Kennaugh and Secretary, Dept of Families, Housing, Community Services and Indigenous Affairs
[2011] AATA 346
•25 May 2011
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2011] AATA 346
ADMINISTRATIVE APPEALS TRIBUNAL )
) No. 2010/4406 &
GENERAL ADMINISTRATIVE DIVISION ) 2010/4412 Re Donald Kennaugh and
Lynette Kennaugh
Applicants
And
Secretary, Dept of Families, Housing, Community Services and Indigenous Affairs
Respondent
DECISION
Tribunal Senior Member Jill Toohey Date25 May 2011
PlaceSydney
Decision The decision under review is affirmed.
.................[sgd].............................
Jill Toohey
Senior Member
CATCHWORDS
SOCIAL SECURITY – age pension – assets test – valuation of properties – applicants claimed valuations by Australian Valuation Office excessive – whether applicants’ valuation should be preferred – decision under review affirmed
Social Security Act 1991 s 92H
Re Woodhouse and Department of Social Security (1987) AATA 73
Re Torv and Secretary, Department of Social Security (1992) AATA 185
Re Secretary, Department of Social Security and Langton (1993) 31 ALD 579,
Kirkovski and Secretary, Department of Family and Community Services [2004] FCA 790
Spence v Commonwealth of Australia [1907] 5 CLR 418
Goldthorpe and Secretary of Department of Employment and Workplace Relations [2007] AATA 1875
Henderson and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 468
REASONS FOR DECISION
25 May 2011 Senior Member Jill Toohey
Mr Timothy Jenkins, Member
Background
1. Donald and Lynnette Kennaugh seek review of a decision by Centrelink concerning the effect of the value of their assets on their age pension. They accept their eligibility for the pension is subject to an assets test but they dispute Centrelink’s valuation of several of their assets.
2. Mr and Mrs Kennaugh applied for age pensions on 14 January 2010. In their application they listed their various assets, which included real estate. In addition to their family home (which is exempt from the assets tests), they advised that they jointly owned four properties at Gilgandra in New South Wales, the value of which they estimated to be $120,000.
3. For the purposes of assessing Mr and Mrs Kennaugh’s application, Centrelink asked the Australian Valuation Office (AVO) to value the four properties. Based on roadside inspections on 11 and 12 February 2010, the AVO advised they had a combined value of $300,000. Taking this valuation into account, Centrelink determined that the total value of Mr and Mrs Kennaugh’s assets was $977,226 which exceeded the allowable amount in the Social Security Act 1991 (the Act) and, consequently, Centrelink rejected their claim for age pension.
4. Mr and Mrs Kennaugh disputed the AVO’s valuation and asked Centrelink to review its decision. In particular, they relied on recent valuations obtained by the Gilgandra council for the purpose of levying rates on the properties, which put their total value at $217,000.
5. For the purposes of reviewing its decision, Centrelink asked the AVO to conduct full on-site inspections of the properties. Mr Tony Galvin, a licensed valuer employed by the AVO, who made the roadside inspections, inspected the properties on site on 23 June 2010 and, as a result, valued one property slightly higher, and another lower, than previously. The new valuation put the total value of the properties as at their original valuation date at $285,000.
6. Mr Galvin advised Centrelink of his revised valuation on 20 July 2010. In the meantime, on 27 April 2010, a consumer price index increase in the allowable amount under the assets test meant that Mr and Mrs Kennaugh became entitled to a part pension from that date.
7. On 11 August 2010, Centrelink accepted Mr Galvin’s revised valuations. The effect was that Mr and Mrs Kennaugh remained entitled to the part pension from 27 April 2010, but not before, because the value of their assets before that date still exceeded the allowable amount.
8. On 14 September 2010, the Social Security Appeals Tribunal (SSAT) affirmed Centrelink’s decision.
The issue
9. There is no dispute that Mr and Mrs Kennaugh’s eligibility for the age pension is subject to income and assets tests. There is no dispute as to what assets are subject to assessment or how the age pension is calculated once the value of the assets has been determined.
10. The sole issue before us is what the value was of the four properties in question during the relevant period.
11. The relevant period is from 14 January 2010, when Mr and Mrs Kennaugh made their original application, to 15 April 2010, being thirteen weeks later: s 92H(1)(a) of the Act.
The evidence
12. In their original application, Mr and Mrs Kennaugh estimated the total value of the four properties at $120,000. They have not specified in these proceedings what value they think is appropriate but they appear to accept that their original estimate may have been too low. In any event, even the most favourable evidence indicates the value is considerably more than their initial estimate.
13. The roadside valuations conducted by Mr Galvin in February 2010 arrived at valuations of each property as follows:
Lot 5-9 Everton Road (known as Lot 8) $ 50,000
Lot 5 Newell Highway – Olive Grove $100,000
Lot 6 Newell Highway $ 90,000
Lot 3 Newell Highway $ 60,000$300,000
14. Following his onsite inspections in June 2010, Mr Galvin estimated the value of each property as follows:
Lot 5-9 Everton Road (known as Lot 8) $ 50,000
Lot 5 Newell Highway – Olive Grove $100,000
Lot 6 Newell Highway $ 70,000Lot 3 Newell Highway $ 65,000
$285,000
15. A letter dated 10 May 2010 from the Gilgandra Shire Council to Mr and Mrs Kennaugh shows that valuations received from the Land and Property Management Authority (LMPA), and used by the Council to levy rates, were as follows according to a “base date” of 1 July 2009:
Lot 5-9 Everton Road (known as Lot 8) $ 45,000
Lot 5 Newell Highway – Olive Grove $ 59,000
Lot 6 Newell Highway $ 48,000Lot 3 Newell Highway $ 65,000
$217,000
16. Mr Galvin gave evidence before the Tribunal. He is a qualified practising valuer, a member of the Australian Property Institute and a senior valuer with the AVO. He has 27 years’ experience including in the Valuer General’s Department and has conducted numerous valuations in western New South Wales including, for some six or seven years, in the Gilgandra Shire. His particular expertise is in the valuation of rural properties.
17. Mr Galvin gave evidence that he arrived at his valuations of Mr and Mrs Kennaugh’s properties using the “direct comparison method” which involves research and analysis of recent sales of comparable properties in the immediate area, taking into account variations such as land size, aspect and the condition of any improvements. In respect of each property, he produced a detailed written report setting out its location, physical description and improvements, and details of recent sales of comparable properties noting, where relevant, variations. Where applicable, he included any sales over previous years that might indicate a general trend in values.
18. The onsite inspections led Mr Galvin to decrease his roadside valuation of Lot 6 Newell Highway from $90,000 to $70,000 and to increase his valuation of Lot 3 Newell Highway from $60,000 to $65,000. He gave evidence that he revised his valuations to take into account recent sales which, in his judgment, made the adjustments appropriate.
19. Although he carried out the onsite inspections in July 2010, Mr Galvin gave evidence that he took into account that Centrelink had originally requested the valuations in February 2010, and he used his professional judgment in estimating their value as at the earlier valuation date.
20. Mr and Mrs Kennaugh take issue with Mr Galvin’s valuations and believe he has overestimated the value of their properties by 15% to 20%. They are aware that he is based in Young, several hours from Gilgandra, and they question his knowledge of local conditions. They also question the LPMA valuations and say that it is “common knowledge” among rural landholders that their properties are overvalued for the purposes of rates and that the rates they pay are too high. Further, they question how there can be such a variation between the LPMA’s and Mr Galvin’s valuations.
21. In relation to the valuations by the LPMA, Mr Galvin gave evidence that these are statutory valuations produced in accordance the Valuation of Land Act 1916 for the purpose of levying council rates and do not include the value of any improvements. He added that they are based on the position two years prior to the valuation.
22. Mr Galvin is correct in saying that the LPMA valuations are land value only and do not include any improvements (see: Valuation of Land Act 1916, s 6A(1)). Further, although it is not entirely clear, some support for his assertion that valuations can be two years old is found in the letter of 10 May 2010 from Gilgandra Shire to Mr and Mrs Kennaugh, which sets out the most recent valuation of each of their properties “for the relevant rating periods” by reference to a “base date” of 1 July 2009. A reference to rates to be levied in “2010/11” suggests the time lapse referred to by Mr Galvin.
23. Mr and Mrs Kennaugh dispute in particular Mr Galvin’s valuation of $100,000 for the property at Lot 5 Newell Highway, referred to as “the Olive Grove”. They have approximately 1200 olive trees on the property but say that, despite a bumper crop this year, they have barely broken even because of a glut in the market. In these circumstances, they say, a valuation of $100,000 is unrealistic and the property would actually be worth more without the olive trees.
24. In relation to the Olive Grove, Mr Galvin gave evidence that he assessed its value by reference to comparable hobby farms. He acknowledged that the current state of the market means there is relatively little value in the trees themselves and so he assessed them, by his reckoning conservatively, at $10 each based on nursery and wholesale prices for young trees. He took into account that Mr and Mrs Kennaugh’s trees are approximately nine years old, just past the age when they could be expected to start fruiting, and are of types known to be good for oil (which Mr Kennaugh acknowledges). On this basis, he assigned $12,000 of the $100,000 valuation to the olive trees; the rest of the value was attributable to the land itself.
25. In support of their application, Mr and Mrs Kennaugh have submitted a letter dated 15 November 2010 from Ms Helen Oates, a local real estate agent, who states that she has been a licensed real estate agent in Gilgandra area for thirty years. She says that interest in small acreage had waned with the instability caused by increasing interest rates and, together with political and weather factors, she believes “the perceived attainable value for these blocks to have reduced in value by 15% over the last 6 months”.
Consideration
26. The Act offers no guidance as to how property, including real estate, should be assessed for the purposes of the assets test. However, the Tribunal and the courts have considered the matter on a number of occasions and have arrived at a consistent view that the Tribunal must consider the net market value of a property based on comparable sales and the “best use” to which the property could be put. This approach, taken by the Tribunal in Re Woodhouse and Department of Social Security (1987) AATA 73, Re Torv and Secretary, Department of Social Security (1992) AATA 185, and Re Secretary, Department of Social Security and Langton (1993) 31 ALD 579, was endorsed by the Federal Court in Kirkovski and Secretary, Department of Family and Community Services [2004] FCA 790.
27. Put another way, the High Court in Spence v Commonwealth of Australia [1907] 5 CLR 418, per Griffith CJ (at 432), said the question was not what price the seller of land might actually have obtained on a given day, that is whether there was in fact on that day a willing buyer, but “what would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell it?”
28. We have considered the evidence before us and, for the following reasons, we prefer Mr Galvin’s valuation of Mr and Mrs Kennaugh’s properties to any other.
29. Mr Galvin has many years’ experience as a licensed valuer, including in the Gilgandra area. The fact that he is now based in Young, some hours drive from Gilgandra, does not take away from his experience in rural properties in general, and in that area in particular. Further, his valuations are based on onsite inspections and supported by detailed reports which explain his methodology, set out comparable sales, note similarities and differences and, generally, make clear the basis on which he reached his conclusions.
30. We agree with Deputy President Jarvis in Goldthorpe and Secretary of Department of Employment and Workplace Relations [2007] AATA 1875 that “valuations by government officials should not lightly be departed from, having regard to their statutory obligation and the significance of the use that may be made of the valuations arrived at…”.
31. We do not accept that we should prefer the LPMA valuations to Mr Galvin’s. As the legislation and, indeed the letter from the Gilgandra Shire, make clear, the LMPA valuations are for the purpose of calculating rates and charges payable to the council. They are not for the purpose of estimating a fair selling price.
32. As the Tribunal pointed out in Henderson and Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2008] AATA 468, AVO valuations are prepared for Centrelink for the purpose of assessing a person’s entitlement to income maintenance payments by reference to the market value of their assets. That is not to say that an AVO valuation should necessarily be preferred to any other: it is reasonable to subject any valuation to scrutiny. However, given its purpose and that it assesses market value, there would need to be good reason to prefer another valuation, and no such reason where another valuation is for a different purpose altogether.
33. We cannot prefer Ms Oates’ opinion to the AVO valuation. We have no reason to doubt her experience, and Mr Galvin acknowledged that she is a trusted real estate agent in the area. However, no matter how thorough her knowledge of the local market, she is not a registered valuer and nor can she be considered independent in the way that Mr Galvin can. Moreover, leaving aside that she does not make clear what the base figures are that she believes have been reduced by 15%, the main problem with her opinion is that it refers to “the last 6 months”, that is, to the period from April to November 2010, after the period that we are required to consider.
Conclusion
34. Taking all of these matters into account, we are satisfied that the correct valuation of each property is as set out in Mr Galvin’s onsite inspections. It follows that the value of the Gilgandra properties has been correctly assessed at the relevant time for the purpose of determining Mr and Mrs Kennaugh’s age pension under the assets test and that the decision under review should be affirmed.
35. As the SSAT observed, it is open to Centrelink to conduct further reviews of property values from time to time and it may be in Mr and Mrs Kennaugh’s interest to ask Centrelink to do so again. The property market can vary and Ms Oates’ opinion as to more recent movements in market value may well be correct. An independent valuation by a registered valuer may support their case and, if so, it is open to them to present such valuation to Centrelink.
I certify that the 35 preceding paragraphs are a true copy of the reasons for the decision herein of Ms J Toohey, Senior Member.
Signed: ...........[sgd]..........................................................................
Diana Weston, AssociateDate of Hearing 3 May 2011
Date of Decision 25 May 2011
Applicants Self represented
Solicitor for the Respondent Ms P Sharma, Centrelink Advocacy Branch
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