Sleep and Repatriation Commission - [2001] AATA 971

DECISION AND ORAL REASONS FOR DECISION [2001] AATA 971

ADMINISTRATIVE APPEALS TRIBUNAL )

) No S2000/424

VETERANS' APPEALS DIVISION       )
           Re      KENNETH JOHN SLEEP
  Applicant
           And    REPATRIATION COMMISSION
  Respondent

DECISION

Tribunal Senior Member WJF Purcell Mr DJ Trowse (Member)

Date16 November 2001
PlaceAdelaide

Decision      For the reasons given orally at the Hearing of this matter, the Tribunal sets aside the decision under review, and substitutes a decisions that, for the purposes of assessment of Service Pension, the value of the property at 477 Port Road, Croydon, was $120,000, with effect from 7 April 2000.
  (Signed)
  WJF PURCELL
  (Senior Member)
CATCHWORDS
VETERANS' AFFAIRS – veterans' entitlements – Service Pension – value of freehold owned property – assets test – whether value excessive – reduction in pension rate
Veterans' Entitlements Act 1986

ORAL REASONS FOR DECISION

16 November 2001 Senior Member WJF Purcell Mr DJ Trowse (Member)

This is an application for review of a decision of the Repatriation Commission (the Commission) of 13 April 2000 which determined that, for the assessment of Service Pension, the value of a property owned freehold by the applicant and his wife, was $135,000. This decision reduced the applicant's Service Pension with effect from 7 April 2000. The decision was affirmed by a senior delegate on 27 September 2000.
The evidence before the Tribunal comprised the documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 (the T Documents) together with exhibits tendered by the parties. The applicant, who appeared on his own behalf, gave oral evidence. Mr Doube represented the Commission, and called Mr S Thredgold, Australian Valuation Office Valuer.
The applicant, who is 54 years of age, is in receipt of pension at the special rate, and on 22 February 2000 he applied for a Service Pension, on the basis of invalidity. He included in his list of joint assets a freehold commercial property at 477 Port Road, Croydon (Croydon), the value of which he estimated at $103,000, being the then current South Australian Valuer-General's valuation for rating purposes. He declared a gross income from the property of $205 per week. Pension was granted with effect from 22 February 2000.
On 10 March 2000, the Department of Veterans' Affairs (the Department) forwarded to the Australian Valuation Office (AVO) a "first valuation request" in regard to Croydon. Mr Thredgold provided a valuation of $135,000 on 28 March 2000. On 13 April 2000, a delegate of the Commission determined that the applicant's rate of Service Pension should be reduced, with effect from 7 April 2000.
The applicant requested a review of the delegate's decision, on the grounds that the AVO valuation was incorrect; and that the Commission should use the value determined by the SA Valuer-General, of $103,000. On 27 September 2000 a senior delegate of the Commission affirmed the decision. The applicant seeks review of the Commission's original decision.
This matter came on for hearing on 27 April 2001 before Deputy President Burns, who adjourned the hearing to enable the AVO to carry out a complete and accurate valuation of the property. At that stage the applicant had not allowed the interior of the premises to be inspected by Mr Thredgold. The applicant subsequently allowed access to the premises, and on 19 June 2001 Mr Thredgold carried out a full inspection of the property and provided a valuation of $120,000 (Exhibit R1).
The applicant argues that the Commission's is not a fair decision. The valuation should be $103,000, or alternatively the current SA Valuer-General valuation of $110,000, because the valuation affects his rate of pension and causes a reduction in pension. This is the reverse situation to the usual, where the value one would want to obtain is a higher valuation, but when a person is in receipt of Disability Service Pension, and is a recipient of pension at a special rate, a conservative valuation is on order. The applicant believes State valuations are closer to market value than they have been in the past, and appeals then to the conscience of the Commission, not to hold this excessive value, and thus reduce his pension rate.
The Commission submits that it is not in dispute that the applicant and his wife are joint owners of the property; that the valuation prepared by Mr Thredgold is a conservative valuation, adopting two alternative bases, and is the appropriate valuation in the circumstances.
Mr Thredgold gave lengthy and clear oral evidence in relation to his valuation, and we accept his evidence. The valuation reads, in part:
"…
Financial Analysis
As at the date of valuation, the property was occupied under the terms of an unregistered lease for a period of two years from 14 March 1999, with a three year right of renewal. I have sighted a signed Agreement to Lease document for the three year right of renewal period commencing 14 March 2001.
The rent is subject to annual reviews, based on CPI increases plus 2%. I have been advised by the letting agent for the property that as at the date of valuation, the rent being paid by the lessee was an amount of $921.20 per calendar month (equivalent to $11,054.40 per annum). The lessee pays all outgoings including insurance and management, with the lessor being responsible for the payment of Land Tax only.
Highest and Best Use
The highest and best use of the subject property is considered to be as an office/showroom/workshop.
Market Overview
The Adelaide commercial and industrial real estate markets have been relatively stable with reasonable demand since the late 90's, after a long period of poor demand and static values during the mid 90's. The very strong residential market from late 1998 has provided the stimulus for other market sectors.
Valuation Approach
The valuation of the subject property has been based on the comparable sales outlined in the attached schedule, refer Appendix E. As at the date of the original, external, roadside inspection, there was a lack of directly comparable sales. There have been subsequent comparable sales which, it is considered, can be used as evidence to value the subject property, as the commercial/industrial market has been relatively stable in the ensuring [sic] 12 months from the date of valuation. In comparing the subject property with the sales evidence, I have had regard to those factors which influence market value such as location, land and building area, standard of accommodation offered, age and general condition of the respective improvements and tenancy tenure if leased.
Two valuation methods have been utilised, summation and capitalisation of net income.
(1)       Summation
Land – 464 m² x $170/m² = $78,880
Rounded to  $ 80,000
Building Improvements – 207 m² x $200/m² =  $ 41,400
Sundry improvements, say  $      500
  Total              $121,900
Rounded to $122,000.
(2)       Capitalisation
Rental income  $ 11,054.40 p.a.
Less Land Tax  $     108.50
Allowance for structural repairs, say  $     500.00
  Net Income     $10,445.90
Based on the sales evidence, suggest capitalise at 8.5% net.
Capital Value =     Net Income x Years Purchase
  =    $10,445.90 x 11.765 (rounded)
  =     $122,893
Rounded to $123,000.
Based on the above calculations, a full inspection and direct comparison with the subsequent sales evidence which was not available as at the date of valuation, the previously advised value of $135,000 would be at the top of a recommended value range. A fair and reasonable conservative market value for asset test purposes is considered to be an amount of $120,000 broken down as follows –
Land  $ 80,000
Improvements      $ 40,000
Total  $120,000
Valuation
As at 28 March 2000, the market value of the subject property known as 477 Port Road, Croydon, is considered to be One Hundred and Twenty Thousand Dollars ($120,000), excluding improvements made by the tenant.
…"
Mr Thredgold said in evidence that in relation to comparable sales, sale Number 3, referred to in his attached schedule, was the most comparable. This reads:
"Address: 507 Port Road, West Croydon.
Description: Improvements comprise a shop and dwelling on a site of 557 m², zoned Residential 3A. The front shop has cream brick walls and timber framed windows. The old rear villa has rendered brick walls, timber framed windows and corrugated iron roof.
Sale Price: $118,000.
Date of Transfer: June 2000.
Vendor: T & D Hromin.
Purchaser: M & F Costa.
Comments: Property was in very poor condition, purchaser has spent approximately $70,000 renovating the property since purchase. At date of sale was leased for $180/week plus outgoings on a weekly tenancy basis only. Sale price is $6,000 above the State assessment at $112,000.
Analysis Shows 7.93% net return."
Mr Thredgold said in evidence that in reaching his valuation he had taken into account the location of the premises, the surroundings, and many of the disadvantages of the property that the applicant put to him in cross-examination.
The applicant provided an estimate of value, dated 18 April 2001, from his leasing agent, Lin Andrews (Exhibit A8) in which Mr Andrews stated the property currently returned a gross rental of $11,520 per annum; that commercial properties were currently selling on a return of 10 to 12%, as a going rate; that investors would be looking at a minimum of 10% return, and that on that basis the property was worth approximately $113,000. This value was equal to 10.2% return.
We have examined the whole of the evidence carefully and in detail, and we have taken into account the parties' submissions. Mr Thredgold had provided a carefully prepared valuation, and in our view answered satisfactorily each and every query put to him, at length, by the applicant at the Hearing. We cannot accept the applicant's final submission that the valuation should be $103,000 or $110,000. We prefer the careful opinion of Mr Thredgold; and are satisfied, on the evidence, that the appropriate valuation of the property, as at 7 April 2000 (being the date of effect of the primary determination) was $120,000.
For these reasons the Tribunal sets aside the decision under review, and substitutes a decision that, for the purposes of assessment of Service Pension, the value of the property at 477 Port Road, Croydon, was $120,000, with effect from 7 April 2000.
I certify that the 14 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member WJF Purcell and Mr D.J. Trowse (Member)
Signed:         .....................................................................................
  Personal Assistant
Date/s of Hearing  16 November 2001
Date of Decision  16 November 2001
Counsel for the Applicant        In person
Solicitor for the Applicant         -
Counsel for the Respondent    Mr G Doube
Solicitor for the Respondent    DVA