Mayne v Chief Executive, Department of Natural Resources and Mines - [2002] QLC 10

LAND COURT

BRISBANE

26 February 2002

Re: Appeals against valuations

Valuation of Land Act 1944
  Valuation Nos:           22 and 624
  Property ID No:         1228037 and 1226733
  Local Government:    BCC-Brisbane
  (AV1999-0632, AV1999-0633, AV2000-0402 and AV2000-0403)

Estate of the late Mary Emelia Mayne (Dec)

Chief Executive, Department of Natural Resources and Mines

Estate of the late James O’Neil Mayne (Dec)
v.

Chief Executive, Department of Natural Resources and Mines

Estate of (Decd) James O Mayne
v.
Chief Executive, Department of Natural Resources and Mines

Estate of (Decd) Mary E Mayne
v.
Chief Executive, Department of Natural Resources and Mines

J U D G M E N T

Introduction

These appeals are brought against annual valuations carried out by the Chief Executive, Department of Natural Resources and Mines, of lands owned by the appellants. There are four appeals which were heard together. The appeals concern two adjoining parcels of land located in the Central Business District of Brisbane. One parcel, which is owned by the Estate of Mary Emelia Mayne (deceased) is located at 160 Queen Street, Brisbane, has an area of 911 m² and is described as Lots 3 and 4 on RP 671, Parish of North Brisbane, County of Stanley. The other parcel is owned by the Estate of James O’Neil Mayne (deceased). It is located at 117 Adelaide Street, Brisbane, has an area of 911 m² and is described as Lots 1 and 2 on RP 671, Parish of North Brisbane, County of Stanley. Both estates are administered by the same trustees. The properties have a common boundary at the rear of each. A building known as “The Brisbane Arcade” is constructed across both lots. The Brisbane Arcade, which is a well known landmark in Brisbane, is heritage listed. The implications of this listing are a major issue in this case, and will be discussed in some detail later in this decision. The appeals in respect of each parcel of land concern two annual valuations, those for 1 October 1998 and 1 October 1999.
The respondent determined $7,600,000 as the unimproved value of the land owned by the estate of ME Mayne (the Queen Street property) as at 1 October 1998, and $7,400,000 as the unimproved value as at 1 October 1999. The unimproved value of the land owned by the Estate of J O’N Mayne (the Adelaide Street property) was determined at $4,000,000 for both 1 October 1998 and 1 October 1999.
The appellants estimated the value of the Queen Street property at $6,000,000 on both 1 October 1998 and 1 October 1999. The value of the Adelaide Street property was estimated at $3,600,000 on both dates.
The grounds of appeal as set out in the Notices of Appeal are identical in each of the four cases. At the hearing, the major issues were identified as the effect of the heritage listing on the unimproved value of both properties and the effect on the unimproved value of the Adelaide Street property of a subterranean creek running under that property.
Evidence was given on behalf of the appellants by Mr TS O’Donnell, a senior architect employed by Powell Dods and Thorpe, who has been dealing with the Brisbane Arcade for a number of years, and Mr DAS Cameron a registered valuer and principal of Cameron Bros. The trustees of the estates have been clients of Mr Cameron’s firm since 1923. The firm provides valuation advice to the trustees and acts as property manager of the properties. Mr Cameron has handled the business relating to the Brisbane Arcade increasingly since 1967.
Mr DG Buchanan, a registered valuer employed by the Department of Natural Resources and Mines, gave evidence on behalf of the respondent. Mr Buchanan was responsible for making the valuations for both sites as at 1 October 1999. He did not make the valuations for 1 October 1998 but said that he had made detailed inspections of the sales relied on by the valuer who had made those valuations. He had also inspected the subject properties and agreed with the amount of those valuations.
The properties
The Brisbane Arcade building consists of four levels – a basement level, the ground floor which comprises a concourse between Queen Street and Adelaide Street, both sides of which are lined with retail shops, a mezzanine level where there are retail shops selling fashion and jewellery and a restaurant, and a second level which comprises work areas for the retail shops, and, at the Adelaide Street end, the plant and machinery for the whole complex.
Mr Buchanan described the Queen Street Mall, on which the Queen Street property is located, as the major specialist retailing, service and entertainment location in the City Centre with a high level of public amenity. The Queen Street property is located in a prominent position in the retail heart of Brisbane. It has excellent pedestrian access via the Queen Street Mall. The site is approximately level with the Mall frontage and is virtually level throughout. Mr Buchanan described the Adelaide Street property as being in the retail centre of Brisbane. It has good pedestrian access to Adelaide Street, which in this vicinity, is a full width bitumen sealed roadway with stone kerbing and concrete channelling. The footpaths are finished with brick pavers. The site is of medium elevation, is approximately level with the Adelaide Street frontage and is near level throughout. Both properties are zoned Central Business under the Brisbane City Town Plan.
The impact of the heritage listing on the use of the land and building
The Brisbane Arcade was constructed in 1923. It is listed by the National Trust of Queensland, on the Register of the National Estate with the Australian Heritage Commission, on the list of important Heritage Buildings under the Planning Scheme for the Brisbane City Council and on the Queensland Heritage Register. Buildings listed on the Heritage Register are subject to the provisions of the Queensland Heritage Act 1992 and the impact of these restrictions was the subject of considerable evidence at the hearing.
Mr TS O’Donnell is the author of a report entitled the Brisbane Arcade Heritage Report which was tendered at the hearing. In this report, Mr O’Donnell noted that the Conservation Plan for the Arcade, which was submitted to the Queensland Heritage Council in 1991 and subsequently revised in 1993, indicated that the building was culturally significant because:
1. It is an archetype of the traditional shopping arcade, which developed in Europe as a venue for retailing in the late 18^th and early 19^th centuries.
2. It is the sole Brisbane example of the traditional arcade building form from the early 20^th century period of the development of the Central Business District of Brisbane.
3.It contributes to an understanding of the development of the City of Brisbane.
4. The two street facades are skilfully fashioned in the tradition of “Edwardian Baroque” style and provide an historic contribution to the streetscape of the Queen Street Mall and Adelaide Street.
The Queensland Heritage Act provides that all alterations to buildings listed on the State Heritage Register must take place in accordance with the Conservation Policy established for the building. The policy was set out in some detail in Mr O’Donnell’s report. It is not necessary to repeat that detail here, but it is clear that the effect of the policy is that future development of the site is severely restricted and that any development must have the prior consent of the Queensland Heritage Council. Mr O’Donnell said in his report that a number of elements of the Arcade such as the facades and the atrium space have been identified as considerably significant. The Heritage Council considers that preservation of those elements is the most appropriate conservation process for retaining the cultural significance of the Brisbane Arcade. Preservation means maintaining the fabric of the place in its existing state and retarding further deterioration. Mr O’Donnell considered that the Heritage Council would reject any proposal to alter the existing state of the building if that entailed alteration of any of the items of significance.
Those items that are not considered to be significant can be refurbished. Thus shop fitouts, signage, floor finishes (other than those on the ground floor) and previously painted surfaces can be upgraded and renewed. Shops can be linked by openings through the existing walls, but this must be done in a way that leaves the original configuration of the shops evident. The appearance of all but one of the shopfronts can be altered, but the dimensions cannot. Services such as air conditioning, sprinklers, etc. can be improved. Otherwise, the interior of the building cannot be altered to meet the changing demands of the tenants. Even where alterations are allowed, it is often necessary to enter into extensive negotiations with the Heritage Council before the proposal is approved.
A particular limitation in the current layout of the building is that there are no escalators between the various floors. This means that each level can only be accessed by stairs, and since 1994, by a lift which is somewhat hidden from passing pedestrians because the lift was installed in a light well. This was done because the Conservation Plan required it be placed in a position that would not impact on the existing building. As the building is currently designed, installation of an escalator is opposed by ground floor tenants as the escalators would obstruct access to and the visibility of their shopfronts. It would be necessary to redesign the layout of some of the shops quite significantly to install escalators in a satisfactory manner, and this redesign would not be permitted by the Heritage Council.
The basement is hidden from the public view from the ground floor as there are no visual links from that floor to the basement. The limitations on physical and visual access to the various storeys of the building have an adverse impact on the amount of rental that can be asked for tenancies in the upper and basement levels. It was estimated by Mr Cameron that 70% to 80% of the rental income from the Arcade is generated from the ground floor shops.
The owners do not have the option to develop the building or the site to increase the commercial viability of the premises. In Mr O’Donnell’s opinion, approval would not be given for the demolition of the building and redevelopment of the sites.
By way of contrast, if the properties were not affected by the heritage legislation, the building could be demolished and, in theory, said Mr O’Donnell, the Brisbane City Town Plan would allow the construction of a podium of four levels across the whole of both sites and a tower building of up to 19 storeys, set back from the side boundaries, on top of the podium. Alternatively if the sites are considered separately, then in respect of the Queen Street property, a development of four levels of podium covering the whole of that site and a tower block of 46 storeys is theoretically possible. Similarly, in theory, a development of four levels of podium and a tower block of 11 storeys could be constructed on the Adelaide Street site. It would be necessary to obtain Brisbane City Council approval for any such project.
Mr Cameron said that in general terms, the effects of the heritage listing were that the owners were unable to accommodate larger national tenants, it is necessary to get approval from the Heritage Council for any major maintenance work, the ability to alter the size of the shops is very restricted, and it is not possible to demolish the building and replace it with a more profitable building. Such a redevelopment, which could include retail, commercial and, possibly, residential premises, would provide a much larger nett lettable area than is available currently.
Mr Cameron also said that the current configuration of the shops reduces the rentals that might be obtained if it were possible to increase the size of the shops. Generally, the shops on the ground floor of the Brisbane Arcade range from 18 m² to 25 m² in area. However the shops along the Queen Street Mall are larger – two of them being 61 m² and 60 m² respectively, and the third, which is currently rented by Colorado, is 138 m². That results from a conversion of two shops into one, some 20 to 25 years ago, before the property was heritage listed.
The appellants said that the rents achievable in the Arcade are lower than those achieved in other properties with a frontage to the Mall. As illustrated in the first table below, the rents paid in the three Arcade shops range from $2,752 per square metre to $3,768 per square metre. The second table demonstrates rents ranging from $3,143 per square metre to $4,666 per square metre. Both tables are taken from Mr Cameron’s report.

Shop	Floor Area	Rent Per Annum	Rate Per m²
Kodak Shop	61m²	$196,850.00 excl GST	$3,227.05
Darrell Lea	60m²	$165,133.00 excl GST	$2,752.23
Colorado	138m²	$520,000.00 excl GST	$3,768.12

Shop	Floor Area	Rent Per Annum	Rate Per m²
The Body Shop Shop 1, 136 Queen Street	103m²	$396,500.00 gross excl GST	$3,849.50
Vodaphone Shop 2, 136 Queen Street	92m²	$381,000.00 gross excl GST	$4,141.30
Queen Street Mall Pharmacy T & G Building	110m²	$400,000.00 gross excl GST	$3,636.00
Just Jeans Corner Queen Street Mall and Broadway on the Mall	156m²	$490,431.00 gross excl GST	$3,143.80
Jacqui-E Corner Queen Street Mall and Broadway on the Mall	89m²	$415,298.00 gross excl GST	$4,666.25

Mr Cameron said that he considered these lower rentals were directly attributable to the smaller area of the shops in the Brisbane Arcade and the restrictions imposed on the tenants by the heritage legislation. When challenged in cross-examination, Mr Cameron expressed some uncertainty as to the dates when the rents in the tables above were fixed. Mr Buchanan said that the rentals for three of the Mall properties had been set in late 2000 or early 2001, (that is, after the dates of valuation) and that the rentals for the Queen Street property relied on by the appellants had been in place for some time and did not reflect current market value. He also pointed out that the rent for the Colorado premises in the Queen Street property is higher than that for the Just Jeans shop in Broadway on the Mall.
Mr Buchanan also said that he considered that the configuration of the Brisbane Arcade building was either just as efficient, or nearly as efficient as the more modern Broadway on the Mall. He had measured the sites, roughly, and had come to the conclusion that the Brisbane Arcade has more shop area per square metre than Broadway on the Mall. However, the pedestrian areas in the Brisbane Arcade are much narrower than those in the Broadway on the Mall which means fewer people can move through the Arcade and access the shops.
Valuation Evidence
Both Mr Cameron and Mr Buchanan analysed sales of Central Business District properties in support of their valuations. Both conceded that the sales did not provide a precise comparison as allowance had to be made for the effect of the heritage listing on the value of the subject properties.
As a secondary method or check on his conclusions drawn from the sales evidence, Mr Buchanan compared the income earned per square metre of each building on the basis of their nett lettable areas.
Mr Cameron, as a secondary method of valuation, relied on the capitalisation of the income from the properties.
Sales Evidence
Queen Street Property
Mr Buchanan relied on 4 sales in support of his valuations for this property. All the sales were of improved land. In each case, Mr Buchanan deducted the value of the improvements from the sale price and then adjusted the nett figure to allow for the heritage listing and other matters. Of the four sales, the most detailed evidence was given in relation to Sales Nos. 1 and 2. It was acknowledged by Mr Buchanan that Sales Nos. 3 and 4 were of properties located in the secondary business district of Brisbane.

Sale No. 1

This was a sale of a number of lots bordering Queen Street, Edward Street and Adelaide Street in the city. The combined properties were referred to at the hearing as the Howard Chia site. Although the properties are not amalgamated they were sold together on 30 December 1997, for $51,000,000. The total area of land was 5378 m². The land is zoned Central Business and is considered ripe for redevelopment. Mr Buchanan estimated the value of the buildings as $8,150,000. He thus analysed the sale price to $42,850,000 or $7,967 per square metre. He said that the sale could be further broken down to allocate a value of about $10,000 per square metre for the Queen Street frontage and something less for the Edward and/or Adelaide Street properties.
Both Mr Buchanan and Mr Cameron agreed that it was difficult to compare this sale with the Brisbane Arcade properties because of the differences between them although Mr Buchanan said the sale does give some indication of value. The Howard Chia site is 5378 m² in area, and has a three street frontage. It has the potential for massive redevelopment. There are no restrictions in place under the Queensland Heritage Act 1992 in relation to the site although a number of witnesses seemed to think that there may be heritage controls of some type in place relating to one portion of the site – the Shingle Inn.
Sale No 2
This property, referred to at the hearing as the Mathers building, was sold on 10 January 1996 for $15,700,000. It is located at 155-161 Queen Street, with a frontage to the Queen Street Mall opposite the Queen Street property. It is zoned Central Business, and has an area of 908 m². Mr Buchanan estimated the value of the improvements at $6,149,120. He therefore analysed the sale to $9,500,880 and applied a value of $8,600,000. This equates to $9,471 per square metre.
In Mr Cameron’s opinion, significant adjustment would have to be made to this figure, if this property were to be compared with the Queen Street property because the Mathers building was not heritage listed, there is vehicular access to on-site car parking via an easement from Elizabeth Street, the existing building could be demolished to make way for a new development and the property was purchased for redevelopment. Mr Buchanan did not agree with the last proposition although he conceded that the particular purchaser did not have a track record of holding buildings simply for the purpose of securing an income stream. Mr Cameron analysed the sale to an improved rate of $37,380 per square metre. He said that the unimproved value determined by the Department of Natural Resources and Mines equates to $10,242 per square metre. However, it should be noted that in fact Mr Buchanan applied the sale to determine the unimproved value as $9,471 per square metre. In applying the sale to the Brisbane Arcade Mr Cameron adopted a value of $7,003 per square metre because of the heritage listing which prevents redevelopment of the Brisbane Arcade.
Sale No 3
This property is located at 79 Albert Street. Mr Buchanan analysed the sale, which took place on 2 December 1999, to $2,812 per square metre. He acknowledged that the property was inferior to the subject site. It was in a secondary area and therefore it could not be relied on directly in determining the value of the Queen Street property.
Sale No 4
This property is also in a secondary area, namely 120 Edward Street. It was sold on 8 May 1998, for an analysed value of $2,900 per square metre. Mr Buchanan said that the site was inferior to the subject site.
Adelaide Street property
Mr Buchanan relied on four sales in support of his valuation of this property. As with the Queen Street property, Mr Buchanan acknowledged that Sales Nos 3 and 4 were in a secondary area and were of less direct relevance than Sales Nos 1 and 2.
Sale No 1

This is the same property, the Howard Chia site, as that described as Sale No 1 in relation to the Queen Street property. The same comments apply as to the difficulty of relying on this sale to determine the value of the Adelaide Street property.
Sale No 2
This property, which was formerly used as a Westpac Bank, is situated at 79 Albert Street, Brisbane. The property sold on 2 December 1999 for $4,000,000. It has an area of 336 m² and is zoned Central Business. Mr Buchanan analysed the sale to $1,048,101 and applied a value of $990,000, or $2,946 per square metre. Mr Buchanan considered this property to be inferior in size and location to the Adelaide Street property.
A value of $4,400 per square metre was adopted by Mr Buchanan for the Adelaide Street property. He said that figure took into account the superior location of the Adelaide Street property (as compared with the sale) and its potential access to the Queen Street Mall, (assuming the subject land was vacant but the Queen Street property was improved with part of the Brisbane Arcade). He also said that his value took account of the heritage listing and the creek, but he was unable to say precisely how this had been done.
Mr Cameron agreed with Mr Buchanan’s assessment of the sale. He also pointed out that the sale property is not heritage listed and that the building can be demolished and the site redeveloped. Given that the sale property is inferior to the Adelaide Street property he applied a value of $3,490 to the Adelaide Street property.
Sale Nos 3 and 4
These are the same properties as those described as Sales 3 and 4 in the sales evidence relating to the Queen Street property. The same comments apply with respect to their relevance to the valuation of the Adelaide Street property.
Broadway on the Mall
This property lies immediately to the north of the Brisbane Arcade at 133 Adelaide Street. It was sold on 1 March 1999 for $41,500,000. Mr Cameron relied on this sale in his valuation. Mr Buchanan did not. The property runs through from Queen Street to Adelaide Street. The site was redeveloped in about 1990 as a shopping mall/arcade. It has an area of 3,363 m². Mr Cameron calculated that the sale price reflected an improved value of $12,340 per square metre. The unimproved value (as determined by the Department of Natural Resources and Mines) is $23,000,000 which equates to $6,839.13 per square metre. This figure represents an average for the whole of the property. There was no evidence as to the difference in value between the Queen Street and Adelaide Street ends.
Mr Cameron said that he selected this property because it is located on the Mall next to the Brisbane Arcade. It is the most comparable property with the Brisbane Arcade, although adjustments to the land value need to be made to allow for the heritage restrictions affecting the Brisbane Arcade. The Adelaide Street end of the Broadway on the Mall is affected by the same creek that runs under the Adelaide Street property. Mr Cameron said that he understood that when the site was redeveloped the creek was diverted to some extent which would have increased the construction costs. The Broadway on the Mall site is not affected by heritage issues, other than that the façade of the building at the Adelaide Street end had to be preserved. Apart from the heritage issues and the size of the two properties, Broadway on the Mall also differs from the Brisbane Arcade in that the former has double the width of frontage to both Queen Street and Adelaide Street, the shops are larger, it has a much wider concourse and there is access to each level by escalators which are clearly visible to members of the public. These differences caused Mr Cameron to adjust the unimproved value of $6,839 per square metre of Broadway on the Mall to $7,003 per square metre for the Queen Street property and $3,490 per square metre for the Adelaide Street property.
Nett lettable areas
Mr Buchanan also compared the Queen Street property and the Mathers building on the basis of the income derived from their respective nett lettable areas. He said that this could be a useful exercise as a secondary method of valuation. He took the unimproved capital value of each property, and divided that by the nett lettable area of each building to determine the income per square metre. Using that analysis for the Mathers building, he calculated that it had a nett lettable area of 2,099m², which resulted in an income of $4,097 per square metre. The Queen Street property has a nett lettable area of 1,808 m² which resulted in a rate of $4,092 per square metre. In his opinion, this exercise backed up his conclusions drawn from the sales evidence.
While these calculations may demonstrate that the current income per square metre of the two sites is similar, they do not deal with the impact of the heritage issues in relation to future development of the subject sites, and they are therefore of no real assistance in providing a solution to that problem.
Capitalisation of Income
As a check on his primary method of valuation, Mr Cameron relied on the capitalisation of rentals of the properties to establish a valuation of the properties. In summary, the methodology Mr Cameron adopted was to capitalise the nett income for each property at a yield of 8.5%, for each of the relevant years. Having established the value of the improved sites by this process, he then deducted the value of the improvements. He said, however, that the balance remaining did not represent the unimproved value of the properties as it failed to take into account the effect of the heritage listing and, in the case of the Adelaide Street property, the underground creek running beneath the land.
In the case of both properties, the capitalised values were established for the calendar years 1999 and 2000 by taking the gross rentals for each year, deducting expenses and an allowance for vacancies, and applying a capitalisation rate of 8.5%. Mr Cameron established this rate by analysing a number of sales of city properties. Those analyses showed a yield varying from 6.15% to 11.32%. He then compared those properties with the Brisbane Arcade and decided that an appropriate capitalisation rate for a heritage listed property of that nature was 8.5%. In selecting that rate, Mr Cameron said that he had taken account of the fact that an analysis of the sale of the MacArthur Chambers property on the corner of Queen and Edward Streets, which is a wholly heritage listed building, indicated that that property sold on a net yield of 6.15%. In his opinion, the Brisbane Arcade was not as good a property, so he chose 8.5% as the appropriate rate. The value he established for the Queen Street property for 1999 was $11,227,043 and for 2000 $10,806,952. For the Adelaide Street property the value established was $5,598,951 for 1999 and $5,765,450 for 2000.
For the Queen Street property, Mr Cameron took a value of $11,225,000 and deducted $2,750,000 as the value of the improvements, establishing the value of the land as $8,475,000. He said, apparently in relation to both properties, that the difference between that figure and his conclusion that the unimproved value was $6,380,000 was caused by the heritage listing and the effects of the underground creek. However, the creek does not flow under the Queen Street property. For the Adelaide Street property, Mr Cameron took an improved value of $5,600,000 and deducted $3,500,000 as the value of the improvements to reach a value of the land of $2,100,000. However he applied an unimproved value of $3,180,000 for this property. There was no explanation for that increase.
Given the unique nature of the Brisbane Arcade, and the difficulty in finding comparative sales (as discussed above), there are some attractions in adopting the capitalisation method of valuation. However, as pointed out by the Land Appeal Court in GE Cominos Pty Ltd v Chief Executive, Department of Lands (1996) 16 QLCR 311 at 323, while the capitalisation of nett rentals is a recognized method of valuation for ascertaining the value of an improved property, there are difficulties in using that method to ascertain an unimproved value. The Court said that it is necessary to arrive at the correct improved value, and to ensure that the improvements are valued precisely. In Mr Cameron’s exercise, the evidence he gave explaining how he arrived at a value for the improvements was extremely sparse. He said that he had spoken to a quantity surveyor who had advised him that the cost of construction of the Queen Street end of the building would be $6,226,470 which equates to a rate of $2,551 per square metre on a building area of 2,441 m². Mr Cameron depreciated this to $1,117 per square metres which equates to $2,750,000 for the whole of the Queen Street building. Similarly, for the Adelaide Street property, Mr Cameron said that he was advised by the quantity surveyor that the replacement costs of the building would be $2,615 per square metre, which he had depreciated to $1,321 per square metre. That lead to a total of $3,500,000 for the whole of that building. There was no direct evidence given by the quantity surveyor. Nor was there any explanation from Mr Cameron as to the basis on which he had calculated the depreciation. It is difficult to be confident that the figures used were accurate, on this evidence alone. It is also possible that there is a difference between the depreciated cost of the improvements and the value of the improvements. This was not adverted to by Mr Cameron. In any event, the method as explained by Mr Cameron does not assist with the resolution of the problem of establishing an appropriate allowance for the heritage listing and/or the creek. Nor was there any explanation by Mr Cameron of the increase in the unimproved value he applied to the Adelaide Street property.
My doubts about the accuracy of the conclusions reached by Mr Cameron by using this method of valuation are reinforced by s.3(2) of the Valuation of Land Act 1944. Section 3(2) provides that the unimproved value shall in no case be less than the sum that would be obtained by deducting the value of improvements from the improved value. If Mr Cameron’s calculations are accurate, the unimproved value of the Queen Street property would be over two million dollars greater for the Queen Street property than the value which he has put forward and the unimproved value of the Adelaide Street property would be about one million dollars less. I have therefore not accepted the conclusions reached by applying the capitalisation of income method.
Other matters
Prior to these proceedings, the appellants had appealed against the respondent’s determination of the unimproved value of both properties as at 1 October 1996. Those proceedings were settled without a hearing by this Court, and by consent of the parties, the values were determined at $7,050,000 for the Queen Street property and $3,850,000 for the Adelaide Street property.
When asked how he could justify his lower valuations for 1 October 1998 and 1 October 1999, Mr Cameron said that the market was very flat, there were very few sales on which he could rely, there did not appear to be any increase in values and there was some evidence (the resale of the Howard Chia site) that prices had fallen. Mr Buchanan gave evidence that the market was dormant until the end of 1997 but in the following twelve months, sales started to occur, developers became more confident and that an increase for the 1998 valuation was justified.
The circumstances surrounding the parties agreeing to the consent orders in respect of the valuations as at 1 October 1996 were not in evidence before this Court. In the absence of that evidence, and given that there was no hearing, and therefore no determination of the facts by this Court at that time, it is not appropriate to take those determinations into account.

Legal Principles

It is clear from the authorities that the provisions of legislation such as the Queensland Heritage Act 1992 are to be taken into account in determining the unimproved value of sites subject to such restrictions. (See Valuer-General v Queensland Club (1991) 13 QLCR 207 and Ballow Chambers Ltd v Valuer General (1993) 14 QLCR 422).
In the Ballow Chambers case, the restrictions were as wide reaching as those applicable to the Brisbane Arcade. The heritage listing of Ballow Chambers prevented the owner from removing or developing the improvements without obtaining a Certificate and it was conceded that such a Certificate could probably not be obtained. The Valuer-General had submitted, in that case, that the effect of the heritage restrictions should be ignored, because they were imposed on the buildings and not on the land, and on that basis the land should be valued at $1,400,000. The appellant submitted that the restrictions should be taken into account, and contended for a value of $450,000. The Court rejected the Valuer General’s submissions and held that the effects of the constraints imposed by the relevant heritage legislation must be taken into account in determining the unimproved value of the land. The Valuer General conceded that if the heritage restrictions were taken into account, the land should be valued at $450,000. The difference between the two valuations was explained on the basis that a purchaser would be prepared to pay $1,400,000 for the land with a potential to be developed for its highest and best commercial use. Such a purchaser would not be prepared to pay more than $450,000 for that land, if its only potential were that it could be developed with a building identical with the one presently standing on the land, and subject to the constraints imposed by virtue of the heritage listing.
It is to be noted that, in Ballow Chambers, the parties were agreed on the valuations to be applied if the land were to be valued either (i) taking the heritage restrictions into account, or (ii) if the restrictions were not taken into account. In the present case, the parties have agreed that the heritage restrictions do lessen the value of the properties, but they have not agreed on the extent of the impact of the restrictions on the value of the sites.
The issue here is to determine the most appropriate method for valuing land subject to such restrictions. The approach adopted by the Land Appeal Court in Roberts v Chief Executive, Department of Natural Resources (unreported, Land Appeal Court, 12 August 1998) was to determine the unimproved value of the land on the assumption that there were no heritage restrictions in place, and then to allow a discount to take into account the adverse effect of the heritage restrictions. The Court pointed out that it is difficult to assess what the difference in value might be, in the absence of convincing market evidence (at p 9). Another problem identified by the Court in that case was that it might be necessary to apportion the loss in value between land and improvements. The Court concluded, in relation to a heritage listed residential property developed to its full potential, that the effect on the land value of the heritage listing was more than nominal, but fell within the lower spectrum. A discount of 10% was allowed.
In Conias v Chief Executive, Department of Natural Resources (AV97-336, unreported, Land Court, 8 October 1998) the Court allowed a discount of 17.5% for the adverse impact of heritage restrictions. In Cooke v Chief Executive, Department of Natural Resources (AV97-274, unreported, Land Court, 8 October 1998), an allowance of 25% was made. Both properties were residential sites and their highest and best use was as residential properties. The evidence lead in those cases as to the impact of the heritage restrictions was very different from that adduced in these matters. They are not therefore of any direct assistance although they do indicate the amount of discounts that have been allowed by this Court.
In the Queensland Club case and the Ballow Chambers case, the parties had agreed on the valuations to be applied, so that those decisions are of no direct relevance in determining the amount of allowance to be made here.
Conclusions
Both the Queen Street and Adelaide Street properties are zoned “Central Business” under the Brisbane City Town Plan. As noted above, evidence was given on behalf of the appellants by Mr O’Donnell and Mr Cameron to the effect that, if there were no heritage restrictions on the sites preventing redevelopment, the current building could be demolished and replaced with a large complex covering both sites (if the trustees acted conjointly) comprising retail, commercial and, possibly, residential premises. There would, consequently, be a much larger nett lettable area than there is in the Arcade currently. Commercial reality would however ultimately dictate what was constructed.
Mr Buchanan said that given that the City Council has designated the Queen Street Mall as the retail heart of Brisbane, in his opinion the highest and best use of the site was retailing for the ground floor and the basement with, possibly, a couple of floors of offices above. He pointed out that the Broadway on the Mall development, which took place in about 1990, was a retail complex. The developer, who was unaffected by heritage restrictions (other than preserving a façade in Adelaide Street), put the site to a similar use as the Brisbane Arcade site, and did not construct a commercial tower. Although the T&G building and some others facing the Mall combine office and retail premises, Mr Buchanan said that those buildings had been constructed when Queen Street was a through road, before it was converted to a Mall. The Mall, when created, was targeted as the retail heart of Brisbane. While Mr Buchanan acknowledged that redevelopment of the subject properties was constrained by the heritage legislation, in his view the impact was not as severe as contended for by the appellants because retailing was the use to which the sites are currently put. His view was therefore that the heritage restrictions had limited effect.
While it may be possible under the Brisbane Town Plan to redevelop the sites with a podium and commercial tower block, if there were no heritage restrictions in place, I have accepted Mr Buchanan’s evidence that the highest and best use of the sites is primarily for retailing, with, possibly a limited number of upper floors available for commercial purposes, were the sites able to be redeveloped.
Nevertheless, I have accepted the appellants’ contention that the properties are substantially affected by the heritage restrictions imposed under the Queensland Heritage Act 1992. The effect of the restrictions is set out in some detail earlier in this decision, but in summary, the appellants cannot demolish the building to redevelop the site without permission, which it is unlikely they would obtain. They cannot carry out significant alterations to the building and in particular they cannot reconfigure the shops in any substantial way to accommodate changing retail patterns and tenants’ wishes. They cannot introduce substantial improvements, such as escalators. While the current building reflects an attractive use of the sites, I have come to the conclusion that a prudent purchaser would take into account the full extent of these constraints. In my opinion, these restrictions are substantial and therefore a substantial allowance should be made in determining the unimproved value of the sites.
The most relevant sales for assessing the value of the Queen Street property were the Mathers property and Broadway on the Mall. Mr Buchanan applied the Mathers sale to reach an unimproved value of $8,600,000 which equates to $9,471 per square metre. He said that in valuing the Queen Street property he had not adopted a specific discount figure. Rather, he simply made an allowance for the heritage restrictions and any other factors that might distinguish the two properties. He was not able to say what other matters had been taken into account. He valued the Queen Street property at $8,345 per square metre on 1 October 1998 and $8,125 per square metre on 1 October 1999. He said that the decrease in value for 1999 resulted from a conference between the parties. Although Mr Buchanan did not expressly apply a specific discount, the effect of the valuation is that, as compared with the Mathers property, the 1998 valuation for the Queen Street property is equivalent to a 12% discount, and the 1999 valuation is equivalent to a 14 % discount. These allowances appear to be at the lower end of the spectrum and do not, in my opinion, adequately allow for the heritage restrictions.

Mr Cameron has valued the Queen Street property at $7,003 per square metre for both years which represents a 26% discount on the unimproved value of the Mathers site. That discount was made largely to allow for the burden of the heritage listing.
Mr Buchanan did not include the Broadway on the Mall as part of his sales. Mr Cameron said that the unimproved value determined by Department of Natural Resources and Mines equated to $6,839.13 per square metre. Although the sale is clearly relevant to the valuation of the Brisbane Arcade, it is difficult to apply it directly to each of the subject sites because there was no evidence as to the difference in value between the Queen Street and Adelaide Street ends of the property.
On the basis that the highest and best use of the Queen Street property is retailing, with some possible commercial development, but taking into account the substantial restrictions imposed by the heritage legislation, I have decided that an appropriate allowance for those restrictions is 20% as compared with the Mathers site. I have therefore determined the unimproved value of the Queen Street property to be $7,577 per square metre. On that basis, the total value of the site is $6,902,465 rounded off to $6,902,000. No convincing evidence was adduced to establish that there was any significant difference between the value of the property between 1998 and 1999.
The sales evidence relevant to the Adelaide Street property is difficult to apply. The only sale discussed in any detail was 150 Adelaide Street which has an unimproved capital value of $2,946 per square metre. Both valuers agreed that this site is inferior to the Adelaide Street property. Each then adjusted the value of 150 Adelaide Street upwards, to allow for the differences between the sites.
Mr Buchanan valued the Adelaide Street property at $4,400 per square metre on 1 October 1998 and 1 October 1999. He said that he reached this value by taking into account the relative values for other sites in Adelaide Street. The unimproved value of properties across Adelaide Street from the Brisbane Arcade range from $2,946 for the sale property to $3,450 per square metre for a building closer to Albert Street. The values of the properties on the same side of Adelaide Street as the Brisbane Arcade range from $8,385 for the site on the corner of Adelaide and Albert Streets, to $7,500 for an unidentified property between the corner and the subject site. The value of $4,400 was adopted against the background of those relative values, and taking account of the fact that there is access from the Adelaide Street property to Queen Street through the Queen Street property, and the fact that the Adelaide Street property is heritage listed.
Mr Cameron said that he adopted a value of $3,490 for the Adelaide Street property, by comparison with the sale of 150 Adelaide Street and by analysis of a number of sales of Adelaide Street properties, in the sales schedule to his report, which revealed that most of the unimproved values of properties in Adelaide Street were less than $3,000 per square metre. He also took account of the heritage restrictions and the effect of the creek on the Adelaide Street property.
There was no evidence that the impact of the heritage restrictions differed as between the Queen Street and Adelaide Street properties. I have therefore decided that an allowance of 20% should also be made for the effect of the restrictions on the Adelaide Street property. I have inferred, in the absence of any evidence to the contrary, that Mr Cameron made a similar allowance for the effect of the heritage restrictions in his valuation of the Adelaide Street property as he made for the Queen Street property. Mr Cameron also allowed for the impact of the underground creek. On the basis that Mr Cameron’s valuation of $3,490 per square metre represents a 26% discount for the heritage restrictions, I have calculated that the amount of $3,772 per square metre would allow for a 20% discount. I have determined the unimproved value as $3,772 per square metre or $3,436,292 rounded to $3,436,000 for the whole property. The amount which Mr Cameron allowed for the creek remains largely unaffected in that figure.
For the reasons set out above, the appeals are allowed.
The unimproved value of the Queen Street property is determined at Six Million, Nine Hundred and Two Thousand Dollars ($6,902,000) as at 1 October 1998 and 1 October 1999. The unimproved value of the Adelaide Street property is determined at Three Million, Four Hundred and Thirty-six Thousand Dollars ($3,436,000) as at 1 October 1998 and 1 October 1999.

CAC MacDONALD
MEMBER OF THE LAND COURT