Stay v Chief Executive, Department of Natural Resources and Mines

[2001] QLC 48

LAND COURT

BRISBANE

31 MAY 2001

Re: Appeal against Annual Valuation

Valuation of Land Act 1944
  Valuation Roll No.:    20/01600
  Local Government:    Maroochy Shire
  (AV99-482)

Douglas W and Rosemary L Stay

Chief Executive. Department of Natural Resources and Mines

(Hearing at Maroochydore)

D E C I S I O N

Background:

This matter relates to land at the corner of Brisbane Road and Pangarinda Place, Mooloolaba, and described as Lot 1 on RP 144757 and Lots 2 and 3 on RP 127555, Parish of Mooloolah. The subject land has an area of 1,971 m² and is zoned "Commercial" under the Maroochy Shire Town Plan of 14 December 1985 effective at the date of valuation of 1 October 1998. All normal utility services are available, and Brisbane Road, Pangarinda Place and Coorumbong Close to the rear of the subject land are all bitumen-sealed carriageways. The key issues are the nature of the land, comparison of sales and the method of valuation.
On 29 March 1999 the Chief Executive issued a valuation of the subject land at $670,000. Following an objection the Chief Executive confirmed that figure on 19 July 1999. The appellants have now appealed claiming that the unimproved value should more properly be $250,000. A Court supervised preliminary conference on 16 December 1999 was unable to resolve the issues, and the matter was set down for hearing on 9 November 2000. At the request of the appellants that was adjourned until 27 February 2001.
Douglas Wesley Stay appeared and gave evidence for the appellants. Mr R Vize, Principal Legal Officer of Crown Law appeared for the respondent, calling evidence from Maxwell John McLaren, the departmental registered valuer responsible for determining the valuation.
1. The History of the Land -
Mr Stay argues that the area surrounding the subject land, known as "Bundilla", is a small pocket of commercial development which has experienced a major downturn in commercial activity in recent years. The Bundilla area is constrained by the Maroochy River to the north and south, and Lakes Residential development to the east and west. The Bundilla area experienced rapid growth between the late 1970's to 1992 when it was on the main access road between Caloundra and Mooloolaba.
With the opening of a direct bridge link across the Maroochy River towards Kawana in 1992, the construction of the expressway and the regional shopping centre at Sunshine Plaza, the Bundilla area has experienced a change in commercial activity. The major commercial thrust is now towards bulky goods on an occasional basis. While traffic flows remain at about 25,000 vehicles per day, Mr Stay argues there is little impact from convenience or weekly shopping or from passing traffic. In spite of some cosmetic landscaping and parking changes by the Council, the area remains in a state of declining retail opportunities.
To support his claim that the Bundilla area is in commercial decline, Mr Stay advises of 23 current vacancies of shops within the area out of a total of 50 shops. He notes that situation was similar when the matter was last before this Court in May 1996. He notes that even some shops which continue to remain in operation, do so only as a means of preserving the buildings, rather than from any retail anticipation.
Mr Stay accepts that the Bundilla area has potential for future high-rise unit development, in conjunction with retail use on the ground level, but argues that is about five to 10 years in the future. He argues that any prudent developer at the relevant date would only retain the subject land in anticipation of some future development potential.
Mr Stay also notes that the unimproved value accepted by this Court for 1 January 1995 was $610,000. (DW & RL Stay v. Chief Executive, Department of Lands (AV96071) 27 September 1996, unreported.) He notes that subsequent to that determination, and in spite of the continuing depressed nature of the commercial development, the unimproved value had been assessed at 1 October 1997 at $670,000 ($340/m²), remaining constant to the current matter. Mr Stay argues that the unimproved value was unlikely to have increased beyond $610,000 as there were no sales to support growth.
Mr Stay has an extensive experience in shopping centre development over 29 years, and notes the current very high rate of vacancies at Bundilla, compared to other properties he has in Brisbane and Nambour, where vacancy rates are very small. Mr Stay attributes much of the high vacancy rates to the lack of customer demand in the area, and the major competition of other centres such as Sunshine Plaza and Kawana. He also supports his opinion based upon experience with other properties he owns extending from Melbourne to Townsville.
However, Mr Stay concedes that in spite of his very extensive experience in this area, he did not provide any detailed written report to the Court to support his oral evidence. Mr Stay describes the Bundilla area as "ribbon commercial" development, but he argues it cannot be described as a "strip shopping centre". He likens Bundilla more to the recent development of "Homemaker Centres" in Brisbane, but on a much smaller scale. He sees the cheaper rents at Bundilla as the only attraction for any potential shop lessee.
2. The Nature of the Land -
The subject land has frontage to three streets, with Brisbane Road providing the major exposure for retailing purposes. The frontage to Coorumbong Close at the rear of the subject land is seen merely as providing rear access for loading and tenant parking to the land. Mr McLaren sees an advantage in that extended road frontage, although Mr Stay sees the rear access to Coorumbong Close as more of a security problem against intrusions. Mr Stay also argues that landscaping by the Council in Brisbane Road near the subject land has in fact provided some obstruction to the exposure of the subject land.
3. Comparison of Sales -
Mr Stay argues that there is almost a complete lack of comparable sales in the area in the relevant period. For that reason he seeks some comparisons with properties he owns in other localities. He notes a shopping centre at McGinn Road, Ferny Grove ($40.12/m²), a retail warehouse at Nambour ($110/m²) and an office complex site at South Pine Road, Alderley ($127/m²). Mr Stay provides only minimal information about those parcels, and there is little to suggest any meaningful comparisons of those sites. However, he argues that none of these rates per m² are anywhere near the $340/m² applied to the subject land.
To support his valuation Mr McLaren supplies the following sales:
·Sale 1 - (Cnr Brisbane Road and Amarina Avenue - now Lot 123 on RP 880336). This is a 1,854 m² parcel zoned "Commercial" and located about 280 metres south of the subject land. The sale has good frontage to area ratio, and exposure to traffic along Brisbane Road, and has been developed for ground level showrooms/professional offices with two small offices on the mezzanine floor. The sale is seen as of lesser frontage than the subject land, and without the benefit of rear access for service parking, and therefore slightly inferior to the subject land.
The sale sold in May 1994 for $650,000 and was analysed at $648,000 ($350/m²) and applied at $605,000 ($327/m²),
·Sale 2 - (Cnr Brisbane Road and Akeringa Place - Lot 97 on RP 138541). This is a 655 m² parcel zoned "Commercial" and located about 200 metres south of the subject land. The sale has good frontage and exposure to Brisbane Road, and has good access for northbound traffic. However, access for southbound traffic is more restricted due to crossing heavy traffic flows. The sale has subsequently been developed as a single level retail complex. The sale has a superior frontage to area ratio, but suffers from blind corner exposure to north-moving traffic. The sale has no rear access, but is seen as comparable in quality as the subject land.
The sale sold in February 1993 for $232,500, and was analysed at $232,500 ($350/m²) and applied at $227,599 $342/m²).
·Sale 3 - (Brisbane Road - Lot 208 on RP 43882). This is a 731 m² parcel zoned "Commercial" and located about 300 metres north of the subject land just south of the northern end of Bundilla. The sale has subsequently been developed as a two level retail/office complex. The sale has a superior frontage to area ratio, but is an inside lot with no rear access, and is seen as inferior in quality than the subject land.
The sale sold in March 1994 for $252,000, and was analysed at $251,000 ($343/m²), and applied at $230,000 ($315/m²).
·Sale 4 - (This is a resale of Sale 3). The sale sold in September 1994 for $280,000, and was analysed at $279,000 ($382/m²) and applied at $230,000 ($315/m²).
·Sale 5 - (Pangarinda Place - Lot 2 on RP 858514). This is an inside parcel of area 926 m² to the rear of the commercial development fronting Brisbane Road, and was zoned "Local Business". The sale is 20 metres from the rear of the subject land. The sale has nominal exposure to Brisbane Road only from first floor level, and is partly irregular in shape, and adjoins the canal to the south. The sale has subsequently been developed as a special purpose gymnasium on the upper level, and parking underneath. Because of its lack of direct exposure to Brisbane Road, and lack of any corner access, the sale is seen as substantially inferior in quality to the subject land.
The sale sold in March 1996 for $250,000, and the effective area of 863 m² was analysed at $249,000 ($289/m²) and has been applied at $199,000 ($231/m²).
·Sale 6 - (Cnr Aerodrome Road and Maud Street, Maroochydore - Lots 810 and 811 on M56714). This is a 1,447 m² "Commercial" parcel located about 4.1 km north-west of the subject land in the adjoining area of Maroochydore. The sale is well located on a busy thoroughfare with good frontage and corner access. The sale is superior in terms of location, slightly better in terms of exposure and rear access and superior overall in quality.
The sale sold in February 1998 for $760,000, was analysed at $760,000 ($525/m²), and has a current concessional applied unimproved value. However, it is proposed to reassess the unimproved value at $472/m².
·Sale 7 - (Cnr Parker and Rose Streets, Maroochydore - Lot 7 on RP 64285). This is a 718 m² "Commercial" parcel located about 3.7 km north-west of the subject land in Maroochydore. The sale is on a back street and one lot removed from Aerodrome Road, and has no commercial frontage or exposure. The sale is seen as substantially inferior in location, and is overall inferior in quality.
The sale sold in June 1998 for $200,000, was analysed at $198,800 ($277/m²), and applied at $173,000 ($241/m²).
To support his conclusion that there has been no decline in property values in the relevant period, Mr McLaren provides some further resales of strata title/retail office premises in the area, which relevantly shows:
·Sale A - (Pearce to Butterworth - Lot 4 on BUP10166). This is an 89 m² ground level parcel which adjoins Sales 3 and 4, and which sold in February 1998 for $158,500 ($1,780/m²), after being previously sold (Houston to Pearce) in April 1993 for $118,000 ($1,325/m²).
·Sale B - (Morish to Vaneste - Lot 14 on BUP13517). This is a 42 m² ground level parcel located about 100 metres south of the subject land, which sold in May 1998 for $95,000 ($2,262/m²), after having previously sold (Davidson to Morish) in February 1994 for $75,000 ($1,785/m²).
·Sale C - (Banks to Parawa Pty Ltd - Lot 4 on BUP 11544). This is a 121 m² first level parcel (including balcony) located about 240 metres south of the subject land to the east of Brisbane Road, which sold in April 1999 for $206,200 ($1,704/m²), after having previously sold in April 1996 for $190,000 ($1,570/m²).
Mr Stay argues that Sales 1 to 4 were all old sales previously for consideration in the former valuation at 1 January 1995. He notes that Sale 1 has in fact a better exposure to traffic along Brisbane Road, being less cluttered with other commercial signs than the subject land. However, he concedes that the sale has a lesser frontage and no rear access, although he contends that rear access is not significant. Mr Stay notes that Sale 1 is fully occupied by the owner, which he concludes represents the difficulty for the owner in seeking other tenants, similar to the subject land.
Mr Stay sees that Sale 2 is comparable to the subject land, and notes that two tenants in that complex are complementary, such as a doctor and chemist. He concedes that sale has a blind spot approaching from the south, but argues that the combination of destination type patrons seeking the doctor/chemist relationship would balance the blind spot detraction of that sale. Mr Stay accepts that Sales 3 and 4 are inferior to the subject land.
In respect of Sale 5 Mr Stay notes that was a specific purpose sale, where the purchaser was mainly concerned with parking for his gymnasium, which would be facilitated by the adjoining car parking for the shopping centre.
Mr Stay was also familiar with Sales 6 and 7 which he agrees are in a totally different area, and are as relevant only as the three sales he proposed at Brisbane and Nambour. He agrees overall that Sale 6 is superior, and Sale 7 is inferior to the subject land.
Mr Stay summarises the evidence of the overall market for land by arguing that, while there is no evidence that the market has declined, there is also no evidence that it has increased since about 1994.
In respect of the evidence of resales of strata units in Sales A to C, Mr Stay rejects those sales as providing any definitive indication of land values in the relevant period. He argues that the market for strata title properties is different to that for vacant land, noting a different type of purchaser; the nexus of certain end user types of shops/offices; and the varying impacts of body corporate charges. He argues that his analysis of some strata title sales suggests a higher level of purchaser who do not meet the Spencer test as a prudent operator.
Mr McLaren argues that there had been a general increase in commercial properties in the locality in the 1996 revaluation, with Aerodrome Road (25%) and Maud Street (45%-50%), showing increases. With respect to the Bundilla area, Mr McLaren had adopted a more conservative approach in 1996 and retained the previous valuation of $610,000 (1 January 1995). However, with the subsequent sale in 1996 (Sale 5), the values had then been increased to $670,000 for 1 October 1997 and 1 October 1998. As a measure of testing that increase, Mr McLaren sought support from his Sales 6 and 7, which he concedes is a different type of market, and therefore a harder comparison, but, in his opinion, preferable to comparing Nambour and Brisbane. Mr McLaren also notes that there were no areas on the Sunshine Coast which had decreased in value since 1995.
4. The Method of Valuation -
In the absence of sales in the relevant period Mr McLaren seeks support as a check in an analysis of the sales of improved strata lands (Sales A to C). He takes as an example the sale and resale of Sale A (Lot 4 on BUP10166), analysing those sales in 1993 and 1998. After allowing for normal building costs and appropriate interest rates and charges, he concludes that the in situ land value for the strata parcel was $61,758 (1993) and $85,371 (1998). This, he argues, demonstrates that there was no decrease in value since 1993, and in fact there had been an increase in land values.
Mr Stay queries why a capitalisation approach had not been adopted as a check, but argues that his comparisons with his Nambour site (Bumpa-T-Bumpa Retail Warehouse) is a more realistic comparison. He notes that property has a similar passing traffic of 25,000 vehicles per day, a 500 m² warehouse with good exposure in three directions, and unlimited parking on the Maroochy Shire Council car park. He notes the Nambour parcel has an unimproved value of only $110/m². Mr McLaren was not familiar with either current lease rentals in Bundilla, or values in Nambour.
Mr Stay also concedes that a small difference in the adopted capitalisation rate can make a large variation in the determined unimproved value. As a final method of checking the unimproved value Mr Stay refers to adopting an indexation approach adopting the Consumer Price Index (CPI).
Mr Stay notes that adopting an overall CPI increase to the unimproved value of the subject land at 1988 ($205,000), would conclude a figure of $260,000 as at the relevant date of 1 October 1998. Mr Stay argues that the massive increase to the current $670,000 would suggest some further growth factor in the community, which he argues is not evident in the market. Mr Stay argues that at least the CPI comparison supports his conclusion that the current unimproved value is too high.

Decision

(i) The Method of Valuation -

I look first at Mr Stay's concern that the use of the capitalisation of net rents approach would be an appropriate method of checking an unimproved value in the absence of sales of vacant or lightly improved lands. I note that had been rejected by the learned Member in the previous determination on the subject land in 1996. However, the learned Member merely rejected Mr Stay's former capitalisation approach as being flawed, while noting the difficulties of translating a capitalisation of an improved site to an unimproved valuation exercise (p.4). The learned Member did not reject the capitalisation method entirely, as indeed it has been used as a check method, but subject to certain cautions.
In respect of the valuation of shopping centres, for instance, in Bank of NSW v. Bland Shire Council (1930) 9 LGR (NSW) 129, where Pike J said at p.129:
"In my opinion, in a shopping centre, unless you have sufficient freehold sales, the only safe method of arriving at the value is by a capitalisation of rentals. No land has any shopping value unless it would return a rental somewhat commensurate with that particular value. It is idle to say a piece of land is a shopping site unless it can be let, or used, for that particular purpose, and will return a rental commensurate with the price put on that particular piece of land."

The use of the capitalisation approach as a check against another method was also supported in Bennett & Anor v. The Valuer-General (1974-75) 23 The Valuer 75, where Else-Mitchell J said at p.77:
"In the result I am not disposed to determine the unimproved value of the subject lands primarily by the application of a capitalisation method, although it may be that such a method can be used to verify a value deduced by other means."
However, I believe the caution that needs to be applied in adopting the capitalisation of net rentals was best explained by this Court in State Government Insurance Office (Queensland) v. The Valuer-General (1981) 7 QLCR 171, where the President said at p.182:
"Not only has the capitalisation method problems attaching to the reasonable value of the site improvements plus the building construction costs but also rentals must reflect to some extent the management of the centre, quality of the tenants, their business ability trading as a group and the fact that the centre was the first centre to be opened in Mackay. There are too many variables and imponderables involved in this method, in my opinion, to enable it to be competently advanced as cogent supporting evidence."
In the current matter there has been no evidence of a detailed analysis by the capitalisation approach, and consideration of such provide no assistance to me.
I look then to reference to the use of a percentage change in the unimproved value as a result of applying the CPI. While I am aware that such percentage rises in values are often of concern to appellants in seeking to have confidence that their personal property has been fairly treated in any valuation, they in fact do not prove conclusively that any error has been made in the valuation process. Such rises may, at best, be an indicator to owners that they should further investigate the valuation, but there may be many reasons why a valuation is changed at what would appear to be a rate out of line with some overall statistical percentage.

This point has been considered many times by the Courts, and I note from precedents that a large increase in itself is not evident of some error in the valuation. I note, for example, in the decision of NR and PG Tow v. The Valuer-General (1978) 5 QLCR 378, where the Land Appeal Court said at page 381:
"It follows that a large increase over and above the previous valuation is in itself not a relevant issue provided bona fide sales of comparable parcels support the new valuation."

That matter was also considered in C and BD Henricks v. The Valuer-General (1983) 9 QLCR 59, where in the Full Court of Queensland, Macrossan J. (CJ) said at page 63:

"The appellants also relied upon a schedule, exhibit 4 in the Land Appeal Court, which showed percentage increases in the value applied by the Valuer-General to a number of selected parcels of land from the date of the preceding valuation up to the March 1979 valuation date. The percentage increase shown in the selected cases was in each instance considerably less than the increase applied to the subject land as between the two valuation dates. The weakness in such a selective comparison is obvious as there could be any number of reasons why blocks in the same valuation area should increase at different rates over a period of five years."

As the Full Court said, there could be many reasons why parcels of land can increase at different percentage rates over a period of time. The real test is not the percentage increase in the unimproved values, but a comparison of the subject with sales of comparable sites in the vicinity of the subject at the time of the valuation.
If I then consider the check on the changes in the market by Mr McLaren, I note that he uses sales and resales of strata title improved sites, only as a rough measure of market variation. Mr McLaren makes no direct comparisons between those sales of improved properties and the subject land. Indeed, the use of improved sales for the purpose of determining unimproved value of land raises the problem of determining the added value that any improvements bring to the land. (O’Brien Nominee Pty Ltd v. Valuer-General (1979) 6 QLCR 280, at page 284 and also Taylor v. The Valuer-General (1928) 9 LGR (NSW) 52, at 53).
However, in considering the sale of the strata title improved lands, I note Mr Stay's concern that such sales are an entirely different market to the market for lands for development purposes. The strata title lands contain varying improvements, and are significantly different in size and cost. To suggest that any market trend for strata title units could be translated across to the market for vacant lands in Bundilla would, in my opinion, not be a reliable approach. However, I can accept that the strata title lands demonstrate a different market segment in that locality that is not declining.
(ii) Comparison of Sales -
The key then to this matter lies in the comparison provided of the lightly improved lands. Of those sales I note that Sales 1 to 4 all occurred prior to the valuation at 1 January 1995, and were considered in that matter. I note also in that matter that the respondent sought to provide additional support in two sales in the Maroochydore area, also resisted at that time by Mr Stay. In the end the learned Member saw no need to rely upon the two supporting sales. On that evidence Sales 1 to 4 would support an unimproved value of $610,000, although Sale 4 suggests that there may have been some increase in the market at September 1994.
Mr McLaren sees the difference in the analysed rate for that sale at $382/m² compared to its applied rate of $315/m² (82%) as supporting that the market had increased. He notes a similar pattern for his Sale 5 which was analysed at $289/m² and applied at $231/m² (80%). However, I note that Sale 5 is zoned differently, and is used for a purpose relatively less constrained by normal retail commercial purposes. I note also that Sale 5 is agreed to be substantially inferior in quality to the subject land.
In respect of comparisons with Sales 6 and 7, I agree with Mr Stay that those sales reflect a different market segment to Bundilla, and I treat those comparisons only as providing an upper and lower limit for commercial lands in that part of the Sunshine Coast.
The question then becomes: does the sales evidence support the current unimproved value of $670,000, or the former value of $610,000 at the relevant date of 1 October 1998? I note that unimproved values in Bundilla do not relate only to the current retail use of the lands, but also include a component of potential use for redevelopment as units, although that is somewhat in the future.
I am reminded that under s.33 of the Act the unimproved value as determined by the Chief Executive is deemed to be correct unless proved to the contrary; and that under s.45(4) of the Act the onus is upon the appellant to prove his case. However, I am also reminded that where there is some doubt as to whether the evidence supports a change in the market in the restricted area of Bundilla, then any doubts should be resolved in favour of the appellant. I note that there is precedent for that approach in the High Court Case in Commissioner of Succession Duties (SA) v. Executor Trustee and Agency Company of South Australia Limited and Others (1946-47) 74 CLR 358, where Dixon J said at page 373:
"I have had the advantage of reading the judgment prepared by Williams J and agree in it. I should like, however, to add for myself that there is some difference of purpose in valuing property for revenue cases and in compensation cases. In the second the purpose is to ensure that the person to be compensated is given a full money equivalent of his loss, while in the first it is to ascertain what money value is plainly contained in the asset so as to afford a proper measure of liability to tax. While this difference cannot change the test of value, it is not without effect upon a court’s attitude in the application of the test. In a case of compensation doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservative estimate."
I am also aware that the unimproved values in the Bundilla area were increased in line with the increase in the unimproved value of the subject land at that time to $670,000 (10%). However, in view of the known commercial difficulties being experienced in the Bundilla area, which was acknowledged by the attempts by the Council to upgrade the area following the shifts in market forces arising from the expressway and the bridge to Kawana, I believe any uncertainties arising from the minimal sales evidence which might support a change in the market since 1996, should be resolved in the appellants' favour. On that basis I find that a value of $610,000 would be appropriate, until there is more conclusive evidence of a market shift.

Conclusion

Having considered the whole of the evidence, I am persuaded that the appellants have partly proved their case. The appeal is allowed, the valuation as determined by the Chief Executive is set aside, and the unimproved value of Lot 1 on RP 144757 and Lots 2 and 3 on RP 127555 is determined at Six Hundred and Ten Thousand Dollars ($610,000).

NG DIVETT

MEMBER OF THE LAND COURT

[2001] QLC 48

31 May 2001