LESLIE LAW and SECRETARY, DEPARTMENT OF HEALTH AND AGEING
[2012] AATA 416
•5 July 2012
[2012] AATA 416
Division GENERAL ADMINISTRATIVE DIVISION File Number
2012/0329
Re
LESLIE LAW
APPLICANT
And
SECRETARY, DEPARTMENT OF HEALTH AND AGEING
RESPONDENT
DECISION
Tribunal Mr R G Kenny, Senior Member
Date 5 July 2012 Place Brisbane The Tribunal sets aside the decision under review and substitutes its decision that the value of the applicant’s real property at 18 River Road, Palmers Island, New South Wales is $70,000.
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Mr R G Kenny, Senior Member
CATCHWORDS
AGED CARE – Asset test – Valuation of riverside allotment – Single residence in poor state of repair – Land subject to threat of erosion – Negative aspects of property taken into account in the valuation prepared by Australian Valuation Office – Positive aspects also considered in valuer’s report – Report of AVO valuer preferred – Value of property reduced due to concession by respondent – Decision set aside
LEGISLATION
Aged Care Act 1997 (Cth) s 44
CASES
Kirkovski v Secretary, Department of Family and Community Services [2004] FCA 790
Re Secretary, Department of Employment, Education, Training and Youth Affairs and McFarlane (1996) 44 ALD 30
Re Secretary, Department of Social Security and Langton (1993) 31 ALD 579
Spencer v The Commonwealth of Australia (1907) 5 CLR 418
SECONDARY MATERIALS
Residential Care Subsidy Principles 1997 ss 6, 21
Maclean Local Environmental Plan 2001
REASONS FOR DECISION
Mr R G Kenny, Senior Member
5 July 2012
BACKGROUND
Prior to his being admitted to a nursing home, Leslie Law (“the applicant”) resided at his unencumbered property at 18 River Road, Palmer Island in New South Wales (“the Property”). Palmer Island is located north of Grafton and towards the mouth of the Clarence River. In assessing the value of Mr Law’s assets, the respondent determined that the value of the Property was $80,000. At the hearing, Mr Jeff Kelly, for the respondent, conceded that the appropriate valuation of the Property was $70,000. The valuation was disputed by the applicant’s sons, Craig and Sean Law, who hold the applicant’s power of attorney. They estimated the value of the property at $30,000. This estimate was based on the effects of limitations on the use of the Property because of restrictions imposed by Clarence Valley Council (“the Council”)[1] regulations due to erosion concerns.
[1] Formerly the Maclean Shire Council.
LEGISLATION AND ISSUES
The valuation of the Property was undertaken by the respondent in accordance with the terms of the Aged Care Act 1997 (Cth) (“the Act”). Under the Act, the respondent is required to determine the value of a person’s assets[2] in accordance with the Residential Care Subsidy Principles 1997 (“the Principles”).[3] Part 6 of the Principles relates to the valuation of assets and provides that the value of a person’s assets is the net value of all of the person’s property including real estate.[4] The net value is the gross value less any debts, charges and encumbrances on the property.[5] It is not disputed that there are no such reductions to the gross value of the property in this matter. The issue for the Tribunal is the determination of the value for the property, taking into account the concession made by the respondent.
EVIDENCE
[2] See s 44-8AB of the Act.
[3] See s 44-10 of the Act.
[4] See s 21.15(2) and (3) of the Principles.
[5] See s 21.15(4) of the Principles.
Sean and Craig Law
The evidence of Sean and Craig Law was that the applicant lived at the Property from 1950 until 2011 when he moved into a nursing home. They described him as having a strong sentimental attachment to the Property and said that they shared this as they were both raised there. They agreed that the house on the Property was in a poor state of repair and said that past experiences of erosion of the river bank which fronted the Property raised an awareness of similar erosion prospects in the future. They described large slips of land into the Clarence River in 1960 and 1980, some 300 and 800 metres, respectively, from the property. They also said that, originally, a road (River Road) separated the house from the river but that this had been reduced to a pathway because of erosion. They acknowledged that the Council had purchased all of the allotments which neighboured the Property on the river bank and that the applicant had rejected the Council’s offer to purchase the Property for $80,000 in 1996 which resulted in the Property being the last remaining un-resumed allotment on that part of the river bank. They accepted that Council limitations on the use of the Property prevented them from demolishing the house and rebuilding and that an easement prevented the house from being moved back from the river bank. They agreed that renovation was possible but that this was not a viable option because of the costs involved. They referred to the riverfront allotment sold by the Council to an adjoining owner and noted that it was twice the size of the Property and sold for only $23,600.
Valuation by Ron Weekes
Ron Weekes, a Building Consultant, completed a Property Inspection Report for Craig Law on 9 February 2012. The report summarised the condition of the house as being in “a poor state of repair” and “structurally inadequate in several areas”. The report gave no estimate of the value of the Property.
Valuation by Valuer General of New South Wales
An assessment, as at 1 July 2010, from the Valuer General was in evidence. It valued the Property at $30,000. The basis of that valuation was stated to be:
The land value is the freehold value of the land excluding any structural improvements. The land value reflects the market conditions at 01/07/2010. The valuation was made in 02/09/2010 and reflects the physical conditions and the way it could be used at this date.
Valuation by Robert Jupp (Taylor Byrne)
An assessment was undertaken and a report produced by Robert Jupp, a valuer employed by Taylor Byrne. The report is declared to have been made for the limited purpose of mortgage security on specific instructions from ANZ Bank Limited.
In the report, dated 23 February 2012, the land component of the property is valued at $25,000, the improvements at $15,000 and the overall value at $40,000. The report included detailed descriptions of the house and land which comprise the property. It described the property in the following terms:
…a 369.8 sqm reserve Clarence River front residential zoned allotment. The subject allotment offers good western views to the Clarence River being located in precinct 1 of the Palmer Island riverbank erosion development control plan area. This control plan is designed to ensure that dwellings are not constructed within 18 metres of the defined riverbank plan area and that any approved dwelling can be easily removed or relocated in the event of erosion of the allotment.
It was noted that the property was susceptible to flooding, that the residence was built circa 1890, that it was in poor condition and that it added little or no value to the Property. It was also noted that, for allotments located in precinct 1 of the Palmer Island riverbank erosion development control plan, the Council allowed renovations but without alteration to the present building envelope. It also noted that the residence was unable to be moved away from the river because of a transmission easement. The report noted that there was difficulty finding directly comparable sales evidence due to limited trading in recent times. The report stated that adjustments were made “for differences in sale dates, as well as differences in land areas and building design, composition, age, condition/presentation and features and ancillary improvements offered as well as location variables.” The report made comparisons with three recent sales. The sale prices of these were $135,000, $170,000 and $23,600, respectively. The first two were described as superior to the Property. The third sale related to land of 1,086.7 sqm in precinct 2 of the Palmer Island riverbank erosion development control plan. It was noted that that sale was by the Council to the owner of adjoining land.
Valuation by Craig Parrish (the Australian Valuation Office)
Craig Parrish, a Certified Practising Valuer with the Australian Valuation Office (“AVO”), completed a report dated 22 December 2011. He provided a further letter dated 27 March 2012 and also gave evidence in the hearing. Mr Parrish valued the Property at $80,000.
Mr Parrish described the Property as enjoying excellent river views but as being in an active erosion zone which fell within reg 15 of the Council’s Local Environment Plan 2001. This prevented development or subdivision but permitted renovation but not rebuilding in the event the Property was destroyed. Mr Parrish described it as the last remaining house on the riverfront in the primary erosion zone. Mr Parrish conceded that the Property had limited marketability and considered that it was unlikely that a bank would lend money to a prospective purchaser because of its location in the erosion zone. Mr Parrish wrote in his letter of 27 March 2012:
It is recognised that there are inherent risks associated with the subject property due to the riverbank erosion and the condition of the home that are going to limit its marketability. However, the riverbank had been retained with rock boulders and the rate of erosion has been stabilised/slowed and it is considered that the subject property would appeal to a low income buyer or those seeking a weekender/fishing shack, given its river frontage, expansive river views and proximity to the coast at Yamba.
He gave the following definition of “market value”:
Market Value is the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and willing seller in an arm’s length transaction after proper marketing wherein the parties had acted knowledgably, prudently and without compulsion.
Mr Parrish adopted a “direct comparison approach” in assessing the value of the Property and did so by comparing it with four other allotments. While one of these sold for $23,600 in 2010, Mr Parrish noted that it was sold to an adjoining property owner with a restriction on any further development on it. In his words, he described that as a purchase to “extend the purchaser’s back yard”. The other three properties were described as being on or close to the river front and were far superior to the Property.
Mr Parrish said that little reliance could be placed on the Valuer General’s assessment of the value of the Property. He said that this was not prepared on the basis of an inspection of the Property but was calculated on a “broad brush” indexing approach. He considered that it did not reflect the market value of the property for the assets test under the Act.
Mr Parrish, in his letter dated 27 March 2012, acknowledged that he had read the Taylor Byrne report. He noted the limited purpose for which the valuation in the Taylor Byrne report was made; noted that the size of the property was 546.3 sqm rather than 369.8 sqm; and noted that the first two comparable sales referred to in that report were of allotments which had no river frontage and no riverbank erosion issues. It was noted that the third sale was from the Council to the owner of an adjoining allotment and was subject to a restriction on any further development and use of the land. He said that it was the existence of a residence on the Property which gave it a higher value. He said that the report did not cause him to change his valuation of $80,000 for the Property.
Palmers Island: Bank Erosion Assessment and Management Plan
This Management Plan was in evidence. It was produced in July 1992. It is not disputed that its effect is that stated in the valuation reports and I note that it recommended the abandonment or purchase by the Council of the Property and neighbouring allotments at that time.
Other evidence
Mr Jamie Demas is a Senior Management Advisor with a lending institution. He was familiar with the Property and said that it was in a high risk category such that it would not be relied upon as security for a bank loan.
The Maclean Local Environmental Plan 2001 sets out the limitations for the development of land within the river bank erosion localities in the terms described in the valuation reports.[6]
[6] See reg 15 of the Plan.
In evidence was the letter from the Council,[7] dated 12 February 1996, in which the Council offered to purchase the property from the applicant for $80,000. This was rejected by the applicant by letter dated 28 February 1996. Therein, the applicant indicated that the offer of $80,000 was not sufficient to enable him to establish himself in a suitable new property let alone on the water front.
[7] At that time, the Maclean Shire Council.
At the request of Sean Law, the Tribunal viewed the Property. This confirmed the poor state of repair of the residence. It also confirmed the loss of much of River Road along the front of the Property but also that Council workmen were, at the time of the inspection, engaged in constructing a rock wall on the river bank directly in front of the Property and to each side of the Property.
CONSIDERATION
The Act provides no guidance on the way in which valuations are to be carried out or in which respective valuations are to be compared. In Spencer v The Commonwealth of Australia,[8] Griffith CJ made reference to the valuation process in the following way:
In my judgment the test of value of land is to be determined, not by enquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but by enquiring “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?”
[8] (1907) 5 CLR 418 at 432. See also Kirkovski v Secretary, Department of Family and Community Services [2004] FCA 790 and Re Secretary, Department of Social Security and Langton (1993) 31 ALD 579.
Sean and Craig Law relied upon the evidence of the Valuer General of New South Wales, of Ron Weekes and of Robert Jupp from Taylor Byrne. However, I am satisfied that I can place no reliance on those reports for present purposes. In that regard, I accept the evidence of Mr Parrish that the Valuer General’s report is not an assessment of the market value of the specific Property.[9] Further, the report of Ron Weekes provides a description of the Property but offers no opinion on its valuation. The report of Robert Jupp was prepared for the stated limited purpose of assessing the land as a mortgage security. One of the allotments referred to by Mr Jupp sold for $23,600. However, I accept the evidence of Mr Parrish that that allotment was materially different from the Property in that, unlike the Property, it displayed no improvements. I accept that the house on the Property is in poor condition and that, as the evidence of Mr Demas demonstrated, the Property may not be relied upon to constitute security by a lending institution. However, the evidence is that the Council will allow renovation of the Property and I am satisfied that it may have appeal to the kinds of market interests identified by Mr Parrish. The evidence is that erosion of the Property has not occurred in the immediate past and that the Council is in the process of constructing rock coverage to the riverbank to assist in erosion prevention.
[9] See Re Secretary, Department ofEmployment, Education, Training and Youth Affairs and McFarlane (1996) 44 ALD 30 for reference to the conservative nature of a valuation by the Valuer General.
I accept that the applicant as well as Sean and Craig Law have a strong emotional attachment to the Property. However, the valuation process described by Griffith CJ above requires an objective analysis to be adopted in assessing valuation. In the primary determination, the delegate relied on a concept of “fair market value”. I am satisfied that this reflects the valuation process described by Griffith CJ and also the approach identified in the AVO report and adopted by Mr Parrish in this matter. Mr Parrish valued the Property at $80,000. I am satisfied that this is the appropriate valuation of the Property. I note that it equates to the Council offer in 1996 which was rejected by the applicant on the basis that it was insufficient at that time.
I have also noted the concession made by Mr Kelly that the respondent was prepared to concede that the valuation, for the purposes of the Act, be reduced to $70,000.
DECISION
The Tribunal sets aside the decision under review and substitutes its decision that the value of the applicant’s real property at 18 River Road, Palmers Island, New South Wales is $70,000.
I certify that the preceding 24 (twenty four) paragraphs are a true copy of the reasons for the decision herein of Mr R G Kenny, Senior Member. ............[Sgd]...................................................
Associate
Dated 5 July 2012
Date(s) of hearing 21 June 2012 For the Applicant Craig and Sean Law, sons of the applicant Advocate for the Respondent Mr Jeff Kelly
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