The Proprietors of Strata Plan 20754 v The Council of the Shire of Hawkesbury

[1989] NSWLEC 219

Land and Environment Court

of New South Wales

CITATION:	The Proprietors Of Strata Plan 20754 v. The Council Of The Shire Of Hawkesbury [1989] NSWLEC 219
PARTIES:	APPLICANT The Proprietors Of Strata Plan 20754 RESPONDENT The Council Of The Shire Of Hawkesbury
FILE NUMBER(S):	30409 of 1989
CORAM:	Stein J
KEY ISSUES:	:-
LEGISLATION CITED:
CASES CITED:	Realty Corporation Ltd. v. Commissioner for Main Roads ((1940) 14 LGR 204); Gosford Shire Council v. Green ((1980) 48 LGRA 201 at 208); Manufacturers' Mutual v. Gosford City Council (1981); Jones v. Blue Mountains City Council (1978) ; Daly v. Manly Municipal Council ((1983) 50 LGRA 301) ; Hieronymous v. Minister for Education (Land and Environment Court Unreported 29 June 1989); Brell v. Penrith City Council ((1965) 11 LGRA 156)
DATES OF HEARING:
DATE OF JUDGMENT:	07/25/1989
LEGAL REPRESENTATIVES:

JUDGMENT:

HIS HONOUR: The applicants, the Proprietors of Strata Plan 20754, claim compensation for the resumption by the respondent Council on 25 September 1987 of part of the land in Certificate of Title Volume 15137 folio 231 being lot 6 in DP 738084. The land has an area of 789.5m2 or thereabouts and is situate at 298 Windsor Street, Richmond. The resumption was for the purposes of public car parking.

Valuation evidence was called by the parties and, on behalf of the applicant, Mr. Kinchington valued the resumed land at $255,000 and Mr. Alford, for the Council, arrived at a net gain in value of $67,000, and therefore assessed compensation at nil.

The subject property is on the southern side of Windsor Street, Richmond, just to the west of the corner of West Market Street. The land also has a frontage to West Market Street. I accept that the property is in one of the stronger sections of the Richmond commercial centre. The total land area of the site before resumption was 2,243m2. At the time of resumption in 1987 the land was developed as a car park to serve the Orange Grove Mall, a shopping arcade approved by the Council in 1982. The car park was constructed in compliance with the consent conditions.

In 1980 Desara Pty. Limited owned the parcel of land known as 17 West Market Street and Yacona Pty. Limited owned the parcel known as 298 Windsor Street. The two parcels abutted at the rear to form an L shaped area of land with two street frontages in the Richmond commercial centre. At this time the Desara land was zoned Residential 2(c) but had been lawfully used as commercial offices by solicitors and surveyors for some years pursuant to Interim Development Order No. 28 gazetted on 10 December 1975. The Yacona land fronting Windsor Street was zoned Business 3(a) and its rear land was Zoned Residential 2(c). It appears, however, (and this is uncontested), that this latter zoning was due to a draughtsman's error. It is accepted that this rear land was always intended to be zoned Business 3(a), as was its frontage. The two related companies acquired the parcels of land with a view to commercial redevelopment of the whole L shaped parcel.

Mr. Richard Gubbay is a solicitor and together with his then partner Mr. Erickson and a surveyor, Mr. Cambridge, occupied offices in premises on the West Market Street land. They owned both Desara and Yacona. Having made certain inquiries at the Council, and having the zoning anomaly at the rear of the Windsor Street land confirmed to them, the companies resolved in June 1980 to proceed to develop the combined parcels. In November a proposal was put to Council which involved a two storey shopping and office development with underground parking. In reply the Windsor Municipal Council (the predecessor of Hawkesbury Shire Council) indicated that the residential land would need to be rezoned to permit such a development.

Between receipt of the letter in December 1980 and April 1981 the developers had discussions with Council officers. It appears that the Council officers did not favour the proposal because it did not fit in with the heritage value of the bank on the corner of Windsor and West Market Streets nor an adjacent church building. Mr. Cambridge, the surveyor who prepared the proposal, rightly believed that it was unlikely to receive approval but that a suitably designed single storey shopping arcade development would be acceptable. Mr. Cambridge was also aware that Council officers required parking to be provided on site to serve the development.

By letter dated 9 April 1981 the companies formally requested rezoning of portion of the site to allow the proposal to proceed. The letter also submitted a revised single storey development of 11 shops and 4 offices together with car parking for 30 vehicles. The parking was located on the southern side of the West Market Street land. In June 1981 Council wrote to the developers supporting the preparation of a Local Environmental Plan to permit commercial development on the land.

At about this same period of time the Council evolved embryonic plans to create public car parking areas on several sites at the rear of West Market Street between Windsor and Bosworth Streets. Mr. Cambridge designed the parking area for the Orange Grove Mall proposal to fit in with Council's long range plan.

However, unbeknownst to the companies, the Council prepared and submitted a draft plan to the Minister to zone part of the land the subject of the development application, as 5(a) Special Uses (Parking). This Local Environmental Plan was gazetted on 17 September 1982 and came as quite a surprise to the developers who nevertheless saw no reason not to proceed with their development. In the meantime, and on 7 September 1982, Mr. Cambridge had lodged a development application to erect a commercial development containing 17 shops and associated parking on the land. This was approved by Council on 15 October 1982 and Condition 7 required parking to be provided for 30 vehicles in accordance with Council's Parking Code. In July 1983 Council approved a strata subdivision of the 17 shops in the shopping arcade. The development was completed in September 1983.

By mid 1984 the Council's plans for extensive public car parking areas had progressed to the extent that a plan of the proposal came into existence which included the subject car park and land immediately adjacent at the rear of land owned by Dr. Wu, as well as land at the rear of Telecom offices and other properties to be accessed from Bosworth Street. This plan was adopted in principle by the Council.

In early 1985 Council opened negotiations with the owners with a view to acquiring the parking area behind the Orange Grove Mall by private treaty. To this end it had Mr. Alford provide it with a valuation. Mr. Alford valued the land at $180,000 but deducted the sum of $105,000 for a parking contribution. Council made an open offer to purchase the land for $75,000 in April 1985 but the applicants declined to accept the offer. In 1986 the Council gave notice of intention to resume the land for a public car park. The resumption was gazetted on 25 September 1987.

The substantial dispute between the parties is the appropriate method of valuation of the resumed land. However, both valuers correctly acknowledge that the exercise is to be approached on the basis of a commercial zoning and that the 5(a) Special Uses (Parking) zoning be ignored. Mr. Kinchington adopted a comparative sales approach and concluded that $275 per square metre was the value. He also valued the improvements - a concrete constructed parking area with fencing and landscaping, at $37,500. His total valuation was therefore $255,000.

Mr. Alford regarded the most appropriate method of valuation as the capitalisation of the net return. He undertook an exercise of saved rates, land taxes, cleaning and maintenance which he assessed at $6,000 per annum. He capitalised this sum at 9% producing a gain of $67,000. Applying a "before and after" approach and on the basis that the development of the Orange Grove Mall would not be possible without an attached car park, he concluded that the resumption had lead to a nett gain in value to the residue of the land of $67,000 because of the saving in outgoings. Mr. Alford made no allowance for the costs of construction of the car park although Mr. Wilson, who appeared for the Council, while making no formal admission, made no submission to the contrary that compensation of $37,500 be awarded for the value of the improvements.

By way of reply, although not adopting the "before and after" method as appropriate, Mr. Kinchington did a hypothetical exercise of a potential development of 7 small offices on the resumed land. He included in his "after" assessment a deduction for a car parking contribution for the original 30 car parking spaces and 7 new ones to serve the proposed redevelopment. His "before" valuation was $1,574,000 and the "after $1,356,000 producing a loss in value of $218,000, not including the value of the improvements of $37,500, again producing a figure of $255,500.

Which is the appropriate method of valuation in the circumstances of this case? The "before and after" method has been used extensively in situations where compensation is to be assessed following resumption of part of a parcel of land. In Realty Corporation Ltd. v. Commissioner for Main Roads ((1940) 14 LGR 204) Roper J. in the Land and Valuation Court saw it as the "easiest and the proper way to determine the value". In Gosford Shire Council v. Green ((1980) 48 LGRA 201 at 208) the New South Wales Court of Appeal approved the approach as a convenient method of assessing compensation (including severance and enhancement in value) at the one time. In Manufacturers' Mutual v. Gosford City Council ((1981) 27 The Valuer 214) Cripps J. saw fit to apply the same test.

However, in my opinion the "before and after" method will not always be the most appropriate approach where part of a claimant's land is being valued. In Jones v. Blue Mountains City Council ((1978) 25 The Valuer 502) Rath J., sitting in the Land and Valuation Court, had to value part of a block of land resumed for parking purposes. The Council's valuer had applied a "before and after" approach and concluded that the "after" value was greater than the "before" and therefore assessed compensation at a nominal $1.00.

In rejecting this approach Rath J. said:-

"Whilst a "before" and "after" approach is often reliable, there are a number of factors against its adoption in this case. In the first place the evidence did not support any true comparability between sales in Parke Street and the Plaintiff's rear land after resumption. Though Parke Street would appear not to be a good commercial area, the evidence did not establish that the new road would give rise to a commercial area in the foreseeable future. One isolated development - a medical centre - has taken place, but on the evidence this was an extension of a similar type of development, and it appeared to have little significant connection with the new road. Secondly, the right of way appurtenent to the plaintiff's land may have given the rear portion some potentiality for development comparable to any possibilities created by the new road. Thirdly, the application of the "before" and "after" method to parcels with no demonstrated potentiality for separate development appears to me to be largely speculative."

In Daly v. Manly Municipal Council ((1983) 50 LGRA 301) Perrignon J., in the Land and Environment Court, also rejected the "before and after" approach as appropriate to the case before him. At p.307 His Honour said:-

"There was discussion in argument and in evidence as to the proper approach to the value of the land taken. It was said on behalf of the council that the only proper approach was the "before and after" method which was adopted by Mr Davies. On behalf of the claimants it was submitted that the proper approach was by a direct comparison of available sales. It was said by Mr Higgins that a valuer should look at various approaches with a view to determining what the value should be. The before and after approaches which were adopted by Mr Davies were not, in my opinion, appropriate to the particular circumstances of this case. Insofar as the values arrived at by him rested upon the assumption that a dwellinghouse could not have been erected on the resumed land I think that they were erroneous. Again, the employment of public reserve contributions and profit and risk factors, at any rate of the magnitude of those used by Mr Davies, appears to me to be questionable in a case where the object of the valuation exerci

se is to ascertain the value of one part of the claimants' land which has the potential for subdivision into one residential block. It seems to me that in the circumstances of the present case the more appropriate method is to rely upon a direct comparison of comparable sales, with appropriate deductions for the costs of bringing the resumed land to a saleable condition and a further deduction to reflect any detriment to the value of the residual land brought about by the use of the direct method of comparison of sales."

More recently in Hieronymous v. Minister for Education (Land and Environment Court Unreported 29 June 1989), Hemmings J. had reason to consider the appropriateness of the "before and after" method. The resumed land was part of a lot acquired for public school purposes. The applicant's valuer (Mr. Hunt) assessed the value on a comparable sales basis while the Minister's valuer (Mr. Armstrong) used the "before and after" approach.

On the issue of the preferred valuation approach His Honour had this to say:-

"Having considered the evidence and the valuation approach by each valuer, I prefer the opinions of Mr Hunt. His method of valuation derives a value which, in my opinion, reflects the marketability and highest and best use of the subject parcel. I reject both Mr Armstrong's method of valuation and the rates adopted by him for that purpose. I am persuaded that in the present circumstances the application of the "before and after" method, and in particular in the manner applied by Mr Armstrong, would not properly assess compensation and would result in an injustice to the dispossessed owner. The "before and after" method is merely a tool to be employed by the valuer as one way to endeavour to take into account all elements of compensation to which the dispossessed owner is entitled. It is normally the most appropriate method of valuation when the excised parcel is of unusual size or shape, or if other reasons make it likely to be difficult to sell or even unmarketable. It is particularly appropriate, and assist

s in avoiding the double counting of damages, where questions of enhancement or severance arise.

However, the "before and after" method is not necessarily appropriate in all circumstances. The prime objective must be to ensure, if possible, that the dispossessed owner is placed in the same position in money terms after, as he was prior to the resumption."

Is the "before and after" method to be preferred in this case to that of comparable sales? In my opinion the Court is not bound to adopt the "before and after" approach and there are a number of reasons which mitigate against it so doing. Firstly, in my view there are comparable sales of commercial land which can be utilised to reflect the highest and best use of the land. Secondly, the application of the "before and after" method, in the fashion suggested by Mr. Alford, will not result in a proper assessment of compensation and will lead to an injustice to the dispossessed owner. Thirdly, any element of enhancement can be measured without the need for the application of the approach and no double counting is involved. Lastly, the "before and after" approach adopted by Mr. Alford will not lead to the dispossessed owner being placed in the same position in money terms as they were prior to the resumption, (Mahoney J. Housing Commission v. Falconer, (1981) 1 NSWLR 547 at 569, citing Horn v. Sunderland Corporati

on (1941 2 KB 26).

In my opinion the most appropriate method is to rely upon comparisons of comparable sales making appropriate set-offs and deductions to reflect any enhancement or betterment of the residue of the claimants' land by reason of the resumption.

Mr. Kinchington relied on a range of comparable sales but specified 18 Bosworth Street, Richmond, as the most comparable. This area of 465m2 of vacant land was sold in April 1987 for $130,000 at a rate of $279 per square metre. It has a Business 3(b) zoning which prohibits shops and is a lesser zoning than the assumed 3(a) zoning of the subject land. There is no doubt that the subject land is better located and closer to the commercial 'heart' of Richmond. Were it not for Mr. Alford's view that the subject land has no value because it could only be used as a car park, his opinion was that it is comparable to 18 Bosworth Street. All things being equal the Bosworth Street land has an inferior location and the subject land had a greater value assessed by Mr. Alford at a gross figure of $250 per square metre, only $25 per square metre less than Mr. Kinchington.

However, Mr. Alford's opinion is that the resumed land has no development potential whatever and its highest and best use is as a parking area. In stating this conclusion Mr. Alford is adamant that he disregarded the 5(a) zoning. However, there is some support in the evidence that he did not disregard the car park zoning. In a letter to Council dated 8 August 1985 he stated "The area is zoned car parking and cannot be used for any other purpose". In his opinion, the shopping Mall could not operate without a parking area. Indeed, the Mall owners were better off with the Council resuming the subject land because the car park would continue to be available to the patrons at no expense to the owners. The car park was the same before and after the resumption except it was owned by the Council. Therefore, according to Mr. Alford, the owners lost no opportunity by reason of the resumption because the land had already been fully developed.

I find myself unable to accept Mr. Alford's opinion. In spite of his protestations I think his opinion was coloured by the 5(a) zoning. In my view the subject land can be valued as a separate parcel with some redevelopment potential. The Business 3(a) zoning allows a range of commercial uses and the Council's planning instruments permit a more dense form of development in terms of floor space than the present Mall. The relevant Council car parking code also places emphasis on contributions in lieu of the provision of on-site parking. One also cannot discount the possibility of an internal redevelopment or a redevelopment in conjunction with adjoining land. While Mr. Kinchington's hypothetical development of 7 small commercial suites may not have received approval according to Mr. Cole, a town planning consultant previously employed by the Council, in my opinion a lesser development could be devised and designed which would comply with the provisions of the Council Plan. In my view the owners did lose the deve

lopment potential of the land upon its resumption. They also lost control of the car park as a consequence of their loss of ownership. While they obtained some betterment or enhancement in value of the residual land, there is no guarantee that the Council will preserve the car park in perpetuity in the same form as at present.

The range of sales in the commercial area of Richmond is from in excess of $500 per square metre for prime sites down to $187 per square metre for the lowest valued fringe commercial land. I accept Mr. Kinchington's valuation of $275 per square metre as appropriate. Indeed, it is a conservative valuation since the subject land is on balance more valuable than the Bosworth Street property, which I accept as the most directly comparable sale.

Nevertheless, I do not accept Mr. Kinchington's opinion that there is no betterment or enhancement. His view is that the loss of control of the parking area and other factors "squared off" any advantage gained by the owners being relieved of rates and maintenance costs. Mr. Alford arrived at $67,000 as the enhanced value of the residue land by a capitalisation of saved rates, taxes, cleaning and maintenance assessed at $6,000 per annum. He capitalised this at 9% producing a net return of $67,000. The 'savings' of $6,000 per annum were not really challenged by the claimant's Counsel, Mr. Motbey, but the capitalisation rate was in issue. Mr. Kinchington felt 12% more appropriate than 9% which he believed was too low for 1987. I prefer the evidence of Mr. Kinchington as the appropriate capitalisation rate. Applying 12% produces a figure of $50,000 which, in Mr. Motbey's submission, should be discounted for the vicissitudes of the future. However, in all the circumstances I believe that $50,000 is a fair and reas

onable assessment of the enhancement.

Neither Counsel referred the Court to Brell v. Penrith City Council ((1965) 11 LGRA 156) during the hearing. I have considered Brell's case which shares some similar facts. However, it is distinguishable in many respects. In the subject case the owners had already constructed the car park in compliance with a specific condition of council's development consent. Further, the erection of any permanent buildings or development on the relevant land in Brell's case was prohibited. The land therefore had no development potential and comparable sales could not be applied. As I said earlier, while the "before and after" method of valuation may be appropriate in many cases and of assistance in determining the amount to allow for enhancement of the residual land, the evidence allows me to make a relatively simple estimate to set-off against the value of the resumed land.

Finding as I have it is unnecessary to further consider Mr. Kinchington's "before and after" exercise in reply in any more detail than I have already adverted.

I assess compensation for the resumed land at $217,000 together with the value of the improvements of $37,500 (which I understand not to be disputed). From this total I deduct $50,000 for enhancement to the residual land. It follows that I assess compensation at $204,500.

The orders of the Court are:-

1. Compensation assessed at $204,500.

2. Exhibits may be returned.

3. Respondent to pay Applicant's costs.