Rongotai Investments Ltd v Wellington City Council
[2022] NZHC 1666
•19 July 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2019-485-724 [2022] NZHC 1666
IN THE MATTER OF An appeal against the 2012 decision of the Land Valuation Tribunal at Wellington BETWEEN
RONGOTAI INVESTMENTS LTD and RONGOTAI ESTATES LTD
Appellants
AND
WELLINGTON CITY COUNCIL
First Respondent
2468 LTD, NZ CASH FLOW CONTROL LTD, BUNNINGS LTD, LYALL BAY PROPERTIES LTD and WELLINGTON INTERNATIONAL AIRPORT LTD
Second Respondents
Hearing: 1 June to 10 June 2021 and 20 to 23 September 2021 Counsel:
G Allan, T Mijatov and M Robertson for Rongotai Parties H L Higbee for Wellington City Council (abiding)
L McEntegart and E H Wiessing for Bunnings Ltd K Sullivan and S Gazley for Other Lessees
Judgment:
19 July 2022
JUDGMENT OF CULL J and MEMBER VM WINIATA
[2012 Rating Valuation Appeal]
AThe appeal is allowed.
BThe Tribunal’s decision is set aside.
CThe modal rate for the 2012 rating revaluation is $780/m2.
DThe 2012 land values for the subject properties are set out at [107] of this judgment.
RONGOTAI INVESTMENTS LTD and RONGOTAI ESTATES LTD v WELLINGTON CITY COUNCIL and
ORS [2022] NZHC 1666 [19 July 2022] [2012 Rating Valuation Appeal]
Table of Contents
Para No.
The Tribunal’s 2012 decisions[5]
The interim oral decision[8]
Parties’ positions [9]
Rongotai[11]
Lessees[12]
Issues on appeal [13]
Approach on appeal[14]
The valuation approach[17]
Did the Tribunal err in including the Pengelly sale as a comparator?[22]
Discussion[27]
Conclusion[42]
Did the Tribunal err in its selection of the comparable sales? [43]
Analysis[52]
Conclusion[58]
Did the Tribunal err in its valuation reassessment? [59]
The Tribunal’s evaluation[62]
Modal rate assessment [71]
The comparable sales[71]
Pengelly properties [72]
162 Hutt Road [78]
21–27 Rugby Street [81]
122 Churchill Drive [84]
The valuers’ evidence[87]
Our modal rate[89]
Assessment of land values [92]
Adjustment factors[92]
5–11 Kingsford Smith Street[96]
Summary of values[101]
Deduction for Glasgow leases [104]
Conclusion[105]
Result[108]
Costs[111]
Leave [122]
[1] This is an appeal against the decision of the Land Valuation Tribunal (the Tribunal) determining the 2012 rating year objections of 17 rating units on Kingsford Smith Street and Tirangi Road (the 2012 decision).1 Quotable Value New Zealand Ltd (QV), being the rating valuation service provider for Wellington City Council (the Council), had revalued the properties as at 1 September 2012. The owners of the freehold properties, Rongotai Investments Ltd and Rongotai Estates Ltd, (collectively “Rongotai”) had objected to the revaluations. Some of the lessees also filed objections
1 Rongotai Investments Ltd v Wellington City Council [2019] NZLVT 108 [the 2012 decision].
with the Tribunal. The Tribunal upheld the QV calculations for the 2012 revaluation, with the exception of one property. These properties are subject to 21-year perpetually renewable leases, known as “Glasgow leases”.
[2] Rongotai now appeals against the Tribunal’s 2012 decision. Some of the lessees have respectively cross-appealed and/or supported the Tribunal’s findings in these appeal proceedings. The lessees’ cross-appeal challenges the Tribunal’s decision not to make a deduction for Glasgow leases.
[3] This 2012 appeal was heard as part of a consolidated appeal against the Tribunal’s decisions in respect of the 2007,2 2012, 20153 and 20184 rating year objections. This 2012 appeal hearing was heard consecutively with Rongotai’s judicial review proceedings, concerning the same Tribunal hearing. Rongotai’s allegation that the Tribunal’s 2012 hearing was unfair and that the conduct of the Tribunal disclosed apparent bias towards the Rongotai parties was upheld.5
[4] The agreed background facts, with the details of the Rongotai area and the description of the assessment of rates with the applicable principles on rating valuations have been fully described and set out in the 2007 appeal judgment.6 With all four appeals against the Tribunal’s decisions being heard together, this decision should be read alongside the 2007 decision as it concerns the same freehold interests, the same location in Wellington, and largely the same lessee’s interests, with some differences in the leasehold parties’ involvement in the respective appeals.
The Tribunal’s 2012 decisions
[5] The parties to the 2012 rating year objections were Rongotai, as owners of 17 of the subject properties situated on Kingsford Smith Street and Tirangi Road; and 2468 Ltd (2468), Bunnings Ltd (Bunnings), Lyall Bay Properties Ltd, NZ Cash Flow Control Ltd (NZCFC) and Wellington International Airport Ltd (the Airport), as lessees of the subject properties. Lyall Bay Properties Ltd and NZCFC did not
2 NZ Cash Control Ltd v Wellington City Council [2019] NZLVT 078 [the 2007 decision].
3 Rongotai Investments Ltd v Wellington City Council [2020] NZLVT 001 [the 2015 decision].
4 Rongotai Investments Ltd v Wellington City Council [2020] NZLVT 009 [the 2018 decision].
5 Rongotai Investments Ltd v Land Valuation Tribunal [2022] NZHC 1669 [Judicial Review].
6 Rongotai Investments Ltd v Wellington City Council [2022] NZHC 1665 [2007 Rating Valuation Appeal] at [3]–[9].
withdraw their objections but were not represented at the hearing and submitted no evidence. A map setting out the location of the relevant property sites subject to the objections is attached as Annexure A to this decision.
[6] The Tribunal heard the 2012 rating year objections between 19 and 29 August 2019.7
[7] The principal issue before the Tribunal was whether the Pengelly sale, involving two properties, should be included as a relevant comparable sale in reassessing the rating values in the Rongotai area for 2012 and, if so, whether improper reliance was placed upon it. The Pengelly properties, being 94 Tirangi Road and 8 Kingsford Smith Street, were sold by agreement dated 17 October 2012. They are located in a block of properties, the subjects of all four appeal hearings. Annexed to this decision and marked “A” is a map of the relevant sites, designated as freehold and leasehold respectively.
The interim oral decision
[8] On 12 September 2019, the Tribunal issued an oral interim decision, which held that the Pengelly sale was an arms-length and valid transaction.8 As it was a sale in the same area of Rongotai, the Tribunal found it was a compelling relevant sale when considering the 2012 rating values in the Rongotai area. The Tribunal said that it would need to consider the 2012 rating valuations in light of the Pengelly sale.
The substantive 2012 decision
[9] The Tribunal concluded that the valuation roll figures determined by QV for September 2012 were not in error, with one exception. The Tribunal was satisfied that QV took a “basket of all potential relevant sales” over a wide range of areas, and averaged them to reach the modal rate of $673/m2. The Tribunal also noted that Ms Watson for QV included the Pengelly sale, although the Tribunal noted that “she gave
7 The following witnesses gave evidence at the 2012 hearing: Mr Veale, expert valuer for Bunnings; Ms Quinlan, factual witness called by Bunnings; Mr Blucher, expert valuer for 2468; Ms Watson, expert valuer for QV; Mr Pengelly, factual witness called by Bunnings (via AVL); Mr Horsley, expert valuer for Rongotai; Mr Young, factual witness called by Rongotai; Mr Butchers, expert valuer for Rongotai; and Mr Aharoni, factual witness called by Rongotai.
8 Rongotai Investments Ltd v Wellington City Council [2019] NZLVT 093 [the 2012 interim decision].
the sale very limited weight.”9 In reaching this conclusion, the Tribunal conducted its own sale comparison assessment and found that a “typical lot yielded a value of
$708/m2”. The Tribunal went on to conclude that the value of a typical inside lot was
in the vicinity of $675/m2 to 700/m2 and ultimately found that $675 was “a reasonable and balanced outcome.”10 The Tribunal held that the roll valuation for the exception, 5–11 Kingsford Smith Street, was too high an assessment at $495,000 and adjusted it downwards to $375,000.
[10] The Tribunal also found that no adjustment to the capital value needed to be made for the difference in ownership between freehold or a “Glasgow” leasehold, given the state of the market in 2012.
Parties’ positions
Rongotai
[11] The principal objection from Rongotai concerns the Pengelly sale. The Rongotai parties submit that it was not reflective of the market and the Tribunal placed improper reliance upon it.
Lessees
[12] The lessee parties, being 2468, NZCFC and the Airport together (“the lessees”) and Bunnings separately, lodged cross-appeals in respect of one principal challenge, namely, that a deduction should have been made under s 21 of the Rating Valuations Act 1998 for the Glasgow leases, as the Tribunal had done in its 2007 decision. In all other respects, the lessees do not challenge the findings of the Tribunal. They contend there is no basis for an appeal against the rating roll valuations as upheld by the Tribunal. They say the valuers were relatively conservative and there was no evidential basis upon which the rolls could be increased.
Issues on appeal
[13]There are three issues on this 2012 appeal:
9 The 2012 decision, above n 1, at [6].
10 At [55].
1.Did the Tribunal err in including the Pengelly sale as a comparator?
2.Did the Tribunal err in its selection of the comparable sales?
3.Did the Tribunal err in its valuation reassessment?
Approach on appeal
[14] Under s 26(1) of the Land Valuation Proceedings Act 1948, Tribunal decisions may be appealed to the High Court. Such appeals are by way of rehearing. Parties adopted the test in Austin, Nichols & Co Inc v Stichting Lodestar, that:11
[5] The appeal Court may or may not find the reasoning of the tribunal persuasive in its own terms. The tribunal may have had a particular advantage (such as technical expertise or the opportunity to assess the credibility of witnesses, where such assessment is important). In such a case the appeal Court may rightly hesitate to conclude that findings of fact or fact and degree are wrong. … An appeal Court makes no error in approach simply because it pays little explicit attention to the reasons of the Court or tribunal appealed from, if it comes to a different reasoned result. On general appeal, the appeal Court has the responsibility of arriving at its own assessment of the merits of the case.
[15] Thus, if the appellate court’s opinion is different from the conclusion of the Tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ.12
[16] Before dealing with the above three issues, it is important to understand the valuation approach adopted by the Tribunal and the issues surrounding the Pengelly sale.
The valuation approach
[17] In each of the hearings under appeal, the Tribunal received expert evidence from registered valuers, who adopted the “sales comparison” approach to the valuation assessment by agreement.
11 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16] (footnotes omitted).
12 At [16].
[18] The sales comparison approach has been described in our 2007 appeal decision13 and further in our mathematical calculation judgment.14 The approach has been described as consisting of five basic steps which are:15
1. Sales evidence and other data – information is collected, such as the physical attributes of the properties sold, and verified as to accuracy and their bona fides.
2. The most comparable sales are selected – of sufficient quantity to form a distinguishable market pattern.
3. The sales are analysed by some means – using units of comparison (such as per square metre or per hectare) or other advanced statistical techniques.
4. Evidence from the comparable sales is compared to the subject property – by means of an appropriate unit of comparison or other comparison technique “with adjustments for differences.”
5. The value of the subject property is then estimated – by the application of the appropriate comparison technique, to which the valuer then applies his or her professional experience and judgment in assessing whether this makes good sense and gives an adequate interpretation of the available market evidence.
[19] The example provided in the Jefferies textbook involves the valuation of only one property, being a single storeyed block of rental flats. Because there are numerous subject properties here, the sales comparison approach was adapted by the expert valuers and the Tribunal. The adaptation and methodology applied can be summarised as follows:
(a)They selected an exemplar or modal site, either actual or notional,16 for the location of the subject properties.
(b)They selected comparable sales of properties which ere as close as possible to the exemplar or modal site.
13 2007 Rating Valuation Appeal, above n 6, at [36]–[42].
14 Rongotai Investments Ltd v Land Valuation Tribunal [2022] NZHC 1664 [Mathematical calculation issue].
15 Rodney L Jefferies Urban Valuation in New Zealand — Vol 1 (2nd ed, Land Institute of Valuers, Wellington, 1991) at 6-2 and 6-3.
16 In 2012 the modal site was a notional vacant lot in the Rongotai area possessing agreed characteristics. In the 2015 and 2018 objections hearings, the modal site adopted was 29 Kingsford Smith Street: see the 2015 decision, above n 3, at [59]; and the 2018 decision, above n 4, at [12].
(c)They made adjustments to each comparable sale, where it differed in comparison to the modal site, such as for location, zoning, physical characteristics and time.
(d)They then reconciled the comparable adjusted rates, by weighting the best comparable to determine and adopt a modal rate for the modal site.
(e)They then applied the modal rate to each of the subject properties to determine their land values. The modal rate is normally adjusted to reflect any variation where a subject lot differs to the modal site. For example, if a subject lot has a dual frontage, the modal rate would be adjusted upwards by an appropriate percentage to reflect that added feature of that particular subject lot.
[20] In making their selection of the comparable property sales by price, settlement date and features of the property, like location, zoning, physical characteristics and time, the valuers referred to their selection as a “basket” of comparable sales or comparables. The sales information relating to those comparable properties must derive from transactions that conform with the International Valuation Standards, which require that properties included in the basket of comparable properties should:17
(a)be an arm’s length transaction;
(b)have no special terms or circumstances that might affect price, such as concessions granted or elements of value available only to a specific purchaser; and
(c)have had proper and appropriate marketing.
[21] Once the “basket” is selected, the valuer then makes adjustments to the comparator sale prices to account for material differences between those properties and the subject properties and to account for any market changes since the sale itself. Adjustments on those accounts may be positive or negative.
17 International Valuation Standards Council International Valuation Standards 2017 (31 January 2020) [International Valuation Standards] at [30.1]–[30.2].
Did the Tribunal err in including the Pengelly sale as a comparator?
[22] The question of whether the Pengelly sale should be included as a comparable sale in the 2012 objection reassessment was strongly contested by Rongotai before the Tribunal. Rongotai submitted that it was a below market sale and was not sold in accordance with the prudent vendor test. They said the sale price failed to reflect the land value, being what a “willing but not anxious seller would sell for and what a willing but not anxious buyer would be prepared to pay for the property”18 on the evidence. Rongotai contended that the vendors had motivations to sell which affected their profit motivation and ultimately sold the properties to Mr Pengelly at $2.374 million despite an unconditional offer, which they had received from Mr Aharoni for
$3.6 million. Both Rongotai and the lessees hotly contested whether Mr Aharoni’s conditional offer was genuine.
[23] The Tribunal rejected Rongotai’s contention that the Pengelly sale was an outlier or a “distressed” sale, in holding that it was an arms-length and valid transaction. However, the Tribunal accepted that the Pengelly sale was a “low sale”, although not on the basis of Mr Aharoni’s higher offer. Rather it was on these factors:19
(a)the vendors indicated that it was their clear preference to sell both sites at the same time and were prepared to consider a lower price per site on that basis; and
(b)the land at the time was not leased, or generating an income for the owners. The Tribunal considered there was no particular priority at the date of valuation for freehold sites over leased sites and buyers and investors would likely be prepared to pay similar prices for the same property.
[24] The Tribunal made no allowance to reflect the low sale price of the Pengelly sale. The Tribunal recorded, however, that the Pengelly sale “unadjusted, would yield a square metre figure well below any figures suggested by all witnesses.”20
18 Valuer-General v Mangatu Inc [1997] 3 NZLR 641 (CA) at 649.
19 The 2012 decision, above n 1, at [22].
20 At [7].
[25] Rongotai repeats its above arguments on appeal, submitting that the Pengelly sale should not be included as a comparator but if it is, should be given low weight.
[26] The lessees support the Tribunal’s finding that the Pengelly sale was the most comparable and should have been included. They also submit that the Tribunal actually adjusted the Pengelly price by a 20% uplift, which was appropriate given its finding that it was at the low end of the market.
Discussion
[27] The submissions challenge whether the Pengelly sale was a valid or genuine market transaction; whether it should be included as a comparable; and whether it was appropriately characterised a low sale. We deal with each in turn.
[28] A number of conditional and unconditional offers to purchase the Pengelly properties were received. Mr Aharoni’s offer of $3.6 million, conditional upon obtaining finance, was the highest. This offer was initially accepted. However, following Mr Aharoni’s request for an extension of time to fulfil the finance condition, the vendors voided the sale and purchase agreement. The vendors gave Mr Aharoni a deadline on 1 pm the following day to make an alternative unconditional offer supported by a deposit and cleared funds. This did not occur.
[29] Mr Young confirmed that Mr Pengelly’s unconditional offer of $2.374 million accepted by the vendor was the second highest bid at the 2012 tender. The Tribunal set out the background to this sale and purchase agreement and price.21 Mr Pengelly had made individual bids on the two properties with a sum total of $2.6 million and had entered a separate bid for both properties together for $2.2 million. Subsequent negotiations led to the $2.374 million sale price, some $1.2 million lower than Mr Aharoni’s offer.
[30] We turn to the valuers’ evidence regarding the Pengelly sale. Ms Watson gave evidence for QV. Contrary to the QV roll valuation assessment, she considered that the Pengelly sale was a “tainted transaction” or questionable sale. She advised the
21 The 2012 interim decision, above n 8, at [15]–[19].
Tribunal that she had taken the Pengelly sale into account but “gave the sale very limited weight”.22 She stated in her evidence:
Weighing up all factors, I am of the viewpoint that the Pengelly transactions should not be entirely disqualified as evidence given their location, timeliness and freehold tenure, however the weight placed upon the transactions needs to be moderated as it is my position that they were sold below market level. It appears that the vendors acted in manner that was atypical of most vendors.
[31] Ms Watson included it with rates between $554/m2 to $561/m2, but it appears that Ms Watson did not make an adjustment for a ‘low sale’ or as she describes it, a ‘tainted transaction,’ in her summarised table of comparable sales.
[32]Mr Blucher, the expert valuer called by 2468, concluded:
… it was properly marketed through Bayleys, the price accepted was the best unconditional offer and that the [vendors] were motivated but not compelled to sell.
[33] He also noted that Mr Aharoni was an interested party and being an adjoining owner, would pay a premium. Nevertheless, Mr Blucher recorded the Pengelly sale as the best comparator, noting the properties were located within the airport noise boundary, had limited potential for any residential development and had older buildings on them. Accordingly, he did not adjust it for being a low sale. Mr Blucher did not place any special weight on the sale but added it to his table of business one sales, which made an average sale value of $651/m2. His centre zone sales were
$748/m2 with an overall average of $708/m2. He concluded that a modal rate for a typical lot on Kingsford Smith Street was $675/m2.
[34] Mr Veale included the sale with rates between $540/m2 to $641/m2. However, he does not appear to adjust for it being a low sale.
[35] Both Messrs Horsley and Butchers considered the Pengelly sale was not a relevant comparator. Mr Horsley said that the transaction had to be treated with “extreme caution” as it involved a “very anxious vendor”. Mr Butchers considered that the Pengelly sale was an outlier when looking at QVs data set of comparables and should be “excluded from the wider data set of comparable evidence”.
22 As recorded in the 2012 decision, above n 1, at [6].
[36] We consider that the Pengelly sale, being a sale in October 2012, the date closest to the operative date of the valuation of 1 September 2012, was a genuine sale, being an arms-length market transaction between a willing buyer and a willing seller in an arms-length transaction. Each of the parties had acted knowledgeably and based on the vendor’s evidence, the vendor confirmed they were not engaging in a distressed sale. The property was properly marketed, and the offer accepted was the second highest tender offer behind Mr Aharoni’s voided agreement. Ms Quinlan for the vendors gave evidence, rejecting the suggestion that the sale was a forced sale. We accept this evidence.
[37] As well as being a genuine transaction, we consider the Pengelly sale is a strong comparable. It is in the immediate location of the subject properties in the relevant time period. It is a strong comparable by virtue of its location, zoning, and physical characteristics of the two lots; its shape, size, and position (being front lots and not rear lots). We conclude that the Tribunal did not err in including the Pengelly sale as a comparable.
[38] From a review of the tender process in 2010 and the offers made in respect of the two Pengelly properties, we consider that the Tribunal was correct in acknowledging the Pengelly sale as a low sale. Although we have not had the benefit of hearing the evidence as did the Tribunal, the history of offers since 2010 supports the Tribunal’s characterisation of the sale.
[39] In 2010, an offer for $2.8 million for the two Pengelly properties was rejected as too low. A further offer was made of $3.1 million in 2010, which was also rejected. Rongotai contended that the further offer of $3.4 million was amended to $3.6 million in late 2010 or early 2011 but Rongotai contends that evidence was not permitted to be called before the Tribunal. As noted, Mr Aharoni made a conditional offer of
$3.6 million in 2012.
[40] In our view, the fact that the Tribunal accepted that the Pengelly sale was a market transaction but should be treated as a low sale, was an appropriate finding in the circumstances. We do not disturb it on appeal.
[41] However, the Tribunal made no allowance to reflect the low sale. The Tribunal’s omission to adjust the Pengelly sale as a low sale, having included it in its “basket of comparables”, has lowered the modal rate adopted by the Tribunal. The Tribunal did not provide its reasoning or its adjustments in reaching its modal rate and confirming the 2012 QV roll valuations. We deal with this further under the third issue of the Tribunal’s valuation reassessment.
Conclusion
[42] We accept Mr Blucher’s evidence that the Pengelly sale should be included with adjustments as it was an open market freehold sale of a comparable property. The Tribunal was also correct to characterise it as a low sale. We now turn to consider the Tribunal’s selection of comparables.
Did the Tribunal err in its selection of the comparable sales?
[43] As mentioned, the parties and their expert valuers agreed that the appropriate valuation approach to be adopted for the rating objection hearings should be the sales comparison approach. The sales comparison approach provides an indication of value, by comparing the asset with identical or comparable assets for which sale information is available.23 As the Tribunal recognised, the Global Financial Crisis meant there was a dearth of comparable sales in the Rongotai area for the 2012 valuation assessments24 and, as a result, each of the valuers selected comparable sales across the Wellington City.
[44] This practice accords with the International Valuation Standards, which gives guidance to valuers when comparable market information does not relate to the exact or substantially the same asset. The Standards state:
20.5 When comparable market information does not relate to the exact or substantially the same asset, the valuer must perform a comparative analysis of qualitative and quantitative similarities and differences between the comparable assets and the subject asset. It will often be necessary to make adjustments based on this comparative analysis. Those adjustments must be reasonable and valuers must document the reasons for the adjustments and how they were quantified.
23 International Valuation Standards, above n 17, at [20.1].
24 The 2012 decision, above n 1, at [2].
20.6 The market approach often uses market multiples derived from a set of comparables, each with different multiples. The selection of the appropriate multiple within the range requires judgement, considering qualitative and quantitative factors.
[45] Of note, there is no precise number of comparable sales required and each of the expert valuers called by the parties differed in their selection of comparables.
[46] Rongotai submits that the Tribunal failed to correctly identify the comparable and/or most comparable sales and failed to give adequate reasons for its selection. In addition to their submission that the Tribunal ought not to have included the Pengelly sale, Rongotai submits the Tribunal incorrectly held that:25
… more weight should be put on those sales which represent the business one rezoning, and to a slightly lesser extent the other sites that include part Business 1 zoning, and… a Business 2 zoning [property], with lower weighting on the other freehold sales evidence.
[47] The lessees reject Rongotai’s challenge. They support the Tribunal’s view that more weight should be put on business zone sales than centre zone sales. The lessees submit that centre zone is a superior zone where sales are of higher value, with the ability to carry out developments including residential development, compared to the more restrictive business one zone within which resource consents must be obtained for larger retail, commercial and any residential developments.
[48]The Tribunal selected five comparable sales in undertaking its reassessment.
Those sales were:26
(a) 94 Tirangi Road and zoned business one, unadjusted value $615/m2. 8 Kingsford Smith Street
[Pengelly properties]
(b) 162 Hutt Road zoned business one and after an allowance for
the right of way land the adjusted rate for the buildable area, is $653/m2.
(c) 230A Rongotai Road zoned business two, after adjustment for size,
zoning and location the rate equates to $790/m2.
25 At [50].
26 At [52].
(d) 21–27 Rugby Street zoned centre, [part business one and part
residential] 27 and therefore required significant adjustment for both zoning and location.
Adjusted rate $762/m2.
(e) 122 Churchill Drive zoned suburban centre, “purchased as a
"blocker'' by a supermarket chain which
impacts on its usefulness as a comparable. We note it resold in May 2013 at a very similar figure. Adjusted rate $790/m2.
[49] The above selected sales comprise a mix of zones including business one, business two, centre zone, suburban zone and residential. The Tribunal expressed its preference for freehold sales and those within the same site zoning as the 17 subject properties on Kingsford Smith Street and Tirangi Road, being zoned business one. The Tribunal placed most weight on those that required the least adjustment for a “typical inside lot.” After conducting their own sales comparison analysis, the Tribunal found that the existing roll value of $673/m2 for the modal site was an appropriate value.28
[50] Comparing the Tribunal’s selection of comparable sales, we note that all five valuers chose two sites in common, namely 21–27 Rugby Street and 122 Churchill Drive. Three valuers (the lessees’ experts) included the Pengelly properties29 and the same two valuers used 162 Hutt Road and 230A Rongotai Road.30
[51] Of note, both Rongotai experts, Mr Horsley and Mr Butchers, who excluded the Pengelly property, selected relatively dated sales in the Rongotai area, ranging from two to seven years prior to the revision date of September 2012. In recognising the paucity of timely and relevant evidence in the wider Rongotai area, Mr Butchers considered a range of vacant or near vacant sales across the wider Wellington region.
Analysis
[52] We agree with the Tribunal that greater weight should be put on freehold sales which represent business one zoning, and to a lesser extent sites with part business one
27 The Tribunal referred to 21–27 Rugby Street as zoned centre, part business one and part residential. The valuers described the zoning as centre zone and suburban centre zone which was the former zoning prior to District Plan Change 73 in 2007.
28 The 2012 decision, above n 1, at [53].
29 Mr Blucher, for the lessees; Mr Veale, for Bunnings and the Airport; and Ms Watson, for QV.
30 Mr Blucher, for the lessees; and Ms Watson, for QV.
zoning and/or business two zoning.31 Sales in the business one zone are more relevant because all 17 subject properties are zoned business one. However, here, as noted, direct comparable sales are limited when considering factors such as location, physical characteristics, zoning and date of sale. It is therefore often necessary to consider comparable sales that are not exact in location, physical characteristics, zoning and that have sold close in time to the valuation date.
[53] The majority of the Kingsford Smith Street subject properties (excluding one with dual frontage to Tirangi Road) are all ‘modal’ type lots being regular (rectangular) in shape, flat in contour and around 2000m2 (as individual titles) in land area, with the exception of 5–11 Kingsford Smith Street.
[54] The Tirangi Road subject properties all enjoy greater traffic exposure than the Kingsford Smith Street properties, with the exception of 68–74 Kingsford Smith Street, which has exposure to Lyall Parade for which an allowance over the modal rate is made. Four properties enjoy corner influence (102–106 Tirangi Road, 108–112 Tirangi Road, 47 Kingsford Smith Street and 68–74 Kingsford Smith Street) and two properties have dual frontage to both Tirangi Road and Kingsford Smith Street (108– 112 Tirangi Road and 126 Tirangi Road).
[55] In our view, the four best comparable sales used by the Tribunal are the Pengelly properties, 162 Hutt Road, 21–27 Rugby Street and 122 Churchill Drive. We have already given our reasons for the relevance of the Pengelly properties. We would include 162 Hutt Road because it is zoned business one and is a front lot, although it is smaller (1124m2) than a typical lot for the subject properties being valued.
[56] While Rugby Street and Churchill Drive are not zoned business one,32 we still consider these to be relevant sales. 21–27 Rugby Street is a good-sized lot (2048m2) representing a typical inside lot and is zoned centre zone. It has since been developed into high rise apartments. 122 Churchill Drive is centre zoned and provides a comparative of a larger size of 7998m2 or an effective area of around 7000m2 to 7600m2. With limited comparable sales having identical or very close land area size
31 The 2012 decision, above n 1, at [50].
32 Both zoned centre zone.
to the ‘typical lot of 2000m2, the Hutt Road and Churchill Drive properties provide balancing comparative evidence either side of the typical lot size.
[57] We differ from the Tribunal, however, over the inclusion of 230A Rongotai Road, which is zoned business two. The parties disagreed over whether business two zoning should be included because of the future potential for residential development within the business one zone. We consider 230A Rongotai Road was not an appropriate comparable to the modal site as it had business two zoning,33 was a rear lot, and was a small site with an effective land area of 516m2 (being the titled area of 638m2 less the pan-handled accessway of 122m2).34
Conclusion
[58] We conclude that the Tribunal’s selection of four of the comparable sales was appropriate and not in error. However, we find that 230A Rongotai Road was not an appropriate comparable sale for the modal site. It is a relevant comparable however, for the anomalous property of 5–11 Kingsford Smith Street.
Did the Tribunal err in its valuation reassessment?
[59] The Tribunal decided that the QV assessment for 2012/13 roll valuation was appropriate and not in error.
[60] The Tribunal determined that the value of a typical inside lot on Kingsford Smith Street as at 1 September 2012 was in the range of $675/m2 – $700/m2. It did not adjust the roll values of the subject properties, with the exception of 5–11 Kingsford Smith St. The table below shows the adopted QV values for 2012 revaluation and the adjustment made to the exception:
Property:
Value ascribed by QV for 2012 revaluation:
Tribunal finding:
102–106 Tirangi Road
$1,300,000
(No change)
108–112 Tirangi Road
$2,500,000
(No change)
33 That is not to say business two zoned properties will never be relevant comparables; rather it is the combination of its characteristics that make 230A Rongotai Road a poor comparator.
34 We note this calculation differs from that of Ms Watson, who concluded the effective area of 230A Rongotai Road to be 508m2 and of Mr Veale, who said it was 538m2.
114–118 Tirangi Road
$1,300,000
(No change)
120–124 Tirangi Road
$1,300,000
(No change)
126–130 Tirangi Road
$3,800,000;
(No change)
132–136 Tirangi Road
$1,300,000
(No change)
5–11 Kingsford Smith Street
$495,000
$375,000
14 Kingsford Smith Street
$1,300,000
(No change)
22 Kingsford Smith Street
$1,300,000
(No change)
24–26 Kingsford Smith Street
$1,400,000
(No change)
28–34 Kingsford Smith Street
$2,800,000
(No change)
29–33 Kingsford Smith Street
$1,300,000
(No change)
36–54 Kingsford Smith Street
$6,700,000
(No change)
47–51 Kingsford Smith Street
$1,300,000
(No change)
56–58 Kingsford Smith Street
$1,400,000
(No change)
60–66 Kingsford Smith Street
$2,900,000
(No change)
68–74 Kingsford Smith Street
$3,500,000
(No change)
[61] As noted, the only change the Tribunal made to the QV roll value was 5–11 Kingsford Smith Street and valued it downward from $495,000 to $375,000.
The Tribunal’s evaluation
[62] The five expert valuers each considered a range of sales, adjusting the sales evidence they had selected, to arrive at a value for a typical “inside lot” of approximately 2000m2 on Kingsford Smith Street. The Tribunal noted that the values ranged from $625/m2 (as assessed by Mr Veale) to $920/m2 – $1,000/m2 (adopted by Mr Horsley)35 and preferred the evidence of Mr Veale in respect of the adjustments he made.36 The Tribunal records that the rateable valuation for the typical lot adopted by
35 The 2012 decision, above n 1, at [25].
36 At [47].
the Wellington City Council, after objection, was $673/m2. From that starting point, the Tribunal records, adjustments were made to achieve uniformity with other sites in the locality.37
[63] After canvassing the wide range of sales evidence given by the valuer experts, the Tribunal undertook its own evaluation selecting the five comparable sales as set out above. It placed most emphasis on those that required the least adjustment. The Tribunal then adjusted four of the comparable sales to a value for a typical inside lot as follows:
Pengelly properties unadjusted $615/m2
162 Hutt Road adjusted $653/m2230A Rongotai Road adjusted $790/m2
21–27 Rugby Street adjusted $762/m2
122 Churchill Drive adjusted $790/m2
[64] The Tribunal then found that “this yields a typical lot value of $708/m2.”38 It is unclear how this value was reached. If, as Rongotai submits, this was an average of the rates of the five comparable sales above, the lot value would be $722/m2. There is no further explanation as to how $708/m2 was calculated.
[65] More perplexing is the Tribunal’s determination that the value of a typical inside lot on Kingsford Smith Street is in the vicinity of $675/m2 to $700/m2. This, it says, compares with the existing roll valuation of $673/m2. The relevant passages of the Tribunal’s decision are juxtaposed as follows:
…
This yields a typical lot value of $708/m2.
[53] After consideration of the most comparable evidence, the Tribunal considers the value of a typical inside lot on Kingsford Smith Street is in the vicinity of $675/m2 - $700/m2. This compares with the existing roll valuation of $673/m2. We conclude that this lower value can be supported by giving slightly greater weight to the Pengelly Transaction.
The Tribunal then states:
[55] While a lower value per m2 can be argued by reference to the Pengelly Transaction we acknowledge it as a low sale. Nor can the arguments for a
37 At [25].
38 At [52].
higher rate per m2 be reconciled with the best evidence for the Pengelly Transaction.
[66] From there, the Tribunal concluded that the 2013 roll valuation at $675 was a reasonable and balanced outcome representing about “10% over the Pengelly transaction”.39 The Tribunal found that was consistent with the average of the most comparable sales and upheld the 2013 roll values, with the exception of 5–11 Kingsford Smith St.40
[67] There are a number of aspects of the Tribunal’s reasoning which are troubling. The first is the discrepancy between the Tribunal’s finding of $708/m2 as a typical lot value without explaining how it made this calculation. Plainly, if the five comparable sales values are averaged, $722/m2 would have yielded a different result and an increase in value. Second, there is no explanation as to how the adjustments for the four comparable sales properties were made and what percentage was either applied by uplift or deduction. Third, if, as the Tribunal appears to have found, a typical lot value of $708/m2 was its determination, it is unclear how the Tribunal then concluded that a value of a typical inside lot was less, namely $675/m2 to $700/m2. The step down to the “existing roll valuation of $673/m2” is a further deduction but without any reasons to support the “lower value”. The only explanation is that the “lower value” could be supported “by giving slightly greater weight to the Pengelly transaction”.41
[68] Finally, the Tribunal concludes that the 2013 roll valuation at $675/m2 is “a reasonable and balanced outcome.”42 It appears that the Tribunal has undertaken some adjustment, in recording the existing roll valuation of $673/m2. Arguably, from the wording of the Tribunal’s paragraph [55], the Tribunal has adjusted the roll valuation rate in reaching $675/m2, as the Tribunal says at [55]:
It represents around 10% over the Pengelly transaction rated and this is also consistent with the average of the most comparable sales.
[69] We find the reasoning of the Tribunal unpersuasive. We have concluded that the lack of explanation and the inconsistent findings of the Tribunal have led to error.
39 At [55].
40 At [55]–[56].
41 At [53].
42 At [55].
[70] As a Valuation Court, we have come to a different result and adopting the Austin, Nichols & Co Inc v Stichting Lodestar approach to general appeals, we have undertaken our own assessment, reviewing the valuers’ evidence in relation to the relevant comparable sales.
Modal rate assessment
The comparable sales
[71] We begin our assessment by taking the four comparable sales, which the Tribunal selected, (with the exception of 230A Rongotai Road) and comparing the valuers’ averaged rates of each comparable sale with the rate used by the Tribunal. We accept the Tribunal may have “weighted” their choice of rate for each property but there is no detail to show how the adjustments were made for four of the properties they selected with adjusted rates.
Pengelly properties
[72] The sale price for the Pengelly properties was $2.374 million. The Tribunal acknowledged it as a low sale and we agree.
[73] However, we consider the Tribunal erred in its assessment of the properties’ unadjusted value. The unadjusted value of a property is calculated by dividing the sale price by the land area. In this case, the sale price of $2.374 million divided by the land area (4023m2) equates to $590/m2, not $615/m2 as calculated by the Tribunal.
[74]We consider the sale price should have been adjusted as follows:
(a)‘Low’ sale
While the Tribunal made no adjustment for the Pengelly properties as a low sale, it did, however, suggest a 10% upward adjustment would have been reasonable.43
43 The 2012 decision, above n 1, at [46]. We note that in the Tribunal’s 2015 decision, the Tribunal refer to the 2012 rate for the Pengelly sale as $675/m2, being the rate the Tribunal in 2012 said reflected the 10% “reasonable allowance” for a low sale: see the 2015 decision, above n 3, at [51]. However, the Tribunal did not make that adjustment and applied the unadjusted rate in its “evaluation” of the 2012 modal rate.
When viewing the list of interested tenderers at the time the Pengelly property was for sale in September 2012, the offers ranged from $1.6 million to $3.6 million, with a mid-point of $2.6 million. We note nevertheless that the final sale price was $2.374 million, which is approximately 10% below the mid-point of the highest and lowest offers. We consider the Tribunal’s indication of a 10% uplift for a low sale to be reasonable. We would therefore adjust the sale price upwards by 10%.
(b)Yellow stickered buildings
The Council use yellow stickers as a way to identify that certain buildings are earthquake prone. An earthquake prone building is one which would collapse (wholly or partially) in a moderate earthquake. In practice this means the building meets less than 34% of the building standard. If a building has been determined to be earthquake prone it must be strengthened within a timeframe or demolished. There is a cost to either strengthen or demolish the building. As a guide we have estimated this cost to be around $150,000 or 6% of the sale price. We would therefore adjust the sale price upwards by 5%.
(c)Two-lot purchase
It is not uncommon for a purchaser to negotiate a discount when buying bulk – in the case of the Pengelly sale, two lots as opposed to one.
The tender record reflects an 18% difference between the summation of the two lots, if purchased individually, compared with both lots being purchased together. We therefore adjust the sale price upwards by 15%.
(d)Corner influence
The Pengelly properties comprise a corner lot. This is superior to the modal site which is a standard inside lot. We adjust the sale price downwards by 10%.
[75] Applying the above adjustments (a net 20% upward adjustment) to the corrected unadjusted land value of $590/m2, we reach an adjusted value of $708/m2 for the Pengelly sale.
[76] The lot value of 708/m2 contrasts with the Tribunal’s unadjusted rate for the Pengelly sale of $615/m2. Our adjusted Pengelly $/m2 rate has an impact on the modal rate, which again differs to the Tribunal’s. We deal with our adopted modal rate below. We note that the three valuers who did analyse and use the Pengelly sale in their analysis did not appear to have adjusted it for it being a ‘low sale’ and that the average of their rates for the Pengelly sale was $661/m2.
[77] We have given consideration to Mr Sullivan’s submission that the Tribunal did adjust the Pengelly sale price and applied a 20% uplift, but we do not accept it. The Tribunal’s rate for the Pengelly properties is recorded as unadjusted. In our view, had the Tribunal adjusted it, the “typical lot value” may have been higher than its stated
$708/m2. The average of the five best comparable sales used by the Tribunal is
$722/m2, not $708/m2. The $722/m2 is reached by analysing the Pengelly sale as one sale and not two sales. We note that in Mr Sullivan’s supplementary oral submissions he has applied the $615/m2 for the Pengelly sale twice. The total of the comparables should be divided by six sales and not five. We do not accept therefore that the Tribunal has adjusted the Pengelly sale. If the Tribunal had made the 20% adjustment Mr Sullivan says it did, we calculate that the Tribunal’s averaged rate would have been
$740/m2, being 10% above the 2012 roll revaluation rate of $673/m2.
162 Hutt Road
[78] The Tribunal adjusted 162 Hutt Road to a rate of $653/m2 after an allowance for “the right of way land and buildable area.” Only two of the valuers, Ms Watson and Mr Blucher included this sale in their analysis. Their rates were between $638/m2 to $684/m2 respectively, averaging $661/m2. This contrasts with the Tribunal’s adjusted rate of $653/m2.
[79] We have reviewed the two valuers’ adjustments to the 162 Hutt Road sale price as follows:
(a)Location: Only Ms Watson made an adjustment for location (-7.5%). Mr Blucher made an allowance for ‘views’ (-2.5%). A views adjustment for commercial/industrial land is most unusual. Purchasers of commercial/ industrial land do not generally consider ‘views’ to be an important factor, unlike purchasers of residential land. Mr Blucher’s allowance for views could be considered an adjustment for location. Of the two, we consider a 5% downward adjustment for location is appropriate.
(b)Shape: Ms Watson allowed a 5% upward adjustment and Mr Blucher a 2.5% upward adjustment. We adopt Ms Watson’s adjustment as reasonable, as minor adjustments in the range of 2.5% make minimal difference.
(c)Size: We consider a 10% upward adjustment for size, as made by Ms Watson is reasonable.
[80] Applying a total downward adjustment of 10% to the $730/m2 sale price our resulting adjusted rate for 162 Hutt Road is $657/m2 (being the sale price of $730/m2 less 10%.)
21–27 Rugby Street
[81] The Tribunal adjusted 21–27 Rugby St to a rate of $762/m2. All five valuers used this sale in their analysis with analysed rates between $645/m2 to $1,164/m2. Four of the valuers analysed rates ranged between $879/m2 to $1,164/m2 with the average of those four being $1,022/m2. The average of all five valuers analysed rates was $946/m2.44 This is 24% higher than the adjusted rate for this sale reached by the Tribunal, being $762/m2. The rates adopted by four of the valuers for this property, with Mr Blucher the exception, were considerably more.
44 The rates adopted by the valuers were: $645/m2 (Mr Blucher); $879/m2 (Ms Watson); $932/m2 (Mr Horsley); $1,112/m2 (Mr Butchers); and $1,164/m2 (Mr Veale).
[82]We consider adjustments should be made as follows:
(a)Location: The valuers made downward adjustments between 10% and 25% for location. Given two valuers used - 25% and one used -15%, we adopt an adjustment for location at -20%.
(b)Shape: consistent with all valuers, we adopt a 5% upward adjustment for shape.
(c)Corner influence: Ms Watson allowed a downward adjustment of 5% for corner influence, which we consider is too light. We consider the 10% deduction by Mr Blucher and Mr Horsley to be more realistic. We therefore adopt a 10% downward adjustment for this factor.
(d)Views: a factor for views was allowed for by Mr Blucher only. As with 162 Hutt Road, we do not consider this is a relevant factor.
(e)Town planning: Rugby Street is zoned centre zone. As observed, this is different to the Tribunal’s description.45 Only one valuer, Mr Blucher allowed for town planning (-10%). We do not consider an adjustment for town planning or zoning to be appropriate for the 2012 revision. At that time, as the Tribunal noted, the Operative Plan governed the zoning restrictions of the properties. Thus, potential liberalisation of zoning was not considered to have been a significant factor impacting on property values in the Rongotai area.46 We agree. No adjustment, therefore, was required in 2012.
[83] We therefore make a 25% downward adjustment to the sale price of $1,172/m2 for 21–27 Rugby Street (comprising -20% for location, +5% for shape and -10% for corner influence). This results in our adjusted rate of $879/m2.
122 Churchill Drive
[84] The Tribunal’s adjusted rate for 122 Churchill Drive is $790/m2. It originally sold in September 2010 as an apparent ‘blocker’ sale for six million dollars, which gives a rate on an effective land area of 7,000m2 of $857/m2. It sold again in May
45 Above at [48].
46 The 2012 decision, above n 1, at [21].
2013, for $886/m2. The average rate of all the valuers adjusted rates for Churchill Drive is $975/m2, which is 24% higher than the rate adopted by the Tribunal.47 As with Rugby Street, the Tribunal’s valuation was considerably less than the rates adopted by four of the valuers.
[85]We make the following adjustments:
(a)Location: Two valuers respectively allowed a +10% adjustment and
+5% adjustment for location. We adopt +5%, which is the more consistent rate used in 2015 for this same property.
(b)Size: As noted, 122 Churchill Drive provides a comparative of a larger size of an effective area around 7000m2 to 7600m2. The valuers consider that smaller sites are typically sold at a greater value than larger sites and make an upward adjustment accordingly. We agree. Four valuers made an adjustment for size of between +10% to +20%. 10% is the more constant adjustment and we adopt +10%.
(c)Zoning: Churchill Drive is centre zoned. As with 21–27 Rugby Street, only one valuer allowed for zoning. For the same reason as above, we consider no adjustment is necessary for this factor for the 2012 revision.
[86] For 2012, we therefore make an upward adjustment of 15% to the $857/m2 sale price of 122 Churchill Drive in September 2010 (comprising +5% for location and
+10% for size). This results in our adjusted rate of $986/m2.
The valuers’ evidence
[87] In reaching a modal rate, we considered the range of the expert valuers’ modal rates and their evidence on the Rongotai area. As the Tribunal had noted, the valuers’ ranges reflected the parties’ positions at either end of the spectrum, with Rongotai’s valuers’ rates being at the higher end and the lessees, including Bunnings, being at the
47 The rates adopted, ordered from lowest to highest were: $787/m2 (Mr Veale); $936/m2 (Mr Horsley); $994/m2 (Mr Blucher); $1,012/m2 (Mr Butchers); and $1,148/m2 (Ms Watson).
lower end.48 We noted that their ranges of modal rates were derived from a number of sales of differing comparables. We summarise the valuers’ evidence for comparison.
[88] The five valuers all considered a range of sales and adopted a modal rate for a typical 2000m2 regular shaped, inside lot as follows:
(i)Mr Veale’s analysis showed a value range to be between $540/m2 to
$1,362/m2 in his summary of sales for Wellington City. The sales were in the majority 2010–2012 sales. He included the Pengelly sale and placed a strong emphasis on business one zoning. He then further narrowed his rate down to $570/m2 to $620/m2 based on his two best comparables and concluded a modal rate of $575/m2. Mr Veale’s two best sales were the Pengelly sale and 29 Miramar Ave, the latter of which sold three years prior to the revision date.
(ii)Mr Blucher’s analysis showed an unadjusted value range to be between
$540/m2 to $1,689/m2 in his summary of sales for Wellington City. This gave an average of $979/m2. The adjusted business one and two sales were analysed to produce a range between $554/m2 to $743/m2, giving an average of $651/m2. He adopted a modal rate of $675/m2.
(iii)Ms Watson’s analysis showed a value range for a modal site to be between $750/m2 and $775/m2. Ms Watson included a range of mostly recent sales (within one to two years of the revision date) and where applicable, in business one zoning.
(iv)Mr Horsley’s analysis showed a value range to be between $920/m2 and
$1,000/m2. He concluded a rate of $900/m2 for a standard 2000m2 lot on the western side of Kingsford Smith Street. This was slightly lower than a lot value on Tirangi Road which has a greater traffic profile. It is noted several freehold land sales analysed by Mr Horsley across the wider region were for properties not zoned business one.
(v)Mr Butchers used five freehold sales in the Rongotai area and adopted a rate of $975/m2. Of those five sales, four were dated between 2 or 7 years prior to the revision date of September 2012.
Our modal rate
[89] As recorded above, we adjusted the Pengelly sale rate to $708/m2, to reflect the downward adjustment for a low sale.49 We also exclude 230A Rongotai Road as a comparable. The rates we adopt for the four relevant comparables are represented as follows:
(i)Pengelly properties $708/m2
(ii)162 Hutt Road $657/m2
(iii)21–27 Rugby Street $879/m2
(iv)122 Churchill Drive $986/m2
[90] From the above adjusted rates, we have considered a number of factors. The Pengelly sale, adjusted, is the best comparable, given its zoning, location and date of sale. Of the four comparables, the average is $808/m2 and the median, to moderate outliers is $794/m2. From a midway point of $800/m2, we have weighted it against the adjusted Pengelly sale, which we consider the strongest of the four sales within the basket of comparables.
[91] We consider a fair reconciliation for 2012 is a rate of $780/m2, which we adopt as the modal rate for 2012.
Assessment of land values
Adjustment factors
[92] Consistent with the comparable sales or market approach, the valuers have analysed and made adjustments for any material differences between the comparable transactions and the subject asset. This complies with Standard 30.8 of the International Valuation Standards.50
49 Above at [75].
50 International Valuation Standards, above n 17, at [30.8].
[93] From a review of the valuers’ evidence, the valuers made allowances in their valuation analysis for the comparables with the following factors:
(a)location ranging from 5% to 30%;
(b)a corner influence ranging from 5% to 15%; and
(c)dual frontage from 5% to 15%.
[94] We have given careful consideration to those allowances. We note the factor of location is a very wide range and the adjustments should be more certain. We consider that the following adjustments should be made in respect of the following factors as follows:
(a)Location/higher exposure +10% to +20%
As the ‘location’ is the same for all properties an adjustment is made recognising the Tirangi Road properties and 68–74 Kingsford Smith Street all enjoy greater traffic exposure. We would adjust the modal rate upwards by 10%, being at the lower end for the Tirangi Road exposure and 20% for the Lyall Parade exposure.
(b)Corner influence +10%
Four of the properties are corner sites for which we would adjust the modal rate upwards by 10% being a mid-way point between the valuers’ range.
(c)Dual frontage +10%
Two of the properties have dual frontage to both Tirangi Road and Kingsford Smith Street which we would adjust the modal rate upwards by 10%, being a mid-way point between the valuers’ range. In some cases, a premium may be paid to acquire two adjoining lots, however in this case with the tender offer evidence a discount was expected to purchase both lots.
[95] Before setting out our revaluation of the 17 properties, applying the adjustments, we address the Tribunal’s assessment of 5–11 Kingsford Smith Street.
5–11 Kingsford Smith Street
[96] The one exception to the Tribunal’s finding that the 2012 QV valuation roll figures were appropriate was 5–11 Kingsford Smith Street. The Tribunal reasoned that 5–11 Kingsford Smith Street was an anomaly and could not be supported by comparable evidence. They considered that it was a very small site that was “difficult to visualise economically.”51
[97]In making its finding, the Tribunal accepted Ms Watson’s land value of
$375,000 and the Tribunal adopted that figure. The QV value was altered to $375,000.
[98] We consider that Ms Watson’s land value does not reflect a relevant comparable sale for this atypical property. It is a front lot, in a superior location and superior zone. We note that the lot is significantly smaller than the typical lot of approximately 2000m2, having an area of 400m2. We make no deduction for the land area occupied by the right of way, as the owners of 5–11 Kingsford Smith Street are still able to use the land, although encumbered by a right of way easement, and are able to use the mirroring easement over the neighbouring lot.
[99] As observed by the Federal Court of Australia, “sometimes a degree of similarity can be so great that the sales evidence of another property can largely dictate the value of the subject property”.52 While we did not consider 230A Rongotai Road to be comparable to the typical lot on Kingsford Smith Street, it provides a relevant comparison to the smaller lot of 5–11 Kingsford Smith Street. 230A Rongotai Road is a small lot at 633m2, less the accessway land,53 giving an effective building/curtilage area of 516m2. 230A Rongotai Road sold in September 2011 for $450,000 which included improvements and a land value estimated at $400,000. The unadjusted land value rate of 230A Rongotai Road is therefore $775/m2 ($400,000/516m2).
51 The 2012 decision, above n 1, at [57].
52 Australian Executor Trustees Ltd v Propell National Valuers (WA) Pty Ltd [2011] FCA 522 at [125].
53 We note that in excluding the accessway land, the right of way for 230A Rongotai Road is being treated differently to 5–11 Kingsford Smith Street. The right of way for 230A Rongotai Road is a pan-handled accessway being part of the overall titled land area and is unable to be built on and is ineffective in site value. This differs from 5–11 Kingsford Smith Street, where the right of way easement is still able to be used.
[100] As 5–11 Kingsford Smith Street is a front lot, in a superior location and a superior zone (being business one) compared to 230A Rongotai Road, we consider this rate needs to be adjusted. We would not apply the modal rate of $780/m2 to 5–11 Kingsford Smith Street. We consider a 10% adjustment for each of the three features described above is reasonable. The adjusted rate we apply to 5–11 Kingsford Smith Street is therefore $1,010/m2, being the unadjusted rate of 230A Rongotai Road of
$775/m2 plus 30% for each of the three adjustments above. This gives a land value to 5–11 Kingsford Smith Street of $404,000.
Summary of values
[101] We set out below at [107] the readjusted values for each of the 17 subject properties.
[102] For completeness, we have annexed to this judgment as Annexure B, a summary of our values, showing the modal rate of $780/m2, the unadjusted land value, the adjustments applied to the modal rate and the resulting land values for the 2012 rating revaluation.
[103] We have also attached as Annexure C a comparison of values of the 2012 QV roll valuations, with the Tribunal’s values, and this Court’s values showing the non- adjusted and adjusted modal rate of $780/m2 as applied to the subject properties.
Deduction for Glasgow leases
[104] There is one further outstanding issue raised by the lessees. Counsel for lessees and Bunnings sought a deduction under s 21 of the Land Valuation Proceedings Act 1948 to recognise the Glasgow lease ownership of the subject sites. We have addressed the issue of s 21 deductions in relation to Glasgow leases in our 2007 decision.54 We consider that there should be no adjustment to the capital value for any distinction between freehold ownership and Glasgow leasehold and confirm the Tribunal’s decision in that regard.
54 2007 Rating Valuation Appeal, above n 6.
Conclusion
[105] The Pengelly sale was appropriately included in the 2012 valuation assessment but should have been adjusted to reflect its low sale price. It was an open market freehold sale in the immediate location of the subject properties. We consider a more accurate modal rate to be $780/m2, compared to the Tribunal’s figure of $615/m2, by applying a rate for the Pengelly sale of $708/m2.
[106] The four comparables most relevant are the Pengelly sale (adjusted by this Court to $708/m2); 162 Hutt Road (with an adjusted rate of $657/m2); 21–27 Rugby Street (with an adjusted rate of $879/m2); and 122 Churchill Drive (with an adjusted rate of $986/m2).
[107] We find the modal rate, representative of a typical 2000m2 regular shaped, inside lot for the subject properties, to be $780/m2. The summary of land values for the subject properties is set out below. The full detail is annexed to this judgment, as Annexure C.
Property Valuation Court Adjusted Land Values 1 102–106 Tirangi Road $ 1,761,000 2 108–112 Tirangi Road
25–27 Kingsford Smith Street
$ 3,617,000
3 114–118 Tirangi Road $ 1,658,000 4 120–124 Tirangi Road $ 1,658,000 5 126–130 Tirangi Road
35–39 Kingsford Smith Street 41–45 Kingsford Smith Street
$ 5,425,000
6 132–136 Tirangi Road $ 1,787,000 7 5–11 Kingsford Smith Street $ 404,000 8 14 Kingsford Smith Street $ 1,567,000 9 22 Kingsford Smith Street $ 1,636,000 10 24–26 Kingsford Smith Street $ 1,692,000 11 28–30 Kingsford Smith Street 32–34 Kingsford Smith Street $ 3,384,000
12 29–33 Kingsford Smith Street $ 1,507,000 13 36–54 Kingsford Smith Street $ 8,022,000 14 47–51 Kingsford Smith Street $ 1,638,000 15 56–58 Kingsford Smith Street $ 1,734,000 16 60–62 Kingsford Smith Street 64–66 Kingsford Smith Street $ 3,468,000
17 68–70 Kingsford Smith Street 72–74 Kingsford Smith Street $ 5,073,000
Result
[108]The appeal is allowed.
[109] The decision of the Land Valuation Tribunal is set aside. The modal rate for the 2012 rating revaluation is $780/m2.
[110] The values of the 17 subject properties under appeal are altered in accordance with [107] of this judgment.
Costs
[111] The parties seek clarification on the ability of the Tribunal to award costs under s 34 of the Rating Valuations Act 1998 (RVA).
[112] The Tribunal reserved the matter of costs in each of the 2007, 2012, 2015 and 2018 objections.55 In its 2018 decision, the Tribunal acknowledged that “the question of costs in relation to roll valuation objections is complex and it is unclear whether there is any power to award costs at all and if so in what circumstances.”56 It suggested
55 In both 2007 and 2012, the Tribunal invited Counsel to submit applications for costs. However, in both the 2015 decision, above n 3, at [96]–[97] and the 2018 decision, above n 4, at [113]– [114], the Tribunal recognised costs under the RVA as “problematic” and sought to defer the issue of a costs award to this Court.
56 The 2018 decision, above n 4, at [113].
this question should be referred to the High Court for consideration on the appeals, before being remitted back to the Tribunal for arguments as to quantum.57
[113] There is a jurisdiction issue as to whether costs can be awarded under the RVA. Section 38(4) of the RVA sets out limited circumstances in which costs may be awarded in the Tribunal:
(4)A Tribunal may award such costs against the relevant party as it considers reasonable if—
(a) the party fails to appear at the time fixed for any hearing of an objection before the Tribunal or fails to give adequate notice of the abandonment or settlement of the objection; or
(b) the Tribunal considers the objection frivolous or vexatious.
[114] The question is whether the Tribunal has power to award costs where these circumstances are not met and if so, in what circumstances.
[115] We did not hear full argument by Counsel on this matter. Counsels’ submissions largely focus on whether the objections were so frivolous or vexatious as to come within the ambit of s 38(4)(b), rather than addressing the question as framed by the Tribunal.
[116] Without full argument, it seems to us that the language of s 38(4) of the RVA is prescriptive and clear, providing a narrow ambit under which costs can be awarded. We also note that the Court of Appeal considered there is no general provision under the Land Valuation Proceedings Act 1948 for the Tribunal to award costs,58 and that as a deemed Commission of Inquiry under the Commission of Inquiries Act 1908,59 there is a limited ability to make a costs award under that Act, although constrained to
$600.60 These are merely observations. We consider that determination of this matter should await full argument.
[117] For completeness, we also do not consider that the parties’ conduct can be considered frivolous or vexatious, such that s 38(4)(b) applies. The test is high.61
57 At [114].
58 Riddiford v Attorney-General [2012] NZCA 112 at [36].
59 Land Valuation Proceedings Act 1948, s 19(14).
60 Riddiford v Attorney-General, above n 58, at [41].
61 Bridgers Heritage Ltd and Goldtaler Ltd v Whakatane District Council [2019] NZLVT 107 at [11].
Bunnings submits that Rongotai’s focus on the validity of the Pengelly sale as a comparator throughout the hearing without “real probative evidence” to support this objection is sufficient conduct to meet the test. We do not accept this submission.
[118] Rongotai was not acting with an improper purpose. Rongotai had a commercial interest in the objections and was acting reasonably in relation to this interest. It was entitled to challenge the inclusion of the Pengelly sale as a comparator. Some of the expert valuers excluded the Pengelly sale from their selection of comparables or said that the sale should be treated with caution. While the Tribunal and this Court have affirmed that the transaction was a valid and relevant comparable sale, it was not improper for Rongotai to raise this challenge.
[119] However, there is no issue as to the ability of this Court to make costs awards on appeal. Under s 37A(1) of the Land Valuation Proceedings Act 1948, the Land Valuation Court may make such order as to the payment and amount of costs to any party as it thinks fit. This provision was intended to provide this Court with “complete discretion in the matter [of costs] as it does under the Public Works Act, the Land Settlement Promotion Act, and other Acts”.62
[120] The parties have not been heard on costs. We express some preliminary reservations as to the appropriateness of a costs award in relation to these appeals. Both Rongotai and the lessees have had success in this Court. For example, while we have rejected Rongotai’s argument that the Pengelly sale should have been properly excluded as a comparable, we have overturned the Tribunal’s modal rate and the land valuations. It may be appropriate for costs to lie where they fall but that is a matter for Counsel.
[121] If any of the parties seek costs, Counsel are to file memoranda of no more than five pages within 20 days of the date of this decision, as to whether they wish to be heard on the costs issue. Further directions will then follow.
62 (22 June 1967) 351 NZPD 1263.
Leave
[122] Leave is granted to Counsel to raise any errors or slips made in this Court’s calculations when applying this Court’s modal rate and making adjustments to the subject properties.
……………………………………
Cull J and Member VM Winiata
Solicitors:
Morrison Kent, Wellington, for Rongotai Estates Ltd and Rongotai Investments Ltd Simpson Grierson, Wellington, for Bunnings Ltd
Solicitors for Other Lessees:
Lane Neave, Christchurch, for Wellington International Airport Ltd and 2468 Ltd PCW Law, Auckland, for NZ Cash Flow Control Ltd
Annexure A
Rongotai area map showing subject site area for all decisions
Annexure B
Annexure C
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