Phillips v Department of Natural Resources and Water
[2007] QLC 8
•27 February 2007
LAND COURT OF QUEENSLAND
CITATION: Phillips v Department of Natural Resources and Water [2007] QLC 0008 PARTIES: Kenneth George Phillips
(appellant)v. Chief Executive, Department of Natural Resources and Water
(respondent)FILE NO.: AV2005/0594 DIVISION: Land Court of Queensland PROCEEDING: Appeal against an annual valuation under the Valuation of Land Act 1944 DELIVERED ON: 27 February 2007 DELIVERED AT: Brisbane HEARD AT: Coolangatta MEMBER Mrs CAC MacDonald ORDER: 1. The appeal is dismissed.
2. The unimproved value of Lot 347 on RP 92799, County of Ward, Parish of Tallebudgera is affirmed at Two Hundred and Ninety-Five Thousand Dollars ($295,000) as at 1 October 2004.
CATCHWORDS: Valuation – unimproved value – correct methodology – analysis of improved sales – comparison of unimproved values – change in attributes of land after relevant date – whether change to be considered. APPEARANCES: Mr KG Phillips on his own behalf
Mr W Isdale of Crown Law for the respondent
Kenneth George Phillips is the owner of property situated at 91 Crest Drive, Currumbin, Gold Coast. Mr Phillips has appealed against a determination by the respondent, pursuant to the Valuation of Land Act 1944, of the unimproved value of the land. The unimproved value of the land was assessed at $295,000 as at 1 October 2004. Mr Phillips estimated its value to be $260,000.
The property is a fan shaped allotment of 817 square metres with a steep slope of a 1:5 gradient from the frontage to the rear. The footpath outside the property also slopes down from the road level with the result that the house is not well displayed from the roadway. The steepness of the site lead to increased construction costs of the improvements on the land which included a three metre retaining wall and terracing. Approximately 390 square metres of the land is unusable because of the steep slope. It was therefore necessary for the appellant to obtain Council permission to reduce the setback of the house from the front boundary of the property. The land is designated Detached Dwelling under the Gold Coast City Planning Scheme 2003 and a single unit dwelling has been constructed on the site. The property backs on to the Currumbin Bird Sanctuary and had restricted ocean glimpses through dense foliage.
Mr Phillips conducted his own case and gave evidence in support of his appeal. Mr Phillips is a retired registered builder and qualified quantity surveyor who has considerable experience in buying and selling land on the Gold Coast for over 25 years.
Mr Phillips challenged the valuation on a number of grounds which are considered in detail below. In general terms, the Notice of Appeal referred to the defects in the valuation system adopted by the respondent, the history of the valuation increases of the subject property, the municipal rates payable in respect of the property, the appellant's justification for his estimate of the unimproved value of the land, a description of his property and some final comments.
Evidence was given on behalf of the respondent by Ms HJ Wilson, who is a senior valuer in the State Valuation Service. Ms Wilson was the valuer responsible for the valuation under appeal. She said that she had valued the subject by the comparable sales method, that is by direct comparison of the subject land with sales of three lightly improved properties. She had also examined the market as a whole as at the date of valuation and analysed numerous other vacant land sales. Details of those other sales were not included in her report.
Ms Wilson analysed each sale by deducting the value of the improvements on that property from the sale price to reach the analysed unimproved value of that property. She then applied a value to that property to determine its unimproved value as at 1 October 2004. The relevant details are -
Property Sale Price Value/ Analysed Applied
Improvements Unimproved Value 1/10/04
Sale 1 $356,000 $3,000 $353,000 $320,000
Sale 2 $215,000 $3,000 $212,000 $160,000
Sale 3 $220,000 $3,000 $217,000 $185,000
Ms Wilson said that she had originally applied an unimproved value of $330,000 to the subject land as at 1 October 2004. However, there had been landslips in the Currumbin Hill area in June 2005 and although the subject was not directly affected, a decision had been made to reduce the value of the subject by 10% because it was considered that the value of properties in the area had been adversely affected by the landslips. Although the landslips had occurred after the date of valuation, the reduction was given, Ms Wilson said, because the valuation did not come into effect until 30 June 2005.
Mr Phillips submitted that because the landslips had occurred after the date of valuation, their effect should not be taken into account.
In Daandine Pastoral Company Pty Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299, Williams J said (at 304) that -
"Values must be calculated in the light of circumstances which existed on the material date, … but subsequent events can be taken into account in order to determine the proper weight to attach to such circumstances."
It appears that, in applying the reduction of 10% to the subject property, the respondent has formed the view that the potential for landslips in the area existed as at the date of valuation and the subsequent occurrence confirmed that potential. That potential was a disadvantage that should have been allowed for as at the date of valuation and therefore it was appropriate that the valuation should have been amended to reflect that disadvantage.
Market Value
A number of the grounds of appeal referred to problems which the appellant considered were caused by the use of market valuations. Mr Phillips submitted that –
· market value simply reflects current perceptions fostered by emotional and imperfectly informed buyers and sellers about the private interest potential of a given property;
· the assumption that market value is a value neutral index is fiction;
· this places the Department of Natural Resources and Water in a very fictitious environment.
The Valuation of Land Act provides that the Chief Executive must decide the unimproved value of the land to be valued for the Acts under which local authorities are established (s.13). Because the appellant's land is improved land, the Chief Executive determined the unimproved value in accordance with s.3(1)(b) of the Act. Section 3(1)(b) provides that 'unimproved value' means, in relation to improved land – the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that, at the time as at which the value is required to be ascertained for the purposes of this Act, the improvements did not exist.
The effect of that provision is that the unimproved value to be determined by the Chief Executive is the unimproved market value. This is because the subsection says that the unimproved value is to be decided by determining what the subject property would realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require. While it is recognized that, as Mr Phillips said, there may be "emotional or imperfectly informed buyers and sellers" in the market, the statutory valuation process requires that transactions involving such persons should be ignored. The value to be determined is the amount that would be paid by a prudent purchaser to a prudent vendor, assuming that both are willing but not anxious to trade and assuming also that both are perfectly acquainted with the attributes and defects of the land and are familiar with the market for land in the area (see Spencer v The Commonwealth of Australia (1907) 5 CLR 418 at 441, per Isaacs J).
Given the terms of the legislation, the respondent has a statutory obligation to determine the unimproved market value of the subject land. The respondent cannot lawfully adopt any other method of valuation. In those circumstances, that part of the appeal which relies on a general critique of the market valuation method does not succeed.
The valuation of the subject property was determined by the respondent after examination of the relevant sales evidence and in particular by comparison of the subject property with three sales of comparable land. The details of the comparative sales evidence will be considered later in this decision but, in principle, I consider that Ms Wilson adopted the correct approach to the valuation.
Valuing improved land
Mr Phillips also submitted, in the Notice of Appeal, that –
· this valuation has been determined by a capital improved system using mass appraisal of sales figures as a basis;
· properties should be individually valued by qualified departmental valuers that have the true and current cost of improvements for each property;
· does the department have a data base that reflects the capital improvements invested by individual property owners.
Mr Phillips also referred to information which he had obtained from the departmental website –
"To calculate unimproved land values, Natural Resources and Mines examines sales information for each land-use category (e.g. rural, residential, commercial) and sends registered valuers to inspect properties that have recently sold. Wherever possible, lightly improved or vacant properties are inspected. The unimproved value is calculated by deducting the added value of any improvements from the sale price. This figure is then compared with previous values to determine the market movement in overall land values."
and submitted that -
· perusal of this literature provides another weakness in the system. How can the value of improvements from another property determine the valuation re market movement of my property when my deductions for capital improvements may be less or greater in relation to resale;
· all capital improvements are not visible (removal, sub-ground level or built-in during construction).
The appellant also said at a later point in his Notice of Appeal that –
· capital improvements on sites such as his property are very expensive and easy to over capitalise; retaining walls are necessary to terrace areas of use; and
· he invited a valuer to access the property by comparing an individual value, against the capital improvements invested.
The appellant's references to a capital improved value system and the value of the visible and invisible improvements on his property indicates that he was of the opinion that the respondent should have valued the subject property by taking into account the value of the improvements on the subject land. However, this is not the method of valuation prescribed by the legislation.
The value which the Chief Executive must determine under the Valuation of Land Act is not a capital improved value but the unimproved value. The effect of s.3(1)(b) is that where the land to be valued is improved land, it must be assumed that the improvements do not exist. The statute does not say that the land is to be valued by deducting the value of the improvements from the improved value. Rather, what is required is that the improvements on the subject land are to be ignored and the subject land is to be treated as if there were no improvements there at all. There is therefore no need for the valuer to value the improvements on the subject land.
This was the method adopted by Ms Wilson who has assumed that the improvements on the appellant's property did not exist, in other words that the subject land was vacant. Ms Wilson then looked at the market and found sales of lightly improved land, which took place at or near the date of valuation and which she considered were comparable with the subject. In her analysis of each sale, Ms Wilson deducted the value of the improvements from the purchase price to reach the analysed unimproved value of the sale land and then applied a value to each of the sales properties. The subject land was valued by comparison with the applied values. By comparing the notionally vacant subject land with sales of comparable vacant or lightly improved land, the unimproved value of the subject land can be ascertained.
It is to be observed that, when a valuer is analysing a sale of improved property, there is no assumption made that there are no improvements on the sale property. The valuer deducts the value of the improvements from the sale price in order to calculate the unimproved value of the sale. The purpose of that exercise is to compare like with like – the value of the subject land which is assumed to be unimproved, with the unimproved value of the sale land.
It has been recognised many times that the valuation method adopted by Ms Wilson is the best method of determining the unimproved value of land. Thus in Fischer v Valuer-General (1983) 9 QLCR 44, the Land Appeal Court said (at 46) that "It is indeed a fundamental principle of valuation that the best basis for assessment of unimproved value is the use of sales of vacant or lightly improved parcels.".
An alternative method by which the unimproved value of improved land may be determined is by comparison with sales of substantially improved property, similar to the subject, that have taken place at or about the relevant time. This second method of valuation is often less reliable than the first because it can be difficult to assess the value of substantial improvements accurately (see Clough v Valuer-General (1981-82) 8 QLCR 70 at 76). Mr Phillips acknowledged this difficulty in his evidence. Moreover, the value of improvements does not necessarily equate with their cost and the legislation says that in determining the value of improvements, what must be ascertained is the added value which the improvements give to the land, irrespective of their cost (s.5(1)).
Where there are a sufficient number of sales of comparable vacant or lightly improved land, therefore, it is preferable that the unimproved value be assessed using the first method of valuation. This is what Ms Wilson has done and, in the circumstances, I consider that this was the appropriate methodology to be used in this matter. It was not necessary, therefore, for Ms Wilson to inspect and value the improvements on the subject land whether visible or invisible and then deduct their value from the improved value.
Mr Phillips' submission concerning the quote from the departmental website appears to indicate that he considered that the respondent had taken into account the value of improvements on the sale properties in determining the value of his property.
As explained above, the valuation methodology adopted by Ms Wilson did not involve such a process. In analysing each of the sales, Ms Wilson deducted the value of the improvements on the sale property from the total sale price of that property. The resultant figure showed the unimproved value of the sale property. The sale properties and Mr Phillips' property are compared on the basis that both are unimproved.
The mass appraisal system
The appellant also challenged the department's use of a mass appraisal system for valuing land under the Act. Mr Phillips submitted that –
· this valuation has been determined … using mass appraisal of sales figures as a basis;
· properties should be individually valued by qualified departmental valuers …;
· mass appraisal methods have an inherent weakness when making suitable adjustments to individual property valuations; the weaknesses are that errors in valuation are perpetuated and there is difficulty in establishing a group of comparable properties to which the same adjustment factors should be applied;
· the department use of a computer system to apply a predicted unimproved capital value is clearly a perfect example of how perpetuated errors occur, only reviewed manually on objection, not in accordance with departmental policy;
· if property owner does not object, an injustice has been committed;
· previous values used to determine market movement may not have been inspected re a sale for a number of years.
Ms Wilson's evidence concerning the departmental valuation system was that, for the purposes of the residential valuations, all of the sales of residential vacant and lightly improved land in the Gold Coast area had been inspected and analysed by the department. That process enabled the department to determine the percentage movement in the price of properties in each sub-market of the region. That percentage was applied to all of the residential properties in the particular sub-market to establish the valuation for each of those properties as at 1 October 2004.
The mass appraisal system of valuation has been in use in Queensland since 1985. In a previous appeal to this Court (Phillips v Chief Executive, Department of Natural Resources and Mines [2003] QLC 0069) Mr Phillips questioned the validity of the use of the mass appraisal system because of two main weaknesses in the system – the perpetuation of errors and the difficulty in establishing comparable properties to which adjustment factors can be applied. He has made similar submissions in this matter.
Mr Phillips' arguments were considered in detail by the learned Member, Dr Divett, in the earlier case (at [29] – [32]) and it is unnecessary to repeat that discussion here. I accept and apply Dr Divett's discussion. The Land Appeal Court discussed the use of the system in Wilson v Chief Executive, Department of Lands (1994-95) 15 QLCR 63 and concluded (at 71) that the process did not offend the statute. My conclusion is therefore that the use of the mass appraisal system is not unlawful. For the appellant to succeed in this appeal he must establish that there has been an error in the valuation of his property.
Mr Phillips also considered that it was unfair that the onus was on the property owner to object to a valuation and to provide evidence in support of the objection, particularly when the department has significant resources at its disposal. He pointed out that if an owner does not object to a valuation an injustice is committed and suggested that the departmental officers were unable to provide evidence to support their decision making. To illustrate his argument, Mr Phillips set out, in his grounds of appeal, the history of the valuations of the subject land since 1984 which showed that on some occasions he had successfully objected and/or appealed against an annual valuation. At the hearing he also tendered a graph showing the increases in valuation and the reductions made on objection and appeal. Mr Phillips submitted that the graph demonstrated that the valuation process was volatile. He also said that if he had not objected/appealed he would not have obtained the reductions and that for some periods at least he had been paying rates on too high a value.
While there may be errors made in determining the unimproved value of land, there is provision in the Valuation of Land Act for those errors to be set aside. The owner has the right to object to a valuation (s.42) and the Chief Executive is required to consider the objection and give written notice of the decision on objection (s.43). To enable the right of objection to be exercised effectively the respondent department must give notice to an owner of the valuation and advise the owner of the right to object to the valuation within the time specified (s.41). If an owner who has objected is dissatisfied with the Chief Executive's decision on objection, the owner may appeal to the Land Court (s.45).
The Land Court does not have the power to change the legislation under which the annual valuations are carried out. Any amendments would have to be enacted by the Queensland Parliament. The function of this Court is to determine, in accordance with the existing law, whether an error has been made in a valuation under appeal. If this Court considers that the system in use has lead to an error in a valuation then it is the duty of the Court to correct that error and to determine the correct value for the property.
Analysed and applied values
As noted above, Ms Wilson analysed the sales by deducting the value of the improvements on each property to reach the analysed unimproved value of that sale property. She then applied a value to each of the properties to determine its unimproved value as at 1 October 2004.
Mr Phillips said that the values applied by Ms Wilson in each of the sales reflected different percentages and there was no explanation as to why this had occurred.
As explained above, the annual valuation of most properties is decided under the mass appraisal system. Because of this appeal however, Mr Phillips' property has been valued individually by the comparable sales method. Ms Wilson selected three sales of lightly improved land, deducted the value of the improvements and then applied a value to each of the sale properties. The applied value is determined by the valuer by comparing the sale price with the prices achieved in other sales in the relevant market, after excluding the high and low sales. If the sale price achieved in a particular sale appears to be higher than the general market trend, the valuer applies a lower value to that property than the analysed unimproved value. The valuer also takes into consideration departmental policy that the applied values should be conservative. Thus there is no set percentage applied by the valuer to the sales. Rather the applied value is the result of the exercise by the valuer of her professional opinion as to the appropriate value to be applied following a comparison of the analysed sale price with the market as a whole.
I can find no error in the approach which Ms Wilson adopted in the sales analyses nor in the application of values which she applied to each of the sales properties.
Sales evidence
Mr Phillips did not adduce any sales evidence in support of his appeal. He relied on the grounds of appeal discussed in detail above and he challenged the respondent's sales evidence as set out below. He pointed to the defects in this property as set out above. He also said that, in his area, there were a number of large upmarket homes on elevated blocks with magnificent sea views. The effect was to create a high value in the area whereas his property did not have those characteristics.
Ms Wilson relied on the sales of three properties to support the valuation. All of the sales properties have the same designation as the subject under the Gold Coast City Planning Scheme, namely Detached Dwelling Domain.
Sale 1: This property is situated at 8 Reserve Street, Burleigh Heads. It is a level, regular, rectangular allotment of 405 square metres. At the time of sale, the only improvements were clearing and a building pad. The property sold on 25 August 2004 for $356,000. Ms Wilson deducted $3,000 as the value of the improvements to reach an analysed unimproved value of $353,000. She applied a value of $320,000. Ms Wilson said that the sale was similar to the subject in that it was elevated and close to the ocean with restricted ocean glimpses. Ms Wilson considered the sale to be superior to the subject because of its location in Burleigh Heads. The sale was disadvantaged by its small land area and high volume of passing traffic.
Mr Phillips considered that this property was not relevant as a comparison with his because of its location in Burleigh Heads, a considerable distance away. Further, the sale was well elevated, probably the highest allotment in that area, he said. Mr Phillips also disagreed with Ms Wilson's description of the sale as a relatively level block because although there is a level pad at the front, the allotment drops away severely at the rear of the block.
Mr Phillips said that he believed that the sale property and the allotment next door had been purchased by related parties who had purchased the two blocks with a view to amalgamating them. He considered that would have influenced the price paid for the sale property. Ms Wilson said that she had no record of this and did not believe that it was an adjoining owner sale.
I have accepted Ms Wilson's evidence in this regard as she had checked her records concerning the sale whereas Mr Phillips provided no evidence to support his opinion that it was an adjoining owner sale.
Although the sale is more elevated than the subject and located some distance away, I consider that it is sufficiently comparable with the subject for it to be used in the valuation of the subject land. Ms Wilson has allowed for the superior attributes of the sale as compared with the subject and she has also allowed for the disadvantages of the sale. She applied a value to the sale of $320,000 as compared with the subject's valuation at $295,000. I consider that the sale supports the valuation.
Sale 2: This property is located at 39 Monash Street, Tugun. It is a regular, fan shaped allotment of 430 square metres. At the time of sale the only improvement was clearing. It appears that a house has subsequently been constructed on the site. The property was sold on 30 October 2004 for $215,000. Ms Wilson deducted $3,000 as the value of the improvements to reach an analysed unimproved value of $212,000. She applied a value as at 1 October 2004 of $160,000. Ms Wilson considered the sale to be inferior to the subject because of its Tugun location, the poorer quality of surrounding residential properties and proximity to the Coolangatta airport.
Mr Phillips objected to the use of this sale because the property was described in error in Ms Wilson's report as No. 33 Monash Street. The mistake was corrected at the hearing.
Although Ms Wilson said that Nos. 33 and 39 were very similar, I have decided that I will take no account of No. 39 in the valuation because Mr Phillips had not had an opportunity to inspect No. 39.
Sale 3: This property is situated at 34 Sawtell Drive, Currumbin Waters. It is an irregular fan shaped allotment of 750 square metres which slopes gently down to its road frontage. The only improvement at the time of sale was clearing. The property sold for $220,000 on 1 July 2004. Ms Wilson deducted $3,000 as the value of the clearing to reach an analysed unimproved value of $217,000. She applied a value as at 1 October 2004 of $185,000. Ms Wilson considered the sale property to be inferior to the subject because of the sale's location a considerable distance from the beach.
Mr Phillips said that the sale property was located on the lower side of Sawtell Drive. The property opposite, which is elevated with great views, was on sale at the time of the hearing at about $250,000 whereas the sale had taken place in 2004, so that he considered that there was some discrepancy in the sale.
There was no persuasive evidence that this sale was not a genuine market transaction. I consider that the sale supports the valuation of the subject land.
Conclusions
Section 45(4) of the Valuation of Land Act provides that the burden of proving the grounds of an appeal lies on the appellant. I have concluded in relation to the grounds of appeal that the appellant has not established that there has been an error in the valuation under appeal. I have also concluded that Ms Wilson has made sufficient allowance for the defects in the subject property and the valuation is supported by her evidence concerning Sales 1 and 3. There are, therefore, no reasons for allowing the appeal.
Orders
1.The appeal is dismissed.
2.The unimproved value of Lot 347 on RP 92799, County of Ward, Parish of Tallebudgera is affirmed at Two Hundred and Ninety-Five Thousand Dollars ($295,000) as at 1 October 2004.
CAC MacDONALD
MEMBER OF THE LAND COURT
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