Lilac Pty Ltd v Department of Natural Resources and Water
[2008] QLC 220
•12 December 2008
LAND COURT OF QUEENSLAND
CITATION: Lilac Pty Ltd v Department of Natural Resources and Water [2008] QLC 0220 PARTIES: Lilac Pty Ltd (ACN: 059-349-512)
(appellant)v. Chief Executive, Department of Natural Resources and Water
(respondent)FILE NO.: AV2007/0180 DIVISION: Land Court of Queensland PROCEEDING: An appeal against annual valuation of land under the Valuation of Land Act 1944. DELIVERED ON: 12 December 2008 DELIVERED AT: Brisbane HEARD AT: Brisbane MEMBER Mr RS Jones ORDERS: 1. The appeal is allowed.
2. The unimproved value of Lots 9-11 on Registered Plan 75016, County of Ward, Parish of Mudgeeraba, is determined as at 1 October 2006 in the amount of Two Million Eight Hundred and Ninety-four Thousand Dollars ($2,894,000).
CATCHWORDS: Section 33 Valuation of Land Act 1944 – rebuttal of presumption of correctness of statutory valuation – applicability of improved commercial sales – relevance of sales of different areas – value of improvements. APPEARANCES: Mr R Anderson of counsel, instructed by Clayton Utz lawyers, for the appellant.
Mr W Isdale of counsel, instructed by Crown Law for the respondent.
Background:
Lilac Pty Ltd, the appellant, has appealed against the assessment of the unimproved value assigned to its land by the respondent, the Chief Executive, Department of Natural Resources and Mines, in the amount of $3,500,000 as at 1 October 2006.
Lilac is the registered proprietor of a parcel of land located at 1730 Gold Coast Highway, Burleigh Heads, more properly described as Lots 9-11 on Registered Plan 75016, County of Ward, Parish of Mudgeeraba. The land comprises an area of 1,092 m² and is located in “Precinct 1 Burleigh Heads Commercial Core” of the “Burleigh Local Area Plan” under the town plan of the Gold Coast City Council. All of the usual town services are available to the land and, consistent with its land use designation, was being predominantly used for retail purposes as at the relevant date of valuation. Lilac’s valuation of the unimproved value of its land as at 1 October 2006 is $2,185,000.
The valuers called by the parties (Mr N Murphy for the appellant and Mr R Lund for the respondent) agreed that the highest and best use of the land as at the relevant date was for a two-storey commercial building[1] with the ground floor area comprising various retail uses and the upper floor commercial office space. Although the land was being used for retail purposes at the date of valuation the improvements on the land consisted of a dated single storey building of mixed construction.
[1]There was some evidence suggesting 3 to 4 levels with the upper floors developed as units (Ex 2, p. 4 and Ex 10). However, the valuers agreed that the actual highest and best use was for two storey retail and office building. (Ex 5, p. 2 and T 5 L 20 per Mr Murphy).
I should note here that Mr Lund’s valuation before the Court was not $3,500,000 but $3,822,000.[2] According to Mr Lund, this valuation justified the application of the valuation under appeal. As I understand the evidence about this, the valuation under appeal was not the product of a detailed or specific valuation but the result of a broad-brush or mass appraisal valuation approach which applied an increase of in the order of 70% over the previous unimproved values assigned to land in various locations including the Burleigh Heads business area. The increase of 70% was in turn said to be justified by sales in the area including four of the sales relied on by Mr Lund at the hearing of this appeal.[3] The valuation before the Court is apparently the product of a more detailed analysis of the market evidence by Mr Lund in preparation for the hearing of this appeal.
[2] Ex 6, p.19
[3] Transcript (T) 76 – T 79.
The Issues in the Appeal
The substantive issues raised by the appellant in its notice of appeal are that its estimate of the unimproved value (unlike that of the respondent) is supported by comparable sales evidence and is otherwise consistent with the unimproved values attributed to other comparable lands by the respondent.[4] However, during the course of the appeal the real issues quickly became apparent and are:
(i)the selection of reliable sales evidence;
(ii)the analysis of the reliable sales evidence;
(iii)The application of the reliable sales evidence.
[4] Notice of Appeal – Grounds 3 and 4.
The respondent placed reliance on s.33 of the Valuation of Land Act 1944 (VLA) which creates a statutory presumption in favour of the correctness of the valuation appealed against. As is the case with most presumptions they can be rebutted when the evidence justifies doing so. In Brisbane City Council v Valuer General[5] the High Court considered that the presumption may be rebutted where it can be shown that the valuation was based on a wrong principle and/or involved a significant error of fact and/or was made by a fundamentally erroneous method.
[5](1977-78) 140 CLR 41 at 56-57: See also G Cominos & Cov Department of Lands (1996-97) 16 QLCR 311 at 331-332 (LAC).
The Sales Evidence
This is a case of some difficulty. Both valuers sought to have regard to sound valuation principles as well as pronouncements of this Court and the Land Appeal Court when approaching the choice and application of the sales evidence. Mr Murphy, consistent with a number of judicial observations concentrated on lightly improved sales so as to avoid many of the difficulties and uncertainties associated with having to identify the value of any improvements associated with the sales.[6] However, in seeking to identify such sales Mr Murphy was required to make some compromises about the proximity of some of his sales to the subject land and different land uses. On the other hand, also consistent with common valuation wisdom, Mr Lund sought to identify sales mostly in the same general location and with similar land uses as the subject. However, in making this choice Mr Lund was required to make some compromise in that he was then required to deal with the value of the improvements erected on those sales. These two different approaches as to what constituted the best sales evidence resulted in the two valuers having only one common sale located at 2519 Gold Coast Highway, Mermaid Beach. (Mr Murphy’s sale 1 and Mr Lund’s sale 7). I think it is fair to say that this sale was Mr Murphy’s primary sale and, while perhaps not a primary sale, a very important sale in Mr Lund’s valuation exercise.
[6]e.g. Fischer v Valuer General (1983) 9 QLCR 44 at 46 (LAC); Grahn v Valuer General (1992-93) 14 QLCR 327 at 328.
Before dealing with the primary sales relied on by the valuers I should deal with what could be described as the more secondary evidence relied on by them. Mr Murphy had four such “secondary sales”.[7] I do not consider these sales to be sufficiently reliable to have any regard to them. I have reached this conclusion for the following reasons: first, two of the sales are located in the Surfers Paradise accommodation precinct, have canal frontage and potential for high rise residential development. They are not sufficiently comparable to the subject. The sale located at 69 Old Burleigh Road, Surfers Paradise is also located in a predominantly residential area. It is currently improved with a semi-modern three level walk-up unit complex containing 9 units but has potential for high rise residential development. In the absence of reliable evidence showing a discernable relationship between the prices being paid for land with high rise residential development potential in the general area of Surfers Paradise and those being paid for retail/commercial land elsewhere, I do not consider that any real assistance can be gained from these sales. The fact that there might be some similarity between the prices being paid for high rise residential land and that being paid for low key commercial land at Burleigh Heads might be as much the product of coincidence as anything else. There is no reliable evidence before me to suggest that potential purchasers of commercial land at Burleigh Heads would in any way be influenced by what was being paid for high rise residential land in the Surfers Paradise area or vise versa. Mr Murphy’s secondary sale located at Palm Beach is so much larger than the subject as to make it impossible to be sensibly compared to the subject.
[7] Ex 3 – Mr Murphy’s primary report at pp. 18 and 19.
In this context I note that both valuers tended to see the less intensely developed “fringe” areas as a different market to that centred around the more intensely developed areas, referred to by Mr Murphy as “primary areas”. For example, the Southport business district, Surfers Paradise, Broadbeach and Coolangatta.[8] Importantly it is also clear that Mr Murphy placed little reliance on his “secondary” sales. In his report, exhibit 3, at pages 21 and 22 he states “we have adopted the direct comparison approach in determining the unimproved values of the properties. We have compared the subject to sales of other properties in the surrounding locality on a $ rate/m² of site area basis. In assessing the unimproved value we have had most regard to the following sales.…” None of the aforementioned “secondary” sales are included in this group.
[8] For e.g. DNR document Exhibit 12, p.15 and Mr Murphy T10 L 42 to T 11 L 10.
In respect of Mr Murphy’s “primary” sales 2 and 3 located at Mermaid Beach and Broadbeach respectively, I do not consider these sales to be of any particular assistance in the circumstances of this case. The Mermaid Beach sale is significantly larger than the subject and both sales are located in areas dominated largely by residential development rather than commercial or retail development. Not surprisingly in such circumstances the apparent highest and best use of both of these parcels of land is for residential purposes. In respect of Mr Murphy’s sale at Mermaid Beach the most likely use is for two residential towers with mixed commercial and retail uses at the lower levels. In respect of the Broadbeach sale it is also significantly larger than the subject with the potential for unit development up to 30 storeys. The units located on the upper levels will have ocean views.[9] I do not see how these sales could be reasonably compared to the subject land which is located in a commercial and retail hub and, consistent with its location and land use designation, has a highest and best use of two storey retail and commercial development.
[9]The Town Planning Report also confirms the dominant residential and tourism uses for Mr Murphy’s sale 2: See Ex 2 at p. 8.
Turning then to Mr Lund’s sales evidence it is clear that his primary sales are those located at 8 James Street, Burleigh Heads; 8 West Street, Burleigh Heads; 37 James Street, Burleigh Heads; 53 James Street, Burleigh Heads and the common sale at 2519 Gold Coast Highway, Mermaid Beach. The last 3 of these sales are dealt with in detail in Mr Lund’s primary report and also played an important part in his earlier investigations concerning the unimproved value to be assigned to the subject land and other land within the locality.[10]
[10] See Ex 12, 13 and 14.
Mr Lund’s sale 5 located in Albert Avenue, Broadbeach is of no assistance in my opinion. It reflects a rate per m² (less improvements) of $10,460/m². This rate no doubt reflects its highest and best use potential for mixed use development comprising of ground floor retail, first and second floor office space and a residential tower above. The rate per m² derived from this sale bears no resemblance whatsoever to that attributed to the subject land. For essentially the same reasons I also reject Mr Lund’s sale 6 located at Tedder Avenue, Main Beach. It reflects an analysed rate of $7,720/m² a rate more than twice that applied to the subject land.
The Relevant Sales Evidence
For the reasons expressed above I have formed the opinion that the sales which provide probative evidence of value are:
(i)Mr Murphy’s sale 1 located at 2519 Gold Coast Highway, Mermaid Beach (Mr Lund’s sale 7)
(ii)Mr Murphy’s sale 4 located at 11 Nind Street, Southport
(iii)Mr Lund’s sale 1 located at 8 James Street, Burleigh Heads
(iv)Mr Lund’s sale 2 located at 8 West Street, Burleigh Heads
(v)Mr Lund’s sale 3 located at 37 James Street, Burleigh Heads
(vi)Mr Lund’s sale 4 located at 53 James Street, Burleigh Heads
(vii)Mr Lund’s sale 8 located at 64 Thomas Drive, Surfers Paradise.
In respect of Mr Murphy’s sales there was no serious challenge to his analysis of them. As I have said earlier the criticism was more directed towards his selection of sales being more residential than commercial in character and/or remote from the Burleigh Heads core business area.
As to the first of these criticisms they do not apply to the two remaining sales of Mr Murphy identified above. His sale 1 is presently being used in a way quite consistent with that envisaged for the subject land and the Nind Street sale at Southport clearly had potential for some form of commercial and “small scale” retail uses.[11]
[11] Ex 2 at p. 10 para 74 and Ex 3, p. 17.
Having regard to the location of Mr Murphy’s sale 4 and Mr Lund’s sale 8, for the reasons referred to in paragraph [9] above, I consider that while these sales should be treated with some caution they should not be rejected entirely. Mr Murphy’s sale 4 has the added difficulty of being a part of a site amalgamation by an adjoining owner. Notwithstanding this, it appears to have development potential for uses similar to that for the subject, is of an area more comparable to the subject than many of Mr Lund’s sales and, despite it being located in “Southport”, is removed from the central business district. Mr Lund’s sale 8, while significantly smaller than the subject, has similar potential for mixed retail and commercial use and is removed from the central business district of Surfers Paradise.
The Value of Improvements
On more than one occasion Mr Lund’s reliance on improved sales was criticised by Mr Anderson, counsel for the appellant. According to Mr Anderson, the reliability of such evidence is weakened because of the uncertainties and room for error associated with the valuation of the improvements on the land. Mr Isdale, counsel for the respondent, points out that it is a valid exercise of the valuer’s expertise to have regard to improved sales in carrying out his valuation. In some cases improved sales may be the only reliable evidence available or have to be taken into account to provide a fair representation of the market place.[12]
[12]e.g. see Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111 at para [18]; Department of Natural Resources v Spender [2003] QLCR 414 at para [54]; Valuer General v Marano [1978] 5 QLCR 194 at 200-201 (LAC).
In two fairly recent decisions of this Court[13] the analysis of highly improved sales evidence was rejected as being too unreliable. The Court also expressed the view that when attempting to analyse the value of improvements on highly and extensively improved properties, the expertise of only a valuer may not be sufficient. The assistance of other experts may be required. While I agree with those observations of the Court they must be read in context. In both of those cases the valuers were attempting to determine the value of significant Brisbane central business district buildings including site improvements. I agree with Mr Isdale that the level of improvements associated with Mr Lund’s sales can be readily distinguished from those involved in the Perpetual Trustee case and the 240 Queen Street case. In the circumstances of this appeal there is no reason in principle why these sales could not provide reliable evidence of value provided that they are otherwise sufficiently comparable and properly analysed and applied. However, even in this case where the improvements are relatively low key, the added value they give to the land is not without controversy. More will be said about this issue below.
[13]Perpetual Trustee Co. Ltd v Department of Natural Resources, Mines and Water [2006] QLC 17 and Multiplex 240 Queen Street Landowner Pty Ltd v Department of Natural Resources, Mines and Water [2007] QLC 0010 at [151].
Application of the Sales Evidence
What does emerge from the sales evidence left to be considered is that there is an obvious and direct relationship between land area and the rate per m² being paid for smaller blocks. Accepting for the moment the validity of Mr Lund’s analysis of his sales 1, 3, 4 and 8, each of those sales are 405 m² in area and reflect an analysed sales price (ex GST) of $5,470/m², $5,432/m², $5,728/m² and $6,580/m² respectively. On the other hand the larger parcels of land show a markedly lower rate per m². Mr Lund’s sale 2 is 820 m² and shows an analysed rate (ex GST) of $2,590/m². Mr Murphy’s sale 4 has an area of 810m² and shows an analysed rate per m² of $2,136/m². The common sale is 825 m² in area and shows an analysed rate of between $2,000/m² (per Mr Murphy) and $1,996/m² (per Mr Lund).[14] The subject parcel of land is 1092m² in area. This relationship between lot area size and the rate per m² derived from the analysis of the sales was referred to at various times by each of the valuers as reflecting “economies of scale”.
[14] See generally Ex 3 at pp. 16 and 17 and Ex 6 at pp. 10, 11, 12, 13, 16 and 17.
It is of course clear that factors other than size will have an affect on the price paid for each individual lot. For example the higher rate per m² will also reflect that the land has superior physical characteristics which also distinguish it from other parcels of land. However, in this case it is clear that both valuers have recognised and attempted to bring into account this so called “economies of scale” when carrying out their respective valuation exercises. Mr Lund specifically distinguishes each of his sales 1, 2, 3, 4 and 8 from the subject by reference to their smaller area and rate per m².[15] Mr Murphy makes comments to a similar effect in his report in reply.[16] The relationship between lot size and price was also identified in an internal document of the respondent where it was said in respect of a 20% to 70% increase in the value of commercial properties at Broadbeach and Burleigh Heads: “Smaller blocks again showing largest increases, especially at Burleigh Heads commercial core”.[17]
[15] Ex 6 at pp 10, 11, 12, 13 and 17.
[16] Ex 4 at pp 7 to 9.
[17] Ex 12.
In circumstances where the subject land is nearly three times the area of the smaller blocks referred to above, it is my opinion that each of those sales should only be used as setting a rate per m² above which the subject land could not possibly go.
Before passing onto the remaining sales evidence I should refer here to Mr Murphy’s analysis of Mr Lund’s sales 1, 2, and 3. In a document entitled “Supplementary Improved Sales Analysis for Statement in Reply”[18] Mr Murphy analyses each of the sales to reflect a rate per m² significantly lower than that adopted by Mr Lund. That is so because Mr Murphy attributes a significantly higher value to the improvements on the land than did Mr Lund.
[18] Ex 9: See also Ex 4 sales analyses.
While I do not consider it necessary to go into a detailed analysis of the evidence of the valuers concerning the values attributed to the improvements on each of these parcels of land, overall it is my opinion that Mr Lund’s assessment of the value of the improvements is probably more accurate than that of Mr Murphy. One particularly striking indication that Mr Murphy has tended to overstate the value of the improvements is his treatment of profit and risk. It seems tolerably clear to me that when Mr Murphy used the term “profit and risk” in each of the analyses contained in exhibit 9 he was intending to mean and include the profit that the builder constructing the improvements would expect to make. In deriving the actual construction costs for the improvements on these sales Mr Murphy, like Mr Lund, had regard to building price guide publications. Mr Murphy relied on Rawlinsons Australian Construction Handbook 2006 Edition 24.[19] The building rates adopted from Rawlinson and applied by Mr Murphy have built into them an allowance for builder’s profit. For Mr Murphy to then allow a profit and risk factor of 20% amounts to, in my opinion, a double counting of what is essentially the same input. In all of Mr Murphy’s exercises the allowance for profit and risk runs into many hundreds of thousands of dollars. In final submissions Mr Anderson suggested that when Mr Murphy spoke of “profit and risk” it meant something more or different than just builders profit. However, when he was taken to this aspect of his valuation in evidence-in-chief, Mr Murphy said of his allowance of 20% “It’s a builder’s profit ....”[20] For these reasons I reject Mr Murphy’s analyses of Mr Lund’s improved sales. However, I am also of the opinion that Mr Lund has tended to slightly underestimate the value of improvements in his sales analyses. This matter will be discussed in more detail below.
[19] Ex 4 sales analyses. – as did Mr Lund, T 59 L 27 - 33.
[20] T 18 L 30 – 35.
For the reasons expressed above it is my opinion that the sales which provide the best guide to the unimproved value of the subject land are Mr Lund’s sale 2, Mr Murphy’s sale 4 and the common sale.
The 8 West Street sale is of particular relevance, it is located within the same commercial/retail precinct and is much closer in area to the subject than the rest of Mr Lund’s Burleigh Heads commercial sales. Mr Murphy says of this sale “On a like for like comparison this sale is the most comparable to the subject property.”[21] All other things being equal this sale would, in my opinion, suggest a rate of in the order of $2,500/m² for the subject. I have reduced Mr Lund’s analysed rate of $2,590/m² to $2,500/m² because I consider that he has tended to underestimate the value of the improvements on the land. It seems clear that some allowance for contingencies (of about 5%) should have been allowed for. I also consider that Mr Lund has tended to underestimate or failed to properly bring into account the various fees and charges associated with the construction of the improvements on the land. When these items are brought into account the value of the improvements would be in the order of $600,000 resulting in a land value (ex GST) of about $2,040,000 or about $2,490/m².[22]
[21] Ex 4, p. 8.
[22] Mr Lund’s analysis of this sale is found in his annexures to Ex 6.
However, all other things are not equal as between the subject land and the 8 West Street sale. In this regard I accept Mr Lund’s evidence that the subject is materially superior to the sale in respect of a number of important characteristics including location and exposure to the Gold Coast Highway.[23] However, as Mr Murphy said, which I accept, the sale is better situated for off site parking, also an important attribute of any commercial property.
[23] See generally Ex 6, p. 11.
However, when Mr Murphy set about comparing the subject land to the sales evidence he proceeded on a wrong premise which caused him to underestimate its value. In carrying out his valuation exercise Mr Murphy proceeded on the basis that in any development on the land, about 360 square metres of ground floor (albeit rear) retail space would be lost for car parking purposes. In fact only about 109 square metres would be lost leaving an extra 250 square metres of valuable retail space available for lease. Mr Murphy failed to have sufficient regard to this additional space when carrying out his comparisons between the subject and the sales and, accordingly, on each occasion tended to underestimate the value of the land.
When all of these matters are brought into account they suggest that the value of the subject land should exceed by a discernible extent the land value of the 8 West Street sale on a rate per m² basis. However, the “economics of scale” associated with the respective sites also has to be taken into account. In respect of all of his 405m² sales Mr Lund says words to the effect that “having regard to the sales smaller size it is considered superior overall on a rate per square metre basis”.[24] The subject land is larger than this sale by a factor of about a third. Notwithstanding this difference in area, in respect of this sale Mr Lund says “Despite the sites smaller size it is considered inferior to the subject on a rate per square metre basis.”[25] In my opinion Mr Lund has failed to adequately bring into account the area of the subject when comparing it to this sale. According to Mr Murphy, because of the difference in area, this sale should attract a higher rate per m² than the subject.[26] However, on balance, when the superior characteristics of the subject are accounted for, I still consider that the application of a slightly higher rate per m² is warranted.
[24] Ex 6 at pp 10, 12, 13 and 17.
[25] Ex 6, p. 11.
[26] Ex 4, p. 8.
Turning to the common sale. While I accept Mr Anderson’s submissions to the effect that many of the positives and negatives associated with this sale and the subject might tend to cancel one another out I consider that Mr Anderson and Mr Murphy have failed to fully bring into account the locational differences between the two sites. Mr Lund’s evidence is that this sale is significantly inferior to the subject because it is situated in a more isolated or “fringe” area for commercial/retail development. I accept Mr Lund’s evidence about this and have reached the conclusion that the subject land is worth materially more than this sale on a rate per square metre basis.
Being mindful of the care that needs to be taken with the application of Mr Murphy’s sale 4 I still draw some limited comfort from it. According to Mr Murphy, this sale shows a land content rate of $2,316/m² and is superior to the subject in respect of size, location and potential. According to Mr Lund it is an inferior site. On the evidence before me I am not able to sensibly resolve this contradictory evidence. However, in reaching their respective views about this sale, I do not think Mr Murphy had sufficient regard to the additional 250 m² of retail space referred to above and Mr Lund failed to have sufficient regard to the “economies of scale” referred to by both valuers. On balance I have reached the conclusion that this sale can be relied on but only to provide a “floor” level of value below which the subject could not fall.
The evidence before me suggests that the unimproved value of the subject land, on a rate per m² basis, lies between $2,600 to $2,800/m². Applying a combination of Mr Murphy’s approach of adopting a “mid point”[27] and the respondent’s approach of acting conservatively[28] when determining the unimproved value of land, I intend to adopt a rate of $2,650/m².
[27] Ex 3, p.23.
[28] T85 L 1.
For the reasons expressed above I have reached the conclusion that the presumption of the correctness of the valuation under appeal has been rebutted and that the unimproved value of the subject land as at 1 October 2006 is $2,894,000.[29]
[29] 1092m² x $2,650/m² (rounded to $2,894,000).
During the course of the evidence Mr Isdale referred the valuers to the “historical relativity” of the values attributed to the subject land, the common sale[30] and the Nind Street sale.[31] In the circumstances of this appeal I do not consider that this evidence carries any weight. It is well recognised that relativity between blocks may change from one valuation period to another[32] and there could be any number of reasons why blocks within the same valuation area might increase, decrease or vary at different rates over different periods.[33] Another obvious weakness of relying on relativity is that it requires the assumption that the relativity first struck and continued on was and remains correct. In circumstances where objective evidence of value exists, as is the case here, that evidence must prevail.
[30] T 41 – T 42.
[31] T 45 – 46 and T 68.
[32]Lindenmayer v Valuer General (1974) 1 QLCR 273 at 276: Barnwell v Valuer General (1991) 13 QLCR 13 at 17 (LAC).
[33] Henricks v Valuer General (1983) 9 QLCR 59 at 63. (F.C.)
Before making the orders disposing of this appeal I should also say something about the valuers’ approach to the improved sales relied on by Mr Lund. When analysing these sales the valuers have adopted the sale price as the starting point for their exercises to determine the vacant or unimproved value of the sale land. In the case of improved properties which are the subject of commercial leases the sale price will often be determined by reference to the value of the leases associated with the land and improvements thereon. Indeed, in respect of three of the improved sales Mr Murphy says “revenue is the sale price”.[34] The “revenue” price would, as I understand it, be often determined by the capitalisation of rents.
[34] See Ex 9.
In circumstances where improved commercial properties are being analysed as sales evidence, the sale price may often reflect more than just the value of the land and improvements on or appertaining to the land. By way of example, a fully tenanted commercial building would usually be expected to sell for more than an identical but vacant building where all other things were otherwise equal. That is, the sale price is likely to include an element of what might generally be described as “goodwill”. In very broad terms the value of the goodwill would be the difference between the value of the entity as a whole and the value of the net tangible assets.[35]
[35] The Valuation of Businesses, Shares and Other Equity (W. Lonergan) 2nd Ed. 1998 at p 43.
The value of the improvements under consideration here were determined by reference to the cost of replacing their equivalent. In analysing sales of improved commercial properties, deducting from the sale price only the calculated cost of replacing the physical improvements will, in most cases, probably not bring into account goodwill of the character referred to above. Accordingly, when applying the notionally vacant or unimproved value of the improved sales (as analysed) to land, the value of any component of goodwill could be transferred and incorporated into its assigned unimproved value. In my opinion such a result or consequence would lead to an erroneous and inflated assessment of the unimproved value.
Notwithstanding my concerns about this issue they cannot be taken any further in the circumstances of this appeal. The valuers undertook their respective analyses of the improved sales on essentially the same footing. Neither referred to or took into account any component of goodwill in their analyses.[36] There is simply no evidence about whether or not any component of goodwill was or might have been involved in any of the improved sales utilised by the valuers.
[36]Mr Lund’s sales analyses in Ex 6: Mr Murphy’s analyses in Exs 4 and 9: For the reasons given Mr Murphy’s allowance for “profit and risk” was not concerned with the concept of goodwill.
Orders
1.The appeal is allowed.
2.The unimproved value of Lots 9-11 on Registered Plan 75016, County of Ward, Parish of Mudgeeraba, is determined as at 1 October 2006 in the amount of Two Million Eight Hundred and Ninety-four Thousand Dollars ($2,894,000).
RS JONES
MEMBER OF THE LAND COURT
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