Lamari v Department of Natural Resources and Mines - [2002] QLC 78

LAND COURT OF QUEENSLAND

CITATION: Lamari v Department of Natural Resources and Mines [2002] QLC 78

PARTIES: Antonino and Sarina J Lamari
(appellants)
v
Chief Executive, Department of Natural Resources and Mines

(respondent)

FILE NO: AV2001/0471

DIVISION: Land Court of Queensland

PROCEEDING: Appeal against an Annual Valuation

DELIVERED ON: 26 September 2002

DELIVERED AT: Brisbane

HEARD AT: Ingham

MEMBER Mr JJ Trickett, President

ORDER: 1. The valuation appealed against of $1,850,000 is set aside.

2. The unimproved value of the subject land as at 1 October 2000 is determined at Two Million One Hundred and Forty-five Thousand Dollars ($2,145,000).

CATCHWORDS: Unimproved Value – Valuation of Land Act 1944 – sugar-cane land in the Shire of Hinchinbrook – direct comparison with analysed unimproved values from improved sales – allowance for difference in size between sales and subject land – productive capacity of cane land

APPEARANCES: Mr A Lamari for the appellants
Ms R Trigge for the respondent

This is an appeal by landowners in the Shire of Hinchinbrook against the unimproved value applied to their property by the Chief Executive, Department of Natural Resources and Mines (the respondent), under the provisions of the Valuation of Land Act 1944.

Background

Mr and Mrs Lamari are the owners of an aggregation of land described as Lot 1 PER4104: PO24/4104 and Lots 69-70 CWL2336 and Lot 550 CWL2907 and Lot 3 CWL840951 and Lot 4 RP900562, Parish of Waterview, containing an area of 915.673 ha.
As at 1 October 2000, the respondent determined the unimproved value of that land at $1,850,000. Mr and Mrs Lamari have appealed against that valuation on the grounds that the valuation is too high and does not take into account the detrimental nature of the land. Their estimate of the unimproved value at the date of valuation is $940,000.
The respondent led evidence to a valuation of $2,145,000, notwithstanding that the valuation appealed against was $1,850,000. It was explained that the valuation under appeal was issued in error as the area of cane land had been underestimated. The appellants were well aware that the respondent intended to lead evidence to the higher valuation and they raised no objection to the matter being heard as if the appeal was against a valuation of $2,145,000.

The Relevant Legal Legislation

These cases are appeals against the unimproved values applied by the respondent to the subject lands as at 1 October 2000 under the provisions of the Valuation of Land Act 1944. The responsibilities of the respondent in making unimproved values are set out in the various provisions of the Act.
The respondent is required to make annually, or periodically, a valuation of all land in a local government area: s.37. For the purposes of the Act, the valuation of each parcel of land is to be the "unimproved value" of that land, which is defined to mean 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 the improvements on that land did not exist: s.3(1). However, the unimproved value shall in no case be less than the sum that would be obtained by deducting the value of improvements from the improved value at the time at which the value is required to be ascertained: s.3(2).
The "value of improvements" means the added value which the improvements give to the land, irrespective of the cost of the improvements. However, the added value shall in no case exceed the amount that should reasonably be involved in effecting improvements of a nature and efficiency equivalent to the existing improvements: s.5.
The Act thus requires the respondent to ascertain the unimproved market value of each parcel of land as at the date of valuation, assuming that the improvements on the land had not been made, but also assuming the existence of all present facilities and amenities external to the land, such as roads, power and other services, and that the adjoining land and the environs are in their existing condition.
The test of "market value" was laid down by the High Court in Spencer v. The Commonwealth (1907) 5 CLR 418. The High Court found that the market value of land at a particular date is the amount that would have been paid for that land if it had been sold by a willing but not over-anxious seller to a willing but not over-anxious purchaser, both of whom are fully acquainted with the land and aware of all the circumstances which might affect its value, either advantageously or negatively.
It is well-settled law that sales of vacant or unimproved land provide the best basis for the assessment of unimproved value: see Grahn v. The Valuer-General (1992) 14 QLCR 327. However, where vacant sales evidence is not available, it becomes necessary to analyse sales of improved lands for the purpose of ascertaining what part of the purchase price related to improvements and what part is attributable to the land itself: see Marano v. The Valuer-General (1978) 5 QLCR 194 at 200-201.

The Subject Land

The subject land is situated approximately 23 km south of Ingham on the Bruce Highway. Access is obtained to the southern part of the property by the bitumen sealed Yuruga Road, while access to the northern part of the property is gained from the formed gravel Larkins Road.
The following description of the land is taken from the report of the respondent's valuer: The land in its original state was gently undulating light to medium forest, which was probably timbered with poplar gum and ti-tree. The property is roughly bisected by Easter Creek and a tributary. Waterview Creek is located on part of the southern boundary. From Yuruga Road to Easter Creek is generally level to mildly undulating and then rises gently to the northern and western boundaries. In its developed state the land is used for agricultural (cane growing) purposes. The arable land comprises a mix of white/grey sandy clay loams and many parts of the property are prone to inundation. The property is affected by animal pests, problematic natural drainage, broken paddock areas and mostly poor arable soils with scattered sodic problems.
The property was classified as 17 ha fair to poor arable, 773 ha poor arable and 125.673 ha non-arable balance land, drains and creek area.
The property is zoned "Rural" under the Planning Scheme for the Shire of Hinchinbrook gazetted December 1997. Electricity and telephone services are connected.
The valuer's report went on to state:
"There are 11 water licences 'issued' and 3 licences currently under renewal for the property. The 'issued' licences allow water harvesting from Waterview Creek to irrigate 80 ha of land between 1 January and 31 May each year, so long as water flows past the site are maintained; and irrigation and water harvesting from 3 dams on Easter Creek (10 megalitres each). The 3 licences presently under review are for similar dams on Easter Creek. While the market would note these benefits of the property the reality is that the area is primarily naturally rain watered for cane growing. Seasonal rainfall is generally sufficient for normal production and excessive in 'wet' cycles."

The Respondent's Valuation

Evidence for the respondent was given by registered valuer Mr PG Simmonds, who was responsible for carrying out the valuation on behalf of the respondent. Mr Simmonds had valued the 790 ha of poor arable land at $2,700 per ha and the 125.673 ha of non-arable land at $100 per ha to arrive at his valuation of $2,145,000.
Mr Simmonds offered the following explanation of the background to the valuation:
The market for cane farms had been buoyant with sale prices increasing from 1991 to the end of 1998, with strong world sugar commodity prices. In the Herbert Valley, cane farm prices had also been influenced by the fact that there was limited available land for future expansion and by a period of favourable growing seasons. Since then, world sugar markets have declined and local weather patterns resulted in five years of poor returns to 2002. At the date of valuation, 1 October 2000, the property market had quietened and sales evidence reflected a large decrease from the peak 1998-1999 values. The valuations undertaken in 2000 reflected a 5% decrease on valuation levels applied in 1997 which themselves were approximately 40% to 50% below the peak values. At the date of valuation, generally the market was still optimistic that better weather patterns and commodity prices would return and as a result sales evidence was limited, awaiting the return of better prices.
Mr Simmonds went on to say that traditionally cane land in the Herbert Valley is tightly held with outside purchasers a rarity. Most buyers are either:
·    existing farmers expanding their farms to viable sizes; or
·    existing farmers buying better farms with a view to selling off poorer country; or
·    sons of existing growers entering the industry.
The nature of the industry and the sale prices achieved since the early 1990's has dictated the size of farms being sold and it is rare to see an assignment area of over 150 ha on the market. Usually farms with areas of between 20 and 150 ha achieve the maximum per ha rates and sell more quickly. There are more purchasers with capital to finance farms of this size.
The nine sales of cane farms referred to by Mr Simmonds to support his valuation are all much smaller than the subject land. Six of the sales occurred between March and July 2000, with areas ranging from just over 16 ha to approximately 50 ha. Those sales analysed to show unimproved values ranging from $5,000 to $6,800 per ha (Sale 5 analysed to show $10,000 per ha), but applied values ranged from $4,200 to $5,800 per ha.
Mr Simmonds also referred to three sales which took place in 1997 (Sales 7, 8 and 9) to indicate the relative land values for farms of between 30 ha and 150 ha. Those properties sold for analysed unimproved values ranging from $6,083 per ha for arable land of 27.14 ha, $7,037 per ha for 39.47 ha of arable land and $5,797 per ha for 153.06 ha of arable land. He commented that there have been no more recent sales of larger properties in the district. Unimproved values applied to those properties as at 1 October 2000 were $5,580, $5,978 and $5,542 per ha.
According to Mr Simmonds, those sales indicate that no differential in value per ha is recognised by the market for sales in this range of farm size.
Mr Simmonds set out the details, description and comparison for each of the sales. Of all the sales he placed most reliance on Sales 4 and 6, although he recognised their shortcomings as a basis for the valuation. He reasoned as follows:
"Sales 4 and 6, while not ideal market transactions, are the best available sales for this period. Both are better producing farms than the subject but neither are free from seasonal flooding and drainage problems. Neither are clearly tainted by 'true' adjoining owner influences though both purchasers are existing or recent growers. Both sales are a mix of soil types with some good arable, but a majority of fair arable soils on the farms. Both are smaller in size than the subject. These farms are considered to be the best evidence of the subject property on a dollar/hectare basis. All are considered to be superior on a purely dollar/hectare arable land – size for size basis, extra allowance has then been considered for the extraordinary size of the subject farm."
I can see no point in setting out the details and comparisons of the other sales. However, as Mr Simmonds has placed greatest reliance on Sales 4 and 6, closer examination of those sales is warranted.
Sale 4, of 20.07 ha, sold in June2000 for $240,750 and analysed to show an unimproved value of $137,144. Mr Simmonds described that property as comprising 15 ha of good arable sandy clay loam to loamy clay and 5.07 ha of poor arable low heavy clay. The property adjoins a creek and is affected by seasonal flooding and creek bank erosion. Clay depressions in the property remain water logged for extended periods after rain. He had assessed its long-term average farm production at 11.2 tonnes of sugar per ha.
In comparing that sale with the subject land, Mr Simmonds commented that the subject land has a higher percentage of non-arable land than the sale and that the arable portion of the subject land is on average poor arable, while that on the sale is fair to good arable land. While the arable land on the sale property is affected by flooding and creek erosion, the subject land is more broken by in-farm drainage, creeks and the railway line. He was of the opinion that the subject land required greater working inputs to maintain its long-term average production potential. On a per ha basis, he regarded the arable portion of the sale as superior to that of the subject land.
Mr Simmonds pointed out that the purchaser of the sale property was an existing grower seeking extra assigned land for farm build-up. The purchaser's farm is approximately 7.5 km to the south of the sale property.
As at the date of valuation, Mr Simmonds applied an unimproved value to that property of $118,000, or $5,858 per ha.
Sale 6, of 44.31 ha, sold in July 2000 for $380,000 and analysed to show an unimproved value of $215,203. Mr Simmonds described that land as comprising 5 ha of good arable sandy loam with strips of dry sand, 38 ha of fair arable clay loams to loamy clays and 1.31 ha of balance land and drains. It is broken by drainage lines and is subject to water logging for extended periods. He assessed its long-term farm production at 10.23 tonnes of sugar per ha. In comparing the sale property with the subject land, Mr Simmonds pointed out that the subject land has a lower percentage of non-arable land than the sale and the arable portion of the subject property is on average poor arable, while that on the sale is fair arable land. Similar proportions of the arable land on both the sale and subject property are affected by flooding and broken drainage areas, with the subject land slightly more broken because of creeks and the railway line. In Mr Simmonds' view the subject property requires greater working inputs to maintain its long-term average production potential. He goes on to say that on a per ha basis the arable portion of the sale is far superior to that of the subject.
Mr Simmonds pointed out that the purchaser of the sale property had been a grower who was relocating to a different area.
Mr Simmonds was of the view that Sales 1, 2, 3 and 5 were "tainted" by adjoining owner influences to a more or less extent. This was in keeping with his view that most of the sales in the Herbert Valley were to existing farmers expanding their farms. In such circumstances, a farmer might well pay more for the adjoining property than one some distance removed.
Mr Simmonds further pointed out that the depressed economic environment in the cane industry at the date of valuation, together with a number of years of poor weather, had limited the available sales evidence as the property market for cane farms had slowed. However, while many farmers were not making the good returns of previous years, they were not willing to accept lower sale prices for their farms.

The Case for the Appellants

Mr A Lamari appeared and gave evidence. He explained that he had lived in the Yuruga-Ingham area for 50 years and had experience in many facets of farming, including sugar cane, tobacco, small crops, rice and grazing. He had also been involved in the earthmoving business and had owned numerous earthmoving machines and also had undertaken contract harvesting in the Ingham district.
During this time he had observed the numerous sales of farms, the various soil types and their suitability for different farming pursuits. He had cleared land for many farmers in the area and was familiar with all land types and how land types and weather patterns affect different crops and therefore the profitability of farming.
He went on to explain that the subject land was originally a cattle property before converting to cane in about 1975. However, it was never regarded as a good cane farm. It is the biggest cane farm in the area, except one, and has an assignment of about 800 ha to the Herbert River Mills.
Mr Lamari contended that the subject land cannot be compared with properties in the greater Ingham area because of its different soil types, different weather patterns and greater distance from the mill and from town. Parts of the subject land have sodic problems necessitating the use of gypsum of up to 10 tonnes per ha. As far as Mr Lamari knows, the sales referred to by Mr Simmonds do not have that sodic problem. In addition, farms which are closer to a sugar mill get access to mill mud or fly ash, which is a natural fertilizer and, according to Mr Lamari, is better than artificial fertilizer. However, the cost of transportation to the subject land makes it uneconomic.
In Mr Lamari's view, the purchase price of any parcel of land must be based on what that land can produce and the costs and risk factor involved in the farming business. He seemed to imply that at least some of the sales used by Mr Simmonds were not purchased in accordance with that principle.
According to Mr Lamari, the subject land differs from any of the sales in that it is situated to the south of what he called the "Ingham Line" near the Helens Hill School and to the south of which both the soil quality and rainfall deteriorate. He contended that the rainfall is not as assured as in the Ingham area and it cannot be depended upon every year. The owners had therefore constructed the irrigation system mentioned by Mr Simmonds, but have not yet been able to access water to fill the ring tanks. According to Mr Lamari it is only in times of high flow or flood that their water licences allow them to water harvest from the creeks.
Mr Lamari could not see how Sales 4 and 6 could be compared with the subject land. He said that they are in the Cordelia area, 25 to 30 km away, with completely different weather patterns and soil types, being closer to a sugar mill and general accessibility to services. He thought that Sales 5, 7 and 9 were so far removed from the subject land that they were of no use. As Mr Simmonds admitted that Sales 1, 2 and 3 were tainted because of adjoining owner influence, Mr Lamari was surprised they were taken into consideration at all.
Mr Lamari suggested that the nearby sale from Leonardi to Valastro should have been used as a basis for the valuation of the subject land. That property, of 25.28 ha, sold in February 2000 for $170,000. An IVAS sales data listing tendered by Mr Lamari showed that an unimproved value of $117,000 was applied to that property as at 1 October 1997. There was no indication of the unimproved value applied as at 1 October 2000.
Mr Lamari was well aware that the sale property is very small, but he was unable to find any other comparable sale. He was surprised that Mr Simmonds had not included the sale in his basis of valuation.
Part of Mr Lamari's case was that the subject land was more difficult and expensive to work than other properties in the district. He had prepared a comparison sheet based on a 10-year cropping cycle, showing that the district average farm would have three to four ratoons following the expenditure on planting before leaving the area fallow for one year and planting again. On the other hand, the subject land would have only one to three ratoons before leaving fallow for a year and planting again. The cost of planting on the subject land was $4,680 per ha, compared with $2,106 per ha for the district average, while the cost of maintenance of the ratoons was $1,687 per ha on the subject land compared with the district average of only $552 per ha. Depending on the number of ratoons, over the 10-year period the district average cost varied from $8,000 to $8,300 per ha, while the cost on the subject land varied from $23,100 to $24,700 per ha.

Mr Lamari produced some farm productivity figures from the Productivity Board which he conceded did not cover all the farm, but which showed that in the years 1999 and 2000 the farm did not achieve the production of 8.5 tonnes of sugar per ha as estimated by Mr Simmonds. However, the 1998 production figures show that at least part of the farm was achieving that rate of production.
Mr Lamari did not refer to any other sales, but he stated that in 2000 a bank manager had considered the property to be worth $2,500,000 to $2,600,000. He went on to say that if the value of crops and improvements were deducted, it would come to about one-third of what the bank considered to be the value. Based on the bank's estimate of the improved value, he contended that the unimproved value could not be $2,145,000 as assessed by Mr Simmonds.

Considerations and Conclusions

The appellants' case is that their property is an exceptionally large cane farm which is very difficult and expensive to work and which cannot be compared with the sales Mr Simmonds purported to compare it with. Mr Lamari contended that many of the sales were influenced by other than business principles, as many of them had been purchased by adjoining owners. However, the two sales principally relied on by Mr Simmonds, Sales 4 and 6, were not adjoining owner sales. Although they are of much smaller parcels of land, of better quality and in a more favoured area for rainfall, they do at least indicate a level of values for the better class cane land.
As I understand it, Sales 7, 8 and 9 which occurred in 1997, were not so much put forward as evidence of values at the date of valuation, but to demonstrate that there was little or no price differential per ha for farms at least up to the area of 150 ha. I will return to the aspect of size difference later.
Mr Simmonds conceded that the property is difficult to work. He classified the cane land as poor arable land. He was well aware of the productive capacity and the types of soil and the problems associated with the subject land. He admitted that the farm is at the extreme of extra costs of production, but he contended that he made allowances which reflected those extra costs. He expressed the view that while the costs of working the subject land were approximately three times the average, that did not mean that the valuation should be only one-third the valuations of the other farms. While he agreed that Sales 4 and 6 were not an ideal basis for the valuation, he pointed out that he must use what sales he had and he thought that those two were the most comparable, even though the soils were much better. The values per ha which he applied indicated this.
Mr Simmonds was aware of the sale from Leonardi to Valastro referred to by Mr Lamari. He had investigated that sale and found that the vendor, Leonardi, was in financial difficulties and that this was the third of the farms of that particular owner which had been sold up. In his opinion it was a forced sale even though it sold subsequent to auction. He analysed that sale to show only $2,700 per ha, but had applied the rate of $4,300 per ha. He considered that the sale could not be used as a basis for valuation as it was way out of line with other sales. He pointed out that it was close to Sales 2 and 3 which had indicated values of about $6,000 per ha over the arable areas.
Under cross-examination by Mr Lamari, Mr Simmonds reiterated that it was not an appropriate sale. It was, he said, a forced sale, it had not been worked for some time and so was overgrown with weeds and needed a lot of cleaning up. It had three years of flooding over half the farm which had virtually wiped out that area.
Mr Lamari disagreed with Mr Simmonds that it was a forced sale, nor was it run down at the time of sale. While this disagreement could not be resolved, I accept Mr Simmonds' opinion that the sale is out of line with the other sales and cannot be relied upon as evidence of unimproved value
It emerged in evidence from a work sheet of Mr Simmonds, which was tendered by Mr Lamari, that Mr Simmonds had made a total of 35.75% of allowances in valuing the subject land. When those allowances were applied, the average rate applied to the arable area was $2,700 per ha, which is significantly lower than the rate per ha applied to the arable areas of the nine sales referred to by Mr Simmonds.
In my view, although the sales used by Mr Simmonds were much smaller than the subject land, he did the best that he could to make the appropriate allowances when undertaking the valuation, although Mr Lamari argued that not sufficient allowance had been made for the size. However, it is clear that Mr Simmonds recognised the disabilities and made allowances for drainage, workability, filling and particularly for size (15%).
Although the extent of the allowances which should be made in such circumstances could be debated, the fact remains that there is simply no evidence one way or the other; it is a matter of judgment, after taking all relevant matters into account. In my view, Mr Simmonds is better able to make that judgment.
In the circumstances, I cannot find that Mr Simmonds adopted a wrong principle or that he made an error in making the valuation. On the evidence before me Mr Lamari has not been able to demonstrate that the valuation of $2,145,000 is excessive or that it does not take into account the disabilities affecting the subject land.

Determination of the Valuation

The valuation appealed against is $1,850,000. However, the respondent contends that the valuation issued in error as the area of cane land had been incorrectly valued.
It seems from information obtained by the Registrar since the hearing that the error was corrected when the respondent issued a new valuation on 5 September 2001 for an unimproved value of $2,150,000. That valuation also included the amalgamation of the subject land with another small parcel and was for an area of 926.483 ha compared with the valuation under appeal which had an area of 915.673 ha. The new valuation was made as at 1 October 2000, the same date of valuation as the valuation under appeal. No appeal was lodged against the new valuation, possibly because the appellants thought it unnecessary to do so as the present appeal had been filed in the Land Court Registry on 9 August 2001.
It seems that the parties may have proceeded on the understanding that the valuation under appeal was to be regarded as $2,145,000 and not the $1,850,000 appealed against. There is no doubt that Mr Lamari was well aware that Mr Simmonds had altered the valuation as it was he who tendered Mr Simmonds' work sheet showing the manner in which the valuation of $2,145,000 was calculated.
Section 66 of the Valuation of Land Act 1944 provides that upon an appeal the Land Court may:
(a)affirm the valuation appealed against; or
(b)reduce or increase the amount of that valuation to the extent necessary in its opinion to determine the same correctly under, subject to, and in accordance with this Act.

The Land Court therefore has the power to increase the valuation where it considers that it is necessary to do so. While the procedure adopted by the respondent to lead evidence to a higher valuation is unusual, since there was no appeal by the appellants against the altered valuation, and since Mr Lamari raised no objection to the procedure adopted in this matter, in all the circumstances it seems a practical means of resolving the issue between the parties. I will therefore determine the appeal in accordance with my findings in the matter.

Order
1.The valuation appealed against of $1,850,000 is set aside.
2.The unimproved value of the subject land as at 1 October 2000 is determined at Two Million One Hundred and Forty-five Thousand Dollars ($2,145,000).

JJ TRICKETT
PRESIDENT OF THE LAND COURT