(v) There may be some exceptional cases which fall outside the net of the section where it is extremely difficult to assess the compensation, but it is clear that the applicant is to derive a considerable benefit from the application. In such circumstances it may be appropriate to assess the compensation on a percentage of the profits that would be made.
31 In the present case Mr Antipas contends for a sum of nil or alternatively, for a sum of $13,000; whilst the respondents contend for a sum of $200,000. Mr Antipas relies upon the evidence of a valuer, Mr K Gothard. The respondents rely upon the evidence of another valuer, Mr W Dobrow. The valuers were unable to agree on either the appropriate method of valuation or on the amount of compensation.
32 The respondents' contention for a sum of $200,000 is based upon the final principle explained by Young J in Wengarin, that is, an assessment of compensation on a percentage of the profits that would be made. Mr Fraser submits that this is appropriate because of the irrevocable differences between the valuers and the obvious difficulty in assessing fair compensation, inter alia.
33 The figure of $200,000 is that which Mr Antipas offered the respondents on 19 January 2004 in return for widening the existing right of way from 3.05 metres to 6 metres and extending the benefit of the right of way to lot 31. The respondents rejected the offer. In Mr Fraser's submission it nevertheless represents the commercial value that Mr Antipas placed on obtaining the kind of access that would be acceptable to the consent authority for the purpose of obtaining his development consent. It is submitted that this is, in effect, a share of the profits that Mr Antipas was prepared to pay to the respondents for the extremely valuable advantage of gaining access to lot 31 and thereby obtain development consent. This is said to represent the percentage of profits upon which the Court can rely to fix the amount of compensation in accordance with the final principle set out by Young J.
34 I am unable to accept the submission. The offer was made by Mr Antipas before he had obtained development consent for the purpose of supporting his development application, believing that a 6 metre wide right of way would be necessary to obtain consent. In the appeal which came before Commissioner Brown, however, the commissioner determined that the existing 3.05 metre wide right of way was sufficient, and all that was required was to extend the benefit of the right of way to include lot 31. Having now obtained a favourable determination from the commissioner, Mr Antipas is understandably no longer prepared to pay $200,000 for a 6 metre wide right of way.
35 There is no evidence as to what profits will be made by Mr Antipas and the Court is in no position to determine what percentage of any such profits would be appropriate for compensation to the respondents. The final principle adopted by Young J seems to me to be a principle of last resort, where it is "extremely difficult to assess the compensation". In the present case, however, despite the absence of any agreement between the parties' respective valuers, it is possible in a rational way to resolve their different approaches to the problem of determining compensation.
36 The parties' valuers have attempted to determine the diminished market value of the respondents' land as a consequence of the extension of the benefit of the right of way to lot 31. As noted above, they have each adopted a different approach to the assessment, with different results.
37 The applicant's valuer, Mr Gothard, is of the view that the right of way should be assessed against the value of the land only and relies upon amounts of compensation allowed upon the acquisition of easements in other cases. In this way he derives a value of $13,000 for the easement, which represents the applicant's alternative contention as to the appropriate amount of compensation.
38 The respondents' valuer, Mr Dobrow, has adopted a different approach. He has adopted a "before and after" method of valuation - that is, by asking what a willing but not anxious purchaser would pay for the property without the right of way benefiting lot 31, and then asking what such a purchaser would pay for the property burdened by the right of way benefiting lot 31. In Mr Dobrow's view, the hypothetical purchaser would most likely be an investor, in which case the appropriate method of valuation is by capitalisation of the net returns on a "before and after" basis.
39 Mr Gothard agreed, in cross-examination, that the respondents' property is an investment property rather than a potential development site. The difficulty I have with Mr Gothard's approach is that the comparable cases in which easements have been acquired, upon which he relies, are not truly comparable. With a few exceptions, they are mainly cases involving the acquisition of drainage easements through residential properties, for which the compensation payable under s 88K of the Conveyancing Act has varied from about $12,000 to about $30,000. A drainage easement is not, in my opinion, comparable to a right of way. Once drainage pipes have been laid and covered over, there is no ongoing interference with the surface of the land within the easement. A right of way, on the other hand, involves an ongoing disturbance in the form of vehicles coming and going which is both visible and generates noise and fumes and it limits the use to which the surface of the land may be put.
40 Mr Gothard places particular reliance, however, on one case involving a right of way at Taren Point Road, Caringbah. That was an intensification of a right of way through a commercial property, where the parties negotiated a price of $10,000 for the additional right. Mr Dobrow, however, states that this is an unreliable indicator: it was an intensification of an existing right of way, the price was negotiated between the parties and was not an amount determined by the court.
41 In my opinion, the approach of Mr Dobrow is to be preferred. Since both valuers have agreed that a hypothetical purchaser of the respondents' land would view it as an investment property, the "before and after" method of valuation involving capitalisation of net returns is a legitimate and reliable method of valuation. It is a method which is well supported by authority in cases involving the acquisition of an easement: Mobbs v The Minister (1960) 5 LGERA 276; Joyce v Northern Electric Authority (Qld) (1974) 1 QLCR 171; Longeranong Pty Ltd v Electricity Trust (SA) (1990) 55 SASR 493; 71 LGRA 316; Electricity Commission of New South Wales v Arrow (1994) 85 LGERA 418.
42 Mr Dobrow considers that the rentals of the shops and office in the respondents' property will be reduced following the imposition of the easement. Tenants will be affected at peak times and would negotiate for a lower rental in the order of about five per cent. Mr Gothard, however, considers that there would be no reduction in the shop rentals due to their remoteness from the right of way. I am, however, persuaded by the logic of Mr Dobrow's reasoning - tenants of the shops will want to come and go at peak times, which will coincide with the peak times of use of the right of way.
43 Mr Dobrow has based his calculations on current market rentals in the area. Mr Gothard disputes this and says that the actual rental being paid at present should be used as the basis for any calculation. Again, I am persuaded that Mr Dobrow's approach is more reliable. The present shop rentals were obviously negotiated some time ago and are due to be reviewed this year. A prudent hypothetical purchaser would, in my opinion, have regard to the rents likely to be obtained, namely, current market rent.
44 The valuers both agreed that if one were to employ the capitalisation of net rentals in the "before" or present situation, then the appropriate capitalisation rate is seven per cent. Mr Dobrow, however, would increase the rate to 7.5 per cent in the "after" situation, because, according to him, the property may take longer to rent and if so it may become "stigmatised". In that case, Mr Dobrow says that a hypothetical purchaser would look for a higher yield of 7.5 per cent rather than seven per cent. Again I am persuaded by the logic of Mr Dobrow's approach.
45 Accordingly, I prefer the evidence of Mr Dobrow to that of Mr Gothard. I adopt Mr Dobrow's figures: a value of $1,010,000 in the "before" situation and a value of $895,500 in the "after" situation, resulting in a compensation figure of $114,500.
46 Mr G Newport, appearing for Mr Antipas, submits that such a sum is out of step with sums that have been awarded in other cases involving the acquisition of a right of way, in particular, Wengarin ($12,000) and Marshall v Wollongong City Council [2000] NSWSC 137 ($13,600). In both of these cases, however, the right of way was created over vacant land, and in the case of Marshall there was a resultant benefit to the servient tenement. I do not derive any assistance from these cases.
47 Both valuers agreed that the determination of compensation is not merely a calculation exercise. One also needs to step back, look at it realistically and compare the figure with actual sales. Since there are no truly comparable sales, however, I am prepared to adopt Mr Dobrow's figure of $114,500.
48 The respondents also seek other items of compensation, such as the need for double glazing, additional cleaning costs and surge protection. One of the benefits of adopting the "before and after" method, however, is that it takes into account all the adverse consequences in the "after" situation, so that no special items need to be further considered.