Phipps v Chief Executive, Department of Natural Resources
[1999] QLC 31
•28 April 1999
LAND COURT,
[1999] QLC 31
BRISBANE
28 April 1999
Re: Appeals against Annual Valuations –
Valuation of Land Act 1944 –
Shire of Esk.
(AV98-735 and AV98-736).
Douglas B Phipps and Colleen J Phipps
v.
Chief Executive, Department of Natural Resources
(Hearing at Toogoolawah)
D E C I S I O N
These are two appeals by Douglas B and Colleen J Phipps against the valuations made by the Chief Executive of two adjoining parcels of land in the Shire of Esk, under the provisions of the Valuation of Land Act 1944 (the Act).
Mr and Mrs Phipps are the owners of two parcels of land in the Parish of North, County of Churchill, described as Lot 57 on Registered Plan 840744, containing an area of 16.27 hectares, and Lot 15 on Registered Plan 850271, containing an area of 15.42 hectares (the subject lands). As at 1 October 1997, the respondent determined the unimproved value of Lot 57 at $85,000 and of Lot 15 at $83,000. Following unsuccessful objections against those valuations, Mr and Mrs Phipps appealed to the Land Court against the decisions of the respondent disallowing their objections, advising that their estimates of the unimproved values were $65,000 for Lot 57 and $61,000 for Lot 15.
The grounds of appeal are the same in each case:· The Chief Executive erred in not valuing the farm, comprising two deeds, used in one enterprise, as one;
· The Chief Executive erred in not placing the property in the “Primary Industry” category due to the significant commercial joint venture in forestry of hoop pine;
· The Chief Executive erred in valuing the property above other recent sales in the area, including one of the deeds in question (Lot 15 RP 850271) bought 3/1/97.
At the hearing of these appeals, Mr DP Phipps appeared and gave evidence on behalf of the appellants, while the respondent was represented by Mr J O’Rourke and valuation evidence on behalf of the respondent was given by Mr EG Ridley, a registered valuer employed by the Department of Natural Resources.
There are no issues between the parties regarding the physical characteristics of these lands. They are situated approximately 9 kms north of the township of Marburg, fronting the bitumen sealed Glamorganvale-Lowood Road. Electricity, telephone and water from a rural water supply scheme are connected. They are in an area generally known as the “Marburg Scrub”, comprising easy to moderate slopes, originally timbered with brigalow and softwood scrub. A salt gully runs through the southern portion of each lot in a west to east direction.
These lands are zoned “Rural A” under the Esk Shire Council Town Planning Scheme, and are used together for cattle grazing and forestry purposes. Each lot is separately developed with a house and other improvements.
Background
Before dealing with each of the grounds of appeal, it is necessary to set out the background to the appellants’ use and ownership of this land as explained by Mr Phipps.
Late in 1990, the appellants purchased an old dairy farm of approximately 80 acres (32 hectares) upon which was situated a house, described by Mr Phipps as an old colonial house, and some other structural improvements. They then subdivided off an area of approximately 1 hectare which contained the house and other structural improvements, which they then sold. The remaining property was subdivided into the two present lots. Lot 15 was sold in 1993 without any structural improvements for $90,000 to a Mr Norm Kruger. The appellants retained Lot 57 upon which they built a house.
Mr Kruger moved a house onto Lot 15 and made other improvements, including a new set of cattle yards, a loading ramp, a colourbond double garage with concrete floor and had power connected. He then lived on Lot 15 and ran cattle on it until in January 1997, the appellants repurchased the property for $135,000.
During that period, the appellants ran cattle on Lot 57, cultivating about 15 acres (6 hectares) upon which they grew stockfeed to fatten cattle. The main crops were oats in winter, although at the date of hearing, they had part of that land under lucerne.
However, it seems that none of Lot 15 had been cultivated, although the scrub had been cleared and the whole area planted to improved pastures, including Rhodes grass and paspalum. Mr Phipps estimated that the carrying capacity of the subject lands was a beast to 3 acres. However, it seems with assistance from crops grown on the cultivated area and in good seasons, they have been running better than that, as Mr Phipps gave evidence that they have been turning off between 15 to 20 head of adult cattle per year. There is evidence that present prices for such cattle would be between $400 and $500 per head, representing a maximum gross return of between $8,000 and $10,000 per annum. Mr Phipps estimated that running costs, transport and selling costs would reduce the net return to approximately half, say $4,000 to $5,000 per annum.
Mr Phipps went on to say that if they had concentrated on cattle he thought that the appellants could have increased the turnoff to 30 head per year. However, during 1997, as a result of attending field days and having discussions with officers of the Forestry Industry Development Division of the Department of Primary Industries (FID), the appellants became interested in farm forestry. On 3 February 1998, they entered into a private forestry plantation joint venture with the State of Queensland. The deed of agreement (called a deed of profit à prendre) is a comprehensive document setting out the rights and obligations of each party regarding the inputs, management, protective measures, harvesting and marketing, in addition to other details.
Part 2 of the deed outlines the objects of the joint venture, the paramount object being the commercial production of timber from plantations. The broader objectives include the following:
· to provide the State an opportunity to gain equity in commercial wood plantations grown on privately owned land;
· to provide the owner an opportunity to utilise the property to commercial advantage;
· to conduct a viable commercial venture in accordance with good forestry practice;
· to establish a commercially viable timber plantation to produce a range of products;
· to utilise the respective skills and resources of the parties to the greatest extent possible.
Under Part 10 of the deed, the owners undertake not to transfer the property to successors in title unless the rights and obligations of the deed are also assured by the new owners. Mr Phipps understands that an instrument of profit à prendre has been registered in respect of each lot under the provisions of Division 4B of Part 6 of the Land Title Act 1994.
Under the terms of the deed, 5.92 hectares from Lot 57 and 6.93 hectares from Lot 15 (a total of 12.85 hectares) have been set aside for the joint venture, of which 5.58 hectares on Lot 57 and 6.55 hectares on Lot 15 (a total of 12.13 hectares) have been planted to hoop pine trees.
In his statement of evidence (Exhibit 2), Mr Phipps set out what seems to be a reasonably accurate description of the joint venture:
“The Scheme is designed to establish commercially viable timber plantations on private land. DPI grows and manages the plantations and both parties share the financial rewards at harvest. Detailed records of the various financial transactions and work done on the various joint venture sites are kept and provided to the joint venture partners upon request.
The Scheme operates on the principle of proportioning revenue according to relative investment. The minimum investment for landowners wishing to enter into a joint venture is 10 hectares of suitably cleared land, fenced to a stock proof standard. The Scheme is now in its third year and approximately 1,000 hectares of hoop pine and selective native hardwood species have been planted on private land in south-east and north Queensland.
Landowners may increase their equity in the joint ventures by undertaking activities associated with the plantation, including site preparation, weed control, and fertilising. Within the terms of the agreement, landowners are able to negotiate the structure of their investment to minimise the risk. Landowners may choose to retain some of the trees in the plantation in lieu of revenue from the final crop. This provides an opportunity to meet other property management needs.
The plantation operations are managed by FID and some functions are contracted out to private operators. The landowner may wish to undertake some of these activities, but need to demonstrate a capacity to perform a high quality operation at a competitive market price. As already indicated, under the terms of the commercial deed signed by FID, Mr Phipps has agreed to undertake fencing, site preparation, weed control, firebreak maintenance, and planting activities.
Before establishing the plantation, FID officers assist the landowner to prepare a detailed property management plan to systematically address specific land management issues, as well as to integrate any existing farming activities with the plantation. The plan may also address other natural resource issues and business matters. Apart from further demonstration the commercial focus of the venture, the exercise is also consistent with DNR’s primary mission to support the economic growth of Queensland through the sustainable use, development and management of land, water and native vegetation resources ….
FID also prepares an estimate of the returns expected from each joint venture plantation based on a discounted cashflow analysis. According to these estimates, the 12.1 hectares of hoop pine plantation established on the property in question will generate an internal rate of return of 5.6% ... This figure is based on the assumption of a forty-five year rotation, with commercial thinnings being taken from the plantation at twenty years.
In today’s dollar terms, the plantation on the Phipps’ property can be expected to generate a thinning return of $2,700 per hectare and a final crop return of $46,800 per hectare. Based on the plantation area of 12.1 hectares, the total return from the final crop is estimated $566,280. This represents an average annualised return from the plantation of about $12,500 per year.
It should be noted that the above estimates are conservative. That is, they are based on information from recent timber sales. However, most forecasters believe that timber prices will record significant real increase over the next two decades ….” (Exhibit 2 pages 5 and 6).
A perusal of the document indicates that the State gives no guarantee whatsoever as to the saleability of any produce or royalty rates obtainable (Clause 3.6). The owner may graze livestock on the land in such numbers and at such times and on such conditions as are negotiated and agreed to by the State (Clause 5.5). The owner can reduce the area of available land by up to 25% on certain conditions (Clause 8.1). The State can terminate the deed if the plantation is damaged by force majeure events (Clause 9.1). However, if damage occurs within five years of the commencement of the deed, the parties may agree to re-establish the plantation under the terms and conditions of the deed (Clause 9.7).
The Valuation made for the purpose of the Joint Venture Agreement
Schedule III of the deed provides that the inputs of the owner shall be the annual land rental agreed and the reasonable cost of operations undertaken by the owner at the owner’s cost. The initial land rental was calculated at 5% of the land valuation as at the commencement date. However, the maximum land valuation for joint ventures is set at $3,000 per hectare. This resulted in the annual land rental at the commencement date of $150 per hectare for the land which is planted. For this purpose, a valuation was provided by the Department of Natural Resources as at 22 October 1997, valuing the 12.8 hectares at $4,500 per hectare, or a rounded valuation of $58,000.
The valuation was made by Mr Ridley and the basis for the valuation consisted of three sales, one of which was the sale of Lot 15 from Mr Kruger to the appellants. The details included on Mr Ridley’s schedule of sales show that Lot 15, of 15.42 hectares, sold on 3 January 1997 for $135,000. The schedule includes a summary of the analysis of the sale, with the value of improvements as follows:Structures $60,940
Fencing $ 2,750
Water $ 500Leaving a cleared land value of $70,810 or $4,992 per cleared hectare.
The analysis of this sale, together with two other sales, forms the basis for the valuation of the 12.8 hectares, the subject of the joint venture agreement, at $4,500 per hectare.
Period of the Court’s Jurisdiction
The respondent conceded that the Court could consider the effect of the joint venture agreement as it was signed, sealed and delivered on 3 February 1998, between the date of valuation, 1 October 1997, and the date of issue of the valuation, 23 March 1988. By that date the appellants had cleared, deep ripped and cultivated the land and 10,000 hoop pine trees (stems) had been supplied and planted by FID.
Ground of Appeal No. 1 – The two Lots should be included in one Valuation
Mr Phipps gave evidence that since repurchasing Lot 15 the appellants had let the house on the property through real estate agents Ray White at Lowood for $150 per week. At the date of hearing it was being let on what Mr Phipps said was a concessional basis, to his brother-in-law for $120 per week. That concession was apparently granted to the brother-in-law because he looked after the property when Mr Phipps was away.
Mr Ridley explained that he did not amalgamate the two lots into one valuation because he considered that he was prohibited from doing so by the provisions of section 34 of the Act. Sub-section (1) of that section requires that several parcels of land which adjoin and are owned by the same person and where either no part is leased or all the parcels are let to one person, shall be included in one valuation. However, the Chief Executive is given a discretion to direct otherwise and it seems that in an appropriate case, notwithstanding that part of one of the parcels is leased, the Chief Executive could direct that the parcels be included in one valuation.
However, that discretion is removed from the Chief Executive in the circumstance provided for by sub-section (2). That sub-section is framed in mandatory terms and reads as follows:“However, any such parcels of land shall be valued separately if buildings are erected thereon which are obviously adapted to separate occupation and which may respectively be lawfully held under separate ownerships. ”
In the present cases, Lot 15 and Lot 57 adjoin and are owned by the same persons, but may be lawfully held under separate ownerships. The evidence is clear that there is a house on Lot 15 and a house on Lot 57 which are obviously adapted to separate occupation and are separately occupied. Although the Chief Executive has a discretion to direct that where part of one parcel is leased, then the lands may still be included in one valuation, that discretion is removed where there are buildings erected on each parcel which are obviously adapted to separate occupation.
Therefore, I am of the opinion that Mr Ridley correctly valued each parcel separately and that the appellants’ ground of appeal No 1 must fail.
Ground of Appeal No 2 – The “farming” concession
The appellants’ second ground of appeal is that the Chief Executive erred in not placing the property in the “Primary Industry” category due to the significant commercial joint venture in forestry of hoop pine.
The appellants contend that the two lots should have been valued under the provisions of section 17 of the Act as land used for purposes of “farming”. That section requires that when land is used for purposes of “farming” as defined, then any enhancement in the value of that land because it has a potential for some other purpose must be disregarded when making the valuation. Sub-section (2) of section 17 defines “farming” to mean:
“(a)the business or industry of grazing, dairying, pig farming, poultry farming, viticulture, orcharding, apiculture, horticulture, aquiculture, vegetable growing, the growing of crops of any kind, forestry; or
(b)any other business or industry involving the cultivation of soils, the gathering in of crops, or the rearing of livestock;
if the business or industry represents the dominant use of the land, and –
(c)has a significant and substantial commercial purpose or character; and
(d)is engaged in for the purpose of profit on a continuous or repetitive basis.”
In these cases there was no dispute that the lands were used for grazing and forestry, or that such enterprises represent the dominant use of the land, or that they were engaged in for the purpose of profit on a continuous or repetitive basis. The only issue was whether or not those enterprises had a significant and substantial commercial purpose or character. Although the two lots cannot be amalgamated into one valuation, the evidence is that they are used together for the grazing and forestry enterprises, so that in considering this issue the question is whether the business or industry conducted over both lots has a significant and substantial commercial purpose or character as required by section 17(2)(c).
That matter has been considered by the Land Appeal Court on a number of occasions. In Chief Executive, Department of Lands v. Whackett (1995) 15 QLCR 311, the case involved valuations of two adjacent parcels of land in the Cedar Creek area near Beenleigh, which had areas of 54.8 hectares and 51.03 hectares, which were used together for grazing beef cattle. The Whackett’s land consisted of moderate to steeply sloping forest/scrub country which carried about 70 head of mixed cattle. In the relevant years, approximately 25 head of cattle were sold each year, with an estimated gross return in the order of $5,000 per annum. Most of the income from the sale of cattle was spent on machinery and other expenses connected with the enterprise. In Mr Whackett’s opinion, it would be necessary to run more cattle to make any profit, but 70 head was the maximum carrying capacity. On occasions it had been necessary to buy in feed.
The majority of the Land Appeal Court proposed the following test at page 328:
“It is difficult, and unnecessary, to state a precise and compendious meaning of the expression ‘significant and substantial commercial purpose’ and ‘significant and substantial commercial character’. Bearing in mind the various connotations of the words ‘significant’ and ‘substantial’ it is perhaps sufficient for present purposes to say that for section 17(1) of the Act to apply to the subject land there must be evidence that:
(a)the business or industry is being carried on with a genuine and sizeable intention or desire that there will be reward, if not profit and is not being engaged in merely for recreational or some other purpose; or
(b)the qualities or distinguishing features of the business or industry demonstrate that it is being carried on in a way which (ordinarily, at least) will generate reward, if not profit. ”
At page 330, the majority found that neither the objective character, nor the subjective purpose of the grazing enterprise could be said to be significantly and substantially commercial. However, they expressly stated that they arrived at that conclusion on the evidence in that case and that there was insufficient evidence to find in favour of the landowners, as no trading figures of any kind were presented. It continued at page 330:
“ We emphasise, however, that we arrive at this conclusion on the facts presented in this case. There is insufficient evidence to find in favour of the owners. No books of account or trading figures of any kind were presented. Before us both parties relied on the verbal evidence of Mr Whackett in the Court below that these lands carry 70 head of mixed cattle on a year to year basis, that for the three years to 1992 they sold approximately 25 head of cattle per year and that he estimated their average recent gross return at $5,000 per annum. He also stated that the maximum carrying capacity is 70 head of cattle and it would be necessary to run more cattle to make any profit.
No explanation was given as to why an enterprise running 70 head of cattle, 40 of which were breeders, had such a small return for the last three years. It may well have been because of the drought conditions which have affected so much of the State, but no evidence of that was forthcoming.
We are of the opinion that an enterprise which can run 70 head of cattle may be shown to have a significant or substantial commercial purpose or character. However, that has not been demonstrated to our satisfaction in this case. It may well be that at some future time, when the details of the Whacketts’ business activities are presented in more detail, the matter could again be considered, with quite different results. ”
The matter was also considered by the Land Appeal Court in the case of CH and MC Peck v. Chief Executive, Department of Natural Resources, 1 August 1997, unreported. In that case the Pecks had a property of just over four hectares upon which they were conducting an intensive orchard comprising macadamia, lychee and other tree types, which they purchased in 1986 and from which they expected to make quite extensive returns. However, despite their best efforts, such returns were not forthcoming and in each of the financial years from 1987 to 1994, the farming operations ran at a loss.
In its reasons for judgment, the Land Appeal Court said at page 7:
“ The third condition concerns one purely objective matter, the commercial character of the business or industry. The commercial purpose of the business or industry is a matter which requires consideration of a subjective matter, again the genuineness of the purpose, but the use of the adjectives ‘significant’ and ‘substantial’ to qualify the expression ‘commercial purpose’ in our view calls for consideration of objective criteria when assessing that purpose. The use of both adjectives leads us to the conclusion but, of the two, ‘significant’ is the more important in leading to that result.
So whereas paragraph (d) makes the genuineness of the purpose alone a condition and so concerns an exclusively subjective matter, paragraph (c) requires assessment of that purpose by reference to objective facts to determine if it can properly be described as significant and substantial. In making such an assessment it is permissible – and necessary in our view in a case like this in which a business has been established for some time – for consideration to be given to the results achieved by the business after a reasonable interval had elapsed following its establishment. Full allowance must, of course, be made for such things as the uncertainties of the weather, the vagaries of markets, and fluctuations in exchange rates. Having given those factors proper weight, one may conclude that an owner, though genuinely pursuing profits, is engaged in such an unpromising enterprise that it could not be said, in accordance with any ordinary or reasonable standard, to have a significant and substantial commercial purpose. Such a conclusion was clearly open in this case, as was a conclusion that the appellants’ business lacked the requisite significant and substantial commercial character. Where a business or industry is in the process of being established objective criteria other than results, such as a credible business plan, will of course be appropriate. ”
In Whackett’s case, the Court was clearly of the opinion that an enterprise which can run 70 head of cattle may be shown to have a significant and substantial commercial purpose or character, but they were not satisfied on the evidence that such was the case. They expressly left open the possibility that if such evidence was forthcoming the appellants may have succeeded.
In these cases, apart from one account sale for the sale of 12 head of cattle on 23 September 1998, well after the date of valuation, I have been provided with no details of the appellants’ cattle grazing enterprise. The only evidence is Mr Phipps’ opinion that they could turn off a maximum of 20 head of cattle per year which would return them a maximum gross return of $10,000 and a net return of about $5,000, and that the turn off could be increased.
Peck’s case makes it quite clear that gross returns are not the only thing to be considered. The cost of producing those returns must be taken into account to determine whether the enterprise has made a profit. As in Whackett’s case, the Court was not provided with sufficient trading details of the cattle raising venture to make any assessment of the venture. If that was the only enterprise conducted on the land, then the result would be the same as in Whackett. However, in these cases there is more.
In undertaking the forestry enterprise, there is no doubt that the appellants have committed themselves to a long-term joint venture with the State of Queensland in the hope of a very substantial return after 45 years. The discounted cash flow analysis tendered with the joint venture agreement, indicates a predicted return after harvesting in 45 years of $49,500 per hectare, or total revenue of $598,950.
Mr Phipps also raised the possibility of the sale of carbon credits in the future as another source of income from the forestry enterprise. However, no details of the extent or timing of such income was presented. Although it may be something to be considered in the future, there is no evidence in these cases which I can take into account.
The authorities clearly indicate that it is not possible to set numerical or financial requirements or pose a simple test as to what constitutes a significant or substantial commercial purpose or character (Whackett and Peck). Each case must be dealt with on its own merits. Considered in isolation, the profits from the cattle raising enterprise may not be great and the returns from the forestry enterprise will be delayed for many years. However, these are not the only tests to be applied. As pointed out in Peck, the commercial purpose of the business or industry requires consideration of a subjective matter, while the commercial character of the business or industry concerns a purely objective matter.
Applying those tests, the evidence clearly indicates that the parties have entered into the forestry agreement in a business-like way and, in my view, have demonstrated that they consider the commercial purpose to be significant and substantial. The joint venture agreement leaves little room for doubt that their forestry enterprise has a commercial character. The question remains as to whether that is a significant and substantial commercial character.
At this stage there is no history of previous returns from the forestry enterprise which can give any objective guidance. In such circumstances, the Land Appeal Court has indicated that regard may be had to objective criteria other than results such as a credible business plan. In Peck the Land Appeal Court made the following finding at page 7:
“Where a business or industry is in the process of being established objective criteria other than results, such as a credible business plan, will of course be appropriate.”
In my opinion the joint venture agreement is such a credible business plan and establishes that the enterprise has a significant and substantial commercial character.
Although that is sufficient to satisfy me that the subject lands qualify for valuations under section 17 of the Act, the matter may be approached in another manner. The authorities make it clear that use of the land by persons other than the owners must be considered.
For land to qualify for a concessional valuation under the provisions of section 17 of the Act, the land must be used for purposes of “farming” as defined. It is the use of the land which must be considered, rather than the identity of the person or persons using it. In this regard two further judgments of the Land Appeal Court provide assistance. In AR Thomason v. Chief Executive, Department of Lands (1994-95) 15 QLCR 286, the case concerned the valuation of 24.28 hectares of land situated at Mt Mee, west of Caboolture, upon which the owner resided. However, most of the land was used for the agistment of between 30 and 40 heifers as part of another person’s dairy enterprise. The residential use by the owner of the subject land could not be characterised as incidental to the use of the land for grazing purposes. (I will return to this aspect when considering the dominant use of Lot 15.)
In considering the relevant requirement of section 17(2), the Land Appeal Court said at page 306:
“ There is insufficient evidence to show that the production of pasture and the grazing of cattle would constitute a commercially viable enterprise if the only area of land involved was the subject land.
The issue here is not whether the appellant is using the land for a business or industry which has a significant and substantial commercial purpose or character. We accept that it is the use of the land for the relevant purposes which is important, rather than the identity of the person or persons using it. So, for example, the person who owns the land and who will gain the benefit of the operation of section 17(1) need not be the person using the land for the relevant purposes (cf BB Smith v. The Valuer-General (1983) 9 QLCR 22).
The issue is whether the subject land, used in conjunction with other land owned by another person as part of a business or industry with a significant and substantial commercial character, can be valued in accordance with section 17(1) of the Act. In our view, it can. ”
The Land Appeal Court concluded at page 308:
“ We have concluded that the use of the subject land for the purposes of grazing, considered in isolation from any other land, does not have a significant and substantial commercial purpose or character. Considered as part of the dairying enterprise of Leslie Sellin & Co, the subject land is being used as part of a business which has a significant and substantial commercial purpose or character.”
In Chief Executive, Department of Lands v. JW and K Higbie (1994-95) 15 QLCR 177, the Land Appeal Court was considering the valuation of 64.31 hectares of land situated about 11 kms north of Esk, upon which was constructed a cabin or kit home which the owners occupied occasionally for recreational use. Cattle belonging to nearby dairy farmers were agisted on the land and the cattle grazing was part of their business or industry of grazing on other land.
Referring to the judgment in Thomason, the Land Appeal Court held that the business or industry of grazing conducted on the land by the farmers in conjunction with other land held by them, satisfied the criteria specified in paragraphs (c) and (d) of the definition of “farming” contained in section 17(2).
In the present cases, the use of 12.8 hectares of the subject lands is a joint venture between the owners and the State of Queensland. There is unchallenged evidence that similar joint ventures have been entered into between landowners and the State Government. There can be no question that the State Government is a major player in the business of forestry within the State, through its various agencies, including the Forestry Department and FID.
On the reasoning of the Land Appeal Court in Thomason and Higbie, there can be no doubt that the use of the subject lands by the State Government as a joint venture partner in the forestry enterprise, together with its use of other land for forestry purposes, has a significant and substantial commercial purpose or character. Therefore, in my opinion, the use of the subject lands satisfies all the criteria contained in section 17(2) of the Act and is used for the purposes of “farming” as defined.
The Rented House on Lot 15
One final aspect which should be dealt with is the proposition that the renting of the house on Lot 15 (which is not an integral part of the farming operation on that land) disqualifies it from being considered as used for the purposes of “farming”. In my opinion, the cases of Thomason and Higbie set this matter to rest. In Thomason, despite the use of part of the land by the owner for residential purposes not connected with the grazing enterprise (and part for another minor purpose) the Land Appeal Court was satisfied that the dominant use of the land was for the business of grazing.
With respect to the lettable value of the dwelling, the Land Appeal Court said at page 304:
“ We have reservations about adopting an income approach to determine the question of dominant use, although it may be relevant in considering other criteria contained in Section 17(2). To apply a test related to relative incomes could, in the majority of cases, distract the inquirer from the primary question of determining the dominant use of land. On some limited occasions income may be helpful in conjunction with all other criteria in assisting to determine the question, but care must be taken not to allow income generated by a use to become the primary determinant. ”
The Court went on to say at page 305:
“We are of the opinion, however, that a person viewing the area of land and the number of cattle on it would, as a matter of common sense, say that the main or major use of the 24 hectare block was for the grazing of cattle. Consequently, we are satisfied that the dominant use of the land is for the business of grazing.”
In Higbie, the Land Appeal Court cited with approval its judgment in Thomason and quoted the following extract from that judgment which appears at page 303:
“ In our view, the proper approach be taken when ascertaining the dominant use of land is to consider such matters as the amount of land actually used for any purpose, the nature and extent and intensity of the various uses of the land, the extent to which land is used for activities which are incidental to a common business or industry of a type specified in section 17(2), the extent to which land is used for purposes which are unrelated to each other, and the time and labour and resources spent in using the land for each purpose. When undertaking this exercise, one cannot ignore the conclusion that an objective observer would reach from viewing the land as a whole. ”
In applying those tests to Lot 15, I have no doubt the dominant use of the land is for purposes of “farming”.
Mr O'Rourke referred me to the decisions of the Land Court in Craig v. Chief Executive, Department of Lands (AV93-565) 20 May 1994 and Gockel v. Chief Executive, Department of Lands (AV93-89) 17 June 1994 (both unreported), as examples of where the Court had held that forestry activity, either alone or combined with other farming activities, were not sufficient to qualify land for the Section 17 concessional valuations. However, in my view those cases can be distinguished from the present cases. The scale of forestry activity in Craig (485 trees on 1.69 hectares) and Gockel (1,200 trees on .8 hectare), cannot compare with 10,000 trees on 12.85 hectares in these cases. Nor were the lands in those cases used for enterprises backed by business plans of the significance of the joint venture agreement.
Ground of Appeal No 3
The appellants’ third ground of appeal is that the respondent erred in not valuing the subject lands on the basis of recent sales in the area, particularly the sale of Lot 15. Mr Phipps argued that Mr Ridley had analysed and used the sale as a basis for the valuation for the purposes of the joint venture agreement, but had used other sales to value the land for the purposes of the Valuation of Land Act. Mr Ridley’s valuation for the joint venture agreement was $58,000, or $4,500 per hectare. His principal basis appeared to be the sale of Lot 15, which he analysed to show $70,810, or $4,592 per hectare. However, that analysis was to a cleared hectare value while the Valuation of Land Act requires the unimproved value to be determined. Therefore, Mr Phipps argued, the valuation should be something less than $70,000.
Mr Ridley’s evidence was that he preferred to rely on sales of vacant or lightly improved land to value the subject lands under the Valuation of Land Act, rather than to rely on the sale of Lot 15, which was highly improved. Mr Ridley therefore relied on four sales, two of which are quite close to the subject land and the other two somewhat further removed, which analysed to show unimproved values ranging from $76,513 to $114,700 and to which the Chief Executive had applied valuations as at the relevant date, ranging from $70,000 to $107,000. The sale properties ranged in area from 11.42 hectares to 18.21 hectares, the highest and best use of each was as a rural residential property.
When questioned as to why he used the sale of Lot 15 as a basis for the joint venture valuation, Mr Ridley said that he could hardly ignore it, as it was the sale of one of the subject parcels. He therefore felt obliged to attempt an analysis of the sale, but supported it by reference to two other sales which were less highly improved.
While there does appear to be an inconsistency in Mr Ridley’s approach in rejecting the sale of Lot 15 as a basis for the unimproved value, yet adopting it for the joint venture valuation, it is understandable in the circumstances in which he found himself. The two valuations were for quite different purposes, the first being for revenue raising, while the second was to provide what appears to be an indicative value of whether or not the lands the subject of the joint venture were above or below the declared maximum valuation of $3,000 per hectare. Even applying what appears to me to be quite a generous valuation to the improvements in his analysis of the sale of Lot 15, the resulting cleared land value is much in excess of the $3,000 per hectare limit.
In the circumstances, I find that Mr Ridley was correct in adopting the approach of using vacant or lightly improved sales to arrive at valuations for the subject lands for the purposes of the Valuation of Land Act.
Perusal of the four sales used by Mr Ridley and a comparison with his analysed cleared land value, show that the analysed figure is well out of line with the level of unimproved values shown by the lightly improved sales. This indicates to me that Mr Ridley had applied a generous valuation to the improvements on Lot 15 when making his analysis of that sale. In doing so, he applied a different approach to that required by section 5 of the Valuation of Land Act, which provides for the adoption of an added value approach in determining the value of improvements. (See O’Brien Nominee v. The Valuer-General (1979) 6 QLCR 280).
In any case, since I have found that the lands qualify for valuation as lands used for purposes of “farming”, it is not necessary to make any specific finding with relation to ground of appeal No 3, but if I was to do so I would find that Mr Ridley was correct in adopting the approach that he did.
Conclusions
It remains to determine the valuation of the two subject parcels as lands used for purposes of “farming”. The appellants have claimed unimproved values of $65,000 for Lot 57 and $61,000 for Lot 15. These appear to be based on Mr Phipps’ analysis of the sale of Lot 15. However, if that is so, such an approach is inappropriate.
On the other hand, when asked what valuation he would have applied to the subject lands if they were to be valued under the provisions of section 17 of the Act, Mr Ridley advanced the opinion that he would value each lot in the vicinity of $2200 per hectare. He then appeared to reconsider and said, "I would have to value them together at $2,200 a hectare overall."
However, having found that each lot must be valued separately, I must determine the value of each parcel. As separate parcels I think they would have unimproved values a little higher per hectare than as a combined valuation. Having regard to the evidence of valuations applied to larger “farming” properties in the general area as at 1 October 1997, I feel that it would be appropriate to value the subject lands at $2500 per hectare.
Orders
Accordingly, in the case of AV98-736, the appeal is allowed, the valuation of the respondent is set aside and the unimproved value of the subject land as at 1 October 1997 is determined at Forty thousand dollars ($40,000).
In the case of AV98-735, the appeal is allowed, the valuation of the respondent is set aside and the unimproved value of the subject land as at 1 October 1997 is determined at Thirty-eight thousand dollars ($38,000).
(JJ Trickett)
President of the Land Court
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