Kallinicos v Chief Executive, Department of Natural Resources and Mines
[2002] QLC 63
•22 August 2002
LAND COURT OF QUEENSLAND
CITATION: Kallinicos & Ors v Chief Executive, Department of Natural Resources and Mines [2002] QLC 63
PARTIES:Emmanuel George Kallinicos & Ors
(applicants)
vChief Executive, Department of Natural Resources and Mines
(respondent)
FILE NO/S: AV2001/0231 and AV2001/0233
DIVISION: Land Court of Queensland
PROCEEDING: Appeals against Annual Valuations
DELIVERED ON: 22 August 2002
DELIVERED AT: Brisbane
HEARD AT: Brisbane
MEMBER: Dr NG Divett
ORDER: 1. The appeal in respect of 744 Gympie Road is dismissed and the unimproved value as determined by the Chief Executive in the sum of Four Hundred and Seventy Thousand Dollars ($470,000) is affirmed. However the valuation of 738 Gympie Road is not supported by the evidence at $510,000. That valuation is set aside and the unimproved value of 738 Gympie Road is determined at Five hundred and Five Thousand Dollars ($505,000).
CATCHWORDS: Valuation – Particular factors in valuation – zoning of land – proposed new planning controls – impact of market forces. [18 to 20, 40, 41]
Valuation – Sales – acceptable sales – use of late sale – demonstration that market level not changed. [36, 38, 43 to 45]
Valuation – Sales – acceptable sales – matters discussed in negotiations – not restricted to information supplied under Freedom of Information. [12, 47]
Valuation – method of valuation – capitalisation – capitalisation of rents rejected where comparable sales of land available. [49 to 51]
Valuation – Sales – acceptable sales – improved sales – depreciation – difficulties in determining added value of improvements – improved sales rejected in preference to unimproved sales. [52 to 54]
APPEARANCES: Mr J Olive for the appellants.
Mr R Paterson for the respondent.
Background:
These two matters, heard concurrently, relate to adjoining lands at 738 Gympie Road, Chermside (AV2001/0233) and 744 Gympie Road, Chermside (AV2001/0231). The lands are described respectively as Lot 36 on RP 42034 (738 Gympie Road), and Lots 33 to 35 on RP 42034, Parish of Kedron (744 Gympie Road), and are located about 250 to 300 metres south of the Chermside regional shopping centre. 738 Gympie Road has an area of 1,444 m² and 744 Gympie Road has an area of 1,219 m². Both parcels were zoned “Business” under the Town Plan of the City of Brisbane (the Council) of 1987, effective at the dates of valuation of 1 October 2000. The key issues are the nature of the lands, planning impacts, history of the lands, and comparison of sales.
Both parcels front Gympie Road which is a divided bitumen sealed, six lane roadway with concrete kerbing and channeling. 738 Gympie Road is also at the corner of Gympie Road and Norman Drive, which is a dual lane single bitumen sealed carriageway with concrete kerbing and channeling. All normal utility services are available. Gympie Road is a major arterial road joining the northern suburbs to the Brisbane CBD. Norman Drive handles local traffic. Access is good to both parcels although vehicle parking is restricted to two hours during business hours along Gympie Road. However because of the heavy traffic flows along Gympie Road in peak time, care needs to be taken when entering Gympie Road.
On 26 February 2001 the Chief Executive issued valuations of the subject lands at $510,000 ($353 per square metre) for 738 Gympie Road, and $470,000 ($385 per square metre) for 744 Gympie Road. Following objections the Chief Executive confirmed those figures on 12 June 2001. The appellants have now appealed claiming the unimproved values should more properly be $310,204 (738 Gympie Road) and $304,750 (744 Gympie Road).
John Joseph Olive, a registered valuer, appeared and gave evidence for the appellants, also calling evidence from John George Kallinicos, a director of the appellants. Mr R Paterson, Principal Legal Officer, appeared for the respondent, calling evidence from Andrew Trevor Brown, the departmental registered valuer now accepting responsibility for the valuations, which had been previously determined by another registered valuer, no longer available to defend the valuations.
The Evidence:
Nature of the Lands –
It is agreed that the current use of the two parcels as strip commercial sites, with the buildings used for shops and offices, are their current highest and best use. The existing building on 744 Gympie Road is set back 6 metres from Gympie Road, while the existing building on 738 Gympie Road is built forward to the street alignment. Because of its corner location, and the advantage of being built right up to the street alignment, Mr Brown argues that 738 Gympie Road has good exposure to north moving traffic; and he sees that site as superior for that reason to 744 Gympie Road. However he agrees that 738 Gympie Road has an inferior L-shape compared to the more rectangular 744 Gympie Road, and he has allowed for that inferior shape in his valuation.
In his valuation of 738 Gympie Road, Mr Brown has allowed for the existing use of that building as its highest and best use under section 3(4) of the Valuation of Land Act 1944 (the Act). He argues that if that building was to be demolished, then he believes that the Council was likely to require some setback from the road alignments. Access for southbound traffic can be achieved via a U-turn at Wallace Street intersection about 100 metres south along Gympie Road. There are traffic lights 40 metres north of the subject lands on Gympie Road.
History of the lands –
Mr Kallinicos explains that the appellants have owned 738 Gympie Road since 1979, and 744 Gympie Road since 1988. During that time he has experienced over the last 10 years a major shift in retail activities along the Gympie Road precinct, as the nearby Westfield regional shopping centre gradually expanded its influence. During the last two years the last of the retail banking outlets, and many other retail activities, have relocated to the shopping centre. The only banking facilities in the immediate locality of the subject lands are for commercial “Business” banking purposes. Mr Kallinicos explains that during this period nearly all professional people, including himself, have relocated away from the immediate area, and the insurance companies have left Chermside entirely.
As a consequence of that trend the subject lands are now used for commercial purposes rather than the more highly profitable retail returns formerly achievable. However even to retain the current high occupancy rates, the appellants have had to refurbish the current buildings, and be prepared to accept a reduced rental rate per square metre. To support that scenario Mr Kallinicos provides a spreadsheet analysis for the period 1991/2001 showing gross rentals, expenditure and net rentals. (Exhibit 3). He notes that schedule does not include two or three major refurbishment costs, but demonstrate the declining profitability of the lands. Mr Kallinicos advises that in 1988 the properties reflected net returns of $265 per square metre on the ground floor, and $220 per square metre on the first floor. He argues that the current gross returns reflect about $200 per square metre.
Mr Olive supports those conclusions, noting that there was approximately 30% to 35% retail vacancies in the locality, and about 20% to 25% office vacancies. Mr Brown has no detailed knowledge of vacancies, but was aware of a number when he inspected the lands. However he argues that the immediate area does continue to support a medical centre, chemist, credit union, solicitors and real estate agents. There is also a “Super Cheap Auto” retail outlet next door to the subject land, but Mr Olive notes that business trades mainly on weekends when the subject lands are closed, and therefore provides little assistance in bringing trading opportunities to the general area.
Mr Brown does not dispute Mr Kallinicos’ evidence, but argues that he has not valued the lands on a capitalization basis, which would require a full hypothetical development exercise. Rather he has relied upon sales of vacant or lightly improved lands. Mr Brown further explains that, while he was only new to the Department, it is his understanding that values in the area have not changed since 1996 or 1997. He notes that the previous valuer had determined the valuations at 1 October 1998, which had subsequently proceeded on appeal to this Court (AV99-503/4). Under that decision 738 Gympie Road had been valued at $505,000 and 744 Gympie Road at $470,000. Mr Brown now agrees with those values for the current valuations.
In concluding his valuations Mr Brown advises that he has had regard to that decision, handed down on 15 October 1999, noting that the more recent sales evidence indicated that the market level had not moved since that date. He saw that previous Court determination as supporting his conclusions based upon the later sales. Mr Olive also agrees that the market has not changed during that period.
Mr Olive draws reference to a “Statement of Reasons” in respect of the current valuations, obtained under the Judicial Review Act 1991 (Exhibit 8). He notes that advice to the appellants specified three specific sales in the immediate vicinity, which were taken into account when arriving at a decision on the appellants’ objection. Mr Olive notes that two of those sales are now no longer relied upon by Mr Brown in his schedule of sales (Exhibits 5 and 6), although the sale at 628 Gympie Road of area 6,306 m² was used in the previous decision at 1 October 1998. Mr Brown has made a passing reference to that larger sale in his use of that sale as supporting his current valuations.
Mr Olive notes that the third sale mentioned in the “Statement of Reasons” (Lots 50 and 51 on RP 26115) relates to a property which is in fact now a car yard. Mr Brown agrees with that statement, but notes that sale at the corner of Wallin and Gympie Roads was an adjoining owner sale, so he had not used it in his evidence. Mr Olive questions that conclusion as his inquiry suggested the sale was in fact not an adjoining owner sale. However there was no further details of that sale provided which could assist in any analysis of the sale, and I will reject it at this time.
In respect of the larger sale at 628 Gympie Road of area 6,306 m², it is agreed that was outside the development control area (DCP), and purchased by a South African supermarket chain for the establishment of a free standing discount supermarket, a use prohibited in the DCP. However Mr Paterson argues that precedent dictates that the respondent is not bound in this matter by any of the sales specified in the “Statement of Reasons”.
Mr Olive does not seek to restrict the respondent to that “Statement of Reasons”, but argues that the previous learned member had been limited in arriving at his conclusions in that matter by the lack of suitable evidence provided by the appellants, who had represented themselves on that occasion without professional guidance.
Mr Paterson also notes that in the previous decision, Mr Scott had raised concerns about adopting an appraisal based upon rental returns. (page 9).
Impact of Planning –
It is agreed that at the date of valuation of 1 October 2000 the subject lands were zoned as part Main Streets Commercial Character Area 3 and part West Residential Character Area 6 (738 Gympie Road); and Main Streets Commercial Character Area 3 (744 Gympie Road), under the Chermside Regional Business Centre Development Control Plan of 14 March 1997 (Exhibit 4). The preferred development in this character area is to provide a mix of retail and commercial facilities, consistent with the current buildings upon the subject lands (s. 3.3.2).
However it is also agreed that at the relevant date there had been released since February 1999 a draft plan of the proposed new Brisbane City Plan, subsequently gazetted on 30 October 2000. Under the new Brisbane City Plan (Exhibit 7) chapter 4, section 3.3 shows the areas as designated as the Main Streets Centre Precinct (page 391), and the Residential Precinct (page 392) of the Chermside Major Centre Local Plan. The front part of 738 Gympie Road is designated as Multi-Purpose Centre MP2 – Major Centre; while the rear is designated as Low-Medium Density Residential Area LMR.
The Main Streets Centre Precinct is intended to accommodate a mix of shops, offices and entertainment centres with any residential use confined to the upper level of commercial buildings. The medium residential uses in the residential precinct are restricted to three storeys in the area of 738 Gympie Road. The maximum building heights in the Main Streets Centre Precinct north of Wallace and Kuran Streets (including the subject lands) is not to exceed 8 storeys. (See Chapter 4, Pages 395 and 400).
Mr Brown argues that as the new draft Brisbane City Plan was widely known, then any prudent purchaser would have considered the impacts of the new planning regime in his considerations of the value of the subject land at 1 October 2000. Mr Brown further notes that an optimistic advertising of the subject lands since that time also reflects the likely expectations in the market place. However Mr Olive rejects that conclusion, noting that it is in the nature of real estate agents to be optimistic, not always to be totally realistic.
Mr Olive rejects the likely potential of future development upon the subject land for a building even to say 5 storeys. He notes that Mr Kallinicos had previously considered an underground basement car park on the subject land for fourteen car parking spaces at an estimated cost of $400,000. He argues such a proposal would be totally unrealistic in the current market. However Mr Brown notes that such a development was currently proposed upon a 1500 m² site immediately opposite across Gympie Road. Mr Olive rejects that as he argues that such a proposal, even with approval in place, is merely testing the market to see if substantial precommitments can be gained. He argues that does not substantiate that such a development was practical. Mr Brown agrees that may be the case. Mr Kallinicos further notes that the car parking restrictions for commercial office purposes would severely restrict developments to five levels on the subject lands.
Comparison of sales –
To support his conclusions Mr Olive provides the following sales:
· Sale 1 – (354 Hamilton Road and Kingsmill Road, Chermside). This is the sale of the former Ampol Service Station site containing 1,553 m², zoned as Residential BR4, and is located about 400 metres north-east of the subject land, and about 50 to 100 metres east of the Westfield Shopping Centre. The sale included improvements including a service station structure (120 m²) and awning (50 m²), and 600 m² of concrete hardstand, and was checked for decontamination prior to sale. The improvements have been retained and are now used for the retailing of clay pots.
Mr Olive analyses the improvements at $86,760, allowing depreciation of 40%. The sale sold in May 1999 for $402,000 ($258.85 per square metre), and was analysed at $315,240. The land currently has an applied value of $365,000 ($235 per square metre). The sale is seen to have superior access to both streets, but overall is slightly inferior due to the lesser prominence of its location.
· Sale 2 (60 Gympie Road and Suez Street, Kedron). This is a large corner irregular shape parcel of area 2,279 m², which was formerly a Shell Service Station, and is located about 3 kilometres south of the subject lands. The site is exposed to traffic, both north and south bound, and turning access for south bound traffic is available at the Suez Street intersection with Gympie Road. The site was decontaminated prior to sale, and a new large high clearance retail warehouse is now under construction. The site was zoned Residential BR4 at the date of sale, and is currently zoned Low/Medium Density Residential.
The sale sold in November 1999 for $570,000 ($250 per square metre), and is currently applied at $525,000 ($230 per square metre). Access is good from Suez Street, although there is no access allowable to the new development from Gympie Road. The sale has an inferior zoning to the subject land, and is overall seen as slightly inferior due to its lesser location.
· Sale 3 (747 Gympie Road, Chermside). This is an irregular shape improved parcel on the eastern side of Gympie Road, currently improved with a modern retail showroom used by the Wattyl Trade Paint Centre. There is also rear access from Hall Street, and the sale is opposite the subject lands, has an area of 1,174 m², and has similar zonings at the subject lands in the Main Street Centre Precinct. Overall the sale is seen as directly comparable on the superior side of Gympie Road.
The sale sold on 3 April 2001 for $450,000, and after allowing for 40% depreciation on the existing buildings, their added value was determined at $181,200, giving a resulting land value of $268,800. Mr Olive notes that the current applied unimproved value is $450,000 ($383 per square metre).
To support his valuations Mr Brown has relied in his report on the following sales:
· Sale 1 – (865 Gympie Road, Chermside – Lots 14, 16 to 19 on RP 25109 and Lot 1 on RP 70131). This is a 3,012 m² irregular shaped parcel at the corner of Gympie and Hamilton Roads and Thomas Street. The sale was formerly a church site, and contains a church and associated timber buildings. The sale has similar location (about 300 metres north of the subject land), zoning, but has superior exposure to Gympie Road, and is opposite the Westfield Chermside regional shopping centre. However subsequent Council development approval reveals that access to the site will be restricted to Thomas Street, via Hamilton Road. Overall the sale is seen as slightly superior on a rate per square metre basis.
The sale sold in May 2000 for $1,450,000 which was analysed at $1,445,000 ($480 per square metre).
[27]
· Sale 2 – (159 Hamilton Road, Wavell Heights – Lot 1 on RP 119394). This is a 1,978 m² parcel located about 2 kilometres east of the subject lands. The sale is zoned Business and had an older style retail complex which was demolished for redevelopment as a retail convenience store. Access is good to the dual lane Hamilton Road, with pedestrian access to the rear to residential areas. Overall the sale has an inferior location, exposure and shape, and is seen as inferior to the subject land.
The sale sold in June 2000 for $565,000 ($286per square metre), and after allowing for demolition costs, clearing and Council requirements, was analysed at $600,000 ($303 per square metre).
In his current analysis, Mr Brown notes the two previous sales adopted by this Court in the previous determination for the valuation at 1 October 1998. (See paragraph [12]). Mr Brown notes that those analyses at that time reflected rates for those sales at 628 Gympie Road, Chermside of area 6,306 m² ($380 per square metre) and 738 Gympie Road of area 971 m² ($458 per square metre). He argues those rates continue to support the subject lands at 738 Gympie Road of area 1,444 m² ($350 per square metre), and 744 Gympie Road of area 1,219 m² ($385 per square metre). Mr Brown sees his current Sale 1 (865 Gympie Road) as his key sale, with his Sale 2 (159 Hamilton Road) as a supporting sale.
In explaining his Sale 1, Mr Brown notes that advice to him from the agent of the purchaser indicated that it had been assumed that demolition costs of $50,000 were likely, and had been allowed for in the purchase price. For that reason Mr Brown makes no further allowance for demolition in his analysis. Mr Brown was also of the view that as the purchaser was an experienced developer, he would have been aware of access problems to Gympie Road. On that basis he makes no allowance for the improvements on his Sale 1.
Mr Olive rejects that conclusion noting that Sale 1 (865 Gympie Road) was in fact a highly improved sale, and negotiations are currently in place with a major church group for a resale of the site as a community centre. From his discussions with the purchaser, Mr Olive concludes that the sale reflected an imprudent purchaser, who had not thoroughly investigated the requirements of the Council in respect of setbacks and road widenings, and the bus stop in front of the sale. As he can not now develop the site to his requirements as a fruit barn and meat outlet facility, in line with his wider Brisbane outlets, he now intends to resell the property, with the Council approvals in place. Mr Brown notes that the asking price is well in excess of the previous sale price.
Mr Olive questions the direct comparability of Mr Brown’s Sale 2 (159 Hamilton Road) which he argues is in a different locality at Wavell Heights, in a strip retail convenience type centre. He notes rentals in that locality reflect rates in the order of $350 to $400 per square metre, while rentals near the subject land reflect returns of $200 to $250 per square metre. For that reason he sees Sale 2 as in a superior retail location, reflecting the increased popularity of convenience retailing.
Mr Olive notes that the DCP for the subject land excludes any development for retail warehousing, and the close proximity to the Westfield Shopping Centre further restricts opportunities for convenience retailing at the subject land. On that basis he argues that the two major retail growth areas in the current market are not available to the subject land.
In respect of Mr Olive’s Sale 1 (354 Hamilton Road) Mr Brown argues that the current old service station improvements do not reflect the highest and best use of that site. He notes that Sale 1 is currently surrounded by residential and multi-unit residential developments, and in his opinion is not currently located in a truly commercial precinct. However he concedes that over a period of say four to five years, it would eventually become ready for a higher use following redevelopment of the buildings. On that basis he accepts the highest and best use of Sale 2 as for commercial/retail activity, and that the current buildings can have some added value as an interim return to the investor. However he disagrees with Mr Olive’s estimate of 40% depreciation, suggesting a more realistic appraisal for the four to five years of the current life expectancy, would reflect a depreciation rate of 75%, which would be more appropriate reflecting its physical depreciation and its economic obsolescence. He notes there is a bus stop and “No Standing” zone restricting direct access to Hamilton Road.
Mr Olive notes that the current rental for its interim use reflects $52,000 per year, or about 10% of the purchase price, which is an excellent return on the investment as a holding property. Because of its close proximity and direct links to the Chermside Shopping Centre, Mr Olive sees his Sale 1 as his key sale. He sees the highest and best use of that land as the use that provides the greatest return and least risk on the investment. On that basis he rejects a depreciation rate of 75% for the improvements.
In respect of Mr Olive’s Sale 2 (60 Gympie Road) Mr Brown argues that parcel is triangular in shape, has no direct access off Gympie Road, and there was some risk to a purchaser in gaining planning approval because of the current residential BR4 zoning. He concedes that under the Integrated Planning Act 1997 (IPA) there is now greater flexibility for rezoning approvals by developers, and retail warehousing has now been approved. However he sees the previous use as a car yard as an inferior use to commercial purposes. Mr Olive sees the advantage to his Sale 2 of being able to develop a bulk goods type retail warehouse as offsetting the slightly inferior location of that sale. He believes the triangular shape is not a disadvantage in those circumstances.
In respect of Mr Olive’s Sale 3 (747 Gympie Road) Mr Brown argues that sale is a late sale after the date of issue of the current valuation, and therefore a matter for consideration at the subsequent annual valuation. Mr Paterson draws support for that conclusion in the last appeal on the subject properties (AV99-503/4). Mr Paterson also notes that Sale 3 is a sale of a highly improved property, and should be rejected on that basis anyhow. Mr Brown also argues that Sale 3 was a very low sale, perhaps reflecting in part the limited exposure to traffic caused by the adjoining buildings being built right up to the front alignment.
Because of the declining nature of the building in both a physical and market sense, Mr Brown further argues that the level of depreciation should be greater than the 40% allowed by Mr Olive. Mr Brown argues that is supported by the current unimproved value of that parcel which is $450,000, the same value as the sale price. Mr Olive does not agree that the added value of the current building is zero, due to its current use as a paint retail outlet.
While Mr Olive agrees that his Sale 3 reflected a low sale, he notes that it was sold at public auction, and there was no evidence that the vendor was under any duress to sell. He further argues that although Sale 3 was a late sale, the evidence of other sales and the stable allocated unimproved values by the respondent and general relativities stability, support that the market level had not changed in that period. Mr Olive relies upon the decision in Scougall v Chief Executive, Department of Natural Resources (1996-97) 16 QLCR 536, that such a sale was also useful in such circumstances.
Decision:
The Legal Principles -
Before considering the market evidence I note the following principles. Firstly in respect of the use of the land at 738 Gympie Road, I note that s. 3(4) of the Act directs in respect of unimproved value:
“3.(4) Notwithstanding anything contained in this section, in determining the unimproved value of any land it shall be assumed that –
(a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the time to which the valuation relates; and
(b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used;”
On that basis Mr Brown is correct in concluding that the highest and best use of that parcel is for its current use. (Department of Natural Resources v Golden Sands Community Title (AV99-280), 15 December 2000 (unreported)).
In respect of the impacts of planning upon the subject lands, it is agreed that the town plan of 1987 was the effective planning regime at 1 October 2000. However any prudent purchaser at that date should have been aware that a new Brisbane City Plan was proposed, and had been widely advertised. Indeed the potential impact of such a planning scenario was addressed in the matter of Stubberfield v Valuer-General (1988-89) 12 QLCR 328, where in the Full Court of Queensland, Carter J said at page 340:
“Finally the statement in the judgment of the Land Court viz. ‘The Court cannot give prospective recognition to the new Town Plan’ is literally true but if it is intended to convey that an advertised new planning proposal which goes on display either before the date of valuation or within the period between that date and the date of the issue of the valuation notice must necessarily be ignored it is in error. Whether such a proposal will affect the value on the date of valuation is a matter of fact but it remains a relevant matter to be considered and there is no provision in the Valuation of Land Act either express or implied which requires or permits the Valuer-General to ignore it.”
In the current matter in the proposed new Brisbane City Plan, subsequently gazetted not longer after the relevant date, the planning potential of the subject lands would have been widely known to a prudent purchaser. However the creation of new planning intentions of the Council does not of itself create a market realization of any higher potential that might later become evident. That is really a matter for the market place, taking on notice any then possible increased potential under the new Town Plan. I would agree with Mr Olive that at the relevant date of 1 October 2000, the market forces in that part of the Main Street Centre Precinct, would not appear to support any new major development to a height of five to eight storeys, in spite of the current advertising in existence for the subject land. I believe Mr Olive’s conclusion that the proposed five storey development across Gympie Road also has the appearance of market appraisal. However there is nothing to suggest that the existing use of buildings are inadequate for their current market use, as evidenced by the virtual lack of vacancies over the last decade.
I turn then to the matter of whether the later Sale 3 (747 Gympie Road), should be accepted in the current matter. There would appear to be some conflicting understanding of the two precedents drawn to my attention on this issue, in respect of whether a sale after the date of issue of the valuation should be rejected. There could be, in my opinion, two scenarios where such a later sale might be considered. Firstly in a matter of compensation for the loss of land whether rights to that land are foregone, and the former owner is to be compensated. Secondly in a valuation for rating purposes where the valuations are repeated on a regular, if not annual, basis.
In the latter circumstances there could be a tendency to conclude that a later sale after the date of issue would be considered in the subsequent revaluation, and is therefore not a matter for consideration in the current matter. However I believe any such type of compartmentalization is not appropriate, as it is the actual value of the land which is required as the relevant date, irrespective of the reason for the valuation. The only reason for a different approach by a valuer in such matters is whether there is uncertainty in the evidence. In those circumstances guidance has been provided by the High Court in Commissioner of Succession Duties (South Australia) v Executor Trustee and Agency Company of South Australia Limited & Ors (1946-47) 74 CLR 358 at 373.
In the current matter Mr Paterson draws my attention to the previous decisions on appeal for the subject lands (AV99-503/4) where the learned member concluded that a similar late sale fell outside the period of jurisdiction for consideration. (page 11). In concluding that approach the learned member found authority in Walker v The Valuer-General (1978) 5 QLCR 128 at 131; later upheld by the Land Appeal Court in (1978) 5 QLCR 347 at 349. However that matter dealt with the use of land for the business of primary production, now addressed under s. 17 of the Act. In the current matter Mr Olive does not seek to rely upon the subsequent sale which might change the current level of the market, but merely to demonstrate that the market level has not changed.
If I turn then to the decision of Scougall v Chief Executive, Department of Natural Resources (supra), I note the Land Appeal Court said at page 552:
“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).
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).”
In the current matter the evidence of both Mr Olive and Mr Brown is that there had been no change in the market since 1996, and continuing until 1 October 2001. On that basis I see no reason for rejecting Sale 3 (747 Gympie Road) on the basis of its date after the date of issue.
I then consider Mr Paterson’s concern that the respondent should not be restricted in his evidence to only those sales contained in the Freedom of Information response obtained under judicial review. In that regard I turn to the decision in Mayne Property Development Pty Ltd v Chief Executive, Department of Lands (AV94-64) 16 February 1996, where the President said at page 7:
“In my opinion there is no merit in the appellant's argument. Whatever the respondent's obligations to provide information under the Freedom of Information Act, this does not prevent him from relying on additional information before this Court. He is not required to advise the appellant of his case in advance. Here there are no pleadings by which a party is bound. On most occasions, neither party will know with any certainty what sales the other will be relying upon until they are produced at the hearing.
The unimproved value of a parcel of land is a matter of fact. A valuer forms an opinion of that value based on the evidence he has available at the time of making the valuation. Other evidence may subsequently come to his attention. If, upon closer investigation, he finds that other sales support his opinion then he is entitled to include them in his evidence or substitute them for his initial evidence.”
Now since that date there have been amendments to the Land Court Rules 2000 which now require, under s. 23, that expert evidence be exchanged prior to the actual hearing. However that does not preclude the expert from forming his opinions based upon the total evidence as it appears relevant to him at that time. There is also scope, with the leave of the Court, for variations under s. 23(3). I see no reason why Mr Brown should be restricted in his sales evidence applied in this matter.
Method of Valuation –
I turn then to Mr Kallinicos’ evidence of the declining nature of rents for the subject lands. I note Mr Brown does not disagree with that scenario, or with Mr Olive’s evidence of current vacancies in the area. However I agree with Mr Brown that if the capitalization approach is to be considered, then it is important for a full hypothetical development consideration to be addressed. However, in adopting such an approach, I am aware of the learned Member’s previous statement in AV99-503/4 where Mr Scott said at page 9:
“Having said that I must say that a comparison between rentals on improved properties is not a method which I think could be reliably used in attempting to ascertain an unimproved value. Rentals not only reflect the value of the land on which the building is found, but also the quality and use of the building and the terms and conditions of the lease. At best it could offer generalised assistance only.”
Indeed the matter of capitalization of profits has long been held as a fallacious method of computing unimproved value of land because of the personal exertion and skill and experience involved. That was explained by the High Court in Jowett v Federal Commissioner of Taxation (1926) 38 CLR 325, where Rich J said at page 328:
“If one capitalizes the profits of the operations carried on upon the land, and then makes certain deductions, the residual value is the capital value of the operations and not the unimproved value. In the operations are involved personal exertion, experience and skill, and no allowance is made for the value of these matters. If these were separated out, the capitalization process might more nearly approximate to the unimproved value. In setting to work to capitalize what can be made out of the land, you overlook the fact that the problem set is to ascertain the realization value or how much capital is locked up in the land.”
However it has been held that the capitalization of rental profits occasionally could be used to good effect, and provide equitable result, but should never be used where there are sales of comparable lands and improvements in the neighbourhood. (Angelo Efstathis v Commissioner for Railways (1958-59) 27 CLLR 52, per the President at page 54.) However in that matter the capitalization of profits method was also rejected. In the current matter I reject such an approach in view of the sales available.
I turn then to the use of the highly improved Sale 3 (747 Gympie Road), and note that the use of improved sales had long been treated with some caution by the Courts. In fact the use of only one highly improved sale alone was considered by the Land Appeal Court in Fitzgerald v Department of Lands (1965) 32 CLLR 260, where Mack J said at page 261:
“Unimproved values obtained by analysing the sale of one highly improved area do not normally provide a safe basis upon which to make determinations of value of comparable land.”
Now that is not to say that the use of improved sales has no application in respect of determining unimproved value of land, merely that great care needs to be taken in ascertaining the added value that the improvements bring to the land. The matter of added value was clearly addressed in O’Brien Nominees Pty Ltd v Valuer-General (1979) 6 QLCR 280, where the Land Appeal Court said at page 285:
“It seems to us that the concept of ‘added value’ of improvements involves at least two methods of valuation, the appropriateness of which depends to a substantial degree on the economic conditions prevailing at the relevant time.
In times of normal, and above normal, prosperity the added value which improvements give to land generally exceeds their value deduced by the traditional method of replacement cost less depreciation. The ‘added value’ of the improvements in these circumstances is usually ascertained by the method of adding to their value ascertained by the traditional method, interest for half the period of time it would take to put the improvements on the land and for them to become fully productive – vide Kiddle’s case 27 C.L.R. 316.”
In the subject circumstances, when economic conditions are depressed, the traditional method ceases to be appropriate … ‘Added value’ in these circumstances continues to be a matter of ascertaining what value the improvement add to the land in question at the relevant date irrespective of their cost, but owing to the special circumstances prevailing, there is a change of emphasis and it is a matter of ascertaining the amount which the hypothetical prudent purchaser, fully appreciative of the depressed economic conditions, would give for the actual improvements, irrespective of the cost of making them. In short it is the value the market is prepared to pay for the specific improvements on the property.”
Indeed the problems encountered in ascertaining the added value of improvements was emphasised in PH Clough v Valuer-General (1981-82) 8 QLCR 70, where the Land Appeal Court said at page 76:
“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 unimproved value. The reason is obvious. In applying such sales there is no room for error in analyzing the value of improvements.
Because there is less room for difference of opinion as to value of the various items of improvement and comparison is thus simpler, it has been held that highly improved sales should be avoided in preference to sales comprising a lesser degree of improvement.”
Comparison of sales –
I turn then to comparing the actual sales in the current matter. I note further in respect of Mr Olive’s Sale 3 (747 Gympie Road) that it is agreed it is a low sale, and there is some dispute as to the level of depreciation that should be applied to that highly improved property. If those older buildings were in fact depreciated by 75% as suggested by Mr Brown for such older buildings, in order to reflect the remaining residual use of those buildings to the purchaser, then an unimproved value of $375,000 ($319 per square metre) could be concluded. However it is agreed that reflected a low sale, in spite of its location on the better (eastern) side of Gympie Road. Bearing in mind the agreed nature of the sale, and the uncertainty about the appropriate level of depreciation, I find I get little assistance from that sale.
I turn then to Mr Olive’s Sale 1 (354 Hamilton Road) and note that similarly the improvements on that sale reflect a level of development not consistent with its long term highest and best use in line with its zoning. I believe the current interim use of the old service station structure reflects more a holding charge against a future higher use of the site. Its location currently removed from the current commercial developments supports that conclusion. On that basis I believe a depreciation level much greater than 40% would be appropriate. If I apply Mr Brown’s suggestion of 75% depreciation I could then analyse that sale at $365,850 ($235 per square metre), consistent with its current applied unimproved value.
If I then consider Mr Brown’s Sale 1 (865 Gympie Road) I find that also is a highly improved sale to which no allowance is being made for any added value of the church buildings. I am aware that it is a purpose built building for congregation purposes, but many old church buildings are now finding a life for some commercial purpose. The test of whether those church buildings contained any added value at the date of purchase, lies in an understanding of that sale.
Mr Brown argues that the sale was purchased by an experienced property developer for the purpose of erecting a new fruit barn and meat outlet. It was noted that subsequent applications to the Council supported that conclusion. The fact that it has not been developed now represents a change of objectives by the purchaser after becoming aware of the Council’s requirement for access and road widening. It could be argued that the purchaser had shown some imprudence in not confirming the Council’s intentions in those matters prior to concluding the sale. Had he known that, he may have either sought a reduction in the sale price, or vacated the sale. On that basis the sale price of $1,450,000 could perhaps be seen to reflect a high price in an informed market place.
However to balance that Mr Brown has not made any adjustment to that sale price in his analysis in order to allow for future demolition ($50,000). He argues that the agreed price had been on the basis of knowing the costs of future demolition. However if the agreed sale price reflected the true market value, then the further cost would reflect the cost of obtaining a market site. In the end I believe the approach by Mr Brown makes allowance for any uncertainty in the sale. The suggested current asking price, well in excess of $1,450,000, supports that the purchaser felt he had paid a fair price for that parcel. On that basis I will accept Mr Brown’s analysis of that sale at $480 per square metre.
In summarising then all of the relevant sales considered in this matter, I have the following comparisons:
Valuer Sale Area Analysed rate Comparison Mr Brown
865 Gympie Road
159 Hamilton Road
3,012 m²
1,978 m²
$480 per square metre
$303 per square metreSlightly superior
Inferior
Mr Olive
354 Hamilton Road
60 Gympie Road
1,553 m²
2,279 m²
$235 per square metre (adjusted)
$250 per square metreSlightly inferior
Slightly inferior
Previous valuation 628 Gympie Road 6,306 m² $380 per square metre Similar, but larger 753 Gympie Road 971 m² $458 per square metre Superior - 738 Gympie Road 1,444 m² $350 per square metre Subject land - 744 Gympie Road 1,219 m² $385 per square metre Subject land
On the above evidence there is nothing to conclude that the respondent has applied a wrong principle or made a serious error of fact. (Brisbane City Council v Valuer-General 1977-78, 140 CLR, 41 at 56). While Mr Olive has applied a quite rigorous analysis of sales evidence, his use of improved sales leaves some element of doubt in his comparisons. On balance I believe the sales at 159 Hamilton Road and 60 Gympie Road are considerably inferior to either subject land. The sale at 354 Hamilton Road in my opinion is also an inferior sale due to the premature nature of that property being able to realize its potential highest and best use. The 753 Gympie Road sale used in the last appeal is clearly smaller and on the superior (eastern) side of Gympie Road. I believe 865 Gympie Road is considerably superior to the subject land. On balance there is nothing to upset Mr Brown’s valuations in what is clearly a stable market place.
Conclusion:
Having considered the whole of the evidence I am not persuaded that the appellants have proved their cases. The appeal in respect of 744 Gympie Road is dismissed and the unimproved value as determined by the Chief Executive in the sum of Four Hundred and Seventy Thousand Dollars ($470,000) is affirmed. However the valuation of 738 Gympie Road is not supported by the evidence at $510,000. That valuation is set aside and the unimproved value of 738 Gympie Road is determined at Five Hundred and Five Thousand Dollars ($505,000).
NG DIVETT
MEMBER OF THE LAND COURT
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