Bronzel v State Planning Authority

Land and Environment Court (NSW)|2009-03-24

CITATION : Graham Trilby Pty Ltd -v - Valuer Genera [2009] NSWLEC 1087

APPLICANT Graham Trilby Pty Ltd PARTIES : RESPONDENT Valuer General

KEY ISSUES: VALUATION OF LAND :- Land Value; Use of Hypothetical Development Method

Bronzel v State Planning Authority (1979) 44 LGRA 34 Cienda Pty Ltd v South Australian Urban Land Trust (1988) 66 LGRA 360 CASES CITED: Graham Trilby Pty Limited v Valuer General [2008] NSWLEC 217 Gwynvill Properties Pty Ltd v Commissioner for Main Roads (1983) 50 LGRA 322 Jessica Investments Pty Ltd v Valuer General [2008] NSWLEC 1375

DATES OF HEARING: 2nd, 3rd and 23rd December 2008

APPLICANT Mr I Hemmings, Barrister Instructed by Ms Peatman, Solicitor of Hunt & Hunt LEGAL REPRESENTATIVES:

RESPONDENT Ms A Pearman, Barrister Instructed by Ms Gordon and Ms Anthoney, Solicitors of Valuer General

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

30425 of 2008 Graham Trilby Pty Ltd v Valuer General

JUDGMENT 1 This is an appeal by Graham Trilby Pty Ltd (the Applicant), under Section 37 of the Valuation of Land Act 1916 (the Act), against the land value assessed by the Valuer General (the Respondent) in respect of the property known as Lot 161, Cattai Creek Drive, Kellyville (the subject property). Background 2 The land value (both residential and open space) and section 14(L) allowance for the subject property at 1st July 2006 (the base date) was assessed by the Valuer General at $14,500,000 and by Graham Trilby Pty Ltd at $9,440,000.

3 Prior to the hearing, the parties agreed that the land value of open space as at the base date was $2,639,880 and that the section 14(L) allowance was $702,197.

4 Prior to the hearing, the Valuer General revised the assessment of residential land value to $10,200,000 and Graham Trilby Pty Ltd revised the assessment of residential land value to $8,200,000, as at the base date.

5 The matter was not subject to mediation under Section 34 of the Land and Environment Court Act 1979.

6 The matter was the subject of an on site inspection on 2nd December 2008, followed by a hearing in Court on 3rd and 23rd December 2008.

7 Mr Hemmings, Barrister, represented Graham Trilby Pty Ltd, instructed by Ms Peatman, Solicitor of Hunt and Hunt.

8 Ms Pearman, Barrister, represented the Valuer General, instructed by Ms Gordon and Ms Anthoney, Solicitors of the Valuer General.

9 Section 40(2) of the Act states: "On an appeal, the appellant has the onus of proving the appellant's case." The subject property 10 The subject property is located off Cattai Creek Drive in Kellyville, being adjacent to areas of established low density residential development, rural residential development and natural bushland.

11 It is a large, irregularly shaped, vacant block comprising areas of relatively flat, mildly sloping and steeply sloping natural bushland with varying levels of timber and vegetation cover and extensive sandstone rock shelves and outcrops, having an area of 16.48 hectares.

12 It is zoned Residential 2(b) (being an area, agreed by the parties, of 76,804sqm - the subject property residential land) and Open Space 6(a) (being an area, agreed by the parties, of 87,996sqm) in the Baulkham Hills Local Environmental Plan 2005. An objective of the Residential 2(b) zoning is to identify residential areas of a predominantly single dwelling, low density character.

13 The highest and best use for that part of the subject property residential land zoned Residential 2(b) is, therefore, sub-division into low density, single dwelling blocks.

14 The subject property comprises Lot 161 in Deposited Plan 1007387. The evidence 15 Mr Juniper, giving expert valuation evidence on behalf of the Applicant, adopted a residual land value analysis based on a hypothetical subdivision of the subject property residential land, contending an absence of any suitable sales evidence in respect of reasonably comparable en globo residential land upon which reasonable reliance could be placed.

16 Mr Maundrel, giving expert valuation evidence on behalf of the Respondent, considered the direct comparison of sales evidence to be the most reliable method of valuation, carrying out an hypothetical subdivision development exercise as a check method.

17 Mr Juniper and Mr Maundrell submitted one common comparable sale of en globo land for view being 999 Ben Bullen Way, Castle Hill (Respondent Sale No 5).

18 Mr Juniper submitted no further comparable sales of en globo land for view.

19 Mr Maundrell submitted eight further comparable sales of en globo land for view, being: 3 Balmoral Road, Kellyville (Respondent Sale No 1); 20 and 22 Burns Road, Kellyville (Respondent Sale No 2); 4 Fairway Drive, Kellyville (Respondent Sale No 3); 96 Tuckwell Road, Castle Hill (Respondent Sale No 4); Lot 27, Fyfe Road, Kellyville Ridge (Respondent Sale No 6); Annfield Street, Kellyville Ridge (Respondent Sale No 7); 90 (Lot 30) and 87 (Lot 42) Fyfe Road, Kellyville Ridge (Respondent Sale No 8); and 78 Fyfe Road, Kellyville Ridge (Respondent Sale No 9).

Consideration of the evidence 20 Having regard to time, location, area, shape, zoning and the impact of topography on development costs, the nine comparable sales of en globo land submitted for view may be compared with the subject property residential land as follows.

21 3 Balmoral Road, Kellyville (Respondent Sale No 1) sold within eighteen months of the base date, being of a comparable location situated in Kellyville. However, the site is considerably smaller than the subject property residential land, regular in shape, zoned to permit higher density development and of superior topography, being a steadily falling slope likely to result in lower development costs. Having regard to the very limited comparability of this sale to the subject property residential land, I consider the sale to be of limited relevance.

22 20 and 22 Burns Road, Kellyville (Respondent Sale No 2) sold within thirteen months of the base date, being of a comparable location situated in Kellyville. However, the site is smaller than the subject property residential land, regular in shape, zoned to permit higher density development and of superior topography, being relatively flat and so likely to result in considerably lower development costs. Having regard to the very limited comparability of this sale to the subject property residential land, I consider the sale to be of limited relevance.

23 4 Fairway Drive, Kellyville (Respondent Sale No 3) sold within seventeen months of the base date, being of a comparable location situated in Kellyville, of a comparable zoning and relatively regular in shape. However, the site is considerably smaller than the subject property residential land and of superior topography, being relatively flat and so likely to result in considerably lower development costs. Having regard to the very limited comparability of this sale to the subject property residential land, I consider the sale to be of limited relevance.

24 96 Tuckwell Road, Castle Hill (Respondent Sale No 4) sold within eight months of the base date, being of a comparable zoning to the subject property residential land. However, the site is of a superior location being located in Castle Hill, regular in shape, considerably smaller than the subject property residential land and of superior topography, being gently sloping and so likely to result in considerably lower development costs. Having regard to the very limited comparability of this sale to the subject property residential land, I consider the sale to be of limited relevance.

25 999 Ben Bullen Way, Castle Hill (Respondent Sale No 5) sold within four months of the base date, being of a comparable zoning to the subject property residential land. However, the site is of a superior location being located in Castle Hill, regular in shape, considerably smaller than the subject property residential land and of superior topography, being partially flat and so likely to result in lower development costs. Having regard to the very limited comparability of this sale to the subject property residential land, I consider the sale to be of limited relevance.

26 Lot 27, Fyfe Road, Kellyville Ridge (Respondent Sale No 6) sold within thirteen months of the base date. However, the site is of an inferior location being situated in Kellyville Ridge, considerably smaller than the subject property residential land, regular in shape, zoned to permit higher density development and of superior topography, being undulating and so likely to result in lower development costs. Having regard to the very limited comparability of this sale to the subject property residential land, I consider the sale to be of limited relevance.

27 Annfield Street, Kellyville Ridge (Respondent Sale No 7) sold within twelve months of the base date, being a larger site like the subject property residential land and of a comparable shape being irregular. Being undulating and so likely to result in lower development costs, the site benefits from superior topography and is zoned to permit higher density development but is of an inferior location than the subject property residential land being situated in Kellyville Ridge. Having regard to the limited comparability of this sale to the subject property residential land, I consider it to be an indirectly relevant comparable sale.

28 90 (Lot 30) and 87 (Lot 42) Fyfe Road, Kellyville Ridge (Respondent Sale No 8) sold within nine months of the base date. However, the site is of an inferior location being situated in Kellyville Ridge, smaller than the subject property residential land, regular in shape, zoned to permit higher density development and of superior topography, being undulating and so likely to result in lower development costs. Having regard to the very limited comparability of this sale to the subject property residential land, I consider the sale to be of limited relevance.

29 78 Fyfe Road, Kellyville Ridge (Respondent Sale No 9) sold within six months of the base date. However, the site is of an inferior location being situated in Kellyville Ridge, considerably smaller than the subject property residential land, regular in shape, zoned to permit higher density development and of superior topography, being relatively flat and so likely to result in considerably lower development costs. Having regard to the very limited comparability of this sale to the subject property residential land, I consider the sale to be of limited relevance.

30 I consider none of the comparable sales to be directly relevant comparable sales.

31 I consider the comparable sale at Annfield Street, Kellyville Ridge (Respondent Sale No 7) to be an indirectly relevant comparable sale.

32 I consider the following comparable sales to be of limited relevance: 3 Balmoral Road, Kellyville (Respondent Sale No 1); 20 and 22 Burns Road, Kellyville (Respondent Sale No 2); 4 Fairway Drive, Kellyville (Respondent Sale No 3); 96 Tuckwell Road, Castle Hill (Respondent Sale No 4); 999 Ben Bullen Way, Castle Hill (Respondent Sale No 5); Lot 27, Fyfe Road, Kellyville Ridge (Respondent Sale No 6); 90 (Lot 30) and 87 (Lot 42) Fyfe Road, Kellyville Ridge (Respondent Sale No 8); and 78 Fyfe Road, Kellyville Ridge (Respondent Sale No 9). 33 I note that Mr Maundrell analysed the indirectly relevant comparable sale at Annfield Street, Kellyville Ridge (Respondent Sale No 7) to deduce a rate of $192.53psm including public open space, equating to $212.56psm excluding public open space.

34 Mr Maundrell then adjusted the comparable sale evidence by 25% to reflect time, location/suburb, size, shape and constraints to produce $144psm including public open space, equating to $159.42psm excluding public open space.

35 Accepted valuation practice permits both explicit and implicit adjustment for differences, such as in location, area and time, to enable valuers to have evidentiary comparable values which, following adjustment, account for the various differences with the subject property residential land. Such adjustment is generally based on a reasoning process drawing on the skill and experience of the valuer and undertaken to derive an opinion of value through a process of working forwards (Jessica Investments Pty Ltd v Valuer General [2008] NSWLEC 1375 at 6) rather than a process of working backwards to justify an opinion of value previously formed.

36 Because properties are rarely identical, explicit and/or implicit adjustment for differences is obviously necessary but caution is required through making as few adjustments as possible, in a consistent manner, to ensure the reliability of the comparable sale when related to the subject property residential land, with too much adjustment potentially rendering the comparable sale unsafe to use. Caution is, therefore, required where large explicit and/or implicit adjustments are required, with particular caution required for large implicit adjustments.

37 Mr Maundrell confirmed that the adjustment of 25% was an implicit, single figure adjustment based on experience, rather than an explicit adjustment based on a series of specific adjustments for individual differences. Such an implicit, single figure adjustment does not expose the reasoning process underlying the selection of 25% as the appropriate adjustment.

38 Mr Maundrell did not clearly confirm that the adjustment of 25% was not determined through a process of working backwards to justify an opinion of value previously formed, rather than working forwards to derive an opinion of value.

39 Mr Maundrell considered $144psm to be at the upper end of the range of value for the subject property residential land, with $135psm as the lower end of the range and adopted a rate of $135psm reflecting that the valuation was for rating and taxing purposes.

40 Effectively, Mr Maundrell appears to have simply asserted the land value (Jessica Investments Pty Ltd v Valuer General [2008] NSWLEC 1375 at 6).

41 It is well recognized that, if comparable sales are available, the direct comparison of sales evidence approach is the conventional method of valuation. However, given the absence of directly comparable sales, the provision of only one indirectly relevant comparable sale for consideration and the absence of a transparent rationale for the level of adjustment made, I concur with the Applicant and consider that reasonable reliance cannot be placed on the use of the direct comparison of sales evidence approach to valuation for the subject property residential land in this case.

42 Reflecting the very limited availability of relevant comparable sales evidence, the use of the hypothetical development method of valuation may be appropriate in this case (Gwynvill Properties Pty Ltd v Commissioner for Main Roads (1983) 50 LGRA 322).

43 I note that evidence was tendered comprising a joint statement by Mr Maundrell and Mr Juniper of the valuation of the subject property residential land using the hypothetical development method. Based on a specified range of assumptions, I note that the upper end of the range of valuation was $9.07m to $9.51m (being a margin of 4.8%) and that the lower end of the range was $8.20m to $8.72m (being a margin of 6.3%).

44 Despite the large number of variables for assumption within the hypothetical development method of valuation, Mr Maundrell and Mr Juniper appear to have been able to agree all except the number of lots, gross realization and appropriate allowance for profit and risk. I consider that the extent of agreement between Mr Maundrell and Mr Juniper, or certainty of assumptions concerning variables, enhances the prospects of the hypothetical development method of valuation being reliable and safe in this case (Cienda Pty Ltd v South Australian Urban Land Trust (1988) 66 LGRA 360 at 362). This has lead to their respective valuations under the specified range of assumptions being relatively close and within bounds that are not unreasonable (Bronzel v State Planning Authority (1979) 44 LGRA 34 at 516).

45 Mr Maundrell adopted 51 lots, a gross realization of $21,830,000 and an allowance of 15% for profit and risk, deriving a valuation of $9,510,000 based on the hypothetical development method. This may be compared to Mr Maundrell's valuation of $10,200,000 based on the direct comparison of sales evidence approach.

46 As a matter of general valuation principle, alternative methods of valuation when correctly applied may be expected to result in assessments of value that are broadly similar (Jessica Investments Pty Ltd v Valuer General [2008] NSWLEC 1375 at 28). In the event of a significant difference arising in valuations determined using different methods, it is usually appropriate to endeavour to ascertain the cause of such difference which may be attributable to a range of issues including inconsistent assumptions or inappropriate judgments. 47 I note with interest that Mr Maundrell adopted two approaches to valuation and derived different valuations. Mr Maundrell favoured the direct comparison of sales evidence approach leading to the valuation of $10,200,000 but was not invited in evidence to reconcile this with the $9,510,000 valuation determined using the hypothetical development method of valuation.

48 I note that the difference in Mr Maundrell's valuations is in the order of 7.3% which I consider relatively minor given the limitations of the application of the direct comparison of sales evidence approach considered above.

49 Mr Juniper adopted 45 lots, a gross realization of $19,250,000 and an allowance of 17.5% for profit and risk, deriving a valuation of $8,200,000 based on the hypothetical development method.

50 I note that there was limited consideration in evidence of the issue of the appropriate level of profit and risk to be used within the hypothetical development method.

51 In the joint statement of the valuation of the subject property residential land using the hypothetical development method submitted, Mr Maundrell adopted 15% and Mr Juniper adopted 17.5% for profit and risk.

52 I note that, in Mr Juniper's valuation report dated 7th November 2008 and tendered as evidence, an allowance of 20% was made for profit and risk "based on enquiries/discussion with participants in the property development having regard to the size and nature of the proposed subdivision, together with the very subdued residential property market prevailing in July 2006".

53 Reflecting the relative complexity of development of a parcel of land of the nature of the subject property residential land, I consider that a higher allowance for profit and risk is appropriate.

54 Concerning lot yield, I note that in the joint planners report dated 29th October 2007, tendered as evidence, the Respondent's expert considered that a lot yield of 54 lots was readily achievable and that the Applicant's expert considered the likely lot yield to be 48, with a maximum lot yield of 50.

55 I note that both parties agree that three lots would be lost as a reserve for flora conservation.

56 I note that this results in the Respondent adopting 51 lots and the Applicant adopting 45 lots, being the lower end of the Applicants range that could extend to 47 lots.

57 In Court, Mr Juradowitch, an expert planner, illustrated the complexity and uncertainty associated with the prospect of seeking consent for a higher number of lots on the subject property residential land.

58 Given such complexity and uncertainty, I consider the more conservative approach adopted by the Applicant to be appropriate leading to the adoption of 45 lots for the purposes of the hypothetical development method of valuation.

59 I note that there was limited consideration in evidence of the issue of the appropriate gross realisation to be used within the hypothetical development method of valuation.

60 In the joint statement of the valuation of the subject property residential land using the hypothetical development method submitted, I note that the parties appeared to have agreed on the impact of issues including asset protection zones and lot sizes, with the gross realization adopted on the basis of 45 lots equating to an average per lot of $432,222 for Mr Maundrell and $427,778 for Mr Juniper, being within a very narrow range of only approximately 1.0%.

61 Given the remarkably fine margin between the respective expert valuer's average per lot gross realization, I consider that a detailed consideration of comparable sales for gross realization may not further assist and so adopt the very marginally more conservative approach of the Applicant. Findings 62 I consider a profit and risk allowance of 17.5%, a lot yield of 45 lots and a gross realization of $19,250,000 to be appropriate.

63 Based on the joint statement of the valuation of the subject property residential land using the hypothetical development method submitted, I note that this results in a valuation of the residential land of $8,200,000.

64 Having regard to the land value for open space previously agreed between the parties of $2,639,880, I note that this results in a valuation of the subject property of $10,839,880.

65 Having regard to the evidence tendered, the cross examination and the summation presented, I consider that Mr Juniper presented an approach to the valuation of the subject property sufficient to prove the Applicant's case as required by section 40(2) of the Act. Orders 66 The orders of the Court: (i) The appeal is upheld. (ii) The land value as at the base date of 1st July 2006 for the property at Lot 161, Cattai Creek Drive, Kellyville is $10,839,880. (iii) The allowance under section 14(L) is $702,197. (iv) No order is made as to costs. (v) The exhibits be retained.

Dr David Parker Acting Commissioner of the Court ljr

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

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Judgment (71 paragraphs)

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Cases Cited (2)

Cited By (7)