Chambers v Roads and Traffic Authority; Steven Chambers Pty Ltd v Roads and... [2005] NSWLEC 722 | Case summary

JUDGMENT Facts 1 Cowdroy J: In each of these proceedings the applicants claim compensation pursuant to the provision of the Land Acquisition (Just Terms Compensation) Act 1991 ("the Just Terms Act") in respect of the acquisition by the respondent of land known as 42 Sunnyholt Road, Blacktown. 2 In proceedings no 31221 of 2004, the applicants are Steven Chambers and Patricia Chambers who were the registered proprietors of lot 1 in Deposited Plan 659585 being the whole of the land in Certificate of Title Volume 8492 Folio 67 ("the subject land"). The subject land was compulsorily acquired pursuant to Notice of Compulsory Acquisition of Land published in the New South Wales Government Gazette on 18 June 2004. By Compensation Notice dated 16 July 2004 issued pursuant to s 42 of the Just Terms Act, the respondent notified the registered proprietors that the amount of compensation offered for the compulsory acquisition of the subject land and business was $1,550,000. Subsequently the respondent became aware that the business was owned not by Mr and Mrs Chambers but by the applicant in proceedings no 31607 of 2004. 3 In proceedings no 31607 of 2004 the applicant is Steven Chambers Pty Limited ("the company"). The company claims compensation as occupier of the subject lands pursuant to a lease or licence held with the former registered proprietors. The company operated the business of a liquor store in shop premises which were erected on part of the subject land ("the Blacktown store"). Following the acquisition of the subject lands, it relocated the business to a site approximately 400 m distant where it leased new premises for a term of two years and installed liquor store fit out. The company claims that the business failed to prosper and an amount of $1,430,850 is claimed by the company pursuant to s 37 of the Just Terms Act. The subject land 4 The subject land was a regular shaped allotment located on a crest of land at the intersection of Sunnyholt Road and Fifth Avenue at Blacktown. A liquor store was located on the subject land. The liquor store was in a prominent position and attracted passing traffic in all directions. The shop had been erected approximately 16 years prior to its acquisition and was purpose built, having approximately eight car-parking spaces, two of which were occupied by mobile ice storage cabinets. 5 The company had obtained a liquor licence to trade liquor at the Blacktown store from the previous owners who operated a Theo's Liquor store on the subject land. The land upon which the store was erected was zoned 5(b) Special Uses - Arterial Road and Arterial Road Widening pursuant to the Blacktown Local Environmental Plan 1988 ("the LEP"). The balance of the land acquired by the respondent, which principally comprised the carpark behind the building was zoned Residential 2(c) pursuant to the LEP. It is agreed that, but for the public purpose relating to the acquisition, the underlying zoning of that part of the acquired land zoned 5(b) would have been Residential 2(c). The acquisition by the respondent extended to the whole of the subject land. Construction of shop 6 The shop building was initially erected as a single storey brick structure pursuant to a building permit issued by Blacktown City Council ("the Council") on 2 February 1989. The plans show that the building had frontages to two streets with a champhered corner. The building also had windows on each street frontage. The internal height of the building is shown as 3 m on plans lodged with the Council. 7 In the course of construction of the building the internal height of the ceiling was raised from 3 m to 5.3 m. Subsequently an application was made to the Council to alter the building by the erection of a mezzanine level incorporating an office and amenities. The plans lodged with the application showed the proposed mezzanine area as well as a new doorway in the south-western corner. The plans showed the location of windows in the building which had been part of the original approval, but which in fact had been filled in with brickwork. 8 By Notice of Determination issued by the Council on 25 June 1991 approval was granted for the installation of the mezzanine level subject to conditions. On 23 April 1992 the Council's Health and Building Surveyor carried out an inspection of the shop building for the purposes of the issue of a certificate of compliance pursuant to s 317AE of the Local Government Act 1919. The inspection report dated 23 April 1992 reveals that certain matters required attention but none of them related to any matter relevant to the height of the building, the infilling of the windows or creation of an unauthorised doorway, nor of the construction of the mezzanine floor. The shop building remained in such state up to the date of acquisition. 9 Subsequent to the evidence of the town planners, on an adjourned hearing day (namely 1 December 2005), the applicants tendered a building certificate dated 19 November 1990 issued under s 317AE of the Local Government Act 1919 in respect of the subject land. Neither town planner had the opportunity to comment upon the building certificate. Signage 10 The exterior of a shop premises contains significant signage indicating the brands of liquor available at the store. The records of the Council show that an Application for License (sic) to Erect or Display an Advertising Structure or Permit for Advertisement was made on 19 October 1990 for flush wall signs carrying the wording "Sunnyholt Cellars", "parking" with arrow, and "Victoria Bitter" and logo. The dimensions of the sign were provided. The applications were made by Whiteway Neon Pty Limited with the permission of the proprietor of the business, namely Sunnyholt Cellars. By letter dated 23 November 1990 the Council approved the application and a licence was issued on 7 December 1990 for a fee of $35. 11 An application for a sign advertising "Sunnyholt Cellars/Logo Tooheys Draft" (described as sign A) and "Sunnyholt Cellars/Logo Tooheys Red" (sign B) was made in September 1990. By letter dated 10 September 1990 the Council approved sign B but postponed approval of sign A pending provision of a survey. Such letter states: Council now issues a licence for advertising based on a single fee equal to the yearly fee for the particular sites of advertising. It should be noted that no other fee is charged for the display of the approved sign/s. On 28 February 1991 Council issued approval for the advertising signs. 12 On 9 October 1992 further application made to the Council for the erection of three separate flush wall signs on the champhered corner, one described as "Resch's Real Bitter" (sign A), Theo's Liquor Markets (sign B) and Resch's Real Bitter (sign C). The dimensions were provided for each sign and the requisite fee was paid. By letter dated 26 November 1992 the Council approved the signage and on 16 December 1993 a licence was issued for this purpose and the approval for the other signs had expired. 13 On 20 July 1994 an application was made for a flush wall sign in the nature of a billboard advertising the word "Ice". By letter dated 1 October 1994 the Council approved such sign and the licence was issued on 20 April 1995. 14 It appears that only the two Resch's signs had Council approval at the date of acquisition. Town Planning Evidence 15 Mr George W Smith and Mr Anthony Rowan each of whom is a consultant town planner were retained by the applicants and respondent respectively. They have prepared a joint statement which limits the subject matters of contention to the physical conditions of the shop at the date of acquisition. 16 Mr Smith gave evidence that any discrepancies between the approved plans and the condition of the building extant at the date of the acquisition were insignificant. He considered that the infill to the windows, the additional ceiling height and the opening of the doorway were clearly known to the Council when it approved the installation of a mezzanine floor. On the mezzanine floor it appears that a kitchenette was installed when this is not clearly shown on the plans. With regard to all such departures from the plans, Mr Smith considered that a prudent purchaser would be advised to apply for a building certificate under the current Environmental Planning and Assessment Act 1979 ("the EP&A Act") which would have the effect of rendering such alterations lawful. He considered that any work that might be required would be arranged by negotiation with the Council's building inspector. Mr Smith said he was quite certain that a building certificate would issue for all of the discrepancies. Mr Smith considered that the alterations to the shop since its construction would not have materially affected the business. 17 Mr Rowan's opinions differed to those of Mr Smith. He considered that the unauthorised alterations to the shop would have had a beneficial effect upon the business. In particular, the provision of the kitchen and toilet on the mezzanine afforded further space on the ground floor for the purpose of the business and provided additional storage area. He said that the infill of the windows enabled the shelf area to be increased and that the increased height of the roof may have allowed for higher shelving. He observed that the Council had several continuing issues of non-compliance concerning the conditions of the operation of the business, but acknowledged that none of them specifically related to any alleged and authorised works. 18 As to unauthorised signage, Mr Smith considered the possibility that the signage on the building may have altered since its original approval. His examination of the files of Council led him to the conclusion that such files were incomplete. Further, he observed that although the licence fee was paid annually, he expressed the opinion that there was no time limit for the licence. He did not regard the existing signage as illegal and did not believe that there was any Council requirement which imposed restrictions on the type of signage which could be displayed. 19 Mr Rowan considered that the Council would take issue in respect of anything that changed the appearance of the building and that external signage was a very important matter for consideration. Mr Rowan regarded advertisements as highly important to the success of the business and considered that the Council would take action if unauthorised signage came to their attention. 20 In cross-examination Mr Rowan acknowledged that the building had been inspected by a building surveyor of the Council on 23 April 1992 for the purposes of the s 317AE Certificate and that despite such inspection, no action was taken by Council in respect of any matter then investigated. He also acknowledged that the Council file did not contain the application for such certificate nor copy of the certificate. Mr Rowan disagreed that the development approval granted in respect of the mezzanine floor superseded the original building approval for the shop premises because in the mezzanine application, the defects in the original building would not have been drawn to the Council's attention. 21 Mr Rowan considered that a prudent town planner would suggest to a prospective purchaser that the Council be notified of any discrepancies and that a building certificate be sought. With the regard to the signage, Mr Rowan considered that the Council would regard the subject lands as a sensitive site because of its prominent exposure and that the Council could require a reduction in the number of signs. The relocated business 22 Steven Chambers, a director of Steven Chambers Pty Limited testified that the company operated 16 stores throughout Sydney and the Western suburbs. He testified that in about 2003 promotional material for the Blacktown store was reduced. However, advertising for the chain generally was continued. Mr Chambers engaged a real estate to locate a substitute site for the business. Four sites were visited and found to be unsuitable, and approximately five other sites were considered but rejected. 23 In January 2004 the real estate agent located a former restaurant site, owned by McDonalds, but the rental was considered to be too high. Subsequently a greatly reduced rental was negotiated for a lease period of 2 years. However, there is no possibility of renewal of the lease term as the site is to be redeveloped. 24 The new premises are larger, and with a much larger, although shared, car park. Mr Chambers said that it had become apparent that, contrary to expectations, the proximity of the nearby McDonalds outlet was not beneficial, because their clientele were different. 25 Mr Chambers said the replacement building is "in a hole" with less exposure than the subject land. The McDonalds building and signs tend to obscure the new shop and the new location is not as prominent as that of the Blacktown store. 26 It is an agreed fact that the average weekly turnover of the Blacktown store was $44,461. At the new premises, the average weekly turnover is $35,000, and the business is operating at a loss. Valuation evidence Assessment of turnover 27 Mr John David Robertson, registered valuer, provided evidence for the applicant. Frank John Kelly, certified practising valuer, gave evidence for the respondent. The valuers agreed that the value of the business could be determined by the capitalisation method using the average weekly turnover of the business. 28 Mr Robertson said that in each of the proceedings the valuation turned on whether the average weekly turnover was $44,461 pw or should be discounted to $40,000 pw because of alleged unauthorised work to the building and the unapproved signage. 29 Mr Robertson used the actual turnover figure of $44,611 pw on the basis that in the buoyant market which existed at the time of acquisition, any irregularities in the building and signage would have little or no effect on the value of the business. 30 Mr Kelly adopts a notional turnover midway between the turnover at the acquired premises and the turnover at the new premises. He said that it was necessary to make a discount to take into account the illegal building and signage, and that a discount of approximately 10% was appropriate. Rental of Blacktown store 31 The company held no lease of the acquired premises. However, it is agreed that a rental is capable of estimation by assessing a hypothetical rent. 32 Mr Robertson said there were three methods which could be used to calculate rental. Firstly, it could be calculated as a percentage of annual turnover. Mr Robertson opined that in his experience, liquor store rental was usually between 4% and 5% of annual turnover. The second method is to take a percentage of the nett operating profit, usually around 30%. The third method is the calculation of rent per m2 of the business. 33 Having considered each of these methods, Mr Robertson selected a figure of $100,000 as the annual rental, being slightly in excess of 4% of the annual turnover. 34 Mr Kelly adopted a rate of 4% of annual turnover in arriving at the annual rental. To reach this assessment he relied upon data published by the University of New England, Financial Management Research Centre, which showed that that average rental for liquor stores with an annual turnover of more than $1m is 2.62%. The rental for liquor stores with an annual turnover of less than $1m is 4.21%. The company's business has a turnover of more than $1m. However, because it was located in a metropolitan area, Mr Kelly considered a higher figure was appropriate. He accordingly adopted a figure of 4%. Mr Kelly applied this figure to his adjusted turnover of $40,000 pw, to arrive at an annual rental of $83,200. Valuation of the real estate 35 Based upon the capitalisation method (that is, by capitalising the annual rental), the valuation of the real estate, according to Mr Kelly's estimate of turnover, was $1,188,571. Mr Kelly arrived at $1,101,014 using the summation method. Using his judgment, Mr Kelly selected an amount of $1,125,000 between these two figures. 36 Mr Robertson did not accept that a hypothetical purchaser would be aware of any unauthorised work having been carried out at the premises, but said that if they were, then a purchaser would simply make an application for a building certificate. He rejected the submission that a purchaser would require production of the consents granted for the building. Mr Robertson has specialised in such sales for 25 years, and said that in his experience, signage is not an issue with sales and purchasers of businesses in the liquor industry. If it were otherwise, such sales would "grind to a halt". A purchaser would not ignore information concerning signage, but in practice issues of signage were considered by Mr Robertson to be unimportant. 37 Mr Robertson said that if the signs were unauthorised, a prospective purchaser might make enquiries of the Council or attempt to negotiate a reduction in the purchase price. However in a buoyant market, vendors would not make a reduction in turnover. He said that the suggested 10% was an enormous adjustment which would significantly depress the value of the business. 38 For any irregularities in the building and signage, a discount of $100,000 would be appropriate. For signage only, Mr Robertson considered that the allowance would be less than $50,000. Since the Council had inspected the premises in 1995 and found no problem other than a chain wire fence, Mr Robertson considered that a building certificate would issue readily. He denied that such allowance under-estimated the value of signage to the business. Findings Town planning issues 39 The shop building when originally constructed, was not built in accordance with the plans lodged with the Council. The departures are in relation to the internal roof height, the infilling of the windows to the two street frontages and the opening of the doorway to the south-west. However, on 19 November 1990 the Council issued a certificate under s 317AE of the Local Government Act 1919, the effect of which was to preclude Council from making any order for rectification of the building. A note was made on the certificate that there some matters which may require rectification and that a notice would be served in respect thereof. There is no evidence that any notice was served as indicated on the certificate. It appears that some correspondence subsequently ensued between the Council and the registered proprietors concerning minor issues not related to the building, which appear to have been thereafter resolved. 40 Accordingly the Court considers that at the time the mezzanine was approved, the building as constructed had received the approval of Council, which was satisfied that it complied with the relevant statutory planning requirements. 41 The signage on the building was extensive and several applications had been made and approved for the erection of signage. Although some of those signs have been changed or the approvals have expired, there is no evidence that Council required the removal of any of the signs on the building nor intended to take action in respect of them. Further, the Council records do not suggest that Council was concerned with any alteration to the signage having taken place. 42 The Court accepts that external signage may contribute to the profitability of the business. However the history of signage approvals by the Council suggests that the Council would have approved further signs or a continuation of the existing signs, had approval been sought. 43 The Court finds that there is general unanimity between the expert town planners concerning the advice which they would give to a prudent purchaser, being that to ensure that the business operated lawfully, an application should be made to the Council for a building certificate in respect of the signage. The Court accepts the evidence of Mr Smith that the chance that the Council would require removal of the signs was negligible. 44 The circumstances in the present proceedings are distinguishable from those before the Court in the matter of Doueihi & Anor v Roads & Traffic Authority of NSW [2005] NSWCA 201. In those proceedings, the applicants conducted a business on the premises for which approval had not been obtained. In the present proceedings, the use of the premises as a liquor store had received approval, as well as the internal alterations and some signage. Any discrepancies in signage would not render the use of the subject land as a liquor store unlawful. Turnover 45 The agreed average weekly turnover of the business is $44,461. In view of the s 317AE certificate and the findings of the Court concerning signage, the Court is satisfied that at deduction of the magnitude allowed by Mr Kelly is not warranted. The Court finds that, at the time of acquisition, the market for liquor shops was buoyant and that little weight would have been given to the issue of signage by a prospective purchaser. Mr Robertson agreed that at most an amount of less than $50,000 might be deducted from the overall purchase price because of the signage, if a purchaser was aware of it. In these circumstances the Court considers that a turnover of $44,461 should be the basis for the calculation of the value of the business and of the real estate, but a deduction of $25,000 should be made from the total business value for the impact of any unauthorised signage. 46 The valuers have agreed the basis on which the business value should be ascertained, after the turnover is determined. Accordingly, the Court adopts Mr Robertson's figure for the value of the business, being $925,000 from which $25,000 is to be deducted. Rental 47 Based on the average weekly turnover of $44,461, a percentage of 4% would result in an annual rental of $92,478. This percentage, suggested by Mr Kelly, is within the range considered appropriate by Mr Robertson for a liquor shop in this locality. The Court considers that a weekly rental calculated at the rate of 4% of the average weekly turnover is appropriate. Value of land 48 The valuers dispute the basis on which the land should be valued. Mr Robertson has undertaken a valuation solely based upon the capitalisation of the rental value, whereas Mr Kelly used both the capitalisation method and the summation method. Mr Kelly considered that the value of the land would be reduced since the liquor licence added value to it but was not part of the valuation exercise. 49 None of the reports prepared for the hearing referred to the reasons for the reduction, and the issue was not addressed by Mr Robertson. The oral evidence of Mr Kelly on this point was limited, and arose only in cross-examination. No re-examination on this issue occurred. In these circumstances, the Court does not consider that there is sufficient evidence to justify a reduction in the value of the land on this basis. 50 Accordingly, based upon the capitalisation method of 4% of the annual turnover, the value of the land is $1,321,114.28. To this amount, the sum of $5,850 must be added for disturbance, giving an overall valuation for the real estate of $1,326,964.28. Claim for relocation costs 51 The company has claimed an amount of $237,209 representing the costs of attempting to relocate the business. The respondent opposes such claim on the basis that, since the company is being compensated for the value of its business on an extinguishment basis, it is not also entitled to claim costs of relocation. 52 Section 59 of the Just Terms Act relevantly provides:- In this Act: loss attributable to disturbance of land means any of the following: … (f) any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition. 53 In Commissioner of Highways v Shipp Bros Pty Ltd (1978) 19 SASR 215, Wells J, considering different legislative provisions, referred to the principles to be applied where resumption of land results in the destruction of a business conducted on the land. His Honour stated (at 232): Obviously, expenses of a proposed relocation that would clearly and substantially exceed the value of the business as a whole (less moveables) cannot fairly be described as reasonably consequent upon an acquisition. An excess of that kind and degree, however, remains but a circumstance to be considered with others as material by reference to which a court must resolve a question: Is it or is it not reasonable to re-establish? See also Director of Buildings and Lands v Shun Fung Ironworks Ltd [1995] 2 AC 111 at 127. 54 Only after the commencement of the hearing did the parties agree that the business could not be permanently relocated without incurring costs substantially in excess of its value. Accordingly the respondent has agreed to pay compensation on an extinguishment basis. However, the applicant initially attempted to relocate its business, moving it temporarily to other premises in the area. 55 The costs of relocation claimed are: Legal costs $11,418.51 Costs of fitting out new premises $110,957.00 Costs to move the business $21,616.00 Cost of new signage $10,350.00 Council fees associated with development approval $5,587.00 Consultant 1,870.00 Application cost to Liquor Administration Board for transfer of licence $500.00 Loss on trading of business in new location - loss annualised (for one year) $5,071.00 Store Manager's wages since opening new store $69,840.00

Chambers v Roads and Traffic Authority; Steven Chambers Pty Ltd v Roads and Traffic Authority

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Judgment (16 paragraphs)

Cases Cited (2)