Yu Feng Pty Ltd & Yuan Chieh Pty Ltd v Chief Executive, Department of Natural Resources
[2001] QLC 13
•22 March 2001
|
BRISBANE
22 March 2001
Re: Appeals against Annual Valuations -
Valuation of Land Act 1944 -
Valuation Roll Nos: 3775/30000 and 3771 -
Local Government: Brisbane City - Toowong.
(AV99-521 and AV99-522).
Yu Feng Pty Ltd and Yuan Chieh Pty Ltd
v.
Chief Executive, Department of Natural Resources
D E C I S I O N
Background:
These matters relate to land at 9 Sherwood Road and 603 Coronation Drive, Toowong, and are known as "The Toowong Shopping Village". The subject land is described as Lot 3 on RP211016 and Lot 1 on RP844743 (16594 square metres), and stratum lands described as Lot 10 on RP209688 (10123 square metres), providing a combined total area of 26717 square metres for the entire shopping complex. The freehold titles of Lots 1 and 3 are held by the appellants as tenants in common in equal shares; and the stratum land (Lot 10) is held by the appellants under lease from the Commissioner for Railways. The lease commenced on 31 July 1986, and expires on 29 July 2085. Major easements and leases are agreed by both parties to encumber the subject land, and those have been considered in the valuations.
The subject land is zoned "Particular Development - PD372" under the Town Planning Scheme of the Brisbane City Council, effective at the date of valuation of 1 October 1998. The particular development PD372 zoning also extends to Lot 9 on RP844743 immediately to the west of the subject land, which is owned by the National Bank of Australia, but is leased to Toowong Village Tower Development. The subject land is currently used as a drive-in retail and high-rise office complex with major vehicle parking.
The site is located about 3 to 4km west of the Brisbane GPO, and is strategically positioned adjacent and above the Toowong Railway Station, and near the Brisbane River. The key issues are the nature of the land, comparison of sales, the sale of the subject land, the method of valuation and relativity. On 8 March 1999, the Chief Executive issued valuations for Lots 1 and 3 at $11,000,000, and Lot 10 at $4,100,000. Following objections the Chief Executive confirmed those unimproved values on 22 June 1999. The appellants have now appealed those figures claiming the unimproved values should more properly be $9,200,000 (Lots 1 and 3) and $3,400,000 (Lot 10).
Mr G Allan of counsel appeared for the appellants, calling evidence from Christopher Gerard Buckley - a town planning consultant, Harry Carrick - a quantity surveyor, and Kevin Patrick Walsh - a registered valuer. Mr J O'Rourke, Principal Legal Officer appeared for the respondent, calling evidence from Dennis John Rylands, the Departmental registered valuer now accepting responsibility for the valuations, which was initially prepared by another Departmental valuer who is no longer available.
The Nature and Use of the Land -
The subject land is at the centre of the main commercial precinct of Toowong, with wide frontages to Sherwood Road, Lissner Street, Booth Street, Benson Street and the Western Railway Line. The land is about 160 metres west of the Toowong reach of the Brisbane River, and has exposure to Coronation Drive, Benson, Booth, Lissner and Bennett Streets. Vehicular access is available from Sherwood Road and Lissner and Booth Streets. All utility services are available.
The subject development has been constructed above the Toowong Railway Station, and passengers exit directly into the shopping complex. Lot 1 has a gentle slope from Sherwood Road to Lissner Street, which was originally several metres above the subject land. Lot 3 is a regularly-shaped moderately sloping parcel with frontage to Booth Street, and Lot 10 is a long, narrow and irregular stratum parcel covering the railway line and station, and with a 10-metre wide access to Coronation Drive.
It is agreed that the property is unique in size, access and exposure in the Toowong area, and was seen by Mr Rylands as one of the premier commercial centres outside of the Brisbane Central Business District (CBD). Mr Walsh agrees that the subject development is a highly desirable property and is typical of a CBD development. The site is also close by to the University of Queensland at St Lucia, and near to prestigious high-rise riverfront units extending along the Brisbane River. There is a high population catchment nearby, and there is a pedestrian overbridge across Benson Street to the east of the subject land, connecting the residential areas.
Sherwood Road is the major commercial focus of Toowong, and adjoining lands have been developed with multi-level office complexes, hotels, restaurants, retail outlets and banks. Lissner Street has low-rise commercial offices and medium density multi-unit residential developments, and there is low-rise commercial offices in Benson Street and Coronation Drive. There are height restrictions on developments in the area, however the subject lands have been developed to 13 storeys under special planning legislation covering that specific site. (Toowong Railway Station Development Project Act 1985).
The subject land was developed in November 1986, and has a gross lettable area of retail space (28,733 square metres), plus 1,557 square metres of the adjoining NAB site. There is also a 13 storey office tower of 15,428 square metres gross lettable area. There are extensive views of the CBD and the Brisbane River from the tower block, and also from the top level of the retail complex. The total gross lettable area is 44,161 square metres, and there are 1,642 car parks. The gross floor area (GFA) is as follows:
Retail (28,733 x 83% efficiency) = 34,618 square metres
Office = 18,946 square metres
Total GFA = 53,564 square metres
TOTAL AREA OF LAND = 26,717 square metres
The permitted GFA of 2 exceeds the use of surrounding parcels in the locality, which tend to have plot ratios of 1.5.
It is agreed by both parties that the highest and best use of the subject land is for its present purpose of retail and office development. It is also agreed that the current use of the site would not attract any appeal process at the relevant date of 1 October 1998. Mr Rylands has in fact valued the land on the basis of s.3(4) and 23(3) of the Valuation of Land Act 1944 (the Act), which directs that the unimproved value is to be determined as follows:"3(4). Notwithstanding anything contained in this section, in determining the unimproved value of any land it shall be assumed that -
(a)the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates; and
(b)such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used;
but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that any improvements referred to in subsection (1) had not been made. "
And also in 23(3) -
"Notwithstanding anything in subsection (2), in determining the unimproved value of a stratum or volumetric lot it shall be assumed that
(a)the stratum or volumetric lot may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates; and
(b)such improvements may be continued or made in the stratum or volumetric lot as may be required in order to enable the stratum or volumetric lot to continue to be so used;
but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the stratum or volumetric lot may be used on the assumption set forth in subsection (2). "
It is noted that sections 3(4) and 23(3) provide that freehold and stratum lands are to be valued similarly. That is further supported by section 14 which states:
"14.(1) For the purpose of deciding the unimproved value of land that is not granted in fee simple, the land is taken to be granted in fee simple.
(5) In making, under this part, the valuation of the unimproved value of any land -
(c) in a lease from Queensland Rail;
the unimproved value of that land shall be determined having regard to and making proper allowance for any restriction or limitation of use having regard to the purpose and conditions to which that permit, lease, licence permission to occupy or agreement is subject. "
Mr Rylands sees the location of the subject development above the railway station as a desirable advantage to the development. Mr Walsh concedes that co-location of the railway station is a desirable attribute, but argues that construction costs of the building were likely to be greater because of the complexity of construction above the railway line. In view of the particular desirable attributes of the subject land, Mr Rylands argues that the site would have a premium attached to its value beyond that normally pertaining to larger sites. In his opinion he feels that premium would tend to balance any reduction in unit costs of larger sites normally reflected in the marketplace. Both valuers agree that there were no sales of directly comparable lands in the Toowong area, from which to obtain comparisons of land value.
History of the Valuations -
While only of historical interest, the following unimproved values provide some background to the current matter:
Unimproved Capital ValuesYear Lots 1 and 3 Lot 10 Total
Parcel
1986 $ 6.6 million $2.8 million $ 9.4 million
1990 $10.8 million $4 million $14.8 million
1992 $ 9.2 million - -
1997 $ 9.2 million $3.4 million $12.6 million
1998 $11 million $4.1 million $15.1 million
Mr Rylands notes that 1990 represented the peak in the property cycle. Mr Rylands was also not involved in the 1997 and 1998 revaluations initially.
However Mr Walsh disregards any reliance upon those historical values, noting that comparisons with the market in 1986 provide little insight into valuation at the relevant date. Mr Rylands agrees with that conclusion, but notes that while the commercial property marketplace has risen in value in Toowong over the last few years, it was unlikely, in his opinion, that the unimproved value of the subject land, in the key position of the Toowong area, as determined by Mr Walsh, was now only comparable to the 1986 valuation.
Mr Rylands also notes that when Lots 1 and 3 were purchased by the developers in 1986 an amount of $3.8 million was paid for 1 hectare (or about $400 per square metre). Estimating the balance of 5,000 to 6,000 square metres, provides an overall site cost of $5.8 million for the 1.6954 hectares (Lots 1 and 3). He notes that to that figure must be added legal, holding and amalgamation costs, plus construction of the footbridge and widening of Lissner Street, giving an overall acquisition figure of about $6 million. Mr Rylands argues that belies Mr Walsh's current estimate for Lots 1 and 3 of $6.5 million ($400 per square metre). (Exhibit 2 - page 26).
Method of Valuation -
Both valuers agree that there is a lack of any directly comparable sales of vacant lands in the Toowong area, mainly because of the particular desirable attributes of the subject land. Mr Walsh has sought comparisons with sales of smaller parcels in Toowong, then compared that evidence with relativities with similar developments, and finally applied an analysis of the actual sale of the improved subject parcel to check that his estimates were in the correct "ball park". He concludes final figures of $6,650,000 (Lots 1 and 3) and $2,250,000 (Lot 10), or a total valuation of $8.9 million.
Mr Rylands by comparison compares sales of smaller lands in Toowong, but conditions that with a comparison of a larger sale at Newmarket. Mr Rylands also notes that the subject land has the benefit of an additional premium in respect of the permitted GFA, representing about 33% above what could be achieved on similarly zoned lands in Toowong.
Mr Rylands applies average unimproved values of parcels in Sherwood Road ($1,107 per square metre), Lissner Street ($727 per square metre), High Street ($682 per square metre), Jephson Street ($711 per square metre) and Booth Street ($400 per square metre), concluding an overall rate for the subject land at $660 per square metre for Lots 1 and 3 (16,594 square metres). Mr Allan challenges the wisdom of adopting average values in view of difficulties in comparing parcel sizes.
In determining the unimproved value of the stratum parcel (Lot 10), it has historically been agreed by both parties that a rate for stratum land in that locality should represent only 55% of the value of the freehold parcel (Lots 1 and 3). Apparently the historical agreement was based upon a then understanding that a stratum parcel, without the benefits of a ground level frontage and access for commercial retailing purposes, was of lesser value than a freehold ground level parcel.
The difference in value reflects only its lesser accessibility for commercial purposes, and has no connection to the leasehold nature of the land, which must be treated as if it was freehold land for valuation purposes. Mr Walsh refers generally for support of that principle to a sale at Pacific Fair where stratum land for a car park ramp was seen to reflect 40% of the ground land value. In the end the current application of 55% is not disputed, but only what level to which that should be applied. However Mr Rylands argues that the amalgamation of Lots 1 and 3 with Lot 10 (stratum), significantly enhanced the overall potential of the subject land.
In applying his analysis of the sale of the subject land on 30 November 1998 for $103,400,000, Mr Walsh estimates that the appellants' estimated unimproved land value of $8.9 million would provide a very small margin of profit for the developer. By comparison he argues that to adopt the same analysis of the sale of the subject land, but to substitute Mr Rylands' estimate of land value of $15.1 million, would result in the total costs exceeding the sale price. On that basis he concludes Mr Rylands figure is too high.
In discussing Mr Rylands' adoption of a GFA approach, Mr Walsh argues that he was uncertain of the maximum GFAs allowable on all sales examined in order to be consistent. He then would need to decide whether it was likely that the maximum GFA would be built on each site, in order to assess the development capacity. However he concludes that the GFA approach is only one aspect of a comparison, noting that other attributes and restrictions such as shape, size, etc., are also important in determining the rate per square metre for each sale. Mr Rylands agrees that research into GFAs is important, and one must not merely adopt the GFA specified in the town plan.
The major difference between the valuers lies in their approach to comparing the size of the subject parcel. Mr Walsh argues that it is the total area of the subject land (26717 square metres), which must be compared to the sales in accordance with sections 23(3) and 14(5). Mr Allan argues that Mr Rylands' approach is also inconsistent with the conditions of the lease from Queensland Rail (Exhibit 2, Annexure 11, Clause 3.7.2). That condition requires use of Lot 10 in accordance with the Brisbane Town Plan, but provides no other restriction on use of Lot 10.
Mr Rylands has sought his basic comparison with the freehold lands of Lots 1 and 3 (16,594 square metres), and then applied the 55% of that figure for the stratum land of Lot 10 (10,123 square metres). Mr Rylands also argues that due to the unique attributes of the site, the market value should not show any significant discount in value for size. The respective valuations are as follows:
Mr WalshLots 1 & 3 - 16,594m² @ $400/m² = $6,650,000
Lot 10 - 10,123m² @ $400/m² x 55% = $2,250,000
TOTAL = $8,900,000
Mr Rylands
Lots 1 & 3 - 16,594m² @ $660/m² = $11,000,000
Lot 10 - 10,123m² @ $365/m² (55%) = $ 3,700,000
TOTAL = $14,700,000
However in concluding that the marketplace would not discount the larger area of the subject land, which Mr Rylands concedes is the usual practice for larger areas, Mr Rylands provides no evidence to support his assumption. He notes that it is his expert opinion to that effect (Transcript 54), but that does not accord with Mr Walsh' opinion.
Mr Rylands does argue that he has "discounted dramatically for size going from 1.6 to 2.67" (Transcript 55). That statement refers to his across-the-board rate of $550 per square metre for the overall 2.6 hectare site. That is to be compared with Mr Walsh' overall rate of $330 per square metre for the 2.6 hectares. However Mr Rylands' discounted rate of $550 per square metre would appear to reflect not only the increase in size from 1.6 hectares to 2.6 hectares, but also the premium for the additional GFA (33% - Transcript 53), and the addition of the stratum land. The stratum land is not a discount for size, but really an allowance for the lesser potential of the stratum land. Mr Rylands argues that without the special development conditions (the 33% increased GFA), then the 2.67 hectare subject land would be valued at $414 per square metre. Mr Rylands also notes that the applied rate of $550 per square metre for the subject land, compared to the average unimproved smaller lands in Sherwood Road ($1107 per square metre), demonstrates a 40% reduction for size and other purposes. Mr Walsh queries the wisdom of comparing average rates.
In seeking to further support his approach, Mr Rylands sought to apply a more rigorous analysis of his key sale at Newmarket. In that analysis Mr Rylands adopts quality factors to reflect the difference in the commercial qualities of Toowong and Newmarket. Those analyses are discussed later, but Mr Rylands argues they support his concluded values for the subject land as very reasonable.
In noting his final concluded unimproved value, Mr Rylands agrees that he has rounded his calculations up to the nearest $100,000. He advises that is the regular practice of the Chief Executive in such matters, and is a normal rounding process automatically undertaken by the Departmental computer system, and, in his opinion, it does not contradict his assertion of a conservative approach. Mr Allan argues that such a rounding up of some $48,000 for Lots 1 and 3, and $5,000 for Lot 10, provides an additional imposition upon the appellant, which is contrary to precedents in these matters.
Mr Rylands also confirms that while he was not the valuer who originally determined the unimproved value, his checking method had confirmed, in his opinion, that the original valuation was reasonable, and therefore could be justified. However in making that conclusion Mr Rylands concedes that he was not aware of the maximum GFAs allowable on each comparable sale under the town plan. Mr Rylands believes that the actual built GFAs are a better reflection of the market in that area.
Comparison of Sales -
While both valuers agree that there was no directly comparably sized sale of vacant commercial lands in the Toowong area, both valuers sought to provide sales evidence which could provide guidance on the relevant unimproved value of the subject land. Mr Walsh agrees with Mr Rylands that there has been an increase in certain land values in the Toowong area over recent years. However Mr Walsh argues that those increases are not demonstrated right across the entire market area, and he argues that there is no evidence to support a 20% increase in value of the property similar to the subject land. It is Mr Walsh's opinion that in the absence of such evidence of an increase, then the unimproved value of the subject land should not have been increased so dramatically.
To support his valuation Mr Walsh provides the following sales:· Sale 1 - (62 High Street, Toowong - Lot 1279 on SL10294)
This is a sale of an area of 1249 square metres which was the former police station at Toowong. The land was purchased for redevelopment, and has subsequently been developed for mixed commercial and residential unit purposes.
The sale sold in October 1997 for $890,000 ($712/m²), and the subject land is seen to reflect a lesser rate per square metre than the sale.
· Sale 2 - (60 High Street, Toowong - Lot 1 on RP867176)
This is a sale of a 1,571 square metre parcel which was developed for a two level shop and office building of 1,400 square metres. The sale sold in November 1993 for $700,000 ($446/m²) which, while an old sale, should reflect a higher rate per square metre than the subject land.
Mr Rylands provides the following sales:
· Sale 1 - (67 High Street, Toowong - Lot 1 on RP18750)
This is the sale of 2,573 square metres zoned "Commercial", which has subsequently been developed with an office complex (leased to Technology One), and a community centre valued at $660,000. The sale is seen as inferior to the subject land on a rate basis, as the sale is on the fringe of the Toowong Commercial Precinct. The sale was the largest in area in the immediate vicinity.
The sale was not a direct cash sale, but involved an arrangement between the vendor (the Corporation of the Synod of the Diocese of the Church of England) and the developer for an amount of $1,450,750, plus construction of 330 square metres of community centre valued at $660,000, and $35,000 to demolish the old existing buildings. The total sale price was estimated at $2,145,750 and the contract occurred in October 1997. After allowing for clearing the sale was analysed at $2,140,750 ($832/m²), and has been applied at $1,700,000 ($660/m²) at the relevant date.
· Sale 2 - (62 High Street, Toowong - Lot 1279 on SL10294)
This is a common sale with Mr Walsh's Sale 1, and is zoned "Special Uses". Mr Rylands analyses this sale at $888,000, and it has been applied at $690,000. The sale has been developed with two shops on the ground floor and 12 home units on three upper floors. The sale reflects $712 per square metre, and has been applied at $562 per square metre, or $383 per square metre GFA. The sale is seen as inferior to the subject land because of its location in High Street compared to Sherwood Road.
· Sale 3 - (25 Cribb Street, Milton - Lots 20 and 21 on RP 18354)
This is a 1,202 square metre parcel zoned "Special Development" and is located further removed from Sherwood Road than either Sales 1 and 2, and is seen in a lesser quality area. The sale, like Sales 1 and 2, has a lesser plot ratio than the subject land, and is used for retail and office accommodation.
The sale sold in December 1996 for $1,300,000, and was analysed at $1,298,000, and had been applied at $1,000,000 at 1 October 1998, and $780,000 at 1 October 1997. The sale shows a rate of $721 per square metre, or $555 per square metre GFA, and is seen as inferior to the subject land. The sale sold previously in May 1995 for $1,000,000, and has a plot ratio of 1.5.
· Sale 4 - (8 Gardner Close, Milton - Lot 2 on RP883055)
This is a 3,135 square metre parcel zoned "Special Development", and is used for office development. The sale is seen as in an inferior location to the subject land, and has a plot ratio of 1.5. The GFA of 4,306 square metres has been applied at $542 per square metre, or $395 per square metre GFA.
The sale sold in March 1996 for $1,567,000, and again in December 1998 for $1,900,000, and again in February 2000 for $2,400,000. The February 2000 sale is not relied upon, but supplied to demonstrate growth in the market in that period. The March 1996 sale was applied at $1,400,000 at 1 October 1997, and the December 1998 sale was applied at $1,700,000 at 1 October 1998.
· Sale 5 - (86 Quay Street, Milton - Lot 100 on RP909754)
This is a 2,418 square metre "Particular Development" site with a plot ratio of 3. There is a height restriction of 8 storeys, and the sale adjoins the railway line. Overall the sale is seen as inferior to the subject land.
The sale sold in September 1996 for $2,575,000, and shows a rate of $909 per square metre, or $300 per square metre GFA. The land is not yet developed, but was purchased for serviced apartments.
The sale was applied at $2,200,000 (1.10.98), and was seen as a high sale because of the delay in development.
· Sale 6 - (250 McCullough Street, Sunnybank - Lot 22 on RP862386)
This is a 4,377 square metre parcel zoned "Business", which is in a good position, but seen to have an inferior zoning. The sale is merely a supporting sale, and is across the city from the subject land.
The sale sold for $4,065,000 in December 1998, and was analysed at $4,060,000, and applied at $3,200,000 ($731/m²).
· Sale 7 - (115-121 Enoggera Road, Newmarket - Lot 2 on RP103426, Lots 1 and 2 on RP18684, Lots 2 and 3 on RP55298, and Lots 1 and 2 on RP90681.
This is a 16,400 square metre parcel zoned as "Business", and purchased for development as a supermarket, food centre and mall, with cinemas on the first level. Mr Buckley provides a concept plan indicating a proposed complex of 15,410 square metres (Exhibit 11), involving a basement, two floors and a roof plan. The development has not yet proceeded. Mr Rylands argues that the existing hotel adds no value to the sale site, and notes that the sale is far inferior in zoning and locality. He notes the proposed GFA was 11,000 square metres, with a plot ratio of 0.67, demonstrating $363 per square metre GFA.
The sale sold in December 1996 for $5,000,000, which was analysed at $4,950,000, and was applied at $4,000,000 (1.10.98) - ($244/m²). Mr Rylands sees this as the most comparable sale for size purposes.
Mr Walsh sees little value in comparisons with Mr Rylands' Sale 7 (the Newmarket sale). He believes Newmarket and Toowong are very different localities, and Newmarket is a lesser quality area. However Mr Walsh agrees that the Newmarket sale is the closest in size to the subject land, and has some comparability in respect of its business and mixed use style of development. Mr Walsh notes that, in his opinion, the analysed rate for the Newmarket sale at $305 per square metre, supports his estimate for the much larger area of the subject land at Toowong at $400 per square metre.
Mr Rylands agrees that the Newmarket location is an inferior commercial area compared to Toowong, but relies upon his Sale 7 to demonstrate just how valuable Toowong is in relation to other areas of Brisbane. Mr Rylands provides his Sale 7 to demonstrate, in his opinion, the actual conservative nature of his valuation of the subject land. Mr Rylands also seeks only support reliance upon his Sales 3, 5 and 6, which he agrees are for multi-unit purposes and not for commercial purposes, but which he argues demonstrates also the high value of the Toowong-Sherwood Road locality. Mr Rylands therefore sees his Sales 3, 5 and 6 as only supportive sales, relying mainly upon his Sales 1, 2, 4, and 7 as his basic sales.
Mr Walsh concedes that the sales in High Street demonstrate a significant increase in value between 1993 (60 High Street - $446/m²) and 1997 (62 High Street - $712/m²). However as noted previously, Mr Walsh believes it is not proven that such increases for much smaller parcels can be translated to the much larger subject land of 2.67 hectares.
Mr Rylands notes that comparing GFAs at Toowong (1.5 plot ratios) and Newmarket Sale 7 (0.94 plot ratios) suggests that a developer could build 1.66 times more buildings per similar land area at Toowong. Mr Rylands argues also that developers are more likely to develop to the maximum allowable GFA in high value areas, than in lesser quality areas, where it may not be economic to develop to the lands maximum potential.
Adopting his observed factorised differences between localities of 1.66 (based on GFA only), and applying that to his applied valuation of Sale 7 ($244/m²), Mr Rylands assumes a hypothetical unimproved value of $405 per square metre at Toowong for a similar 1.6 hectare site.
Mr Rylands then applies his additional premium factor for the extra GFA of 33% on the subject land, calculating a rate of $540 per square metre for a comparable 1.6 hectare site at the subject land, with the premium GFA of the subject land, but with comparable quality of location as Newmarket.
As further support demonstrating the maximum difference in the market quality of the two localities, Mr Rylands compares rather the prime position for a small size in Sherwood Road, Toowong (842m² @ $1,365/m²), with a similar prime position in Newmarket (the old service station of 1,244m² @ $357/m²), concluding a ratio of 3.8 times the Newmarket value for the Toowong site based only upon market quality. (Exhibit 7, page 9). Mr Rylands concedes that the old service station site in Newmarket is larger, but notes the irregular shape of that parcel.
Mr Rylands then notes that if he was to only apply the maximum quality factor of 3.8 times to his calculated rate for the subject land at $540 per square metre, he would calculate a rate of $2,052 per square metre allowing for quality of location, increased GFA, and the premium development approval of the subject land. Mr Rylands then notes that figure would then need to be discounted by 68% to reduce it to the basic rate of $660 per square metre adopted for the subject land.
On further consideration, making further allowance for the odd shape of the old service station site at Newmarket, Mr Rylands revised his quality factor at Toowong to 3.65 times the Newmarket lands. Adopting a revised figure of 1.595 based upon the difference in the plot ratios of the two areas, and adopting the increased plot ratio of 2 for the subject land, Mr Rylands concludes a rate of $1,887 per square metre for a comparable 1.6594 hectares of the subject land. In his opinion, Mr Rylands then allows for a factor of 30% for the increased size of the subject land from 1.6594 hectares to 2.6717 hectares, concluding that the subject land would be worth $1,320 per square metre across the board.
Mr Rylands further postulates a similar exercise adopting his "gut feeling" for a quality factor of 2.5 times the Newmarket rate, concluding an across-the-board rate for the subject land at $900 per square metre. His conclusion from those two exercises, suggests that his applied rate of $550 per square metre across the board is very very reasonable. Mr Rylands also argues that while the shape of the subject land is more awkward than the Newmarket sale, the greater size of the subject land provides scope to overcome any limits due to the shape of the property, and is not a major issue.
In analysing his Sale 1 at 67 High Street, Mr Rylands has relied upon verbal advice from an agent of the developer (the Winston Group). Mr Rylands did not speak directly to the purchaser or the vendor after the sale. Mr Walsh spoke to a representative of the vendor before rejecting the 67 High Street sale. Adopting a community centre rental of $200 per square metre, and a rental factor of 10%, indicates to Mr Rylands a value of the community centre at about $660,000. Mr Rylands determined the value of the community centre at 330 square metres at $2,000 per square metre, or $660,000.
There was discussion in respect of Mr Rylands use of the word "part" of Lot 1, but that apparently related merely to how the Departmental computer system had apportioned the detail from the sale transfer form, in view of the non-rateable nature of the church property. After careful examination it was clear that Mr Rylands had related his analysis entirely to the sale of the total area of Lot 1 on RP 18750, and there was no issue in respect of that matter. Mr Rylands also accepts the sale of 67 High Street as an "arms length" transaction, capable of reliable analysis.
After capitalising the value of the community centre at $660,000, Mr Rylands added that onto the land value component to determine the overall price paid for 67 High Street. Mr Rylands concedes that in that operation he accepted that the cost of the community centre related to the added value it brought to the property. Mr Walsh had rejected the sale of 67 High Street as he was uncertain of the details of the special arrangements agreed by the parties. However Mr Walsh concedes that he could have analysed that sale, but he chose not to do so, in view of the specific complexity of that sale which related to arrangements between the Church (the vendor) and another development group, Plankton Pty Ltd. Those arrangements were to build the new community centre, the added value of which to the Church was unclear.
In noting the common sale of 62 High Street, I note that is for a parcel only 5% of the area of the subject land, and for that reason was not considered a basic sale by either valuer. Because of difficulties of direct comparison, and noting the different development potential as home units, I believe direct comparisons with Mr Rylands' Sales 2, 3, 5 and 6 provide little assistance. A similar observation could also be drawn from Mr Walsh's Sales 1 and 2.
In respect of Mr Rylands' Sale 4, I note Mr Rylands sees the value of that sale as supporting his conclusion that the market will pay $600 per square metre for a 3,000 square metre site in a vastly inferior location. On that basis it is more evidence of relativity, rather than a directly comparable sale, and I will consider its contribution only for that purpose, bearing in mind the paucity of directly comparable sales to the subject land. Mr Rylands rejects an earlier sale of Sale 4 in October 1994 for $6,050,000, which he argues demonstrates an out of line imprudent sale where the vendor went bankrupt.
One final matter dealing with reliance upon the sales adopted is the date of the sales. The dates of contract of Mr Rylands' sales, except his Sale 6 (Sunnybank), all occurred within the relevant period for consideration for the previous valuation at 1 October 1997. It is Mr Allan's concern that if those sales were used as basic sales for the 1997 valuation, how then can a fresh analysis of those sales result in a 20% increase in unimproved value for the subject land?
Mr Rylands was unable to provide further insight into whether those sales were in fact adopted for the 1997 valuation, but notes that there were extended delays between the date of contract and the date of settlement on some of the sales, extending beyond the date of issue for the 1997 valuation. Mr Rylands then concludes that the records of those sales may not have therefore been available to the respondent for consideration at that time.
Mr Rylands also notes that the respondent is reluctant to increase unimproved values by 20% unless there is overwhelming evidence to support the increase. He advises that in view of limited evidence of sales, a previous increase may be overlooked until a subsequent revaluation. He argues such conservatism is usually to the owner's benefit, and supports the respondent's conservative approach to determining the values. However Mr Rylands concedes that he did not investigate the actual basic sales for the 1997 valuation, which, in hindsight, may have been useful.
(v) The Sale of the Subject Land -
As noted as a further check on his estimate of the value, Mr Walsh has sought to analyse the actual sale of the subject development which occurred close to the relevant date. The entire complex was purchased as a fully leased development on 30 November 1998 for $103,400,000. In seeking to analyse that improved sale Mr Walsh has adopted estimates of replacement building costs of $85 million supplied by Mr Carrick (Exhibit 17). Mr Carrick is the managing director of the Rawlisons Group Pty Ltd Queensland Division who are a leading firm of quantity surveyors, and who publish a leading industry guide on construction costs (Rawlinsons Australian Construction Handbook).
Mr Carrick notes that the existing building was 12 years old at his date of inspection, and is a well-maintained first quality building, which can compete in the marketplace. His estimate of costs was determined from working plans of the floors, allowing an efficiency factor of 80% of office areas, which is the standard industry norm for that class of building. To that was added the actual lease areas for retail purposes, car parking and external works, which relate to the interface between the buildings and adjoining roads and do not include works external to the site. That analysis provided a net construction cost of $84,687,000 rounded to $85 million.
Mr Carrick confirmed that he is not a valuer, and could not offer comment on any difference between replacement cost and added value of the improvements at the relevant date. However from a quantity surveying perspective, he feels that a well-maintained building of that age would be worth that cost, as the only alternative would be to replace the building. In concluding his analysis Mr Walsh determined:Sale Price = $103,400,000
Plant & Equipment = $ 100,000
Existing Leases = $ 10,000,000
Value of Existing Development = $ 85,000,000
TOTAL EX LAND = $ 95,100,000
Unimproved value of land = $ 8,300,000
That was allocated as Lots 1 and 3 (freehold) = $ 6,200,000
Lot 10 (stratum) = $ 2,100,000
Mr Walsh concludes that his estimate of $8,300,000 should then be conditioned with his local sales comparisons, and his relativity check, to confirm an unimproved value of $8,900,000. Mr Walsh accepts a figure of $10 million as the existing value of the current leases, representing one year's passing rent, which was likely to have been equivalent to the cost allowed for letting up the building from a vacant building. Mr Walsh argues those leases add value to the land. Mr Walsh made no special allocation for external works which he argues may have been either part of the value of the land or the improvements to figures of Mr Carrick.Mr Rylands rejects such an approach to the existing leases, seeking guidance from the decision of the Land Appeal Court in AMP Society v. Department of Lands (1994-95) 15 QLCR 344 at 350. Mr O'Rourke also notes that the meaning of "improvements" under s.6 of the Valuation of Land Act 1944, was seen by the Land Appeal Court to be "relative to the potential of the land and hence its unimproved value" (page 350). Mr Rylands argues that whether the leases add to the improvements or the land is just one of the difficulties involved in seeking to analyse an improved sale when determining the unimproved value of the land. However he concedes that a fully leased building would attract a higher price than a vacant building.
Mr Rylands also queries whether the existing rental values used by Mr Walsh reflect full market value at the time of the sale for a new building, rather than for a 12 year old building. Mr Rylands concedes that the rents have not increased since the date of purchase in 1998. However his subsequent research of rental levels in the area suggests that they have since risen, and thus the sale reflected an opportunity for growth in value.
In view of the strategic location and other attributes of the subject land, Mr Rylands argues that such a site was likely to be "ripe for development" in the context of the AMP case, thus negating any reason for deducting the value of any in place leases. In such circumstances, Mr Rylands argues that it would be reasonable to conclude that the building would be fully leased before it was completed (transcript 68). Mr Rylands argues that analysing improved sales, in his opinion, should only be used as a last resort, and then with considerable caution, and only where there was no existing vacant or lightly improved sales available.
As he had not analysed the improved sale of the subject development, Mr Rylands was unable to advise whether he agreed or disagreed with Mr Carrick's estimate of cost as also representing the added value of the improvements. He notes that a 12 year old building was likely to reflect some lesser level of value to that attached to a new building. However he concedes that there was no evidence supplied in respect of any obsolescence on the subject development. Mr Rylands also notes that any notional analysis of an improved sale relies for its reliability upon accurately knowing what the land is worth.
Mr Rylands agrees that from a vendor's perspective in arriving at a negotiated sale price for the subject development, the price would include the vendor's perception of any profit arising from the sale. However he argues that there is a difference in approach between an analysis of a hypothetical development of a site for assessment of market potential, and an analysis of an improved sale. In the latter he argues it is vital to assess the added value of the improvements, and not the replacement cost, as provided by Mr Carrick.
Relativity -
As a further check on reliability of his estimate of value, Mr Walsh seeks comparisons of relativity with surrounding lands. Mr Rylands makes no direct relativity comparison, relying upon his sales evidence. Mr Walsh provides the following comparisons:· Property 1 - (51 High Street, Toowong - the Woolworths Land)
This is a 7,520 square metre single level Woolworths' supermarket opposite the subject land. The property has frontages to Sherwood Road, High Street and Jephson Street, Toowong, and is in the main Toowong commercial area. As a smaller site it is considered that the land value of the Woolworths' site should be greater than the larger subject land. The Woolworths' site is valued at $4,200,000 ($559 per m²).
· Property 2 - (80-88 Jephson Street, Toowong - Lot 1 on RP182769)
This is a 4,118 square metre site adjoining the Woolworths' site, and is developed as professional offices. The property is seen as being on the edge of the main commercial area, is smaller than the subject land, and should have a rate per square metre greater than the subject land. Property 2 is valued at $2,400,000 ($583 per m²).
· Property 3 - (93 Station Road, Indooroopilly - Indooroopilly Shoppingtown)
This is a 61,789 square metre site for a major regional shopping centre, containing 92% retail areas totalling 76,839 square metres. The site includes a small 228 square metres of stratum. Because of its much larger area, but conditioned by the superior location of the subject land at Toowong, Property 3 should have a lesser unimproved rate per square metre. Property 3 is valued at $19,200,000 ($296 per m²) including stratum.
· Property 4 - (36 Baroona Road, Milton - Milton Triple Cee - Lot 1 on RP124388).
This is a 5,514 square metre neighbourhood centre containing 59% retail and 41% professional offices, with a lettable area of 2,841 square metres. This is a much smaller site than the subject land, and should reflect a slightly greater value rate than the subject land. Property 4 is valued at $2,300,000 ($417 per m²).
· Property 6 - (50 McDougall Street, Milton - "Kings Row" - Lot 5 on RP217071.
This is a 14,780 square metre site with exposure to Coronation Drive and the Brisbane River, and is developed with large commercial offices (15,718 square metres), but no mixed use capacity, and is not part of a commercial complex. The smaller Property 6 is seen as having a greater value rate per square metre than the larger subject land. Property 6 is valued at $7,900,000 ($535 per m²).
· Property 7 - (16 Park Road, Milton - "Savoir Faire" - Lot 102 on RP206926 - Lots 1-3 on BUP 11752)
This is a 4,047 square metre boutique development of strata title mixed use retail and offices. Because of its much smaller size it is seen to have a greater rate per square metre than the subject land. Property 7 is valued at $2,900,000 ($717 per m²).
· Property 8 - (337A Coronation Drive - John Oxley Centre - Lot 1 on RP223249)
This is a 5,862 square metre site with exposure to Coronation Drive and the Brisbane River. It contains commercial offices (13,084m²), is subject to a drainage reserve, but without mixed use retail potential. Because of its smaller size it is seen to have a greater rate per square metre than the subject land. Property 8 is valued at $3,400,000 ($580 per m²).
Adopting those relativities Mr Walsh determines the following unimproved value for the subject lands at $400 per square metre:
Lots 1 and 3 = $6,650,000
Lot 10 = $2,250,000
TOTAL = $8,900,000
In response to Mr Walsh's relativity comparisons, Mr Rylands argues that Property 1 (Woolworths) has a lesser plot ratio, a height restriction to three storeys, and therefore lesser views of the city and river, and does not have the advantage of co-location with the railway station. Mr Rylands argues further that the Woolworths' site is currently undervalued and should be treated as individual lots (and not an overall basis, at a total value of $5,900,000 ($785 per m²).
Mr Walsh argues that the Woolworths' site is very close to the railway station, and co-location with that facility does not necessarily become an advantage, compared to close proximity to the station. Mr Walsh further notes that it is reasonable for an appellant to rely upon adjoining relativities in view of s.33 of the Act. (See also TF and SA Shepherdson v. Valuer-General (1992-93) 14 QLCR 83, at 87).
Mr Rylands seeks comfort between the subject land (2.67ha) at $550 per square metre overall, and a small parcel immediately opposite at the corner of Sherwood Road and High Street (Lot 1 on RP51183 - 842m² @ $1,365 per m²). Mr Walsh rejects that comparison in view of the very great disparity between the sizes of the two parcels. However Mr Walsh believes his assessment of the subject land at $400 per square metre is a more realistic comparison of those two parcels.
In respect of comparisons with Indooroopilly Shopping Town (Property 3), Mr Rylands adopts comparisons on a site value basis, rather than an unimproved basis. He suggests that better reflects the allowance of $5 million made for the cost of major site works along Musgrave Road. He argues that reflects an overall improved site value of $24 million ($388 per m²) compared to the subject land ($550 per m²), which had relatively little significant improvements to achieve a workable site for development purposes. Mr Rylands argues that the site area (excluding stratum) is 61,789 square metres and at 80% efficiency the total GFA would be 96,000 square metres or $250 per square metre GFA. The plot ratio is 1.55. Because of its inferior commercial location Mr Rylands argues that the $250 per square metre GFA for Indooroopilly Shopping Town, supports the valuation of the subject land at $275 per square metre GFA, considering the larger size of Indooroopilly Shopping Town.
Mr Rylands further argues that after allowing for the different uses of properties 4, 6 and 7, they are also not inconsistent with the application of the subject land. Mr Rylands also notes that the application for the subject land at $550 per square metre compares reasonably with fringe areas of the CBD which reflect $1200 to $1500 per square metre.
In concluding his evaluation of Mr Walsh's relativities and his sales evidence Mr Rylands concludes a fair and reasonable valuation of the subject land would be:
Lots 1 and 3 = $11,000,000
Lot 10 = $ 3,700,000
TOTAL = $14,700,000
Decision:
(i) Nature and Use of the Land -
It is agreed that the subject development is a key sub-regional commercial centre which seeks to compete with the larger, but less strategically located regional complex at Indooroopilly Shopping Town. Its co-location above the Toowong Railway Station is, in my opinion, not a detriment to the site, but provides a strategic advantage for attracting potential customers. However the need for 1,642 car parking spaces demonstrates that most of the patronage is likely to come from drive-in customers. On that basis it would be unreasonable to over-emphasize the contribution of the co-location of the station to the value of the land. The key benefit of co-location is more likely to be attributed to the additional stratum land over the railway line, most of which is used for car parking.
In considering the highest and best use of the land, both parties agree that it is for its current use for retail and office development, and the current height and GFA allowed. That is in accordance with its use under s.3(4) of the Act, and as supported by the Land Appeal Court recently in Chief Executive, Department of Natural Resources v. Body Corporate for Golden Sands Community Title (AV99-280), 15 December 2000, unreported. As the Land Appeal Court said at p.6:"It is our view that the statutory provision contemplates a valuation based not on some refined view as to the use of the land, but on its use 'for any purpose for which it was being used'; that is, in the present case, for the use of units or apartments for residential purposes. The use of the broad word 'purpose' does not in our view invite an inquiry as to whether the manner and quality of the use for that purpose in the case of 'Golden Sands' differs from the manner and quality of use in the case of a more modern structure. ----- That is, the provision is concerned not with a different manner or quality of use emerging in the event of a new building being constructed, but with a continuation of the type of use previously carried out on the land. "
Following guidance provided by ss.14(1) and 5(c) and 23(3), it is clear that the valuation of the subject land is to be undertaken on the basis of a total site of area 26,717 square metres with the leased stratum land being treated as if it were freehold land.
While Mr Rylands' considered professional opinion is that the particularly attractive attributes of the subject land would tend to balance any reduction in the unit value due to its increased size, he provides no direct sales evidence to support that conclusion. However Mr Walsh's evidence was that he agrees that land values have risen in the Toowong area, but he declined to accept that such rises may also translate to the much larger subject land.
I would tend to agree with Mr Rylands that it would be most unusual in the marketplace if the key premium parcel in Toowong did not also represent a somewhat similar growth pattern. The question remains as to what level of growth does exist in the subject land. While there is no directly comparable parcel with which to measure it? The mere fact that a similarly-sized sale does not exist, does not mean that growth has not occurred.
(ii) The Method of Valuation -
It is agreed by both valuers that the preferred method of determining unimproved value is by comparison with sales of vacant or lightly improved lands, where they are available. (See PH Clough v. Valuer-General (1981-82) 8 QLCR 70 at 76; WM and TJ Fischer v. Valuer-General (1983) 9 QLCR 44 at 46; and R and MM Barnwell v. Valuer-General (1990-91) 13 QLCR 13, at 17). It is also noted that a large increase in the unimproved value from the previous valuation is not a relevant issue provided bona fide sales of comparable parcels support the new valuation. (NR and PG Tow v. Valuer-General (1978) 5 QLCR 378, at 381).
In respect of the use of relativity to determine unimproved value we note the decision of the Land Appeal Court in Barnwell v. Valuer-General (supra) which said at p.16:
"We are conscious that it is desirable that valuations made for the purposes of the Valuation of Land Act of comparable lands should bear proper relativity, one to the other, if the valuations are soundly based. It is, however, untenable to adopt a value for one parcel on relativity with another which has no sound basis. "
However I am also directed to the decision of the Land Appeal Court in Grahn v. Valuer-General (1992-93) 14 QLCR 327, where it said in respect of previous guidances at p.329:
"Bearing those propositions in mind, it is best to approach this case by considering first the position regarding sales evidence then considering the relativity of the valuations of the subject blocks with the valuations of comparable blocks of land. "
That was also followed in KJ and RA Copeland v. Chief Executive, Department of Natural Resources (AV98-907) 15 December 2000, unreported, at page 9.
(iii) Comparison of Sales -
It is agreed in this matter that comparison of sales is the preferred method, however I note that where there is no direct comparable sales with agreed similar attributes to the subject land, then the valuers are called upon to use their professional judgment in comparing smaller size parcels. However in exercising their opinions, I am reminded that such professional opinions should be based upon a reliable foundation. That was emphasized by the Land Appeal Court in Santos Limited v. Valuer-General (1988-89) 12 QLCR 231, at page 235, and in particular its reporting of Land Valuation and Compensation in Australia by Rost & Collins (3rd Edition), (1984) at p.22 which said:"A registered or licensed valuer is regarded as a person who possesses special training. He is entitled to express opinions as to value or other matters appertaining to his vocation, but these cannot be more valid than the information and reasoning upon which they are founded. In general, opinion evidence is not admissible unless it is given by a witness called as an expert. Court judgments have emphasised that the weight of an expert's opinion concerning the value of land depends upon the foundation upon which it rests. "
The Land Appeal Court upheld the learned Member's decision in Santos to prefer the evidence based upon sales to the valuation based upon opinion. (Page 235). In the current matter, for the reasons given, I will make no further reference to direct comparisons with Mr Rylands Sales 2, 3, 5 and 6. I also consider his Sale 4 more in line with the relativity check than for direct comparisons. That then leaves Mr Rylands' Sales 1 and 7 and Mr Walsh's Sale 2, as I note that the 62 High Street sale is common to both valuers.
To summarise the three basic sales then I find that the 60 High Street sale is an old sale (1993) reflecting $446 per square metre for a very much smaller area. I believe that both the disparity and size of the subject land and its age from the relevant date, affords me little assistance in the current matter. That then leaves the most useful sales as 67 High Street and the Newmarket sale.
In considering the 67 High Street sale, I believe that there is sufficient information available for an experienced valuer to conclude some comparison to the subject land. I note that Mr Rylands has relied upon construction costs in his analysis to determine the analysed rate of $832 per square metre for that sale, and has applied the sale at $660 per square metre. The sale is very near the relevant date being contracted in September 1998.
However, the sale suffers from the same problems as Mr Walsh's sales in that it is very very much smaller than the 2.67 hectare size of the subject land. While it is located more on the fringe of the Toowong commercial area, its applied rate of $660 per square metre indicates that the overall applied rate of $550 per square metre for the subject land does recognise some reduction in the unit rate for the difference in size. The question is whether that reduction is appropriate.
If I then consider Mr Rylands' Sale 7 (the Newmarket sale), I note the complex mathematical comparisons made between the Newmarket and Toowong markets. My initial reflection on Mr Rylands' logic is that I agree with Mr Walsh that the basic comparisons should not be on the basis of comparable freehold areas of about 1.6 hectares for Toowong. The fact is that the Toowong site has an overall area of 2.6717 hectares. I am also reminded that valuation is not an exact science, which was noted by the Land Appeal Court in Chief Executive, Department of Natural Resources v. Radlett Enterprises Pty Ltd (1997-98) 18 QLCR 397, where it said at page 406:"As was observed in Secretary of State for Foreign Affairs v. Charlesworth, Pilling & Co (1901) AC 373 at p.391:
'It is quite true that in all valuations, judicial or other, there must be room for inferences and inclinations of opinion which being more or less conjectural, are difficult to reduce to exact reasoning or to explain to others. Everyone who has gone through the process is aware of this lack of demonstrative proof in his own mind, and knows that every expert witness called before him has had his own set of conjectures, of more or less weight according to his experience and personal sagacity.' "
That was also noted in Santos Limited v. The Valuer-General (supra) at page 235, where court judgments have emphasised that the opinion must be based upon reliable foundations.
In considering then the reliability of comparisons with Sale 7 (the Newmarket sale), I am reminded that the experienced valuer needs to ensure that he does not rely entirely upon only limited sales, where an error of judgment in applying the comparable sales will lead to an error in the final valuation. I note for example in Waalt Homes Pty Ltd v. Road Construction Authority (1987) 64 LGRA 346 where Gobbo J said at page 354:" 'It is well established that the use of comparable sales is to be preferred as the primary method of valuation, and it is obvious that the hypothetical development analysis method offers many opportunities for error in its various assumptions and calculations. But this argument can be given too much weight, for one error of judgment in applying a comparable sale can readily lead to a significant error in the final valuation. Particularly is this so if there are few sales and no obviously discernible trend. ' "
That was also directed in RT and FH North v. The Commissioner of Irrigation and Water Supply as delegate for the Co-Ordinator-General (1977) 4 QLCR 98, at 110; and also in PJ and AL le Feuvre v. Valuer-General (1977) 4 QLCR 468 at 470.
In considering comparisons with the subject land, I am reminded that it is the whole of the subject land that is to be analysed, not merely the 1.6ha of freehold land. I am also reminded that in accordance with principles established by the High Court in Spencer v. The Commonwealth of Australia (1908) 5 CLR 418, it is important in valuing the land to be fully conversant with the features of the land including its actual size and area. That was clarified by Isaacs J where he said at p.441:"To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for whatever reason soever in the amount which one would otherwise be willing to fix as the value of the property."
Those principles have formed the basis of valuation methodology, and the requirements of the Act do not override their relevance to the current matter. Indeed the Land Appeal Court clarified that principle in Caltex Oil (Australia) Pty Ltd v. Chief Executive, Department of Lands (1996-97) 16 QLCR 435, at p.458.
If I seek then to understand the logic of both Mr Walsh and Mr Rylands in their comparisons, in my opinion, they would appear to have both had a fundamental inconsistency in their approaches. It is true that the stratum land is to be treated as if it was freehold land. But it is also accepted that the stratum land has an agreed value of only 55% of the freehold land.
The purpose of comparisons is to determine the comparable land value of the parcel. It is therefore not appropriate for Mr Rylands to compare the subject land as if it was only of a 1.6ha site. The comparison of the 1.6ha at Toowong to the 1.6ha at Newmarket, makes no provision for the 1.6ha at Toowong, which also has a premium attached of 1.0ha of stratum land, which happens to be valued at 55% of the freehold rate. It is also inappropriate for Mr Walsh to compare the subject land as if it were a 2.67ha site with the full equivalent value of such a site. The real comparison for value purposes is to compare the subject land as if it were a 2.67ha site, but with only 1.55 times the value of such a site.
Now it is not strictly accurate to assume that a site of 1.55 times the area of Lots 1 and 3 (1.55 x 1.6ha or 2.48ha), has the same value as a 2.67ha site of value 1.55 times the value of such a site. There is for example no direct straight mathematical relationship between size and value. That was noted by the Land Appeal Court in Chief Executive, Department of Natural Resources v. Radlett Enterprises Pty Ltd (1997-98) 18 QLCR 397, when it referred to a decision of the High Court at page 404:"As Mason J said in Federal Commissioner of Taxation v. St Helens Farm (ACT) Pty Ltd (1980-81) 146 CLR 336 at p.381: 'Valuation is a matter of estimation, not of precise mathematical calculation.' "
While accepting that valuation is not an exact science, for the purposes of understanding the comparisons in the current matter, I will, for the moment, adopt a notional area of 2.48ha for the subject land for comparison for value purposes only. The question then which needs to be asked is "What difference in value in the marketplace would there be between a 2.48 hectare site and a 2.67 hectare site?" Any such difference may then represent the level of uncertainty in any comparisons of value on that basis. It is Mr Rylands' hypothesis that the special attributes of the subject land would counter-balance any adjustment for its larger size. However, such a logic rests entirely upon Mr Rylands' expert opinion, without the benefit of any direct evidence to support that conclusion. The only evidence to support Mr Rylands' hypothesis lies within his Newmarket sale, which he agrees is an entirely different market location and which, compared to Toowong, is like comparing "chalk and cheese". To then assume that similar market forces prevail in the two localities tends to stretch the credibility of such comparisons.
It is true that there is really a common market for mixed use commercial retail centres in Brisbane. The developers of such facilities will compare development opportunities and potential profits in various locations. However, as Mr Walsh notes, the large difference in the capital value of a centre such as Toowong village compared to, say, Newmarket, will attract a much smaller, and perhaps more selective, range of potential purchasers. It is a fact that at the pinnacle of any market, be it property or works of art, there is a very small group compared to those at a lesser level of value. Normal statistics dictate that there are always few with the capital to participate at the highest level.
But does that scarcity factor dictate that purchasers in the dearer level pay relatively any less or any more than comparative purchasers in a lower market group. The answer to that question clearly is likely to depend upon the competition that exists at the highest level. In the current matter there is no evidence that competition was not a factor for the Toowong Village Development. Without evidence to contradict that scenario, it would be reasonable to conclude that any prudent purchaser would seek the normal market expectation of obtaining some reduction in the value rate as a consequence of the larger size of the subject land.
I believe it is too easy to classify the subject as a unique site. It certainly would appear to be unique in the Toowong locality, but the market reveals that developments equivalent to the subject land occur in the CBD, and even larger at Indooroopilly Shopping Town. On that basis, without substantiating support from the sales of comparable lands, I believe it is reasonable to conclude that a reduction would exist in the value rate in order to allow for the larger size.
(iv) Relativity -
The most useful relativity comparison would appear to be with the Woolworths' site at 51 High Street (Property 1). That property discloses an applied rate of $559 per square metre for a 7,520 square metre site. In view of guidance from s.33 of the Act, and also the principle followed in Shepherdson v. Valuer-General (supra), I agree that the current value of the Woolworths' site should be adopted for comparison purposes. If I use that as the benchmark for an analysis of size factors, assuming all else being equal, and ignoring the very small parcels less than 2,000 square metres, I find the following factors:
Toowong Milton
| Property | Area in m² | Applied $ rate per m² | Factor | Property | Area in m² | Applied $ rate per m² | Factor |
| 1 | 7520 | 559 | 1 | 4 | 5514 | 417 | 0.75 |
| 2 | 4118 | 583 | 1.04 | 6 | 14780 | 535 | 0.95 |
| 3 | 61789 | 296 (ucv) | 0.53 | 7 | 4047 | 717 | 1.28 |
| 3 | 61789 | 288(site val) | 0.69 | 8 | 5862 | 580 | 1.04 |
| Subject (Rylands) | 26717 | 565 | 1.01 | ||||
| Subject (Walsh) | 26717 | 333 | 0.60 |
The disparity in the factors at Milton indicate that the rate per square metre in that locality is less than those in Toowong. Except for Property 4 and the subject land, they all reflect a lesser rate per square metre for the larger parcels. If those factors are then applied to the size of the subject land (26,717m²) compared to, say, Property 3 (Indooroopilly Shopping Town) then an appropriate factor of about half the factorial difference between those rates was likely to apply for the subject land. (Factor 0.76 or $425 per square metre for the size impacts alone based upon applied unimproved values).
However, if I accept Mr Rylands' overall improved site value comparison with Indooroopilly Shopping Town, I find it reflects a rate of $388 per square metre (or a factor of 0.69). If I then adjust for the relative size of the subject land, allowing about half the factorial difference between the rates for Woolworths and Indooroopilly Shopping Town, I could conclude a factor of 0.85 or $475 per square metre for the subject land.
Because of the very large disparity in site works between Indooroopilly Shopping Town ($5 million) and the relatively small works at the subject land, I can accept Mr Rylands' conclusion that a site value comparison is a better basis for comparing like-with-like, bearing in mind that all other attributes are accepted as similar for the purposes of this comparison, except size. For that reason I believe the rate of $475 per square metre is a more reliable estimate adopting the relativity approach.
Now it is agreed that valuations cannot be so mathematically designed. However the relativities do indicate that the current unimproved value of the subject land would appear to be high; but they also indicate that the proposed unimproved value by Mr Walsh at $333 per square metre (Factor 0.60) would appear to be too low.(v) Sale of the Subject Land -
The use of a sale of the subject land has long been accepted as relevant information, if it has occurred at or close to the relevant date. (Inez Investments Pty Ltd v. JL Dodd (1980-81) 26 "The Valuer" 501, at 505.
The relevance of such a sale of course depends upon the conditions of the sale. That principle was also followed by Rich J in Jowett v. Federal Commissioner of Taxation (1926) 38 CLR 325, at 329. The sale of the land is also noted to be better evidence of the value of the land at the date of the contract, rather than at the date of completion. (Inez Investments Pty Ltd - p.506). In terms of a sale of the subject land, the Privy Council found in Melwood Units Pty Ltd v. Commissioner of Main Roads (1978) 52 ALJR 593, at 597; and also (1978) 5 QLCR 145, at 150, that it was in fact an error in principle and in law not to consider the sale of the subject in the circumstances of that case.
In considering the sale of the subject land, I note that it occurred only two months after the relevant date of 1 October 1998, and well before the date of issue of the valuation of the subject land on 8 March 1999. During that period I accept that there was no evidence of any change in the market for high rise commercial and office developments in that locality. Accordingly, I find no impediment to consider that sale based upon its late occurrence. That accords with the findings of this Court in Eastwell Pty Ltd v. The Valuer-General (1986-87) 11 QLCR 169, at 176; and in particular directions of the High Court of Australia in McCathie and Others v. The Federal Commissioner of Taxation (1944-45) 69 CLR 1, per Williams J at p.16.
It is clear, however, from Mr Walsh's analysis of the sale of the subject land, that he has relied upon Mr Carrick's estimate of the cost of replacement of the existing buildings, rather than make any estimate of the added value that those improvements bring to the land. There was no evidence that either valuer accepted the cost of replacement would equate to the added value of a 12 year old building, even in good working conditions.
Mr Allan seeks comfort from Mr Rylands' use of the replacement cost for the new community centre at 67 High Street (Mr Rylands' Sale 1). However, in my opinion, that use of cost rather than added value at 67 High Street should be seen in the circumstances of that sale. The cost of the community centre was adopted as it was seen to represent the extra value to the vendor in the sale of the lightly improved parcel. The vendor did receive the added value in that sale of a new community centre, not a 12 year old one.
In the analysis of the sale of the subject land, the appellants received the added value of the 12 year old building. While regular maintenance of that building is agreed to be of a good standard, it is not claimed that the building is equivalent to a new building on the site. While I have no evidence to suggest any appropriate rate of depreciation of the structure, the normal accepted difference between replacement cost and the added value suggests that there was likely to be some differential.
The use of improved sales in cases where there is a paucity of other comparable vacant sales evidence was addressed in Bingham v. Cumberland County Council (1954) 20 LGR 1 (NSW), where Sugerman J said at p.18:"In the absence of sufficient guidance to be had from sales, the valuer may find himself in a position resembling that to which Lord Romer referred in the Raja's case. (1939) AC at pp.312, 313 in which he 'will have no market value to guide him, and he will have to ascertain as best he may from the materials before him what a willing vendor might reasonably expect to obtain from a willing purchaser for the land'. In these cases that would not be because the land possessed, in terms of Lord Romer's judgment, 'some unusual, and it may be unique, features as regards its position or its potentialities but because it derived a certain uniqueness from the character of the provisions and restrictions affecting it and the consequences of the affection, which would take a sale of it outside the ordinary run of transactions in otherwise comparable lands and thus preclude direct comparisons. ---- The valuer, in arriving at his opinion in these difficult matters may have to draw upon his general knowledge and experience, including perhaps experience in other situations which, although lacking in complete comparability, may yet provide an experienced valuer with guidance and suggestions as to the general approach which may be made and as to considerations which may become relevant. And whether the sales are available or not, these appear to be cases in which a 'merely mechanical adherence to calculations' (Moreton Club v. The Commonwealth (1948) 77 CLR 253, at p.259, unattended by careful study, analysis, and comparison, and reasoning based thereon, may lead to error. "
The use of a sale of the subject land, where that land was extensively improved, was however rejected by the President of this Court in Thomas Nominees Pty Ltd v. Valuer-General (1986-87) 11 QLCR 283. That matter involved a valuation of a Buranda Shopping Centre, which was at that time only eight years old. The agreed highest and best use of the land was for a shopping centre complex; and the subject land had been recently sold for $6,575,000 only one month prior to the relevant date of valuation. The valuer for the appellant analysed that sale of the subject land, and as a check undertook two hypothetical development approaches, to which he sought to apply a percentage of the open market values so determined.
The respondent had compared sales of four vacant or lightly improved lands, two of which were subsequently developed as shopping centres, making appropriate allowances for differentiating factors. The President accepted the respondent's approach, noting that while the sales in some instances were not as comparable as desirable, "the appellant had not refuted the evidence of comparisons" (page 288). The area of the subject land in that case was 2.131ha, and had been developed for two major retail tenants, 14 specialty shops, and two floors of commercial office space. While there was no indication of the comparative size differential between the subject and the sales compared, the decision indicates that the disparity in size may not have been as much a concern as with that currently present at Toowong.
Matters of concern to the President in Thomas Nominees Pty Ltd included the possibility of errors in the value of the extensive improvements; the appropriate rate of depreciation to be applied to the building; and the extent of any potential obsolescence extant in an eight year old building. While those latter imponderables are also present in the current matter, I can accept Mr Allan's argument that Thomas Nominees Pty Ltd can at least be partly distinguished in as much as there were four reasonably comparable sales agreed in that matter. The paucity of comparable vacant sales in the current matter makes any meaningful valuation more complex for Mr Walsh and Mr Rylands.
The Added Value of the Leases -
A further influence in considering the added value of the improvements is the claim by Mr Walsh for the existence of the current leases in place at the subject land. There would appear to be some inconsistency between allowing for the full rental of the structures ($10 million), representing one year's rent, and claiming the replacement cost of a 12 year old building.
It is agreed that a purchaser would pay more for a development with guaranteed contract leases in place, compared to a vacant building. But it is also likely to be self-evident that the reason that the building is fully leased, depends partly upon its twelve years of trading history. Even if the subject building had been fully leased as a new building, I believe the additional premium obtained for the leases in place, was likely to flow from the special attributes of the land and improvements in combination. On balance, I have difficulty in accepting that a new replacement cost should be allowed in addition to the full premium for the leases in place.
If I consider the decision of the Land Appeal Court in AMP Society v. Valuer-General (supra), I find that relates to the sale of the Pacific Fair Shopping Centre site on the Gold Coast. That sale was for a vacant site, and not a fully developed site such as the subject land. The appellant in that matter unsuccessfully argued that the "rental guarantees" were separate entities to the price of the land, and therefore should be excluded from the land value as added value.
The principle that the added value of tenants should be seen as relating to the total development was followed in first instance by this Court in AMP Society v. Chief Executive, Department of Lands (AV93-333), 20 May 1994, unreported, where the learned Member said at p.19:"In the context of the Browns Plains sale and the Land Court decisions which Mr Crawford quoted, it seems to me that the attraction to an investor of tenancy agreements or rental guarantees, relates to the value of the completed development, where land and improvements lose their individual identity becoming integral components of improved land. ---- Nevertheless, the result of negotiation of tenancy agreements for a shopping centre development, in my opinion, should not be considered as being a component of land value in the absence of structural improvements whether existing or proposed."
The Land Appeal Court subsequently upheld that principle, noting at page 350:
"Relatively speaking then, we think the true impact of the rental agreement was an act to confirm (or to remove doubts about) the degree of 'ripeness' of the sale land for shopping centre purposes and thus, as the learned Member said, is relative to the potential in the land and hence its unimproved value."
In that matter the Land Appeal Court distinguished the decision of the Privy Council in Tooheys Limited v. The Valuer-General [1925] AC 439, where the enhancement and value of licensed premises was seen to be attributed to the buildings on the site.
I am also directed to the decision of ANZ Holdings Limited v. Chief Executive, Department of Lands (1994-95) 15 QLCR 223, where the President found that there was precedent for the deduction from the improved value of an ingredient other than the value of improvements. The President considered that any enhancement in the sale price because of the value of a tenancy is not reflected in the unimproved value. However, in the context of that matter, the President was unable to conclude that the value of the tenancy exceeded the value of a six month letting up period.
In that matter the President noted at page 233:"Similarly, if in the present case the sale price of the Westpac site is enhanced by the value of the tenant, this could only be in connection with the building, and yet the Act requires that it must be assumed that no building exists. Therefore, any such enhancement in the sale price cannot be attributed to the land or reflected in the unimproved value."
However the President found that the appellant's valuer had sought to also allow for an amount for the letting up period, in effect seeking a "double dipping" of the added value of the tenancy. The President also sought guidance on how a sale price could be affected by a tenancy in the findings of AG Robertson Limited v. The Valuer-General (1952) 18 LGR 261, where Sugerman J concluded at page 265:
"However, as an hypothesis which seems likely to be correct in many cases, it may be suggested that analysis of sales with vacant possession and analysis of sales without vacant possession respectively ought to provide at least the upper and lower limits of the range within which the unimproved value lies."
The question is by how much will the value be enhanced? The evidence in each particular case will determine the quantum of that enhancement. In the ANZ Holdings matter the President was provided with no evidence of comparable sales let alone vacant possession sales as a basis, and was forced to rely upon a method which had been accepted in similar cases in the Ipswich Commercial Centre.
The matter of the added value of tenants was also considered by the President in Collins Foods International Pty Ltd v. Chief Executive, Department of Lands (AV93-347), 26 November 1993, unreported. That matter relates to a general business property in Innisfail. In spite of the paucity of comparable sales to demonstrate that the marketplace would value a tenanted building higher than a vacant building, the President concluded at page 8:…"I think that the conclusion could be drawn that such a property would be more attractive and would therefore attract a higher price in the market. However, my difficulty is to know just how much extra such a property would attract, particularly as the sale was only partially tenanted at the time and there is a dispute as to whether there was any tenancy of the shed."
In my opinion, the above decisions demonstrate two principles. Firstly that existing tenancies can be considered as being added value to a property, in addition to the improvements, and therefore may be allowable deductions in order to determine unimproved value. Secondly, the circumstances of each case will determine the quantum of that added value.
In the current matter Mr Walsh has used an analysis of the subject land only as a check on his other calculations using sales and relativity. His adoption of one year's tenancies at $10 million, was not challenged by Mr Rylands in respect of its relevant quantum of value. Mr Rylands only rejects such a deduction from the sale price as unnecessary in the prevailing market in Toowong. It was Mr Rylands' opinion that any building such as the subject development in Toowong, was likely to be fully tenanted before construction of the building was completed. For that reason Mr Rylands feels that to allow one year's leases in place was not a necessary incentive to attract a potential purchaser of the subject land.
That leads me back to my earlier conclusion that to allow for the added value of a 12 year old building at replacement cost, and then to seek to allow an incentive to a purchaser of one year's rent, would appear to reflect some element of "double dipping". I would be more comfortable to allow for the added value of the existing tenancies, only if the added value of the improvements was seen to truly reflect some evidence of any depreciation. However neither valuer made any separate estimate of the added value of the building, and there was no evidence of depreciation. I must therefore do the best I can with the evidence I have before me.
Summary:
The matter of whether the replacement cost can represent the added value of improvements was discussed in Barber and Others v. Valuer-General (1968-69) 17 LGRA 409, where Else-Mitchell J said at p.411:
"To deduct the cost at current rates of effecting all such improvements would be improper, for cost is not always reflected in value and expenditure on an improvement does not necessarily result in an increment of the same amount to the value of the land: sometimes it will be more and sometimes it will be less depending upon a variety of factors including the durability of the improvement, its necessity as a measure of proper development of the property, and so on. This is, I think, only too well established by decisions of this Court and elsewhere to admit of argument. ---- This is not to say, however, that depreciated replacement cost may never be employed as a means of ascertaining the value which an improvement has added to land, but as Dr Murray has pointed out (Principles and Practice of Valuation p.220), that method of calculation can be validly employed only under certain conditions, one of which is that the value assigned to the improvements by that method is equal to their value as disclosed by sales."
That matter dealt with improvements to rural lands, and in particular with deductions that should be made in respect of clearing and timber treatment. The Court found that in such circumstances it was proper to admit evidence of actual sales which demonstrated whether costs of improvements are reflected in the increased value. The direction from that matter is that reliance upon sales evidence to assist in determining added value is important. However, it was the depreciated replacement cost that was seen as relevant, not the actual cost of replacement. It is also noted that the added value of improvements will also vary according to the economic conditions prevailing at the relevant date. Hence the importance of guidance from sales in the marketplace. (See O'Brien Nominee Pty Ltd v. Valuer-General (1979) 6 QLCR 280).
In the current matter there is no evidence of sales to either support or negate whether the cost of a new building would equate to the current added value of the current building. However, as Else-Mitchell J noted, the general wisdom of precedents would indicate that cost was unlikely to equal the added value of the building. In the absence then of evidence to the contrary, I will accept that philosophy.
In considering the evidence, I am left with comparisons of much smaller parcels in Toowong, the most relevant of which is Mr Rylands Sale 1 (67 High Street analysed at $832 per square metre and applied at $660 per square metre (79%)). Mr Rylands' Sale 7 at Newmarket is the nearest in size to the subject land, but it is in a less valuable locality, and has been analysed at $305 per square metre and applied at $244 per square metre (80%). For the reasons previously given I believe that some factors should be allowed for the larger size of the subject land, and that it should be equated to at least to a freehold parcel of notional size about 2.48ha, not 1.6ha.
If I adopt Mr Rylands' application of his Sale 1, but adjust for the larger notional area of 2.48ha, compared to a 1.6ha factor, after allowing for a factor of 0.95 indicated in the relativity comparisons, I could conclude a rate of $627 per square metre instead of $660 per square metre. The factor of 0.95 reflects allowance for the difference in size between the 1.6ha size and the 2.48ha notional size.
If I then seek some further support from Mr Walsh's analysis of the sale of the subject land, I find that Mr Walsh has inappropriately, in my opinion, failed to assess the added value of the improvements. I also note Mr Rylands' concern as to whether one year's quantum of lease rentals should be applied, in view of the attractiveness of the Toowong site. Because of those uncertainties I find I get little assistance from that analysis of that sale, particularly as it was analysed as a check only by Mr Walsh.
As noted if I then compare relativity with the Woolworths' sale (57 High Street), I could conclude a rate for the subject land of $475 per square metre. The effective rate for the subject land could then be concluded to fall between $475 per square metre and $627 per square metre. Because of difficulties in adopting either the comparison of sales, or the relativity approach, I will adopt $551 per square metre as a mean average of those approaches. That would conclude an unimproved value of $551 per square metre for a 2.48ha notional area, or $13,664,800 (say $13,670,000). If I then apply a similar apportionment as recommended by Mr Rylands, I determine unimproved values as:
Lots 1 and 3 = $10,230,000
Lot 10 = $ 3,440,000
Conclusion:
Having considered the whole of the evidence I am persuaded that the appellants have partly proved their case. The valuations as determined by the Chief Executive are set aside. The unimproved value of Lot 3 on RP211016 and Lot 1 on RP844743 is determined at Ten million, two hundred and thirty thousand dollars ($10,230,000); and the unimproved value of Lot 10 on RP209688 is determined at Three million, four hundred and forty thousand dollars ($3,440,000).
Member of the Land Court
0
4
0