31260 of 2007 Gilles JJ & Pyntoe P/L v Valuer General

Randwick Local Environmental Plan 1998 LEGISLATION CITED: Development Control Plan for Matraville Town Centre Development Control Plan, Parking Valuation of Land Act 1916

CASES CITED: Commissioner of Succession Duties (South Australia) and Executor Trustee and Agency Company of South Australia Ltd and Anors 74 CLR 358 at 373

DATES OF HEARING: 25/9/2008, 26/09/2008 & 7/11/2008

Applicant Mr M. CLeary, barrister GIles Payne & Co LEGAL REPRESENTATIVES: Respondent Mr M. McGrowdie, barrister Crown Solicitors Office

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

31260 of 2007 Gilles JJ & Pyntoe P/L v Valuer General 31261 of 2007 Gilles JJ & Gilles GM v Valuer General 31087 of 2007 Gilles JJ v Valuer General

JUDGMENT 1 These are appeals against the land values assessed under section 6A (1) of the Valuation of Land Act 1916 (the Act) in respect of properties 462, 488 and 506 Bunnerong Rd, Matraville as at the Base Date of 1 July 2006. Background 2 Land values originally assessed by the Valuer General and contended on behalf of the respective Applicants are as follows: Valuer General Applicant 462 Bunnerong Rd $305,000 $141,610 488 Bunnerong Rd $825,000 $375,570 506 Bunnerong Rd $740,000 $312,975 3 However, at the hearing it was contended, on behalf of the Valuer General, that the land values were understated and should be: 462 Bunnerong Rd $455,000 488 Bunnerong Rd $1,040,000 506 Bunnerong Rd $940,000 4 The properties are located on the western side of Bunnerong Rd, Matraville and form part of the Matraville shopping centre which is, almost entirely, a one-sided strip shopping area extending, at its extremities, between Beauchamp Road and Harold St. Matraville as a shopping centre has declined over the years and is now no more than a neighbourhood or a convenience type centre which suffers severely from its major competitors, namely, Westfield East Gardens, South Point Shopping Centre (both of which are situated on Bunnerong Rd 1.2 km and .5 km, respectively, north of Beauchamp Road) and Pacific Square at Maroubra Junction. They provide a full range of facilities and services including department stores, supermarkets, specialty stores, entertainment as well as incorporating excellent car parking. The Properties 5 462 Bunnerong Rd is located towards the northern end of the Matraville shopping centre approximately 100 m south of Beauchamp Road. It has a frontage of 6.1 m, an average depth of 33.2 m with a 6.1 m frontage to Baird Lane (which lies parallel to Bunnerong Rd). Land area is 202.3 square metres. The land falls slightly from street frontage to the rear lane.

6 488 Bunnerong Rd is located almost midway between Beauchamp Road and Harold St and is located opposite Daunt Avenue. It has a frontage of 13.11 m to Bunnerong Rd, a depth on one side of 32.97 m and on the other of 31.4 m with a rear alignment to Baird Lane of 13.33 m .The land area is 417.3 square metres. The land rises from street frontage to the Baird lane. 7 506 Bunnerong Rd is located approximately 50 m to the south of 488 Bunnerong Rd. It has a frontage of 10.68 m, an average depth of 39.12 m with a rear alignment to Baird Lane of 10.67 m. The land area is 417.3 square metres. The land is comparatively level.

8 Baird Lane is sealed, extends from Beauchamp Road to Perry Street and provides rear access to all but a small number of properties facing Bunnerong Rd Valuation Evidence 9 Mr A. Hyam, gave written and oral evidence on behalf of the Applicants while Mr T. Glitsos gave similar evidence on behalf of the Respondent. Both are registered valuers of wide experience.

10 Assuming, as they must, that the existing improvements had not been made, the valuers agreed that the highest and best use of each property was for retail/commercial space on the ground floor and residential apartments in the balance of the prospective buildings. However, they expressed divergent views as to the maximum development permitted under the relevant town planning controls in respect of each property, the way in which the comparable sales should be analysed and the application of that analysis to the subject properties. To address these issues it is first necessary to undertake a thorough examination of the town planning controls as they affect the properties. Town Planning 11 Each property is zoned 3B (Local Business Zone) under the Randwick Local Environmental Plan 1998 (the LEP). The objectives of this zone are: (a) to provide opportunities for local retail and business development in the City of Randwick, and (b) to provide opportunities for associated development such as car parking, service industries and the like, and (c) to provide opportunities for residential accommodation in local business centres where it does not interfere with the primary business function of the zone, and (d) to minimise the impact of development on adjoining and nearby residential zones, and (e) to enable a mix of housing types to encourage housing affordability. 12 On 11 April 2006 (significantly, just under three months prior to the Base Date) Randwick City Council adopted a Development Control Plan for Matraville Town Centre (DCP) which broadly covers land on both sides of Bunnerong Rd between Beauchamp Road and Harold St and thus encompasses the three properties. At the same time clause 42DA was inserted into the LEP. This Clause contains nine specific objectives which are summarised in the DCP as Quality new development should assist Matraville Town Centre develop its own unique niche as a place to live, work, shop, do business, recreate and socialise. Under section 79C of the Environmental Planning and Assessment Act, 1979, the Council is required to take into account the provisions of the DCP when determining Development Applications within the Town Centre. Clause 1.6 of the DCP adopts the Council's Development Control Plan, Parking (DCP Parking) which came into force on 24 December 1998. 13 In contrast to the provisions of the LEP, where maximum development is determined by the floor space ratio (FSR), maximum development under the DCP is determined by a "building envelope" which is described as a three-dimensional space which defines the maximum extent of a building in any direction, that is: maximum building height, maximum building length and maximum building depth. Buildings must be designed to fit within the applicable building envelopes. Because all building facades must be articulated within the building envelope, the envelope will always represent more than the maximum limit of development. All Development Controls in this section of the DCP must be read in conjunction with the envelopes to determine the actual development potential of a particular site. (section 3.3)

14 The concept of Building Envelope Footprints is contained in section 3. 3.1. The dominant feature is a consistent internal landscaped Courtyard Garden between buildings on lots that are relatively deep. Redevelopment of each property requires a Courtyard Garden, at first floor level, with a minimum depth of 12 m lying between a building fronting Bunnerong Rd and a building fronting Baird Lane. In addition there are a number of specific controls which impact upon new building design, use and size; the most defining being: (a) a building setback from Bunnerong Rd is not required but a setback of 1 m is required from Baird Lane; (b) the maximum depth of a building facing Baird Lane is 8 m; (c) the depth of a building facing Bunnerong Rd cannot exceed 16 m but the actual depth of that building is calculated by subtracting from the total depth of the site the 12 m deep courtyard garden, the 8 m deep Baird Lane building and the setback of 1 m from that Lane ( a total of 21 m); (d) the use of the ground floor of the Bunnerong Rd building is limited to retail/commercial while the upper floors are to contain residential apartments; the number of floors permitted being dependent upon the Bunnerong Rd frontage of the particular property; (e) the use of the ground floor of the Baird Lane building must be car parking/residential entry while the upper floors (in each case a maximum of two) is limited to residential accommodation; (f) in the case of a property having a Bunnerong Rd frontage less than 7 m only two residential units are permitted (which is the case in respect of 462 Bunnerong Rd); (g) minimum apartment sizes are prescribed varying from 40 square metres for studios to 125 square metres for three-bedroom units; (h) on site car parking must comply with the DCP Parking which includes requirements for different sized residential units, visitor parking, service and delivery parking together with design guidelines covering parking layout, car bay dimensions , drive way (aisle) widths and other relevant matters including tandem car parking spaces . Car parking is permitted beneath the Courtyard Garden and in a basement where the Bunnerong Road frontage of the property exceeds 7 m ( but subject to compliance in other respects); and, (i) car parking access can only be provided from Baird Lane . 15 Randwick City Council has not (up to 7 November 2008) approved any development applications under the DCP. However, a development application has been lodged with the Council in respect of 508/510 Bunnerong Rd. Advice given to Mr Glitsos by Council officers indicated that the FSR was in excess of that permitted under the LEP (1.5 to 1) which is not surprising having regard to the frontage of the property and the DCP where the maximum development is determined by a" building envelope".

16 While all of the building and car parking controls will impact upon the maximum achievable development of any of the three properties, the most limiting is the requirement to provide a width for "dead end" aisles of 6 m and a minimum bay length of 5.5m (90° car parking is only suitable for two way aisles) meaning that maximum car parking numbers and compliance with DCP Parking, in this regard, is only possible where the uniform property width exceeds 11.5 m. Accordingly, direct car parking off Baird Lane becomes the only option for 462 and 506 Bunnerong Rd . Section 2.3 of the DCP Parking requires that Parking is to be provided in accordance with the requirements specified .....and where a variation is proposed such variation.... must be justified . In the case of a significant variation from the standards, a report should be prepared by a suitably qualified transport consultant. Section 2.2 provides that Where parking cannot be provided in accordance with this DCP, the shortfall will be made up by a monetary contribution in accordance with the Contributions Plan. However, it is not unreasonable to expect that any major variation from DCP Parking will impact adversely on the marketability and therefore the profitability, whether for sale or lease, of a proposed development.

Car Parking Numbers 17 Consideration of the DCP and the DCP Parking has led me to the conclusion that the maximum car parking that can be provided on the respective properties is as follows: 462 Bunnerong Rd -- 2 single car spaces with access direct from Baird Lane. DCP Parking requires that all vehicles enter and leave a site in a forward direction but having regard to the site constraints and the number of car parking spaces cars involved I have concluded that an exemption would be available. 488 Bunnerong Rd -- 10 car spaces; 4 beneath the Courtyard Garden and 6 in the basement. 506 Bunnerong Rd -- 5 car spaces with direct access from Baird Lane. I have concluded that an exemption would be available for such parking arrangement for the same reason as explained in respect of 462 Bunnerong Road. Maximum Prospective Development 18 Having regard to the valuers agreed views on the highest and best use of the subject properties and my conclusions in respect of achievable car parking numbers I consider that the maximum prospective development of the properties is as follows; o 462 Bunnerong Rd. Ground floor retail/commercial of 40 square metres (one car space) and two studio apartments fronting Baird Lane (one car space). Visitor car parking at the rate of one space per residential unit is required under DCP parking except where the development contains less than four residential units ; accordingly no visitor car parking is required. Service and delivery vehicle parking is required at the rate of one per 50 residential units; I have assumed that this requirement would not be enforced in this case. Based on the valuer's evidence (one retail area of 40 square metres is the equivalent of two residential apartments in this location) such prospective development is the equivalent of three residential apartments. I consider that the Development Approval previously granted (in December 2002 and under different planning controls) and still current at the Base Date, permitting four dwellings and a substantial area of office space, does not reflect the highest and best use of the property at the relevant date. o 488 Bunnerong Rd. Two ground floor retail areas, each of 40 square metres (two car spaces), six studio apartments (three car spaces) and two 1-bedroom apartments (two car spaces). Provision must be made, in accordance with DCP Parking , for two visitors and one service vehicle (three car spaces) . I have come to the conclusion that of the 10 car spaces required to support this development four car spaces would be provided beneath the Courtyard Garden with six in a basement area. Based on the valuer's evidence ( one retail area of 40 square metres is the equivalent of two residential apartments in this location) such prospective development is the equivalent of twelve residential apartments. o 506 Bunnerong Rd. Two ground floor retail/commercial areas each of 40 square metres (two car spaces), two studio apartments (one car space) and two 1-bedroom apartments (two car spaces). I have come to the conclusion that with four residential apartments contained within such a development ,the visitor and service vehicle parking requirements of DCP parking would not be enforced. Based on the valuer's evidence (one retail area of 40 square metres is the equivalent of 1.5 residential apartments in this location) such prospective development is the equivalent of seven residential apartments. Basis of Analysis of Comparable Sales 19 It will be seen that the potential of each property is not dependent upon the site area; for instance, the land area of 488 Bunnerong Rd is approximately twice that of 462 Bunnerong Rd, but the development potential is quadrupled. In my opinion, the only appropriate method of comparison between the comparable sales and the subject properties is on the basis of a residential apartment equivalent actually achieved on the comparable sales sites and capable of being achieved in a prospective development.

Comparable Sales 20 There has been no sales of property within the Matraville Town Centre since 11 April 2006 except 468 Bunnerong Rd which was sold on 29 June 2008 in a transaction considered not to be at arm's length.

21 A total of 15 properties, deemed to be comparable, were considered by the valuers. Three sales (including 462 Bunnerong Rd) were between related parties and therefore disregarded. Thirteen properties were inspected but the valuers agreed that there were only three critical sales namely, 534, 505/507 and 532 Bunnerong Rd all of which occurred two and three years prior to the Base Date necessitating an adjustment for a change in market conditions. Details of the three critical sales are set out in the Annnexure to this Judgment. Without additional detailed information in respect of 534 Bunnerong Rd, I have no option but to discard this sale as a comparable. Findings -- 488 Bunnerong Rd 22 Both 505/507 Bunnerong Rd and 552 Bunnerong Rd are situated in, what I consider to be, superior locations relative to the subject properties. Making a comparison between the sites of these comparable sales and 488 Bunnerong Rd, I am of the opinion that a locational allowance of 15% for 505/507 (from $148,888) and 20% for 552 (from $153,857) Bunnerong Rd need to be made which adjusts the deduced land values to $126,554 and $123,085 respectively. As the first step in determining the land value of 488 Bunnerong Rd I adopt a land value per residential unit equivalent of $125,000.

23 Since 2003 and 2004 when the sales occurred, there has been a change in market conditions. Mr Glitsos provided the results of his analysis of RP Data statistics which showed residential units in the suburb of Matraville decreased in value by 3.7% per annum over the three years to 1 July 2006. It is reasonable to conclude that land values for residential units declined at a similar rate and on that basis I have adopted a figure of 12% decline to the Base Date which reduces the figure of $125,000 to $110,000 per residential unit equivalent. 24 Based on a permissible maximum development of the equivalent of 12 residential units a figure of $1,320,000 is obtained. However, the two relevant comparable sales did not involve full basement car parking as will be necessary in the development of this property with the result that an adjustment needs to be made for additional costs and penalties that will be incurred in respect of which the valuers did not provide any evidence. However, by reference to Editions 25 and 27 of the respected Rawlinson's Australian Construction Handbook I have come to the conclusion that the additional costs including Professional Fees, GST and Council Fees would amount to $460,000.

25 I have increased this figure by 20% to $552,000 to take into account the additional risks involved in, firstly, obtaining Development Approval for what would have been the first Development Application for basement car parking under the then very recently introduced DCP, secondly, basement excavation and construction cost, and, thirdly, in recognition of the fact that such work will lengthen the overall construction time for the prospective development.

26 In coming to the conclusion that a figure of 20% is an appropriate allowance for the additional risks and time and, what I see, as the difficulties in the valuation of this particular property I considered that this is a situation where the obiter dictum of Dixon J. in Commissioner of Succession Duties (South Australia) and Executor Trustee and Agency Company of South Australia Ltd and Anors 74 CLR 358 at 373 is apposite 27 I should like, however, to add for myself that there is some difference of purpose in valuing property for revenue cases and in compensation cases. In the second the purpose is to ensure that the person to be compensated is given a full money equivalent of his loss, while in the first it is to ascertain what money value is plainly contained in the asset so as to afford a proper measure of liability to tax. While this difference cannot change the test of value, it is not without effect upon a court's attitude in the application of the test. In a case of compensation doubts are resolved in favour of a more liberal estimate, in a revenue case, of a more conservative estimate. 28 The deduction of $552,000 from $1,320,000 indicates a land value of $768,000. Findings -- 462 Bunnerong Rd 29 Compared with 488 Bunnerong Rd I consider that 462 Bunnerong Rd is inferior by 10% having regard to the poorer ambience of this particular section of Bunnerong Rd, the car parking facilities directly off Baird Lane, the narrower site which will reduce design flexibility and the fact that the only permitted residential units are two studios. Making this adjustment a figure of $99,000 is obtained per residential unit equivalent indicating a land value for three equivalents of $297,000. Findings -- 506 Bunnerong Rd 30 Compared with 488 Bunnerong Rd I consider that 506 Bunnerong Rd is inferior by 5% having regard to the poorer car parking facilities directly off Baird Lane, the lower elevation of this property and the narrower site which will reduce design flexibility. Making this adjustment a figure of $104,500 is obtained per residential unit equivalent indicating a land value for seven equivalents of $731,500. 31 The Orders of the Court: 1. The appeals in respect of the three properties are upheld and the land values as at the Base Date of 1 July 2006 are amended as follows: - 462 Bunnerong Rd Matraville $297,000 - 488 Bunnerong Rd Matraville $768,000 - 506 Bunnerong Rd Matraville $731,500 2. No Order is made as to costs.

E. Craig Miller Acting Commissioner of the Court Annnexure Comparable Sales Analysis

Pertinent details of the critical sales are set out hereunder. At the respective sale dates each property was zoned 3B (Local Business) under the LEP which permitted a FSR of 1.5 to 1. The DCP Parking applied. Development approvals were granted under a previous DCP. 534 Bunnerong Rd Matraville * Contract date. June 2003. * Sale price. $900,000. * Land. 210 square metres. 6.33 m frontage. Level. Rectangular shape without rear lane access. * Improvements. No added value.. Allowance made of $15,000 for demolition. * Features and Remarks. Located approximately 70 m south of 488 Bunnerong Rd. Property was sold with Development Approval originally granted on 14 March 2002 and amended on 15 April 2003; permitted approval one shop and five 1-bedroom units. No car parking provided on the land. A strata title has not been registered in respect of the new development which has been retained for investment purposes. * Deduced land value. Based on a residential unit equivalent of 6.5 the sale shows, after allowance for demolition costs of $15,000, $140,769 per residential unit equivalent before any deduction is made for the unspecified and mandated monetary contribution to Randwick City Council in accordance with the Contributions Plan under DCP Parking. * Conclusion. Without additional detailed information I have no option but to discard this sale as a comparable. 505/507 Bunnerong Rd Matraville * Contract date. Number 505, February, 2004 and Number 507, May 2003 * Sale price. $1,350,000 in respect of Number 505 and $1,330,000 in respect of Number 507. * Land. Each property 449 square metres with a frontage of 11.88 m. Land is regular in shape, level without rear lane access. * Improvements. Details not provided. Accepted to be of no added value with no allowance made for demolition cost. * Features and Remarks. Located on the eastern side of Bunnerong Rd to the south Daunt Avenue and diagonally opposite 488 Bunnerong Rd. Property has been redeveloped and now comprises 17" luxury" strata title residential units with two retail/commercial areas on the ground floor (one is very small while the other is larger) and street level car park. * Deduced land value. Based on a residential unit equivalent of 18 , the sale price for the two properties shows $148,888 per residential unit equivalent * Conclusion. The property was purchased in two parts, nine months apart, and developed under a previous DCP. Taken together the transactions are considered to be of good evidentiary value.

552 Bunnerong Rd Matraville * Date of sale. July 2004 * Sale price. $1,846,284. * The Land. 645 square metres.. The property appears to be on the corner of Harold St but is, in fact, one removed. Street frontage is 13.42 m, land is regular in shape and below street level. It is located at the southern extremity of the Matraville Town Centre. * Improvements. No details provided but accepted to be of no added value with no allowance made for demolition. * Features and Remarks. The property has been been redeveloped and comprises called 12 strata title residential units and one small commercial/retail area on the ground floor. Views towards Botany Bay are available from the rear of the upper floors in the back section of the building. Car parking is provided beneath the building on a level slightly below that of Street frontage. * Deduced land value. Based on a residential unit equivalent of 12 (no allowance being made for the ground floor commercial/retail area) the sale shows $153,857 per residential unit. * Conclusion. A superior residential location to 505/507 Bunnerong Rd but a significantly inferior commercial location.

      E. Craig Miller
      Acting Commissioner of the Court

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