Kahler Investments Pty Ltd v Chief Executive, Department of Lands
[1996] QLC 124
•18 September 1996
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LAND COURT
BRISBANE
18 September 1996
Re: Appeal against determination of Chief Executive,
Department of Lands - City of Gladstone
(AV95-322)
Kahler Investments Pty Ltd
v.
Chief Executive, Department of Lands
(heard in Gladstone)
Introduction
Kahler Investments Pty Ltd (the “appellant”) owns Lots 12-14 on RP618552, 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 $295,000. The appellant objected to the valuation but the objection was disallowed. The appellant then appealed to the Land Court, estimating the unimproved value of the land to be $145,000. At the hearing, however, the appellant contended for a valuation of $180,000.
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, a solicitor, 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 three similar contiguous rectangular blocks with a total area of 2,820m². The blocks are situated at the southern end of Goondoon Street, within the central business district of Gladstone. Goondoon Street has a full-width bitumen carriageway with a central median strip. Concrete kerbing and channelling has been installed. Restricted access is available to the land from Goondoon Street. Water, sewerage, electricity, telephone and bottled gas are available to the land.
The land is slightly below road level and there is a medium fall to the rear eastern boundary. The blocks are described as easy sloping inside allotments located between the Goondoon Street business area and the Tank Street commercial area.
The land is used for commercial purposes and is zoned appropriately.
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 on information about the sales of vacant or improved land and rental data set out in Exhibit 5. In his valuation report on the subject land, however, Mr Sheehan referred only to one sale of vacant land.
Sale 3 (respondent’s Sale 1) Lot 10 on RP619101: The block of Special Business zoned land has an area of 1,551m² and is located on the corner of Goondoon and Bramston Streets. It has an easy slope from slightly below Goondoon Street road level down to the rear eastern boundary. No access is available from Goondoon Street. Good access is available from Bramston Street, a full width bitumen carriageway with concrete kerbing and channelling.
The land was sold in August 1994 for $256,000. The analysed unimproved value was $246,500 and the applied value was $180,000 (or 73%). The applied figure was calculated as follows:32 metre frontage at $5,400/m
plus, corner of 10% for 20m and less shallow depth of 2% = $179,928
Adopt: $180,000 (which averages at approximately $116/m²)
In his written report (Exhibit 4) Mr Sheehan argued that, because the respondent applied only 72% of the analysed value to the land, the respondent considered that the sale price was high or “unrealistic”. In his oral evidence he was more dismissive describing the sale as “irrelevant”. He stated that the purchaser (Superwash) required the site and the purchaser’s offer was accepted by the vendor, who didn’t want to sell but accepted a price well above the market value. The respondent did not dispute that suggestion and, in other proceedings, Mr Hewitt acknowledged that it was slightly out of line with the market. Consequently, there had been a very conservative application of the analysed unimproved value.
Mr Hewitt described the sale land as comparable in position to the subject, being located only 60 metres to its north. Although both are similar in contour, the sale is a corner lot and has better exposure and access. Overall the sale land is slightly superior to the subject land. He conceded that it was a high sale, but in his opinion it cannot be disregarded. It is evidence of what someone would pay for land between the Central Business District and the Valley shopping area.
It is not necessary to disregard the sale on the sole ground that an above market rate price was paid for the land. It may be a sufficient answer to say that the respondent has made adequate allowance in applying a percentage of the analysed unimproved value. In cases like this, however, there may be a question about whether the appropriate percentage was chosen. By comparison, values in the range of 87% to 97% of the analysed value were applied to the other blocks in Mr Hewitt’s schedule of sales. The potential for error must increase for every step in the calculation away from the analysed value. With that caution in mind, the sale can be considered in the context of other sales evidence, particularly because the land is proximate to and has similar features to the subject land.
Detailed evidence was also given for the respondent. In his valuation report (Exhibit 7), Mr Hewitt said the value of the subject land had been calculated as follows:
60.45 metre frontage at $5,000/m = $302,250
less, shallow depth of 3% = $9,068
total = $293,182
Adopt: $295,000 (which averages at approximately $104.60/m²)
Mr Hewitt’s report referred to sales evidence of six blocks for the basis of that valuation. Sale 1 was the appellant’s unimproved land Sale 3, discussed above. His oral evidence shows that, of the others, he relied primarily on Sales 2 and 5, and on Sale 3.
Sale 2 (appellant’s Sale 5) Lots 13 and 14 on Plan G141: The land comprises two almost square lots with a total area of 1,520m². It has a frontage to William Street, near the intersection with Goondoon Street Mall, and is zoned Comprehensive Development. William Street has a full width bitumen carriageway with concrete kerbing and channelling. There is regulated kerbside parking and good access is available.
The land was originally moderate to steeply sloping, rising from William Street to the rear. It has 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 applied figure 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.
Mr Sheehan acknowledged that the land had been cleared and levelled. He mistakenly thought that the analysed value was $145,000 (with the applied value 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 described the sale land as overall inferior to the subject land, being inferior in position because it is not located in Goondoon Street.
Sale 5 (appellant’s Sale 2) Lot 5 on RP606125 and Lot 3 on RP617715: The land comprises two rectangular blocks, one of which has a frontage to the Goondoon Street Mall and the other has a frontage to Central Lane in the main business area. The blocks are zoned Comprehensive Development and have a combined area of 1,630m². They are easy to moderately sloping inside lots falling away from Goondoon Street to Central Lane on the rear western boundary.
The land has good exposure to the Goondoon Street vehicle and pedestrian mall. Restricted kerbside parking is available in the mall area. Central Lane has a narrow bitumen strip carriageway with concrete kerbing and channelling. Good access is available. The rear allotment provides rear access to the front allotment and provides off-street carparking.
The land was sold in March 1995 (some 10 weeks after the relevant date of valuation) for $250,000. The analysed unimproved value was $225,000 and the applied value was $200,00 (or 89%). The analysed value was calculated as follows:Goondoon Street lot - 14.02 metre frontage at $10,300/m ($144,406)
plus, Central lane lot - 925m² at $60/m² ($55,500) = $199.906
Adopt: $200,000
Mr Hewitt described the lane as overall superior to the subject land, being located in the Mall.
Sale 3 (appellant’s Sale 1) Lot 132 on CP843037: The land is an easy sloping inside lot rising from Goondoon Street to Oaka Lane on the rear eastern boundary. Good access is available from both streets, each of which has good bitumen strip carriageway.
The land is located to the north of the Central Business District, is zoned Comprehensive Development and has an area of 2,400m². Auckland Inlet is reasonably close and the land has restricted views over the Inlet.
The land was sold in November 1994 for $162,000. The analysed unimproved value was $158,000 and the applied value was $142,000 (or 90%). The applied figure was calculated as follows:31.24 metre frontage at $3,750/m
plus, extra depth of 16% and rear access of 5% = $141,751
Adopt: $142,000
Mr Sheehan noted that the adopted value is equal to $59.17/m².
Mr Hewitt described the land as overall inferior to the subject land, in particular because it is inferior in position as it is not located in the main commercial development area. It is also relatively far away from the subject land and is separated from the subject by the main business district, so is less directly comparable with the subject land.
Mr Hewitt also sought to draw some support from the sale of adjacent Lot 11 to Kahler Investments Pty Ltd in October 1995. The block has the same area and dimensions as each of the three lots comprising the subject land. The appellant paid $160,000 for the land. Of that price, Mr Hewitt apportioned about $20,000 for improvements. On my calculations, the land could be analysed as having a value of about $7,000 per linear metre or $150/m². Mr Hewitt readily acknowledged that it was a high sale to an adjoining owner, but mentioned the sale as support for his opinion that the market has not changed. He had not analysed the sale, had not interviewed the vendor and purchaser, and did not know the circumstances of the sale. It was well after the date of valuation. Little, if any, weight can be given to it for present purposes.
The evidence about the sales of unimproved land just summarised does not establish that the respondent acted upon a wrong principle, or made a serious error of fact or that the valuation was made by a method fundamentally erroneous. Consequently, on that evidence, the presumption created by section 33 of the Valuation of Land Act 1944 has not been rebutted by the appellant. This part of the appellant’s case, however, was not put in complete reliance on sales evidence about unimproved land. Indeed, in his oral evidence, Mr Sheehan was dismissive of Sale 3 (the respondent’s Sale 1) and noted that there were no real sales in the immediate vicinity of the subject land. The nearest sale was in William Street (Sale 2 in his report on sales evidence). Consequently, he relied on the analysis of sales and rentals of developed properties in this part of Goondoon Street, one of them opposite the subject land. In particular, Mr Sheehan referred to his analysis of improved land in Sales 2, 3 and 4 which, he suggested, indicates a minimal increase only for this section of Goondoon Street.
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.
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.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.
Relativity
The appellant contended that the unimproved value assessed by the appellant is not in relativity with either applied 1995 values or values amended following consideration of Notices of Objection.
Mr Hewitt was referred to a block opposite the subject land with the same dimensions as each of the three blocks comprising the subject land. That land was valued at $102,000, which averages at $108.40/m² or approximately $5,000 per linear metre frontage. It is a smaller block than the subject but its value is comparable to that applied to the subject land, which averages at $104.60/m² or $5,000 per linear metre frontage.
He was also referred to the adjoining land to the south of the subject on which an indoor cricket centre has been established. It has a similar contour, falling away from the street, but has a larger area than the subject. Although the subject has a wider frontage to Goondoon Street, and is superior in that respect, the neighbouring block is a corner lot with a long Herbert Street frontage and a lane at the rear, running off Herbert Street. The land was valued at $315,000 which, Mr Hewitt suggested, could be analysed to include a component of $5,400 per metre to a standard depth on the Goondoon Street frontage. The average value is about $80/m². There was some suggestion that the land was undervalued and, in Mr O’Connor’s submission, the valuation of the subject land should not be reduced by reference to it. He argued that the judgment in the Grahn case cited earlier makes it clear that relativity is not the key consideration. Rather, the subject land must be valued correctly by reference to sales evidence. Mr Little agreed on that aspect of the law, submitting that the sales evidence produced by Mr Sheehan supported the figure for which the appellant contended.
The law on this point is not in dispute. The neighbouring block was not sold in an unimproved state in the relevant period. It has some features which distinguish it from the subject land (particularly its size and multiple street frontages) and there is nothing in the evidence about it to compel the conclusion that the subject land has been valued incorrectly relative to it.
The appeal on this ground fails.
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.
In particular, Mr Sheehan stated that it was necessary to provide undercover carparking on the subject land (see Exhibit 6 p. 4 and photographs). Consequently, an area of the frontage in Goondoon Street was used for access purposes. This access would involve a loss of ground floor rental space and a decrease in total rental.
Although the need to provide parking on the land may limit the potential development of the land, there was nothing to suggest that neighbouring properties are not also subject to the same limitation. If the neighbouring properties are correctly valued (see section 33) and are in proper relativity to each other, then there is no reason to reduce the valuation of the subject land and hence distort its valuation, whether considered on its own or relative to other comparable neighbouring blocks.
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.
The revaluation in 1995 resulted in an increase from $145,000 to $295,000 (or 103.45%). The value contended for by the appellant, ie, $180,000, is an increase of 24%.
There has been a substantial increase in the valuation of the subject land. There was no evidence to show whether, for example, the percentage increase is a consequence of the previous valuation being too low.
In Mr Sheehan’s opinion, the respondent should have had regard to the evidence of sales of improved commercial properties and values determined from existing rental levels. Such evidence, he argued, would indicate a minimal increase only for this section of Goondoon Street.
For reasons given above, the analysis of improved land sales or rental 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, evidence about the market for comparable unimproved land supports the valuation in dispute.
The ground of appeal must fail.
Order
The appeal is dismissed and the determination of the Chief Executive in the amount of $295,000 is affirmed.
GJ NEATE
MEMBER
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