Splitters Creek Farms Pty Ltd as Trustee v Department of Natural Resources, Mines and Energy
[2004] QLC 49
•11 June 2004
LAND COURT OF QUEENSLAND
CITATION: Splitters Creek Farms Pty Ltd as Trustee v Department of Natural Resources, Mines and Energy [2004] QLC 0049 PARTIES: Splitters Creek Farms Pty Ltd as Trustee
(appellant)v. Chief Executive, Department of Natural Resources, Mines and Energy
(respondent)FILE NO: AV2003/0112 DIVISION: Land Court of Queensland PROCEEDING: An Appeal against an Annual Valuation in the City of Bundaberg DELIVERED ON: 11 June 2004 DELIVERED AT: Brisbane HEARD AT: Bundaberg MEMBER: Mr JJ Trickett, President ORDER: The appeal is dismissed and the valuation of the Chief Executive is affirmed. CATCHWORDS: Unimproved Value - Highest and best use - Potential for higher use - Comparison with sales - Relativity of values - Reasons for apparent lack of relativity - Valuation of Land Act 1944 APPEARANCES: Mr BWG Aitken for the appellant
Mr GJ Smith, Senior Legal Officer, Department of Natural Resources, Mines and Energy for the respondent
This is an appeal by a landowner in the City of Bundaberg against the unimproved value applied to its land by the Chief Executive, Department of Natural Resources, Mines and Energy under the provisions of the Valuation of Land Act 1944 (the Act).
Background
Splitters Creek Farms Pty Ltd as Trustee (the appellant) is the owner of land described as Lot 31 on Plan B15837, Parish of Bundaberg (the subject land), containing an area of 1,012 m². As at 1 October 2002, the Chief Executive, Department of Natural Resources, Mines and Energy (the respondent) valued the subject land at $96,000 under the provisions of s.37 of the Act. Following an objection against the valuation, the appellant appealed to the Land Court advising that its estimate of the unimproved value was $55,000. The grounds of appeal were extensive, but essentially are to the effect that the valuation was excessive as it was not supported by comparable sales evidence.
The Subject Land
The following details are taken from the statement prepared by Mr LW Hoult, a registered valuer, who gave evidence on behalf of the respondent:
· The subject land is situated at 9 Branyan Street, Bundaberg.
· Branyan Street has a bitumen sealed carriageway with concrete kerbing and channelling.
· The land is at street level and is gently sloping. It is not affected by flooding and has the usual services of town water, power, sewerage and telephone.
· The land is zoned "Residential B" under the transitional Bundaberg City Council Town Planning Scheme. The intent of this zone is to provide for residential development at higher densities than in the "Residential A" zone. A mix of accommodation is permitted, including dwellings, duplex dwellings and accommodation units, while units exceeding two storeys in height require consent of the Council. Also with Council consent, the following developments may be permitted in the "Residential B" zone: childcare centres, food premises, group housing developments, general stores, home occupations, hotels, medical centres, professional offices, public utilities, restaurants and retirement communities.
· The subject land is developed with four residential accommodation units. It was formerly part of the Oscar Motel complex, with the main motel located on the opposite (east) side of Branyan Street. The complex had also comprised Lot 30, adjoining the subject land to the north, on which are located nine accommodation units. The whole complex sold to three separate purchasers, with only the area on the east of Branyan Street remaining as the Oscar Motel, while the subject land and Lot 30 are used for standard accommodation units.
The Respondent's Valuation Approach
Although situated in Branyan Street, the subject land is only two allotments removed from Bourbong Street, the main access route into the city from the south. It is in an area bounded by Quay, Takalvan, Woongarra and Burrum Streets, which is just to the west of the Central Business District. The area bounded by those streets is well located relative to the CBD, major arterial roads and the parklands fronting the Burnett River. According to Mr Hoult, that area had been zoned "Residential High Density" in the 1976 town planning scheme, while other multi-unit lands were zoned "Residential Medium Density". However, in the 1988 town planning scheme, the land in both those areas was zoned predominantly "Residential B". Takalvan and Bourbong Streets are the main access routes into the city and development along those streets is generally commercial related, comprising tourist accommodation, including motels, national food chain/restaurants, professional offices and retail. In Mr Hoult's opinion, the lands to the rear of those allotments fronting those streets also have a commercial value as additional land, particularly for motel development. The lands in the area formerly zoned for high density use were considered by Mr Hoult to have a higher value because of their potential for commercial type uses or tourist accommodation. Those higher values are the result of their better location, rather than their zoning. On the other hand, allotments zoned "Residential B" outside that area have been valued at lower levels, as they are further removed from main road exposure and were considered by Mr Hoult to have little potential other than for standard residential accommodation units.
Basis for the Present Valuation
Mr Hoult explained that the market for residential accommodation units had been depressed for a number of years. In 1997, the respondent's valuations for land suitable for units had been reduced by 15%. However, the unimproved values for commercial lands had remained unchanged. Mr Hoult had monitored all sales of land in the subject area since 1988. He provided the details of the more relevant sales between October 1994 and April 2003 to demonstrate that the applied levels of value have been supported during that period. However, there were no vacant or lightly improved comparable sales at or near the date of valuation.
All eight sales are zoned "Residential B" and have areas ranging from 727 m² to 1,012 m². Sales 1, 2, 5, 6, 7 and 8 are situated in the area which he regarded as having commercial potential. Those sales show much higher unimproved values than Sales 3 and 4, which are situated three streets to the south of that area. They have been valued as standard residential unit sites.
The sale which Mr Hoult considered to be most comparable to the subject land is Sale 8, which is situated in Burrum Street, located a similar distance from Bourbong Street, but closer to the city centre. That 1,012 m² allotment sold in May 1998 for $117,500 and analysed to show an unimproved value of $114,500. As at 1 January 1996, the respondent had applied an unimproved value of $103,000 to that property. That valuation has remained unchanged in subsequent valuations of the area. Mr Hoult commented that the sale occurred at a time when the market for standard "Residential B" land was depressed and the valuations of such land had been reduced.
The appellant's representative, Mr Aitken, made the following criticisms of Mr Hoult's sales:
· Sales 1, 2, 5, 7 and 8 are selective;
· Sale 7 occurred after the date of valuation and was bought by Toyota for expansion;
· Sale 8 was bought by the adjoining motel proprietors, who would have paid a premium for it and it has since been zoned "Commercial";
· Sale 2 has a superior river parklands aspect and is superior for commercial purposes;
· Sales 3 and 4 are each valued at $55,000 and have been developed with the same number of units as the subject land, although they are further away.
· Sale 5 was purchased by a solicitor for the purposes of building a solicitor's office on it and it has since been zoned "Commercial";
· Sale 6 was purchased by the adjoining Bundaberg Toyota, which would have paid a premium for it and it was always zoned "Commercial";
· Sale 1 was purchased by an adjoining real estate agent who would have paid a premium.
In summary, of the eight sales referred to by Mr Hoult, one was a riverfront property, four were to adjoining owners for business purposes and are now zoned "Commercial" and one was bought for the purpose of a solicitor's office and is also now zoned "Commercial". However, it emerged in cross-examination that Mr Aitken had not spoken to any of the parties to those sales. He assumed that premiums had been paid.
The Case for the Appellant
Mr Bruce Aitken appeared and gave evidence on behalf of the appellant. The main focus of his argument was that the land should not have been valued as having commercial potential when it was zoned "Residential B". It seems that this matter had been discussed at an objection conference held between the representatives of the appellant company and the representatives of the respondent.
Mr Aitken attempted to make reference to matters that were discussed at the objection conference and to that end had subpoenaed Mr Michael Tapiolas, a registered valuer who had been the respondent's delegate at the objection conference. However, Mr Aitken was prevented from doing so, as the Act provides that objection conferences are held on a without prejudice basis (s.43A(2)(b)) and that in any appeal, evidence about the proceedings at such a conference must not be given by either party, nor may any witness be cross-examined about those proceedings (s.43A(3)).
The appellant's case was further hampered when Mr Aitken sought to tender a valuation report prepared by registered valuer, Mr Col Browning. However, as Mr Browning was not called to give evidence in support of his valuation, that report could not be admitted as it contained opinions which were obviously going to be challenged. Without the valuer present to substantiate his opinions and have them tested, no weight could be given to his opinions.
Without being able to refer to what occurred at the objection conference and without the evidence of an expert valuer, Mr Aitken had some difficulty in presenting a case for the appellant. However, essentially his argument was that he could not accept that the subject land could be valued at $96,000 because of a potential for a higher use when it was zoned "Residential B", while other lands with the same zoning had much lower values. Mr Aitken did not accept that it was any different to the other "Residential B" zoned land. He rejected the contention that simply because of its location, the subject land had potential for commercial use. He argued that all other "Residential B" zoned land could be used for commercial purposes with Council consent.
Mr Aitken contended that the area designated by Mr Hoult as having commercial potential was no more than an arbitrary line on the map. He referred to two properties similar to and just to the south of the subject land in Branyan Street, each developed with four units, each valued at only $55,000.
Mention was also made by Mr Aitken of another sale in Branyan Street for $81,000 in February 2001, with an area of 1,012 m², also zoned "Residential B", but about 300 metres south of the subject land. At the time it had been developed with two flats which have since been removed and replaced by four brick flats. It was valued at $55,000.
Mr Hoult explained that those allotments were situated outside the area that he considered to have commercial potential. He had valued them on a similar basis to other "Residential B" zoned lots in that area.
Mr Aitken referred to the sale for $55,000 of a property of 1,012 m², situated at the corner of Bingera and Woongarra Streets, zoned "Residential B", just across the street from the area which Mr Hoult had designated as having commercial potential. An unimproved value of only $47,000 had been applied to that property.
Mr Hoult explained that it had been valued at $47,000 because it was amalgamated with the adjoining lot and the two allotments were valued under the concessional provisions of s.17 of the Act as the site of a single dwelling house. He said that if he had to value the land at its highest and best use he would have applied a value of $60,000.
Mr Aitken also referred to the sale of another 1,012 m² property, also in Bingera Street and zoned "Residential B", between Woongarra Street and Bourbong Street, to which an unimproved value of $34,000 had been applied. That property sold in December 2001 for $110,000, with a brick veneer house on it. However, according to Mr Hoult, the house was infested with termites at the date of sale. It had since been renovated at some cost to the purchasers and resold in January 2004 for $230,000. The unimproved value of $34,000 also reflected the concessional value applied to it under the provisions of s.17 of the Act, as it was used for the purposes of a single dwelling house. If it had not been so used, Mr Hoult said he would have applied a value of $96,000.
The Environment of the Subject Land
Mr Aitken argued that the subject land is situated in an unpleasant environment for residential purposes. It backs onto the Bundaberg Police Station, which is the headquarters for the whole of the district and which, he contends, adversely impacts upon the land. First, there is the visual impact, with a high communications tower and a large double-storey building which overlooks the units on the subject land. Second, there is the noise. The police station operates 24 hours per day, seven days per week. There is noise from the maintenance of vehicles and testing of sirens. During emergencies, day and night, police cars leave the station with sirens wailing. In addition, tourist buses arrive late at night and leave early in the morning from the motel across the street. Mr Aitken contends that no account had been taken of these adverse factors in Mr Hoult's valuation.
Mr Hoult agreed that proximity to the police station and the motel detracts from the subject land's residential value, but not from its highest and best use value for commercial or office purposes. To illustrate the type of use in the vicinity, Mr Hoult said that Lot 23 of 1,012 m² adjoining the police station to the west is used as an office. The map shows that allotment is valued at $140,000. In addition, Mr Hoult stated that on the Bourbong Street frontage, on the east of the police station, new offices have been constructed, shown as valued at $190,000. On the west, there is a shop, a dwelling and a real estate office, all zoned "Residential B". In the next block to the east, there is a row of motels, all in the "Residential B" area and along Quay Street there are offices in the same zoned area.
The Relevant Legislation
The responsibilities of the respondent are set out in the provisions of the Act. The respondent is required to make annually, or periodically, a valuation of all land in a 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 that 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 and other services.
The concept of market value was defined by the High Court in Spencer v The Commonwealth (1907) 5 CLR 418. In that case the High Court found that the test for the market 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 which might affect the value of the land, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, 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 unimproved market value is ascertained by reference to prices that have been paid for similar parcels of unimproved land. Pike J said in Waterhouse v Valuer-General (1927) 8 LGR (NSW) 137 at 139 that:
"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 price 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."
It is clear that in fixing the market price for land the willing seller and willing buyer would be well aware of the highest and best legal and probable use of that land, and fix a price accordingly, not being restricted by its present use. The highest and best use of the land is the most advantageous use of the subject land, having regard to planning and all other relevant factors affecting its value and future potential. Therefore, although the subject land is zoned "Residential B" and may be used as of right for accommodation units, in assessing its unimproved market value regard must also be had to any higher and better use with Council consent.
However, in certain circumstances the provisions of the Act preclude the operation of the concept of highest and best use. While as a general rule the Act requires that land is valued at its highest and best use, there are exceptions. Where land is used for the purposes of a single dwelling house or for purposes of farming, any enhancement in that value because the land has been subdivided by survey, or has a potential use for industrial, subdivisional or any other purposes, shall be disregarded: s.17(1).
In the present circumstances, where land is used for a single dwelling house, although it is zoned "Residential B" and may be used for accommodation units, or perhaps potential for some higher and better use, s.17(1) of the Act requires that the land be valued at no higher value than if it had no potential other than as the site for a single dwelling house. Any enhancement in the value of that land because of potential for any higher use must be disregarded. This is why some allotments near the subject land seem to have inconsistent valuations.
The Issues
As stated earlier, the appellant's grounds of appeal are directed to the relativity of the unimproved values applied to other properties and the unimproved value applied to the subject land. This raises a related issue concerning the valuation of the subject land as commercial land.
From the maps tendered in evidence, showing the unimproved values applied to lands in the area, it is understandable how Mr Aitken would draw the conclusion that there is something wrong with the relativity applied to the various parcels compared with the value of $96,000 applied to the subject land. However, when it is realised that the lower valuations result from the concessional provisions of s.17 of the Act, while the higher ones result from allotments being valued for higher and better uses, the apparent lack of relativity is explained.
Mr Aitken has alleged that the area designated by Mr Hoult as having potential for a use higher than "Residential B" is no more than an arbitrary line on the map. In my view, there is logic in the approach adopted by Mr Hoult. That area was zoned "Residential High Density" in the 1976 Town Plan, while the balance of the now "Residential B" lands was zoned "Residential Medium Density". When in 1988 virtually all of the land in both areas was simply zoned "Residential B", Mr Hoult reasoned that the formerly higher density zoned lands retained a potential for higher use because of their location, rather than their zoning. To a large extent, that is borne out by the sales referred to by Mr Hoult.
Furthermore, Mr Hoult said that he discussed his valuation approach with the town planner and that discussion confirmed the approach that he took with regard to the commercial potential of the area which he designated as having a higher and better use than "Residential B".
Mr Aitken argued that the subject land, which was zoned "Residential B" and which had been developed with four residential units, could not be valued as having commercial potential. However, that argument ignores the fact that the land must be valued as if it was in its unimproved state and, unless it is protected by s.17 of the Act, must be valued at its highest and best use. Mr Hoult expressed the view that if the land was unimproved, the landowner would not build four units on it, but would seek to utilise its higher and better potential.
Mr Aitken agreed that along Bourbong Street, between Branyan Street and Bingera Street, on the southern side, those properties zoned "Residential B" are mostly motels, apart from office development on two lots at the corner of Bingera Street, zoned "Special Commercial". However, he doubted that the commercial potential would extend as far as three allotments from the Bourbong Street frontage.
By reference to the map attached to his report, it appears that Mr Hoult has been consistent in his application of values to those lands not protected by s.17 in the designated area. For example, the small lot of 508 m² immediately to the south of the subject land on the corner of Branyan and Woongarra Streets, occupied by a speech therapist's office, is valued at $61,000. Immediately to the north of the subject land to the 1,012 m² Lot 30, he has applied $110,000 and to the same sized allotment on the corner of Bourbong and Branyan Streets, on which is situated office development, he has applied $190,000. Prima facie, there does not appear to be any lack of relativity between those valuations.
Mr Aitken has challenged the appropriateness of the sales used by Mr Hoult, assuming that each of the four sales to adjoining owners and the sale for the purpose of a solicitor's office would have included a premium in the sale price. However, Mr Aitken had not spoken to any of the parties to those sales. Furthermore, Mr Hoult said that he had applied a conservative value to each of the sale properties, which would allow for any adjoining owner premium. To my mind, it has not been demonstrated that Mr Hoult's sales were inappropriate.
It is unfortunate that after having gone to the expense of seeking advice from a registered valuer, Mr Aitken did not call Mr Browning to give evidence. It is clear from Mr Browning's report that he would have joined issue with Mr Hoult about the valuation of the subject land. He referred particularly to the sale of the subject land in September 2001 for $180,000.
In the absence of evidence from Mr Browning, I accept Mr Hoult's explanation that the sale of the subject land in September 2001 for $180,000 was not analysed because of the difficulty in determining the added value of improvements, as the existing use of the land did not represent the highest and best use. He referred me to the sale of a similar lot (Lot 1 on RP 148616) in April 2001 for $197,235, where four units had been demolished after the sale and the land developed for commercial purposes. The existing unimproved value on that allotment was $137,000. That, he said, demonstrates that there was very little added value, if any, in the improvements on that site at the date of sale.
There remains the issue raised by Mr Aitken in relation to the adverse impact on the subject land from the adjoining police station and the bus traffic to and from the motel opposite. However, in my view, Mr Hoult successfully explained that although these factors impact upon the value of the land for residential purposes, they would have little adverse impact upon the use of the land for commercial or office purposes.
Finally, Mr Aitken made reference to the principle in the decision of the High Court in Maurici v Chief Commissioner of State Revenue (2003) 77 ALJR 727, that a potential purchaser would be prepared to pay a premium for unimproved land in an area which was heavily developed and there was a scarcity of such unimproved land. Such scarcity factor would be inherent in the sales in the area. However, this was put to both Mr Tapiolas and Mr Hoult, both of whom expressed the opinion as experienced valuers, that there was no scarcity premium paid for land in this area. I accept their opinions.
Conclusion
Having regard to the whole of the evidence, I have come to the conclusion that the appellant has not demonstrated that the valuation applied to the subject land is excessive and not supported by sales evidence. Accordingly, the appeal must fail.
Order
The appeal is dismissed and the valuation of the Chief Executive is affirmed.
JJ TRICKETT
PRESIDENT OF THE LAND COURT
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