Kelly v Department of Natural Resources and Water

[2008] QLC 51

LAND COURT OF QUEENSLAND

CITATION:	Kelly v Department of Natural Resources and Water [2008] QLC 0051
PARTIES:	Michael Joseph Kelly (appellant)
v.
Chief Executive, Department of Natural Resources and Water (respondent)
FILE NO:	AV2006/0236
DIVISION:	Land Court of Queensland
PROCEEDING:	Appeal against valuation.
DELIVERED ON:	22 February 2008
DELIVERED AT:	Brisbane
HEARD AT:	Mackay
MEMBER:	Mr RP Scott
ORDER:	The appeal is dismissed.
CATCHWORDS:	Valuation of Land Act 1944 – improvements not upon or appurtenant to the land are not relevant to the purposes of s.3(1)(b).
APPEARANCES:	Mr MS Kelly, for the appellant. Mr GJ Smith, (Principal Lawyer, Department of Natural Resources and Water), for the respondent.

1. Pursuant to the provisions of the Valuation of Land Act 1944 (the Act) the Chief Executive has placed a valuation on the appellant's land in the amount of $1,045,000 which represents a deduction from a valuation of $1,100,000 which applied prior to the lodgement of the appeal.  The lower figure becomes the valuation appealed against (s.68(3)).  The valuation date is 1 October 2005.  In the notice of appeal Mr MJ Kelly contended for a valuation of $403,500.  Since the lodgement of appeal Mr MJ Kelly has passed away and the case has been taken up by his son Mr MS Kelly who submitted that a valuation of $750,000 would be appropriate.  Mr Kelly is a solicitor but appeared as agent for the family and gave evidence.  David John Doyle a registered valuer provided valuation evidence in support of the Chief Executive's valuation of $1,045,000.

2. The subject land has an area of 1,996 m² and is situated in Blacks Beach which is a northern beaches suburb of Mackay.  The land is a beachfront property on the esplanade and receives excellent ocean views.  There is a rock retaining wall located on the property where it fronts the beach.  Part of the subject property has been lost to beach encroachment, the lost area being estimated at 160 m² by Mr Doyle. 

3. Before I deal with the valuation evidence I need to dispose of two issues of principle raised by Mr Kelly.  He submitted that in striking unimproved value it was appropriate to treat the land as not being improved by such things as civil works and the provision of services which would have been applied to raw land to create the subject lot, along with other lots.  In other words, those operations of man would need to be notionally disregarded in the statutory valuation process. 

4. The subject land is clearly "improved land" so it is s.3(1)(b) of the Valuation of Land Act which applies:

   "3.(1)  For the purposes of this Act –

   ‘unimproved value’ of land means –

   (a)           …

   (b)in relation to improved land – the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that, at the time as at which the value is required to be ascertained for the purposes of this Act, the improvements did not exist."

5. "Improvements" are defined in s.6(1) which I need quote only in part:

   "(1)  'Improvements' means, in relation to land, improvements thereon or appertaining thereto, whether visible, invisible or intangible, and made or acquired by the owner or the owner's predecessor in title, and includes …"

6. The definition of "improvements" in s.6(1) proceeds on the assumption of an understanding of the word "improvements" which is itself included in the statutory definition.  Such understanding, at least of physical improvements, is expressed by Griffith CJ in Morrison v Federal Commissioner of Land Tax (1914) 17 CLR 498 where at 503 he said:

   "… any operation of man on land which has the effect of enhancing its value comes within the definition of 'improvement'."

7. In Brisbane City Council v Valuer-General (1978) 140 CLR 41 at 51 Gibbs J (as he then was) said:

   "In the first place, an improvement in relation to land must be 'thereon or appertaining thereto'.  This means that the improvements, if not on the land, must be 'such as are in the strict legal sense 'appurtenant' to the property and incident to its ownership' (McDonald v Deputy Federal Commissioner of Land Tax (N.S.W.) (1915) 20 CLR 231."

8. The requirement for an improvement to be "appertaining" to the land, as this was explained in McDonald the Deputy Federal Commissioner of Land Tax, was considered in Glebe Municipal Council v Howard Smith Limited (1921) Vol. V NSW LGR 112 where at 115 Pring J said:

   "The words 'appertaining thereto,' I think, must mean, as Isaacs J. pointed out in McDonald v The Deputy Federal Commissioner of Land Tax(20 C.L.R 231), improvements which are in a strict legal sense appurtenant to the property and incident to the ownership. That is to say, as I understand his Honour, the improvement must be of such kind that it is appurtenant to the freehold and can be transferred with it."

9. It follows from an application of the above authorities that operations of man which are improvements in the general sense of that word are not relevant to the application of s.3(1)(b) of the Valuation of Land Act unless those improvements are upon or appurtenant to the land in question. That is such operations of man as civil works in the provision of services to the boundary of a site and neither on the land nor appurtenant in the sense of creating a proprietary interest which is capable of conveyance with the land, are not improvements which must be notionally disregard in the application of s.3(1)(b). Indeed, land must be valued as lying within its improved external environment even if the use of the land has been instrumental in improving that environment. (Tetzner v Colonial Sugar Refining Co Ltd (1958) AC 50 at 57).

10. The second issue raised by Mr Kelly related to the value of improvements on a parcel of land.  The suggestion was that as a parcel of land grew in value so did the value of improvements.  As I understand the submission it was contended that if, for example, land increased in value by a factor of x % so would the improvements on it.  That proposition relied in part on Mr Kelly's contention that in the case of an improved parcel of land the land component and the improvements component form an "indivisible asset".  Whilst it is consistent with the general law, in particular the doctrine of fixtures, that improvements upon a parcel of land are to be considered as part of the land, it does not follow that the value of improvements and the unimproved land component move in tandem.  The notion of value as explained by the High Court in Spencer v Commonwealth (1907) 5 CLR 418 in the various judgments of the Court applies equally to the value of improvements as it does to that of land. It may be instructive to Mr Kelly for me to supply the following quotation from the judgment of Isaacs J at 441:

    "To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration.  We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property."

11. A vendor selling land upon which improvements have been made would have difficulty finding a buyer if he asked for a price based on the thesis proposed by Mr Kelly.  A purchaser will pay nothing more for the improvements than what their existence on the land would save him from having to effect the improvements himself, having regard to the condition they are in.  Some improvements will have declined in value since originally effected so will have a value less than their cost of replacement.  This proposition was explained in Kiddle v Deputy Federal Commissioner of Land Tax (1919) 27 CLR 316 at 320:

    "The question to be solved in ascertaining the value of improvements for the purpose of arriving at the unimproved value is what part of the improved value of the land is attributable to the improvements to be valued.  Presumably, a purchaser of the land, if he considered this question at all, would determine that the amount to be attributed to value of improvements would be equal to the amount which he gained or saved by reason of the improvements having been made, he being thereby relieved from the necessity of making them.  This amount would be found by ascertaining the amount which it would cost to make the improvements in question at the relevant date, including a proper allowance for loss of interest on all outlay during the period which must elapse before such outlay became fully productive, and by deducting from the sum so ascertained a proper allowance for depreciation or partial exhaustion of the improvements."

12. I now turn to the valuation evidence dealing, first, with that provided by Mr Doyle.  He relied directly on three sales and referred to another sale as a check.  Sale number 1 in Mr Doyle's valuation took place in November 2005 and involved the sale of an area of 1,271 m² for a price of $1,200,000 which Mr Doyle analysed to an unimproved value of $1,197,000.  The contract of sale involved two allotments at Dolphin Heads which were of irregular triangular shape.  Following the sale the purchaser amalgamated the two lots into a single lot upon which he intends to build a residence.  Mr Doyle treated the transaction as being evidence of what a purchaser would pay for one allotment of 1,271 m² and compared the sale property with the subject property on that basis. 

13. Mr Kelly submitted that it is not appropriate to treat this transaction as a single sale as two properties were sold.  I think that to be a rigid approach which does not take into account that both lots were purchased in one contract; that they were individually poor in shape, particularly for residential purposes; and that following settlement the purchaser amalgamated them and intends to build on the resultant lot.  The transaction should be treated as a sale of a single parcel of land for the purpose of valuation in my opinion.  Indeed it may even be appropriate to add the costs of amalgamation to the purchase price. 

14. Mr Doyle expressed the view that the sale land is overall superior to the subject property though inferior in size and the resultant block shape.  He agreed that the sale land was superior in location to the subject and that the Dolphin Heads area is one of the most prestigious residential areas in Mackay.  He did not accept, however, that on the basis of that the sale property is significantly superior to the subject.  In his comparison he has effectively discounted the analysed unimproved value of the sale land by about 12.5% in settling on his value for the subject property:  a discount which appears to lean in favour of the subject land slightly, given the points of comparison between the two properties. 

15. Sale number two in Mr Doyle's valuation is also at Dolphin Heads though comprises a property which fronts the mouth of a mangrove creek.  The sale took place in August 2005 and comprised an area of 491 m² which sold for an analysed unimproved price of $548,000.  Whilst located in the Dolphin Heads area, the sale was considered by Mr Doyle to be slightly inferior in location compared with the subject given that direct access to the beach is not available from the sale property.  This sale appears to me to be supportive of the application of sale one to the subject property.

16. The third sale in Mr Doyle's valuation took place in June 2005 and involved the sale of 732 m² for an analysed sale price of $348,750.  Mr Doyle said that even though the sale land does not have an ocean view and cannot achieve one even with the construction of a high-set house on the land, it is evidence that a substantial price will be paid for the land on the esplanade. 

17. Mr Kelly raised with Mr Doyle the sales evidence employed by the State Valuer in an earlier appeal involving the subject land[1] involving an appeal as at 1 October 2004.  Mr Kelly's point was that the sales properties relied on by the Court on that occasion had not been the subject of statutory valuation increases to 1 October 2005 of the order of that determined for the subject property by the Chief Executive.  Mr Doyle's approach of utilising recent comparable sales evidence is to be preferred to the approach suggested by Mr Kelly in my opinion.  In Barnwell v Valuer-General (1990-91) 13 QLCR at 17, the Land Appeal Court said:

    "It has been well recognised over the years that previously established relativity in unimproved values can and does change from valuation to valuation.  If there was no justification for change in relativity, the valuer's task would be very simple in that all that would be required to establish value would be accomplished by the use of an adjusting formula.  This, of course, is undesirable."

    [1]            See Kelly v Department of Natural Resources and Mines [2007] QLC  0001.

18. Mr Doyle said the residential market in Mackay has been strong for several years and that values increased from 2004 and continued to increase during 2005.  Whilst Mr Kelly appeared to accept that opinion he was of the view that the market had not plateaued since the end of 2005 as was suggested by Mr Doyle. 

19. Mr Doyle included a supporting sale in his valuation report.  That sale took place in July 2006 and involved the sale of an improved property at 66 Bourke Street, Blacks Beach for $930,000 which was analysed to an unimproved figure of $860,000.  That sale property is inferior to the subject land in Mr Doyle's opinion.  I am of the opinion that Mr Doyle has analysed the sale in accordance with principle and that the value he placed on the improvements was not shown to have been astray.  There was opinion evidence from Mr Kelly that the growth in values in Mackay including Blacks Beach continued into 2006 whilst Mr Doyle was of the view that the market had plateaued from late 2005.  Insufficient evidence was placed before me to resolve this difference in opinion; however it is not an issue that I need to dispose of.  I think that it would not be correct to utilise this sale as a direct basis for valuing the subject land, but that it has use as a limited support not for the value, as such, of the subject property but for a conclusion about the order of values.  Mr Kelly challenged the thinking that a parcel of residential land in Blacks Beach could have a value unimproved of $1,000,000 as at 1 October 2005.  What this supporting sale demonstrates I think is that a value of the order that settled upon by Mr Doyle is not one that could be described as being either unexpected or fanciful. 

20. Mr Kelly introduced a sale at Sarina Beach comprising an area of 4,362 m² purchased for $1,350,000 plus goods and services tax on 1 February 2005.  The sale was subject to the purchaser obtaining a suitable development approval from the local council.  The purchaser intends to subdivide the land.  Mr Doyle's sales evidence is to be preferred in my view.  Blacks Beach has, in effect, become a suburb of Mackay and has a larger market than Sarina Beach which remains a small though attractive seaside town.  They were different markets at 1 October 2005.  Mr Kelly also mentioned a sale at 32 Bourke Street, Blacks Beach – a property which sold in November 2003.  That is not a suitable basis given the common view of the parties that the market in Mackay grew substantially after the date of that sale.  The same criticism can be made on the sale at 34 Bourke Street, in March 2004 mentioned by Mr Kelly.  Exhibit 9 comprises a schedule showing percentage increases in values based on the averaging of an understated number of sales in Mackay.  That schedule is of no assistance to me because it records conclusions without supplying the basis evidence upon which those conclusions are drawn and because it involves an averaging of values.  (See Commonwealth Australia v Milledge (1953) 90 CLR 157 at 161.

21. Mr Kelly expressed dismay that the valuation of the subject land had increased from $490,500 as at 1 October 2004 (determined by this Court in 2007) to in excess of $1,000,000.  He calculated that the earlier amount had increased by 224%.  Whilst I appreciate that an increase of an order of that evidenced in this case could be a matter of concern, indeed shock, for any landholder and would generate a reasonable question as to its validity, my focus needs to be on the valuation appealed against and the evidence adduced in support of that, not the level of increase in value.  NR and PG Tow v Valuer-General (1978) 5 QLCR 378:

    "It follows that a large increase over and above the previous valuation is in itself not a relevant issue provided bona fide sales of comparable parcels support the new valuation."

Order:

The appeal is dismissed.

RP SCOTT

MEMBER OF THE LAND COURT