Surfers Paradise Resort Hotel Pty Limited v Department of Natural Resources and Water
[2007] QLAC 127
•14 December 2007
LAND APPEAL COURT OF QUEENSLAND
CITATION: Surfers Paradise Resort Hotel Pty Limited v Department of Natural Resources and Water [2007] QLAC 127 PARTIES: Surfers Paradise Resort Hotel Pty Limited
(appellant)v. Chief Executive, Department of Natural Resources and Water
(respondent)FILE NO: LAC2007/0159 DIVISION: Land Appeal Court of Queensland PROCEEDING: Appeal ORIGINATING COURT: Land Court of Queensland DELIVERED ON: 14 December 2007 DELIVERED AT: Brisbane COURT: White J
Mr RP Scott, Member of the Land Court
Mr RS Jones, Member of the Land CourtORDER: The appeal is dismissed. CATCHWORDS: Valuation of Land Act 1944 – s.3(1) – identification of "improvements" – highest and best use of land not relevant.
Valuation of Land Act 1944
Valuation of Land Act 1916 (NSW)
Surfers Paradise Resort Hotel Pty Ltd v Department of Natural Resources and Water [2007] QLC 0041
Department of Natural Resources and Mines v QNI Metals Pty Ltd & Anor [2002] QLAC 71
Morrison v Federal Commissioner of Land Tax (1914) 17 CLR 498
Brisbane City Council v The Valuer General for the State of Queensland (1978) 140 CLR.
Department of Natural Resources and Mines v QNI Metals Pty Ltd & Anor [2002] QLAC 71.
McGeochv Federal Commissioner of Land Tax [1929] 43 CLR 277
Caltex Oil (Australia) Pty Ltd v Chief Executive, Department of Lands (1996) 16 QLCR 435
Landel Pty Ltd and Lakes Investment Pty Ltd v Chief Executive, Department of Natural Resources and Mines [2002] 23 QLCR 268.
Adelaide Clinics Holdings Pty Ltd v Minister for Water Resources (1998) 65 LGRA 410
APPEARANCES: Mr R J Anderson of counsel for the appellant.
Mr W Isdale, Executive Legal Consultant of Crown Law for the respondent.SOLICITORS: Mr L Hinckfuss of Gadens, Lawyers for the appellant.
Crown Solicitor for the respondent.
The five star Marriott Surfers Resort Hotel is located at Ferny Avenue Surfers Paradise fronting the Nerang River. As required by s.13 of the Valuation of Land Act 1944 (the VLA) the respondent placed an "unimproved value" on the hotel land of $31,000,000 as at 1 October 2003. The appellant had initially contended for a valuation of $22,300,000. In reasons published on 24 May 2007[1]the Land Court determined the unimproved value at the respondent's figure and it is from that decision that the landholder has appealed.
[1] Surfers Paradise Resort Hotel Pty Ltd v Department of Natural Resources and Water [2007] QLC 0041.
The issue that separates the parties essentially becomes one of construction concerning s.3(1) of the VLA which provides:
"3 Meaning of unimproved value
.(1) For the purposes of this Act –unimproved value of land means –
(a)in relation to unimproved 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; and
(b)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, at the time as at which the value is required to be ascertained for the purposes of this Act, the improvements did not exist."
The appellant's position is that s.3(1)(a) applies to the subject land whilst the respondent opts for s.3(1)(b), the provision applied by the Court at first instance. The choice of one provision or the other turns on how, on the facts before us, the question whether the land is "improved land" or "unimproved land" is approached. It is relevant to that question to notice, first of all, that the estimation of the unimproved value is the final step in the process required by s.3(1), the first being to ascertain which of the two above provisions applies.
The parties are agreed that if the land was in its natural or vacant state its highest and best use would be high rise residential purposes and that its value on that basis would be $31,000,000. They are also agreed that the high rise hotel on the land could not be successfully converted to that residential use and that the cost of demolition of the hotel and the termination of an associated management agreement would be $8,300,000. For convenience we will refer to the hotel building and facilities as "structures". It is also common ground that the value of the subject land as it stood with the structures on it would exceed $31,000,000. It had sold at dates before and after October 2003 for $59,000,000 and $64,000,000 respectively.
The Chief Executive's position, which was accepted below, was that to ascertain whether the land is "improved land" the first issue is whether the structures on it add value to the land. If they do then the land must be treated as "improved land" and the structures on it are improvements which must, pursuant to s.3(1)(b), be notionally removed for the valuation exercise prescribed by that section.
The appellant proposed that the first step is to ascertain the highest and best use of the land as if there were no structures on it, and to place a value on it on that basis. The next step, according to the appellant, is an enquiry as to whether the structures on the land add value to the land for that highest and best use. As the structures cannot be applied to a high rise residential use and would have to be demolished at a cost of $8,300,000, (including the cost of determining the management agreement) they do not add value for that highest and best use and therefore could not be described as improvements for the purposes of s.3(1) of the VLA. Accordingly, the land is not "improved land" and should be valued as it exists. That would be done by deducting the cost of $8,300,000 from the land value of $31,000,000 to produce an unimproved value of $22,700,000.
There is no definition of either "unimproved land" or "improved land" in the Act. An inclusive definition of “improvements” is in s. 6 of the Act. Relevantly it provides:
"6 Meaning of improvements
(1)Improvements means, in relation to land, improvements thereon or appertaining thereto, whether visible, invisible or intangible, and made or acquired by the owner or the owner's predecessor in title, and includes …".
That definition is founded on a general understanding of what the word "improvements" means. Indeed, a comprehensive definition of improvements would seem to be an impossibility for whether a particular work of man is an improvement will depend on a consideration of the land in question. A mine shaft would enhance land used for mining, but would likely be an impediment to the use of land for cultivation.
In the context of a statute such as the VLA which is concerned with the ascertainment of value, it would not be expected that the notion of whether something is an improvement should be settled by reference to subjective considerations. Clearly, the question whether a particular work is an improvement turns on whether it adds value to the land in question at the time under consideration.
It follows that improved land is land upon which operations of man have taken place which enhance the value of the land to the extent that its value is greater than it would have been had no such operations taken place. In Morrison v Federal Commission of Land Tax[2] Griffith CJ said:
"… any operation of man on land which has the effect of enhancing its value comes within the definition of improvement."
Conversely, if such operations do not enhance the value of the land but reduce it they cannot be said to have improved it. As Gibbs J, as he then was, said in Brisbane City Council v The Valuer General for the State of Queensland[3]:
"… something done on or appertaining to land which reduces rather than enhances its value is not an improvement for the purposes of the Act, any more than it would be in the ordinary sense of the word."
[2] (1914) 17 CLR 498 at 503.
[3] (1978) 140 CLR 41 at 51.
In effect, the approach proposed by the appellant would be one whereby the hotel building on the subject land would be characterised as a "worsement" whilst the Chief Executive treats it as an improvement. This issue was confronted by this Court in Department of Natural Resources and Mines v QNI Metals Pty Ltd & Anor[4] where the Court said:
"[9]It is to be observed that s.3 (1) of the Act provides two definitions of unimproved value - for land which is unimproved and land which is improved. The first issue to be determined, therefore, is whether the land was improved or unimproved as at the date of valuation. This will depend on whether the structures on the land constitute improvements. …
[10]Whether these structures are improvements is a question of fact which will be answered by determining whether, in the market place as at the date of valuation, the land with the structures in place was worth more than it would have been without them. If the structures enhance the value of the land, they are improvements and the unimproved value is to be determined as though the structures did not exist."
[4] [2002] QLAC 71.
In our view the appellant's approach confuses the requirement to identify whether the land is improved or not by introducing a requirement to identify the highest and best use of the land first – a step not required until the valuation process is being undertaken. The plain meaning of the words of s.3(1) leads to the process described in QNI Metals.
In Trust Co. of Australia Ltd v The Valuer General[5] the New South Wales Court of Appeal had for consideration s.6A(1) of the Valuation of Land Act 1916 (NSW), a provision relevantly similar to s.3(1) of the VLA. Campbell JA, with whom Beazley and Ipp JJA agreed said:
[5] BC 2007 05866 [2007] NSW CA 181.
"[33]It is particularly important, for present purposes, that there is a particular order of operations that section 6A requires to occur in ascertaining the 'land value'. In carrying out the thought-task that section 6A(1) calls for, first, the 'improvements' other than land improvements are notionally removed. Only then does the notional sale occur. And it is by reference to that notional sale that the highest and best use is determined. Thus, it is necessary to determine the identity of the improvements that are to be removed before the highest and best use can be ascertained.
[34]Support for that view of section 6A(1) can be derived from the speech of Lord Dunedin in Tooheys, Ltd v The Valuer-General [1925] AC 439. His Lordship said that the process that the original section 6 of the Act required a valuer to undertake was (at 443):
'... what he has to consider is what the land would fetch as at the date of the valuation if the improvements made had not been made. Words could scarcely be clearer to show that the improvements were to be left entirely out of view.... What the Act requires is really quite simple. Here is a plot of land; assume that there is nothing on it in the way of improvement; what would it fetch in the market?'
[35]I can see no relevant difference between the original section 6 that Lord Dunedin construed, and the present section 6A(1), so far as the order of operations that the section requires to be notionally performed is concerned.
[36]According to the Appellant's submission, the identity of the improvements is ascertained by reference to what is the highest and best use. That requires the highest and best use to be known before the identity of the improvements is ascertained. But the temporal sequence of events that section 6A requires simply does not enable that to occur. This provides, in my view, a strong reason why the Appellant’s submission is incorrect."
Campbell JA endorsed the reasoning of the trial judge earlier described in the Court of Appeal reasons:
"[17]The trial judge summarised his approach to construction at [42] of his judgment (148 LGERA 38 at 51):
'A structure on land is not an improvement if it does not enhance the land’s value compared with its natural state. The commercial buildings on the Ashfield Land enhance the land’s value compared with its natural state. They are valuable to a purchaser who has a use for them. I do not accept the Applicant's submission that 'improvements' have to add value to land for the purpose of its highest and best potential use."
…
"[37]Further, the construction of 'improvements' adopted by the trial judge permits the 'improvements' that are on land to be identified before any notional removal of them occurs. That is, in my view, a significant point in favour of the trial judge's construction."
With respect, we agree with the reasoning of the New South Wales Court of Appeal and consider that it is equally applicable to the construction of s.3(1) of the VLA.
It was submitted for the appellant that is was feasible for land to have been affected by operations of man which may have both improved the land by enhancing its value and worsened the land by creating an impediment which reduced its value. The appellant contended that the approach by this Court in QNI Metals was not apt to address that situation as it seemed to imply that if land had an improvement on it must therefore be improved land notwithstanding the prospect that the net effect of the operations of man may have had a depreciating effect on land value.
The decision in QNI Metals needs to be understood subject to its facts and as expressing a proposition relevant to those facts. Similarly, subject to what we say next, we are not inclined to attempt to deal with a hypothetical factual scenario. Nevertheless, we can say that in our view the hypothetical scenario raised by the appellant does not lead to a conclusion that the first step under s.3(1) is to ascertain the highest and best use of the land. Whatever difficulties might be encountered in determining whether the land is improved or not, the need to identify the highest and best use arises only when the valuation step takes place.
Counsel for the appellant also referred us to McGeochv Federal Commissioner of Land Tax[6] where at 290 in the joint majority judgment of Knox CJ and Dixon J their Honours said:
"In the legislation in Australia imposing tax on the unimproved value of land we think it is clear that the subject matter sought to be taxed has always been that part of the value of the land at the relevant date which has been commonly described as the "unearned increment." The value at any given date of any given parcel of land has been considered as including two factors, namely, (1926) 36 CLR 325 the portion of the value at the relevant date attributable to improvements on or appertaining to the land made by the owner or his predecessors in title and (2) the portion of the value at such date attributable to extrinsic circumstances, such as public roads or railways, increased settlement in the neighbourhood, public services brought within reach and other causes not brought about by the operations on the land of successive occupiers. See Cox v Public Trustee (1918) N.Z.L.R. 95 pp. 99, 103. Adopting the language of Hosking J. in that case, we think the unimproved value which is the subject of taxation under this Act is the value at the relevant date of the land in its natural state as for the time being affected by extrinsic circumstances of every kind, as, for example, those above mentioned, but not by what has been done to it or upon it in the shape of improvements of any kind effected by the operations of successive owners the benefit of which continues as a factor in the then present value of the land."
The suggestion for the appellant that McGeoch is authority for the proposition that the first requirement of s.3(1) of the VLA is to ascertain the highest and best use of the land in its "natural" state disregards the facts underlying that case. The facts did not involve land whose highest and best use in its natural state was different from its current use.
[6] [1929] 43 CLR 277.
At a practical level, the question whether a structure or other work of man is an improvement is answered by asking whether a prudent purchaser would pay a higher price for the land together with the structures than he would to put the land to a use which rendered the structures redundant. On the facts before us the land is worth $31,000,000 without the structures but is worth much more with the structures in place. The structures must therefore be improvements for the purposes of the VLA and accordingly, pursuant to s.3(1)(b) must be assumed as non-existing. On that basis the unimproved value of the land is $31,000,000.
The appellant identifies support for its position in Caltex Oil (Australia) Pty Ltd v Chief Executive, Department of Lands[7] where the majority of this Court said:
"If the service station structures add value to the land, then the highest and best use of the land must be something which involves use of those structures, not their demolition. If the highest and best use of the land is for residential purposes, then the service station structures can add nothing to the value of the land as vacant land. If anything, the value of the land with the structures on it should be less than its value as vacant land, since the structures must be demolished and removed in order to develop the land for its highest and best use. For the purposes of residential use, they are a disadvantage. (456)
… the subject land was not necessarily improved land because the service station structures did not necessarily constitute improvements. (457)
The Valuation of Land Act is not a code of valuation methodology. It assumes the existence of the valuation process and requires its application in the cases and with the modifications prescribed by the Act. The starting point of that process is the determination of the highest and best use of the land being valued (Adelaide Clinic Holdings Pty Ltd v Minister for Public Resources (1988) 65 LGRA 410, at p.415 per Jacobs J.). Only when that is done can it be seen whether the land is to be valued as improved or unimproved land. If, but only if, it is to be valued as improved land, the statutory assumption must be made. The highest and best use of the land is not to be determined on the assumption that the structures do not exist because whether the Act requires that assumption to be made ultimately depends on what is the highest and best use of the land. The Act does not refer to highest and best use and does not require the separate determination of such a use for land as unimproved land. (458)
… whether the structure … constitutes an improvement cannot ordinarily be known until the highest and best use of the land is determined. (458)"
[7] (1996) 16 QLCR 435.
We accept that these statements from CaltexOil tend to support the case for the appellant. However, any factual issue as to whether the service station structure was an improvement was removed from the Court's consideration because of an agreement between the parties. Accordingly, what the majority had to say about this question was strictly obiter dictum. Nevertheless we feel bound to express the clear view that the reasons of the majority in Caltex Oil should not, in this respect, be followed. The authority for this Court to decline to follow its earlier decisions was confirmed in Landel Pty Ltd and Lakes Investment Pty Ltd v Chief Executive, Department of Natural Resources and Mines.[8] We are of the view that the majority in CaltexOil fell into error in considering that the starting point for the valuation exercise contemplated by s.3(1)(b) was to determine the highest and best use of the land being valued as if the structures on the land did not exist. In this context we prefer the reasoning of the dissenting Member in Caltex Oil.[9]
[8] [2002] 23 QLCR 268 at [17] – [23].
[9] Mr Wenck at 468.
Counsel for the appellant sought to bolster his submissions by reference to Adelaide Clinics Holdings Pty Ltd v Minister for Water Resources,[10] a case concerning the resumption of land where the resuming authority provided two valuations, one based on the assumption that the highest and best use of the land was residential and one that it was commercial. At 415 Jacobs J said:
"It may be that Mr Goodwin was influenced in his general approach by the absurdly low amount paid into Court by way of an offer of compensation, but for whatever reason I am satisfied that his approach is tainted by error and I am unable to rely upon his evidence. In the first place, it is my view, wrong in principle to determine the highest and best use by comparison of the notional market for commercial development on the one hand, and residential development on the other. Common experience shows that land ideally suited for commercial development will fetch a higher price per unit of area than residential land, but it does not follow that the highest and best use of all land is a commercial use, for the highest and best use means exactly what it says – the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential. The first task of the valuer is to determine what that use is and then to value the land on the basis. It is not appropriate to determine the highest and best use by reference only to value." (underlining added)
[10] (1998) 65 LGRA 410.
It was submitted for the appellant that the Chief Executive had determined highest and best use by reference only to value and, on the authority of Adelaide Clinics, that was wrong. We do not accept that submission. Adelaide Clinics was not a case concerned with an issue of the kind before us - the construction of s.3(1) of the VLA and particularly s.3(1)(b).
Support for our view as to the approach to be taken to s.3(1)(b) is also found in s.3(4) of the VLA which provides:
"(4)Notwithstanding anything contained in this section, in determining the unimproved value of any land it shall be assumed that –
(a)the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates; and
(b)such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used;
but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that any improvements referred to in subsection (1) had not been made."
The proviso in the final paragraph permits the adoption of a highest and best use different from the existing use of the land as developed with improvements. A provision relevantly similar to s.3(4) was considered by the New South Wales Court of Appeal in the Trust Co case.[11] Our understanding as to the effect of s.3(4) is consistent with the reasoning of the Court of Appeal.
[11] At [46] to [49] and [78] to [83].
Order:
1. The appeal is dismissed.
WHITE J
RP SCOTT
MEMBER OF THE LAND COURT
RS JONES
MEMBER OF THE LAND COURT
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