Thompson v Minister for Lands
[1995] QLC 78
•30 August 1995
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BRISBANE
30 AUGUST 1995
Re: Application for Conversion -
Special Lease: 44/44890, Townsville District -
Determination of Unimproved Value - Land Act
Lessees: B.S and B. Thompson
(Hearing at Townsville)
D E C I S I O N
Application for conversion of tenure of the above lease was received by the Department of Lands on 9th December, 1991. The Minister's estimate of the unimproved value of the land at that date is $37,500. The lessees did not accept that determination and the Minister referred the matter to the Court.
The lease is over land described as Lot 55 on Plan EP1714, Parish of Halifax, in the seaside Township of Toolakea, containing 1,214m2. However, the area which has been offered for conversion is approximately 900m2, being a site square in shape with dimensions of approximately 30 metres by 30 metres. At the relevant date, the land did not have dedicated street frontage. Access was by way of an earth track over Vacant Crown Land, from the extremity of the bitumen sealed esplanade about 150 metres distant.
Mr Thompson attended the hearing and advised the Court that the lessees' estimate of unimproved value was in the rounded amount of $28,500.
The basis of Mr Thompson's estimate contained two elements. The first was that a certain relativity of value had been established between the subject land and the neighbouring lot. The unimproved value of the subject land had been assessed, pursuant to the Valuation of Land Act, as at 31st March, 1989, in the amount of $27,000. The adjoining lot of similar area, had been valued in the amount of $32,500. As at 31st March, 1992, the valuations were $35,000 and $42,000 respectively. According to Mr Thompson an application for conversion of the Special Lease of that adjoining land, which he understood to have been received in February 1990, resulted in a Minister's determination of $34,000. Put simply - and this was the second element of the lessees' submission as to value - if the relevant dates for determination of the unimproved value of both the subject and the adjoining lot were similar, based on the statutory unimproved value relativity, the pro-rata value of the subject land would be the rounded estimate of $28,500.
Mr Thompson holds the strong opinion that both lots should have been dealt with at generally the same relevant date and explained the history of his dealings with the Department regarding the conversion. I will refer to that history later.
The matter before the Court is a requirement to determine "the unimproved value of the lease at the day the Minister received the application". As it happened, there were two applications, the response by the Minister to the first being accepted as a refusal. There is no argument that the date of receipt of the second application was 9th December, 1991. It is the second application with which the Court is required to make a determination.
On that basis Mr Thompson, having then had the opportunity of reading the valuation approach taken by the Department of Lands, still considered the estimate of $28,500 to be realistic.
The valuation for the Department of Lands was carried out by Mr A. Newcomb, registered valuer. During his evidence he referred to the difference in valuations under the Valuation of Land Act, between the subject and adjoining land, which had been the basis of Mr Thompson's initial calculation. Mr Newcomb saw the early valuations of the adjoining block as having been a "database error" which had since been corrected. In his opinion, both blocks were of equal value and he produced evidence which indicated that as at 31st March, 1992, the error had been corrected and the valuations on both properties were $35,000 and then $42,000 as at 30th June, 1993. It was his evidence that due to rising market values, the determination of $34,000 as the unimproved value of the adjoining lot reflected the conditions which existed as at early 1990 when the application for conversion of that land had been received.
Mr Newcomb produced three sales of vacant lots, each of 607m2, each fronting the bitumen sealed section of the esplanade, westerly of the subject land, as forming the basis of his valuation. The sale prices achieved for those lands were $43,000 (January, 1992) and $51,000 (April, 1992) for two lots in fairly close proximity then $46,000 (May, 1990) for a site some distance removed. Each of the sale sites had esplanade frontage of 20 metres. In comparison he valued the subject land, hypothetically with similar amenities (bitumen road and availability of water) in the amount of $52,000 as at December 1991. In this hypothetical situation he saw the wider street frontage and size of the subject land as influencing a higher value of some significance as compared with the sale sites.
The subject land does not have a bitumen road street frontage (and it seems unlikely to have such access in the foreseeable future) and while water was connected, it was by a private arrangement and through a substandard pipeline. Indeed, the freeholding of the site was conditional on the lessees satisfying the Minister that Council requirements relevant to gazetted access, contribution to roadworks and water supply infrastructure had been subject of agreement with the Council.
It was Mr Thompson's evidence that regardless of the contributions required and subsequently paid for the road and water supply headworks, his information from various Council officers was that there was no possibility of the road being constructed unless further subdivisional development by the Department of Lands took place. It seems that the possibility of that occurring is so remote as not to be a consideration. Mr Thompson estimated that in addition to the water headworks charge he had outlaid "up to $2,000" in extending the water supply to a connection point at the street frontage and then only after negotiating what he believed was a more reasonable arrangement than first required by Council.
The contributions required by the Council had been in the rounded estimated figures of $5,250 for roadworks and $2,000 for water headworks. Mr Newcomb then had to consider the value of the site with nothing but an earth track access and a water supply not satisfying by the Council standards. Electricity was connected. He held the opinion that from the hypothetical "fully developed" value of $52,000 should first be deducted the estimated contribution costs required by the Council. Then from that amount he deducted an allowance of 20% for what was described as "risk of realisation and impediments". This calculation provided a net result which in Mr Newcomb's opinion, reflected the discount that would be expected in an informed marketplace, to allow for the uncertainty of bitumen sealed access being provided and the then unknown costs in negotiating and constructing a water supply to a standard acceptable to the Council.
Some debate took place as to Mr Thompson's perception of the subject land being more susceptible to beach-front erosion than the sale properties. Mr Thompson held the view that properties with formed road access had a greater chance of protection being provided should a critical situation develop. He felt some further allowance should be built into the risk of realisation for that reason. He believed that, in any event, a 20% allowance was totally inadequate in recognition of the market discount which would be sought for the land "as is". He was prepared to accept that in the very hypothetical situation of the land being "fully developed" and then directly comparable with the sale lands, a valuation of $52,000 was not unrealistic.
Mr Thompson also drew attention to the cost of the survey ($900) caused by the additional freeholding requirement of excision of about 300m2 from the original lease, being most of the area of the original site within the "beach erosion prone zone" as had been identified by the Beach Protection Authority. This freeholding requirement had been at the request of the Beach Protection Authority. Mr Thompson saw this as no different to the freeholding requirement of meeting Council conditions. There is a certain logic in what Mr Thompson argued. However, section 207D of the Land Act deals with determination of value for an estate in fee simple. Subsection (7) states -"(a)The unimproved value of a lease is the amount that in the Minister's opinion or, if the Minister has referred the matter to the Court, the Court's opinion, experienced persons would be willing to pay for an estate in fee simple in the land if it was offered for sale on the reasonable terms and conditions a bona fide seller would require."
An estate in fee simple assumes the existence of freehold title. Section 207G deals with the situation where survey is required and the making by the Minister of a conditional offer to sell an estate in fee simple, but subject to the condition that the lessee, at the lessee's expense is to have the necessary survey made. It is seen as relevant that even where the question of an estate in fee simple does not arise, but a lessee makes application to convert a special lease to a perpetual lease, the granting of such lease may also be subject to the condition that the cost of survey is at the lessee's expense.
Such conditional offers are seen to be specific with regard to the legislation and the dealing with Crown land. They are not, in my opinion, to be considered in the same light at the "reasonable terms and conditions a bona fide seller would require". The lessee applying for conversion is not bound to accept the conditional offer which may lapse in terms of section 207H.
A further question does arise however. Are the conditions relative to Council requirements to be taken into consideration as Mr Newcomb has done, and if so, what is the difference between those costs and the cost involved in surveying? It seems to me those Council contributions are capable of being distinguished. The lessee was advised that the application to freehold could not be approved until "satisfaction of the Thuringowa City Council's requirements" . A bona fide seller offering an estate in fee simple but subject to the cost of satisfying contribution requirements of a third party local authority, could hardly expect an experienced purchaser not to deduct those outstanding charges from the purchase price.
Mr Newcomb's valuation exercise is set out as follows:Fully serviced freehold value - December 9, 1991 $52,000
less - Headworks Contribution $ 2,000
Roadworks Contribution $ 5,250 $ 7.250
$44,750
less Risk of Realisation and impediments @ 20% = $37,292
ADOPT: $37,500
It seems to me as a pure valuation principle that the risk of realisation attaches to the gross realisation of the land i.e. $52,000 and not the $44,750. On this basis, the allowance for risk at 20% would provide a discount of about $8,665. While this specific point was not raised Mr Newcomb argued that the end result was required to reflect a proper interpretation of the amount which the site would fetch in its "as is" condition. He was confident the valuation figure of $37,500 was correct. However I gained the impression that Mr Newcomb might have been too optimistic as to the likely future provision of bitumen sealed access. Further, there was no argument against Mr Thompson's evidence as to the cost of external water infrastructure works. I have decided to discount the "fully serviced freehold value" of $52,000 as assessed by Mr Newcomb by the amount of $10,000 for the "risk of realisation and impediments" then deduct the Council charges of $7,250. This leaves an "as is" unimproved value of $34,750.
The evidence before the Court is that the adjoining land at No. 142 The Esplanade, with similar lack of road access was freeholded, based on an application received in February 1990, but apparently after 5th February. Mr and Mrs Thompson's application was first made in 1989 but was refused on 15th February, 1990, with the advice that re-application could be made upon satisfaction of the Council's requirements. Those requirements were set out in the letter of refusal.
Mr Thompson went to some pains to point out the frustrations and delays and then the misinformation given him subsequent to the refusal. Amendment to section 207 of the Land Act had, in effect, placed a moratorium on dealings with freeholding applications received "on or after 5th February, 1990" and this remained in effect until 31st December, 1991, when section 207 of the Act was replaced. As I interpret the legislation which was in force during that period, there was no restriction on applications for freeholding being made - only on the manner in which an application was to be dealt with. This is where, it seems, the lessees were misinformed. According to Mr Thompson, his advice from the Department in Townsville was that no applications were being accepted during the moratorium period. It was only after seeking and receiving advice from Brisbane, that the second application was made.
While it is not difficult to sympathise with the lessees, in that the cost of freeholding, through interpretation of values, increased during the period of delay. The amended legislation, (at least as it was interpreted by some who gave evidence), worked in favour of the neighbour but against the lessees here. It, of course, might have gone the other way had values fallen. The Court was not informed as to the basis of assessment of the unimproved value of the adjoining land for conversion purposes. That determination by the Minister was at a different date when different market forces applied and it is of no assistance to consider that matter further.
Based on the evidence before me however, I determine the unimproved value of the land subject of this conversion application as at 9th December, 1991, in the amount of Thirty-four Thousand Seven Hundred and Fifty Dollars ($34,750).MEMBER OF THE LAND COURT
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