Thomson v Department of Natural Resources and Mines
[2007] QLC 92
•31 October 2007
LAND COURT OF QUEENSLAND
CITATION: Thomson v Department of Natural Resources and Mines [2007] QLC 0092 PARTIES: John R Thomson
(appellant)v. Chief Executive, Department of Natural Resources and Mines
(respondent)FILE NO.: AV2005/0821 DIVISION: Land Court of Queensland PROCEEDING: Appeal against annual valuation under Valuation of Land Act 1944 DELIVERED ON: 31 October 2007 DELIVERED AT: Brisbane HEARD AT: Cairns MEMBER Mr RP Scott ORDER: The appeal is dismissed. CATCHWORDS: Unimproved value – unimproved or lightly improved sales preferred to highly improved sales.
Unimproved value – analysis of improved sales – cogent evidence of value of improvements needed.
Valuation of Land Act – appeal – value of subject property is in issue not value of properties generally in the area.APPEARANCES: Mr JR Thomson in person
Mr G Smith, (Senior Lawyer, Department of Natural Resources and Water) appeared on behalf of the respondent
Pursuant to the provisions of the Valuation of Land Act 1944 and as at a relevant date of 1 October 2004, the Chief Executive placed a valuation on the appellant's land in the amount of $405,000. The appellant objected against that valuation and succeeded to the extent that the valuation was reduced to $385,000. Notwithstanding that reduction the appellant has appealed to this Court contending to a valuation of $255,000. John Richard Thomson came to the Court to present the case for the appellant whilst valuation evidence for the Chief Executive was provided by Ian Spencer Quirk-Anderson, a registered valuer.
The subject land is described as Lot 73 on RP 729079, Parish of Salisbury, County of Solander; has an area of 821 m², and is located at 1 Spinnaway Close, Port Douglas. It is a residential lot. In the Notice of Appeal, Mr Thomson made reference to an adjoining property at 3 Spinnaway Close, which was put to auction on 14 August (presumably in 2005) but was passed in at $510,000. Mr Thomson deducted his estimated value of the improvements on that property to produce an unimproved figure of $350,000. He then noted that the area of 3 Spinnaway Close is 1,210 m² and on the basis that the area of the subject land was 880 m² he calculated a pro rata value for the subject of $254,545. He then rounded that figure to $255,000. Whilst the matter of the area of the subject land was not debated before me, I notice that the relevant registered plan tendered as an appendix to Mr Quirk-Anderson's report shows the area to be 821 m². On the basis of that area and using the same methodology as Mr Thomson the value would be less than $255,000.
It transpired that No. 3 Spinnaway Close was subsequently sold in September 2005 for $573,000. Were that sale figure to be taken into account and Mr Thomson's methodology to be employed, the resultant unimproved figure would be about $280,000.
In evidence before me, Mr Thomson developed his methodology further and in that regard, relied upon a sale of the subject property in January 2007 for $565,000. He obtained quotations to replace the improvements on the subject land as at September 2007 in an amount totalling $327,000. He then depreciated that figure by around 30% to produce a value of improvements of $225,000. That leaves a land value in the January 2007 transaction of $340,000. The next step represents a development in his methodology from that provided in his Notice of Appeal. In this step he elected to apply a percentage rate of 75% to the figure of $340,000 to produce a net figure of $255,000 which he said represented the unimproved value of the land. Had he applied that step to the sale at 3 Spinnaway Close the resultant land value would have been $210,000.
The 75% application to the calculated figure of $340,000 discussed in the previous paragraph arose from Mr Thomson's appreciation of evidence which appeared in Mr Quirk-Anderson's valuation report to the effect that in his sales evidence (particularly Sales 1 and 3) the statutory unimproved values of the individual sales represented something less than 100% application of the unimproved figure arrived at by Mr Quirk-Anderson from his analysis of each sale. It will be clear from my discussion below in [10], [11] that Mr Thomson has not properly understood Mr Quirk-Anderson's evidence in that respect. His use of a 75% application for the purpose of comparison is not appropriate. Indeed, there could be no basis for the adoption of any adjustment if the subject sale were to be relied upon. Apart from this I reject Mr Thomson's evidence of unimproved value for a number of reasons:
· Whilst the sale of the subject land is comparable to the extent that it comprises a sale of the subject property, there was no evidence to establish that the prevailing market circumstances in September 2007 were either identical with or similar to those which prevailed at the date of valuation of 1 October 2004. (see McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1 at 16). The same difficulty, though to a lesser degree, applies to the sale of 3 Spinnaway Close.
· The Land Appeal Court said in PH Clough v Valuer-General (1981-82) 8 QLCR 70 at 76:
"It has been judicially laid down many times and in many jurisdictions that in ascertaining unimproved value, sales of unimproved land of comparable quality, situation, etc., to the subject parcel, if they are available, are to be preferred as the best guide for arriving at unimproved value. The reason is obvious. In applying such sales there is no room for error in analyzing the value of improvements.
Because there is less room for difference of opinion as to value of the various items of improvement and comparison is thus simpler, it has been held that highly improved sales should be avoided in preference to sales comprising a lesser degree of improvement."
· Both of the abovementioned sales referred to by Mr Thomson are highly improved sales. Whether a highly improved sale should be relied upon depends on a consideration of the totality of the available evidence, in particular, whether lightly improved comparable sales evidence is available. Such evidence was provided by Mr Quirk-Anderson. For this reason and because there was no cogent evidence of the value of improvements on a number of other highly improved sales referred to by Mr Thomson, I also reject those sales as providing suitable value evidence.
· There is no expert evidence of the value of the improvements on the subject land as at the date of sale. Evidence that the replacement cost as at September 2007 would have been $327,000 was hearsay evidence with the opinions giving rise to that estimate being derived from individuals who were not presented for cross-examination by the Chief Executive. Neither was there evidence as to how the figure of $327,000 might properly be adjusted to reflect the value of the improvements as at the relevant date for valuation. The estimate of the value of the improvements as reflecting a depreciation of 30% from the suggested replacement cost was not derived by the application of consideration of valuation issues, but was simply the adoption of a figure which Mr Thomson thought appropriate. I note that Mr Thomson is an accountant and even though he did not express an opinion that the depreciation rate that he considered appropriate resulted from the application of an accounting principles, I should mention that the term "depreciation" which applies to the method of valuing improvements by the replacement costs less depreciation method is intended to reflect the decline in value of the improvements not the application of an accounting principle.
· The suggested value of improvements for the sale of 3 Spinnaway Close was defective. There was no expert evidence as to the replacement cost nor of the appropriate depreciation of that cost.
· Mr Quirk-Anderson gave evidence that in valuing residential properties the pro rata application of value based on a dollar per square metre approach is not appropriate. That is expert evidence which I accept – it reflects a consistency with opinions in respect of the valuation of residential sites which I have encountered on many occasions. Such sites are sold on a "site basis" not on the basis of a price per square metre and, whilst larger sites might attract a higher price all other things being equal, that price will generally not be settled on the basis of a rate per square metre.
Mr Quirk-Anderson explained in evidence how he had carried out a mass appraisal valuation of the lands within Port Douglas by investigating available sales evidence then ascertaining that an increase of 130% or a factor of 2.3 ought to apply to the statutory valuation of properties which applied in October 2002. Mr Thomson expressed concern that there was no evidence before me to establish the correctness or otherwise of the 2002 valuations nor whether a factor of 2.3 was justified. He also expressed concern that Mr Quirk-Anderson might have employed only three sales in valuing large areas of Port Douglas. These matters are not of concern to me as it is not my task to consider whether the valuations in Port Douglas, generally, are appropriate but whether the appellant in this case has demonstrated to me that the Chief Executive's valuation of the subject land is wrong. In that respect Mr Quirk-Anderson has relied on sales evidence and on an orthodox method of valuation.
This issue has come up on more than one occasion in the past, one example being found in Gibson v Chief Executive, Department of Lands (V92-64 unreported Land Appeal Court 9 June 1995) at 6:
"We reiterate what has been said often before – and what is Mr Tighe's chief concern – the importance of correct relativity in the equitable distribution of the rating burden cannot be overstated. However the question before this Court is the correct valuation of the subject land, not the correct valuation of an area. It would not advance the appellant's case to satisfy us that her neighbour's land was undervalued: … The appellant must show that the valuation of her land was incorrect."
A similar opinion is expressed by the Land Appeal Court in Bignell v Chief Executive, Department of Lands (AV92-65 unreported Land Appeal Court 4 March 1996) at 11:
"What has to be decided in this case is the proper value of the subject land by reference to sales evidence about comparable unimproved properties. … If a proper valuation of the subject land makes it inconsistent with the relative values of neighbouring blocks then so be it. The question before this Court is 'the correct valuation of the subject land, not the correct valuation of the area'."
Mr Quirk-Anderson made reference to five sales in his valuation report, two of which (Sales 4 and 5) are clearly inferior to the subject land and need not be considered in detail. Sale 2 at 8 Solander Boulevard is substantially superior to the subject property and again can be set aside from detailed consideration. Notwithstanding that I have set aside Sales 2, 4 and 5 for indepth consideration, these sales are useful to the extent that they can be relied upon to demonstrate whether the level apparent in Sales 1 and 3 are consistent with the market.
Sale 1 at 8 Savannah Close has an area of 812 m² and sold in October 2003 for $485,000. Its improvements were limited to some clearing valued by Mr Quirk-Anderson at $4,000, leading to an analysed unimproved figure of $481,000. The statutory unimproved value applied to the land the subject of Sale 1 as at 1 October 2004 was $465,000. In his valuation report, Mr Quirk-Anderson noted that this unimproved value represented 96% of the analysed unimproved sale figure.
Sale 3 took place in July 2004 and involved the sale of a property at 21 Barrier Street, Port Douglas for the amount of $425,000. Mr Quirk-Anderson deducted a value of $500 for a fence and $4,000 for a clearing resulting in an analysed unimproved figure of $420,500. The unimproved value applied by the Chief Executive in the case of this property as at 1 October 2004 was $280,000 or about 66% of the analysed unimproved figure estimated by Mr Quirk-Anderson. It was the 96% application in Sale 1 and the 66% application in Sale 3 which were relied upon by Mr Thomson to select a figure of 75% to reduce the land value figure calculated by him in [4]. It should be clear now that the statutory unimproved valuations of the Sale 1 and 3 properties resulted from the application of the mass appraisal method as a result of which the unimproved values placed on those lots departed to some extent from the value revealed in the market place for the land component of each of the sales. One would expect that to be the case in an imperfect market. The percentages of 96% and 66% are therefore not relevant to the processes of comparison between Sales 1 and 3, respectively, and the subject land.
In Grahn v Valuer-General (1992) 14 QLCR 327 at 328, the Land Appeal Court said
"(a)It is desirable that valuations made for the purposes of the Valuation of Land Act 1944 of comparable lands should bear proper relativity, one to the other, so long as the valuations are soundly based. It is, however, untenable to adopt a value for one parcel on relativity with another which has no sound basis. (R and MM Barnwell v The Valuer-General (1989) 13 QLCR 13, at p.16 and cases cited in it).
…
(e) Whilst maintenance of correct relativity is of considerable importance for rating valuations, the use of the principle of relativity should not be preferred to the exclusion of relevant (even if not ideal) sales evidence (WM and TJ Fischer v The Valuer-General (1983) 9 QLCR 44, at p. 46)."
In his comparison between Sale 1 and the subject land Mr Quirk-Anderson said that the sale is slightly smaller than the subject, is in a superior situation being closer to the beach, has a more regular therefore superior shape, but is otherwise similar in terms of topography, access, services, outlook and utility. Overall he concluded that the sale is superior. Mr Thomson did not challenge that comparison though stressed that access between the subject land and the beach is inferior to that afforded the sale property. Whilst there is a surveyed lane where access which could be utilised from the subject land, that access is narrow, unkempt and requires the crossing of a creek.
In the case of Sale 3, Mr Quirk-Anderson noted that the sale is slightly smaller than the subject, is in a less prestigious part of town and is situated along a main street and therefore is in an inferior location when compared with the subject property. He observed that the shape of the sale land is superior to the subject but the other attributes such as topography, access, services, outlook and utility are similar. Again Mr Thomson was anxious to stress the proximity to the beach enjoyed by Sale 3 compared to the subject property.
In Best v Housing Commission of New South Wales (1949) 17 LGR (NSW) 129 at 130, Sugerman J said: "The correct approach is to assign the subject land by comparison to its proper place in the scale of values disclosed by the sales proved." In the present case I have Sales 1 and 3 which are clearly more appropriate for direct comparison with the subject property than would be Sales 2, 4 and 5, however the three additional sales indicate to me that detailed consideration of Sales 1 and 3 will reveal "the proper place" of the subject land within the relevant market.
The next step in the process of valuation is not, as appeared to be suggested by Mr Thomson, to produce an algorithm or a series of mathematical adjustments, but to compare the sales with the subject property having regard to any adjustments that might be considered appropriate given the relevance of those considerations in the market place. For example in Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGRA 409 at 434, Hope JA said:
"Theoretically a comparable sale may be of the very land to be valued, as where, for example, a contract for its sale was entered into on the very day upon which it was to be valued. This would be a most unusual situation, but often evidence is available of sales of very similar land close in point of time to the date of valuation. However, probably more often, the lands the subject of the sales relied upon are in some way different from the land to be valued, giving the latter land a higher or lower value than that to be deduced from the sales. The times of the sales in relation to the date of valuation may also have to be considered in the light of general movements in land prices. The need to make adjustments to values deduced from sales in order to arrive at the true valuation of the land to be valued does not preclude the court which has the task of valuing the land from relying upon the sales as comparable in the relevant sense, nor from the making by the court or by valuers of adjustments which may be nothing more than the best guess that can be made."
In the present case it seems to me that Mr Quirk-Anderson has approached his task in a manner consistent with authority and valuation principle and without having made any serious error of fact. The appeal is dismissed.
RP SCOTT
MEMBER OF THE LAND COURT
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