Rigney v Chief Executive, Department of Natural Resources

[1999] QLC 45

[1999] QLC 45

 

LAND COURT

BRISBANE

30 APRIL 1999

Re:     AV98-442 –

An Appeal against an Unimproved Value –
Valuation of Land Act 1944 –
  Inglewood Shire

D.P. and M. Rigney

v.

Chief Executive, Department of Natural Resources

(Hearing at Inglewood)

D E C I S I O N

Mr and Mrs Rigney are the owners of land situated in Stanthorpe-Texas Road, about 4 km east of Texas, described as Lot 282 CLV 34107, Parish of Texas, County of Clive, containing 26.965 ha.

The Stanthorpe-Texas Road is bitumen sealed.  Electricity and telephone services are capable of connection.
           As at 1 October 1997, the unimproved value of the land was initially determined by the chief executive in the amount of $40,500 but then reduced, on objection to $32,000.  In the Notice of Appeal, the appellants' estimate of unimproved value was $12,000.
           Mr WG Major acted as agent for the appellants and gave evidence on their behalf. 
It was Mr Major's primary submission that the land was being used for the purposes of farming and should be so valued, pursuant to s.17(1) of the Valuation of Land Act.  The appellants had purchased the property in 1994 and had used it initially for grazing about 17 cattle.  There was an unreliable water supply on the property as a dam had poor water-holding capacity.  After some research, the appellants decided that the breeding and grazing of goats would be a more suitable and profitable use of the land.  The cattle were sold in early 1996.  According to Mr Major, an amount of $6,000 was spent fencing the block into five paddocks, together with $2,000 on a new dam, pump, piping and troughs and $6,200 on a shed.  In April 1997 a purebred Boer buck goat and three purebred Boer does were purchased at a total cost of $7,350, followed by various purchases, up until March 1998, of a further 104 goats costing a total of $3,580.  Two specialised guard dogs, costing $750, were purchased to live with and protect the goats.  In early 1999, the herd had increased to about 180 head with sales of meat goats about to commence.  In Mr Major's opinion, the carrying capacity of the block was about 170 adult goats.  The plan was to sell 80 to 100 meat goats each year at an estimated sale price of $50 per head, together with sales of breeder goats estimated to return a further $3,000 per year.  Gross annual sales of $7,000 to $8,000 were projected.  Mr Rigney spends an average of 13 hours per week working on the property.
           As far as Mr Major was concerned, the business of goat farming which had commenced in the period relevant to the valuation from 1 October 1997 (date of valuation) to 30 March 1998 (date of issue),  was the dominant use of the land; had a significant and substantial commercial purpose or character and was engaged in for the purpose of profit on a continuous or repetitive basis – the income stream being delayed only by the need to establish the business and have stock available for sale. 

Mr Major had given consideration to the values applied to adjoining lands which had been accepted by the Department as being used for purposes of farming.  In comparison he believed $100 per ha for the subject land, or a rounded $2,700 reflected reasonable relativity.

In the alternative, if the Court found that the use of the land did not qualify it to be valued pursuant to s.17(1) of the Act, then for its highest and best use as a rural homesite, Mr Major was of the opinion that the unimproved value was $12,000. That estimate was related to the decline in values which, in his opinion, had occurred since the previous date of valuation when the unimproved value had been determined by the Department to be $22,500. Mr Major referred to the purchase of the subject land by the appellants in 1994 for $44,000. At that time, boom conditions had existed, resulting from a proposal to expand the Wyalla Feedlot complex. The subject land had been one of a seven-lot subdivision which had sold "within a few days". There were virtually no houses available for sale in Texas at that time. However, since the Wyalla expansion had not proceeded, the local real estate market had, in Mr Major's opinion, slumped. One lot within the seven-lot subdivision had been on the market for two years at the original purchase price, but there had been no market interest and no offers received.
           Mr Major said that there had been no comparable sales at or around the relevant date.  Reference was made to the sale of Lot 3 on CVE 434 of 50.17 ha on the Texas-Inglewood Road, for $45,000 after an earlier sale at $25,000.  At the time of the earlier sale the land had been cleared, with one dam and boundary fencing.  Subsequently, the first purchaser (the vendor in the later sale) had told Mr Major that he had spent $25,000, together with "a lot of hard work", on further fencing, a second dam, and cattle yards.  He had, on the resale, been unable to recoup his total outlay.  In Mr Major's opinion, that sale land was a superior block to the subject – "The dams hold water, better soil, nicely cleared and twice the size."
           The valuation appealed against was made by Mr MW Malone, a registered valuer employed by the Department of Natural Resources.  Mr Malone, in addition to his valuation experience, has had considerable practical experience working on rural properties.  That experience did not extend to goat farming but in his opinion, the carrying capacity of the block under natural pastures would be limited to about 65 sheep and he felt that the meat producing goat capacity would be similar to sheep.  In his opinion, the land was not used for purposes of farming, as defined.
           He described the block as being elevated with south-westerly aspect and good rural views, which included outlook over the Dumaresq River to the south.  The land comprised an undulating broken forest ridge cut by a watercourse.
           His valuation report contained the comment that the valuation had been made "having regard to all the sales in the Inglewood Shire, in particular those sales listed on the attached schedule".
           The attached schedule contained details of two sales, one of which was Lot 3 CVE 434, on the Inglewood-Texas Road, being the sale referred to by Mr Major.  That land had sold on 21 August 1996, for $45,000.  After an inspection of the sale property in company with another valuer, the added value of the improvements had been assessed by Mr Malone in the amount of $20,900 leaving an unimproved value of $24,100.  A valuation of $21,000 had been applied.  In his opinion that land was "overall inferior to the subject".  It was about 9 km distant in a direct line from the subject property and was further out of town.
           Mr Malone had placed added values on the improvements as follows:  portable steel cattle yards $1,500, fencing $7,400, dams $2,000, timber treatment $10,000.  Mr Major, in comparison, had suggested that the added value of the improvements was $37,000, leaving an unimproved value of $8,000.  Mr Major, as I understood his evidence, had no argument with the timber treatment value assessed by Mr Malone, but had insisted that the previous owner had spent $25,000 since his purchase over and above the improvements which had already existed.  Mr Malone's valuation of the improvements had been based on depreciated replacement cost.  He had referred to a "cost book" compiled by officers of the Department in Warwick when considering the new cost basis.  In addition to new costs, prices received for secondhand items at clearing sales were investigated from time to time by various valuers in the Department.  In comparison with Mr Major's broad estimates, Mr Malone was precise as to lengths of various fences and the excavation for dams and the values placed on the improvements.  Although there was a suggestion he had been harsh with regard to the value ascribed to the portable cattle yards, his opinions were not disturbed under cross-examination.

The second sale was of a 207.3 ha block in Sweedmans Road, near the Wyalla Feedlot, "30-40 kilometres in a direct line" from the subject land.  The sale land was affected by a proposed electricity transmission line corridor.  That land had sold on 24 November 1995 for $100,000, analysed to show an unimproved value of $31,000.  The unimproved value applied to that sale land had been $29,000.

Valuation Considerations

Use for Purposes of Farming

Section 17(1) of the Valuation of Land Act 1944 relevantly provides:

"In making a valuation of the unimproved value of land exclusively used for purposes of … farming, any enhancement in that value for that the land … has a potential use for … any other purpose shall be disregarded … ."

Section 17(2) of the Act defines "farming" as meaning:

"(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."

It can be seen that there are four conditions to be met; before the land qualifies to be valued on the basis that it is used for purposes of farming:

(1)the land is to be used for a business or industry included in (a) and (b) above;

(2)the business or industry is to be the dominant use of the land;

(3)& (4)the business or industry is to meet the criteria in (c) and (d).

There is no dispute in this matter that the first and second conditions are met and I accept that while the goat-farming business had recently been established, the fourth condition has also been met.
           The difficulty lies with the third condition.

There is dispute whether the quality of the land is sufficient for it to be capable of carrying, on a continuous basis, the 170 adult goats on which the profit forecasts are made.  If not, without the aid of supplementary feeding, then the profit forecast of $7,000-$8,000 per year, would not be maintainable.  Furthermore, as I understood the evidence, the profit forecast was on a gross basis, before deduction of normal property related outgoings.

In any event, even if the forecast of profit was maintainable, could the business be categorised as having a significant and substantial commercial purpose or character?
           It seems to be readily acknowledged that each of the words "significant" and "substantial" are imprecise.  The majority in the Land Appeal Court judgment Whackett v. Chief Executive, Department of Lands (1994-95) 15 QLCR 311 said at p.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:

(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.

Then in Peck v. Chief Executive, Department of Natural Resources (AV95-94, unreported, 1 August 1997) the Land Appeal Court when considering the "third condition" said at p.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 that 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 subject 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. ….  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."

It is clear from the authorities that there are no hard and fast rules which will provide the answer in assessing whether a particular commercial purpose is significant and substantial.  In Peck (supra) "reference to objective facts" is identified as the assessment criterion.  The reality of the facts in this case, is that by animal breeding and grazing industry standards, particularly if related to animals capable of some comparison, eg sheep – the maximum herd capacity is very small and restricted by the size and quality of the land; the gross income from the business is dependent on the number of animals making up the business; the gross income or reward for conducting the business would barely cover a fair payment for the labour involved, let alone providing a return on the capital employed; the evidence as to income forecasts identified no business plan which would be typified as credible, eg outgoings under normal operating conditions had not been estimated, at least in the evidence before the Court.
           This particular business, although clearly of significance to those personally involved, does not, in my opinion, based on the facts which I see as objective, possess a significant and substantial commercial purpose or character.
It follows that, in my opinion, the land is not used for the purposes of farming as defined, and does not qualify to be valued pursuant to the "farming" limb of s.17(1) of the Act.
           Rural Homesite
           This is one of a number of appeals against unimproved valuations of rural homesites in Inglewood Shire. 
           A decision is delivered today in AV98-337 - EB & DM Knapton v. Chief Executive, Department of Natural Resources.  In the reasons for that decision were comments under the heading "General Observations and Considerations relative to Inglewood Shire Appeals".  Those comments have been repeated in other decisions in which Mr Major has been involved and are relevant to the background of the appeals generally.
           In this particular matter, it is obvious that in the first instance, the "blanket" 80% increase over the previous valuation had been applied, but then reviewed.  The general appellant complaint as to the lack of comparability between the sale properties adopted as the primary evidential basis for Mr Malone's valuations of rural homesites, and the appeal properties has been raised also in this matter.
           It is my appreciation of the evidence in this matter, that both the sale properties are better suited to activities ancillary to rural homesite usage and particularly more intensive grazing, than is the subject land.  The overall sales evidence suggests that where soil types allow more intensive grazing use, that potential is regarded in the marketplace, as a positive feature.  For example, the evidence suggests to me that the purchasers of the sale properties would unlikely have been purchasers of the subject property.  Nevertheless, although Mr Major suggests in this matter at least, that proximity to Texas provides no perceived market advantage, I am unable to accept that the proximity of the subject land would not be regarded in the local market as a desirable feature.  The land has, as well, superior outlook to many other rural sites, although the cost of providing electricity and access to the preferred building site is said by Mr Major to be prohibitive.
           In this matter I have been able to gain some assistance from the sale of the 50.17 ha site on the Inglewood-Texas Road, although direct comparison is difficult.  Even if Mr Malone was a little harsh in the value applied to the portable cattle yards, for example, his application of value to that sale land is well supported.  Clearly on consideration of the objection to the relevant date valuation, the previously established relativity of value between the sale block and the subject land was found by the chief executive, to be unreasonable.  However the evidence does not convince me that the amended relativity of value indicated between the sale land of 50.17 ha at $21,000 and the subject land at $32,000, has fully corrected the problem.  I am prepared to accept that the proximity of the subject land to Texas and its elevated location weigh in favour of it, against the larger area and superior ancillary use potential of the sale land.  However I have decided that by direct comparison with that one sale, assisted by my appreciation of the overall evidence throughout the Shire relative to the rural homesite market, a valuation of $27,000 for the subject land is a more reasonable application of value.
           I am unable to gain any assistance from Mr Malone's second sale.  That land has few, if any, comparable features, positive or negative.  Although there is a dearth of sales evidence, the second sale of Mr Malone carries a higher level of improvements in the sale price than would meet the ideal criterion of "lightly improved" sales evidence.

Finding

The land is not used for the purposes of farming.  As a rural site with dominant highest and best use potential for residential purposes, the unimproved value is determined in the amount of Twenty-seven Thousand Dollars ($27,000).
           The appeal is allowed and the determination of the chief executive set aside accordingly.

RE WENCK

MEMBER OF THE LAND COURT