Joye and ors v Valuer-General

[2006] NSWLEC 341

Land and Environment Court

of New South Wales

CITATION:

Joye and ors v Valuer-General [2006] NSWLEC 341

PARTIES:

APPLICANTS (30798 of 2005)
I and S Joye

APPLICANT (30799 of 2005)
Kelor Pty Limited

RESPONDENT (Both matters)
Valuer-General

FILE NUMBER(S):

30798 &30799 of 2005

CORAM:

Moore C

KEY ISSUES:

Valuation of Land :-

CASES CITED:

Maurici v Commissioner of State Revenue 211 CLR 111;
AMP Henderson v Valuer General 134 LGERA 426 ;
BGP Properties Pty Limited v Lake Macquarie City Council (2004) NSWLEC 339;
.

DATES OF HEARING:

5, 6, 7 and 8 June 2006

EX TEMPORE JUDGMENT DATE:

06/08/2006

LEGAL REPRESENTATIVES:

APPLICANTS
Mr P McEwen SC
INSTRUCTED BY

RESPONDENT
Mr J Atkin, barrister
INSTRUCTED BY
NSW Crown Solicitor

JUDGMENT:

THE LAND AND
ENVIRONMENT COURT
OF NEW SOUTH WALES

MOORE C

8 June 2006

30798 of 2005 I and S Joye v Valuer General
30799 of 2005 Kelor Pty Ltd v Valuer General

JUDGMENT

This decision was given as an extemporaneous decision. It has been revised and edited prior to publication.

1 COMMISSIONER: These are two appeals pursuant to s 40 of the Valuation of Land Act 1916 (the Act) concerning statutory valuations as at the base date of 1 July 2004. Two properties are involved - being properties known as 37 Ocean Road, Palm Beach and 38 Florida Road, Palm Beach. They are, in effect, the dominant and smaller elements of a compound of land held and managed as if it were one parcel but in fact comprising two separate parcels in differing but related ownership.

2 Both of the parcels are zoned for residential purposes and both of them are subject to restrictions on subdivision. The parties are content that I give a single judgment dealing with the separate appeals.

3 I have had the assistance of expert evidence by Mr Davis, a valuer retained on behalf of the respondent, and Mr Burney, a valuer retained on behalf of the applicants.

4 I note that, although Mr Davis, on behalf of the Valuer General, in each of his two primary statements of evidence, contended for valuations that were higher than the statutory valuations against which each appeal has been taken, Mr Atkin, counsel for the respondent, has specifically disavowed pressing for adoption of such higher valuation and simply seeks confirmation of the statutory valuation as entered into the roll.

5 Contrary to the normal practice, there was virtually no coincidence between the valuers as to what were the appropriate comparable sales for the purposes of valuation analysis. This disagreement extended to three significant elements:

• The geographic spread of sites which should be compared;
• Within that geographic spread, the individual sites that were appropriate to be used for comparisons - there being, in effect, only one common site between the valuers out of the some fifteen plus sites identified as potential comparable sales in the two sets of proceedings; and
• Whether or not it was appropriate to apply any time adjustment from the earliest sales which were in early 2003 to the latest sale which was in 2005 (the base date being as at 1 July 2004).

6 The position put on behalf of the applicants, through Mr Burney was based on his experience as a professional valuer practising extensively in an area bounded generally in the south by Manly and in the north by Palm Beach; extending generally west to Belrose and occasionally further; and with, on his uncontested evidence, extensive experience in improved, unimproved, mortgage and other valuations in the area he described as “the peninsula” (an area north of Mona Vale), was that during the relevant period of time there had been, in effect, no movement in the market and therefore no time adjustments were required.

7 On the other hand, Mr Davis, giving evidence on behalf of the respondent, relied dominantly on an index produced by Residex Pty Limited, a real estate indexing firm, and extracts from its house price index (details of which were contained in his appendices to his two primary statements of evidence) for the 2108 postcode area - being a postcode area which encompasses not merely the suburb of Palm Beach but some elements of the western shores of Pittwater.

8 It was Mr Burney’s evidence that he accepted that the Residex index included all sales, not merely improved sales. The document which appears as a description of Residex Pty Limited (in the attachments to Mr Davis’s statements of evidence) includes the statement in the second paragraph:

Representations by government departments lead us to believe that we have nearly every New South Wales sale since 1978.

9 At the top of the details of the index adjustments page, for the Palm Beach postcode, appears the sentence:

For this reason the Residex house price index is calculated using all appropriate sales since 1978,

thus confirming the earlier general comment.

10 The index adjustments page goes on, in parenthesis, to make the following notation as to matters which are excluded:

Obviously incorrect or extreme outlying sales are of course removed from the data prior to index calculation.

11 There is no evidence before me contradicting any of those statements made with respect to the Residex index.

12 I therefore accept that that index tracked all possibly relevant sales in the Palm Beach postcode area during the relevant periods of time. The fact that that index may be affected, from time to time, by what might be regarded as aberrant sales (such as those to which my attention was drawn by Mr P McEwen SC, senior counsel for the applicants, at 7 or 9 Palm Beach Road, Palm Beach) does not detract from the proposition that there is no evidence before me that would cause me to conclude that I should entirely disregard the Residex index and assume that there has been no movement.

13 Although it was conceded by Mr Davis that the nature of the movements shown in the Residex index might be amenable to some sort of smoothing or line of best fit, I have no evidence before me that would enable me to make any statistically valid drawing of such a line or numerical conclusion with respect to it. I am therefore satisfied that:

• I should accept the Residex index; and
• As the burden of proof pursuant to s 40(2) of the Act requires the applicants to discharge the onus of proof (to the appropriate degree of comfortable satisfaction) as to why I should set aside such an index (the integrity of which is not challenged in evidence before me) in favour of what is necessarily, although honestly and objectively put, the limited professional opinion of Mr Burney in this regard, they have not done so.

14 I therefore accept, as a general proposition in both appeals, that, where it is appropriate to make a time adjustment, the basis upon which that has been undertaken by Mr Davis is, absent any other better or preferable basis, the appropriate basis upon which to proceed.

15 I turn then to the valuation of 37 Ocean Road.

16 In this matter, the statutory valuation contended for by the respondent is $6,160,000 as at the base date.

17 Mr Davis’s deduced valuation is $7,250,000 as at the same date.

18 The valuation contended for by Mr Burney, in his primary assessment, is $5,063,000 to which he makes a further adjustment of 21.1 per cent rounded to $4,000,000 (that latter further adjustment being on the basis of the conclusions drawn by him as a result of earlier contested proceedings concerning a statutory valuation for this property which was settled by consent orders).

19 As I understand it, properly conceded by Mr McEwen, the questions of heritage affectation and the like which would or might have been considered in that rounding number (in the earlier proceedings) have been properly dealt with by each of the valuers in their assessments in these proceedings. I therefore take it, for the purposes of my consideration, that Mr Burney is, in fact, contesting for a valuation modestly in excess of $5,000,000 for this site.

20 The accepted practice in valuation (and in appeals such as this) is to have regard to the comparable sales in determining what might be, when adjusted to take account of the differences between the sites, an appropriate valuation of the unimproved value of the land, that being the statutory requirement of s 6A of the Act.

21 In Maurici v Commissioner of State Revenue 211 CLR 111, at p 121, in para 18, the High Court accepted that sales of properties of a different character are likely to attract a different class of buyer and are unlikely to provide a reliable indication of value.

22 In the case of 37 Ocean Road, I am satisfied that there is a singular particularity about the area of Palm Beach in which the site is located.

23 I am not satisfied that the applicants in this appeal have demonstrated, contrary to the evidence of Mr Davis, that I should go beyond what might be described as the beachfront or Ocean Road precinct of Palm Beach in consideration of comparable sales.

24 I accept Mr Davis’s proper concession, in the witness box, that there were, perhaps, other areas that might attract a purchaser who was seeking to purchase in the Ocean Road precinct - in particular his ready concession that potential purchasers of the Ocean Road precinct would also consider the Iluka Road precinct on the western side of the peninsula.

25 However, it was his position, firstly, there were no sales in the Iluka Road precinct from which any assistance could be drawn and, secondly, whilst there might be one other sale from which some modest degree of comfort could be drawn, the only appropriately comparable sale was that of 39B Ocean Road.

26 The applicants took a more expansive position and suggested that, purely on the basis of potential site developable area for the inclusion of additional facilities such as swimming pools or tennis courts, it would be appropriate to cast the net wider and consider other larger sites such as one on Whale Beach Road at Whale Beach.

27 I am not satisfied that that is the case and I accept Mr Davis’s evidence that it is preferable and, indeed, appropriate to confine myself to the area, with respect to 37 Ocean Road, that solely comprises the Ocean Road precinct. In this regard, I am satisfied it is appropriate to apply the stricture of the Court of Appeal in AMP Henderson v Valuer General 134 LGERA 426 at p 440 where Tobias JA says, at para 68, when referring to Maurici:

That case is not authority for the proposition that if there be only one comparable sale and it is a sale of scarce vacant land it is required to be discarded and the comparable sales method of valuation rejected.”

28 Both counsel properly conceded that it was also proper to read that sentence as if it also permitted consideration of one sale (where it was appropriate to do so) of developed land for the purposes of such a statutory valuation appeal as I am undertaking.

29 Mr McEwen SC also put the proposition that I should have regard to matters of profit and risk of development when I consider these matters.

30 37 Ocean Road is held by Mr Ian Joye as to nine-tenths and to Mr Saxon Joye as to one-tenth as tenants in common. It is Lot D DP 25914; is zoned 2A Residential A pursuant to the Pittwater Local Environment Plan 1993 (the LEP) and has a site area of a little over 4,600 square metres.

31 It slopes somewhat from west to east towards Palm Beach and it has the closest thing possible to a beach frontage at Palm Beach - sharing this attribute with a limited number of other large allotments to its north.

32 On the site is erected a substantial detached dwelling; a caretaker’s cottage; separate garaging facilities; a swimming pool; and a tennis court. It has gates to the Ocean Road frontage, with what was, from observation, formerly a garage which appears now to have been converted into guest quarters. It is, together with the second property in these appeals with which it is jointly managed, a substantial estate or compound in a highly desirable area of Palm Beach.

33 Mr Davis sought some comfort from a sale at 42 Sunrise Road. Although there was some initial contention as to whether or not it might have been between related parties, the material eventually tendered on behalf of the applicants does not satisfy me that it should be treated as being between related parties. Mr Atkin, however, did not place great emphasis on this sale.

34 For the reasons I have outlined about why I consider the Ocean Road precinct should be regarded as a tight and discrete area for the purposes of valuation, I have no regard to that sale.

35 Mr Davis undertook an adjustment process for 39B Ocean Road. The end point of that, after making a series of adjustments, led him to a deduced comparable value of $1,385 per square metre leading to a valuation for the subject site of $6,373,000 odd.

36 Mr Burney undertook a similar analysis with differing conclusions in only one modest respect and that is he considered that there should be a greater adjustment for views.

37 There was also the difference, which I have earlier explored, between them whereby Mr Burney made no adjustment for time for the sale. As I earlier indicated, I accept Mr Davis’s position in this regard.

38 However, I do not accept Mr Davis’s position with respect to the appropriate adjustment to the valuation for views, that being the only other difference between the valuers as to what I have now held is the sole appropriate comparable sale for the purposes of valuing 37 Ocean Road.

39 It was clear from the inspection that 37 Ocean Road has extremely limited and filtered views of the ocean as a consequence of the spaced stand of very substantial and aged Norfolk Island pines in the public area along the eastern boundary of the property. On the other hand, 39B Ocean Road, although set back from the beachfront, was, it appeared, at a slightly higher height and had uninterrupted views to the north-east and north across the roof line of the adjacent house towards Barrenjoey headland and toward the ocean.

40 Mr Burney allowed an adjustment of 15 per cent for the relative quality of the views from 39B Ocean Road whereas Mr Davis merely allowed an adjustment of 5 per cent for this purpose.

41 I am satisfied on the basis of the evidence given and what I saw during the course of the view that Mr Burney’s position is to be preferred in this regard.

42 As a consequence, I have taken the time adjusted land value derived by Mr Davis in Exhibit 3; applied to it the common valuation variations that were agreed by the valuers as being appropriate; but have applied Mr Burney’s view adjustment of 15 per cent in preference to that of Mr Davis.

43 That gives, on my calculations (relying on the electronic table provided to me by Mr Davis) an adjusted value per square metre of $1,133 which, when applied to 37 Ocean Road, gives an adjusted land value of $5,215,049. Rounding to the nearest $5,000 results in the position that the orders of the Court in matter 30798 of 2005 will be as follows:

1. The appeal is upheld;
2. Pursuant to s 40(1)(b) of the Valuation of Land Act 1916, the value, as at 1 July, 2004 of 37 Ocean Road, Palm Beach, being Lot D, Deposited Plan 25914, is determined as $5,215,000; and
3. The exhibits are returned.

44 I turn now to the valuation of 38 Florida Road.

45 This matter was a little more complex than that at 37 Ocean Road as the matter of comparability was not as easily determined in this appeal.

46 The statutory valuation entered in the roll at the base date of 1 July, 20004 is $1,680,000.

47 Mr Davis contended for $1,860,000 and Mr Burney for $1,050,000.

48 This property, which is managed as if it were part of the estate at 37 Ocean Road, is Lot B DP 25914; is also zoned Residential 2A under the LEP; and has an area of 885.2 square metres.

49 It is to the south-western corner of the land managed as the common compound. It is presently used to provide access to the main portion of the compound; has some limited carport garaging facilities erected on it; and also includes, on its south-western corner, a water storage tank. It has no other structures erected on it at the present time.

50 It slopes from the Florida Road frontage towards Ocean Road and has, adjacent to it on its northern flank, an access handle that provides or could provide the access from Florida Road to 37 Ocean Road. That access handle is not utilised save for its commencement point and the vehicle access to 37 Ocean Road is via this allotment.

51 Mr Davis, during the course of his consideration of this allotment, felt sufficiently uncertain about the planning and development restrictions which might arise for this site as a consequence of a then draft new Pittwater Local Environment Plan and as a consequence the provisions of the present LEP that he advised the respondent to seek a planner’s report concerning the development potential of the site. I have a copy of such a report from Mr Chambers of BBC Consulting Planners who confirms that there are extremely significant constraints on the developability of this allotment.

52 They arise in particular for two reasons.

53 The first is the presence on the site of four significant spotted gums (three of which are in an arc across the centre of the site at the dividing point between the two grassed benches along the northern portion of the site) and the second is the presence of remnant elements of littoral rain forest which appeared, from the view, to run in general terms along the western, that is, Florida Road boundary of the allotment and sweeping down at least portion of the boundary along the southern side of the allotment along its boundary with Hordern Park.

54 Mr Chambers subsequently confirmed that, although the draft Local Environment Plan could not on any basis be said to have been imminent or certain as at the statutory base date (because it has not yet, as at the date of this hearing, been made), his broad planning conclusions remained the same based on the provisions of the present LEP and his consideration of the other general development constraints on the site.

55 I am satisfied, as I put to counsel and to the witnesses during the course of the hearing, that the developability of the site is extremely limited.

56 Although, as noted by the former Chief Judge, McLellan CJ, in BGP Properties Pty Limited v Lake Macquarie City Council (2004) NSWLEC 339 at para 118, in most cases it can be expected that the Court will approve an application for the use of a site for a purpose for which it is zoned, such presumption requires the design of the project to result in acceptability environmental impacts. I adopt that proposition in this case.

57 As I indicated, I was satisfied that that developability would be limited to an extremely modest building of the general dimensions of that which was observed, during the course of the site view, at 71 Florida Road.

58 In addition, although Mr Davis said in this regard that he had costed into his adjustments what he regarded as the appropriate degree of development difficulty, Mr Burney did not concur with this view and put the proposition in his commentary on Mr Davis’s adjustments that he did not consider that Mr Davis had made sufficient allowance for what Mr Burney considered was needed to reflect the inherent difficulties in developing the land.

59 Mr Burney suggested, in general terms, that a further 10 per cent adjustment should be made in this regard.

60 Primarily for their comparative analyses, Mr Burney relied on vacant land and Mr Davis on developed sites. They had one site in common - being the site at 47 and 47A Florida Road.

61 Mr McEwen SC criticised Mr Davis for not using vacant land at 17 Sunrise Road and 5A Beach Road. He criticised particularly, as I understood it, Mr Davis’s failure to make appropriate and what he considered adequate enquiries with respect to 17 Sunrise Road. Mr Davis, in his oral evidence, indicated that he primarily relied on sales at 71, 19, 75 and 47 Florida Road as his preferred sales (and in that order).

62 I have carefully looked at the adjustments made by Mr Davis to those sales - they being set out in an analysis at attachments 11 and 12 to Mr Davis’s statement of evidence concerning 38 Florida Road.

63 I have a concern with respect to some of his calculations as I consider that he has made a significant error in one regard, that is, the time adjustments he has made to the sites at 71, 19 and 75 Florida Road.

64 If I have regard to the Residex index chart provided by Mr Davis on p 10 of his 38 Florida Road statement of evidence, it shows that the index was 25.4047 as at the conclusion of the March quarter, 2004. The 71, 19 and 75 Florida Road sales occurred in relevantly April, 2003; April, 2003; and May, 2003. The relevant index number which should have been applied, on my understanding of Mr Davis’s evidence in that regard, would have been the conclusion of the March quarter 2003 or the June quarter 2003 figure; the June quarter 2003 figure is available to me and I am satisfied is the preferable one under the circumstance.

65 That would give an index number to be applied of 21.7688 which makes some significant difference to the adjustments that would otherwise derive from the table of adjustments provided by Mr Davis at appendix 12 to his statement of evidence.

66 As, fortunately, I had an electronic copy of that table (including a number of other sales), I have made the appropriate substitution of that index number and considered what should be the result of it.

67 I am also satisfied that that portion of the Florida Road precinct, although not as distinctly identical in market terms as the tightly held portion of Ocean Road to which I earlier adverted, does provide the useful and acceptable basis in this case for winnowing the number of comparable sales required to be considered rather than forcing me to go through an exhaustive analysis of a vast range of sales with respect to each one of which the two valuers have applied a number of differing adjustment variations.

68 I have, therefore, accepted that it would be appropriate to adopt that, in this regard, Mr Davis’s preference for the sales at 71, 19, 75 and 47 Florida Road provides a sufficient and acceptable and representative basket of sales when appropriately adjusted to satisfy the criteria required by the High Court for a sufficient examination for the purposes of proceedings such as this.

69 Having made the additional further adjustments in time necessary as a result of what I consider to be the inaccuracy in the time adjustment provided for by Mr Davis in his attachments, together with my consideration of the adjustments made by him in light of the evidence, I am satisfied that the developmental constraints which exist on the 38 Florida Road site require a greater adjustment than the 20 per cent adjustment allowed by Mr Davis for each of those four other Florida Road sites.

70 I am satisfied, in this regard, that the evidence given by Mr Chambers; that which was seen on the view; coupled with the opinions expressed by Mr Burney (leavened, might I add, by the appropriate concession by Mr Davis that if he were satisfied that there were greater restrictions on development of the site he would make greater allowance for it), it is appropriate (because I am so satisfied) to make a greater allowance in that regard. I accept that the additional 10 per cent postulated by Mr Burney would be an appropriate adjustment to apply in this regard.

71 I see no reason, arising out of the view or any of the evidence given orally or in writing by the valuers, to question any of the other adjustments made by Mr Davis - save in one respect.

72 Mr Davis made an adjustment for topography of the 47 Florida Road site of only 5 per cent.

73 I am satisfied that the Florida Road site, as to its topography and the existence of an already identified and available building platform (being the site of the present dwelling), does warrant a significantly higher topographic adjustment, of 20 per cent, in lieu of the 5 per cent allowed by Mr Davis.

74 As a consequence of all of that (and again assisted by Mr Davis’s electronic transmission of a spreadsheet), I have arrived at the following equivalent land values per square metre for the four sites when adjusted to the 38 Florida Road site:

• For 71 Florida Road, the figure is $2,377 per square metre;
• For 19 Florida Road it is $1,987 per square metre;
• For 75 Florida Road it is $2,032 per square metre; and
• For 47 Florida Road it is $1,148 per square metre.

75 These rates gives a range of very great breadth, that is, the lower being less than half of the upper.

76 I have given consideration as to how I should treat this extreme range of values.

77 I am satisfied that the upper valuation is too high, particularly given the fact that the 71 Florida Road site is on the high side of the street and is a significantly smaller allotment and thus likely possibly to attract a significantly higher development premium for the existence of a development right - what might, in crude terms be regarded as the flag fall element of the valuation process.

78 I am also satisfied that, intuitively, the value of 47 Florida Road deduced is too low, it being the only site that was agreed between the valuers as being the appropriate comparable one. However, I am satisfied that it is generally more representative and consequently warrants a deal more weight.

79 Although valuation processes using adjustments and the like endeavour to apply science, in the end one is left to make an intuitive judgment as to where a property would fit within the range.

80 I am satisfied in this regard that the appropriate deduced value to be applied to the 38 Florida Road site is $1,750 per square metre leading to a value of $1,549,100 for the site.

81 The result of such a calculation is that, in matter 30799 of 2005:

1. The appeal is upheld;
2. Pursuant to s 40(1)(b) of the Valuation of Land Act 1916, the value, as at 1 July, 2004 of 38 Florida Road Palm Beach, being Lot B in Deposited Plan 25914, is determined as being $1,550,000; and
3. The exhibits are returned.

Tim Moore
Commissioner of the Court