SVETA SCHERBAKOVA and SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
[2012] AATA 89
•16 February 2012
[2012] AATA 89
Division GENERAL ADMINISTRATIVE DIVISION File Number(s)
2011/2626
Re
SVETA SCHERBAKOVA
APPLICANT
And
SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICES AND INDIGENOUS AFFAIRS
RESPONDENT
DECISION
Tribunal Dr P McDermott, Senior Member
Date 16 February 2012 Place Brisbane Decision Summary
The decision under review is affirmed.
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Dr P McDermott, Senior Member
CATCHWORDS
SOCIAL SECURITY – Age pension – Assets test – Rate of pension reduced due to value of property – Property not applicant's "principal home" – Valuation given to property disputed by applicant – Valuation provided by applicant not accepted – Decision under review affirmed
LEGISLATION
Social Security Act 1991 (Cth) ss 11, 55, 1064, 1118
Social Security (Administration) Act 1999 (Cth)
Valuation of Land Act 1944 (Qld)
CASES
Kirkovski v Secretary, Department of Family and Community Services [2004] FCA 790
Re Secretary, Department of Social Security and Langton (1993) 31 ALD 579
Re Torv and Secretary, Department of Social Security [1992] AATA 185
Re Woodhouse and Department of Social Security (1987) 12 ALD 474SECONDARY MATERIALS
Guidelines for Use of Concurrent Evidence in the Administrative Appeals Tribunal (issued 9 November 2011)
REASONS FOR DECISION
Dr P McDermott, Senior Member
16 February 2012
INTRODUCTION
On 2 August 2010, Centrelink made a decision to reduce the rate of age pension payable to Ms S Scherbakova (the applicant) having regard to the value of her two bedroom house property in Tilley Street, Redcliffe (the property). In determining this application I have to essentially make a finding as to what the market value of her property was at the time of that decision. The property is located within a residential medium density zone under the Redcliffe City Council Planning Scheme, and is located within 2 km of the Redcliffe Central Business District and 300 metres from the local hospital.
BACKGROUND
The applicant is qualified to receive age pension. On 15 July 2010, she lodged an Income and Assets Update with Centrelink, in which she declared the property as one of her assets. In that form she then indicated that the property had an unimproved value of $170,000. Earlier, on 22 March 2010, the Department of Environment and Resource Management (DERM) issued a notice which confirmed that the unimproved value of the property was $170,000.
On 29 July 2010, the Australian Valuation Office (AVO) had valued the property at $330,000. On 2 August 2010, Centrelink wrote to the applicant to advise her that her rate of age pension had been reduced to $287.85 per fortnight, having regard to the value of her assets. The applicant disagreed with the AVO valuation and sought a review of the decision to reduce her age pension. On 6 October 2010, the AVO reduced its valuation of the property to $285,000; as a result Centrelink wrote to the applicant and advised her that it had increased her age pension. On 8 October 2010 payment in arrears of age pension was made to the applicant in respect of the period 2 August 2010 to 5 October 2010.
On 14 October 2010, the applicant sought a further review of the decision to reduce her age pension. Centrelink sought a full valuation report from the AVO. On 10 November 2010, the AVO provided a full valuation report and confirmed that the valuation of the property was $285,000. On 11 November 2010, an authorised review officer affirmed the decision to reduce the age pension of the applicant based on the new valuation of the property.
On 30 November 2010, the applicant wrote to Centrelink outlining the reasons why she disagreed with the AVO valuation. It is fair to say that she was concerned with what she regarded as “omissions” in the valuation report. She pointed out that the property had a number of defects: the roof was not corrugated iron (as stated in the report) but asbestos and leaking; the carport was rusty; there were crumbling stumps; the bathroom had no toilet; the bedroom had no ensuite; the neighbouring properties were four “commission” houses which restricted access to sunlight; there was noise from these neighbouring properties; and properties which were regarded as comparable by the AVO were not really comparable. Her main contention was that the property should be valued at an unimproved value of $170,000 in accordance with the valuation from the DERM. This information was also provided to the AVO. On 23 December 2010, Mr Martin, from the AVO, advised that he considered that his new valuation was correct.
On 10 May 2011, the applicant requested another valuation of the property. On 18 May 2011, Centrelink requested the AVO provide a current valuation for the property taking into account that, since 2010, there has been a decline in property valuations. On 30 May 2011, the AVO provided a new valuation for the property of $260,000. On 31 May 2011, the age pension of the applicant was again reassessed by Centrelink and payment of arrears was issued to her in respect of the period 19 April 2011 to 17 May 2011.
On 19 May 2011, the applicant sought review of the decision of the authorised review officer of 11 November 2010. On 22 June 2011, the Social Security Appeals Tribunal affirmed that decision. On 5 July 2011 the applicant sought further review by this Tribunal.
RELEVANT LEGISLATION
8. This application is subject to the operation of the Social Security Act 1991 (Cth) (the Act).
9. Under s 55 of the Act the applicant’s rate of age pension is calculated using Pension Rate Calculator A.
10. Point 1064-A1 of the Act provides a “Method Statement” for working out a person’s maximum payment rate of age pension. The method statement then requires the rate of age pension be calculated after any income is taken into account and then, in the alternate, the rate when the value of any assets is accounted for. Step 11 of the method statement requires that a person be paid the lower of the income reduced rate and the asset reduced rate.
11. Point 1064-G1 of the Act provides a “Method Statement” for working out the “effect of a person’s assets on the person’s maximum payment rate”. This is generally referred to as the “assets test”. The term “asset” is defined by s 11 of the Act to include money or property.[1]
[1] Section 11 provides definitions of “assets” specifically in regard to asset tests under the Act.
The principal home of the applicant is disregarded, when calculating her assets, under s1118(1) of the Act, which provides:
1118Certain assets to be disregarded in calculating the value of a person's assets
(1) In calculating the value of a person's assets for the purposes of this Act (other than sections 198F to 198MA (inclusive), Division 1B of Part 3.10, Division 2 and sections 1133 and 1135A), disregard the following:
(a) if the person is not a member of a couple—the value of any right or interest of the person in the person’s principal home that is a right or interest that gives the person reasonable security of tenure in the home;
(b) if the person is a member of a couple–the value of any right or interest of the person in one residence that is the principal home of the person, of the person's partner or of both of them that is a right or interest that gives the person or the person's partner reasonable security of tenure in the home;
…
However, the property the subject of this hearing cannot be considered to be the applicant’s “principal home” under the Act; indeed, she has informed Centrelink that she resides at another property.[2] Therefore, the applicant cannot rely on s 1118(1) of the Act to have the property disregarded when calculating her assets.
[2] See Exhibit A, T-document 5, folio 23. In the interests of privacy it is not appropriate to disclose the address of her residence in this decision.
METHOD OF VALUATION
There is no provision in social security law which provides how an asset has to be valued. This Tribunal has consistently held that for the purposes of social security law, the Tribunal is required to assess the net market value of the property. This market value would be based on comparable sales and the “best use” to which the asset could be put: see Re Woodhouse andDepartment of Social Security (1987) 12 ALD 474; Re Torv and Secretary, Department of Social Security [1992] AATA 185 and Re Secretary, Department of Social Security and Langton (1993) 31 ALD 579. This approach has been approved by the Federal Court of Australia in Kirkovski v Secretary Department of Family and Community Services [2004] FCA 790 where Bennett J remarked, at [17]:
Under the Social Security Act 1991 (Cth) there is no statutory provision specifying any method for the valuation of assets. The test which seems to have been applied by the AAT in a majority of cases is a net market value approach based on comparable sales and the ‘best use' to which the asset could be put (see Fong and Secretary Department of Family and Community Services [2002] AAT 172; Re Emberts and Repatriation Commission (1988) 16 ALD 19.
In determining a value for the property I must, therefore, base my decision on the market value of that property and have regard to comparable sales and the “best use” to which the property may be put. In determining a value I must consider all evidence of net market value that has been placed before me.
EVIDENCE
The first witness that was called before the Tribunal was Mr John Stephens, a valuer. His report of 14 October 2011, which was tendered in evidence, was based on the valuation of the property as at 14 October 2011. The report, which was prepared with the assistance of Mr Sorensen, values the property at $220,000. However, the report also contains the notation that “market activity had commenced to decline with property values commencing to reduce”.
Mr Stephens was unable to give evidence as to the value of the property as at the date of the decision. He stated that before he could give an opinion of the value of the property in July 2010, he would have to undertake research on comparable property values at the time. Mr Stephens stated that he would be able to complete a report by 21 October 2011. The applicant undertook to obtain a further report from Mr Stephens on the value of the property as at July 2010. The applicant was given until 25 October 2011 to file a copy of that report. The applicant did not file a copy of that report.
The respondent called Mr Bruce Martin of the AVO to give evidence. On 29 July 2010, he initially valued the property at $330,000, but, on 6 October 2010, he reduced his valuation. His full valuation report of 10 November 2010 was in evidence: in that report he values the property at $285,000 as at 29 July 2010. On 3 October 2011, the AVO completed an addendum to its previous report taking into account any errors contained in its original report and addressing additional sales evidence provided by the applicant.
The applicant, in her cross-examination of Mr Martin, focused upon what she described as “omissions”, which I have previously mentioned. One of the major matters of concern for her was the fact that successive AVO reports referred to the exterior of her property as being of brick construction when it was of asbestos sheeting. Later AVO reports have been corrected and the exterior of her property has been correctly described in the full valuation report of 10 November 2010. One of the matters upon which Mr Martin was questioned concerned whether the AVO officer had inserted the details of the main residence in what is a short form valuation report. Mr Martin stated that the AVO did not insert those details in the form; instead he stated that the details of the main residence are inserted in the form by Centrelink, and the request is then sent by computer to the AVO.
The applicant closely questioned Mr Martin upon the fact that his report states that the roof is a corrugated iron roof but that it is actually made of asbestos. Mr Martin stated that his inspection of the roof was made from the ground and that it appeared to be of corrugated iron. The applicant also pointed out that the property had a number of defects: the roof was leaking; the carport was rusty; there were crumbling stumps; the bathroom had no toilet; the bedroom had no ensuite and the neighbouring properties block the sunlight. The report of Mr Martin does, however, refer to deficiencies in the property. The applicant also closely questioned Mr Martin upon comparable sales evidence.
At an adjourned hearing of the application, the applicant called Mr Mal Missingham AAPI, certified practising valuer, who stood by his valuation report which placed a valuation of $240,000 upon the property as at 1 July 2010. His report contained the statement that the home is in poor condition and has “a high asbestos content that requires significant maintenance consequently any refurbishment works are going to be far more expensive than a non-asbestos home”. His report contains his opinion that the home “is at the end of its economic life” and that “some potential buyers may regard it as an encumbrance having a negative value”.
Whilst giving evidence, Mr Missingham was examined as to whether there was some development potential of the land. His report contains his opinion that this option is significantly restricted by the fact that the property immediately north has been developed. His report also mentions that the property “immediately south has a good quality circa 1985 ground set brick building 3 bedroom brick home that has considerable added value”. Under cross-examination he was questioned about whether there could be development with the property to the west of the property: he opined that the width of the properties may not permit development.
The respondent recalled Mr John Stephens, the valuer. The respondent tendered a new valuation report, dated 20 October 2011[3], from Mr Stephens which placed a value of $290,000 as at 29 July 2010. This report was not made available to the applicant who had not paid the invoice for the valuation. The invoice was delivered to the applicant on 23 November 2011; she had acknowledged receipt of it via email. However, the applicant had been advised by Mr Sorenson, of Mr Stephens’ office, that the valuation was “just below $300,000”; this conversation occurred on or about 21 October 2011. The respondent also tendered an information notice which had been delivered to Mr Stephens under the Social Security (Administration) Act 1999 (Cth). The notice had been completed by Mr Stephens.
[3] The valuation for this report was completed on 14 October 2011.
Mr Stephens, in his letter of 21 November 2011, stated that he had personally checked the comparison sales used in the second report. He was extensively cross-examined by the applicant. It is fair to say that the applicant had voiced her concern that the respondent had tendered a report that had been commissioned by her. However, there was no reason why the report could not be admitted in evidence, particularly as the applicant had commissioned the report and had undertaken to file it.
The respondent called Mr Charles Collard who is a team leader with the Business Integrity, Customer Compliance Branch of Centrelink. His statement of 20 October 2011 was admitted in evidence. In his evidence-in-chief, he stated that he stood by his statement. Mr Collard explained that an Income and Assets Update form was sent to the applicant on 28 June 2010 and, following the return of that document, his team asked the AVO to prepare a current valuation of the property.
Mr Collard, in his statement, confirmed that Centrelink uses an electronic system of data exchange to seek AVO valuations. The system is outlined in Centrelink’s e-reference procedure 108.15080; a copy of that procedure was attached as annexure “CC1” of his statement. In his evidence, Mr Colley discussed the form that was sent by Centrelink to the AVO. Mr Colley remarked that the details in the upper part of the form, including answers in the fields “Type of Construction” and “Exterior” were inserted by a Centrelink officer. He confirmed that the word “Brick” in the form was input by a Centrelink officer and is not information which was provided by the AVO. Mr Cornell has checked Centrelink mainframe records and there is no record of the AVO having ever advised Centrelink that the property was of brick construction.
Mr Collard does not know why Centrelink recorded the property as being of a brick construction. In the past the exterior of the house had been described as “Other” or “Brick” or left blank: reference was made to “Details Listing” documents that were submitted on 9 August 2004 (left blank), 5 July 2006 (“Other”) and 10 August 2007 (“Brick”) (see annexure “CC4” to his statement). He states that the most likely explanation for it being listed as ‘Brick” is that it was a coding error that occurred in 2007 (see p. 3 of Annexure “CC4”) and remained uncorrected on Centrelink’s mainframe records. Mr Collard remained firm in giving evidence while being cross-examined by the applicant.
CONSIDERATION
In determining a value for the property I have considered the various reports of the valuers which are in evidence before me.
The applicant had initially relied upon the notice of valuation of the property that was issued on 22 March 2010 by the DERM. That notice advised that the unimproved value of the property was $170,000. The applicant, in her Income and Assets Update form of 15 July 2010, thus stated that the property had a value of $170,000.
The DERM valuation of the unimproved value of the property was made under the Valuation of Land Act 1944 (Qld), which has since been repealed. The unimproved value of the property did not take into account the value of improvements on the site. This is because at the time of valuation the Valuation of Land Act1944 (Qld) was in force and s 3(1)(b) of the Act provided that, in relation to improved land, the unimproved value is “the capital sum that the fee simple of the land might be expected to realise if negotiated as a bona fide sale, assuming the improvements did not exist”. The unimproved value of the property is therefore quite different from the net market value as there are improvements on the property.
It is fair to say that the case of the applicant is that the improvements do not have any value. Mr Missingham, who gave valuation evidence on behalf of the applicant, factored into his valuation the cost of removal of the house on the property. He considered that some purchasers of the property would remove the house as they would regard it as an “encumbrance”, and estimated that the costs of the removal would be in the region of $20,000. Mr Stephens stated that many houses in the vicinity are of an asbestos construction and that he certainly did not consider that the home was in such a condition that it should be removed. Mr Stephens has, in his latest report, acknowledged that the kitchen, bathroom and toilet are in need of improvement. I am not satisfied that, on the state of the evidence before me, the house is in such a state that the value of the improvements should be disregarded or even that the cost of removal should be considered in valuing the property. I appreciate that some purchasers of the property may want to remove the home to build a more modern residence but I do not consider that this is a reason to disregard the value of the improvements.
The applicant has placed reliance on the report of Mr Missingham who considers that the property is worth $240,000. However, I have decided not to rely on the report of Mr Missingham. I do not share his assumption that the building has reached the end of its economic life.
I have decided to rely upon Mr Martin’s full valuation report of 10 November 2010. In that report he values the property at $285,000 as at 29 July 2010. It is true that it is less than his previous estimates of value, but, in compiling his earlier report, Mr Martin made his inspection from the roadside and thus did not have the advantage of inspecting the interior of the house. On 8 September 2010, the applicant had signed a form of “Authority to inspect the property”, which Centrelink received on 13 September 2010. Consequently, Mr Martin’s later report was made with the advantage of being able to inspect the interior of the house.
After viewing the interior of the property, Mr Martin, in his second report, assessed the condition of the property as “Below Average”. His full inspection acknowledged: “This property is in need of extensive maintenance and repair not visible from kerbside assessment”. Mr Martin noted that there was “water damage to the ceiling” and that “both kitchen and bathroom were in need of full replacement”. He also acknowledged that on the day of inspection the road was constantly busy with hospital traffic and, for that reason, it is difficult to park. Mr Martin conceded that a reduction from the previous roadside assessment was warranted. In my view Mr Martin had acted quite properly in making that concession.
Mr Martin and Mr Stephens have, in their reports, referred to a comparable sale in January 2010 of a two bedroom home at 36 Percy Street, Redcliffe; that property sold for $299,000. The valuation of Mr Martin is less than this sale price. This is in keeping with the opinion of Mr Stephens that the Percy Street property is a “superior property”.
One of the matters that the applicant questioned Mr Martin on was the presence of the housing commission multi-unit dwellings next to her property. The report of Mr Martin acknowledged that the surrounding developments consist of a mixture of single and multi-unit dwellings. The report of Mr Stephens, which was commissioned by the applicant, does not contain any suggestion that the multi-unit dwellings in any way detract from the value of the property.
The new valuation report, dated 20 October 2011, from Mr John Stephens, is a comprehensive document. The report places a value of $290,000 on the property as at 29 July 2010. The report fully discusses the condition of the house, including describing the roofing material. As I have stated above already, that report addresses the concerns of the applicant. The report refers to the need to replace the kitchen, bathroom and toilet. It also refers to the need to replace several concrete stumps and that the carport and metal deck awning require attention. I also prefer to place some weight on this report, as opposed to that of Mr Missingham, as it contains a more extensive discussion of comparable properties. Mr Stephens refers to four sales of two bedroom properties. He considers two of those properties can be regarded as comparable. He also considers that one property to be superior and one property to be inferior. Mr Stephens is a highly qualified valuer who also teaches property valuation principles at The University of Queensland. He also prepared the report at the request of the applicant.
If anything, I have come to the conclusion that the report of Mr Stephens gives an accurate and fair valuation of the property and that Mr Martin may have made a conservative estimate of the value of the property which does not disadvantage the applicant. Both valuers have extensive experience in valuing property. However, I have decided that it would not be fair to set aside the decision under review and substitute a decision that the value of the property, on the relevant date, was $290,000. This is because it would represent an actual increase in the valuation of the property and the applicant did not receive a warning from the Tribunal about the possibility of such an order being made.
The applicant, while questioning Mr Martin, made a submission to the effect that for a sale of property to be truly comparable, that property had to be identical to her property. The applicant put it to Mr Martin: “If you have not stated that this property has leaking roof, leaking carport, leaking patio, and all these things that you preferred to ignore for whatever motive, we will get to it later, then it’s not comparable?” The applicant also contended that “the Act says we’ve supposed to use comparable data, which means asbestos with asbestos, timber with timber, and brick with brick. And the condition, if things are leaking, if things are rusty, if things are whatever else, we have to use that in that. And if these properties that you have presented marketed considerations, if these properties don’t have all the problems that my property has then it’s not comparable in any shape or form”. I do not accept these contentions of the applicant; certainly the Act does not require any such conditions on the use of comparable data as has been suggested by the applicant.
At the resumed hearing of the matter on 1 December 2011, I advised the applicant that in considering evidence of comparable sales, I would not accept that internet listings are necessarily evidence of such sales. The applicant did not produce, at the resumed hearing, any evidence of these sales. Nor did she subsequently file any such evidence. In any event the furnishing of these lists is not necessarily evidence of value. I give as an example: the applicant had contended that in 2010 a property at 20 Silvyn Street, Redcliffe had sold for $210,000 and she extensively cross-examined Mr Stephens on the basis that this sale had occurred. Mr Stephens had come well prepared to the hearing with data on comparable sales; he advised the Tribunal that he was not aware of this sale. In fairness to the applicant, I thought it important to issue a direction to enable her to file evidence of the sale in 2010 of the property at 20 Silvyn Street for $210,000 in the event that such a sale had indeed occurred. Subsequently however, the applicant has, in an email, quite properly acknowledged that no such sale had taken place in 2010.
I have decided that the value of the applicant’s property, as at 29 July 2010, is the value accorded to it by the AVO on 6 October 2010, that being $285,000. Therefore, the decision by Centrelink to reduce the applicant’s age pension due to an increase in the value of her assets, based upon this valuation, was correct. I should also mention that although the applicant advised had me at a directions hearing that she has taken the advice of her barrister, she did not in her final submissions make any submission on what was the value of her property.
I should record that during the proceedings, the respondent made an application that the Tribunal make an order that concurrent evidence of the value of the property be given under the recent guidelines issued by the President of this Tribunal.[4] I decided not to accede to the application for a number of reasons: the value of the property was not such a complex matter that would warrant the guidelines being invoked; the applicant was unrepresented and, ideally, such an application should have been made before the commencement of proceedings. It would also not be appropriate for me to make an order that may expose a recipient of social security to further expense.
[4] Guidelines for Use of Concurrent Evidence in the Administrative Appeals Tribunal, issued on 9 November 2011 by the Honourable Justice Garry Downes AM (President).
I should also state that some of the material which has been tendered in evidence is quite irrelevant to my enquiry, such as an appraisal, dated 1 September 2011, of what the property could be sold for “on today’s market”.[5] The parties accept that the market values of properties in the Redcliffe area have fallen since the time of the decision.
[5] See Exhibit G,
DECISION
I affirm the decision under review.
I certify that the preceding 43 (forty three) paragraphs are a true copy of the reasons for the decision herein of Dr P McDermott, Senior Member.
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Associate
Dated 16 February 2012
Date(s) of hearing 1 December 2011 Applicant In person Counsel for the Respondent Rick McQuinlan, Departmental Advocate
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