Applicants v Respondent

Question 1: What is the occupancy, or occupancies, to be valued? [160]-[174]

Question 2: How are the occupancies to be valued? [175]-[196]

Question 3: Are the AWF Assets part of the land to be valued? [197]-[231]

Are the AWF Assets chattels or fixtures? [200]-[217]

Section 154A, Property Law Act [218]-[229]

1 Ararat Wind Farm is a 75 turbine wind farm near the town of Ararat in rural Victoria, operated by Ararat Wind Farm Pty Ltd (AWFPL). The wind farm is spread across land owned by a number of different Land Owners, which it occupies pursuant to 16 leases between AWF Prop Co 2 Pty Ltd and the various Land Owners, and a sublease from AWF Prop Co to AWFPL. The wind farm spans two municipalities: 70 turbines are in the Rural City of Ararat, with the remaining five in Northern Grampians Shire.

2 In March 2018, the Ararat Rural City Council issued a rate notice for the fire services levy in respect of the part of the wind farm located in the Ararat municipality. The notice was addressed to 'Windlab', which was a reference to Windlab Asset Management Pty Ltd, a company that provides asset management services to AWFPL for the Ararat Wind Farm. The rate notice specified a site value of $14,560,000 for the 'various allotments' of land comprising the wind farm, and a capital improved value of $470,400,000. It sought payment of a fire services levy of $740,625.60.

3 The rate notice was based on a supplementary valuation of the Ararat portion of the wind farm as at 1 January 2016, returned on 24 January 2018. The supplementary valuation was undertaken by Paul Newman, a certified practising valuer, who inspected the wind farm on 31 August 2016 and 1 November 2017. By the time of his second inspection, the construction of the wind farm had been completed and it was fully operational.

4 AWF Prop Co objected to the valuation of capital improved value at $470,400,000, on the ground that it was too high. It contended that the capital improved value was $14,560,000, the same as the site value of the land. On 24 August 2018, Mr Newman disallowed the objection. In September 2018, AWF Prop Co and AWFPL applied to the Victorian Civil and Administrative Tribunal to review Mr Newman's decision, under s 22 of the Valuation of Land Act 1960 (Vic).

5 The proceeding was managed in the Tribunal's Planning and Environment List. The Valuer-General Victoria intervened in and was joined as a party to the proceeding. In December 2019, Senior Member Jacono made final case management orders that identified the following questions for determination:

(a) What is the occupancy, or occupancies, to be valued for the purposes of assessing CIV [capital improved value] having regard to the Valuation of Land Act 1960 and, in particular, sections 2(3), 2(3A), 13DC(6), (7), (7A), (8), (9)?

(b) For the purposes of assessing CIV, how is the relevant occupancy or occupancies to be valued having regard to the principles set out in Challenger Property Asset Management Pty Ltd v Stonnington City Council [2011] VSC 184; (2011) 34 VR 445?

(c) For the purposes of assessing CIV, are the AWF Assets (as defined in the statement of Agreed and Non Agreed Facts at [90]) to be valued as part of the hypothetical fee simple, having regard to:

1. common law and/or statutory interpretation principles concerning fixtures and chattels, including the decision of this Tribunal in AusNet Electricity Services Pty Ltd v Whittlesea City Council [2014] VCAT 1637; and/or
2. the operation of section 154A of the Property Law Act 1958?

6 The third of these questions concerns the key issue in dispute: whether the 'AWF Assets' - principally the wind turbines - are part of the land to be valued. The Valuer-General contends that they are, while the applicants maintain that they are chattels that should not be taken into account in valuing the land occupied by the wind farm.

7 The hearing of the Tribunal proceeding was listed in April 2020, but could not commence due to the COVID-19 pandemic. On 30 April 2020, the Valuer-General applied under s 23(3) of the Valuation of Land Act for the proceeding to be treated as an appeal to the Supreme Court. The application was supported by AWF Prop Co and AWFPL, and was not opposed by the Council.[1] I granted the application on 18 May 2020, being satisfied that the matter raised questions of unusual difficulty and general importance concerning the valuation methodology for wind farms in Victoria.

8 I heard opening submissions and the evidence in late July 2020, including the concurrent evidence of three valuation experts - Geoffrey Brown was called by the applicants, and Mr Newman and Peter Molloy were called by the Valuer-General. The parties then filed written submissions addressing the three questions identified by Senior Member Jacono, and made their closing submissions on 21 September 2020.

9 I have concluded that answers to the questions posed by the Tribunal are:

(a) The occupancies to be valued for the purposes of assessing capital improved value are the separate occupancies created by the AWF Leases over the land owned by the separate Land Owners. Section 19 of the Fire Services Property Levy Act 2012 (Vic) provides that the owner of leviable land is liable to pay the fire services property levy. The occupancy on each separate Land Owner's land must be valued in order to determine that Land Owner's liability to pay the levy. Title, rather than occupancy, is the starting point for valuing the relevant land.

(b) Applying the principles in Challenger Property Asset Management Pty Ltd v Stonnington City Council,[2] the occupancies are to be valued by reference to a hypothetical sale of a fee simple interest in the land, on the basis that the fee simple interest is not affected by any lease. That does not dictate that the existing leases between the Land Owners and AWF Prop Co are to be disregarded. The leases are relevant in assessing the likely future occupation of the land and the market rental for that occupation. In particular, the rent being paid under the actual leases is likely to be a guide to the market rental for occupation, unless the leases are unusually beneficial or burdensome.

(c) The above-ground AWF Assets - the wind turbines and towers, the substation, the wind-monitoring masts, and the buildings - are not part of the land to be valued for the purposes of assessing capital improved value. They are chattels, not fixtures, at common law. Even if they were fixtures, the effect of s 154A of the Property Law Act 1958 (Vic) is to exclude them from the hypothetical fee simple estate to be valued. The remaining AWF assets - the turbine foundations, the roads, fences and carpark, and the underground cabling - are part of the land to be valued.

10 Applying these conclusions to the valuation evidence in this case, I prefer the initial valuation of Mr Brown to Mr Newman's supplementary valuation and to the initial valuation of Mr Molloy. Mr Brown's valuation is preferable because it was based on instructions that provided the correct legal framework within which to assess the capital improved value of the AWF Land. Mr Molloy prepared an alternate valuation based on Mr Brown's instructions and using his methodology. The differences between these two valuations - $10,850,000 and $20,100,000 respectively - turn on matters of valuer's judgment, about which I am at present unable to form a view.

11 My reasons for reaching those conclusions follow.

12 I was assisted by a detailed statement of agreed facts, which is the primary basis for the findings of fact set out below. The agreed facts were supplemented by the evidence of the general manager of Ararat Wind Farm, Stuart Liddell, a report of a structural engineer, Ljubisa Petrovic of GHD, and two assets valuation reports by Damian Dalton of PP&E Valuations Pty Ltd.

13 The Ararat Wind Farm is located on rural land approximately 180 kilometres north-west of Melbourne and between 9 to 17 kilometres north-east of Ararat in western Victoria.

14 Construction of the wind farm commenced in August 2015, and practical completion was achieved in April 2017. The wind farm has a total installed capacity of 240 megawatts, but typically generates electricity at 26-29% of its installed capacity.

15 AWFPL operates the business known as the Ararat Wind Farm. It has a contract with Windlab Asset Management Pty Ltd to provide asset management services for the wind farm.

16 On 22 October 2010, the Minister for Planning granted two planning permits for the Ararat Wind Farm, under Pt 4, Div 6 of the Planning and Environment Act 1987 (Vic): Planning Permit 09/004799 was granted under the Ararat Planning Scheme, and Planning Permit 5.2009.94.1 under the Northern Grampians Planning Scheme. The two permits are effectively identical.

Use and development of land for a Wind energy facility comprising [70 and 5] generators and associated infrastructure including access roads, cabling, permanent anemometers, internal powerlines, substations, excavation of rock material, earthworks, temporary concrete batching plants, maintenance and storage facilities, car parking, removal of native vegetation and alterations to roads and access to roads within a Road Zone Category 1.

18 Conditions 21 and 22 of the planning permits provide for decommissioning the wind farm. Condition 21 provides:

The wind energy facility operator must, no later than one month after all wind turbines have permanently ceased to generate electricity, notify the Minister for Planning in writing of the cessation of the use. Within a further six months of this date, the wind energy facility operator, or in the absence of the operator, the owner of the land on which the relevant turbine(s) is/are located, must develop the decommissioning plan to the satisfaction of the Minister for Planning.

The decommissioning plan must provide for the following:

a) the removal of all above ground operational equipment;

b) the removal and clean-up of any residual spills or contamination;

c) the rehabilitation of all storage, construction, access tracks and other areas affected by the project closure or decommissioning, if not otherwise useful to the on‐going management of the subject land;

d) a decommissioning traffic management plan; and

e) a post decommissioning revegetation management plan.

The decommissioning plan must be implemented to the satisfaction of the responsible authority within 24 months of approval of the plan or within such other timeframe as may be specified by the responsible authority.

20 AWF Prop Co is the lessee of the various portions of land on which the Ararat Wind Farm is operated by AWFPL. The portions of land on which the wind farm is located sit within larger parcels of land owned by a number of Land Owners, who otherwise use their land for agriculture and primary production.

21 The Land Owners have entered into 16 separate AWF Leases with AWF Prop Co as tenant, 12 of which are within the municipality of Ararat. The lessors under the AWF Leases are the Land Owners, who are the registered proprietors of their respective portions of the land, and who hold an estate in fee simple in that land.

22 Pursuant to the AWF Leases, the Ararat Wind Farm is located on the AWF Land, which comprises:

(a) the AWF Leased Land, which is exclusively occupied by AWF Prop Co as tenant under the leases, and includes the land upon which the wind turbines, the wind monitoring masts, the substation, and various buildings are located;

(b) the AWF Road Land, land licensed to AWF Prop Co by the Land Owners on which access roads are located; and

(c) the AWF Cable Land, land under which the underground electrical cables and communication cables are located.

23 The total area of the AWF Land is 77.05 hectares, spread across just under 5,000 hectares of rural land owned by the various Land Owners. Of that total area, 27.25 hectares is AWF Leased Land, 31.2 hectares is AWF Road Land, and 18.6 hectares is AWF Cable Land. The area of the AWF Land within the municipality of Ararat is 73.31 hectares, on which 70 of the 75 turbines are located.

24 All of the AWF Land is leviable land for the purposes of the Fire Services Levy Act.

25 A map of the wind farm is reproduced at Annexure 1. Two aerial photographs showing the distribution of the turbines and the title boundaries of the Land Owners are reproduced at Annexure 2.[3] Wind turbines on the AWF Land to the north and south of the Pyrenees Highway are connected by underground electrical and communication cabling that travels under the Pyrenees Highway.

26 One of the AWF Leases commenced on 24 September 2013, and the other 15 commenced on 26 June 2015. On 23 June 2015, AWF Prop Co 2 entered into an Agreement to Sublease with AWFPL, which operates the Ararat Wind Farm. In the Agreement to Sublease, AWF Prop Co agreed to grant AWFPL subleases of the AWF Leased Land, and a lease of 'Affixed Plant' (defined to include all wind turbines and electrical distribution and conditioning equipment).

27 The terms of the AWF Leases are effectively identical.[4] The parties agreed the following summary of their key terms:

1. The cover page to each AWF Lease states the 'land' that is leased to AWF Prop Co (i.e. the AWF Leased Land).
2. The cover page to eleven of the AWF Leases describes the 'land' as being:

Part of the land described in Certificate of Title... being the area marked A (Turbine Sites) in the attached plan and defined as the 'Premises' in clause 1.1.

1. The cover page to four of the AWF Leases describes the 'land' as being:

Part of the land described in Certificate of Title... being the area marked A (Turbine Sites) and B (Anemometer Site) in the attached plan and defined as the 'Premises' in clause 1.1.

1. The cover page to one of the AWF Leases describes the 'land' as being:

Part of the land described in Certificates of Title... being those areas also marked A (Turbine Sites), B (Anemometer Site), C (Electricity Sub-Station Site) and G (Operation and Maintenance Building Site) in the attached plan and defined as the 'Premises' in clause 1.1.

1. [In] the AWF Leases, the AWF Leased Land is referred to as the 'Premises'. For the purposes of describing the terms of the AWF Leases in [67] - [72], the term 'Premises' is used in order to be consistent with the terms of the AWF Leases. However, the terms Premises and AWF Leased Land both refer to the area of land leased (as opposed to licensed) to AWF Prop Co.
2. The term of the AWF Leases is generally 25 years. Under the AWF Leases, the lessee generally has an option to renew an AWF Lease for a further 25 year term.
3. Pursuant to the AWF Leases, the lessee agrees to pay any additional rates taxes assessments and outgoings which are, or which shall during the term, be imposed or charged upon the land by reason of the AWF or the lessee's occupation of the Premises.
4. Pursuant to the AWF Leases:

(a) the lessee must, upon the expiration or sooner determination of the lease, remove the Turbines and any other apparatus, equipment or works of any nature erected or installed upon the Premises or the Development Area to a depth of 0.5 metres below the level surface of the soil at the cost of the lessee and to make good any damage thereby caused to the reasonable satisfaction of the lessor and leave the Premises in accordance with all statutory and other rules and regulations applicable to the Premises and in force at the expiration of the lease;

(b) the lessee shall not be required to remove the wind turbine foundations and the access roads.

1. Pursuant to the AWF Leases, the lessee must comply with all obligations of the lessor in respect of the Premises or pursuant to any planning obligations imposed by a relevant authority for the development, management, preservation or conservation of the land in connection with the AWF and to indemnify the lessor from and against all costs, claims, liability and expenses arising from such obligations.
2. Pursuant to the AWF Leases, the rent is adjusted annually in accordance with the Consumer Price Index (All Groups) of the Commonwealth of Australia for the City of Melbourne in the State of Victoria.
3. Pursuant to the AWF Leases, the lessee can determine the term of an AWF Lease on not less than 6 months' notice in writing.

28 The following AWF Assets are located on AWF Land:

(a) the wind turbines and towers, including the wind turbine foundations;

(b) a substation;

(c) a multipurpose management and Administration Building;

(d) a storage shed;

(e) a hazardous materials Shelter;

(f) wind-monitoring masts;

(g) access roads and fences;

(h) a carpark;

(i) underground electrical cabling and communication cabling; and

(j) power lines including communication lines.

29 Each wind turbine and tower is located on AWF Leased Land, and comprises:

(a) a tubular steel tower, approximately 85 metres high;

(b) the nacelle, which houses the gearbox, a 3.2 megawatt wind turbine generator, controller, and other equipment, which is installed on the top of the tower; and

(c) three rotor blades, each weighing 9 tonnes and 50 metres in length, which are attached to a rotor hub connected to the nacelle.

30 The rotor diameter is approximately 103 metres and the tip height of the rotor blades is approximately 135 metres high.

31 The components of the wind turbines and towers were manufactured off site and delivered to site in a dismantled state. Each nacelle was manufactured and delivered as a single unit, which was bolted to the top of the tower structure on site. The wind turbines and towers were each assembled and installed on site in a matter of days.

32 Within each wind turbine are voltage step up transformers that increase the voltage from 6kV to 33kV.

33 There are no fences around the wind turbines and the surrounding land continues to be farmed by the respective Land Owners.

34 Each tower is connected to either a rock anchored foundation or mass gravity foundation. Of the 75 wind turbines, 41 are connected to mass gravity foundations and 34 are connected to rock anchored foundations.

35 The mass gravity foundations consist of approximately 340 cubic metres in volume of concrete and 36 tonnes of conventional steel reinforcement, measure 17 metres face to face, and are embedded approximately three metres into the ground. Where a mass gravity foundation is used, the tower is connected to the mass gravity foundation base by 108 high-tensile bolts that are set into the foundation.

36 The rock anchored foundations consist of a concrete mass of approximately 120 cubic metres in volume and approximately 16 tonnes of steel reinforcement, and measure eight metres face to face. The rock anchored foundations are locked onto the ground by post-tensioned anchors drilled and grouted into the rock 20 metres below the foundation base. Where a rock anchored foundation is used, the tower is connected to the rock anchored foundation by high tensile bolts that are set into the foundation.

37 The wind turbines are connected to the wind turbine foundations for safety and operational reasons, including that the wind turbines do not fall over in strong wind conditions. It would be unsafe to install, use or operate a wind turbine, and a wind turbine would not be able to be operated for its intended purpose, unless it was connected securely to a foundation.

38 Each wind turbine and tower is demountable from the foundation and can be removed individually. In order to remove the wind turbines and towers, the bolts connecting the tower to the wind turbine foundations are unscrewed and the wind turbine and tower is dismantled by reversing the process by which it was installed. It takes approximately two days to remove each wind turbine and tower. This can be done without any substantial damage to either the wind turbine and tower, the foundation, or the AWF Leased Land. There is no material impediment to removal of the wind turbines and towers from their foundations or from the AWF Leased Land.

39 The wind turbine foundations cannot be removed without disturbing the AWF Land. There is no economic incentive to remove the wind turbine foundations.

40 The substation is located on AWF Leased Land. It collects energy generated by the wind turbines (via the underground electrical cables) and then distributes it into power cables that ultimately connect to the power grid. The substation primarily consists of two Wilson 170MVA power transformers, which convert the 33kV wind farm power electrical network to 132kV for transmission to the power grid at Elmhurst, Victoria.

41 The Wilson 170MVA power transformers were manufactured offsite and delivered to the AWF on a single semi-trailer. Upon arrival at the substation location, the transformers were moved into their current location using a crane to lift them onto slides, and then using hydraulic rams to push them along the slides into their current location.

42 The transformers are removed by reversing the process by which they were installed. They can be removed without causing damage to the AWF Leased Land, although the concrete plinth would remain.

43 The Administration Building, storage shed and the Shelter are located on AWF Leased Land. Together with the carpark, the buildings are located approximately 100 metres from the substation.

44 The Administration Building is made of six portions that sit on six concrete plinths. It is of a steel frame construction with colorbond walls and roof, and is bolted to the concrete plinths.

45 The storage shed is a steel portal framed colorbond clad shed with a concrete floor, which is bolted to concrete footings set into the concrete slab.

46 The Shelter is used for storing hazardous material. It is a steel portal framed colorbond clad shed with a concrete floor, bolted to a concrete slab. It can be dismantled and removed without causing lasting damage to the AWF Land and, once removed, can be reassembled for use at a new site.

47 The carpark is an area of approximately 800 square metres, consisting of an earth hardstand capped with crushed rock.

48 There are four long-term wind metering masts located on AWF Leased Land. They consist of lattice steel towers with steel guide strains and wind measurement devices mounted on top. The steel guide strains are connected to small concrete foundations that are approximately three square metres in size. They were installed in a matter of days.

49 The wind metering masts, including the concrete foundations, can be dismantled and removed in a matter of days and without causing damage to the AWF Leased Land.

50 The access roads and fences are located on the AWF Road Land. There are 52 km of access roads, which are about six metres wide and are made of crushed rock.

51 On the southern side of the Pyrenees Highway, the access roads connect the wind turbine sites on that side of the highway, the substation, the Administration Building, the storage shed and the Shelter. On the northern side of the Pyrenees Highway, the access roads connect the wind turbine sites that are located on that side of the highway.

52 There are approximately 15 kilometres of fences installed as part of the wind farm, primarily to divide the access roads from existing paddocks. The only additional fencing is around the compound housing the Administration Building, the storage shed, the Shelter and the substation.

53 Under the AWF Leases and the Agreement to Sublease, AWF Prop Co and AWFPL are allowed by the Land Owners to access and use the access roads for certain purposes.

54 The access roads and fences will remain at the end of the operation of the Ararat Wind Farm. The access roads cannot be removed without disturbing the AWF Land.

55 Each wind turbine is connected to underground electrical cables which are used to transport generated electricity to the onsite substation. Communication cabling runs alongside the underground electrical cables. The communication cables are connected to a Supervisory Control and Data Acquisition (SCADA) system, which provides data monitoring of the wind farm.

56 The underground electrical and communication cables run from the base of each wind turbine to the substation. The cables are located on AWF Cable Land, and on AWF Leased Land at those points where the cables connect to the wind turbines and the substation. The underground cables are buried approximately 80 centimetres to 1.5 metres underground, and are covered with PVC.

57 Once the wind farm ceases operating, the underground electrical and communication cables will likely remain. Whether AWF Prop Co decides to remove them or leave them in the ground will depend on the relative value of those assets and the cost of their removal at the time operations cease. The SCADA system will be removed. The underground cables cannot be removed without disturbing the AWF Land.

58 At the substation site, there is a gantry at which power lines owned and operated by the applicants intersect with power lines owned and operated by Powercor. Approximately 10 metres of the power lines owned and operated by Powercor are within the substation site. The Powercor power lines and communication lines run from the substation (which is on AWF Leased Land) to a substation at Elmhurst, Victoria (which is not on AWF Land).

59 The Powercor power lines and communication lines, consisting of steel poles and aluminium conductors, are owned by Powercor and not the applicants.

60 AWF Prop Co, at its own cost and in its capacity as a tenant under the AWF Leases, installed all of the AWF Assets, which it now owns.

61 An Asset Register Report prepared by AECOM Australia Pty Ltd provides a summary of the Ararat Wind Farm construction and development costs. The total contract price under the contract for construction of the Ararat Wind Farm was $413,097,180, subject to adjustments in accordance with the construction contract. The total cost of developing the wind farm was $482,022,545. The construction and development costs were paid by AWF Prop Co.

62 This is reflected in the 'Property, plant and equipment' section of AWF Prop Co's financial statements for the 2015, 2016, 2017 and 2018 financial years, which record as follows:

(a) In 2015, AWF Prop Co had 'plant and equipment' valued at $98,050,000 and leasehold land valued at $619,000;

(b) In 2016, AWF Prop Co had 'assets under construction' valued at $423,318,000 and leasehold land valued at $619,000;

(c) In 2017, AWF Prop Co had 'wind farm assets' valued at $479,030,000 (after depreciation) and leasehold land valued at $619,000;

(d) In 2018, AWF Prop Co had 'wind farm assets' valued at $462,644,000 (after depreciation) and leasehold land valued at $619,000.

63 The Asset Register Report provides an allocation of the total development cost of $482,022,545 between the various AWF Assets, as follows:

(a) Wind turbines, including foundations, hardstands, and underground cables - $416,236,107.79;

(b) Substation - $36,185,432.45;

(c) Storage shed, Shelter and operation and maintenance building site - $1,687,078.91;

(d) Administration Building, including furniture and fittings - $968,865.31;

(e) Wind-monitoring masts - $771,236.08;

(f) Access roads and fences - $23,175,643.96;

(g) SCADA and communications equipment - $2,795,730.76;

(h) Spare parts - $202,449.47.

64 The AWF Leases expressly provide that, during the lease term, AWF Prop Co may maintain, remove, and replace the wind turbines and towers, the substation, the wind-monitoring masts and the buildings.

65 The design working life of the wind turbines is between 20 and 25 years, and 25 years for all other AWF Assets. As the AWF assets suffer wear and tear during their design lives, it will be necessary to maintain and, on occasion, replace them. Already, a faulty generator and a turbine gearbox have been removed and replaced, as have some turbine blades that were damaged during installation.

66 Under the AWF Leases and the planning permits, AWF Prop Co must remove most of the AWF Assets from the AWF Land when the leases end, or when the wind farm ceases to operate. The AWF Assets that must be removed include the wind turbines and towers, the substation, the wind-monitoring masts, and the buildings. AWF Prop Co is not obliged to remove the wind turbine foundations, the underground cabling, or the roads.

67 Upon removal, some of the AWF Assets, such as the wind turbines and towers, the substation, and the wind-monitoring masts, can be sold to a third party or re-used. There is a developing market in Australia for second hand wind farm assets, and a more mature market for those assets overseas, particularly in Europe. The applicants have an incentive to sell the AWF Assets that they must remove at the end of the wind farm's life for whatever sum they can recover to offset the cost of removal.

68 After the wind farm commenced operation, the fee simple estate in Lots 1, 2 and 3 on Title Plan 392734X (Baker-Hamilton land) sold at auction for $676,950. The AWF Assets located on that land include one wind turbine and access roads.

69 Another property, owned by John Stevens, was listed for sale in February 2020, with an asking price of $10,000,000. There is an AWF Lease between Mr Stevens and AWF Prop Co, and 17 turbines, the substation, the depot and a wind-monitoring station are located on land leased from Mr Stevens. The Stevens property had not sold before trial. However, in February 2020, a financial group offered approximately $2,300,000 for the rental cash-flow received under the relevant AWF Lease up to the expiry of the lease.

70 This proceeding had its genesis in a rate notice served under the Fire Services Levy Act. It is logical to begin with the relevant provisions of that statute.

71 The Fire Services Levy Act imposes a fire services property levy on all land in Victoria, unless specifically exempted, to fund Fire Rescue Victoria and the Country Fire Authority. The levy is an annual charge payable by the owner of leviable land.[5] It is generally calculated using the formula in s 17, by reference to the capital improved value of the leviable land.

For the purposes of calculating the capital improved value of leviable land, valuations made under the Valuation of Land Act 1960 in respect of rateable and non-rateable leviable land by a valuation authority must be used.

The phrase 'capital improved value' is defined in s 3 to have the same meaning as it has in s 2(1) of the Valuation of Land Act.

73 In most cases - including this case - the owner of leviable land is liable to pay the levy amount and levy interest on that land.[6] Section 4 defines 'owner', in relation to land, to mean:

(a) a person entitled to a parcel of land for a freehold estate in possession;

(b) a person entitled to a parcel of land under a lease of Crown land;

(c) a person entitled to a parcel of land under a licence of Crown land if the person has a right, absolute or conditional, of acquiring the fee simple.

74 Part 3 of the Fire Services Levy Act provides for collection of the levy by a 'collection agency'. Section 21(1) appoints each Council as a 'collection agency' in respect of land in its municipal district. A collection agency appointed under s 21(1) has functions including assessing the amount of the levy payable in a levy year by an owner of leviable land in the municipal district of the collection agency, and collecting the levy payable.[7]

The collection agency must give a written notice (the assessment notice) to -

(a) the owner of any leviable land in respect of which a levy has been assessed as being payable (except if the owner of the leviable land is the collection agency in its capacity as a Council); or

(b) if the owner has made a written request that specifies a person in respect of whom the assessment notice should be sent - the person specified in the written request (the specified person).

Note

A collection agency is required to submit a return to the Commissioner - see section 40.

76 Section 9 provides for assessment and apportionment of the levy in specified circumstances, relevantly here:

(8) A collection agency must separately assess the levy in respect of each parcel or portion of a parcel of land for which the collection agency has a separate valuation.

(9) If a valuation treats as a single leviable land 2 or more parcels of land that are owned separately by 2 or more people, a collection agency may apportion any levy amount that applies to that land in accordance with the value that each separately owned parcel of that land bears in relation to the value of that land as a whole.

77 The Valuation of Land Act provides that the Valuer-General is the 'valuation authority in respect of rateable land in a municipal district of a council'.[8] Under s 10, a council has the power to cause a valuation of all land in its municipal district for a specified year, subject to making a nomination for that year - in which case the council is a valuation authority.[9] It was an agreed fact that the Ararat Rural City Council was a valuation authority in relation to the AWF Land.

78 Section 11 of the Valuation of Land Act requires a general valuation to be made each year:

For the purposes of the Local Government Act 1989, a valuation authority must -

(a) cause a general valuation of rateable land within an area to be made as at 1 January in each calendar year; and

(b) before 30 April that year, cause a general valuation made in accordance with paragraph (a) -

(i) to be returned to it; and

(ii) to be provided to the council of the municipal district to which the area relates.

(1) In every valuation for the purposes of the Local Government Act 1989, each separate occupancy on rateable land must -

(a) be computed at its net annual value, its capital improved value and, if required by a rating authority, its site value;

(b) be allocated an AVPCC based on the Valuation Best Practice Specifications Guidelines.

(2) A council may use in respect of rateable land within its municipal district valuations in force in respect of that land immediately before the constitution of the council for such period as the latest of the valuations might have been used by the council for which it was made.

* * * * *

(5) In a general valuation, regard must be had to every circumstance affecting the land at the date the valuation is returned that, were it to occur or come into existence subsequently, would be a circumstance in which, under section 13DF(2), a supplementary valuation could be made.

(6) If several parcels of land in the same municipal district are occupied by the same person and separated from each other only by a road or railway or other similar area across or around which movement is reasonably possible, the parcels must be regarded as together forming rateable land and valued accordingly.

(7) If any person is liable to be rated in respect of 2 or more unoccupied parcels of land in the same municipal district and the parcels form one continuous area, the parcels must be regarded as together forming rateable land and valued accordingly.

(7A) If a portion of a parcel of land on which a building is erected is occupied separately, or is obviously adapted to being occupied separately, from other land in the parcel, that portion must be regarded as forming a separate rateable property and must be valued accordingly.

(8) If any portion of a parcel or parcels of land forming rateable land for the purposes of a municipal rate or of a rate to be levied by any other rating authority using the valuation is subject -

(a) to a rate levied in respect of that portion only; or

(b) to a differential rate which differs from the rate levied in respect of the remainder of that parcel or those parcels -

the value of the land must be apportioned so as to show separately the value of the portion.

(9) If land comprising one undertaking extends continuously beyond the boundaries of any municipal district the value, for the purposes of any rate, of so much of the land as is within any one municipal district, must be assessed as part of the value of the whole of the land.

80 The circumstances in which a supplementary valuation may be made are set out in s 13DF(2). Relevantly, these circumstances include:

(j) if by reason of the erection or construction of buildings or other improvements on land or by reason of any physical changes of a permanent nature to land or improvements or by the making of roads or any other work of man or by favourable natural causes, the capital improved value, net annual value or site value of that land has been materially increased;

(k) if there has been a change in occupancy which affects the net annual value of the land;

81 Significantly, 'capital improved value' and 'site value' are defined in s 2(1):

capital improved value means the sum which land, if it were held for an estate in fee simple unencumbered by any lease, mortgage or other charge, might be expected to realize at the time of valuation if offered for sale on any reasonable terms and conditions which a genuine seller might in ordinary circumstances be expected to require;

site value of land, means the sum which the land, if it were held for an estate in fee simple unencumbered by any lease, mortgage or other charge, might in ordinary circumstances be expected to realise at the time of the valuation if offered for sale on such reasonable terms and conditions as a genuine seller might be expected to require, and assuming that the improvements (if any) had not been made;

There are also definitions of 'estimated annual value' and 'net annual value' which are not presently relevant.

82 Section 2(3) provides guidance in the determination of capital improved value and site value in certain circumstances:

If it is necessary to determine the capital improved value or site value of any rateable land in respect of which any person is liable to be rated, but which forms part of a larger property, the capital improved value and site value of each part are as nearly as practicable the sum which bears the same proportion to the capital improved value and site value of the whole property as the estimated annual value of the portion bears to the estimated annual value of the whole property.

Section 2(3A) makes the same provision in respect of non-rateable leviable land in respect of which the fire services property levy is payable.

83 Section 5A sets out some matters to be taken into account in determining the value of land:

(1) Unless otherwise expressly provided where pursuant to the provisions of any Act a court board tribunal valuer or other person is required to determine the value of any land, every matter or thing which such court board tribunal valuer or person considers relevant to such determination shall be taken into account.

(2) In considering the weight to be given to the evidence of sales of other lands when determining such value, regard shall be given to the time at which such sales took place, the terms of such sales, the degree of comparability of the lands in question and any other relevant circumstances.

(3) Without limiting the generality of the foregoing provisions of this section when determining such value there shall, where it is relevant, be taken into account -

(a) the use to which such land is being put at the relevant time, the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use;

(b) the effect of any Act, regulation, local law, planning scheme or other such instrument which affects or may affect the use or development of such land;

(c) the shape size topography soil quality situation and aspect of the land;

(d) the situation of the land in respect to natural resources and to transport and other facilities and amenities;

(e) the extent condition and suitability of any improvements on the land; and

(f) the actual and potential capacity of the land to yield a monetary return.

84 The parties also drew attention to the definition of 'land' in s 38 of the Interpretation of Legislation Act 1984 (Vic). In all Acts, unless the contrary intention appears:

land includes buildings and other structures permanently affixed to lad, land covered with water, and any estate, interest, easement, servitude, privilege or right in or over land;

85 The value of the AWF Land was the subject of expert evidence from three valuers:

(a) Geoffrey Brown of Sutherland Farrelly Pty Ltd, who provided reports dated 17 September 2019 and 14 February 2020 at the request of the applicants;

(b) Paul Newman of PW Newman Pty Ltd, whose supplementary valuation dated 12 January 2018 is disputed in this proceeding, and who provided a further report dated 7 February 2020 at the request of the Valuer-General; and

(c) Peter Molloy of Property Dynamics, who provided reports dated 20 September 2019, 7 February 2020, and 17 July 2020 at the request of the Valuer-General.

86 Between them, the valuers' evidence addressed three different valuation scenarios:

(a) Scenario A involved a fee simple sold by a hypothetical vendor with occupancy by a wind farm operator paying market rent, with the AWF Assets being either fixtures or chattels;

(b) Scenario B involved a fee simple sold by a wind farm operator but with AWF Assets being chattels; and

(c) Scenario C involved a fee simple sold by a wind farm operator but with AWF Assets being fixtures.

The applicants contended that the capital improved value of the AWF Land should be assessed using Scenario A, or alternatively Scenario B. The Valuer-General's position was that Scenario C should be used.

87 The valuations given by the valuers for the three scenarios are set out in the table below. As is clear from the table, much depends on which scenario is the correct one.

88 At the direction of the Tribunal, the three valuers met on 26 February 2020. They produced a joint statement following that meeting, which helpfully set out the matters on which they were agreed, and identified the points of disagreement.

89 This process eliminated some potential sources of disagreement. In particular:

(a) The valuers agreed that the wind farm should be valued as single occupancy, defined by the 16 leases between the Land Owners and AWF Prop Co.

(b) Having valued the wind farm as a single occupancy, they also agreed that its value should be apportioned between the two municipalities on the basis of estimated annual value. Because Mr Brown was not asked to assess estimated annual value, he apportioned by the number of turbines in each municipality. The valuers agreed that this method produced the same result as using estimated annual value, and that this variation was inconsequential.

(c) They agreed that a difference between the annual rental figures used by Mr Brown and Mr Molloy was immaterial, and that the variation was effectively dealt with in the rounding of their calculations.

(d) They also agreed that the influence of the power purchase agreement in place for the Ararat Wind Farm was to be ignored in valuing the land.

90 The important points of disagreement between the valuers were:

(a) There was a different approach to the title to be valued. The valuers characterised this difference to be that Mr Brown valued the lessor's interest in the land, while Mr Molloy and Mr Newman valued the land on an unencumbered fee simple basis. Later in this judgment, I will consider the meaning of 'estate in fee simple unencumbered by any lease' in the definition of 'capital improved value' in the Valuation of Land Act, and the application of that definition in this case.[11]

(b) Mr Brown did not have regard to the AWF Assets in assessing capital improved value, on the basis that they are not owned by the Land Owners. Mr Newman and Mr Molloy considered them to be fixtures, and part of the land to be valued. This difference significantly affected their respective assessments of capital improved value.

(c) They disagreed whether the added value of the planning permits was included in the rents being paid under the AWF Leases. Mr Brown considered that it was, while Mr Newman and Mr Molloy took the opposite view. Because of this disagreement, the valuers did not agree whether the leases were an encumbrance to the land. Mr Brown considered they were not burdensome, while Mr Newman and Mr Molloy considered them to enhance the value of the land beyond the rental paid under the leases.

(d) They also disagreed on the usefulness of windfarm sales evidence in assessing capital improved value, in particular evidence regarding sales of operational wind farms. They agreed that, with the limited information that was publicly available about these sales, it was difficult for them to use the evidence to undertake a definitive analysis. They agreed that the goodwill factor was unknown, but disagreed on the extent to which this mattered. Mr Brown believed that this sales evidence was not useful in the valuation, and did not use it at all. Mr Newman made a substantial adjustment for this factor, while Mr Molloy made no adjustment.

91 I now turn to the detail of each valuer's evidence.

92 Mr Brown's initial report of 17 September 2019 gave his answers to a series of questions posed by the applicants' solicitors, as follows:

Question 1

1. Do the terms of the AWF Leases represent:

(a) an unusual benefit to; or

(b) an unusual burden or liability on,

the value and enjoyment of the fee simple estate in the AWF Land?

We are of the opinion the AWF Leases represent a benefit to the enjoyment of the fee simple estate. However we consider they do not represent an unusual benefit as they are generally reflective of Ground Leases for Wind Farms.

The AWF Leases are of benefit due to the annual market rental being received for the various occupancies for the land on which the AWF Assets are situated (including the turbines, offices, maintenance shed and anemometers), plus carriageway rights for access roads and transmission of electricity respectively.

They are not an unusual burden or liability as the Lessee is paying a market rental.

1. If the answer is 'yes', please explain why, and quantify the nature of the adjustment or allowance that should be made to neutralise the effect of the AWF Leases so as to derive the capital improved value of the AWF Land.

1. What is the capital improved value of the AWF Land at the Relevant Date (namely, the sum which the AWF Land, if it were held in an estate in fee simple unencumbered by any lease, mortgage or other charge, might be expected to realise at the Relevant Date if offered for sale on any reasonable terms and conditions which a genuine seller might in ordinary circumstances be expected to require?)

Ten Million, One Hundred and Fifty Thousand Dollars ($10,150,000)

1. In answering Question 2, you should have regard to, and expressly address, the following matters:

1. the value of the AWF Land is to be assessed by reference to a hypothetical sale of a fee simple interest in it, and on the basis that the fee simple interest is not affected by any actual lease;
2. the hypothetical sale should assume the actual physical state of the AWF Land;
3. subject to the matters set out in (b), below, the hypothetical sale should assume the occupation of the AWF Land;
4. the hypothetical sale should take into account the likely future occupation of the AWF Land;
5. the hypothetical sale should assume that the occupation of the AWF Land is at market rates; and
6. subject to the conclusion that you have formed in answering Question 1, the rentals being paid under the AWF Leases are likely to be a guide to actual market rates for occupation of the AWF Land.

(b) We appreciate that the nature of the actual occupation of the AWF Land for valuation purposes is a question of some difficulty in the context of the valuation of the hypothetical estate in fee simple.

In this regard, we ask that you assume the actual occupation of the AWF Land and the actual realities of possession at the Relevant Date, that is:

1. the hypothetical sale would take place in circumstances where the AWF Land is occupied in the same manner as its current occupation - namely, that it is occupied by an entity such as AWF Prop Co/AWFPL (Occupier), and that the Occupier is operating a wind farm on the AWF Land. That is, the AWF Land need not be valued as if the owner of the hypothetical estate in fee simple (the Vendor) was presently entitled on that date to actual physical possession of the land;
2. the hypothetical purchaser of the AWF Land (Purchaser) would be entitled to the rents derived from that occupation upon settlement of the sale;
3. the AWF Land would be occupied subject to terms that:
   1. permit the Occupier to remove the AWF Assets during the course of, and at the conclusion of, their occupation; and
   2. oblige the Occupier to remove all the AWF Assets (except for the wind turbine foundations and the access roads) to a depth of 0.5m below the level surface of the soil at the end of its occupation, and the Purchaser is aware of this obligation; and
4. the Vendor does not own the AWF Assets (other than the access roads), nor does it have rights to operate the wind farm.

1. Does your answer to Question 2 materially change depending on the extent to which the AWF Assets are characterised as fixtures or chattels?

1. If the answer to Question 3 is "yes", please ensure that your report also includes a valuation assessment in response to Question 2 that:

(a) assumes all the AWF Assets (other than the access roads) are chattels; and

(b) explains how that assessment would change if some, or all, of the AWF Assets (or part or parts of the AWF Assets) are properly characterised as fixtures.

Not applicable.

Question 4

1. Do any of your answers to Question 2 and Question 3 materially change if the valuation is undertaken on the basis that each parcel that comprises the AWF Land is valued separately (rather than on a collective or aggregate basis)? If yes, how do your answers change?

93 Mr Brown's first report explained how he had arrived at these answers, in particular the answers to Question 1 and Question 2.

94 In relation to Question 1, he summarised the impact of the AWF Leases as follows:[12]

(a) The freehold properties are generally subject to Leases for a term of 25 years, generally commencing on 26 June 2015, with an associated option for a further term of 25 years. The demised occupancy associated with the Lease Agreements comprise tower and pad sites (approximately 2,500 square metres each), road network connecting the turbines, plus a subterranean and overhead electricity network. Also, a number of the leases are affected by construction sites, plus there are the operations and maintenance buildings, substation and anemometer sites.

(b) Lessee has unfettered access to the demised land including employees and contractors.

(c) Loss of grazing land, therefore productivity to the freehold owner of the land is subject to the roads and pad sites for the turbines.

(d) Visual impact of the turbines and electricity equipment on the freehold.

95 While these matters involve a 'considerable impact' on the freehold property, it was Mr Brown's opinion that the rent payable under the AWF Leases was a market rental that neutralised the burden of that impact. He based this opinion on a comparison of the annual rentals under the AWF Leases and the rents paid by eight other wind farms.

96 Mr Brown considered the AWF Leases to be beneficial to the freehold owners, although not unusually so, because:[13]

(a) Freehold owners (farmers) would not enter into the Agreement unless they considered it was a benefit.

(b) Consideration payable (rental) by the Lessee (AWF), pursuant to the Lease represents compensation for the negative impacts of the occupation of the land granted by the Lease tenure.

(c) The land generally occupied by the pad sites for the turbines predominantly comprises ridge land, which is generally less productive due to the limited depth of top soil and climate conditions.

(d) Rental provides consistent cashflow for a primary producer.

(e) Sales evidence of agricultural holdings that are impacted by the turbines do not indicate a diminution in value in comparison to sales of properties within the district that are not impacted by wind farm ground leases. ...

97 On that basis, Mr Brown considered that the AWF Leases did not provide for an unusual benefit or burden to the land, as they were generally reflective of a typical lease to a wind farm operator.[14]

98 In relation to Question 2, Mr Brown considered the nature of the occupancy under the AWF Leases, with the following general characteristics:[15]

• Principally, 25 year term commencing in June 2016 with an option for a further term of 25 years, taking into account the condition of the land as at 12 January 2018.
• Commencing rentals of $9,000 per annum per turbine site, plus additional rental for the operations and maintenance building site, substation and other components, which equate to a total passing rental at the relevant date of $809,376 per annum.
• Annual rental reviews to CPI with no option of a market review.

99 It was Mr Brown's opinion, based on local sales evidence, that the residual value of the land occupied by the wind farm would have a market value of $5,000 per hectare. As to the AWF Assets that would remain after the leases had ended, the roads would have some residual value, but the turbine foundations would be obsolete and of no value. He calculated the capital improved value of the AWF Land to be $10,850,000, as follows:[16]

Therefore, based on the assumptions pursuant to Section B of your question, in assessing the Capital Improved Value of the fee simple, we have undertaken a net present value calculation of the future cashflow, having regard to the terms and conditions of the Lease, being the residual period from the date of valuation of 1 January 2016 (taking into account condition of land as at 12 January 2018), plus the known considerations of a low interest rate and low inflation rate environment. Our assumptions and calculations are as follows:

Adopted Discount Rate, being 6%

Rental Payable in quarterly instalments as per lease agreements

Passing Rental at the relevant date of $809,376 per annum

Rental is reviewed annually to the Consumer Price Index as detailed in the leases

Added Value of AWF Leased Land 27.25 Ha @ $5,000/ha, which equates to $136,250

Added Value of Road Network - Cost of $23,175,644 @ 10% utility at expiry of the leases

Cash Flow period from 1 January 2016 to 25 June 2044 (expiration of first term)

Based on the characteristics of the lease and assumptions associated with the future cashflows associated with the Lessee's interest, we have calculated the Capital Improved Value of the occupancy of the Ararat Wind Farm to the freehold owners to be $10,850,000 exclusive of the GST.

100 Mr Brown's first report also explained why he did not consider comparative wind farm sales to be a useful basis for assessing the value of the land occupied by the Ararat Wind Farm:[17]

From our research, there is a significant market for wind farms, however the transactions are to infrastructure companies, business operators, investment funds, superannuation funds, among other parties, including both local and off shore purchasers. Accordingly, details of sale transactions are extremely difficult to ascertain and generally the sales are for the business enterprise, which incorporate supply agreements, pricing contracts, intellectual property, plant and equipment, fixed structures and the benefit of ground leases. The sales represent prices of the purchaser's view of the future income and profit to be generated from the facility rather than the cost to construct.

This is a significantly different market to the ground leases of the wind farm, as the Capital Improved Value to the land owner (farmer) is limited to the value of the cash flow and residual assets, as they do not own nor have any rights over the plant and equipment associated with the operations of the wind farm. Their asset is the cash flow provided by the terms and conditions of the lease agreement, plus the residual assets.

In assessing the market associated with the subject occupancy and the approach to valuation, we consider the highest and best use is for the land owners to lease to the operators to allow the ongoing use of the wind farm. Therefore, in assessing the Capital Improved Value, we have had regard to the interest that the freehold owners have in the Wind Farm, which comprises the following:

(a) Rental income stream pursuant to the Lease Agreements.

(b) Residual value of the road network and the foundations of the turbines, which are not required to be decommissioned or removed at the expiry of the lease term.

(c) Freehold rights of the land occupied by the Ararat Wind Farm.

(d) Rights associated with the use of the access roadways in the farming activities including grazing of the road verges.

(e) Rights to farm the agricultural land below the transmission lines and above the subterranean transmission lines.

The value of the fee simple is a financial model with the inherent risk of default by the tenant, notice of termination of the lease, being six months' notice at any period during the term of the lease and the potential for the Lessee to exercise their option for a further 25 year term.

101 Mr Brown's second report of 14 February 2020 was prepared following the Tribunal's direction that the valuers provide alternative valuations based on each other's instructions and assumptions. He was also asked to provide valuations based on the methodology of Mr Molloy in his amended valuation report dated 20 September 2019,[18] varied on the basis that capital improved value is to be assessed on the separate occupancies created by each lease, rather than as a single occupancy, and that the AWF Assets do not form part of the land to be valued.

102 Mr Brown's alternative valuation of capital improved value based on the instructions and assumptions of both Mr Newman and Mr Molloy was $445,450,000. He arrived at this valuation using the summation method, rather than the comparable sales method used by Mr Newman and Mr Molloy.[19] He explained his choice of methodology as follows:[20]

To undertake a sales analysis approach, we have investigated comparable sales evidence, which was detailed in Section 5.1 of this Report. The sales evidence is of fully operational wind farms and included the occupancy rights, fixtures, plant and equipment, supply agreements and effectively the business of the wind farm, which would include goodwill. We are aware that a number of the sales relate to a partial interest only, with the vendors retaining the management and administration rights of the operations of the wind farm for a term certain.

We consider it is extremely difficult to analyse these sales to illustrate the underlying value of the associated fixtures, as they comprise going concern sales. We have been unable to obtain sufficient information to analyse these sales to exclude the goodwill and supply agreements.

In order to determine whether the sales are comparable and relevant to the CIV of the wind farm. We reiterate that we would need to know the following information:

• Supply/Take off agreements including pricing and other revenue information
• Details of the terms of the ground leases and annual rental payable
• Efficiency of the facilities
• Age of the assets
• Details of the management agreements and associated management costs and fees, as well as other operating expenses.

In relation to the sales evidence, we provide the following summaries:

• The available sales that have occurred over an extended period between 2010 and September 2015 with wind farm operators as lessees rather than freehold owners.
• Most sales have occurred for recently completed facilities.
• Sales have occurred on a going concern basis, therefore incorporate additional value components that we consider should not be captured in the Capital Improved Value including:

(i) Supply/take off agreements

(ii) Agreed price levels for power

(iii) Business goodwill

(iv) Furniture and fittings to buildings

(v) Plant and equipment including motor vehicles

(vi) Spare parts

(vii) Management Rights

(viii) Sales generally involved a vendor that was the wind farm operator.

• In summary the sales include a business value which should not be included in a CIV calculation as they comprise going concern sales.

Obviously, we do not have the required information, nor is it publicly available, therefore we consider this approach to valuation is not appropriate.

Due to the above we consider the most appropriate methodology pursuant to Mr Molloy's instructions and associated assumptions to be the summation analysis of the Site Value (Mr Molloy assumes freehold), plus the depreciated replacement cost of the assets, which are assumed to be fixtures. Noting the assets are new, we have had regard to the actual construction cost.

103 Adopting Mr Molloy's assumption of freehold title held by a wind farm operator, a passing annual rental of $809,376 and a capitalisation rate of 5%, Mr Brown assessed the site value of the land occupied by the wind farm to be $16,200,000. To this he added the replacement cost of the AWF Assets, on the assumption that they were fixtures, which he assessed to be $461,055,219. The capital improved value of the wind farm's entire occupancy was therefore $477,250,000, with $445,450,000 attributable to the land in the municipality of Ararat.

104 Mr Brown explained that the significant variation between his valuation and Mr Molloy's were because:[21]

• Mr Molloy in his summation analysis makes an allowance for development profit of 20%, which equates to a sum of $90,513,763, which we exclude.
• Mr Molloy includes the financial costs of $20,967,325.74, which we exclude.

In summary we have utilised the cost methodology as defined in the Specialist Property Guidelines for Plant and Equipment issued by the Department of Sustainability and environment, whereas Mr Molloy utilises the sales methodology.

105 Mr Brown also assessed the capital improved value of the twelve separate occupancies within the Rural City of Ararat, rather than the AWF Land as a single occupancy, to a total of $426,570,000. This alternate valuation was done on the basis of a hypothetical sale of freehold title by a wind farm operator, incorporating all of the AWF Assets. There was a reduction in the total value of around 5%, due to issues of economy of scale and variations in value between different occupancies.

106 Finally, Mr Brown assessed the capital improved value of the twelve separate occupancies using Mr Molloy's assumptions, with the variation that the AWF Assets do not form part of the land to be valued, either because they are chattels at common law, or due to the operation of s 154A of the Property Law Act. On that basis, he considered that the total capital improved value of the twelve occupancies in the Rural City of Ararat was $15,160,000. He valued the Stevens occupancy at $3,980,000.[22] Mr Brown considered that there would be only a nominal variation if the land was valued as a single occupancy, using the same assumptions.

107 In cross-examination, Mr Brown was taken to some of the terms of the AWF Leases. He agreed that the leases prevent the Land Owners from granting any lease or other right in the land for a use similar to the wind farm, dealing with the land in a manner that could prevent or interfere with the wind farm project, impeding or restricting the free flow of air and wind to the turbines, and doing various other things that might interfere with the development and operation of the wind farm. He agreed that these were restrictions or encumbrances imposed under the leases. However, he pointed out that any encumbrances associated with the AWF Leases were offset by the payment of a market rental by the lessee. For that reason, he did not consider the leases to be either burdensome or beneficial.

108 Mr Brown agreed that he had not taken the sublease between AWF Prop Co and AWFPL into account in valuing the occupancy. He accepted that the annual rental paid under the sublease was considerably higher than the total rentals paid by AWF Prop Co to the Land Owners under the AWF Leases. He said: '... but you've got to spend $470m to get that rental. The farmers, the registered proprietors of the land have not spent that money'.[23] He reiterated that he had assessed the capital improved value of the freehold title of the Land Owners for the separate occupancy created by the AWF Leases.

109 It was put to Mr Brown that his valuation based on the ground lease rental was less than the cost of constructing the roads and the turbine foundations, which would remain in place. He accepted that proposition, but did not agree that it undermined the soundness of his valuation approach. He argued that cost doesn't always equal added value, and 'if you took the wind farm away, the added value of those components to the farmer are very small'.[24] Further, it was his opinion that if the farmers' freehold interests were put to the market, the market would not pay the full construction cost of $23,000,000 for the roads.

110 Mr Brown agreed that the issue of a planning permit for a wind farm increased the value of the land to be occupied by the wind farm. He also agreed that this added value could be discerned by a comparison of sales of greenfield wind farms with sales of surrounding farm land. However, 'significant analysis is required, because in my opinion those sales have significant components of a business interest associated with them, just not the planning permit interest'.[25] While the planning permit runs with the land, the intellectual property associated with it remains with the permit applicant, who also bears the considerable cost involved in applying for the permit.

111 Asked about the hypothetical purchaser of the AWF Land, Mr Brown agreed that it could be another wind farm operator. He did not agree that assessing capital improved value required him to assume the sale of a separate title after a notional subdivision. He identified this as the difference between his approach and that taken by Mr Newman and Mr Molloy - he did not assume an individual separate title, while they did. He thought that would be an unusual title, although he was aware of separate titles issued for parts of wind farms, for example the land on which the substation is located for the Mt Gellibrand wind farm. He was taken to the transfer for the Mt Gellibrand substation land, and noted that the sale price of $136,684 for the freehold interest in 9,000 square metres supported his valuation of the AWF Land at about $141,000 per hectare.[26]

112 Mr Brown agreed that comparable sales of operating wind farms could provide a basis for assessing capital improved value, particularly where the wind farm operator has a long lease and the lessee's interest approximates the freehold value of the land. However, it was necessary to separate out the value attributed in those sales to goodwill, power purchase agreements, and other proprietary matters. While he accepted that the difficulty of the task was no obstacle to attempting it, he considered that in this case there was no meaningful way to break down the sales evidence into the land component and the proprietary or business component.

113 In his Supplementary Valuation dated 12 January 2018, Mr Newman assessed the value of the wind farm within the Rural City of Ararat to be:[27]

Site Value $14,560,000

Capital Improved Value $470,400,000

Net Annual Value $37,800,000

114 Mr Newman valued the wind farm as a single occupancy, and apportioned the value between the two municipalities. He conducted his valuation on the basis that 'the components of the wind farm are fixtures and thus form part of the land for rating purposes'.[28] He adopted the direct comparison approach to assess the value of the property, which he explained as follows:[29]

This method of assessment has been adopted as the primary method of valuation having regard to the type of the property, with the highest and best use being as a largescale commercial windfarm. The most significant common metric between all windfarms is the installed megawatt (MW) capacity of the facility. For analysis and comparison on a direct comparison basis the sales have been analysed to show the dollars per installed megawatt capacity ($/MW). In the analysis of the sales and the application of values for the Site Value (SV) and Capital Improved Value (CIV) of the subject property adjustments have been made for points of difference including the date of the sale and age, size, type and specification of the fixtures for the facility relative to the subject property.

The sales of the operating windfarms are of facilities as a going concern including some items of plant equipment and chattels which are not fixtures and do not form part of the rateable land under Section 154 of the Local Government Act 1989. Where necessary for analysis purposes an allowance has been made by way of a deduction from the gross sale price to account for these items.

(a) Oaklands, Victoria, sold in June 2011;

(b) Stockyard Hill, Victoria, sold in July 2017;

(c) Lal Lal, Victoria, sold in May 2017;

(d) Moorabool, Victoria, sold in June 2016;

(e) Taralga, New South Wales, sold in March 2016; and

(f) Macarthur, Victoria, sold in September 2015.

From these sales, he derived a rate of $65,000 per megawatt[30] for site value, and a rate of $2,100,000 per megawatt for capital improved value.

116 Applying these rates to the Ararat Wind Farm, which has an installed capacity of 240 megawatts, Mr Newman calculated the site value of the entire wind farm to be $15,600,000 and the capital improved value to be $504,000,000. He apportioned this between the two municipalities to arrive at a capital improved value of $470,400,000 for the part of the wind farm in the Ararat municipality.

117 Mr Newman provided a second valuation report dated 7 February 2020, in response to the Tribunal's direction that each valuer prepare an alternate valuation based on the other valuers' instructions and assumptions. However, because he did not accept the instructions and assumptions that underpinned Mr Brown's valuation, he did not undertake an alternate valuation on that basis. He explained the reasons for his position:[31]

After consideration of this method of assessment for CIV, I am of the opinion that an alternative method of assessment is required to assess the CIV, of the property. The method of valuation applied by Mr Brown confines the CIV Value to the equivalent of the present value of the future income from ground rentals. The method applied does not address the value of the rateable occupancy as an unencumbered fee simple, with fixtures that form part of the land for rating purposes, under the provision of Section 154 of the Local Government Act 1989.

In my opinion, a prudent vendor of an unencumbered fee simple, for an operating windfarm that contains rateable fixtures, would be guided by the sales of operating windfarms and not ground lease values.

I am directed to provide an alternate CIV and for the reasons outlined, I have not adopted the method applied by Mr Brown. I have previously assessed the CIV for the property using an analysis of windfarm sales to derive a rate per installed megawatt for comparison and application of the CIV returned. As a check method a summation approach was also utilised. For the summation check valuation, the value of the rateable fixtures was added to the assessed site value to calculate a check CIV.

Having regard to the definition of CIV, the availability of comparable sales evidence and the access to agreed construction cost data I am of the opinion that these methods remain as the correct valuation methods for analysis of sales and assessment of the CIV.

118 Instead, Mr Newman analysed sales information for operating wind farms and updated the data that informed his original valuation employing the direct comparison method. In addition to the sales information in his first valuation, he included information about the sales of three additional wind farms:

(a) Cherry Tree, in Victoria in December 2018;

(b) Silverton, in New South Wales in January 2017; and

(c) Bald Hills, in Victoria in February 2017.

This confirmed his assessment of site value at $65,000 per megawatt, and capital improved value at $2,100,000 per megawatt. As a check, Mr Newman used the summation method to arrive at a capital improved value of $2,073,333 per megawatt, and a total capital improved value of $497,600,000.

119 Mr Newman was also asked to assess capital improved value having regard to the occupancies created by each lease, rather than as a single undertaking or occupancy. Again, he declined to do so, stating:[32]

The occupancies created by the relevant land parcels do not function as separate entities. Each occupancy created by the lease of the relevant land parcels is joined by roads and cabling of various types to undertake the process of electricity generation and transfer of the electricity to the electricity grid from one location. Each occupancy is managed and maintained from a central compound containing the administration and works shed. Taking this form of operation into account I have assessed the CIV value [of] the AWF as a whole and then apportioned the CIV to the respective occupancies for the relevant land parcels using the assessed NAV and the installed capacity of each occupancy as a percentage of total installed capacity.

120 This alternate valuation used a figure of $120,000 per megawatt, derived from sales of greenfield windfarm projects, amortised over 50 years at a 5% discount, to give a market value of the 'leasehold interest' of $6,576 per megawatt. To this was added $3,188 per megawatt, representing a passing ground rental of $10,200 per annum. The annual equivalent land rate of $9,764 per megawatt was capitalised at the rate of 6% to give a land value rate of $162,725 per megawatt, and a site value for the entire wind farm of $39,100,000.

121 Mr Newman then assessed the capital improved value of the land, based on sales of operating windfarms. Using the direct comparison method, he adopted $2,150,000 per megawatt as the 'leasehold interest' of an operating windfarm, which included the land component of $120,000 per megawatt. His calculation of capital improved value was as follows:[33]

Operating Wind Farm 'Leasehold Interest' Capital Value

Less: Greenfield Windfarm 'Leasehold Interest Value'

Amortisation Factor - 25 years at 10% p.a. discount

Annual Equivalent Greenfield Windfarm 'Leasehold Interest'

122 As an alternative check, Mr Newman undertook a summation valuation, adding the agreed cost of improvements to the wind farm, $482,022,545, to the site value of $39,100,000. This resulted in a summation check capital improved value of $521,100,000.

123 Mr Newman then apportioned the capital improved value of $578,600,000 between the various occupancies, with the capital improved value of the occupancies in the Rural City of Ararat totalling $540,026,000. The capital improved value of the Stevens occupancy was assessed at $131,148,000.

124 The final alternate valuation Mr Newman was asked to prepare was of the capital improved value on the basis that the AWF Assets were chattels at common law, and/or did not form part of the estate to be valued having regard to s 154A of the Property Law Act. Since there was no added value for improvements, the capital improved value was the same as site value. Mr Newman used the site value of $39,100,000 for the entire wind farm to calculate a capital improved value for the wind farm within the Rural City of Ararat at $36,494,000. He apportioned this between the various occupancies, with the capital improved value of the Stevens occupancy being $8,864,000.

125 Mr Newman was taken to his initial valuations of the occupancies comprising the AWF Land as at 1 January 2016, at which time the planning permits and the AWF Leases were in place. He agreed that he did not undertake those valuations on a dollar per megawatt basis, using greenfield wind farm sales data. He moved to that methodology only after the Ararat Wind Farm had been constructed.

126 Asked about the sales evidence that informed his supplementary valuation in January 2018, he agreed that it comprised sales of four greenfield sites and two operating wind farms. He agreed that he had discounted one of the two operating wind farms, Oaklands, due to its small size and the age of the sale. He relied principally on the sale of the Taralga wind farm, which was in New South Wales and was substantially smaller than the Ararat wind farm. He said he had made no adjustments to take account of the size difference or the location difference between the two wind farms.

127 As to the four greenfield sites, Mr Newman agreed that he was not aware of the sale price for the Lal Lal and Moorabool wind farm. He had included them to demonstrate a level of market activity - i.e. demand - rather than sale price. He also agreed that he had incomplete information about the partial sale of the Macarthur wind farm, and had not seen the relevant contract of sale. The remaining greenfield sale that he relied on was the Stockyard Hill wind farm, with more than twice the capacity of the Ararat Wind Farm.

128 In relation to the two key sales relied upon by Mr Newman for his supplementary valuation, Taralga and Stockyard Hill, he agreed that he had not had access to the leases or the details of the power purchase agreements. In relation to the Stockyard Hill sale, he had made a significant adjustment to the dollar per megawatt rate derived from the sale price to exclude the value of the 'bundle of other rights' that did not form part of the land. He had made a similar adjustment to the rate derived from the Taralga sale price. Mr Newman agreed that those adjustments were made without full information.

129 If the value of the AWF Assets was excluded from capital improved value, Mr Newman's position was that the site value and the capital improved value were the same. He had not considered whether the roads and the turbine foundations would increase the capital improved value, and was of the opinion that the foundations themselves had no real value.

130 Mr Newman did not consider the AWF Leases to be unusually burdensome to the land owner. He agreed that the terms of a lease, adjusted to reflect market rental, was a proper basis to assess the capital improved value of premises occupied by a tenant that formed part of a larger title, for example a tenancy in a shopping centre. He did not accept that was the correct approach to valuing the AWF Land, because he considered it to be a single occupancy. The starting point for his valuation was occupancy, not title.

131 Mr Molloy's initial valuation was the subject of a report dated 20 September 2019. He identified the critical assumptions that informed his valuation to be:[34]

(a) All parts of the AWF Land, including the AWF Leased Land, the AWF Road Land and the AWF Cable Land are to be included in the valuation;

(b) The AWF Land extends across both the Ararat Rural City municipality and the Northern Grampians municipality, and needs to be valued as a single rateable undertaking pursuant to ss 13DC(6) and 13DC(9) of the Valuation of Land Act;

(c) The AWF Assets are fixtures at common law and improvements to the AWF Land for the purposes of the Valuation of Land Act.

132 Mr Molloy used the direct comparison method to assess the site value of the AWF Land, and both the direct comparison method and the summation method to assess its capital improved value.

133 In assessing site value, Mr Molloy relied on sales of ten greenfield windfarms. He explained his use of greenfield sales prices:[35]

The greenfield sales prices represent the purchase of "Leasehold Interests" in the wind farm lands. This means that the prices paid effectively represent the value of the greenfield wind farm's "benefits" (i.e. the right to use and develop the land in accordance with the approved planning permit and other approvals) and the limitations of leasehold tenure (i.e. the requirement to pay rent under the leases, the limited time tenure, and the absence of any value to the underlying land component).

134 The wind farms and dates of sale were:[36]

(a) Cherry Tree in Victoria, sold in December 2018;

(b) Coopers Gap in Queensland, sold in August 2017;

(c) Stockyard Hill in Victoria, sold in May 2017;

(d) Lal Lal in Victoria, sold in May 2017;

(e) Bodangora in New South Wales, sold in March 2017;

(f) Silverton in New South Wales, sold in January 2017;

(g) Moorabool in Victoria, sold in September 2016;

(h) Boco Rock in New South Wales, sold in June 2013;

(i) Cullerin Range in New South Wales, sold in January 2008; and

(j) an undisclosed wind farm in Victoria, sold in 2006.

From this sales data, Mr Molloy derived a value of $150,000 per megawatt for the leasehold interest in the AWF Land.

135 He used this figure to calculate site value, making a number of adjustments to account for the difference between leasehold and freehold tenure:[37]

In my opinion, the appropriate way to do that is to convert the analysed "Leasehold Interest" sale prices to an equivalent "Leasehold Interest" annual value, add the annual market ground rental value being paid for the permit approved greenfield wind farm land and then capitalise that total at a market-based ground rental capitalisation rate. The result is a freehold equivalent of the leasehold interest that was sold.

136 Mr Molloy's site value calculations for the entire Ararat Wind Farm were:[38]

Market Value of Greenfield Wind Farm 'Leasehold Interest'

Equivalent Greenfield Wind Farm 'Leasehold Interest' Annual Value

Passing ground rental as at 1 January 2016 $10,424/Turbine ÷3.2/MW =

This land value was apportioned between the two municipalities, which gave a site value of $51,425,000 for the part of the wind farm in the Ararat Rural City municipality.[39]

137 In assessing capital improved value, Mr Molloy relied on ten sales of operating wind farms, from which he derived a value of $2,250,000 per megawatt. The wind farms and dates of sale were:[40]

(a) Bald Hills in Victoria, sold in February 2017;

(b) Cullerin Range in New South Wales, sold in June 2016;

(c) Taralga in New South Wales, sold in March 2016;

(d) Macarthur in Victoria, sold in June 2013 and again in September 2015;

(e) Waterloo in South Australia, sold in May 2013;

(f) Musselroe in Tasmania, sold in September 2012;

(g) Bluff Range in South Australia, sold in May 2012;

(h) Oaklands Hill in Victoria, sold in June 2011; and

(i) North Brown Hill in South Australia, sold in October 2009.

138 Mr Molloy calculated capital improved value using the same method adopted to calculate site value:[41]

Operating Wind Farm 'Leasehold Interest' Capital Value

Less; Greenfield Wind Farm 'Leasehold Interest' Land Value Component (viz Site Value)

Operating Wind Farm 'Leasehold Interest' Improvements Value

Amortisation Factor - 25 years at 10% p.a. discount

Equivalent Operating Wind Farm 'Leasehold Interest' Annual Improvements Value

Annual Equivalent Greenfield Wind Farm 'Leasehold Interest' Value (viz Site Value)

Passing ground rental as at 1 January 2016 $10,424/Turbine ÷3.2/MW=

139 As a check, Mr Molloy used the summation method to calculate capital improved value. He began with the agreed development costs of $482,022,545, from which he deducted planning permit costs of $29,453,730, leaving a figure for improvements of $452,568,815. To this he added development profit of 20% and his assessment of site value of $55,100,000. He rounded up the total to $598,200,000.[42]

140 Apportioning his adopted capital improved value of $613,500,000 between the two municipalities, Mr Molloy assessed the capital improved value of the part of wind farm within the Rural City of Ararat to be $572,600,000.[43]

141 In his calculations of both site value and capital improved value, Mr Molloy added the annual rental of $10,424 per turbine, or $3,258 per megawatt, to the 'leasehold interest' value he had derived from comparable sales evidence. I asked him why he had done that. His answer was that 'the Valuation of Land Act requires us to value not just the lessee's interest, but the unencumbered fee simple, which includes both the lessor's interest and the lessee's interest'.[44] Asked why that did not involve double counting, he said it was because there was no lessor's interest component in the greenfield sales that he relied on, and that it had to be accounted for separately somehow.

142 Mr Molloy prepared alternate valuations, as directed by the Tribunal, which are set out in his second report dated 7 February 2020. The first alternate valuation was the capital improved value of the wind farm based on Mr Brown's instructions and assumptions. He did so using the same method as Mr Brown, with two significant variations. First, he capitalised the passing ground rental of $10,424 per turbine per annum at 5% in perpetuity, on the basis that he considered that 'demand for permit approved renewable energy sites like the subject property is likely to extend beyond the term certain of the current AWF leases'.[45] Second, he assessed the residual value of the access roads at 25% of cost. His adopted capital improved value for the entire wind farm was $21,500,000, with $20,100,000 apportioned to the wind farm within the Rural City of Ararat.[46]

143 In addition, Mr Molloy identified two assumptions adopted by Mr Brown with which he disagreed, and prepared alternate valuations of capital improved value on the basis of what he considered to be the correct assumption.

144 The first contested assumption was Mr Brown's adoption of the actual lease encumbrance, in particular the period of the lease, in assessing capital improved value. Mr Molloy considered this should not be done in assessing the value of the fee simple estate unencumbered by any lease. Disregarding the actual leases, and their terms, substantial value should be given to the turbine foundations and access roads, because these would remain in place and could immediately be leased to a hypothetical new tenant, 'thereby allowing the hypothetical owner to capture substantial value from them'.[47] Valuing these assets at their full construction cost, Mr Molloy assessed the capital improved value of the Ararat Rural City component of the wind farm to be $53,200,000.

145 The second disputed assumption was that the added value of the planning permits for the Ararat Wind Farm was included in the existing ground rental payments. Mr Molloy disagreed with that assumption on the basis that the current ground rents are agreed on the basis that the lessee will procure the permits, at the lessee's cost and risk. The lessee brings the permits to the land and would not be expected to pay rent on them. At the same time, the permits run with the land and their value should be included in assessing its capital improved value. The value of the permits was captured in Mr Molloy's initial calculation of site value,[48] to which he added the full cost of the turbine foundations and access roads. Using this method, he calculated the capital improved value of the Ararat Rural City component of the wind farm to be $90,100,000.

146 Mr Molloy considered there would be no difference between his initial assessment of the capital improved value of the Ararat Wind Farm as a single occupancy, and an assessment of the separate occupancies created by each lease. On either basis, he assessed the capital improved value of the Ararat Rural City component of the wind farm to be $572,600,000.

147 Asked to assume that the AWF Assets were chattels at common law, or did not form part of the fee simple estate by operation of s 154A of the Property Law Act, Mr Molloy calculated the capital improved value to be $90,100,000. Again, this incorporated his assessment of site value, and the full cost of the turbine foundations and access roads that would remain after the leases had ended.

148 Mr Molloy confirmed that he had conducted his valuation by the direct comparison method, using sales evidence of greenfield wind farms and operating wind farms, to derive a dollar per megawatt ratio. He did not entirely agree that it was a novel approach, on the basis that his research and analysis indicated that it was the most consistent method to analyse and compare the sales. He agreed that it was not a method identified in any of the Valuer-General's guidelines.

149 The sales from which Mr Molloy derived the price at which a hypothetical fee simple estate in the AWF Land would transact were all sales of leasehold interests. He agreed that wind farm businesses are invariably conducted on leased land. He did not agree that this method involved comparing 'oranges with apples'; rather, the value of the leasehold interest was 'part of the apple'.[49] The sales were of a component of the freehold, showing what a willing purchaser would pay, and were the best comparable evidence available, 'albeit requiring some adjustment'.[50]

150 Mr Molloy agreed that he had made a number of adjustments, involving an exercise of valuer's judgment, in calculating the site value of the Ararat Wind Farm. Of the six steps in the calculation, he agreed that four steps relied on an exercise of valuer's judgment - the selection of the rate of $150,000 per megawatt for the leasehold interest component of the AWF Land, the selection of the 50 year discount period, the assessment that $10,424 per turbine was a market rental, and the discount and capitalisation rates.

151 Mr Molloy accepted that any error in his assessment of site value would also affect his assessment of capital improved value. He agreed that he had exercised valuer's judgment at several steps in his calculation of capital improved value. The first of these was his adoption of a capital value rate of $2,250,000 per megawatt. The next was the selection of the discount period of 25 years and discount rate of 10%, to convert the capital value to an annual value, and the last was the adoption of a 9.5% capitalisation rate.

152 It was put to Mr Molloy that his calculations of site value and capital improved value was a 13 step process that relied on seven or eight different exercises of valuer's judgment. He agreed that was the case. He also agreed that his method involved a series of cumulative analyses and conclusions, and that its output was sensitive to changes in one or more of its inputs.

153 It was also put to Mr Molloy that the way he had analysed the capital improved value of the AWF Land did not reflect the way the hypothetical purchaser would transact the land in the real world. He agreed that the sales were not of the unencumbered fee simple in the land. The market had determined that it was more efficient and cost-effective for wind farm operators to establish leases over the land needed for the wind farm, than to purchase all of the surrounding farm land.

154 Turning to the comparable sales evidence relied on by Mr Molloy, he agreed that he did not know the price of three of the nine greenfield wind farm sales used to calculate site value. Nor had he made any adjustments for land size, location, or the age of the sale. The sales of operating wind farms included some sales of the whole business, and some sales of part shares in the business, with no adjustment for the differences between the nature of those sales. He also relied on sales of partly constructed and fully constructed wind farms. He had assumed that the terms of the leases in place at each of the wind farms sold were broadly the same; he did not know if the greenfield sales involved agreements for lease or completed leases. He was aware that the Ararat Wind Farm's capacity factor of 26-29% was lower than average, but had made no adjustment for that.

155 Mr Molloy understood that almost all of the wind farm sales he relied on were sold subject to power purchase agreements, and that these agreements contributed to the value of the sales. While he had seen the power purchase agreement in place for the Ararat Wind Farm, he had not been able to consider the terms of the agreements in place for all of the comparable sales. He agreed that, unlike Mr Newman, he had not discounted his per megawatt rate to exclude the effect of power purchase agreements on the comparable sales.

156 Mr Molloy did not accept that the lack of adjustments for these various inputs meant that his site value and capital improved value assessments were unreliable. He pointed out that he had used the summation method to check his assessment of capital improved value, although it was based on his calculation of site value.

157 Taken to the sale of the freehold of the land on which the Mt Gellibrand wind farm substation is located, Mr Molloy did not accept that the sale price of just over $138,000 per hectare captured the added value of the permits and approvals that relate to the use of the underlying land. He did not believe that a wind farm operator who had taken on the risk and paid the cost of obtaining the permits and approvals would also pay for it in buying the land.

158 As to the Stevens land, which had been offered for sale at an asking price of $10,000,000, Mr Molloy did not agree that Mr Stevens was selling his land subject to the lease and with the added value of the planning permit for the wind farm. Instead, he was selling it with the right to receive rent under a lease that prohibited the land owner from operating the wind farm. On that basis, Mr Molloy considered that the value of the permits did not transfer to the land owner through the lease, and that the lease was an encumbrance on the land.

159 Mr Molloy confirmed that his starting point for the valuation had been occupancy, not land title. For that reason, he considered sales evidence of entire wind farms to be a more reliable way to value the occupancy than sales of farms that included part of a wind farm.

Question 1: What is the occupancy, or occupancies, to be valued?

160 The first of the questions posed by the Tribunal is what is the occupancy, or occupancies, to be valued for the purposes of assessing capital improved value. Both Mr Newman and Mr Molloy considered that there was a single occupancy to be valued, being the 77.05 hectares of AWF Land. Mr Brown took the approach that each lease created a separate occupancy on each Land Owner's title, and that it was these occupancies that were to be valued. These were fundamental differences in approach, which centred on whether occupancy or title was the proper starting point for the valuation exercise.

161 The applicants submitted that the occupancies to be valued in this case were defined by two key factors:

(a) first, the land titles held by the separate Land Owners; and

(b) second, by the AWF Leases, which create occupancies separate to those of the Land Owners, which are represented by the balance of each Land Owner's holding.

More simply, each farm has two occupancies: a farm occupancy and a wind farm occupancy.

162 Because the wind farm occupancies do not coincide with the underlying titles, the applicants contended that, for the purposes of determining capital improved value, they form part of a 'larger property' - namely, the farm owned by the relevant Land Owner. On that basis, the wind farm occupancies should properly have been assessed in accordance with s 2(3) of the Valuation of Land Act, by valuing the farm owned by each Land Owner, and computing or apportioning the values of the wind farm occupancy and that of the balance of the farm.

163 Taking this approach, the applicants submitted that it is not the occupancy of the whole of the AWF Land that is to be notionally sold 'as if it were held for an estate in fee simple unencumbered by any lease, mortgage or other charge', for the purpose of assessing site value and capital improved value. The notional sale is of each farm on which each separate wind farm occupancy is created by the relevant AWF Lease. The applicants argued that this was consistent with the definitions of both site value and capital improved value in s 2(1) of the Valuation of Land Act, each of which requires the hypothetical sale of land 'as if it were held for an estate in fee simple unencumbered by any lease, mortgage or other charge'. The Valuation of Land Act does not require the valuer to hypothesise the sale of an occupancy unrelated to the underlying title.

164 The applicants further submitted that this approach conformed with the analysis in Port of Melbourne Corporation v Melbourne City Council,[51] in which Emerton J determined that the proper starting point for valuing an occupancy within a larger property was title, rather than occupancy. This required the whole of the land comprising the Port of Melbourne, which was held under common ownership, to be valued as a single larger property. Section 2(3) of the Valuation of Land Act then required the value of the larger property to be apportioned out to the separate occupancies that formed its constituent parts, including the tenanted occupancies.[52] While this had not been done by any of the valuers in this case, Mr Brown's approach to valuing the part of each farm referable to the wind farm occupancy was the same approach he would have taken to a valuation in accordance with s 2(3) - that is, valuing the land having regard to the income stream from the lease to the wind farm.

165 The applicants argued that the Valuer-General's characterisation of the AWF Land as a stand-alone larger property for the purposes of s 2(3) did not align with Emerton J's observations in Port of Melbourne concerning the primacy of title in the valuation process. It was the AWF Leases, not the presence of the AWF Assets or the operation of the wind farm business on the AWF Land, that created the separate occupancies to be valued.

166 The Valuer-General submitted that the correct approach was to value the AWF Land as a single occupancy, defined by the AWF Leases, including the AWF Road Land and the AWF Cable Land, as well as the AWF Leased Land. He characterised the Ararat Wind Farm as a single integrated undertaking, located on land parcels that together form a single rateable occupancy, which should not be regarded as part of any notional larger property constituted by the 16 separately owned farms. He distinguished this case from Port of Melbourne, which involved many smaller occupancies within a larger property owned by the Port of Melbourne.

167 The Valuer-General argued that it was necessary to distinguish between the valuation concept of occupancy and title. Section 13DC(1) of the Valuation of Land Act requires valuation of each separate occupancy, as distinct from title. He argued that there was nothing in the Port of Melbourne decision that altered the long-standing principle that it is the occupancy, not the title, that is to be valued. On that basis, the Ararat Wind Farm occupancy should be valued on the basis of a hypothetical fee simple title to the whole of the AWF Land, as Mr Newman and Mr Molloy had done.

168 The Valuer-General noted that the three valuers were agreed that the Valuation of Land Act required the valuations to be undertaken on the basis of occupancy, that the occupancy to be valued was defined by the 16 ground leases, and that the land parcels were to be treated as one undertaking to be apportioned on the basis of estimated annual value. He also pointed out that Mr Brown had not undertaken the valuation in the manner contemplated by s 2(3), by reference to the estimated annual value of the occupancy as a proportion of the estimated annual value of the larger property, either on a farm by farm basis or in respect of the entire 4,995 hectares comprising the 16 farms on which the Ararat Wind farm is located.

169 The valuation of the AWF Land will determine the fire services levy payable in respect of that land. Under the Fire Services Levy Act, it is the various Land Owners who are liable to pay the fire services levy on the land that is occupied by the Ararat Wind Farm.[53] That liability remains with each Land Owner, even though the Land Owner can request that assessment notices be sent to AWF Prop Co or its agent,[54] and AWF Prop Co has agreed in the relevant AWF Lease to pay the levy.[55] If for some reason the levy is not paid for the land occupied by the Ararat Wind Farm, the Fire Services Levy Act empowers the Council to recover it from the various Land Owners, not from their tenant.[56] For the purposes of the Fire Services Levy Act, AWF Prop Co is not the owner of leviable land and is not liable to pay the fire services levy to the Council.

170 It follows that the occupancies to be valued are the occupancies in respect of which the fire services levy must be paid. Each Land Owner is liable to pay the levy in respect of two separate occupancies on their farm: the farm occupancy, and the wind farm occupancy. Each wind farm occupancy must be valued separately, in order to assess the fire services levy payable in respect of that occupancy by the relevant Land Owner. This conclusion is consistent with the reasoning of Emerton J in Port of Melbourne, in particular her Honour's conclusion that the proper starting point in the valuation process is title rather than occupancy.[57]

171 I agree with the applicants' submission[58] that the Valuer-General's submissions on the first question confused and conflated several different concepts. Those submissions included reliance on ss 13DC(6) and (7A) of the Valuation of Land Act in support of the argument that the occupancy to be valued is the whole of the AWF Land. Neither of those provisions assists in defining the occupancies to be valued in this case; rather, they provide guidance as to how certain kinds of occupancies are to be valued.

172 Further, the identification of the occupancy or occupancies to be valued in this case was not elucidated by s 13DC(9) of the Valuation of Land Act,[59] or by the 'public utility undertaking' authorities relied on by the Valuer-General.[60] Those authorities, and s 13DC(9), concern whether land in different municipalities that is occupied by a single undertaking is to be rated separately or as a single occupancy, and how that value is to be apportioned between the municipalities for rating purposes. That issue does not arise in this case, which is about the valuation of the AWF Land within the Rural City of Ararat. While the wind farm extends into the Northern Grampians Shire, there is no difficulty in identifying the wind farm occupancies on the farms in that municipality, or in apportioning value between the two municipalities.

173 It is the case that none of the valuers approached the valuation in accordance with s 2(3) of the Valuation of Land Act. Mr Newman was in a position to do this when he did his supplementary valuation in January 2018, having previously valued each farm separately.[61] However, instead of revaluing each farm and apportioning its value between the farm occupancy and the wind farm occupancy, as required by s 2(3), he valued the AWF Land as a single occupancy. I accept the applicants' submission that if Mr Brown had carried out the exercise required by s 2(3) it would not have changed his approach to valuing the wind farm occupancies. In respect of each occupancy, the correct approach would have been to value the land by reference to 'the rent at which the land might reasonably be expected to be let from year to year'.[62] This is exactly what Mr Brown did.

174 Mr Newman and Mr Molloy appear to have been distracted by the available information about sales of greenfield and operating wind farms. While this information would no doubt be useful in undertaking a valuation of the Ararat Wind Farm as a business, none of the sales involved the sale of a fee simple estate in the land occupied by the wind farm. The valuation task here was not to value the business as a whole, but the land occupied by the Ararat Wind Farm as a separate occupancy on the land owned by each Land Owner. How that is to be done, and whether the AWF Assets form part of the land to be valued, are the second and third questions for determination.

Question 2: How are the occupancies to be valued?

175 The second question posed by the Tribunal was how, for the purposes of assessing capital improved value, the relevant occupancies are to be valued, having regard to the principles set out in Challenger.[63]

176 Challenger involved a dispute about the valuation of the Jam Factory complex in Chapel Street, Prahran. One of the issues in contention was the correct approach to assessing the capital improved valued of an occupancy created by a lease, when 'capital improved value' is defined in s 2(1) of the Valuation of Land Act by reference to the market value of 'an estate in fee simple unencumbered by any lease, mortgage or other charge'. Challenger's valuer had made a 'vacant to let' deduction from his valuation, on the basis that he had to assume that the premises were vacant and to let, being unaffected by any lease. Challenger relied on Shell Co of Australia Ltd v City of Melbourne[64] in support of this approach. The Valuer-General contended that the valuer was wrong to disregard the actual or prospective occupancy of the premises in assessing its capital improved value. The Valuer-General drew support from a series of South Australian decisions known as the Trust Company cases - Perpetual Trustee Co Ltd v Valuer-General; Trust Co of Australia Ltd v Valuer-General,[65] Perpetual Trustee Co Ltd v Valuer-General; Trust Co of Australia Ltd v Valuer-General (No 2) (Trust Co 2),[66] and Perpetual Trustee Co Ltd v Valuer-General; Trust Co of Australia Ltd v Valuer-General (Trust Co 2 FC).[67]

177 After carefully reviewing each of these authorities,[68] Croft J concluded that the Valuer-General's contention was to be preferred. His Honour held:[69]

In my opinion, a difficulty with the analysis of the Victorian legislation by Batt J in the Shell case is that it begins by treating reference to the fee simple estate as a strictly technical legal expression and, on this basis, the conclusion is reached that the treatment of leases as an encumbrance is at odds with the technical legal meaning applicable to references to the fee simple estate. This apparently leads to the position that the words are to be taken to be used in a more broad and less technical way because, strictly, a lease does not affect the title to the fee simple estate. Then it is said, in effect, that a lease must be a burden on the fee simple estate, whether or not the lease is beneficial in terms of enhancement in value of the freehold, simply because the fact of a lease affects the enjoyment of the fee simple estate and the flexibility of the owner in dealing with it. Consequently, and in my view at odds with the nature at law of a fee simple estate in possession, this approach equates the reference to the fee simple estate in the statutory definition as a fee simple estate in actual physical possession of the land, rather than also including the possibility of the fee simple owner being in receipt of the rents and profits, rather than in actual physical possession of the land. In my view, this produces the sort of artificial result referred to by the judges in the South Australian Supreme Court in the Trust Company (No 2) case at first instance and on appeal.

178 This opinion was reinforced by his Honour's consideration of the provisions of the Valuation of Land Act, in particular s 5A, and the legislative purpose underlying the statutory definitions of 'site value' and 'capital improved value'.[70] His Honour's opinion was that the better view was that the Valuation of Land Act required that 'the fee simple interest in possession not be encumbered, in practical terms, by any lease', such as an unusually long lease.[71] This allowed room for a lease at market rent, without burdensome conditions, to be taken into account in the valuation process. Croft J concluded that:[72]

... the estate in fee simple in possession in the subject property, the highest estate known to the common law in that property, is to be valued having regard to the actual realities of possession. This means that the fact that the land is leased is a matter to be taken account in the valuation process, and allowance made so as to "neutralise" the effect on the value of the estate to be valued as a result of an usually beneficial and above market rent prevailing under the then subsisting least. Correspondingly, adjustment the other way may be required where the then prevailing current lease imposes burdensome conditions ...

179 His Honour accepted the submission of the Valuer-General that the correct approach was to assess capital improved value on the basis that:[73]

(a) the value of the land is to be assessed by reference to a hypothetical sale of a fee simple interest in the land and on the basis that the fee simple interest is not affected by any actual lease;

(b) the hypothetical sale should assume the actual physical state of the land;

(c) the hypothetical sale should assume the occupation of the land;

(d) the hypothetical sale should take into account the likely future occupation of the land;

(e) the hypothetical sale should assume that the occupation of the land is at market rates; and

(f) the rentals being paid under actual leases are likely to be a guide to actual market rates for occupation.

180 The applicants submitted that the proper approach to assessing capital improved value of the wind farm occupancies, consistent with the principles set out in Challenger, was as follows:

(a) While the estate in fee simple in possession is the critical estate and interest to be valued, this does not mean that the owner of this estate must be presently entitled to actual physical possession. In the real world, wind farms are conducted on land leased to the wind farm operator. It follows that the highest and best use of the fee simple estate is to be leased to a wind farm operator for use as a wind farm.

(b) Capital improved value is to be assessed having regard to 'the actual realities of possession'. The fact that the land is leased is a matter to be taken into account in the valuation process.

(c) The Court should assume that the land is occupied at market rates, and that the rentals being paid under the actual leases are a guide to market rates for occupation.

(d) If necessary, the Court can 'neutralise' the effect on the value of the estate by adjusting for a lease that is unusually beneficial or burdensome. The applicants submitted that no such adjustment was necessary in this case. They relied on Mr Brown's opinion that the AWF Leases were generally reflective of a typical lease to a wind farm operator at market rentals, and did not involve an unusual benefit or burden to the land.

181 They further argued that Challenger did not support the Valuer-General's case that the AWF Land should be valued on the basis that the wind farm operator was the hypothetical owner of the fee simple estate. To the contrary, the distinction made in Challenger between ownership and occupancy supports the position that the starting point of any assessment of capital improved value is title rather than occupancy. Challenger makes it clear that the fact that the property is leased is not to be disregarded in assessing capital improved value.

182 The applicants submitted that there were a number of difficulties with the Valuer-General's reliance on the reasoning of Batt J in Shell, in preference to the methodology set out in Challenger. The primary difficulty was that Shell did not materially advance the Valuer-General's position that the land should be valued as if the occupier were the owner of the fee simple estate. Shell concerned the assessment of capital improved value of premises that were leased at above market rents. On the basis that 'unencumbered by any lease' meant 'not leased', Batt J reduced the capital improved value to remove the impact of the above market rental component. The applicants pointed out that his Honour did not reject the notion that the premises should be valued on the assumption that their highest and best use was to be let by an owner to an occupier at a market rental.

183 The Valuer-General submitted that the definition of 'capital improved value' in s 2(1) of the Valuation of Land Act means that the AWF Leases and other private encumbrances must be ignored in identifying the hypothetical unencumbered fee simple estate to be valued. He relied on the conclusion in Shell that the fee simple interest must be valued on the basis that it is not affected by any actual lease, and submitted that this required the valuers to ignore the AWF Leases.[74] The Valuer-General submitted that the decision of Batt J in Shell should be preferred to the 'dicta' of Croft J in Challenger on the question of what to value, and the meaning of 'unencumbered' in the definition of capital improved value. On that basis, he submitted that Mr Newman and Mr Molloy were correct to assume that the hypothetical fee simple estate in the AWF Land was owned by a wind farm operator.

184 In addition, the Valuer-General submitted that the AWF Leases should be disregarded because they burdened the land, due to various obligations and restraints agreed to by the Land Owners under the leases. He submitted that the rental payments to the Land Owners under the AWF Leases were well below the market rental, by reference to the rent paid by AWFPL to AWF Prop Co under the Agreement to Sublease.

185 I understood the Valuer-General to submit that I should not follow the approach to assessing capital improved value set out in Challenger, but should instead apply the interpretation of Batt J in Shell, to the effect that 'unencumbered by any lease' means simply 'not leased'.[75] That was a curious submission, which seemed to be at odds with the position taken by the Valuer-General in Challenger. If I was being invited to prefer the approach in Shell to that in Challenger, I decline the invitation.

186 I consider the approach that was distilled by Croft J in Challenger to be correct. I agree that the better view is that 'unencumbered by any lease' means that the fee simple estate is not encumbered in practical terms by a lease that diminishes the value of the estate. It is consistent with the provisions and legislative history of the Valuation of Land Act and the common law regarding the nature of an estate in fee simple, and also with the reasoning of the judges of the Supreme Court of South Australia in Trust Co 2[76] and Trust Co 2 FC.[77]

187 Further, the Challenger approach is a practical approach to valuing an occupancy created by a lease. It reflects the reality of a marketplace in which the terms of the actual lease are likely to be a guide to 'the actual and potential capacity of the land to yield a monetary return'.[78] In my view, the approach is preferable to one that requires the valuer to disregard the very thing that creates the occupancy to be valued. As was observed by Debelle J in Trust Co 2, that is an artificial approach that offends common sense, and is so divorced from reality that it should be put to one side.[79]

188 My view that the Challenger approach is consistent with the common law regarding the nature of an estate in fee simple is based on Debelle J's review of the relevant authorities in Trust Co 2.[80] His Honour's considered exposition of the concept of the fee simple estate was approved on appeal.[81] It was also quoted at length and approved by Croft J in Challenger.[82] Debelle J's conclusion was that the common law expression 'fee simple in possession' encompasses both an owner who is in physical possession of the land, and one who has leased the land and is entitled to receive the rents from it. His Honour reasoned from that conclusion that a lease is not necessarily an encumbrance on an estate in fee simple, because it may provide a profitable source of income, without reducing the value of the estate.[83] I adopt both the conclusion and the reasoning based on it.

189 Of the three valuers, only Mr Brown valued the fee simple estate in the wind farm occupancies in accordance with the Challenger approach. Indeed, his initial letter of instruction directed his attention to the various elements of the Challenger approach, and asked him questions derived from it.[84]

190 The first question posed for Mr Brown was whether the terms of the AWF Leases represent an unusual benefit, or an unusual burden or liability, on the value and enjoyment of the fee simple estate in the AWF Land. Mr Brown's opinion was that the AWF Leases were neither an unusual benefit or an unusual burden or liability. They were not an unusual benefit because their terms were generally reflective of ground leases for wind farms. They were not an unusual burden or liability because the lessee was paying a market rental. This opinion was supported by a review of comparable leases for eight other wind farms in Victoria.[85] It was confirmed by sales evidence of agricultural land subject to wind farm leases, which showed no diminution in the value of those properties compared with the sales of other properties in the district that were not affected by wind farm leases.[86] Under cross-examination, Mr Brown was firm in his opinion that the burden of some lease terms was compensated for by the market rental paid to the Land Owners. Mr Newman agreed that the AWF Leases were not unusually burdensome. I accept Mr Brown's opinion on this question.

191 I reject the submission made by the Valuer-General that the rents paid by AWF Prop Co to the Land Owners are below market rental because the combined rent payable under the AWF Leases is significantly lower than the rent paid by AWFPL to AWF Prop Co under the Agreement to Sublease. This submission overlooked the fact that the AWF Leases are for the lease of the AWF Land, while the Agreement to Sublease is both a sublease of the AWF Land, and a lease of the AWF Assets. There is therefore no comparison to be made between the rents payable under the AWF Leases in aggregate and under the Agreement to Sublease.

192 That brings me to a critical point of difference between the valuers that they identified in their joint statement. As they put it:[87]

Mr Molloy and Mr Newman have valued the land on an unencumbered fee simple basis. Mr Brown has valued only the Lessor's interest in the land.

This divergence in assumed 'title' is a major contributor to the divergence in valuation methodology.

193 As I understood Mr Brown's evidence, he considered that the value of the lessor's interest was the value of the estate in fee simple unencumbered by any lease. Critical to that was his opinion that the AWF Leases were at market rentals and were on terms that were neither unusually beneficial or burdensome.

194 Although both Mr Newman and Mr Molloy both asserted that they had valued the AWF Land on an unencumbered fee simple basis, neither of them used the Challenger approach in undertaking their initial valuations. I am not convinced that either of them in fact valued the fee simple estate in the occupancies that comprise the AWF Land. As I have already noted, none of the wind farm sales that they used for their direct comparison involved the sale of a fee simple interest in the land on which the wind farms are located. In each case, the sales involved the sale of leasehold interests in land. What Mr Newman and Mr Molloy appear to have done is to value the aggregate leasehold interests held under the AWF Leases, rather than a hypothetical fee simple estate in the AWF Land.

195 This was most apparent in the calculations of site value and capital improved value set out in Mr Molloy's first report.[88] In each case he first determined the per megawatt value of the leasehold interest, by reference to comparable wind farm sales. To this he added the value of the 'lessor's interest', which he calculated by capitalising the annual rent payable under the AWF Leases. Mr Molloy considered that the 'unencumbered fee simple' includes both the lessor's interest and the lessee's interest, and that it was necessary to value both interests. That approach is difficult to reconcile with the legal concept of a fee simple estate in land, and with the principles set out in Challenger. It also appeared to me to involve double counting, given that an orthodox method of valuing the unencumbered fee simple estate in a property that is leased is simply to capitalise the market rent for the property.[89] It was notable that Mr Newman did not add any amount for the 'lessor's interest' in undertaking his initial supplementary valuation in January 2018.[90]

196 For these reasons, I consider that Mr Brown's initial valuation valued the occupancies that comprise the AWF Land as if they were 'held for an estate in fee simple unencumbered by any lease', in accordance with the principles in Challenger. Mr Newman's supplementary valuation and Mr Molloy's initial valuation did not follow the approach set out in Challenger, and I do not accept that either of these were valuations of the unencumbered fee simple estate in the AWF Land.

Question 3: Are the AWF Assets part of the land to be valued?

197 As the valuers noted in their joint report, 'the difference in classification of the physical improvements is one of the major contributors to the differences in the assessments of CIV'.[91] They agreed that the designation of the improvements as either chattels or fixtures and fittings significantly impacts the assessment of capital improved value. The 'improvements' referred to are the AWF Assets described at [60] to [63] above, which were installed at a cost to AWF Prop Co of around $480,000,000. Mr Brown valued the AWF Land on the basis that, apart from the turbine foundations and the access roads, the AWF Assets belonged to AWF Prop Co and were not part of the fee simple estate. Mr Newman and Mr Molloy considered that the AWF Assets were fixtures, and included them in their assessment of the capital improved value of the AWF Land.

198 At this stage, it is necessary to identify which AWF Assets are the subject of argument. The AWF Leases require AWF Prop Co, at the end of the lease, to remove the turbines and any other apparatus, equipment or works installed to a depth of 0.5 metres on the AWF Land. The AWF Leases provide that AWF Prop Co is not required to remove the turbine foundations and the access roads. In the course of the trial it became clear that all parties, and all three valuers, accepted that the turbine foundations and the access roads were fixtures that would remain after the AWF Leases had ended, and were improvements to be taken into account in assessing capital improved value. It is likely that the underground cabling is also in this category. The disagreement concerned the status of the wind turbines, the substation, the wind monitoring masts and the buildings, which I will refer to as the above ground AWF Assets.

199 The applicants' position is that the above ground AWF Assets are not part of the AWF Land, first, because they are chattels at common law and, second, by operation of s 154A of the Property Law Act. The Valuer-General argued that all of the AWF Assets are fixtures, and that s 154A of the Property Law Act does not apply to the valuation of an estate in fee simple unencumbered by any lease. In final submissions, the Valuer-General advanced a further submission that the AWF Assets were improvements to the land for the purposes of the Valuation of Land Act, and had to be included in the assessment of capital improved value irrespective of whether they were chattels or fixtures.

200 In TEC Desert Pty Ltd v Commissioner of State Revenue,[92] the High Court confirmed the basic principle of the law of real property that 'whatever is attached to the soil becomes part of it'. This is reflected in the definition of 'land' in s 38 of the Interpretation of Legislation Act 1984 (Vic), which includes 'buildings and other structures permanently affixed to land'.

201 It is presumed that objects that are affixed to the land, to any extent, are fixtures and part of the land.[93] That presumption may be displaced in a particular case, applying the principles articulated by Conti J in National Australia Bank Ltd v Blacker:[94]

There is a variety of general principles which should be considered in assessing whether an item of personal property has become attached to land in a manner designed to achieve a specific objective or a variety of objectives, such as to become a part of the realty and therefore, a fixture. Whether an item has become a fixture depends essentially upon the objective intention with which the item was put in place. The two considerations which are commonly regarded as relevant to determining the intention with which an item has been fixed to the land are first, the degree of annexation, and second, the object of annexation.

As the New South Wales Court of Appeal observed in Agripower Barraba Pty Ltd v Blomfield,[95] the law of fixtures has adapted in the face of changing circumstances, and there is now less emphasis on the degree of annexation, and more on the purpose or object of annexation.[96]

202 There are a number of factors that are generally relevant to an assessment of whether an object has become a fixture. Some of these were identified by Conti J in Blacker to be, in relation to the purpose or object of annexation:[97]

(a) whether the attachment was for the better enjoyment of the property generally or for the better enjoyment of the land and/or buildings to which it was attached;

(b) the nature of the property the subject of affixation;

(c) whether the item was to be in position either permanently or temporarily; and

(d) the function to be served by the annexation of the item.

203 His Honour enumerated factors relevant to determining the degree of annexation:[98]

(a) whether removal would cause damage to the land or buildings to which the item is attached;

(b) the mode and structure of annexation;

(c) whether removal would destroy or damage the attached item or property; and

(d) whether the cost of removal would exceed the value of the attached property.

204 While these lists of factors are useful guides, 'they are neither exhaustive nor definitive',[99] and are to be considered together with 'all the other relevant surrounding circumstances'.[100] No one factor is likely to be determinative and, ultimately, each case depends on its own circumstances.[101]

205 The Valuer-General relied on a number of cases in which disputed objects were found to be fixtures, including Snowy Hydro Ltd v Commissioner of State Revenue,[102] Vicgrain Assets Pty Ltd v Yarriambiack Shire Council,[103] Love v Bloomfield,[104] Anthony v Commonwealth,[105] and AusNet Electricity Services Pty Ltd v Whittlesea City Council.[106] Each case turned on its own facts, which differed in significant respects from the facts in this case. With one exception, none of the cases concerned plant and equipment installed by a lessee, during a lease which required the plant and equipment to be removed at the end of the lease.[107]

206 The applicants relied on the decision of the Court of Appeal in Commissioner of State Revenue v Uniqema Pty Ltd,[108] which concerned plant and equipment installed by a lessee under a lease. The lessor sold the land to the respondent, and stamp duty was assessed on the basis that the plant and equipment were part of the land sold. The respondent objected to the assessment. Similar to this case, the plant and equipment was part of a facility for generating power, it was substantial and complex, and was bolted to a concrete slab so that it could be detached and taken away. As in this case, the lease provided that the lessee owned all the improvements and fixtures, and had the right to remove them until one month after the end of the lease. The Court of Appeal concluded that, 'in the very special circumstances of this case',[109] the plant and equipment were not fixtures and were not part of the real property sold to the respondent. The reasoning to that conclusion was as follows:[110]

Nevertheless, what distinguishes the present case is not the extent of annexation of the chattels which seemed on the surface to be not insubstantial, albeit that methods for removal were clearly built into them, but the object of annexation which on this occasion appears to be unusual. The land was leased for a purpose largely unrelated to the tenant's own business and its needs. Although Co-Gen had a right to sell off the balance of its electricity into the state grid, the primary purpose of the lease was solely to enable it to generate steam and electricity for the landlord's own use on land adjacent to the tenant but which formed part of the whole of the subject land. No case of that kind was to my knowledge cited to us, but the relationship between landlord and tenant in this case is significant in several ways. First, although the original term is extensive in duration, any renewal depends upon agreement between the parties - it is not simply a commercial choice for the tenant. Secondly, the terms of the lease ... were such as to make it abundantly clear that not only did the tenant have the right to remove the plant and equipment at the end of their commercial arrangement, but that it was under an obligation to do so. In terms of intended permanence, or the contrary, there could be no more emphatic statement of the parties' objects in allowing the plant and equipment to be brought onto the land than their mutual desire to see it removed at the end of that relationship. Thirdly, the landlord agreed that all improvements and fixtures remained property of the tenant, regardless of the degree of annexation. Fourthly, the object of annexation was not related to any enjoyment of the land for the tenant's own purposes: rather the plant and equipment was brought on solely to produce power for the landlord.

207 The parties referred me to several other cases involving disputes about whether plant and equipment brought onto land by a lessee were fixtures:

(a) Pegasus Gold Australia Ltd v Metso Minerals (Australia) Ltd[111] concerned heavy mining equipment bolted to concrete slabs embedded in the soil on a mining tenement. While the equipment was heavy, it could be removed, and there was a statutory obligation to remove it at the end of the lease. The Northern Territory Court of Appeal concluded that the 'purpose or object of annexation was not for the better enjoyment of the mineral lease'[112] and that the equipment was not a fixture. Decisive considerations were that it was not the objective intention of the lessee that the equipment should become a fixture, given that both the lease and the legislation required it to be removed, that it was economic to do so, and that it could be done without damage to the soil or the equipment.[113]

(b) In Re Origin Energy Power Ltd and Commissioner of State Revenue,[114] there was an issue whether a cogeneration plant that produced electricity and steam was a fixture that should be included in assessing the value of property owned by a company. The plant was on land occupied by the company under a site licence granted by the holder of a Crown lease over the land. The components of the plant were fixed to the land so that they could be safely used, but could be disassembled, removed from the site, and sold. The Western Australian State Administrative Tribunal distinguished the case from the 'special circumstances' in Uniqema, in part because of the particular terms of the site licence and the Crown lease.[115] The Tribunal considered that the plant and equipment were fixtures, 'having regard to the degree of annexation of the plant to the land and the manner in which the plant and equipment serves the use of the land'.[116]

(c) TEC Desert involved a dispute about whether the sale of power generation assets located on a mining lease was a sale of land on which stamp duty was payable - that is, whether the assets were fixtures that formed part of the land. The High Court set out some basic principles of the law of fixtures,[117] and observed that it followed from these principles that 'items affixed to land do not become, merely because of their affixation, "fixtures" in the technical sense'.[118] One reason for this conclusion was that the legislation governing the mining lease provided for the removal by the lease holder of mining plant at the end of the lease. Another reason was that a mining lease is not an interest in land.

(d) In Agripower Australia Ltd v J&D Rigging Pty Ltd,[119] there was a question whether mining plant on a mining lease formed part of the land. The lessee was obliged to remove the items on the expiry of the lease. Applying the analysis of the High Court in TEC Desert, Wilson J held that the plant was not part of the land to which it was physically attached.[120] It was significant that the plant was brought onto that land for the purposes of the mining leases, and had to be removed before their expiry.

208 It is also necessary to mention AusNet,[121] the decision of the Tribunal referred to in the third question identified by Senior Member Jacono. That case concerned 'the value of a small parcel of land containing a kiosk substation that facilitates the distribution of electricity'.[122] The land was owned by AusNet, and there was a dispute about whether the substation formed part of the capital improved value of the land. The substation rested on a concrete slab under its own weight and was not bolted or affixed to the land; its connection to electricity cables was necessary for the flow of electricity, rather than to keep it in place. It could be removed from the site within a few hours.

209 Although the Tribunal was of the view that the limited degree of physical annexation favoured AusNet's contention that the substation was a chattel, that was not determinative of the objective intention of annexation.[123] On that question:[124]

... despite the absence of bolting or affixation, there is evidence of an objective intention that the equipment has been installed on the land on a semi-permanent basis, rather than temporarily. It is necessary to the long-term distribution of electricity within the catchment area. The equipment components each have a lifespan of 40 years or more. Absent any technological change that renders the equipment obsolete, and subject to repair and upgrading over time, we are satisfied that the kiosk substation equipment would be intended to remain in situ indefinitely.

210 Further, the Tribunal considered that the substation was installed by AusNet on the land for the better use and enjoyment of the land, in circumstances where the valuers agreed that the highest and best use of the land was as an electricity substation. This factor weighed heavily in favour of the conclusion that, objectively considered, the substation was intended to be a fixture.[125] On balance, the Tribunal reached that conclusion:[126]

Despite the equipment resting by its own weight on the land, and its capacity to be removed without high cost or damage, we consider that the nature of the equipment, its function and use, the period of time it is to remain on the land, and its objective purpose for the better enjoyment of the land having regard to its particular use, all favour its characterisation as a fixture.

211 The Valuer-General relied on the Tribunal's reasoning in AusNet in support of its contention that the above ground AWF Assets are fixtures, given that all three valuers agreed that the highest and best use of the AWF Land is as a wind farm. The Valuer-General submitted that the objective facts and circumstances supported a finding that the primary purpose of affixation of all of the AWF Assets is to benefit the land, by harnessing wind to generate electricity. He pointed out that, unless the wind turbines were securely attached to the land, it could not be used as a wind farm and could not achieve its highest and best use. If it is accepted that the foundations are fixtures, then it follows that the objective purpose of annexing the remainder of the AWF Assets to those foundations was to securely attach them to the ground for the benefit of the AWF Land.

212 The Valuer-General submitted that the degree of annexation is substantial, designed to withstand significant shear force. He relied on the evidence of Mr Petrovic, the structural engineer, which explained how the wind turbines were designed to harness wind energy. Based on Mr Petrovic's evidence that bolting is a common way of connecting structural elements, the Valuer-General submitted that the primary purpose of the bolts was to secure the turbines to their foundations, in order to produce electricity from wind, and not to ensure that they could later be removed. He argued that each of the above ground AWF Assets is an integral component of one interconnected, interdependent wind farm, by means of the underground cabling that connects the turbines to each other and to the substation. It was not to the point, he submitted, that the wind turbines could operate independently of each other.

213 I accept that the wind turbines and the other above ground AWF Assets are very firmly attached to their foundations, and that the foundations may be considered to be part of the land. I also accept that they have been securely fixed to the land in order to generate electricity using wind energy, as component parts of an interconnected wind farm. However, the evidence compels the conclusion that these assets were not attached to the land with the objective intention that they become part of it. There are a number of reasons why that is so:

(a) First, the planning permits require the removal of the above ground assets when the wind farm is decommissioned. The obligation to decommission the wind farm rests primarily with the wind farm operator but, in the absence of the operator, it falls to the relevant Land Owner to develop and implement the decommissioning plan.[127] The planning permits were in place before AWF Prop Co entered into the AWF Leases with the Land Owners, and before the wind farm was constructed. From the outset, the planning permission that enabled the development of the AWF Land as a wind farm required that the turbines and other above ground assets were not to be permanently affixed to the land.

(b) Second, the AWF Leases oblige AWF Prop Co to remove the above ground AWF Assets at the end of the lease. Before the wind farm was constructed, each of the Land Owners had agreed with AWF Prop Co that the foundations and access roads would remain, but that everything above ground must be removed when the lease ends.[128]

(c) Third, the AWF Assets were installed by AWF Prop Co at its own cost, in the order of $480,000,000. They appear on its assets register and in its financial statements.[129] They are part of the security provided for the $200,000,000 loaned by AWF's banks to fund the construction of the wind farm.[130] There is no suggestion that any of the Land Owners asserts ownership of the above ground AWF Assets on their land. To the contrary, in the AWF Leases, the Land Owners acknowledge the interest of AWF Prop Co's financiers, and agree if requested to enter into a 'Tripartite Deed' to protect the financiers' rights.[131]

(d) Fourth, the above ground AWF Assets are all designed and installed in such a way that they can be removed from the AWF Land without damaging either the land or the assets. This was confirmed by Mr Petrovic's report.

(e) Fifth, the design working life of the wind turbines is between 20 and 25 years, and 25 years for all other AWF Assets.[132] This corresponds with the term of the AWF Leases, and is a further indication that it was not intended to permanently affix the assets to the land.

(f) Sixth, the AWF Leases permit AWF Prop Co to 'erect maintain repair renew replace and use or remove' the turbines, the substation, and the wind monitoring masts during the lease term.[133] Mr Liddell's evidence was that, as the AWF Assets reach the end of their design lives, they would increasingly suffer from wear and tear and would require maintenance and, in some cases, replacement. Over time, it would become uneconomical to use the current AWF Assets. He said that exercising the option to extend the AWF Leases for a further 25 years would probably involve rebuilding the whole wind farm.

(g) Seventh, the above ground AWF Assets could, if removed, be redeployed at another wind farm site, or sold on the developing market for second-hand wind farm parts. While it is not possible to predict whether their value would exceed the cost of removing them from the AWF Land, I accept that they would have some residual value after removal.[134]

214 While land tenure may not be determinative of whether an asset remains a chattel or becomes a fixture,[135] I consider it to be significant in this case that the assets are on leased land. The AWF Assets were brought onto the land by a lessee, under terms of leases that require their removal on termination. Every indication is that the parties to the AWF Leases intended that the above ground AWF Assets would remain the property of AWF Prop Co, and would not become part of the land and hence the property of the Land Owners.

215 I have not overlooked that the valuers agreed that the highest and best use of the AWF Land was as a wind farm, and that the installation of the AWF Assets achieved that use. However, there was a subtle but important difference between Mr Brown's articulation of the highest and best use, and that of Mr Newman and Mr Molloy:

(a) Mr Brown's opinion was that 'the leasing of the land by the Lessee for a Wind Farm represents the highest and best use of the AWF Land'.[136] This was consistent with his approach of valuing the wind farm occupancies created by the AWF Leases, taking title rather than occupancy as his starting point. It also avoided the error of conflating ownership of the land with ownership of the AWF Assets.[137]

(b) Both Mr Newman and Mr Molloy took the view that the highest and best use of the AWF Land was as a wind farm,[138] and each assumed that the operator of the wind farm was the owner of the land. Hence, both of them hypothesised the sale of the AWF Land by a wind farm operator that owned both the land and the assets. As discussed, there were a number of flaws in this approach.[139] It also blurred the distinction between ownership of the AWF Land and ownership of the AWF Assets.

216 For these reasons, I find that the above ground AWF Assets are not fixtures and are not part of the land to be valued. The objective intention of the parties that they not be permanently affixed to the land displaces the presumption that they are fixtures.

217 For completeness, I note that my conclusion is consistent with that reached by the Australian Taxation Office, in two private binding rulings concerning wind farm assets located on leased land.[140] Both rulings were to the effect that the wind farm assets are not 'real property situated in Australia' or taxable real property for the purposes of s 855-20 of the Income Tax Assessment Act 1997 (Cth). In both rulings, it was significant that the lease terms required removal of the wind farm assets at the end of the lease.

Section 154A, Property Law Act

218 In the alternative, the applicants contended that, even if all of the AWF Assets are fixtures, the effect of s 154A of the Property Law Act is that the assets have not become part of the AWF Land. Section 154A provides:

Tenant may remove buildings and fixtures

(1) A tenant who at his or her own cost or expense has installed fixtures on, or renovated, altered or added to, a rented premises owns those fixtures, renovations, alterations or additions and may remove them before the relevant agreement terminates or during any extended period of possession of the premises, but not afterwards.

(2) A tenant who removes any fixtures, renovations, alterations or additions under subsection (1) must -

(a) restore the premises to the condition they were in immediately before the installation, renovation, alteration or addition, fair wear and tear excepted; or

(b) pay the landlord an amount equal to the reasonable cost of restoring the premises to that condition.

(3) This section does not apply to the extent that -

(a) the lease otherwise provides; or

(b) the landlord and the tenant otherwise agree.

219 Section 154A was inserted into the Property Law Act on the repeal of the former s 28(2) of the Landlord and Tenant Act 1958 (Vic).[141] That section provided:

If any tenant holding lands by virtue of any lease or agreement ... at his own cost and expense erects any building either detached or otherwise or erects or puts in any building fence engine machinery or fixtures for any purpose whatever (which are not erected or put in in pursuance of some obligation in that behalf) then, unless there is a provision to the contrary in the lease or agreement constituting the tenancy, all such buildings fences engines machinery or fixtures shall be the property of the tenant and shall be removable by him during his tenancy or during such further period of possession by him as he holds the premises but not afterwards; notwithstanding the same consist of separate buildings or that the same or any part thereof may be built in or permanently fixed to the soil; so as the tenant making any such removal does not in anywise injure the land or buildings belonging to the landlord or otherwise puts the same in like plight and condition or in as good plight and condition as the same were in before the erection of anything so removed.

220 Section 28(2) of the Landlord and Tenant Act was considered in Vopak Terminals Australia Pty Ltd v Commissioner of State Revenue,[142] in which there was a dispute about whether fixtures installed by a tenant were part of the land sold by the landlord. The Court of Appeal concluded that the intention of s 28(2) was 'to alter the consequences of the initial affixation of chattels by tenants', notwithstanding that this was 'a significant inroad into accepted principles relating to fixtures and the law of property'.[143] The effect of the section was that the tenant's fixtures had not become part of the realty owned by the landlord; since they remained the property of the tenant, there could not at the same time be property rights or title in the landlord.[144]

221 The operation of s 28(2) was further considered by the Court of Appeal in Uniqema, as an alternative basis for holding that the plant and equipment was not part of the land sold. The Court did not accept the appellant's invitation to depart from its earlier decision in Vopak; it considered itself bound to follow Vopak, given that the critical issue in each case was identical.[145] The arguments put for the appellant were dealt with in some detail:[146]

Counsel relied heavily on three matters. First, they said that the decision in Vopak meant that in Victoria alone, but nowhere else in Australia, tenant's fixtures do not form part of the realty and are "excised" from the title which a vendor can pass on transfer. Of course that is so, but the consequence follows from the fact that only in Victoria has there been a section passed in the unusual form which s 28(2) has taken: indeed there is no jurisdiction now in which a section like s 28(1), making similar provision for agricultural fixtures, is presently in operation. The unique effect of s 28(2) was not merely noted, but considered carefully: see especially [38]-[44] of Vopak. Secondly, it is said that, though it was conceded that the interpretation might lead to "unfortunate consequences in practice" (see [39]), those consequences were "wholly unexplored". The consequences on conveyancing practice were, on the contrary, considered briefly both at [39] and [44], but were not thought sufficient to lead to any different outcome. Fixtures, whether tenant's fixtures or otherwise, may well have an effect on what in practice can be transferred, but the Torrens system has found no easy solution. The rights of a tenant in possession are expressly recognised in s 42 of the Transfer of Land Act, but, whatever the correctness of Vopak, a purchaser will inevitably find it hard to divine whether attached chattels are fixtures or not. It may, under the Torrens system, have been desirable to confine the question to be asked to the "degree of annexation", as it is called, for the "object" and the other relevant circumstances, howsoever they be identified, are primarily known only to landlord and tenant. If Vopak be correct, purchasers will know that tenant's fixtures within s 28 are not capable of being transferred and so they should make special provision for them in any contract of sale.

Thirdly, it was reiterated by counsel that s 28(2) was intended only to deal with the relationship of landlord and tenant but was not intended to affect the landlord's estate or interest in the land nor to affect the landlord's dealings with third parties with respect to the title. I cannot accept that contention. Any change to the property rights of landlord and tenant vis-à-vis each other relating to fixtures will ordinarily have further consequences. To the extent that the tenant's rights are expanded, so also are the landlord's rights as proprietor of the land diminished. Even assuming that the section did no more than extend the tenant's time to take away the fixtures to the moment he or she actually gave up occupation, so also the landlord's power incidentally to transfer the fixtures as part of the real property was restricted. That which at common law forms part of the realty is extracted upon severance by the tenant, so that the landlord's practical rights in and over the land are diminished, as are those of any purchaser who takes subject to the rights of a tenant in possession. In other words the "right of removal", referred to by counsel, necessarily affects the interest of the holder of the reversionary estate in the land. The change effected by s 28(2) may have been greater than some thought, but the change was one which affected "property" in the fixtures. By permitting that property to remain with the tenant in unqualified form, that which the landlord could otherwise have claimed, particularly in his or her dealings with other parties, must, pursuant to the subsection, be treated as no greater than a right to claim those affixed chattels as part of the realty after the tenant has departed without removing them pursuant to his or her rights.

222 Section 154A of the Property Law Act was intended to replace s 28(2) of the Landlord and Tenant Act,[147] and to operate in a similar manner.[148] It is clear that Parliament intended s 154A to displace the common law of fixtures, as described by the Court of Appeal in Vopak and Uniqema. Although s 154A is expressed in more modern language than its predecessor, it has the same effect. Section 154A(3) replicates the proviso in the former s 28(2), 'unless there is a provision to the contrary in the lease or agreement constituting the tenancy'.

223 The Valuer-General made a number of submissions as to why, in this case, s 154A did not have the effect of excluding the AWF Assets from the land to be valued.

224 First, the Valuer-General submitted that s 2(1) of the Valuation of Land Act required the land to be valued as if it were unencumbered by the AWF Leases, and therefore unaffected by s 154A. He argued that, to the extent of any inconsistency, the Valuation of Land Act prevailed over s 154A of the Property Law Act, and the right of a tenant to remove fixtures. I cannot accept that submission, which appears to me to misunderstand the effect of s 154A. For the reasons explained by the Court of Appeal in Vopak and Uniqema, the effect of s 154A is that any fixtures installed by a tenant on rented property remain the personal property of the tenant, and do not become part of the realty owned by the landlord. This means that, even if the above ground AWF Assets are fixtures, they remain the property of AWF Prop Co, and do not form part of the AWF Land. Accordingly, they do not form part of the fee simple estate to be valued in accordance with the Valuation of Land Act.

225 Further, the effect of s 2(1) of the Valuation of Land Act is that the capital improved value of leased land is to be assessed in accordance with the Challenger principles, on the basis that the fee simple estate is not affected by any lease. As discussed above, it does not require the existence of a lease to be completely disregarded.[149] Equally, it does not alter the property interests of a lessor and a lessee, or somehow enlarge the lessor's interest in land for the purpose of assessing capital improved value.

226 Second, the Valuer-General submitted that s 154A does not apply to the AWF Assets because the AWF Leases 'otherwise provide', by stipulating that AWF Prop Co is not required to remove the foundations of the turbines and the access roads when the leases end.[150] He argued that this had the effect that, by virtue of s 154A(3), s 154A did not apply. The difficulty with this submission is that the AWF Leases do not provide, to any extent, that AWF Prop Co is not entitled to remove the AWF Assets - including the foundations and the roads - during the lease.[151] Agreeing that AWF Prop Co is not obliged to remove certain assets at the end of the lease is not the same thing as agreeing that they belong to the relevant Land Owner, or that they may not be removed before the end of the lease. Further, s 154A(3) excludes the application of s 154A only 'to the extent that' the lease otherwise provides or the landlord and tenant otherwise agree. Even if AWF Prop Co had agreed with the Land Owners that it could not remove the foundations and the roads, s 154A would not apply to that extent, but would still apply to the remaining AWF Assets.

227 Third, the Valuer-General sought to distinguish Vopak and Uniqema on the basis that they concerned liability for stamp duty under the Stamps Act 1958 (Vic), and did not concern the valuation of land for rating purposes, in accordance with the Valuation of Land Act. I do not agree that they can be distinguished on that basis. In Vopak and Uniqema, as in this case, the critical issue was whether the assets in question were part of the land, or remained the property of the tenant.

228 Finally, I understood the Valuer-General to submit that I should not follow Vopak and Uniqema because Ormiston JA's explanation of the effect of s 28(2) was obiter, or alternatively was not correct.[152] I cannot accept that submission. The critical passages in Vopak formed part of the ratio of that judgment, in that Court of Appeal held that the effect of s 28(2) was that the tenant's fixtures had not become part of the realty. In Uniqema, the application of s 28(2) was one of two grounds on which the Court of Appeal held that the plant and equipment were not part of the land that had been sold. The same applies in this case. I consider both Vopak and Uniqema to be binding authorities in relation to the effect of s 154A of the Property Law Act, and I can see no basis on which they can be distinguished in this case.

229 The effect of s 154A is that the AWF Assets do not form part of the AWF Land, and are not to be taken into account in assessing its capital improved value.

230 In his closing submissions, the Valuer-General developed an argument based on the concept of 'improvement' in the Valuation of Land Act. He submitted that, whether the AWF Assets were characterised as chattels or fixtures, they were nevertheless improvements to and on the land, and were therefore to be taken into account in assessing capital improved value. Referring to Griffith CJ's judgment in Morrison v Federal Commissioner of Land Tax,[153] the Valuer-General submitted that installation of the AWF Assets were 'an operation of man on land which has the effect of enhancing its value' and hence were improvements to the land.

231 This argument did not assist the Valuer-General's case, because it focused on the definition of 'improvement' for the purpose of assessing site value. The definition of capital improved value in s 2(1) of the Valuation of Land Act does not include the word 'improvement'. It is not necessary to identify the improvements to land in order to assess capital improved value; rather, it is the value of the unencumbered fee simple estate in the land that is to be valued. In order to do that, it was necessary to determine whether the AWF Assets - in particular the above ground assets - formed part of the fee simple estate. For the reasons I have already given, they do not. They are therefore not 'improvements' that must be ignored in assessing the site value of the land.

232 I accept the initial valuation of Mr Brown, in preference to the supplementary valuation of Mr Newman and the initial valuation of Mr Molloy. My reasons for doing so are, in summary:

(a) Mr Brown correctly identified the occupancies to be valued, being the wind farm occupancies on the titles of each of the Land Owners, created by the AWF Leases. Mr Newman and Mr Molloy instead valued the AWF Land as a single occupancy, taking occupancy rather than title as their starting point.[154]

(b) Mr Brown valued the AWF Land in accordance with the principles set out in Challenger, while Mr Newman and Mr Molloy did not.[155]

(c) Mr Brown assessed the capital improved value of the AWF Land on the basis that the above ground AWF Assets did not belong to the Land Owners and were not part of the land to be valued. Both Mr Newman and Mr Molloy proceeded on the incorrect assumption that the AWF Assets were fixtures and were to be taken into account in assessing capital improved value.[156]

Overall, the instructions on which Mr Brown based his valuation provided him with the correct legal framework for assessing the capital improved value of the AWF Land.

233 Both Mr Newman and Mr Molloy were asked by the Tribunal to prepare alternate valuations based on Mr Brown's instructions. Mr Newman declined to do so. Using the same method as Mr Brown, Mr Molloy's alternate valuation based on Mr Brown's assumptions was $21,500,000, with $20,100,000 apportioned to the wind farm within the Ararat municipality.[157] The reasons why this valuation was higher than Mr Brown's valuation of $10,850,000 are matters of valuer's judgment as to the period over which the ground rentals should be capitalised, and the residual value of the access roads.[158] I am unable to form a view as to which judgments are to be preferred on those two matters, and am reassured by the applicants' statement in opening that they do not seek to 'quibble about the detail at that level'.[159]

234 The applicants' appeal against the supplementary valuation of Mr Newman will therefore be allowed.

235 The parties should confer and seek to reach agreement on the form of orders to be made under s 25(1) of the Valuation of Land Act to give effect to these reasons. They should also seek to reach agreement on the question of the costs of the proceeding, having regard to the matters set out in s 26(2) of the Valuation of Land Act. In the event that these matters cannot be agreed, I will hear submissions about the form of the orders to be made, and on the question of costs, at a mutually convenient time in the new year.

Annexure 2 - Landowner boundary map (Northern Grampians Shire) with turbine locations

Annexure 2 - Landowner boundary map (Rural City of Ararat) with turbine locations

[1] Subsequently, by letter dated 12 May 2020, the Council advised the Court that it did not wish to take an active part in the proceeding.

[2] [2011] VSC 184; (2011) 34 VR 445, [80] (Challenger).

[3] The first image presents the land owner boundaries and wind farm turbine locations in the Northern Grampians Shire, and the second provides the same in the Rural City of Ararat, as of 2019.

[4] Where it is necessary to refer to a specific term of the AWF Leases, I will refer to the lease between AWF Prop Co and John Clare Stevens dated 26 June 2015 (Stevens lease).

[5] Fire Services Property Levy Act 2012 (Vic), s 7.

[7] Fire Services Levy Act, s 21(3)(a)-(b).

[8] Valuation of Land Act 1960 (Vic), s 9.

[9] Valuation of Land Act, s 2(1) - definition of 'valuation authority'.

[10] Mr Molloy prepared an alternate valuation for Scenario A based on several different assumptions, as set out at [142]-[147] below.

[11] See [175]-[179], [185]-[196] below.

[12] Valuation report of Geoffrey Brown, Sutherland Farrelly, 17 September 2019 (First Brown Report), [138].

[17] First Brown Report, [133]-[136].

[18] Discussed at [101]-[106] below.

[19] Outlined at [101]-[116] and [117]-[138] below.

[20] Supplementary valuation report of Geoffrey Brown, Sutherland Farrelly, dated 14 February 2020 (Second Brown Report), [74]-[79].

[26] That is, $10,850,000 for the entire 77.05 hectares of AWF Land, including the AWF Road Land and the AWF Cable Land. See, Transcript 278:5-19.

[27] Supplementary Valuation of Paul Newman dated 12 January 2018 (First Newman Valuation), [9].

[30] The phrase 'per megawatt' is shorthand for 'per installed megawatt capacity'.

[31] Valuation report of Paul Newman dated 7 February 2020 (Second Newman Valuation), [8.3].

[34] Valuation report of Peter Molloy, Property Dynamics dated 20 September 2019 (First Molloy Report), [2.3].

[45] Report of Peter Molloy, Property Dynamics dated 7 February 2020 (Second Molloy Report), 2.

[51] [2015] VSC 714; (2015) 213 LGERA 152 (Port of Melbourne).

[52] Port of Melbourne, [127], [135]-[137], [148].

[53] Fire Services Levy Act, s 19(1). Note also s 156(1) of the Local Government Act 1989 (Vic), which provides that the owner of land is liable to pay the rates and charges on that land.

[54] Fire Services Levy Act, s 25(1)(b).

[55] See [27] above.

[56] Fire Services Levy Act, ss 33, 35.

[57] Port of Melbourne, [103]-[104], [127], [137], [148]-[149].

[58] Applicants' closing submissions dated 24 August 2020, [37].

[60] R v The Dock Company at Kingston Upon Hull (1852) 118 QB 352; Mersey Docks and Harbour Board v The Overseers of Liverpool (1872) LR 7 QB 643; Sculcoates Union v The Dock Company at Kingston-Upon-Hull [1894] UKLawRpAC 60; [1895] AC 136; Melbourne Tramway & Omnibus Co Ltd v Fitzroy Corporation [1899] VicLawRp 76; (1899) 25 VLR 5; Esso Exploration & Production Australia Inc v Shire of Morwell [1986] VicRp 29; [1986] VR 289. These authorities were discussed in Port of Melbourne at [114]-[121]. See also Vicgrain Assets Pty Ltd v Hindmarsh City Council [1999] VSC 47, [59]-[61].

[61] Exhibit Y - Spreadsheet prepared by Mr Newman headed 'List of Property Owners Ararat Wind Farm'.

[62] Valuation of Land Act, s 2(1) - definition of 'estimated annual value'.

[63] [2011] VSC 184; (2011) 34 VR 445.

[64] [1997] 2 VR 615 (Shell).

[65] [2006] SASC 216; (2006) 95 SASR 338.

[66] [2007] SASC 340; (2007) 99 SASR 251 (Trust Co 2).

[67] [2008] SASC 169; (2008) 101 SASR 110 (Trust Co 2 FC).

[75] See, eg, Valuer-General Victoria written closing submissions dated 24 August 2020 (Valuer-General Victoria closing submissions), [49]-[63].

[77] Trust Co 2 FC, [58]-[59], [86]-[87] (Bleby J, Duggan and Anderson JJ agreeing).

[78] Valuation of Land Act, s 5A(3)(f).

[81] Trust Co 2 FC, [56]-[58] (Bleby J, Duggan and Anderson JJ agreeing).

[82] Challenger, [59]-[64], [66], [68]-[70], [75].

[87] Statement of Experts dated 16 March 2020 - Points of Disagreement - Interest in Land Being Valued.

[89] The Valuer-General referred me to Melbourne City Link v Teford Pty Ltd [2001] VSCA 54; (2001) 113 LGERA 102, [6]-[7] (Batt JA, Tadgell and Chernov JJA agreeing) as authority for the proposition that the value of an unencumbered fee simple estate in leased property is the sum of the lessee's interest and the lessor's interest in the property. In that case, the market value of the property was assessed by combining the present value of both the rent that would be paid during the balance of the lease term (lessee's interest) and the reversion at the end of the lease (the lessor's interest). That methodology was used to assess the compensation payable to the lessor for the compulsory acquisition of a property subject to a lease, under the _Land Acquisition and Compensation Act 198_6 (Vic). Since it was not the methodology employed by Mr Molloy or Mr Newman, the authority did not advance the Valuer-General's case.

[90] See [113]-[116] above. However, he did so in his alternate calculations of site value and capital improved value in his second valuation report: see [117]-[124] above.

[91] Statement of Experts dated 16 March 2020 - Points of Disagreement - Physical Improvements - Fixtures Vs Chattels.

[92] [2010] HCA 49; (2010) 241 CLR 576, [23] (TEC Desert).

[93] Segal v Osborne (2016) 18 BPR 36, [76].

[94] [2000] FCA 1458; (2000) 104 FCR 288, [10] (Blacker), approved in TEC Desert at [24].

[95] [2015] NSWCA 30; (2015) 317 ALR 202 (Agripower).

[96] Agripower, [76] (Sackville AJA, Bathurst CJ and Beazley P agreeing) citing Palumberi v Palumberi (1986) 4 BPR 9106 (Kearney J).

[97] Blacker, [13] (citations omitted); approved in Agripower, [79].

[98] Blacker, [14]; approved in Agripower, [80]-[81].

[100] Commissioner of State Revenue v Uniqema Pty Ltd [2004] VSCA 82; (2004) 9 VR 523, [47] (Ormiston JA, Phillips and Callaway JJA agreeing).

[102] [2010] VSC 221; (2010) 79 ATR 118.

[103] [1999] VSC 47.

[104] [1906] ArgusLawRp 114; [1906] VLR 723 (Love v Bloomfield).

[105] (1973) 47 ALJR 83.

[106] [2014] VCAT 1637 (AusNet).

[107] The exception was Love v Bloomfield, in which the lease had ended and the lessee had failed to remove various items of machinery, most of which were found to be fixtures.

[108] [2004] VSCA 82; (2004) 9 VR 523.

[109] Uniqema, [48] (Ormiston JA, Phillips and Callaway JJA agreeing).

[110] Uniqema, [48] (Ormiston JA, Phillips and Callaway JJA agreeing).

[111] [2003] NTCA 3; (2003) 16 NTLR 54 (Pegasus Gold).

[112] Pegasus Gold, [22] (Mildren J, Martin CJ and Thomas J agreeing).

[113] Pegasus Gold, [26] (Mildren J, Martin CJ and Thomas J agreeing).

[114] [2007] WASAT 302; (2007) 70 ATR 64 (Origin Energy).

[115] Origin Energy, [130]-[131].

[119] [2013] QSC 164 (Agripower v J&D).

[120] Agripower v J&D, [68]-[73].

[121] [2014] VCAT 1637.

[127] See [18]-[19] above.

[128] See [27] above.

[129] See [61]-[62] above.

[130] Statement of Stuart Liddell dated 30 July 2019, [48]-[53], SHL14-SHL19.

[131] See e.g. Stevens lease, cl 4.19 - Tripartite Deed.

[132] See [65] above.

[133] See e.g. Stevens lease, cl 7.4 - Development Area.

[134] Statement of Stuart Liddell dated 30 July 2019, [115]-[124]. While Mr Dalton queried the depth of the Australian market for second hard wind farm parts, he accepted that it existed and could be expected to mature over time. He also accepted that the Ararat Wind Farm had an incentive to sell the AWF Assets at the end of the lease to offset the mandatory removal costs. See transcript, 29 July 2020, T128:6-130:3.

[137] First Brown Report, [117]-[121]; Transcript, 30 July 2020, 244:8-25.

[138] First Newman Valuation, [3.9]; First Molloy Report, [4.4].

[139] See [170]-[175], [192]-[196] above.

[140] Private Binding Ruling 1012811534095, undated but issued in 2015 and cited in Private Binding Ruling 1051377156530, 28 May 2018, [48]; Private Binding Ruling 1012939775381, 24 February 2016.

[141] Consumer Affairs Legislation Amendment Act 2010 (Vic), s 41.

[142] [2004] VSCA 10; (2004) 12 VR 351 (Vopak).

[143] Vopak, [38] (Ormiston JA, Warren CJ and Buchanan JA agreeing).

[144] Vopak, [42] (Ormiston JA, Warren CJ and Buchanan JA agreeing).

[145] Uniqema, [51] (Ormiston JA, Phillips and Callaway JJA agreeing).

[146] Uniqema, [52]-[53] (Ormiston JA, Phillips and Callaway JJA agreeing). Citations omitted.

[147] Explanatory Memorandum for the Consumer Affairs Legislation Amendment Bill 2009, cl 41.

[148] Victoria, Parliamentary Debates, Legislative Assembly, 26 November 2009, 4330 (Mr Robinson, Minister for Consumer Affairs).

[149] See [186] above.

[150] See e.g. Stevens lease, cl 2.15 - Removal of Fixtures and Fittings.

[151] It is expressly agreed that AWF Prop Co may remove the access roads: see e.g. Stevens lease, cl 7.1(d).

[152] Valuer-General Victoria closing submissions, VGV Answer to question 3: 'To the extent that Ormiston JA expressed obiter dicta opinions in Vopak and Uniqema that the predecessor to section 154A means that "tenant's fixtures" are chattels, this dicta is not correct and/or distinguishable.'

[153] [1914] HCA 10; (1914) 17 CLR 498, 503.

[155] See [185]-[196] above.

[156] See [213]-[216], [229]-[233] above.

[158] See [142] above.