Sharsay Pty Ltd v Valuer-General

[2013] NSWLEC 181

Land and Environment Court

New South Wales

Medium Neutral Citation:

Sharsay Pty Ltd v Valuer-General [2013] NSWLEC 181

Hearing dates:

1, 2, 3 July 2013, written submissions 11 July 2013

Decision date:

24 October 2013

Jurisdiction:

Class 3

Before:

Sheahan J and Cowell AC

Decision:

(1) The value of the applicants' land the subject of the present appeal is determined at $4,000,000.

(2) All exhibits may be returned.

(3) The question of costs is reserved.

Catchwords:

VALUATION OF LAND: objection is disallowed and appealed to the court - comparability of sales

Legislation Cited:

Valuation of Land Act 1916
Penrith Local Environmental Plan 2010
Penrith Development Control Plan 2010

Cases Cited:

Fiuggi Holdings Pty Ltd and Actively Zoned Pty Ltd v Lamrock's Legal Pty Ltd t/as Lamrock's Solicitors and Attorneys [2012] NSWSC 1388
Goold v Commonwealth (1993) 79 LGERA 407
Marroun v Roads & Maritime Services [2012] NSWLEC 199
McDonald v Deputy Federal Commissioner of Land Tax (NSW) (1915) 20 CLR 231

Texts Cited:

Alan Hyam, "The Law affecting Valuation of Land in Australia", 4th edn

Category:

Principal judgment

Parties:

Sharsay Pty Ltd and Teravarn Pty Ltd (Applicants)
Valuer-General (Respondent)

Representation:

Mr J E Robson, SC (Applicants)
Mr M Hall, and Ms C Novak, barristers (Respondent)
TressCox Lawyers (Applicants)
Crown Solicitors Office (Respondent)

File Number(s):

30742 of 2012

Judgment

Introduction

1. The two applicant companies own a property at North Penrith, as tenants-in-common in equal shares, and have appealed against the decision of the Valuer-General ("VG") to disallow an objection they made contesting a land tax assessment notice (base date 1 July 2011).

1. I heard this appeal with Acting Commissioner Cowell, and I gratefully acknowledge his assistance in its determination.

1. The court undertook a comprehensive tour of inspection of all the properties relied upon by either side (Exhibit A1). The parties' respective valuation and town planning witnesses accompanied us on that tour.

1. The valuation experts gave concurrent evidence, and were cross-examined, in the courtroom, but the planners were not required.

The Subject Site

1. The subject land is Lot 2 DP 623918, known as 2091-2099 Castlereagh Road, North Penrith, and the appeal is brought pursuant to s 37(1) of the Valuation of Land Act 1916 which provides as follows:

Any person entitled under Part 3 to object to a valuation may appeal to the Land and Environment Court if the person is dissatisfied with the Valuer-General's determination of any such objection to the valuation concerned (whether or not the person was the objector).

1. The subject land has an area of 1.965ha, and is located 2.5km north of the Penrith CBD. It lies within the General Industrial ("IN1") Zone under the Penrith Local Environmental Plan 2010 ("LEP" - Exhibit A11). The respondent's Statement of Basic Facts (Exhibit R1) notes that the subject land is flood free, and is an "inline allotment with elongated, slightly irregular rectangular shape [and] near level topography". Castlereagh Road on its frontage is a four lane main road.

1. The site is currently used for a "Metro Tyre" sales/service business, and for the parking/storage and servicing of large trucks belonging to "Mulgoa Quarries".

1. The land tax levied by the notice challenged in this appeal was based on a valuation of $4.98M, which translates to a "unitary" land value of $253.43/m2. That valuation was confirmed by the VG, on or about 18 May 2012, but in these appeal proceedings, the VG contends for a site value of $4,617,750, a "unitary" figure of $235/m2, and accepts that the applicants' appeal should be allowed to the extent of that differential.

1. On the other hand, the applicants contend for a market valuation, at the 2011 base date, of $2,947,500, which equates to a unitary value of $150/m2. They say that a land value in the order of $250/m² would be appropriate only for land "much superior" to the subject land, for example, land located in the industrial precincts of Eastern Creek and Erskine Park, to which, the court was told, Mulgoa Quarries was relocating, to take advantage of easier access to motorways M2 and M7.

The Valuation Evidence

1. The expert valuers (Kent Wood for the applicants, and Colin Sorrenson for the respondent) agree that the appropriate method of valuation is the "adjustment of comparable sales" method. While a number of sales are agreed to be comparable, the valuers disagree on the appropriate adjustments of their value.

1. "Bulky Goods" retailing is permitted on scheduled lands within the Light Industrial ("IN2") Zone under the LEP, and the parties' respective town planning experts agree substantially on all relevant planning issues, and that there is a concentration of bulky goods style outlets in the Jamisontown Industrial Precinct, generally coinciding with that part of it zoned IN2, whereas the subject site is within the North Penrith Industrial Area, which is characterised by more traditional industrial uses.

1. However, the applicants complain that some of the alleged "comparable sales" relied upon by Sorrenson relate to land used for "Bulky Goods" outlets in the Jamisontown Industrial Precinct, which enjoys special exceptions pursuant to cl 2.5 and Schedule 1 of the LEP, which make the sales in that area non-comparable to the subject site.

1. The three sales selected by both valuers involved land at 2182 Castlereagh Road, 121 Coreen Avenue, and 36 Jack Williams Drive. The three properties were sold as vacant lots with improvements.

1. The Valuer-General relies, in addition, on the sales of 37-39 York Road, 65 Batt Street, 132 Blaikie Road, and 60 Jack Williams Drive, all of which are in the Jamisontown area.

1. On the other hand, the applicants rely upon the sales of 198 Andrews Road, 16 Lambridge Place, 33 Cassola Place, 128 Blaikie Road, and seek also to rely, controversially, on the non-completed negotiation of a sale of the land immediately adjacent to the subject site (2101 Castlereagh Road, Penrith).

1. Companies controlled by Eric McCall owned 198 Andrews Road and 16 Lambridge Place, and were pressured by their lender (NAB) to sell the subject properties for less, they say, than their market value. The McCall companies took action against Lamrock Legal Pty Ltd, recovering verdicts in the Supreme Court for substantial amounts of money allegedly lost by those companies as a result of the failure by Lamrock to follow through a leasing commitment in respect of another major property in Penrith, (see Fiuggi Holdings Pty Ltd and Actively Zoned Pty Ltd v Lamrock's Legal Pty Ltd t/as Lamrock's Solicitors and Attorneys [2012] NSWSC 1388).

1. So far as the adjacent land is concerned, the respondent contends that its putative value should not be taken into account, as:

(i)   it was introduced into evidence on the question of the impact of the "Global Financial Crisis" on the market and there is little evidence in support of its relevance;

(ii)   such neighbourhood evidence is sometimes used in resumption/compensation cases but not in valuation appeals;

(iii)   such evidence is usually used only where

(a)   the offer and acceptance apply to the subject land, and

(b)   the negotiations end because of the intervention of a compulsory acquisition

(see McDonald v Deputy Federal Commissioner of Land Tax (NSW) (1915) 20CLR 231, Goold v Commonwealth (1993) 79 LGERA 407, at 415-7, and Marroun v Roads & Maritime Services ('Marroun') [2012] NSWLEC 199 (currently under appeal), at [121]-[132] and [183]-[203], together with the cases examined there. See also Alan Hyam, "The Law affecting Valuation of Land in Australia", 4th ed, pp139-145).

The Planning Situation

1. The applicants relied on a town planning expert, John Mullane, and the respondent on Deborah Laidlaw.

1. Their Joint Planning Report (Exhibit A10) notes (at 2.2) that the objectives of the two IN Zones are similar and that a number of land uses are permissible in both zones, but that both zones have uses that are permissible in that zone but not the other. The joint report notes (see 2.6) that retailing is permitted in the IN1 Zone only in respect of goods manufactured on the site, and on strict conditions, and (at 2.3) that the permissibility of bulky goods premises is a differentiating factor applicable to the IN2 Zone in Jamisontown Industrial Precinct, which allows a somewhat wider range of land use categories that are suitable for co-existence with light industrial/quasi retail uses, such as medical centres and hotel and motel accommodation.

1. Conversely (see 2.4), the IN1 Zone is more of a traditional industrial area in which the additional uses permitted (i.e. being those that are not permitted in the IN2 Zone) are generally those with potentially greater environmental impact such as freight transport facilities, general industries, heavy industries as well as light industries. The range of actual land uses permitted in the IN1 Zone is more extensive than for the IN2 Zone, given the wide-ranging scope of the definitions of general industry and heavy industry that are permissible in this zone. Certain of these land uses would benefit from the larger lot areas that are more characteristic of the North Penrith Industrial Area than the Jamisontown Industrial Area.

1. The planners also agreed (see 2.7) that the North Penrith and Jamisontown areas were both affected by Penrith Development Control Plan 2010, and there are limited exceptions to the equal application of that DCP to both areas. There is some controversy between the parties on the question of whether or not a turning lane may need to be added to Castlereagh Road outside the subject site if it is further developed.

1. The planners concluded their joint report (at 2.8) as follows:

We agree there is a concentration of bulky goods style outlets in the Jamisontown industrial precinct, generally coinciding with that part zoned IN2. The North Penrith industrial area is characterised as more of a traditional industrial area, although it also includes a range of salesyard style businesses (cars, caravans etc) along Castlereagh Road. We agree that these uses may have the benefit of existing use rights and are not permissible in the IN1 zone in LEP 2010.

1. In her individual report (Exhibit R2), Laidlaw helpfully compared the two "IN" zones (in par 4.6 and Table 1), as follows:

4.6 I have reconfigured the table as it appears in the instrument so as to allow a direct comparison of which uses are permitted in both zones and which are permitted in one but not the other zone. I have highlighted in bold those uses that are permissible in both zones so that it can be seen that the uses in light type are permissible in only one or the other of the zones.

Table 1	Zone IN1 General Industrial	Zone IN2 Light Industrial
1.Objectives of zone	To provide a wide range of industrial and warehouse land uses To encourage employment opportunities To minimise any adverse effect of industry on other land uses To support and protect industrial land for industrial uses To promote development that makes efficient use of industrial land To permit facilities that serve the daily recreation and convenience needs of persons working in industrial areas	To provide a wide range of light industrial, warehouse and related land uses To encourage employment opportunities and to support the viability of centres To minimise any adverse effect of industry on other land uses To enable other land uses that provide facilities or services to meet the day to day needs of workers in the area To support and protect industrial land for industrial uses To promote development that makes efficient use of industrial land
2.Permitted without consent	Roads	Roads
3.Permitted with consent	Animal boarding or training establishments, - Car parks; - - - Depots; - - Environmental facilities; Environmental protection works; Flood mitigation works; - Freight transport facilities; - - General industries; Heavy industries; Industrial retail outlets; Industrial training facilities; Landscape and garden supplies; Light industries; - Neighbourhood shops; - Recreation areas; - - Sawmill or log processing works; Self-storage units; - Signage; Take away food and drink premises; Timber and building supplies; Transport depots; Truck depots; Vehicle body repair workshops; Vehicle repair stations; - - Warehouse or distribution centres -	- Amusement centres; Car parks; Child care centres; Community facilities; Crematoria; Depots; Educational establishments; Electricity generating works; Environmental facilities; Environmental protection works; Flood mitigation works; Food and drink premises; - Function centres; Hotel or motel accommodation; - - Industrial retail outlets; Industrial training facilities; Landscape and garden supplies; Light industries; Medical centres; Neighbourhood shops; Places of public worship; Recreation areas; Recreation facilities (indoor); Resource recovery facilities; - Self-storage units; Service stations; Signage; - Timber and buildings supplies; - - - Vehicle repair stations; Vehicle sales or hire premises; Veterinary hospitals; Warehouse or distribution centres; Waste or resource transfer stations
4.Prohibited	Any development not specified in item 2 or 3	Schools, Any other development not specified in item 2 or 3

1. Mullane noted (Exhibit A9, s 5) that the key land uses in IN1 which differentiate it from IN2 are uses which traditionally require large sites of 1ha-3ha, for example:

• Depots
• Freight Transport Facilities
• Heavy industries
• Timber and Building Supplies
• Transport Depots
• Truck Depots
• Warehouse and Distribution Centres.

1. He also noted (in s 6) that the following uses are permitted with consent in the IN2 Zone, but not in the IN1 Zone:

• Child Care Centres
• Educational Establishments
• Food and Drink Premises
• Function Centres
• Hotel or Motel Accommodation
• Medical Centres
• Places of Public Worship
• Service Stations
• Vehicle Sales or Hire Premises
• Veterinary Hospitals

1. He observed that these land uses traditionally require much smaller sites.

1. In his conclusions (s 7 on p10), Mullane noted that the subdivision patterns in the two employment zones are radically different, with smaller lots in Jamisontown, and much larger in North Penrith. He observes that Bulky Goods Premises have been, and remain, a land use with strong market demand within employment zones. His concluding paragraph says:

It follows therefore that the different types of land use purposes permitted within the IN1 and IN2 zones are likely to result in different types of demands which will ultimately reflect on whether certain parcels of land are in constant use or are left dormant or underutilised for prolonged periods. The subject land is largely vacant except for a transportable building used as an office and a large galvanised iron workshop used for fitting truck tyres.

Discussion

1. I summarised, in Marroun (at [196]-[208]), the established principles relating to valuation of land by the "comparable sales" method.

1. Among the specific issues I addressed in Marroun were (1) the use of non-completed sales of comparable land ([121]-[134]) and [183]-[191]), and (2) the correct approach to adjustment of valuation figures arrived at ([202]-[208]).

1. We rely upon the summary in Marroun in determining this present matter, and will not repeat it.

1. Adjustments of "comparable sales" relied on in this case were suggested in respect of (1) timing (economic climate), (2) affectation, (3) size/area, (4) physical factors, (5) zoning, and (6) improvement(s). I will deal with these topics now, briefly in that order.

1. Mr Sorrenson opined that the Global Financial Crisis ('GFC') had an impact on values of industrial land at Penrith between early 2008 and late 2009. He based that evidence on an analysis of vacant industrial land sales at Emu Plains (Tp30, LL 21-28, and see also Joint Expert Report, p19), and made no adjustments based on the timing of the sales.

1. Mr Wood opined that between 2011 and 2012 the market fell by 17%, that it had not yet "responded" (Tp29, L1), and that it remained "very soft" (L43). He based that evidence upon the sales at 132 and 128 Blakie Road Jamisontown (Tp33, LL11-16). Mr Wood made no adjustments for improvements, differing sizes, or the inferior shape of 128 Blakie Road, and allowed a 5% ongoing reduction per annum for sales in 2010 and 2011.

1. In our analysis, we have made only slight downward adjustments for timing/economics, to sales which took place between mid 2009 and the end of 2009, and no adjustments for sales in 2010 and 2011. However, adjustments have been made of between 2.5 and 15% for the impact on sales of flooding, or of easements for drainage, or transmission lines.

1. The sizes of the alleged "comparable" properties ranged between 2,147m² and 42,000m², but we disregarded the sale of the property with an area of 2,147m² (60 Jack Williams Drive), as it required so much adjustment (50% or more) that it lost any objective value as a "comparable".

1. We had regard to both of the valuers' competing assessments based on access, location and shape of the properties, but, following the view, we arrived at our own assessments, and adopted Mr Sorrenson's assessment of 10% adjustments as between zoning areas.

1. The only significant difference between the valuers in assessing improvements occurred in the analysis of the Bunnings sale (see below [40]-[42]).

Analysis

1. No single sale can be said to be entirely comparable to the subject site.

1. We have given the three "agreed" sales, which are all located very close to the subject site, a weighting of 50%. The remaining sales considered relevant (those at 16 Lambridge & 198 Andrews Road, Jamisontown, and at Eastern Creek, and Erskine Park) have been given weightings of between 10 and 15%.

The "Agreed" Sales

Land	Sale Price	Area (m²)	Sale Date
2182 Castlereagh Road ('Bunnings' site)	$21,800,000	39,960	9 July 2009
121 Coreen Avenue	$2,775,000	7,891	22 March 2010
36 Jack Williams Drive	$950,000	3,643	2 June 2010

1. The Bunnings site is a "prime parcel of land in strategic location", it is square and substantially improved, and it has frontages to three streets. It is, however, subject to flooding (Exhibit A7, p20).

1. Mr Sorrenson valued its improvements at $13.71M, including letting costs, loss of rental over potential letting up period, and a rental incentive of $2.21M. Mr Wood relied upon the actual cost of improvements ($9.5M in 2006), and allowed $9.81M for them.

1. To account for the increase in price of building costs since 2006, we assessed the improvements at $11.5M, and also adjusted the sale to take account of date, size, shape, location, flood affectation, and access, resulting in an adjusted rate of $201.40/m².

1. 121 Coreen Avenue is improved with 23 factory units, is close to North Penrith's Landcom development, and was sold fully leased. The sale required relatively few adjustments, and would have been more comparable to the subject property, but for its area. We arrived at an adjusted rate as $212.27/m².

1. 36 Jack Williams Drive is a fully serviced rectangular parcel of land, in a modern industrial estate; it was adjusted by both valuers for size and location. Mr Wood also made additional adjustments for the date of the sale and access, and reached an adjusted rate of $173.41/m². Mr Sorrenson made fewer adjustments, and assessed a rate of $229.48/m². We agree that adjustments are required for its smaller size, inferior location, shape, and access, and we came to an adjusted rate of $234.70/m².

1. Our adjusted rate, averaged over the three agreed sales, is, therefore, $205/m².

The other relevant sales

16 Lambridge Place and 198 Andrews Road

Land	Sale Price	Area (m²)	Sale Date
16 Lambridge Place	$1,700,000	14,450	10 November 2009
198 Andrews Road	$600,000	5,963	20 July 2010

1. The respondent contends (opening submissions, par 10) that sales in "distressed" circumstances do not meet the definition of an 'arms-length' transaction, and no reliance should be placed on them.

1. 198 Andrews Road was passed-in twice at auction before selling on the third attempt (Exhibit A8, p7), and 16 Lambridge Place was also passed-in at auction, then advertised extensively, before being eventually sold privately (Exhibit A8, p8).

1. 198 Andrews Road is subject to an easement to drain water (Exhibit A8, p7). The valuers varied only slightly in assessing this sale - $110/m² (Wood) and 115/m² (Sorrenson). We assessed a rate of $110.68/m².

1. Mr Sorrenson adjusted 16 Lambridge Place by 35% for its inferior location, slightly irregular shape and flood affectation, and arrived at an adjusted rate of $158.82/m². Mr Wood also adjusted the sale for its timing, and smaller area, and arrived at a rate of $127.06/m². After having regard to the comments of both valuers, we do not consider it necessary to adjust for the date; but we adjust the sale by 32.5%, to arrive at an adjusted rate of $155.88/m².

1. As prices achieved under some duress may vary very significantly from those achieved in sales conducted on an "open market" basis, the average adjusted rate of $150.00/m² for these two distressed sales has been given only a 10% cautionary weighting in calculating the overall adjusted rate.

Three Jamisontown Sales

Land	Sale Price	Area (m²)	Sale Date
65 Batt Street	$1,650,000	4,199	11 July 2011
37-39 York Street	$2,945,000	6,456	29 November 2011
132 Blakie Road	$2,530,000	7,987	18 September 2011

1. These sales were assessed by only the respondent's valuer, but their different industrial zoning created complexity in comparing them with the subject property.

1. 65 Batt Street has minor improvements, an inline rectangular shape and required few adjustments (Exhibit R3, p3). Mr Sorrenson adjusted it by 25% for size and access, to arrive at a rate of $294.71/m². We arrived at an adjustment for size and access of 30%, and a rate of $275.07/m².

1. 37-39 York Road is in a "fringe" industrial locality, is almost rectangular in shape, and has $1.365M worth of improvements (Exhibit R3, p2). Mr Sorrenson adjusted the value on account of the property's smaller size, IN2 zoning, lack of main road exposure, but also its superior access to the M4 and its corner location, arriving at total adjustments of 8%, and an adjusted rate of $225.15/m². We adjusted by 10%, and arrived at an adjusted rate of 220.26/m².

1. 132 Blakie Road has reasonably level topography, substantial concrete hardstand, and a rectangular shape. It was valued by Mr Sorrenson to have $200,000 worth of improvements. He also made adjustments of 20% for its smaller size and inferior location (it lacks the main road exposure the subject land enjoys), and arrived at an adjusted rate of $233.38/m². We disagree with his assessment of the improvements, and make no adjustment, but we would adjust for size, location and zoning, to come to total adjustments of 15%, and an adjusted rate of $269.25/m².

1. Due to the different industrial zoning between the Jamisontown town site sand the subject site, limited weighting has been afforded to these sales. The average adjusted rate for the Jamisontown sales is $260/m².

The Eastern Creek & Erskine Park Sales

Land	Sale Price	Area (m²)	Sale Date
Lot 21 Wallgrove Road	$7,547,500	30,200	3 July 2010
Lot 7 Wonderland Drive	$7,520,250	30,100	26 August 2010
16 Kellett Close	$1,920,000	10,240	26 May 2010
34 Tyrone Place	$3,007,500	12,030	23 March 2010
1 Quarry Road	$7,213,239	24,300	21 April 2010

1. Mr Wood adjusted Lot 21 Wallgrove Road for the date of the sale (10%), and for size and location, to arrive at total adjustments of 30%, and a rate of $157.45/m². We disagree with his adjustments - we would adjust by only 2.5% for the date of the sale, and by 12.5% for its larger size, location and access, to achieve a rate of $213.21/m².

1. Lot 7 Wonderland Drive is a fully benched, serviced and roaded industrial site. Mr Sorrenson did not adjust the sale, and adopted the base rate of $249.84/m². We would adjust by 7.5%, again for larger size and location, to arrive at an adjusted rate of $231.10/m².

1. 16 Kellett Close is in a good cul-de-sac location, and has good access and, according to Mr Wood, "good plottage", but it is affected by drainage easements on three of its boundaries (Exhibit A8, p18). Mr Wood made a calculation error in his adjustments, but we would adjust by 7.5%, giving us a rate of $173.44/m².

1. 34 Tyrone Place has no improvements. We made adjustments of 15% for size and location, to arrive at a rate of $212.50/m².

1. 1 Quarry Road was sold unimproved, has three street frontages, and is a fully roaded and serviced industrial site (Exhibit A8, p15). The respondent made no adjustments, adopting the base rate of $296.84/m². We would adjust by 17.5% for its slightly larger size, its Erskine Park location, and the shape of the property, giving an adjusted rate of $244.89/m².

1. The average adjusted rate for these Eastern Creek and Erskine Park sales is $220/m², but we have given them little weight, because of their distance from the subject site.

1. Other sales in the area were not considered comparable because their uses were superior to that of the subject property (e.g. Lot 5 Old Wallgrove Road), or because the sale occurred before the GFC (19 Kellett Close).

The Property adjoining the subject site

1. As noted earlier ([15] above), the applicants seek to rely on the aborted negotiations for the sale of the property adjoining the subject site, namely 2101 Castlereagh Road.

1. This is not a sale, as the property was subject only to offer and acceptance, but, were it a sale, it would clearly be "comparable". Its proximate location would mean that the only necessary adjustment would be for size (it has an area of 41,400m2, double that of the subject site). The negotiated price at 1 July 2011 was $6,450,000.

1. Only Mr Wood assessed this property, and, without making any adjustment for its size, he arrived at a rate of $155.80/m². For the sake of completeness, we record that we would make an adjustment of 12.5% for the difference in size, to give an adjusted rate of $175.27/m².

1. However, we give these results little weight, given that the sale did not proceed, and there is other probative valuation evidence before the court. (See again the discussion in Marroun, at [183]-[191]).

Final Adjusted Rate

1. The weighted calculation of adjusted rates leads us to a final adjusted rate of 203.53/m². Multiplied by the area of the subject property, say 19,650m², the valuation of the subject land would, therefore, be determined as $3,996,306, rounded to $4,000,000.

Orders

1. The orders of the court are:

(1)   The value of the applicants' land the subject of the present appeal is determined at $4,000,000.

(2)   All exhibits may be returned.

(3)   The question of costs is reserved.

Decision last updated: 24 October 2013