Secretary, Department of Families, Housing, Community Services and Indigenous Affairs and John Lind and Lois Lind
[2012] AATA 840
•28 November 2012
[2012] AATA 840
Division GENERAL ADMINISTRATIVE DIVISION File Numbers
2012/1229
2012/1250
Re
Secretary, Department of Families, Housing, Community Services and Indigenous Affairs
APPLICANT
And
John Lind
and Lois Lind
RESPONDENT
DECISION
Tribunal Senior Member Bernard J McCabe
Date 28 November 2012 Place Brisbane The decision of the Social Security Appeals Tribunal should be set aside. The matter should be remitted to the Secretary for further consideration with the instruction that the property should be valued at $325,000 as at January 2011.
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Senior Member Bernard J McCabe
CATCHWORDS
SOCIAL SECURITY – Age pension – Valuation of an asset – Principal home exempt – Land adjacent to principal home on separate title – Discretion to treat land as being on same title – Definition of value – Implications surrounding providing legal access – Decision set aside and remitted.
LEGISLATION
Social Security Act 1991 (Cth) ss 11A and 1118.
CASES
Kirkocski and Secretary, Department of Families and Community Services [2004] FCA 790.
Secretary, Department of Social Security and Margaret Langton and Maree Langton [1993] AATA 315; 31 ALD 579.
REASONS FOR DECISION
Senior Member Bernard J McCabe
28 November 2012
Mr and Mrs Lind are retirees. They own a comfortable house on a large block in the idyllic Currumbin Valley. They have lived on the property for 39 years. They are very happy there. And no wonder: the land is ringed by rainforest. It is bordered by a creek where turtles steal the bait from fishing lines. They have raised a family on the property and anticipate staying there for the rest of their lives.
In May 2000, Mr and Mrs Lind purchased a parcel of land from their neighbour across the creek. The parcel did not have any road access. It has power to the block but no other services. They paid $75,000 for the property. They have since built a sturdy bridge over the creek. They have no plans to build on the block, although it has ample room for a dwelling. They say they might plant some trees, but they certainly do not intend selling the property. I have no reason to doubt them.
Mr and Mrs Lind applied for the age pension in December 2010. They provided information about their assets and income to Centrelink so their claim could be assessed. As part of that process, they were asked to nominate the current market value of the property they acquired in 2000. They told Centrelink the property was worth $75,000. Mr and Mrs Lind said that seemed fair enough given the property did not have legal access to a road and the Valuer-General had nominated that amount in the latest rates notice. The age pension was initially granted on the strength of the information supplied, including the $75,000 valuation for the parcel acquired in 2000.
Centrelink engaged Mr Burgis of the Australian Valuation Office to conduct a valuation of the parcel across the creek. On 25 January 2011, Mr Burgis estimated the property was worth at least $225,000 – although he said in his report that he did not have enough time to conduct a more comprehensive analysis. Centrelink reduced the Linds’ pensions on the basis of that higher valuation. Mr and Mrs Lind asked for a review of that decision, but there was more bad news to come. After making further enquiries, Mr Burgis revised his valuation on 20 April 2011 to conclude the correct value of the property across the creek in January 2011 was really $325,000. Mr and Mrs Lind appealed that decision. They were ultimately successful before the Social Security Appeals Tribunal. The Secretary has asked this Tribunal to reconsider the matter.
I think the correct value of the property is $325,000. I explain my reasons below.
THE RULES ABOUT VALUATION
It is only necessary to value an asset that is an assessable asset. The Linds’ family home is disregarded for this purpose: s 1118(1)(b) of the Social Security Act 1991 (“the Act”). Mr Lind asked me to consider whether the parcel acquired in 2000 could be considered to be part of their “principal home” and therefore be disregarded pursuant to s 1118(b). Unfortunately for Mr and Mrs Lind, the adjacent land acquired in 2000 is not on the same title document as the house block. It therefore cannot be regarded as being part of their home: see s 11A(1)(a)(i) of the Act. While the Secretary has the discretion to ignore the fact the properties are not held on the same title document, none of the pre-requisites in s 11A(2) are satisfied in this case. The value of the adjoining block must therefore be assessed for the purposes of the assets test.
The Act does not specify how properties are to be valued. It does not even define what the expression “value” means. As Bennet J explained in Kirkocski v Secretary, Department of Family and Community Services [2004] FCA 790 (at [17]):
The test which seems to have been applied by the AAT in a majority of cases is a net market value approach based on comparable sales and the ‘best use’ to which the asset could be put
That test requires some explanation. In my view, the clearest explanation is found in the Tribunal’s decision in Secretary, Department of Social Security and Margaret Langton and Maree Langton [1993] AATA 315; 31 ALD 579. In that case, the Tribunal adopted (at [33]) the following definition of market value suggested by The International Assets Valuations Standards Committee:
Market value is the estimated amount for which an asset should
exchange on the date of valuation between a willing buyer and a
willing seller in an arm's length transaction, after proper
marketing, wherein the parties had each acted knowledgably,
prudently and without compulsion. (The Valuer and Land Economist,
May, 1993)
I agree with that approach. It emphasises the need to look at what hypothetical buyers and sellers might do. That is important in this case because the owners of the property say they have no intention of selling, and no buyers have been identified as a consequence. The market value of a property for the purposes of the legislation cannot be determined by the idiosyncratic preferences of its owner. While I accept Mr and Mrs Lind at their word when they say they won’t sell, I must not base my decision on their intentions. I must look to what could happen.
Three expert valuers were asked to value the property (as at January 2011) and give evidence at the hearing. The Secretary called Mr Burgis and Mr Stephens. The Linds’ called Mr Smits. All were qualified valuers with experience in this sort of valuation in the area. The difference between them was summed up in the evidence of Mr Smits. He said the real issue was the availability of legal access, or lack of it. He said that unless Mr and Mrs Lind were prepared to cooperate by providing legal access – most obviously in the form of an easement over their own property – so a purchaser of the property could access the bridge over the creek by driving down the Linds’ driveway, the property was unlikely to be worth more than $75,000.
Mr Burgis approached the problem by estimating the value of the property if it had direct and unfettered access. He suggested it was worth about $500,000 on that basis. He then pointed out a seller in the Linds’ position would be taken at common law to have granted an implied right of access to the property. That means a purchaser would enjoy legal access via the Linds’ driveway. That access would reduce the value of the house block and lead to additional costs to Mr and Mrs Lind in the order of $175,000. In due course, he continued, the hypothetical individual in the position of the Linds would negotiate a deal with the purchaser of the block over an easement or registered agreement – and the buyer would be willing to deal in order to secure his rights of access.
That approach struck me as artificial, but I accept Mr Burgis offered a carefully reasoned argument in support of the figure he reached. It is summarised in a timeline (exhibit 5).
Mr Smits took a more practical approach. He insisted a purchaser would be unwilling to buy the property without legal access that was secure. He said a purchaser would be unlikely to proceed on the basis of an implied grant of access by the vendor. Since this vendor was unwilling to provide a secure right like an easement, the property was only saleable on the basis it did not include access. But then his evidence took a more interesting turn. When I asked him to consider whether a hypothetical purchaser – who was interested in selling and therefore open to reaching a deal in respect of access with a reasonable buyer – might conclude a sale at a particular price, he agreed such a deal was possible and that the price (which reflected an arrangement with respect to access) would fall in the same range as Mr Burgis had indicated.
Mr Stephens initially indicated a lower figure was appropriate but he said he had not included the cost of arranging for access, which might include additional earthworks and surveying and other costs associated with reaching a registered agreement or creating an easement. He estimated all that would cost at least $50-60,000. He said a final cost would exceed $300,000.
Three different valuers ultimately reached similar valuations using different methodologies. Mr Burgis prepared the most carefully researched argument to reach a figure of $325,000, but that valuation is ultimately similar to the estimate offered by Mr Smits when he was asked to ignore the attitude of Mr and Mrs Lind and focus on what hypothetical buyers and sellers would do in the real world. While Mr Smits and Mr Stephens did not endorse the exact figure suggested by Mr Burgis, I think it is reasonable for me to do so.
CONCLUSION
The decision of the Social Security Appeals Tribunal should be set aside. The matter should be remitted to the Secretary for further consideration with the instruction that the property should be valued at $325,000 as at January 2011.
I certify that the preceding 16 (sixteen) paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.
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Associate
Dated 28 November 2012
Date of hearing 12 and 13 November 2012 Applicant Self-represented Solicitors for the Respondent Ms Slack of Sparke Helmore Lawyers
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