Kahler Investments Pty Ltd v Chief Executive, Department of Lands
[1996] QLC 125
•18 September 1996
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LAND COURT
BRISBANE
18 September 1996
Re: Appeal against determination of Chief Executive,
City of Gladstone
(AV95-321)
Kahler Investments Pty Ltd
v.
Chief Executive, Department of Lands
(heard in Gladstone)
Introduction
Kahler Investments Pty Ltd (the “appellant”) owns Lot 1 and 2 on RP608185, Parish of Gladstone.
In the annual valuation of the area as at 1 January 1995, the respondent Chief Executive determined the unimproved value of the subject land to be $237,500. The appellant objected to that valuation and the objection was allowed with the valuation being reduced to $197,500. The appellant then appealed to the Land Court, estimating the unimproved value of the land to be $111,000. At the hearing, however, the appellant contended for a valuation of $132,500.
The grounds of appeal were as follows:
The unimproved value assessed is not supported either by unimproved land sales or analysed improved sales evidence.
The unimproved value assessed is not in relativity with either applied 1995 values or values amended following consideration of Notices of Objection.
The unimproved value assessed does not take into consideration the disadvantages and the disabilities of the land.
The application of an overall percentage increase is unrealistic and does not follow market evidence or trends.
The appellant was represented at the hearing by Mr P Little and valuation evidence was given on the appellant’s behalf by Mr MD Sheehan, a registered valuer. Mr B O’Connor appeared on behalf of the respondent and valuation evidence was given by Mr RG Hewitt, a registered valuer with the Department of Lands (now the Department of Natural Resources).
This case was one of five appeals against annual valuations of land in or near to the main commercial district of Gladstone. The cases raised the same issues and were heard successively. The appellant in each case drew on a common set of information about properties in that area prepared by Mr Sheehan (Exhibit 5). The respondent relied on sales evidence drawn from a common set of information prepared by Mr Hewitt for these proceedings. The parties relied on many of the same sales when making their respective submissions.
The law
The legal principles to be applied in this case were usefully summarised in Grahn v TheValuer General (1992) 14 QLCR 327. In its reasons for judgment, the Land Appeal Court relied on decisions of the High Court of Australia and the Land Appeal Court as authority for a series of propositions which, in summary (updated to reflect legislative and administrative changes) are as follows:
(a) It is desirable that valuations made for the purposes of the Valuation of Land Act 1944 of comparable land should bear proper relativity, one to the other, so long as the valuations are soundly based. It is, however, untenable to adopt a value for one parcel on relativity with another which has no sound basis.
(b) The best basis for assessment of unimproved value is the use of sales of vacant or lightly improved parcels of land.
(c) Section 33 of the Valuation of Land Act 1944 creates a presumption that the value in money terms shown by the Chief Executive in his notice of valuation is correct.
(d) Once it is shown that:(1) in making the valuation the Chief Executive acted upon a wrong principle, or made a serious error of fact; or
(2) the valuation was made by a method fundamentally erroneous,
the presumption created by section 33 is rebutted.
(e) Whilst maintenance of correct relativity is of considerable importance for rating valuations, the use of the principle of relativity should not be preferred to the exclusion of relevant (even if not ideal) sales evidence.
(f) If possible, the Chief Executive should obtain uniformity between different blocks in the same land category or type, but should do so (preferably by reference to sales of comparable land) by correcting inaccuracies rather than by making an inaccurate assessment in order to secure uniform error.
The subject land
The subject land comprises two separate blocks valued as one. Lot 1 is a rectangular block facing Goondoon Street Mall. It is 20.13 metres wide and has an area of 706m². It adjoins an irregularly shaped block to the rear. That block has an area of 1,118m². Two strips radiate from a rectangular part to William Street and to Oaka Lane. Together the blocks form an easy sloping inside allotment. The land is situated on the south-eastern side of the Mall, which is a one-way paved carriageway with concrete kerbing and channelling. The land has a medium fall from Goondoon Street to the rear eastern and southern boundaries where the subject land has a frontage to Oaka Lane and to William Street respectively. Both are two-way bitumen sealed roads.
The land is zoned Comprehensive Development and is used for commercial purposes. Electricity, water, sewerage and telephone services are connected to the land.
Mr Sheehan described the land as being located in the poorer retail end of the Mall, being below the Council Chambers and a motel. Blocks to the north of those buildings have been shown to be better retail and commercial areas. The location of the subject land has always been a difficult retail area and one of the shops on the subject land was vacant at the time of the hearing. Mr Hewitt agreed that the land is part of the less valuable area of the Mall but said that, because the availability of car parking land was similar to that at the more valuable end of the Mall, the subject land was not as inferior as Mr Sheehan suggested.
Mr Hewitt said that the valuation of the subject land at $197,500 was calculated as follows:
20.13 metre frontage at $8,200/m = $165,066
Less, shallow depth of 14.4% = $ 23,770
Subtotal $141,296
Plus, 1,118 m² at $50/m² = $ 55,900
Total value = $197,196
Adopt: $197,500
The linear frontage method of valuation is a recognised valuation method for blocks such as the subject land and is consistent with his approach to valuing the Sale 2 block and the Macefoil land which is the subject of separate proceedings (see Macefoil Pty Ltd and Robina Investment Pty Ltd v Chief Executive, Department of Lands, AV95-324, decision dated 18 September 1996)
Sales evidence
The appellant contended that the unimproved value assessed by the respondent is not supported either by unimproved land sales or analysed improved sales evidence.
The appellant relied primarily on one sale of vacant land and on sales of improved commercial blocks and on rental data. In particular, Mr Sheehan referred to vacant land Sale 2 in his report on sales and rental of commercial land (Exhibit 5).
Sale 2 (respondent’s Sale 5) Lot 5 on RP606125 and Lot 3 on RP617715: The land comprises two rectangular lots, one of which has a frontage to Goondoon Street Mall and the other has a frontage to Central Lane in the main business area.
The land has an area of 1,630 m² and is zoned Comprehensive Development. It comprises easy to moderately sloping inside lots falling away from Goondoon Street to Central Lane on the rear western boundary. It is slightly superior to the subject land in position, being located at the top end of the Mall. Mr Hewitt described it as overall “slightly superior” to the subject land. It is the only one of six blocks in Mr Hewitt’s schedule of sales to be superior to the subject.
The land was sold in March 1995 (some 10 weeks after the relevant date of valuation) for $250,000. Its analysed unimproved value was $225,000 and the applied value was $200,000 (or 89%). That value was calculated as follows:
Goondoon Street lot - 14.02 metre frontage at $10,3000/m ($144,406)
plus, Central Lane lot - 925m² at $60/m² ($55,500) = $199,906
adopt $200,000.
Mr Sheehan noted that the sale includes an allotment that provides off-street car parking and rear access to any commercial building constructed. He also noted that allotments on the eastern side of Goondoon Street have no area available for off-street car parking or rear access. If rear access is to be provided, commercial frontage must be lost. That loss would involve a consequential loss of ground floor rental space. The Council would require a monetary contribution in lieu of off-street car parking. That contribution would be a development cost against a project. Council could use that money to acquire land in the central business district for off-street car parking purposes.
Both valuers considered the front land to be more valuable with the rear land being for carpark use. Mr Sheehan, however, analysed the sale differently. He adopted $65,000 (or approximately $70/m²) for the Central Lane lot and $135,000 for the Goondoon Street lot (or approximately $9,630/m frontage).
In Mr Sheehan’s opinion the sale price was high, even with an applied value of $200,000. The land had remained vacant and the owner was having difficulty attracting a reasonable rental for it. There was, however, no evidence that the sale was other than an arm’s length market transaction, and it is apparent from the value applied by the respondent that he did not consider it to have been significantly out of line with the market. Consequently, there is no reason for the Court to treat it as unusual.
Mr Hewitt said that, although the sale occurred not long after the date of valuation, it provides good support to the values applied.
For annual valuation purposes, the best sales evidence concerns sales of comparable blocks of unimproved land which occurred within a year before the date of valuation. Some support for the use of subsequent sales can be drawn from the following passage from Williams J in McCathie v Federal Commissioner of Taxation:"Values must be calculated in the light of circumstances which existed on the material date, ... but subsequent events can be taken into account in order to determine the proper weight to attach to such circumstances. Subsequent sales are just as admissible in evidence as prior sales, provided that in all the circumstances they are comparable. If between the material date and the date of the subsequent sale supervening events occur which alter the condition previously existing, the subsequent sales would not be comparable and would be useless." ((1944) 69 CLR 1, at p. 16).
In GA Nichol v the Valuer-General (1961) 28 QCLLR 161 the Land Appeal Court rejected a submission that sales after the effective date of valuation should be ignored. Having quoted the dicta of Williams J in McCathie, the Court noted that his Honour had stated the rationale for the approach as being the tendency of courts "to admit evidence of any events prior to the date of the trial which will throw any real light on the issues" (69 CLR at p.16 and authorities cited there). In the opinion of the Land Appeal Court, "there appears to be no sound reason why a Court or any of the parties should be denied the assistance of sales of comparable land occurring after the effective date, provided market conditions or other relevant conditions have not materially altered" (at 292).
The statement by Williams J has been applied by other courts. In Federal Commissioner of Taxation v Harris (1980) 30 ALR 10, Bowen CJ stated that, if evidence of subsequent events is available which shows that the possibility of an event occurring has become a reality, it is proper for the Court to have regard to the actual events when assessing the position as it was at the relevant date, (at 18; see also Deane J at 19). In the same case, Fisher J referred to the limitation on the principle stated by Williams J, namely that subsequent events can only be used to determine the weight to attach to circumstances which existed at the relevant date. The subsequent event cannot create an expectation which was not in existence at the relevant date (at 25 quoting from John Martin (Elizabeth) Limited v Commissioner of Land Tax (1965) SASR 217, at 225 per Bright J).
The preceding discussion of the law relating to after date sales has recently been confirmed by the Land Appeal Court in Scougall v Chief Executive, Department of Natural Resources (AV93-119, AV94-364, unreported decision dated 13 September 1996).
In the present case this Court can only have regard to later sales evidence to confirm the circumstances which applied at the relevant valuation date. In some annual valuation cases, the date of sale may be so far after the relevant date of valuation, and so close to the next date of valuation, that evidence about the sale should be disregarded or given very little weight. In Eastwell Pty Ltd v The Valuer-General (1987) 11 QLCR 169, the appellant submitted that only one sale presented by the Valuer-General in that case could be used as a basis for valuation because the other sale was an after date sale. The Court considered that the sale in issue had occurred "a mere 26 days after the relevant date" and there was no suggestion that there was any change in the market place in "that short space of time". It held that the valuer quite properly had had regard to the later sale (see (1987) 11 QLCR at 173, 176-177). There is no reason to disregard Sale 2 when determining the present case.
The appellant also relied on sales of two other blocks, in Roseberry Street (Sale 4) and William Street (Sale 5). The blocks were valued respectively at $205,000 and $110,000. In Mr Sheehan’s opinion, the value of the subject land had to be between them.
Sale 4 - Lot 1 on RP618681 and Lot 4 on RP604599: The land has an area of 2,020 m² and is zoned Comprehensive Development. It has a frontage to Roseberry Street and to Oaka Lane. Roseberry Street has a full width bitumen carriageway with concrete kerbing and channelling. Oaka Lane has a narrow bitumen strip carriageway with concrete kerbing and channelling. Good access is available from both streets.
The land is above street level with a medium to steep cross slope from west to east. It is in the main business area, although not as centrally located as the subject land.
The land was sold in June 1993, nearly 18 months before the relevant date of valuation. The sale price was $300,000 and the analysed unimproved value was $298,000. At the relevant date of valuation the applied value was $205,000 (or 68.8%).
Mr Sheehan applied $100,000 to one block and $105,000 to the other, corner block. He suggested that the respondent considered the sale price to have been too high. He noted that the owner has been unable to attract tenants at a rental to make the proposed project viable, and had failed to sell the lands. Mr Hewitt did not rely on the sale as it was not in the relevant year. He commented, however, that the sale price was far too high and that opinion was reflected in the application of 68.8% of the analysed value. Because the sale was well before the relevant date of valuation and (to a lesser extent) because it was an above market sale, little weight can be given to it in these proceedings.
Sale 5 (respondent’s Sale 2) Lots 13 and 14 on Plan G141: The land comprises two almost square lots each of which faces William Street, near the Goondoon Street Mall intersection. It is zoned Comprehensive Development. The land has an area of 1,520 m² and was originally moderately to steeply sloping, rising from William Street to the rear. The land has since been excavated to provide a level site.
The land was sold in October 1994 for $150,000. The analysed unimproved value was $114,150 and the applied value was $111,000 (or 97%). The unimproved value was calculated as follows:
50.3 metre frontage at $3,500/m
less, shallow depth of 20% and excavation of $30,000 = $110,840
Adopt $111,000.
The sale land is, in Mr Hewitt’s opinion, “far inferior” to the subject land in position, not being in the main street and in the Mall. The subject land has also side and rear access.
In the earlier Macefoil proceedings, Mr Sheehan acknowledged that the sale land had been cleared and levelled. He mistakenly thought that the analysed value was $145,000 (with the applied valued being 76.55% of that amount) and on that basis argued that the respondent considered that the sale price was high. I accept the respondent’s analysis of the sale.
Mr Hewitt said that the respondent’s valuation of the subject land was based on sales described in his valuation report (Exhibit 6). Five of the six sales were described as inferior to the subject land. Although six sales were listed, it seems that two sales, Sale 2 (the appellant’s Sale 5) and Sale 5 (the appellant’s Sale 2), formed the basis of this valuation. Those sales were discussed above.
Valuation of the subject land
In determining the value of the subject land, the main issues are what values are to be ascribed to the irregularly shaped Lot 2 and to Lot 1 facing Goondoon Street.
Part of the Lot 2 land is available for off-street car parking. Mr Sheehan said that, of the 1,118m² of land in Lot 2, only 500 to 600 m² could be used for that purpose. Much of the remaining land in Lot 2 provides the access routes from Oaka Lane and William Street. In his opinion that land should be valued at $40 to $45/m². Mr Hewitt said that, as the strip of land to Oaka Lane is 10 metres wide, some angle parking could be provided there and the land should not be totally discounted. He argued that rear parking areas are of equal value wherever they are along the lane. Some car parks may be more apparent from the road than others, but that will depend on the development on the land. By comparison, he had applied a figure of $60/m² to car parking forming the rear part of the appellant’s Sale 2 (respondent’s Sale 5) land. As noted earlier, Mr Sheehan had valued the carparking land in the Sale 2 block at $70/m², compared with $60/m² assigned by Mr Hewitt. The differences seemed to reflect the use of a greater amount of Lot 2 of the subject land for access rather than parking purposes. Mr Hewitt did not make an allowance for the cost of bitumen sealing the car parking and access areas as the land would have to be bituminised whatever its use.
The land used for carparking at the rear of the Sale 2 land is part of a greater carparking area of adjoining blocks. Ready access is available to those blocks. Although, by comparison, narrower access is available to the subject land from Oaka Lane, that limitation is offset by the additional route of access from a main street, William Street. The real issue is the proportion of Lot 2 of the subject land that can be put to use for carparking purposes. The evidence was imprecise and impressionistic. I am satisfied that, although there is space for some parallel or angle parking in the strip of land from Oaka Lane, much of the land to Oaka Lane and William Street can only be used for access purposes. Having regard to the $60/m² applied by Mr Hewitt to the rear block on Sale 2 land, I consider that an amount of about $45/m² would be more appropriate for the Lot 2 land. Consequently a reduction of, say, $5,500 is appropriate.
The determination of the value of Lot 1 on a linear frontage rate is more difficult. Both valuers agreed that the subject land is in a less valuable part of the Mall. A direct comparison with neighbouring blocks was not made. As noted earlier, Mr Hewitt applied $8,200/m (less 14.4% for shallow depth) to the Lot 1 frontage. He applied $10,300/m for the Sale 2 land with a better location in the Mall, and $3,500/m (less 20% for shallow depth) to the Sale 5 land. Mr Sheehan suggested that a rate of $6,000 per metre was realistic for the frontage to the Mall. That figure, he said, was derived from sales evidence, particularly his Sale 2 (the respondent’s Sale 5) which has a frontage of 14.02m and which, he said, showed a value of $9,200 per metre. (On my calculations, however, his attribution of $135,000 to the front portion of the Sale 2 lands can be assessed as $9,630/m frontage.)
As the sales evidence summarised above indicates, this is a matter on which qualified valuers may differ. Bearing in mind the operation of section 33 of the Valuation of Land Act 1944 and the imprecision of the art of valuation, the appellant faced a difficult task in showing that the disputed valuation was wrong and that it should be replaced by the amount for which the appellant contended. Apart from the issue of the valuation of the access and carparking land, the appellant has not proved that, in making the valuation, the Chief Executive acted upon a wrong principle or made a serious error of fact or that the valuation was made by a method fundamentally erroneous.
Relativity
The appellant contended that the unimproved value assessed by the respondent is not in relativity with either applied 1995 values or values amended following consideration of Notices of Objection. Apart from the evidence discussed earlier in these reasons for decision, there was limited evidence about relativity of values. Mr Sheehan drew attention to the block of land immediately to the north of the subject land which was sold in September 1993 for $400,000. At the relevant date of valuation its unimproved value was determined to be $167,500 (having been reduced on objection). The land faces Goondoon Street Mall, has an area of 1,014m² (56% of the area of the subject land), is deeper than the Lot 1 component of the subject land but has no access to Oaka Lane or William Street. Assuming, as I must, that the adjoining land was accurately valued, I am not convinced that the valuation of the subject land was out of relativity with it. The appellant fails on this ground of appeal.
Disadvantages and disabilities
The appellant contended that the unimproved value assessed by the respondent does not take into consideration the disadvantages and the disabilities of the land. No evidence (other than that concerning the potential use of the rear access and car parking land) was given to establish that the subject land suffered from any significant disadvantages and disabilities. The evidence was discussed earlier in these reasons for decision. Accordingly, as a separate or additional ground of appeal, this ground of appeal fails.
Percentage increase
The appellant contended that the application of an overall percentage increase is unrealistic and does not follow market evidence or trends.
In the 1995 revaluation, the unimproved value of the subject land was increased from $111,000 to $237,500 (an increase some 113.96%). On objection, the value was reduced to $197,500 (an increase of some 77.93%). The appellant finally contended for a value of $132,500, an increase of some 19.36%.
In Mr Sheehan’s opinion, the respondent should have had regard to the evidence of sales of improved commercial properties and trends over the previous three to four years. In particular, the appellant relied on Lot 1 on RP608171. The land has a frontage to Goondoon Street, in the main business area. It has an area of 253m² and is zoned Comprehensive Development. It was sold in October 1995 (more than 9 months after the relevant date of valuation) for $290,000. Mr Sheehan analysed the sale, by reference to such items as the building value and the Council’s carparking requirements, to reach a land value of $65,000. With the revaluation as at 1 January 1995, the unimproved value was increased from $55,000 to $80,000 (an increase of 45.45%). Upon objection, the valuation was reduced to $67,000 (an increase of 21.8%). The appellant argued that the reduction in valuation can be supported by the analysis of the later improved sales evidence.
Although there appears to be a consistency between Mr Sheehan’s analysed figure and the amount applied on objection, the sale of that improved land can be given little, if any, weight, for the purposes of this case. First, there was no evidence to show the basis on which the valuation of the sale land was reduced after objection. Consequently, there is no way of checking whether Mr Sheehan’s analysis is consistent with the basis on which the respondent made the reduction. Second, it was a sale of a highly improved block and such sales are always regarded with considerable caution when ascertaining the unimproved value of land.
There are numerous court decisions which point to the difficulties in gaining an accurate estimate of the unimproved value of land from the analysis of sales of highly improved blocks where so many factors (apart from land value) can influence the sale price. For example, in Barnwell v The Valuer-General (1989) 13 QLCR 13 at 17 the Land Appeal Court quoted with approval the following passage from an earlier decision of the Land Appeal Court:“It has been judicially laid down many times and in many jurisdictions that in ascertaining unimproved value, sales of unimproved land of comparable quality, situation , etc., to the subject parcel, if they are available, are to be preferred as the best guide for arriving at an unimproved value. The reason is obvious. In applying such sales there is no room for error in analysing the value of the improvements. (Clough v The Valuer-General (1981-2) 8 QLCR 70 at 76)”
Third, the sale was considerably after the relevant date of valuation, particularly in the context of annual valuations. Fourth, there was no shortage of sales of unimproved or lightly improved sales which provide a much firmer basis for determining the unimproved value of the subject land.
Mr Sheehan also gave written and oral evidence about other improved blocks. In summary, his evidence was to the effect that:
an analysis of improved Sale 2 (which was not a sale but a comparable building on a block of Special Business zoned land in Goondoon Street) based on current rentals and returns shows a land value of $70,000, which is lower than the respondent’s determination of the unimproved value of $93,000;
an analysis of improved Sale 3 (Special Business zoned land in Goondoon Street with three shops and a house) based on current rentals and returns shows a land value of $75,000, which is lower than the respondent’s determination of the unimproved value of $102,000;
an analysis of improved Sale 4 (Comprehensive Development zoned land in Goondoon Street with an office complex) shows little or no increase in the existing unimproved value (indeed, the analysis suggests that the building is worth more than the amount for which land and improvements were sold), yet the value was increased from $65,000 to $116,000 (after objection) in 1995;
an analysis of improved Sale 5 (Comprehensive Development zoned land with a two storey building) would justify a 1994 valuation of about $100,000 but, even though commercial values and rental levels have not increased, the 1995 valuation of the land was (after objection) determined to be $167,500; and
in more general terms, the unimproved values of land in Goondoon Street cannot be sustained when all these sales are analysed.
The Sale 5 land just mentioned is adjacent to the northern boundary of the subject land. It was sold in 1993 for $400,000 and, as noted, the unimproved value at the relevant date was $167,500.
In my opinion, it is neither necessary nor appropriate to deal with that evidence in detail. As noted earlier, there was sufficient evidence of sales of unimproved or lightly improved blocks for a decision to be made in this case without having to rely on that other evidence. Both valuers were able to give their opinions about the comparability of the sale blocks and the subject land.
Second, use of rental properties is hypothetical and fraught with problems. The amount of rent paid will be influenced by such things as the age, layout and design of the building, how the rent is negotiated, and the supply of and demand for commercial floor space in the area. In Gladstone there has been a high level of vacancies and that would influence whether there was any shift in the level of rents being paid for commercial premises. By contrast, there had been more sales of vacant land in the relevant year than in other recent years and they provided better evidence than had been available for some years.The relevant authorities would be well known to the parties and need not be considered in detail here. Indeed, I understood Mr Sheehan to acknowledge (at least in the case of improved Sale 4) that the unimproved value of land cannot be proved by evidence of sales of improved land.
Third, Mr Sheehan’s analysis of the evidence of the improved sales to the effect that the unimproved value applied was too high in each instance does not overcome the effect of section 33 of the Valuation of Land Act 1944 which provides that any and every valuation (or alteration of the valuation) of land made by the respondent shall be deemed to be correct until proved otherwise upon objection or appeal or until altered.For reasons given above, the analysis of improved land sales or rentals of improved properties does not provide a reliable basis for ascertaining the unimproved value of the subject land. Apart from the numerous variables which may affect the result of any such analysis, it has not been shown that the movement (or lack of movement) in the market for improved commercial properties is in direct relationship to the state of the market for unimproved land. Furthermore, the market for comparable unimproved land supports the valuation in dispute.
The ground of appeal must fail.
Order
The appeal is allowed, the determination of the Chief Executive is set aside, and the unimproved value of the subject land as at 1 January 1995 is determined at one hundred and ninety-two thousand dollars ($192,000).
GJ NEATE
MEMBER
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