AMP Henderson Global Investors Limited and Others v Valuer General; AMP Henderson Global Investors Limited v Valuer General

AMP Henderson Global Investors Limited and Others v Valuer General; AMP Henderson Global Investors Limited v Valuer General - [2004] NSWLEC 19 - NSWLEC 2003 case summary — Zoe

[14]

Zoning of the subject sites. 7 Each of the subject sites is affected by the provisions of the Central Sydney Local Environmental Plan 1996 ("the LEP") and is subject to the provisions of the Central Sydney Development Control Plan 1996 ("the DCP"). The subject sites are zoned "City Centre" under the LEP which allows a FSR of 8:1. An additional FSR of 4.5:1 is obtainable for commercial uses pursuant to cl 35 of the LEP. Therefore the maximum FSR for the subject sites is 12.5:1. 8 Clause 32 of the LEP provides that the maximum height of a building on any land is not to exceed 55m unless otherwise permitted by the consent authority. It is agreed that the maximum height for 243-259 George Street as at the base date of 1 July 2001 was 235m. The height of 52-56 Martin Place as at 1 July 2001 was 55m to the Martin Place frontage rising to 145m. 9 NAB House is listed as an "opportunity site" in Sch 7 of the LEP. Clause 42 of the LEP provides that an FSR in excess of the permitted amount is allowed on some "opportunity sites" to achieve a higher level of amenity for pedestrians and the public environment. 10 The subject sites were also affected by the Central Sydney Local Environmental Plan 1992 - Conservation of Heritage Items which has been repealed by the Central Sydney Heritage Local Environmental Plan 2000. Such plans recognise that notional floor space above buildings listed in Sch 1 comprise an asset which may be sold or assigned a use within a development site within the City Centre zone, as described in the zoning map contained within the Heritage LEP. The transfer of heritage floor space ("HFS") from a heritage site to a development site results in the deletion of that HFS from the Sydney City Council's HFS Register. The concept of transferable heritage floor space ("THFS") can thereby enable a developer to achieve a FSR in excess of the maximum FSR determined by the LEP. Within the "A1 zone" shown on the Floor Space Ratio Map for Central Sydney (in which each of the subject sites is situated) the maximum FSR is 8:1, excluding HFS. With HFS, the FSR of a development may be increased to 12.5:1. Relevant considerations for valuation of subject sites

[15]

11 The experts agree that the highest and best use of each of the subject sites is the existing use, namely commercial office development with basement level retail. 12 Section 6A of the Valuation Act is relevant for the purpose of the valuation of the subject sites. It provides:- (1) The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made. (2) Notwithstanding anything in subsection (1), in determining the land value of any land it shall be assumed that: (a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates, and (b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used, but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that the improvements, if any, other than land improvements, referred to in subsection (1) had not been made. (3) Notwithstanding anything in subsection (1), in determining the land value of any land, being land in relation to which, at the date to which the valuation relates, there was a water right: (a) the land value shall include the value of the right, and (b) it shall be assumed that the right shall continue to apply in relation to the land. It is agreed that s 6A(2) of the Valuation Act is particularly relevant due to the over-development of the subject sites. 13 Section 4 of the Valuation Act defines "land improvements" as follows:- Land improvements means: (a) the clearing of land by the removal or thinning out of timber, scrub or other vegetable growths, (b) the picking up and removal of stone, (c) the improvement of soil fertility or the structure of soil, (d) the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation, (d1) without limiting paragraph (d), any excavation, filling, grading or levelling of land for the purpose of the erection of a building, structure or work, not being for the purpose of irrigation or conservation, (e) the reclamation of land by draining or filling together with any retaining walls or other works appurtenant to the reclamation, and (f) underground drains. 14 The parties also agree that the recent decision of the High Court of Australia in Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111 is relevant although the Valuer-General submits that Maurici does not dictate the appropriate method of valuation in the present proceedings. It is appropriate to summarise the findings in Maurici since these proceedings appear to be one of the first instances in which the Court may have need to consider the application of the High Court's decision. 15 In Maurici the High Court was concerned with the valuation of a parcel of land in the Sydney suburb of Hunters Hill pursuant to s 6A of the Valuation Act. At par 16 the High Court stated that s 6A of the Valuation Act firstly requires improvements "other than land improvements" to be identified; secondly "notionally to remove the improvements from the land"; and thirdly to determine how "the land in its notionally unimproved state [is] to be valued". It is the third step which the High Court recognised as the stage at which "difficulties arise". Their Honours said at par 16:- 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. 16 The High Court at par 17 criticised the evidence of the Chief Commissioner of State Revenue's valuer for refining comparable sales to sales of vacant or substantially vacant land because such sales were not representative of sales in Hunters Hills "as vacant land in Hunters Hill is scarce, if not to say, very scarce". The High Court continued with the following comment at par 17:- The approach of the respondent, taken to its ultimate conclusion would mean that if there were one only (reasonably comparable, in location, outlook and other relevant features) vacant parcel of land left in a district, the likely or actual recent sale price of that parcel would effectively set the value for each and every improved parcel of land in that district. 17 At par 18 the High Court made it clear that in valuing land the following principle cannot be ignored:- …that sales to be treated as comparable sales need to be truly comparable; or, to put it another way, in valuing the land the respondent's valuer did not proceed rationally, in that he was unreasonably selective in ultimately confining himself to two sales of scarce vacant land for the purposes of the comparison… A group of comparable sales cannot be representative if it does not go beyond sales of scarce vacant land.

[19]

I also had regard to the number of vacant land sales which I considered to be comparable and, in order to determine whether those sales incorporate any premium for scarcity, I undertook further analysis of improved sales within the Sydney CBD to ascertain whether any scarcity premium exists. The valuers agree that a "land sale" means a sale of land which is either vacant or which has on it buildings intended to be immediately demolished by the purchaser. Such term can also include a sale of vacant land. "Site sale" is a sale in which the buildings have no value. "Improved sale" means a sale of land which has buildings erected on it, where the purchaser intends to hold the land and buildings for the purposes of deriving an income stream from the property by way of rent. 21 Mr Jackson had "further regard to s 6A(2) of the Act and in particular, the nature of existing improvements" of the subject sites. He considered that s 6A(2) of the Valuation Act was applicable since the FSR for the existing improvements was higher than that permitted by the LEP. His final assessment of the value of the subject sites was as follows:- In assessing the value of the subject property in comparison to the sales evidence, allowances have been made in each instance to recognise the individual elements pertaining to each sale. In formulating a basis for comparison, factors such as date of sale, development potential of the land, exposure and prominence of the land, and size of the land were all considered in formulating an appropriate view of the Land Value for each property. 22 In relation to 243-259 George Street Mr Jackson stated in his report that, based "on the vacant land sales evidence and the analysis of improved sales", he calculated the existing FSA to be $1,000/m². Accordingly the agreed FSA of 44,875.70m² multiplied by $1,000/m² derives a land value of $44,875,000. 23 Mr Jackson did not believe that there were "land improvements" to take into consideration as he believed that it was difficult to estimate the value of excavation works undertaken on 243-259 George Street and he could not find any recent sales in Sydney to assist him. Instead Mr Jackson undertook a wider analysis and considered two sales of commercial office property, one in Collins Street Melbourne and the other located at St Georges Terrace Perth. From these two sales Mr Jackson concluded that a prudent purchaser would not pay a premium for the excavated state of the land. 24 As a secondary check method Mr Jackson undertook a hypothetical development of the subject sites to derive the price which a developer of such sites would prepared to pay for them assuming they were vacant. He began his valuation process with the completion value, subtracted selling costs and added rental income, allowed a 20% deduction for profit and risk and other costs including development costs, interest costs, purchase costs, and rates and taxes. By this method Mr Jackson arrived at a final figure of $44,240,000 for 243-259 George Street. 25 In relation to 52-56 Martin Place adopted a value of $1,200/m² based on the vacant land sales evidence and the analysis of improved sales. Therefore he calculated the land value to be $55,000,000 being the agreed FSA of 45,862.20m² multiplied by $1200/m². Mr Jackson did not consider any "land improvements" to be relevant to 52-56 Martin Place for which allowance should be made. 26 Mr Jackson considered that his analysis of the comparable sales demonstrated the existence of a scarcity premium for each of the subject sites. In relation to 243-259 George Street he believed a scarcity premium was evident from his examination of a vacant land sale at 232-248 Pitt Street compared with the improved land sale of 233 Castlereagh Street. He concluded that 232-248 Pitt Street reflected $970/m² FSA and 233 Castlereagh Street showed a FSA of $735/m². He made an adjustment of 10% to allow for the inferior location of 233 Castlereagh Street compared to 232-248 Pitt Street resulting in an estimated $800/m² FSA for 233 Castlereagh Street. He compared this rate to $970/m² FSA for 232-248 Pitt Street and concluded that a scarcity premium of 20% was demonstrated from such comparison. 27 With respect to 52-56 Martin Place Mr Jackson undertook a similar analysis to ascertain the scarcity premium using historic land sales. He calculated that depending upon the comparisons he made, a scarcity premium after adjustments of up to 45% was identified. He compared 35-43 Clarence Street being a "historic land sale" completed in June 1997 to an improved land sale namely 14 Martin Place which was finalised on 1 June 2001 to assess the existence and extent of the scarcity factor. Valuer-General's method of valuation

[20]

28 Mr Hill used the comparable sales method to derive the $/m² of FSA which a potential purchaser was prepared to pay for a site in the "City Core" sector of the Central Business District ("the CBD") at the base date of 1 July 2001. (The "City Core" comprises the area between Alfred Street to the north, King Street to the south, York Street on the west and Macquarie Street on the east. The CBD lies between Alfred Street to the north and Central Railway Station to the south). Mr Hill considered that sales of improved property which were tenanted and which the purchaser did not plan to demolish in the short term were less reliable for the purpose of determining their unimproved land value. Mr Hill referred to numerous adjustments which were required which rendered them unreliable for the purpose of comparison. Such adjustments related to the value of the income stream for each lease, historical construction costs, the difficulty of attributing valuation to the improvements and the loss of interest on capital utilised during the construction period. Mr Hill considered that several of the sites selected by Mr Jackson were not truly comparable because of their location outside the City Core. Mr Hill also believed that the numerous adjustments that Mr Jackson had made by deduction, for example, of the original cost of the building and the income stream for rent and heritage issues, created uncertainty and doubt and produced an unreliable result. 29 Mr Hill primarily relied upon eight sales in the CBD. Seven were improved sales but the building improvements were subsequently demolished. His enquiries revealed that the purchases were made for the purpose of obtaining future vacant development sites. The remaining sale was a vacant land sale located at 11 Jamison Street. 30 In relation to 243-259 George Street Mr Hill adopted the agreed FSA of 44,875.7m² and applied a rate of $1350/m² to obtain a land value of $60,582,195. Mr Hill believed that the value of the excavation of 243-259 George Street should be added as it constituted a "land improvement" and needs to be included in the final land value according to s 6A of the Valuation Act. The excavation of 243-259 George Street was made to a depth of 10.5m and extended over an area of 3,849m² amounting to 40,414m³. Mr Hill adopted $40/m³ for the value of excavation amounting to $1,616,560. The final land value of 243-259 George Street was assessed by Mr Hill to be $62,200,000. 31 For 52-56 Martin Place, Mr Hill multiplied the agreed FSA of 45,862.6m² by his adopted value of $1,650m² from his analysed market sales evidence. Mr Hill similarly made an adjustment for the value for excavation of $1,120,770 (being a depth of 7m multiplied by an area of 3,558m² multiplied by a rate of $45/m³). Mr Hill adopted a final land value of approximately $76,750,000.

[26]

Applicants' vacant land sales 38 Mr Jackson relied upon another land sale being 30-34 Hickson Road, which sold in May 2002 for $10,130,000 and has a land area of 4,088m². The Valuer-General submits that this sale is irrelevant as it is a sale after the base date of 1 July 2001, it has heritage constraints, it is not located in the CBD and there was an issue of contamination of the site. 39 The Court accepts the Valuer-General's submission that 30-34 Hickson Road is not a comparable sale because it was located on the fringe of the CBD and not within the City Core. As will be considered subsequently, this site is also rejected because of the date of the sale, namely 11 months after the base date. Valuer-General's vacant land sales 40 Mr Hill relied upon seven land sales which were sold between November 1995 to June 1997. These sales included 35-43 Clarence Street sold June 1997, 11-19 Jamison Street sold November 1996, 400 George Street sold November 1995, 88 Phillip Street sold June 1996, 126 Phillip Street sold November 1996, 44-62 Castlereagh Street sold September 1997 and 357-365 George Street sold from March 1996 to May 1997. The Valuer-General relies on Wells J in Crompton v Commissioner of Highways (1973) 32 LGRA 8 and submits that the range of sale dates is important because the comparable sales method requires valuers to consider sales over a wide temporal range. 41 The applicants submit that the subject sites must be compared with similar properties: see Sher v Commissioner for Main Roads (1975) 24 The Valuer 150 at p 151. The applicants reject 11-19 Jamison Street as being comparable. They claim that the proposed use must be the same as that of the subject sites. Such site was bought by a hotel developer and developed for hotel purposes. The applicants also submit that the sale of 88 Phillip Street was misconceived by Mr Hill as he did not understand that the development consent attached to the property was for a mixed residential and commercial development. Finally the applicants claim that 126 Phillip Street was not a land sale as it was bought with buildings producing income and was held by the purchaser for five years prior to re-development. The applicants contend that the remaining four sales are too dated and cannot be regarded as "relatively contemporaneous sales of comparable properties": see Maurici at par 16. 42 The applicants submit that the net absorption of office space accommodation is an important consideration to a developer when purchasing land for development in the CBD. The net absorption is directly affected by the level of demand and supply of available office accommodation. Mr Jackson relied upon data issued by the Property Council of Australia entitled "Market Profiles" which analysed the vacancies of commercial office space in the Sydney CBD. He said that during early 1996 to late 1997 the forecast predicted a high level of net absorption for commercial developments scheduled for completion in two to fours years into the future and the net absorption figures for the period July 1999 to June 2001 were at record high levels. Mr Jackson said that for the period projecting forward from July 2001 to December 2002 the market experienced negative levels of net absorption as office accommodation provided by the completion of new buildings was absorbed.

[27]

Economic conditions 43 The applicants submit that the economic data establishes that there was a fundamental difference in the Sydney CBD property market at the time of the sales relied upon by the Valuer General compared to those prevailing at the base date. The evidence relied upon by the applicants in support of such submission comprises the absorption rates of office space, the applicants contending that by July 2001, all of the new office space had been absorbed. Additionally the applicants claim that the number of land sales in the CBD demonstrates that the market had experienced a significant downturn. 44 The data in "Market Profiles" for the CBD total market showed that in the 12 month periods ending January 1996 and July 1996 respectively, there were high net absorption rates of office space in the Sydney CBD and that such absorption reached a maximum of 235,631m² by the end of January 2001. By July 2001 the absorption rate had fallen to 200,784m², and thereafter fell steadily away. In the 12 month period ending July 2002 the absorption rate was minus 134,558m². 45 For Sydney CBD Grade A commercial office space, the data records a similar downturn. For example, in the 12 months to July 1996 the audited net absorption was 66,466m². By July 2001 that had been reduced to 52,874m² and by July 2002 the absorption was reduced to 150m². 46 Based upon this information Mr Jackson considered that the demand for commercial space in "Grade A" buildings in the Sydney CBD had diminished between 1996 and 2001. Mr Jackson believed that NAB House and the Colonial Centre had been built to a "high quality A grade standard". Sales of commercial office space during this period were regarded by him as too unreliable too be used as comparable to the base date valuations of the subject sites, since demand for such space directly affected sale prices. Mr Jackson also observed that the downturn in the market was also evidenced by the lack of land sales. Whilst there were several sales between 1995 and 1997, only one land sale took place between November 1997 and January 2002. Mr Jackson believes that office space which had become available on the market between 1997 and 1999 had been absorbed. 47 In addition to the above data, economic data published by Access Economics entitled "Inflation Forecasts" for the period 1977-2002 were tendered. Additionally Consumer Price Index data for the period 1977-2002 and Building Price Index for the same period were relied upon by the applicants.

At a glance

Court

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Before

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Judgment (45 paragraphs)

Cases Cited (6)

Cited By (3)