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[2011] NSWLEC 189
Land and Environment Court (NSW)
2011-10-31
Biscoe J
Original judgment source is linked above.
Judgment CONTENTS Paragraphs INTRODUCTION 1-8 STATUTORY CONTEXT 9 THE LAND 10 LOCALITY 11-16 ZONING 17 BACKGROUND 18-34 MARKET VALUE: MEDIUM DENSITY RESIDENTIAL/ISLAMIC SCHOOL 35-37 MARKET VALUE: HIGHER DENSITY RESIDENTIAL/ISLAMIC SCHOOL 38-69 MARKET VALUE: ISLAMIC SCHOOL BASED ON COMPARISON WITH CHESTER HILL SALE 70-132 2006 sale of the Land 84-90 Chester Hill back part sale 91-99 Villawood sale 100-102 Greater Union site 103-105 Improvements on Chester Hill property 106 MARKET VALUE: ISLAMIC SCHOOL BASED ON OTHER COMPARABLES 133-139 DISTURBANCE LOSS OR SPECIAL VALUE 139-141 ORDERS 142
INTRODUCTION 1This is an objection under s 66 of the Land Acquisition (Just Terms Compensation) Act 1991 (Just Terms Act) to the amount of compensation offered by an authority of the State for the compulsory acquisition of land. 2On 21 May 2010 the respondent Minister compulsorily acquired from the applicant, Al Amanah College Incorporated, under the Just Terms Act the land in Lot 2 DP 505662 at 98 Johnston Road, Bass Hill (the Land) in the Bankstown local government area. The land was acquired for public education purposes, being the establishment of a public special school for disabled children. In 2009 the applicant had obtained development consent to build an Islamic school for 1,200 students on the Land and at the acquisition date was about to start construction. 3As required by the Just Terms Act, the Valuer-General determined the amount of compensation payable to the applicant. The determination was in the amount of $10,029,333.51, comprising market value at the resumption date under s 55(a) of $8,500,000 plus disturbance costs under s 55(d) of $1,479,331.51 . The Minister made a statutory offer of compensation in that amount. That is the amount to which the applicant objects, contending that it should be much higher. In substance, the respondent also objects for it contends that the amount of compensation should be much lower. 4The applicant and its valuer contend for the following alternative market values: (a)on the basis that the highest and best use was as an Islamic school, $15,080,000 based exclusively on a comparison with a 2010 sale to a company associated with the applicant of a property at Chester Hill, located about 2.5 kilometres from the Land, for the purpose of building the applicant's Islamic school; (b)alternatively and still on the basis that the highest and best use was as an Islamic school, $10,325,000 based on a comparison with sales of a number of school sites on the urban fringes of north-west Sydney; (c)alternatively, on the basis that the highest and best use was higher density residential (151 lots), $10,250,000. This use was described as "Option 3" in the evidence of the applicant's valuer. 5The respondent contends that the highest and best use was as a school and that the market value was the medium density residential market value (55 to 72 lots) with the benefit of an existing development consent for an Islamic school. Such medium density residential use was described as "Options 1 and 2" in the evidence of the applicant's valuer. If that contention is correct, the parties' valuers agree that the medium density residential market value was $6,210,000 and that the premium for the development consent was 20 per cent. The total is $7,450,000. 6In addition, the applicant pleads a disturbance loss claim under s 55(d) of the Just Terms Act, which it reduced at the hearing to roughly $1.5 million. The respondent denies that the applicant is entitled to anything for disturbance. 7In my opinion, the highest and best use of the land was as an Islamic school and I determine that its market value at the resumption date was $10,885,000. 8Determination of disturbance loss or special value is to await consideration of a referee's report, which is due within three weeks: see [140] - [141] below.
STATUTORY CONTEXT 9Sections 55, 56(1) and 59 of the Just Terms Act relevantly provide as follows: 55 Relevant matters to be considered in determining amount of compensation In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division): (a) the market value of the land on the date of its acquisition, ... (d) any loss attributable to disturbance, ... 56 Market value (1) In this Act: market value of land at any time means the amount that would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer, disregarding (for the purpose of determining the amount that would have been paid): (a) any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired, and (b) any increase in the value of the land caused by the carrying out by the authority of the State, before the land is acquired, of improvements for the public purpose for which the land is to be acquired, and (c) any increase in the value of the land caused by its use in a manner or for a purpose contrary to law. 59 Loss attributable to disturbance In this Act: loss attributable to disturbance of land means any of the following: (a) legal costs reasonably incurred by the persons entitled to compensation in connection with the compulsory acquisition of the land, (b) valuation fees reasonably incurred by those persons in connection with the compulsory acquisition of the land, (c) financial costs reasonably incurred in connection with the relocation of those persons (including legal costs but not including stamp duty or mortgage costs), (d) stamp duty costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the purchase of land for relocation (but not exceeding the amount that would be incurred for the purchase of land of equivalent value to the land compulsorily acquired), (e) financial costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the discharge of a mortgage and the execution of a new mortgage resulting from the relocation (but not exceeding the amount that would be incurred if the new mortgage secured the repayment of the balance owing in respect of the discharged mortgage), (f) any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition.
THE LAND 10The Land is a rectangular, essentially vacant lot of 3.49 hectares (30,490 square metres) with a frontage of about 100 metres to Johnston Road to the south and a depth of about 303 metres. It is subject to some ground contamination.
LOCALITY 11The land is located approximately 28 kilometres west of the Sydney CBD, in Bass Hill in the local government area of Bankstown City. 12Bass Hill is primarily a residential suburb characterised by low density, one to two storey detached housing, with commercial land uses along the Hume Highway corridor. 13The Land has a frontage onto Johnston Road to the southwest. It is bounded on the west by the rear of residential houses; on the north by a plant nursery which fronts the Hume Highway; and on the east by the Bass Hill High School, which has an area of 6 hectares. 14On the other side of the high school is a site previously occupied as a Greater Union drive-in cinema, which is currently being developed by Greater Union as medium density housing (a mix of housing types including detached dwellings, courtyard houses and town houses) at a higher density to much of the rest of the suburb. On the other side of the Greater Union site is the Bass Hill Plaza shopping centre, which includes supermarkets, eateries, clothing shops, general practitioners, banking and ATM facilities, a pharmacy, newsagents etc. It is about 450 metres from the Land. 15The Land is located in close proximity to a variety of facilities and community services including good service by several bus routes. 16There are few examples of high density housing in Bass Hill. The applicant points to recent residential flat development in the Bankstown Council area within about 500 metres of the Yagoona town centre, a similar distance from that centre as the Land is from the Bass Hill Centre. I think that is of little relevance because it is in the 2(b) residential zone where such development is permissible with consent, whereas the Land is in the 2(a) residential zone where it is prohibited unless permitted under a certain provision of the LEP: see [42] below.
ZONING 17For many years the Land was zoned 5 - Special Uses, together with the adjoining high school, and was owned by the State. The Land had been part of the adjacent high school's playing fields. It became surplus to the Minister's requirements and in March 2006 was rezoned Residential 2(a) under the Bankstown Local Environmental Plan 2002 (LEP). The Greater Union site (immediately to the east of the high school) is also zoned 2(a). Land on the other side of Bass Hill Plaza includes land zoned 2(b).
BACKGROUND 18The applicant is an experienced educator. It operates two large Islamic schools in the Sydney basin. 19In 2006 the applicant bought the Land from the Minister for $4,448,000, which equates to $146 per square metre, for the purpose of establishing an Islamic school called Salamah College. The parties' valuers agreed that this represented market value as a residential property. 20People of the Muslim faith or from Arabic speaking countries, who would be most likely to send their children to an Islamic school on the Land, are concentrated in an urban band between Bankstown and Liverpool. Bass Hill is at the demographic heart of that catchment area. A sizeable proportion of the pupils in the neighbouring Bass Hill High school were of the Islamic faith. Federal government policy encouraged the sharing of facilities between public and private schools. There was a high level of demand for additional places in existing Islamic schools and most existing Islamic schools were unable to meet this demand. There was demand particularly in the Bass Hill area, for more Islamic schools within the Muslim community. Two sales, which are said by one or other of the parties to be comparable, of properties at Chester Hill and Villawood are also within the same Islamic demographic area. 21From 2007 to 2009, the applicant's representative, over strong objection or hostility from objectors and the local council, proceeded to obtain development consent for an Islamic school catering for 1,200 pupils on the Land. The development application described the development as an educational establishment from kindergarten to year 12, a child care centre and a caretaker's residence. In 2007 the council refused the development application. In December 2008 a merits appeal to this Court, determined by the Senior Commissioner, was successful and the Court granted development consent to build a private Islamic School for 1,200 pupils: Mohamad El Dana v Bankstown City Council [2008] NSWLEC 1484. In May 2009 I dismissed an appeal from that decision: Bankstown City Council v Mohamad El Dana [2009] NSWLEC 68. 22Either before or after the latter decision, the council wrote to the Minister requesting that the government acquire the Land whether by agreement or compulsorily. 23As at 15 July 2009, the applicant's contractor was scheduled to commence work five days later. Indeed, the work would have commenced in the week prior to 15 July but for difficulty in obtaining on-site sheds. 24On or about 15 July 2009 the applicant became aware that the Minister proposed to acquire the Land as a result of a telephone call from a journalist. On 15 July 2009, the Minister announced in a press release that a 40 student special school for children with disabilities would be built on the Land "in the near future". On or about 15 July 2009 the applicant received an undated letter from the Director-General of Education and Training notifying that the land "must be acquired for essential public education purposes". More than two years later, no special school has been established on the Land. 25On 28 January 2010 the applicant received a proposed acquisition notice from the Minister. 26Consequently, one of the applicant's Board members, Mr Mohammed Mehio, set out about finding a replacement site for the applicant's Islamic school. 27He became aware that the back part, comprising 2.7 hectares, of a property at 40 Hector Street and 34 Elliston Street, Chester Hill (Chester Hill property), about 2.5 kilometres away, was on the market for tender. It had development consent for subdivision and for a seniors living development. It comprises open space with a playing field and swimming pool together with some utility installations. Mr Mehio was not interested in this back part but submitted a non-conforming tender for the whole Chester Hill property, which had an area of 6.5 hectares. 28At the time, the Chester Hill property was the only available site in the Bankstown local government area large enough to accommodate a school. 29The Chester Hill property was zoned 5 for educational establishments. It had a 1996 council development consent in which the development was described as: "Use of premises for a residential religious education facility (bible college)". Condition 3 of the consent required that the existing carparking spaces shall be maintained for "tenants" etc. Condition 10 prescribed that the maximum number of students was 300 without further council approval. Having regard to the description of the development and the reference to "tenants" in Condition 3, I construe the development consent as permitting the use of the premises for an adult residential religious education facility, not a school for children. 30The Chester Hill property accommodated a bible college, a registered school for infants in Building 7 (the Bob Hughes school), and residential accommodation in which refugee claimants and students of the college were accommodated. 31On 23 April 2010, Toveara Pty Ltd, an entity associated with the said board member and the applicant, contracted to purchase the whole Chester Hill property for $23 million with a view to establishing the applicant's Islamic school. 32Another entity, also seeking land for an Islamic school, was the under-bidder at $21 million for the whole Chester Hill property. That entity also tendered for the back part of the Chester Hill property, but at a significantly lower rate per square metre. 33The applicant's primary case relies exclusively on the comparability of the Chester Hill sale after adjustments to establish the market value of the Land. 34On 21 May 2010, by notice published in the Gazette, the Land was compulsorily acquired by the Minister.
MARKET VALUE: MEDIUM DENSITY RESIDENTIAL/ISLAMIC SCHOOL 35The planning experts were Mr David Ryan for the applicant and Mr Harvey Sanders for the respondent. They agreed that the Land is suitable for low to medium density housing in two storey attached and detached dwellings with a yield within the range of 55 to 72 dwellings. 36The parties' valuers, Mr Terry Davis for the applicant and Mr David Lunney for the respondent, agreed that that was consistent with the development on the nearby Greater Union site. They agreed that the market value for such a use and yield was $6,210,000, equivalent to $204 per square metre. To this they added a 20 per cent premium for the benefit of the existing development consent for an Islamic school to arrive at a market value total of $7,452,000 . Their analysis may be shown as follows: Valuation Per square metre $ $ 6,860,250 225 Less contamination remediation 653,000 21 Market value 6,207,250 204 Say 6,210,000 204 Add agreed value of development consent 20% Market value 7,452,000 244
37The respondent submits that this represents the Land's highest and best use as a school and that $7,452,000 is the market value.
MARKET VALUE: HIGHER DENSITY RESIDENTIAL /ISLAMIC SCHOOL 38As stated above at [ 4 (c) ], one of the alternative market values for which the applicant contends is in the sum of $10,250,000, based on higher density housing, as per Mr Ryan's "Option 3". 39Mr Ryan considered that the Land was suitable for higher density housing as indicated in his "Option 3" whereas Mr Sanders did not. Option 3 is for a yield of 151 dwellings in a mix of 2-3 storey residential flat buildings, two storey rowhouses and attached dual-occupancies. This represents a density of one dwelling per approximately 200 square metre gross site area and a floor space ratio ( FSR ) of 0.58:1. The three storey flat buildings are to be located only on the eastern and northern sides of the Land facing the high school to the east and the commercial plant nursery to the north. Their location minimises their impact on the adjoining residential two storey dwellings to the west of the Land and on the street frontage to the south. 40The applicant's valuer, Mr Davis, considered that a prudent purchaser at the resumption date would have regard to the advice of the applicant's planner, Mr Ryan, that the Land could be developed with 151 dwellings as indicated in Option 3. Mr Davis valued the Land on this basis as follows: Valuation Per dwelling Yield: 151 dwellings $14,345,000 $95,000 Less clean up site contamination $ 653,000 $ 4,325 $13,692,000 $90,675 Less discount for risk and 25 % 25 % magnitude __________ __________ $10,269,000 $68,007 Rounded (to nearest $50,000) $10,250,000 $67,881
41The respondent's valuer, Mr Lunney, considered that no fully informed purchaser, acting prudently , would determine the value of the land on the basis of Mr Davis' higher density scenario, Option 3. Mr Lunney opined that no market evidence indicates that the land has a higher market value based on any perceived potential it may have for higher density residential use. 42Under cl 11(2) of the LEP, residential flat buildings are prohibited in Zone 2(a), in which the Land is located. Accordingly, an Option 3 development application would have to rely on the generic power to grant consent despite the prohibition in cl 12 of the LEP. Clause 12 relevantly provides: 12 Additional discretion to grant consent (1) Despite clause 11, but otherwise subject to this plan, the consent authority may grant consent to development that: (a) is not included in the Table to clause 11, or (b) would be prohibited by the Table to clause 11 in the absence of this clause. (2) The consent authority may grant consent pursuant to this clause only where it is satisfied that the proposed development: (a) is of a nature (whether by reason of its design, scale, manner of operation or otherwise) that would, in the absence of this clause, justify an amendment to this plan in order to permit the particular development, and (b) is not inconsistent with the objectives of the zone in which the development site is situated, and ... (d) will not have an adverse effect on other land in the vicinity. 43Under cl 30(2) of the LEP, consent must not be granted to development which exceeds the applicable FSR. The applicable FSR development standard is 0.5:1. Clause 12 does not extend to allowing consent to development which breaches the FSR requirement. As Option 3 proposes an FSR of 0.58:1, to that limited extent modification of Option 3 might be required. 44The respondent submits that the major obstacles to development consent for Option 3 are sub-clauses 12(2)(b) and (d), although (a) is also relevant. 45Under cl 12(2)(b) a hypothetical purchaser would have to satisfy the consent authority that the Option 3 development is not inconsistent with the objectives of the 2(a) zone. 46The objectives of Zone 2(a) are set out in cl 44. The issue under cl 12(2)(b) concerns the objectives in cl 44(1)(a) and (d). Clause 44 relevantly provides as follows: 44 Objectives of the residential zones (1) The objectives of Zone 2 (a) are: (a) to complement the single dwelling suburban character of the residential areas of Bankstown City, and ... (d) to ensure that development is of a height and scale which complements existing buildings and streetscapes (noting that 2 storey dwellings may occur throughout residential areas), and ... (2) The objectives of Zone 2 (b) are: (a) to encourage a variety of housing types in Bankstown City, including residential flat buildings, and 47In Mr Sanders' opinion, the council would not be satisfied under cl 12(2)(b) that the proposed development was not inconsistent with objectives (a) and (d) in cl 44. Secondly, in his opinion, even if it were satisfied, it would not approve Option 3 on the merits because of the physical circumstances. 48As to the question of satisfaction under cl 12(2)(b), Mr Sanders' reasoning was along the following lines: (a)an important component of Option 3 is residential flat buildings which are prohibited in Zone 2(a); (b)the great majority of the surrounding area, apart from the adjoining high school site which is zoned for special uses, is also zoned 2(a); (c)the surrounding residential areas are of a single dwelling similar character which Option 3 will not complement (objective (a)); (d)Option 3 is of a height and scale which does not complement the existing residential buildings in the area which do not exceed two storeys (objective (d)); (e)clause 12 is a generic provision that applies to all uses in all zones; (f)clause 12 is a dead letter so far as concerns approval of any residential flat building in Zone 2(a), with few exceptions such as where it is proposed to locate it next to Zone 2(b) where they are not prohibited; (g)the objectives of Zone 2(a) clearly contemplate low density residential development in the form of single dwellings, but allow for town houses, villas and the like which provide for a somewhat higher density. 49To this, the respondent adds a submission that the objectives of cl 44(1) concerning the 2(a) zone should be considered in the context of cl 44(2) concerning the 2(b) zone. The 2(b) zone has as an objective the encouragement of residential flat buildings, whereas they are prohibited in the 2(a) zone subject to cl 12. 50In Mr Ryan's opinion, the council would be satisfied under cl 12(2)(b). He conceded that there is an element of risk that it would not be. While expressing discomfiture at having to quantify the risk, Mr Davis indicated that, if he had to do so, he would express it as a discount of about 25 per cent. His reasoning was along the following lines:
MARKET VALUE: ISLAMIC SCHOOL BASED ON COMPARISON WITH CHESTER HILL SALE 70On the basis that the Land's highest and best use was as an Islamic school, the applicant's valuer Mr Davis valued it at $15,080,000 based exclusively on a comparison with the 2010 Chester Hill property sale to an entity associated with the applicant for $23 million for the purpose of constructing the applicant's Islamic school on it: see [27] - [31] above. 71The respondent submits that the market value of the Land for an Islamic school was $7,452,000 - no different than for a medium density residential subdivision plus 20 per cent for the value of the development consent: see [36] above. 72The Chester Hill property was used by the Alphacrucis College. It had an area of about 6.5 hectares (65,000 square metres). Of that area, some 2.7 hectares (27,000 square metres) at the back, was essentially vacant land. The back part was put out for tender in or about early 2010. However, Toveara Pty Ltd - a company associated with the applicant - and another entity, which also tendered for the back area, both made non-conforming tenders for the entire Chester Hill property for the purpose of establishing an Islamic high school. Toveara was successful in purchasing it in April 2010 for $23 million. The under-tender was in the sum of $21 million. 73An offer to buy is relevant in this market value context: MMAL Rentals Pty Ltd v Bruning [2004] NSWCA 451, 63 NSWLR 167 at [88] - [90] per Spigelman CJ; Caruana v Port Macquarie-Hastings Council [2007] NSWLEC 109 at [22] - [34] per Biscoe J. Consequently, both the $23 million sale and the $21 million underbid are of relevance. 74The applicant considered that the existing buildings were unsuitable for the purposes of its proposed school and that it would be more cost effective to demolish all the buildings rather than to try and adapt them for a new school of the same design as that approved on the Land. The likely demolition costs were factored into its offer of $23 million 75Mr Davis adjusted the Chester Hill sale as follows: $ Sale price 23,000,000 Adjust for delayed settlement 21,471,102 Add demolition costs 3,850,000 Total site costs 25,321,102 Say 25,325,000 (391 psm)
Add for smaller size of the Land, superior location and lack of intrusive easements and rights of way. +10 % 27,857,500 (430 psm) 76Mr Davis then applied that rate per square metre derived from the Chester Hill sale to the Land and made further adjustments to arrive at a market value of $15,080,000, as follows: $ 30,490 square metres x $430 psm 13,110,700 Add development consent premium 20% 2,622,140 15,732,840 Less clean-up site contamination 653,000 Market Value 15,079,840 Say 15,080,000
77Mr Davis' rationale for not deducting the value of improvements and for adding the cost of their demolition was that they were useless to the purchaser and would have to be demolished to make way for the applicant's new Islamic school. 78In contrast, Mr Lunney deducted the value of the improvements on a depreciated replacement cost basis (the depreciation allowance was generally between 50% and 70% of the replacement cost new). reflecting the following value elements, and allowed nothing for demolition: $ Land value 11,029,104 (169 psm) Improvements 10,442,000 21,471,000
79In reply, Mr Davis estimated the depreciated value of the improvements at only $793,500. If that amount had to be deducted in his calculations and demolition costs ignored (which he disputed), that would reduce his derived rate per square metre and market value for the Land accordingly. 80On Mr Davis' analysis, the school market bidding for the whole of the Chester Hill property was prepared to pay about twice the square metre rate of $220 - $230 evidenced by tenders for the back part, which had a residential character: see [91] - [97] below. The applicant therefore contends that the market for school land in this area, even without a school development consent, is prepared to pay significantly more than for residential land. 81In Mr Lunney's view, three sales or tenders demonstrate that the private school market was not prepared to pay a price in excess of that which the residential market was prepared to pay. They were: (a) the Land itself in 2006 when the highest tender was by a residential developer, although it was ultimately purchased by the applicant; (b) the vacant back part of the Chester Hill property where the highest tender in 2010 was by a residential bidder, not a school bidder; and (c) a site at Villawood which was sold for residential purposes in 2009. 82Mr Lunney attributed the difference between the rates per square metre paid and bid (by the underbidder) for the whole Chester Hill property and the much lower rate per square metre in the back part tenders, to the value of the improvements on the front part. As stated earlier, Mr Davis considered that the improvements had no value to Toveara as a school purchaser and therefore their value should be disregarded and their demolition allowed for. 83Thus, it is necessary to consider two issues arising from Mr Lunney's evidence: the "no premium" contention said to be evidenced by the three sales or tenders to which Mr Lunney referred, and the improvements value issue.
The 2006 sale of the Land 84The sale price of the Land to the applicant in July 2006 was $4,448,000, equating to $146 per square metre. The parties' valuers agreed that that was its residential value at that time. That is how it was marketed. The applicant does not accept that that represents its market value for a school or proposed school and says that it was undervalued for residential use due to the uncertainty and overestimated costs of contamination. However, as Mr Lunney observed, purchasers intending to develop it as a school were not excluded from bidding; and a school purpose was the intention of the actual purchaser and an under bidder. 85The applicant submits that the 2006 sale of the Land is an unreliable indicator of whether or not there was a premium for school land over residential land for four cumulative reasons: (a)uncertainty about, and overestimation of, the decontamination costs for the Land in 2006; (b)time: the 2006 site was four years old by the resumption date and the global financial crisis had intervened; (c)changes in state and local development strategies between 2006 and 2010: see [56] - [59] above; and (d)the work done by the applicant to mark out the land as "a prime location for an Islamic school" changed the highest and best use from what it was in 2006. 86I accept the submission. The 2006 overestimation and uncertainty concerning decontamination costs arose in this way. In 2006 the Minister invited tenders for the Land and obtained an internal valuation that it had a market value of $7.325 million based on a non-contaminated site. Eleven tenders were received, ranging from $2.25 to $5.25 million. Coffey Geosciences Pty Ltd provided the vendor with an estimate of decontamination costs of $2.2 million with an estimated worst case situation of $4 million. This was not made available to potential purchasers. The evidence does not disclose what estimates the individual tenderers made, with one exception where a tenderer tendered alternatively on a vendor remediation and a purchaser remediation basis: the difference was $1.09 million. A tender assessment prepared for the vendor proposed acceptance of a tender in the sum of $4.5 million which was $2.85 million below the valuation of $7.325 million based on a non-contaminated site. The vendor obtained advice from its valuer who advised that, in addition to the decontamination cost estimate of $2.2 million, it could be reasonable to make an allowance of 30 per cent for "profit" to lower risk and other associated factors which may occur. On this basis, the valuer considered that the tender price of $4.5 million was fair and reasonable and recommended that it be accepted. So did the vendor's tender assessment panel. 87Thus, the 2006 sale price of the Land was depressed due to the decontamination cost issue. As the respondent's valuer Mr Lunney accepted, the government regarded the $4.48 million sale price as fair and reasonable due to the decontamination costs identified in expert reports at the time. 88Subsequent investigation on behalf of the applicant after it purchased the Land reduced the estimated decontamination costs to $600,000 - $635,000. 89In Boland v Yates Property Corporation Pty Ltd [1999] HCA 64, 167 ALR 575 Callinan J said in the resumption compensation context that a fully conversant purchaser would have been put in possession of all the information and advantages that the dispossessed owner enjoyed: at [336], [343]. Gaudron and Gummow JJ agreed: at [100], [111]. On this authority, the applicant submits, and I accept, that the notional seller, equipped with the latest decontamination cost estimates at the 2010 resumption date should be treated as having made it available to a notional potential buyer in order to maximise the selling price of the Land at the resumption date. The 2006 uncertainty thereby would have been dispelled. 90The significance of the revised remediation costs is that the hypothetical vendor would be aware of the significantly lower costs of remediation and would have been less "anxious" to accept an offer at under value. Waddell J stated the relevant principles of such an inquiry in State Bank of New South Wales v Blacktown City Council [1994] NSWLEC 158 as follows: It is important to remember that the question to be determined is what allowance would have been made for this cost at the date of the acquisition by a seller and a buyer of the kind described in the definition of "market value". This is an inquiry which is different to determining in a detailed way what work would have been necessary at that time and how much it would have cost.
Chester Hill back part sale 91With an area of 2.7 hectares, the essentially vacant back part of the Chester Hill property is smaller by 12 per cent than the Land's area of 3.049 hectares. The back part had a development consent for a retirement village. It was also included in the development consent relating to the whole Chester Hill property for a "residential religious educational facility (bible college)". The back part was put out to tender and by March 2010 five tenders had been received. The highest tenderer at $230 per square metre intended to develop it for seniors living. The next two highest tenderers intended to acquire it for an Islamic private school and respectively tendered at $222 and $221 per square metre. 92This was much less than the rate of $430 per square metre reflected in the April 2010 sale of the whole Chester Hill property to a company associated with the applicant for $23 million. The under-bidder for the whole Chester Hill property at $21 million also tendered for the back part at the substantially lower rate per square metre. Plainly, it was prepared to pay a much higher rate for the whole than for the back part. 93The respondent submits that the prices offered for the back part are consistent with the agreed value (before adjustment) of the Land for medium residential development of $225 per square metre. The respondent also relies upon the tenders for the back part to demonstrate that the private school market does not pay a premium for land which is suitable for school use: see [36] above. 94The highest tender, at $230 per square metre, was from a residential developer seeking to develop the back part for seniors living. It has to be borne in mind that the back part had the benefit of a development consent for seniors living. The development consent was secured by the vendor at a cost of about $1.2 million, roughly approximating 20 per cent of the $6,230,000 offered by the highest tenderer. Although neither party quantified the value that development consent would represent on the market, it would be fair to assume that the consent would be of significant value to a purchaser seeking to develop the back part for seniors living. Conversely, the consent would have had been of little, if any, value to the two underbidders seeking to develop the land for use as an Islamic school. Despite the superfluousness of the development consent to the two school bidders, they offered only $210,000 to 230,000 less than the residential developer. This tends to support the conclusion that the back part of the Chester Hill site did in fact commanded a premium for a use as an Islamic school. 95In any event, the applicant submits that the unaccepted bids for the Chester Hill back part do not reflect market value for a school. It should be remembered that the tenders for the back part did not result in a concluded sale, they are merely evidence of unsuccessful offers and accordingly are of less weight in the determination of market value. 96In cross-examination, Mr Lunney agreed that the market represented by Islamic school buyers for the Chester Hill property or the back part might think it would be worth their while to outlay more money and secure the whole property which had an educational consent rather than the back part, which had effectively been converted into residential land. 97In my view, the existing Chester Hill development consent and existing buildings for an educational use would have been of considerable assistance in obtaining development consent to construct or use buildings on the front part for an Islamic school. There were no such existing buildings on the back part; the back part adjoined a residential area; and it was stamped with a residential character by reason of its residential development consent. In those circumstances, there was an apparent serious risk that opposition to development consent for an Islamic school on the back part would have matched the extraordinary opposition experienced by the applicant for an Islamic school development consent for the Land. Indeed, Mr Mehio, who negotiated the Chester Hill purchase, was so concerned about this risk that he was not interested in buying the back lot, but was attracted to purchasing the whole Chester Hill property at a much higher rate than for the back lot. Prima facie, it is a fair inference that the underbidder likewise attached much value to the benefit of the development consent. 98Further, I accept that the back part of the Chester Hill property was not nearly as desirable a site for a school as the front part due to an access issue and surrounding residential uses. More particularly: (a)the back part is a battle-axe lot which can only be accessed via a quiet residential street. Standards in the DCP suggest that to develop the land for a school site would require dedication of a significant part of the site for the circulation of buses, thereby reducing the amount of useable land. These difficulties would not arise if the whole of the Chester Hill site were secured. (b)it was not nearly as desirable for educational purposes as the front because the perception of surrounding residents would be of a new use for an intensive school purpose, not an existing use. 99These reasons explain, in very large part, the preparedness of the Islamic school market to pay a much higher rate for the whole Chester Hill property than for the back part alone.
Villawood sale 100Vacant land at 80 Miller Road, Villawood was sold with a medium density residential development consent in May 2010 for $9.15 million, equating to $94 per square metre. It is located somewhat closer to the Land than the Chester Hill property. With an area of 9.686 hectares, the Villawood property is much larger than the Land. The greater part, 7.5945 hectares, was zoned "2(a) - Residential A". The balance was zoned "3(b) - Business - Other Centres". Educational establishments are permissible with consent in those zones. It is opposite a public school. 101After adjustments for size, inferior locality and absence of school development consent, Mr Lunney analysed the Villawood sale at $127 per square metre. Mr Lunney considered that this showed that the market was not prepared to pay a significant premium for large en globo properties in established locations which are suitable for development as an Islamic school. However, he described it as "secondary evidence". 102The Villawood site is undoubtedly inferior to the Land (albeit there is evidence that a small number of lots in the Villawood subdivision are realising comparable prices to those at the Greater Union site). It is proximate to the notorious Villawood detention centre and to an adjoining industrial estate. It had been on the market, at least intermittently, for four years. It had been inspected by the applicant in 2006 and rejected as unsuitable because of its location next to the Villawood detention centre, Housing Commission areas and the perception of Villawood in the Arabic and Islamic community. There is no evidence of any private school market interest in the site. It seems to me to be an insensitive place to locate an Islamic school given the well-publicised Arabic or Islamic background and circumstances of many of the refugee claimant detainees in the detention centre and the nature of the conduct of some of them while detained. In those circumstances, I regard the Villawood site as an unconvincing example.
Greater Union site 103The respondent also submits that had there been a premium for Islamic schools in the Bass Hill area, the Greater Union site could have been made available or purchased for an Islamic School. 104The respondent points to Mr Lunney's evidence that Greater Union had told its shareholders that it was seeking to maximise returns. It would not have been inconsistent with an intention to maximise returns for Greater Union to elect to pursue the development of the site itself (and reap the consequential profits of development) rather than merely selling the land. The owner's decision to capitalise the residential development potential of the land, rather than put the land to the market to allow another developer, such as the applicant, to take advantage of that potential does not support the conclusion that there is no premium for land capable of use as a private Islamic school. It merely reflects the general proposition that an owner of land may stand to achieve a higher profit yield by developing the land itself, rather than by selling it to a purchaser to develop. At its highest, it suggests that it was more profitable to subdivide, develop and sell the land as individual lots to home-buyers, than to sell the site as englobo land to an Islamic school developer. 105I accept that this site could have been used as an Islamic school. However, the land was not put on the market. It was developed by the existing owner. The state of the market for private or Islamic schools at the time that Greater Union made its development decision and the circumstances of that decision were not explored in evidence. Thus, the respondent's submission is speculative
Improvements on Chester Hill property 106I turn to the Chester Hill improvements value issue. 107To recap, the critical difference between the valuers was this. Mr Davis treated the improvements on the Chester Hill property as useless to the purchaser and therefore valueless and, consequently, added the cost of their demolition in his adjustments. This generated a rate in his valuation of $430 per square metre, which he applied to the Land. Mr Lunney, on the other hand, attributed the difference between that rate and the rates tendered for the back part ($220 - $230 per square metre) to the value of the improvements on the front part (see [82] above). He ascribed a value of $10,442,000 to the improvements and a value of $11,029,104 to the Land. He derived from the latter figure an applicable rate of $169 per square metre. In the event that the improvement were to be attributed a value, Mr Davis estimated their value at $793,500 (see above at [79]). 108It is necessary to determine whether either of those approaches to improvements value, or some other approach, should be adopted. 109Each party marshals a National Australia Bank (NAB) valuation in support of its respective valuer's position. The applicant sought mortgage finance from the NAB for the purchase of the Chester Hill property. The NAB commissioned the NAB valuation. The NAB valuation identified the highest and best use as a functioning educational property, with the benefit of a surplus land component (the back part), which could be subdivided off for a retirement village. That seems to do no more than describe the situation of the vendor. The NAB valuation estimated an "in use" market value of $21,550,000. That sum was apportioned as to land $10,440,000 and as to improvements $11,107,239 (rounded down to $11,107,000). 110In my view, the NAB valuation should be given little, if any, weight for several reasons. First, the absence of compliance with the rigorous safeguard provided for in the Uniform Civil Procedure Rules 2005 whereby an expert witness is required to comply with the Expert Witness Code of Conduct: r 31.23, Schedule 7. Secondly, the NAB valuer was not called to give sworn evidence. Thirdly, the NAB valuer has not participated in the joint expert witness conferencing or been tested through cross-examination and concurrent evidence. Consequently, the NAB valuer has not been subject to the methods of testing evidence usually employed in this Court. 111I take the same view of the Valuer-General's statutory valuation which often finds its way into evidence in resumption compensation cases. Generally, the only relevance of such valuations, in cases such as this where expert valuation witnesses are called, is that they may form part of the historical background and may contain admissions by a party or non contentious facts. 112Mr Mehio, a board member of the applicant, negotiated the purchase of the Chester Hill property. I accept his evidence. In his affidavit he said it was clear to him at the time that the room sizes and other features rendered the existing buildings unsuitable for the applicant's proposed school. As an experienced property developer, he considered that it would be more cost-effective to demolish the buildings rather than try to adapt them for the new school, and he factored the likely development cost into the $23 million offer. 113In cross-examination, Mr Mehio was referred to statements attributed to him in the NAB valuation which might be understood as indicating that the applicant intended to use the existing buildings. Mr Mehio said that he intended to indicate to the valuer that the applicant intended to sub-lease excess space for a year or two until the buildings were knocked down and replaced with new buildings. He said they bought the whole Chester Hill property because of its existing development consent for an educational use and that if they bought only the rear part that was put out to tender, they would have had an identical situation to the development consent for the Land, which he simply wanted to forget about. He said the intention was to start by occupying the Bob Hughes building with about 200 or so students for one year, by which time a town planner would have advised how buildings fitted in. The design plans the applicant had for a school on the Land would have to be looked at afresh because of the different circumstances at Chester Hill. 114Mr Mehio was also cross-examined as to whether the purchasers intended to continue with the existing residential room leases. This was in the context of evidence indicating that rental income from parts of the property leased out to third parties was between $800,000 and $1,000,000 per annum prior to the sale. That included from a communications lease to Telstra. The residential buildings were leased to students and to the Commonwealth government for the purpose of housing refugees. Mr Mehio was only interested in the residential improvements as a possible income stream from tenants until such a time as they were torn down to make way for development of the Islamic school. He denied seeking to persuade the NAB valuer that there would be a steady income stream to service the loan from leasing. They were in education not property development, and were a not for profit organisation. 115Emails from the underbidder for the whole Chester Hill property indicate that it offered to purchase with a delayed settlement in two to three years time. They also indicate that, if, in the meantime, the underbidder could have the "use" of 100 residential units, the (associated) restaurant and an educational building with a few classrooms, it would increase its offer by $1,000,000. The evidence does not establish that the underbidder had any interest in the residential buildings other than in the relatively short term, perhaps as an income source pending delayed settlement. I do not think that an interest in leasing out accommodation, other than temporarily, should be attributed to a school buyer. In my opinion, to the extent that the Islamic or private school market would view the buildings on the Chester Hill property as useless, no value should be attributed to them and their demolition cost may be taken into account when comparing the Chester Hill sale. 116This focus is on the market view rather than the subjective development intention or purpose of a particular purchaser or offeror. The subjective development intention or purpose of a purchaser or offeror is generally irrelevant except insofar as it evidences that there were special circumstances which affect the comparability of the sale. I considered this question in Taylor v Port Macquarie-Hastings Council [2010] NSWLEC 113 at [131] - [139]: 131 The many different forces in the market that bring parties to a sale are ordinarily brought to a state of equilibrium when the bargain is finally struck. When assessing comparability the subjective intentions of the parties are generally irrelevant and the valuer looks to fundamental objective particulars of the sale such as the price, date, area, location, zoning, land use (actual and potential), physical constraints, services and amenities. However, there may be special circumstances relating to the buyer or the seller which plainly affect the comparability of a sale by showing that it is in no sense comparable or that it requires adjustment to be a reliable yardstick. Special circumstances include those which establish that the seller or buyer was anxious or unwilling and thus outside the statutory test, or not at arms length. Special circumstances also include those showing that the buyer, to the knowledge of the seller, had a higher potential use in view, perhaps not permitted by the existing zoning, which commanded a price higher than the price commanded by a lower and less rewarding use (actual or potential) whereas the subject land has no such higher potential use. That is the present case: the Land and the applicants' comparable sales all had potential industrial use but, in my view, only the latter had potential residential use, neither use being permitted by the existing zoning. Where land has more than one potential use, the seller will gear his negotiating price to the knowledge (which the seller will almost inevitably acquire) that a buyer has a higher and more valuable use in view and will not confine the price to a range appropriate to a lower and less rewarding use. This analysis is supported, I think, by the authorities and texts cited below. 132 Rost and Collins, Land Valuation and Compensation In Australia (3rd ed 1993) at 86 state: Valuations must be based on relevant sales evidence. It is most important for the valuer to obtain a detailed knowledge of all relevant sales within the area where the valuation is to be determined. Inspections and analyses of the sales will enable each one to be compared in detail with the others and with the property being valued so that a basis for determining the value can be established. The circumstances under which sales take place should be investigated by interviewing the parties concerned in each transaction. Such circumstances could affect the comparability between the sale properties and the subject property being valued. 133 Douglas Brown, Land Acquisition (6th ed 2009) at 229 states: The purpose underlying the sale or purchase of a property may be relevant in determining whether a sale is comparable or not. The court may wish to know whether a sale was an ordinary businesslike transaction. If the sale was made by an aunt to her favourite nephew the sale might not be regarded as being made at arm's length. If the seller was bankrupt or in severe financial difficulties it may be asserted that the seller sold at a lower price than might be expected if the seller was not over-anxious to sell. A sale by a mortgagee may be rejected on the ground that there was no evidence to show that the mortgagor's interests were being fully preserved: Re Murray (1934) 13 LVR (NSW) 25. Sales by the sheriff or in bankruptcy do not come within the Spencer principle: March v Frankston (City [1969] VR 350 at 367. A sale of farming land to a large retail establishment may be rejected on the ground that it is not a sale to another farmer and therefore not comparable to sales of farming land: Blefari v Minister (1962) 8 LGRA 1. If the resumed land is expected to attract only a certain class or type of purchaser, the sale of otherwise comparable land to an unexpected and different class or type of purchaser, may result in it being regarded as non-comparable. A sale of land which resulted from compromised litigation needs to be viewed with caution, because many factors extraneous to value may enter into the compromise: Celtic Agencies Pty Ltd v South Australian Land Commission (1978) 20 SASR 176. 134 In Maurici v Chief Commissioner of State Revenue [2003] HCA 8, 212 CLR 111 at [120] the High Court said: How is the land in its notionally unimproved state to be valued? The traditional, and usually unexceptionable method is to seek out relatively contemporaneous sales of comparable properties between parties at arm's length, unaffected by special circumstances, such as, for example, a strong desire by a purchaser to buy an adjoining property, and to use those sales as a yardstick for the valuation of the relevant land. 135 In The Valuer General v Fenton Nominees Pty Ltd (1982) 150 CLR 160 the court took into account the intention of buyers when acquiring land in determining that the land was comparable with the subject land. The case concerned a valuation under South Australian valuation legislation which required the unimproved value of land to be assessed. The highest and best use of the subject land was as vacant land suitable for commercial development. The parties' competing valuations were based on sales of improved land which the purchasers had acquired for redevelopment with the intention of demolishing the existing buildings as a preliminary to redevelopment. The existing buildings had no value to the purchasers. The High Court held that the prices paid for the improved land should be converted so as to reflect their unimproved value by treating the prices and the cost of demolition and earthworks as together representing the cost to the developer of obtaining unimproved land suitable for redevelopment. This established the price which commercial developers were prepared to pay for suitable vacant land similar in kind to the subject land in its unimproved state. The High Court rejected Fenton's competing contention (which would have resulted in a lower valuation) that the price paid for the improved land should be converted so as to reflect unimproved value by subtracting the value of improvements from the sale price. The latter would have been a conventional method of arriving at unimproved value if the purchasers' subjective intentions had been ignored. The High Court at 166-167 agreed with the primary judge, Wells J, who said: Speaking generally, where the subject matter of the sales, and the market in which they were concluded, reveal a sufficiently high degree of comparability with the notional sale of the land in question and the market in which it would be the subject of negotiation, the particular circumstances and considerations that induced the respective parties to come together at the several prices agreed upon are regarded as immaterial, unless, in a given case, they are such as plainly to take a sale out of the ordinary run of transactions that together constitute the relevant market. Where the circumstances and considerations have such an effect, valuers are wont to say that the alleged comparable sale must be excluded because it was affected by special circumstances. 136 In that case, the primary Judge, Wells J, said in Fenton Nominees Pty Ltd v Valuer-General (1981) 47 LGRA 71 at 79 before the passage quoted by the High Court: "it is fallacious to suppose that the owner of vacant land will not gear his negotiating price to the knowledge (which he will almost inevitably acquire) that the intending purchaser has a commercial use in view; and will not confine himself to asking prices within the range of those appropriate to some other lower and less rewarding use". Wells J also said at 79 immediately after the passage quoted by the High Court: Put another way, one may assert that none of the many different forces in the market under consideration that bring the parties to a sale is ordinarily regarded as a special circumstance, because all such forces are brought to a state of equilibrium when the bargain is finally struck. Generally speaking, therefore, and given that the degree of comparability is sufficiently marked, what the valuer primarily looks to are the fundamental particulars of each sale - the price, the date, the location of the land, and its area. 137 In River Bank Pty Ltd v The Commonwealth (1974) 4 ALJR 483 at 487, a resumption compensation case, Stephen J rejected two sales of rural property with subdivision potential, Urila and Burra Downs, because the subject property had none. By inquiring into the intentions of the purchasers (Urila - "it was purchased with a view to later subdivision", Burra Downs - "it was bought as a subdivisional project") Stephen J was able to disregard the sales as comparables. 138 In Blefari v The Minister (1962) 8 LGRA 1 the plaintiff contended that resumed land should be valued on the basis that as of the date of resumption there was a strong possibility of it being released from the "green belt" in the near future. In support of that contention he sought to rely on a sale of nearby land for a drive-in theatre. Else-Mitchell J rejected the sale, not because of the characteristics of the land but because it was purchased for the purpose of a drive-in theatre by an adjoining landowner (at 3): ...it was common ground that the land was acquired for the purpose of a drive-in theatre by a company which already had some adjoining land and was in the course of applying for a licence to conduct such a theatre. It was obvious that available sites in the Sydney metropolis, of a size sufficient to enable such a project to be established, must be limited in number, and for this reason at least, it was probable that a purchase for such a special purpose would not evidence any general market value for land of the character of having the situation of the land resumed from the plaintiff. 139 In a number of compulsory acquisition compensation cases in this Court evidence as to the purpose of the purchase of allegedly comparable sales has been considered: Chaudry v Liverpool City Council [2008] NSWLEC 251 at [29]; Cassidy v Sydney Water Corporation [2008] NSWLEC 223 at [100], [106]; Penrith City Council v Sydney Water Corporation [2009] NSWLEC 2 at [8]. 117As Mr Davis' adjustment of the Chester Hill property is so significant, Mr Lunney considered that that sale should be considered with caution. 118Mr Lunney made the following criticisms of the reliability of the rate of $430 per square metre derived by Mr Davis from the Chester Hill sale: (a)the back part of the Chester Hill property offered for sale by private tender - a site comprising about 27,096 square metres with development consent for a 133 unit aged care development - only attracted market interest up to a value of $230 per square metre. The three highest tenders were between $220 and $230 per square metre, with the second and third highest tenderers proposing to develop it as a private school. Thus, there is a significant disparity between the actual rate the market was prepared to pay for the vacant part of the Chester Hill site (up to $230 per square metre) and Mr Davis' analysis of the whole of the Chester Hill property ($430 per square metre); (b)Mr Davis' analysis of the Chester Hill rate of $430 per square metre is out of line with all the other comparable market evidence. In this regard, there was a difference of nearly $5 million between Mr Davis' alternative valuation of $15,080,000 based exclusively on the Chester Hill property and $10,325,000 based upon comparison with other school sites throughout the metropolitan region; (c)If the applicant did pay an equivalent price of $430 per square metre for the Chester Hill property, Mr Lunney would place no weight on it because, on an objective view, it is well out of line with all of the other market evidence, particularly: (i)the marketing of the back part of the Chester Hill property (with the three highest tenderers in the range of $220 - $230 per square metre); (ii)the sale of the Villawood property suitable for a school at around the same time at $94 per square metre; and (iii)the sale of the Land in 2006 to the applicant for $146 per square metre. 119The significant improvements on the Chester Hill property and each valuer's depreciated values (which are strikingly far apart) for those improvements are as follows: Lunney Davis $ $ (1)The Gate House (residence) 64,000 8,000 (2)Lecture Block 940,000 468,750 (3)Library 840,000 Nil (4)Administration 1,575,000 Nil (5)Armstrong House (residence) 1,575,000 Nil (6)Dining Hall/kitchen 1,520,000 Nil (7)Bob Hughes Christian School 780,000 114,750 (8)Lancaster House (residence) 400,000 Nil (9)Squash court 60,000 6,000 (10)Houston Chapel/Kitchen 1,140,000 Nil (11)The Cottage (residence) 128,000 16,000 (12)Houston House (residence) 360,000 Nil (13)Bitumen paving 720,000 105,000 (14)Covered walkways 90,000 Nil (15)Other 250,000 75,000 10,442,000 793,000
120I consider that a distinction should be drawn between non-residential improvements and residential improvements. In oral evidence, Mr Lunney conceded that the residential buildings would be useless as part of a school operation. He had in mind that they could be rented out. When asked by counsel for the respondent whether perhaps they could be adapted for a school use, he replied "possibly". Having inspected these buildings, I have great difficulty in seeing how they could be adapted for school use. 121As discussed earlier, I do not think that an interest in the residential improvements, other than in leasing them temporarily pending establishment of a school, should be attributed to the school market. The value of such a temporary use was not explored in evidence and I can only make a rough estimate of, say, $250,000. 122Otherwise, in my opinion, the residential buildings are useless but the non-residential improvements are useful, for a school use; and the school market would so view them. Accordingly, I propose to adjust the Chester Hill sale by treating the residential buildings as valueless other than for temporary leasing income and by allowing for their demolition. I include the dining hall/kitchen (building 6 in the above list) because it appears to service occupants of the residential buildings. 123The applicant submits that the existing buildings are incompatible with modern school design and suggest practical impossibility of compliance with cl 32 of the LEP and development standards in the DCP by way of their adaptation. In the case of proposed development involving an existing building, cl 32 requires the consent authority to take into consideration whether adequate provision is, or is able to be, made for access and facilities for people with disabilities in accordance with the requirements of the Building Code of Australia. I am not confident that these considerations should reduce the depreciated value of the non-residential buildings in the absence of expert evidence supporting and quantifying such a reduction. 124It then becomes necessary to determine the depreciated values to be attributed to the non-residential improvements. 125Each valuer provided a depreciation schedule of the improvements, which differed considerably. Evidence explaining the differences between them was sparse. Each calculated replacement cost based on a rate per square metre for each improvement. Their replacement cost rates were taken from Rawlinsons Guide. Mr Davis' replacement cost rates were generally a little lower than Mr Lunney's replacement cost rates. The evidence does not disclose the reason for this. In those circumstances, I propose to adopt, in favour of the applicant, Mr Davis' somewhat lower replacement cost rates. 126Each valuer then applied a depreciation rate to the replacement cost of each improvement. Mr Lunney proceeded on the basis that all the improvements were of value to purchasers. Generally, he applied depreciation rates of 50 per cent or 75 per cent, otherwise his depreciation rates were substantially lower. Mr Davis' depreciation rates were substantially higher than those of Mr Lunney: in some cases they were 100 per cent (including in relation to residential accommodation). The evidence as to why the valuers differed in this respect was short. Mr Davis indicated that where he had depreciated by 100 per cent, it was because the improvements were useless to the school market; and where he had depreciated by less than 100 per cent it was because the improvements may be of some benefit to the school market on an interim basis. 127Since my view of the market usefulness and value of the non-residential buildings differs from that of Mr Davis, I propose to adopt depreciation rates generally more along lines proposed by Mr Lunney, aided by my own impression of the improvements derived from my view of the site. In cases where Mr Lunney has adopted depreciation rates of 50 per cent or 75 per cent, I cannot see a reason for not preferring, and I propose to adopt, his 75 per cent rate as a reasonable average rate, being somewhat more favourable to the applicant. "Where land is acquired by compulsory acquisition, the dispossessed landowner is entitled to have the benefit of any doubt in the determination of market value of the land to be resolved in its favour.": Maloney v Cowra Shire Council [2000] NSWLEC 33 at [58] (Talbot J). In the one relevant case where he has adopted a lower depreciation rate than 50 per cent (bitumen paving), I adopt his rate of 25 per cent. In the case of item 15 in the schedules, where no replacement cost and depreciation rate were assessed, I propose to adopt Mr Davis' depreciated value of $75,000, since there is no evidence as to how each valuer arrived at his figure and Mr Davis' figure is more favourable to the dispossessed applicant. 128In the result, I determine the depreciated value of the non-residential improvements as follows: Replacement Cost Depreciation Depreciation Value $ $ (2) Lecture Block 3,125,000 75% 781,250 (3) Library 1,200,000 75% 300,000 (4) Administration 3,150,000 75% 787,500 (7) Bob Hughes Christian School 1,147,500 75% 286,875 (9 )Squash court 120,000 75% 30,000 (10) Houston Chapel/Kitchen 1,520,000 75% 380,000 (13)Bitumen paving 420,000 25% 315,000 (14) Covered walkways 165,750 75% 41,437 (15) Other 75,000 2,997,062 Say 2,997,000
129According to the evidence, the demolition costs relating to the residential buildings, for which I propose to make an adjustment, are as follows: Residential Improvements $ (1) (part of (1) and (2) $300,000, say) 100,000 (5) Armstrong House 700,000 (6) Dining Hall/kitchen 200,000 (8) Lancaster House 400,000 (11) The Cottage (no specific evidence, but say) 50,000 (12) Houston House 300,000 1,750,000
Add levelling ground and clean-up location of premises ($400,000 for whole, say 50 per cent thereof) 200,000 1,950,000 Add GST 195,000 Say 2,145,000
130I accept the respondent's submission, based on Mr Lunney's evidence, that adjustment to the Chester Hill sale for the need to obtain development consent for an Islamic school should be 10 per cent rather than 20 per cent because the developer is about half way there by reason of the Chester Hill educational development consent. 131I adjust the Chester Hill sale as follows: $ Sale price 23,000,000 Adjust for delayed settlement 21,471,102 Add demolition costs residential improvements 2,145,000 23,616,102
Less non-residential improvements 2,997,000 20,619,102 Less short term value of residential improvements, 250,000 say Land Value 20,369,102 Rate (65,000 square metres) 313 psm Add 10% for smaller size of the Land, superior location and lack of intrusive easements and right of way 344 psm
132I then estimate the market value of the Land based on the Chester Hill sale comparison as follows: $ 30,490 square metres x $344 psm 10,488,560 Add development consent 10% 1,048,856 Less clean up site contamination 653,000 Market value 10,884,416 Say 10,885,000
MARKET VALUE: ISLAMIC SCHOOL BASED ON OTHER COMPARABLES 133Mr Davis alternatively valued the Land on the basis of its use as an Islamic school at $10,325,000. This represents a rate of $300 per square metre derived from sales of other school sites on the urban fringes of north-west Sydney, as follows: $ 30,490 square metes x $300 psm 9,147,000 Add development consent premium 20% 1,829,400 10,926,400 Less clean-up site contamination 653,000 Market value 10,323,400 Say 10,325,000
134The rate of $300 per square metre is based on a comparison with other school sites on the fringes of north-west Sydney, a good distance from the Land. As I understand it, this was Mr Davis' comparison when he was first retained and before he considered the Chester Hill sale. 135The fringe comparables showed a rate per square metre ranging from $182 to $283, as follows:
DISTURBANCE LOSS OR SPECIAL VALUE 140Regrettably, it emerged during the hearing that the seven days allocated for the hearing, which were based on the parties' estimate, were quite inadequate to hear the disturbance claim of about $1.5 million. In its pleading the respondent had put the whole of the disturbance claim in issue. In its opening submissions, the respondent wrote that it was not anticipated that there were any significant legal issues. However, at the hearing a variety of specific defences were for the first time identified by the respondent and notified to the applicant. They included whether the applicant had incurred costs at all, whether costs had been reasonably incurred, whether particular costs related to the use of the Land, and whether particular costs were connected with, or a direct and natural consequence of, the acquisition. In response, the applicant sought, and I granted, leave to adduce additional evidence to meet some of those points, which it said it would have done before the hearing had it received earlier notice of them. The applicant also sought, and I granted, leave to amend its disturbance claim items to relabel them as a special value claim if they were not recoverable as disturbance, on the basis that the relabelling would not require further evidence. I was told that the mathematics were largely agreed. 141These developments suggested that some days would be required to hear the disturbance or special value claim. The Court's list is so full that I could not hear the disturbance or special value claim this year. Consequently, I suggested for the parties' consideration, and they agreed, that a Court appointed referee under the Uniform Civil Procedure Rules 2005 should hear and report to the Court on the disturbance claim as soon as reasonably practicable this year. Normally, I would not contemplate appointing a referee to hear such a claim because this Court has the expertise to determine such claims for itself, as it regularly does. However, the delay that otherwise will arise persuaded me that, with the parties' agreement, it was appropriate to do so in this case. By consent, I appointed a referee, directed the referee to report by 16 December 2011 and made directions for evidence and submissions to the referee.
ORDERS 142I have determined that the applicant is entitled to compensation for market value of the acquired land in the sum of $10,885,000: see [132] above. Determination of the disturbance loss or special value element of the compensation claim must await receipt of the referee's report. I stand the proceedings over to 16 December 2011 to consider adoption of the referee's report. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 November 2011
Al Amanah College Incorporated
Minister for Education and Training
[1994] NSWLEC 158
(1978) 20 SASR 176
(1982) 150 CLR 160
(1974) 4 ALJR 483
[2003] HCA 8