SHC Properties Pty Ltd v Chief Executive, Department of Lands
[1996] QLC 133
•27 September 1996
|
BRISBANE
27 SEPTEMBER 1996
In the matter of appeals against valuations
Valuation of Land Act 1944
Valuation Roll Nos.: 14051, 14052,
14054/10000, 14065
Local Government: Gold Coast
(AV95-177, AV95-178, AV95-179 & AV95-180)
SHC Properties Pty Ltd
v.
Chief Executive, Department of Lands
(Hearing at Coolangatta)
D E C I S I O N
These matters comprise appeals arising under the provisions of the Valuation of LandAct 1944 and are concerned with the level of valuation applied by the Chief Executive on each of four properties as at 1 January 1995. By consent of the parties, the four appeals were heard together. The valuations struck by the Chief Executive and the figures contended for by the appellant in respect of each subject property appear on the table below together with the property names used throughout this decision. Each of these properties is located in Surfers Paradise on the Gold Coast.
AppealProperty Area Property Name Chief Executive’s Appellants
Addressm² Valuation Valuation
AV95-18017 Cavill 463 m² The Penthouse $2,200,000 $1,800,000
Avenuesite ($4752/ m²) ($3888/ m²)
(Actually
fronts Orchid
Avenue)
AV95-17921 Cavill 331 m² Emu Place $2,700,000 $2,100,000
Avenue($8157 m²) ($6344/ m²)
AV95-17823 Cavill 405 m² Eliza’s $2,300,000 $1,900,000
Avenue($5679/ m²) ($4691/ m²)
AV95-17725 Cavill 809 m² Cavill $4,500,000 $3,900,000
AvenuePlace ($5562 m²) ($4820/ m²)
It is noted that the Chief Executive’s valuations remain the same as those struck by him in 1993.
The Penthouse site comprises Lots 1 to 5 on RP 108786, enjoys the benefit of an access easement which affords rear access to the land and is encumbered by an access easement which covers 104 m2 of the land. Access to the property is via Orchid Avenue which is a single lane one way bitumen paved carriage way and which is connected longitudinally to Cavill Avenue the latter being the more commercially attractive of the two streets. This comparative situational disadvantage is reflected in the values placed on the Penthouse site by both parties. The site is a rectangular shaped inside parcel having a frontage of 24.42 m and a depth of 20.12 m. At the relevant date, the site was developed with a five level building tenanted by a cabaret restaurant and the “Penthouse” nightclub. There is a fourteen year lease on the premises which commenced in June 1986.
Emu Place comprises Lots 1 to 3 on RP 91115 and is burdened by an access easement and two party wall easements to the extent of 50 m² and 3.6 m2 , respectively. This is a corner site with access being available via Cavill and Orchid Avenues whilst side access to pedestrians is available from the encumbrance access easement. The land has a frontage to Cavill Avenue of 20.32 m, to Orchid Avenue of 15.81 m and a depth to Cavill Avenue of between 15.81 m and 18.2 m and to Orchid Avenue of 20.32 m. The land has two buildings constructed on it providing a number of retail tenancies.
Eliza’s is Lot 69 on RP 21839 and has both an encumbrance access easement and a benefiting access easement, the encumbrance having an area of 33 m2. Access to the land is available via Cavill Avenue. Rear access to the site is available via the easements which provide access to Orchid Avenue. The land is rectangular in shape having a frontage of 10.07 m and a depth of 40.23 m. A three level retail building has been developed on the site and has recently been refurbished, comprising a number of retail tenancies.
Cavill Place comprises Lots 70 and 71 on RP 21839. Access to the property is available by Cavill Avenue. Access through the building developed on the subject is available to the Dolphin Arcade which is a major commercial development of a predominantly retail character having access to the Gold Coast highway and to Orchid Avenue. The land is rectangular in shape and has a frontage of 20.131 m and a depth of 40.234 m. Cavill Place was previously known as the “Hub Arcade”, however, has been redeveloped under its present name to a structure having motel rooms and a restaurant on its first floor and retail tenancies at the ground floor arcade level.
Each of the subject properties adjoin in the sequence of their above descriptions; are zoned “comprehensive development” in the town planning scheme of Gold Coast City effective at the date of valuation; and are located about 100 to 120 m north of the Surfers Paradise Post Office.
Valuation evidence on behalf of the appellant was provided by Raymond Philip Wood, a registered valuer in private practice who tendered his written valuations in support of the figures contended for. Mr. Wood relied on sales occurring between August 1993 and March 1995 including a sale of all the subject lands in the one transaction (the aggregated subject sale) in 1993. It was Mr. Wood’s opinion that the general market conditions and therefore levels of value for “comprehensive development” zoned land within the Surfers Paradise central district remained virtually unchanged during this period. As only three of Mr. Wood’s sales were lightly improved or vacant, he also referred to improved sales evidence analysed by him back to an unimproved figure in each instance. Mr. Wood wrote in his valuation, “the most comparable evidence available is the subject properties themselves”, that is the aggregated subject sale, however, there was considerable debate concerning the figures to be relied upon in the valuation of improvements and the actual application of the resultant unimproved figure.
I should mention that at the invitation of the appellant, I took a view of the subject properties and each of the sales referred to by the valuers. This view assisted me in my appreciation of the evidence.
Shane Raymond Stirling Montgomery, a registered valuer in the employment of the Department of Natural Resources (which includes the former Department of Lands) provided valuations in support of the Chief Executive’s figure in each case. He referred also to the aggregated subject sale, however, for different purposes from those of Mr. Wood as will be seen in due course. Mr. Montgomery referred to two other sales, one of which was common to the appellant’s side, that is the Westpac/Sportsgirl sale, though I should mention now that this sale was not relied upon by Mr. Wood. A measure of time was devoted during the hearing to the Chief Executive’s use of the “Gold Coast Depth Curve” which was described by Mr. Montgomery as a derivative of the Somers Curve and it may be useful if I deal with that particular matter at this point.
Mr. Montgomery attributed the development of the Gold Coast Depth Curve to two departmental officers, one of whom worked on the Gold Coast for some twenty-five years but has since retired. Neither of these officers was called. Mr. Montgomery said that the methodology is based on the use of a standard parcel with an attributed value which is regularly reviewed back to sales evidence. The standard parcel has a depth of 40 m. As I understand the evidence, the standard rate of value, based largely on situation it seems, is applied to the relevant parcel of land to be valued and this is then adjusted by reference to consideration of matters of depth, area, street to street influence and a magnitude allowance which takes into account both size and quantum of price. In Mr. Montgomery’s valuation for Cavill Place, the calculations were represented thus:
“ Standard Rate : $6,000/m²
at Depth Factor of : 1.0
by Area : 809 m²
by Street to Street influence : 1.025
by Magnitude allowance : 0.9
$4,477,815
Adopt: $4,500,000 ”
Apart from its use in striking the individual values for the subject lots, the Gold Coast Depth Curve was also mentioned in two other respects which I will come to in later stages of this decision.
No evidence was tendered by the Chief Executive providing support for the applied standard rates, the depth factors etc. nor was the methodology fully explained in a way that was understood by either Mr. Wood or myself, though each of us might be taken to have some understanding of depth curve theory. Interestingly, Mr. Grennan who appeared for the Chief Executive said in describing the method that “the mathematics is backwards” and that he had difficulty with it himself. I raised during the hearing my concern with not being fully apprised of the methodology being presented nor the basis for the adopted figures, however, it was Mr. Grennan’s submission that the method was presented more as a courtesy to show how Mr. Montgomery had worked out his figures. To this suggestion, I would say two things: first I see no good purpose in presenting evidence of a methodology which is not fully explained and substantiated; and second I do not accept that the sole reason for mentioning the Gold Coast Depth Curve was one of courtesy as not only was the standard rate proposition put expressly to Mr. Wood in cross-examination when comparing two sales which I will refer to now as the Selby Court sale and the ex-Police Headquarters sale, but Mr. Montgomery referred to the Gold Coast Depth Curve methodology as the basis for certain conclusions that he had drawn regarding the levels at which he had applied two of his sales.
In Rost and Collins (“Land Valuation and Compensation in Australia” 1984) the authors in appendix 1 at page 618 write, in relation to depth curves and associated tables and formulae, “In previous additions of this book, these tables, formulas and explanations formed part of chapter 6. Because they are now of academic interest only, they have been removed from the chapter and included as an appendix....”. At pages 619 to 620 they say “Land market trends, considered in conjunction with current patterns of urban redevelopment, indicate that former concepts of value relationships between street frontage and depths may no longer be valid as an aid to the valuation of land in a number of city and suburban areas. Whether or not this is so in particular instances is a matter for determination by urban valuers following on analyses of all pertinent market transactions.
The main use of depth tables has been that of enabling ready comparisons to be made in determining unimproved or site values of numerous parcels for rating or land taxation purposes.”
In his discussion of depth curve methodology Mr. Wood appeared to demonstrate a ready appreciation of what I have referred to in Rost and Collins. Mr Wood said that whilst it may be appropriate to use depth curves in establishing relativity between properties in rating valuations, he did not think that such an approach was appropriate in Surfers Paradise where property values can change within 100 m therefore suggesting every property should be looked at on its individual merits in comparison with any sales that occur. From what I heard about the Gold Coast Depth Curve from Mr. Montgomery it appears that the method attempts to avoid the error of simply transplanting a method and calculations derived from a foreign jurisdiction (as was criticised in Dymock’s Book Arcade, v. Federal Commissioner of Taxation (1937) 4 The Valuer 403) so it may well be the case that the Gold Coast Depth Curve could be used as a tool in indicating any claimed veracity between relativities struck by the Chief Executive. As I have said, however, this is not the case here where it has been used as a primary tool of valuation and given the state of the evidence concerning its provenance I decline to place direct reliance on it. Fortunately, Mr. Montgomery has provided some block to block comparisons with respect to his sales evidence and it is that evidence to which I will refer.
The aggregated subject sale took place according to Mr. Montgomery on 29 July 1993 and according to Mr. Wood on 27 October 1993. Perhaps the explanation of the difference in dates in this case and with respect to the other sales is that one is the contract date and the other the settlement date, however, the difference is not of any great moment in this matter. The vendor was Colonial Mutual Life (CML) who sold the properties to the appellant after what Mr. Wood described as a “professional marketing campaign” though there was no evidence as to whether the properties were marketed as a single site only and if marketed also individually as to what the individual asking prices were. Mr. Montgomery said that the subject lands were amalgamated by CML between March 1987 and October 1989 for an all up cost of $29.7 million and that the vendor had plans, at one stage, for a four-level development on the aggregated site. Mr. Wood had worked with the selling agent at the time of the sale and was directly involved with the transaction. He said that the appellant, a Singaporian Company, “considered having paid a premium to obtain such a strategic long term holding of over 2,000 m²”. Notwithstanding his understanding that a premium was paid, Mr. Wood simply apportioned the analysed purchase price without making any deduction other than for improvements.
The evidence that a premium was paid is hearsay and though admitted into evidence, reliance on it is a question of weight. Circumstances of the conversation in which a representative of the purchaser mentioned the matter of the premium to Mr. Wood were not referred to, nor was there any basis for the statement provided. I might add that no cross-examination was directed towards these matters. It was, however, put to Mr. Wood in cross-examination that there may have been a climate of liquidation sales at the time of the aggregated subject sale: a suggestion rejected by Mr. Wood. I note that there was no direct evidence adduced supporting this cross-examination. Indeed it may be appropriate if I point out that the conduct of the case from both sides suffered from the no doubt valiant but inexpert advocacy of each. I do not mean by this to be critical of either Mr. Grennan or Mr. Wood, however, it is difficult in all but the simplest of matters for a lay person to adequately present a case, cross-examine and construct an address of assistance to the Court. A Member of the Court is not to be taken to be a third valuer, whose opinion will prevail over the other two, but a person whose role involves determining questions of fact on the evidence heard and tested, and in applying the relevant law, usually on the basis of authorities cited in argument. In a recent address Brennan C.J. said that without the trusted support of those who conduct cases before a Court,
“...the Bench must start from scratch the work that the Bar should - and usually does - perform of identifying issues, adducing relevant evidence and referring to relevant authority.”
His honour went on to say that without such support,
“... the adversary system would collapse and the public purse would have to meet the cost of a multitude of investigatory judges.” (1996 ALJ 277 at 278).
This Court has been, and assuredly will continue to be, readily accessible to appellants and supportive of them, procedurally. Most come to the Court once in a lifetime and should not be driven to the expense of hiring lawyers except where the significance or complexity of the case warrants. The Office of the Chief Executive, on the other hand, comes here frequently and has a duty to protect the integrity of the system of statutory valuations, to support each valuation appealed against and to present a case which does not take advantage of the appellants’ circumstances. The Chief Executive’s advocate must discharge these duties and, in addition, honour his duty to the law and to the Court and, if a lawyer, also to his profession. These are onerous obligations which should not be placed on the shoulders of non-lawyers except where the case warrants or where the advocate is fully trained.
I return now to further consideration of the aggregated subject sale. Mr. Montgomery expressed the view that the aggregated subject sale is “considered conservative reflective of the market” and mentioned that the previous vendor to CML had a first right of refusal of buying back the Penthouse site from CML. I do not see any relevance in this as the sale to the appellant would indicate that this right has terminated and there is no clear evidence as to what impact this may have had on the transaction. Mr. Montgomery also referred to the presence of the Penthouse nightclub lease referred to above; to the under-utilisation of the aggregate parcel of land, as developed at the time of sale; and to the fact that at the time of the sale the vendor, CML, was in the process of purchasing the State Bank of N.S.W. None of these factors nor the combination of them appears remarkable to me. They either constitute matters that would normally be taken into account in settling on a purchase price, or a reason why the sale was decided upon by the vendor.
Following purchase the appellant substantially refurbished Cavill Place at a cost of about $1,000,000 whilst Emu Place was partially renovated. In short, the appellant did not take early advantage of the amalgamated site but adopted a position more akin to that of a long-term holding. This is consistent with Mr. Wood’s understanding of the motives of the appellant whom he understood was taking a long term position with redevelopment being, perhaps, some decades away. Mr. Montgomery agreed that the aggregated site has potential as a holding proposition but it was his view that redevelopment of the aggregated site might occur somewhat sooner than was indicated by Mr. Wood and that redevelopment of two other substantial sites, namely the Chevron Hotel site and a site referred to as Jimna indicated that a redevelopment climate would emerge sooner rather than later in the Surfers Paradise Central Business District.
Whilst I accept that Mr. Wood was told by a representative of the purchase company about the claimed premium I think that it would be unwise to accept this as evidence that, in fact, a premium was paid without more cogent evidence indicating justification for such a view. Whilst it is most probably the case that there is some added value in the ownership of the four contiguous parcels, this is not to say that a prudent purchaser would pay more to be in such a position than the total price that would be paid by four individual purchases of the subject lands.
In his sales analysis Mr. Wood calculated a net unimproved figure for the aggregated site of $9.7 million after allowing $3.3 million for the improvements whilst Mr. Montgomery deduced a figure of $10.65 million, following the deduction of $2.35 million for the improvements, but in his valuation wrote “in using the Gold Coast Depth Curve for UCV calculation, the sale holding would attract a 1995 value of $9.5 million if valued as a whole.” Now whilst it was not clear exactly how he had calculated the $9.5 million, it was a figure which Mr. Wood seized on in address in spite of his earlier criticism of the use of such techniques as the Gold Coast Depth Curve as a primary method of valuation. Having said this, it must be acknowledged that it is a figure tolerably close to Mr. Wood’s $9.7 million but it needs to be noted that each was arrived at by quite different means. On a directly associated point, Mr. Wood asked Mr. Montgomery in cross-examination, “What you have stated in evidence now is that the values of the properties individually are probably worth about the same as a total combined value?” To this he answered “Taking into consideration the costs of selling them individually, yes.”
I also note, however, that Mr. Montgomery also expressed the view that the sum of the values of the individual subject properties would be more than the price paid in the aggregated subject sale.
Given what I have just set out above it seems to me that it is Mr. Wood’s position that if the value of the aggregated site is the same as the sum of values of the individual lots, less the costs and risks of realisation, then the value of the individual lots can be ascertained simply by apportioning the analysed unimproved sale price of the aggregated subject sale. Presumably the claimed premium would offset the costs and risks of realisation. I should mention that the summary that I have just outlined does not comprise a record of a submission actually made by Mr. Wood but rather constitutes an attempt by me to attribute an argument having regard to matters of evidence which he indicated during the hearing were of significance.
There are three comments that I would make concerning the argument that I have outlined. The first is to say that it is not appropriate to value an individual site capable of sale as such by making any deduction for costs and risks of realisation. The proposition described by Mr. Montgomery, and with which I agree, was not a description indicating how to value the individual lots but was given to explain the rationale that a vendor would construct in deciding to sell four such lots either individually or collectively. This is quite a different matter from that of deciding what the values of each individual lot would be.
My second comment is to express concern with how one is to apportion the overall sale price to the individual lots. Mr. Wood did this by reference to other sales and by consideration of the relativity between values struck by the Chief Executive on the subject lands. In the case of the Penthouse site Mr. Wood’s $3,888 per m² is about 81% of the Chief Executive’s $4,752 per m²; his $6,344 per m² is about 78% of the Chief Executive’s $8,157 per m² on Emu Place; his $4,691 per m² is about 83% of the Chief Executive’s $5,679 per m² on Eliza’s and his $4,820 per m² is about 87% of the Chief Executive’s $5,562 per m² on Cavill Place. Whilst I acknowledge that the relativities are in general similar, it seems that the differences arise out of an application of the sales evidence. In view of the reliance on other sales it would not be appropriate to simply relegate other sales to the role of apportioning the analysed value of the aggregate subject sale. Quite clearly if the other sales are comparable then they are best referred to in a site to site comparison.
My third comment is concerned with the differences between the analysis of each valuer of the sale back to an unimproved figure. There were differences in building area:
AppellantRespondent
The Penthouse site 2000 m² 1600 m²
Emu Place 530 410
Eliza’s 750 1000
Cavill Place 1375 1600
Differences in replacement cost of buildings:
$ $
The Penthouse Site 1250 1700
Emu Place 900 1000
Eliza’s 1250 1000
Cavill Place 900 1000
Differences in the age of buildings:-
The Penthouse Site 30 years 30 years
Emu Place 20 40
Eliza’s 10 20-27
Cavill Place 20 40
Mr. Montgomery said that he had actually measured the buildings whereas Mr. Wood had referred to lease documents and calculated a nett lettable area as being 80% of the gross area. I would prefer Mr. Montgomery’s evidence of building measurement. Mr. Montgomery also gave more cogent evidence regarding building costs and the ages of the buildings on the subject lands. During the hearing there were concessions from Mr. Wood with regard to some aspects of the differences between the parties on the above matters, most such concessions being favourable to the appellant, though not totally. There was, however, a total failure of agreement on the question of depreciation rates that ought to apply to the buildings:
AppellantRespondent
%%
The Penthouse Site 40 65
Emu Place 25 65
Eliza’s 25 50
Cavill Place 40 75
On the state of the evidence, I could tackle the task of determining building area, age and replacement costs with some confidence as there is little separating the parties particularly given the concessions by Mr. Wood and my conclusion that I would lean towards the evidence of Mr Montgomery on the matters of building measurements, construction costs and age. No concessions were, however, made with respect to depreciation rates that ought to apply and it is in this area that the major difference in result between the valuers emerges.
It is in cases of such difficulty that the following words resonate profoundly:
“It has been judicially laid down many times and in many jurisdictions that in ascertaining unimproved value, sales of unimproved land of comparable quality, situation, etc., to the subject parcel, if they are available, are to be preferred as the best guide for arriving at unimproved value.” Per Clough v the Valuer-General (1981-82 8 QLCR 70 at 76.”
I will, having regard to all that I have written concerning the aggregate subject sale, decline to decide the unimproved figure that would result from that transaction. Nevertheless, it is useful to draw on some of the points raised during the debate between the parties on the question of depreciation and on the broader issue of the value that the buildings add to the various subject sites. In this regard Mr. Wood was at pains to point out that the appellant had purchased the joint lots with a long term view in mind and his approach to the depreciation issue is consistent with this. Here he adopted depreciation rates “by an estimation of the remaining life of the improvements”. If I refer to the Penthouse site by way of example: he has by adopting a 40% depreciation rate with respect to a building which the parties agree was thirty years old at the relevant date indicated that, on a straight line basis, the building still has an investment life of about forty-five years. I should emphasise that Mr. Wood said in evidence that he had not adopted a straight line approach but without further explanation the result that I have calculated would be indicative even if not totally acceptable to Mr. Wood. Mr. Wood said quite consistently elsewhere that redevelopment of the overall site could be “decades away”. If these views were to be accepted, then the suggestion that the purchasers might have, in fact, paid a premium, becomes a little less plausible. To this evidence I should add that at the time of the subject sale a lease on the Penthouse site had some seven (7) years yet to run: a factor that would militate against the ease of carrying out an early redevelopment of the aggregated site.
Before leaving the aggregated subject sale, it may be useful if I point out that whilst Mr. Wood employed it as a direct indicator of value, Mr. Montgomery used it differently. As I have said earlier, Mr. Montgomery deduced an unimproved figure of $10.65 million for the sale, yet valued the individual subject lots at a total of $11.7 million. In his written valuation, he wrote that the $9.5 million figure for the whole site arrived at by use of the Gold Coast Depth Curve method reflected “a sale application of 89% suggesting reapplication of 1993 UCVs.” The underlying reasoning giving rise to these words was not fully explained during the hearing, however, it seems to me that the argument may go something like this: there is relative consistency between the $9.5 million and the $10.65 million figures, therefore the $11.7 million total 1993 figure should not be disturbed. Perhaps put another way this argument would say that the aggregated subject sale does not indicate a sufficient move in the market to warrant an adjustment in values. Support for this understanding may be found in another part of Mr. Montgomery’s valuation where he wrote:
“Nine retail property sales occurred in Surfers Paradise during the 1995 Rating valuation study period. In reapplying the 1993 rating valuations in 1995, five of the sales were basic supporting sales, three were high sales and one was a low sale. Two of the high sales (sales 2 & 3 on this schedule the sales referred to as the Westpac/Sportsgirl sale and the Savoy Souvenirs sale, respectively) were sales influenced by prospective Duty Free operations, being two of the three sales within the core of the Surfers Paradise CBD. The third sale in the core is the multi-property subject sale. Having regard to the market evidence and the factors surrounding the high sales, the 1993 Rating Valuation for smaller properties was retained.” (Underlined was supplied by me).
This reasoning as I have expressed it needs to be considered in the light of all of the sales evidence put forward by the parties. I acknowledge that it is appropriate for the Chief Executive to monitor sales as a basis for deciding whether a shift in values is warranted, however, it is my task to consider these appeals having regard to the evidence placed before me.
Before turning to this evidence, I wish to comment on certain traffic counts relied upon and referred to frequently by Mr. Wood. I would summarise this evidence by saying that it showed on the afternoons in question that substantially more traffic (calculated by Mr. Wood at 800 %) travelled along the Gold Coast Highway in a north-south direction through central Surfers Paradise than travelled along either Cavill Avenue and then into Orchid Avenue or along Elkhorn Avenue. Mr. Wood may well be right in his calculations, however, I cannot accept traffic counts as a reliable indicator of value both as a matter of logic and also given that I have persuasive evidence from Mr. Montgomery that pedestrian counts and rent levels would be more useful indicators. Indeed, if Mr. Wood is right when he says that values in Surfers Paradise can change dramatically within 100 m then reliance on such a determinant as traffic flows would be a risky undertaking. For example, pedestrian malls where traffic is generally prohibited often support valuable properties. Indeed, under cross-examination Mr Wood agreed that most of the pedestrians who walked past the Westpac/Sportsgirl sale would walk down Cavill Avenue; and, after all, it is pedestrians who enter the trading establishments on Cavill and Orchid Avenues, not motor cars. It does seem to me, however, that the exposure of a site would be a relevant consideration in placing some reliance on evidence of traffic counts. Disproportionate reliance on traffic flow numbers, however, runs the risks of leading one into substantial error.
I will, in considering the remaining sales evidence, first of all deal with the Westpac/Sportsgirl sale, that is, the common sale. The sale of these two adjoining properties took place in July 1994 settling in December of that year, the Westpac property having an area of 382 m² and the Sportsgirl property that of 187 m². The sale prices were $5,250,000, and $2,900,000 dollars respectively, however, it appears that the transaction comprised a single transaction in the amount of $8,150,000 as I understood the evidence. The Westpac property is located on the north-eastern corner of the intersection of Cavill Avenue and the Gold Coast Highway one lot removed from the subject property referred to as Cavill Place. The property is improved with a two-level building which had been used for banking purposes, however, was extensively refurbished for leasing as a duty-free store. According to Mr. Wood the current tenant had been “tied up” before the purchase took place, that tenant also occupying the adjoining property which had previously been the Post Office but has been fully redeveloped into a three-level duty-free store. There was no challenge to this evidence of Mr. Wood, indeed, Mr. Montgomery said that he understood that there had been discussions concerning the tenanting of the Westpac site prior to the sale. The impact of such pre-purchase arrangements on the sale price is unknown and there was no attempt before me to place a value on this factor. I consider the arrangements to be a matter of some significance which detracts from the reliability of the sale as a basis for valuation.
The Sportsgirl site adjoins the Westpac property on its northern side fronting the Gold Coast Highway and was occupied by the retailer “Sportsgirl” at the date of sale. According to Mr. Montgomery, continued occupation of the land was offered to the retailer, however, this was not taken up and the building was demolished in early 1996. The site is being redeveloped.
Mr. Montgomery valued the improvements in the joint transaction at $700,000 while Mr. Wood placed a figure of $1,000,000 on them, yielding unimproved figures of $13,093 per m² and $12,565 per m² respectively.
In Mr. Wood’s view the sale is one which ought not to be relied upon for a number of reasons, largely associated with the Westpac site. Firstly, he said that this site is the “best corner site” in the heart of the Surfers Paradise CBD and in regard to this point, referred both to high traffic and pedestrian flows. Mr. Montgomery said that the sale property has “prime corner exposure” and whilst each of the subject properties was placed on a lower rate per m² than the application of the composite Westpac/Sportsgirl sale, Emu Place was assessed at a higher figure. In comparing the sale with Emu Place, Mr. Montgomery wrote that the sale properties are considered similar to the subject property in situation; but the Sportsgirl property’s smaller size and better access are more than offset by the subject prime corner position. He referred to the Westpac block as being encumbered by a servient tenement, and added that “all other characteristics are considered similar.” Having considered the evidence on comparability, I conclude that I should not accept Mr. Wood’s proposition that the Westpac site possesses a superiority site to site over Emu Place which would make a comparison between the two difficult.
Whilst Mr. Montgomery analysed the joint sale back to an unimproved figure of $13,093 per m² he applied it to a figure of $7,381 per m² only. There were two reasons given for this, the first being that the application rate was indicated by an application of the Gold Coast Depth Curve and the second that duty-free retailing has created a two-tiered rental market and therefore sales level in Surfers Paradise. Mr. Montgomery referred to rents of duty-free stores at $1,200 per m² per year net and $1,600 per annum (there being no apparent substantive difference notwithstanding the use of different terminology here) and $860 and $1,300 per annum for non duty-free store uses. He said that because of this and of the circumstances surrounding the purchase, in particular the anticipation of a long term duty-free tenancy after sale, that the application of the sale had been viewed cautiously.
Whilst Mr. Wood did not expressly agree or disagree with the presence of a two-tiered market in Surfers Paradise, he suggested that if that evidence were to be accepted than that would be sufficient to dismiss the Westpac/Sportsgirl sale as a reliable basis for valuation purposes. In suggesting another reason why the sale should be rejected Mr. Wood said that there was an adjoining owner influence in the transaction in that the purchaser has owned the opposite corner
for many years and wanted to buy this corner “at all costs”. Mr. Wood had been directly involved in the sale. In spite of this I am loathe to accept a suggestion of adjoining owner influence excepting in circumstances where an economic or other tangible benefit can be directly referred to not with respect to the sale property per se, but with respect to the sale property in association with the adjacent property. I find support for such reasoning in a number of authorities (Barber v Valuer General (1969) 17 LGRA 409 and Hurdis v the Minister (1957) 2 LGRA 132) and think that the view expressed by Mr. Barry in Ussher v The Valuer General (1986/87) 11 QLCR 169 at 177 is a useful guide to use on this issue:
“Mr Ussher says that the Shepperson to Ferris sale cannot be used as it is an adjoining owner sale. This submission can be quickly dealt with for there is no law or practice which says that such sales must be rejected as not providing evidence of land values. It is accepted that, where there are not other sales of comparable land, they may well provide a sound basis for valuation purposes. It would require to be shown that the neighbour purchased under some strong pressure at a price in excess of the level to be found from other sales. However, in this case there are other sales which I can consider and while I do not discard the Shepperson to Ferris sale it does no more than support the sales which were not to neighbours.”
Mr. Wood also referred to the pre-purchase agreement with the tenant of the adjoining duty-free site as tainting the sale. In addition, he mentioned that given that the purchaser retained the building on the Westpac site and refurbished it rather than demolish and redevelop that there was an inherent value in the building on the land in that there could no be no imposition of setback requirements or parking requirements or contributions imposed by the local authority as would be the case were a redevelopment to occur. Now this is a matter that I need not consider in detail both because each of the subject blocks which are improved with buildings have this advantage to the extent it exists and second because in the analysis of improvements on the sale there is little difference between the figures proposed by Mr. Montgomery and Mr. Wood.
Mr. Montgomery’s remaining sale, referred to during the hearing as the Savoy Souvenirs sale, took place in July 1994 and involved an area of 632 m² of land fronting the Gold Coast Highway being sold for $6.8 million. He analysed the transaction back to an unimproved figure of $10,047 per m² applied at only $5,063 per m² for similar reasons to those mentioned in my discussion of the Westpac/Sportsgirl sale above. In the case of the Savoy Souvenirs sale the circumstances were perhaps a little more stark in that the sale property was purchased by a duty-free chain which is in direct competition with another that purchased an adjoining property in 1993. That adjoining property had previously been leased to the purchaser of the Savoy Souvenirs site. Mr. Wood said that the sale ought to be disregarded as the level of application by Mr. Montgomery indicated that the sale is a high sale. He said that the property was not on the market for the purposes of sale, however, the vendor had been induced to sell it and that the purchaser had paid a premium for the property. The valuers appear to agree on this point.
Mr. Montgomery has presented, adjusted and applied the Westpac/Sportsgirl and the Savoy Souvenirs sales in a way that attempts to take into account the circumstances of the transactions. Valuers are not always favoured with suitable sales evidence upon which to base their valuations and must, perforce, do what they can with the available evidence. As will be read later in the decision, however, I have considered it appropriate to employ sales evidence adduced by Mr. Wood. I have considered those sales more suitable than the Westpac/Sportsgirl and Savoy Souvenirs sales largely because of the presence of the pre-sale lease arrangements in the case of the former, and in respect of both, because of the level of application compared with the analysed sale figure. Valuers employed by the Chief Executive frequently appear before me relying on sales which they have not applied fully and, as a general rule, I see no difficulty with that as the level of adjustment made is usually nothing more than would be sufficient to ensure appropriate valuation relativities are maintained. In the instant case it appears that maintenance of relativities was the precise consideration in Mr. Montgomery’s mind in the process of selecting the level of application of the sales, however, there are two comments that I would make about this. The first is to say that as the adjustment is based on the use of the Gold Coast Depth Curve methodology and given my earlier comment on this I would not accept the level of application. In the absence of a detailed explanation of the methodology the question may well be asked, “why not a lower application figure?” The second comment is to say that the level of adjustment is such that there is a clear lack of reliance on the sale as the basis of valuation.
Now to the remaining sales of the appellant. The first of these, described as the ex TAA building settled in August 1993 for a price of $4.22 million analysed by Mr. Wood to a figure of $3,136 per m². Mr. Wood’s comparison simply says that the sale has a similar size to Cavill Place and is in an inferior location. Mr. Montgomery did not disagree with Mr. Wood’s evidence concerning this transaction, however, provided nothing further by way of comparison with any of the subject blocks.
Mr. Wood included the sale of the Chevron Hotel site in his schedule of comparable sales, this property having settled in February 1995 for a sale price of $42.5 million. The sale has a land area of 19,600 m² and is bound by three main roads. Whilst Mr. Wood analysed the sale back to an unimproved figure of $2,168 per m² he suggested that some adjustment for demolition costs should be considered in the analysis and appeared not to disagree with Mr. Montgomery’s view that some allowance for a liquor licence needed also to be taken into account. Mr. Wood said that, when developed, the sale block will change the whole focus of the Surfers Paradise CBD given the strategic location of the site but by virtue of the size of the sale land it is used by him to provide the lowest level figure of what the subject properties should be valued at. There appeared to be no contest from the Chief Executive’s side concerning the use of this sale for the purpose outlined by Mr. Wood, however, given the substantial size of the sale land direct comparison with the subjects would not be particularly helpful in my view.
Mr. Wood’s next sale, Le Boulevard, settled in December 1994 for a price $11,125,000 yielding, for its 1761 m², an unimproved figure on Mr. Wood’s calculations of $4,812 per m². This analysis was not challenged by the Chief Executive whose evidence was that Mr. Montgomery’s analysis of the sale supported the level of value the Chief Executive has on the sale land. Though there was not unanimity on how this sale might be used in this case, it does have the notable features of being near the subject lands, not criticised as being an “out of line sale”, and agreement between the valuers as to the value which should be placed on the improvements. Mr. Wood said that the sale land is a prime site bounded by Orchid Avenue, Elkhorn Avenue and the Esplanade providing “superior exposure”, presumably to that of the subject lands individually, and that the sale had a similar size to that of the combined subject properties. He said that the sale land was “very comparable”. Mr. Montgomery did not agree with this, saying that rents in Le Boulevard were in the vicinity of $500 to $600 per m² (I presume per annum) whilst $800 per m² might be achievable when the current refurbishment of the sale buildings is completed. This level of rent compares unfavourably with the subject lands according to him where, for example, the Metway lease in Cavill Place is at a rent of $1300 per m2 per annum. The Chief Executive’s side also suggests that some allowance for the larger size of the sale block ought to be made when compared with the smaller size of each of the subject lands: a suggestion with which Mr. Wood did not agree, however, he did say that he had made allowance for size in his comparison with the subject lands. It seems clear to me that the size differential must be taken into account: that is, there ought to be some upwards adjustment for smaller areas in comparison with Le Boulevard. Size is not simply a matter tied up with the development which can be carried out on a parcel of land and the return which might be expected from it. It is also evident that, all other things being equal, smaller sites with overall lower prices will usually attract buyer competition in the market place with a consequent effect on price per unit area.
The remaining two sales referred to by Mr. Wood are located some distance away from Cavill Avenue, the first being the Selby Court sale located on the north-west corner of the Gold Coast Highway and Elkhorn Avenue and the ex Police Headquarters sale on the same side of the Gold Coast Highway as Selby Court but removed some two lots to the north.
Selby Court settled in December 1993 at a sale price of $3,088,000 and was analysed by Mr. Wood to a figure of $5,757 per m² for the 519 m² site. There was no challenge to this unimproved figure from the Chief Executive’s side, however, the comparison made by Mr. Wood between this sale property and the subject lands was quite another matter. This difference in opinion derives largely from Mr. Wood’s suggestion that Selby Court occupies a superior location to the subject lands. I assume that in saying this he refers to each of the subjects other than Emu Place, as in his valuation he has placed a higher value per m² on Emu Place (that is $6,344 per m²) although he expressed the opinion in his written valuation that the unimproved value of Emu Place ought to be less than that of Selby Court. Mr. Wood placed particular reliance on the volume of vehicular and pedestrian traffic passing Selby Court in support of his view of the superiority of that location, however, there was no direct evidence given on pedestrian counts. He also said that the sale land is across the road from the ANA Hotel; it is between both the Marriott Hotel and the Gold Coast International Hotel and the Surfers Paradise C.B.D.
Mr. Montgomery proffered the view that the Selby Court transaction was a high sale and that Mr. Wood’s last sale, that is the ex Police Headquarters’ property, is a better guide to values in the vicinity. He also said that the Selby Court sale included some improvements which should have featured in Mr. Wood’s use of the sale and did not; and that the sale date was November 1992 not December 1993 as appeared in Mr. Wood’s written valuation. In Mr. Wood’s view, the ex Police Headquarters’ sale was a “good buy” in that he would have expected this sale to have attracted a higher price given its exposure to the Gold Coast Highway and the volume of traffic there though the sale is set back somewhat from the direct line of the highway.
Mr. Montgomery referred to rent differentials as being his preferred indicator of the comparison of values between areas saying that he is aware that the Night Owl Convenience Store located in the redevelopment on the ex Police Headquarters land is rented at about $500 per m² whereas the Metway Bank in Cavill Place is rented at $1,300 per m². I take these, and other instances where rents are referred to, to be broad indicators but would prefer when rents are being quoted that there be clear evidence as to whether the figures mentioned are net of outgoings, whether the rented area involves access to and use of common areas, whether parking or other incidental rights are included, and whether there are any quality difference between the examples cited.
The ex Police Headquarters sale settled in March 1995 for a price of $1.825 million,
unimproved, indicating an unimproved figure of $2,549 per m² for the land area of 716 m². Whilst Mr. Wood said that some allowance for demolition costs might be included, no issue was taken on this point during the hearing.
I have formed the view on the totality of the evidence and with the benefit of my view of the subject properties and all of the sales that, with the possible exception of the Penthouse site, each of the subject blocks would be superior to Selby Court on a situation comparison basis, only; that is, putting aside other factors particularly corner influence. In saying this, I note that, apart from the instance of Emu Place, the Chief Executive has applied a lower rate per m² to the subject lots, though in the case of Eliza’s and Cavill Place the difference is marginal; however, if Mr. Montgomery is right in his suggestion that Selby Court comprised a high sale, then no inconsistency results.
Clearly the ex Police Headquarters site is inferior to Selby Court, though not in my view to the extent indicated by the analysed unimproved figures of $2,549 per m² and $5,757 m² respectively. The difficulty is whether the disproportionate difference between the two is because the Selby Court sale was high, the ex Police Headquarters sale low, or perhaps a combination of both. I have no way of confidently drawing a conclusion on this but to say that it would be appropriate if cautious reference only is made to the Selby Court sale. I deal with Mr. Wood’s use of the ex Police Headquarters sale, below.
In his written valuation and in oral evidence Mr. Wood did not provide comparisons between the subject properties and his sales to the level of detail that I might have expected. For example, he did not as a general rule provide a comparison between each sale that he considered to be comparable and the relevant subject properties, his comments on sales seeming to fluctuate between consideration of a sale in relation to the individual subject properties and an aggregation of all of the subjects. He did, however, provide a summary table which showed his value for each subject and selected sales that he considered were inferior or superior to that subject.
He wrote that the Eliza’s site (valued at $4,691 per m² by him) is superior to the ex TAA building sale ($3,136 per m²) but should be less than the ex Police Headquarters sale ($2,549 per m²). I cannot agree that this subject property is inferior to the Police Headquarters site: the size differential favours the subject as does the situation; and the subject has rear access though is encumbered by an easement. Having said this, I should add that I am somewhat perplexed by Mr. Wood’s reference to the ex Police Headquarter’s sale in his comparisons as he has indicated that this was probably a low sale in his view yet it is used as a comparison in a way that adds nothing to the task of valuation. It is not appropriate to say that a sale appears to be low and then treat it as if it was sold at some higher level. Whilst it is agreed between the parties and observed by me from the evidence that this subject is superior to the ex TAA sale, I find some difficulty in accepting that a figure of $3,136 per m² readily supports $4,691 per m², that is, about a third more. I will therefore consider Eliza’s together with Cavill Place.
On the Cavill Place subject property Mr. Wood (who valued the property of $4,820 per m²) said that this land is superior to the ex TAA building sale ($3,136 per m²) and to the Chevron Hotel sale which I have put aside as a useful basis earlier; and inferior to the Selby Court sale ($5,757 per m²) and to the Le Boulevard sale ($4,812 per m²). It seems to me that if I take into account the size differential between Le Boulevard (1,761 m²) and the subject property (809 m²) and consider Mr. Montgomery’s evidence on rent differentials ($500 to $600 per m² versus $1,200 to $1,300 per m²) this subject property must be determined at higher figure than Le Boulevard though less than Selby Court ($5757/m²) bearing in mind that I should be cautious in using that sale but recognising it as a corner site.
Mr. Wood’s value on Eliza’s ($4,691 per m²) is marginally lower than the figure he placed on Cavill Place ($4,820 per m²) however, these figures are the reverse of the relationship seen by Mr. Montgomery ($5,562 per m² and $5,679 per m² respectively). As between these two subject properties the size differential favours Eliza’s; however, Cavill Place has the option of utilising the access to Dolphin Arcade - it seems to me that the option presented by Dolphin Arcade would enlarge the competition for the purchase of Cavill Place. Whilst the value per square metre differences between the valuers partially reflect the calculation from the overall value down to a square metre level, this does not wholly explain the difference as Mr. Wood’s overall figure on Eliza’s is 83% of Mr. Montgomery’s yet it is 87% in the case of Cavill Place. In paying particular regard to the Dolphin Arcade access and the fact that the wide frontage of Cavill Place (20.131 m compared with 10.07 m on Eliza’s) affords the prospect of better utilisation of that arcade access than a narrower frontage might, I conclude that Cavill Place should be valued marginally higher than Eliza’s though not in the same mathematical relationship suggested by Mr. Wood. Having regard to the reasoning I have outlined above, I will determine the value of Cavill Place at $4,250,000 ($5,253 per m²) and Eliza’s at $2,100,000 ($5,185 per m²).
Mr. Wood wrote that he considered that the Penthouse site (valued by him at $3,888 per m²)
is superior to the ex TAA sale ($3,136 per m²) and to the Chevron Hotel sale ($2,168 per m²) but should be valued at less than the ex Police Headquarters sale ($2,549 per m²). Given what I have said above concerning these sales and their application to Eliza’s and Cavill Place, I would prefer to consider the value of the Penthouse site, in relationship to these two subjects together with some direct consideration of the Le Boulevard sale ($4812/ m²). This sale is, on the evidence, superior to the Penthouse site, in that both Mr. Montgomery (at $4,752 per m²) and Mr. Wood (at $3,888 per m²) placed lower values on this subject than the sale, however, in comparison with the values that I will place on Cavill Place and Eliza’s the Chief Executive figure is clearly too high. I have concluded that it would be appropriate to place a figure of $2,000,000 ($4,320 per m²) on the Penthouse site. Not only does this figure reflect similar relativities to that put forward by both valuers, but it is a figure which takes into account the relatively poor situation of this subject property.
Each of the valuers saw Emu Place as having the highest value per m² of the subject properties largely because of corner influence which affords exposure to Cavill Mall. I also note that this subject property at 331 m² is the smallest of the subjects. Mr. Wood (his value was $6,344 per m²) said that this subject is superior to Le Boulevard ($4,812 per m²) which I accept, and inferior to Selby Court ($5,757 per m²) which I do not accept. It seems to me that I can do no better than to place a value on this subject which maintains a similar relationship with the other subject properties as seen by the valuers. In this regard Mr. Wood’s figure is 78% of Mr. Montgomery’s, however, I see the corner position, size differential and side access advantages, offset somewhat by the irregular shape, as being factors which warrant a somewhat higher place in the order of values which should apply to this subject property. Having regard to these matters, I will determine Emu Place at a value of $2,500,000 that is $7,552 per m².
The result is that each of the appeals is allowed and the valuations are determined as follows:
Appeal No.
AV95-177......................................................$4,250,000
AV95-178......................................................$2,100,000
AV95-179......................................................$2,500,000
AV95-180......................................................$2,000,000
RP SCOTT
MEMBER OF THE LAND COURT
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