Trust Company of Australia Ltd v Valuer-General; Perpetual Trustee Company Ltd v Valuer-General - [2008] SASC 169

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
TRUST COMPANY OF AUSTRALIA LTD & ANOR v VALUER-GENERAL; PERPETUAL TRUSTEE COMPANY LTD & ANOR v VALUER-GENERAL
[2008] SASC 169
Judgment of The Full Court
(The Honourable Justice Duggan, The Honourable Justice Bleby and The Honourable Justice Anderson)
2 July 2008
REAL PROPERTY - VALUATION OF LAND - STATUTORY VALUES - CAPITAL VALUE
TAXES AND DUTIES - LAND TAX - VALUATION - PARTICULAR PROPERTIES AND INTERESTS - LEASEHOLD ESTATES
Valuation of Land Act 1971 s 5 (1) - meaning of “capital value” – shopping centre and industrial park – subject to commercial leases at market rates – existing use of land was highest and best use of respective parcels of land – whether for valuation purposes hypothetical purchaser purchases land subject to all existing leases and tenancy agreements – whether hypothetical purchaser purchases with vacant possession – whether letting up allowance taken into consideration – meaning of “estate of fee simple in the land” – whether fee simple in possession precludes valuation with existing leases.
Meaning of “unencumbered” for the purposes of land valuation – whether leases are encumbrances for the purposes of assessing capital value – whether encumbrances to be ignored are limited to those which impair the value of the estate – whether beneficial leasehold interests which increase the market value of the land are encumbrances for the purpose of assessing capital value – whether effect of unduly burdensome or generous non-arm’s length leases should be ignored – appeals dismissed.
Valuation of Land Act 1971 (SA) ss 5, 11, 17, 25B, 25C, Pt 3, Pt 4, Div 1; Land Tax Assessment Act 1910-1950 (Cth); Local Government (Amendment) Act 1951 (NSW); Valuation of Land Act (No 2) 1916-1951 (NSW); Landlord and Tenant (Amendment) Act 1948-1951 (NSW); Taxation Act 1884 (SA) s 2; Taxation Amendment Act 1908 (SA); Taxation Act 1915 (SA); Taxation Act 1927 (SA); Land Tax Act 1936 (SA); Law of Property Act 1936 (SA) ss 7, 27; Real Property Act 1886 (SA) Pt 11, Pt 12, s 128, s 130A; Valuation of Land Act 1960 (Vic) s 2(1); Challis's, "Law of Real Property", (3rd ed, 1911); Williams, "Principles of the Law of Real Property", (23rd ed, 1920); Megarry and Wade, "The Law of Real Property", (5th ed, 1984); Gray, "Elements of Land Law", (1987); Cheshire and Burns, "Modern Law of Real Property", (14th ed, 1988); Pollock and Wright, "An Essay on Possession in the Common Law", (1888), referred to.
The Shell Co of Australia Ltd v City of Melbourne [1997] 2 VR 615, distinguished.
Spencer v The Commonwealth (1907) 5 CLR 418; Perpetual Trustee Co Ltd v Valuer-General; Trust Co of Australia Ltd v Valuer-General (2006) 95 SASR 338; Perpetual Trustee Co Ltd v Valuer-General (No 2); Trust Co of Australia Ltd v Valuer-General (No 2) (2007) 99 SASR 251; Commonwealth v New South Wales (1923) 33 CLR 1; Nullagine Investments Pty Ltd v Western Australian Club Inc (1993) 177 CLR 635; Harry v The Valuer-General & The State of South Australia (1975) 12 SASR 446; Royal Sydney Golf Club v Federal Commissioner of Taxation (1955) 91 CLR 610; Gollan v Randwick Municipal Council [1961] AC 82; CSR Ltd v The Valuer-General (1977) 17 SASR 446; A G Robertson Ltd v The Valuer-General (1952) 18 LGR 261; Commissioner for Railways v Andreas (1955) 55 SR (NSW) 323; District Bank Ltd v Webb [1958] 1 WLR 148; Doe d. Davies v Davies (1851) 20 LJNS 408; Baggett v Meux (1844) 1 Coll. 138; 63 ER 355; Adelaide City Corporation v City of Port Adelaide Enfield (2001) 115 LGERA 137; Broken Hill Proprietary Co Ltd v The Valuer-General [1970] AC 627; Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413; Beiler v Valuer-General (1980) 23 SASR 385, discussed.
Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority (2008) 82 ALJR 489, considered.

WORDS AND PHRASES CONSIDERED/DEFINED
"Capital Value", "Encumbrance", "Unencumbered", "Estate of fee simple", "Highest and best use", "Impairment of value"

TRUST COMPANY OF AUSTRALIA LTD & ANOR v VALUER-GENERAL; PERPETUAL TRUSTEE COMPANY LTD & ANOR v VALUER-GENERAL
[2008] SASC 169
Full Court: Duggan, Bleby and Anderson JJ

DUGGAN J. I agree that the appeals should be dismissed for the reasons given by Bleby J.
BLEBY J.
1. Introduction
These two appeals raise important questions as to the proper interpretation and meaning of “capital value” in s 5(1) of the Valuation of Land Act 1971 (SA) (“the Act”). The appeals come to the Full Court from a judgment of a single judge of the Land and Valuation Division of this Court (“the LVD Judge”) exercising jurisdiction under s 25C of the Act. The LVD Judge dismissed both appeals, thereby effectively confirming, in each case, the original valuation that the Valuer-General made, in accordance with Pt 4, Div 1 of the Act.
2. The Facts
Before referring to the definition of “capital value” in s 5(1) of the Act, it is necessary to set out the relevant facts relating to each appeal. What follows are the facts largely as described by the LVD Judge in the judgment under appeal.
Trust Company of Australia Ltd and Stockland Trust Management Ltd
This appeal concerns the assessment of the capital value of the land and improvements at 25-91 Bedford Street, Port Adelaide. The appellant Trust Company of Australia Ltd has been the registered proprietor of the land at all material times. The appellant Stockland Trust Management Ltd manages the property on behalf of Trust Company of Australia Ltd. It is convenient to refer to them together as “Trust Company”.
The relevant date for the valuation is 1 January 2004. The Valuer-General valued the capital value of the land in the sum of $51,150,000. Trust Company objected to the valuation pursuant to s 24 of the Act. The Valuer-General allowed the objection, in part, and reduced the valuation to $47,750,000. Trust Company were nevertheless dissatisfied with the reduced assessment, and applied for a review of the valuation by an independent review valuer, pursuant to s 25B of the Act. The independent review valuer declined to conduct the review on the ground that the objection involved a question of law.[1] Trust Company were so informed by letter dated 2 November 2005. By notice of appeal dated 23 November 2005 Trust Company appealed pursuant to s 25C of the Act.
[1] See Valuation of Land Act 1991, s 25B(3) and s 25B(6).
The property is irregularly shaped and comprises some 31.95 hectares. It is the subject of a number of certificates of title. The land was originally developed and used as warehouses for wool storage. Twelve buildings have been erected on the subject land and they are available for letting. At the date of valuation, these buildings were all let save one which was occupied by Trust Company’s manager. The buildings were let to some 13 separate tenants. The buildings range in age. Two buildings originally used as wool stores were constructed in the 1940s. The remaining buildings were constructed in the 1980s and 1990s. The office, which is shown as building 26 on a plan of the premises, is a dated building constructed in the 1970s. It is of older style and construction. Apart from buildings 25 and 26, the buildings are all modern, well-constructed buildings capable of being used as stores or warehouses. They were in fact used for that purpose as at the date of valuation. It is convenient to call the development an industrial park.
The land is within the area of the City of Port Adelaide Enfield (“the Council”). It is within an area which constitutes a well-established industrial precinct in close proximity to the major port facilities at Port Adelaide. Development within the surrounding areas is essentially for transport, warehousing and distribution purposes. The land is close to rail services as well as to the new Port River Expressway which is a new major road. The land is within a General Industry 2 Zone as prescribed by the Council’s Development Plan. The valuers agreed that the highest and best use of the land is its present use as an industrial park. They also agreed that that use is consistent with the intent of the General Industry 2 Zone and its objectives. Therefore, zoning is not an impairment to value.
Perpetual Trustee Company Ltd and Westfield Management Ltd
The appellants Perpetual Trustee Company Ltd and Westfield Management Ltd are each the owners of one undivided moiety of a substantial parcel of land at West Lakes, a suburb of Adelaide. It is convenient to refer to them together as “Perpetual”. The land has been developed as a substantial regional shopping centre containing a large number of shops, offices and other tenancies as well as car parking. It is known as the West Lakes Shopping Centre. The land comprises some 20.37 hectares. It is the subject of several certificates of title. Access to the shopping centre is gained by Brebner Drive and Turner Drive.
The relevant date for the valuation is 1 January 2002. The Valuer‑General valued the capital value of the land in the sum of $149,000,000. An objection to the valuation was lodged by letter dated 11 September 2002. By letter dated 7 December 2004 the Valuer-General informed Perpetual that he had disallowed the objection. On 22 December 2004, Perpetual applied for a review of the valuation by an independent review valuer, pursuant to s 25B of the Act. The independent review valuer declined to conduct the review on the ground that the objection involved a question of law. Perpetual was so informed by letter dated 19 December 2005. By notice dated 10 January 2006 Perpetual appealed pursuant to s 25C of the Act.
The shopping centre contains a number of buildings, each containing premises available for leasing. The total lettable area is approximately 48,746 square metres. The valuers have agreed that the gross rental is $18,356,433 and that the net income for capitalisation purposes is $11,999,031. The premises are let to about 150 commercial tenants. There are five major tenants, namely, a David Jones department store, two discount department stores operated by Kmart and Harris Scarfe, and two supermarkets operated by Coles and Woolworths respectively. In addition, there are 123 speciality shops and other tenancies. There is car parking for 3,550 cars. Immediately to the east of the shopping centre and on the other side of Turner Drive is the AAMI Stadium, a large stadium at which Australian Rules Football is played. Perpetual leases its car parking area to the South Australian National Football League for patrons of football matches played at the AAMI Stadium. The valuers are agreed that the highest and best use of the subject land is as a regional shopping centre. That use is entirely consistent with the zoning of the subject land under the City of Charles Sturt Development Plan. In this case also, zoning is not an impairment to value.
3. Capital Value
Before describing the course taken by the LVD Judge on the appeals, it is convenient to set out the definition of “capital value”, contained in s 5(1) of the Act:
Capital value of land means the capital amount that an unencumbered estate of fee simple in the land might reasonably be expected to realise upon sale, but if the value of the land has been enhanced by trees planted on the land (other than commercial plantations), or trees preserved on the land for the purpose of shelter or ornament, the capital value must be determined as if the value of the land had not been so enhanced. [Emphasis added.]
The operative part of the definition for present purposes is that which is emphasised above. The qualification relating to enhancement by trees has no bearing on the outcome of these appeals. It may therefore be ignored.
Without, at this stage, delving into the meaning of “an unencumbered estate of fee simple” in land, two preliminary observations must be made about that definition.
The first is that it requires an assessment of market value of the land in question. However, what that market value is depends on what factual assumptions must be made in performing the valuation exercise. As a guide to how the issues emerged in this case, it is convenient to identify the principal assumptions debated in the case, without comment as to whether any or which of them is applicable under the statutory definition of capital value.
It was a common assumption by all parties that, as at the date of valuation, the land is taken to be developed with all existing landlord’s fixtures and improvements in their then form,[2] and that the then existing uses were the highest and best uses of the respective parcels of land. After that, there were a number of possible alternative assumptions, the subject of debate, which need to be mentioned briefly.
[2] Contrast the definitions of “site value” and “unimproved value” in s 5(1) of the Act under which it is assumed that certain relevant improvements on the land had not been made.
The first is that the hypothetical purchaser purchases the land subject to all existing leases and tenancy agreements.
The second alternative assumption is that the hypothetical purchaser is entitled to vacant possession, that existing leases and tenancy agreements are therefore to be ignored, but that the land is fully let at market rents less an appropriate vacancy allowance.
The third alternative assumption is that the hypothetical purchaser is entitled to vacant possession and that all existing leases and tenancy agreements are assumed to have terminated at the date of valuation, that an assessment is made as to which former tenants will remain under a new lease or tenancy agreement and which will depart the premises, and that a letting up allowance will be made in respect of those parts of the premises so vacated.
The fourth alternative assumption is that the hypothetical purchaser actually takes vacant possession of the whole premises and must thereafter find and negotiate leases and tenancy agreements with appropriate tenants.
Each of these four alternative assumptions will result in a different market value. Nevertheless, no matter how artificial, they all produce a market value which can be determined in accordance with the principles decided by the High Court in Spencer v The Commonwealth.[3] That is, that the basis of land valuation should be the price that a willing purchaser would at the date of valuation have had to pay to a vendor not unwilling, but not anxious, to sell.
[3] (1907) 5 CLR 418.
The second preliminary observation that needs to be made about the definition is that it requires the performance of a valuation and an appreciation of the skills and techniques of a professional valuer.
One of the recognised methods of valuation is based on the assessment of comparable sales. The valuer will identify what are said to be comparable sales of land, at or near the date of valuation. The valuer will compare the relevant features of the land the subject of such sales, and will analyse the circumstances of each sale. By making appropriate adjustments and comparing the features of the land in question, the valuer will determine the value of the subject land and improvements. Such a method is particularly appropriate to certain types of land such as single unit residences and broadacre agricultural land.
However, not all land is amenable to that valuation process. This is particularly so in cases such as the present where there is a substantial property, well developed, and let to a number of commercial tenants for the purpose of generating rental income. In most cases there will be no reasonably comparable sales, given the nature and diversity of such developments and their different locations. As was noted by the LVD Judge,[4] the capital value of such properties is, to a large extent, determined by an estimate of the predicted net income of the property to which is applied an appropriate capitalisation rate. There was no dispute that that was the appropriate method to adopt in valuing the land the subject of these appeals.
[4] Perpetual Trustee Co Ltd v Valuer-General (No 2); Trust Co of Australia Ltd v Valuer-General (No 2) (2007) 99 SASR 251, 256; [2007] SASC 340, [12].
4. The course of the proceedings
Both appeals pursuant to s 25C of the Act were heard together by the LVD Judge. At the hearing of that appeal, the appellants and the Valuer-General agreed a number of relevant facts and agreed to seek answers to a number of preliminary questions, the answers to which were given by the LVD Judge on 20 July 2006.[5] At risk of oversimplification, the Judge decided that the valuers should proceed on the second alternative assumption, described above at paragraph 17.
[5] See Perpetual Trustee Co Ltd v Valuer-General; Trust Co of Australia Ltd Valuer-General (2006) 95 SASR 338; [2006] SASC 216.
The hearing of the appeal continued on the basis of the answers given, but as a result of the evidence given in one of the appeals, the Judge had doubts about the correctness of the answers given to the preliminary questions. After hearing further argument, the Judge revisited the answers previously given and decided, against the appellants, that the capital value as defined in the Act really meant market value of the land and improvements as defined in Spencer v The Commonwealth. In effect, he proceeded on the first alternative assumption described above at paragraph 16. In doing so, he dismissed both appeals.[6] It is from that judgment that these appeals are now brought.
[6] See Perpetual Trustee Co Ltd v Valuer-General (No 2); Trust Co of Australia Ltd v Valuer-General (No 2) (2007) 99 SASR 251; [2007] SASC 340.
The hearing of the appeals proceeded on the basis that the Full Court would only address the matter of principle based on the proper interpretation of the definition. If this Court agrees with the conclusion of the LVD Judge, the appropriate order is to dismiss both appeals. If this Court decides that the valuations should proceed on some other basis, there are other disputed questions of valuation which will then have to be addressed.
5. The contentions of the parties
Before this Court, the Valuer-General sought to defend the approach taken by the LVD Judge in support of the first alternative assumption described above. By way of alternative, he sought to justify an approach based on the second and third alternative assumptions. The appellants, on the other hand, submitted that the definition required an assumption that the hypothetical purchaser would take vacant possession, ignoring all existing leases, and would then have to set about letting the premises. It would therefore take time for the hypothetical purchaser to secure tenants. It would therefore take time before rental income could be generated. There would be expenses associated with attracting tenants. This would therefore reduce the market value based on net rental returns by what was known as a letting up allowance. The appellants further submitted that the owner would have to offer incentives to prospective tenants to induce them to take tenancies in what was then a vacant complex. Such incentives would reduce the otherwise expected rental income. In other words, the appellants submitted that the definition required proceeding on what I have described as the fourth alternative assumption. This would result in a significant discount on the “market value” where the premises are sold with the benefit of existing tenancies.
The appellants acknowledged that this produced a capital value less than what would be the true market value of the premises. Nevertheless, they pointed out that the principal purpose of the Act was to produce a state valuation roll[7] containing various forms of land valuation for the purpose of imposing rates, taxes and other imposts upon land.[8] It was therefore not surprising that the definition of capital value might produce a figure other than the true market value of the land, given other artificial approaches to valuation required by the Act. For example, the Act requires the Valuer-General to determine not only the capital value of land (as defined), but the site value, the annual value and the unimproved value of the land “so far as those values are required for the purpose of levying or imposing any rate, tax or impost”.[9] Each of those different values is defined in s 5(1) of the Act. “Site value” is, in effect, the capital value excluding certain types of improvements on the land. “Annual value” is three-quarters of the gross annual rental that the land might reasonably be expected to realise if leased on certain stated conditions, or five per cent of the capital value. “Unimproved value” is the capital value, excluding certain other types of improvements. All these are artificial concepts for the purpose of levying rates, taxes and imposts. However, each of them is or may be dependent on an assessment of capital value. It does not follow that capital value itself must necessarily be an artificial concept having no commercial application.
[7] See Valuation of Land Act 1971, Pt 3.
[8] Ibid s 11(2).
[9] Ibid.

The appellants pointed also to the artificiality of the requirement to fix the capital value of an unencumbered estate in fee simple in land which has only ever been the subject of a Crown lease perpetual.[10] While there are undoubtedly elements of artificiality in the Act resulting in the making of valuations which have no apparent commercial application other than for the imposition of rates, taxes and imposts, the appellants’ argument itself leads to certain anomalies within the definition of capital value.
[10] See, for example, Beiler v Valuer-General (1980) 23 SASR 385.
If an assessment of comparable sales is the appropriate method of valuation of a particular piece of land, capital value will equate to actual market value. As pointed out above, this will apply to a very substantial number of valuations of capital value undertaken by the Valuer-General. However, if, as in this case, the appropriate method of valuation is by capitalisation of net rental income, the appellants’ argument leads to the conclusion that some valuations of capital value will not be the same as actual market value. That apparent inconsistency in the application of a single definition is enough to raise a serious question as to the soundness of the appellants’ approach.
Nevertheless, what is meant by “capital value” must be the result of careful analysis of the various terms used in the definition against the background of a number of decided cases.
6. “Estate of fee simple in the land”
There can be no doubt that an estate of fee simple in land is the highest and most comprehensive estate in land recognised by the law. In the Commonwealth v New South Wales[11] Isaacs J quoted with approval a passage from Challis’s Law of Real Property[12] as follows:
A fee simple is the most extensive in quantum, and the most absolute in respect to the rights which it confers, of all estates known to the law. It confers, and since the beginning of legal history it always has conferred, the lawful right to exercise over, upon, and in respect to, the land, every act of ownership which can enter into the imagination, including the right to commit unlimited waste; and, for all practical purposes of ownership, it differs from the absolute dominion of a chattel, in nothing except the physical indestructibility of its subject. Besides these rights of ownership, a fee simple at the present day confers an absolute right, both of alienation inter vivos and of devise by will.[13]
[11] (1923) 33 CLR 1.
[12] (3^rd ed, 1911) 128.
[13] (1923) 33 CLR 1, 42.
In similar vein, Deane, Dawson and Gaudron JJ observed in Nullagine Investments Pty Ltd v Western Australian Club Inc:[14]
While the theory of our land law is that the radical title of the Crown lies between the physical land and a freehold estate in it, the ownership of the freehold estate has long been, for almost all practical purposes, the equivalent of full ownership of the land. As a result, the freehold estate is, as a matter of legal and popular language, commonly treated as the land itself.[15]
[14] (1993) 177 CLR 635.
[15] Ibid 656. See also Williams, Principles of the Law of Real Property (23rd ed, 1920) 6-7; Megarry and Wade, The Law of Real Property (5th ed, 1984) 13; Gray, Elements of Land Law (1987) 58.
In the context of the Valuation of Land Act I respectfully adopt what Wells J said on this topic in Harry v The Valuer-General & The State of South Australia:[16]
One starts with this: that what is to be valued is not the inanimate, tangible thing, land, but rights in land. The Act directs the Valuer-General to value an estate in fee simple in the land, but the purpose of a direction in that esoteric form is, in my view, to ensure that what the Valuer-General values is a congeries of the most ample proprietary rights recognized by law "projected along the plane of time" (Pollock and Maitland, History of English Law (2nd ed.) vol. 2, p. 10); one must still ask, "What is the full range of proprietary rights in land, and what makes them valuable?" Traditionally, the amplitude of rights vested in the tenant in fee simple has been equated with the fullest ultimate rights, subject to any restrictions imposed ab extra, of use, enjoyment, destruction and alienation known to the common law. (Compare the dominium of the civilians—see Buckland, Textbook of Roman Law, p. 187).
Putting aside, then, the niceties of the theory of estates, what the Valuer-General is to value (to use Pollock's definition of "ownership"—see Jurisprudence and Legal Essays, p. 97) is the entirety of powers, allowed by law, of the use and disposal of a given parcel of land.
What is presented to the Valuer-General in the first place, therefore, is a parcel of land, and certain given rights over it of use and disposal. What yields a value under the Act is the value in the market place of those rights of use and disposal.
[16] (1975) 12 SASR 446, 454.
Where the person is the owner of an estate in fee simple in land and no other person has any rights or interests in the land, one would expect the rights referred to by Wells J to yield, in the market, the highest possible value – higher than if the rights enjoyed by the owner of the fee simple were subject to the proprietary rights of some other person in the land. However, on the appellants’ case the land in question, when subject to commercial leases, has a higher market value than the market value of an estate in fee simple subject to no such leases at all. Once again, that must call in question the validity of the appellants’ argument.
The starting point for a consideration of what is to be valued in the case of an estate in fee simple subject to leasehold interests is the decision of the High Court in Royal Sydney Golf Club v Federal Commissioner of Taxation.[17] The Royal Sydney Golf Club was the owner of a large piece of land in suburban Sydney. Certain parts of the land on which were constructed a clubhouse and associated facilities were exempt from tax under the Land Tax Assessment Act 1910-1950 (Cth). Another portion of the land comprising an 18-hole championship golf course and another 9-hole golf course was not exempt from land tax. The land was zoned “Parks and Recreation” under a Local Government Planning Scheme Ordinance promulgated under the Local Government (Amendment) Act 1951 (NSW). The actual decision in the case was that the land could not be valued without regard to the restrictions imposed by the Planning Scheme Ordinance, the Court holding that there was a difference between a public law affecting the enjoyment of land and a restriction of title.
[17] (1955) 91 CLR 610.
The person liable to pay the tax was the owner who was defined to include “every person who jointly or severally, whether at law or in equity, is entitled to the land for any estate of freehold in possession, or is entitled to receive or is in receipt of, or if the land were let to a tenant would be entitled to receive, the rents and profits thereof, whether as beneficial owner, trustee, mortgagee in possession, or otherwise”.[18] In their joint judgment Dixon CJ, McTiernan, Webb, Fullagar and Kitto JJ held that the general policy of the Act was “to impose the tax on the owner of the first estate of freehold in possession and to make him liable independently of the rights of any reversioner, mortgagee or holder of security in respect of the unimproved value of the land”.[19]
[18] Ibid 622.
[19] Ibid.
The tax was to be assessed on the “unimproved value” of the land. In relation to improved land that was defined to mean “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 at the time as at which the value is required to be ascertained …, the improvements did not exist”.[20] In the case of unimproved land the expression was defined to mean “the capital sum which the fee simple of the land might be expected to realize if offered for sale on such reasonable terms and conditions as a bona fide seller would require”.[21] Apart from the use of the word “unencumbered” in the definition of “capital value” in the Act, those definitions bear a striking similarity to the definition of “capital value” with which we are concerned. However, in the light of the observations of the Court the omission in the Land Tax Assessment Act definitions of any reference to an unencumbered estate would appear to make little difference. In the course of their judgment the Court observed:
It seems clear enough that the fee simple here means an unencumbered fee simple. Encumbrances upon land or estates in reversion appear to have been regarded as giving to reversioners or encumbrancers beneficial interests to be enjoyed by them. But the owner of the first estate of freehold was selected as the taxpayer who was to represent all persons beneficially entitled to the land. The value upon which he was to be taxed was the unimproved value of the fee simple, that is to say the capital sum which the fee simple might be expected to realize. It seems evident that the fee simple mentioned must be taken as free from encumbrances which, if they impaired the value of his estate, nevertheless operated to confer upon some other person or persons an estate or interest in the land. Were it otherwise the taxable value of the land would be diminished but the correlative estate or interest would not come into tax, unless by some chance it were an interest falling under some specific provision imposing liability. … The interpretation of the Act which seems best to accord with the policy appearing from its provisions and also to flow from its language is that in assessing the unimproved value an estate in fee simple must be taken as the hypothesis unencumbered and subject to no condition restricting the use or enjoyment of the land.[22] [Emphasis added.]
[20] Ibid.
[21] Ibid.
[22] Ibid 623.
The Court was there contrasting a reduction in value brought about by encumbrances upon the land with a reduction in value brought about by a legislative restriction such as, in that case, the Planning Scheme Ordinance. However, what is significant for present purposes is that the Court was concerned only to ignore encumbrances which “impaired the value of [the] estate”, or a condition “restricting the use or enjoyment of the land”. The question in this case is whether the leases in question fall into such a category.
There are a number of cases arising in New South Wales concerning the interpretation of ss 5 and 6 of the Valuation of Land Act (No 2) 1916-1951 (NSW). Those sections provided:
5.The improved value of land is 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.
6.The unimproved value of land is 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 the improvements, if any, thereon or appertaining thereto, and made or acquired by the owner or his predecessor in title had not been made.
Once again, it will be seen that these definitions bear a striking similarity to the definition of capital value in s 5 of the Valuation of Land Act 1971 but excluding any reference to an “unencumbered” estate of fee simple.
In Gollan v Randwick Municipal Council[23] the appellants were the owners of an estate in fee simple in the land known as the Randwick Racecourse. The land had been vested by the Crown in the appellants as trustees for certain specified purposes associated with horse racing or for public amusement or purposes. The trustees were empowered to lease the land to the Australian Jockey Club or other club or association formed for recreational purposes. The grant was subject to a general right of the Crown to resume the land for public purposes and to take stone, gravel and timber from the land. These conditions were not the subject of a separate instrument but were conditions of the original grant. The land was leased to the Australian Jockey Club. The report of the case does not disclose the terms on which the land was so leased – whether they were beneficial or burdensome to the trustees. The question was whether, in ascertaining the unimproved value of the land under the New South Wales Act, the valuation should take into account the existence of the trusts, restrictions, conditions and provisos contained in the Crown grants. The Privy Council held that they should not be taken into consideration. It did not attempt to identify conditions which might be said to diminish the value of the fee simple and those which did not. However, there is an assumption inherent in their Lordships’ reasons that they were dealing with burdensome conditions. The Privy Council followed and endorsed the approach of the High Court in the Royal Sydney Golf Club Case, namely that burdens on individual titles should be treated as irrelevant under a general rating scheme, even though they would be brought to account in valuing a person’s individual interest for other purposes such as death duties, compulsory acquisition or mortgage valuations. In the course of delivering the judgment of the Privy Council Lord Radcliffe said:
Prima facie, it appears to their Lordships, “the fee simple of the land” as used in section 6 does not refer to the actual title vested in the owner at the relevant date but to an absolute or pure title such as constitutes full ownership in the eyes of the law.[24]
[23] [1961] AC 82.
[24] Ibid 101.
Those words were echoed by Wells J in CSR Ltd v The Valuer-General[25] where the relevant question for determination was whether, in assessing the capital value of land owned by the plaintiff on which it conducted a sugar refinery, the Act required a valuer to assume that, in considering a hypothetical sale of the subject land, the plaintiff should be treated as a potential purchaser of its own land. Wells J, in considering the phrase “an unencumbered estate of fee simple in the land” said:
In my opinion, these words denote an absolute or pure estate in fee simple in the subject land, free of any private conditions, limitations, restrictive covenants, or other inherent restrictions affecting the estate or the land, but subject, of course, to any laws of a general nature that affect the use or alienability of the land. Compare Gollan v. Randwick Municipal Council, and the cases cited and discussed by their Lordships.[26] [Citation omitted.]
[25] (1977) 17 SASR 446.
[26] Ibid 450.
It will be noted that Wells J did not speak in terms of encumbrances as such, but of burdens and restrictions, and not benefits, affecting the estate or the land. It will also be noted that neither in the Act nor in the New South Wales Valuation of Land Act is there any reference in the definitions to an estate of fee simple “in possession”, although that phrase did appear in the definition of “owner” in the Land Tax Assessment Act under consideration in the Royal Sydney Golf Club Case. It is also an expression which has been adopted in other cases arising under ss 5 and 6 of the New South Wales Valuation of Land Act.
In A G Robertson Ltd v The Valuer-General[27] the valuation of a retail shopping block in the City of Lismore was in question. One of the issues concerned the effect of the control of rents and restrictions upon ejectment imposed by the Landlord and Tenant (Amendment) Act 1948-1951. For existing tenants, rents had been pegged to those payable on 31 August 1939 or as fixed by the Fair Rents Board on the basis of the capital value of the premises at the end of 1939. The restrictions did not apply to vacant premises. While the effect of that legislation on the particular premises could not be taken into account, the existence of the legislation was relevant as a factor which might, in a general sense, affect land values. To that extent it was relevant. In the course of his judgment Sugerman J said:
The “fee simple of the land” referred to in [ss 5 and 6, Valuation of Land Act 1916-1948] is, in my opinion, the fee simple in possession. It is not the fee simple in reversion or remainder expectant upon the determination of some prior estate. No more is it the fee simple subject to the rights or immunities conferred upon a tenant or a tenant holding over by the legislation already referred to, whether by way of prolonging the contractual tenancy or by way of creating some new estate or interest in the land.
…
That premises are let to a tenant is not in all circumstances necessarily depreciatory of value. Under appropriate circumstances, premises occupied by a tenant upon terms as to rent, duration, and covenants which are not disadvantageous to the lessor might be expected to bring as much as they would if vacant.[28]
[27] (1952) 18 LGR 261.
[28] Ibid 263(1).
While excluding from consideration any direct effect on the premises of rent restriction legislation, Sugerman J said:
The investor’s price, then, ought, prima facie, to reflect the characteristics of the land, the advantages of its situation, and any other elements, including all its potentialities, which influence unimproved value. But it may be expected to reflect these subject to a discounting element in some respects analogous to, but not identical with, the element of deferment created by a tenancy at an under-rent.[29]
[29] Ibid 264(1).
By his acknowledgement that leases are not necessarily depreciatory of value, Sugerman J was doing no more than recognising that the ability to let on favourable terms was one of those characteristics or advantages of the land which influenced its unimproved value. More particularly, however, for present purposes, by referring to the fee simple in possession, Sugerman J was not referring to a situation of vacant possession. Rather he was referring to the nature of the interest in land referred to in ss 5 and 6 of the legislation. That is, an estate of fee simple in possession as opposed to an estate of fee simple in reversion or remainder expectant upon the determination of some prior estate.
The approach of Sugerman J in A G Robertson Ltd v The Valuer-General was approved by the New South Wales Court of Appeal in Commissioner for Railways v Andreas.[30] This case also concerned the valuation under the New South Wales Act of land subject to rent restrictions imposed by the Landlord and Tenant (Amendment) Act. If the owners had submitted the premises for sale subject to existing tenancies, the best price which could have been realised would have been substantially less than the price which could have been obtained if they had been able to sell them and give vacant possession to a purchaser.
[30] (1955) 55 SR (NSW) 323.
Street CJ and Herron J agreed with the approach taken by Sugerman J in A G Robertson Ltd v The Valuer-General in the passages which I have quoted above.[31] They continued:
It follows that the capital sum which the fee simple might be expected to realize would not be calculated as being affected by the rights or immunities conferred upon tenants by the legislature. These statutory rights or immunities conferred on a tenant on the one hand and the corresponding restrictions on the landlord are, however, elastic and unpredictable, and even if the anticipation of an owner as to securing vacant possession may be said to be remote, on the other hand it cannot be ruled out as wholly improbable although at first sight this may appear a question of degree or of value rather than a matter of legal principle. For it is necessary to assume, as we have already indicated, that improved value involves the assumption that the owner had, and was free to dispose of, an immediate estate in fee simple not affected by any tenant rights which would prevent the owner from giving vacant possession to a purchaser.
[31] Ibid 325-326.

Two points need to be made about that passage. The first is that, as in other cases to which reference has been made, the Court was only concerned to ignore depreciatory rights conferred, in that case, by legislation. There is no suggestion of ignoring tenancies which might increase the value. The second point is that the references in that passage to the giving of vacant possession are peculiar to the circumstances of that case, namely that the legislative restrictions affecting rents paid by tenants did not apply to premises where vacant possession was given. The Court was not suggesting that an estate of fee simple necessarily carried a right to vacant possession.
In the course of his judgment, Roper CJ in Eq said:
In law the estate of a tenant in fee simple may still properly be called an estate in fee simple in possession notwithstanding that he has granted a lease for a term of years; Re Peyton’s Settlement (1869) L.R. 7 Ep. 463; Wakefield and Barnsley v. Yates (1916) 1 Ch. 452, “for the feudal possession or seisin has not been parted with”; (Williams on Real Property 23rd ed. (1920), p. 362). The same position arises where, as here, instead of a term of years being granted the tenant in fee simple grants a periodic tenancy; but as is pointed out in Williams, whilst the actual possession of the tenant for years, or, I add, the periodic tenant, continues the estate in fee simple is strictly an incorporeal reversion. However it may be described, such an estate is subject to the rights of the termor or periodic tenant, and the question here is whether it is the fee simple subject to those rights or the fee simple considered free from them which is referred to in s. 5.
In coming to the conclusion that the value of the fee simple was to be ascertained on the hypothesis that the vendor could and did sell it with the right to vacant possession, the judge of the Land and Valuation Court followed his own decision in A. G. Robertson Ltd. v. Valuer-General (1952) 18 L.G.R. 261. I agree with that decision and the reasons given for it; but in the light of the recent decision of the High Court in Royal Sydney Golf Club v. Federal Commissioner of Taxation it may not have gone to the full extent permitted by law in disregarding conditions or restrictions affecting the actual title held by the objectors. Assuming that “the fee simple” has the same meaning where used in s. 5 of the Valuation of Land Act 1916 as that expression has where used in s. 3 of the Land Tax Assessment Act and as at present advised I think it has, then the expression refers to a hypothetical estate in fee simple, “unencumbered and subject to no condition restricting the use or enjoyment of the land”. Such a fee simple would not be supposed to be subject to depreciatory tenancies.[32]
[32] Ibid 331-332.
Once again, the reference of Roper CJ to vacant possession was a reference to the situation applying under the Landlord and Tenant (Amendment) Act of New South Wales. What was to be excluded from consideration were conditions “restricting the use or enjoyment of the land” and “depreciatory” tenancies.
To the extent that the expression “estate of fee simple in the land” contained in the definition of capital value in the Act may incorporate a concept of fee simple in possession, I respectfully agree with the LVD Judge that that expression means more than mere physical possession or right to possession of the land. It includes, as the definition of “owner” in the Land Tax Assessment Act considered in the Royal Sydney Golf Club Case expressly provided, an owner of an estate of fee simple who is entitled to the rents and profits from the land.[33]
[33] See Cheshire and Burns, Modern Law of Real Property (14th ed, 1988) 152.
The concept of possession of land was discussed by Pollock and Wright in An Essay on Possession in the Common Law (1888). They noted:
Possession of land is of two kinds. Seisin signifies in the common law possession, but one cannot be seised, in the language of modern lawyers, as of any interest less than freehold.
Where a tenant occupies a close under a lease for years, the tenant has possession of the close, so that not only a stranger but the freeholder himself may by guilty of a trespass against him, but the freeholder is still seised, or, as the judges could say as late as 1490, possessed, of the freehold. [34] [Footnotes omitted.]
[34] At p 47.
In summary, they concluded:
An occupying freeholder is both seised and possessed.
A freeholder who has let his land for years is seised, or possessed, of the freehold, but not possessed of the land.
A lessee for years possesses the land even as against the freeholder. [35] [Footnote omitted]
[35] At p 49.
As the LVD Judge demonstrated, there is ample justification for the conclusion that the holder of an estate in fee simple who has leased the land nevertheless remains seised and possessed of the freehold, and that receipt of rents and profits constitutes such possession. I can do no better, with respect, than repeat what the LVD Judge said:
In Leslie v Earl of Rothes [1894] 2 Ch 499 at 506 Kekewich J referred to the ambiguous use of “possession” in real property law in these terms:
The ambiguous character of the term “possession” is well known, and has been recognised by high authority. It has several meanings, and it may well have several different meanings in the same instrument, some of them overlapping one another, and some being combinations of more than one. But in an instrument dealing with real estate “possession” means broadly one of two things. It may mean what has been styled during the argument “physical possession,” as when a tenant in fee occupies and farms his own land, or if not farming his own land, still occupies in the sense of receiving his rents from his tenants. In that connection, the alternative to “possession,” natural, proper, technical, strictly legal, is receipt of the rents and profits.
Although there was an appeal from that decision, the decision was affirmed and those remarks were not questioned. In Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490 Issacs J referred to that decision with apparent approval. In the same decision, Griffith CJ described an “estate in possession” in these terms (at 498):
The essential element of an “estate in possession” is, in my opinion, that the owner of it has a present right of beneficial enjoyment, whether accompanied by physical possession of the land or not.
There is substantial authority, therefore, for the proposition that the expression “an estate in fee simple in possession” refers to an estate in fee simple where the owner of the estate is in physical possession as well as to an estate in fee simple where the owner is not in physical possession but is in receipt of the rents and profits in respect of the land. It is a corollary of that proposition that the receipt of rents and profits is evidence of ownership of the fee simple: Best on Evidence (12th ed, 1922) para 366 cited in Allen v Roughley (1955) 94 CLR 98 at 108 per Dixon CJ.
The proposition is consistently mentioned in the textbooks relating to the law of real property. Mr LA Goodeve notes in The Modern Law of Real Property (5th ed, 1906) at 366 that “possession” has two meanings. It may mean either having the physical control over, or being the owner of, property. Professor Challis in his Law of Real Property (3rd ed, 1911) at 99, a classic text in this field, states:
The existence of a prior term of years does not prevent the first vested estate of freehold from being an estate of freehold in possession.
Mr BA Helmore, the editor of Millards Law of Real Property New South Wales (6th ed, 1948) at 211-212 expressed the position in these terms:
A freeholder who leases his land for a term of years does not thereby part with the seisin; for a tenancy for years is not an estate of freehold, but a mere chattel interest, and the possession of the lessee constitutes the seisin of the freeholder. The reversioner is therefore in the same position, except as between himself and the lessee, as if he had the freehold in possession, and the reversion could, at common law, be conveyed by feoffment with livery of seisin, with the consent of the tenant for years. But a reversion expectant on an estate for life or on any greater estate could not be conveyed in this way, for the reversioner no longer had the seisin to convey.
As Mr Helmore notes in a footnote to the passage just quoted, where the holder of the fee simple interest has leased land:
… it would be more logical to regard his interest as not being a reversion at all, but an estate in possession, subject to the actual possession of the lessee. But estates of this kind are generally called reversions, and the owners of them reversioners, not only by lawyers but also in common language.
That comment is consistent with Megarry and Wade (op cit) (at 237) to which I shall refer in a moment. A tenancy for years is not real property but personalty. It is an interest which has been classified under what Megarry and Wade (op cit) (at 10) call “the paradoxical heading” of chattels real. In Megarry and Wade (op cit) (at 128-129) it is said:
“In possession” means that the estate must be immediate, and not in remainder or reversion. Remainders and reversions are now equitable interests, taking effect behind a trust of the legal estate. But, in order to prevent temporary interests such as leases from disturbing the legal ownership, “possession” is defined so as to include not only physical possession of the land but also the receipt of rents and profits or the right to receive them, if any. Thus a fee simple is still “in possession” even though the owner has granted a lease, for he is entitled to the rent reserved by the lease, and even if the land has also been mortgaged, for he is entitled to the rents and profits, if any, in excess of any interest payable to the mortgagee. [Citations omitted].
Later (at 237), the authors explain why the fee simple estate is still described as being “in possession” even though the holder of the fee simple has granted a lease:
From its very nature it follows that a reversion is a vested interest; for it is the remnant of an estate which has never passed away from the grantor, and he or (if he is dead) his representatives stand ready to receive the land as soon as the particular estate determines. According to feudal principles, moreover, a freehold reversioner on a term of years has an estate which is vested not only in interest but also in possession, for the grant of a lease does not deprive a grantor of seisin, and he therefore has what is properly called a freehold in possession subject to the term. From this point of view a reversion on a lease is not a reversion or, indeed, a future interest at all. This technicality is a relic of the ancient doctrine that leases were not even estates and were to be disregarded for feudal purposes. But, as has been seen, leases have long since achieved the status of estates, and it is therefore common and correct to speak of a landlord’s reversion. [Citation omitted].
The definition of “possession” in s 7 of the Law of Property Act 1936 (SA) reads:
possession includes receipt of rents or profits or the right to receive the same (if any).
While that definition applies only to the Law of Property Act, it is consistent with the general law.
It is, therefore, well established that the expression “fee simple in possession” refers both to the situation where the holder of the estate in fee simple is in physical occupation and possession of the land and to the situation where the holder of the estate in fee simple has leased the land for a term of years and is entitled to receive the rents from the land.[36]
[36] Perpetual Trustee Co Ltd v Valuer-General (No 2); Trust Co of Australia Ltd v Valuer-General (No 2) (2007) 99 SASR 251, 260-262, [23-25].
To that I would merely refer in addition to District Bank Ltd v Webb.[37] In that case A and B were the owners of an estate of fee simple in a house. The house was then leased to A and C for a period of 21 years. A little over two years later A and B, by memorandum of deposit, charged their interest in the house to the District Bank to secure B’s bank account. For some reason, unexplained, D, who was B’s brother, also executed a memorandum of deposit for the same purpose. Some months later A and B conveyed their estate of fee simple in the house to D. In the conveyance they were described as being “seised in unencumbered fee simple in possession upon trust for sale” of the house. D later charged the property by legal charge to secure his own bank account. Meanwhile, A and/or B remained in physical possession of the house. D made default to his bank. The bank claimed possession under the legal charge given by D. A and B resisted the application for possession, relying on the lease to A. The bank claimed that A and B were estopped from denying the bank’s right to possession by the recital in their conveyance to D that they were seised in unencumbered fee simple in possession of the property at that time. It was held that A and B were entitled to remain in possession in reliance on the lease. The recital that they were seised in fee simple in possession upon trust for sale was not a sufficiently unambiguous representation to create an estoppel. Danckwerts J held that the words “in possession” did not mean vacant possession. He said:
It seems to me that the meaning is “fee simple in possession” as opposed to “fee simple in reversion” and there again it seems to me impossible for the bank to rely upon such representation in the recital to cause the vendors to be bound by estoppel.[38]
[37] [1958] 1 WLR 148.
[38] Ibid 150.
Before turning to consider any qualification in the definition of capital value by the word “unencumbered”, it is convenient to state a number of relevant propositions which seem to arise from the cases considered so far:
·An estate of fee simple in land is the most extensive interest in land known to the law.
·For the purposes of assessing the capital value on the market of such an estate for rating or similar purposes, one ignores other interests in or restrictions on use of the land which are depreciatory of its value other than restrictions imposed by virtue of generally applicable legislation such as planning legislation.
·The letting of land by the owner of an estate in fee simple does not necessarily have any depreciatory effect on the value of that estate.
·While an estate of fee simple is an estate in possession of a set of proprietary rights, the expression “fee simple in possession” does not mean that the owner of the estate of fee simple must necessarily have or be able to exercise physical possession of the land to the exclusion of all others.
It would follow that, unless there are other qualifying considerations, the only leases that need to be ignored for the purpose of assessing the capital value of land are those that have the effect of depreciating the value or full enjoyment of the estate of fee simple.
7. The qualification “unencumbered”
The appellants’ contention is that whatever may be the rights of the owner of an estate of fee simple in land, that estate is encumbered by a lease or leases which diminish the estate or interest of the owner of the fee simple. For the purpose of the definition of capital value, such leases must therefore be ignored. The respective premises must be valued as if the owners each had an immediate right to possession of their respective premises.
The qualification “unencumbered” does not appear in the equivalent definition in the NSW Act discussed above. It did not appear in the definition of “unimproved value” in the Land Tax Assessment Act 1910-1950 (Cth) the subject of consideration in Royal Sydney Golf Club v Federal Commissioner of Taxation.[39] Nor did it appear in the Taxation Act 1884 (SA) being the first Act to impose a land tax in the then Province. Tax was imposed on the unimproved value which was defined in s 2 to mean “[T]he actual value of any land less the amount of the value of all improvements, if any, on such land”. “Actual value” was defined to mean “[T]he capital amount for which the fee-simple of such land would sell with all improvements, if any, on such land”.
[39] (1955) 91 CLR 610.
The definition of unimproved value was substituted with a new definition by the Taxation Act Amendment Act 1908. That definition provided:
“Unimproved value” of any land shall be deemed to be the capital amount for which the fee simple of such land might be expected to sell if free from encumbrances, assuming the actual improvements (if any) thereon had not been made: Provided that “improvements” shall be deemed to be houses and buildings, fixtures, or other building improvements of any kind whatsoever, fences, bridges, roads, tanks, wells, dams, fruit trees, bushes, shrubs, or other plants, whether planted or sown for trade or other purposes, draining of land, ringbarking, clearing from timber or scrub, and any other visible improvements the benefit of which is unexhausted at the time of valuation.
There is no indication from Parliamentary debates or from other contemporary materials why the qualification “free from encumbrances” was introduced.
A qualification in similar terms remained in the relevant definitions in the Taxation Acts of 1915 and 1927 and in the Land Tax Act 1936. The definition in its present form first appeared in the Act when enacted in 1971.
There can be no doubt that as a matter of grammatical construction, the word “unencumbered” qualifies the phrase “estate of fee simple in the land”, and that it is the estate which is to be unencumbered, not the value of the land. However, that begs the question as to what is meant by “unencumbered” in this context.
I refer again to the decision of Wells J in Harry v The Valuer-General and the State of South Australia.[40] That was an appeal against an assessment of unimproved value by the Valuer-General in respect of an area of land of some 91 acres subject to 166 leases to a private company, each for a term of 1,000 years. The land was proposed to be released in that manner because it could not be lawfully subdivided and sold in freehold allotments. The Valuer-General issued 166 assessments of unimproved value for each piece of leasehold land. The landowner contended that the leasehold interests were not encumbrances within the meaning of the definition, that the unimproved value of the land could be fixed only by taking account of the several terms of years still outstanding, and that the unimproved value of the estate in fee simple was therefore very slight. Wells J rejected that contention, holding that what was to be valued was the “notional or pure fee simple estate in the land”, and that leasehold interests “of the kind affecting the subject land in this case should be disregarded”. In the course of his judgment he said:
...[T]he truth is, in my opinion, that, except when it is used in the Real Property Act 1886 (as amended) and Acts in pari materia, the word “encumbrance” – and the same applies to “encumber” – has not acquired the sort of technical meaning that one associates with such words as “demise” or “seisin”; it is not yet a true term of art. I regard it rather as a protean word that takes its precise meaning from the particular context in which it appears. I do not find it necessary to arrive at its precise meaning for the purposes of this appeal. Whatever its true meaning in the definition may be, the whole effect of the Act, in my judgment, is imperatively to require the Valuer-General to value the largest estate in the subject land known to the law, and not a particular taxpayer’s interest in that land. I hold, therefore, that whether a fee simple estate is, within the meaning of the definition, encumbered by the grant of a term of years or not, the terms granted in the present case are not to be taken into account; it matters not whether leaseholds are excluded by the word “unencumbered” or by what is necessarily implied by the legislative description of what is to be valued. What is to be valued is a specified estate in the land, by whomsoever held. I accordingly hold that Mr. Harry’s first argument fails.[41]
[40] (1975) 12 SASR 446.
[41] Ibid 450.

I have already referred to what Wells J said of the expression “unencumbered” in CSR Limited v The Valuer-General,[42] to the effect that the word in this context means free of any “private conditions, limitations, restrictive covenants, or other inherent restrictions affecting the estate or the land”.
[42] (1977) 17 SASR 446.
I have also referred to the judgment of the High Court in Royal Sydney Golf Club v Federal Commissioner of Taxation[43] where the High Court considered that the reference to the fee simple in the Land Tax Assessment Act meant an unencumbered fee simple, although the descriptor “unencumbered” was not used in that definition, and that it meant free from encumbrances which impaired the value of the estate.
[43] (1955) 91 CLR 610, 623.
In a rather different context the High Court considered the meaning of “encumbrances” in Wallace v Love.[44] In that case a testator directed in his will that so soon as his estate should be free from all “encumbrances”, including certain annuities, the trustees should distribute the estate in a certain way. In their joint judgment Knox CJ and Starke J said:
The word “encumbrances,” in its ordinary connotation, means that a person or estate is burdened with debts, obligations or responsibilities. True, the word is in law especially used to indicate a burden on property, a claim, lien or liability attached to property (see Oxford Dictionary, under title “Encumbrance”). But when we remember that the whole estate of the testator is liable in the hands of his executor for payment of debts and the expense of administering his estate, it is not an extravagant use of language to say that his “whole estate is not free from encumbrances” until those debts and expenses are paid. The estate would, in fact, be burdened with those debts, and no technical use of the word “encumbrance” can alter that result.[45]
[44] (1922) 31 CLR 156.
[45] Ibid 164.
Higgins J dissented, considering that the word should receive its technical interpretation. In that case, not all debts incurred by the trustees of the estate could be regarded as encumbering the estate. He said:
The testator uses the proper meaning in speaking of annuities being assigned, charged or encumbered. According to Wharton an encumbrance is “a claim, lien or liability, attached to property.” This definition of Wharton’s is adopted by the Oxford Dictionary, which also adds “a burden on property.” In the Standard Dictionary the meaning in law is stated as “a paramount claim or interest resting as a charge upon land, lessening its value to the owner or tenant; any lien or liability attached to real property; as, a mortgage, a registered judgment, and a right of dower are encumbrances.”[46]
[46] Ibid 172.
In this case, whether one takes the technical meaning or what Knox CJ and Starke J described as its ordinary connotation, it indicates a burden or liability or something which detracts from the value of the estate or interest in question.
I have already referred to what Danckwerts J said in District Bank Limited v Webb about the phrase “in possession”. Of the lease in question in that case, he said:
... I am not satisfied that a lease was an incumbrance to these parties. It is true that in certain circumstances a lease may be regarded as an incumbrance, but it seems to me that an incumbrance, normally, is something in the nature of a mortgage and not something in the nature of a lease or tenancy, and since, on the authorities, an unambiguous representation must be shown if an estoppel is to be created, it seems to me that in that respect the recital is not sufficient for the plaintiff bank’s purpose. [47]
[47] [1958] 1 WLR 148, 149-150.
In Doe d. Davies v Davies,[48] GD was the owner of an estate in fee simple in land at L. By his Will dated 30 July 1828 he charged that land with an annuity to his daughter. Subject to the annuity, he demised the land to JD (his son) provided that JD, when requested by DD (another son) to do so, would convey to DD certain other land located at C “free from all manner of incumbrances”. If JD refused to execute the conveyance, the land at L was demised to DD.
[48] (1851) 20 LJNS 408.
GD died on 2 August 1828. JD entered into possession of the land at L and continued to occupy that land until his death on 11 June 1848. At the same time JD remained seised of the land at C which he demised to EG as a tenant from year to year. EG occupied that land for 20 years preceding JD’s death. JD devised all his real and personal estate to his widow, and on his death she entered into possession of the lands at both L and C.
DD never requested JD to convey the land at C to him but tendered a conveyance of that land to JD’s widow after his death. She refused to execute the conveyance. The question was whether DD was then entitled to the conveyance of the land at L.
The court held that the relevant refusal under GD’s Will was that of JD and not of his widow. However, it was also argued that DD was nevertheless entitled to the conveyance of the land at L because, among other things, JD had disqualified himself from complying with the request to convey the land at C to DD “free from all manner of incumbrances” by virtue of the lease of the land he had granted to EG. In other words, it was argued that the granting of such a lease was tantamount to a refusal by JD to convey the land at C to DD.
While all four judges considered that JD did not disqualify himself from conveying the land because the tenancy could be terminated or surrendered, Campbell LCJ, with whom Patteson J agreed, considered that the primary reason was that the tenancy was not an encumbrance. He said:
In the case of a will the Court looks not to the technical meaning of the precise words, but to the sense in which they are used by the testator. Here, the testator expresses that the estate is to be conveyed “for ever, free from all manner of incumbrances,” and it cannot be said that would not have been complied with if [JD] had conveyed subject to the tenancy from year to year.[49]
[49] Ibid, 411(1).
Finally, in Baggett v Meux,[50] a testator devised certain land to his married daughter for her sole benefit subject to a number of restraining conditions, being that she cold not sell, charge, mortgage or encumber the land. The land was subject to a lease granted by the testator. It was leased as a public house for a period which expired in January 1847, almost 19 years after the death of the testator. The rent was ₤60 per annum. Such a device had been held in equity to be a valid conferral of property rights on a woman as if she were unmarried, notwithstanding her being, at law, under coverture, and having no separate property rights as a married woman.
[50] (1844) 1 Coll. 138; 63 ER 355.
By an indenture dated 16 June 1840, the daughter’s husband took an assignment of the lease for the residue of the term, having, with his wife, previously entered into a separate lease of the premises to one Evans in trust for the husband for a period of 31 years, paying to the husband and the wife and the survivor of them rent of ₤60 per annum. On the same date the husband deposited all the deeds by way of equitable mortgage with the defendants to secure a loan of ₤600 plus interest.
The defendants sought to enforce their security against the daughter. It was held that the defendants, claiming title through the plaintiff’s husband, were founding their claim on a sale, mortgage or encumbrance by her. That transaction included the lease to Evans. It was further held that the lease to Evans itself was considered as coming within the prohibition because it prevented the plaintiff from enjoying the fruits of the original lease expiring in 1847. However, there was no question of the original lease being an encumbrance or of interfering with the plaintiff’s right to enjoy her estate in the land. It was, in effect, part of her enjoyment of the estate in fee simple.
Although it is not of direct application in this case, the Law of Property Act 1936 s 7 defines, for the purposes of that Act, “incumbrance” as including “a legal or equitable mortgage and a trust for securing money, and a lien, and a charge of a portion, annuity, or other capital or annual sum”. Section 27 relates the discharge of incumbrances to the payment into court of amounts representing the value of the charge on the land to be discharged. The definition and the process involved assumes that an incumbrance imposes only a burden on land which can be quantified by payment into court of the value of that burden.
In the case of the Real Property Act 1886 (SA) leases are governed by Pt 11 of the Act and encumbrances, along with mortgages and their respective discharges, are governed by Pt 12. Section 128, which appears in Pt 12, provides:
128 – Lands, how mortgaged or encumbered
Whenever any land is intended to be charged or made security in favour of any person the registered proprietor shall execute a mortgage in the appropriate form; and whenever any land is intended to be charged with, or made security for, the payment of an annuity, rent-charge, or sum of money, in favour of any person, the registered proprietor shall execute an encumbrance in the appropriate form.
Section 130A provides for certain covenants to be implied in an encumbrance.
It was not suggested that there was any form of encumbrance of the sort contemplated by s 128 of the Real Property Act registered on the certificates of title of land the subject of the valuations in question, neither was it argued that that fact was conclusive against the appellants. Nevertheless, it is consistent with the conclusion that I have reached that the relevant statute law does not treat leases as encumbrances. It does operate on the premise that encumbrances, but not necessarily leases, act as an impairment on the value of the estate encumbered.
The question is whether the use of the word “unencumbered” and the cases to which I have referred require any qualification on the propositions stated in Part 6 of these reasons. In my opinion they do not.
What the cases show is that the word does not have a technical meaning. It is doubtful whether it adds anything to the expression “estate of fee simple in the land”. What it does emphasise is that anything that is a burden or liability on the estate and which therefore lessens its value is to be ignored in assessing the market value of the estate of fee simple. Subject to the exception with respect to burdens that may be imposed on a particular piece of land by public laws of general application, that is the effect of the cases discussed in Part 6 of these reasons. There are cases which decide, in various contexts, that a lease does not necessarily constitute an encumbrance, and therefore need not encumber the estate in fee simple, and that there is a distinction between a lease and encumbrance. That is a distinction also to be found in legislation in this State affecting interests in real property.
I therefore conclude that an estate of fee simple in the appellants’ land does not lose its status of being “unencumbered”, for the purpose of the definition of capital value, merely because the land is subject to a number of leases. Whether a lease encumbers the land, and must therefore be ignored for the purpose of the definition, will depend on whether it constitutes a burden in the sense of having a depreciatory effect on the value and enjoyment of the estate of fee simple.
8. Other arguments relied on by the appellants
This conclusion must nevertheless be tested against two cases on which the appellants place particular reliance and on one further argument based on s 17 of the Act.
The first case is The Shell Co of Australia Ltd v City of Melbourne.[51] That case was a valuation appeal under the Valuation of Land Act 1960 (Vic). It concerned the valuation of a city office tower owned by Number 1 Spring Street Pty Ltd and leased to The Shell Co of Australia Limited and a small number of minor sub-tenants. One of the issues concerned the interpretation of the definition of “capital improved value” in s 2(1) of the Victorian Act. That definition provided:
“Capital improved value” means the sum which land, if it were held for an estate in fee-simple unencumbered by any lease, mortgage or other charge, might be expected to realize at the time of valuation if offered for sale on any reasonable terms and conditions which a genuine seller might in ordinary circumstances be expected to require;
[51] [1997] 2 VR 615.
It was common ground that the lease between the owner of the property and the head tenant was not a market rent but what was described as an “economic” rent, or one that yielded to the owner a return which it could not obtain on the open market. The lease therefore favoured the landlord.
The City of Melbourne contended that the enhancing effect of the economic return rather than a market-based return, should be taken into account in assessing the capital improved value because it did not “encumber” the land in the sense of burdening it.
Batt J concluded that the expression “unencumbered by any lease” in the definition meant “unaffected by”, “not subject to” or “without” a lease, rather than “not burdened” or “not hampered” or “not depreciated” by it. It followed that in assessing the capital improved value of the property, the valuer was not to increase the value by reason of the lease favourable to the landlord. In doing so his Honour relied heavily on the legislative history of the definition in reaching his conclusion – a history not relevant or applicable to the definition in the South Australian Act. Additionally, having referred to the decision of Knox CJ and Starke J in Wallace v Love,[52] Batt J said:
In my view … a lease, even if favourable to the lessor, does burden the lessor, because it prevents the lessor from having possession or giving vacant possession of the demised land. Here, I consider that the appellants are correct in saying that the word “unencumbered” has nothing to do with valuation and everything to do with the estate. Because a lease is by the legislation treated similarly to a mortgage and a charge this is, I think, an instance of the especial use in law (of the cognate word “encumber”) referred to by Knox C.J. and Starke J. As that case shows, the meaning of the word “unencumbered” depends upon its context. Here, I consider the reference is to the subjection of an estate in fee-simple to any of the three listed interests in land. In saying this I am conscious that Wells J. in Harry at 450 expressed the view that the word “encumber” had not yet acquired a technical meaning and was not yet a true term of art. However, his Honour acknowledged that it was a protean word that took its precise meaning from the particular context. Here the context, textual and historical, warrants, I consider, the meaning I have attributed to the word.[53]
[52] (1922) 31 CLR 156.
[53] At 673.
Batt J appears to have been driven to his conclusion particularly by the context where “lease” is treated by the legislation as being similar in effect to “mortgage” and “charge”. It was, in its context, an instance of the especial or technical use of the word “unencumbered”. Both the historical and textual context required the word “unencumbered” in that definition to be construed as relating to any lease, not merely one which constituted a burden.
However, neither the historical nor the textual context is the same in the definition in the South Australian Act. Accordingly, I would distinguish the decision on that ground.
There is also a further reason why the decision can have no direct application to the present circumstances. For the purpose of the appeal before Batt J it was agreed[54] that upon the assumption that the words “unencumbered” in the definition of capital improved value means “unaffected by”, the capital improved value of the land was $90 million. On the assumption that the words “unencumbered by” in the definition means “not burdened by”, the capital improved value was $125 million. The difference in the figures obviously reflected the difference between the “economic” or inflated rent paid by the building’s principal tenant, on the one hand, and a market-based rent, on the other hand. The City of Melbourne argued that the valuation should be based on the actual inflated rent being paid. There is nothing in the case which addresses the appellants’ argument in this case that, in taking a market-based rent, one must also assume vacant possession by the owner of the fee simple at the date of valuation. Indeed, for reasons which appear below in section 9 of these reasons, I consider that the same decision would have been reached by Batt J if he were applying the South Australian definition.
[54] [1997] 2 VR 615, 621.
The second authority on which the appellants particularly relied was a dictum of Debelle J, with whom Olsson and Williams JJ agreed, in Adelaide City Corporation v City of Port Adelaide Enfield.[55] That case concerned the capital value under the Act of land on which the Wingfield Waste Management Centre was conducted. The issue in the case was whether, for the purpose of valuation, the hypothetical purchaser was an owner/operator of a waste dump or a passive investor to whom licence fees would be paid by another operator of the waste dump. In the course of his judgment Debelle J said:[56]
The definition of “capital value” has already been quoted. It is not necessarily the market value of land as the market value might in some instances reflect the benefits or burdens, as the case may be, of a lease. What must be assessed is the market value of the land unencumbered by a lease or any other burden. The land at Wingfield is not subject to a lease or to any other kind of encumbrance. The capital value will therefore be its market value.
[55] (2001) 115 LGERA 137; [2001] SASC 207.
[56] Ibid 142, [22].
Superficially that dictum might be seen to favour the appellants’ argument. However, closer analysis suggests that it does not. For reasons which will become apparent, I respectfully agree with the Judge that the capital value for the purpose of the Act will not necessarily be the market value of the actual estate of fee simple in the land, as that might in some instances reflect the benefits or burdens of a lease. It is also clear from the authorities to which I have referred that, to the extent that a lease may constitute a burden on an estate of fee simple in the land which adversely affects its value, it is to be ignored. It would appear that the Judge was only referring to such a lease in the third sentence of the passage quoted. If so, I respectfully agree with him. If he was referring to all leases, then I do not. However, whatever Debelle J intended, it does not follow, as the appellants contend, that the fee simple must be valued as if the owner had vacant possession of the land.
Whatever may be the implications of that paragraph, it should carry little weight in the resolution of this appeal. The proposition stated was not argued in that case and it cannot be taken as a considered view. It was not necessary for the decision, as the land in question was not the subject of any lease or encumbrance. The observation could not affect the outcome of that case which was only concerned with the nature of the likely hypothetical purchaser. Furthermore, although it attracted the concurrence of the other two judges comprising the Full Court, it was the observation of the Judge who was the LVD Judge in this case. In neither of the judgments delivered by the LVD Judge in this case was the Adelaide City Corporation Case cited. If it was referred to him, he obviously did not feel constrained in the decision under appeal by what he had said in the Adelaide City Corporation Case.
Counsel for the appellants advanced an argument based on s 17 of the Act. It will be remembered that s 11(2) requires the Valuer-General to determine, with respect to all land subject to the general valuation, the annual value, the capital value, the site value and the unimproved value of the land “so far as those values are required for the purpose of levying or imposing any rate, tax or impost”. So far as is relevant, s 17 provides:
17 – Valuation on request
(1)The Minister administering any Act or department of Government, or a council may request the Valuer-General to value any land for the purposes of that Act, department or council and the Valuer-General upon receipt of that request must value the land or cause it to be valued as soon as practicable.
(2)The Valuer-General may, at the request of any person, value land or cause it to be valued if the Valuer-General is satisfied that—
(a)    there is no land valuer with the appropriate expertise available to value the land; or
(b)    the cost of obtaining the services of a land valuer to value the land would, in the circumstances of the case, result in genuine hardship; or
(c)    there are other special reasons why the Valuer-General should accede to the request.
(3)A valuation, not made for the purpose of levying or imposing any rate, tax or impost upon land, must not be entered in any valuation roll and the provisions of this Act relating to notice of, and objection and appeal against, valuations do not apply in respect of such a valuation.

It was argued that, while the Valuer-General was constrained to carry out the four valuations for the purpose of levying or imposing any rate, tax or impost, s 17 by contrast recognises that a valuation for other purposes will be treated differently. In conducting a valuation under s 17, it was submitted that the Valuer-General will not be constrained by the definition of capital value, and will make a valuation according to market value, which may more truly reflect the value in the market place.
For the purpose of the argument I assume that the Valuer-General, in exercising the powers under s 17, will not be constrained by the definition of capital value contained in s 5(1). However, that assumption may not necessarily be correct in the light of the definition of “value” also contained in s 5(1). The section provides that, in the Act, unless the contrary intention appears –
[V]alue in relation to land means the annual value, the capital value, the site value and the unimproved value of the land or any one or more of those values; to value means to determine or assess those values or any one or more of them; and determination of value or valuation means a determination or assessment of those values or any one or more of them.
The effect of that definition on the interpretation of s 17 was not argued, and I make no observations on the correctness or otherwise of the assumption. Nevertheless, acting on the assumption, it does not assist the appellants’ argument. The definition of capital value requires a market valuation. The issue in this case is: what is to be valued? That is not assisted by reference to s 17. What is valued under that section, for example, for stamp duty or compulsory acquisition purposes, may well be an estate of fee simple in land subject to a mortgage or charge by way of encumbrance, a leasehold or some other interest in land. That does not assist the interpretation of the definition of capital value in s 5 (1).
9. The proper basis of valuation
It is clear from what I have said so far that, for the purpose of establishing the market value of an estate of fee simple in the land, and thus of establishing the capital value of the land, one is to ignore a burdensome or depreciatory tenancy or one which has a depreciatory effect on the full enjoyment, and hence the value, of an estate of fee simple in the land. Does it follow that a non-commercial but generous lease (to the landlord) is to be taken into account as enhancing the value of the estate in fee simple? In my opinion, it does not.
What is to be valued for the purpose of the definition is an unencumbered estate of fee simple in the land. The use of the indefinite article is significant. The definition does not refer to the estate of fee simple held by the particular owner. As has been demonstrated, for the purpose of the definition the value of an estate in fee simple cannot be diminished because of a particular burdensome lease entered into by the owner or any predecessor in title. But neither can it be enhanced by the owner having entered into a non-arm’s length lease on terms particularly generous to the owner which bear no relation to the terms which could be obtained on the market. Those depreciatory or enhancing factors may affect the market value of the estate of fee simple to that particular owner. Such a value, however, is not in accordance with the requirement of the Act which is to value not the owner’s estate but “an” estate of fee simple in the land. To the extent that the LVD Judge held that capital value will always be the market value of the estate in fee simple, I respectfully disagree with him. A willing but not anxious purchaser[57] may well be prepared to pay a premium above market value if he is purchasing the right to enjoy an unrealistic and artificially high non-market rent.
[57] See Spencer v The Commonwealth (1907) 5 CLR 418, 432, Griffith CJ, 441, Isaacs J.
This approach is consistent with the approach to valuation for rating purposes generally as endorsed by the Privy Council in Broken Hill Proprietary Co Ltd v The Valuer-General.58 Delivering the judgment of the Privy Council Lord Upjohn said:
There can be no doubt as has been held in a number of authorities that the primary object of this Act was to provide a basis for rating, and after much conflict of judicial opinion it is not in dispute that for the purposes of valuing the “improved” and “unimproved” values for rating purposes an artificial hypothesis is to be employed. This is well stated by Sugerman J. in Sydney City Council v. Valuer-General (1956) 1 L.G.R.A. 229, 234:
“Sections 5 and 6 of the Valuation of Land Act are thus an integral part of a system of rating, whose character, in my opinion, postulates a uniform basis of assessment of rates which are payable by a class of ratepayers whose estates or interests permit of considerable variation inter se, that is to say, a basis which has no regard of the quantum or incidents of any particular ratepayer’s estate or interest.
The system is a system of rating, not upon the value of the ratepayer’s estate or interest, but upon the value of the ‘fee simple of the land,’ ascertained by a reference to a hypothetical sale thereof defined in terms which make it independent of the personality of any actual owner for the time being.”
That was stated in relation to the improved value but it was approved and applied to the unimproved value by their Lordships’ Board in Gollan v. Randwick Municipal Council [1961] A.C. 82 by Lord Radcliffe at p.96.[58]
58 [1970] AC 627.
[58] Ibid 638-639.
In most cases the capital value of an estate of fee simple in land will equate to the market value of the estate. The point is that market value is not necessarily the same as the value to a particular vendor or purchaser created by non-market-related factors.
At paragraph 43 of these reasons I referred to what Wells J said in CSR Ltd v The Valuer-General in considering the phrase “an unencumbered estate of fee simple in the land”. [59] In the judgment under appeal the LVD Judge generally agreed with those remarks subject to one qualification, namely that the word “adversely” should be inserted in the passage so that it would read:
In my opinion, these words denote an absolute or pure estate in fee simple in the subject land, free of any private conditions, limitations, restrictive covenants, or other inherent restrictions adversely affecting the estate or the land.[60] [Emphasis added.]
[59] (1977) 17 SASR 446, 450.
[60] (2007) 99 SASR 251, 270-271; [2007] SASC 340, [43].
I disagree with the LVD Judge’s qualification. Just as some circumstances may render a lease an encumbrance, so other circumstances may produce an extraordinary benefit to the landlord, as was the case of the non-arm’s length rental arrangement in TheShell Co of Australia Ltd v City of Melbourne. [61] Such extraordinary benefit would not normally be replicated in the open market. As a matter of valuation judgement, such rent should either be ignored or have little or no weight given to it.
[61] [1997] 2 VR 615.
The Act requires a market valuation of an estate of fee simple, the highest estate in land known to the law, and one which allows the greatest possible lawful exploitation and use of the rights represented by that estate. The valuer must therefore identify the highest and best lawful use of that land. In these cases there was no dispute that, in the case of the Trust Company land, it was by way of renting the premises as an industrial park. In the case of the Perpetual land, it was the renting of the premises as a shopping centre. In both cases the parcels of land were fully developed and improved for their respective highest and best uses. Those uses necessarily involved the letting of the premises at appropriate market rentals. Entering into commercial leases and the generation of rental income was the essence of the exploitation of the highest and best use, in the same way that farming operations might be the highest and best use of agricultural land.
There is nothing in the definition which suggests other than that one takes the land as one finds it at the date of valuation. In the cases at bar, that is as occupied and leased. The process which follows was effectively summarised by McHugh J in Kenny & Good Pty Ltd v MGICA (1992) Ltd:[62]
Value is determined by forming an opinion as to what a willing purchaser will pay and a not unwilling vendor will receive for the property. In determining that value, there must be attributed to the parties a knowledge of all matters that affect its value. Those matters will include the predicted impact of future events as well as the experience of the past and the rates of return on other investments. As Isaacs J pointed out in Spencer v The Commonwealth:
"We must further suppose both to be perfectly acquainted with the land, and cognisant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property." (Emphasis added.)
The market for the property is, therefore, assumed to be an efficient market in which buyers and sellers have access to all currently available information that affects the property.[63] [Citations omitted].
[62] (1999) 199 CLR 413, 436; [1999] HCA 25, [49]-[50].
[63] This passage was cited with approval in the joint judgment of the High Court in Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority (2008) 82 ALJR 489, 500; [2008] HCA 5, [51].
This means that the valuer will not necessarily take existing rents at their face value. He or she will examine them to ensure that they represent reasonable market rents for the premises concerned in the same way as allegedly comparable sales will be examined to identify any unusual conditions which might affect price. Rents may have been negotiated at a time of buoyant market conditions which do not then and are not likely in the foreseeable future to be maintained. Rents may have been fixed at a time when residential development on which, for example, a shopping centre relies was sparse and where the prospect of substantial increase in rents on lease renewals is high. This is not to value operational aspects of the landlord’s business as suggested by counsel for the appellants. It is merely to apply the expertise and judgment of the valuer in assessing what, at the time, a willing purchaser would pay to a vendor willing to sell for a fair price but not desirous to sell the land.
While operational aspects of the landlord’s business are not relevant, it does not follow that land such as this will have a static value regardless of its state of development. In the case of a shopping centre, for example, vacant land may be zoned as appropriate for development as a shopping centre. It will be valued according to that potential taking into account the nature and extent of any likely development, the costs of development, the period of development and likely demand for tenancies. Once fully developed or, to use the language of the Act, improved, the market value of the estate of fee simple will change. It will change again once the premises are fully leased. It may change again according to population growth in the area and the construction of a competing shopping centre. These and other factors are matters on which the valuer will bring his expertise to bear in assessing the market value at any given time. While the actual rental income may properly form the basis of the calculation of market value, the valuer will not be bound by that. He or she will need to be satisfied that the actual rental income to be capitalised accurately reflects current market rentals and that it is not artificially generous or unduly burdensome to the landlord under current market conditions. In that sense the valuer is not determining the capital value according to what the particular owner of the estate of fee simple might be able to obtain in the market for the land in that condition at that time and subject to any generous or burdensome rental conditions. As the valuer is essentially, in cases like the present, valuing the right to future income according to market rates, the actual rentals may require discounting or enhancing according to those perceived future trends.
However, there is nothing in the Act which requires that the valuer undertake the entirely artificial exercise of assuming, for the purposes of the valuation, that the premises are vacant when in fact they are not, and that a letting up period must necessarily be assumed and rent concessions offered in order to induce tenants to take up space in the premises. Nor is it necessary to adopt any of the other alternative assumptions discussed earlier in these reasons other than the first, namely that the hypothetical purchaser purchases the land subject to all existing leases and tenancy agreements.
To decide otherwise is to require the Valuer-General to value some land, for example, a group of owner-occupied residential premises, at market value and to value the same group, if commonly owned and let out to tenants, at something other than market value. It also requires that the valuation process be divorced from reality and proceed in a manner which is quite artificial and unrealistic. That should be avoided unless clearly required by the language of the Act. Such is the case in situations like that which arose in Beiler v Valuer-General,[64] where the Act clearly required the valuation of an estate of fee simple in land which had only ever been and was only ever likely to be the subject of a crown lease. It is also the case where the Act requires the Valuer-General to arrive at a site value or unimproved value of improved land where the land could never be sold in that state. Those are undoubtedly artificial exercises. But they are required by the express words of the Act. There is an artificiality in valuing something which does not exist. That is not the same as applying a non-existent or artificial market value to something which does.
[64] (1980) 23 SASR 385.
10. Conclusion
It follows from what I have said that the LVD Judge was, in my opinion, correct in proceeding in the way he did and on the assumption that the hypothetical purchaser purchases the land subject to all existing leases and tenancy agreements. As there is no complaint as to the figures arrived at by the LVD Judge on that basis, it follows that, in my opinion, both appeals should be dismissed.
ANDERSON J. I agree that both appeals should be dismissed. I agree with the reasons published by Bleby J.