Hinchinbrook Island Pty Ltd v Chief Executive, Department of Natural Resources
[1996] QLAC 112
•22 August 1996
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TOWNSVILLE
Re: An Appeal from a Decision of the Land Court
Determination of Unimproved Value -
Valuation of Land Act 1944 -
V95-15
BETWEEN:
Hinchinbrook Island Pty Ltd
AND
Chief Executive, Department of Natural Resources
Delivered this Twenty-second day of August 1996
J U D G M E N T
This appeal relates to the unimproved value of the land which accommodates the Hinchinbrook Island Resort, as at 30 June 1993. At that date, the Department of Lands, as it then was, assessed the unimproved value of the land as being $880,000.
The land is described as Lot 4/CWL 2163 (Special Lease 41350) containing an area of 8.094 ha and Lot 1/Per 5850 (Permit to Occupy 5850) containing 36 m²; Parish of Hecate, County of Cardwell.
The Resort land is situated at the northern tip of the large Hinchinbrook Island National Park at Cape Richards, where the semi-circular Orchid Bay separates two headlands. The lease is surveyed with relatively narrow depth from the western headland seafront esplanade to the eastern Cape Richards headland esplanade, centred on Orchid Bay and its beach esplanade. The western headland section is severed by a short section of surveyed road which connects the foreshore esplanade from Steele Bay (to the west) to the western end of the Orchid Beach esplanade. It is within this surveyed road where the Permit to Occupy accommodates a boat shed.
The land is described by the Department as “generally moderate to steeply sloping scrubby forest strewn with large granite boulders. The eastern and western ends comprise rocky headlands which protect a good sandy beach about 500 metres long. The land has very good views primarily to the north.” The tourist resort comprises “15 Tree Houses, 15 Cabins and associated Resort infrastructure.”
Access to the Resort is by boat from Cardwell on the mainland about 22 km distant, to a privately constructed jetty to the west of the surveyed road, external to the lease area in Steele Bay.
The lessee appealed to the Land Court against the Department’s valuation, the Notice of Appeal containing an estimate of value in the amount of $360,000. That appeal was heard and dismissed, the Department’s valuation of $880,000 being affirmed.
The matter has come before this Court as an appeal from the decision of the Land Court. No application was made for the admission of further evidence. Mr Q.H. Birt, the Managing Director of Hinchinbrook Island Pty Ltd, the lessee, who conducted the appellant’s case and gave evidence in the Land Court, appeared before us. The Department’s case in the Land Court was conducted by Mr P.F. Goodman-Jones, a senior valuer who had been responsible for the valuation appealed against. While before us Mr J. O’Rourke, Director Legal Services with the Department of Natural Resources, appeared as the Department’s advocate, the submission for the Department was addressed by Mr Goodman-Jones, with leave of the Court.
It is useful to state the grounds in the Notice of Appeal to the Land Court, as did the learned Member (and now President of the Land Court), in his decision -“.The Lands Department failed to advise that the lease was to be used by unspecified numbers of other commercial operators without reference to the lessee company.
.The Lands Department failed to take account of recent sales, particularly the land now known as Port Hinchinbrook at Cardwell.
.The Lands Department valuation was made on a freehold basis, yet a Department representative has stated that anyone has the right of entry.
.A sustained marketing campaign over a two year period has failed to attract any offer to purchase the land.”
The reasoning behind the decision to dismiss the appeal is clearly stated:
“Although I have little evidence of the manner in which the valuation of $880,000 was arrived at, Mr Birt’s evidence has not persuaded me that the valuation is excessive for an 8 hectare parcel of freehold land on Hinchinbrook Island, even if members of the public have access through it. The only sale that he relied on was that of the Port Hinchinbrook/Oyster Point land. However, the circumstances of that sale are such that I do not think that it could be relied on as a basis for the valuation of the subject land.
Mr Birt seemed to be under the impression that the valuation should be made on a leasehold rather than a freehold basis. However, the provisions of section 11 of the Act (as it then was) are quite clear and the valuation must be made as if it was held in fee simple.
After considering the whole of the evidence I have come to the conclusion that there is no basis for altering Mr Goodman-Jones’ valuation of $880,000.”
In view of these comments, Mr Birt was at pains to inform us that never at any time had he been under the misapprehension that the land was to be valued as leasehold. The critical point of his argument was that once the freehold value is established then, under the Valuation of Land Act, regard must be had to the limitations and restrictions of the lease.
We will consider the alleged limitations and restrictions after dealing with the freehold value of the land.
It is patently clear that the first difficulty in establishing the freehold value, or the value of any lesser interests for that matter, of Island Resort land at the relevant and even prior or subsequent dates, is the lack of sales evidence. The second difficulty is that even if evidence was available, the question of “like with like” comparison between the various Island Resort lands, has been long recognised by the Courts as a difficult and complex exercise.
The more recent history of the statutory unimproved Island Resort valuations is that, as a result of Land Court decisions relative to the unimproved value of the Resort land on Brampton Island, appeals against which (by both the lessee and the then Valuer-General) were dismissed by the Land Appeal Court, there appears to have been some general agreement reached as to matters of relativity and movement in criteria which might be expected to influence the market, between various Resort owners and the Department. That situation has not extended to any agreement between the appellant here and the Department and there is no reason why it should. Nevertheless, those who have been concerned to reach some agreement with the Department have apparently negotiated acceptable relativity of valuations based on the Brampton Island decision in the first place, then a formula for identifying probable market movement in the absence of actual sales evidence.
In fact, the evidence of Mr Goodman-Jones in the Land Court was as follows:“There are no comparable sales on which to base the above valuation. The valuation has been determined by increasing the previous valuation of $840,000 as at 31 March 1992 by 5 percent. This percentage rate was applied to all Island Resorts along the coast and follows the Brampton Island Land Appeal Court decision and subsequent Land Court determinations of outstanding appeals following negotiations between the Department and the Reef Resort owners.
The percentage rate was determined on the basis of the Reef Islands Resorts Lodging Index. Essentially, the Lodging Index is a statistical formula and was the basis for an agreement between the Reef Island owners and the Department during a period of no sales activity of Island sites with Resort potential. To support the valuation of $880,000, a comparison has been made with two similar properties as indicated on the attached relativity schedule and on the basis of the sale of a single dwelling site on Bedarra Island.”
It was observed by this Court during argument that, apart from Mr Goodman-Jones’s evidence, there was no factual evidence in the documents tendered to the Land Court that the valuation of the subject land was $840,000 as at 31 March 1992. Indeed, there had been evidence in the Land Court provided by Mr Birt in the form of a letter from the Department of Lands to the lessee, dated 22 June 1993, that, as a result of the Land Appeal Court decision on Brampton Island, the valuation of the subject land as at 31 March 1992 had been amended (without right of objection or appeal) from $1,750,000 to $1,250,000. There was no explanation provided as to how that valuation then further reduced to $840,000. Tendered with a bundle of various documents by Mr Birt, was a letter from the Office of the Land Court to the lessee company, dated 23 August 1993, relative to a reference to the Court by the Minister of the “Determination of Rent for Special Lease No. 26/41350 during the third rental period.” The Land Court file has now been perused and the following decision of the Court relative to that matter was as follows:
“The rent is determined for Special Lease No. 26/41350 as at 1 January, 1993, at the sum of Twenty-five thousand, two hundred dollars ($25,200) by mutual consent of both parties.”
As at 1 January 1993, under the Land Act 1962, the Minister, or if the matter was referred, the Court, was required to determine the annual rent at such sum as it is considered “an experienced and bona fide person would be willing to pay as annual rent for the land comprised in the lease during the rental period in question, having regard to the use to which the land may be put in accordance with the purpose for which the lease was granted and under the terms and conditions of the lease.” This legislative requirement remained in force until 30 June 1993. Previously the rental on Special Leases of this nature was calculated as being 3% of the unimproved capital value. This Court has judicial knowledge that such basis of calculation of rental had been informally retained by the Department in its assessment under the legislative requirement quoted above. The Minister’s determination which the lessee had declined to accept in the matter referred to was $52,500 which is 3% of $1,750,000 and it would appear that the rent of $25,200 was arrived at on a calculation of 3% of $840,000. It remains uncertain whether or not the valuation under the Valuation of Land Act was, as at 31 March 1992 amended to $840,000 as Mr Goodman-Jones says, or whether a valuation for rental purposes under the Land Act 1962 became the base for the subject valuation including the 5% increase to which reference was made by Mr Goodman-Jones.
Mr Birt sought to highlight the fact that uncertainty had presented itself before this Court as to how a base valuation of $840,000 had been established to then be increased by 5%. It seems that his own negotiations with the Department had resulted in acceptance of an unimproved capital value of $840,000 as at 1 January 1993, at least for rental assessment purposes.
Mr Birt was not impressed with the basis of valuation adopted by the Department and it seems fair to say that, as a valuer, Mr Goodman-Jones was well aware of the criticism which such an approach might have attracted. The valuation was seen to be supported by Mr Goodman-Jones only through relativity with valuations of other leasehold Island Resorts with comparable, or possibly more restrictive conditions. As we understood his evidence however, he had not been responsible for either the base valuation ($840,000) or the valuations offered as evidence to support the relativity approach. The comparability had been suggested by others within the Department with whom Mr Goodman-Jones had consulted.
Part of his basis had been the sale of a small (1221 m²) freehold group title lot on Bedarra Island which is in the same general locality as Hinchinbrook, about 30 km north-north-east of Cardwell. His comments were that the sale land, which was a single residential site was “inferior to the subject due to its size and potential”. Mr Goodman-Jones had agreed that there was, in reality, no cogent comparison possible, the only similarity between the sale land and the subject land being an Island orientated location. Nevertheless he saw it as logical to take the view that the subject land would be seen in the marketplace to be significantly more valuable than the site on Bedarra (which had sold for $250,000 in March, 1993.)
Mr Birt made what we accept as a valid observation, but for differing reasons, that, if it was reasonable for Mr Goodman-Jones to look at Bedarra Island why had he not attempted a relativity comparison between the two resort properties on that Island? One of those resorts contained an area of 35.05 ha and another 45.04 ha and it was established that both were in fact freehold land but both with restricted development potential. Mr Birt had introduced evidence in the Land Court in a “Summary of Island Values” showing the valuation of those Bedarra lands as being $950,000 and $880,000 respectively as at 30 June 1995, when the valuation of the subject land had been further increased to $920,000. However, Mr Birt’s motive in introducing that evidence was to show the disparity in value on a pro-rata area basis. The Member below did not accept that Island Resorts could be compared on a unit of area basis and had noted the comments of the Land Appeal Court in the Brampton Island matter when even the “guest room” basis of comparison was rejected, in that case for the reasons given. The Court had said (at p.21 of the unreported judgment delivered on 4 June, 1993) -“We agree that the most satisfactory method of valuation of these Island Resorts is on the basis of a direct site-to-site comparison, taking cognisance of all matters, including area, which affect development potential, and as a consequence market value” ... (emphasis added)
The Bedarra Island Resort lands have features affecting value both positively and negatively in comparison with the subject land. However, on a site-to-site comparison, rather than on a unit of area comparison, it seems to us that the freehold valuation of the subject land was not necessarily out of reasonable relativity as Mr Birt submitted. Mr Birt exposed part of the fallacy in principle in applying a direct unit of area basis of valuation. He had calculated that the whole of Hinchinbrook Island would be valued at an astronomical amount, if the unit of area value shown in the Department’s valuation (ie approximately $108,000 per ha) was applied. Nevertheless, his method of comparison in his efforts to show the subject valuation to be wrong was made on a unit of area basis - both in comparison with other Resort valuations and the sales information which he had provided for certain mainland properties. While he explained that he had, in the Land Court, rejected any evidence which he felt was inappropriate, what he did supply and the method in which he presented it, was clearly of no assistance to the Member below - or to this Court. That includes an important ground of appeal - the evidence provided by the sale of the now much publicised mainland site known as Port Hinchinbrook, at Cardwell. The detail which was submitted by Mr Birt was that an area of 132.4 ha had sold for $600,000 or $4,532 per ha. He had referred the sale to Mr Goodman-Jones in preliminary discussions relative to the valuation and he says had been told that the sale had been rejected as evidence because it was “too cheap”. Mr Goodman-Jones was left to provide some further broad information to the Land Court, but also gave evidence why he had considered the sale as an inappropriate basis. Reasons included matters such as the considered incomparable mainland location, the mortgagee-in-possession status of the vendor, the partial leasehold component of the sale and the predetermined freeholding conditions relative to that component.
The sale took place at a date most relevant to the date of valuation. Regardless of the comparison difficulties, as the sale had been specifically identified in the grounds of appeal, more detailed evidence relative to the transaction should have been presented to the Land Court, in the first instance by Mr Birt, and also by Mr Goodman-Jones in support of his contention that the sale offered no evidentiary assistance to the valuation of the Hinchinbrook Island Resort land. The mere reference to the sale of a mainland, but waterfront Resort site is of no assistance to us in the absence of detailed analysis. This also points to the difficulty faced by an appellant who appears in the Land Court, on a complex valuation matter with no professional valuation assistance.
Mr Birt also sought to rely in some way on the failure of a strenuous marketing campaign to find a purchaser for the property during the period relevant to the date of valuation. He submitted that because of the known cost of constructing the various improvements, the failure to attract market interest “at any price” was a clear indication that the land could not be worth the Department’s valuation. His estimate of value had been based on some valuation advice he had received in connection with a previous appeal. Mr Birt had also provided a copy of a valuation of the Resort which had been prepared for a financier and in which the leasehold interest had been apportioned, as at 31 March 1992, at $350,000 in an improved valuation of $3,600,000, a valuation which was proved unachievable in the market.
While the lack of market interest in the Island Resort is obviously of relevance to Mr Birt, that information in itself relates to the leasehold interest, as improved, and does nothing to assist us in this matter. The exercise here, in the first instance, is to assume that the land is not only freehold, but in its unimproved condition with all external available facilities and infrastructure in place. The evidence is that at least some of that necessary infrastructure is not accommodated within the lease area. The possibility of denial of access to these facilities is a matter which is a market consideration, but we agree with the comments of the Land Appeal Court in the Brampton Island matter that the logical view would be that a prudent lessor which is, in the end result, the State Government rather than an individual Department, “would be unlikely to prejudice the potential of its lessee’s interests, by denial of the use of necessary infrastructure”.
Summarising the question of freehold value, if that, without any other consideration, was the value to be found, we would agree with the Member below that the appellant had not carried the burden of proving that the Department’s valuation was wrong.
We are concerned however, with the effect of s.14(5)(b) of the Act as it is now renumbered, in this matter. In deciding the unimproved value of the land, s.14(1) requires land that is not granted in fee simple to be taken to be land granted in fee simple. But then ss.(5) provides:“In making, under this part, the valuation of the unimproved value of any land -
(b)in a lease, licence or permission to occupy under the Land Act 1994” (at the relevant date 1962) “or granted or issued by the Coordinator-General or the Primary Industries Corporation -
the unimproved value of that land shall be determined having regard to and making proper allowance for any restriction or limitation of use having regard to the purpose and conditions to which that permit, lease, licence, permission to occupy or agreement, is subject.”
Apart from Local Government town planning considerations, the development of this leasehold land is controlled by the Department of Environment, in that written consent is to be obtained from that Department before improvements may be effected (Condition 2 of the lease). The existing development as approved had been seen by the Queensland National Parks and Wildlife Service, as it then was, in 1987, as capable of accommodating “a maximum of 60 guests” and as representing a strong “natural” theme (described in the Land Court as one of “splendid isolation”) reflecting rather than imposing on the National Park. Large numbers of day visitors or large vessels carrying day visitors (eg large catamarans) were “specifically not envisaged”.
In recent years (principally subsequent to the date of valuation) it seems that the Resort management and particularly the Department of Environment have come into conflict as a result of that Department having issued, on its argument in conformity with lease conditions, “Commercial Activity Permits” allowing two tourism operations out of Cardwell to each service day visitor destinations for individual groups of not more than 15 passengers to be transferred “to Cape Richards and Macushla” (a National Park location about 5 km distant) for the purpose of access to National Park walking tracks. Such a track has been developed to connect the Resort area to the Macushla destination. Access from the jetty and from the connecting road/esplanade, to the Macushla walking track is unable to be gained other than through the subject land.
The lease conditions as they relate to access are numbered 11 and 12 and are set out as follows:
The Lessee shall hold the leased land so that the same may be used without undue interruption or obstruction for the public purpose for which it was declared as national park and in particular and without limiting the generality of this condition so that all the relevant duties and functions of the National Parks and Wildlife Service as laid down in the legislation in force at any particular time may be performed and carried out and so that there shall be no interruption or obstruction to the reasonable public enjoyment of the national park consistent with the rights of the Lessee under this lease. However, this condition shall not of itself be construed as diminishing the normal rights of the Lessee to exclude any person from authorised improvements on the leased land, or to control the behaviour of any person in accordance with condition 10 anywhere on the leased land, and if appropriate to require them to leave the national park if committing a breach of any statutory regulations pertaining to national parks.
Any person authorised by the Director of National Parks and Wildlife shall at all times have the free right and privilege of access, including ingress, egress and regress, into, upon, over and out of the leased land for any purposes whatsoever, including access to such buildings and other improvements or such parts there-of as are generally accessible to all resort guests.”
Mr Birt submitted that he was not consulted by the Department before the permits were issued and has not been informed of the conditions relevant to their issue. He contended that the issue of the permits has been interpreted to include the day visitors as “authorised persons” in terms of Condition 12, rather than those mentioned authorised persons being restricted, as he understood the intent of the condition, to persons in an official capacity associated with management of the National Park. He further submitted that the practical effect of the introduction of day visitors on an externally controlled commercial basis, is that the permits have not been interpreted by the operators as limiting visitation to access through the lease to the walking track to Macushla. There are no public facilities at Orchid Beach and day visitors spending any length of time at that location expect right to access the leasehold land and its facilities and improvements, in terms of Condition 12, rather than Condition 11 of the lease. Such activity, it was submitted, detracts from the interests of guests of a “splendid isolation” themed Resort. In addition it is a distinct management problem and an unpleasant proposition to enforce restriction, or denial of day visitor access to the Resort facilities.
Mr Birt said that he has no difficulty with Condition 11, which was fully understood and always has been, but argued that the conflict in interpretation of Condition 12 causes a significant deleterious effect on the highest and best use of the land which he says is, in terms of the lease, for guest accommodation in restricted numbers. Indeed he suggested that his estimate of value of $360,000 was more in terms of freehold value and that amount should be reduced to $200,000 in recognition of the restrictions and limitations imposed by the lease conditions.
It is clear from Mr Goodman-Jones’ evidence that the Department’s valuation not only is intended to reflect freehold value, but that the lease conditions have been seen to have no deleterious effect on that value. In fact Mr Goodman-Jones saw potential for commercial exploitation of the day visitation attracted by Orchid Beach, the National Park and the Resort facilities. It was his opinion that any development which excluded the day visitor commercial potentiality did not necessarily reflect the highest and best use of the particular land. One of the reasons he had introduced the evidence of the valuation of Hook Island was because he interpreted that lease as having even more restrictive conditions, particularly with regard to provision of guest accommodation. It seems however, that the infrastructure existing at Hook Island, and its Whitsunday location, is heavily orientated towards short-term visitation. On the other hand it seems that the day trip visitation to Orpheus Island, the second valuation relativity example used by Mr Goodman-Jones, is not relevant due to the location of that Island.
It is our understanding of the evidence that if Mr Goodman-Jones’ interpretation of the highest and best freehold use of the subject land (with more intense day visitation) was adopted, then the Department of Environment would, because of the stated environmental sensitivity of the location, impose conditions of development under the lease, restricting and limiting the intensity of such development. Although Mr Birt saw the impact of 45 potential day visitors (or 30 visitors depending on the correct interpretation of the conditions of the Commercial Activity Permits) as significant in comparison with the approved guest capacity of the Resort, we doubt whether such maximum numbers would be sufficient to influence an alternative theme of commercial development of the site, orientated to include day visitors.
In the end result, it is clear that conflict of significant proportion has developed between the lessee and Departments representing the lessor. Part, at least, of that conflict could be due to the interpretation of access rights which would not be a consideration had the land been held in fee simple. It must be recognised however, that even had the land been so held, public access to the surveyed road which in fact severs the site and the esplanade and Orchid Beach, could not be denied. This is not seen as of particular practical effect when the topography of Cape Richards effectively denies access to the balance of the National Park from this direction, except through the subject land. The conditions of the lease have been demonstrated to us, through their interpretation by the lessor, to lessen the rights of the lessee in comparison with the rights of an owner of land held in fee simple. The ability for such restriction and limitation of use to then impinge on the development potential of the land, also subject to the control of the lessor through the conditions of the lease, has also been demonstrated.
We are unable to agree therefore with the opinion of Mr Goodman-Jones that in the particular circumstances of this matter, the value of the land if held in fee simple is not deleteriously affected in any way by the restrictions or limitations of use through the conditions of the lease.
We are not persuaded to accept Mr Birt’s estimate of proper allowance, below freehold value, for he has not provided any cogent basis for his valuation estimates. Nevertheless we are of the opinion that the proper allowance in this matter is a significant rather than a nominal amount. Accepting that the freehold valuation of $880,000 has not been proved wrong, we would determine the unimproved value having regard to s.14(5)(b) of the Act in the amount of Seven Hundred Thousand Dollars ($700,000). This represents an allowance of approximately 20% for the matters which we have found to have been established.
The appeal is therefore allowed, the determination of the Land Court set aside and the unimproved value of the land as at 30 June 1993 so determined.
(SignedCullinane J)
Judge of the Supreme Court
(Signed RE Wenck)
Member of the Land Court
(Signed CF Wall QC)
Member of the Land Court
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