Hall & Hedge v Chief Executive, Department of Transport
[1997] QLC 176
•14 November 1997
LAND COURT BRISBANE
[1997] QLC 176
14 NOVEMBER 1997
Re: A95-33
Determination of Compensation - Resumption by the Chief Executive,
Department of Transport
for future road requirement purposes - Acquisition of Land Act 1967 and the Transport Planning and Coordination Act 1994
BETWEEN:
IanRichard Hall and Peter James Hedge and
Chief Executive, Department of Transport
Claimants
Respondent
J U D G M E N T
On 14 September 1994 a Notice of Intention to Resume issued under the Acquisition of Land Act 1967 and the Transport Infrastructure (Roads) Act 1991 with respect to the claimants' land which is described in detail below. A Proclamation was subsequently published in the Government Gazette taking the land for "future road requirement purposes" as from 15 December 1994. This Proclamation was made under the authority of the Acquisition of Land Act and the Transport Planning and Coordination Act 1994. The difference between the statutes referred to in the Notice of Intention to Resume and in the Proclamation was not raised as an issue. A claim for compensation dated 17 March 1995 was made in the amount of $4,700,000 for land and $73,100 on account of disturbance. This claim was amended at the commencement of the hearing with the leave of the Court to figures of $4,200,000 for land and $53,769 for disturbance, though it was clear that the figure for disturbance may have required some adjustment and in due course the final claim bore the figures: land $4,200,000 and disturbance
$38,822.50. The Constructing Authority admitted claims for disturbance totalling $13,793.30, leaving the main matter in dispute as the value of the land taken. The Constructing Authority contended for a land value of $2,850,000. An advance against compensation in the amount of
$2,000,000 was paid on 12 May 1995.
The Resumed Land
The resumed land is located in a broad wedge where Smith Street meets the Pacific Highway at Gaven in the Gold Coast. Central Southport lies approximately 6 km by road to the east and Nerang township is about 4 km to the south. The location of the land was seen by the claimant to be a particular feature of the site, one aspect of this being its position on the eastern side of the Pacific Highway. The land, which was vacant at the relevant date of acquisition, comprised an aggregation of seven titles totalling an area of 66.3356 ha. Its western boundary is about 1.2 km long and its eastern side has a length of about 1.8 km. An old and disused rail corridor, with an area of about 5.33 ha, severs the land and there was agreement between the parties that the purchase and inclusion of the land contained in this corridor with the resumed land would enhance the use of the site. There was an absence of agreement, however, on the ease of effecting such purchase and on the price to be attributed to that land.
In May 1987 a corridor of land was taken through the parent parcel of the land for the purposes of the new Gold Coast Railway, with the result being that the land became severed into three main parcels. Two of these parcels are located east of the new rail corridor and total about
46.3 ha, this "eastern section" being cut into two by the disused rail corridor. The area to the west of the new rail corridor, the "western section", has an area of about 20.057 ha. A series of electricity easements forming a single corridor, which I will call simply the "electricity easement" traverses the land in a south-east to north-east direction. The total area of land involved in the easement is about 8.5 ha. The easement was said to be either 80, 90 or 100 metres wide, depending upon which witness statement is referred to and they also included some slight differences in the areas of the various parts of the land; however, these differences did not feature as an issue in the matter. The electricity easement is also used for underground services, such as gas supply. The easement affects both the eastern section (5.9 ha) and the western section (2.6 ha).
The road corridor which contains the Pacific Highway abuts the western boundary of the land, though there is a narrow unconstructed section in this corridor which had previously been set aside for a possible service or access road, running next to the land. This unmade section is about 20 to 25 metres wide, though widens to about 65 metres towards the north of the site. Smith Street to the east is separated, in part, from the resumed land by a dedicated but unconstructed extension of Ashmore Road. The Pacific Highway and Smith Street are both designated "limited access" and therefore afford no means of legal access to the land. They are both busy roads and noise emanating from each impacts on the land. This noise and the management of it was the subject of detailed evidence.
Access to the land is provided from Ashmore Road which contacts the parcel in its south- east corner. An unmade part of this road abuts part of the eastern boundary of the land. Where Ashmore Road meets the resumed land, it comprises a bitumen sealed 2-lane carriageway. Sections of this road have been upgraded to a 4-lane dual road towards its intersection with the Nerang-Southport Road which provides access easterly to Southport and westerly to the Pacific Highway.
The locale on the western side of the Pacific Highway near the resumed land has largely been developed as rural residential allotments. This form of development is also found to the south of the land together with some "Residential A" or urban allotments and medium density land. On the eastern side of Smith Street, opposite the resumed land, are the residential estates of "Arundel Crest", "Arundel Park" and "Parkwood", whilst the "Ernest" Industrial Park is nearby. Electric power and telephone cabling are available to the site, whilst sewerage may be provided by the construction of an external main. Water is also able to be provided to the site, however the method and cost of providing such a connection were in issue between the parties. I had the benefit of viewing the resumed land during the hearing of the claim for compensation for the earlier resumption for railway purposes. In addition, and as part of the present matter, I viewed sales properties referred to by the various valuers called by the parties.
These inspections assisted in my appreciation of the evidence.
The choice of language with which to describe the topography of the land was subject to some debate during the hearing. I have read each of the descriptions proffered and the oral evidence on the matter but do not intend providing a point-by-point analysis. Rather, I have chosen to adopt a description from a report prepared by Jeffery Ross Humphreys, a town planner called by the claimant. This description appears to me to be cast in language which is judgmentally neutral and of a factual accuracy which would, on my appreciation of the evidence, be acceptable to the parties:
"The land generally falls from Smith Street to the Pacific Highway. The slopes are relatively steep in the eastern part of the site (mostly in the range of 10-25%), becoming flatter towards the Pacific Highway. The highest parts of the site rise above the 60m contour, along the site's eastern boundary. There are a number of gullies across the site, feeding a creek in the western part of the site, near the Pacific Highway, which drains north into the Council Camping and Water Reserve. The site begins to rise again on the western side of this creek, in the short distance towards the Highway. This rise continues beyond the site, across the narrow unconstructed reserve between the site and the Highway formation. Where it passes by the site, the Highway is constructed mostly in cut, with some smaller section in fill.
For the most part, the site is well forested with eucalypts and other naturally occurring vegetation. The forest is particularly prominent alongside the site's western boundary, ..."
From the above quotation it can be seen that the land has a westerly aspect. Whilst this is generally an undesirable feature both in terms of exposure to afternoon sun and shielding from cooling sea breezes, it does afford hinterland views from the elevated parts of the land. A portion of the land on the eastern ridge line has an easterly outlook and may even have a glimpse of the ocean from a point near the south-east boundary according to Terence John Lacey, a registered valuer called by the claimant.
Development Prospects
At the date of acquisition the resumed land was contained within the Albert Shire Council area. It was zoned "Rural B". On 11 March 1995, that is some three months after the acquisition, there was a merger of the Albert Shire and the City of the Gold Coast to form an amalgamated local authority. In spite of this amalgamation, the Town Planning Scheme for each remained the relevant source document for town planning matters during the period of relevance in this case. Ashmore Road was partly within the previous Gold Coast local authority boundary, thus any works on this road to facilitate development of the land would be the subject of negotiation with that local authority in addition to Albert Shire. The Shire of Albert Plan of 1988 was in place at the relevant date, but a new scheme was imminent. That new scheme was advertised in November 1993 and gazetted in February 1995.
It was common ground between the parties that the resumed land was suited for rezoning and development as a residential subdivision. The type of development and the time for rezoning were in issue and I will come to those matters in due course. I will also need to deal with the question of whether the land in the western section would be developed, given its low- lying nature, proximity to the Pacific Highway, and its physical separation from the eastern section from which direction access would be provided.
It was Mr Humphreys' view that, given the land's designation as "Rural Residential" on the 1988 Strategic Plan, development under the "Rural A" zone was then envisaged. The 1993 draft planning scheme's Strategic Plan designated the preferred dominant land use as "Urban Residential", the intent of which was for mainly detached housing "and other areas of high density housing". The 1993 draft scheme proposed that the site be included in the "Future Urban" zone. Mr Humphreys reasoned that, based on the Strategic Plan density rates, the new scheme therefore envisaged the land being rezoned on application from the "Future Urban" zone to one or a combination of residential zones.
Peter Graham Bell, town planner, gave evidence for the respondent. In his written report Mr Bell expressed agreement that the proposed 1995 Town Plan should guide a purchaser in forming a view as to the potential of the site and he concluded that the scheme supported a rezoning to "Residential A". He explained that in the 1995 scheme the "Residential A" table of zones allowed duplex dwellings and integrated housing without the need for a rezoning where land was appropriately identified in the residential area"regulatory map", as was the case with the resumed land. Mr Bell expressed the view that a rezoning of part of the land to "Residential B" would reasonably be contemplated. In short, it is the case that both town planners agree on both the prospect of rezoning to facilitate residential development of the land and on the zones which might be put into place. It is now a matter then of considering the next level of detail, that is the potential density and the broad layout configuration.
Whilst supporting development in the eastern section, Mr Humphreys expressed concern about the constraints to development in the western section. This section is affected by the electricity easement which cuts through its middle; the topography of the section in that a creek drains through the middle of it and about half of the area is flood prone, (that is below the Q5 flood level); an elongated configuration posing difficulties to layout design; the cost of providing access over the new rail corridor and the question of whether Queensland Rail would permit a bridge over the line; and the proximity to the Pacific Highway and the resultant noise pollution. Mr Humphreys also noted that in accordance with the local authority's shire image, there would be a requirement for an open space or landscaping setback along the Pacific Highway as a condition of rezoning. He had a discussion with a Council officer who advised that Council would have sought to gain the western section as open space in return for increased densities in the eastern section were development of the land proposed.
Mr Humphreys proposed a site density upper limit of 12 dwellings per ha, taking into account any bonus given by virtue of the dedication of the western section as park. A Council officer advised him that at the time of the acquisition the Council was encouraging a mix of 60% "Residential A", 30% "Special Residential" (AMCORD) and 10% "Residential Multi Unit" or "Residential B" zonings. In Mr Humphreys' view, "Residential B" would be preferred to a multi- unit use of the site, given its lower density. In addition to the park in the western section, he proposed that a functional park of 4,000 to 8,000 m² be located in the eastern section and that the area of land in that section covered by the electricity easement also be dedicated as park.
Based on the above considerations, Mr Humphreys suggested that the theoretical maximum potential yield of the land for urban residential development would be:
Gross area of site (including disused rail corridor) 71.67 ha
Area for Res B (max. 10% of gross area) up to 7.17 ha Maximum number of Res B units @ 40 units/ha up to 286 units
Area for Special Res (max. 20% of gross area) up to 14.33 ha Maximum number of Special Res dwellings @ say 20d/ha up to 286 units
Area for park 8,000 sqm + 6 ha (approx. Area of power
easement) + 20.50 ha (or 11.35 ha; one allotment) 26.85 ha (or 18.15 ha
Balance area for Res A at least 23.3 ha (or 32 ha)
Number of Res A lots @ say 8 lots/ha at least 186 lots (or 256 lots)
A subdivision layout concept plan prepared by Edward Burrell Bennett, licensed surveyor, was tendered from the claimants' side. This plan provided:
Zoning
Residential A
Lots
303
Dwelling Units
303
Integrated Housing 74 74 (AMCORD) Duplex 34 68 Townhouses 9 128 Total 420 573
The above figures calculate to about 8 dwellings per ha over the whole of the site on the assumption that the disused rail corridor is included as part of the eastern section. This yield is well within Mr Humphreys' theoretical maximum potential yield and is a realistic potential yield in his view, taking into account allowable density, park provision, buffering requirements, access, topography, layout and market factors. Mr Humphreys worked at a general level with Mr Bennett in preparation of the layout design.
Mr Bell worked in conjunction with Maurice Francis McAnany, Chartered Professional Engineer, in the preparation of two optional layout concept designs, each, as with the Bennett layout, incorporating the disused rail corridor. Option 1 provided for a yield of 496 residential lots and 42 townhouse units, giving a total of 538 dwelling units or about 7.5 dwellings per ha. There would be 500 lots. Layout Option 2 showed a yield of:
ZoningLotsDwelling Units
Residential A 325 325 Integrated Housing 89 89 Duplex (AMCORD) 30 60 Townhouse Units 8 192 Total 452 666
Option 2 calculates to a gross density of 9.3 dwellings per ha. Mr Bell expressed the view that Option 2 generally in the form presented in evidence would be approved by the local authority. I note that the proportions of each residential type are somewhat similar to those in the claimants' layout. Both options put forward by the constructing authority include development in the western section. Option 1 has 78 residential allotments located there, whilst Option 2 has 22 residential lots, 42 integrated housing lots and 47 townhouses. For the purpose of a broad comparison with the claimants' layout, both of these options could be adjusted to provide for no development in the western section. Yields would become 460 dwelling units or 422 lots for Option 1 and 555 dwelling units or 386 lots for Option 2. These figures may be capable of adjustment upwards if additional park was dedicated in the western section and an increase in dwelling units was included in the eastern section. The resultant Option 1 would show a lower density than the claimants' layout, while an adjusted Option 2 would show a yield similar to or possibly slightly lower than the layout proposed by the claimant. In saying this, I should point out that Mr Bell expressed some concern that Options 1 and 2 may have provided insufficient accessible park, relying largely on the land covered by the electricity easement and the land in the western section to provide the required contribution. Given, however, that the area of park in both options put forward by the respondent of 20.578 ha was well in excess of the required minimum area of contribution and that the question of park contribution raised by Mr Bell was not pressed by the claimant, I will not take the matter further.
From what I have written thus far, it will be apparent that the resumed land has characteristics which operate as constraints to its development. Others will be mentioned in due course. Its prominent advantages include its location proximate to recent developments mainly to its east, its access to the Gold Coast strip and its prospect of rezoning. The constraints or "disabilities", to use the language of Mr Gallagher, QC, for the respondent, were acknowledged by Mr Kirk, SC, for the claimant, as being apparent but, in his submission, "not critical in terms of affecting the development potential". That potential is usually expressed as being the highest and best use of the land and whilst in this case, as in many in this Court, a range of experts gave evidence, it is the opinions of the valuers to which I will first turn. Four registered valuers were called. Mr Lacey, whom I have mentioned, and Rodney Louis Brett gave evidence for the claimant, whilst Lawrence John Hamilton and Michael Joseph Slater provided valuation evidence for the constructing authority. Mr Brett said that the land provided "an opportunity for either immediate development or as a holding proposition". He had in mind development of the type put forward by Mr Bennett which I touched on earlier. He saw the development targeting
the lower end of the residential market. Mr Slater identified the same market for the end product and said that immediate residential subdivision was appropriate. To his mind it would be wise for a purchaser to develop the site before the noise from Smith Street and the new railway line in particular increased further. Mr Lacy viewed the land as being capable of immediate development also, however, Mr Hamilton, who agreed that residential subdivision was an appropriate use for the land, expressed the opinion that "the property represents an opportunity to land bank a large parcel of residential land". He was led to this view by valuation exercises he had carried out. I will come to the detail of these later.
Gallagher v. Brisbane City Council (1975) 2 QLCR 368 at 381 explains the notion of highest and best use, particularly where such use is deferred: in that case by the need for rezoning:
"Now, while the zoning of land pursuant to a town plan will always affect the highest and best use of land at a particular date, and to that extent the value, it does not create that highest and best use. It may facilitate the immediate realisation of that highest and best use or, at the other end of the scale, it may totally prevent such realisation. In between these two, zoning may work to postpone, or defer, full or any realisation of the value of the highest and best use, until some intermediate action is taken and completed. But, in our view, the highest and best use remains the same throughout, and, on the basis that the highest and best use on resumption date is different from the permitted use as of right of the land under the zoning on that date, the dispossessed owner is entitled to receive the present value of that highest and best use of the land on resumption date, so long as such present value exceeds the permitted use as of right value on that date, where the zoning provisions prevent the immediate realisation of the highest and best use value."
An application of the reasoning in Gallagher leads me to state that based on the evidence that I heard from the valuers and the town planners, the highest and best use of the resumed land is for residential subdivision. It is a matter of fact that rezoning is needed to release the potential of the land, but it is a matter of some debate as to how long it may take for such rezoning and subdivision approval to be put into place.
The Valuations
Mr Lacey used the direct comparison method of valuation which he described as the most reliable method in the circumstances. In his written valuation he said that the hypothetical subdivision method is sometimes used as a check method "however as the reality is that a potential purchaser would not go into a detailed investigation of these matters it is often of limited significance in determining market value". His approach was to place a value on what he termed the "usable land" in the eastern section at $150,000 per ha and then to discount this figure
by about 15% to allow for the risk involved in acquiring the disused rail corridor and a further 15% to cater for the need for rezoning the land. The resultant rate of $105,000 per ha was then applied to the "usable land", that is a net 40.2786 ha in the eastern section, which area excludes not only the disused rail corridor but the electricity easement area as well. The deduced figure was $4,229,253 which he rounded to $4,200,000. He placed a "nil" value both on the western section and on the area of land covered by the electricity easement. This was done notwithstanding the potential as park contribution that these lands might have had in the development of the land. In my view it is the whole of the land which is to be valued, including the electricity easement and western section, whether one assumes these areas to be developed or simply dedicated as park. They are part of the land and have a value as part of the whole even if as independent parcels they may be all but unsaleable in the market. I can understand that a valuer would, in the process of striking a value, direct his mind to what proportion of the land to be valued is usable, however, to conclude that other parts of the land have no value is an error. Of particular interest in this regard is that in Mr Lacey's reference to the in globo sales that he relied on, his comparison was not between the resumed land and the sales, but with the eastern section of the resumed land only, excluding the easement area. Such an approach poses a difficulty in dealing with park contribution on sales where there is limited or no unusable land and where park contribution would come out of the useable part. I will proceed on the basis, however, that Mr Lacey would have considered the final value that he placed on the resumed land in the context of the sales evidence to which he referred.
Mr Lacey's reference to the figure of $150,000 per ha assumes that the old rail corridor land has been acquired for a price not relevant to his approach, but that the usable land would be enhanced by virtue of that acquisition. This usable land figure of $150,000 per ha, when considered over the whole of the resumed land of about 66.33 ha, would equate to $91,086 per ha. The figure of $105,000, when considered over the whole of the land, would be $63,760 per ha, that is, before the overall rounding down that Mr Lacey did to arrive at his final figure which calculates to $63,320 per ha. The total value of the usable land at $150,000 per ha would be
$6,041,790, whilst the net value of the usable land (that is as zoned and with the disused rail corridor yet to be acquired) at $105,000 per ha is $4,229,253. The difference between these two figures is $1,812,537 and represents the total discount applied by Mr Lacey for the rezoning and old rail corridor aspects or $906,268 for each 15% discount. On this approach the value of the resumed land, as zoned at the relevant date, but assuming the old rail corridor had been acquired (but not placing a value on the rail corridor land as such), would be $77,423 per ha. In the
context of the overall evidence that I heard on the matter of the prospect of acquiring the disused rail corridor, Mr Lacey's level of discount is high.
Given my analysis of Mr Lacey's valuation approach thus far, I see no patent error, contrary to submissions from the constructing authority, in Mr Lacey having not factored into his valuation a purchase price for the disused rail corridor. He has, following the application of his two discounts, applied the net value to the area of the resumed land which does not include the disused rail corridor.
Mr Lacey said that it would be appropriate to strike a price for the disused rail corridor at a rate pro-rated from his valuation of the usable land of $105,000 per ha. On my calculations, this would produce a purchase price of about $560,000. Mr Lacey has, in effect, accorded the resumed land a substantial added value when the corridor is joined with it. That is, the resumed land in his view is worth $77,423 per ha with the old corridor included, but $63,320 per ha without. Correspondingly, the usable land is, on his view worth $127,500 with and $105,000 without the corridor. The reason for adopting the lower price of $105,000 for the rail corridor was not explained, however, my view would be that the corridor land would be worth a figure similar to the value attributed to the "combined parcel"in the east once the lands are amalgamated. I will use the term "combined parcel" to refer to the combination of the "usable land" as described by Mr Lacey and the disused rail corridor. Mr Lacey agreed that purchase costs would be involved in the acquisition of the old corridor. I will return to this later.
The other valuer called by the claimant, Mr Brett, provided a report which included two methods of valuation. He wrote in his report that his principal method was that of direct comparison with in globo sales and that a separate exercise was included to test the feasibility of proceeding with immediate development of the site following rezoning, based on expectations of the market in 1994. The feasibility exercise was prepared in the manner of a Discounted Cash Flow (DCF)on the basis that no selling price or cost escalation was included. He wrote, "The outcome can then be compared with in globo sales evidence". In his evidence-in-chief he explained his approach in these terms:
"Q So you initially in your valuation went to the sales of in globo land?
A.Yes.
Q And you then decided on what you considered to be an appropriate value? A Not in firm terms, I analysed those sales out to a rate per hectare and a rate per lot, that gave me a general level of value but nothing specific. I
then went to the cash flow to put that together adopting parameters which I thought were reasonable and still think are reasonable and looked at the outcome of that. The outcome of that resulted in a figure which I think sits very comfortably with the sales evidence."
From this description of his approach, it appears that his use of the DCF methodology was more than a check method, though it was described as such by Mr Kirk, SC. I note also that in comparison with the other valuers who gave evidence, and I refer in particular to Mr Lacey, Mr Brett's knowledge of the sales which are referred to in his direct comparison method was shown to be deficient in certain important respects. I will not detail these matters here as they were acknowledged both by Mr Brett and by Mr Kirk, SC. I will come to the sales later. Having regard to what I have just set out, I am led to the view that Mr Brett placed greater reliance on the DCF as his primary source of valuation than on the use of the direct comparison method. My view on this matter needs to be viewed in the light of the submission by Mr Kirk, SC, that "there can be no doubt that the proper method of valuation is 'direct comparison'", a submission I will come to shortly. In his valuation Mr Brett adopted a figure of $4,500,000 for the resumed land including the disused rail corridor, then deducted the value of the corridor land to arrive at a net value of $4,000,000. His gross value of $4,500,000 represents a value of $62,796 per ha, whilst his net value is $60,304 per ha. In his written valuation he wrote that the $4,500,000 figure "represents $98,440 per ha for the development area of 45.713 ha to the east of the new rail corridor. This includes the disused rail reserve and excludes the eastern section of the power easement." He went on to say that the value per ha is supported by the sales evidence. I take this to mean that he considered the value of the "usable" land in comparison with the sales in a manner similar to that employed by Mr Lacey, though Mr Brett has not gone so far as to expressly apply a "nil" value to any part of the resumed land.
Mr Brett, as I have indicated, adopted a price of $98,440 per ha for the disused rail corridor, that is, a price equivalent to the combined value of the usable land and the corridor. It will be noticed that this differs from Mr Lacey's method. To this figure he added, in his DCF, an allowance of 4% for purchase costs, however, he made no allowance for the risk of purchase. In his DCF calculations he proceeded on the basis that the corridor had been purchased on 15 December 1994, though he readily admitted that this could not have been the case. It seems that he chose to include the purchase at this stage because he saw little risk that the purchase would not take place soon after, and, in any event, the inclusion of the purchase at this time had the effect of inflating holding charges therefore reducing value, at least on this part of the overall land price. The contrary view is that if a prolonged period for negotiation and purchase was provided for, holding charges overall would be increased. Mr Brett did not explain how in his direct comparison approach he had taken the rail corridor purchase issue into account. I now come to the two valuers called by the respondent.
Mr Hamilton, who valued the resumed land at $2,850,000, employed the direct comparison method as his primary method of valuation and used a DCF as a support method. He expressed the opinion that the DCF method could not, in the present case, be relied upon solely "given the length of the development and the current state of the preliminary planning". By this he meant, as he explained orally, that on the one hand the overall time which the subdivisional development would take meant that the predictions and calculations involved in a DCF were inherently less reliable than with respect to a project with a shorter time frame; and on the other that there was uncertainty as to when rezoning and subdivision approval would occur and as to the conditions which would attach to such approvals.
Mr Hamilton included in his DCF the land value of $2,850,000 and arrived at a margin and an internal rate of return which were in his view below that which the marketplace would see as being at a level which would support immediate development of the land. To produce a margin and internal rate of return which he thought acceptable, Mr Hamilton calculated that he would need to include a land value of $1,675,000.
He also carried out a hypothetical subdivision exercise which he said was even less reliable than the DCF method, given the size of the development and the uneven cash flows which he observed. The hypothetical subdivision exercise produced a residual land value of
$1,200,000. Mr Hamilton said that, "The sales evidence demonstrates the property has a value in excess of that derived from these exercises. It could be concluded that the property represents an opportunity to land bank a large parcel of land". I note that in his hypothetical subdivision he included a profit and risk allowance of 40% which represented what he considered to be an appropriate allowance for the projected development presumably on the assumption that it would proceed. The logic of his conclusion that the land constitutes a land banking proposition is that a substantially lower profit and risk would result from a hypothetical subdivision which yielded a land figure of $2,850,000.
Mr Kirk, SC, criticised Mr Hamilton's approach at a general level by saying that because Mr Hamilton had concluded as a result of his DCF and hypothetical subdivisions that the land was a land banking proposition, Mr Hamilton must have selected sales with this characteristic, thus condemning the resumed land to a lower level of value than would be the case if it was approached as land immediately ripe for subdivision, following local government approval. In truth, I am not sure which valuation method Mr Hamilton employed first of all. I can only assume that his approach was iterative.
Mr Hamilton placed a value on the eastern section, together with the disused rail corridor,
thus:
Unencumbered 45.874 ha @ $60,000/ha $2,752,000 Encumbered by electricity easement 5.9 ha @ $40,000/ ha $236,000
Total area 51.774 ha $2,988,000
From these figures he adopted $2,990,000 or $57,750 per ha for the eastern section, together with the disused rail corridor. Mr Hamilton placed a value on the western section as follows:
Unencumbered 17.5 ha @ $20,000/ha $350,000
Encumbered by electricity easement 2.6 ha @ $15,000/ha $40,000
Total area 20.1 ha $390,000
He placed a value of $60,000 per ha on the disused rail corridor, thus valuing it at the same rate as the unencumbered land in the eastern section. He also made an allowance of
$210,000 for what he termed "contingency/profit and risk" in acquiring the corridor land. This may be compared with Mr Lacey's allowance of $906,268. Mr Hamilton's adoption of his contingency/profit and risk factor was based on the following considerations:
·the level of total investment in the resumed land independent of the cost of acquiring the old corridor;
·advice that he had received from Queensland Rail to the effect that a sale would have been considered favourably;
·uncertainty in dealing with State Government agencies and the prospect of political factors intruding;
·the time frame in which to effect a transfer of ownership;
·professional fees estimated to be $5,000 to $10,000 likely to be expended for legal, valuation, survey and ancillary matters.
The summary of Mr Hamilton's valuation is:
Eastern Section including disused rail corridor:
$2,990,000
Less Cost of Acquisition/Contingency/Profit & Risk for disused rail corridor $ 530,000
$2,460,000 WesternSection $390,000 Total $2,850,000 That is, overall, $42,966 per ha. Mr Hamilton had regard to the McAnany layout Option 1 and the costs provided with respect to that option in his hypothetical subdivision and DCF exercises. This option, as with Mr McAnany's Option 2, proposed development in the western section and I assume that he had regard to the prospect of such development in striking his value in comparison with in globo sales. Mr Hamilton has applied a value to the easement area in both eastern and western sections. I am therefore a little uncertain about the correctness of saying
what his value would be if it was applied to Mr Lacey's "usable" land component only, but, for what it is worth, $2,850,000 over 40.2786 ha calculates to $70,757 per ha.
Mr Slater adopted the hypothetical subdivision method of valuation to produce a value for the resumed land of $1,950,000 or about $29,398 per ha overall. On this figure the value placed on Mr Lacey's "usable land" would be about $48,412 per ha. His value for the resumed land, together with the disused rail corridor, was $2,100,000. Mr Slater's approach was to deduct a value for the rail corridor land on the basis of the net value of the resumed land spread over the combined site, plus 10%. This is represented by the following calculation:
$1,950,000 ¸ 71.664 = $27,210 to which 10% is added the result multiplied by the area of the disused rail corridor producing a figure of $159,654.
The added 10% was explained in Mr Slater's written valuation as being for "costs", though I note that he had already allowed 4% for "acquisition costs" in his hypothetical subdivision exercise for the purchase of the resumed land together with the old rail corridor. Whether there may have been some duplication in such costs is not clear to me, however I do note that the 4% allowance is in agreement with the allowance made by Mr Brett. Mr Slater's approach to the price of the rail corridor was to have regard to the value he had struck for the overall resumed land, that is, the eastern and western sections. I favour attributing a price to the disused rail corridor on the basis of the value that it adds to the eastern section and not on the basis of a pro-rata application of the overall value of the resumed land. The latter approach dilutes the value of the corridor by drawing in the unit area value of the lower value lands in the western section. Although this favours the claimant it is not an approach that, I think, would be adopted by Queensland Rail.
Whilst Mr Slater employed the hypothetical subdivision method alone, he was aware of a number of the in globo sales referred to by the other valuers and asserted detailed knowledge of those which became known as "River Meadows", "Camelot", "Yawalpah Road", "Heritage Gardens" and "Coomera Rivage". It was his view, however, that none of these sales provided a suitable basis for valuation of the resumed land. Indeed, I understood him to say that in valuing properties such as the subject, he preferred the hypothetical subdivision method.
At the outset of the hearing I asked Mr Gallagher, QC, for the respondent to elect whether to adopt the value placed on the land by Mr Hamilton or that of Mr Slater. He said that for the "purposes of costs" the respondent would contend for $2,850,000. Generally the adversarial system is one where each side's position is stated clearly and in this matter it is the case that the dispute between the parties is whether Mr Hamilton's valuation of $2,850,000 is correct or whether Mr Lacey's $4,200,000 is to be preferred or, perhaps, something between these two
figures. It is reasonable in matters which come before this Court, as in the case of other jurisdictions, that each party should be able to proceed on the basis of understanding the case it has to answer from the other side. I cannot therefore accept as appropriate the qualification sought to be introduced by counsel.
In view of this, it is reasonable to ask the question of what role Mr Slater's valuation and his figure of $1,950,000 plays in the matter. If it was the case that the valuations of Messrs Hamilton, Lacey and Brett were shown to be wrong in some fundamental respect and Mr Slater's was shown to be fundamentally correct, then his valuation would be the basis upon which the final determination would rest. In the absence of such a finding, there is little value in my giving detailed consideration to Mr Slater's valuation though, of course, his views on certain matters in dispute between the parties must be taken into account given his expertise and the manner in which he may have addressed such matters.
My view of the matter of the utility of Mr Slater's valuation in the context of this case turns very largely, of course, on the large differential between his figure and that of Mr Hamilton, together with the constructing authority's contention for the higher figure. In the case of the claimants' side, on the other hand, there is a proximity between the valuation figures of Mr Brett and Mr Lacey to the extent that one tends to support the other.
Level of Detail
I have set out the valuation approaches in order that I may deal with the method of valuation which is appropriate in ascertaining the major component of compensation, that is the value of the land taken. It certainly cannot be said that I have been starved of options, given the variety of approaches from the four valuers called. Nor can it be said that I have been presented with opposing monolithic approaches for there was an absence of total agreement between the valuers on each side. It cannot be said either that there was a paucity of information concerning the resumed land. Indeed, as Mr Brett put it, "I wouldn't know a purchaser who would have the knowledge that this purchaser has now". This aspect of the matter is of concern to me not because it has had a direct impact on the final outcome, but both because of the question of principle that it raises and the costs of obtaining and leading such evidence. I have therefore decided to record some views on the matter, but first let me provide a glimpse of the detail that prompted Mr Brett to make his observation.
Each side called a number of expert witnesses in addition to the valuers. There were the two planners to whom I have already referred and in addition to the evidence they gave on the
question of the highest and best use of the land, they presented their views on the length of time it would take to have the required rezoning and subdivision approvals put in place and on the question of the general type of subdivision that might be appropriate. Apart from the question of timing, however, there was no real issue between the two gentlemen called.
Mr Bennett gave evidence in support of the layout plan prepared and provided by him whilst Roger Humphrey Brameld, a civil engineer, provided a preliminary engineering design of the subdivision, a detailed cost estimate and a supporting detailed schedule of quantities, together with drawings showing the roadworks, water reticulation, external sewerage reticulation, internal sewerage reticulation and stormwater and roof-water layout; together with a large number of drawings showing cross-sections and longitudinal sections of roads in the layout plan. Mr Brameld's report covered some 130 pages and was supplemented by other documents during the hearing. Mr McAnany, who prepared the respondent's layout plans, provided a report together with a separate collection of drawings including: real property description and existing contours, external roadways, existing water supply mains, existing sewerage reticulation, slope analysis, borehole and test pit locations, road and allotment layout, road design drawings, fill areas, existing and proposed stormwater drainage, stormwater drainage layout, sewerage reticulation, water reticulation and road classes and lot numbers for Options 1 and 2. Also included were drawings from Queensland Railways and the Department of Transport concerning the new rail corridor and the Pacific Highway. Mr McAnany's costs estimates and supporting documentation were contained within a separate 79-page report. His initial work was also supplemented during the hearing largely in the form of detailed comment on Mr Brameld's work. This included an analysis of the anticipated depth of rock in proposed sewerage in particular places on particular roads on Mr Brameld's work which is an example, perhaps, of the most extreme level of detail put forward by either side.
The impact of noise on the resumed land generated from Smith Street and the new railway line was the subject of evidence, including reports from Maxwell Francis Winders, a consulting engineer on behalf of the claimants, and Frederik Hendrik Kamst, an engineer called by the respondent. I consider the detail of their evidence elsewhere.
On instruction from Mr McAnany, Albert Mark Rutten, geotechnical engineer, supplied a report of a broad-scale preliminary geotechnical investigation carried out by his firm on the land. He investigated the subsurface conditions across the site and this involved the drilling of a number of holes and the digging of pits on the land. Again, I come to the detail of that work elsewhere. However, I can record that Mr McAnany said that there would be very little additional geotechnical information needed to produce a final design.
The constructing authority called William James Morris, the managing director of Prodap Services, who provided a market assessment of the development potential of the resumed land. His report was brief and to the point.
Wayne Robert Rex, a registered valuer and "property buyer" for the Stockland Trust Group, was called by the respondent. Mr Rex's position involves "sourcing suitable investments, evaluating the development opportunity, negotiating the purchase and obtaining development approvals". His company's primary business involves subdivisional land development, retail shopping centres and international hotels. Mr Rex provided a statement in the form of a letter to the constructing authority outlining his view of the resumed land as if the Stockland Trust Group was considering a purchase of the land as a development opportunity at the relevant date. He had the reports of Mr Bell and Mr McAnany, together with Mr McAnany's detailed layout drawings to assist him in the preparation of his letter. Mr Rex wrote:
"Our company would definitely not be a purchaser of the aforementioned land.
Although we recognise the property has potential for a Residential A zoning or higher, the influences of the Smith Street arterial road, the Pacific Highway, the new railway reserve, the old railway reserve and the electricity easement all on one parcel of development land negates any interest in the property by our company at any price.
I personally consider therefore that the greater majority of land development companies would feel the same way as our company about a development opportunity on the site."
and:
"Although the marketing of the property would attract considerable market enquiry, I consider based on my experience that the property would prove difficult to sell with limited genuine interest after detailed analysis of the property was completed".
I must express some concern about the value of calling a witness in his position. His evidence traversed many of the matters dealt with by the valuers called, but he was not called as an expert. He falls into the category of individuals whom valuers will frequently consult in the process of assembling market intelligence essential to the construction of a sound valuation report. Such market intelligence either forms the background to a valuer's approach or reasoning or may even be expressly introduced as hearsay evidence and accepted as such. On occasions it will be challenged or a challenge will be anticipated and the source individual will need to be called in support. The practice of calling a potential buyer of a particular parcel of land (or in this case a party with no interest in buying but asked to act as if he has) and asking him his views about the land, is one that I cannot express support for. It is selective and involves reliance on
witnesses who have a recognised expertise as Mr Rex has, but who are asked to give evidence not as an expert but from their own individual perspective in the marketplace. Carried to its ultimate, one could imagine a platoon of such witnesses being called. Nevertheless, I will give consideration to those aspects of Mr Rex's evidence that touch upon the substantive issues raised. I will pay no regard, however, to those aspects of his evidence where he expressed opinions on valuation matters but without the support of the usual evidence.
A costs critique and comparison exercise was provided by Philip Graham Breene, an engineer who considered the costs associated with development in the eastern section only. In this exercise he compared the Bennett layout with Mr McAnany's Option 1. Mr Breene was called by the claimants' side as a disinterested expert to provide his appreciation of the costs estimates provided by the two engineers. He was criticised in quite direct language from the constructing authority's side as being biased in favour of Mr Brameld. I formed the view that some favouring of Mr Brameld's approach, compared with that of Mr McAnany, was apparent. I accept, however, that there is some value in aspects of Mr Breene's evidence, though I must say that calling a third party expert in this way is not a practice that I favour. I would not risk disagreement by saying that notwithstanding the obligation of experts in all jurisdictions there is a tendency for an expert to cast his opinion in a way that favours the side that calls and briefs him. Putting this aside, it seems to me that a witness being asked to carry out the task given to Mr Breene is being characterised as all but a tribunal of fact, but with the distinct disadvantage of not hearing all of the evidence, including the cross-examination of the various relevant witnesses before being required to express his views. It is therefore the case that such a third party expert largely adds a level of complexity rather than a level of simplification.
There was comment from some witnesses to the effect that the work being presented in evidence was of a type that they were often called upon to carry out in the marketplace. It seems to me that what was being referred to were those many instances where a conditional contract or an option to purchase are involved. Indeed, if I look at the level of detail put before me, I would find it difficult to accept, except in the case of clear evidence, that purchasers would go to the expense and time in the research, examination and planning of a site without securing it in some way; or that a vendor would allow such activities without a real prospect of a sale at an appropriate price at the end of the investigations.
The matter which particularly concerns me is whether the amount and detail of information and opinion presented before me is appropriate, given my task of having to settle a value of the land for compensation purposes. That value is not argued by the claimant to include any "special value" so the question is concerned with the market value of the land. Some
reference to principle is needed and "there is no doubt that the best starting point for an evaluation of the relevant law is still Spencer v. The Commonwealth (1907) 5 CLR 418" (per Stein J in Polegato v. Griffith City Council (1988) 64 LGRA 265 at 269). I present quotations from each of the judgments in Spencer:
"In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but by inquiring 'What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?' It is, no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural. The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and not unwilling vendor would come together." (Griffith CJ at 432)
"And I should say, in view of the many authorities cited and upon the sense of the matter, that a claimant is entitled to have for his land what it is worth to a man of ordinary prudence and foresight, not holding his land for merely speculative purposes, no, on the other hand, anxious to sell for any compelling or private reason, but willing to sell as a business man would be to another such person, both of them alike uninfluenced by any consideration of sentiment or need." (Barton J at 436-437)
"The facts existing on 1st January 1905 are the only relevant facts, and the all important fact on that day is the opinion regarding the fair price of the land, which a hypothetical prudent purchaser would entertain, if he desired to purchase it for the most advantageous purpose for which it was adapted. The plaintiff is to be compensated, therefore he is to receive the money equivalent to the loss he has sustained by deprivation of his land, and that loss, apart from special damage not here claimed, cannot exceed what such a prudent purchaser would be prepared to give him. To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property." (Isaacs J at 440-441)
Spencer was expressly endorsed by the High Court in The Commonwealth v. Arklay (1952) 87 CLR 159 at 169-170. Indeed, I am not aware of any legal authority which suggests that the Spencer formulation has lost any of its strength and relevance over the years. I will refer
to three other authorities which expand upon certain aspects of Spencer. I have selected these, not because of some factual feature in them, but because they seem to me to express in clear language matters that are implicit in Spencer and which are relevant to my discussion. The first of these is Edinburgh Pty Ltd v. The Minister (1962) 8 LGRA 45 where the following words are found at p.50:
"Such a purchaser must not be taken to possess any special prescience but it must be assumed that both he and the vendor would be concerned with the nature of the development which would be permissible at the date of the acquisition and in the future after that date."
The second is Liverpool City Council v. The Commonwealth (1993) 81 LGERA 405 at 413 where it was held that, notwithstanding the circumstances of the relevant land, a sale must be assumed.
The third is Crouch v. The Minister (1976) 36 LGRA 254 where at 260 Wells J dealt with the approach that one of the valuers before him had employed to deal with a particular issue which he had confronted:
"Laffer took a rather different approach; he assumed that the hypothetical purchaser-developer would buy subject to the condition, which he could invoke, that if the proposed plan of subdivision was not approved he could rescind the sale. It seems to me that to incorporate that condition into the hypothetical sale between willing but not anxious buyer and seller is to brush aside the problem and not to grapple with it. The test formulated in Spencer's case (2) clearly predicated a straight-out sale, and any uncertainty that may arise over the postulated use for the land ought, in my opinion, to be reflected in the price and not absorbed by some exotic condition."
Let me return now to the Spencer decision. Taking Their Honours' judgments as a whole, Spencer provides a normative formulation which must guide the intellectual process, irrespective of the presence of some factual inconveniences. For example, if no buyer is possible then one must be presumed (Liverpool City Council); and if a willing buyer is actually identified, his price cannot, by itself, dispose of the matter (Spencer per Griffith CJ). By the same token, the identification of a party such as the Stockland Trust Group, who would not buy the land at any price, is not determinative. This is not to say that the normative formulation must be applied irrespective of discernable facts, but that such facts cannot be relied upon to erode the theoretical basis of the formulation. Thus it is not appropriate to assume the presence of knowledge which would not ordinarily be available at the relevant date (Edinburgh Pty Ltd); nor to dispose of difficult factual matters by devices not contemplated in the formulation (Crouch). Spencer does not propose a method of valuation, nor does it suggest the type and extent of information which the hypothetical parties might possess and on which a valuer might rely. It would be inconsistent
with principle, however, if the parties or either of them were presumed to have information not usually available in transactions of the type in contemplation at the relevant date. In saying this, I accept that there will be potential purchasers in the marketplace with varying degrees of knowledge and experience and that there will be transactions which take place based more on "gut feeling" than on suitable data and others where the available information is analysed to dust. To give effect of the Spencer formulation, it would not be appropriate to assume that a seasoned developer was the probable purchaser and that therefore his approach would be simple and the price offered would be largely the product of his experience. Such an approach falls into the error of assuming as knowledge that information which would need to be explicit to the hypothetical prudent purchaser of the normative formulation. It would be appropriate therefore to adduce evidence from experts of those matters to which a hypothetical prudent purchaser would direct his mind, but limited to those matters which would ordinarily be available to him at or near the relevant date. The task of the valuer is not, therefore, to duplicate what he observes in the marketplace would be the approach of the most probable purchaser or class of purchaser, but to obtain from the marketplace evidence which will assist in applying the Spencer formulation in
the Court.
"The judicial task is to see the combined results of the valuers' work ... as material fit to be used in the course of applying the principle laid down in Spencer; the two roles of buyer and seller ... must finally merge in the court. I must bear in mind the conclusions of the valuers, and try to accord to each the sort of bearing and weight that would be accorded to them in the notional transaction of sale and purchased propounded by Spencer." (Brewarrana Pty Ltd v Commissioner of Highways (No 2) 1973) 6 SASR 541 at 578)
The task of the valuer is a little different when it comes to providing evidence to a Court from the task that might be undertaken in another context. For example, a value struck for the purposes of advice to a client as to the price at which a property should be offered for sale, or how much one should offer as a purchaser or, indeed, what value should be applied for mortgage security purposes, may involve considerations of a different nature. In the commercial sphere the valuer is attempting to predict a probable transaction and it may be entirely appropriate in such an exercise for him, for example, to suggest the maximum price which a vendor might reasonably expect, a price below which he is advised not to go and a probable result. In so doing, the valuer is reflecting the difficulty in applying the available historical market evidence, the realities of the marketplace, the uncertainty of the quality of marketing of the property, terms which might be applied to an offer, the time it may take to sell the property, and a little self preservation in case an action in negligence arises in the future.
I have already noted Mr Brett's comment concerning the level of detail in the evidence put forward. Mr Brett also said:
"... a decision will be made here in the knowledge, or with the knowledge, or with far greater knowledge than would normally be available to a purchaser in the marketplace. A purchaser in the marketplace expects a certain return on his investment because he perhaps lacks a degree of knowledge. He's got a buffer in there in case things blow out a little. Here more knowledge is reduced risk. Here we have far more knowledge. A decision will be made in the light of that knowledge. Wherever that level of development cost comes to, there will be far more certainty in the inputs to the exercise than would normally be the case. Now, if a developer is interested in a hurdle rate of 25% when he only has a rudimentary knowledge of costs and selling rates, he would see the development as being - or the project as more secure if he has a detailed knowledge of costs and selling rates. That knowledge cuts down his risk; he's prepared to take a lower profit."
This last proposition reveals the type of difficulty to which a promiscuous reliance on information can lead. It is unquestionably the case that greater information will lead to greater certainty and therefore less risk, however, there is in my view a conflict with the Spencer formulation where the type and detail of information relied upon turns more on the choices the parties take in the presentation of their cases than in an attempt to replicate Spencer in the prevailing market conditions. To be able to reduce risk and therefore increase value by a choice of evidence to be adduced, shows an error of principle. The level of risk that the Court should take into account is the level which would be in the mind of the hypothetical prudent purchaser at the relevant date based on the level and reliability of information which would ordinarily be available to him. A reduction in risk by the elimination of uncertainty about certain facts is rather like assuming the hypothetical contract of purchase is subject to conditions concerning those facts, or that the hypothetical prudent purchaser has unusual prescience.
All that I have said in regard to this matter needs to be tempered by the exigencies of preparing evidence suitable to a contest in Court. Whilst, for example, a purchaser in the marketplace may seek and receive expert oral advice, this is not to say that professionally prepared and argued written reports should not be presented in Court. It may also be the case that additional expert evidence may also need to be called to address the veracity of certain information sought to be relied upon. As I see it, the issue is really one of whether, in substance, those reports go beyond that which would ordinarily be available in the marketplace. It follows that the resources of time and money employed in preparing such reports need not be equivalent to that which would be the case in the marketplace as preparation for Court brings into play different considerations.
A key object in the presentation of detailed evidence in the case before me was the support of the DCF or hypothetical development exercises being advanced, or the criticism of such exercises put forward by the other side. These valuation methods appear to attract large amounts of information and opinion either in support or challenge. The direct comparison method is more subtle. That subtlety runs the risk of being over balanced where there is a large amount of detail about the land to be valued and substantially less about the comparable sales. I must accept, of course, that it is not always possible to obtain all of the desired information one would hope for about a particular sale, but the direct comparison approach is indeed one of comparison, therefore one of having a broadly similar amount and type of information about both the sales and the land to be valued. In the case before me I was assisted in my consideration of the in globo sales evidence by the approach the valuers used in their comparisons. Each had regard to the types of matters generally accepted as being relevant to the direct comparison method.
I should finish my discussion on this point by making it clear that my comments are concerned with the proposition of establishing market value and not in the determination of such issues as, for example, injurious affection or enhancement. In addition, though what I have said concerning the level of detail in the evidence stems largely from my understanding of the principles that should guide me in my task, I am alive to the further issues of the costs to the parties in obtaining such evidence or in preparing responses.
Method of Valuation
The valuers who gave evidence variously utilised three methods of valuation: direct comparison with sales, hypothetical subdivision and DCF. The market value of land is best arrived at by the comparison of the land to be valued with sales of other lands near the date of resumption (The Commonwealth v. Arklay at 170). Where substantive issues arise in the use of this method, for example, critical questions of comparability, other methods may be used or employed in support of or as a check of the original (Gubbay v. The Minister (1985) 56 LGRA 82). Indeed, there are instances where in globo sales evidence may be used as a check (Yalgan v. Albert Shire Council (Land Court unreported 6 June 1997).
It is, however, what the claimants might have got in the marketplace on the assumption of a sale at the relevant date that will be the market value. In this context, the hypothetical subdivision method of valuation has often been criticised. This method received consideration in Turner v. The Minister (1956) 95 CLR 245 where Dixon CJ said:
"There is still another consideration. One would suppose that a case will not often occur where there is no other evidence of value than the result of the method of computation invoked in the present case. More usually it will be
possible, so it may be assumed, to find some light or basis of inference in actual sales made of comparable pieces of land that might be sub-divided. Some guidance must often be obtainable from the prices which building land has realised even though it is not in the neighbourhood, if the circumstances and situation possess a sufficient similarity. The formula, the use of which apparently has become so familiar in valuing land suitable for sub-division, contains a number of factors all of which seem to depend on little or nothing more than opinion and it may be supposed that widely different results may be produced by variations in detail, though no given variation may itself seem considerable. It would appear natural therefore for a judicial valuer to seek to check his result by reference to as many sources of information and inference as may be found, even if he might consider that they would not provide him, had they stood alone, with a satisfactory independent basis for an ultimate conclusion." (at 267)
These words were relied on by the Land Appeal Court recently in Hutchins and Cunnington v. Council of the Shire of Woongara (1992) 14 QLCR 286 at 297-298.
The hypothetical subdivision method is often called a "residual value" method and shares theoretical company with another residual value method sometimes called the "notional development" method which involves the valuation of land by way of the notional construction of a building. In Thirty-fourth Philgram Pty Ltd v. The Crown (1993) 14 QLCR 13, the President referred to two earlier Expo cases (Merivale Motel Investments Pty Ltd v. Brisbane Exposition and South Bank Redevelopment Authority (1984) 10 QLCR 268 and Neray Holdings Pty Ltd and Norman Bruce Blocksidge and Robert Malcolm Badgery v. Brisbane Exposition and South Bank Redevelopment Authority (Land Appeal Court 1989 not reported)) and then wrote (at 28-29):
" I have analysed the judgments in the Merivale and Neray/Blocksidge and Badgery cases in some detail to demonstrate the attitude of the Land Court and the Land Appeal Court to the notional development method of valuation. On the authority of those cases I consider that the hypothetical or notional development method of valuation (sometimes referred to as the residual value method) is inappropriate as a primary method of valuation, although it may be useful as a check upon the valuation ascertained by a direct comparison with sales and/or, in appropriate circumstances, previous determinations by the Courts. It is essentially a method used by property developers to enable them to ascertain the highest price they can pay for a parcel of land in a development project, having regard to the circumstances of that project. Those circumstances, however, are too diverse and subjective to accurately reflect the market value of land.
Components in the process, such as capitalisation rates, profit and risk factors, comparable rentals for developments not yet built, construction and other development costs for projects not yet approved, plot ratios, interest rates, holding and letting up periods and so forth, must be taken account of by the prudent developer. However, when these are introduced into a valuation exercise, uncertainty is added to uncertainty, small errors or miscalculations are carried through and magnified in a mathematical progression, which leaves the resulting land 'value', or 'residue', as a figure in which one could have little
confidence. The whole process is inwardly focused and may bear little relation to an objective assessment of what similar lands are selling for in the marketplace. Market value is best assessed by reference to sales of comparable land."
To these illuminating comments I would add that the residual value methods suffer in three other respects. The first of these relates to the formulation of the type of development to be valued. By this I mean the exercise usually commences with the proposition that there is a single design and even if that is accepted as being appropriate as at the date of valuation, the valuation process fails to recognise, except perhaps in the profit and risk allowance to the extent possible, the changes that might occur during the life of a project, particularly a long project. One particular consequence of an assumed single design is that a particular yield and type of product is presumed. The second aspect is that there is a well-accepted difficulty in predicting the future and there is therefore an inherent weakness in a process which assumes a value based on static considerations. The third difficulty is in choosing a profit and risk factor to utilise in the exercise. The measure of such factor should be discerned from evidence in the marketplace and not by the adoption of some common denominator set between valuers. There is, of course, an interplay between the profit and risk allowance adopted, the costs relied upon and the assumed selling prices and selling rates. In the case of the adoption of the method of direct comparison with sales, the valuer has the advantage of employing prices where, except in cases where the transaction is found to be defective in some way, the parties have arrived at a price based on their judgment of how the myriad of variables should be taken into account whether or not they have directed their minds to each of the matters that might, on reflection, have appeared relevant.
The DCF method of valuation is a method employed by valuers where the price of the land is a known or assumed figure which is included in a calculation process which involves the inclusion of outgoings and income progressively throughout an assumed development of the land. Mr Hamilton explained the method in these terms:
"The Discount Cashflow methodology is based on the principle of discounting the aggregate of the present value of the cashflows at a specified (discount) rate which is known as the Internal Rate of Return.
The Internal Rate of Return (IRR) is the rate at which the cashflows are discounted so that the Net Present Valuer (RPV) of the cashflows is zero.
The NPV of an investment is the sum of the discounted benefits minus the sum of the discounted costs."
A margin or profit is revealed if the product produces a successful result and an Internal Rate of Return (IRR) is computed. I say "computed" because reality is that the DCF methodology is now generally produced by a computer program. Whilst the IRR is arrived at by
way of establishing a measure of the level of discounting needed to produce a zero figure: as Mr Hamilton explained, it is really the case that whilst the calculation methodology is one of discounting, the figure revealed is a measure of the return on funds invested through the life of the project. In the DCF methodology it is possible by a process of iteration to input a land price figure which gives an "acceptable" IRR therefore showing a price which might be paid for the land. Mr Brett explained, and Mr Hamilton agreed, that often in the business world a number of DCF exercises are carried out with respect to a particular parcel of land, such exercises being of interest to the boards of corporations and to Financial Controllers, in particular. In such circumstances, the set of exercises might be referred to as "sensitivity analyses". It is not surprising then that the DCF method has been described as "one which is known as a method of estimating present value of a capital asset in accounting processes" (Albany v. The Commonwealth (1976) 25 The Valuer 576 at 579). In that case Jacobs J of the High Court decided not to use the DCF method saying (at 581):
"I return now to the valuation by the plaintiff's valuers upon the basis of a discounted cash flow. Although I propose to analyse the factors and assumptions which have been made in this valuation, I should now say that I am not satisfied that this could be an acceptable method of valuation in the present case. I express no opinion upon the question whether or not, in other circumstances and in other cases, a method of valuation by way of discounting the anticipated cash flow is a proper method of valuation of land. There is not sufficient material before me upon which I could express a concluded opinion upon this matter."
Counsel for the constructing authority referred me to Ford v. The Crown (1971) 38 CLLR 45, a case in which the then President, Mr Smith, rejected the DCF methodology both because of errors in what was presented and because of concerns with the method. The Land Appeal Court elected not to rely on this method in William Collin & Sons Pty Ltd v. Co-Ordinator General of Public Works (1971) 38 CLLR 50 saying simply that the method was not appropriate in the circumstances of that case. The Court elected to rely on the summation method. In Kabale Holdings Pty Ltd v. The Director-General, Department of Transport (Land Court unreported 11 August 1995), the then President, Mr White, preferred comparison with sales to the DCF method.
The range in values presented by the three valuers who employed the direct comparison methods was $2,850,000, $4,000,000 and $4,200,000 respectively. The DCF and hypothetical subdivision methods presented an array of values which did not imbue me with confidence in the use of these methods in this case. I will list the various exercises presented, though should make it clear that variations from the initial exercises presented by the valuers were largely produced at
the request of counsel who required the inclusion of considerations different from those included originally.
1.Mr Brett's initial DCF based on the inclusion of the disused rail corridor but as zoned: land input at $4,500,000.
2.Mr Brett's adjusted DCF taking into account costs estimates reduced by Mr Brameld: noise attenuation fencing $309,000, water booster pump $50,000, park contribution $252,000, water meters and house connections $260,020, external sewerage $40,000. In this exercise Mr Brett corrected an error originally made in the method of interest calculation and moved the date of payment of purchase price of the land into December 1994. The result was that the profit and risk calculation from his initial DCF was increased to 48.21% and the IRR was increased to 31.14% based on land cost of $4,500,000 for the resumed land and the old rail corridor.
3.Two exercises by Mr Brett based on similar considerations to ii above, but adjusted to fit with Mr Bell's rezoning and construction timetable and assuming interest at 12.5% as against the 10% that Mr Brett had allowed. One exercise was based on a 60-day settlement period for the contract. It indicated that at a purchase price of $4,584,998 for the resumed land and the disused rail corridor, a profit and risk figure of 42.06% and an IRR of 25.11% emerged. Based on delayed settlement, a land price of $4,358,579 yielded a profit and risk figure of 43.61% and an IRR of 24.98%.
4.Mr Hamilton's initial DCF produced an IRR of 25%, with a land input of
$1,675,000.
5.Mr Hamilton's initial hypothetical subdivision exercise which was based on similar considerations to his DCF yielded a value of $1,200,000.
6.A hypothetical subdivision prepared by Mr Hamilton on the request of Mr Kirk, SC, based on a sale rate of nine lots per month, an interest rate of 10%, a
$200,000 reduction in engineering and survey fees and a reduction of the cost of earthworks of $800,000 and a reduction of transport infrastructure charges of
$673,000 and assuming a release for sale in the December quarter of 1995, produced a value of $3,615,385 for the resumed land (and the old rail corridor, as I understand it).
7.A similar exercise to vi above was completed, but based on development in the eastern section only. The value produced was $3,567,308.
8.Mr Hamilton prepared a DCF exercise based on similar considerations to the hypothetical subdivision outlined in vi above. This produced a profit and risk factor of 54.54% before interest and 51.51% after, an IRR of 36.92 before interest and 32.03% after, with land input at $2,850,000.
9.A DCF exercise was completed by Mr Hamilton based on similar considerations to vi above, but on the basis of development in the eastern section only. This produced a profit and risk factor of 57.03% before interest and 54.24% after and an IRR of 38.03% before interest and 33.4% after. Land was input at $2,850,000.
28
10.Mr Slater's initial hypothetical subdivision showed a land value of $1,950,000.
11.On the request of Mr Kirk, SC, Mr Slater prepared a hypothetical subdivision exercise based on similar considerations to vi above. This showed a land value of
$3,570,000 for the resumed land, though a slightly different version showed a figure of $3,480,000.
12.A similar exercise to xi above was completed by Mr Slater based on development in the eastern section only. This showed a land value of $3,400,000.
13.Mr Slater completed a hypothetical subdivision exercise similar to his initial valuation, but based on development in the eastern section only. The land value indicated was $1,900,000.
Each of the valuers before me, apart from Mr Slater, preferred the direct comparison method but said that the DCF would be the next choice. The reason for the respective valuers' preference for the DCF to hypothetical subdivision is not totally clear though Mr Hamilton advanced reasons which I have recorded earlier. Certainly, the DCF computer method produces impressive looking sheets of figures and would be useful as a tool in ongoing management of a subdivision project in the form of a plan or a series of options to be monitored and modified as circumstances changed. It is not a method though that recommends itself to me for the task that I am charged with, particularly where sales are available which are said by three of the valuers to be comparable. The method involves the making and fixing in place of a range of judgments on the inputs into the DCF exercise and then allowing computer technology to lead one inexorably and mathematically to the final result. It is difficult to imagine the hypothetical prudent purchaser submitting himself to such a process and accepting the result without the urge to take a peek at sales evidence, even sales of tenuous comparability.
In this case, both parties led substantial and detailed evidence concerning the resumed land, such evidence apparently being designed to support both DCF and hypothetical subdivision exercises. During the hearing of evidence, as I have said, adjusted DCF and hypothetical subdivision exercises were carried out in response to requests by counsel such exercises being based on assumptions more favourable to one side or the other and, of course, these exercises produced different results concerning land value and/or the IRR. In due course, however, and in the face of all of this evidence counsel for both sides submitted that direct comparison with sales is the most appropriate method of valuation, though Mr Gallagher, QC, submitted that given that the sales relied upon were not "in a real sense comparisons", the hypothetical subdivision method should be relied upon for fine-tuning purposes. He directed me towards Mr Slater's valuation. In my view, and it is a view that I find expressed consistently in the authorities, fine
tuning by such methods is more apparent than real. Mr Kirk, SC, was critical of both the hypothetical subdivision and the DCF, though said that they would be of use in considering the issue of the highest and best use of the land, in particular its ripeness for subdivision. I must express reservations about this submission also for it seems to me that in the case of either a hypothetical subdivision or a DCF method the outcome is still dependent on the assumption that the inputs are correct. More importantly, however, I do not, in circumstances where comparable sales are to be employed, think it to be a matter of great value to carry out a hypothetical subdivision or DCF exercise on the subject land to demonstrate ripeness, without also demonstrating a consistency with such an outcome in the case of at least some of the sales.
Lacey was not aware of this. Evidence showed that a rezoning application was lodged seven days after the sale with the vendor's consent, tending to support Mr Hamilton's understanding. Assuming Mr Hamilton to be correct and having regard to Mr Humphreys' evidence that the prospect of objections in the case of "Heritage Gardens" was high, then such a condition would need to feature in a comparison. With regard to this aspect I need to record that both Mr Hamilton and Mr Lacey saw the need to rezone as a matter of significance in striking a value. It was a proposition that Mr Hamilton expressed on numerous occasions. For his part Mr Lacey allowed a figure of about $906,268 or $22,500 per ha discount on the "usable land" in his valuation for this feature. Support for the views expressed by those two gentlemen, though not necessarily for the quantum applied by Mr Lacey, is found in the number of contracts referred to which were conditional on rezoning taking place.
Both Mr Lacey and Mr Brett emphasised the remote location of the "Heritage Gardens" land, both in terms of remoteness from exposure on the Pacific Highway and in terms of access to facilities. Some facilities in the form of a shop and a child-minding centre are nearby in the small township, though access to schools and general shopping, as well as other facilities, would necessitate a drive for some distance. One would also need to drive from the resumed land to such facilities, however, the various facilities provided by the coastal strip would be substantially superior. The claimants' side pointed out that the relative remoteness of the sale land would limit the number of family purchasers who may wish to live there and the rate of sale of allotments would be affected. It was certainly the superior location of the resumed land in comparison with this sale which influenced Mr Lacey to place his value at a substantially higher figure than the sale. In Mr Hamilton's view, too great an adjustment was made for that factor. Mr Hamilton appeared to vacillate as to the usefulness of this sale in striking a value for the resumed land, but in the end said that the sale supported his figure. Mr Brett was asked in cross- examination about the date of the sale being some 15 months prior to the date of acquisition, though this matter was not pursued with Mr Hamilton.
Mr Brett and Mr Lacey referred to a sale called "Camelot". Mr Hamilton knew the sale property but said it did not assist him in "fine tuning" his valuation. This sale took place in October 1994 at a price of $4,000,000 which calculated to $104,411 per ha for the 38.31 ha sold. The land is of irregular shape and is located on the eastern side of the Pacific Highway midway between the Gold Coast and Beenleigh. It has good access. The land is gently undulating and adjacent to the new rail corridor which tracks along its eastern boundary. The sale land's exposure to the new railway line was noticeable in Mr Lacey's view, but he went on to agree that there would be more lots on the resumed land that would be impacted upon by the rail. There is a buffer area to be included abutting this rail line in the "Camelot" layout design. The railway station is about 2 km away. The sale was conditional upon rezoning approval according to Mr Lacey, however, later evidence from Mr Bell disagreed with this. Mr Lacey had made inquiries from a representative of the purchaser company and had been told that a yield of 280 lots was expected. Both he and Mr Brett relied on that advice. Mr Hamilton pointed out that a yield of seven to 7.5 lots per ha would be low given the nature of the sale land and its proposed development as a residential project. Mr Bell had acted as a town planner for the purchaser and gave evidence that at the date of purchase approval was in place for 2 "Residential B" lots totalling 1.4 ha, 253 "Residential A" lots and 129 "Special Residential" lots. This totals 383 lots. In the circumstances, I would accept Mr Bell's evidence. He also said that a subsequent application to re-configure the approved lots has been lodged but this is not relevant for present
purposes. Mr Lacey's calculation of $14,286 per proposed lot is correct based on 280 lots, but on 383 lots the figure would calculate to $10,443 per lot.
The sale land is exposed to the Pacific Highway along its western boundary and Mr Brett described the topography of the sale land in its south-western corner as providing an amphitheatre effect towards the highway, though much of the sale land is not exposed in this way because of its topography, its northerly aspect and the fact that part of the highway where it passes the land is in a cutting. Whilst a small buffer is proposed between the "Camelot" allotments and the Pacific Highway and there is, in addition, a recreation area located in that vicinity, Mr Brett pointed out that the development design put forward by the claimant on the resumed land leaves all of the western section undeveloped, therefore providing a substantial buffer between allotments and the highway there. Mr Lacey made the point that the Pacific Highway is busier than Smith Street, which is the road with greatest impact on the resumed land. Buffering from Smith Street is possible, but was not allowed for in the plans put before me nor in the costs presented. I would doubt that substantial buffering from Smith Street would be a real prospect as this would result in a sacrifice of part of the more valuable eastern section land.
Mr Lacey said that the topography on the sale land is such that the land would be "much easier than the subject" to develop. He was told that costs would be about $29,000 per lot and I assume this would be for a 280-lot development.
Given the date of this sale, the presence of the highway and the railway line and Mr Hamilton's knowledge of the property, this is a basic property which is of significance in this case. The sale land has clear advantages in terms of its zoning, yield, ease of development, northerly aspect and the lower impact of rail and highway and in not being traversed by an electricity easement. In addition, Mr Hamilton said that there is no apparent rock which needs to be contended with. It is agreed between the valuers that the location of the "Camelot" property is inferior to that of the resumed land though in a comparison between the two, Mr Hamilton was of the view that the location of the subject was insufficient to offset its comparative disadvantages. Mr Lacey said that competition from other estates in the area of the sale is strong and, whilst there was evidence that the rate of sale of allotments from "Camelot" during 1995 is low, it is more appropriate that I have regard to the rate expected at the time of purchase. Mr Hamilton said that the purchaser had told him of an expected rate of 60 lots per annum. Mr Lacey said that "Camelot" is remote from the Gold Coast, being located about 20 km from the subject, but added that it is in a development corridor and in that sense is not remote.
If I view the resumed land on an overall basis, each of the three valuers who used the direct comparison approach agree that the "Camelot" sale is superior to the resumed land to
varying degrees, though I must keep in mind that Mr Brett and Mr Lacey proceeded on the understanding that "Camelot" would yield 280 lots, not 383. On Mr Lacey's approach of valuing the usable land only, he would say that that is superior to "Camelot".
The next sale I come to is called "River Meadows" which was referred to by Mr Brett, Mr Lacey and Mr Hamilton in their valuations. The sale land comprises an area of 87.236 ha which sold in December 1993 for $8,825,000 or $101,162 per ha. The contract was subject to rezoning to part "Residential A" and part "Special Residential". The land is of irregular shape and is located west of the Pacific Highway at Coomera on the northern bank of the Coomera River. It also fronts a waterway known as Yeun Creek. The land is gently undulating and partly flood affected, with the result that there is approximately 64 ha of developable land. Mr Hamilton said that about 19 ha of the sale land will be set aside for open space and this includes environmentally sensitive land on the frontage to the two waterways. All services were in the area at the time of purchase, though would needed to be upgraded. The land was zoned "Rural B" at the time of sale, however, under the Strategic Plan was identified as "Urban Residential". The land was rezoned to "Special Residential" on 12 May 1995. Mr Lacey said that it was proposed to develop 1,024 lots at the time of purchase though, as I understood him, that was later reduced to 900 lots and then approximately 800 lots once a school site was disposed of. On the basis of 900 lots, the sale would analyse to about $9,800 per proposed lot and $8,614 per lot if one had regard to 1,024 lots.
Mr Hamilton gave details of a conversation he had had with a representative of the purchaser company who said that 30% of the purchase price was withheld for a period of 2½ years interest free as part of the transaction. Mr Lacey had thought that two-thirds of the price had been retained, whilst Mr Brett was not aware of this aspect nor of the details of the need to upgrade services to the site. The sale has reasonable access from the Pacific Highway, has an undulating topography which is easier to develop than that of the subject, however, there will be no lots with noticeable elevation. There is an opportunity on "River Meadows" to blend the watercourses into the parkland for the development, though no resultant blocks would have water frontage. Some would, however, have views of the water. In the case of the resumed land, the land which is unavailable for development according to the claimants' layout designs is in the western section and, whilst it provides a buffer to the Pacific Highway, it does not afford the design opportunities of the frontage land on the sale. The sale does not have the development constraints of the resumed land, but is further from established development and being about 11 km from the subject site, is further removed from the coastal strip.
The sale land is a short distance from Coomera and the new railway station there and whilst Coomera has an apparent potential for development according to Mr Lacey, it is, apart from the tourist attraction of Dreamworld, still a less developed location than that more readily available to the resumed land. A small commercial centre is planned adjacent to the residential areas of the sale land, according to Mr Hamilton.
The size of "River Meadows" makes it suitable for comparison with the resumed land overall, particularly when one has regard to the level of unavailable land on both it and the resumed land. The sale date of 1993 was not one that any of the valuers saw as an issue. Mr Lacey was able to compare this sale with the usable land in the eastern section of the subject to arrive at his figure of $150,000 per ha in conjunction with his other sales. In doing this, as I understand it, he took the sale price and the usable area on "River Meadows" and calculated the usable area in the sale to have attracted a price of $138,000 per ha. On his approach then he saw the usable land to be superior, although each of the valuers saw the resumed land to be inferior to "River Meadows", if viewed overall.
Messrs Brett and Lacey referred to "Coomera Rivage", a 20.15 ha property which sold in April 1995 for $3,800,000. This calculates to $188,586 per ha for the sale which was subject to an approval for 195 residential allotments. A rezoning and subdivisional approval was forthcoming in October 1995, with the result that the sale price represents approximately
$19,500 per proposed lot. The land is of irregular shape, being mostly level and is situated west of the Oxenford township on the southern banks of the Coomera River. Mr Brett speculated that there may be an issue regarding the need to upgrade the road frontage and that there may be an issue in bringing services to the site, but Mr Lacey said nothing about these matters. Mr Lacey said that the sale had a more advantageous size than the usable land on the subject and that he made an allowance for that in his valuation. Mr Hamilton agreed that such an allowance should be made. Mr Lacey observed that the sale was somewhat removed from the Gold Coast, but its location on the Coomera River would be a distinct advantage for blocks located there. Earthworks, in Mr Lacey's view, would be minimal. The sale does not suffer from the development constraints touching the resumed land, though there is some road noise from an important feeder road on its southern boundary. It was agreed between the valuers that the sale land was superior to the resumed land, and indeed, the usable land.
The "Yawalpah Road" property was zoned "Special Residential and Local Business" has an area of 21.62 ha and sold in May 1995 for $3,000,000 or $138,760 per ha. There was evidence that a liquidator had been appointed prior to the sale and that the sale took place during the period of that appointment. It follows that the sale was under the direction of the liquidator,
however, there was also evidence that the purchasing company had some directors common with the vendor company. Mr Brett, who introduced the sale said, on hearing this, that the sale would probably be an unreliable basis, a proposition agreed to by Mr Hamilton. Given that the sale was not mentioned further in submissions from the claimant and that no comparison between the sale property and the resumed land was put forward, I set this transaction aside.
Mr Brett and Mr Lacey referred to "Somerset Estate", a property of 40.68 ha which sold in May 1995 for $7,500,000 or $184,366 per ha. The land was purchased subject to rezoning to part "Special Residential" and part "Rural B", the proposal being for 335 residential lots. The sale analyses to $22,390 per proposed lot. The land is of irregular shape, is gently undulating though steeper towards its rear and is located on the western side of the Pacific Highway, some 4 km from the new Robina town centre. There is an electricity easement in the south-east corner of the site which, in Mr Lacey's view, has a slight effect on the amenity of the land, though which Mr Brett saw to be of greater significance. Mr Brett said that the pylons are larger and more intrusive than those found on the resumed land. Allotments on "Somerset Estate" would front one side of the easement only, whereas in the various layout plans put forward in the case of the resumed land allotments would be located on both sides of the easement there. I think Mr Lacey's view on this matter is to be preferred.
Part of the purchase price in the transaction was accounted for by the transfer of three home units at Broadbeach under a separate contract. Mr Brett was unaware of this aspect of the transaction, though Mr Lacey gave a full account of the detail and, whilst I recognise that this aspect is somewhat unusual, I do not think that the sale should be rejected because of this factor. It is more a matter of considering the support that the sale provides in the context of the overall sales evidence. Mr Lacey said that the units were sold to the vendor of "Somerset Estate" at prices which were below the then list price of home units in the development concerned. He gave details of the home unit prices and their location. Mr Hamilton did not comment on this aspect of the transaction.
"Somerset Estate" experiences some highway and service road noise and its topography is superior to the subject. The sale land is a similar distance from the coastal strip as is the resumed land, but has proximity to the Robina town centre and to the proposed railway station there. Mr Hamilton said that the sale does not have a hard rock problem and it does not have the constraint imposed on the resumed land by the new rail corridor. He said also that rezoning gazetted to allow development of the land took place in August 1995. All conditions were known at the date of sale. Each of the valuers saw the sale land as being superior to the resumed land and to the usable land in Mr Lacey's approach.
Mr Lacey included in his valuation a property called "The Outlook" which sold in September 1994 for $6,250,000. The sale land has an area of 32.97 ha which on the gross area analyses to a sale price of $189,566 per ha. Approximately 8 ha of the site is zoned "Public Open Space" so on the net area Mr Lacey calculated a price of $250,000 per ha.
The sale land is of irregular shape and is located on the south-western fringe of the developed area of Nerang. The property consists of moderate to steeply sloping land in an elevated position with panoramic views of the coast and lots produced as part of the development of the land are selling for between $100,000 and $120,000. Zoning of "Special Residential" was in place at the time of sale allowing development of 280 lots with the sale price overall calculating to $22,321 per proposed lot. Mr Lacey said that the land would be costly to excavate both because of the steep component and rock content.
Mr Hamilton said that the sale land had, some time prior to receiving its present zoning, been approved for 600 townhouses and about 60 "Residential A" lots and was later zoned to allow the development described by Mr Lacey. Mr Lacey's reliance on the sale was not to compare it directly with the resumed property, but he used it to demonstrate the value at the upper end of the market, and, I would assume, to show that the value that he attributes to the usable land is reasonable.
The two remaining sales to be discussed were relied upon by Mr Hamilton alone. The first of these, "Old Burleigh", has an area of 96.92 ha in total, though this was made up from four purchases taking place in November 1992 and May, June and August 1993 for a total of
$5,355,000 or $55,252 per ha overall. The aggregated sale property is located on the south- western alignment of the Pacific Highway in close proximity to the township of West Burleigh. Old Coach Road forms much of the southern boundary. Mr Hamilton said that the prospect of the recent Bermuda Street road developments providing improved access to the sale land was a distinct possibility at the time of sale, though access to "Old Burleigh" was left-in and left-out from the Pacific Highway at the time of sale. Mr Hamilton said that whilst such access to the sale land might be criticised as being inferior to all-lane access, in his view it is superior to that provided the subject property which gains access indirectly through Ashmore Road. The sale land is affected by highway noise and whilst steep in parts, some lots will have very good views. There is a 20-metre wide water main easement through the land and there is a dry refuse fill site opposite the current entrance. The land ranges from low-lying flood prone land to moderately to steeply sloping hills and ridge tops. The site required extensive earthworks including the filling of low land, though the extent of earthworks carried out at the time of our inspection during the hearing was probably more a reflection of the fact that the purchaser is in the earthmoving
business. At the time of purchases, the land had various zonings: "Extractive Industry", "Special Facilities (Golf Course and Public Recreation)", "Special Business", "Rural B" and "Future Urban". In June 1995 the purchaser sought and was granted rezoning approval to "Special Residential" with a maximum yield of 1,137 dwellings plus 55 special business lots.
The "Old Burleigh" sale was criticised from the claimants' side on the basis of the date of sale, the fact that it was an aggregation of sales and its remoteness from development. Sewerage is some distance away. As to the date of sale, I notice that the part of the sale which took place in November 1992 was for $830,000, therefore if it is the case that the 1992 market was lower than the 1994 market, and I have expressed the opinion earlier that it probably was, any dilution in the value would not be substantial given the aggregate sale price of $5,355,000. As I have said earlier, 1993 sales are not challenged by the claimants.
On the question of aggregation of sales: Mr Hamilton said that the zonings at time of purchase were not relevant because it was clearly the case that the purchaser was assembling a site with residential potential. Mr Hamilton said that the purchaser may have paid a higher price for parcels because of the adjacency factor, but he considered the overall price reflected a true value for the aggregation. Mr Lacey said that he had been advised by the selling agents that when the two main parcels were offered for sale at auction, there was limited interest. Mr Brett and Mr Lacey said that they would prefer to steer clear of the complexities of such an aggregation and, whilst I understand their reservations, I note that the High Court was comfortable in relying on a series of sales carried out in aggregating a site in the case of The Valuer-general v. Fenton Nominees Pty Ltd (1982) 150 CLR 160. Nevertheless, in a compensation matter, one must be astute to not place too great a reliance on a basic property which poses a risk of leading to a low figure. I will not reject the sale, but will treat it with caution.
Mr Lacey, who knows the "Old Burleigh" site well, said that the land is not in a "Residential A" environment and is somewhat remote in that sense, though he saw it as being less remote than Mr Hamilton's final sale, "Pacific Palisades". Under cross-examination, Mr Hamilton agreed that the sale was a "land bank" sale. Some residential development has taken place on the sale land with allotments selling in the low $60,000 range, according to Mr Hamilton who pointed out that "Old Burleigh" is only 6 km from Burleigh Heads beach and that whilst there is no existing intensive residential development nearby, such development is proposed for adjoining lands. Nevertheless, I would agree with Mr Lacey that the environment of the resumed land, to its east, is residential in nature, though that perception is eroded somewhat when one has regard to the land to the south and west of the subject. Purchasers of
residential allotments visiting the resumed land would, however, be left in no doubt that they were part of a residential neighbourhood, whilst in the case of "Old Burleigh" purchasers would need to be less concerned with the security of the suburban womb.
Mr Lacey said that the purchaser of "Old Burleigh" had transacted another purchase in September 1994 of a "Light Industry" zoned parcel of 27.9 ha adjoining the "Old Burleigh" site to the north. This purchase was for an amount of $3,200,000 or $115,000 per ha and Mr Lacey suggested that this transaction should feature as part of the aggregated purchase. Mr Hamilton was aware of this additional sale, but said that the land was to be developed as a separate industrial site and will be severed from the "Old Burleigh" land by the extension off Bermuda Street, from which extension the sale land will gain access.
Given the approval to develop 1,137 dwellings and 44 special business lots, the sale price overall would calculate to $4,534 per lot. As Mr Hamilton saw the sale as being superior to the resumed land overall on the basis that the rail corridor land was included, he was required to comment on why the sale land reflected a lower price per lot. Mr Hamilton explained this as being a product of the yield on the sale which he calculated to be in excess of 12 lots per ha and therefore substantially higher than that of the resumed land irrespective of which subdivision proposal was to be adopted. This explanation points, to my mind, to a danger in adopting too great a reliance on price per lot figures, though it is appropriate for yield to be drawn into a comparison between properties being compared on price per ha rates.
The final sale referred to by Mr Hamilton, "Pacific Palisades", was for an area of 139.7 ha which sold for $3,500,000 or $25,054 per ha. Mr Hamilton said that the sale took place in August 1994, however, it was Mr Lacey's understanding that the sale had occurred in October 1993 and Mr Hamilton accepted that date. Mr Hamilton said that the sale land was proposed to be developed with 560 lots of "Residential A" and "Park Residential" or 2,000 m² lots, calculating to a sale price of $6,250 per lot.
The sale land is located about 10 km from the subject property and was described by Mr Hamilton as being relatively remote from services relying upon the progressive development of the adjoining estate "Pacific Pines" before development of the sale land becomes economically viable. Mr Lacey said that the sale land has some very steep sections with the only usable land being on the eastern alignment. He mentioned that there was contamination from a cattle dip on the land which may be costly to address, and a noisy sawmill operation nearby. Mr Lacey and Mr Hamilton agree that the resumed land is superior to the sale and whilst Mr Hamilton was criticised from the claimants' side for including "Pacific Palisades" in his valuation, he explained that he included it for the purpose of having a sale which in his view was inferior to the resumed
land. Perhaps, just as Mr Lacey had included "The Outlook" to show that his value of the land was not excessive, Mr Hamilton wished to show that his valuation was not too low.
As Mr Lacey explained it, the sales need to be considered overall; however, to this I would add that one must ensure that it is what the sales articulate that is taken into account. In setting forth my appreciation of the sales evidence I am proceeding, at the moment, on the basis that the disused rail corridor is part of the land. My reference to the "subject land" is therefore to be understood on that basis. I use the term "resumed land" to refer to the land which has actually been acquired, and employ the term "usable land" in the same sense as Mr Lacey used it.
I find that the best us of "Pacific Palisades" is to provide a floor value though one that the value of the resumed land does not approach, given my finding that the land is ripe for development. "Pacific Palisades" is clearly not ripe, and its projected highest and best use appears to be of lower intensity and, therefore, yield, from that available on the subject land. "The Outlook" brackets the upper end and it indicates that, notwithstanding the need for above average development costs to be invested, the market will pay a higher price for land which will yield an attractive product: in this case, panoramic views. This sale had the positive feature of being zoned to allow for development. "Coomera Rivage" keeps company with "The Outlook" at the upper end of the range of sales and its superiority to the subject land is based on a number of factors: its smaller size; the absence of the disabilities which affect the resumed land; the fact that the contract was subject to rezoning; the yield; the ease of development; and the advantage of the river aspect. "Coomera Rivage" is better placed and more valuable than "River Meadows" because of size, yield and a more useful frontage to the river, though both are not as well located as the subject. "Heritage Gardens" is less well located again and though it has the advantage of the lake for the location of its parkland, it does not enjoy the river aspect of "Coomera Rivage". "River Meadows" has the advantage over the resumed land of an undulating topography,
and the absence of development constraints except that part of the sale land was to be devoted to park because of the prospect of flooding. When I have regard to the delayed payment of purchase price provided for by the contract and that it was conditional upon rezoning, I am left in no doubt that this sale is superior to the subject land. There is nothing in the sales evidence presented to me that suggests that the location of the claimants' land is such as to offset the obvious advantaged of the "River Meadows" property. I have paid particular attention to the fact that only 64 ha of the sale land is available for development, but am convinced that the unavailable land adds a value to the sale land which is clearly superior to that provided by the western section and the electricity easement on the claimants' property. If, mathematically, the available land on "River Meadows" is, in the context of the contract, worth $138,000 per ha, the
claimants' usable land, as zoned, together with the disused rail corridor is worth appreciably less, notwithstanding its advantageous location.
"Somerset Estate" is a very well located property, given its proximity to the Robina town centre and the proposed railway station, but the resumed land is less well placed. Nevertheless, when I consider the points of comparison referred to earlier, this sale does elevate the comparison that might be made if one were left to rely on "River Meadows" and "Coomera Rivage" alone. I need to ensure, however, that the better land quality in "Somerset Estate" and the fact that it was a sale, subject to rezoning, is taken into account. I am also reminded of the circumstances surrounding the sale.
The locational value of the resumed land is superior to that of "Heritage Gardens" and I would accept the proposition that a substantial allowance would need to be made for this factor. I am concerned, however, that Mr Lacey and Mr Brett made no allowance for the fact that the contract was subject to rezoning, in particular, and appeared to pay insufficient regard to the quality of the sale land. On the evidence that I heard, I would place the resumed land overall at a lower figure than that shown by this sale, but would conclude that the "usable land", as zoned, together with the old rail corridor, would be superior to the sale property. It is superior to "Old Burleigh" also, on the basis of ripeness for development, in particular, though the sale property has a good location and the prospect of producing some blocks with good views and a superior yield..
I have left the sale of "Camelot" until last largely because the value placed on the "usable land" is close to the sale price of $104,411 per ha. The subject land suffers greater from its disabilities, though the "Camelot" sale is useful in that it does have more impact from the rail line and the Pacific Highway. Although Mr Lacey incorrectly thought the contract of sale to be conditional on rezoning, this is of little significance as zoning was already in place, according to Mr Bell. Mr Lacey's assessment suffered a little in his understanding of the yield on the sale; however, it is the extent to which he has adjusted the sale price to cater for the locational advantage of the subject land that concerns me. It is too great. It overlooks the disadvantages of the resumed land in a way that would not be prudent. I will apply the "Camelot" sale on the basis that the sale property is superior to the resumed land overall and is superior to the usable land, together with the disused rail corridor.
I will place a value on the resumed land overall, together with the disused rail corridor, of
$53,000 per ha. I will deduct from this figure the anticipated purchase price of the rail corridor, together with purchasing costs of 4% and an allowance for the delay and risk associated with such purchase. I accept Mr Brett's evidence that the eventual purchase of the corridor land can
be presumed, however, I am concerned that there are risks of delay which would be noticed by a hypothetical prudent purchaser and the effects of that need to be taken into account. I think that Mr Lacey puts those risks too high and, whilst I appreciate the reasons why Mr Hamilton adopted his allowance, I will lean in favour of the claimants and adopt the 10% of the anticipated price included by Mr Slater, though he described it a little differently. In my calculation, I will not employ a mathematical application of the $53,000 per ha to the usable land, hence the rail corridor, but I will place a price of $70,000 per ha on the disused rail corridor land. My calculations are therefore:
Disused Rail Corridor
Purchase Price $373,100 Purchase costs @ 4% $14,924 Risk allowance @ 10% of purchase price $37,310 $425,334
Value of resumed land plus disused rail corridor
71.66 ha @ $53,000 per ha
$3,797,980
Less purchase of disused rail corridor
$425,334
$3,372,646 I will round this figure up to $3,373,000
Disturbance
An amended claim for disturbance was made in the amount of $32,822.50. There is agreement between the parties that solicitors' fees and outlays ($2,843.30), counsel fees ($2,100) and town planning/consultants/surveyors' fees ($2,000) be allowed. This leaves two matters in dispute. The first of these relates to trustees' fees and outlays in the amount of $13,629.20, being costs associated with the trustees for sale appointed by the Supreme Court, attending to the various matters associated with the acquisition of the land and the claim for compensation resulting from that. The claim may be compared with that of a dispossessed owner as the trustees, in effect, stand in the shoes of an owner. The learned President had to consider a claim by the managing director of the claimant company for a similar class of expense in the case of Thirty-fourth Philgram (cited above). The President considered the authorities and held that it is well established that such costs are not compensable and therefore the claim under this heading was disallowed . I have considered whether the position of the trustees in the present case differs from that of a managing director of a claimant company and have found that there is a
sufficient material similarity for me to find it appropriate that I follow the decision in Thirty- fourth Philgram. Accordingly, the claim under this heading is disallowed.
The other disturbance item in dispute relates to a claim for valuers' fees from two valuers, one of whom was Mr Brett who appeared and gave evidence. It was submitted by the claimants that it was appropriate to have the guidance of two valuers, given the "type of case". I assume that Mr Brett gave valuation advice in the preparation of the claim similar to that which he provided in Court, however, I am unaware of the advice provided by the other valuer. I find it difficult to imagine circumstances where, in the case of land whose highest and best use is clearly that of residential subdivision, the advice of more than one valuer is necessary or even desirable. Certainly in this case I have no evidence which supported the proposition that two valuers were required or desirable in the process of preparation of a claim, so I would disallow the fees of the second valuer. I have no way of establishing which valuation formed the basis of the claim, however, given that Mr Brett's fees were higher than that of the other valuation firm, I will allow that fee in the amount of $6,850. The result is that compensation for disturbance in the amount of $13,793.30 be allowed.
Award and Interest
Compensation for loss of land and disturbance is therefore determined in the amount of
$3,386,793.30. I order that interest on the award of compensation be paid at the rate of 8.5 per centum per annum on $3,386,793.30 from and including 15 December 1994 to and including 12 May 1995; then on the amount of $1,386,793.30 up to and including the day immediately preceding the date of payment.
RP SCOTT MEMBER OF THE LAND COURT
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