Junstamp v Commissioner for ACT Revenue

[2013] ACAT 50

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

JUNSTAMP PTY LTD AND ORS & COMMISSIONER FOR ACT REVENUE (Administrative Review) [2013] ACAT 50

AT 68 of 2012

Catchwords:             ADMINISTRATIVE REVIEW – objection to assessment of unimproved value (UV) of land – determining what is “capital amount”, “relevant date”, “prescribed date”, and “circumstances”, in section 6, Rates Act 2004 – whether remediation is “improvement” or “circumstance” – assumptions for determining UV - impact of cost of remediation on UV – hypothetical willing but not anxious buyer and seller – whether contamination of site reduces UV - the highest and best use of land – whether cost to remediate land reduces UV: effect of the terms of Crown lease

List of Legislation:     ACT Civil and Administrative Tribunal Act 2008, s.68

Rates Act 2004, ss.3, 6, 8, 9 and 10, and Part 3

Rates and Land Tax Ordinance 1926 (Repealed), s.5

Taxation Administration Act 1999, s.101

List of Regulations:

List of cases:             Hamilton v Demgold (1990) 97 ALR 481

Jones v Wrotham Park Estates [1980] AC 74

Newcastle City Council v GIO General Ltd (1997) 191 CLR 85

Spencer v Commonwealth (1907) 5 CLR 418

List of Texts/Papers: Hyams, Alan A.,The Law Affecting the Valuation of Land In    
    Australia (Federal Press 7^th ed, 2009)

Tribunal:                  Ms W. Corby, Senior Member

Date of Orders:  29 July 2013
Date of Reasons for Decision:         29 July 2013

AUSTRALIAN CAPITAL TERRITORY          )

CIVIL & ADMINISTRATIVE TRIBUNAL     )          AT 68 of 2012

BETWEEN:

RE:JUNSTAMP PTY LTD GEMWANE PTY LTD & WALDREN HOLDINGS PTY LTD

Applicants

AND:

COMMISSIONER FOR

ACT REVENUE

Respondent

TRIBUNAL:            Ms W. Corby - Senior Member

DATE:  29 July 2013

ORDER

1.Pursuant to section 68 of the ACT Civil and Administrative Tribunal Act 2008, the reviewable decision is set aside and substituted with the Tribunal’s decision that the unimproved value of the subject land is $13,794,000 for the relevant dates of 1 January 2010 and 1 January 2011.

………………………………..

Ms W. Corby

Senior Member

REASONS FOR DECISION

1.The Applicants seek review of a decision by the Respondent (the ‘reviewable decision’) to disallow the Applicants’ objection to an assessment of the unimproved value (‘UV’) of land (the ‘original decision’) at Block 22 Section 21 Braddon in the Australian Capital Territory (‘ACT’) (the ‘subject land’).

2.The task for the Tribunal is to determine the ‘UV’ of the subject land pursuant to section 6 of the Rates Act 2004 (the ‘Rates Act’) and to review the Respondent’s reviewable decision in light of that determination. The unimproved value of a parcel of land is the starting point for the calculation of rates in the ACT as set out in Part 3 of the Rates Act.

3.Relevant provisions of the Rates Act are sections 6, 8, 9 and 10:

Unimproved value of rateable land

6Meaning of unimproved value

(1)   The unimproved value of a parcel of land held under a lease from the Commonwealth is the capital amount that might be expected to have been offered on the relevant date for the lease of the parcel, assuming that—

(a)    the only improvements on or to the parcel were the improvements (if any) by way of clearing, filling, grading, draining, levelling or excavating—

(i)if the Territory or Commonwealth had, before the parcel became rateable as a separate parcel, granted a development lease of land that included the parcel—made by the lessee under that lease or by the Territory or Commonwealth, or the cost of which was met by that lessee or by the Territory or Commonwealth; or

(ii)   in any other case—made by the Territory or Commonwealth or the cost of which was met by the Territory or Commonwealth; and

(b)    the circumstances that existed on the prescribed date also existed on the relevant date; and

(c)    on the relevant date, the lease had an unexpired term of 99 years; and

(d)    a nominal rent was payable under the lease for the 99 year term.

NoteRelevant date is defined in the dictionary.

(2)   …

(3)   In this section:

prescribed date, for a parcel of land, means—

(a)    for a determination of the unimproved value of the parcel—the date the parcel became rateable; or

(b)    for an annual redetermination of the unimproved value of the parcel—the date the redetermination applies; or

(c)    for a redetermination of the unimproved value of the parcel under section 11 (Redetermination—error) or section 11A (Redetermination—change of circumstances)—the date the redetermination begins to apply to the parcel.

8Meaning of rateable land

(1)All land in the ACT, including Commonwealth land, is rateable land, except—

(a)commons, public parks and public reserves not held under lease or licence; and

(b)sites of cemeteries, public hospitals, benevolent institutions and buildings used exclusively for public charitable purposes; and

(c)sites of churches and other buildings used exclusively for public worship; and

(d)sites of buildings used for free public libraries; and

(e)land leased from the Commonwealth that is occupied by, or used in connection with, a school; and

(f)Commonwealth land that is not leased and is unoccupied (other than land that, immediately before becoming unoccupied, was occupied by a lessee of the Territory or Commonwealth on a weekly or fortnightly tenancy).

(2)….

9First determination of unimproved value

(1)   This section applies if a parcel of land becomes rateable on or after a relevant date (the 1st relevant date).

(2)   The commissioner must—

(a)    determine the unimproved value of the parcel of land as at the 1st relevant date; and

(b)    if necessary, redetermine the unimproved value of the parcel as at each relevant date after the first relevant date when it was not determined.

(3)   A determination under subsection (2) (a) applies to a parcel of land for the period—

(a)    beginning on 1 July in the calendar year in which the relevant date falls; and

(b)    ending on 30 June in the next calendar year.

(4)   A redetermination under subsection (2) (b) for a parcel of land applies to the parcel for the period—

(a)    beginning on 1 July in the calendar year in which the relevant date as at which the redetermination is made falls; and

(b)    ending on 30 June in the next calendar year.

10Annual redeterminations

(1)   As soon as practicable after each 1 January, the commissioner must redetermine the unimproved value, as at that date, of each parcel of land rateable on that date.

(2)   An annual redetermination of the unimproved value of a parcel of land applies to the parcel for the period—

(a)    beginning on 1 July in the calendar year in which the relevant date when the redetermination is made falls; and

(b)    ending on 30 June in the next calendar year.

4.Notwithstanding that the Tribunal is required to undertake a merits review, the Applicants have the ‘burden of showing that the objection should be sustained’. Sub-section 101(3) of the Taxation Administration Act 1999 (ACT) (the ‘TA Act’):

101          Grounds for objection

…..(1)The grounds for the objection must be stated fully and in detail, and must be in writing.

(2)The grounds for the objection, for a reassessment, are limited to the extent of the reassessment.

(3)The burden of showing that an objection should be sustained lies with the taxpayer making the objection.

The Hearing

5.The Application was heard over a period of 9 days between 20 March 2013 and 1 May 2013. Mr Erskine SC appeared for the Applicants and Dr Jarvis of counsel appeared for the Respondent. The Tribunal reserved its decision at the end of the final day of hearing.

6.In deciding this matter the Tribunal took into consideration written information relating to the reviewable decision (the ‘T Docs’), written statements by witnesses and Facts and Contentions filed in the Tribunal by the parties prior to and during the hearing, Exhibits (‘Ex’) tendered by the parties during the hearing, oral evidence given by lay and expert witnesses at the hearing, written submissions provided and oral submissions made on behalf of the parties to the Tribunal during the hearing, and the authorities that the Tribunal was referred to and which were relied on by the parties.

7.The Tribunal was impressed, and assisted in its consideration of this matter, by the lay and expert witnesses who gave evidence.

Reasons for decision

8.Sub-section 6(1) of the Rates Act requires that certain assumptions be made as at the ‘relevant date’ which relate to the condition of the land, the ‘circumstances’ that exist, and the term and rental amount of the Commonwealth lease relating to the relevant parcel of land.

9.Sub-section 6(1) requires the Tribunal to assess the ‘UV’ of the subject land and in order to do so the Tribunal must determine the:

a.‘capital amount’;

b.‘relevant date’;

c.‘prescribed date’; and

d.‘circumstances’ that are relevant for the purpose of sub-section 6(1)(b).

10.The following facts are agreed by the parties and accepted by the Tribunal:

a.The subject land is subject to a Commonwealth lease and sub-section 6(1) of the Rates Act is the relevant provision for determining the UV.

b.The subject land first became rateable on 21 February 2011, being the date that the lease for Block 22 Section 21 Braddon in the ACT was first granted to the Applicants. This lease was the consolidation of two (2) leases that had previously been granted for Blocks 13 and 14 Section 21 Braddon and Blocks 15 and 16 Section 21. The Applicants were also the lessees of these leases before consolidation. The lease for Block 22 Section 21 comprises of all four (4) blocks.

11.Section 9 of the Rates Act applies to the first determination of the UV of land which becomes rateable.

12.There is a problem in the drafting of the Rates Act. The term ‘relevant date’ is defined in the dictionary of the Rates Act as:

relevant date, for a parcel of land, means a date when a determination of the unimproved value of the parcel is or is to be made.

13.Reading the definition of ‘relevant date’ and section 9 of the Rates Act together, although the terms ‘1^st relevant date’ and the ‘relevant date’ are used in section 9, there is no method provided by which either of these dates can be identified or calculated. The same difficulty does not apply to ‘prescribed date’, which is defined in sub-section 6(3) of the Rates Act. The ‘prescribed date’ for the subject land is 21 February 2011 for the ‘determination’ and for ‘redetermination’, subsequent to that, 1 July of the year in which the relevant date falls.

14.The Applicants proposed, in written submissions (Applicants’ Submissions dated 30 April 2013), a solution for this situation. The Respondent endorsed the approach proposed by the Applicants. The Applicants submit (Applicants’ Submissions dated 30 April 2013 at paragraphs 4-21), after a review of the legislative history of the relevant provisions, that the Tribunal can be satisfied that the ‘relevant date’ for the purpose of section 9 of the Rates Act is 1 January immediately preceding the date on which the parcel of land first became rateable.

15.The Applicants explain, and the Tribunal accepts, the reasoning by which it can be shown that the relevant date for newly rateable land is identified by reference to the date of re-determination of previously assessed parcels of land. The only additional comment the Tribunal makes is that the 1 January date refers to the January that precedes the twelve (12) month period commencing 1 July and within which the land first becomes rateable. Thus, in the current matter, the land first became rateable on 21 February 2011. That falls within the period 1 July 2010 to 30 June 2011. The 1^st relevant date for the determination of UV pursuant to sub-section 9(1), 9(2)(a) and 9(3) is 1 January 2010 and the prescribed date is 21 February 2011, pursuant to sub-section 6(3)(a) and for the purpose of subsection 6(1)(b).

16.The Tribunal considers that, despite the ‘gap’ in the Rates Act in this regard, it is appropriate to adopt this view. To do so is consistent with the test proposed by Lord Diplock in Jones v Wrotham Park Estates [1980] AC 74 at 105 and which was applied by McHugh J in Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 at 116. It is clear that the legislature intended that a valuation be made of newly rateable land. It appears that the process for determining the ‘relevant date’, which is necessary for the operation of the relevant provisions of the Act, was inadvertently not included in amendments to the legislation. The amendments which resulted in this oversight were intended to ‘tidy up’ the legislation and were not directed at impacting on the operation of these provisions. It is clear that, for consistency, the 1 January date would have been included had the legislature’s attention been drawn to its oversight in this regard.

Interpretation of section 6 of the Rates Act

A. The terms of the Commonwealth lease

17.The decision of the Full Federal Court in Hamilton v Demgold (1990) 97 ALR 481 is a decision on an appeal from the Administrative Appeals Tribunal on a question of law arising from the interpretation of section 5(1) of the Rates and Land Tax Ordinance 1926 (ACT) (Repealed). The Ordinance became the Rates and Land Tax Act 1926 (Repealed). Section 5(1) is in effect in the same terms as section 6 of the Rates Act.

18.In concluding that the terms of the Commonwealth lease applicable to the parcel of land do have an impact on its ‘capital value’ for the purpose of determining its ‘unimproved value’,  His Honour Justice Jenkinson said (at page 482):

It is in my opinion consonant with the policy of s 5(1) [of the Rates and Land Tax Ordinance 1926 (ACT)] to found assessment of the unimproved value of each parcel of land held under a lease from the Commonwealth on the value of that particular lease, subject to the lettered assumptions which are appended, and to allow each provision of the lease whatever influence, on the determination of “the capital sum” to which the sub-section refers, that provision should have, except in so far as that would contradict one of those assumptions. [words within square brackets added]

19.Jenkinson J goes on to say (at page 483) that he considers the legislative intention that the:

Rates and Land Taxes Act 1926 discloses, [is] to proportion the taxes imposed to the value which each parcel of rateable land would, while unimproved, owe to its situation and, in the case of a parcel held under a lease from the Commonwealth, to the advantages and disadvantages deriving from the provisions – as qualified by the lettered paragraphs of s 5(1) – of that lease. [word within square brackets added]

20.The question of what is encompassed by the term ‘circumstances’ in sub-section 5(1)(aa) of the Rates and Land Tax Ordinance, which is in identical terms to section 6(1)(b) of the Rates Act, was also discussed in the Hamilton v Demgold decision. Section 5(1)(aa) had been inserted into the Ordinance by an amendment.

21.Justice Neaves said (at page 490):

..the paragraph is very general but, in my opinion, it cannot be supposed that the legislature, in adding that paragraph, intended that thereafter, valuations were to be made on assumptions which were at variance with the specific assumptions referred to (sic) the other paragraphs of the sub-section

22.Justice Neaves (in the same paragraph at page 490) uses as an example a hypothetical situation where improvements are made between the relevant and the prescribed date. He says that the express terms of sub-section 5(1)(a) of the Rates and Land Tax Ordinance which, like sub-section 6(1)(a) of the Rates Act, exclude, except in certain specific circumstances, the inclusion of improvements in the determination of ‘unimproved value’, mean that the existence of improvements on the prescribed date will not be taken into account.

23.In short, the Tribunal accepts that the ‘circumstances’ that may be considered for the purpose of section 6(1)(b) should not include circumstances when that inclusion would conflict with assumptions that are prescribed by other sub-sections of section 6(1) of the Rates Act.

24.In relation to the assumption that the circumstances which existed on the prescribed date also existed on the relevant date, Justice Neaves goes on to say (at pages 490-491)

It does not follow, however, from the requirement that that assumption be made that the .. [circumstance is] .. required to be taken into account in determining the unimproved value of the subject land and at the relevant date. It would only be required to be taken into account if it were a factor relevant to the determination of the unimproved value of the parcel. What factors were relevant to that determination depended not on the construction of para (aa) of s5(1) [of the Rates and Land Tax Ordinance 1926], .. but on the proper meaning and effect of the expression .. “capital sum that might be expected to have been offered for the lease of the parcel of land”.  [words within square brackets added]

25.Sub-section 5(1) of the Rates and Land Tax Ordinance uses the term ‘capital sum’ and sub-section 6(1) of the Rates Act uses the term ‘capital amount’. However, the Tribunal is of the view that, subject to further discussion about the term ‘capital amount’ as it applies to this matter, nothing turns on this distinction.

26.Justice Neaves identifies (on page 491) various factors which might be relevant to the consideration of the value of a parcel of land including the potential for future development, the impact on that potential of the purpose clause of the Crown lease, and planning restrictions, as well as factors “extraneous to the actual lease” including “advantages and disadvantages in the enjoyment of the land having their source in legislative provisions of general application in the Territory.”

27.His Honour Justice Wilcox in Hamilton v Demgold (at pages 492-493) comments on the introduction, by an amendment to the Rates and Land Tax Ordinance 1926 in 1983 to add sub-section 5(1)(aa), and states that it requires a valuer “to make an assumption that the circumstances that existed on the prescribed date also existed at the relevant date”.  His Honour assumes that the aim of the amendment was to accommodate “the difficulty in making all the required valuations at one time” of rateable land. However, his Honour points out, and the Tribunal would agree, that the introduction of the concept does not overcome the problem. His Honour goes on to note that the question of what ‘circumstances’ should be taken into account by a valuer is not a concept that is introduced by this amendment. His Honour says that this is something that would have to be resolved whether or not section 5(1)(aa) of the Rates and Land Tax Ordinance 1926 (or section 6(1)(b) of the Rates Act) existed.

28.Justice Wilcox (at page 492) identifies some of the circumstances which might occur between the ‘relevant date’ and the ‘prescribed date’ and which might impact on the valuer’s assessment. His Honour refers to changes in the physical and non-physical circumstances, such the construction of a road, or provision or termination of a bus service, and, perhaps, changes in the local or national political situation. Justice Wilcox raises the question, but not does answer it, whether changes in monetary value of land between the two dates is a valid factor.

29.Justice Wilcox reviews (at pages 493-494) the purpose of the legislation and notes that section 5 of the Rates and Land Tax Ordinance 1926 (being effectively identical to section 6 of the Rates Act) provides the mechanism for valuing land in order that rates can be imposed. The section requires the valuer, in relation to the stated assumptions, to:

disregard the true facts in favour of the specified assumptions. .. But, except in relation to those assumptions, the valuer is required to take the lease as it is, asking how much would be offered at a hypothetical sale of the right to take that lease. All factors which would have influenced that offer should be taken into account, be they physical factors such as the location of the land, its access and services and its suitability for a particular use; legal restrictions on the type and scale of development, whether they arise under the provisions of the lease or under general legislation; economic factors; political factors and announcements, whether applying generally or to the particular part of the Territory or particular parcel of land.

30.Wilcox J says that the “formula” of the provision being “the capital sum that might be expected to have been offered on the relevant date” and the assumptions it dictates must be made, indicates that the legislature:

.. wished to put all lessees on an equal footing whether they were original lessees or not. So the valuer was required to assume a Crown auction at the relevant date.

31.In other words –

The valuer is required to take into account all the advantages and disadvantages which would have flowed to a person who acquired the lease governing the subject site at the relevant day, having regard to the actual terms of the lease, except where they conflict with the specified assumptions.

32.In order to determine the ‘value’, Griffith CJ in Spencer v Commonwealth (1907) 5 CLR 418 said that the test is not:

.. what price a man desiring to sell could actually have obtained .. on a given day, … but by inquiring “What would a man desiring to buy the land have had to pay for it on that day to a seller willing to sell it for a fair price but not desirous to sell?... The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together.

33.The task for the Tribunal is to determine the unimproved value of the subject land as at the relevant dates by reference to the ‘formula’ set out in section 6(1) of the Rates Act. The following matters are relevant for making the determination.

a.   The ‘formula’ in section 6(1) requires that, subject to the assumptions stated in that sub-section, the Tribunal must determine the ‘capital amount’ that a person would offer for the Crown lease of that parcel of land.

b.   The ‘capital amount’ is the highest amount that the willing but not anxious person would offer, and that the lessee of the Crown lease, being willing but not anxious, would accept for the lease. It is because of the assumptions to be made, as required by sub-sections 6(1)(a)-(d) inclusive, that the ‘hypothetical’ position is taken of making the assessment as if the parcel were first being made available at a Crown auction (see Wilcox J in Hamilton v Demgold, discussed above).

c.   If the Crown lease is not in fact acquired on the relevant date, then the Tribunal is required, with the assistance of expert witness information, to arrive at that determination by reference to comparable sales information.

d.   Ideally, comparable sales information will relate to sales at a date near to the relevant date of similar properties in the vicinity of the subject land. Often, these features, or some of them, are lacking and adjustments have to be made in order to manipulate the comparable sales’ information in such a way that it more nearly resembles the subject land and can thus be of use for comparative purposes. Obviously, the more comparable sales information has to be adjusted, the less useful it is for the purpose of assessment.

34.The Tribunal is aware that the subject land is subject to a Crown lease and thus it is not correct to talk about the ‘purchase’ of the lease by the Applicants. However, for ease of expression throughout these reasons, rather than talking about the ‘leaseholders’, the Tribunal may refer to the Applicants as the ‘owners’ of the lease. This imprecise terminology does not alter the reality of the relationship between the Applicants and the Commonwealth in respect of the lease. The Tribunal’s decision is limited to the assessment of the unimproved value of the subject land for the purpose of section 6 of the Rates Act.

35.In relation to the subject land, there are several factors which impact on the assessment to be made by the Tribunal:

a.   As noted above, the lease for the subject land was not purchased by the Applicants on 21 February 2011. The Applicants had held two leases, one for Blocks 13 and 14 Section 21, and the other for Blocks 15 and 16 Section 21, in Braddon in the ACT. The Applicants relinquished these leases and were granted a consolidated lease, comprising all 4 blocks, as Block 22 Section 21 in Braddon in the ACT. This occurred on 21 February 2011. This is the ‘prescribed date’ as defined in sub-section 6(3)(a) of the Rates Act.

b.   The Tribunal is to “value land in accordance with its highest and best use”.[1] The “highest and best use represents the most profitable potential use to which land can be put having regard to both planning and like controls and the circumstances of the land. [2]  .. it is the most profitable use having regard to the physical, economical and legal constraints on the use of the land.” [3]

c.   The parties have agreed, and the Tribunal accepts, that the highest and best use of the subject land, taking these factors, including the lease purpose clauses and planning restrictions, into account, is the construction of a six (6) storey multi use development with basement parking, ground and first floor commercial, and four (4) storeys of residential, premises.

d.   The site has an area of 5,012 m². Taking into account the planning restrictions and the highest and best use as set out above, the maximum gross floor area (‘GFA’) that would be permitted is 15,036 m². There is some dispute between the parties as to the actual GFA available and the exact GFA area for each use, however, the nature of the permitted use is agreed.

e.   The subject land is contaminated. Before a development of the site that includes residential premises can be approved, Clause 3(c)(ix) and 3(d) of the purpose clause of the Crown lease requires that certain decontamination and audit procedures are undertaken.

[1]     This approach is discussed at page 184 et.seq. in Alan A. Hyams, The Law Affecting the Valuation of Land In Australia (Federal Press 7^th ed, 2009) where he notes it is a valuation principle which has been accepted by the Courts in a number of decision.

[2]     Hyams – at page 187, quoting from the President of the Victorian Civil and Administrative Tribunal in ISPT Pty Ltd v City of Melbourne [2007] VCAT 652 AAT at [61]-[68]

[3]     Hyams – at page 187, quoting from the President of the Victorian Civil and Administrative Tribunal in ISPT Pty Ltd v City of Melbourne [2007] VCAT 652 AAT at [61]-[68] who is referring to Jacobs J in Adelaide Clinic Holding Pty Ltd v Minister for Water Resources (1968) 65 LGRA 410, at 415

36.As the subject land was not ‘newly acquired’ by the Applicants as at the relevant date, the Tribunal must look to comparable sales’ information for guidance in making the assessment required by section 6 of the Rates Act.

37.It became apparent from the information available to the Tribunal that none of the properties put forward by the parties as ‘comparable sales’ was so similar to the subject land that it could be accepted without adjustment. Therefore:

a.   which, if any, of the sales put forward as ‘comparable sales’ can be considered by the Tribunal as useful for the purpose of assessing the UV of the subject land within the meaning for section 6 of the Rates Act? and

b.   in relation to any sales’ information that may assist the Tribunal in its decision, what adjustment, if any, must be made to that sales’ information so that it more nearly reflects the circumstances of the subject land and so can be used, as a comparison, to assist in determining the UV of the subject land?

38.The Tribunal needs to carefully consider the evidence provided by the experts in this matter in order to address these issues. What is clear, and this is borne out by reading the authorities in matters of this kind, is that the hypothetical and artificial nature of the exercise to be undertaken means that even where the approach is valid, the outcome is not scientific or precisely predictable.

39.The highest and best use of the subject land as at the prescribed date, for the purpose of the assessment to be undertaken on the first relevant date of 1 January 2010, is for a development that is consistent with the:

a.   CZ3 Service Zone;

b.   Civic Centre Development Code; and

c.   the Crown lease for the subject land.

40.The Tribunal notes the following matters:

a.   The subject land is 5,012 m^2.

b.   The maximum permitted plot ratio is 3:1 provided 1:1 of that ratio is residential use.

c.   Planning and Crown lease restrictions operate to require that residential use is prohibited on the ground and first floor levels.  There are certain restrictions on the nature of the commercial use, but basically the ground floor should be predominantly retail and other floors can be office space.

d.   The site had formerly been a service station. The subject land was contaminated.

e.   Clause 3(c)(ix) of the Crown lease imposes a prohibition on residential use at ground floor level, and prohibits residential use until decontamination of the site in accordance with clause 3(d). Clause 3(d) requires the preparation of a Site Audit Statement (‘SAS’) and Site Audit Report to be submitted to the Environmental Protection Authority (EPA) for approval prior to construction, and then submitted to the EPA for review and endorsement prior to use, of residential dwellings on the subject land. (T19-T20)

f.    Excavation and decontamination work on the subject land commenced shortly before 17 February 2011 (Ex A9, paragraph 20). On 11 October 2012, the EPA endorsed, subject to a Site Management Plan dated 13 September 2012 (‘SMP’), the SAS dated 18 September 2012. This is the EPA endorsement required by Clause 3(d) of the Crown Lease before residential use is permitted. (Ex A7, Attachment NMC2)

g.   Despite the EPA endorsement of 11 October 2012 which permits residential use, the subject land was still contaminated and the EPA approval requires ongoing management of the site pursuant to the SMP. The EPA envisaged that at some future time there would be no ongoing need for the actions set out in the SMP. The Tribunal accepts that, until the EPA endorses that the SMP is no longer required, this is an ongoing requirement. (Ex A7, Attachment NMC2)

Relevant date and prescribed date

41.The reviewable decision relates to the first determination of UV of the subject land. Based on the Tribunal’s interpretation of sections 6, 8 and 9 of the Rates Act, the Tribunal considers that:

a.   1 January 2010 is the 1^st relevant date for the determination of UV of the subject land, based on the reasoning set out above and pursuant to sub-section 9(1) of the Rates Act, and that, pursuant to sub-section 6(3)(a) of the Rates Act, the prescribed date is 21February 2011; and

b. 1 January 2011 is the relevant date for the ‘redetermination’ of UV of the subject land, pursuant to sub-section 9(2)(b) of the Rates Act, and the prescribed date is 1 July 2011, pursuant to sub-section 6(3)(b) and sub-section 9(4) of the Rates Act.

Possible approach to assessment of UV subsequent to 1 January 2011

42.Although the Tribunal is aware that it does not fall within the parameters of this Application, the Tribunal considers that the following situation follows from the Tribunal’s conclusions and orders in this matter:

a. For the relevant date of 1 January 2012, being the relevant date for the redetermination pursuant to sub-section 9(2)(b) of the Rates Act or annual redetermination pursuant to sub-section 10(1) of the Rates Act, the prescribed date is 1 July 2012, pursuant to sub-section 6(3)(b) and sub-section 9(4) or sub-section 10(2) of the Rates Act.

b.   It is the Tribunal’s view that Clauses 3(c)(ix) and 3(d) of the Crown lease operate so that the assessment of UV of the subject land continues to be impacted by the contamination until the EPA approval of the SAS on 11 October 2012.

c. As and from 11 October 2012, it is the Tribunal’s view that it would be open to the Commissioner to undertake a redetermination due to changed circumstances pursuant to section 11A of the Rates Act. The redetermination of UV being on the basis that the restriction placed on the highest and best use of the subject land by Clause 3(c)(ix) relating to contamination no longer operates, except to the extent of the ongoing need for management pursuant to the SMP until the EPA endorses that the SMP is no longer required. It is the Tribunal’s view that the ongoing reduction in UV because of this ‘restriction’ could be assessed by reference to the ongoing annual cost of meeting the SMP requirements.

d.   Once the EPA endorses that actions pursuant to an SMP are no longer required, and assuming that no further contamination occurs, then in the Tribunal’s view the impact of the contamination on UV would be at an end and the UV of the subject land would be that of an uncontaminated site.

Impact of contamination on UV of the subject land

43.It is the Tribunal’s view that the contamination of the subject land is, pursuant to sub-section 6(1)(b) of the Rates Act, a ‘circumstance’ that impacts on the potential ‘highest and best use’, and, therefore, the value, of the subject land.

44.One approach might have been to assess the UV of the subject land based on a plot ratio of 2:1, with development potential restricted to non-residential use until Clause 3(d) of the Crown Lease had been complied with and residential use is permitted. However, the authorities make it clear that in determining UV the decision maker will assume that among potential buyers is a ‘hypothetical purchaser’ who is ‘willing but not anxious’ and who would seek to achieve the ‘highest and best’ use of the subject land.  In the present situation, the highest and best use is a mixed commercial and residential development notwithstanding the obligation to remediate the site as required by Clauses 3(c)(ix) and 3(d) of the Crown lease in order to achieve that ‘highest and best use’. This ‘willing but not anxious’ purchaser would ‘factor in’ to the capital amount they were prepared to offer, the cost of meeting the obligation to remediate the site.

What sales of those proposed by the parties can be considered ‘comparable’

45.Although the valuation experts, Mr McCann for the Applicant, and Mr Stevens for the Respondent, were able to agree on certain aspects of the appropriate valuation of some sales in the Kingston and Braddon areas of the ACT, they did not agree on which were the most appropriate properties for the purpose of comparison with, and valuation of, the subject land.

46.Mr McCann gave detailed oral evidence and provided three (3) written reports (Ex A1; Ex A2 and Ex A3). He says comparable sites are those that are  ‘similar vacant sites of a similar value range, with similar development potential.’ (Ex A1, paragraph 26). By reference to the sites which he considers most comparable, he then assesses the uncontaminated value of the subject land and reduces that amount by the actual cost of remediation to arrive at assessment of  UV (Ex A1, paragraph 27).

47.The Tribunal accepts, as a general principle, Mr McCann’s assertion that the value per m² of GFA reduces as the size of a site and the development potential increases. He says this reduced price per m² GFA as the size increases reflects the increased cost and risk of such development. Mr McCann’s says that there are, in his view, a limited number of developers in the ACT market who have the ‘developer capital investment profile’ to ‘finance a land purchase of over $10,000,000 and meet development covenants in the Crown lease with a capital cost of over $45,000,000’ (Ex A1, paragraphs 35-38) and that this is a matter that impacts on which development sites might be regarded as comparable sale sites.

48.The authorities indicate that in undertaking the assessment of UV, the decision maker should assume the existence of the hypothetical, willing, but not anxious, buyer and seller. In those circumstances, the Tribunal does not accept, without more, that the existence of a buyer is a factor that impacts on the assessment of UV.

49.Mr McCann considers that there was a ‘downturn in the Canberra market between 1 January 2010 and 1 January 2011’. He took this into account in his assessment of the UV of the subject land. The basis for his opinion – referred to in Ex A1, paragraphs 40-47, is:

a.    information about office vacancy rates produced by the Property Council;

b.    the decision of the developer of the ‘Manhatten’ site in the city to replace
 an office block with a primarily residential development; and

c.   the reduction in the sale price of the otherwise comparable Kingston sites of ‘Element’ in February 2011 as compared with ‘Dockside’ in April 2010.

50.The Respondent’s witness, Mr Stevens, suggested that the reduction in the sale price in Kingston might, among other things, reflect the ‘saturation’ of the market in that area. ‘Element’ is the last of the lakeside blocks that was sold. Mr Stevens advised that because of lack of interest, other vacant blocks, further to the east in Kingston, had been removed from sale.

51.The potential for development on the subject land is for mixed use of commercial, including office and retail, and residential. Mr McCann gave evidence that there had been a decrease in demand for, and therefore value of, office space over the period 2010 to 2011. In the Tribunal’s view, if this were to impact on the UV of the subject land at all, it would not, presumably, impact on the retail or residential aspects of the potential for development.

52.The Tribunal accepts that there may have been market changes that impacted on interest in, and the capital amount offered for, certain sites or kinds of developments in the period January 2010 to January 2011. However, the Tribunal is not persuaded by the evidence that those changes were shown to impact on the UV of the subject land on the relevant dates in January 2010 or 2011 such that the Tribunal could confidently quantify and utlilise that figure in determining the UV of the subject land.

53.Based on the evidence provided at the hearing on behalf of the Applicants the Tribunal accepts, and the Respondent ultimately agreed, that there is a difference in value in Braddon between ground floor and first floor commercial space. This difference will no doubt impact on the nature of the development that is constructed and will obviously affect the return on investment for a developer.

54.In the Tribunal’s view, however, if there is sales information available for comparable sites with similar development potential, then this information is of more value than an estimation of the possible value of the probable use of particular areas of the subject land. Although the Tribunal accepts that it should consider whatever information is available and relevant to assist in its task, that task is not to value the UV of the site by reference to the specific nature of probable improvements by way of development. Rather, the task is to assess the UV by reference, among other things, and pursuant to section 6, to the ‘potential’ of the subject land.

55.Mr McCann considers that the Braddon sales relied on by the AVO as comparable sales have considerably less GFA, resulting in lower development costs, shorter time frames for development, and thus a faster return on investment. He says that for these reasons the Kingston sales he identifies, being of similar size to the subject land, are better for comparative purposes than the Braddon sites.

56.Mr McCann made an assessment of the GFA value of the ground floor commercial, first floor commercial and residential, use of a number of sales in the ACT. Based on this assessment he concluded that the ‘Dockside’ development, Block 1 Section 63, in Kingston was ‘the best comparator’ for the purpose of assessing the uncontaminated value of the subject land (Ex A1, paragraphs 53-54). He assessed the UV of the subject land, if uncontaminated, at $11,850,000 on 1 January 2010. Given his opinion as to market decline he assessed the uncontaminated UV at $10,428,000 on 1 January 2011 (Ex A1, paragraphs 54-56)

Relevance of contamination and Respondent’s Additional Contentions dated 11 April 2013

57.The Tribunal does not accept the Respondent’s contentions set out in the  Respondent’s Additional Contentions dated 11 April 2013.

58.In contention 1, the Respondent asserts that if the identified Braddon sales are used as comparable sales in assessing the UV of the subject land, then these sales already include an amount for remediation and no further adjustment is needed to account for contamination in assessing the UV of the subject land.

59.The Respondent asserts, and provided evidence at the hearing confirming, that many sites in the Braddon area were formerly, and some are still, used as service stations. The Applicants did not dispute this evidence and the Tribunal accepts it. The Tribunal accepts that use as a service station often results in contamination of the site and sometimes neighbouring or nearby sites. The Respondent says that a prudent purchaser would ‘factor in’ to the purchase price of a site in the Braddon area the possibility of contamination. The Respondent says that to reduce the assessment of UV by reference to contamination of the subject land is ‘double-counting’.

60.The Tribunal accepts the Applicants’ submission that there is no evidence that the Braddon sales identified as comparable sales include a reduction for contamination. In addition, Mr McCann gave evidence, which was not challenged, that the Crown leases relating to the identified Braddon sites did not include a clause similar to Clause 3(c)(ix) or 3(d) of the Crown lease of the subject land.

61.In contention 2, the Respondent asserts that Clause 3(m) of the Crown lease of the subject land requires the lessee to ‘maintain repair and keep in repair the premises to the satisfaction of the Authority’. The Respondent says that this includes the requirement to remediate and thus it should not be further considered in assessing UV.

62.The Tribunal is not satisfied that Clause 3(m) of the Crown lease would include an obligation to remediate contamination existing at the time of purchase of the lease. The Tribunal accepts that the ‘highest and best use’ of the subject land is the mixed commercial and residential use proposed. In order to achieve that highest and best use, Clause 3(c)(ix) of the Crown lease requires remediation of the site.

63.The Tribunal considers that the ‘hypothetical’ purchaser would offer a lower capital amount for the subject land than for an otherwise comparable, uncontaminated site. The lower amount would reflect the reduced value by reason of the contamination. None of the sites suggested as comparable sales is contaminated. The Tribunal concludes that in this matter the sales’ information for comparable uncontaminated sites can be used to assess the ‘uncontaminated’ UV of the subject land and this then needs to be ‘adjusted’, by reducing it, to reflect the negative impact of ‘contamination’ for the purpose of assessing UV pursuant to section 6 of the Rates Act.

64.The Tribunal accepts that the current lessees were the owners of the two crown leases, consisting of four blocks, which were consolidated on 21 February 2011 to form the current lease comprising of one block. The subject land was not ‘sold’ at that time and so the Tribunal’s task must be approached from a hypothetical stand point in relation to the ‘capital amount’ that would have been offered for the lease on that date.

65.The Tribunal accepts that one approach that the Tribunal could take is to look at what the Applicants had ‘allowed’ for decontamination, rather than the ‘actual cost’ of remediation, when considering the amount to be taken into account. However, the lessees did not purchase the lease on 21 February 2011. They may have approached the issue differently had they been purchasing, rather than consolidating and developing, the subject land. The Tribunal considers it more realistic to have regard to the actual cost of remediation. It is the Tribunal’s view that this information, along with comparable sales information, can be considered when making the determination of UV of the subject land. As has been stated above, and is discussed in many of the relevant authorities, the process of assessment is neither scientific nor certain, however, all relevant information is useful in attempting to arrive at a reasonable and realistic valuation. This process will require the Tribunal, on occasions, to prefer one set of figures over others.

66.The Tribunal concludes that the Braddon sales are the most useful in determining the UV of the subject land. The Tribunal understands the proposal put by Mr McCann in relation to the similarities between the subject land and some Kingston foreshore developments. In Mr McCann’s opinion, the most relevant comparative site is ‘Dockside’ in Kingston. The ‘Dockside’ site was a vacant land sale in April 2010, has a site area of 5,308 m² (the site area of the subject land is 5,012 m²), has mixed commercial and residential development potential and, although it has ‘harbour’ views, it does not have the north facing Lake Burley Griffin location of the nearby development sites of ‘Lakefront’ or ‘Bridgepoint’. Mr McCann says that for this reason ‘Lakefront’ and Bridgepoint’ would not be as useful for comparison purposes. Mr McCann also assessed, and provided details of his analysis of, the value of other sites in Barton, Civic, Braddon and Forrest. 

67.The Tribunal does not accept that, other than the Braddon sales discussed below, there is great value in considering development sites in the Kingston, Barton or Forrest locations. In addition, the Tribunal is not persuaded that the ‘Manhatten’ development in the city, Block 1 Section 52, is of use for comparative purposes, although more geographically proximate.

68.The Tribunal accepts the Respondent’s submissions that the Kingston foreshore area provides a quite different environment for both commercial and residential development than the Braddon ‘precinct’ where the subject land is located. The Tribunal accepts that the plan for the Kingston foreshore area is aimed at increasing commercial possibilities, however, this process is at an early stage. Much of the Kingston foreshore development is either relatively recently completed or still in the construction phase. Some development is still to commence.

69.By contrast, the Braddon precinct has a current commercial community. The Tribunal accepts that the area is undergoing change in the type of retail and commercial use activities available, and because of the increasing inclusion of the recently permitted residential use. The Tribunal accepts that some of the current commercial activity being carried out is car sales and service stations and similar undertakings, however, there are also an increasing number of other service, hospitality and retail endeavours being undertaken. In addition the subject land is close to the civic centre which affords amenity for the residents of the proposed development in terms of access to work, entertainment, shopping and transport facilities. The location also presents increased opportunities for exposure to pedestrian and vehicle traffic for commercial undertakings in any development on the subject land.

70.Mr McCann submits that the sale price of the ‘Elements’ development site, Block 1 Section 64 Kingston, in February 2011, as compared with earlier sales of nearby sites on the Kingston foreshore, demonstrates a fall in the market for development sites in the ACT between 2010 and 2011. He says this view is further supported by the evidence of increased vacancy rates for commercial office space in the ACT between 2010 and 2011.

71.The Respondent noted that some sites east of the ‘Elements’ site in the Kingston foreshore area have been withdrawn from sale due to lack of buyer interest. The Respondent submitted that the lower price achieved by the ‘Elements’ site sale reflected that it was the most recent in a series of sales of development sites on the Kingston foreshore by the ACT Government and that the fact that buyer interest in this area had waned does not reflect an ACT wide market shift.

72.The Respondent also submitted that the Kingston foreshore area, by contrast with the Braddon precinct, still has vacant land sale opportunities. The Applicant submitted that if the ‘corridor’ to the north and west of the ‘Braddon precinct’ is taken into account, there are many opportunities for development. These are to be found in locations east and west of Northbourne Avenue and up to Dickson and Lyneham in the north (see A4 – the ‘Northbourne Avenue Precinct’).

73.The Tribunal accepts the Respondent’s submission that the availability of land in the Braddon precinct is more restricted than the Kingston foreshore area. The Tribunal accepts that the subject land is within the Braddon precinct. The Tribunal accepts that the value of the site should be assessed by reference to its proximity to the city centre and its location within the ‘civic centre commercial zone’ (see Ex R10). It is the Tribunal’s view that these same factors would not be relevant, or as relevant, for a site located to the north, west or east of the Braddon precinct

74.The Tribunal is not persuaded that the sale price for the ‘Elements’ site and the evidence of an increase in commercial office vacancy rates are factors sufficient to support a conclusion that there was a quantifiable reduction in the capital amount that might have been offered for the subject land on 1 January 2011 as compared with 1 January 2010. The Tribunal has concluded that the Braddon sales discussed below are the most relevant for comparative purposes.

75.The Tribunal accepts Mr McCann’s assessment that size is a relevant factor in determining the value of a development block and that the price per m² of GFA for larger developments may be lower than for smaller developments. However, the Tribunal does not consider size to be a factor of such over-riding importance as to outweigh factors such as locality. The Tribunal has before it information of Braddon sales that took place around the time of the relevant dates, of sites which are geographically near to, and have development potential similar to, the subject land. In the Tribunal’s view, although adjustments may need to be made to this sales’ information, it is more likely to be relevant to the subject land for comparison purposes than sales in a different location where it is likely that different factors impact on price.

76.Mr McCann conceded that he was surprised when his assessment showed ‘similar values’ in the Kingston area as those he had arrived at for the Braddon area. Given that the task is to determine the value of the subject land, the Tribunal was somewhat confused by Mr McCann’s statement that the ‘Dockside’ development had a similar ‘vacant land value’ as the subject land (Ex A1, paragraph 38). The Tribunal does not rely on the Kingston sales in the assessment of UV of the subject land.

77.The Tribunal notes that if it were to rely on the Kingston foreshore sites for comparative purposes, some adjustment would need to be made in respect of the easements which pass through several of the Kingston blocks.  Such an adjustment would not, in the current matter, need to be made for easements which run parallel and adjacent to rear or other boundaries, as the subject land also has such an easement. Mr McCann gave evidence that the developers had incorporated easements, passing through the Kingston blocks such as ‘Dockside’ and ‘Elements’, into, and used these easements as a positive feature of, the developments on these Kingston foreshore sites. Mr McCann did not therefore make any adjustment for these easements in his assessments.

78.The Tribunal does not accept that the skilful use of a restrictive feature of a comparative sale converts that restriction into a neutral feature or positive attribute. An adjustment would need to be made by reducing the GFA available to reflect the easement, if this had not already been done, and by adding some amount to the sale price to reflect the added cost of building around, and in response to, the restriction presented by such easement.

79.The Tribunal accepts that the construction of an ACTEW substation has reduced the GFA on the ground floor of the subject land and that some reduction should be made to reflect this (Ex R5, paragraph 10, and Ex A2, paragraph 15). The Tribunal accepts the Respondent’s evidence that this only impacts on the ground floor GFA.

80.The Respondent submitted that the ‘Manhatten’ site, Block 1 Section 62 City, although also close to the city centre of Civic, does not provide a useful comparator. This site does not have a 3:1 plot ratio restriction and is not located within the Braddon precinct. The settlement statement revealed that an allowance was made in the buyer’s favour for a payment that was made by the former tenant of the office building that was on the site at the time of purchase. Presumably, this payment was in relation to the unexpired portion of a lease. The office building was demolished to allow redevelopment and construction of a, predominantly, residential development. Mr McCann suggests that the payment by the tenant should be reduced from the purchase price, and this would have the effect of reducing the m² GFA price for this sale. The Respondent says that the sale should not be used for comparison for the reasons set out above, and because it is unclear how this payment by the former tenant should be viewed.

81.The Tribunal agrees that because of locality and GFA potential, there is not a sufficient, as compared with Braddon precinct sales, similarity between the ‘Manhatten’ site and the subject land for useful comparison. It is the Tribunal’s view that the payment by the tenant, being in some way related the improvements on the ‘Manhatten’ site, may not be relevant in determining price if the sale were a relevant comparator. Other adjustments would need to be made to reflect the differences between the ‘Manhatten’ site and the subject land.

82.Mr McCann gave evidence that the resale of 43-45 Torrens Street, Braddon (Sale 12) - Blocks 1 and 2 Section 21 Braddon - in February 2011, was not at ‘arms length’ as the seller was also part of the purchasing group. The Respondent did not agree that the resale should necessarily be disregarded, but accepted that some ‘caution’ should be exercised when considering this sale which suggested an overall value of about $1,200 m². In the Tribunal’s view, based on the evidence, it is not possible to confidently quantify and, therefore, adjust the sale of this site in February 2011 to reflect the impact of this factor. The Tribunal will not include this sale in the analysis.

83.The Tribunal notes that Mr McCann said that when gathering information in relation to comparable sales, he spoke with developers. He said that based on these conversations and his review of the developments undertaken, he used the actual, rather than the potential, GFA when making calculations. The Tribunal accepts that this approach may be of interest or relevance in undertaking assessments for some purposes. However, the Tribunal considers that, beyond some actual restriction peculiar to the site because of planning or other factors, it is the potential rather than the actual GFA which should be considered when undertaking assessments of comparable land or the subject land for the purpose of assessment of UV pursuant to section 6 of the Rates Act.

84.The Tribunal accepts that the ACTEW substation, which services sites other than the subject land, is to be constructed on the subject land and has an area of 61.72m² (Ex R5, paragraph 10). The ground floor commercial GFA should be reduced by this amount. No reduction however should be made for other easements that are a common feature of development sites in the area.

Comparable sales

85.For the reasons set out above, the Tribunal accepts that the following Braddon sales are relevant for the purpose of assessing the UV of the subject land.

a.   28 Mort Street, Braddon (Sale 15) - Block 5 Section 28 Braddon, in July 2010 - site area 1,517 m², purchase price $500,000,000, plus, by way of adjustment, for cost of demolition $100,000 and Change of Use Charge (‘CUC’) $500,000, totalling $5,600,000 to allow mixed use to include residential and a plot ratio increase to 3:1. This allows for a maximum potential GFA of 4,511 m² giving an average of $1,241.41 per m².

b.   27 Lonsdale Street, Braddon (Sale 14) - Block 14 Section 20 Braddon, in August 2008 – site area 1,252 m², purchase price $4,300,000, plus cost of demolition $150,000 plus CUC $287,500 to allow a mixed use to include residential and a plot ratio increase to 3:1. The parties agreed that the total of $4,737,500 should however be adjusted by reducing the purchase price by 5%, being $215,000, to reflect the fact that the purchaser owned adjoining blocks and the purchase of this block would allow for consolidation. The total adjusted price is $4,522,500 with a maximum GFA of 3,756 m² - an average of $1,204.07 per m² GFA.

c.   43-45 Torrens St (Sale 13) - Blocks 1 and 2 Section 21 - sale in March 2010 – site 2,293 m² purchase price $5,000,000 plus $100,000 demolition and CUC $405,000, being a total adjusted price of $5,505,000 to allow mixed use not including retail but including residential and an increase in plot ratio to 2:1.  This allows for a total potential GFA of 4,586 m² giving an average of $1,200.39. The Tribunal notes that as compared with the subject land, the plot ratio is lower, it is more distant from the Civic Centre and no retail use is allowed. However, Mr McCann says that the location, overlooking Hague Park, makes this a more desirable, as compared with the subject land, residential location. The Tribunal concludes that if these factors are taken together the site is nonetheless useful as a comparator without further adjustment.

86.The Tribunal is not confident, for the reasons set out above, that the sale of 43-45 Torrens St in 2011 (Sale 12) reflects market value. It is not clear to the Tribunal what, if any, adjustment can be made to reflect the possible impact on the sale of the lessee’s role as seller and buyer. For that reason, the Tribunal has not included Sale 12 in its considerations.

87.What these sales indicate is a consistency between the GFA value between the above sales that occurred between August 2008 and July 2010. The Tribunal accepts that the hypothetical purchaser would, in calculating the capital amount they would offer and by reference to the highest and best use, take into account the value of the different uses permitted and the extent to which these uses are possible on the land.

88.The Tribunal accepts that residential GFA is not as valuable as commercial GFA and that ground floor commercial GFA is worth more than 1^st floor commercial GFA.

89.The Tribunal accepts:

a.   that for the subject land, the highest and best use is mixed commercial and residential use; and

b.   taking into account the planning and Crown lease restrictions, (and the parties agree), that the highest and best use for the site is construction of a 6 storey development; comprising

i.predominantly retail commercial on the ground floor;

ii.commercial office on the 1^st floor; and

iii.residential on 4 upper floors commencin^g on the 2^nd floor.

90.The parties agree, and the Tribunal accepts, that the site area of the subject land is 5,012m². Although, given the plot ratio of 3:1, this would suggest a potential GFA of 15,036 m², the parties did not agree on this figure. The Applicants submitted that due to the ACTEW substation constructed on the ground floor, and setback restrictions and information provided by the developer, the actual GFA achieved was 14,455 m² and this is the figure the Applicants used in calculations. The Respondent submitted that for the purpose of UV assessment pursuant to section 6 of the Rates Act, it is the potential, rather than actual, GFA that is relevant, and thus used 15,036m².

91.Although the plot ratio of 3:1 would allow for a maximum potential GFA of 15,036 m², the Tribunal accepts that that figure should be reduced on the ground floor by the ACTEW substation area of 61.72m². The Tribunal finds that for the purpose of calculation of UV the subject land has a maximum potential GFA of approximately 14,974.48 m². The Tribunal will use the figure of 14,970 m².

92.The parties provided the following assessments as to the UV value of the subject land, which they submitted that the Tribunal should adopt for the relevant dates.

a.   The Applicants assert–

i.for the relevant date 1 January 2010 – on the basis of ground floor retail GFA of 1,834m² @ $975; office GFA of 3,301m² @ $500 and residential GFA of 9,420m² @ $900 being a total of 14,455m²  GFA - a total of $11,866,650 (say $11,850,000), being an average m² GFA rate of $820;

ii.for the relevant date 1 January 2011 – using the same m² GFA but, because the Applicants assert a market decline (discussed above), calculated at the lower rate for ground floor retail $860; office $440 and residential $790 - a total of $10,427,480 (say $10,428,000), being an average m² GFA rate of $721.

b.   The Respondent did not consider that there had been any change that would impact on the determination of UV between the relevant dates of 1 January 2010 and 1 January 2011. The Respondent, therefore, adopted the same rate for both relevant dates.  For commercial GFA, with no differentiation between ground and 1^st floor, 5,244 m² @ $1,400; for residential GFA of 9,792 m² @ $1,057, being for 15,036 m² GFA - a total of $17,691,744 (say $17,691,000), an average m² GFA rate of $1,177.

93.The Applicants relied on comparable sales, particularly the ‘Dockside’ development in Kingston for the residential, as evidence of the GFA rates used.

94.The Respondent relied on, in particular, Braddon comparable sales, but did not provide very specific evidence in relation to the individual GFA rates used.

95.In the Tribunal’s view, these calculations may reflect one approach that a potential buyer, or seller, might use to formulate the capital amount that they are willing to offer or accept for the lease of the unimproved land. However, there are numerous assumptions that must be made about the actual development that will be constructed before such a specific approach can be used. The nature of the specific development reflects commercial decisions that relate to the use of the land. In the end, regardless of that use, the lease will have a capital value and a developer will no doubt seek to recoup the capital amount paid, to a greater or lesser degree, from each m² of GFA sold or tenanted subsequent to development of the unimproved site.

96.The Tribunal is not persuaded that information relating to sales in different locations, such as Kingston, Barton and Forrest, of sites with, in some cases, quite different development potential, such as different permissible use, assists the Tribunal in its current task. Nor is the Tribunal persuaded that there is any evidence of market decline for a property in the location of, and with the development potential of, the subject land between 2010 and 2011.

97.The Tribunal considers that the most useful information available to it is that relating to the Braddon comparable sales discussed above. The sale (Sale 15), of 28 Mort Street, Block 5 Section 28 Braddon, in July 2010 requires least adjustment for comparison. The Tribunal is prepared to accept that there is some impact of size on price and thus would accept that the figure $1200 per m² GFA is appropriate to reflect this. The Tribunal calculates the UV for the relevant date of :

a.   1 January 2010 (for the prescribed date of 21 February 2011) as 14,970 m² GFA x $1200 = $17,964,000; and

b.   1 January 2011 (for the prescribed dated of 1 July 2011) as 14,970 m² GFA x $1200 = $17,964,000.

Deduction for contamination

98.The Crown lease requires decontamination of the site in compliance with Clauses 3(c)(ix) and 3(d) before residential use can be approved and, thus, the highest and best use of the subject land can be achieved. The Tribunal considers that, given the Crown lease restriction, the determination of the UV of the subject land needs to reflect the reduced value of the site during the period until the highest and best use is achievable. The Tribunal considers that the ‘reduced value’ can best be calculated by reference to the cost of remediation of the site until the requisite EPA approval referred to in Clause 3(d) is obtained.

99.The Tribunal notes that the EPA approval referred to in Clause 3(d) of the Crown lease was given on 11 October 2012. In the Tribunal’s view, the ‘reduced value’ impacts on the UV assessment for:

i.the relevant date of 1 January 2010 in relation to the prescribed date of 21 February 2011; and

ii.the relevant date of 1 January 2011 in relation to the prescribed date of 1 July 2011.

100.Considerable evidence was provided to the Tribunal in the form of documents and expert opinion about what was necessary in relation to undertaking remediation of the site, and what such work should, or did, cost. Although there was initially disagreement between the experts as to what was required and what the acceptable cost for the remediation should be, in the end the Respondent’s expert, Dr Coutts, gave evidence that whilst he might take issue with some of the work undertaken or its cost, he agreed that the site was heavily contaminated and, fundamentally, he accepted as genuine, if not always economical, the amount that the Applicants had paid for remediation.

101.As noted above, on 11 October 2012 the EPA gave the endorsement required by Clause 3(d) in order for residential use to be permitted. It is noted that the subject land was not, as at that date, ‘uncontaminated’.  Ongoing costs associated with maintenance of the site in order for the ‘residential use’ to continue would be necessary until the EPA, at some later date, confirms that this ongoing maintenance is no longer required.

102.Although the Applicants urged, by reference to the authorities, that section 6(1)(b) of the Rates Act relates to matters ‘external’ to the subject land, the Tribunal does not accept that this is the correct interpretation of that provision. Although examples of what might be encompassed by the term ‘circumstances’ have been provided by the authorities, the term is not defined. The authorities have not suggested that the examples which have been provided are exhaustive, nor that the term only relates to matters ‘external to’ the subject land.

103.The Tribunal accepts that it must not, in considering section 6(1)(b), include matters excluded by the specific assumptions set out in subsection 6(1) of the Rates Act. However, it is the Tribunal’s view that the remediation required by the Crown lease is not an ‘improvement’ of the kind envisaged by subsection 6(1)(a). The Tribunal makes this distinction in this matter because of the impact of the specific terms of the Crown lease on highest and best use of the subject land. There is no automatic obligation on the lessee to undertake the remediation, as there are uses permitted which would not require the lessee to do so. However, the UV must be calculated by reference to the highest and best use which includes residential use. For so long as this use is not possible, because of the restriction in the Crown lease, it is the Tribunal’s view in relation to the subject land, and for the purpose of subsection 6(1)(b), that this is a ‘circumstance’ which impacts on, and reduces, the assessment of UV of the subject land.

104.In the current matter, as set out above, the Tribunal accepts that on the prescribed dates of 21 February 2011 and 1 July 2011, the subject land was contaminated and no approval by the EPA had been given as required by Clauses 3(c)(ix) and 3(d).

105.The Tribunal is satisfied that the actual amount paid for the remediation is a useful guide in order to quantify the reduction in the UV of the site because of the contamination and the resulting restriction in the permissible use. Although the Tribunal accepts that the remediation work was undertaken over a period of time, the Tribunal considers that the reduction in value by reason of the contamination operates as a factor to reduce UV until it is no longer a restriction on use, that is, until the EPA approval required by Clause 3(d).

106.The hypothetical purchaser would, in assessing the capital amount they were prepared to offer for the subject land, seek to determine the extent of contamination and what it would cost to remediate the site to bring it to the point of being capable of achieving its highest and best purpose. It is the Tribunal’s view that these costs are different from costs for improvements, such as excavation and normal construction costs, which would clearly not be considered in the calculation of UV for the purpose of section 6 of the Rates Act. As set out above, in the Tribunal’s view, it is the impact of the terms of the Crown lease on the ‘highest and best use’ that explains this difference.

107.The Tribunal accepts that it would not be possible for a purchaser to calculate the exact amount the remediation might cost. However, the Applicants provided evidence of having spent a total of $4,170,564.29 remediating the site before the 11 October 2012 EPA approval was given. The Tribunal will allow for an amount of $4,170,000 to reflect the reduction in UV because of contamination. This amount is deducted from the assessed amount for ‘uncontaminated’ UV of the subject land of $17,964,000 so that the assessed UV of the ‘contaminated’ site is $13,794,000. Thus, for the purpose of section 6 of the Rates Act, the UV of the subject land is assessed as $13,794,000 for the relevant dates of 1 January 2010 and 1 January 2011.

Order

108.Pursuant to section 68 of the ACAT Act the reviewable decision is set aside and substituted with the Tribunal’s determination of UV on the relevant dates as set out in paragraph 107 above.

………………………………..

Ms W. Corby

Senior Member

PUBLICATION DETAILS

TO BE PUBLISHED

To be completed by Tribunal Staff

PART A

FILE NUMBER:

AT 12/68

PARTIES, APPLICANTS:

JUNSTAMP PTY LTD GEMWANE PTY LTD & WALDREN HOLDINGS PTY LTD

PARTIES, RESPONDENT:

COMMISSIONER FOR ACT REVENUE

COUNSEL APPEARING, APPLICANT

COUNSEL APPEARING, RESPONDENT

SOLICITORS FOR APPLICANT

Mr Hartley
Meyer Vandenberg Lawyers

SOLICITORS FOR RESPONDENT

Ms H. Banks
ACT Government Solicitor

TRIBUNAL MEMBERS:

Ms W. Corby – Senior Member

DATES OF HEARING:

20, 21, 22 March 2013

15,16,17, 29, 30 April 2013

1 May 2013

PLACE OF HEARING:

ACAT Canberra

PART B

RECOMMENDATION:

FULL REPORT ( )       CASE NOTE ( )        UNREPORTED DECISION ( )

COMMENTS: