Re Truckelectrics Pty Ltd

[1994] QLC 34

[1994] QLC 34

 

  LAND COURT

BRISBANE

25 JULY 1994

Re:     Determination of Rent
  Second Rental Period
  Special Lease No. 06/45234

Lessee:  Truckelectrics Pty Ltd

D E C I S I O N

For the second period of the lease of Special Lease No. 06/45234 which commenced on 1st March, 1993, the Crown is seeking an annual rent of $12,000.  The rent for the first period of the lease was $1,162 per annum.  Under the provisions of section 204 of the Land Act 1962, the lessee has requested that this matter be heard and determined by the Land Court.
           Special Lease No. 06/45234 is in respect of the land described as Lot 199 on Plan SL 9810, Parish of Woogaroo, with an area of 1.549 hectares.  This special lease was granted for a term of 30 years from 1st March, 1983 for Secondary Industry (Carole Park Industrial Estate) purposes.  It is situated at 195 Cobalt Street, Carole Park, at the southern end of the Wacol\Carole Park Industrial Estate, approximately 3.25 kilometres from the Carole Park Post Office.  Cobalt Street is a full width bitumen sealed roadway of industrial standard and has concrete kerbing and channelling.  Electricity, gas, reticulated water and sewerage are available.  The land is zoned "Medium Industrial"  under the Moreton Shire Council town planning scheme and is used for the business of manufacturing automotive electrical parts. 
           In its natural state the land was level with the road frontage but fell fairly steeply away to the rear.  Part of the property has been cut and filled and developed with an industrial building and office.  However, because of the earthworks required to the natural fall of the land to allow building, the driveway entrance slopes quite steeply from the footpath.
           The rent in this case falls to be determined in accordance with the provisions of section 204(5B)(c) of the Land Act 1962 which reads 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."

There is clearly no requirement that the rent should be determined on the basis of a percentage of the unimproved value.  However, in this case both parties have agreed that the rent should be determined at 3 per cent of the unimproved value.  This Court has on occasions, in the absence of market rental evidence, determined the rent in such manner.  Many of the rents in the Carole Park area have been determined on that basis and it is appropriate for the Court to do so in this case.  It is therefore necessary to first determine the unimproved value. 
           Mr Bosko Gojkovic, registered builder, gave evidence that the site is to be developed with three buildings.  He was the builder responsible for the present development which consists of land treatment and the construction of the first stage building.  Mr Gojkovic has carried out this work on the site over the past 10 years. 
           Mr Gojkovic described in some detail the land treatment that was necessary to construct the building.  Because of the slope of the land, it was necessary to cut the front down approximately 2 metres, then using the fill from the cut plus approximately 2,600 cubic metres of imported fill, to construct a platform for the concrete slab.  Mr Gojkovic said that today's cost of bulldozing and levelling the fill, plus hiring of a compactor for two weeks, would be $9,400.  The imported fill would cost a total of $65,000.  In addition, it was necessary to provide footings through the fill. 
           Mr Gojkovic's statement included this paragraph:

"This building site is sloping so acutely from the road that there is a twenty seven feet (8.3 metres) fall from the road level at the front of the building site to the rear boundary of the property.  This slope follows the whole length of the boundary.  In the course of constructing the building and even today it is not possible for a semi-trailer to enter the property via the main entrance.  They have to be unloaded on the street and forklifted into the factory.  The semi-trailers bottom out on the hump at the main entrance to the site."

Mr Gojkovic went on to say that in order to level the remainder of the site so as to build the other two buildings, he calculated it would be necessary to further fill the site.  Some 2,100 cubic metres has so far been placed in the north-eastern corner and levelled but not compacted.  At today's cost of $25 per cubic metre, Mr Gojkovic estimates the value of the material in this area at $52,500.  More is required.
           Mr Gojkovic explained that it was much more expensive to develop a sloping site, such as the subject land, than a flat and level site.  Retaining walls, consolidation of the fill and piers to support the concrete slab were required, in addition to cut and fill.  He was critical of the Crown's estimate of $62,400 for development works, as he thought that would not cover the cost of the cut and fill operation alone, without considering the cost of importing additional fill, foundations, labour, etc.  While he admitted there were different ways of developing the site, he was adamant that it could not be done by a simple cut and fill operation, as the necessary depth of cut at the front of the block would be too great.
           Valuation evidence for the lessee was given by Mr Trevor Matthews, registered valuer and member of the firm of R Matthews & Son Pty Ltd.  Mr Matthews originally arrived at an unimproved value at the relevant date of $250,000.  However, he tendered an amended valuation, arriving at an unimproved value of $280,000 less the costs of filling and levelling.  As I understand his evidence, he originally valued the land at approximately $18 per sq. metre, or $280,000, less the cost to level and fill the site, which he estimated at $30,000.  However, after receiving advice from Mr Gojkovic, he values it at $280,000, less Mr Gojkovic's estimate of filling and levelling costs.
           Mr Matthews said the land was poorly positioned, being at the very end of the industrial development in the Wacol/Carole Park area.  He said that there had been a decline in industrial land values since 1990 and, although industrial land had commenced selling again only in the last six months, the level of values had not increased.  As at March 1993, he thought that the market for industrial land was at its lowest level.
           In arriving at his valuation, Mr Matthews had regard principally to three sales.  His Sale No. 1 is situated at 478 Freeman Road, Richlands, zoned "Light Industry" and has an area of 2.842 hectares.  This property sold in January 1991 for $490,000 or $17.24 per sq. metre.  Mr Matthews considers that it is superior in every way to the subject land, as it is good, high land with a gentle cross-fall, far simpler to build upon, with direct access from the road.  He thought that it could be levelled merely by cutting and pushing the fill across the site. 
           Mr Matthews' Sale No. 2 adjoins his Sale 1, has an area of 2.427 hectares and sold in June 1993 for $410,000.  This land was zoned "Future Industry" and Mr Matthews added to the sale price an amount of $50,000 for the cost of rezoning, which he said consists of Council fees, application fees, Council requirements for roadworks, headworks, drainage, etc.  When so adjusted, the sale analyses to $18.90 per sq. metre.  This sale is also superior to the subject land. 
           Mr Matthews' Sale No. 3 is situated in Westcombe Street, Darra, and has an area of 1.325 hectares.  This property is zoned "General Industry" and sold in July 1993 for $250,000 with some structural improvements, which equates to $18.86 per sq. metre.  Mr Matthews considers that this property is much more accessible than the subject land and is largely level, not needing any cut or fill. 

In addition to his primary basis, Mr Matthews gave evidence of two recent sales.  First, the sale for $800,000 or about $40 per m², of a property in Granard Road, Rocklea.  It is a much superior site, of 19,700 m² of flat land, built up above flood level with very good exposure, being close to Ipswich Road.  Second, the sale of a property at 45 Coulson Street for $480,000 or $29.64 per m².  It is in the vicinity of the Crown's Tile Street sales, has an area of 1.619 hectares, is zoned "General Industry" and is comparable with the Tile Street sale which showed approximately $34 per sq. metre.  Mr Matthews said these sales indicate that values have fallen since 1991.
           Valuation evidence for the Crown was given by Mr Brian Joseph McDonald, registered valuer, employed by the Department of Lands.  Mr McDonald was not the valuer responsible for the original assessment, but has inspected the subject property, reviewed the sales basis and has accepted the accuracy of the original assessment.
           Mr McDonald said that in its unimproved state the land was of medium elevation, level with the road at its frontage and fell away some 4.5 metres to the rear southern corner and 7.5 metres to the rear northern corner.  He estimated that the cost of developing the land in readiness for building at $62,400, taking into account the nature of the land, the required cut and fill and the imported fill necessary to obtain a level building area. 
           Mr McDonald arrived at an unimproved value of $400,000 for the subject land, relying on six sales as his basis for the valuation.  All sales are located in the City of Brisbane and he considers that all are superior in location and zoning to the subject land. 
           Mr McDonald's Sale No. 1 is situated in Action Street, Wacol, with an area of 1.73 hectares, zoned "General Industry" and sold in April 1990 for $575,000.  Mr McDonald analysed this sale to show $520,000 unimproved or $30.08 per sq. metre.  He describes it as being situated in a cul-de-sac, at street level, with a slight to gentle cross-fall to the west. 
           Mr McDonald's Sales 2 and 3 are the sale and resale of the same property situated in Tile Street, Wacol, with an area of 1.62 hectares.  It was zoned "Future Industry", when it sold first in July 1990 for $525,000 and was later rezoned "General Industry" with $25,000 paid for the development bond.  Mr McDonald analysed the adjusted sale price of $550,000, which showed $33.97 per sq. metre.  He describes it as an elevated site with a gentle cross-fall and adequate drainage.
           This property resold in October 1991 for $565,000 and Mr McDonald analysed this sale to show $560,000 or $34.57 per sq. metre, and this Sale No. 3 is the one that he most relies upon.  He considers it to be in a superior location to the subject land, but it required approximately 2 metres of cut and fill to develop a level building site, upgrading of water and sewerage services and road widening works to establish an industrial use.  This cost an additional $90,000 and the sale price, including the additional development costs, shows a developed rate of $40 per sq. metre, compared with the developed rate of $30 per sq. metre he applied to the subject land.
           Mr McDonald's Sale No. 4 is situated in Ipswich Road, Darra, with an area of 2.59 hectares, zoned "General Industry".  This property sold in May 1991 for $1,575,000 and Mr McDonald analysed this sale to show an unimproved value of $1,571,800 or $60.69 per sq. metre.  This property is much superior to the subject

land because of its exposure to the highway.
           Mr McDonald's Sale No. 5 is situated in Kelliher Road, Richlands, has an area of 1.44 hectares and is zoned "Light Industry".  This property sold in July 1991 for $1,210,000 and Mr McDonald analysed this sale to show an unimproved value of $1,207,500 or $83.85 per sq. metre.  It is slightly above road level, has a gentle fall to the front northern corner, with good exposure to Ipswich Road and access from Kelliher Road.  It is much superior to the subject land. 
           Mr McDonald's Sale No. 6 is also situated in Kelliher Road, Richlands, has an area of 1.92 hectares and is zoned "Light Industry".  This property was acquired by the Department of Transport from Telecom for road purposes.  The price paid in September 1991 was $605,000 which Mr McDonald analysed to an unimproved value of $602,000 or $31.35 per sq. metre.  He describes it as a predominantly level at the road frontage, with a slight to gentle fall to the front northern corner.  Mr McDonald thinks that the negotiated purchase was at market value.
           In addition to his sales basis, Mr McDonald includes the details of five Land Court determinations, where the unimproved value in each case was determined in order to arrive at a rental.  He also included the details of two freeholdings where the lessees had accepted the unimproved values determined by the Department for conversion purposes.
           Mr McDonald explained that his valuation of the subject land at $30 per sq. metre includes $62,400 ($4 per sq. metre) for land development, considerably less than calculated by Mr Gojkovic.  Mr McDonald thinks that the land could be developed by cutting the Cobalt Street frontage from approximately the 59 metre contour level on a slope or batter down about 2 metres and, using the soil from the cut, develop a building platform of approximately 1 hectare, at about the 57 metre contour level.  He costed this at:

Clearing whole site, 15490 m² at $80 per sq. metre  $12,400

Cut and fill, 10,000 m² at $2.50 per sq. metre  $25,000

With site coverage limited to 40 per cent, 6,000 sq. metres of the 1 hectare
platform could be built upon.  An area of 2,323 m² (15%) is required for landscaping which could be accommodated by landscaping along each boundary, including strips approximately 5 metres wide to allow for the easement on the southern boundary and the sewerage line on the rear boundary.  This would leave an area of 3,167 m² which could be levelled at about the 54 metre contour level and used for car parking.  There was also need for 1,600 m³ of imported fill for various purposes.  The costs involved are:
           Cut and fill, 3,167 metres at $1.60 per sq. metre, say  $5,000
           Imported fill 1,600 cubic metres at $12 per cubic metre, say  $20,000
           The total cost of these works amounts to $62,400
           Mr McDonald envisaged access by means of a ramp down the southern side to a turning area at the rear of the buildings, with a similar ramp on the other side.  However, he did not allow for the cost of constructing the ramps.
           Mr McDonald said that he compared the subject land with the sales as unimproved land.  However, it is obvious that he has had regard to the cost of development of each of the sales, as he gave his opinion of what was required to develop building platforms.  None of them required works as extensive or expensive as those to develop the subject land.
           Commenting on Mr McDonald's sales, Mr Matthews said that Sale No. 1 was superior to the subject land, but was too old as it occurred in April 1990.  In relation to Sales 2 and 3, Mr Matthews said that the resale would have been at a loss when all the expenses and holding costs were taken into account.  He regarded it as an altogether better site, without the need for extensive costs of development and with no access difficulty for semi-trailers.
           Mr Matthews thought that Mr McDonald's Sale No. 4 on Ipswich Road at $60 per m² was not comparable with the subject land, as it was on a main road, with excellent exposure.  He compared this sale with the recent sale in Granard Road for $40 per sq. metre, which to him indicated that values had dropped.  Similarly, Sale No. 5 in Kelliher Road at $84 per m², was also a very prominent site with exposure.  Mr Matthews said that he could not have much confidence in Sale No. 6, as it was an acquisition for development of an overpass. 
           For his part, Mr McDonald did not know of the Granard Road sale at $40 per sq. metre, but agreed that it was in a superior area.  He agreed that the sale at 45 Coulson Street, was similar to his Tile Street sale and superior to the subject land.  He said that Mr Matthews' Sales 1 and 2 in Freeman Road, Richlands, and Sale No. 3 at Darra, appeared to be low sales.
           The usual difficulties of arriving at an unimproved value are accentuated in this case because of the depressed market for industrial land at the relevant date.  Both valuers agree that the market has been depressed since 1991.  Mr Matthews said it bottomed out at about the relevant date and, although sales had recommenced in the last six months, the level of values has not risen.  On the other hand, Mr McDonald thinks that the market bottomed in 1991 and was little changed at the relevant date.  Therefore, he thinks it is appropriate to use 1991 sales. 
           All Mr McDonald's sales are in the period April 1990 to September 1991.  Sale No. 1 is some three years prior to the relevant date and I find it is simply too old to be of any assistance.  Mr McDonald's Sale No. 2 is little better in July 1990 and is the previous sale of his Sale No. 3 in October 1991, which is the sale which he relies upon most heavily.
           I find little assistance in Mr McDonald's Sales 4 and 5 as they are obviously much superior properties situated on or near main roads.  I find his Sale No. 6 of no assistance.  It is the acquisition of land by one Government instrumentality from another.  Without detailed evidence of the basis for the agreed compensation figure, it is not a transaction which could be used with confidence.
           This then leaves Mr McDonald with the one sale in Tile Street, some 17 months prior to the relevant date, which shows $34.57 per sq. metre unimproved, and $40 per sq. metre when developed.
           Mr Matthews relies upon two sales in Freeman Road, one in January 1991 which shows $17.24 per sq. metre and the second sale in June 1993 which shows $16.89 per sq. metre, or when adjusted for costs of rezoning, shows $18.90 per sq. metre.  Both blocks are very much larger than the subject land.
           Mr Matthews has included the sale of a property in Westcombe Street, Darra, which sold in July 1993, which shows $18.86 per sq. metre if the value of improvements is excluded.  Unfortunately, Mr Matthews was unable to attempt an analysis of this sale and without evidence of whether the improvements added value, I find this sale to be of little assistance.
           However, Mr Matthews has mentioned two sales which have occurred  recently, although both of them are more than 12 months after the relevant date.  The sale in Granard Road for $40 per sq. metre, being situated on a busy main road with good exposure, does appear to indicate a fall in the market for such sites when compared with Mr McDonald's Sales 4 and 5.  The sale at 45 Coulson Street is similar to the Tile Street property and shows $30 a sq. metre, which appears to indicate a fall in the market from Mr McDonald's Sale No. 3. 
           On the basis of this sales evidence, I conclude that there has been a fall in the market for industrial land since 1991.  Mr Matthews said that the market reached its lowest level in 1993 and that the level of values has not increased.  This would seem to be borne out by the sales which he has produced.
           Mr McDonald has relied on sales much earlier than the relevant date.  In preparing for the hearing, he endeavoured to find later sales of similar size, but was unable to find any.  His opinion is that the market remained static from 1991.  However, he produced no evidence to support that opinion which does not appear to be supported by the sales produced by Mr Matthews. 

           Mr McDonald tendered the Land Court determinations and freeholdings, not as a basis, but to support his valuation.  However, four of the determinations were made in 1990 and 1991.  The remaining one, Precast Concrete Pty Ltd, was determined in June 1992, but the sales used in that case occurred in 1990 and 1991.  This determination, therefore, does not have the weight of later sales evidence.  The freeholdings were uncontested acceptances by the lessees in 1990 and are of no assistance in this case. 
           It would appear that Mr Matthews' Sale No. 2 in Freeman Road, Richlands, is the most appropriate evidence, as it took place closest to the relevant date.  The sale price adjusted for the cost of rezoning shows nearly $19 per sq. metre.  Both valuers agree that it is superior to the subject land, but it is much larger.  It would therefore be reasonable to assume that it would have a market value somewhat higher than $19 per sq. metre.  Allowance would also need to be made for development works required before making comparison with the subject land.
           Having regard to the whole of the evidence, I have come to the conclusion that  a valuation of less than $30 per sq. metre on the subject land would be reasonable.  I therefore propose to adopt $26 per sq. metre, including development works ready for building. 
           The evidence relating to the cost of development is far from ideal.  Mr Gojkovic, the builder and Mr McDonald, the valuer, are poles apart.  On the weight of that evidence, it would seem that the allowance made by Mr McDonald is far from sufficient.  However, I am not convinced that it should be to the extent estimated by Mr Gojkovic.  There would be more than one way of developing this site, and I do not dismiss Mr McDonald's opinion lightly, as he is very experienced in valuing industrial land.  Also, I have some doubts as to whether the actual cost of that development carried out by Mr Gojkovic would add an equivalent value to the land.  After considering the whole of the evidence, I have come to the conclusion that an allowance of $100,000 should be made for development works.
           On the basis of these findings, the unimproved value of the subject land is calculated as follows:

15,490 sq. metres @ $26 per sq. metre  $402,740

Less added value of development works  $100,000

Unimproved value  $302,740

Adopt  $300,000
           Applying 3 per cent of the unimproved value as previously discussed gives an annual rental of $9,000. 
           Accordingly, the rent for Special Lease No. 06/45234 for the second period of the lease is determined at $9,000 per annum.

MEMBER OF THE LAND COURT