Trustees for the Garrick Smith Family Trust and Neville Smith Family Trust and Ian Smith Family Trust v The Valuer-General; Angus Smith Marine Pty Ltd v The Valuer-General; Phillip Leong Investments Pty Ltd v The..
[1992] QLAC 39
•30 September 1992
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TOWNSVILLE
Re:Appeals against decisions of the Land Court -
Determinations of unimproved value -
Valuation of Land Act
City of Townsville
AV90-260 - Between
Trustees for the Garrick Smith Family Trust and Neville Smith Family Trust and Ian Smith Family
Trust Appellantand The Valuer-General Respondent
AV90-261 - Between
Angus Smith Marine Pty Ltd Appellant
and The Valuer-General Respondent
AV90-263 - Between
Phillip Leong Investments Pty Ltd Appellant
and The Valuer-General Respondent
Judgment of Mr Justice Lee, Mr Barry, President and Mr Wenck, Member.
Delivered this thirtieth day of September, 1992
By consent of the parties these three matters were heard together. They are appeals against determinations of unimproved value made by the Land Court in a decision delivered on 18th October, 1990.
The date on which unimproved value is to be determined is 31st March, 1989. The lands relevant to the appeal are zoned "Tourist Facilities", within Precinct 3 of the relevant Development Control Plan and are situated in South Townsville, all in the Parish of Coonambelah, County of Elphinstone.
Details of the individual appeals are as follows:-AV90-260Lot 11 on RP 726133 - 3581 m2 - Tomlins, Plume and Anthony Streets - Land Court Determination, $1,360,000 ($400/m2 less 5% allowance for foundation problems) - Appellants' valuation $814,500.
AV90-261Part of Lot 488 on Plan No. EP 2213: Pt Reserve No. 183 (Leased from the Townsville Port Authority) - 2118 m2 - Plume and Anthony Streets - Land Court Determination, $796,000 ($400/m2 less 5% allowance for foundation problems, less allowance for drain $6,000 and allowance for filling $2,740) - Appellant's valuation $334,000.
AV90-263Lot 1 on RP 726133 and Lot 1 on RP 727465 - 2777 m2 - Palmer, Dean and Dibbs Streets - Land Court Determination, $1,120,000 ($425/m2 less 5% allowance for foundation problems) - Appellant's valuation $541,500.
The properties to which the appeals refer are located on the south side of Ross Creek, to the east of George Roberts Bridge, in an envelope of land between Palmer Street and the Creek. Zoning within the immediate locality comprises mixtures of "Tourist Facilities" and "Commercial". Some of the land within the envelope is controlled by the Townsville Port Authority. This land includes several formed road carriageways which are not surveyed or consequently dedicated as such.
The dominant feature of the immediate locality is now an 8 storey commercial development, known as "River Quays". It is located with frontage to the Tomlins Street carriageway, adjacent to Ross Creek. The "River Quays" site figures prominently in these matters, as its acquisition prior to the development forms the primary evidence of value in the Valuer-General's basis of valuation.
We are informed that the locality has been the subject of several major redevelopment proposals, particularly in the period from 1985 up to and including 1988, although there is some conflict of opinion as to the redevelopment optimism which existed in the annual period leading up to the relevant date in these matters - 31st March, 1989. The evidence is that, apart from "River Quays", the approval for the development of which was obtained in April, 1988, the only other major developments which eventuated were the multi-storied Southbank Motor Inn on the southern frontage of Palmer Street, construction of which having been completed in 1988, and the Transit Centre at the corner of Palmer and Plume Streets through to McIlwraith Street, eventually completed (after a much earlier commencement date) in 1988.
The valuation conflict which exists between the appellants and the Valuer-General is clearly defined. The appellants' case is that no weight should be placed on the sales evidence basic to the Valuer-General's valuation which they say, ignores the evidence upon which reliance should have been placed.
The Valuer-General's evidence tendered to the Land Court through Mr J F James, District Valuer, comprises the following two sales:-(1)Townsville Port Authority to Wonderland Waterfront Pty Ltd - a site of 1,038 m2 situated in Flinders Street East, zoned "Tourist Facilities", within Precinct 1 of the Development Control Plan, sold 12.8.87 for $750,000 or $722/m2. The following comments are made by the Valuer-General (in the AV90-260 report):
"The land is vacant land on the banks of Ross Creek which has been filled and retained by the Townsville Port Authority to create a level site. The purchasing Company acquired adjoining lands on either side for $1,000,000 and $1,250,000 on 22/6/87 and 30/9/87 respectively.
The land has vehicular side access to Wickham Street and has good access to Ross Creek. The land has potential to acquire a lease over submerged lands in Ross Creek from the Townsville Port Authority.
The sale property is located in a superior precinct, has marine access, and is better located in the Tourist Facility environment. It is smaller in area.
Overall the sale property is superior on a per square metre basis."
(2)Tarca to Jennings Constructions Pty Ltd - Lot 12 on RP 726133 and Lot 612 on Plan EP 1784 - a site of 2,803 m2, zoned, in part, Commercial (Lot 612 of 1,665 m2) and, in part, Tourist Facilities (Lot 12 of 1,138 m2), sold 29.8.88, for $1,975,000. The following comments are made by the Valuer-General (in the AV90-260 report):
"Vacant when purchased, an eight storey office building with shops on the ground floor has been subsequently built. The land has been filled to a level site by the Townsville Port Authority. At time of purchase the purchaser had made enquiries of the Townsville Port Authority to lease part of Tomlins Street (984 m2) and building approval was given on this basis.
The sale property is similarly located with a slightly superior zoning and is smaller in area. Overall the sale property is slightly superior on a per square metre basis."
The learned Member below gave some weight to the first sale, but commented that he did not place complete reliance on it since it was an adjoining owner purchase, had the distinct advantage of direct frontage to Ross Creek and the availability of Townsville Port Authority leases, and enjoyed a much more attractive situation. On the evidence before him, he was not prepared to disregard the second sale, although deciding that a building approval granted prior to the date of sale was an advantage which warranted a more conservative approach to the sale than had been adopted by the Valuer-General.
In the Land Court, these appeals, together with several others relevant to land in the immediately locality, were conducted by Mr G W Eales, registered valuer, licensed real estate agent and the managing director of a real estate firm prominent in Townsville in sales of commercial real estate. Further evidence was adduced through him before us. Counsel for the appellants sought, and was granted, leave to call evidence through Mr P U Gopal, who is employed by the Townsville City Council as Manager for Town Planning Services.
Mr Eales maintained his opinions expressed in the Land Court relative to the sales used by the Valuer-General. In support of his contention that the circumstances surrounding the Wonderland Waterfront Pty Ltd purchase were such as to take it out of the category of reliable open market evidence, an explanatory letter under the hand of a director of one of the companies participating in the transaction, was tendered. The owners of lands adjoining on either side of the sale land had formed a joint venture company which became the purchaser from the Port Authority. The acquisitions of the adjoining lands referred to by the Valuer-General were part of the overall scheme of arrangement "at prices which related solely to the financial and accounting considerations.... which had no relevance at all to the market." Reference was also made to the advantage perceived in the availability and subsequent leasing of a further area of 846 m2 from the Port Authority (the vendor in the transaction).
With regard to the Valuer-General's second sale, which constituted his primary evidence, Mr Eales' enquiries indicated to him that the leasing of the additional area of Port Authority land, a matter important to the Valuer-General's final analysis of that sale, was not a consideration in the initial acquisition by Jennings Constructions Pty Ltd, but a matter of subsequent necessity. Mr Eales held the opinion that the price paid by Jennings was inflated because, not only was there in place at the date of purchase what he saw to be an advantageous building approval, but the sale had been concluded after Jennings had won a tender to provide a substantial floor area of office accommodation for Telecom requirements. The advantage of the building approval was that it involved, in addition to the land subject of the sale, adjoining land (in fact the land in appeal AV90-260 over which an option had been held) and encompassed a development of both commercial and tourist facilities component. The pure commercial component was designed to be contained within the site acquired by Jennings, but with the dual zonings. The development proceeded (although not approved specifically as a staged development) with the office tower component providing the first stage. The tourist facilities component has not been constructed. It is Mr Eales' opinion that the area of Port Authority controlled land, subsequently leased by Jennings, was required to satisfy plot ratio requirements of the Council's Development Control Plan, relative to the first stage of the development.
Mr Gopal's evidence was that any use within the Tourist Facilities zone required Town Planning consent, while in the Commercial zone, there were a number of "as of right" uses. He had specific knowledge of the permit granted to Jennings. He said that the approval involved a composite plan of development for Motel, Tavern, Office Space and Retail Shops which satisfied the mix and intent of both the Commercial and Tourist Facilities zones on an aggregated site within both zones. Mr Gopal confirmed Mr Eales' opinion that the Council permit did not embrace a staged development. He said the Council would not have approved the construction of the pure commercial component on any land solely or even partly within the Tourist Facilities zone.
We note from the record in the hearing below that when Mr James was giving evidence in connection with the Jennings acquisition, reference was made to his enquiries of a Council Town Planning Officer. Mr James drew attention to the wording of the Council permit issued on 20th May, 1988, prior to the date of contract of sale, where references were made to "that area of the site comprising a lease from the Port Authority." It is clear that the potentiality of a lease being granted had been a matter considered by Jennings prior to the purchase. Mr James in his analysis of the sale included the subsequent lease area of 984 m2 as part of the site area, reducing the indicated level of value from $704 per square metre for 2803 m2 to $521 per square metre for 3787 m2. It had been Mr James' understanding that Jennings had expected "to obtain use of the leased area for not a large amount of money" and in his analysis of the sale he "resolved doubts in favour of the land owners in the area." As it happened, the rental eventually charged for the lease was an amount of some significance.
We note that the same approach was not taken by the Valuer-General in the analysis of the Wonderland Waterfront purchase where potential also existed for negotiation of the lease of additional land. We would comment here that it is seen to be against correct principles of valuation that in the analysis of sales evidence, leasehold land be treated as freehold without consideration given to the term of the lease, its conditions and rental payable. It follows that, in our opinion the Tarca/Jennings sale indicated a level of value of $704 per square metre. This level of value was paid for a site with a large component of its area within the Commercial zone. Potential existed for extension of the site area through leasing arrangements, and a building approval which effectively provided pure commercial redevelopment potential was in place at the time of the contract of sale. We would not expect the arrangements relative to pre-letting of part of the proposed building to be an unusual feature of prudent entrepreneurial action in development of investment category real estate. We accept the logic of the comment of Mr Laggeroth, the registered valuer who took over the task of defending the Valuer-General's valuation (on Mr James' retirement from the Department) that it would be imprudent for a purchaser to pass on the fruits of any preliminary negotiations with a potential lessee, to the vendor of redevelopment land. We agree with the Member below that a prudent purchaser may have found the availability of an acceptable approval to be a valuable consideration relative to the preliminary development process, although again, in this case, the preliminary approval was apparently obtained by the purchaser. The advantage was that, as it happened, an effective approval was obtained by Jennings, which on the town planning evidence, would have been possible only with pure Commercial zoning.
The effect of the Commercial zoning content is seen as a compelling reason for treating the Tarca/Jennings sale land as lacking comparability with the subject land. It was Mr Eales' evidence, that the site is capable of being distinguished from other sale sites with Commercial zoning within the Central Business District and which sold at much lower levels of value. It is suggested that the "River Quays" site enjoyed a location offering not only water aspect to Ross Creek but views from upper levels of a building, to the sea - a feature difficult to obtain from other similarly zoned lands in the Central Business District. We have heard from Mr Gopal, that the nearby lands, and those the subject of these appeals, although with generally comparable location, would not receive Council approval for pure commercial development or rezoning to allow such development. Mr Gopal explained that the intent of the Council relative to development of land within the various precincts of the Tourist Facilities zone was as contained within the Development Control Plan as published in the Government Gazette dated 3rd May, 1986. Here the Council's intent for development of land included in Precinct 3 is set out as follows:-"That this precinct should be redeveloped for medium rise and density tourist accommodation, mixed with commercial facilities and attractions. The precinct has interesting views of Ross Creek boat moorings, Castle Hill and the commercial city centre, and easy pedestrian access to the Flinders Mall, and these factors should be capitalised upon.
Substantial redevelopment of old warehouses/factories/workshops and amalgamations of land should occur and a new image and character created. Any historically significant buildings should be relocated and reerected elsewhere. Unlimited scope of styles and appearance are envisaged. Composite buildings comprising shops, restaurants, support services, local recreational facilities and intensive residential accommodation is desired. Land use relationships need careful attention in the vicinity of the boat moorings, motor boat club house and vehicle ferry to Magnetic Island to ensure compatibility.
Pedestrian access to and interconnection along the creek front is a desirable feature of redevelopment of this area."
The evidence indicates to us that the sale land was acquired by Jennings to exploit its commercial potentialities.
In the circumstances, the reference by the Valuer-General to the "slightly superior" (Commercial) zoning in the sale analysis is considered at best, questionable. The task in these matters is to establish the value of land zoned Tourist Facilities - not Commercial. As the Land Appeal Court commented in Intertherm Pty Ltd v. The Crown (1978) 5 QLCR 21 at p. 25:"It is a primary rule of valuation that like should be compared with like and this applies in so far as all relevant factors, including zoning, are concerned. This rule was recognised by the Land Appeal Court in the Amoco Australia Pty Ltd v. The Crown (SL 30455) handed down on 11th May, 1977 ....... . At page 16 of the Judgment it was stated "it is difficult to compare land situated in different zones. It is desirable to avoid such comparison, if possible,".
After consideration of the Valuer-General's evidence of value we are persuaded by the appellants' argument that such evidence does not offer a sound basis of valuation. This leaves for consideration Mr Eales' evidence of value.
As before the Land Court he provided a schedule of eight sales, for the sake of completeness, but relied primarily on one of those sales. While he did gain some comfort from at least one of the remaining transactions, we do not propose to examine that additional evidence. The Member below had found some assistance from a third sale in the schedule and that was of a 1012 m2 site zoned Tourist Facilities in close proximity in Palmer Street, although in a different Development Control Plan Precinct. This relatively small site with water aspect sold on 9th January, 1989 for $413,600, the equivalent of $408.70 per square metre. There is evidence before this Court that the purchase was not an open market transaction in the true sense. Mr Eales had established since the Land Court hearing that the site had been acquired by an adjoining owner for $375,000 in 1988 then later sold at a price which included subsequent costs, the transaction being an arrangement to extinguish an existing loan commitment of the vendor to the purchaser.
The primary evidence adopted by Mr Eales is the sale from Querrin Pty Ltd to Industrial and Commercial Equities Pty Ltd and Ors of a 3523 m2 site with frontage to Palmer Street through to Anthony Street, at the corner of the undedicated Plume Street. This land is zoned Tourist Facilities, is located within Precinct 3 of the Development Control Plan and is in the immediate locality of not only the "River Quays" site but also the appeal lands, although not enjoying the same potential for uninterrupted water aspect. The land was sold (with a structure which was subsequently demolished) on 14th July, 1988 for $775,000. Demolition costs of the structure were an additional $7,000. The sale was accepted by Mr Eales to show a vacant land value of $782,000 which would equate $221.96 per square metre of site area. Mr Eales carried out an exercise of reducing the value to $169 per square metre for what he described as a standard allotment with no extra depth, rear access or corner influence.
It is his evidence that this sale represented an open market, arms-length transaction at a time when there was local knowledge of the "River Quays" proposal, although shortly before the date when the acquisition of that site was concluded. In the Land Court, Mr James accepted that as at its specific date, the Querrin sale represented market value. It was his opinion however, that the subsequent Jennings purchase and development proposal established a new tier in the level of value for this locality. Reference was made to the flurry of applications and development approvals and the promotion of the immediate locality which followed. He had given evidence that a development approval for a residential unit complex had been obtained on the Querrin site subsequent to the purchase. The site had then been placed on contract for $1,800,000. That contract did not proceed.
With regard to Mr James' perception of general optimism in the local market place Mr Eales said that, by the relevant date in this matter, trading difficulties had already been experienced by the two more recent developments, Southbank Motor Inn and the Transit Centre, and there was a feeling amongst market operators that redevelopment of Tourist Facilities zoned land in the locality was not economically feasible. In his opinion subsequent events such as the pilot's dispute and the national economic recession then dramatically worsened the lack of confidence in the overall market.
Mr Laggeroth had not been called upon to consider the market for Tourist Facilities zoned land in the South Townsville area until 1989 and some time subsequent to the relevant date in this matter, but at that time his specific enquiries indicated to him that market optimism in the potential of the area for redevelopment continued into at least the latter half of 1989.
The Land Court Member accepted Mr James' opinion that different market conditions existed at the relevant date as compared to those existing at the date of the Querrin sale. His decision contained the following comment - "Certainly the Tarca to Jennings sale took place at a very much higher level of value than did the Querrin sale, so much so that the sale prices per unit area are totally irreconcilable." We agree with this statement, and after consideration of the treatment of the proposed lease as part of the Jennings sale, the difference becomes even more irreconcilable. With the benefit of the Town Planning evidence and with the knowledge that a similar development to that which occurred on the Jennings land was not possible on the appeal lands, we have decided that weight should be placed on the evidence of the Querrin sale of similarly zoned land with generally similar development potential in preference to the Jennings purchase. We are not convinced however, that the market would not have been later influenced by the then imminent "River Quays" development, together with other development proposals in the locality including the Querrin site itself, under market conditions which we would accept as representing a general air of confidence. This may well have waned to a degree by the relevant date, but we take the view that while the Querrin sale cannot be ignored, events closely subsequent to that sale would logically have had some enhancing effect on the market, no doubt influencing the unachieved asking prices about which we heard. We feel that Mr James endeavoured to provide support for his professional perception of the state of the market by the adjustments he made to the Jennings purchase. We see however, that a better opportunity existed, particularly in view of the revenue gathering purpose of these valuations (which Mr James recognised warranted a conservative approach) for a "bottom up" approach to the Querrin sale rather than the "top down" approach to the two sales which formed the Valuer-General's basis.
There is a suggestion by the appellants that correct relativity of valuations has also been disturbed to some degree by the various decisions made by the Land Court resulting from other appeals against valuations of land in this immediate locality as at the relevant date. We are not persuaded to accept the incorrect
relativity argument and we have decided to deal with these matters before us, on the merits of the sales evidence. We have concluded that the Querrin sale showed an unadjusted level of value of a rounded $220 per square metre, including its various positive and negative features. We accept that some unproved enhancement in that level of value would have logically resulted from activities in the immediate locality, subsequent to the date of that sale and prior to the date relevant in these matters.
We note from the record of the hearing below that the Valuer-General in adopting the Jennings sale, applied a value of $400 per square metre to the Querrin site. In discarding the Valuer-General's sale evidence, but recognising that some enhancement should be found in the level of value indicated by the Querrin sale, we would adopt on the "bottom up" approach a value of $275 per square metre for the Querrin site as at 31st March, 1989. There is then the need to consider the comparability of the appeal lands, particularly in terms of position, relative to water aspect and exposure. We see no reason to disturb the relativity between the valuations of these appeal lands as found by the Member below (after his consideration of the evidence in that regard) or the previously existing relativity of value with the Querrin site.
We will determine the unimproved values of the various appeal lands as set out below. It should be noted that the level of value shown by the Querrin sale and our adjustment to that level would include the negative foundation problem feature, in common with the appeal lands. This allows a direct comparison on a "like with like" basis.
AV90-260
3581 m2 @ $310/m2 adopt $1,110,000
AV90-261
2118 m2 @ $310/m2 $656,580
Less allowance for drain $ 6,000
$650,580
Less allowance for filling $ 2,740
$647,840
Adopt $648,000
AV90-263
2777 m2 @ $330/m2 Adopt $915,000
Appeal AV90-260 is allowed, the determination of the Land Court is set aside and the unimproved value of the land is determined at $1,110,000.
Appeal AV90-261 is allowed, the determination of the Land Court is set aside and the unimproved value of the land is determined at $648,000.
Appeal AV90-263 is allowed, the determination of the Land Court is set aside and the unimproved value of the land is determined at $915,000.
(W.C. Lee) J.
Judge of the Supreme Court.
(D.J. Barry)
President of the Land Court.
(R.E. Wenck)
Member of the Land Court.
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