sale price of the Property was discounted to $100,000, which in early December 2002 Mr Helm agreed to pay. 

10.     The applicant said that he subsequently found out that Mr Stanbury believed the value of the Property (as at 1 February 2003) was $161,000 and that he had informed the AVO valuer (Mr Hinkelthein) of that belief.  The applicant had written to Mr Stanbury on 22 June 2005 (exhibit R1, T18 at page 74A) to ask why he had not advised the applicant of the higher value of the Property.  The applicant did not receive a reply to his letter from Mr Stanbury.  Mr Goldsworthy questioned the applicant about the steps he had taken in mid-2002 to sell the Property.  The applicant said that he had let Mr Stanbury, as the president of the Association, know of his desire to sell the Property.  After Mr Stanbury had inspected it, he let the applicant know that he was interested in acquiring it or that someone else would be. 

11.     Mr Goldsworthy asked the applicant if he had obtained any independent valuations in respect of the Property.  The applicant said that there was no need to do that because he had a current Valuer-General’s capital valuation of around $110,000.  He did not advertise the Property or place a sale notice locally.  The applicant said that his health deteriorated and he decided to take no further steps to search for possible buyers.  He left the matter in Mr Stanbury’s hands.  In answer to further questioning by Mr Goldsworthy, the applicant said that he had sold other properties at Swan Reach.  If he had obtained a valuation of the Property, inspection fees would have been involved and he would have had to pay for them.  The applicant said that he had sold Shack Site 2 and Shack Site 101 some years ago, but the paperwork involved had been done by the Association, free of charge.  He had also sold two other properties through an agent, which were not shacks, and he did not want to pay money to an agent for the sale of the Property.  In relation to the sale of these other properties, no vendor finance had been involved.

12.     Mr Goldsworthy asked the applicant why he had sold the Property subject to interest-free vendor finance.  The applicant said that he thought the Property was only worth $85,000 and he had sold it for $100,000, which he thought was adequate.  He said that, having agreed to the sale to Mr Helm, he would have been embarrassed to ask a higher price.  When asked, based on his past experience in real estate, whether he was aware that Mr Stanbury was offering less than the true market value for the Property, the applicant said that he was aware that work was needed to upgrade it.  The Property had been under water several times and, although it looked to be generally in order, work was needed on it.

13.     Mr Goldsworthy referred the applicant to the rates notice for the Property (exhibit A1, T6 at page 24) which disclosed the rate declared at 25 June 2002.  The applicant acknowledged that the notice disclosed a capital valuation of the Property of $111,000.  Nevertheless, the applicant said that he still thought a valuation for the property of $85,000 was realistic.  In any event, he had sold the Property for $100,000, against a capital valuation of $111,000, which he thought was reasonable in the circumstances.  When questioned further by Mr Goldsworthy, the applicant said that he had not obtained any security in respect of the vendor finance.  He said he knew Mr Helm and his family, they were working, agreements for payment of the purchase price were in place and he felt no security was needed.  

14.     Having regard to the involvement of two independent valuers (Mr Kurtze, for the applicant and Mr Hinkelthein, for the Department) and with the agreement of the parties, the hearing proceeded with the giving of concurrent evidence.  Mr Kurtze’s evidence was that the property market often moved fairly quickly.  He said the valuation he undertook disregarded sales into the 2003/2004 period, because the market had certainly moved by that time, and Swan Reach was now a big development area.  However, data for sales of properties in Swan Reach, prior to the date of sale of the Property, was limited.  It was not possible to get a lot of sales, certainly enough sales at a point of time that would show the market at the date of his valuation.  He said it was necessary to look at sales prior to the date of valuation, not after the date of valuation.  The Tribunal understood him to mean by this that, to do otherwise, would be to assume that a valuer had a special ability, which he did not have, to predict what was going to happen in the market place.

15.     Mr Kurtze referred to his written valuation report of the Property as at 1 February 2003 (exhibit A1) and to the sale of Shack Site 7.  He said the date of sale of this site, given to him by the Association, had been 22 February 2002.  But, he had since confirmed that the date of sale was 24 March 2001.  However, he mentioned Shack Site 2, which had sold in early 2002, approximately 12 months prior to the date of his valuation, for $64,000.  He suggested that, if the improvements were disregarded and the $64,000 was allowed as land value only, which could also be attributed to the land value of the Property next to Shack Site 2, this would allow $44,000 to build a substantial, modern shack on Shack Site 1 and still fall within the current valuation of $100,000 to $110,000.  The other relevant sale, according to Mr Kurtze, was Shack Site 5.  This sold on 10 November 2002 for $125,000.  However, he said it was a superior site, with a lawned area from the river leading up to the shack and a substantial lawned area at the back.  It was run down when it was sold, but so was the Property, which had rotting stairs, rotting decks, asbestos cladding, separate bathroom and toilet areas and a sewer area in a poor state of repair. 

16.     The Tribunal pointed Mr Kurtze to his valuation report and to what he referred to as the International Standards definition of market value, which was:

“… the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arms length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.”

When asked by the Tribunal whether he was aware there was a relationship between the vendor and the purchaser at the time the agreement was reached for the sale of the Property, Mr Kurtze said that he was and that he did not see it as arm’s length.  However, his instructions were to determine the market value of the Property at the time of the transfer and he did not ask questions about the relationship between the parties.  In his view, in determining the market value of the Property, sales beyond the date of valuation had to be disregarded.  He said a valuer was really restricted to sales prior to the date of valuation, otherwise there would be valuations that reflected a future market, not a current or historical market.  In saying this, he referred to the extract from “Land Valuation and Compensation in Australia” by R O Rost and H G Collins appearing in his valuation, which read:

“Sales of comparable land at or immediately prior to the date of valuation provide the most comparable evidence of value.”

He said that this principle was standard in the practice of valuation in Australia and that comparable sales at Marks Landing were of Shack Site 5 and Shack Site 7.  These sales took place before the date of the valuation and sale of the Property, although he acknowledged that the sale of Shack Site 7 could be considered somewhat remote. 

17.     The following was the comparative analysis that Mr Kurtze detailed in his valuation report in respect of the Property:

“Shack 5 Sold $125,000 10 November 2002

Up stairs        33.37m² @ 100%       =        33.37m²

Down stairs     37.62m² @ 100%       =        37.62m²

Deck             11.8m² @ 20%          =          2.36m²

Equivalent area  73.35m²

Analysis $1,704/m² improved

Shack 7 Sold $90,000 22 November 2002 [corrected to 21 March 2001]

Up stairs        48.1m² @ 100%        =        48.1m²

Down stairs     38.84m² @ 100%       =        38.84m²

Deck             18.03m² @ 20%        =          3.61m²

Equivalent area  90.55m²

Analysis $1,049/m² improved

Subject property

Up stairs        27.95m² @ 100%       =        27.95m²

Down stairs     60.18m² @ 100%          =           60.18m²

Deck             31.01m² @ 20%             =             6.2m²

Detached bathroom/laundry

7.15m² @ 80% =          5.72m²

Carport 16.2m² @ 20% =          3.24m²

Equivalent area  103.29m²”

18.     The Tribunal noted that Mr Kurtze had adopted an Improved rate per square metre in his valuation analysis.  He opined that the Property was comparable to Shack Site 7 and, by adopting the Improved rate of Shack Site 7 ($1,049 per square metre), the value of the Property was $108,047.  However, as the Property was at the end of the group of shack sites and did not have as appealing a setting as the other sites, the transfer of the Property by the applicant for $100,000 appeared to be its market value as at 1 February 2003.  By further comparison, Shack Site 5 sold for $125,000 in November 2002.  It was a smaller shack, but in a superior position, with lawn leading up to it from the river and a lawn area at the rear.  As Shack Site 5 was considerably smaller than the Property and Shack Site 7, Mr Kurtze’s analysis was that the Improved rate for Shack Site 5 ($1,704 per sq metre) was unrealistically high.  As such, Shack Site 5 could only be used for direct comparison.  Allowing for the superior position of Shack Site 5, Mr Kurtze’s comparative assessment of the Property was that it had a current market value as at 1 February 2003 of between $100,000 and $110,000.  Having also spoken with the current secretary and president of the Association and obtaining their opinions of the value of the Property, Mr Kurtze formed the view that the sale of the Property for $100,000 was representative of the market and he adopted that value as the market value of the Property as at 1 February 2003.

19.     When asked by the Tribunal what account, if any, he took of the Valuer-General’s valuations applying at the time, Mr Kurtze said that these were indicative, but could obviously not be accurate because there was not the opportunity for every property to be inspected.  He said he would note such a valuation, but would not put any reliance on it.  In answer to questioning by Mr Goldsworthy, Mr Kurtze said that he was aware the Property had not been offered on the open market, and he agreed that the best way to determine the market value was to offer it on the open market and to see what people would be willing to pay for it.

20.     Mr Kurtze was questioned by Mr Hinkelthein about the sale of Shack Site 2.  After some discussion, Mr Kurtze agreed that the date of sale of this Shack Site was more likely to be 1999, which was the local Council date of sale, rather than early 2002.  Mr Kurtze also acknowledged that he had not had much involvement in sales analyses and valuations of shacks along the River Murray during the period in which the Property was sold.  He said that he was not aware of the other sales of shack sites that Mr Hinkelthein had identified in his valuation.  He was also of the view that the rate per square metre that he proved in his valuation analysis was the correct approach to be adopted in determining site value.  However, in the circumstances of the present case, the only real analysis of market value was by direct comparison.  In comparing Shack Site 1, adjoining a mud flat with low scrub and no maintenance, with Shack Site 5, with green lawns leading up to the shack and at the rear amongst other well maintained shacks, Shack Site 5 would have to have a higher value than Shack Site 1.  In answer to questioning by the Tribunal, Mr Kurtze said that, because of insufficient sales of sites during the relevant period, it was not possible to have a breakdown of valuations between land and building improvements.  If a breakdown of valuations had been possible, there would not have been the need to use a direct comparison of site sales.  When asked further what value might be attributed to the land itself and to the improvements on the Property, Mr Kurtze said:

“I think the easy answer is I don’t think the added value of the improvements is huge, particularly the subject property.  If I bought it, I’d knock it over.  I mean, that’s a subjective opinion, not an objective one.  Because the condition of the property, it wouldn’t be worth trying to refurbish and bring up to a more modern standard.  Your ablutions are separate from the building.  You’ve got a septic that obviously needs replacement.  You’ve got wood rot.  You’ve got asbestos which is a real concern, so the improvements themselves, in my opinion, don’t add a lot.  They obviously do add something so the large portion of that price is the land value, and I think that applies to most of the properties there.”

21.     Mr Kurtze was asked by Mr Hinkelthein to comment on the sale of Shack Site 30, for $165,000 in February 2003, which appeared in Mr Hinkelthein’s review of valuation appeal report (exhibit R2, Appendix H).  Mr Kurtze said that he had not had the opportunity to go back and reassess that sale as he had been reliant on sales of sites that had taken place in the same vicinity as the Property.  In relation to the sale of Shack Site 23 for $165,000 in May 2003, Mr Kurtze repeated the valuation principle that sales after the date of valuation of the Property, irrespective of how relevant they might be, should be ignored.  He said it was a matter of attempting to use the sale of Shack Site 23 in May 2003 to arrive at a valuation of the Property upon its sale in February 2003.  He went on to say:

“It’s just the point of valuation principle that sales after the date of valuation, irrespective of how relevant they might be, because you are really using future values, even if they are only months apart.  At that point in time, the market was moving very quickly and being a sales person as well, when the market is moving quickly, you will get two levels of sales.  You’ll get one level of sale where they’re anxious, realise the market is moving quickly and will pay a much different price to someone who’s not quite aware of how fast the market is moving.  They actually might pay beyond the market just to secure the property, so I think you’ve got to be very careful in terms of sales you use.  It would be very easy, using the future sales, to come up with very different figures for the subject property.”

22.     In giving his evidence, Mr Hinkelthein referred to his valuation report dated 26 April 2005 (exhibit R1, T12).  He said that, with the valuation process undertaken on behalf of the Department, the AVO determined the current market value at the valuation date under the definition laid down by its professional body, the Australian Property Institute.  He said that, in discussions, Mr Haas had told him that the sale of the Property “was in line with council value and was a market transaction”.  However, he said he subsequently found out that the sale of the Property had been vendor financed and was to be paid by instalments, interest-free, which was extremely unusual.  It was on this basis that he completed his initial valuation, relying largely on industry sources and on information obtained from the Association.  He was then asked by the Department to provide a review of valuation appeal report.  In that process, he contacted Government agencies, such as the Mid-Murray Council, the Valuer-General’s Office and also Revenue SA.  He sought to reconfirm evidence from the Association but, for privacy reasons, he said the Association was not prepared to divulge any information to him at that stage.  He subsequently confirmed the sales information he had obtained through the local Council and the Valuer-General’s Office and gained additional information that reconfirmed his opinion of the market value.  In speaking about the Property he said:

“… In my opinion, I think the shack is probably the best shack site of the group.  We have got some 150 odd shacks there that run for about a kilometre.  This shack is right at the very end so it has the least amount of traffic flow, has a slightly larger block than most, will never be developed out.  So its view will never be blocked out and, in my opinion, it would be one of the best shacks.  It is also the closest to the river, so covered in my report is the issue that there is a premium paid for shacks as they get closer to the river.  Based on my experience, I’ve been valuing shacks for some 15 odd years along the river in that district. …

… I know they are very complicated and difficult areas to work in, especially when you get to private leasehold.  You have a whole range of different land tenure for these shacks.  They range from freehold titles, Crown leasehold titles and private leasehold titles.  With the private leaseholds, they range from having 999 year leases, 499 year leases, 99 year leases.  In this instance, we have a 6 year lease.  As I explained in my report, the reason that that has occurred is historically it was a way that the shack areas could develop outside of the planning controls that were available at the time.  For that reason, they are very complicated structures to try and get to the nitty-gritty of what is taking place in market transactions.”

23.     Mr Hinkelthein then referred the Tribunal to the schedule of comparable sales appearing in his review of valuation appeal report (exhibit R2, Appendix H).  The first sale referred to was the Property.  Mr Hinkelthein then referred to the following sales (and their descriptions) set out in his review:

Address:	Shack Site 4
Description:	1960’s two-storey shack, timber framed, asbestos clad.  First floor and landing, no balcony.  Ground floor, brown brick plus enclosed storage.  Also rear verandah/carports.  In “run down” poor condition at time of sale.
Site Area:	Approx. 221 m²
Sale Price:	$155,000
Sale Date:	October 2003
Comment:	Private sale, not listed with an agent.  Similar location to subject shack, but smaller site area and the shack is of inferior condition and size.  Overall inferior to subject shack.
Address:	Shack Site 5
Description:	1960’s elevated shack, timber framed with iron and asbestos walls.  First floor bedroom/living, small balcony.  Ground floor enclosed, for storage, no living space at date of sale.  Run down, poor condition at sale date, requiring renovation.
Site Area:	Approx. 222 m²
Sale Price:	$125,000
Sale Date:	October 2002
Comment:	Sold via real estate agent, shack is smaller and in inferior condition than subject shack.  Also has a smaller site area.  Overall inferior to subject shack.
Address:	Shack Site 8
Description:	1960’s Ground level, 1 bedroom asbestos clad, basic cottage at time of sale, boat shed and jetty.
Site Area:	Approx. 238 m²
Sale Price:	$175,000
Sale Date:	March 2004
Comment:	Shack has now been demolished and very large new shack built, land value only.  Smaller site area and inferior location.  Overall superior as sale is 14 months after date of valuation.
Address:	Shack Site 30
Description:	Late 1960’s ground level shack, basically two connected lined iron sheds in good condition.
Site Area:	Approx. 228 m²
Sale Price:	$165,000
Sale Date:	February 2003
Comment:	Sold via real estate agent, similar level of amenity, but inferior location and smaller site area compared to subject shack.  Overall slightly superior.  Sold same date as subject property.
Address:	Shack Site 41
Description:	Lined small iron garage, besser block ablutions and small old caravan included in sale.  All in poor condition at date of sale.
Site Area:	Approx. 232 m²
Sale Price:	$125,000
Sale Date:	March 2003
Comment:	Set some 70 metres back from the river, inferior location and inferior improvements, slightly smaller site area.  Sold very close to valuation date.  Overall inferior to subject property.
Address:	Shack Site 23
Description:	1960’s ground level besser block shack in fair to average condition, with iron garage.
Site Area:	Approx. 228 m²
Sale Price:	$165,000
Sale Date:	May 2003
Comment:	Private Sale, inferior location and smaller site, smaller but better construction.  Overall slightly superior.  Sold close to date of valuation.

24.     It was Mr Hinkelthein’s further evidence that he understood the local Council was not allowing any new shacks to be built at Marks Landing.  Existing shacks could be rebuilt and upgraded, but existing owners were not permitted to demolish completely and build new shacks.  With the Property, there was a neighbour on one side, but uninterrupted bushland on the other side.  The bushland could not be built out because the local Council would not allow any further development outside the existing shack areas.  Mr Hineklthein also confirmed that the area of the shack situated on the Property, which he had originally reported as being approximately 125 square metres, was incorrect and that the correct area was 103 square metres.  This was approximately the same area described by Mr Kurtze in his valuation.  He said that the reduction in area did not change his valuation because of the direct comparison approach.  He was looking at the overall amenity that the Property provided as compared with other sales.  When challenged by Mr Haas about the distance of the Property from the river, Mr Hinkelthein accepted that there was not a lot of difference in distance when looking at Shack Sites 1 to 17.  However, when moving past Shack Site 17, the difference from the river kept increasing.

consideration

25.     In this case the Tribunal must decide whether the valuation of the Property as at 1 February 2003, which was based upon reports prepared by the AVO, was correct.  The Tribunal is faced with competing valuations, one provided by Mr Kurtze and one by Mr Hinkelthein.  The Tribunal has heard evidence from Mr Haas and the concurrent evidence of Mr Kurtze and Mr Hinkelthein.

26.Having regard to the evidence, the Tribunal makes the following findings:

(a)In mid-2002, the applicant was trying to sell the Property and the Valuer-General’s capital valuation at the time was $111,000.

(b)The then president of the Association had told the applicant that the Property was valued at $85,000.

(c)The applicant and his wife agreed to assign their leasehold interest in the Property to the wife’s godson and his wife for $100,000.  Although the agreement to assign the leasehold interest was reached in December 2002, because the purchasers were overseas at the time, completion and execution of the Deed of Assignment of Lease did not take place until 1 February 2003.

(d)Because of the Valuer-General’s capital valuation of $111,000 at the time and relying on what the president of the Association had told him, the applicant did not obtain an independent valuation of the Property.

(e)Payment of the consideration for the assignment was by interest-free vendor finance.  No security was sought or obtained by the applicant in respect of the vendor finance.

(f)Centrelink obtained a valuation of the Property, as at 1 February 2003, from the AVO on 26 April 2005.  The valuation of $160,000 was confirmed by the AVO in a review of valuation appeal report made on 19 May 2006.

(g)The applicant obtained a valuation of the Property, as at 1 February 2003, from Mr G Kurtze, a certified real estate valuer and consultant.  His valuation was $100,000.

(h)The direct comparison method of valuation was adopted by both Mr Kurtze and Mr Hinkelthein in valuing the Property. 

(i)Under Mr Hinkelthein’s valuation, the sale of Shack Site 3 for $165,000 in February 2003 was considered to be of most comparability to the sale of the Property.

(j)Under Mr Kurtze’s valuation, the sale of Shack Site 5 for $125,000 in November 2002 was considered to be of most comparability to the sale of the Property.

27.     It has been said that a valuation is the expression of opinion as to the value or worth of land by a person qualified and experienced to do so.  The Full Court of the Victorian Supreme Court noted in Karenlee Nominees Pty Ltd v Gollin & Co Ltd [1983] 1 VR 657 at 669:

“The valuation of land and buildings involves a matter of judgment.  Opinions notoriously vary on this subject matter – it would be surprising to find two valuers who agree on the valuation to be given to land and buildings of the nature of the subject premises.  There is no scientific exactitude in the valuations of land and buildings.  They are as hypothetical as the hypothetical purchaser whom they assume.”

28.     Moreover, in Harris v Minister for Public Works (1912) 12 SR (NSW) 149, Ferguson J said at 161:

“The position of the land, its dimensions, its physical characteristics, may be ascertained by observation of the land itself, but its value is a matter of opinion, depending chiefly, in most cases, on external circumstances.  These circumstances must be taken into consideration by the expert, and no doubt one of the strongest factors in the formation of his opinion is the price at which land is being sold in the neighbourhood.”

29.     Both Mr Kurtze and Mr Hinkelthein acknowledged that there had been considerable difficulty in obtaining sales information for shack sites at Marks Landing.  This had been due to the complicated private leasehold arrangements that existed for the sites and the reluctance of the Association, for privacy reasons, to provide sales information to disinterested parties.  Notwithstanding this, Mr Hinkelthein was of the opinion that the sale of the Property, as at 1 February 2003, was not at market value and it did not meet the accepted definition of market value that had been proposed by Mr Kurtze (see paragraph 16 of these reasons).  Mr Hinkelthein summarised his opinion in relation to the market value of the Property when he said on page 2 of the letter accompanying his review of valuation appeal report:

“The reason the sale of the subject property fails as a market value sale is that it was not an arm’s length transaction, the Customer sold it to a friend/Godson, and informed [sic] by Centrelink the purchase price was not paid as a lump sum but by way of interest free instalments.  No marketing of the property was undertaken and vendor appeared to have little or no knowledge of the market or seek any professional advice.  Therefore he could be considered to have acted imprudently or come to a concessionary arrangement with a related party.” 

Mr Haas gave evidence as to the reasons why the sale of the Property to his wife’s godson (and his wife) was structured in the way it was.  The Tribunal accepts the applicant’s evidence on this point.  Although it may appear that the transaction was not at arm’s length, based on the evidence, it is arguable that the vendors and the purchasers were, in fact, dealing with each other at arm’s length.

30.     In his review of valuation appeal report, apart from the sale of the Property and of Shack Site 7 in February 2001, Mr Hinkelthein provided details of sales of comparable sites occurring between October 2002 and March 2004.  The sales of comparable sites that occurred proximate to the sale of the Property were Shack Site 5 and Shack Site 30.  In Mr Hinkelthein’s view, sales of comparable sites taking place after the sale of the Property were acceptable in arriving at a market valuation for the Property.  He noted the extract from “Land Valuation and Compensation in Australia” referred to by Mr Kurtze.  He suggested that the learned authors had acknowledged that “sales made after the relevant date cannot be disregarded if there is evidence available that the circumstances and land values have not changed between the date to which the valuation applied and the date of the subsequent sale.”  On this, the Tribunal notes that, in the 3^rd edition of “Land Valuation and Compensation in Australia”, the learned authors go on to say (at page 93):

“The more remote the date, the greater may be the need to make allowances for possible changes in the market between the date of sale or sales and the date of valuation.  If land values in a district are changing rapidly, the lapse of even a few months between the date of sale and date of valuation may result in substantially different values.  But where values have remained fairly static over a period prior to the date of valuation a lapse of time would be of less importance.”

31.     In his valuation report, Mr Kurtze provided details of comparable sites to the Property, being Shack Site 5 and Shack Site 7.  Leaving aside Shack Site 7, Mr Kurtze described Shack Site 5 as a smaller shack, but having a superior position with lawn leading up to the shack from the river and lawn at the rear which would provide good amenity for parking and possible extension.  In his evidence, Mr Hinkelthein described Shack Site 5 as a smaller site area, an inferior shack and situated further from the river.  However, he acknowledged that, if anything, the Property could not be valued any less than the sale price of Shack Site 5 but, in his view, the Property had to be worth more than Shack Site 5.  Shack Site 30, which sold at the same time as the Property for $165,000, was the most comparable sale to the sale of the Property.

summary and conclusion

32.     As the Courts have acknowledged from time to time, opinions on the valuation of land will vary notoriously and, more often than not, will depend on external circumstances.  Mr Hinkelthein used the sale of comparable Shack Site 30 as the basis for arriving at a valuation of the Property, as at 1 February 2003, of $160,000.  Mr Kurtze’s valuation adopted a direct comparison with the sales of Shack Site 7 and Shack Site 5.  In his oral evidence, he also sought to compare the sale of the Property with the sale of Shack Site 2.  However, it became apparent that the dates of sale of these comparable properties (Shack Site 2 and Shack Site 7) were inaccurate, and this served to demonstrate that the sales information relating to other shack sites could also suffer from similar inaccuracies.  The Tribunal is, therefore, of the view that, in an environment such as Marks Landing where site values were changing rapidly and sometimes involved inaccurate sales information, the preferred basis of valuation would be sales of comparable land at or immediately prior to the date of sale (or valuation) of the Property.  On this basis, the Tribunal is of the opinion that a fair market value for the Property as at 1 February 2003, with the best comparable sale being of Shack Site 5, would be $125,000.

decision

33.     The Tribunal sets aside the decision under review and substitutes a valuation of the Property, as at 1 February 2003, of $125,000.

I certify that the 33 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member R W Dunne

Signed:         .....................................................................................
  Associate

Date of Hearing  1 June 2006
Date of Decision  30 November 2006
Representative for Applicant     In person

Advocate for Respondent         Mr C Goldsworthy

Centrelink Legal Services Branch