Maurici v Chief Commissioner of State Revenue - [2005] NSWLEC 20

Land and Environment Court

of New South Wales

CITATION:
Maurici v Chief Commissioner of State Revenue [2005] NSWLEC 20

PARTIES:
APPLICANT
Anthony Maurici
RESPONDENT
Chief Commissioner of State Revenue

FILE NUMBER(S):
30199A of 1999

CORAM:
Nott C

KEY ISSUES:
Valuation of Land :- "Land value" of a waterfront residential property at Woolwich - methods of valuation - scarcity factor - improvements increment - movement in the market - effect of a development consent on land value - adjustments for size and other features of the comparable sales - weighing sales according to reliability.

LEGISLATION CITED:
Land Tax Management Act 1956
Taxation Administration Act 1966
Valuation of Land Act 1916

CASES CITED:
AMP Henderson Global Investors Ltd v Valuer-General [2004] NSWCA 19; (2004) 134 LGERA 426;
Barmuncol Pty Ltd v Maroochy Shire Council (1983) LGRA 309 Daadine Pastoral Co Proprietary Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299 at 304;
Duffy v Minister for Planning [2003] WASCA 294 (2003) 129;
LGERA 271;
Eaton & Sons Pty Ltd v Warringah Shire Council (1972) 129 CLR 270 at 293;
Federal Commissioner of Land Tax v Duncan (1915) 19 CLR 551;
Flack v Valuer-General (1952) 18 LGR (NSW) 157 at 158;
Guideline Drafting and Design v Marrickville Municipal Council (1988) 64 LGRA 275;
Illawarra Meat (Developments) Pty Ltd v Valuer-General (Rath J 10 March 1978);
MLC Properties Pty Ltd v Chief Commissioner of State Revenue [1999] NSWLEC 300 at [21] and [38];
Maurici v Chief Commissioner of State Revenue [1999] NSWLEC 299 (Nott C);
Maurici v Chief Commissioner of State Revenue [1999] NSWLEC 282; (1999) 105 LGERA 318 (Cowdroy J);
Maurici v Chief Commissioner of State Revenue [2001] NSWCA 78; (2001) 51 NSWLR 673;
Maurici v Chief Commissioner of State Revenue [2003] HCA 8; (2003) 212 CLR 111;
McCathie v Federal Commissioner of Taxation [1944] HCA 9 (1944) 69 CLR 1 at 15;
Nap Nap Station Pty Ltd v Valuer-General (1969) 72 LGRA 293;
Nock v Minister for Capital Territory (1982) 48 LGRA 293;
Parramatta City Council v Shell Co. of Australia Ltd [1972] 2 NSWLR 632 at 637;
Rodgers v Value-General No. 30457 of 1991, 7 November 1991;
Royal Sydney Golf Club v Federal Commissioner of Taxation (1955) 91 CLR 610;
Strongsville Board of Education and City of Strongsville v Auditor and Board of Revision of Cuyahoga County and Hewlett Packard Co (Nos 1996-N-595 & 596, Ohio Board of Tax Appeals, 30 July 1999);
Tetzner v Colonial Sugar Refining Co Ltd [1958] AC 50;
Torpey Vander Have Pty Ltd v Mass Constructions Pty (2002) 55 IPR 542, [2002] NSWCA 263 at [13]-[18];
Valuer-General v Fenton Nominees Pty Ltd (1982) 150 CLR 160;
Venti Seven Pty Ltd v Chief Commissioner of State Revenue [2000] NSWLEC 285 at [4]-[6].

DATES OF HEARING: 26-30 July 2004; 9, 20 & 31 August 2004

DATE OF JUDGMENT:

02/10/2005

LEGAL REPRESENTATIVES:
APPLICANT
Dr C J Birch SC and Mr J Stoljar, barrister
SOLICITORS
Speed & Stacey
RESPONDENT
Mr J Ayling SC and Mr J Maston, barrister
SOLICITOR
Crown Solicitor

JUDGMENT:

IN THE LAND AND

ENVIRONMENT COURT

OF NEW SOUTH WALES

Nott C

10 February 2005

30199A of 1999: Anthony Maurici v Chief Commissioner of State Revenue

JUDGMENT

1. Introduction

1. This judgment contains the following parts and appendixes (references are to paragraph numbers):

1. Introduction…1
2. Overview and main findings…5
3. Relevant legislation…53
4. Previous decisions of the courts…60
5. How a development consent may affect land value…77
6. Description of the subject property…92
7. Planning controls…95
8. Movement in the market…99
9. Improvements increment…114
10. Other elements in the valuation of improvements…159
11. Matters affecting the degree of confidence in valuations of improved properties…195
12. Supplementary matters on scarcity…197
13. Adjustments for different features of the land sold compared with the subject land…208
14. Analysis of 26 comparable sales (alphabetically according to street address)…223
15. Weight to be given to the comparable sales according to reliability…332
16. Differences between Tables 1 and 3; possible alternatives…347
17. Generally…355
18. Orders…359
Appendix 1—Extract from the judgment in Illawarra Meat (Developments) Pty Ltd v Valuer-General (Rath J, 10 March 1978)…360
Appendix 2—List of Exhibits…361

2. The following tables are included in this judgment:

Table 1—Applicant’s adjustments schedule (by Mr Byron)…10
Table 2—Respondent’s adjustments schedule (Mr Croker)…10
Table 3—Court’s adjustments schedule and determination of land value as at 1 July 1997…10
Table 4—Movement in the market, from the sale and resale of four properties…107
Table 5—Time from contract date to 1 July 1997…113
Table 6—Applicant’s analysis of improvements increment from 1 Fern Rd…120
Table 7—Textbook example of developer’s (or owner’s) profit…130
Table 8—Court’s determination of an incremental value from 1 Fern Av…152
Table 9—Applicant’s valuation of 15 Lloyd Av (typical of improved sales)…161
Table 10—Applicant’s calculation of scarcity factor…200
Table 11—Adjustment for the size of the comparable land…214
Table 12—Court’s weighted average land value from vacant land sales…338
Table 13—Court’s weighted average land value from improved land sales…339

3. Abbreviations and references used in this judgment include:

base date —1 July 1997, the date at which the value of the applicant’s land is to be determined;
original hearing —the hearing before me in 1999 of this appeal, referred to in par 5 of this judgment;
original judgment —my judgment in respect of the original hearing, referred to in par 6;
OrigT # — a reference to a page number (#) of the transcript of evidence in the original hearing;
par or Table —a reference to a paragraph or Table in this judgment, unless the context suggests otherwise;
present hearing —the most recent hearing before me which is the subject of this judgment, following the High Court's decision in this appeal;
T # —a reference to a page number (#) of the transcript of the present hearing.

4. The next part of this judgment, 2. Overview and main findings, includes a summary of the more important aspects of the evidence and respective cases of the parties and contains my main findings. Other findings and more details or discussion of some of the main findings are set out in subsequent parts.

2. Overview and main findings

5. In 1999 the applicant, Anthony Maurici, appealed against the determination by the respondent, the Chief Commissioner of Taxation, of the land value of $2,400,000 as at 1 July 1997 of the applicant’s waterfront residential property at 66 The Point Road, Woolwich. In the original hearing before me on 9 and 14 September 1999, the applicant was represented by Dr C Birch, who presented evidence from valuer Mr P Byron and quantity surveyor Mr P Hammond in support of the applicant’s claim that the land value should be reduced to $1,250,000. A valuer, Mr M Croker, appeared for the respondent and gave evidence in support of a land value of $2,000,000. (Following a review of the land values for other waterfront properties on the Hunters Hill peninsula, the respondent had intended to alter the 1997 land value of the applicant’s property to $2,000,000.)

6. On 6 October 1999 I delivered judgment in the original hearing, allowed the appeal and determined the land value to be $1,950,000: see Maurici v Chief Commissioner of Taxation [1999] NSWLEC 299. There were subsequent appeals to Cowdroy J in this Court, to the Court of Appeal and to the High Court. The High Court held, among other things, that the respondent’s valuer had been overly selective in using a small number of sales of scarce vacant land and in not using also sales of improved properties, in order to deduce a land value of the applicant’s improved property. The High Court referred the appeal back to me for further hearing. The present hearing is not a completely new hearing, and various findings that I made in the original hearing are still relevant, as are those findings of Cowdroy J and of the Court of Appeal that were not disturbed by the High Court. The previous court decisions in this appeal are referred to in more detail at pars 60 ff below.

7. In the present hearing, the applicant, who was represented by Dr C Birch SC (and Mr J Stoljar, barrister) contended that the land value should be reduced to $1,300,000, relying on new evidence from valuer Mr P Byron and quantity surveyor Mr P Hammond.

8. The respondent was now represented by Mr J Ayling SC (and Mr J Maston, barrister), who presented evidence from valuers Mr M Croker and Mr K Norris and from quantity surveyor Mr D Martin. The new valuation report of Mr Croker indicated a land value for the subject land in excess of $3,000,000, and he was of the opinion that the land value contended for by the respondent of $2,000,000, or as I determined in 1999 of $1,950,000, was quite conservative. The respondent accepted that if I found that the land value of the subject land of $2,000,000 was not too high, I would confirm that figure and dismiss the appeal.

9. Key documents in the present hearing included: (1) Mr Byron’s (amended) adjustments schedule (p 1 of ex R)—which I reproduce as Table 1 at the end of par 10 below; and (2) the respondent’s adjustments schedule, Table 2 below, which was a document submitted from the respondent, based on Mr Croker’s comparison schedule (p 149A of ex 2) but containing certain corrections following Mr Croker’s oral evidence.

10. Having reviewed all the evidence, I have prepared Table 3—Court’s adjustments schedule and determination of land value, which, in a summary form, reflects various findings made in this judgment, and which will be explained in more detail. Tables 1, 2 and 3 have been compressed into an A4-size page for publishing with this judgment on the Court’s website. However, because these tables readily facilitate a comparison of the analysed sales with the subject land, I recommend that the tables be enlarged for easier reading (by photocopying to an A3 size). Tables 1, 2 and 3 follow:

11. As Dr Birch readily acknowledged (T 2), the applicant was presenting a substantially new case in the present hearing. The so-called Supplementary Report of Mr Byron (ex K) runs to 376 pages including supporting documents. (This report was filed and served after Mr Croker’s supplementary report (ex 2), following two extensions of time granted to the applicant.)

12. In order to deduce a land value for the subject land, Mr Byron’s supplementary report analyses 25 comparable sales of waterfront properties located on the Hunters Hill /Woolwich peninsula, of which 18 were sales of improved properties and 7 were regarded as vacant land sales. In respect of each comparable sale, Mr Byron’s supplementary report has a separate tabbed part that includes the following: a page of particulars of the contract for the sale of the land, title details, a description of the features of the land and of any improvements on the land or associated waterfront facilities; a spreadsheet showing the financial analysis of the land value of the comparable sale as at 1 July 1997; and other documents relevant to the comparable sale, such as a deposited plan and photographs. Mr Hammond’s report (ex N), running to 125 pages, contains sheets of costings of the improvements on the comparable sales, as well as on several other sales that Mr Byron used to calculate an improvements increment and a scarcity factor.

13. Mr Byron’s 25 comparable sales of waterfront properties are listed alphabetically in column C of Table 1 above. He regarded seven of these sales (sales numbered 7, 10, 12, 13, 16, 21 and 22) as “vacant land sales”, where there was no house on the land that was sold or where, in the case of sale 7, the house was regarded as adding no value and was demolished. Mr Byron’s 18 other sales were “improved land sales”, where a house on each of the properties did add value to the land.

14. Mr Croker analysed a total of 13 comparable sales, which are listed in the respondent’s amended adjustments schedule, Table 2 above. Except for sale 19a, Mr Croker’s remaining 12 sales are the same as the identically numbered sales of Mr Byron. Mr Byron did consider sale 19a but he thought it was an unreliable sale from which to deduce a land value for the subject land.

15. I have set out in Table 3 all the abovementioned comparable sales of the valuers, indicating the address of each property in column B and whether the property is in Hunters Hill or Woolwich. The locations of the subject land and of the comparable properties on the Hunters Hill /Woolwich peninsula are shown on the map ex L and on the plan at p 150 of ex 2. The subject land is on the northern side of the peninsula with a waterfrontage to Lane Cove River, as are most of the comparable sales. However, Mr Byron’s comparable sales included four sales (sales 7, 10, 24 and 25) that have waterfrontages to Parramatta River and are on the southern side of the peninsula. Mr Croker did not use these Parramatta River properties, as he did not consider them to be comparable to the subject land. However, I have accepted that the Parramatta River sales can be used, but quite substantial adjustments to the sale prices have to be made on account of the differences between those properties and the subject land.

16. Column B of my Table 3 gives the contract date for each of the comparable sales. The dates are the same as given by Mr Byron (except for 29 Nelson Pde, as to which see par 261 below). For each comparable sale, an adjustment was made to the contract price to take account of any movement in the market between the date of contract and the base date. Briefly, Mr Croker was of the opinion that the market values steadily increased over the period of about 18 months either side of the base date, and he decided to use a uniform rate of increase of 0.52% per month. Mr Byron used the Australian Bureau of Statistics’ Established House Price Index for the Sydney region. It seems to me that that index could only be a rough guide to the movement of the residential market at Woolwich. At any particular time, the movement in the market for waterfront properties at Hunters Hill or Woolwich could vary markedly from the change occurring elsewhere in the Sydney region or in the region as a whole. However, in the absence of better evidence, I have adopted with some reluctance Mr Byron’s use of the established price index to adjust the contract price from the contract date to the base date. I examine in more detail the movement in the market at pars 99 ff, and in determining the land value of the subject land I have attributed less weight to the comparable sales that occurred further in point of time from the base date (pars 332 ff).

17. In the present hearing, Mr Byron introduced two new valuation concepts: an improvements increment of +40% in respect of improved properties, and a scarcity factor of -30% for vacant land, as explained below.

18. In working out the value of any improvements on each property in the comparable sales, Mr Byron applied in all cases an “improvements increment” of +40% to his “adjusted costs of improvements”, to arrive at the added value of the improvements. The manner in which Mr Byron determined the improvements increment of +40% is dealt with at pars 114 ff.

19. Mr Byron found support for the concept of an improvements increment in a classic American textbook, The Appraisal of Real Estate (12th edition, 2001), produced and published by the Appraisal Institute. This Institute is the top professional association in America for real estate appraisers. Mr Byron equated his improvements increment to entrepreneurial profit or entrepreneurial incentive, which is dealt with in chapter 14 of the textbook. I have found this book to be a helpful exposition of the practice of real property valuation, and in various respects it appears to me to be superior to Australian textbooks. That Institute has also published Appraising Residential Property (3rd edition, 1999).

20. Mr Byron’s method of ascertaining the “adjusted costs of improvements” was somewhat complex. Briefly, Mr Byron adopted the quantity surveyor’s cost to reconstruct as new the improvements on the land, from which cost he deducted the quantity surveyor’s cost to merely renovate the existing improvements to a new condition. This gave him the cost of the existing improvements in their unrenovated condition. The cost included builder’s margin and preliminaries, professional fees and approval fees. From the cost of the unrenovated improvements, Mr Byron deducted what he considered to be an appropriate allowance for design/functional obsolescence—this involved a discretionary judgment said to be based on the valuer’s experience. He then added interest that would be incurred for half the period of construction, to arrive at the adjusted cost of improvements. The improvements increment of 40% of the adjusted cost of improvements was added to the adjusted cost of improvements. The resultant figure was the “added value of the improvements”, which Mr Byron deducted from the adjusted contract price at the base date to get the land value of the improved comparable sale. All the elements in Mr Byron’s valuation of an improved property can be seen in a typical spreadsheet in Table 9 (par 161 below).

21. Mr Croker and Mr Norris were of the opinion that in determining the value of improvements, no improvements increment should be added. However, Mr Norris said that in certain classes of property, for example, property developed for the investment market, the property will usually have an element of value over and above the cost of land and buildings; but for most residential developments, such an increment is non-existent or at best adds marginally to the improved value (ex 4 p 4). Messrs Croker and Martin accepted that the builder’s margin and preliminaries should be allowed, but they held the view that the separate amounts for professional fees and approval fees should not be part of the value of the improvements. Mr Norris did not carry out any actual valuations of the improvements in the comparable sales but his evidence was directed to matters of principle relating to the improvements increment and to whether the professional fees and application fees should be allowed.

22. Mr Croker’s valuation of the improvements involved taking the costs given by quantity surveyor Mr Martin of reconstructing as new the type of improvements that existed on the property, and then reducing those costs by appropriate percentages depending on the nature and actual condition of the existing improvements (ex 2 pp 2-4). This was a different method to that of Mr Byron, because it did not involve the quantity surveyor estimating the cost to renovate the existing improvements. Mr Croker did not allow for developer’s (or owner’s) profit and risk (on top of the reconstruction costs), and the reconstruction costs did not include professional fees and approval fees.

23. The valuing of the improvements is considered in more detail at pars 159 ff. Having regard to all the evidence and submissions, I have concluded that an improvements increment may be included in the value of improvements, if it is understood that the concept of an “improvements increment” is in the nature of profit and risk. However, it seems that Mr Byron’s improvements increment of +40% would attribute to the improvements a value that in part should be attributed to the land. In particular, it was necessary to take into account that ordinarily a vacant parcel of land is less valuable than the same parcel that subsequently has the benefit of a new development consent (par 77 ff). In any event, I have concluded that an improvements increment of +40% is excessive if it is to be applied to every improved comparable sale as Mr Byron has done. Assuming for the purpose of this appeal that various elements in Mr Byron’s method of ascertaining the added value of improvements are correct, I am prepared to apply an improvements increment of around +27%—there is a degree of uncertainty in this figure. Depending on the facts determined in other cases, it could be that the so-called improvements increment in respect of a particular property would be less.

24. Mr Byron’s second new concept was a “scarcity factor”. At the time of the original hearing, he made no claim in his report or in oral evidence for a scarcity factor. At that time he regarded the contract price for a vacant property as indicating the land value for that property (subject to deducting from the price the value of any minor improvements such as garden facilities or associated waterfront facilities). In accordance with the law as it then stood (and still applies), the applicant had the onus of establishing his case (par 55 below).

25. The additional evidence that has now been presented by both parties gives the Court the opportunity to determine what, if any, deduction should be made from the sale price of a vacant waterfront property at Hunters Hill or Woolwich, when inferring a land value for the applicant’s improved property.

26. In the present hearing, in respect of every comparable sale of a vacant property, Mr Byron deducted 30% from the contract price to get a reduced land value for the vacant property, and he then used the reduced land value to infer a land value for the applicant’s improved property after making adjustments for the different features of the two properties.

27. Mr Byron said that buyers of scarce vacant land are likely to be a special and different class of buyer from buyers of improved land and were not representative of the market. Sales of scarce vacant land, he said, may attract a premium in the market.

28. Mr Croker said that during his deliberations he was unable to either identify or quantify any scarcity factor as claimed by the applicant. He said that the most outstanding attractive feature of the properties in the comparable sales was the fact that the land was waterfront land in a good residential suburb, and he was of the opinion that the further sales evidence (including improved land sales) introduced in his supplementary report supported the conclusion reached by the Court in the original hearing (p 5 ex 2).

29. In order to identify whether any such scarcity factor existed, Mr Byron analysed and compared the separate sales of two adjoining properties, one of which had a house on it and the other was vacant land. He did the same exercise for a second pair of properties. In the first pair, the land at 11A Viret St was vacant, whereas the very large adjoining property at 13-15 Viret St (held as a single parcel) had a large house and extensive other improvements on it. To get a land value of 13-15 Viret St, Mr Byron deducted from the sale price of that property what he considered to be the added value of the house and improvements. He then compared the land value of 13-15 Viret St with the adjoining vacant land sale at 11A Viret St. The only adjustments he made were for the difference in size and the different sale dates of the two properties. Mr Byron did a similar analysis for the second pair of properties, the improved property at 30A Viret St and the adjoining vacant land at 30B Viret St, which were both sold on 4 July 1996 and are identical to comparable sales 20 and 21. Because they sold on the same date, no adjustment was made for movement in the market, only for size.

30. For the first pair of sales, Mr Byron found that the adjusted land value (expressed as a price per sq m) of the improved property was 28.8% less than the price per sq m of the unimproved land. In the second pair, the land value of the improved property was found to be 34.5% less than the adjusted land value of the vacant property. And so he adopted -30% to be applied to the seven vacant comparable land sales listed in his adjustments schedule, Table 1 above. Some additional details concerning the comparison of these two properties are given at par 197 below.

31. As a matter of principle, I think it is acceptable to carry out an exercise of comparing the sale of one improved property with the sale of an unimproved property, as Mr Byron did, in order to ascertain whether a vacant waterfront property at Woolwich would have a higher land value than the land value of a similar waterfront property with a house erected on it. However, in each pair of properties, the two properties should be reasonably capable of being compared, without having to make unacceptably large adjustments on account of the different features of the two properties. In respect of a reasonably comparable pair of properties, all appropriate adjustments for the differences between the two properties should be made. No vacant property should be compared with an improved property if it is known from other evidence that the purchase price for, say, the improved property is out of line with the sale prices of other improved properties (after necessary adjustments are made). No reliable conclusion can be drawn from the comparison of two properties if for any reason it is apparent that the sale price of one or other of the two properties is significantly above or below what could be expected to be the market value for such a property. In respect of the improved property in each pair, an appropriate method of valuation of the improvements should be used to arrive at a reasonably reliable value of the improvements; otherwise the deduction of the improved value from the contract price will result in an unreliable land value for the improved property. Furthermore, if possible, more than one or two pairs of properties should be examined, in case there are any unusual circumstances (not known to the valuer) affecting the conclusion to be drawn from the particular pair of properties, when a comparison number of pairs of properties might indicate a different conclusion.

32. Having regard to the features of the first two properties (11A Viret St and 13-15 Viret St) chosen by Mr Byron (par 29 above), I am of the opinion that they are so different from each other that they are not comparable. Alternatively, the adjustments that could possibly be made (for other factors apart from size, such as shape, waterfrontage and views) to put the properties on an equal footing are likely to be too great, and the comparison is likely to give an unreliable or anomalous result. According to the evidence of Mr Croker (which I accept on this point), the large property at 13-15 Viret St is a landmark property in a far superior location to its neighbour at 11A Viret St, because 13-15 Viret St is located on a promontory with extensive waterfrontages on the north and on the east. Water views are available from the southeast right around to the north and northwest. The property at 13-15 Viret St is held as one parcel but it contains two large subdivided lots plus several minor lots. Mr Croker said that the sale price achieved in 2001 of $9 million was at that time a record for a Hunters Hill waterfront property. This property is in stark contrast to its much smaller neighbouring property at 11A Viret St, located to the south of 13-15 Viret St and having only an easterly aspect and a much more limited waterfrontage.

33. In relation to the second pair of properties used by Mr Byron to determine a scarcity factor, other evidence indicates that the sale of 30A Viret St is unreliable. Assuming for the moment that the figures in Mr Byron’s Table 1 are correct, the unreliability of the sale of 30A Viret St can be ascertained by comparing the land value deduced from that sale with the land values deduced from the other improved sales. The common property to which all the sales are adjusted is the subject land. Using Mr Byron’s figures in column W of Table 1, the values for the subject land that are deduced from all the other improved sales are much higher than the deduced value from 30A Viret St of $857,000. Mr Byron’s figures show that the deduced land value from all other improved sales is on average $1,507,000, which is 36.8% more than the value derived from 30A Viret St.

34. Mr Byron himself recognised the unreliability of the sale of 30A Viret St by excluding that sale and several other sales from his second averaging exercise appearing in the last row of Table 1.

35. Based on my findings elsewhere in this judgment that are reflected in Table 3, and as more clearly seen in Table 13 (par 339), I have found that the land value for the subject property deduced from the sale of 30A Viret St is $1,244,000, whereas the weighted average land value derived from all other improved sales is $1,894,000, which is 52.3% more than the indicated value from 30A Viret St. Obviously, the land value of the improved property at 30A Viret St was extremely low.

36. Whatever the reason for the great disparity between 30A Viret St and the other improved sales, that same reason, rather than a scarcity factor, would appear to fully account for the difference in the adjusted land values of the pair of properties at 30A Viret St and 30B Viret St.

37. If (as I have found) the sale of the improved property at 30A Viret St is so out of line with other improved properties that it should be given no weight and should play no part in the ultimate determination of the land value for the subject land, likewise the same unreliable sale should not be used in an exercise to ascertain what, if any, scarcity factor should be applied to all vacant land sales.

38. Moreover, in respect of each pair of properties used by Mr Byron to ascertain his scarcity factor, the value he attributed to the improvements in the improved sale was too high, because the improved value included an improvements increment of +40%, which I have held to be excessive. The unduly high added value of the improvements meant that the land value for each improved property was lower than it should be when compared with the adjoining vacant land sale.

39. On the evidence, there would appear to be a better way of ascertaining whether there is a scarcity factor that should be applied to vacant land sales. During the present hearing, because there was the prospect that I might find that the two pairs of properties (from which Mr Byron’s scarcity factor was calculated) contained unreliable sales, I raised with Dr Birch why a comparison should not be made of all the improved sales in Mr Byron’s Table 1 with all the vacant land sales. Dr Birch agreed that this could be done. (T 400-401).

40. If both Mr Byron’s improvements increment and scarcity factor were correct (and assuming that the other figures in Table 1 were correct), one could expect that a single land value for the subject land deduced from all the improved sales should not be significantly different from a single land value deduced only from the vacant land sales. However, an examination of Table 1 clearly shows that this is not the case. The seven vacant land sales (with their 30% reduction for the scarcity factor) together show an average land value for the subject land of $1,075,000. Rather than indicating a similar value, the 18 improved sales (with their +40% improvements increment) show an average land value for the subject land of $1,471,000. There is a thus a major difference between the two inferred values. The inferred value from the improved sales is an average 36.8% higher than the average inferred value from the vacant land sales. This simple comparison shows that there is something radically wrong with the applicant’s valuation.

41. It might be said that one should not value a property by averaging sale prices of the comparable sales, as it is contrary to authority (McCathie v Federal Commissioner of Taxation [1944] HCA 9 (1944) 69 CLR 1 at 15). However, it was the applicant’s own case that averaging in Table 1 was acceptable, because the contract prices adjusted to the base date in Table 1 were not averaged; rather, further adjustments were made to the base-date values to take account of the different features of the properties that were sold and of the subject land (columns O to U of Table 1); and (according to the applicant’s submission) having done that, the averaging of the inferred land values was then not contrary to authority.

42. In any event, in my Table 3 after making other necessary changes to the figures based on my findings, I have not used straight average figures but, after weighing the reliability of each sale to indicate an accurate land value, I have used a weighted average. The inferred land values in column T of my Table 3 are more readily examinable in Table 12 (par 338) and Table 13 (par 339), where I have separated the inferred values from the improved sales into one group and the inferred values from the vacant land sales into another group. The weighted average land value of $1,885,000 inferred from the vacant land sales (to which no percentage reduction for scarcity has been applied) is not significantly different from the weighted averaged land value of $1,894,000 inferred from the improved land sales.

43. One reason that a land value inferred from improved properties might be higher than a value inferred from vacant land sales relates to the value of a development consent. A land value inferred from the improved sales would include any value that a development consent for the improvements has added to the land value of the property that was sold—in accordance with the judicial interpretation given to s 6A(1) of the Valuation of Land Act 1916. Or, alternatively, the land value inferred from the improved sales would be enhanced by reason of the statutory requirement in s 6A(2) that it must be assumed the improvements on the land may be continued in order to enable the use to which the land was put at the date of valuation to continue (pars 77 ff). The vacant land sales in this case are not in the same category: they do not have the benefit of a development consent, and there is no presumption that a development consent will be granted for a particular house; and before the vacant land can be used for residential purposes, holding costs, interest costs and development costs would have to be incurred by the owner.

44. The benefits that the improved properties possess (mentioned in par 43) could account for a minor part of the 36.8% higher land value inferred from the improved properties using Mr Byron’s figures in the Table 1 (par 40) but would not explain the whole of the amount by which Mr Byron’s inferred value from the improved sales exceeds the inferred value from the vacant land sales.

45. The above consideration of the percentages that Mr Byron used for the improvements increment and the scarcity factor in Table 1 has assumed that all the other elements in that table are correct. However, the evidence leads me to make some changes to the added value of the improvements as at the base date for the reasons given elsewhere in this judgment, in addition to changing the improvements increment to 27%. However, as discussed later, a 27% adjustment could still be a little too high. A smaller adjustment than 27% would result in a higher land value from the improved sales being generated in Table 3 but not an unduly higher value, having regard to be margin of error likely in the inferred values from the improved sales.

46. For most of the comparable sales, it has been sufficient to assume that the figures relating to improvements in Mr Byron’s spreadsheets (ex R) are correct for the purpose of this hearing only, except that the improvements increment has been changed to 27%, and initially no scarcity factor was applied in my Table 3. In several of the sales (sales 1, 2, 10, 16, 19 and 19a) some other changes affecting the deduced land value of the sale at the base date (in column J of my Table 3) have been made, which I have referred to elsewhere in this judgment. Changes were also made to comparative percentage adjustments for the different features of the properties. I have summarised the differences between Tables 1 and 3 in part 16.

47. The reason that no percentage adjustment for a scarcity factor was initially applied in Table 3 was not to exclude such an adjustment but rather to ascertain whether (comparing the sales of all the waterfront properties in the present case) such an adjustment for a scarcity factor was needed and, if so, to have a basis upon which to make the adjustment. If the figures generated in Table 3 had shown that the average weighted inferred land value from the improved sales was significantly lower than the average weighted inferred value from the vacant land sales, then I would have applied some adjustment factor to the inferred value from the vacant land sales or would have made a judgment as to an appropriate final land value lower than the inferred value from the vacant land sales but probably not as low as the inferred value from the improved sales. But the market evidence that I have accepted in Table 3 shows that there is not a significant difference between the weighted average land value inferred from vacant land sales and the value inferred from improved land sales. So no particular adjustment for a scarcity factor is necessary.

48. In the present case, all comparable properties, whether improved or vacant, are waterfront properties and this is probably the most attractive feature of the properties. If any (undisclosed) premium exists in the 7 vacant land sales due to there being fewer such sales than the 19 improved sales, there has to be offset against such premium the benefits that the improved properties have of a development consent and of the statutory assumption that the existing improvements may continue (as discussed at pars 77 ff).

49. Having regard to all the evidence and my inspection of the properties with the parties, I have made percentage adjustments (in columns L to R of Table 3) to the land value (expressed as a price per sq m in column K of Table 3) of each comparable sale as at the base date, to take account of the different features of the subject land and of the comparable property. The detailed consideration of these comparative adjustments is to be found in parts 13 and 14 of this judgment.

50. The resultant deduced land value for the subject land expressed as a price per sq m is given in column S of Table 3, and this value is then multiplied by the area of the subject land (1,764 sq m) to give the deduced land value for the whole of the subject land as set out in column T. Each comparable sale is then weighed as to its reliability, as detailed in part 15, and a weight factor is inserted in column T. A weight factor of 10 was chosen as the theoretical maximum and it would mean that the comparable sale in all respects is perfectly reliable and produces a most highly accurate inferred land value. At the other end of the scale, a zero weighting (which applies to three of the sales) means that the sale is so unreliable as not to be used in the ultimate determination of land value of the subject land. The weighted averages (from all sales, from improved sales and from vacant land sales) were automatically calculated and are given at the bottom right-hand corner of Table 3.

51. The margin of error in deriving a land value from improved sales is much greater than from vacant land sales. Some matters affecting the degree of confidence in the valuations of the improvements are referred to at pars 195 ff.

52. I have ultimately concluded that the land value for the subject land as at 1 July 1997 should be altered to $1,890,000.

3. Relevant legislation

53. The land value of the applicant’s property as at 1 July 1997 was assessed under s 55 of the Land Tax Management Act 1956 (“LTM Act”). Section 56 of the LTM Act provided that certain sections of the Valuation Land Act 1916, including s 6A (land value), applied to the determination of land value for the purpose of the LTM Act. Section 6A is quoted at par 58 below. Section 57 of the LTM Act stated:

57. (1)

For the purpose of determining a land value or rental value of land, it is to be assumed that the physical condition of the land and of any other land, and the manner in which any other land may be used, were the same on the date as at which the value is being determined as they are when the determination is made.

A similar provision to s 57(1) of the LTM Act appeared in s 14A(2) of the Valuation of Land Act (as in force at the time of the original hearing in 1999) and now appears in s 14K of the latter Act. I will refer again to s 57(1) of the LTM Act (at par 70 below) when commenting upon a submission made by Dr Birch in relation to scarcity.

54. Section 4 of LTM Act (as in force in 1999) provided that the LTM Act was to be read together with the Taxation Administration Act 1966. In accordance with s 35(1A) of the LTM Act, the applicant exercised his right to object to the assessment under the Taxation Administration Act on the ground that the land value was too high. The original hearing of the applicant’s appeal was under s 38A of the LTM Act, which applied the provisions of Division 2 of Part 10 the Taxation Administration Act 1996 (where a reference to the Supreme Court was to be construed as a reference to the Land and Environment Court).

55. Section 101 of the Taxation Administration Act provided: “On an appeal, the appellant has the onus of proving the appellant’s case.” In respect of appeals now brought under the Valuation of Land Act, an identical provision to s 101 appears in s 40(2) of the Valuation of Land Act. This provision merely repeats what had always been the law as to the onus of proof. As Sugerman J said in Flack v Valuer-General (1952) 18 LGR (NSW) 157 at 158:

… it was held as long ago as 1922, shortly after the establishment of this Court [i.e. the former Land and Valuation Court], by Pike J, the first Judge of the Court, that… it is for the objector to begin, and the burden lies upon him of establishing that the valuation objected to is wrong—usually, of course, of establishing that the valuation objected to is too high.…
As a principle it requires the objector to begin and to adduce evidence on which the Court could arrive at a conclusion as to the value of the subject property at the relevant date. He may do that in more than one way; he may, for example, rely upon expert opinion or upon evidence of sales of comparable lands, or he may follow those methods in combination, or he may employ any other available method.

56. The Valuation of Land Amendment Act 2000 amended the LTM Act and the Taxation Administration Act, so that the provisions relating to appeals in respect of land value for rating as well as for land tax purposes are now to be found in the Valuation of Land Act. Although I have referred above not only to the legislation relevant to the original hearing in 1999 but also to the current provisions of the Valuation of Land Act 1916, the current provisions that came into force with the 2000 amending Act do not apply to the present hearing. Part 3 of Schedule 2 of Valuation of Land Act 1916 (as now in force) states that the provisions of the Valuation of Land Act and of the LTM Act as in force immediately before the commencement of the Valuation of Land Amendment Act 2000 continue to apply to appeals under those Acts in relation to any valuation as if the 2000 amending Act had not been enacted.

57. The applicant is the lessee of a small area below mean high water mark adjoining his land (as described in par 92), and is deemed to be the owner for land tax purposes: s 21C of the LTM Act.

58. An important section of the Valuation of Land Act 1916 which was in force at the time of the original hearing and which still applies is s 6A. Subsections (1) and (2) of s 6A are in like terms to the earlier, repealed provisions of s 6 of the Valuation of Land Act 1916. A difference between the two sections is that the former s 6 used the expression “unimproved value” in lieu of “land value” used in s 6A. The former s 6 was considered by Rath J in Illawarra Meat (Developments) Pty Limited v Valuer-General (Land and Valuation Court, 10 March 1978), and I have again referred to this case at par 80 and have reproduced an extract from it in Appendix 1 of my judgment. Section 6A states:

6A Land value
(1) The land value of land is 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, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner ’ s predecessor in title had not been made.
(2) Notwithstanding anything in subsection (1), in determining the land value of any land it shall be assumed that:
(a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates, and
(b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used,
but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that the improvements, if any, other than land improvements, referred to in subsection (1) had not been made.
(3) Notwithstanding anything in subsection (1), in determining the land value of any land, being land in relation to which, at the date to which the valuation relates, there was a water right:
(a) the land value shall include the value of the right, and
(b) it shall be assumed that the right shall continue to apply in relation to the land.

59. “Land improvements” referred to in s 6A is defined by s 4 of the Valuation of Land Act to mean:

(a) the clearing of land by the removal or thinning out of timber, scrub or other vegetable growths,

(b) the picking up and removal of stone,

(c) the improvement of soil fertility or the structure of soil,

(d) the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation,

(d1) without limiting paragraph (d), any excavation, filling, grading or levelling of land for the purpose of the erection of a building, structure or work, not being for the purpose of irrigation or conservation,

(e) the reclamation of land by draining or filling together with any retaining walls or other works appurtenant to the reclamation, and
(f) underground drains.

4. Previous decisions of the courts

60. I give below the case citations for the original judgment and the subsequent judgments under the name Maurici v Chief Commissioner of State Revenue:

61. It appears from the judgment of Cowdroy J that the applicant challenged the original judgment in relation to three questions:

(1) whether retaining walls are “land improvements” as defined in 4(1) of the Valuation of Land Act 1916;

(2) whether my rejection of the applicant’s valuer’s method of valuing improvements disclosed an error of law;

(3) whether sufficient regard was given to improved land sales and whether a scarcity factor caused the sale price of vacant land to be inflated.

62. As regards the first question, in the original hearing I had held that certain retaining walls (which were not seawalls) were “land improvements” (s 4(1)). These walls were necessary for the purpose of improving the surface of the land by filling or levelling or for the purpose of a proposed building site and were therefore part of the land value referred to in s 6A(1). Cowdroy J took a contrary view, but the Court of Appeal confirmed my decision, and there was no challenge on this ground in the High Court.

63. Secondly, I had held that it was an incorrect approach to valuation to roughly equate the added value of improvements to the difference in cost between: (1) the quantity surveyor’s cost to reconstruct the improvements with new materials and (2) the cost to renovate the existing improvements to a new condition. Cowdroy J and the Court of Appeal found that there was no error of law, and the issue was not raised in the High Court. In the present hearing, the applicant accepted that the method used in the original hearing to value the improvements was deficient; and the applicant’s new or at least revised method is summarised at par 20 above and is dealt with in detail in parts 9 and 10 of the present judgment.

64. As to the third challenge, Cowdroy J said:

[25] Whilst there is nothing to suggest that such [vacant land] sales do not represent a comparable sale for use in assessing the value of the appellant ’ s land, it is not clear from the judgment whether the Commissioner paid any regard to the remaining valuations and if he did, the extent of such consideration. The learned Commissioner said that he reached his conclusion ‘ principally ’ upon the first six valuations.
[26] Had it not been for the acknowledgement by the respondent of the existence of a scarcity factor, this ground would be rejected. However as it is acknowledged to exist and as it is not clear whether such factor has caused the sales of vacant parcels of land to be inflated, this issue must be addressed. I uphold this ground of appeal.

65. In relation to the matters in the original judgment that Cowdroy J said were not clear or had not been addressed, I propose to elaborate further. The “first six sales” mentioned by his Honour (at [25]) were listed in a schedule to the original judgment. These six sales related to vacant land or land on which the improvements were regarded as having relatively little or no value, and I was able to determine a land value for each of these properties (as set out in column C of that schedule) and then, after making adjustments for the different features of the comparable sale and the subject land, to infer a land value for the subject land.

66. The remaining nine sales in that schedule were improved properties. In the original judgment I had held, contrary to the submission of Mr Croker, that:

[31] It is an acceptable method of valuation to deduct the added value (if any) of the improvements from the contract price for an improved property in order to get an estimated value for that property and then by way of comparison to infer a land value for the subject land: cf.

(1982) 48 LGRA 293, Morling J;

(1969) 72 LGRA 293, Stein J. But in valuing residential properties for the purpose of s 6A(1) of the Act, this method is generally not as reliable as using sales of vacant land or of land where the improvements may be regarded as having little or no value.

In respect of properties in each of the remaining nine sales, it was not possible to put a land value in column C of the schedule, because not having accepted the applicant’s valuer’s method of valuing the improvements, I had no reliable evidence of the value of the improvements to deduct from the contract price to arrive at a land value for each of the improved comparable sales. Accordingly, column C and remaining columns of the schedule were not filled in for the remaining nine sales. The applicant had not discharged the onus of proof (par 55 above) of showing what land value should be inferred from the improved land sales. In saying (at [73] of the original judgment) that I had reached my conclusion by “a direct comparison of the subject land with the comparable sales, principally sales 1-6 in the attached schedule”, I intended to indicate that the improved sales were not excluded from consideration but that, as I stated, it was not possible to arrive at a land value for the subject land from them.

67. The question of scarcity only arose towards the end of the original hearing, and was not dealt with at all in the reports of either valuer. In oral evidence Mr Byron did not claim that any deduction should be made from the land value of a vacant land sale on account of a scarcity factor when inferring a land value for an improved property. Not having any acceptable evidence from the applicant as to what value would be inferred for the subject land from improved sales, I had no way of quantifying the amount (if any) by which the price inferred from a vacant land sale should be reduced on account of there being fewer vacant land sales compared with the number of improved sales, and again (although I did not say so expressly), it seemed to me that the applicant had not discharged the onus of proof.

68. No transcript of the submissions in the original appeal is available. However, as I recall, Dr Birch made a submission similar to the proposition that he put to Mr Croker in cross-examination (OrigT 51): if every improved property at Hunters Hill is notionally rendered vacant and if its land value is determined from scarce vacant land sales, then that land value would include a premium for scarcity, even though the properties being valued are in fact built upon, and even though they would obviously not possess that premium if they were rendered vacant at the same time.

69. In the original judgment, I did not deal with the paradox raised by that proposition, since it seemed to me that the solution to the paradox was clear having regard to valuation law and the practice of determining land value (formerly, “unimproved value”) in New South Wales. In ascertaining the land values of improved properties, property “A” was first valued by making the assumption required by s 6A (formerly, the repealed s 6) that the improvements (other than land improvements) had not been made and that the property being valued was vacant. However, the assumed vacant property was valued having regard to the actual condition of the surrounding properties with any improvements on them. Then when the adjoining property “B” came to be valued, it was assumed to be vacant but the first property “A” was now treated as having the improvements on it. Likewise, each property in turn was valued as if it were vacant but as if all other surrounding lands and any improvement on them were in their actual condition. This method of valuation was consistent with the Privy Council case of Tetzner v Colonial Sugar Refining Co Ltd [1958] AC 50. As far as I am aware this method or procedure was followed consistently in all cases, even though a degree of artificiality was sometimes involved resulting from the required statutory assumptions: see for example, MLC Properties Pty Ltd v Chief Commissioner of State Revenue [1999] NSWLEC 300 at [21] and [38]; Venti Seven Pty Ltd v Chief Commissioner of State Revenue [2000] NSWLEC 285 at [4]–[6].

70. Moreover, the manner of valuing (referred to in the immediately preceding paragraph) of taking the surrounding properties in their actual physical condition was mandated by s 57(1) of the Land Tax Management Act 1956 and is required to be followed for the determination of land value in the present hearing (pars 53 and 56 above).

71. The High Court’s judgment does not mention s 57(1) of the LTM Act or the equivalent provisions in the Valuation of Land Act 1916; and it is not clear whether senior counsel expressly brought that section to the attention of the High Court (T 465).

72. On appeal from the decision of Cowdroy J, the Court of Appeal had found no error of law in the original judgment concerning the third challenge of the applicant. However, the High Court held (at [17]-[18]) that the respondent’s valuer had been unreasonably selective in valuing the subject land by reference to a small number of vacant land sales. The High Court went on to say:

A fair estimate [of land value] could only be made here on the basis of a fair, that is to say, a reasonably representative group of comparable sales. A group of comparable sales cannot be representative if it does not go beyond sales of scarce vacant land. That is not to say that sales of comparable vacant land may not provide useful evidence of value. But as J F N Murray observes in

[4th ed (1969) at 120] in discussing valuations under federal land tax legislation of land in its notionally unimproved state, “sale evidence

” (emphasis added). So too, sales relied on, such as of scarce vacant land, are likely to be to a special and different class of buyer from buyers of improved land.

The High Court said that the Court of Appeal had erred by approving the respondent’s flawed method of valuation [22].

73. A question was raised in the High Court as to how, in view of the deficient state of the evidence adduced in the original hearing, the High Court should dispose of the appeal. The same deficient state of the evidence was before the High Court. The High Court ordered that the matter should be remitted to me for rehearing and determination in accordance with the judgment of the High Court, and stated that it would be a matter for me to determine whether, in the light of the clarification of the legislation and the proper approach to its application, I may and should receive further evidence [22]-[25].

74. I respectfully agree with the opinion of Tobias JA in AMP Henderson Global Investors v Valuer General [2004] NSWCA 264, (2004) 134 LGERA 426 at [66] that the High Court’s decision in Maurici stands for the following propositions:

(a) Section 6A (1) of the Act does not require when utilising the comparable sales method of valuation, that only sales of vacant land shall be considered;
(b) Confining one ’ s consideration to only sales of scarce vacant land and disregarding sales of improved land which would otherwise be as comparable as the vacant land sales in terms of timing, location, outlook and other relevant features, offends the principle that a reasonably representative group of comparable sales should be considered when applying that methodology.

75. In the present hearing, the parties have presented evidence of 19 improved comparable sales (including sale 19a) and 7 vacant land sales, all of waterfront properties. Both parties excluded from their consideration all non-waterfront sales, of which there were no doubt many. The huge volume of evidence relating to the analysis and comparison of the 26 sales of waterfront properties has enabled the Court in the present hearing to consider (among other questions) whether the sale prices of the vacant properties should be adjusted downward by a scarcity factor when inferring a land value for the subject land.

76. The Court’s findings in the present hearing in respect of the additional market evidence indicate that no adjustment for scarcity is needed. The land value of the subject land deduced from the improved properties has been found not to vary significantly from the vacant land sales.

5. How a development consent may affect land value

77. For the reasons given below, I am of the opinion that it is necessary to take into account the effect of a new development consent for the erection of a house on land value. In particular, in deriving the so-called improvements increment from an exercise of comparing the sale of a vacant property with the resale of that property after a development consent has been obtained, the value of the consent should be excluded from the improvements increment and should be regarded as part of the land value.

78. It is clear that a valuation for the purpose of 6A(1) of the Valuation of Land Act 1916 must take into account restrictions imposed by or under town-planning law, such as Hunters Hill Local Environmental Plan No. 1, which prohibits the erection of a dwelling-house unless development consent is obtained: cf. Royal Sydney Golf Club v Federal Commissioner of Taxation (1955) 91 CLR 610. However, the granting of a development consent is the relaxation of the prohibition, which must also be taken into account under s 6A(1).

79. As has often been said, “…development approvals operate, as it were, in rem and may be availed of by subsequent owners and other occupiers of land” (Parramatta City Council v Shell Co. of Australia Ltd [1972] 2 NSWLR 632 at 637 per Hope JA). In Eaton & Sons Pty Ltd v Warringah Shire Council (1972) 129 CLR 270 at 293, Stephen J described a consent as “essentially impersonal in the sense that it does not concern itself with and is not limited to the applicant but is a consent to the world at large in relation to the land which is its subject. Once granted it makes lawful, in a town planning context, what would otherwise be unlawful but does so by reference to the acts done and not to the identity of the actor”.

80. Once a development consent has been granted, it is usually the case that the property acquires an increased value because of the consent. And any value accruing from the consent forms part of the land value under s 6A(1): Illawarra Meat (Developments) Pty Ltd v Valuer-General (Land and Valuation Court, Rath J, 10 March 1978). During the present hearing I made available to the parties the full transcript of the judgment of Rath J, and I reproduce the relevant part of it in Appendix 1 hereto.

81. In the Illawarra Meat case the land being valued had the benefit of a development consent for an abattoir, which made the abattoir land so much more valuable than a comparable sale (the “Owikeno land”) that the comparable sale was rejected as not capable of reasonable adjustment. In other cases, however, it has been found that the difference between the land being valued and the comparable sale is not so great, and a development consent in respect of one or other of the properties can be taken into account by an appropriate adjustment. Each case must be considered on its own facts, and the amount by which the land value of a property is increased because of a development consent will vary widely.

82. The increased value due to a development consent is often (but need not necessarily be) expressed as a percentage of the value of the land (assuming there was no consent).

83. It seems that the value of a consent would usually include the total of the following costs:

(1) the costs of engaging experts (such as a surveyor, chartered architect, landscape architect and engineer) to prepare development application plans, including a survey plan, architectural drawings and specifications, landscape plan and concept drainage plans;

(2) the cost of preparing the required statement of environmental effects to accompany the development application, which is often prepared by a town planner;

(3) council’s fees for the lodgement of the development application;

(4) any additional fees paid to expert consultants who may be required to provide additional or supplementary advice or information to the council during the consideration of the development application;

(5) holding costs, such as rates and charges and land tax, during the development application process; and

(6) interest on the capital cost of the land and on the other development costs during the development application process, against which is to be offset any appreciation in value of the land.

84. In addition, the value of the consent in theory would also include entrepreneurial profit or an amount of compensation for the developer’s or owner’s time and energy in engaging the experts and in overseeing the development application process from the beginning up to the granting of development consent.

85. A development consent could become more valuable if, for example, the zoning is subsequently changed or more restrictive development standards come into force that would make it more difficult or unlikely that a similar consent would again be granted.

86. Where a development consent has been granted and has not expired, the existence of this consent is often used by a new developer as a stepping-stone to obtaining a modified or new development consent.

87. Once a house has been erected, the statutory assumption in s 6A(2) applies to the improved land. As explained by Rath J in the Illawarra Meat case, the former s 6(2) (now s 6A(2)) applied not only to non-conforming existing uses but also to conforming uses permissible with consent in the zone (the abattoir was a conforming use).

88. When inferring a land value for an improved site from a vacant land sale, if the market evidence does establish that vacant land has a premium over and above the land value of a comparable improved property, there may have to be an adjustment downward of the contract price of the vacant land on account of that factor, but there may also have to be an upward adjustment of the vacant land price to take into account the benefit of the development consent in respect of the improved property or the benefit of the statutory assumption in s 6A(2), which benefits the vacant land does not possess. The two opposing adjustments could but need not necessarily balance each other.

89. I accept the evidence of Mr Byron that there would generally be greater difficulty in getting a development consent for a waterfront property than for a non-waterfront property, because of issues relating to such matters as view-lines and setbacks from the water (T 28-29).

90. If the American textbooks The Appraisal of Real Estate or Appraising Residential Properties are referred to in relation to the method of valuing improvements, it seems that care needs to be taken not to attribute wholly to the value of the improvements any item that would more properly be related to the land value. This is because the concept of “land value” as used in those books does not appear to have the same specialised meaning that has been judicially given to the concept in s 6A(1) of the Valuation of Land Act 1916, and there is no consideration of a statutory assumption similar to s 6A(2). In respect of valuations for land tax or rating purposes in New South Wales, the costs of obtaining a development consent would be part of the increased land value due to that consent.

91. Dr Birch referred to copyright law, but it is not apparent to me that the above considerations would be affected in the present case. As a general principle, unless there is an agreement to the contrary, a landowner who pays for plans has an implied permission or consent to use those plans for the purpose for which they were brought into existence, namely to erect a house; and the landowner has an implied right to transfer the right to use the plans to a new owner: Torpey Vander Have Pty Ltd v Mass Constructions Pty [2002] NSWCA 263, (2002) 55 IPR 542 at [13]–[18].

6. Description of the subject property

92. I adopt the following passages from the original judgment describing the subject land at the relevant date:

[8] The subject land comprises lot 1 DP 217282 having an area of 1,764 m2, and a leased area below mean high water mark of 38 m2.

[9] Lot 1 of the subject land has a street frontage of about 19.69 m, a waterfront boundary of 31.42 m, a western boundary of 82.74 m and an eastern boundary of 67.71 m. Lot 1 is owned by the applicant Mr A. Maurici. Erected on the lot is a three-level house having a floor area of 379 m2 (excluding balconies) built in about 1970 and extensively refurbished in about 1996. Other improvements include: a two-storey outbuilding with a floor area of 111 m2, having a large office on the upper floor; a pool; a double garage; and an inclinator between the two main levels of lot 1.

[10] From the street frontage to about halfway down lot 1 the land is fairly level and then drops approximately 8 to 10 m to another generally level area towards the waterfront.

[11] The leased area of the subject land of about 38 m2 below mean high water mark is the site for a timber jetty, ramp, and floating pontoon. The leased area includes the site also of three mooring piles, which enable a private vessel to be moored between the piles. The leased area is owned by the Marine Ministerial Holding Corporation (formerly the Maritime Services Board) and is leased from the Corporation by Mr Maurici, the owner of lot 1.

[12] At the waterfrontage, more or less forming the waterfront boundary of lot 1, is a sandstone seawall, which retains filling on that part of lot 1 which apparently was formerly below mean high water mark. This seawall is in need of repair. …
[14] The subject land enjoys a north-facing waterfrontage to the Lane Cove River, and there are excellent views across the river to Northwood and Longueville. As mentioned earlier, the width of the waterfrontage of lot 1 of the subject land is approximately 31 m.

93. The broad, flat, grassed area and the water frontage can be seen in some of the 20 photographs of the subject land (ex H.). The shape of the land is shown on the deposited plan.

94. The applicant’s property is a large one, being larger than 24 of the 26 comparable sales, and this fact must be taken into account when considering the sale prices for smaller properties in the comparable sales.

7. Planning controls

95. At the base date (1 July 1997) and relevant date (9 September 1997), the subject land was zoned Residential 2(a2) under Hunters Hill Local Environmental Plan No. 1 (“LEP”). The LEP (as in force on those dates) is exhibit G, and the zoning map referred is exhibit F. The map shows that the comparable sales were also zoned Residential 2(a2), except for 18 Vernon St, which was zoned Residential 2(a3).

96. In the 2(a2) zone, the minimum area for the creation of a lot by subdivision was 900 sq m; but when calculating the area of a hatchet-shaped lot, the area of the access corridor had to be excluded (clause 10 of the LEP). The minimum area for the erection of a dwelling house on a lot in that zone was also 900 sq m (cl 12). The minimum area for the creation of a lot by subdivision and for the erection of a house in the 2(a3) zone was 1000 sq m, exclusive of any access corridor.

97. Other planning controls in the LEP applying to the properties in the 2(a2) and 2(a3) zones included—

(1) A building could not be erected containing habitable rooms on more than two floors or having a height greater than 8 m measured vertically from any point on natural ground level to the ceiling of the topmost floor (cl 15).

(2) The council could not grant consent to the erection or use of a building unless there was a garden area equal to or greater than 60% of the area of a lot. “Garden area” was defined to mean “any area within the lot which has not been built on and which, in the opinion of the council, is designed, constructed or adapted for outdoor living or outdoor recreation but does not include terraces, decks, balconies, verandas, driveways, parking areas, drying yards or other service areas” (cl 16A).

(3) A foreshore building line as shown on the zoning map was fixed by cl 18 for all the waterfront properties. Subject to some minor exceptions, a building could not be erected between the foreshore building line and a bay, creek, harbour or river. The foreshore building lines are shown on the LEP map (ex F).

98. Additionally, in respect of a development application to erect waterway facilities (such as jetties or pontoons) on the southern side of the Woolwich peninsula, I take judicial notice that the consent authority had to consider Sydney Regional Environmental Plan No. 22 – Parramatta River (T370).

8. Movement in the market

99. I have briefly referred to the evidence and have expressed my finding on the adjustments to be made to contract prices for movement in the market (par 16 above). Further details are now given in this part of the judgment.

100. Comparable sales that occur after the date at which the land value is to be determined may be used: cf. Federal Commissioner of Land Tax v Duncan (1915) 19 CLR 551; Daadine Pastoral Co Proprietary Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299 at 304.

101. In respect of any comparable sale occurring after the base date, it was necessary for the valuers to adjust the contract price downward to reflect the lower prevailing market values at the base date, 1 July 1997. Conversely, for a sale occurring before the base date, the contract price had to be adjusted upward for the period from the contract date to the base date.

102. Mr Byron adjusted the contract price (which covered both the land and the improvements at the date of contract) for movement in the market to the base date, and his resultant adjusted prices for both land and improvements are set out in column I of Table 1. He then deducted the value of the improvements at the base date from the adjusted contract price to get a land value at the base date.

103. The quantity surveyors for both parties had prepared the costing sheets in their reports based on what the improvements would cost if erected at the base date. (And other evidence was given for the purpose of establishing that the condition of the improvements at the base date was the same as at the date of contract.) To avoid the expense of having the costings reworked so as to determine the costs of the improvements at the date of contract, it was agreed by the parties that I should accept the costings as at the base.

104. Accordingly, the procedure adopted was that the contract price was adjusted for movement in the market from the contract date to the base date, after which the value of any improvements as at the base date were deducted from the adjusted contract price.

105. However, for future cases (and as has been done in some other cases) it seems to me that it might be better first to deduct from the contract price the value of the improvements as at the date of contract to arrive at the land value for that property at the date of contract, and then (having regard to the movement in the market) to adjust that land value to the base date. Such a procedure avoids the need to consider whether renovations or alterations to the buildings may have been carried out between the date of contract and the base date. In addition, certain other distortions may be avoided, such as a different rate of appreciation (or depreciation) applying to the improvements as distinct from the rate for the land or for the combined land and improvements.

106. How is the movement in the market to be ascertained? In some cases, valuers have used a number of instances where the sale and resale of the same property has occurred in the locality of the land to be valued. If this is done, no material change should have occurred to the property between the two sale dates, or an adjustment should be made to take account of any minor change. The movement in the market (normally an upward movement) between the first sale date and the second sale date can then be ascertained. Desirably, a number of sales and resales should be used to see whether some consistent pattern emerges.

107. There were four cases where in each case a sale and resale of the same waterfront property occurred in Hunters Hill or Woolwich in the period from August 1996 to August 1999. I have calculated the percentage change between the sale dates and have set out the particulars in Table 4:

108. One of the problems with the sales in Table 9 is that in the first three cases the period between the first sale date and the second date is more than two years. It is possible, for example, that the market could have been relatively quiet from August 1966 to the end of 1997, with larger increases in prices occurring in 1988 or 1999, in which case applying an average percentage increase for a sale occurring in 1996 would give an adjusted price at the base date that is too high. Another problem is that the fourth sale and resale in Table 9 seems inconsistent with the three other cases.

109. Because the evidence on movement in the market seemed somewhat unsatisfactory, I inquired of the parties why the statistics in the NSW Department of Housing Median Sale Prices for the local government area of Hunters Hill had not been used. These statistics are used for the purpose of s 34A(2)(a) of the Land and Environment Court Act 1979. Subsequently, these Department of Housing statistics for June 1997 to December 2003 were tendered (ex 13). Having examined the Department of Housing statistics, during the present hearing I expressed a tentative view that the statistics could not be used for the present valuation (T 364). Although some written submissions had been made on behalf of the respondent that the Department of Housing’s statistics should be used, both parties then accepted my tentative view, effectively disposing of the issue as to whether these statistics were helpful. The major problem with the statistics was that the number of houses sold at Hunters Hill each quarter was relatively small, and each quarter’s movement seemed to be erratic, probably due to the different sizes and types of houses sold in Hunters Hill each quarter. For example, in one quarter there could have been a large waterfront property included within the relatively small number of houses that were sold for that quarter leading to a high median house price for that quarter, and in the next quarter there may have been only non-waterfront properties giving a much lower median house price. For the same reason, the parties ultimately did not rely upon the Real Estate Institute’s Median House Prices for Hunters Hill (ex 8).

110. In the circumstances, I have preferred Mr Byron’s use of the Australian Bureau of Statistics’ Established House Price Index for the Sydney region even though at times there could be a divergence between the movement in the market at Hunters Hill and in the Sydney region as a whole (par 16 above). Also, it seems these statistics are based on transfer dates rather than contract dates of sale (T 364). So, on one view, the index points that Mr Byron interpolated for the comparable sales should relate to a month or two later. The applicant did not seek to amend the interpolated index points shown on all the spreadsheets for the comparable sales (ex R), and any resultant error from the small change would appear to be relatively insignificant, as the distance in time between the index points for the contract date and the base date would remain the same, if the index point for the base date should also be moved to one or two months later. Of more importance is any differential movement in the market at Hunters Hill compared with the Sydney region, particularly a movement over many months.

111. The importance of applying an appropriate adjustment for movement in the market is seen if the sale of 20 The Point Rd is taken as an example. It sold on 23 May 1996 for $2,125,000. Using the ABS statistics, Mr Byron adjusted this sale price by 4.58% for movement in the market over the period of 13 months. If, however, the true movement in the market for waterfront properties at Hunters Hill (or for waterfront properties in the region) during the same period jumped significantly compared with the movement for all properties in the whole of the Sydney region and was 12.5%, then the contract price adjusted to the base date would have to be approximately $200,000 more than the figure determined by Mr Byron.

112. In the circumstances, even though the ABS statistics are used to adjust the contract prices, it is apparent there can be greater confidence in the accuracy of a land value inferred for the subject land from a comparable sale that occurred within a month or two of the base date than a value derived from a sale that occurred many months from the base date, all other things being equal. Therefore, less weight should be given to those sales that occurred further from the base date.

113. The time between the contract date and the base date is more clearly shown below in Table 5, which (with other matters) I have taken into account in deciding what weight to give to each comparable sale (pars 332 ff):

9. Improvements increment

114. This part of the judgment is related to the next, part 10, which examines in more detail some of the other elements of Mr Byron’s method of valuation of the improvements. I have briefly summarised Mr Byron’s method and given my main findings in part 2 (at pars 17-23).

115. What is meant by this new concept of “improvements increment” introduced by Mr Byron? Is it perhaps not so new after all, but merely a nominal distinction from an already-known valuation concept?

116. Mr Byron defined “improvements increment” as an increment included in the added value of the improvements, being an amount additional to the cost of improvements (ex K p 3). His more detailed explanation at p 5 was as follows (I have added the paragraph numbering in brackets):

1.2 Improvements Increment
(1) When improvements are made to land acquired at market value, which are appropriate for that land and which are marketable, having regard to design and building standards at the time, the value added to the land by those improvements will normally exceed the costs of those improvements by an increment, which in this report I will refer to as the Improvements Increment.

331. I agree that the adjustment for location should be no less than +15%, as made by Mr Byron, or it could be slightly more because of the much superior location of the subject land. In my opinion other adjustments are needed, particularly for the waterfrontage. Although the upper part of the land at 49 Wybalena Rd is about 15 m wide, at about 24 m from the water the width of the land narrows to about the 11 m (measured perpendicularly between the side boundaries), and this same width continues down the land to the waterfront. The waterfrontage itself, below the foreshore building line, is thus also inferior to the subject land. Accordingly, I make the adjustments set out in columns L to R of Table 3. This sale indicates a land value for the subject land of $1,692,000.

15. Weight to be given to the comparable sales according to reliability

332. In an idealistic world where, in respect of each sale, the contract price agreed by a vendor and a purchaser perfectly reflected the market value of the property sold, and where expert valuers were able to make perfect or near-perfect adjustments to each comparable sale in order to derive a valuation for another property, it could be expected that each adjusted sale would indicate approximately the same valuation for the property to be valued.

333. However, as can be seen from the parties’ analyses of the comparable sales (as summarised in their Tables 1 and 2, at par 10 above), there is a wide range of possible land values for the subject land. Likewise, my Table 3 discloses a wide range of values. However, if the vacant land sales are separated from the improved land sales, the wide range of values is particularly evident from the list of improved sales, whereas there is a tighter range of values derived from the vacant land sales. Therefore, a further step in the valuation process is needed, namely to review each analysed comparable sale to determine its degree of reliability, and to give greater weight to those sales that are likely to more accurately indicate the appropriate land value of the subject land, to give less weight to less reliable comparable sales, and to reject or give no weight to any comparable sale from which it would be plainly unreliable to deduce the land value.

334. I do not accept the applicant’s submission that if the comparable sales are adjusted in accordance with the adjustment factors in columns O to U of the applicant’s Table 1, then no further discretionary judgment or weighing of the evidence is required, and that it is then just a matter of adopting the straight average of all the land values or, alternatively, the median land value. Adopting a straight average of the land values or the median land value might be appropriate if all sales were equally reliable or if a reasonable value-judgment could not be made as to the degree of reliability of the sales.

335. I adopt what is said in The Appraisal of Real Estate (12th edition 2001):

When many adjustments are applied by the appraiser and when their individual and collective amounts are substantial, the appraiser must ask, “ Is the comparable property really comparable? ” The greater the amount of collective adjustment, the more the appraiser may reduce the weight placed on a given comparable, or the appraiser may determine that it is not sufficiently comparable to be used at all. [pp 458-459]
…
Re-examining an appraisal helps ensure its accuracy, its consistency, and the logic of leading to the value indications. An appraiser relies more on professional experience and judgment in reconciliation than in any other part of the valuation process. The appraiser weighs the relative significance, applicability, and defensibility of each value indication and relies most heavily on the approach that is most appropriate to the nature of the appraisal problem. [p 600]

336. A straight average (or arithmetic mean) of all the values deduced from the comparable sales does not necessarily give a sufficiently accurate final land value for the subject land. A straight average pays no regard to the degree of reliability or likely accuracy of the particular land value indicated by each of the sales, whereas a weighted average can. A weighted average allows the sales that have been judged to be the more reliable to have a greater influence on or contribution to the ultimately-determined land value.

337. The weighted average may be obtained as follows: In respect of each particular sale, multiply the value of the subject land which is deduced from the particular sale by the weight attributed to that sale, to get a resultant value; add up the resultant values from all the sales, to get the total of resultant values; and then divide the total of resultant values by the total of all the weights. This can be done laboriously with a hand-calculator. Alternatively, the weighted average can be calculated automatically in a Microsoft Excel spreadsheet. For example, the Excel formula for the weighted average of $1,885,000 (rounded to the nearest thousand) contained within cell D9 of Table 12 below is:

=ROUND(SUMPRODUCT(C2:C8,D2:D8)/SUM(D2:D8),-3)

The weighted average is one of the mathematical tools that an expert valuer may use when advising a prospective purchaser as to the likely value of a property, based on a comparison of that property with many comparable sales.

338. In columns C of Table 12 below, the values for the subject land deduced from the vacant land sales have been copied from column T of my Table 3 above, and the weighted average land value has been calculated as $1,885,000:

339. Table 13 shows the weighted average land value for the subject land of $1,894,000 derived from all the improved sales:

340. A weight factor of 10 was chosen as the theoretical maximum and it would mean that the comparable sale in all respects is perfectly reliable and produces a most highly accurate inferred land value. At the other end of the scale, a zero weighting (which applies to three of the sales) means that the sale is so unreliable as not to be used in the ultimate determination of land value of the subject land.

341. In giving appropriate weight to each sale, I have taken into account that in general the inferred value for the subject land is likely to become less reliable as the adjustments to the sale become larger. I have taken into account not just the total adjustment in column R of Table 3 but also the magnitude of the individual adjustments. A value inferred from a sale of a small land area where an adjustment for size of -40% (24 Viret St) has to be made is likely to be less reliable than one where the adjustment is -10% (68 The Point Rd).

342. Sales occurring at a greater point in time from the base date are, even after adjustment for the estimated movement in the market, likely to be less reliable than sales occurring at the base date (par 107 ff). That is why when there has been a second sale of the same property at a further point in time from the base date, less weight has been given to the second sale (sale 22 of 30B Viret St).

343. I have given sales of properties adjoining or close to the subject land slightly more weight than sales further removed where there may be some uncertainty in the adjustment I determined for location.

344. I have mentioned in the course of consideration of the individual sales in part 14 of this judgment other matters affecting the weight to be given to some sales.

345. After making all necessary adjustments, the land values inferred for the subject land from the sales of the three improved properties at 6 Campbell St, 30A Viret St and 24 Viret St are so out of line with the values inferred from other improved sales that I have given no weight to these three sales.

346. The improved properties at 68 The Point Rd (adjoining the subject land) and 9 Werambie St (about 60 m away) were both sold just before the base date in April 1997. Relatively small adjustments have to be made when comparing them to the subject land. These two sales set the range within which using as well other sales, the final land value may be determined. Neither sale at 68 The Point Rd nor at 9 Werambie St should be rejected, as the deduced values from them are not out of line with the values from several other sales clustering at each end of the range.

16. Differences between Tables 1 and 3; possible alternatives

347. This part of the judgment first briefly recapitulates the differences between Mr Byron’s Table 1 and the Court’s Table 3. Then some alternative figures relating to the improvements increment are mentioned, several of which I have not accepted.

348. As indicated earlier (par 160), Table 1 was the first spreadsheet in ex R, and connected to Table 1 were 25 “associated spreadsheets” (also in ex R), one sheet for each of Mr Byron’s comparable sales. If a change was made to dates or figures in an associated spreadsheet, the result of the change was automatically reflected in Table 1.

349. The Court’s Table 3 differs from Table 1 as a result of the following changes I have made:

(1) Table 3 includes Mr Byron’s 25 sales as well as Mr Croker’s sale 19a. There was no associated spreadsheet for sale 19a.

(2) Lump sums were inserted in column I of Table 3 for the added value of the improvements at 1 Angelo St (as to which, see pars 229 ff), 11A Viret St and 30B Viret St (par 191) and 24 Viret St (par 307). Mr Byron’s associated spreadsheets were not used to generate the added value of improvements for these properties.

(3) The obsolescence allowances were changed in the spreadsheets for 10A Gale St (par 243) and 16 Viret St (par 301).

(4) The contract date was altered in the spreadsheet for 29 Nelson Pde (par 261), affecting the adjustment for movement in the market.

(5) Comparative adjustments for the different features of the comparable sales and the subject land were made in columns L to R of Table 3, as discussed in parts 13 and 14 of this judgment.

(6) A weight factor for reliability was inserted in column U of Table 3, and the weighted average land value automatically calculated (pars 332 ff).

(7) No scarcity factor was used (pars 24-48).

(8) Subject to the above and for the purpose of this case only, a +27% improvements increment (par 156) was applied in the associated spreadsheets to the adjusted costs of improvements, without otherwise making changes to those costs.

350. As discussed earlier, I have rejected the applicant’s +40% improvements increment. However, if +40% had been used, and given my findings on other matters and changing only +27% in par 349(8) to +40%, the result from Table 3 would have been:

351. If the applicant’s 29.3% from 1 Fern Rd (par 120) had been accepted, and given my findings on other matters and changing only +27% in par 349(8) to +29.3%, the result from Table 3 would have been:

352. If a 25% improvements increment (referred to in par 155) had been substituted in par 349(8), the result from Table 3 would have been:

353. I indicated (at par 188 above) that using the improvements increment that I have adopted of about +27%, the increment should probably be applied to costs in the spreadsheets that relate only to construction (and not to costs more properly allocated to the value of the development consent). If that view is correct, the value inferred from each improved sale in Table 3 would probably increase by the value attributable to the development consent. Although the respondent had made a general submission to the effect that a development consent should be taken into account in determining the percentage of the improvements increment (and I have done that), neither party made specific submissions on the particular application of the improvements increment in the associated spreadsheets. So for the purpose of concluding this appeal, I do not base my determination of the land value on this alternative.

354. In considering the ultimate determination of the land value, the likely large margin of error in the valuation of improvements also has to be borne in mind (pars 195 ff).

17. Generally

355. In part 2 of this judgment, I gave an overview of this appeal and expressed my main findings, and I will not repeat them here.

356. This case has raised for consideration some important valuation principles. The applicant’s senior counsel considered the present hearing to be a test case (T 385). The applicant put before the Court evidence of the valuation or analysis of practically every known sale of a comparable waterfront property at Hunters Hill or Woolwich within 18 months of the base date. This was a course of action that the applicant wished to pursue but it was not required by this Court or by the High Court. No objection to this course was taken by the respondent. In retrospect it seems to me that a much smaller reasonably representative group of sales could have been chosen, with substantial savings in costs and time for the parties and the Court. However, in the end, the applicant has been successful in having the assessment again reduced by a small amount.

357. As set out in Table 3, I have found that the inferred value for the subject land from all the improved sales is about the same as the inferred value from the vacant land sales. However, on some alternative findings the result would be that the land value inferred from the improved sales would be higher than the inferred value from the vacant land sales. In the circumstances, I am of the opinion that a small percentage variation between the two inferred values it is quite acceptable, taking into account the large margin of error inherent in the valuation of improvements. Having regard to all the evidence, my inspection of the properties and the written and oral submissions, I am of the opinion that it is appropriate to determine a land value of $1,890,000.

358. At the first call over after the High Court’s decision, I raised with the parties various points relating to the preparation for the present hearing (as set out in file note dated 11 April 2003). One of those points was the desirability of representatives conferring with a view to settling the appeal, without further hearing. As is apparent, the appeal was not settled. I believe my determination of the land value of $1,890,000 is a reasonable one in the light of the extensive findings of fact that I have made. An appeal may be brought from a decision of a Commissioner only on a question of law. If there is any legal issue arising from my consideration of valuation principles that either party may wish to challenge, and if a contrary finding by a Judge of this Court would be unlikely to affect my ultimate determination of the land value, it seems to me that it would be better for the parties to allow the present hearing to be the conclusion of this lengthy and expensive litigation: cf. Barmuncol Pty Ltd v Maroochy Shire Council (1983) LGRA 309; Guideline Drafting and Design v Marrickville Municipal Council (1988) 64 LGRA 275. The question of law could be left for reconsideration should it later arise in some other matter.

18. Orders

359. Accordingly, the orders of the court are:

1. The appeal is allowed.

2. The land value of 66 The Point Rd, Woolwich, as at 1 July 1997 is determined to be $1,890,000.

3. Costs are reserved.

Appendix 1

Judgment in Illawarra Meat (Developments) Pty Limited v Valuer-General

360. The following is an exact copy of the official transcript of relevant parts of an unreported judgment of Rath J on the question of the effect of a development consent on unimproved value. I have added paragraph numbering, and have omitted parts or paragraphs that are unrelated to that question. I have referred to his Honour’s judgment at par 80 above.

—Nott C.

No. 119 of 1977

CORAM: RATH, J.

Friday, 10 March 1978

Illawarra Meat (Developments) Pty Limited

The Valuer-General

Judgment

[1] HIS HONOUR: This is an appeal under s. 38 of the Valuation of Land Act, 1916 from a determination of an unimproved value of $185,000 as at 1st January, 1975 in respect of lot 1, D.P. 236249 at Yallah Rd, Yallah in the City of Wollongong.

[2] The appellant called one valuer, Mr. J.M. Bell…

[3] The [appellant’s] land has an area of 32.37 ha… The principal part of the land (32.11 ha)…is zoned Non-urban “B” under the Illawarra Planning Scheme, which was prescribed on 19th January, 1968.

[4] …In this Non-urban “B” zone there is a prohibition in respect of industries other than rural industries… These excepted industries are permissible with the consent of the responsible authority. There is an abattoir on the land. Conditional approvals for this use were given on 13th September, 1971 and 19th July, 1973… An abattoir would appear to fall within the definition of “rural industry”…

[7] Mr. Bell’s primary sale is a sale of the Owikeno land on 11th July, 1973… Mr Dunn, who has been town planner for the Wollongong City Council for thirteen years, gave evidence that he could see no reason why the development of the [Owikeno] land for a meat-works should not have been approved in July, 1973 subject to reasonable conditions. At that time it was most unlikely that council would have required an environmental impact study. In 1974, although possibly no “impact statement” would be required, his department would have made investigations. In 1975 it would be practically certain that such a “statement” would be required…

[8] …Mr Bell thought that because an approval for an abattoir would, on his information, be likely to be granted in July, 1973, there was little added advantage for the subject land in its having an actual approval for that use. This might be true if the valuation of the subject land was being made in 1973. But by January, 1975 an actual approval was a distinct advantage, and I think that there is great difficulty in comparing the realised and valuable potentiality in 1975 with an unrealised potentiality in 1973. The circumstances in 1973 were such that a purchaser looking for land with this potentiality would probably have a wider choice than he would have in 1975. In 1975 the change in environmental planning would give a value to the abattoir approval that would make the subject land in an important respect not comparable with other Non-urban “B” land. The precise position at 1st January, 1975 in regard to an application for approval of an abattoir does not appear in the evidence; but it was apparent that more stringent controls were exercised at that date than in 1973. Thus the subject land, with its approval as an abattoir site, was distinguishable in an important respect from other Non-urban “B” lands not having such an approval on the date as at which the value was determined (that is, 1st January, 1975). That distinction was of appreciably less consequence in July, 1973, and the basis for comparison between the subject land at the valuation date and the Owikeno land at the sale date is insecure and unreliable. The difference between the two things posed for comparison is one of kind, and not capable of reasonable adjustment (as would a difference, for example, such as town water being available to one site and not to another).

[9] Inherent in the above discussion are two proposition, the first being that the unimproved value of the subject land is to be determined on the basis that the existing use as an abattoir may be continued; or alternatively on the basis of an existing approval of an abattoir use. Either alternative would have substantially the same valuation consequences. The first alternative is based upon s. 6(2), which so far as material reads:

“(2) Notwithstanding anything in subsection (1), in determining the unimproved value of any land it shall be assumed that –

(a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates; and

(b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used…”

The words “the date to which the valuation relates” mean in this case the date on which the valuation was made, that is 23rd June, 1975 (s. 14A(1)(a), (4) and (6)). Section 6(2) appears to have been inserted in the Act as a consequence of the decision of Hardie J. in Wunderlich Ltd. v Valuer-General ((1959) 5 L.G.R.A. 50; see Act No. 31, 1959 ss. 2 and 4). In that case it was held that the unimproved value must be determined without taking into account a non-conforming use of the land the continuance of which depended upon there being buildings on the land that might be maintained pursuant to cl. 32 of the County of Cumberland Planning Scheme Ordinance. Though the immediate purpose of the Legislature was to deal with this particular state of affairs, I think the plain meaning of the language is that the continuance of an existing use is to be assumed, whether or not in the zone in which the land lies the use is a non-conforming use. As Else-Mitchell J. said in Pye v. Valuer-General (29 L.G.R.A. 160 at 162) “the purpose or object of the amendment was to remove the obligation which ensued from s. 6(1) to determine the unimproved value on the basis of the land having no potentiality of use for the very purpose for which it was in fact being used at the date of the valuation”.

[10] The alternative view is that the unimproved value is to be determined on the basis of an approval for an abattoir having been given. It is the fee simple that has to be valued, and it is to be valued on the hypothesis that it is unencumbered by any restrictions created in the Crown grant or between parties (Gollan v. Randwick Municipal Council (1960) 6 L.G.R.A. 275). Restrictions imposed by the general law, such as town planning legislation, are to be taken into account (Royal Sydney Golf Club v. Federal Commissioner of Taxation 91 C.L.R. 610; 20 L.G.R. 48); but where such a restriction no longer effectively exists in regard to a parcel of land because of an approval given, the valuation must in my view be made in accordance with the reality of the case. In the present case I think that the subject land is to be valued on the basis both of the existing abattoir use and the approval for such use, though as I have said either alternative would produce substantially the same value, as would also the combination of the alternatives.

[11] Counsel for the appellant submitted that s.6(2) requires the assumption in effect of an approval whenever a use is permissible with approval. If this submission was correct, there would be no substantial advantage in the existence of the abattoir use or approval. The second proposition I referred to above is that this submission is not valid. The submission depends on construing the words “any purpose…for which it could be used” in s. 6(2)(a) as applying to a purpose permissible only with consent, so that in the case of such a purpose it must be assumed that the land may in fact be lawfully used for that purpose, whether or not an approval exists in fact. In my view, the words “for any purpose…for which it could be used” refer to a purpose lawful in respect of land at the relevant time, but not the subject then of any actual use. So construed the words cover the situation of an existing use under cl. 32 of the Cumberland Planning Scheme where there is no actual use, but existing use rights have not been abandoned (op. Woollahra Municipal Council v. Banool 129 C.L.R. 138 at 144).

[12] For these reasons I regard the sale of the Owikeno land in July, 1973 as an unreliable guide to the value of the subject land as at 1st January, 1975.

____________________

Appendix 2—List of Exhibits

361. The documents tended in evidence in the original hearing and additional documents tended in the present hearing are listed below:

ex

Applicant ’ s Exhibits

Original hearing:

A
Report of valuer Mr P Byron dated 27 August 1999.

B
Reply of Mr Byron (to report of Mr Croker) by letter dated 8 September 1999.

C
Letter of Mr A Maurici dated 26 August 1999 re condition of retaining wall at 66 The Point Rd.

D
Construction Cost Estimate Report (Additional Properties) dated September 1999: estimates for 1 Angelo St, 30B Viret St, 9 Werambie St and 11A Viret St.

E
Letter of Mr Maurici dated 26 August 1999: condition of retaining wall.

F
Zoning map referred to in Hunters Hill Local Environmental Plan No. 1.

G
Hunters Hill Local Environmental Plan No. 1.

H
Bundles of photographs taken in August or September 1999 of: 1 Angelo St, 11A Viret St, 30A Viret St, 30B Viret St, 9 Werambie St, 29 Wybalena Rd, 49 Wybalena Rd and subject site.

J
Construction Cost Estimate Report (Supplementary Information) by Mr Hammond dated 14 September 1999.

Present hearing:

K
Supplementary report of Mr Byron dated 12 February 2004 (376 pages).

L
Plan of Hunters Hill Municipality showing location of properties referred to by the parties.

M
Report of Mr Byron dated to July 2004, commenting on reports of Mr Norris and Mr Croker.

N
Construction Cost Estimate Report of Mr Hammond dated 5 February 2004 (125 pages).

O
Letter dated 23 July 2004 from U Wolfensberger of 10A Gale St, Woolwich.

P
Blue folder of plans or photographs of buildings.

Q
Comparison of cost estimates by Messrs Martin and Hammond (28 July 2004).

R
Mr Byron’s adjustment schedule and analyses of sales, being 34 pages of spreadsheets dated 1 August 2004.

S
Page 99 of 1998 edition of Rawlinsons.

T
Large blue folder of photographs of comparable properties taken by Mr Hammond.

U
25 photographs of 73 The Point Rd taken in September 1999.

V
Affidavit of Mr P Hammond sworn on 13 August 2004 with annexed photographs taken in July, August or September 1999.

W
E-mail of Mr Hammond dated 19 August 2004 re floor area of 73 The Point Rd.

X
Comparison of consumer price index and Rawlinsons building price index, 2004.

Y
Affidavit of statistician Mr D Sinclair sworn on 20 August 2004.

ex

Respondent ’ s Exhibits

Original hearing:

1
Report of valuer Mr M Croker dated 10 September 1999.

Present hearing:

2
Supplementary report of Mr Croker dated 31 October 2003 (150 pages).

3
Report of valuer Mr M Croker (in reply to Mr Byron) dated 22 March 2004.

4
Report of valuer Mr K Norris dated 2 April 2004.

5
Letter of Mr Norris dated 16 July 2004 (in reply to Mr Byron).

6
Waterfront Pictures (25 coloured photographs) dated 9 July 2004, taken in July 2004 (A4 size and another copy in A3 size).

7
Report of quantity surveyor Mr P Martin dated October 2003.

8
Real Estate Institute: Median House Prices for Hunters Hill.

9
12 photographs by Mr Martin (taken 2003) of the interior and pool of 68 The Point Rd.

10
23 photographs of 13 Lloyd Ave.

11
Six photographs of 9 Werambie St.

12
Parliamentary Papers 1976: Final Report of Commission of Inquiry into Land Tenures (February 1976).

13
Rent and sales statistics of NSW Department of Housing from June quarter 1997 to December quarter 2003 and copy on CD-ROM..

14
Calculation of land tax—1 Fern Rd.

* * * *

CITATION:	Maurici v Chief Commissioner of State Revenue [2005] NSWLEC 20
PARTIES:	APPLICANT Anthony Maurici RESPONDENT Chief Commissioner of State Revenue
FILE NUMBER(S):	30199A of 1999
CORAM:	Nott C
KEY ISSUES:	Valuation of Land :- "Land value" of a waterfront residential property at Woolwich - methods of valuation - scarcity factor - improvements increment - movement in the market - effect of a development consent on land value - adjustments for size and other features of the comparable sales - weighing sales according to reliability.
LEGISLATION CITED:	Land Tax Management Act 1956 Taxation Administration Act 1966 Valuation of Land Act 1916
CASES CITED:	AMP Henderson Global Investors Ltd v Valuer-General [2004] NSWCA 19; (2004) 134 LGERA 426; Barmuncol Pty Ltd v Maroochy Shire Council (1983) LGRA 309 Daadine Pastoral Co Proprietary Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299 at 304; Duffy v Minister for Planning [2003] WASCA 294 (2003) 129; LGERA 271; Eaton & Sons Pty Ltd v Warringah Shire Council (1972) 129 CLR 270 at 293; Federal Commissioner of Land Tax v Duncan (1915) 19 CLR 551; Flack v Valuer-General (1952) 18 LGR (NSW) 157 at 158; Guideline Drafting and Design v Marrickville Municipal Council (1988) 64 LGRA 275; Illawarra Meat (Developments) Pty Ltd v Valuer-General (Rath J 10 March 1978); MLC Properties Pty Ltd v Chief Commissioner of State Revenue [1999] NSWLEC 300 at [21] and [38]; Maurici v Chief Commissioner of State Revenue [1999] NSWLEC 299 (Nott C); Maurici v Chief Commissioner of State Revenue [1999] NSWLEC 282; (1999) 105 LGERA 318 (Cowdroy J); Maurici v Chief Commissioner of State Revenue [2001] NSWCA 78; (2001) 51 NSWLR 673; Maurici v Chief Commissioner of State Revenue [2003] HCA 8; (2003) 212 CLR 111; McCathie v Federal Commissioner of Taxation [1944] HCA 9 (1944) 69 CLR 1 at 15; Nap Nap Station Pty Ltd v Valuer-General (1969) 72 LGRA 293; Nock v Minister for Capital Territory (1982) 48 LGRA 293; Parramatta City Council v Shell Co. of Australia Ltd [1972] 2 NSWLR 632 at 637; Rodgers v Value-General No. 30457 of 1991, 7 November 1991; Royal Sydney Golf Club v Federal Commissioner of Taxation (1955) 91 CLR 610; Strongsville Board of Education and City of Strongsville v Auditor and Board of Revision of Cuyahoga County and Hewlett Packard Co (Nos 1996-N-595 & 596, Ohio Board of Tax Appeals, 30 July 1999); Tetzner v Colonial Sugar Refining Co Ltd [1958] AC 50; Torpey Vander Have Pty Ltd v Mass Constructions Pty (2002) 55 IPR 542, [2002] NSWCA 263 at [13]-[18]; Valuer-General v Fenton Nominees Pty Ltd (1982) 150 CLR 160; Venti Seven Pty Ltd v Chief Commissioner of State Revenue [2000] NSWLEC 285 at [4]-[6].
DATES OF HEARING:	26-30 July 2004; 9, 20 & 31 August 2004
DATE OF JUDGMENT:	02/10/2005
LEGAL REPRESENTATIVES:	APPLICANT Dr C J Birch SC and Mr J Stoljar, barrister SOLICITORS Speed & Stacey RESPONDENT Mr J Ayling SC and Mr J Maston, barrister SOLICITOR Crown Solicitor

ex	Applicant ’ s Exhibits
Original hearing:
A	Report of valuer Mr P Byron dated 27 August 1999.
B	Reply of Mr Byron (to report of Mr Croker) by letter dated 8 September 1999.
C	Letter of Mr A Maurici dated 26 August 1999 re condition of retaining wall at 66 The Point Rd.
D	Construction Cost Estimate Report (Additional Properties) dated September 1999: estimates for 1 Angelo St, 30B Viret St, 9 Werambie St and 11A Viret St.
E	Letter of Mr Maurici dated 26 August 1999: condition of retaining wall.
F	Zoning map referred to in Hunters Hill Local Environmental Plan No. 1.
G	Hunters Hill Local Environmental Plan No. 1.
H	Bundles of photographs taken in August or September 1999 of: 1 Angelo St, 11A Viret St, 30A Viret St, 30B Viret St, 9 Werambie St, 29 Wybalena Rd, 49 Wybalena Rd and subject site.
J	Construction Cost Estimate Report (Supplementary Information) by Mr Hammond dated 14 September 1999.
Present hearing:
K	Supplementary report of Mr Byron dated 12 February 2004 (376 pages).
L	Plan of Hunters Hill Municipality showing location of properties referred to by the parties.
M	Report of Mr Byron dated to July 2004, commenting on reports of Mr Norris and Mr Croker.
N	Construction Cost Estimate Report of Mr Hammond dated 5 February 2004 (125 pages).
O	Letter dated 23 July 2004 from U Wolfensberger of 10A Gale St, Woolwich.
P	Blue folder of plans or photographs of buildings.
Q	Comparison of cost estimates by Messrs Martin and Hammond (28 July 2004).
R	Mr Byron’s adjustment schedule and analyses of sales, being 34 pages of spreadsheets dated 1 August 2004.
S	Page 99 of 1998 edition of Rawlinsons.
T	Large blue folder of photographs of comparable properties taken by Mr Hammond.
U	25 photographs of 73 The Point Rd taken in September 1999.
V	Affidavit of Mr P Hammond sworn on 13 August 2004 with annexed photographs taken in July, August or September 1999.
W	E-mail of Mr Hammond dated 19 August 2004 re floor area of 73 The Point Rd.
X	Comparison of consumer price index and Rawlinsons building price index, 2004.
Y	Affidavit of statistician Mr D Sinclair sworn on 20 August 2004.

ex	Respondent ’ s Exhibits
Original hearing:
1	Report of valuer Mr M Croker dated 10 September 1999.
Present hearing:
2	Supplementary report of Mr Croker dated 31 October 2003 (150 pages).
3	Report of valuer Mr M Croker (in reply to Mr Byron) dated 22 March 2004.
4	Report of valuer Mr K Norris dated 2 April 2004.
5	Letter of Mr Norris dated 16 July 2004 (in reply to Mr Byron).
6	Waterfront Pictures (25 coloured photographs) dated 9 July 2004, taken in July 2004 (A4 size and another copy in A3 size).
7	Report of quantity surveyor Mr P Martin dated October 2003.
8	Real Estate Institute: Median House Prices for Hunters Hill.
9	12 photographs by Mr Martin (taken 2003) of the interior and pool of 68 The Point Rd.
10	23 photographs of 13 Lloyd Ave.
11	Six photographs of 9 Werambie St.
12	Parliamentary Papers 1976: Final Report of Commission of Inquiry into Land Tenures (February 1976).
13	Rent and sales statistics of NSW Department of Housing from June quarter 1997 to December quarter 2003 and copy on CD-ROM..
14	Calculation of land tax—1 Fern Rd.