Tuggeranong Town Centre Pty Ltd v Commissioner for Act Revenue (Administrative Review)
[2010] ACAT 29
•4 June 2010
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
TUGGERANONG TOWN CENTRE PTY LTD v COMMISSIONER FOR ACT REVENUE (Administrative Review) [2010] ACAT 29
AT 43 of 2008
Catchwords: Rates and land tax – determination of unimproved value of shopping centre site in Tuggeranong – comparable sales evidence – adjustments for income earned from existing land use, differences in size, location and date of sale, special benefits and method of sale
Legislation:ACT Civil and Administrative Tribunal Act2008 (ACT) s 9
ACT Civil and Administrative Tribunal (Transitional Provisions) Regulations 2009 (ACT) s 6
Administrative Appeals Tribunal Act 1989 (ACT) s 37, Pt. 4
Rates Act 2004 (ACT) s 6, 10, 14, 70
Rates and Land Tax Act 1926 (ACT) s 5
Taxation Administration Act 1999 (ACT) ss 100, 104
Case law:Brewarrana Pty Ltd v Commissioner of Highways (No. 2)
(1973) 6 SASR 541Commissioner for ACT Revenue v Rosnet Pty Ltd
(1994) 94 ATC 4424Commonwealth v Arklay (1951-1952) 87 CLR 159 at 169-170
Commonwealth Custodial Services Pty Ltd v Valuer General of New South Wales (2006) NSWLEC 400
CPT Custodian Pty Ltd and GT Management Pty Ltd v Valuer General [2009] NSWLEC 1426
Hamilton v DemgoldPty Ltd (1990) 97 ALR 481
Leichhardt Council v RTA (2006) 149 LGERA 439
Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGERA 409
Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111
MLC Properties Pty Ltd and Australian Prime Property Fund Custodian Pty Ltd v Chief Commissioner of State Revenue [1999]
Re: Rosnet Pty Ltd and Commissioner for ACT Revenue
(1995) 95 ATC 2048
Rosnet Pty Ltd v Commissioner for ACT Revenue
(1993) 93 ATC 2107
Spencer v The Commonwealth (1907) 5 CLR 418
Sydney Harbour Foreshore Authority v Walker Corp Pty Ltd (2005) 63 NSWLR 407; 141 LGERA 243
Tuggeranong Town Centre Pty Ltd v Commissioner for ACT Revenue [2008] ACATAAT 22
Valuer General v Fenton Nominees Pty Ltd
(1982) 150 CLR 160
Tribunal:Professor Peta Spender Presidential Member
Ms Louise Donohoe SC Senior Member
Mr Graham Trickett, Member
Date of Orders: 4 June 2010
Date of Reasons for Decision: 4 June 2010
IN THE AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) AT 43 of 2008
BETWEEN: TUGGERANONG TOWN CENTRE
PTY LTD
Applicant
AND: COMMISSIONER FOR ACT REVENUE
Respondent
Tribunal: Professor Peta Spender, Presidential Member
Ms Louise Donohoe, SC Senior Member
Mr Graham Trickett, Member
Date: 4 June 2010
ORDER
The decision under review is set aside and substituted with a decision that the unimproved value of Block 3 Section 1 Division of Greenway as at 1 January 2007 is $36,528, 214.00.
……………………………….
Professor Peta Spender
Presidential Member
REASONS FOR DECISION
1. This is an appeal from a decision of the Respondent to disallow an objection to the determination of the Applicant of the unimproved land value of Block 3 Section 1 Division of Greenway (“the Subject Land”) at 1 January 2007 at $41,500,000.
BACKGROUND
2. The Applicant’s objection, made pursuant to Section 70 of the Rates Act 2004 (ACT) (“the Rates Act”) and Section 100 of the Taxation Administration Act 1999 (ACT) (“the Taxation Administration Act”) was lodged with the Respondent on 14 September 2007.
3. The valuation report prepared by the Australian Valuation Office confirmed the valuation based on market evidence drawn from the following:
the last sale of a shopping centre site in the ACT namely, the sale of the subject site in 1985 which produced $469/sqm; and
bulky goods sales for the Bunnings site in Belconnen ($444/sqm) and the Epicentre in Fyshwick ($658/sqm).
4. The Applicant’s objection was determined pursuant to Section 104 of the Taxation Administration Act. It was disallowed and the Applicant was notified of the decision by letter dated 9 April 2009. An application for review of the Respondent’s decision was filed by the Applicant on 6 May 2008.
JURISDICTION OF THE TRIBUNAL
5. The review was originally sought under Part 4 of the now repealed Administrative Appeals Tribunal Act 1989 (ACT) (“the AAT Act”) but by virtue of Section 6 of the ACT Civil and Administrative Tribunal (Transitional Provisions) Regulations 2009 (ACT) (“the Regulations”) and because a hearing of the matter had not commenced prior to 14 February 2009, it is deemed to be an application for review by the ACT Civil and Administrative Tribunal (“ACAT”) under Section 9 of the ACT Civil and Administrative Tribunal Act 2008 (ACT) (“the ACAT Act”).
REPRESENTATION
6. The Applicant was represented by Mr D Miller, of counsel. The Respondent was represented by Dr J Griffiths, SC and Mr D Mossop, of counsel. A number of documents were tendered in evidence and the Tribunal had before it the Respondent’s statement of reasons for the decision under review and the material required to be lodged with the Tribunal pursuant to Section 37 of the Administrative Appeals Tribunal Act 1989 (“the T documents”). The Tribunal was also greatly assisted by the provision by both parties of lengthy written submissions.
THE EXPERTS
7. Evidence was given on behalf of the Applicant by Mr Jackson. Mr Jackson is a Director of m3property Pty Ltd, Property Strategists. He is a Certified Practising Valuer; Licensed Valuer (WA); Practising Real Estate Valuer (NSW); Registered Valuer (Qld); Fellow of the Australian Property Institute (FAPI); Past Councillor of the Victorian Divisional Council of the API; Member of the Divisional Professional Board of the API; Past Member of the Tax Reform Committee of the PCA and a Member of the Municipal Group of Valuers. He holds an Associate Diploma in Valuations (RMIT) and has had extensive experience in statutory valuations in all the major CBDs throughout Australia, major shopping centres around the country, industrial estates and a number of specialised properties including ski fields, oil refineries, telecommunication facilities and privatised public infrastructure.
8. Mr Watt gave expert evidence on behalf of the Respondent. Mr Watt is a Director
of Lunney Watt and Associates Pty Ltd, Property Valuers and Consultants. He is a
Certified Practising Valuer; Registered Valuer without limitation (NSW) and an
Associate of the Australian Property Institute (AAPI). He holds a Bachelor of
Business (Land Economy) and has had extensive experience in property valuation and
property/asset management, managing a large range of commercial, industrial and
retail property assets with a number of prominent CBD based valuation firms.
9. Both Mr Watt and Mr Jackson were both reliable witnesses. The valuers provided a
joint report to which reference will be made shortly.
STATUTORY PROVISIONS
10. The annual re-determination of the unimproved value of rateable land and for the method of determination is set out in Sections 6 and 10 of the Rates Act. These provisions state as follows:
Section 10 Annual redeterminations:
(1) As soon as practicable after each 1 January, the commissioner must redetermine the unimproved value, as at that date, of each parcel of land rateable on that date.
(2) An annual redetermination of the unimproved value of a parcel of land applies to the parcel for the period—
(a) beginning on 1 July in the calendar year in which the relevant date when the redetermination is made falls; and
(b) ending on 30 June in the next calendar year.
11. Section 14 and the Dictionary to the Rates Act provide that rates are based upon an average of the unimproved value over three years prior to the rating date.
Section 6 Meaning of unimproved value
(1) The unimproved value of a parcel of land held under a lease from the Commonwealth is the capital amount that might be expected to have been offered on the relevant date for the lease of the parcel, assuming that—
(a) the only improvements on or to the parcel were the improvements (if any) by way of clearing, filling, grading, draining, levelling or excavating—
(i) if the Territory or Commonwealth had, before the parcel became rateable as a separate parcel, granted a development lease of land that included the parcel—made by the lessee under that lease or by the Territory or Commonwealth, or the cost of which was met by that lessee or by the Territory or Commonwealth; or
(ii) in any other case—made by the Territory or Commonwealth or the cost of which was met by the Territory or Commonwealth; and
(b) the circumstances that existed on the prescribed date also existed on the relevant date; and
(c) on the relevant date, the lease had an unexpired term of 99 years; and
(d) a nominal rent was payable under the lease for the 99 year term.
(2) The unimproved value of a parcel of land held in fee simple is the capital amount that might be expected to have been offered for the parcel at a genuine sale on the relevant date on the reasonable terms and conditions that a genuine seller would require, assuming that no improvements had been made on or to the parcel.
(3) In this section:
prescribed date, for a parcel of land, means—
(a) for a determination of the unimproved value of the parcel—the date the parcel became rateable; or
(b) for an annual redetermination of the unimproved value of the parcel—the date the redetermination applies; or
(c) for a redetermination of the unimproved value of the parcel under section 11 (Redetermination—error) or section 11A (Redetermination—change of circumstances)—the date the redetermination begins to apply to the parcel.
12. The Applicant submitted that the focus of the notional sale stipulated by Section 6 is on the question of what is the "capital amount that might be expected to have been offered on the relevant date for the lease of the parcel" as vacant land, and having regard to the matters in (b), (c) and (d) of Section 6(1) above.
13. “Relevant date” is defined in the Dictionary to the Rates Act. It provides:
relevant date, for a parcel of land, means a date when a determination of the unimproved value of the parcel is or is to be made.
14. In the present case, the relevant date is 1 January 2007 and the prescribed date is 1 July 2007. The effect of Section 6(1)(b) of the Rates Act is that, although the valuation must be as at 1 January 2007, it must assume that the circumstances existing on 1 July 2007 also existed on 1 January 2007.
15. It was submitted by Dr Griffiths for the Respondent that the focus in Section 6 of the Rates Act is upon what a purchaser would have offered for a lease on a particular date. He submitted that it was in the same terms as Section 5 of the Rates and Land Tax Act 1926 (ACT) which was considered by the Full Court of the Federal Court in Hamilton v Demgold. Wilcox J said:
The formula embodied in s 5(1) — “the capital sum that might be expected to have been offered on the relevant date for the lease of the parcel of land” — is an unusual one. The explanation of that wording, no doubt, is that, in s 5(1) of the Rates and Land Tax Act, the legislature was concerned only with leased Crown land. It wished to put all lessees on an equal footing, whether they were original lessees or not. So the valuer was required to assume a Crown auction at the relevant date. The Commonwealth was to be assumed to be a willing vendor of the right to take the lease. The question is, how much would have been offered at the sale for that entitlement?[1]
[1] (1990) 97 ALR 481 at 494 per Wilcox J.
16. The Respondent submitted that the Tribunal must direct its attention to this statutory test. Dr Griffiths cited the New South Wales decision of Leichhardt Council v RTA[2] where Spigelman CJ said:
[35] Matters of valuation turn in large measure on the precise statutory scheme. These schemes differ from one area of discourse to another. It is always important to commence with the precise words of the statute. There appears to be a tendency to take a judgment about one statutory regime and classify its conclusion as a “valuation principle” which is applied to any process of valuation, no matter how different the statutory regime may be.
[36] The need to determine the value of assets arises in many different legal contexts. It is the context which determines the relevant principles of valuation to be applied. An assumption that there is in existence some abstract body of “valuation principles” applicable in all contexts, irrespective of the statutory scheme or contractual provision, is liable to lead to error. Judgments in one context may prove instructive by way of analogy when dealing with another context. Nevertheless, statutory differences must be borne in mind. The ultimate task must always come back to the application of the principles in the particular context, relevantly in the present case, to a statutory formulation that is expressed to be exhaustive. (See Sydney Harbour Foreshore Authority v Walker Corp Pty Ltd (2005) 63 NSWLR 407; 141 LGERA 243 at [23], [32].)
[2] (2006) 149 LGERA 439 at 447
17. Mr Miller, on behalf of the Applicant, submitted that Demgold was not a case concerned with the subject of how a valuer might or must analyse a comparable sale under the Territory legislation or whether Section 6 of the Rates Act or its equivalents dictated any particular method of analysis of such a comparable sale. He submitted further that Dr Griffith’s approach invited legal error. The Tribunal will return to this point in due course.
APPROACH TO VALUATION
18. The Tribunal’s approach to determining the unimproved value of land in accordance with Section 6 of the Rates Act is in accordance with the observations expressed by the High Court in Commonwealth v Arklay.[3] The High Court observed that, in accordance with the authoritative formulation in Spencer’s case,[4] what was required was:
…"an estimate of the price which would have been agreed upon in a voluntary bargain between a vendor and purchaser each willing to trade but neither of whom was so anxious to do so that he would overlook any ordinary business considerations"… It is simply an analysis of what in all the relevant circumstances would be the price that a willing purchaser would have to pay a vendor willing but not anxious to sell in order to obtain the land. Where land has no special suitability for some business or activity carried on by the owner and has no added potential value if put to some better use, the value on a free market is usually its market value. The best evidence of this value is that of comparable sales of other land either before or after the date of acquisition but this evidence is often not available.[5]
[3] (1951-1952) 87 CLR 159
[4] Spencer v The Commonwealth (1907) 5 CLR 418
[5] (1951-1952) 87 CLR 159 at 169-170
19. It is a well recognised principle that the land must be valued on the basis that the hypothetical purchaser is purchasing the land for the purpose of its highest and best use.[6] The principle of “highest and best use” has been described by the High Court as “the most advantageous purpose for which [the land] was adapted”.[7] Both valuers have proceeded on the assumption that the highest and best use of the Subject Land as at the 1 January 2007 valuation date was a major regional shopping centre.
[6] Commonwealth Custodial Services Pty Ltd v Valuer General of New South Wales (2006) NSWLEC 400 at [14] per Biscoe J
[7] Spencer v The Commonwealth (1907) 5 CLR 418 at 441 per Isaacs J
20. The conventional valuation method utilises comparable sales evidence i.e. sales evidence of other properties directly comparable to the subject land. Adjustments are ordinarily made so as to render the other sites comparable. Minor adjustments are permissible to take into account points of difference between the evidence and the subject land in order to render the sales comparable. Comparable sales need to be adjusted to reflect differences in size, location timing of sales, etc.
21. The question of whether a sale of land is sufficiently comparable to provide a reliable basis for a determination of value is essentially a question of fact to be assessed by the expert valuer.[8] Any adjustments which must be made to the information derived from the analysis of the sales evidence applicable to the subject land are matters for expert opinion.[9]
In Brewarrana Pty Ltd v Commissioner of Highways (No 2) (“Brewarrana”) Wells J said:
Before using any allegedly comparable sale, therefore, the valuer must consider whether, having regard to the circumstances (using that word in its broadest sense) appertaining to the parcel of land in question, and to the transaction of sale, there are sufficient similarities to the circumstances appertaining to the subject land and to the notional sale presupposed by the test formulated in Spencer v. The Commonwealth of Australia and in later cases to warrant a court's reasoning from the sale price paid under the allegedly comparable sale, with or without other evidence, to a value for the subject land.
… It is, in my view, all a matter of degree: some adjustment is always necessary; too much adjustment will render it unsafe to use a sale, subject to such a degree of adjustment, for the purpose of the reasoning process in the comparable sales method. Just where the line is to be drawn is, it seems to me, the very sort of question that is fit for the expert valuer to determine; the assessment of the risks of adjustment is peculiarly within his sphere of skill.[10]
[8] Brewarrana Pty Ltd v Commissioner of Highways (No. 2) (1973) 6 SASR 541 at 550-551
[9] Brewarrana Pty Ltd v Commissioner of Highways (No. 2) (1973) 6 SASR 541 at 545
[10] Brewarrana Pty Ltd v Commissioner of Highways (No. 2) (1973) 6 SASR 541 at 550-551.
22. The adjustments that might properly be made to derive the value of land are a matter of judgment.[11] Often the lands which are relied upon as the subject of alleged comparable sales are in some way different from the land to be valued, giving the latter land a higher or lower value than the alleged comparable sales.[12] As stated above, it is well recognised that sales are often adjusted for location, size, and the time of sale.
[12] Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGERA 409 at 434
23. However, the integrity of the use of an alleged comparable sale, which it is argued can be adjusted to derive the value of a subject site, must depend upon the alleged comparable sale having some features in common with the subject site and it being appropriate to use that sale as a base for the making of adjustments to allow for difference between the two properties.[13] Further, whether the differences between an alleged comparable sale and the subject site is so great that the sale cannot be regarded as comparable is a question of fact and degree. As stated by Hope JA in Leichhardt:
The differences may be so great that a court may be constrained to hold that the land is in no sense comparable and that adjustments which have to be made are so great that the sale can provide no evidence of the value to be determined, and no basis upon which that value can be assessed.[14]
[13][14] Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGERA 409 at 435.
24. The exercise of comparability is plainly an exercise in comparing “like with like”.[15] More recently, the High Court observed in Maurici v Chief Commissioner of State Revenue “that sales to be treated as comparable sales need to be truly comparable”. [16]
AGREED AND DISAGREED MATTERS
[15] See Valuer General v Fenton Nominees Pty Ltd (1982) 150 CLR 160
[16] (2003) 212 CLR 111 at [18]
25. Mr Jackson and Mr Watt provided a joint report, dated 5 June 2009. They agreed upon the following matters:
(a) The subject land ("land") is Block 3, Section 1, Greenway;
(b) The land area is 81,280m2;
(c)As at the relevant date of 1 January 2007, the land had planning permission for the following uses:
i.not more than three (3) supermarkets to a maximum gross lettable floor area of 10,823m2, with each supermarket having a minimum gross lettable floor area. of 1,300m2;
ii.not more than three (3) major department stores to a maximum gross lettable floor area of 28,991 m2 with each store having a minimum gross lettable floor area of 7,000m2 but excluding a supermarket;
iii.not more than four (4) minor department stores to a maximum gross lettable floor area of 4,857m2, with each store having a minimum gross lettable floor area of 620m2 but excluding a supermarket;
iv.shops (excluding supermarkets and department stores).
v.financial establishments
vi.business agencies.
vii.health facilities.
viii.take away food establishments
ix.restaurants
x.eating and drinking establishments
xi.public agencies
xii.offices
xiii.indoor entertainment facility (limited to amusement arcade)
xiv.indoor recreation facility (limited to gymnasium and fitness
centres)
xv.childcare centre; and
xvi.a cinema complex consisting of no more than eight (8)
cinemas, with a maximum gross lettable floor area of 4,851m2 having a maximum seating capacity of 1,979 seats.
PROVIDED ALWAYS THAT the maximum combined gross lettable floor area for the uses (iv) to (xv) do not exceed 20,474m2 and each individual occupancy shall not exceed a maximum gross lettable floor area of 685m2 EXCEPT THAT 1,650m2 of the above gross lettable floor area shall only be used for the purposes of financial establishments, business agencies, health facilities, restaurants, eating and drinking establishments, public agencies, offices, indoor entertainment facilities (limited to amusements arcade ) and indoor recreation facility (limited to gymnasium and fitness centres).
(d)The permissible Gross Lettable Floor Area (GLFA) is 70,142m2 (nominated in the Crown Lease).
(e)The permissible Gross Floor Area (GFA) is 86,840m2 (nominated in the Crown Lease).
(f) The permissible car parking is 2,228 car bays.
(g)The land is zoned as Town Centres (Commercial B) as administered by the Territory Plan.
(h)The land is predominately within "Precinct A-Retail Core" with a component within "Precinct D-Car Parking Area".
METHOD OF VALUATION
(i)Both consultant valuers assessed the Unimproved Value (in accordance with section 6 of the Rates Act 2004) by the comparable sales (direct comparison) method.
(j)The valuers did not undertake a secondary hypothetical development valuation exercise.
(k)The valuation method agreed was one of direct comparison of comparable sales evidence adjusted for comparison to the Subject Land. The valuers agreed that in comparing sales to the Subject Land, the use or purpose clause in the Crown Lease was to be considered.
HIGHEST AND BEST USE
(l)The valuers agreed that a Major Regional Shopping Centre consistent with the purpose clause in the Crown Lease was the highest and best use of the land as at the relevant date of 1 January 2007.
(m)As at that date, there was erected on the subject land a Major Regional Shopping Centre of approximately 69,565m2 of Gross Lettable Floor Area (GLFA). That centre was originally constructed in 1987. It had been extended since, most recently in 2006.
AGREED COMPARABLE SALE – THE BELCONNEN LAND
(n)There was one agreed sale of land suitable for Major Regional Shopping Centre Development that the valuers agreed should be analysed for comparable sales comparison purposes. It was the sale of the land adjoining the existing Belconnen Regional Shopping Centre. Mr Jackson calls this land “Block 21 Section 52” in his report. Mr Watt calls it “Blocks 29, 7 & 28 Section 52”. Despite that, they agreed they were referring to the same land, commonly regarded as “the Belconnen Land”.
GFA AND GLFA
(o)The valuers agree that retail shopping centres were generally leased on their GLFA, whereas traditionally bulky goods retail premises are leased on their GFA.
AGREED DEFINITIONS
(p) The valuers agreed[17] that a "major regional shopping centre" was a retail development comprising major (e.g., Myer or David Jones), mini major (e.g., Target, K-Mart, Big W) and specialty tenancies of varying size generally situated within an enclosed mall with common area walkways and amenities together with associated carparking. The fitout of the tenancies is generally of a high standard.
[17] Valuers’ Joint Report dated 5 June 2009 (Exhibit A4) at [17]-[21]
(q)They also agree that a "traditional bulky goods" retail development is a freestanding or collection of tenancies of a large area utilised for the sale of hardware, furniture and other goods of a household nature. Associated carparking to the development is provided and amenities are often provided. The fitout of the tenancies is minimal where situated in warehouse style premises.
(r)A direct factory outlet or "DFO outlet" was agreed as being "a combination of retail outlets which commonly offer a range of goods generally of a stock run out or seconds nature not sold in their traditional outlets in retail shopping centres. Associated carparking to the development is provided. Amenities are often provided. The fitout of premises comprises basic shopfronts with minimal mall finishes.”
(s)The valuers also agreed that when comparing either a traditional or modern bulky goods retail site to a shopping centre retail site, factors such as the lettable area of the development (GLFA or GFA), rent able to be achieved, construction cost and provision of carparking were all matters that would need to be considered.
MATTERS OF DISAGREEMENT BETWEEN THE VALUERS
26. The valuers had different valuations for the unimproved value of the land at the relevant date. Mr Jackson's analysis of comparable retail land sales led him to determine that the unimproved value of the land at the relevant date was $26,000,000. Mr Watt’s analysis of comparable retail land sales led him to determine that the unimproved value of the land at the relevant date was $51,000,000.
THE UNIMPROVED LAND VALUE ASSESSMENTS BY THE RESPONDENT
27. The assessed unimproved land value of the land had, in the three-years leading up to 1 January 2007, been as follows:
·1 January 2004 — assessed at $17,600,000
·1 January 2005 — assessed at $20,000,000 (an increase of 13.64%)
·1 January 2006 — assessed at $39,500,000 (an increase of 97.5%) However, this assessment was set aside by the Administrative Appeals Tribunal which substituted an assessment of $25,000,000
·1 January 2007 assessed at $41,500,000, being the figure which is the subject of appeal in these proceedings. This assessment represents an increase of 66% from the figure determined for the previous year by the Tribunal.
THE APPLICANT’S AND RESPONDENT’S COMPARABLE SALES
28. Mr Jackson relied upon four sales as indicating the unimproved value of the Subject Land which he calculated to be $26,000,000. Those sales are listed in the following table:[18]
[18] Exhibit A4 at p5
| Address | Sale Date | Sale price | GFA | Analysis |
| Westfield Belconnen | Nov-07 | $17,000,000 (incl works & excl GST) | 27,094 m2 | $450/m2 GFA & $450/m2 GLA |
| Coles Development | May -03 | $4,344,350 (incl works & excl GST) | 28,320 m2 18,670 m2 (Retail only) | $153/m2 GFA (overall) $233/m2 GFA |
| Big W Development | May -03 | $6,186,840 (incl works & excl GST) | 30,870 m2 23,820 m2 (Retail only) | $200/m2 GFA (overall) $230/m2 GFA |
| Aldi Development | May-03 | $2,309,657 (incl works & excl GST) | 16,395 m2 5,620 m2 (Retail only) | $141/m2 GFA (overall) $220/m2 GFA |
29. Mr Watt relied upon four sales as indicating the unimproved value of the subject land which he calculated to be $51, 000,000. Those sales are listed in the following table[19] though the analysis rates $/m2 GFA are expressed before adjustments for comparison to the Subject Land.
[19] Exhibit A4 at p5
| Address | Sale Date | Sale Price | GFA | Analysis |
| London Circuit | Dec-07 | $92,000,000 | 128,000 m2 (Est Max GFA) | $719/m2 GFA |
| Epicentre | Dec-05 | $39,000,000 | 60,000 m2 (Max GFA) | $614/m2 GFA |
| Joynton Smith Drive | Nov-07 | $17,000,000 | 33,800 m2 (adduced GFA) | $503/m2 GFA |
| Tuggeranong | Dec-85 | $21,500,000 | 45,000 m2 (Max GFA) | $478/m2 GFA |
COMPARABLE SALES USED BY THE VALUERS
The Gungahlin Sites
30. Three of the four sites relied upon by Mr Jackson[20] are in Gungahlin. The sales of the sites were completed by 2003 when the population of Gungahlin was approximately 25,800. At that time Tuggeranong had a population of approximately 90,500. The current catchment for the Gungahlin Town Centre is approximately 36,000. That contrasts with the catchment for the Tuggeranong Town Centre which is approximately 87,500.[21] The Tribunal notes the opinion of the Australian Valuation Office that:
These sales are of historic interest but do not give an accurate picture of the level of
market value in Tuggeranong, a fully developed Town Centre with a population of some 90,000, as at the much later valuation date of 1 January 2007.[22]
The Tribunal has concluded that the sites in the Gungahlin Town Centre will have a significantly lower value than those in the Tuggeranong Town Centre because at the time of the relevant sales Gungahlin was newly developed and did not have the potential consumer catchment provided by Tuggeranong.
[20] Exhibit A4 at [29]
[21] Respondent’s Submission of 5 August 2009 at [92]
[22] Document T51
31. At the time of the sales, these sites were virtually greenfield locations, without any major office developments nor significant public sector office population within the Gungahlin Town Centre as there were in the Tuggeranong Town Centre on the valuation date.
32. The Subject Land is a Major Regional Shopping Centre in a town centre, whereas two of the Gungahlin sites are classified as Sub Regional Shopping Centres with one of these being classified as a Neighbourhood Shopping Centre with a GLFA of 8,575 m². The retail structure of Gungahlin is significantly different to Tuggeranong. Gungahlin involves street-based retail development with four smaller competing developments each anchored by a major tenancy. There are no major department stores and fewer specialties than the major regional shopping centres.
33. Moreover, the sale of the three Gungahlin sites occurred at the time that the Territory government was seeking developers for the Gungahlin Town Centre. There was a strong desire for the part of the Territory government to encourage retail development to accede to the needs of the residents of Gungahlin who had no sizeable shopping services. Further, each of the sales involved other types of non-comparable residential and commercial development.
34. The Tribunal concludes that there are insufficient similarities between the Gungahlin sites and the Subject Land to regard the Gungahlin sales as comparable. Although Mr Jackson invited the Tribunal to use the Gungahlin sites as comparable sales by making adjustments, following the reasoning of Wells J in Brewarrana, the Tribunal considers that the adjustments are of such a degree as to make it unsafe to use the Gungahlin sites as comparable sales.
35. The Tribunal does not consider that the Gungahlin sales are sufficiently comparable to justify any weight being given to them.
The London Circuit, Canberra City Sale
36. The Tribunal does not consider the sale of London Circuit, Canberra City (Block 19 Section 63) to be comparable. On Mr Watt’s evidence,[23] retailing may be placed on only 7% of the site. The London Circuit site also allowed a generous mixed use development (minimum 40,000 m² commercial and maximum 10,000 m² retail)[24] therefore it had other development possibilities such as for office accommodation or as a hotel tourist facility. Therefore, the subject matter of the London Circuit sale is not a sale of vacant land with the highest and best use for development as a regional shopping centre. The Tribunal accepts the evidence of Mr Jackson that the major focus of the development on the London Circuit site is commercial office of a relatively high rise nature. In comparison, the Subject Land is a retail site in a town centre locality and therefore the London Circuit sale should not be considered a like-for-like comparison.[25]
The Epicentre Sale
[23] Transcript of 5 August 2009 at pp 326-327
[24] Exhibit R1 at p 24
[25] Exhibit A4 p 6 at [32]
37. Similarly, the Epicentre site (Block 8 Section 48) is not comparable to the Subject Land. The Epicentre site is zoned Industrial, Precinct “b” (Retail, Warehouse and Commercial Services).[26] The site is a bulky goods/factory outlet shopping centre with a potential GLFA of 48,000sqm located in an industrial zoned area and is limited in its type of retail development compared to the Subject Land. Mr Watt considered that adjustments could be made to the Epicentre site for the time of sale, property size and location. The valuers agreed that the construction and fit out costs of a major regional shopping centre are generally higher than a bulky goods development or a direct factory outlet. Major retail shopping centres are generally situated within an enclosed mall and require greater provision for common area walkways and amenities with a corresponding reduction of GFA that is lettable. The fitout of the tenancies is also generally of a higher standard.[27] The Tribunal therefore considers that the zoning of the Epicentre site is significantly different to the notional sale such as to render the Epicentre sale not comparable.
[26] Exhibit R1 p 25
[27] In this respect the Tribunal agrees with the analysis of the Administrative Appeals Tribunal in Tuggeranong Town Centre Pty Ltd v Commissioner for ACT Revenue [2008] ACATAAT 22 at [42].
38. The Epicentre site was sold at public auction in December 2005 and was therefore an auction sale close to the relevant date of January 2007. The parties made submissions to the Tribunal regarding the circumstances of the Epicentre sale. The Applicant argued that the nature of the sale rendered it unreliable as a comparable sale due to the desire of the purchaser to break a monopoly in the market for factory outlet retailing at the Canberra Airport (the owner of which was a competitive bidder at the auction). The AAT came to the same conclusion in its 2008 decision, stating that “the circumstances surrounding the sale suggest that caution needs to be taken in relying upon it as evidence of the unimproved value of the subject land”.[28]
[28] Tuggeranong Town Centre Pty Ltd v Commissioner for ACT Revenue [2008] ACATAAT 22 at [47].
39. The Respondent argued that the 2008 AAT decision was not correct as it failed to give appropriate weight to the competitive nature of the Epicentre auction process and the fact that a DFO bulky goods site was likely to be less valuable than a fully retail regional shopping centre site though it would be of greater value than a bulky goods only site. The Respondent also contended that the ratio of GLFA to GFA is similar to that achievable in a traditional shopping centre and the furnishing and finishes in the Epicentre premises have a similar look to those of a traditional mall. In this respect, the Respondent relied upon photographs of the Epicentre site to illustrate this point.[29]
[29] Exhibit A1 and Exhibit R3
40. The Tribunal considers that the differences in the zoning of the notional sale and the Epicentre site are sufficiently significant to render the Epicentre sale unreliable. It is not necessary for the Tribunal to deliberate upon the circumstances of the public auction conducted in December 2005, except to note that both the Canberra City and the Epicentre sites were sold for more than their presale valuations. We consider that these two sales are possibly best seen as examples of open market sales around the time of the valuation of the Subject Land.
The Tuggeranong 1985 Sale
41. Mr Watt, on behalf of the Respondent, opined that the 1985 sale of the Subject Land was comparable to the notional sale. In his Statement of Evidence,[30] Mr Watt stated that this was the last sale in Canberra of land with the lease permitting the new development of a regional (or larger) shopping centre. Other more recent sales (including Belconnen) have been for extensions to existing centres. Conversely, Mr Jackson opined that no weight should be placed on the historic sale transaction. He commented in the joint report [31] that he is not aware (as a valuer with over 20 years experience throughout Australia) of any valuer who has adopted a sale as being comparable which is 21 years old. At the time of the sale the site was 6.193 ha and permitted a maximum GFA of 45,000 m².
[30] Exhibit R1 at p 27
[31] Exhibit A4 at [49]
42. Mr Watt responded that although he was aware that the sale was dated, it was to be used as a “sanity check”. He stated in his Statement of Evidence [32] that since 1985 the value of retail assets has increased significantly (more than doubling in some instances) and this is a reflection of some 21 years of increasing rentals, firming capitalisation rates, improving property values and growth of the Tuggeranong district and of Canberra overall. To substantiate this claim, the Respondent relied upon a 2008 publication by Urbis, Shopping Centre Investment Review,[33] which at page 4 Figure 1 examines a comparison of 10 year bond rates, IRR margin and actual total return of regional shopping centres. The Tribunal considers that evidence presented by the Urbis report is equivocal. The comparison made at Figure 1 commences in 1987 which is two years after the alleged comparable sale. Moreover, the Tribunal does not consider that the Urbis report supports the proposition made by Mr Watt. For example, it states on page 4 that “[e]conomic growth in 1987 was moderately higher as compared to today however fell rapidly in the ensuing years as the downturn reined in economic expansion.”
[32] Exhibit R1 at p 27
[33] Urbis, Shopping Centre Investment Review March 2008 (Exhibit R5) at page 4, Figure 1
43. The AAT concluded in its 2008 decision that “no reliance should be placed on the sale” due to the age of the sale.[34] The present Tribunal concurs with this view.
The Belconnen Sale
[34] Tuggeranong Town Centre Pty Ltd v Commissioner for Revenue [2008] ACATAAT 22 at [53].
44. This sale was a directly negotiated transaction between the Land Development Agency (LDA) and Westfield/PT Limited in November 2007. Mr Jackson called this land “Block 21 Section 52” in his Statement of Evidence whereas Mr Watt called it “Blocks 29, 7 & 28 Section 52”. Despite that, they agreed they were referring to the same land, which adjoined the existing Westfield Belconnen Regional Shopping Centre and is commonly regarded as “the Belconnen Land”. Both Mr Jackson and Mr Watt agreed that the sale price was $17 million and the GLFA is 27,094 sqm, though Mr Jackson refers to it as “Retail GFA” instead of GLFA. The Project Development Agreement (PDA) required the payment of $13.5 million, as well as completion of infrastructure works (a public transport facility and an upgrade Benjamin Way) at an agreed cost of $3.5 million, making a total of $17 million. The sale price of $17 million translates to a figure of $627 per m² GFA and GLFA. At the time of the sale the site housed an open air public car park with approximately 887 spaces.[35] Both Mr Jackson and Mr Watt identified this sale as a comparable sale.
[35] Exhibit A4 at [44]
45. The Tribunal accepts that the sale of this site is the most comparable to the notional sale and is the best site on which to base an adjusted value for comparison. However, there was a difference between the experts as regards the purchase price of the Belconnen land and appropriate adjustments that are required to make the Belconnen land comparable to the Subject Land.
The Purchase Price of the Belconnen Land
Was the purchase price $17 million or $12.2 million?
46. The Applicant argued that the sale price of the Belconnen site should be reduced by approximately $4.8 million because there is an amount to be attributed to car parking income by the LDA. At the time of the sale of the Belconnen site the car park returned gross income to the LDA of between $523,000 and $750,000 per annum. The capitalised value of the income stream is approximately $4.8 million. Mr Jackson concluded that the analysed sale price was $12.2 million because the capitalised value of the income stream needed to be deducted from the sale price of $17 million of GFA and infrastructure contributions.
47. The Respondent attacked this approach on various grounds. First, it was argued that the income relied upon by Mr Jackson as generated from car parking at the Belconnen site was not accurate because it was a gross figure rather than a net figure and is not for the relevant year.[36] The Respondent argued that the use of that figure was liable to mislead because it is based on 1900 car parking spaces as opposed to 800 spaces in a government run commuter car park. The net income from car parking in the existing Belconnen Centre in 2006 was $146,000 and in 2007 was $232,000.[37] Although in determining the capital amount that it would offer for the lease of the parcel Westfield would have regard to all income streams that could generate from the development of a shopping centre on the land, the potential revenue from the shopping centre car park was a very minor component.[38]
[36] Transcript 164.40 - 166
[37] Exhibit R4, Transcript 231
[38] Less than 1%, see Transcript 232
48. The Respondent tendered into evidence a substantial portion of the correspondence between the LDA and Westfield prior to the sale and some of Westfield’s internal documentation which had been produced by Westfield on subpoena. In these documents there is no reference to Westfield's valuation being affected by the potential income stream from car parking. In its submissions filed on 17 September 2009, the Respondent pointed to the following letters as evidencing Westfield’s interest in purchasing development rights for additional shopping centre GFA as opposed to operating a public car park as an independent use of the land.[39]
[39] Respondent's Submissions dated 17 September 2009 at [46]
(a) 28 June 2005: Letter from Westfield seeking "Development rights for an
additional 25,000sq.m of retail area";[40][40] Exhibit R2:6(15)
(b) 29 August 2005: Letter from Westfield "As previously outlined in our
earlier proposal this offer includes: ... Development rights for an
additional 25,000sq.m of retail area";[41][41] Exhibit R2:6(17)
(c) 1 November 2005: Letter from Westfield "It is important to restate that
Westfield's interest remains in securing 25,000sq.m of retail leasable
area";[42][42] Exhibit R2:6(22)
(d) 16 November 2005 Letter from Westfield "I refer to your letter to our
previous correspondence which outlined the estimated GFA derived
from Westfield's requirement for the development rights to 25,000sq.m.
Our plans indicate that the estimated GFA to complete our proposed
redevelopment is approximately 35,000sq.m";[43][43] Exhibit R2:6(23)
(e) 17 November 2005: Fax from LDA to Westfield "... we wish to confirm
that the matrix below represents the quantum of GFA being sought by
Westfield for the redevelopment of Westfield Belconnen";[44][44] Exhibit R2:6(24)
(f) 6 December 2005: Letter from Westfield to LDA listing agreed matters
"Development Rights: 35,000 of Gross Floor Area and a minimum of
25,000sq.m of Gross Leasable Area";[45][45] Exhibit R2:6(25)
(g) 27 March 2006: Letter from Westfield "It was understood by both the
LDA and Westfield that agreement had been reached on the costs of
acquiring 25,000 sq.m of GFA ... ";[46](h) Letter of 10 April 2006 identifies in the table "Retail GFA Required (net)
... 27,094 sq.m") and concludes, importantly, "We would now seek advice from the Territory of the value of the GFA sought by Westfield at your earliest convenience";[47](i) The undated internal file note of Westfield.[48]
[46] Exhibit R2:6(27)
[47] Exhibit R2:6(29);
[48] Exhibit R2:6(34)
49. The Tribunal concludes that this correspondence and the undated internal file note support the Respondent's contention that Westfield did consider itself to be purchasing development rights for additional GFA. The Respondent placed particular importance upon the undated internal file note or memorandum from Westfield[49] which appears to set forth the internal decision-making of Westfield regarding valuation of the Belconnen land. This document makes no express reference to car parking and the Tribunal relies upon the full sequence of the correspondence between the LDA and Westfield tendered into evidence as Exhibit R2 as verifying Westfield's intention rather than this document in isolation. However, the Tribunal notes that in this document on page 2, Westfield calculated the rate/m² of GFA as $627, which is consistent with Mr Watt's figure rather than the reduced figure of $450 put by Mr Jackson.
[49] Exhibit R2:6(34)
50. The Respondent also contended that an analysis which subtracted the car park income from the sale price of the Belconnen land focused upon the vendor’s use of the land rather than the notional sale for the highest and best use required under Section 6 of the Rates Act. Moreover, it is very likely that if Westfield operated the car park, it would do so as a shopping centre car park where the first three hours are free, as is the case that at present, rather than a commercial commuter car park.[50]
[50] Transcript 112 -- 113
51. The Tribunal considers that the evidence establishes that Westfield valued the transaction on the basis of development rights that it could be achieved by an extended major regional shopping centre with some supporting car parking income that would be derived incidentally to the greater income to be derived from retail shop rents. Because the subject matter of the transaction was development rights rather than income from car parking, the Tribunal considers that capitalised value of the income stream from the car parking should not be subtracted from the sale price of $17 million.
Adjustments to the Belconnen Sale
52. The experts agreed that some adjustments were required to make the Belconnen sale comparable to the notional sale. They both agreed that there should be a -5% adjustment for time as between the Belconnen sale and the notional sale. In relation to the adjustment for size, Mr Watt considered that the Belconnen sale should be adjusted by a factor of -10%. Mr Jackson considered that a -15% adjustment was appropriate. The Tribunal considers that a -12% adjustment sufficiently accommodates the views of both experts.
Adjustment for Location
53. The Tribunal considers there should be no adjustment for location. Mr Jackson, on behalf of the Applicant, argued that Belconnen is a superior retail location in comparison to Tuggeranong. In his Statement of Evidence,[51] Mr Jackson stated that Belconnen enjoys a superior catchment and demographic profile in a well established retail locality of Canberra. However, Mr Watt provided a detailed analysis of the census data for Tuggeranong and Belconnen for 2001 and 2006.[52] The data establishes that the Tuggeranong district has comparable demographic indices in terms of household income and housing costs to the Belconnen district in both the 2001 and 2006 censuses. Mr Watt also considered the projected populations of Tuggeranong and Belconnen and referred to a report authored by the Chief Minister’s Department on this subject in 2004.[53] Based on the projections in that report, he concluded that the Tuggeranong district will maintain strong population levels over the short to medium term and will only be surpassed by Belconnen following the eventual development of the Lawson suburb some time beyond 2011. The basis of demographics alone, the Tribunal does not consider that Mr Jackson's argument that Belconnen has a superior catchment is substantiated.
[51] Exhibit A3 at Annexure 4 p 2
[52] Exhibit R1 at pp 15-17
[53] Chief Minister's Department, Population Projections for Canberra Suburbs and Districts 2004 to 2014, referred to in Exhibit R1 at p16
54. However, the Applicant argued that the Tribunal should also take into account the Moving Annual Turnover (MAT) of the Belconnen and Tuggeranong shopping centres. MAT is the total sales of a shopping centre for a 12 month period calculated on a monthly rolling basis. In his Statement of Evidence, Mr Jackson referred to both the total turnover MAT and the specialty tenancy MAT.[54] When MAT is taken into account, the Applicant argued that it can be established that Belconnen is clearly a superior performing retail locality. Hence, Mr Jackson concluded in his Statement of Evidence that:
Assuming the land were vacant at both Belconnen and Tuggeranong with a potential to construct a new regional shopping centre on each site, I would expect the same differential trading performance between the two locations to prevail.[55]
[54] Exhibit A3 at Annexure 4 p 2
[55] Exhibit A3 at Annexure 4 p 2
55. The Respondent argued that this adjustment is based on the existing performance of the Tuggeranong shopping centre and assumes that the performance of a new centre on the site would reflect the same differential trading results. The Respondent also argued that, for the purposes of Section 6 of the Rates Act, it is necessary, as a matter of law, to disregard the existing development on the Subject Land. The Respondent stated that one needs to look at what an incoming purchaser could achieve on the site by building a new shopping centre, thereby achieving the highest and best use of the land. The existing development at Tuggeranong does not necessarily achieve the highest and best use of the Subject Land. The Respondent further contended that the detailed analysis of the demographics of Belconnen and Tuggeranong undertaken by Mr Watts is a more reliable indicator of the matters to which the hypothetical purchaser of the Tuggeranong land would have regard. These indicate very similar levels of income[56] and similar characteristics in terms of stability of population.[57] Similarly, the Respondent submitted that an analysis of retail floor space by a potential purchaser would "note the immediate and strong potential of the subject land in this under-resourced well profiled demographic catchment".[58] The Respondent therefore contended that the underlying demographics of the catchment indicate that Tuggeranong provides a very similar catchment to Belconnen for a hypothetical developer of a major regional shopping centre on the Subject Land. Consequently, there is no reliable basis for factoring in a significant downward adjustment in the value of the land.
[56] Exhibit R1 at p 15
[57] Exhibit R1 at [48] - [55]
[58] Exhibit R1 at [68]
56. The Applicant argued that adjustments are questions of fact[59] and invited the Tribunal to consider a “competitive contextual analysis” provided by the draft 1995 Dimasi report[60] which revealed significant competition for the Tuggeranong catchment from the Woden shopping centre, as well as supporting the MAT figures as a reliable method for comparison. However, the Dimasi report shows that Woden competes with Tuggeranong in the secondary north sector but that Tuggeranong's market share is higher in the secondary south and tertiary east sectors, incorporating Queanbeyan.[61] The report also states that Tuggeranong’s share of the primary sector is about 17.5% which is in line with regional shopping centres of about 15 to 20%. Importantly, 66% of Tuggeranong's sales are generated from the primary sector.[62]
[59] Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGERA 409 at 434 -435
[60] Exhibit A10
[61] Exhibit A10 at Map 2.1 and at p 27
[62] Exhibit A10 at p 29
57. The Tribunal concludes that the draft Dimasi report does not support the Applicant’s arguments regarding competitive pressures from the Woden shopping centre. The Dimasi report also casts some doubt on the reliability of the MAT figures as a method of comparison. The Respondent noted that the report illustrates some of the disabling features of the current development on the site such as the poorly performing Myer store, [63] the location of specialty tenants and warehouse stores, [64] and the poor location of the development at the eastern edge of the site.[65] These features would not be taken into account in a valuation based on the highest and best use of the Subject Land.
[63] Exhibit A10 at pp 10, 15 and 16
[64] Exhibit A10 at pp 9 and 15
[65] Exhibit A10 at p 15
58. The Tribunal concludes that the MAT figures are not a reliable method of comparison and agrees with the Respondent’s submission that it is not possible to unscramble the MAT figures so as to separate the influence of the existing centre from the underlying opportunity that would be provided by the vacant land.
59. We note that Miller AC of the New South Wales Land and Environment Court in CPT Custodian Pty Ltd and GT Management Pty Ltd v Valuer General[66] made the following comments in relation to a similar submission put by Mr Jackson - that the Court should take into account the difference between the MAT data of Belconnen and the existing shopping centre on the subject land in that case:
While such information is very useful for comparing the trading performance of shopping centres I have come to the conclusion that the use of such information for the determination of land value would result in misleading conclusions. I note that Nott C, of the Land and Environment Court of NSW came to the same conclusion in the unreported judgment of MLC Properties Pty Ltd and Australian Prime Property Fund Custodian Pty Ltd v Chief Commissioner of State Revenue [1999].
[66] [2009] NSWLEC 1426 at [ 45]
60. The Tribunal agrees with this analysis and considers that the MAT data should not be taken into account in determining the value of the Subject Land for the purposes of Section 6 of the Rates Act. The inclusion of MAT information that is, in part, a function of the quality of the improvements made to the unimproved land and is at odds with the assumptions required by Section 6 of the Rates Act. Given that the demographic data does not support any significant difference between the Tuggeranong and Belconnen catchments in terms of household income and population, it concludes that no adjustment should be made for location.
Adjustment for Onerous Conditions
61. In his Statement of Evidence, Mr Watt made a composite adjustment for competition and onerous conditions of +45%. The +30% adjustment for competition will be dealt with shortly. Mr Watt considered that remaining 15% of this 45% upwards adjustment should be made for "onerous conditions"[67] or, as stated by the Respondent in its submissions, that “certain nonprice terms imposed real burdens upon Westfield”. These “burdens” included contractual terms in the project development agreement (PDA) such as the imposition of a $2 million penalty upon Westfield if it failed to achieve practical completion of all the works required under the deed and obligations to reach delivery milestones for the completion of Stage one of the development. The Tribunal considers that these terms in the PDA are relatively commonplace and do not amount to “real burdens”.
[67] Exhibit R1 at p 26
62. More substantial were conditions imposed upon Westfield to develop an adjoining block and to undertake certain public works including a new bus lounge/interchange and upgrade the main street through Belconnen, to be constructed at no cost to the government. During the hearing, however, both experts agreed that the costs associated with maintaining the new bus lounge/interchange were equal to the increase in revenue from the close proximity of potential customers provided by the new location of the bus interchange.
63. A further component of Mr Watt's argument about onerous conditions was the obligation to develop an adjoining block (the residual of Block 4 - now Block 32) in their ownership unrelated to this sale and the requirement to submit a $2 million bank guarantee which can be forfeited if this development is not undertaken within the specified time. The PDA places performance measures upon the purchaser which attract penalties for breach including forfeiture of the purchase contract.
64. The Tribunal does not consider that the $2 million bank guarantee amounts to “onerous conditions”. This condition alleviated a pre-existing obligation on the part of Westfield to undertake development on that land. The evidence indicates that Westfield was already in breach of an earlier development obligation in relation to the land at the time of negotiating the PDA. Therefore the PDA allowed Westfield another 8 years to develop the land, which Westfield considered to be a benefit.[68] Moreover the liability could be transferred to another party within the eight-year timeframe.[69]
[68] This is established by the undated internal file note of Westfield (Exhibit R2:6(34)
[69] Transcript 193.12
65. The Tribunal does not consider that the evidence supports an adjustment for "onerous conditions".
Adjustment for Direct Sale
66. Mr Watt, on behalf of the Respondent, applied a +30% adjustment to the Belconnen sale because the sale had not taken place in an auction but by way of direct sale. By contrast, Mr Jackson did not accept that land sold privately should be excluded from being utilised as comparable market evidence.
67. By way of background, the Belconnen land was purchased by Westfield after it had applied to various persons, including the Chief Minister, to have the sale proceed by way of direct sale rather than an auction. The Executive then directed the LDA to conduct the sale and price of $17 million was eventually negotiated. The evidence suggests that the Executive was eventually persuaded by the submissions of Westfield relating to the non-financial public benefits that could be achieved by direct sale including the aforementioned public works. Although Westfield ultimately paid the price asked for by the Territory, the Respondent submits the appropriate enquiry should be whether in a competitive situation more would have been realised.
68. Mr Watt’s adjustment arises due to the Respondent's interpretation of the text of Section 6(1) of the Rates Act and the decision of Wilcox J in Hamilton v Demgold.[70] As above discussed by the Tribunal, the Respondent said that the focus in Section 6 is upon what a person (i.e. a purchaser) would have offered for a lease on a particular date. It is in relevantly the same terms as Section 5 of the Rates and Land Tax Act 1926 (ACT) which was considered by the Full Court of the Federal Court in Hamilton vDemgold. In that case, Wilcox J (who with Neaves J formed the majority) made the following comments about the formula in Section 5. For ease of reference, the Tribunal repeats the quote set about above.
The formula embodied in s 5(1) - "the capital sum that might be expected to have been offered on the relevant date for the lease of the parcel of land" - is an unusual one. The explanation of that wording, no doubt, is that, in s 5(1) of the Rates and Land Tax Act, the legislature was concerned only with leased Crown land. It wished to put all lessees on an equal footing, whether they were original lessees or not. So the valuer was required to assume a Crown auction at the relevant date. The Commonwealth was to be assumed to be a willing vendor of the right to take the lease. The question is, how much would have been offered at the sale for that entitlement?[71]
[70] (1990) 97 ALR 481
[71] (1990) 97 ALR 481 at 494
69. The Respondent referred to this statement of Wilcox J as a "statutory test" and concludes that the notional sale of the Subject Land should be conducted by way of an auction. The Respondent says that this arises out of the unique system of government controlled land sales in the Territory and is reflected in particular provisions of the legislation. Therefore, on this interpretation, all alleged comparable sales that have not been conducted by auction must be adjusted to ascertain the value of the Subject Land in the notional sale.
70. This interpretation led Mr Watt to make an adjustment of the perceived difference between the direct sale that was negotiated by Westfield and the hypothetical auction. The evidence relied upon by the Respondent to prove that more would have been realised in a competitive situation is a survey conducted by Mr Watt. Mr Watt produced a random sample of 41 cases that he had obtained from the LDA which contained information about the difference between the reserve price set by the LDA and the eventual sale price at auction. The 41 properties randomly selected range from small parcels to large englobo parcels suitable for a variety of development purposes, predominantly commercial, with a small amount of industrial and some residential. Mr Watt used this study to support a hypothesis that the sale at auction inevitably leads to a higher price than a direct sale. He stated in his report:
In my opinion, these results confirm the strong likelihood that properties sold in the open market in a competitive environment via the auction sale method, being the preferred method of land sale by the LDA, almost without exception exceed the reserve price set.[72]
[72] Exhibit R1 p 49 at 3.23
71. The + 30% figure was based upon the remainder of the sample after removing the five highest value transactions, all in excess of $10 million, where the results exceeded the reserve by an average of 32.4%. However, under cross-examination by Mr Miller, Mr Watt agreed that various sales were atypical e.g. the Canberra City sale and the Casey sale. Mr Watt then concluded that, after these sales were taken out, the differential was probably closer to 12 - 13%.[73]
[73] Transcript 175.12
72. The Applicant attacked the adjustment on a number of grounds. For example, the Applicant made the following arguments against the adjustment.
- Mr Watt could identify no text, article, case or authority to support the 30% adjustment therefore its novelty is readily apparent.
- Mr Watts had advanced the same proposition in proceedings in the New South Wales Land and Environment Court where the Belconnen sale was identified as a comparable sale and in that case he argued for an upward adjustment of 40% rather than 30% that was contended in the present proceedings.
- the selection of the random sample is not clear and Mr Watt inexplicably failed to include in his sample a single sale that had been initially passed in at public auction nor those that did not reach the reserve price nor those that were sold post-auction. It was emphasised, for example, that the highest price would not be obtained in an auction in a falling market
- Mr Watt's list included small residential sites, small to large commercial sites, city centre tower sites, large parcels of englobo residential and small retail sites. No land suitable for any form of large comparable retail development was included. The sites that he utilised had no nexus to the highest and best use of the Subject Land.
- the survey was a broad brush random analysis amounting to an averaging of sales evidence which is ultimately unsafe and improper and prohibited in valuation practice.
- the adjustment made to the Belconnen land non-comparable because it would fail the Spencer test due to the anxiety of the vendors to undersell the land.
73. The Applicant submitted that at least two logical conclusions could be drawn from Mr Watt's upward adjustment. Firstly, there can never be an instance where a direct sale method will realise the highest price[74] and secondly, whenever the LDA sells property by way of direct sale rather than public auction it was underselling by approximately 30%. In response to questioning by Mr Miller about the latter conclusion, Mr Watt said “it depends on the result that they’ve achieved. I can’t say – I can’t answer that question”.[75]
[74] Applicant's Submissions in Reply filed 21 September 2009, p 15
[75] Transcript at p179
74. The Respondent replied that Mr Watt's adjustment did not involve an averaging of sales. Instead it involved using the available evidence concerning land sales in the unique Canberra public land sales market to assess the likely premium that would be achieved at a public auction over a non-competitive direct sale process.
Consideration by the Tribunal of the 30% Adjustment for Direct Sale
75. The Tribunal notes that Wilcox J in Hamilton v Demgold states that, in order to satisfy the formula which is stipulated in what is now Section 6 of the Rates Act, the valuer is required to assume a Crown auction at the relevant date.[76] Wilcox J also makes other references to the "hypothetical auction"[77] and the "Commonwealth auction".[78] However there is some doubt that His Honour was stipulating a code for analysis of comparable sales of Territory land when he refers to the hypothetical auction. Wilcox J refers at several points in his judgment to “sales” and “hypothetical sales”, for example, "a hypothetical sale of the right to take that lease"[79] and "[i]nformation derived from sales of otherwise comparable parcels".[80] Likewise, Neaves J (who with Wilcox J formed the majority) makes no references to the hypothetical auction but stated that s 5 “proceeded on the hypothesis of a sale”.[81]
[76] Hamilton v Demgold (1990) 97 ALR 481 at 494
[77] Hamilton v Demgold (1990) 97 ALR 481 at 495
[78] Hamilton v Demgold (1990) 97 ALR 481 at 494
[79] Hamilton v Demgold (1990) 97 ALR 481 at 494
[80] Hamilton v Demgold (1990) 97 ALR 481 at 494
[81] Hamilton v Demgold (1990) 97 ALR 481 at 491
76. The multiple references to hypothetical sales undermine the argument that the hypothetical auction is the exclusive yardstick by which the value of the Subject Land can be ascertained. The Tribunal’s research has not found any other cases where adjustment of a direct sale against the hypothetical auction has been discussed. During the hearing in the present case, Dr Griffiths referred to Rosnet Pty Ltd v Commissioner for ACT Revenue[82], where the AAT made following observation in obiter:
As the [relevant comparable sale] was in an open market situation, the sale is considered to be more reliable as evidence of value that the negotiated and protracted sale of the Canberra Centre site which was restricted to one final purchaser.[83]
[82] (1993) 93 ATC 2107
[83] (1993) 93 ATC 2107at 2119
77. The Rosnet case concerned the valuation of a number of parcels of land constituting the Canberra Centre. The taxpayer’s valuation took the market value of the Centre to be based on the sale of 50% interest in it in March 1990 to the Queensland Treasury Corporation ("QTC”). Though the litigation in this case was protracted, reliance upon the sale to QTC was ultimately rejected by the AAT due to a number of factors. Those factors included firstly that there was a perception in the market that it was a forced sale because the vendors were under pressure to sell. Secondly, the evidence showed that a number of prospective purchasers had dropped out of negotiations effectively leaving QTC and the vendors to negotiate one-on-one. Therefore the absence of a competitive tenders process undermined the reliability of the sale. Thirdly significant incentives were given by the vendors to the purchaser in the agreement for sale, for example rental guarantees.
78. The Tribunal considers that the Rosnet case emphasises the importance of establishing an arms-length dealing in both determining comparable sales and making relevant adjustments. However, in neither of the two AAT cases nor the Supreme Court case[84] (which were heard subsequent to the judgment in Hamilton v Demgold) was it argued that the hypothetical auction is the relevant test to be applied.
[84] Rosnet Pty Ltd v Commissioner for ACT Revenue (1993) 93 ATC 2107; Commissioner for ACT Revenue v Rosnet Pty Ltd (1994) 94 ATC 4424; Re: Rosnet Pty Ltd and Commissioner for ACT Revenue (1995) 95 ATC 2048
79. The documents produced on subpoena by Westfield in Exhibit R2 show that the sale was negotiated, that Westfield considered that acquisition by a competitor was a real possibility that Westfield had, to some extent, bid against itself and ultimately accepted the price mandated by the Minister.[85]
[85] Exhibit R2 Tab 6:6 at p 3, Exhibit R2 Tab 6:9 at p 22; Exhibit R2 Tab 6:10 at p 1
80. In its 2008 decision, the AAT analysed the Belconnen sale in the following terms:
We consider that the potential for the loss of control of the Westfield site and the consequent requirement for a replacement car park to be constructed for the adjoining shopping centre as well as the potential loss of opportunity for expansion of the shopping centre and the prospect of competition from another purchaser would have impacted upon the price the purchaser would have been prepared to pay for the subject land. We consider it inappropriate, however, to make a -5% adjustment, as Mr Jackson has done, as that consideration should be offset by the absence of the involvement of a commercial competitor in the Westfield sale which was negotiated directly with the purchaser and because the price paid was consistent with the pre-sale estimates of independent valuers.[86]
[86] Tuggeranong Town Centre Pty Ltd v Commissioner for ACT Revenue [2008] ACATAAT 22at [25]
81. The current Tribunal adopts this reasoning and considers that this reasoning is consonant with valuation principles as well as the reasoning in Commonwealth v Arklay[87] and Spencer’s case.[88] Although the Tribunal accepts that Wilcox J made several comments about the hypothetical auction in the Hamilton v Demgold case, we do not consider those comments require the Tribunal to make an adjustment for a direct sale. Even if the Tribunal is wrong in that regard and the comments of Wilcox J in Hamilton v Demgold case constitute a binding statement of law, the Tribunal does not consider that the methodology adopted by Mr Watt to make the adjustment is reliable. The methodology adopts an averaging technique across a sample of non-comparable properties which belies the valuation principle of comparing like for like. The sample of properties was created with a bias that renders Mr Watt’s conclusion unsound. The sample excludes properties that were passed in, properties that did not achieve the reserve price and properties were sold after auction. Such a sample could not provide an empirically sound basis for the proposition that property sold by auction by the LDA inevitably achieves a reserve price that is around 30% higher than the pre-auction valuation. The Tribunal considers that the survey conducted by Mr Watt is not methodologically sound and does not support the proposition put by him.
[87] (1951-1952) 87 CLR 159
[88] (1907) 5 CLR 418
82. The Tribunal concludes that no adjustment should be made for the direct sale.
CONCLUSION
83. The value of the Subject land should be calculated by comparing the value of the Belconnen land at the purchase price of $17,000,000 for 27,094 GFA amounting to $627.44 per m2. No adjustments should be made for location or for direct sale but a -5% adjustment should be made for time and a -12% adjustment should be made for size. Based on 70,142 m2 of GFA, the Tribunal finds that the unimproved value of the Subject Land as at 1 January 2007 was $36,528, 214.00.
……………………………….
Professor Peta Spender
Presidential Member
PUBLICATION DETAILS
TO BE PUBLISHED
To be completed by Tribunal Staff
PART A FILE NO: AT 08/43
APPLICANT: TUGGERANONG TOWN CENTRE PTY LTD
RESPONDENT: COMMISSIONER FOR ACT REVENUE
SOLICITORS: APPLICANT: MR MILLER with MR WHITE
RESPONDENT: DR GRIFFITHS, MR MOSSOP
and MS MATHIE
TRIBUNAL MEMBER/S: Professor Peta Spender Presidential Member
Ms Louise Donohoe SC Senior Member
Mr Graham Trickett, Member
DATE/S OF HEARING: 24 September 2009 PLACE: CANBERRA
DATE/S OF DECISION: 4 June 2010 PLACE: CANBERRA
PART B
RECOMMENDATION:
FULL REPORT ( ) CASE NOTE ( ) UNREPORTED DECISION ( )
COMMENTS:
Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGERA 409 at 434
per Hope JA.
Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGERA 409 at 415
per Moffitt P
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