Oakcharm Pty Ltd ATF Walter Hockings Trust, v Chief Executive, Department of Natural Resources and Water
[2008] QLC 50
•22 February 2008
LAND COURT OF QUEENSLAND
CITATION: Oakcharm Pty Ltd ATF Walter Hockings Trust, & Ors v Chief Executive, Department of Natural Resources and Water [2008] QLC 0050 PARTIES: Oakcharm Pty Ltd ATF Walter Hockings Trust, WD & KM Knights ATF WD Knights Family Trust & Warragumgah Pastoral Company P/L ATF JC & ES Knights Family Trust
(appellants)v. Chief Executive, Department of Natural Resources and Water
(respondent)FILE NOS: RV2007/0187 DIVISION: Land Court of Queensland PROCEEDING: Appeal against valuation. DELIVERED ON: 22 February 2008 DELIVERED AT: Brisbane HEARD AT: Bowen MEMBER: Mr RP Scott ORDER: The appeal is dismissed. CATCHWORDS: Valuation – unimproved value – sales evidence preferred to relativities.
Lease under Land Act 1994 – valuation under Valuation of Land Act 1944 – must be valued as freehold – condition prohibiting conversion of tenure not relevant to value.
Lease under Land Act – valuation under Valuation of Land Act 1944 – s.14(5) – limitation on use of leased land – no effect on value – no evidence of higher use than present available use.
APPEARANCES: Mr B. S. Hocking – for the appellants.
Mr G Smith, (Principal Lawyer, Department of Natural Resources and Water) for the respondent.
The appellants hold a Special Lease occupying 2.408 ha of Camp Island which has a total area of 15 ha and which is located north of Bowen and south of Cape Upstart. Pursuant to the provisions of the Valuation of Land Act 1944 and the Land Act 1994 the Chief Executive placed a valuation on the subject land in an amount of $400,000.00 whilst the appellants have appealed against that valuation and contend for a valuation of $200,000.00. The relevant date for valuation was 1 October 2006.
The sole ground of appeal related to the relativity of the Chief Executive's valuation with the statutory valuations of ten properties (the "relativity properties" or similar) referred to in a Valuation Report prepared by Denis Arthur Schy, registered valuer, who was called in support of the appeal. Barry Selwyn Hocking a director of Oakcharm Pty Ltd also gave evidence. Valuation evidence for the Chief Executive was provided by Owen Leslie Eisenmenger a registered valuer.
Camp Island is about 10 kilometres as the crow flies north east of the small town of Guthalungra. The island is situated 3.5 kilometres offshore from the mouth of the Elliott River which is the launching point for boat access to the island. Mr Schy described the seven kilometre formed gravel and earth road from the Bruce Highway to the boat launching site as being a "very basic rough road formation" but not one that causes greater discomfort to passengers in a 4wd vehicle than would otherwise be expected. The access road is prone to being cut or inundated during periods of prolonged rainfall or when the Elliott River is in flood, though I was not provided with an estimate of the frequency of such events. Anchorage at the island is available off a steel pontoon which is built on a tidal lagoon with safe anchorage being obtained during a two to three hour window during high tides. The mooring is exposed to south westerly winds. The island comprises a low sandy spit in the south west fronting a shallow bay lined with mangroves and rises through easy red soil slopes to a small baulderstone hill in the north east. The subject lease is located on the southern part of the island just above the high water mark and extends inland for some distance. That part of the island not covered by the lease is designated National Park.
Mr Hocking described the subject lease in less than glowing terms referring to its poor access, the unavailability of fresh water and the fact that the subject land is exposed to southerlies. Visible from the subject land is the unattractive Abbott Point coal loading facility. The island is not proximate to any major township nor is it located in an island group. Mr Schy described it as a "single, isolated closed in island". There is no beach on the Special Lease which has a rocky, stony frontage. There is no coral reef attraction nearby.
The Special Lease is held under the provisions of the Land Act 1994. A condition of that lease provides that "the lessee must use the leased land for tourism purposes namely limited resort-limited in this instance being defined by a maximum of eight (8) paying guests at any one time." Improvements on the island include a three bedroom caretakers cottage, machine and maintenance shed, full sized tennis court with artificial playing surface, in-ground swimming pool and a tourist complex comprising four double bedroom bungalows with ensuite, kitchen, lounge and dining room. All buildings in the tourist complex are linked by covered walkways.
Both valuers valued the subject land on the basis of its highest and best use being the use permitted in the above mentioned lease conditions. Mr Schy said that he could find no suitable sales evidence to support his valuation. He was aware of the sale of the subject property in 2003 but elected to not rely on that transaction. Neither did Mr Eisenmenger who said that there was a substantial difference in the market between 2003 and the relevant date for valuation in 2006. Mr Schy referred to ten relativity properties located on coastal islands. He explained that his initial instructions had led him to understand that the subject Special Lease was limited to a single residential use only. Comparisons between the subject property and each of his relativity properties were carried out on that basis and remain so expressed in the valuation report tendered. Mr Schy later became aware of the actual use conditions in the Special Lease permitting tourism usage. He said that his $200,000 valuation figure was based on that understanding and expressed the view that there not a lot of difference between a residential use and the available tourist usage. Mr Eisenmenger said that permission to use the leased land for tourism purposes added scope to the alternative use for single residential purposes. That seems to be the case given the improvements erected on the land.
As I read Mr Schy's valuation report the relativities referred to by him included some with 2002 valuation dates which for some unexplained reason had not been increased to higher figures as at 1 October 2006. Some of the relativity valuations referred to by Mr Schy were apparently made having regard to a Memorandum of Understanding between the respondent Chief Executive and the Association of Marine Park Tourism Operators (AMPTO) under which increases in statutory valuations were undertaken by reference to an agreed formula. The resultant valuation is not an expression of opinion of unimproved value. The relativity between statutory valuations of the properties referred to by Mr Schy are consequently distorted. Similar evidence was placed before this Court in St Columb Ltd v Department of Natural Resources and Water [2006] QLC 0067 where at [30] the learned Member acknowledged the inappropriateness of having regard to statutory valuations struck having regard to the AMPTO Memorandum of Understanding. I concur in that view.
Mr Schy expressed the view that there was, in the case of relativity properties not subject to the AMPTO Memorandum of Understanding "a conflict in the relativity". Nevertheless he said that the statutory valuations of non-AMPTO island properties strengthened his opinion as to the valuation relativity of the subject property. In that respect he referred specifically to four properties.
A parcel of land comprising 9.41 ha of "freehold issuing" on Turtle Island was valued for statutory purposes at $450,000 at a 2004 valuation date. Mr Schy said that whilst the relativity land is currently used for residential purposes superior tenure would allow an application for a higher use. I have no evidence as to the method of valuation and the basis upon which the valuation of the relativity property was settled by the Chief Executive; however, having regard its residential usage it appears to me that the property was probably valued under the restrictive conditions of s.17 of the Valuation of Land Act which excludes consideration being paid to higher uses than the current residential use. On that basis the land would have been inferior to the subject for valuation purposes in 2004.
Leasehold land on Pumpkin Island with a 6.07 ha was, according to Mr Schy, valued by the Chief Executive as at a relevant date of 1 October 2006 in the amount of $367,500. Mr Eisenmenger said that the valuation was actually $410,000. According to Mr Schy the Pumpkin Island land is superior to the subject in terms of the permitted use conditions and in access and location. No evidence was placed before me as to the basis or method of the statutory valuation.
An area of 3.12 ha of leasehold land on Orpheus Island was valued by the Chief Executive at $910,000 as at a relevant date of 2005 though the valuation had not changed since a valuation date in 2002. Mr Schy said that the lease conditions on the relativity property permit tourist development not inhibited in the manner found on the subject property. Again, no basis, or method of valuation of the Orpheus Island land was provided in evidence.
On Bedarra Island there are two freehold sites upon which valuations of $940,000 and $880,000 respectively were determined as at 2004. Whilst Mr Schy referred to this evidence as being non-AMPTO affected that was disputed by Mr Eisenmenger. No basis or method of valuation were provided with respect to these two properties.
In his valuation Mr Schy took into account some conditions of the subject Special Lease which he considered to be restrictive in nature. These included the condition limiting the use to tourism purposes described at [4]; a condition providing that no further structural improvements could be effected and a provision excluding conversion of the Special Lease to higher order tenure including freehold.
Mr Schy said that the effect of these lease conditions was to limit the use of the subject land to its present available use and that it could not therefore be put to higher order tourism uses including the development and sale of apartments. He took that into account in his valuation. That reasoning confronts three difficulties in my view. First, the Valuation of Land Act requires the land to be valued as if it were freehold (s.15(1) and s.14(1)). Second, s.14(2) of the Act provides:
"In deciding the unimproved value of land held under a lease from the State that is subject to a restriction, limitation or other onerous covenant or condition, the chief executive must not take into account the restriction, limitation, covenant or condition."
It follows that the prohibition on conversion of the Special Lease to a higher tenure may not be taken into account in the valuation process.
Before turning to the third difficulty I need to quote further from s.14 of the Valuation of Land Act
"(5) In making, under this part, the valuation of the unimproved value of any land—
(a)…
(b)in a lease, licence, permit or permission to occupy under the Land Act 1994 or granted or issued by the coordinator-general or the chief executive of the department responsible for the administration of the Forestry Act 1959; or
(c)…
(d)…
(e)…
the unimproved value of that land shall be determined having regard to and making proper allowance for any restriction or limitation of use having regard to the purpose and conditions to which that permit, lease, licence permission to occupy, agreement or determination is subject." (my emphasis)
On the basis of this provision, any limitation on use that has the effect of reducing the value of the land as if it was freehold is to be allowed for. In the case of the subject land there is no such effect in my view. It is quite clear from the description of the land by both parties that it does not lend itself to any higher order mainstream tourist development than is presently permitted on the land. That was the view put by Mr Eisenmenger – a view not challenged by Mr Hocking. Mr Schy made general reference to more sophisticated tourism developments but without the support of any market evidence as to such developments being realistic prospects in the case of the subject land.
He said that if the subject land was freehold its value would be $400,000 a figure which he candidly said he had adopted from Mr Eisenmenger's valuation.
Mr Eisenmenger's valuation was based on a mainland sale located at Cape Upstart which sold for $225,000 and another mainland sale located at nearby Flagstaff Bay which sold for $130,000. He also referred to a sale at Avoid Island. Mr Eisenmenger said that he selected the mainland sales properties on the basis that they were isolated sites being accessible only by boat and therefore exhibited a characteristic significant in the valuation of the subject property. Mr Eisenmenger preferred these sales to similar island sales in a different locality. Mr Schy considered that "it might be reasonable" to utilise sales at Cape Upstart.
Each of the mainland sales is a freehold residential property not able to be used for tourism purposes and therefore is inferior in that regard to the subject land. In his comparison approach he compared the sales with the subject on a site basis not a rate per hectare. That approach was not challenged by the appellant. I accept Mr Eisenmenger's evidence that the subject property treated as freehold in accordance with the Act is superior to each of these mainland sales.
The third sale in Mr Eisenmenger's valuation is a term lease on Avoid Island, an island which is part of the Flat Isles group. Avoid Island is more remotely located than Camp Island. A condition of the lease of the Avoid Island property limits the use of the land to private residential purposes, a use inferior to that permitted on the subject property. Whilst the sale property has an area of 63.5 ha compared with the 2.4 ha on the subject land the subject has the advantage of being located within a larger natural environment. I accept Mr Eisenmenger's view that his Sale 3 property is overall superior to the subject and that his valuation of the subject property at $400,000 is well supported by the $570,000 analysed value of the sale property.
In response to Mr Eisenmenger's reference to the two properties in the Cape Upstart area Mr Schy referred to two parcels of land that had sold for $40,000 and $45,000 respectively in 2006 and 2007 and an improved sale in the same area. Mr Eisenmenger indicated awareness of the sales properties. He said that the two parcels of land were of Special Lease tenure when sold, with the prospect of lease renewal being uncertain. The relevant land in each case is substantially inferior to the sales referred to in Mr Eisenmenger's valuation. No meaningful analysis of either of these sales or the improved sale was provided in evidence, or a comparison between these properties and the subject land.
Mr Schy proceeded on the assumption that the statutory valuations he relied upon are correct until proven otherwise. It appears as though in making that assumption he placed reliance on s.33 of the Act:
"33 Status of Valuation
Any and every valuation, or alteration of the valuation, of any land made, or purporting to be made, under this Act by the chief executive shall be deemed to be correct until proved otherwise upon objection or appeal or until altered or further altered."
It seems to me that the purpose of s.33 is quite narrow. For example, it ensures that in a case where a party is using a relativity argument that party may not adjust any statutory value because he happens to disagree with it. It also protects a landholder against arbitrary alteration of a valuation. It is not a provision which has the effect contended for by Mr Schy.
The position regarding the use of relativities in cases such as the present was considered by the Land Appeal Court in Grahn v Valuer-General [1992] 14 QLCR 327 where at 328 the Court recorded these propositions with approval:
"(a) It is desirable that valuations made for the purposes of the Valuation of Land Act 1944 of comparable lands should bear proper relativity, one to the other, so long as the valuations are soundly based. It is, however, untenable to adopt a value for one parcel on relativity with another which has no sound basis. (R and MM Barnwell v The Valuer-General (1989) 13 QLCR 13, at p. 16 and cases cited in it."
(e) Whilst maintenance of correct relativity is of considerable importance for rating valuations, the use of the principle of relativity should not be preferred to the exclusion of relevant (even if not ideal) sales evidence (WMand TJ Fischer v the Valuer-General (1983) 9 QLCR 44, at p.46."
The importance of sales evidence in valuation cases as against the relativity between statutory valuations was stressed by Land Appeal Court in Clough v Valuer-General[1]
"It has been judicially laid down many times and in many jurisdictions that in ascertaining unimproved value, sales of unimproved land of comparable quality, situation, etc., to the subject parcel, if they are available, are to be preferred as the best guide for arriving at unimproved value. The reason is obvious. In applying such sales there is no room for error in analyzing the value of improvements."
[1] (1981) 8 QLCR 70 at 76.
Whilst the sales evidence referred to by Mr Eisenmenger and relied upon him in striking his valuation were, in the case of the two mainland sales, imperfect bases for the purpose of valuing the subject property, they, together with his third sale comprised the best evidence of valuation placed before me, in my opinion. I have not been convinced by the reference to relativity properties in Mr Schy's valuation that the Chief Executive's valuation is wrong or was based on a misapprehension of law or fact. Accordingly, that valuation is affirmed and the appeal is dismissed.
RP SCOTT
MEMBER OF THE LAND COURT
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