Menkens & Spry v Chief Executive, Department of Natural Resources and Mines

LAND COURT

BRISBANE

8 MARCH 2002

Re: Appeals against Annual Valuations

Valuation of Land Act 1944
Property ID:   5121135 (AV2000/0461)
  5120826 (AV2000/0464)
  Local Government:    Townsville

Michael G and Patricia Menkens (AV2000/0461)

Charles C Spry (AV2000/0464)
v.

Chief Executive, Department of Natural Resources and Mines

(Hearing at Townsville)

J U D G M E N T

Pursuant to the provisions of the Valuation of Land Act 1944 the Chief Executive made valuations with respect to two properties that are the subject of these reasons. The two properties are located in a similar area in the City of Townsville, are owed by different owners who appealed against the valuations of the Chief Executive, but with the consent of the parties, the appeals were heard concurrently. The Chief Executive placed a valuation of $390,000 on the property owned by Michael George and Patricia Menkens. In their Notice of Appeal the appellants provided an estimate of value in the amount of $200,000, but before me led evidence to a figure of $285,000.
The other property the subject of dispute is owned by Charles Courtney Spry and was valued by the Chief Executive at $400,000. Mr Spry provided an estimate of value in the amount of $250,000 in his Notice of Appeal, however led evidence to a value of $275,000.
Both valuations of the Chief Executive were carried out as at a relevant date of 1 October 1999. Robert Arthur Noakes, a registered valuer, was called by the Chief Executive to provide valuation evidence, whilst Lachlan Bell, also a registered valuer, gave valuation evidence on behalf of the appellants. I inspected all of the sales properties included in the two valuation reports as well as both of the subject properties.
The grounds of appeal in each matter were expressed in similar terms as follows:
"We disagree with the valuation amount based on the most relevant sales as at the date of valuation, which is also supported by recent sales evidence. No consideration has been given to the physical features of the land. We wish to submit a valuation report to support our assessment of valuation, which will be provided when our appeal is heard."

What I will refer to as the Menkens' property is located at 11 Cleveland Terrace, Townsville, in a prestige inner-city location known as Melton Hill. The subject property comprises Lots 1 and 2 on Survey Plan 108173, having a total area of 1,349 m². The land is situated on the northern side of Cleveland Terrace and has what I will call rear frontage to the southern side of Fryer Street. The land is slightly irregular in shape and falls steeply from Cleveland Terrace to Fryer Street. The site is heavily retained along its western and northern boundaries and has a dwelling constructed at the Cleveland Terrace frontage. Access to the Menkens' property from Cleveland Terrace is easy and direct, whilst there is no constructed frontage to Fryer Street. Elevated views to Cleveland Bay and beyond are available from the higher parts of the land. The land is in close proximity to the Townsville Central Business District (CBD), to the ocean foreshore and to the Casino and Marina areas.
The Spry property has an address of 27 The Strand, Townsville City, however frontage to that street is a cliff face. The property also enjoys frontage to Carter Street, which provides practical and easy access to the land off Cleveland Terrace. The land is described as Lot 2 on Registered Plan 701800 and has an area of 797 m². It is located some lots removed to the east of the Menkens' property, therefore enjoys similar proximity to CBD facilities and the foreshore. The land falls from the Carter Street frontage to form an even building pad, which is heavily retained along its western and northern boundaries. The land has an easterly aspect and enjoys elevated views to Cleveland Bay and beyond.
Each of the subject properties is zoned "Residential 3" under the applicable Town Plan. That zoning allows the development of a multiple residential unit building. Pursuant to the provisions of s.17 of the Valuation of Land Act, however, both valuers purported to value each subject property as "a single dwelling house"; that is, as used.
In his valuation report Mr Bell wrote, "Melton Hill is an inner City residential area, which is one of the most historic parts of the City of Townsville. The area was part of the original settlement and retains much of its physical development. Development within Melton Hill comprises generally one and two storey detached dwellings including several houses listed on the State and National Estate Heritage Register." In addition to the dwellings found on Melton Hill there are three and four-storey apartment buildings dotted throughout the area, many being old and unattractive in appearance, whilst there are some newer structures which are more pleasing to the eye but, nevertheless, have the effect of increasing the resident population and traffic in the area.
In each of his valuations Mr Noakes included a schedule of 28 sales, however selected three of these as being the most suitable to rely on for valuation purposes, in his opinion. These sales were numbered 5, 6 and 7 respectively. Sale 7 comprised the purchase of the Menkens' property by the appellants in that matter, that purchase taking place on 12 November 1996 for a price of $390,000. At the time of purchase the sale land was improved with an old building used at the time as flats. There was also a detached garage. Some time after settlement of the transaction the structures were removed and in consideration of this Mr Noakes attributed a value of Nil to them. He said that he spoke to the person who had removed the flats building and was told that no money had been paid for the structure. Mr Noakes also spoke to the vendor who told him that the flats building was in "fairly poor condition".
Mr Bell said that he had been advised by Mr Menkens that the structure was retained for a period of about five months following settlement and was rented out, though in Mr Bell's opinion the rental received was not significant for valuation purposes. Following conclusion of that period the main building was then sold for a price of $35,000 for removal and was then cut into two and removed to Ingham by semi-trailer. No money changed hands in the sale of the structure, however, as part of a "contra deal" the purchaser of the old building carried out site works on the Menkens' property. I do not know the fate of the garage.
Mr Bell said that there was fill and retaining walls on the sale land which were utilised in the construction of the new house built on the land by the appellants. Mr Noakes had made no allowance for such improvements in his consideration of the sale transaction, apparently on the basis that he understood that there were no such improvements on the land. During cross-examination, however, he appeared to concede that there was some retained fill there.
Mr Bell consulted John Dow of the firm Colonial Restorations Pty Ltd, the firm involved in the construction of the new dwelling on the Menkens' property. Received into evidence was a statement by Mr Dow, tendered without objection, stating that the retaining walls and fill on the property had a value as part of the redevelopment of the property of between $80,000 and $90,000. Whilst the term "value" was employed by Mr Dow, I do not accept his estimation as comprising a value which accords with the provisions of s.5 of the Valuation of Land Act which requires such improvements to be valued on the basis of "the added value which the improvements give to the land". I do accept, however, that the expression of opinion by Mr Dow can be taken as an indication of the substantial nature of the relevant improvements. It is therefore clear to me that Mr Noakes' analysis of the Sale 7 transaction was carried out without full knowledge of the relevant facts and therefore that transaction, as presented by him, cannot be accepted as a basis of valuation either for the Menkens' property of the Spry property. There were two other difficulties associated with reliance on this sale.
First, I notice that the transaction involves the purchase of two lots. Construction was carried out on the higher lot. Whilst the lower lot facing Fryer Street is steep and has no formal access, there was no suggestion in the evidence that access could not be provided. The appellant has attempted to sell the lower land but with no success at this time. Whilst I have no evidence as to the value of this lower land, it is clear to me that it could be sold at a price and that this would have been obvious to the vendor and the purchaser at the time that Sale 7 took place. The Chief Executive and the appellant have approached their task on the basis that the Menkens' property is to be valued as "a single dwelling house" in accordance with s.17 of the Act and any enhancement in value arising from the value of the second and lower lot viewed independently of its use as part of the single dwelling is to be disregarded. Whether and how Mr Noakes disregarded this aspect is not apparent on the face of his valuation.
The second issue relevant to the Sale 7 transaction and also to Sales 5 and 6 in Mr Noakes' valuation is whether the land had at the time of its purchase potential for development as multiple residential units and whether the price paid therefore reflected a higher use than as a single dwelling. Mr Bell said that the Menkens' land could accommodate six to eight units and the Spry land four to five units. I will return to this issue later.
Sale 6 in Mr Noakes' valuation comprises the purchase of the Spry land by the appellant for $415,000 on 21 December 1995. In his valuation Mr Noakes allowed $5,000 for improvements on the land, which I understood was a provision for a residence on the sale land at the time of purchase. On that basis the sale would analyse to an unimproved figure of $410,000, however Mr Noakes said that, given some uncertainty with respect to improvements, he had decided to apply a value of $400,000 only. As to whether the uncertainty related to the value that ought to apply to the dwelling structure or to other improvements on the Spry land, was not made clear.
Mr Bell said that both the Sale 6 transaction and that of the purchase by the Menkens took place at dates that were too far removed from the relevant date for valuation purposes to be reliable. Mr Noakes' evidence was, however, that, if anything, the market had improved since the dates of these sales and that, therefore, for present purposes the appellants were not disadvantaged. I accept that view.
Mr Bell gave evidence that the sale price in the case of Sale 6 included a substantial element for improvements which he said he had inspected. He consulted Bruce Barrett, the architect commissioned to develop the new residence now on the Spry land and obtained from him a statement which was received into evidence without objection. That statement said:
"1.The new construction work on the residence utilised existing site works as a platform for new residence.
·Side and front boundary retaining walls/fill used as site pad
·Basement excavation to form new basement level/including vehicle access side
·Existing side wall and some footings reused
·Driveway retained as parking area
·Landscaping elements incorporated into new design
2.The value of existing site work retained for new work would have value of $95,000."

This evidence shows quite clearly that there were substantial improvements on the Spry property at the time of purchase and that a prudent and fully informed purchaser in the marketplace would have identified a value in those improvements in purchasing the land. I had the advantage of inspecting the Spry land and this inspection allowed me to form a good appreciation of the description of improvements included in Mr Barrett's statement. Mr Noakes, on the other hand, conceded that he had not gone onto the Strand frontage of the Spry property where some of these items of improvement could be seen. He had spoken to Mr Spry and said that he was told that whilst the Sprys intended to reside in the house on the land for 12 months following purchase, Mr Spry thought the house to be quite old and of little value. Whilst the appellant's side questioned whether Mr Noakes' recollection of his conversation with Mr Spry accurately reflected the views of the appellant, it matters little. The objective evidence is that apart from the house structure which appears to have had little value, although it was occupied for over 12 months following settlement, there were improvements of substantial value. Again, I do not accept the Barrett statement as an opinion which accords with s.5 of the Act, but it does evidence improvements of real and substantial value that ought to have been taken into account in an analysis of the sale transaction.
Mr Noakes' Sale 5 involved the sale of two adjoining Lots 3 and 4 on T118269 on 20 January 1997 for a price of $280,000. The purchaser was named Cassimatis and throughout the hearing the sale was identified with that name. The property is located at 5 Melton Terrace on the southern side of Melton Hill and comprises two lots with the rear battleaxe block being the higher. The sale land is located above street level with a steep fall to the street. Since purchase the land has been developed with a house which affords commanding views of the CBD, the harbour and Cleveland Bay, as well as rural areas. Its views differ from each of the subject properties with the evidence, on balance, indicating that it has superior views. The sale land is located on a street that appears to carry less traffic than Cleveland Terrace, though the land is very steep, making it difficult to construct a dwelling on it and to provide internal access to it. In contrast with the Menkens' property, where the higher land abuts the access from Cleveland Terrace, the Cassimatis land requires construction of internal access in order that a house may be constructed on the rear part of the land. I observe, however, that it is apparent that the sale land could have been developed as two separate dwelling sites given that it comprised two separate lots each with legal access.
If the sale land were to be viewed as a single residential site, Mr Bell considered the sale to generally support the values that he had placed on the properties the subject of these appeals, though said that the Chief Executive value on the sale land at $290,000 appears to be high.
Under the applicable "Residential 3" zoning the Cassimatis land could be developed for units. Mr Bell said that there could be a structure of six storeys on the rear or higher lot and three on the front lot, yielding overall about five to 10 units. Melton Terrace is a narrow one-way street without kerbing and channelling nor a constructed footpath. There would be a need for roadworks if a multiple unit development were to proceed on the land. There would be additional costs because of the need to construct internal access and parking on the land, in addition to the costs associated with the unit building structure. I conclude that whilst the cost of building home units would have been high, the resultant units would have occupied a prominent site with excellent views and ready access to the CBD, The Strand and the Casino area. These aspects would influence the sale price of such units. Mr Noakes suggested that the cost of development would outstrip the returns, however that was not a view expressed by Mr Bell.
The Cassimatis property was presented as a sale in an appeal heard by the President, whose judgment was published on 12 December 1997. The case involved appeals by two landowners, Lyons and Roberts v. Chief Executive, Department of Natural Resources (AV96-579 and V96-791). The case went on appeal to the Land Appeal Court, but not with respect to the issue concerning this sale property.
In his reasons the President referred to the Cassimatis sale (identified in that case as Sale G) and said:
"Sale G is zoned 'Residential 3', and while it seems that it may have been purchased with the intention of constructing a single dwelling house, it is common ground that with Council approval it could be developed for units. The sale price of $280,000 would reflect that potential, rather than its value as a single dwelling house site."

Later in his reasons the President said:

"I will disregard Sale G, as I accept Mr Eales' evidence that the price paid was in conformity with its potential for unit development. It is therefore suspect for the purposes of comparison with the subject properties, which must be valued under s.17 of the Act as single dwelling house sites."

Whilst that finding of fact is not binding on me, it is a conclusion that ought to be accorded due respect. It raises a question as to whether there is additional evidence that may allow a different conclusion to be drawn. Evidence, which it was suggested would lead to a different conclusion, was presented from the Chief Executive's side and included two points.
First, Mr Noakes expressed the view that in the Melton Hill area the single residential value would exceed the multiple unit value. Whilst that proposition was not put directly to Mr Bell, the tenor of his evidence was to the contrary. I would think that it would generally be the case that the value of land suited to multiple unit development would exceed its value for single dwelling development and that any party asserting that this was not the case ought to adduce convincing evidence in that respect. Mr Noakes said that his conclusion on the question was based on his analysis of the market, however, his analysis really came down to one point and that is the second point raised by the Chief Executive with regard to this issue.
It was Mr Noakes' contention that developers of units much prefer flatter sites, that is sites that are flatter than the Cassimatis sale. He referred to two sales, one at 23 Willmett Street: 1,821 m², sold on 19 July 1997 for $377,500; and one at 18 The Strand, 2,752 m² which sold on 6 September 1999 for $550,000. Whilst the Willmett Street property is high on Melton Hill and reasonably flat, the property at 18 The Strand has some steep land towards its rear. The Strand property has since been developed as home units, with the steeper land being utilised for penthouse construction. Mr Bell referred to a development carried out three or four years prior to the relevant valuation date, that development being located towards the top of Cleveland Terrace where, in his view, the land was as steep as the Menkens site and, as I understand it, would probably be as steep as the Cassimatis site. I inspected this land during the course of inspecting each subject and all of the sales properties.
Units have been developed on Melton Hill in a range of locations over the years, some old and some new. It is quite clearly an identified home unit area. I am not convinced on the evidence provided that developers would exclude a particular site such as the Cassimatis site from consideration as a site with potential for unit development. There would be a range of criteria that would be taken into account in the selection of a unit site. The fact of the selection of some less steep sites than the Cassimatis site, for example, does not lead to a conclusion that all steep sites should be rejected.
I prefer to adopt a similar position to that of the President in the case of Lyons and Roberts v. Chief Executive, Department of Natural Resources (supra). Having said that, I would add that even if the Cassimatis sale was to be viewed as a single dwelling sale, I cannot see that it supports the level of values placed on the subject properties by Mr Noakes. I also conclude that both of the subject sales would be unsafe bases because of the apparent potential in those properties for unit development.

Before I come to Mr Bell's valuations I will dispose of one matter. A valuation prepared by Mr Bell with respect to the Menkens' land dated 23 March 1998 was produced under subpoena. At the time of that valuation the Menkens' property comprised Lots 1 and 2 on RP 713161 with Lot 1 fronting Cleveland Terrace and having an area of 693 m². That valuation was of Lot 1 only and was carried out for mortgage purposes. Mr Bell placed a value of $1,150,000 on the land together with improvements. He wrote also that "an appropriate apportionment of this value was considered to be:
Land $275,000
Building and allotment improvements $875,000

Total $1,150,000 "

Elsewhere in this valuation report Mr Bell said that "allotment improvements" include fencing, concrete driveway and proposed landscaping and terracing. There is no mention of fill and retaining walls under that heading. Mr Bell said that those improvements were considered by him in the valuation to be part of his land apportionment. The figure of $275,000 then is a figure that included site improvements other than those described as "allotment improvements". Were that figure to be analysed to an unimproved figure, Mr Bell's valuation at that time would have come to something less than $275,000, as I understand it.
Since that valuation was carried out the two lots which were in existence at that time had been reconfigured into the present lots with the present Lot 1 now having an area of 737 m². Whilst the 1998 valuation involved the valuing of part of the present Menkens' land only, it is important that I observe that under the provisions of s.17 of the Valuation of Land Act the additional lot must be viewed not as a separate lot, but as additional land, giving the subject land larger size for single dwelling use purposes only. For a residence constructed on the present subject land in the most probable location, that is at the top of the land fronting Cleveland Terrace, the additional land, which is the lower steep land would, for the purpose of a dwelling, be of limited utility.
Mr Bell's 1998 valuation is of no assistance to me in the present matters. Moreover, it does not demonstrate that Mr Bell's present opinion as to the value that ought to apply to the Menkens' property is inconsistent with his earlier opinion.
In his valuation reports Mr Bell included as his Sale 3 a transaction involving the sale of a property at 10 Stanton Terrace, North Ward. The sale took place in March 1999 for a price of $220,000. The sale land has an area of 1,012 m² and, according to Mr Bell, was purchased for the development of multiple units. He said that the proposal was abandoned due to the difficulties raised by the topography and slope of the land. The property resold with the new purchaser developing a single dwelling house there. This Sale 3 is a secondary basis in Mr Bell's valuation. Inclusion of the sale was seized upon by the respondent as demonstrating that zoning for home units does not create that highest and best use which is dependent upon a range of other considerations. Quite so. In the case of this sale, however, we have a purchaser for unit development, according to the evidence, who paid a price based on that potential which, in due course, was discovered to be impractical. That is a quite different proposition from the Cassimatis sale where the evidence is not that development of home units on the site was proved to be impractical, but that Mr Noakes deduced that it is.
The other two properties included in Mr Bell's valuation were at Arundel Court on Castle Hill in an area known as Yarrawonga. Sale 1 is at 5 Arundel Court, has an area of 888 m² and sold in September 1999 for $275,000. It is an irregularly shaped corner allotment, but has 270-degree views to Cleveland Bay, Magnetic Island and the Port. Mr Bell describes the land as "one of the premier residential allotments in Townsville". The development of the property at 4 Arundel Court, which is Mr Bell's Sale 2, has impinged somewhat on the ground level views from the property at 5 Arundel Court, however, the broader panoramic views are still available. In Mr Bell's opinion the Sale 1 property is comparable with the Menkens' property, being smaller in area, with similar views, similar access, though slightly further from the city and will a less steep topography. The sale land is slightly larger in area than the Spry property, though has similar access and views to that property and is slightly further from the inner city. In the result, Mr Bell thought the Sale 1 to be comparable with the Spry property.
Mr Bell's Sale 2 is at 4 Arundel Court, Castle Hill, has an area of 1,239 m² and sold in April 1998 for $287,500. The sale property enjoys similar views to that of Sale 1. Mr Bell concluded that the Sale 2 property was comparable with the Menkens' property, being similar in area, having more panoramic views, similar access and being slightly further from the inner city. Whilst in his valuation report he said that the sale land had a similar building contour to the Menkens' property, he said orally that the sale property is not as steep. In his comparison with the Spry property he concluded that the properties are comparable in that the Sale 2 property is significantly larger in area, has more panoramic views, similar access, is slightly further from the city but has inferior building contour.
Mr Noakes included these two sales in his valuation report as secondary evidence. He is of the view, however, that residential sites on Melton Hill are more prestigious than those at Yarrawonga. By this I understand him to mean that residential values at Melton Hill would be greater than at Yarrawonga. To a large extent choice of location is a matter of personal choice, the question of prestige being answered by reference to sale prices rather than to some unexplained perception. Mr Noakes appears to have recognised that proposition and in so doing pointed to the Cassimatis sale as the answer and to both subject sales. I have already indicated why none of these sales, as analysed and presented to me, can reliably be utilised in drawing valuation conclusions. In the absence of strong evidence to the contrary, it is difficult to conclude that single dwelling land on Melton Hill ought to be valued at figures up to $125,000 higher than at Yarrawonga. Nevertheless, it seems to me that dwelling sites at Melton Hill do have advantages over the Yarrawonga properties.
Melton Hill has the disadvantage of older style units mixed with single dwellings and with the prospect of more units of modern design being developed. People sometimes use Cleveland Terrace as a shortcut to the Casino and to the Townsville foreshore. These are clear disadvantages. The proximity of the subject properties to the CBD, the foreshore and the Casino and marina area and the identification of Melton Hill as a geographically discrete precinct do, however, imbue the land with an ambience that Yarrawonga has yet to acquire. I think that in his comparisons Mr Bell placed too much emphasis on the views from the sale lots which are more expansive than from either subject property. I therefore conclude that the values of the subject properties ought to be higher than the values adopted by him. I also think that the relativity in values between the two subject properties ought to be as adopted by the Chief Executive and by the appellants in their Notices of Appeal. The Spry property has the advantage of superior views to the Menkens' property, is a slightly easier site for building purposes and is located partly away from Cleveland Terrace and well above The Strand, which is another source of noise. Some of these aspects of advantage would be offset by the smaller size of the Spry property and I take that into account in my conclusion. The Spry property is subject to a light and air easement which has the effect of precluding such development on an area of 161 m² of the property as would inhibit the view from a neighbouring property. There was a suggestion from the appellants' side that this easement was a disadvantage to the property. I do not think that this argument was made out. The Spry property appears to have been quite adequately developed with an attractive and substantial residence. The appellant also raised as an issue the prospect of the views from the Spry land being built out. I have considered that evidence and conclude that the risk of that occurring is not a real one.
I conclude that the value of the Menkens' property is Three Hundred and Twenty Thousand Dollars ($320,000) and that of the Spry property is Three Hundred and Thirty Thousand Dollars ($330,000). I therefore allow both appeals and determine the values accordingly.

RP SCOTT
MEMBER OF THE LAND COURT

[2002] QLC 22

8 March 2002