Kizleap Pty Limited v Chief Commissioner of Stamp Duties
[2001] NSWSC 80
•23 February 2001
Reported Decision:
(2001) ATC 4095
(2001) 46 ATR 323
New South Wales
Supreme Court
CITATION: KIZLEAP PTY LIMITED v CHIEF COMMISSIONER OF STAMP DUTIES [2001] NSWSC 80 CURRENT JURISDICTION: Administrative Law List FILE NUMBER(S): SC 30019/98 HEARING DATE(S): 09/03/00, 10/03/00, 16/03/00, 28/04/00 JUDGMENT DATE:
23 February 2001PARTIES :
Kizleap Pty Limitedv
Chief Commissioner of Stamp DutiesJUDGMENT OF: Adams J at 1
COUNSEL : Mr R W White SC (Plaintiff)
Dr H R Sorensen (Defendant)SOLICITORS: Gregory T Ward & Co (Plaintiff)
I V Knight (Defendant)CATCHWORDS: Valuation of land - caravan park - acquired as going concern - whether land worth 80% of price - personal goodwill - significance of substantial management input - modes of calculating land value LEGISLATION CITED: Stamp Duties Act 1920
Valuation of Land Act 1916CASES CITED: IEI Ocean BV v Commissioner of Stamp Duties 1998 1QD.R36
Federal Commissioner of Taxation v Williamson (1943) 67 CLR 561
Federal Commissioner of Taxation v Murray (1998) 193 CLR 605
Haberle Crystal Springs Brewing Co v Clark (1929) 30 F 2 d (2nd IR 219)
Federal Commissioner of Taxation v Krakos Investments Pty Limited (1995) 61 FCR 489DECISION: Judgment for the plaintiff with costs.
1 HIS HONOUR: Zonula Pty Limited (Zonula) operates a caravan and camping park known as the “Lake Illawarra Village Caravan and Tourist Park” (the park), in a popular holiday area south of Sydney. Its business utilises land owned by it and other land over which it has a permissive occupancy. In November 1993 the plaintiff, Kizleap Pty Limited (Kizleap), acquired a majority interest in Zonula. The Stamp Duties Act 1920 (the Act) requires a person who acquires a majority interest in “a designated land holder” to lodge with the Chief Commissioner of Stamp Duties (the Commissioner) a statement in respect of the acquisition. This statement is chargeable with ad valorum duty: ss 99E and 99F.
2 It is not controverted in this case that the plaintiff acquired a majority interest in Zonula and, if that company was “a designated land holder”, was required to lodge a statement and pay ad valorum duty. Section 99A of the Act defines a “designated land holder” as a land holder which is entitled to land “the unencumbered value of which...comprises not less than 80% of the unencumbered value of all assets to which it is entitled” excepting certain assets (excluded assets) and is not less than $1,000,000. It is not disputed that the unencumbered value of the land to which Zonula is entitled is not less than $1,000,000. The plaintiff acquired a majority interest in Zonula as part of a transaction involving a number of other parties. The precise details of the arrangements do not matter. The significant aspect of the transaction, however, is that the assets of Zonula were valued by them at $4,150,000, of which $14,591 was in cash and money on deposit. The Commissioner accepts the accuracy of these figures. The assets of Zonula comprise, for practical purposes, the land and the business of the park. Although the land in question was purchased by Zonula in August 1989 for a stated price of $4,250,000, it is clear that this purchase was not confined to the real estate but included the business operated on the land. The crucial question is whether the value of the land component of $4,150,000 (less $14,591) is not less than $3,308,327.
3 Initially, the Commissioner was of the view that, the property having been purchased in August 1989 for $4,250,000 and the total assets of Zonula disclosed in the accounts being about $4.5 million (with certain adjustments), it followed that the unencumbered value of the land comprised well over 80% of the unencumbered value of all assets of the company. It shortly became clear, however, that this was a misleadingly simplified view of the facts. Although the Commissioner asserted that the parties to the share sale agreement “agreed that the property was at the time of the share sale agreement worth only $4,150,000”, that agreement was not confined to the real estate but the entire assets of Zonula. The Commissioner conceded that the sum of $450,000 representing the value of plant and equipment, office equipment, on site vans and cabins and the like should be deducted and also that an amount in respect of goodwill should be allowed. In connection with this latter element of Zonula’s assets, the Commissioner considered that its value was relatively insignificant and allowed only $50,000 for it. The resulting sum of $3,650,000 represented, in the Commissioner’s view, the unencumbered value of the land. It is not disputed that, if this be right, then it would be not less than 80% of the value of all relevant assets to which Zonula was entitled at the time of the share allotment. Although the amount allowed for non fixtures is rather postulated than calculated, there is no issue between the parties that it is a reasonable estimate of the value of these assets.
4 It was submitted on the Commissioner’s behalf by Dr Sorensen of counsel that the purchase by Zonula of the park involved no purchase of goodwill of any significance and the absence of any value attributed to goodwill in the company’s balance sheets meant that it was appropriate to attribute the entire consideration for the acquisition of 1989 to the real estate less fittings, equipment etc specified in an inventory forming part of the contract for sale (but not ascribing any value to them) to the land occupied by the caravan park. However, I accept the evidence of Mr Fleming, a chartered accountant and one of the directors of the plaintiff and Zonula at all relevant times, that the company acquired the park, in substance, as a going concern and did not advert to any need to distinguish between the real estate and the other tangible assets on the one hand, and any goodwill on the other. The course of litigation in this appeal demonstrates the difficulty of undertaking this task at all events. I accept the submission of Mr White of Senior Counsel for the plaintiff that no inferences as to the perceived value of the real estate as such could reasonably be drawn from the undifferentiated specification of the consideration for the purchase of the caravan park. I accept, also, that the mere fact that the balance sheets of Zonula do not make provision for goodwill and bring in the land and buildings at $4,250,000 plus acquisition costs does not amount to a valuation of the real estate for the purposes of determining the dispute between the Commissioner and the plaintiff in this case.
5 It will be necessary for me, in due course, to deal with the issue of goodwill in respect of the park but it is important to note, at the outset, that the crucial question concerns the value of the land. The value of goodwill, if any, is material in a secondary sense since, if the value of Zonula’s assets as at the date of the share transaction was $4,150,000, deduction of plant and equipment and on site caravans and cabins which were not fixtures and the value of goodwill would permit calculation of the value of the land. The Commissioner's approach, as I have pointed out, is to accept that there may be some goodwill not forming part of the value of the land for which a nominal allowance (suggested at $50,000) should be made but that whatever that sum was, it could not reduce the land value below the critical 80% of the company’s assets.
6 Goodwill is a notoriously difficult element to value although no one doubts that a commercial undertaking will often be worth far more than the tangible assets which it owns. Mr Fleming gave evidence that the contract price considerably exceeded the value of the real estate and was based on what he called the “potential cash flow” to be derived from improved management. In considering the value of the land, it was regarded as significant that it was flood prone.
7 It appears that the property was used as a camping ground in the early 1960s and that a business was established on it in about 1965 when development consent was granted to the use of the property as a holiday park by the St George Leagues Club which acquired it for the benefit of its members. The park was then known as “Beachcomber” but this was later changed to “Lake Illawarra Village Caravan Park”. This identified the park with the area in which it was located, although there were a number of nearby competing parks which could, with equal justification, have been described in the same way. For this reason, I am of the view that the name is significantly more than of nominal value and do not accept the evidence, in this respect, of Mr Wilson, the valuer called by the Commissioner.
8 It seems that the park was progressively developed and became a popular holiday venue for the members of the St George Leagues Club, their families and friends. The Club sold the park in the mid1980s and it was then onsold, as I have mentioned, to Zonula in August 1989. Some of the shareholders of Zonula had a strong connection with the Leagues Club or were active in the district. It appears that Zonula maintained the patronage of club members and their friends for the park. The changes arising from the transaction of November 1993 did not vary this connection. The directors and shareholders of Kizleap have strong local connections and have continued to encourage patronage of the park by members of the St George Leagues Club. Since 1993 a number of residents who were in the habit of using the park for holidays, have now come to live there in retirement. It is said that this derives, or at least mainly derives, from their continued association with other residents, the shareholders of Kizleap, and the management and staff. As no attempt was made to controvert this account (which comes from the report of Mr Edmonds, a valuer retained by Kizleap), I consider that it is appropriate to accept it as substantially true.
9 It appears that of the 370 licensed sites (180 long term, 190 short term), between 312 and 321 were available for occupation as at 1 November 1993 and of these 286 were occupied. About 220 are occupied permanently and about 60 are tourist sites. Permanent residents live on most of the permanent sites, the balance of which, known as “storage sites”, is used as holiday accommodation by persons who leave their vans permanently on site. A change in the layout of the park would be necessary to accommodate all 370 sites for which the park is licensed.
10 Although there can be no doubt that the site itself is of considerable attraction to those who live there permanently and holiday makers by virtue of its physical attributes and position, a substantial part of its attraction is purely personal in the sense that relationships have developed over time between occupiers of the site, whether permanent or temporary and between them and management and staff.. Whilst the site itself was very likely the initial attraction for custom, it is clearly not the only attraction. If such personal relationships were severed by any particular person no longer remaining at or visiting the park, it may well be that their friends would also move. Mr Wilson, (the valuer relied on by the Commissioner), in my view, significantly overstates the likely permanence of residence by the park’s occupants.
11 Moreover, the carrying on of the business of a caravan and mobile home park requires a substantial input of management and personal skills. Evidence was given about this by Mr Graham Nunn, who had very extensive experience in the management of caravan parks. His expertise in this respect was not controverted. He investigated all aspects of the business, not only examining its financial and other records but also conducting discussions with the managers and staff and attending at the park on a number of occasions to observe generally how it was conducted. In Mr Nunn’s opinion, there was what he described as “reasonable harmony” amongst the residents of the park and that the managers and staff had established and maintained good relations with them.
12 Up to 1,200 people live on the park at any one time. These people are widely diverse. Typically, some are poorly educated and depend upon the manager to assist them with matters such as reading correspondence they receive, writing letters for them and explaining documents. From time to time, the manager will need to counsel and advise residents. It is important to note that residents live in close proximity to each other in caravans and mobile homes which do not provide a great deal of privacy. People living in such a situation, of course, need to respect their neighbours’ rights to privacy and quiet enjoyment. It is an important responsibility of the manager to ensure that residents do so. Unless the manager has good personal relations with residents, this task can be made much more difficult, if not impossible. The manager and his or her staff must also undertake discreet supervision of residents to ensure that such activities as prostitution, drug dealing and consumption and petty thieving and the like can be detected and dealt with quickly and appropriately. This task is obviously made easier, indeed practicable, by the personal knowledge acquired by the manager of the park’s residents through social interaction. In short, a harmonious and secure environment is a very significant factor in attracting and maintaining custom for the park in a context where caravans and mobile homes are easily transported and there is significant competition for custom from nearby park operators. In this context, it is difficult to attribute any useful meaning to the phrase “average management”, which was adopted by Mr Wilson for the purpose of this analysis.
13 Mr Nunn formed the view that at the time of his investigations in late 1993, the park was well managed and this made a substantial contribution to the continuity of occupation of their sites by the residents. I accept his evidence. The proportion of permanent to casual residents increased significantly as a result of management decisions made after the share transaction in issue here.) Although I have referred to “permanent residents”, in fact such residents, by and large, stay for two and a half to three years and then move on.
14 As I have already mentioned, the purchase price of the park paid by Zonula in August 1989 of $4,250,000 and the purchase price paid by Kizleap for its majority interest in Zonula was essentially for a business of which a substantial part comprised the land upon which the park was conducted and another substantial part was goodwill together with some other items which need not presently be dealt with. In IEI Ocean BV v Commissioner of Stamp Duties 1998 1QD.R36, Pinkus JA observed (at 47) -
- “The question whether, when a business is conducted on a particular piece of land, the value of the goodwill of the business should be taken to be included in the value of the land on which it is conducted has arisen surprisingly often, in various context. It cannot be pretended that there is any simple principle to be derived from the cases...But one point which seems clear is that what is called personal goodwill cannot possibly be included in land value. The authorities discriminate between local or site goodwill and personal goodwill, the former being that part of the goodwill of the business which is not dependent upon the characteristics of the person or persons conducting the business from time to time and the latter is the rest of the goodwill.”
- “There seems to be no good reason for holding in the present case that any goodwill other than local goodwill is, for the purposes of valuation ‘inseverable’ from the land; that is, if in the present case there is goodwill which can properly be characterised as personal, its value cannot be included in land value. A question may arise whether there can be any personal goodwill where, as in the present case, the land is sold at the relevant date and a new proprietor takes control. The taxpayer would say that at least where the employees and agents running the various businesses on the land in question continue to do so, it is artificial to treat the change of control as entirely destructive of personal goodwill; the [purchasers] organisation, for example, presumably continued to run the hotel and any personal goodwill properly seen as related to the hotel would hardly be affected by the change of ownership of the buildings.”
15 In Federal Commissioner of Taxation v Williamson (1943) 67 CLR 561 at 563, Rich J said -
- “[Goodwill] is local to the extent to which a trade connection depends on the place in which the business is carried on, for example, where there is only one hotel in the place the connection may be for all practical purposes entirely local. It is personal to the extent to which it is the personality, ability, and good reputation of the trader that attract the trade and not the place where it is carried on.”
16 In Federal Commissioner of Taxation v Murray (1998) 193 CLR 605 at 614 Gaudron, McHugh, Gummow and Hayne JJ cited the following passage from Haberle Crystal Springs Brewing Co v Clark (1929) 30 F 2 d (2nd IR 219) at 221-222 as a “useful judicial definition of goodwill [although not exhaustive] -
- “A going business has a value over and above the aggregate value of the tangible property employed in it. Such excess of value is nothing more than the recognition that, used in an established business that had won the favour of its customers, the tangibles may be expected to earn in the future as they have in the past. The owners’ privilege of so using them, and his privilege of continuing to deal with customers attracted by the established business, are property of value. This latter privilege is known as goodwill.”
17 Their Honours go on to say (at 615) -
- “From the viewpoint of the proprietors of a business and subsequent purchasers, goodwill is an asset of the business...because it is the valuable right or privilege to use the other assets of the business as a business to produce income. It is the right or privilege to make use of all that constitutes the ‘attractive force which brings in custom.’”
18 In dealing with the typical sources of goodwill (at 616), their Honours pointed to a number of matters including “the efficient use of the assets of a business, superior management practices and good industrial relations with employees [which] may be sources of the goodwill of a business because they motivate service or provide competitive prices that attract customers.” Their Honours added that, of course, depending on the business, price and service may be far less significant than goodwill deriving from location. Their Honours also pointed out, referring to the judgment of Hill J in Federal Commissioner of Taxation v Krakos Investments Pty Limited (1995) 61 FCR 489, that, although the cases concerning goodwill refer to site goodwill, personal goodwill, name goodwill and monopolies giving rise to goodwill, these descriptions reflect the questions arising in particular contexts and did not demonstrate that “the goodwill of a business is divisible and can be transferred in gross or as part of the transfer of an asset”: (1998) 193 CLR at 620.
19 It is obvious that a significant, probably the most significant, aspect of the value of the land is its waterfront position. However, I accept the evidence of Mr Nunn and, at all events, it is common sense, that far more than an attractive location is required to make a caravan park a successful and profitable business. The location is no doubt an essential prerequisite but it could not be fairly regarded as sufficient to produce the level of profits demonstrated in this case. In Murray (193 CLR at 625), the majority said -
- “When a trademark is sold it will continue to be a source of goodwill for the business if the business continues. That is because the trademark will have built up favourable custom which will or may continue after the trademark is transferred or expired. Similarly, where goodwill is largely the product of the personality of the owner or one of more employees of the business, much of the goodwill of the business will disappear upon the cessation of the connection between that person or persons and the business. Nevertheless, habit may continue to draw custom although the owner or employee has no further connection with the business. These illustrations also show that, although the goodwill of a business may be derived from one or more sources, it can continue to exist notwithstanding that the sources of the goodwill have gone.”
20 In this case, whilst the particular manager was replaced in due course, he continued to manage the park after the share transaction and was dismissed for reasons which are irrelevant for present purposes. However, even if there had been a change of management, this would not have altered the need to maintain management at least at the same standard in order to continue the profitability of the business. The acquisition of a replacement, although effected in this case without delay, cannot be regarded as routine.
21 Mr Wilson’s view was that, in this instance, goodwill not directly attached to the location was relatively insignificant. He considered that, as the business would generate profits from the site given “average management” which would or could readily continue, the contribution of this factor to profitability and hence to the value of the park was relatively small. Mr Wilson did not define what he meant by “average management” but he clearly thought of it in terms of “management decisions” made from time to time, rather than in the sense described by Mr Nunn and accepted by me. His opinion was that, although persons using the park expect reasonable management they arrive and remain because they have “made their homes there” or because “they like the location”. This is not much more than mere supposition. For the reasons which I have already given, I consider that this simplistic approach substantially undervalues the contribution to the business which is made by the management of the park and which is essential to its profitability and underestimates the mobility of the customers. I have no doubt that persons come to, and remain at, the park because of both its location and the manner in which the park is managed.
22 Although it is convenient to talk of “personal” goodwill, I do not understand that this can refer only to the unique attributes of a particular individual. The matter must be looked at as a practical question of business. I am of the view that where management entails personal relationships with customers of a kind such as Mr Nunn describes, substantial personal goodwill, apart from the attributes of the location, is a significant component of the assets of the business, even where the particular individuals whose skills, attributes and activities have built up the profitability and security of income of the business have moved on and are replaced, since it is only by continuing the same practices with individuals possessing the same talents that profitability can be maintained and, with improvements, perhaps increased. Considered as a matter of commonsense, it is difficult to understand how the value of land can be increased or decreased depending on the quality of management of the business that is undertaken upon it.
23 Accepting that a substantial value is given to the business by the personal attributes and exertions of the company’s employees as well, of course, the attractive location of the land on which the business is primarily conducted, valuing one or other of these elements of the business separately is difficult. Of course, the land is to be valued according to its highest and best potential use although this use is not to be equated for legal purposes with goodwill and even though its value may, in some cases, approximate the goodwill derived by the business from the land: Murray (193 CLR at 619).
24 It is submitted to me by Mr White that a valuation calculated by reference to what an owner could rent the land for to a lessee who would conduct the business could exclude value added by management (using that term in the compendious sense which I have described above), depending on how the rent was arrived at. This was the view of Mr Edmonds (the valuer called by Kizleap) and, in principle, was accepted by Mr Wilson. For obvious reasons, if rent was determined as a proportion of likely turnover, it would necessarily reflect the composite contributions to value of both land and management (and, of course, other elements such as name).
25 For the purpose of arriving at a reasonable capitalization rate, Mr Edmonds’ enquiries revealed a wide range of figures but in the end, he thought that an appropriate rental for a long term lease would be 25% of gross turnover, capitalized at 10%. I accept that Mr Edmonds had extensive experience in the valuing of caravan parks for a variety of purposes and was certainly familiar with the nature of such businesses. Indeed, it was not suggested otherwise. Nor was it suggested to him that the capitalization rate which he proposed was inappropriate. It appears that Mr Edmonds relied, at least in part, upon information gained from a broker specialising in caravan parks Australia wide and a research centre in Armidale that had undertaken a survey of Australian caravan parks in 1997. Whilst Mr Wilson noted that there was no actual market rental information provided, he did not suggest either that Mr Edmonds’ approach was inappropriate or that it was unreasonable for him to rely on the sources that he specified.
26 Mr Edmonds considered that the capitalization of appropriate rental mode of valuing the land as distinct from the business conducted on it produced the sum of $2,680,000. This figure was derived by assuming a projected gross annual income of $1,084,000 which would produce an appropriate rental, at 25%, of $271,000, giving an estimated land value of $2,710,000, capitalized at 10%. Taking the estimated earnings before interest and tax of $479,000, capitalized at 30%, the estimated value of the business was $1,597,000. This yielded an indicated total value of $4,307,000. As I have already mentioned, the agreed value of both land and business was $4,150,000. Mr Edmonds considered it appropriate to reduce the land value by $30,000 and the business value by $127,000 to agree with this figure. However, even if this latter exercise is not undertaken, the land value of $2,710,000 resulting from this approach is significantly less than $3,308,327.20. This leaves out of account the residue of the lease but I do not consider this to be significant.
27 So far as the calculations are concerned, and the figures that they manipulate, they are supported by the financial material available to Mr Edmonds and his experience in the industry. Although the Commissioner attacks the calculations as demonstrating the land value of the park business, no real attempt to controvert the numbers themselves was undertaken. Having carefully read the relevant reports, and having regard to the other evidence, I consider that Mr Edmonds’ approach was reasonable and that the figures which he used for his calculations were justified. As a check, Mr Edmonds compared the valuation of a Mr Meredith, which was made in March 1993 for the purpose of negotiating the purchase ultimately completed in November, with which he did not altogether agree. But when adjustments for reasonable omissions and actual events were made, a land value with improvements of $2.4 million was derived, also supported by an analysis of the land’s potential as a residential development site although, in this respect, some zoning adjustment reduced its value for this purpose.
28 Although a number of other calculations were made by Mr Edmonds to verify the value of $2,680,000 for the land, they included a number of imponderables and I do not think it necessary to analyse them except to say that, for one reason or another, they strike me as somewhat unsatisfactory although they do give some general support for the valuation derived by the calculation which I have detailed above.
29 By comparison with Mr Edmonds’ approach, I consider that of Mr Wilson to be unsatisfactory. He considers that no more than $110,000 is attributable to the personal goodwill of the park business. This figure is unsurprising in light of Mr Wilson’s view of the nature of the occupancies on the park site. I consider that Mr Wilson has very substantially underestimated the personal management considerations which are set out earlier in this judgment. Moreover, this error is to my mind so significant that it leads me to real uncertainty about the extent to which Mr Wilson’s opinion about the appropriate mode of valuing a caravan park is a reliable one. I consider also that Mr Wilson’s view that the part of the caravan park which was occupied under a permissive occupancy licence should be included as part of the value of the land as it is an interest in land is mistaken. It might be that the permissive occupancy is available because of the ownership of the adjoining park and hence is part of the value of the park but this is altogether different. Whether this is so is not the subject of evidence and I do not draw any conclusions about it. The only basis upon which Mr Wilson disregards the nature of the permissive occupancy is wrong. Neither generally nor in light of the definitions in s 99A of the Stamp Duties Act 1920 can a permissive occupancy amount to an interest in land nor, having regard to the terms of the licence, could it amount to a “land use entitlement” within the meaning of that provision.
30 Mr Wilson’s essential criticism of Mr Edmonds’ approach to the valuation of the caravan park is that he did not begin with a valuation of the real estate but with the stated agreed value of the business which he then sought to apportion between real estate and other items. Mr Wilson considered that the matter should be approached initially as a valuation of the real estate based on sales of comparable properties. He accepted that comparable sales would be likely to have included other items such as plant, equipment and goodwill. However, Mr Wilson thought that what he described then as “the correct approach would be to analyse these to try to determine the amount paid for the real estate and then make application to the subject property”.
31 It is obvious that comparable sales which amount to sales of land and business will simply produce the same essential problems of analysis as the sale in this case. Mr Wilson’s approach was, therefore, unlikely to be of use. It was the only one he proposed.
32 Mr Wilson concludes his report in the following way -
- “The agreed value of $4,150,000 must include an element of value which reflects the difference between the value of the caravan park as existing, but unoccupied and the value of the same park as a going concern. This difference expressed as a dollar amount, is what I consider to be that part of the value of the land which is attributable to its being occupied by a variety of tenants (permanent residents, occupiers of storage sites etc) on the relevant date. As is clear from the above comments, some may well describe this added value as ‘goodwill’. If it is held that this element of value should not be included as part of the value of the land for stamp duty purposes then it is likely that the 80% test will not be met. If it is held to be part of the value of the land, (as I believe) or ‘site goodwill’ then the 80% test will be met....Additional value for ‘goodwill’ is only really valid if it can be shown that the parcel of land is returning an income over and above that which it would normally be expected to return with average management.”
33 I have difficulty in appreciating what is meant by “average management”. If it means “unremarkable” or “ordinary”, this does not take the matter much further. The management required (and provided) to produce the income here derived from the park was certainly not “average” in this sense.
34 It appears Mr Wilson considered that the management was also average in the sense that it did not depend on “the individual persons and personalities of the people who are undertaking that management”. In this case I think it did so, even though others could be (and were) found capable of undertaking the work. At all events, I do not accept that personal goodwill must be confined to peculiar personalities. If what is meant is management which is readily procurable and, accordingly, available to an incoming purchaser, then it covers an enormous range of management skill and abilities. Of course, an incoming purchaser, considering the income which will be returned, must take into account the cost of management necessary to achieve that income, whether that management be “average” or not.
35 Mr Wilson’s view was somewhat simplified in the agreed statement of position between him and Mr Edmonds, dated 24 September 1999. Mr Wilson there said that the value created by the occupation of the land is not goodwill in any form, including “personal” or “site” but is “simply part of the value of the land in its present (occupied) state, since the value of the occupancies would not be retained by Zonula following disposal of the real estate”. Yet the existing occupation of the park and the sought (and paid) for continuing retention of occupants is the result not only of the position and attributes of the land itself but also of a significant management input. Any vendor, of course, would need to sell the business as a whole, necessarily including the land itself, but would obviously require to be compensated for the value in the business attributable to the management of the park. Correspondingly, a purchaser would expect to pay more than merely the price of the real estate and fixtures and cost of improvements, representing the immediate ability to receive income from the licensees attracted to and remaining on the site partly by the management of the vendor over a long period and the expectation by the licensees that it will continue at least at the same standard. In relation to any tenanted property such management input will be distinct from the value of the land, buildings and improvements but, of course, its contribution to the value of the business will vary considerably depending on the circumstances. Mr Wilson, indeed, conceded this in his evidence, pointing out that the standard method of valuing rented properties is to capitalize the net income, that is, after making due allowance for the costs of achieving that income, including management. Here, no valuation was done by capitalizing net income in that way, but it seems to me to be reasonably clear that this was necessarily involved in Mr Edmonds’ capitalization of return valuation using a standard 25% capitalization figure of the adjusted gross income since the lessor of a caravan park such as that here would necessarily strike a price with the incoming lessee which reflected, one way or another, the lessee’s costs of achieving a reasonable rate of return.
36 By way of a check, Mr Edmonds points to other evidence of the value of the park. The land value under s 6A of the Valuation of Land Act 1916 was considered to be $1,000,000 as at October 1992 by a registered valuer within the Valuer General’s office, having experience since 1981 in, amongst other regions, that in which the park is situated. Of course, as Mr Edmonds said, the unimproved value of the land forms part of the improved value and is not used to calculate the latter sum. Mr Wilson dismisses the relevance of this valuation as he says it is “a hypothetical value which excludes all improvements other than land improvements”. A perusal of the valuation demonstrates that it is not hypothetical but it is fair to say that it does not seek to value the land based upon what a purchaser might be prepared to pay for the income being produced (as distinct from potentially produced) from it. For reasons which Mr Edmonds gives, I accept that it is arguable that the unimproved value of the land as at October 1992 may well have been considerably less than the $1,000,000 value proposed. The value was obtained by reference to comparable sales and attributing a rate per site for 370 sites. As I have pointed out, however, only 312 to 321 sites are actually useable. Adding the sum of $300,000, representing a rounded up valuation of the depreciated value of structural site improvements of $300,000, produces a figure which, of course, ignores the rent of the property.
37 Mr Edmonds ascertained that the actual rental value for the year ended 30 June 1993 was $236,000, whilst that projected for the purpose of the share transaction was $271,000. He considered that this rental value should be capitalized at 10%. I accept Mr Edmonds’ figures as reasonable. This would produce a land value of between $2,360,000 and $2,710,000 which, when the unimproved land value and site improvements of $1,300,000 is deducted, gives what might fairly be described as “site goodwill” of between $1,230,000 and $1,410,000. Some allowance (Mr Edmonds proposes $100,000) should be made for the value of the permissive occupancy licence. The Commissioner has conceded that the plant and equipment of the business is worth $450,000 although the mode of calculation of this amount is not at all clear and might include the site improvements of $300,000 to which I have already referred. Deducting some $8,000 of other irrelevant assets and assuming $4,150,000 is an appropriate valuation of the assets of Zonula, goodwill other than site goodwill and which to my mind may fairly be described as personal and name goodwill, ranges in value between about $910,000 and $1,210,000. Considering the input of management in producing the business’s value, this strikes me as being a reasonable sum though, necessarily, it is a matter of impression.
38 I should mention that I have not overlooked the consideration that, in this case, Kizleap must have taken into account its continuing costs of running the park in calculating the profit which it might expect to receive and, hence, the price it was prepared to pay.
39 It is fair to observe, as was submitted by Dr Sorensen for the Commissioner, that where the value of goodwill for legal purposes may properly be determined by deducting valuations of tangible assets from a fair valuation of the business (here agreed at $4,150,000), “the identifiable assets need to be valued with precision” (Murray 193 CLR at 624) such precision may not be necessary where a sufficient indication of value answers for the purpose of resolving the particular valuation question in the case. Here, the question is whether the value of the land is not less than $3,308,327.
40 I should note that evidence was given that Zonula had acquired a number of cabins and caravans placed on the site to increase its return from the park. Capitalizing these rents at 15%, as proposed by Mr Edmonds (and which is not unreasonable in my view) yields a value of about $186,000 based on actual rental and almost $300,000 on potential rental. It is not disputed that the whole of this income is derived from personal goodwill. Because of the view that I have come to, indicated above, it is unnecessary for me to deduct any sums in respect of this item. I mention the calculation only because it indicates that the appropriate valuation of the land in this case produces a figure so significantly less than 80% of the assets of Zonula as to make it reasonable to rely on Mr Edmonds’ figures, though they are somewhat imprecise.
41 In the result, I give judgment for the plaintiff with costs.
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