Re Nugent
[1997] QLC 83
•6 June 1997
|
BRISBANE
6 JUNE 1997
Re: Determination of Rent - Third Rental Period
Special Lease No.: 24/35725, Ingham District
Lessee: William Francis Nugent
(Hearing at Ingham)
D E C I S I O N
For the third period of the term of Special Lease No. 24/35725, Ingham District, which commenced on 9 December 1991, under the provisions of s.204 of the Land Act 1962, the Minister determined the annual rent at $1,950. In accordance with s.204(5B), by letter dated 22 July 1993, Mr Nugent requested that the matter be referred to the Land Court for hearing and determination.
However, the matter was not referred to the Court as requested until July 1996. The delay was explained in a letter to Mr Nugent from the Department of Natural Resources dated 2 July 1996 which contained the following:
“Unfortunately your letter dated 22 July 1993 and received by the Department on 23 July 1993 was overlooked and not referred to the Land Court.
Any inconvenience caused by this is regretted.
However, I now advise that the matter of the rental to be charged for the third period of Special Lease No. 24/35725 commencing 9 November 1991 has been referred to the Land Court for hearing and determination.”
In the meantime, the method for the assessment of rent on all Crown leases had changed with the introduction of the Land Act 1994. Instead of being assessed under the provisions of the Land Act 1992, the rent for special leases and other leases is now determined as a percentage of the unimproved value. Accordingly, on 17 July 1996, before the matter of the earlier rent had been determined, the rent for Special Lease No. 24/35725, Ingham District, was assessed at $2,340, being 3% of an unimproved capital value of $78,000.
As a result of this unfortunate chain of events, when the matter came on for hearing at Ingham on 14 April 1997, Mr Nugent was understandably somewhat confused as to which rent was being contested. The third period rent had been paid and his major concern was the increase in rent to $2,340. He was also concerned that the Department of Natural Resources had categorised the subject land as “residential” or “rural residential”, which attracted a rent based on 3% of the unimproved value, whereas the rent for “grazing” land was at a lower percentage.
Mr Nugent could have appealed against the determination of the unimproved value of the land at $78,000 under the Valuation of Land Act 1944, and could have contested the categorisation of the land under the provisions of s.182(3) of the Land Act 1994. However, the matter before me for determination is the assessment of rent for the third period of the Special Lease, which had commenced on 9 November 1991, under the provisions of s.204 of the Land Act 1962. When this was explained to Mr Nugent, he indicated that he wished to continue to contest that rent and the matter proceeded in the usual manner.
Mr Nugent gave evidence on his own behalf, while the Crown was represented by Mr D. Grealy, of Counsel, and evidence for the Crown was given by Mr DT Treston, a registered valuer employed by the Department of Natural Resources.
Special Lease No. 24/35725, Ingham District, is in respect of Lots 27/28 Plan WU4, Lots 34/35 and 43 Plan WU7 and Lot 44 Plan WU8, Parish of Barrett, containing an area of 373.4 ha. The lease was granted on 9 November 1971 for 30 years for “Manufacturing, Industrial, Residential or Business purposes”. The rent for the second period of the lease was $1,000 per annum.
The property is situated approximately 65 km from Ingham, with approximately 50 km of bitumen sealed road, 15 km of formed gravel road and approximately ½ km of unformed ungazetted track through adjoining land.
Mr Treston described the land as comprising approximately 90 ha (25%) easy sloping creek flats and approximately 283.4 ha (75%) undulating forest ridges. He noted that approximately 60 ha had been cleared in different stages, while about 45 ha had been partially regrown, with the balance 15 ha being maintained and used for improved pastures. However, he estimated that about 130 ha was suitable for improved pastures.
The land is used for the grazing of beef cattle and Mr Treston’s report states that its highest and best use is as a small grazing property. He estimated that in its present state its carrying capacity was one beast to 4.5 ha or 83 head and that the capacity should not be increased above the present carrying. However, during the course of the hearing Mr Treston said that as the lease was an “open” lease, he felt that its market value was more aligned to that of rural residential land than to the grazing market. By “open lease”, I understood him to be referring to the fact that the purpose of the lease was for manufacturing, industrial, residential or business. However, he did not feel that the terms and conditions of the lease restricted the market rent to being related to its grazing value only.
Mr Treston informed me that there was no evidence of comparable market rentals of properties in the area. In the absence of comparable rentals, he had determined the annual rent by applying 3% of the unimproved value of the land at the relevant date.
Mr Treston’s primary basis for that unimproved value of $65,000 was the sale of the subject land in April 1989 for $150,000. Mr Treston analysed that sale to show an unimproved value of $74,212, or $198.75 per ha. He commented that the sale was prior to the relevant date and was a sale of land with special lease tenure. He was of the opinion that a purchaser would pay more for a freehold property than for a special lease.
Mr Treston’s second sale was of an adjoining property comprising four separately surveyed parcels, two of which were Perpetual Lease Selections. That property had a total area of 266.1 ha and sold in September 1991 for $145,000. To that price Mr Treston said could be added the cost of freeholding the two leasehold parcels.
The only improvements on that property comprised some fencing and clearing and Mr Treston analysed the sale to show an unimproved value of $128,023 or $481 per ha.
That property is situated approximately 60 km from Ingham, with approximately 50 km of bitumen road, the balance being formed gravel road to all four surveyed parcels. He described the land as undulating forest ridges, sloping down from the Mount Fox Road, to easy sloping creek flats along Michael Creek, which had permanent water. Mr Treston considered the sale property to be superior to the subject land, because each of the four parcels could be sold separately.
It emerged during the hearing that parts of the property had been resold to two purchasers. Although the sale property adjoins the subject land and the country is similar in many respects, because of the potential of the property for sale as separately surveyed parcels, I do not consider the sale to be an appropriate basis for valuing the subject land. Indeed, Mr Treston admitted that he placed no reliance on that sale.
In his oral evidence, Mr Treston emphasised that he considered the highest and best use of the subject land was as a large rural residential property. He mentioned the sales of two rural residential properties in the Mount Fox locality. One of those properties of 36 ha sold in September 1990 for $45,000, while the second of 20 ha sold in January 1991 for $37,000. He thought that both of those properties were inferior to the subject land because they were smaller. He felt that the sale prices of those two properties supported his contention that he had valued Mr Nugent’s property conservatively.
Mr Nugent had little disagreement with Mr Treston’s description of the subject land, except to say that Michael Creek was not permanent. He contended that the rent for the third period was unfair compared with the rents charged by the Crown for much larger properties in the vicinity. His statement of evidence contained the following examples:
“Kilclooney Station which adjoins this land attracts an annual rent of $9,000 on 200,000 acres. This equates to $0.45 per acre.
Fernlea leased by D & E Murray attracts an annual rent of $836 for almost 6,000 acres which is equivalent to $0.25 per acre or thereabout ...
Until recently Special Leases held by John Searle of Mt Fox was charged $225.00 on 774 hectares and $55.00 on 645 hectares roughly $0.20 per hectare. I understand this land has been resumed by the Department of Natural Resources.”
Mr Nugent did not accept that the rent for the subject land should be based on 3% of its unimproved value. He was aware of Mr Treston’s Sale No. 2, but thought that the purchaser had paid too much for it. He also gave evidence of its resale in separate parts.
Mr Nugent did not disagree with Mr Treston’s analysis of his own purchase of the subject land. He thought that the values applied to the various improvements were reasonable.
This case must be assessed under the provisions of s.204 of the Land Act 1962 which deals with the assessment of rent for Special Leases. Subsection (5B)(c) provides as follows:
“The Court shall determine the annual rent at such sum as it considers an experienced and bona fide person would be willing to pay as annual rent for the land comprised in the lease during the rental period in question, having regard to the use to which the land may be put in accordance with the purpose for which the lease was granted and under the terms and conditions of the lease.”
The assessment of rent, therefore, should be based on a comparison with rents actually paid for similar properties. Mr Nugent endeavoured to make comparisons, but the comparisons which he made were with rents for properties which were much larger in area and about which he was uncertain, having very few details. Mr Treston thought Kilclooney and Fernlea were pastoral holdings and that their rents were assessed on a different basis to that of the subject land. In addition, he thought that the special leases held by John Searle were forestry leases and were also assessed differently.
In the absence of more details about the leases of the properties which Mr Nugent sought to compare, the method of rental assessment and relevant dates, no proper comparison can be made. From the few details that were presented, they seemed to be quite different. Therefore, I gained no assistance from that evidence.
On the other hand, in the absence of market rents Mr Treston turned to what he considered to be the Court approved method of determining the annual rent for special leases by applying 3% of the unimproved value.
While that method is by no means ideal, in the absence of evidence of comparable market rents this Court has on many occasions been prepared to accept that 3% of the unimproved value for the purpose of assessment of the rent for a special lease is not unreasonable (see, for example, Determination of Rent, Third Rental Period, Special Lease No. 24/34884, Lessees: SA & SD Di Bella - decision delivered 29 May 1992). Therefore, in the circumstances, I will adopt that approach.
It remains to determine whether the unimproved value of $65,000 is reasonable. Here again I have a dearth of evidence. One can only speculate as to why Mr Treston included Sale No. 2, as he did not rely on it. I can only conclude that he did so because it adjoins the subject land. However, it was of no assistance in arriving at the unimproved value.
The sales of the two rural residential properties near Mount Fox are helpful only to the extent that one could conclude that a larger property would sell for a higher price. However, they give no indication as to what greater value should be applied to the subject land.
That leaves the sale of the subject land itself. Again, it is not ideal, as it is the sale of a special lease, while in the assessment of unimproved value it must be assumed that the land being valued is held as fee simple. However, in the absence of any other evidence and of any challenge by Mr Nugent to Mr Treston’s analysis of that sale, I must accept that the analysis is accurate.
Mr Treston said that there was little movement in the market between the date of sale and the relevant date in this case. Therefore, it would seem that the application of $65,000 from an analysed sale price of $74,212 is not excessive in the circumstances.
Finally, I should note that Mr Nugent argued that the land should be assessed as grazing land only. However, the provisions of s.204(5B) are clear that in determining the rent, regard must be had to the purpose of the lease as well as to the terms and conditions of the lease. Although the terms and conditions indicate that the land may be used for grazing purposes, the purpose of the lease is wider and could certainly include use of the land as a rural residential property. Therefore, I find that Mr Treston was not incorrect in assessing the highest and best use of the land as rural residential.
Having regard to the whole of the evidence, I have found that the unimproved value of $65,000 is not unreasonable. In the absence of market rental evidence, I am prepared to accept that an experienced and bona fide person would be willing to pay an annual rent based on 3% of that unimproved value, or $1,950.
Accordingly, the rent for the third period of Special Lease No. 24/35725, Ingham District, is determined at $1,950 per annum.
JJ TRICKETT
PRESIDENT OF THE LAND COURT
0
0
0