JP Morgan Trust v Valuer General

No judgment structure available for this case.

Land and Environment Court

of New South Wales

CITATION: JP Morgan Trust v Valuer General [2006] NSWLEC 320

PARTIES:
APPLICANT
JP Morgan Trust Australia Limited
RESPONDENT
Valuer General

FILE NUMBER(S): 30287, 30288, 30730 and 30731 of 2005

CORAM: Brown C - Tuor C

KEY ISSUES: Appeal :- valuation of land

LEGISLATION CITED: Valuation of Land Act 1916
Duties Act 1997

CASES CITED: Toohey’s Limited v Valuer-General [1925] AC 439;
James v Valuer General [1942] 7 The Valuer 132 ;
Maurici v Chief Commissioner of State Revenue [2003] HCA 8

DATES OF HEARING: 18, 19, 20/04/06

DATE OF JUDGMENT:
06/23/2006

LEGAL REPRESENTATIVES:
APPLICANT
Mr A Galasso, barrister
SOLICITORS
Mallesons Stephen Jaques
RESPONDENT
Mr J Maston, barrister
SOLICITORS
Crown Solicitor

JUDGMENT:

THE LAND AND
ENVIRONMENT COURT
OF NEW SOUTH WALES

Brown C with Tuor C

23 June 2006

30287, 30288, 30730 and 30731 of 2005

JP Morgan Trust Australia Limited v Valuer General
JUDGMENT

1 COMMISSIONERS: These are appeals against land valuations under the Valuation of Land Act 1916 by the Valuer General (the VG) for properties associated with the Oxley Mall at Bowral at Base Dates 1 July 2003 and 1 July 2004. The valuations group Lots 1 and 2 into one valuation and Lot 4 into a separate valuation (the subject site).

The site

2 The two separate valuations relate to three lots, being Lots 1 and 2 in DP 262436 having a combined area of 1.093 hectares and Lot 4 in DP 262436 having an area of 1274 square metres. The lots are used as part of the Oxley Mall shopping centre. Lot 2 contains the shopping centre building and Lots 1 and 4 are used for at grade car parking. Lots 1 and 2 are separated from Lot 4 by a lane. Lot 3 (and other lots) provide car parking for Oxley Mall but are not part of the proceedings.

3 Oxley Mall is developed with a Coles Supermarket, 22 specialty shops and carparking. The Coles Supermarket occupies an area of 3076 square metres and the specialty shops occupy an area of 1859 square metres. The subject site is located on the north western corner of Boolwey St., and Bendooley St., immediately behind the retail strip along Bong Bong St. Surrounding development to the east is primarily residential dwellings with retail uses to the north, south and west.

The basis for valuation

4 Section 6A of the Valuation of Land Act 1916 states:

6A Land value

(1) The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner’s predecessor in title had not been made.

(2) Notwithstanding anything in subsection (1), in determining the land value of any land it shall be assumed that:

(a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates, and

(b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used,

but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that the improvements, if any, other than land improvements, referred to in subsection (1) had not been made.

5 “Land improvements” means:

(a) the clearing of land by the removal or thinning out of timber, scrub or other vegetable growths,

(b) the picking up and removal of stone,

(c) the improvement of soil fertility or the structure of soil,

(d) the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation,

(d1) without limiting paragraph (d), any excavation, filling, grading or levelling of land for the purpose of the erection of a building, structure or work, not being for the purpose of irrigation or conservation,

(e) the reclamation of land by draining or filling together with any retaining walls or other works appurtenant to the reclamation, and

(f) underground drains.

6 Section 40(2) provides that “on an appeal, the appellant has the onus of proving the appellant’s case”.

The appeals and valuations

7 Appeal No. 30287 of 2005 - Lots 1 and 2 at Base Date 1July 2003.

VG value: $6,210,000

Applicant value: $4,640,000

8 Appeal No. 30288 of 2005 - Lot 4 at Base Date 1July 2003.

VG value: $890,000

Applicant value: $910,000

9 As the valuation of the applicant was greater than the valuation by the VG, the applicant did not press the appeal. The parties agreed that the appeal should be dismissed and the land valued at $890,000.

10 Appeal No. 30730 of 2005 - Lots 1 and 2 at Base Date 1July 2004.

VG value: $8,744,000

Applicant value: $4,900,000

11 Appeal No. 30731 of 2005 - Lot 4 at Base Date 1July 2004

VG value: $1,140,000

Applicant value: $980,000

Relevant planning requirements

12 The lots are zoned 3(a) Business under the Wingercarribee Local Environmental Plan 1989 (LEP 1989). Shops are a permissible use in this zone with consent. LEP 1989 contains objectives for the zone but no other relevant development standards. The relevant objectives are:

(a) to recognise and maintain Bowral’s predominance as the prime business and retail centre for the Tablelands subregion;

(b) to recognise and maintain the support functions performed by the smaller business centres in Mittagong and Moss Vale;

13 Development Control Plan No. 46 - Bowral Sub Regional Centre -Urban Design and Development Guidelines (DCP 46) applies. Clause 4.2 addresses the site under Precinct 1(A). The character is described in cl 4.2.2. Clauses 6.2.1 and 6.2.2 provide precinct specific development controls for Precinct 1(A) although the clauses are largely descriptive with few numerical controls.

The evidence

14 Mr Grant Jackson, a Registered Valuer, provided evidence for the applicant and Mr Robert Maundrell, a Registered Valuer, provided evidence for the VG.

The issues

15 Mr Jackson and Mr Maundrell adopt different approaches to the valuation of the subject site with no common comparable sales. The differences between the experts are addressed through a consideration of the following issues:

Sale of the subject site

Jackson evidence

16 Mr Jackson states that the sale of the subject site in July 2002 for $13,000,000 is the most reliable sale to establish the unimproved land value. He adjusts the sale price by deducting the investment or lease component, the depreciated cost of the improvements and associated interest and holding charges. The present value of the leases have been deducted at the time of sale for a 12 month period as Mr Jackson concludes that this is a reasonable period of time to lease up the property into a similar tenancy situation existing at the time of sale.

17 A Replacement Cost Report prepared by Mr John Oliver, a quantity surveyor, has been used with a 40% depreciation rate, given the nature of the improvements and the existing condition of the property at the time of sale. Including allowances for holding costs, such as rates and land tax and an allowance for the loss of interest during the period of development Mr Jackson derives an underlying land value of $5,259,000 for the total land holding. This is apportioned between the two components of the property as $4,370,100 (or $400 per square metre) for Lots 1 and 2 and $888,200 (or $697 per square metre) for Lot 4.

18 Based on his investigation of the sale, Mr Jackson concludes that it was an arm's-length sale between two knowledgeable, prudent and willing parties with the sale being conducted by a reputable real estate agent. Mr Jackson states that he has made diligent inquiries with the purchaser to confirm his opinion.

Maunsell evidence

19 Mr Maunsell rejects the use of the subject site as an appropriate sale as he does not accept the sale as a bona fide arm's-length transaction. He states that the Contract of Sale reveals that stamp duty was not paid on the transfer of ownership. The transfer from Hurlfite Pty Limited to WRF Property Limited is stamped "Section 281 – Original - No Duty Payable - Transfer Stamped". In his opinion, it is clear that the two companies involved in the transfer have the benefit of s 281 of the Duties Act 1997 and must be related companies. Consequently, the sale fails the test required under s 6A(1) of the Valuation of Land Act 1916, in that it is not an arm's-length transaction.

20 Even putting aside the comments in the preceding paragraph, Mr Maunsell also rejects the adjustments made by Mr Jackson in that the analysis considers the two sites as one and does not adjust the land value amounts assuming two separate transactions as required by s 6A(1). Mr Maunsell also disagrees with the letting up allowance, the replacement cost and the depreciation rate of 40% used by Mr Jackson.

21 Mr Maston, the advocate for the VG, also submits that it is not appropriate to use the subject site as a comparable sale. In Toohey’s Limited v Valuer-General [1925] AC 439, the Privy Council held that in determining the unimproved land value (at 443):

Words could scarcely be clearer to show that improvements were to be left entirely out of view. That are to be taken, not only as non-existent, but as if they never had existed. It is, therefore, to approach the question from a completely wrong point of view to begin with a valuation which takes in the improvements and then proceed by means of some subtraction of a sum arrived by an independent valuation in order to find the required figure. What the Act requires is really quite simple. Here is a plot of land; assumed that there is nothing on it in the way of improvement; what would fetch in the market?

22 Mr Maston further submits that there is only one reported case (James v Valuer General [1942] 7 The Valuer 132 at 132-133) where a judge has distinguished the findings in Toohey’s and this was where the improvements on the land to be valued were held to be "devoted to its proper use from the point of view of exploiting its value" so that they were "necessary and proper for the best use of land". This cannot be said about the subject site.

23 Mr Maston agrees with Mr Maunsell that Mr Jackson determined an overall value for the shopping centre and car park and then apportioned the values to their respective parts. He submits this is fundamentally inconsistent with s 6A(1) where the two individual notices of valuation (i.e., Lots 1 and 2 and Lot 4) are required to be valued separately.

Findings

24 The parties disagreed on whether the sale of the site in July 2002 for $13,000,000 was an arm's-length transaction and consequently whether the sale could be used as a valid comparable sale that would satisfy s 6A(1). Section 6A(1) contemplates the land value realised would be based on a situation where the land would be offered for sale on such reasonable terms and conditions as a bona-fide seller would require.

25 The first arm of the respondent’s argument that the sale is not appropriate centres on whether the sale is an arm's-length transaction. The concept of land value is described in Valuation Principles and the Practice (First Edition), at p1, in the following terms:

This concept of value has traditionally being based on the principle of a transaction between a willing buyer and a willing seller. The concept of a willing buyer-willing seller was discussed in a landmark Australian valuation case

(1907) 5 CLR 418 which related to the compulsory acquisition of land for a fort in Fremantle Harbour. A contemporary interpretation of Isaacs J. comments at page 441 of the judgement is that value would be arrived at by voluntary bargaining between two astute parties (a vendor and a purchaser), both being fully knowledgeable of the property being transacted (its beneficial and detrimental features) and all factors that influence its market value. A sensible interpretation of the extent of knowledge is that it would include matters relating to the state of the market itself.

26 The term arm's-length transaction is not specifically mentioned in s 6A(1) however we have assumed that it is has a similar intent to the wording in s 6A(1), that is, the land would be offered for sale on such reasonable terms and conditions as a bona-fide seller would require and the principle of a transaction between a willing buyer and a willing seller.

27 For some additional guidance, in Maurici v Chief Commissioner of State Revenue [2003] HCA 8 (13 February 2003) the High Court describes in simple terms the valuation approach using comparable sales, including a reference to the need for an arm’s-length approach. Par 16 states:

The traditional, and usually unexceptionable method is to seek out relatively contemporaneous sales of comparable properties between parties at

arm’s length

, unaffected by special circumstances, such as, for example, a strong desire by a purchaser to buy an adjoining property, and to use those sales as a yardstick for the valuation of the relevant land.

28 In considering whether the sale of the subject site was an arm's-length transaction and appropriate for comparative purposes, we accept the evidence of Mr Maunsell and Mr Maston's submission for a number of reasons.

29 Section 281 of the Duties Act 1997 states:

281 Members of a group of corporations

(1) Duty under this Act is not chargeable on a dutiable transaction approved by the Chief Commissioner in accordance with guidelines approved by the Treasurer by which dutiable property is transferred by, or agreed to be transferred by, or vests in, a corporation that is a member of a group of corporations to another corporation that is a member of the same group.

30 Revenue Ruling DUT 20 from the Office of State Revenue, in the Preamble, states in part:

1. Section 281 of the Duties Act 1997 states that the duty is not chargeable on certain transactions between members of a group of corporations. Exemption may be approved by the Chief Commissioner in accordance with guidelines approved by the Treasurer.

2. The purpose of the exemption is to provide relief from duty when property is transferred within a corporate group, in approved circumstances, where there is no change in the ultimate beneficial ownership of the property.

31 To gain the benefit of s 281 there must be a relationship between the vendor and purchaser. The relationship must be based on the transfer between corporations within members of the same group of corporations. The Court was not provided with specific evidence on the relationship beyond that the fact that whatever relationship existed it satisfied the Office of State Revenue when it considered the transfer under s 281.

32 The Product Disclosure Statement of WRF Property Limited offering an investment opportunity in Oxley Mall was tendered however it did not provide any helpful evidence to the Court in establishing the relationship between the vendor and purchaser and subsequently the requirement in s 6A(1).

33 In the absence of any evidence to support the applicant’s position, we accept Mr Maston's submission that, in this case, the mere use of s 281 is sufficient to conclude that the transfer was not an arm's-length transaction and would not be a sale on such reasonable terms and conditions as a bona-fide seller would require. In our opinion, the requirement in Revenue Ruling DUT 20 that there is no change in the ultimate beneficial ownership of the property further supports a conclusion that the sale was not at arm's-length. In some cases, adjustments can be made for factors that would otherwise be an arm's-length transaction such as adjoining owners or in line sales however in this case no information was available to establish any such adjustments (assuming adjustments would be appropriate).

34 Mr Jackson provided a letter from Mr Steven Lerche, a Director for Sales and Investments, Retail and Shopping Centres for Knight Frank, the real estate agent responsible for the 2002 sale of the subject site. The letter sets out Mr Lerche’s involvement in the sale. It states, in part:

The previous owner, Hurflite Pty Ltd, engaged Knight Frank in December in 2000 to act on the behalf in the sale of Oxley Mall, Bowral. The sale was to be by way of private treaty and a selling agency agreement was signed on the 22 February 2000.

The approach adopted by Knight Frank to sell the subject property involved approaching what are referred to in industry as "preferred purchasers". In practice, Knight Frank maintained and extensive data base of potential purchases for different types of classes of property. It is Knight Frank’s role to match the potential purchases to a properties characteristics in an effort to achieve the highest price possible for a vendor.

Despite various efforts to sell this property at a price that was acceptable to the owner, we were unable to find a purchaser and the property was withdrawn from the market. However, in May 2001 the owner once again indicated he would consider the sale of Oxley Mall by way of private treaty and asked us to approach various potential purchases on a confidential basis. We immediately contacted various potential purchases, including WFR Securities Ltd.

In mid-July WFR Securities Ltd indicated their further interest and on 20 September 2001 we received a letter confirming their initial offer by way of an Expression of Interest.

Negotiations continued with various parties, including WFR Securities Ltd until a written offer was received from WFR Securities Ltd on 9 January 2002 that was acceptable to the owner. The offer from WFR Securities Ltd was accepted by the owner on 1 February 2002.

35 Based on the letter from Mr Lerche, we are not convinced that the sale could be properly described as an arm’s-length transaction. The marketing of the property was limited to what Mr Lerche describes as “preferred purchasers”. While Mr Jackson’s conclusion that the sale was between two knowledgeable, prudent and willing parties with the sale being conducted by a reputable real estate agent may be correct, the fact that the sale was not made public potentially excludes other purchasers who may have placed a different value on the subject site. The principle of a transaction between a willing buyer and a willing seller must be based on a wide and open knowledge of the sale so that all potential purchases can enter into voluntary bargaining.

36 We have also placed no weight on the valuation of $13,500,000 contained within The Product Disclosure Statement of WRF Property Limited as it appears to have been prepared for investment purposes rather than in accordance with s 6A of the Valuation of Land Act 1916. Additionally, the valuer responsible for the valuation was not available for cross-examination.

37 The second arm of the respondent’s argument is that the sale of the subject site is not appropriate as a comparable sale because of the findings in Toohey’s case. The submission of Mr Maston was that Toohey’s case effectively stops the Court from using the sale of the subject site as a comparable sale by deducting the value of the improvements to establish an unimproved value. While this argument was distinguished in James’ case, it was done so on the basis that the land was being devoted to its proper use from the point of view of exploiting its value, the improvements are necessary and proper for that use and there is no element of value involved in the approved value other than the intrinsic value of the land and of the improvements.

38 Mr Galasso argued that Toohey’s case was an anomaly when theoretically the subject site could be used as a comparable sale (with a deduction for the improvements) for a site other than the subject site. While there is some merit in the submission of Mr Galasso, we are not inclined to overturn such settled law particularly when it could not be said that the land was being used to its full potential and cannot be distinguished as in James’ case. There was little, if any disagreement that the 20-year-old existing building is nearing its useful life and that any future redevelopment of the site would occur in much different configuration notwithstanding the lack of detail in LEP 1989 and DCP 46.

39 For these reasons, the site is not suitable as a comparable sale.

Adjustment for time

Maundrell evidence

40 Mr Maundrell states that the Bowral commercial market increased rapidly from mid 2002 to mid 2004. Based on 21 sales within the Bowral commercial area Mr Maundrell concludes that the property values increased at a rate of 2% per month (or 24% between the base dates) for prime CBD locations and 3% per month (or 36% between the base dates) for the fringe CBD locations. He places the subject site in the latter category. While still relying on the 21 sales, Mr Maundrell emphasises the following three sales:

the sale of 267 Bong Bong St (Sale 3) in September 2002 and the sale of 277 Bong Bong St (Sale 4) in June 2004 shows an increase of 2.34% per month (after adjustments) for a prime CBD location.

the sale of 377 Bong Bong St (Sale 10) in November 2002 and the sale of 345 Bong Bong St (Sale 8) in January 2004 shows an increase of 3.18% per month (after adjustments) for a fringe CBD location.

the sale of 38 Bowral St (Sale 19) in September 2003 and 40 Bowral St (Sale 20) in May 2004 shows an increase of 3.91% per month (after adjustments) for a prime CBD location.

Jackson evidence

41 Mr Jackson dismisses the approach used by Mr Maundrell. He notes all but one of the 21 sales are improved sales with a number subject to lease agreements. He states that he cannot find any basis that supports the market movements suggested by Mr Maundrell for both prime and fringe CBD locations.

42 Mr Jackson relies on the improved sale of 418 Bong Bong St in April 2003 for $2,500,000 and the resale of the property in May 2005 for $2,650,000 to support his position. While acknowledging that the sale is not directly comparable, it is a property that is significantly larger in size at 2024 square metres than the majority of the sales used by Mr Maundrell and it is helpful in terms of the movement in the market between the base dates. Mr Jackson’s written statement adopts a 6% increase between the base dates although he does not provide any basis for this figure.

43 Mr Jackson also relies on the sales of 36, 38 and 45 Bowral St to establish a market movement of –18% between the base dates.

Comparable sales

Jackson evidence – Lots 1, 2 and 4

44 For Base Date 1 July 2003, Mr Jackson values Lots 1 and 2 at $424 per square metre. For Base Date 1 July 2004, Mr Jackson values Lots 1 and 2 at $448 per square metre and Lot 4 at $769 per square metre. This is based on a combined valuation of Lots 1, 2 and 4 and then apportioning the land value between Lots 1 and 2 and Lot 4.

45 Mr Jackson relies on 3 vacant land sales purchased for retail development for his valuation and the 1995 Woolworths sale in Bowral to support his conclusions. The sales are:

Sale 2 - located on the corner of Kirkham Road and White Lane, Moss Vale (the Moss Vale site). The property was purchased in two lots in June 2001 and amalgamated to form one lot with an area of 7199 square metres. The sale price was $820,000. This equates to $114 per square metre and with adjustments Mr Jackson calculates the land value at $342 per square metre for the 2003 Base Date. He states that the site has some similarities to the subject site in that is developed with a shopping centre and is situated at the rear of the existing retail strip but accepts that it is located within an inferior retail centre in comparison to Bowral.

Sale 3 - located on the corner of the Princes Highway and Junction Street, Nowra (the Nowra site). The property was purchased for the future redevelopment and extension of the existing shopping centre located on the opposite side of Junction Street. The sale price in November 2001 was $2,200,000 for an area of 17,311 square metres. This equates to $127 per square metre. Mr Jackson states the purchase price reflects the significance of land to the adjoining owner but more importantly the substantial development yield that can be achieved.
Sale 4 - located at 5 – 11 Banyette Street, Bowral (the Aldi site). The property was purchased by Aldi Foods in an-off market transaction and involved the amalgamation of three separate lots from two separate vendors. The sale price in December 2000 was $3,095,000 for an area of 6198 square metres. This equates to $488 per square metre and with adjustments Mr Jackson calculates the land value at $536 per square metre for the 2003 Base Date.

46 Mr Jackson states that the Moss Vale site is the most comparable to the subject site given its size and location some 9 kilometres from Bowral even accepting that Bowral is a more established retail location.

Maundrell evidence – Lots 1 and 2

47 For Base Date 1 July 2003, Mr Maundrell values Lots 1 and 2 at $600 per square metre and for Base Date 1 July 2004 at $800 per square metre.

48 Mr Maundrell bases his evidence on the following sales:

Sale 1 – “Magnet Mart” Hardware located at 210 Bong Bong St. The site is an improved sale and has an area of 6119 square metres. The purchaser was one of a number of the vendors although we note that the property was sold at public auction on 20 March 2003 for $3,600,000. This equates to $440 per square metre. After adjustments, Mr Maundrell calculates the land value at $694 per square metre for the 2003 Base Date and $925 per square metre for the 2004 Base Date.

Sale 5 - "Commonwealth Bank site" located at 294 Bong Bong St. The site is an improved sale and has an area of 670.3 square metres was sold on 26 August 2003 for $3,530,000. This equates to $2806 per square metre. After adjustments, Mr Maundrell calculates the land value at $809 per square metre for the 2003 Base Date and $1010 per square metre for the 2004 Base Date.

Sale 7 - located at 328 Bong Bong St. The site is an improved sale and has an area of 1435 square metres and was sold on 9 November 2004 for $4,500,000. This equates to $2602 per square metre. After adjustments Mr Maundrell calculates the land value at $706 per square metre for the 2003 Base Date and $1040 per square metre for the 2004 Base Date. We have adjusted the 2003 Base Date as Mr Maundrell’s calculations showed the same rate as the 2004 Base Date.

Sale 14 - located at 32 Wingecarribee St. The site is an improved sale and has an area of 1162 square metres and was sold on 16 November 2002 for $2,350,000. This equates to $918 per square metre. After adjustments Mr Maundrell calculates the land value at $1000 per square metre for the 2003 Base Date and $1188 per square metre for the 2004 Base Date.

Sale 15 - located at 18 Station St. The site is an improved sale and has an area of 621.5 square metres and was sold on 3 September 2004 for $1,100,000. This equates to $2011 per square metre. After adjustments Mr Maundrell calculates the land value at $739 per square metre for the 2003 Base Date and $1005 per square metre for the 2004 Base Date.

Sale 16 - located at 44 Station St. The site is an improved sale and has an area of 522.80 square metres and was sold on 21 January 2004 for $680,000. This equates to $1086 per square metre. After adjustments Mr Maundrell calculates the land value at $807 per square metre for the 2003 Base Date and $1124 per square metre for the 2004 Base Date.

Sale 18 - located at 36 Bowral St. The site is an improved sale and has an area of 663.90 square metres and was sold on 24 September 2003 for $465,000. This equates to $550 per square metre. After adjustments Mr Maundrell calculates the land value at $665 per square metre for the 2003 Base Date and $908 per square metre for the 2004 Base Date.

Sale 19 - located at 38 Bowral St. The site is an improved sale and has an area of 638.60 square metres and was sold on 12 September 2003 for $420,000. This equates to $515 per square metre. After adjustments Mr Maundrell calculates the land value at $632 per square metre for the 2003 Base Date and $852 per square metre for the 2004 Base Date.

49 The following sales are not relied upon by Mr Maundrell but are in response to Mr Jackson’s use of the sites.

Sale A (Jackson Sale 2 – the Moss Vale site) - After adjustments, Mr Maundrell calculates the land value at $697 per square metre for the 2003 Base Date and $871 per square metre for the 2004 Base Date.
Sale C (Jackson Sale 4 - the Aldi site). After adjustments Mr Maundrell calculates the land value at $789 per square metre for the 2003 Base Date and $865 per square metre for the 2004 Base Date although we note that the adjustment for time is different to Sale A over approximately the same time (48% against 24%).

Maundrell evidence – Lot 4

50 For Base Date 1 July 2004, Mr Maundrell values Lots 4 at $1000 per square metre.

51 Mr Maundrell bases his evidence on the same sales for Lots 1 and 2 (excluding Sales A and C) but makes different adjustments for size, shape and location. After adjustments, Mr Maundrell calculates the land value for these sales at the 2004 Base Date at:

Sale 1 - $1499 per square metre.

Sale 5 - $1515 per square metre.

Sale 7 - $1301 per square metre.

Sale 14 - $1248 per square metre.

Sale 15 - $1828 per square metre.

Sale 18 - $1570 per square metre.

Findings
Adjustment for time

52 One significant area of adjustment that was in dispute is the adjustment for time. This is of some importance as it provides the necessary adjustment from the sale date to the base date and in the absence of any direct sales evidence around the 2004 Base Date provides a means of adjustment from the 2003 Base Date to the 2004 Base Date.

53 In balancing the competing views and as a starting point, we are not convinced that if the Bowral commercial centre was divided in the manner suggested by Mr Maundrell, i.e., prime and fringe CBD locations, that the subject site would necessarily fall within the latter category. In our opinion, the subject site is more closely related to the prime CBD location than the fringe CBD location that extends some distance from the subject site. The closure of Wingacarribee St at its intersection with the Bong Bong Street and the creation of a pedestrian mall has the effect of drawing people from the undisputed commercial centre of Bowral to the subject site. Also, the redevelopment of the subject site is likely to orientate any buildings towards Bong Bong Street and strengthen the relationship with high activity area of this street. On this basis, the market movement between the base dates varies between 6% (Jackson) and 24% (Maundrell).

54 Mr Jackson’s written evidence does not provide the basis for the 6% market movement between the base dates. The reliance on the sale and resale of 418 Bong Bong St was raised only at the joint conference with Mr Maundrell prior to the hearing. Mr Maundrell did not dispute the sales evidence on this site but indicated that it was his opinion that the original sale price in April 2003 was excessive for that time and this was reflected in the resale price in May 2005. He also stated that the May 2005 resale was outside the area of rapid market increase between mid 2002 to mid 2004.

55 In addressing the market movement between the base dates, the optimal approach would be to compare the sale and resale of vacant parcels of land close to the base dates. Unfortunately, there are no such sales in the Bowral commercial area. Mr Maundrell’s evidence relies on sales of different improved properties in the same area and around the relevant base dates but no resales of the same property. Mr Jackson relies on a single improved sale, the resale some 10 months after the 2004 base date.

56 In balancing the limited evidence available to the Court, we accept the evidence of Mr Maundrell that Bowral experienced a relatively large increase in property values between the base dates although we are not convinced of the quantum of the increase suggested by Mr Maundrell. While we accept the general approach of Mr Maundrell we do not agree that an increase of 36% in the fringe CBD and 24% in the prime CBD market value over a period of 12 months can be substantiated. Such an increase is relatively large and not commonplace and must be considered with some caution. In our opinion, the increase suggested by Mr Maundrell in market value over a period of 12 months could not be supported on the limited and largely unsuitable form of evidence provided to the Court.

57 In accepting that there were no suitable sales and resales we prefer the general approach of Mr Maundrell as little, if any evidence was provided by Mr Jackson to refute his conclusions. Mr Jackson’s reliance on the improved sale of 418 Bong Bong St and 36, 38 and 45 Bowral St is also at odds with his adjustment of 6% between the base dates.

58 We find that an increase of 18% (or 1.5% per month) between the base dates is appropriate as it generally reflects an active market but it is more conservative than the increase suggested by Mr Maundrell because of the lack of any substantive evidence to support his position.

Comparable sales - general

59 The High Court in Maurici concluded (at par 19) that improved sales are constantly used “by subtracting the added value of the improvements to them from their sale prices to derive unimproved values.” The Chief Commissioner of State Revenue was not entitled to “ignore reasonably contemporaneous sales of comparable improved land” since such “sales, particularly in the case of a scarcity of vacant land cannot be disregarded”.

60 In this case, the parties used different sales for their analyses. They also relied heavily on improved sales in the absence of any vacant sales. Mr Maundrell helpfully provided details on the percentage adjustment he made for each of the relevant adjustments factors whereas Mr Jackson provided only an overall percentage adjustment. Helpfully, Mr Maundrell and Mr Jackson agreed on adjustments for improvements for the improved sales but they remained largely far apart on the other areas of adjustment such as time, size, location and shape for the comparable sales.

Comparable sales – larger sites

61 The sales of larger site areas provide more reliable evidence for the land value of Lots 1 and 2. Of the larger comparable sales identified by Mr Jackson we are not prepared to give any serious consideration to the Nowra site and the 1995 Woolworths sale. The former is located in Nowra and was not inspected on the site view. It is located within a different market to Bowral and was a sale to add to an existing large commercial development. The latter, and accepting that Mr Jackson only sought to use the sale for confirmation of his other comparative sales, is simply too distant from the base dates to be of any benefit to the Court. The remaining larger sites considered by Mr Jackson and Mr Maundrell are the Moss Vale site, the Aldi site and the Magnet Mart site.

62 In our opinion, the Magnet Mart site is the most reliable of the limited identified larger sites. It has an area of 6119 square metres, is located within Bowral although admittedly on the edge of the town centre, the sale is close to the 2003 Base Date and the improvements are not substantial.

63 We accept that this site is clearly inferior to the subject site however we do not accept that it is so inferior, in terms of location that Mr Jackson’s adjustment should be adopted. While one of the vendors was ultimately involved in the purchase, it was a sale by public auction and consequently must be seen as an arm’s length transaction. We adopt Mr Maundrell’s calculations with the exception of the adjustment to the 2003 Base Date (where we substitute 1.5% per month) and the adjustment for location where we find that +30% adjustment is appropriate. On this basis, at the 2003 Base Date the adjusted land value is $581 per square metre.

64 For the Moss Vale site, Mr Jackson and Mr Maundrell differ significantly on adjusted rates per square metre. Mr Jackson calculates $342 per square metre and Mr Maundrell $592 per square metre.

65 The fundamental difference between the experts on this site (and also other sites) relates to the perception of the Bowral township. Mr Jackson describes the nature of the township and in particular the retail strip along the Bong Bong Street as a pleasant environment offering an attractive alternative for metropolitan residents to frequent the township in the leisure time. The appeal of the Bowral township and its pleasant surroundings are not, however factors which would motivate a prudent purchaser of the subject site to proceed with the development of a shopping centre. In his opinion, the decision to develop the site would be based on economic merits regardless of the local environment.

66 Mr Maundrell describes Bowral as one of the few localities in New South Wales that has high demand and prestige. This is borne out by the negligible vacancy factor in the township. In his opinion Bowral is comparable to Griffith and Byron. The councils planning instruments also make it clear that the present historical amenity and appeal of the area is to be maintained and any new or redevelopment is to be sensitive to these requirements. It is within this context that Mr Maundrell sees the location in Moss Vale as having little comparative value.

67 In balancing the different approaches taken to the township of Bowral in the commercial hierarchy of the area, we are influenced by the large difference in rates per square metre between this site and the range of sites in Bowral, even taking into account their generally smaller site areas. We are not however convinced that the Moss Vale site should be discarded as quickly as suggested by Mr Maundrell. Of all the comparable sales, this site is closest to the subject site in area and is located approximately only 9 kilometres away. It is more irregular in shape but not to any significant degree. Consequently the only major adjustment required is for location and this represents the significant departure between the experts. Mr Maundrell adjusts the site by +315% whereas Mr Jackson makes a total adjustment of +200%.

68 We agree that the site is clearly inferior to the subject site. It is placed below Bowral in the commercial hierarchy based on LEP 1989 and the view highlighted a number of vacant shops and less activity when compared to Bowral. We accept Mr Maundrell’s adjustment for size (-10%), shape (+25%) and adjustment rates per month to the 2003 Base Date however we find that the adjustment for location should be +280% as, in our view, this more closely represents the relationship between Bowral and Moss Vale. Based on these assumptions, the rate per square metre at the 2003 Base Date is $496 per square metre however this figure must be used with some caution because of the large adjustment made for location. At best it may be helpful for confirmation of other sales evidence.

69 The Aldi site is located in Bowral however it was an off market transaction and some two years prior to the 2003 Base Date. The location is also clearly inferior to the subject site.

70 Mr Jackson calculates $536 per square metre based an overall adjustment of +10%. Mr Maundrell indicates on Exhibit 12 a rate of $789 per square metre based on adjustments for size (-10%), shape (+20%) and location (+20%). This excludes the adjustment made for time as the sale was some 2 years prior to the 2003 Base date. We note the adjustment for time for this site (1% per month) is different to the adjustments made consistently for other sales in the Bowral township. If Mr Maundrell’s regular 3% adjustment per month for time is made then the site has an overall adjusted rate of $943 per square metre.

71 Adopting the general approach of Mr Maundrell but using 1.5% per month adjustment for time and excluding any adjustment for shape as the site is largely rectangular and not so different to the subject site that any adjustment should be made, we find that the site has an overall adjusted rate of $600 per square metre. Again, this figure must be used with some caution because of adjustments made for time and the off market sale.

Comparable sales – smaller sites

72 There was agreement between Mr Maundrell and Mr Jackson that the sales with smaller site areas provide more reliable evidence for the land value of Lot 4 and that the value per square metre for smaller sites should be comparatively higher than for the larger sites. We generally agree with Mr Jackson that the use of smaller sites for comparative purposes needs to be undertaken with some care.

73 Of the smaller sites Mr Maundrell relied on Sales 1, 5, 7, 14, 15, 16, 18 and 19. Mr Jackson responded to Sales 7, 14 and 15 but stated that Sales 16, 18 and 19 were not capable of comparison. The differences between Mr Maundrell and Mr Jackson on the value per square metre for Sales 7, 14 and 15 were significant although the total adjustments made by Mr Jackson were not that dissimilar to the adjustments made by Mr Maundrell for size, shape and location. It would appear that the significant difference between the experts (as was the case in the larger sites) was the adjustment per month to bring the sales to the base dates. In our opinion, a consideration of the sites with smaller areas does not disturb the findings we have reached based on a consideration of the larger sites.

74 While Mr Maunsell was challenged on his method of adjusting the comparable sales we accept it is appropriate to adjust the sales to the base date first, then make other adjustments for factors such as time, size, location and shape after the initial adjustment to the base date is made.

Conclusions on land values

75 Based on the sales evidence for the larger sites we find that the land value for Lots 1 and 2 for the 2003 Base Date is $600 per square and consequently we adopt the VG land value of $6,210,000.

76 No further sales evidence was provided to establish the land value for the 2004 Base Date from that provided for the 2003 Base Date. To establish the land value for the 2004 Base Date the experts adjusted the time factor over 12 months so the fundamental issue was the appropriate adjustment. We have addressed this matter earlier in the judgement and adopted an adjustment of 1.5% per month. Based on this conclusion, we find that the land value for Lots 1 and 2 for the 2004 Base Date is $7,327,800 or rounded up to $7,330,000

77 With agreement that the land value for Lot 4 at the 2003 Base Data was $890,000 and using the adopted adjustment of 1.5% per month, the land value at the 2004 Base Date is $1,050,200 or rounded down to $1,050,000.

Hypothetical development approach

78 Mr Jackson states that the lack of directly comparable sales evidence supports this approach. In his opinion the hypothetical development approach can be undertaken with a high degree of confidence because of the existing knowledge of rental levels, the sale price of the improved shopping centre, the largely agreed construction cost of a new shopping centre and the time in which it would be constructed.

79 Mr Maundrell disagrees. He states that he does not accept that the existing development on the subject site is the highest and best use of land. He further states that s 6A(1) requires that each of the two properties under dispute be assessed as separate entities, i.e., the highest and best use of each parcel has to be assessed without regard to the other. This has not been done as Mr Jackson has "rolled up" both sides into a single calculation that assumes that the existing development is the highest and best use of the site.

80 On this matter, we agree with Mr Maundrell. The approach adopted by Mr Jackson does not properly address s 6A(1). The appeals relate to two separate valuations and clearly must be addressed independently of each other.

81 We also accept Mr Maundrell’s evidence that the hypothetical development addressed by both parties is not the highest and best use of land. The construction costs are based on the existing form of development and not a development that would likely be constructed on the site, assuming the land was vacant. We understood the experts to accept that the current building form was nearing the end of its useful life and that any future development would not likely be in a similar form to that which exists at the moment. The Court heard evidence on the potential for basement car parking and the orientation of any new buildings toward the more active areas of Bong Bong St. however from a reading of the council planning controls, principally DCP 46, little if any guidance is available on the level of development that could be accommodated on the subject site. DCP 46 states that “consideration may be given to the construction of the site to a height of three storeys” however it does not provide requirements for floor space ratio or other design parameters that would establish a level of development on which a hypothetical development approach could be reasonably based.

82 While comparative sales evidence was not optimal in this case, we accept Mr Maundrell’s evidence that the use of a hypothetical development approach would not add to the evidence available to the Court in establishing the land value of the subject site.

Orders

83 For the reasons given in the preceding paragraphs, the Orders of the Court are:

G T Brown
Commissioner of the Court

Annelise Tuor
Commissioner of the Court

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Citations

JP Morgan Trust v Valuer General [2006] NSWLEC 320

Cases Citing This Decision

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Statutory Material Cited

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Maurici v Chief Commissioner of State Revenue [2003] HCA 8

Spencer v The Commonwealth [1907] HCA 82

CITATION:	JP Morgan Trust v Valuer General [2006] NSWLEC 320
PARTIES:	APPLICANT JP Morgan Trust Australia Limited RESPONDENT Valuer General
FILE NUMBER(S):	30287, 30288, 30730 and 30731 of 2005
CORAM:	Brown C - Tuor C
KEY ISSUES:	Appeal :- valuation of land
LEGISLATION CITED:	Valuation of Land Act 1916 Duties Act 1997
CASES CITED:	Toohey’s Limited v Valuer-General [1925] AC 439; James v Valuer General [1942] 7 The Valuer 132 ; Maurici v Chief Commissioner of State Revenue [2003] HCA 8
DATES OF HEARING:	18, 19, 20/04/06
DATE OF JUDGMENT:	06/23/2006
LEGAL REPRESENTATIVES:	APPLICANT Mr A Galasso, barrister SOLICITORS Mallesons Stephen Jaques RESPONDENT Mr J Maston, barrister SOLICITORS Crown Solicitor

[2006] NSWLEC 320

23/06/2006