Solon Theo Family Trust v Department of Natural Resources and Mines
[2005] QLC 65
•22 December 2005
LAND COURT OF QUEENSLAND
CITATION: Solon Theo Family Trust v Department of Natural Resources and Mines [2005] QLC 0065 PARTIES: Solon Theo Family Trust
(appellant)v. Chief Executive, Department of Natural Resources and Mines
(respondent)FILE NOS: AV2005/0313, AV2005/0314, AV2005/0644, AV2005/0645 DIVISION: Land Court of Queensland PROCEEDING: Appeals against annual valuations. DELIVERED ON: 22 December 2005 DELIVERED AT: Brisbane HEARD AT: Brisbane MEMBER: Mr JJ Trickett, President ORDER: The appeals are dismissed and the valuations of the respondent are affirmed.
CATCHWORDS: Unimproved value – Grounds of Appeal – Method of Valuation – Whether Maurici principle applicable – basis of valuation – Analyses of sales. Valuation of Land Act 1944 s.3(1), s.3(2). APPEARANCES: Mr S Theo, for the appellant
Mr M Heather, for the respondent
These are four appeals by a land owner against the annual valuations applied by the respondent to two allotments situated in Redcliffe in two consecutive years.
Background
The Solon Theo Family Trust (the appellant) owns two parcels of land situated in King Street, Redcliffe, described as Lots 1 and 2 on SP 140030, Parish of Redcliffe, County of Stanley, containing areas of 600 m² and 620 m² respectively.
Under s.37 of the Valuation of Land Act 1944 (the Act), the Chief Executive, Department of Natural Resources and Mines (the respondent), determined the unimproved values of those lands as at 1 October 2003 at $142,000 and $134,000 respectively; as at 1 October 2004, the respondent valued Lot 1 at $155,000 and Lot 2 at $147,000.
After objecting to valuations, the appellant lodged appeals to the Land Court against each of them, contending that the 2003 valuations and the 2004 valuations should have been $70,000 (Lot 1) and $60,000 (Lot 2).
The grounds of each appeal were to the effect that the respondent's valuations were wrong and could not be justified because the respondent -
(i) had adopted wrong procedures and
(ii)had not applied the principle in Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111.
Mr S Theo appeared on behalf of the appellant and also gave evidence, while Mr J F Corder, a registered valuer, gave evidence on behalf of the respondent.
The Subject Lands
There is evidence that prior to 2001, the two subject lands were in one allotment, described as Lot 537 on Plan SL 2325. That land was subdivided into Lot 1 (600 m²) and Lot 2 (621 m²) on SP 140030. Lot 1 is a rectangular allotment with a frontage of 15.117 metres to King Street and a depth of about 39.7 metres. Lot 2 is a hatchet shaped allotment, with a frontage of 5 metres to King Street and a hatchet handle of about 40 metres.
According to Mr Corder's reports, both allotments are level and situated in a good residential area with good access from King Street. All town services are available. They are zoned Residential "A" under the Town Planning Scheme for the City of Redcliffe and each allotment has been developed with two dwelling houses on each of them.
King Street was described as being a dual bitumen sealed carriageway, with concrete kerbing and channelling, providing good access to the subject lands. Mr Corder described King Street as "… a main east west through road carrying mainly local traffic." It emerged in evidence that there is a High School situated in King Street to the west of the subject land which increases the traffic on that street.
The Respondents Valuations
For the valuations made as at 1 October 2003, Mr Corder explained that the respondent's valuers had analysed 184 vacant land sales in Redcliffe during a rapidly rising market in 2002 and 2003. In support of the respondent's valuations of $142,000 for Lot 1 and $134,000 for Lot 2, Mr Corder relied on sales of 5 residential properties, brief details of which are as follows:
Sale No. Location Zoning Area Sale Date Sale Price Improvements Analysed Value Applied Value 1 Camellia Street, Clontarf Residential "A" 434 m² October 2003 $174,000 Clearing and fencing $2,000 $172,000 $120,000 Comparison Situated in a more desirable locality, but inferior because it is smaller. 2 MacDonnell Road, Margate Residential "A" 455 m² August 2003 $157,500 Clearing $2,000 $155,000 $124,000 Comparison Inferior, situated in a busy street, narrow frontage and is smaller 3 Valerie Street, Clontarf Residential "B" 407 m² July 2003 $170,000 Clearing and fencing $2,000 $168,000 $132,000 Comparison Although zoned Res "B", small area, potential for single residential only; although in a slightly more desirable locality, it is inferior because it is smaller. 4 Maine Road, Clontarf Residential "A" 401 m² July 2003 $166,000 Clearing and fencing $2,000 $164,000 $110,000 Comparison Inferior, situated on a main through road, less desirable traffic location and is smaller. 5 Isobel Street, Clontarf Residential "A" 322 m² October 2003 $170,000 Clearing $2,000 $168,000 $95,000 Comparison Much inferior, smaller and situated in a less desirable locality.
For the valuations made as at 1 October 2004, Mr Corder explained that the respondent's valuers had analysed 356 vacant land sales in the Redcliffe City Area during a rapidly rising market in 2003 and 2004. In support of the respondent's valuations of $155,000 for Lot 1 and $147,000 for Lot 2, Mr Corder relied on the sales of 5 residential properties, brief details of which are as follows:
Sale No. Location Zoning Area Sale Date Sale Price Improvements Analysed Value Applied Value 1 Lucinda Street, Clontarf Residential "A" 500 m² December 2004 $190,000 Clearing and fencing $2,000 $188,000 $132,000 Comparison Inferior, in a similar area but smaller. 2 Julia Street, Clontarf Residential "A" 400 m² February 2005 $162,500 Clearing and fencing $2,000 $160,500 $143,000 Comparison Inferior, in a slightly more desirable location, but smaller 3 Collins Street, Woody Point Residential "A" 517 m² February 2004 $180,000 Clearing $2,000 $178,000 $167,500 Comparison Superior, although smaller situated in a better location.
4 Deans Street, West Clontarf Residential "A" 568 m² May 2004 $160,000 Clearing $2,000 $158,000 $150,000 Comparison Inferior, a smaller hatchet shaped lot in a slightly more desirable location. 5 Dodds Street, Margate Residential "A" 495 m² June 2004 $145,000 Clearing $2,000 $143,000 $121,000 Comparison Inferior, smaller lot in a slightly more desirable location.
Mr Corder explained that during the relevant periods, the rapidly rising market in the Redcliffe area resulted in substantial increases from the previous valuations. However, he went on to say that the respondent had applied conservative values.
It emerged in evidence that there were few truly vacant allotments, as almost every allotment had been built upon. The sales relied on by Mr Corder would all have been developed with dwelling houses at one time or another. In order to develop those allotments, the old dwellings were either removed or demolished. This is what Mr Corder referred to as "vacant" land.
However, Mr Corder quite frankly admitted that with the number of sales during the relevant period, the respondent's valuers had neither the time nor resources to investigate each sale to ascertain what had happened to the improvements thereon. He did not know whether the old dwellings were demolished or removed. He said that he had therefore taken a conservative approach in applying unimproved values to the sales, which was reflected in the unimproved values applied to comparable properties, such as the subject lands.
The Case for the Appellant
Mr Theo did not rely on any expert evidence. He gave oral evidence, which largely consisted of attacking the respondent's valuations which he claimed were based on false logic. Mr Theo contended that the valuations should be made by first arriving at the improved values of each of the subject lands and then deducting the value of improvements. While he had not prepared such exercises in advance, he did so while in the witness box. Those two exercises (Exhibit 2) commenced with the weekly rental income, which I assume is the gross return, from the houses on each lot, converting that into the annual return and capitalising that figure, by a process which was not explained, to arrive at the improved value of each property. From that value he deducted his estimate of the value of improvements, to arrive at an unimproved value for Lot 1 of minus $36,000, as the value which he attributed to the improvements exceeded the improved value. For Lot 2, the exercise resulted in an unimproved value of minus $857.
When questioned as to why in the Notices of Appeal the appellant had contended for unimproved values of $70,000 for Lot 1 and $60,000 for Lot 2, for both the 2003 and 2004 valuations, Mr Theo responded by saying that he was trying to be realistic. He realised that the subject lands could not have negative values, therefore the contended values were not based on any method of valuation, but were what he was prepared to accept as reasonable. During his evidence he expressed the opinion that if Lot 1 had been unimproved at the relevant date, a prudent purchaser would have paid only $50,000 for it.
The appellant's second Ground of Appeal referred to the decision of the High Court in Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111. In that case the High Court held that the valuer was wrong to base his valuation on sales of scarce vacant land in the Sydney suburb of Hunters Hill, as such sales cannot be representative as the sale prices included a premium because of a scarcity factor. The High Court held that a group of comparable sales cannot be representative if it does not go beyond sales of scarce vacant land.
Mr Theo argued that -
·the respondent was wrong to rely on sales of vacant land;
·the sales in Redcliffe were not of vacant land, but in most cases were occupied by old houses, which were demolished to make way for new dwellings.
Mr Theo rejected the sales relied on by Mr Corder. He contended that they were too remote, or in his terms, "…they might as well be at Timbuktu"; in his opinion they were not relevant. In his view, the valuations were erroneous because there was confusion in the valuer's approach as it was based on false logic.
Mr Theo seemed to think that the sales were somehow irrelevant because they did not adjoin the subject lands. He alleged that Mr Corder did not take into consideration the traffic generated by the High School in King Street which, he said, would not be of the same volume where the sales were situated.
Although he conceded that he had not inspected any of the sale properties, Mr Theo alleged that Mr Corder had erred in not properly determining the value of improvements on each of the sales. The only improvements shown on Mr Corder's sales schedules were clearing and/or fencing, to which he attributed $2,000 in each case. Mr Theo asserted that each of them would have included an old house, which was demolished at a cost of up to $40,000. There were, he contended, no vacant allotments in the area.
The Relevant Legislation
The responsibilities of the respondent in valuing the subject lands are set out in the provisions of the Act. The respondent is required to make annually or periodically, a valuation of all land in the local government area; s.37. For the purposes of the Act, the valuation of each parcel of land is to be the "unimproved value" of that land, which is defined to mean in relation to improved land, the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming the improvements on that land did not exist: s.3(1).
The Act thus requires the respondent to ascertain the unimproved market value of each parcel of land as at the date of valuation, assuming that there were no improvements on the land, but also assuming the existence of all present facilities and amenities external to the land, such as roads, power, access and the like.
The test for the determination of "market value" of land was established by the High Court in Spencer v The Commonwealth (1907) 5 CLR 418. In that case, the High Court found that the value of land is determined by the price that a willing but not over anxious buyer would pay to a willing but not over anxious seller, both of whom are aware of all the circumstances that might affect the value of land, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding facilities, the then present demand for land and the likelihood of a rise or fall in the value of the property. (See Griffith CJ at 432 and Isaacs J at 441)
It has been well established that the unimproved value of land is ascertained by reference to prices that have paid for similar parcels of land. In Waterhouse v The Valuer-General (1927) 8 LGR (NSW) 137 at 139, Pike J said:
"Land in my opinion differs in no way from any other commodity. It certainly is more difficult to ascertain the market value of it but – as with other commodities – the best way to ascertain the market value is by finding what lands comparable to the subject land were bringing in the market on the relevant date – and that is evidenced by sales."
However, there are many areas, such as Redcliffe, in which the subject land is situated, where there is essentially no unimproved land, as all land has been improved to a greater or lesser extent. Therefore, there are no sales of unimproved land that can be used as a basis for unimproved value. In such cases, it is necessary to have regard to improved sales. The use of improved sales in establishing unimproved value was considered by the Land Appeal Court in The Valuer-General v Marano (1978) 5 QLCR 194 and at pp 200-201, the Land Appeal Court said:
"It is well established that the best way to ascertain the unimproved value of land is by applying to it sales of unimproved, comparable lands which took place reasonably close to the date at which the valuation is to be made. But in many districts it is impossible to obtain sufficient unimproved sales to form a sound foundation, and it therefore becomes necessary to analyse sales of improved lands for the purpose of ascertaining, as far as is possible, what part of the purchase price of the sale property relates to improvements and what part is attributable to the land itself."
That process was adopted by the respondent in valuing the subject lands. However, there is a proviso to s.3(1), which provides for another method of ascertaining unimproved value. Sub-section (2) of s.3 provides:
"However, the unimproved value shall in no case be less than the sum that would be obtained by deducting the value of improvements from the improved value at the time at which the value is required to be ascertained for the purposes of this Act."
"Improved value" is defined in s.4:
"For the purposes of this Act –
"unimproved value" means, in relation to land, the capital sum which the fee simple of the land, including improvements, might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require."It is upon those provisions which Mr Theo relied in adopting the approach which he proposed, of arriving at the improved value of each allotment and deducting the value of the improvements therefrom.
Consideration
The Act allows for both the method adopted by the respondent under s.3(1)(b), and for the method contended for by Mr Theo under s.3(2). However, while the determination of unimproved value under s.3(2) may be a process which is available, any valuation derived by that process merely sets a minimum valuation ("shall in no case be less than"). If the unimproved value determined under s.3(1)(b) is greater than that determined under s.3(2), then that is the valuation which must be applied.
Mr Theo's principal argument was that by relying on the sales some distance from the subject lands, the respondent was relying on false logic. His reasoning seemed to be that in the absence of sales in close proximity (preferably adjoining), then the unimproved value should be ascertained by arriving at the improved value by means of capitalisation of gross rentals and then deducting the value of improvements.
The subject lands each have two dwellings constructed on them, which are income producing rather owner-occupied. In such circumstances, the improved value of each property may be able to be ascertained by capitalisation of rental income, however there are several pre-requisites which would need to be satisfied before one could be confident of the validity of such an exercise:
·that the rent paid was the rack rent;
·that the capitalisation rate was appropriate;
·that the capitalisation rate was derived from the market for similar properties;
·that appropriate allowances were made for the particular circumstances of the properties being valued;
·that the resulting valuation was checked by some other method.
Having arrived at the improved value of each property, the next step would be to value the improvements on each of the subject lands. In doing so, great care must be taken to ensure that proper allowance is made for depreciation, obsolescence, etc, and to ensure that the value of improvements was in conformity with s.5 of the Act.
In the present cases, Mr Theo did not do that. His capitalisation exercises were not explained. He proceeded from a gross rental in each case to an improved value by some process. He then deducted what purported to be the value of improvements based on what he said was advice from building societies, which costs had been confirmed by discussions with builders.
In my view, deriving unimproved values by means of s.3(2) is a task fraught with difficulty, even for the most experienced valuer. For a laymen, no matter how intelligent, it is near impossible. In the present cases, Mr Theo asserted that he accurately assessed the value of improvements, but he provided no evidence of the details of the dwelling houses on each of the subject lands; there is no evidence of the dimensions, age, quality, depreciation or obsolescence; there is no evidence of the calculations per m² to arrive at the values. Mr Theo simply asserted that he obtained assistance from building societies and those figures were confirmed by builders. Even if he was able to establish the cost of constructing the improvements on each allotment, Mr Theo did not distinguish between cost and value.
Quite apart from the deficiencies in his evidence, I cannot accept the s.3(2) method as appropriate in the present circumstances. There are simply too many uncertainties. Even if I accepted Mr Theo's method, I cannot accept the result of negative unimproved values. If a valuation method produces negative unimproved values, there is something drastically wrong.
However, Mr Theo did not rely on those conclusions, he contended for valuations which he thought to be "reasonable", but for which he advanced no basis. At no stage did Mr Theo attempt to arrive at valuations under s.3(1)(b) of the Act, however he was critical of Mr Corder's reasoning.
Mr Theo's approach is of no assistance to me in arriving at the unimproved values for the subject lands as at 1 October 2003 and 1 October 2004. I therefore turn to the evidence given by Mr Corder, who defended the respondent's valuations by the traditional approach under s.3(1)(b) of the Act. He did not undertake a valuation under s.3(2) as he did not think it was necessary or relevant.
Mr Corder's valuations were based on direct comparison with sales of what he described as "vacant land". Some of those sales are situated some distance from the subject lands, but Mr Corder explained that the Redcliffe city area is very compact and residential allotments can be compared with others within that area. He made what seems to me to be careful comparisons between the sales and the subject lands.
Having regard to the analysed unimproved values which Mr Corder derived from the sales and to his evidence regarding the comparability of the sales to the subject lands, I conclude that the unimproved values applied to the subject lands are not excessive. However, the true comparison is between the values attributed to the sale properties at the relevant date and the unimproved values applied to the subject lands. In all cases, the applied unimproved values are much lower than the analysed unimproved values, in most cases considerably so.
Mr Corder explained what he described as this "conservative" application of the sales which, in turn, resulted in "conservative" application of values to the subject lands. He agreed with Mr Theo's assertion that there was essentially no vacant land in the older area of Redcliffe, as virtually all allotments had been built upon. However, when those properties had been inspected by Mr Corder, the old houses had been removed. Mr Corder was therefore unable to say with any degree of confidence whether in any particular case the house had been demolished, or had been sold for removal to another site. Lack of resources, he said, had prevented him from enquiring into the circumstances of each of the sales. He had therefore adopted a "conservative" application of the sales to allow for the possibility that the house on any particular sale lot had been sold for removal to another site, which he said could be up to $15,000 to $20,000 for a grand old Queenslander. However, removal value was usually much less, because of the expense, with the required permits, police escorts, etc.
It seems to me that there are difficulties in applying sales in such a conservative manner. While that approach would ensure that the applied unimproved values were not excessive compared with the sales, it could result in unimproved values which are unrealistically low. This would occur where a sale property included an old house which was subsequently demolished. In such a case, the purchaser may expend between $5,000 (Mr Corder) or up to $40,000 (Mr Theo) to demolish the old house. In Valuer-General v Fenton Nominees Pty Ltd (1982) 150 CLR 160, the High Court held that where a purchaser acquired a property with the knowledge that demolition of the improvements was required, the demolition costs must be added to the price paid for the property to " … establish the price that the developers were prepared to pay for a suitable site with no improvements on it." There is evidence that demolition was more likely than sale for removal in this particular area.
Mr Corder explained why he was unable to investigate what had happened to the improvements on each of the sale properties. However, be that as it may, it is essential that a valuer be aware of the circumstances of each of the sales that he relies on as a basis for a valuation. In the case of each improved sale property which was purchased for redevelopment, a valuer must ascertain whether the old improvements were demolished or removed to another site and adjust the analysis of each sale accordingly.
While the evidence in this regard is incomplete in the present cases and it may well be that the respondent's valuations are lower than they should be, the evidence does establish that the respondent's valuations of the subject lands at the relevant dates are not excessive.
Mr Theo's second ground of appeal related to the Maurici decision. In the present cases I accept Mr Corder's contention that there was no scarcity of what he called "vacant land sales", but which might be more accurately described as improved sales where the improvements were of little or no value. In the Maurici case, the valuer relied on scarce vacant land sales where there was a demonstrated scarcity premium in the prices paid for those properties. There is no such evidence in these cases and in my view, Mr Theo was unable to prove that ground of appeal.
There is only one other aspect of Mr Theo's criticism of Mr Corder's sales that is worthy of comment. Mr Corder's Sale No. 3 for the valuations made as at 1 October 2003 was in respect of a parcel of land zoned Residential "B". Mr Theo contended that land with that zoning could have potential for multi-unit development and should not be used as a basis to value ordinary residential properties. Mr Corder responded by saying that the area of the allotment was only 407 m² which was far too small for any development other than a single residence and had been purchased for that purpose; he added that the allotment was in an area which was unattractive for multi-unit development. While it is true, as pointed out by Mr Theo, that such land may have a "hidden value" and could be used in conjunction with adjoining Residential "B" land for multi-unit purposes, there is simply no evidence to that effect. Therefore, I accept Mr Corder's evidence with regard to Sale No. 3.
Conclusion
In each of these cases, the appellant's grounds of appeal contend that the respondent's valuations are excessive and should be reduced. This is clear from the valuations contended for by the appellant. Under s.33 of the Act, the respondent's valuations are deemed to be correct until proved otherwise upon objection or appeal. Therefore, to succeed an appellant must rebut that statutory presumption of correctness.
In Brisbane City Council v The Valuer-General for the State of Queensland (1978) 140 CLR 41, the High Court considered the provisions of the predecessor to s.33 (s.13(7) of the Act). Gibbs J (as he then was), with whom the other members of the High Court agreed, said at pp 56-57:
"In my opinion once it shown that in making the valuation the Valuer-General acted upon a wrong principle, or made a serious error of fact, the presumption created by s.13(7) is rebutted … In my opinion once it is shown that a valuation was made by a method fundamentally erroneous the presumption is rebutted."
After considering all of the evidence in these matters, I have come to the conclusion that the appellant has not established that the respondent acted upon a wrong principle, or that the valuations were made by a method fundamentally erroneous. Although there are shortcomings in the analyses of the sales, it has not been demonstrated that they are excessive, if anything, the valuations may be too low. However, the appellant has not been able to prove the grounds of appeal. Therefore, in my view, the appeals must be dismissed.
Order
The appeals are dismissed and the valuations of the respondent are affirmed.
J J TRICKETT
PRESIDENT OF THE LAND COURT
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