1. Mr Flannery also added a residential value derived in a similar manner, but he obtained his estimate of the value of the commercial component by analysing comparable sales and attributing different values to ground floor uses as compared with first and second floor uses. In addition, he allowed for the demolition of the existing buildings, the removal of asbestos and the decontamination of the site.

2. Mr McInerney valued the additional residential use at $1,400,000 for an additional 14 residential units (at $100,000 each). Mr Flannery valued the additional residential use at $1,260,000 for an additional 14 residential units (at $90,000 each). The only difference between the two valuers in this element was the value per unit that they derived. The Tribunal will consider their analyses below. The main difference in their After Values arises from their valuations of the commercial components. The Tribunal will first consider the residential component values.

1. In determining the value of adding residential to the purpose clause, Mr Flannery relied on a sketch design for a mixed-use development prepared by Mr Dunstone, which assumed that the ground floor would remain commercial shopfront, and the first and second floors would be used for offices, while the third and fourth floors would be used for residential units. His design took into account the relevant provisions of the CCD Code and the MUHD Code and provided for three levels of basement car parking and access thereto and he also allowed for lifts and for circulation space. This resulted in the third floor being 765m2 and the fourth floor 489m2, equalling the additional 1,254 m2 GFA allowable as a result of residential use. He hypothesised a layout comprising14 units (12 one-bedroom and 2 two-bedroom) ranging from 63m2 to 108m2 in floor area.

2. As already noted, both valuers adopted this 14 unit design as the basis for their valuation (although it is not the only option that might have been considered as discussed below). This shows an average GFA of 89.5m2 per unit (GFA includes circulation space as opposed to Gross Lettable Area which excludes circulation). This GFA per unit is, in the Tribunal's view, comparable to the average GFA of one and two bedroom units in recent inner north Canberra developments.

Mr McInerney's Estimate of the Residential Component Value

In determining the value of the residential component, Mr McInerney initially relied on a number of sales [identified in his Valuation Report (T18 - T35) and his first witness statement (Exhibit 16) as Sales 4, 7, 9, 10, 11 and 12] which were analysed as follows.

Sale 4 was of Blocks 1 & 2, Section 21, Braddon which are adjoining blocks on the corner of Torrens and Girrawheen Streets, with a combined area of 2,293 m2. The purpose clauses of these blocks were at the time limited to offices only (Block1) or office and professional suites only (Block 2) with a 2:1 plot ratio, but DA 201017831 has been approved allowing 50 residential units on the combined site together with 405m2 of non-retail commercial use. Because these blocks are in a CZ2 Business Zone, they remain subject to a 2:1 plot ratio, hence the allowable GFA is 4,586 m2. Mr McInerney considered the property inferior to the subject property in its present situation because it was further from the CBD and was limited to office use. The block was sold in March 2010 for $5,000,000. Mr McInerney allowed $100,000 for demolition of the existing buildings, adjusting the sale price to $5,100,000, and after allowing $1,482/m2 GFA for the 405m2 commercial space ($600,210) he divided the balance ($4,499,790) by the 50 units to come up with a value of $90,000 per unit. He contended that this sale readily supported the $100,000 he had adopted in the residential component of the After Value of the subject property, noting that the latter had a significantly smaller number of residential units. However, he did not explain how he had arrived at the figure of $1,482/m2 for the commercial space.

Sale 7 was of Blocks 4/6, Section 45, Lyneham, which is 13 Oliver Street, one street back from Northbourne Avenue. It has a site area of 2,395m2 and is zoned for residential uses with a 2:1 plot ratio. It sold for $2,562,000 in April 2009 and has a DA approved for 21 residential units above basement car parking, which equates to $122,000 per unit. Mr McInerney considered this property to be inferior to the subject property in its location and that the sale readily supported his choice of $100,000 per unit for the subject property.

Sale 8 was of Blocks 13/14 Section 3, Dickson (10-12 Randell Street, Dickson) with a combined site area of 1,629 m2, a purpose clause allowing residential use, and a DA approved for 16 residential units above basement car parking. This sale was in May 2009 for $2,000,000, which showed $125,000 per unit and in his opinion, being in an inferior location, also supported his rate of $100,000 per unit for the subject property.

Sale 9 was of Block 5, Section 18, Griffith, on the corner of Canberra Avenue and Giles Street, close to Manuka Circle. This had a site area of 2,902 m2 and a DA had been submitted seeking approval to a development of 11,161m2, including 1,285m2 commercial retail and related uses, as well as 90 serviced residential apartments occupying 9,876m2. A complication in this case was that the Crown Lease required the lessee to provide 60 public parking spaces on the land and plans submitted showed that these would be basement parking. The property was sold in November 2009 for $7,650,000 and after adding $2,700,000 as the cost of providing the 60 basement parking spaces (based on $45,000 per space, an average of Rawlinson's range) Mr McInerney arrived at a derived figure of $10,350,000 as the overall cost to the purchaser. After subtracting the value of the commercial space (for which he allowed $2,000/m2 for the 1,285m2 of commercial GFA - a total of $2,570,000) he concluded that the sale equated to a value of $86,444 per serviced residential unit. Again, no explanation was given for the $2,000/m2 placed on the commercial space.

Sale 10 was of Block 1, Section 14, Kingston which was sold in December 2010 for $5,625,000 as a redevelopment site and for which a lease variation to allow 68 units has been sought. Mr McInerney considered it to be in an inferior location, opposite the Canberra Railway Station. After allowing for a change-of-use charge and some demolition costs, he concluded that this sale showed $85,000 per unit with an average size of 69.8m2.

1. Sale 11 was of Blocks 7/8 Section 49 Lyneham, which sold for $1,780,000 in July 2011. The combined block is 1,610 m2 and has a maximum GFA of 1,046 m2. Development approval has been sought for 12 residential units which Mr McInerney considered equated to $148,333 per unit with an average size of 87m2.

1. Sale 12 was of Blocks 5/7, Section 79, O'Connor, which sold for $2,675,000 in August 2010. The combined site area was 2,718m2 with a maximum GFA of 1766.7m2. Development approval has been sought for 20 units which showed a price of $133,750 per unit with an average size of 88m2.

1. In oral evidence, Mr McInerney explained that he had tried to concentrate on similar developments and considered that Sale 4 gave good support to his adopted value of $100,000 per unit, as it was also in Braddon and showed $90,000 per unit in an inferior location. Even though most of the properties analysed were purely residential developments, he saw little difference in value between purely residential and mixed-use development units and considered that people would pay more for proximity to the CBD. He agreed that the evidence suggested that larger units fetched a higher price than smaller ones, but noted that Mr Dunstone's scheme allowed for a range of unit sizes from 63m2 to 108 m2 and therefore an average price of $100,000 was appropriate.

2. Mr McInerney also drew attention to the resale, on 21 February, 2011, of the properties comprising Sale 4, according to him for $6,450,000, after receiving development approval to vary the Crown Lease to include "residential" as a permissible use, which he contended showed that adding "residential" as a use did increase the value of a property.

Mr Flannery's Estimate of the Residential Component Value

1. Mr Flannery relied on a completely different set of sales to establish his values for the residential component. His sales and the details relating to them are set out in Table 2.

1. Mr Flannery gave few details about these properties in his Valuation Report, other than to observe that they indicate sale rates per unit between $75,000 and $100,000 for larger units. Under cross examination, he stated that although the lease of Block 3, Section 60, Kingston allowed for up to 100 units, the property was on The Island and the developers have sought approval for only 44 or 45 much larger units which would have the effect of increasing the price per unit.

2. He contended that the sales at 1 McGowan Place, Dickson, and at 3 Forbes Street, Turner, were relevant, as the sales took place close to the relevant date and they were for small developments, but noted that they were purely residential and suggested that sale rates over $100,000 per unit are achievable for smaller boutique style, residential-only developments (up to 15 units). He also agreed that he had not relied on the sale of 16 DeBurgh Street, Lyneham, as it may not have been a strictly arms-length transaction.

3. Apart from these, Mr Flannery considered the sale of Blocks 8 and 11, Section 29, Braddon (5-7 Torrens Street) to provide the best evidence of After Value, as the purpose clause permitted both residential and commercial office uses. This property sold in June 2009 for $4,100,000. Based on a purely residential development of 56 units, he said that this site showed $75,000 per unit. However in his witness statement (Exhibit 1) he subsequently advised that his analysis of this sale was incorrect as he had not taken into account the maximum GFA of 1,195m2 in the Crown Lease. Such a limit would restrict the number of units achievable depending on size and would increase the value per unit accordingly.

1. Based on the sales in Table 2, Mr Flannery adopted a rate of $90,000 per unit for the subject property. Under cross examination, he denied that the sales evidence indicated a higher value per unit for the subject property, as he pointed out that it was located opposite a car-wash.

1. Both valuers used a similar approach to determining the values of the commercial component, that is, by assigning them a value per m2 of commercial GFA, determined by an analysis of comparable sales. Each assumed a building comprising three floors (ground, first and second) of commercial use, and two floors (third and fourth) of residential use based on Mr Dunstone's hypothetical building. They differed however in that Mr McInerney assigned a single rate per m2 to all three floors of the commercial component, whereas Mr Flannery assigned a higher rate to the ground floor uses than he did to the two upper floor commercial uses. In the paragraphs that follow, we set out each valuer's sales analyses and their conclusions.

Mr McInerney's estimate of the Commercial Component Value

MrMcInerney relied on six sales (his Sales 1, 2, 3, 5, 6 and 9) for the commercial element of the After Value. His Sale 1 (Block 14 Section 20 Braddon) has already been discussed in relation to the Before Value at paragraphs 15-17 and paragraphs 42-45 above, where we concluded that the sale showed a rate of $1,605/m2 GFA for commercial uses, compared with Mr McInerney's figure of $1,691/m2. Mr Flannery did not consider Sale 1 as being an After Value sale, because "the purpose clause allows only industry and industrial - no residential or commercial" (Exhibit1, paragraph 13). Mr McInerney nevertheless contended that the purchaser had bought it for redevelopment and believed there would be no difficulty in adding "residential" to the permissible uses.

Mr McInerney's Sale 2 was of Block 5 Section 28 Braddon for $5,000,000, which we have discussed above in paragraphs 18-20 and 46. This site has the same planning and development controls as the subject property and is located slightly closer to the CBD. The sale was about a year after the relevant date. Mr Flannery considered that it had an inferior purpose clause compared to the subject property. The 1,517m2 site had a 2:1 plot ratio. As discussed in paragraphs 20 and 46 above, we consider that after adjustment for the weaker market at the relevant date, the sale shows a commercial rate of $1607/m2 GFA. As with Sale 1, Mr Flannery noted that "the purpose clause allows only industry and industrial -no residential or commercial" and considered it too was not an After Value sale.

McInerney's Sale 3 was of Block 1, Section 12, Bonner, for $3,210,000 in March 2010. The allowable GFA was 2,222m2, which showed a value of $1,445/m2 GFA. Mr McInerney asserted that the purchaser had a pre-commitment to use this site for a supermarket. We note that this site is located in a CZ4 Local Centre Zone. In the Local Centres Development Code, the CZ4 Overview states that this zone provides for development "of local shops, non-retail commercial and community uses, service stations, and restaurants to service a local community. Residential uses may also be permitted". The site is in an inferior location to the subject property, being in a residential suburb rather than directly next to the CBD. Although the sale was only some six months after the relevant date and it is a mixed use site, because of the different circumstances we do not believe that the Bonner sale price can be adequately adjusted without there being too great a margin of error.

Mr McInerney's Sale 5 was of Block 1, Section 45, Turner (corner of Watson Street and McKay Gardens) for $3,000,000 in February 2008, approximately six months prior to the relevant date. Mr McInerney stated that it has an inferior purpose clause and is in an inferior location compared to the subject property. The 2,225m2 site had a 1:1 plot ratio. Mr McInerney adjusted the sale upwards by $30,000 for demolition to $3,030,000, which he contended showed $1,362/m2 GFA for office use only. He does not appear to have adjusted it for time, nor for the lease difference and location. We note that this site is located to the north-west of the CBD proper, in a CZ2 Business Zone. The CZ2 Overview states that it provides for "more fringe commercial activities, primarily non-retail commercial uses, commercial accommodation, and some restaurants and indoor entertainment and recreation facilities. Residential and community uses are also permissible, subject to design and siting, provided they are not incompatible with primary uses". We consider this site to be reasonably comparable with the subject property in terms of commercial use values, but inferior to the subject property in location.

Mr McInerney's Sale 6 was of Block 14, Section 25, Griffith, for $3,300,000 in May 2008, approximately three months prior to the relevant date. This site is located well away from the CBD, on Canberra Avenue near Hume Place, in a CZ2 Business Zone, (similar to Sale 5). Mr McInerney stated that it has an inferior permitted use compared to the subject site. The 1,689/m2 site has a GFA of 2,512m2. Although Mr McInerney stated that this showed $1,348/m2 GFA there is no indication that the sale price was adjusted for time, nor for the lease difference and location. Absent any such adjustment, the sale shows $1,314/m2 GFA.

Mr McInerney's Sale 9 was of Block 5, Section 18, Griffith, for $7,650,000 in November 2009. The 2,902m2 site has had a DA submitted seeking a GFA of 11,161m2. The sale price was adjusted up by Mr McInerney for the lease requirement to provide 60 public parking spaces, estimated to cost $2,700,000, which resulted in a sale price of $10,350,000 (as discussed in

paragraph 62 above). This was then extrapolated to show a rate of $2,000/m2 GFA for commercial space and 90 residential units at $86,444 each, but no basis for adopting the $2,000/m2 figure was given. The sale price does not appear to have been adjusted for location. The site is located well away from the CBD, but is close to Manuka and on Canberra Avenue in a CZ2 Business Zone, like Sales 5 and 6.

In oral evidence, Mr McInerney said that sales 5 and 6 reinforced his valuation of the office use element of the commercial component at in excess of $1,300/m2 GFA and he had adopted $1,700/m2 GFA because of the wider range of uses permissible on the subject property.

He also drew attention (Exhibit 17) to the properties constituting Sale 4 (see paragraph 59 above) which had been resold in February 2011 for $6,450,000 following approval, in October 2010, of a DA seeking to vary the Crown Lease to include "residential" uses. As they were purchased in March 2010 for $5,000,000, Mr McInerney contended that the additional value could be attributed to them now having residential use, albeit without any increase in allowable GFA (4,586m2). He had been advised that the vendor, who retained a 30% share in the property, had sought investors with a proposal to redevelop the site incorporating 50 residential units and office units at ground level. This equated to an overall price of $1,406/m2 GFA for a mixed use site, and was comparable with the overall After Value of $1,506/m2 GFA that he had adopted for the subject property ($5,665,000 for 3,762m2 GFA in total) with a superior location and commercial component including shop and restaurant use.

Mr Flannery's estimate of the Commercial Component Value

1. Mr Flannery relied on four commercial development site sales in determining the commercial component of the After Value, which are set out in Table 3 below. Only one of his sales was also used by Mr McInerney (that in Canberra Avenue, Griffith, Sale 9 - see paragraphs 62 and 79 above). Mr Flannery noted the range of values which, he said, reflected the size and location of the sites, their development potential and their purpose clauses. For the subject property, he initially adopted a rate of $1,200/m2 for 750m2 of GFA for the ground floor space and $700/m2 for 1,500m2 of GFA for office space on the first and second floors, giving he said an overall rate of $900/m2 GFA for the commercial component. This, he noted, was well above the rates listed, save for 5-7 Torrens Street, Braddon. However, he subsequently adjusted the latter rate upwards (see paragraph 85 below).

• Later corrected by Mr Flannery to 1,195m2 maximum GFA and a Sale Rate of $1,000/m2 GFA after allowing for existing buildings and basement car parking

1. Mr Flannery's first sale was that of Blocks 8 and 11, Section 29, Braddon, (5-7 Torrens Street), for $4,100,000. In his Valuation Report he stated that, of all the sales in his analysis, 5 Torrens Street (clarified in evidence to be 5 and 7 Torrens Street) is considered "most directly comparable to the subject site" and "to provide the best evidence of After Value". The sale was approximately two months prior to the relevant date. The two blocks are opposite a park and are closer to the CBD than the subject property by half a street block.

1. We note that these two adjacent blocks are located in what was known in the 2003 Territory Plan as Precinct B4 - Braddon, Torrens Street Office Area in the Civic Centre Land Use Policies (Part B2A of that Plan). They are now in a CZ2 Business Zone which provides for "more fringe commercial activities, primarily non-retail commercial uses, commercial accommodation, and some restaurants and indoor entertainment and recreation facilities. Residential and community uses are also permissible, subject to design and siting, provided they are not incompatible with primary uses". The plot ratio in this Section is 2:1; there are 6m setbacks required to front and rear boundaries and there is a building height limit of 16m.

1. Mr Flannery stated that this sale showed a rate of $878/m2 GFA. The Tribunal notes the sale price was $4,100,000 with a GFA stated as being 4,780sqm, which shows a rate of $858/m2. However, Mr McInerney observed (Exhibit 16) that the GFA was limited in the Crown Lease to 1,195m2 (having a plot ratio of 0.5:1 as prescribed in the 2003 Territory Plan) and that in other reports by CBRE submitted to the AVO it had been more correctly analysed as showing a deduced value of $1,317/m2 GFA. In his witness statement (Exhibit 1) Mr Flannery accepted that his Report analysis was incorrect and that the correct GFA limit was 1,195m2.

2. When giving oral evidence, Mr Flannery provided a document entitled TOPS - Commercial Sales Analysis of 5 Torrens Street Braddon Block 11 Section 29 prepared by CBRE valuer Andrew Menegazzo in July 2009 (Exhibit 14) which showed a sale price of $4,100,000 at 30 June 2009; that the site area was 1,195.6m2; and that the "building area" was 1,037m2. The Tribunal asked Mr Flannery whether this document referred to 5 Torrens Street only or if it included 7 Torrens Street as well and he confirmed it included both blocks. We are of the opinion that there is an error in the document. The approximate site area for the blocks is given in Appendix A to the Braddon Commercial Area Planning Study, each being shown as 1,196m2. The area quoted in Exhibit 14 is for Block 11 only while the Tribunal was informed that the sale price was for both blocks. We believe that the actual site area of the combined blocks is 2,391.2m2, but the allowable GFA is only 1,195m2 as prescribed in the Crown Lease.

3. After making adjustments of $2,900,000 for the value of the existing building and two levels of parking (Exhibit 13) Mr Flannery derived a "vacant land" value of $1,200,000 which showed a value of about $1,000/m2 GFA for the commercial rights. While acknowledging that this was not a "vacant land" sale, he nevertheless considered $1,000/m2 a fair value. The Tribunal notes, from Exhibit 13, that Mr Flannery's calculations of the value of the buildings were based on the GFA of 1195m2 as opposed to the building area of 1037m2 and he also adopted a high value for the parking spaces. These had the effect of increasing the value of the existing building and parking and reducing the "vacant land" value. Had he used more appropriate figures the vacant land value might have been $1,200/m2.

1. Mr Flannery placed less reliance on his three other sales, of which two have not been adjusted; Macquarie Street, Barton ($16,500,000 for 27,000m2 equates to $611/m2 GFA) and 29 National Circuit, Forrest ($12,475,909 for 24,000m2 equates to $520/m2 GFA - a vacant land sale). The Canberra Avenue, Griffith sale ($7,650,000 for 9,000m2 equates to $850/m2 GFA (a vacant land sale) but has been adjusted to $500/m2 GFA for the "commercial component of mixed used (sic) development" (see Table 3). However, there does not appear to be any analysis showing the reasoning for this considerable adjustment down of over 40% (see T62).

2. Mr McInerney addressed these three sales in his first witness statement (Exhibit 16, Annexure B) where he contended that upwards adjustments were necessary to the sales at Canberra Avenue and Macquarie Street because of the additional parking requirements imposed by the Crown Leases (provision of 60 public car parking spaces in the former and 470 spaces in the latter) and that the National Circuit sale was not a directly comparable sale. We also note the GFA for the National Circuit sale is 24,000m2 and the Macquarie Street sale is 27,000m2. The non-residential GFA for the subject site is 2,508m2. We do not believe that these three sale prices can be adequately adjusted without there being too great a margin of error.

3. Mr Flannery chose to adopt different values for the ground floor uses (initially $1,200/m2, subsequently $1,485/m2) which he showed as 750m2 GFA and the first and second floor commercial uses (initially $700/m2, subsequently $850/m2) which he showed as 1,500m2 GFA - a total commercial component of 2,250m2. He adjusted the rates (Exhibit 12) after taking into account his changed assessment of the commercial value of 5-7 Torrens Street (see paragraphs 85-87 above).

4. Mr McInerney allowed a total of 2,508m2 GFA for the three commercial floors (the allowable 2:1 plot ratio) which approximates the areas shown by

Mr Dunstone in Exhibit 6 - some 258 m2 more than Mr Flannery had allowed. Using Mr McInerney's figure for GFA, Mr Flannery's rates yield a commercial component totalling $2,388,750 and equate to an overall rate of $952/m2 GFA. This shows a substantial reduction for the non-residential part of the overall After Value from Mr Flannery's Before Value of $1,614/m2 GFA.

1. Mr Flannery did not explain why he had initially adopted rates of $1,200/m2 and $700/m2 for the different commercial floors, other than that they showed an average value of about $900/m2 commercial GFA, which was well above that of three of the sales relied on by him (apart from 5-7 Torrens Street). It was because of the Torrens Street sale that he adopted a rate per m2 "slightly above that indicated by this sale".

2. The adjusted rates adopted by Mr Flannery in Exhibit 12 had the effect of increasing the total commercial element After Value as calculated by him from $1,950,000 to $2,388,750. However, this value is still significantly less than that calculated by Mr McInerney ($4,263,600) based on an overall $1,700/m2 GFA commercial rate.

1. Mr Flannery's After Value was also adjusted downwards through making allowance for the costs of demolishing the existing buildings, removing asbestos, and for possible decontamination of the site. Mr McInerney made no such allowances. One of these issues (decontamination) gave rise to some controversy.

(i) Asbestos and Demolition 2. An Asbestos Survey & Management Plan dated 15 May 2009 prepared by Robson Environmental Pty Ltd, unsigned, stated "friable ACM [Asbestos Containing Material] was not identified during the survey" while "bonded asbestos material was identified" (T119). In Canberra, it is to be expected that many buildings of this nature and age would have some bonded ACM cladding, roofing or lining. There is no doubt that, in order to redevelop the site to include residential use, the ACM would have to be removed in accordance with the ACT Code of Practice for the Safe Removal of Asbestos. 3. Mr Flannery allowed $50,000 as a deduction from his After Value to meet the costs of doing so and Mr McInerney, in his Valuation Report (T20), stated that a quote in the amount of $46,212 excluding GST dated 3 March 2010 for removal and disposal of the asbestos had been sent to the applicant by Classic Solutions. 4. In addition to the cost of ACM removal, Mr Flannery allowed $69,375 for demolition based on $125/m2 for 555m2 GFA of the existing building.

Mr Chappé, a quantity surveyor, engaged by the applicants to estimate the costs of building a development in accordance with Mr Dunstone's design concept, in his original estimate of construction costs (Exhibit 8 Attachment B) allowed $900,000 for demolition costs (excluding asbestos removal) but in his subsequent witness statement (Exhibit 8 paragraph 6) revised this down to $200,000 including asbestos removal. Under cross examination Mr Chappé defended his use of a rate of $270/m2 as compared with a rate of $78/m2 which was said to prevail in Sydney, based on his experience in the area. 5. Under cross examination Mr McInerney said that he regarded Mr Chappé's cost figures as somewhat excessive and observed that Mr Chappé had agreed that they would need to be adjusted back to the relevant date, by allowing a reduction of about 6%. In addition, Mr McInerney considered there could be some double-dipping, for example for excavation and site preparation which might overlap with other costed items.

1. Mr Flannery allowed an amount of $50,000 as a deduction from his After Value for decontamination of the site, noting that he had done so because it was situated adjacent to a former service station. Mr McInerney (at T20) said that the Environment Protection Authority (now the Environment Protection Unit or EPU) had advised the respondent's Leasing Section by e-mail that the service station was abandoned and the fuel tanks removed in 1988; that they had no record of an environmental assessment having been carried out at the site; and that they no longer required such an assessment (T`179).

2. However, a full reading of the text of that email shows that their statement that they no longer required an environmental assessment was "prior to the lease variation". They went on to warn that there was a risk of hydrocarbon contamination of soil or groundwater from past fuel storage and that should any such impacts be encountered during excavation works at the site, all works must cease immediately and an EPU officer contacted.

3. There was disagreement as to whether there was an aquifer below the subject property and whether there were any groundwater plumes containing hydrocarbons that might impact on the soil and water table below the subject property. Mr McInerney stated in his witness statement that "the respondent has received advice from ACT Territory and Municipal Services that there is no aquifer below the surface of the subject property" and did not resile from this position under cross examination, despite the evidence of Mr Gregson (see paragraph 103 below).

4. Mr McInerney attached to his witness statement (Exhibit 16) a letter from

Mr M Heckenberg, Project Officer, Environment Protection and Water Regulation, dated 27 June 2011 which stated that

The latest recorded standing groundwater level in the area is approximately 10 to11 metres below ground level (August 2010). Groundwater is expected to be present at this level beneath all blocks within the area of Block 19 Section 29

Petroleum hydrocarbon plumes have been identified under...

Blocks 16 and 17 Section 29 Braddon associated with the former operation of a Burmah Service Station located at the site. Evidence of a chlorinated hydrocarbon groundwater plume is also evident at this site associated with the former operation of a dry cleaning facility. Records indicate that these plumes may be impacting groundwater in the south eastern corner of Block 18 Section 29 Braddon. Investigations to delineate the extent of these plumes are ongoing

The extent of groundwater plumes at these sites are yet to be fully determined, however, preliminary assessments at each site would indicate that the plumes are limited in extent due to the nature of the aquifers in the ACT with no evidence to suggest that they are impacting on Block 19 Section 29 Braddon.

The information detailed above only relates to records held by the EPA and may not represent the actual condition of the site.

At present the EPA has no information on contamination of the above block(s) other than as detailed above. However, this does not absolutely rule out the possibility of contamination and should not be interpreted as a warranty that there is no contamination.

1. Mr Ian Gregson, a Principal Environmental Consultant with GHD Pty Ltd, gave evidence on this matter for the applicant and in his initial Report (Exhibit 5, Attachment B) he confirmed that an underground aquifer is known to be present in the general area of the subject property, but that "no specific investigations have been undertaken to verify whether these conditions exist". Moreover, the Limitations Statement attached to his Report stated that "The services undertaken by GHD in connection with preparing the report did not include any inspection of the site nor the collection of samples ...as the basis of this report."

2. Having reviewed Mr Heckenberg's letter, Mr Gregson further stated "there is no evidence one way or the other regarding impact of the groundwater plumes on Block 19 Section 29 Braddon" and that "On the basis of available information it would be conjecture to state whether contamination impact on the property is "likely"; however, on the balance of probabilities and based on my experience, I would think it more likely than not that there would be some impact..." and that "there is a greater level of uncertainty as to whether such impact would be of sufficient degree or extent to affect the suitability of the site for the proposed redevelopment." He added that "The costs of site-specific contamination assessment, and potential remediation or management costs associated with contamination impacts, if present, should be considered as part of the costs and risks of redeveloping the site." Under cross examination, he estimated the cost of assessment of the site at between $30,000 and $50,000.

1. The Tribunal is required, as are the valuers in this case, to have regard to the "highest and best use" of the subject site when establishing the After Value. The concept of highest and best use as a principle of land valuation was established by the High Court in Spencer v The Commonwealth of Australia [1907] 5 CLR 318 and has received judicial approval in numerous subsequent cases. In ISPT Pty Ltd v City of Melbourne [2007] VCAT 652, the Tribunal President wrote

Highest and best use represents the most profitable potential use to which land can be put having regard to both planning and like controls and the circumstances of the land... When land is sold, the market values it at its highest and best use, as buyers will not be constrained to continue the existing use and the seller will seek to achieve the highest price for the land.

1. Mr Flannery stated in his Valuation Report (paragraph 5.3.1) that the hypothetical development proposed by Mr Dunstone and adopted by him was the highest and best use but Mr McInerney took a different view. In his view, minimising commercial use and maximising residential use was the highest and best use of the maximum GFA available.

2. Mr McInerney pointed out that while residential use is prohibited at the ground and first floor levels and that any redevelopment is limited to 22 metres maximum height, the Plan requires that in order to attain a 3:1 plot ratio, residential should occupy at least 1:1 plot ratio. He noted that in similar cases in the Braddon commercial area, developers were minimising the commercial component on the ground and first floors to less than the 1:1 plot ratio on each level. By way of example he cited Block 5, Section 28 (27 Lonsdale Street, his Sale 2) for which a proposed development had been publicly notified proposing 150m2 of commercial use at ground floor, 120m2 of offices at first floor, and the balance of the 4,751m2 maximum GFA (4,482m2 GFA or approximately 94%) to provide 59 residential units.

3. He noted that this proposal also incorporated car parking at the rear of the ground and first floors, which demonstrated that such a solution, if considered for the subject property, would considerably lessen the cost of providing additional basement level parking (because residential use generates less parking requirement than commercial use).

The Tribunal also notes that the Braddon Commercial Area - Planning Study proposed that the private sector should be encouraged to investigate the provision of a parking structure if on-site parking is not feasible and that the GFA of publicly accessible carparks should not be used in calculating plot ratios - an incentive to provide public car parking. Such an option, if adopted in this case, could assist in reducing the amount of excavation on the subject property and help to avoid any contamination issues.

Mr McInerney stated that the applicant had, on 23 June 2011, submitted D201120304 over the subject property with a proposal for 40 residential units in contrast to the 14 units considered in the Applicant's After Value report. He contended that by adopting an approach similar to the lessee of Block 5 Section 28, and utilising only 270m2 for commercial uses on the ground and first floors, that would enable 3,493m2 (approximately 93% of allowable GFA) to be used for residential purposes and would yield the highest and best use of the land. However, no analysis was offered by Mr McInerney of how such a development might be designed, nor did he estimate what the consequences would be for the After Value.

Mr Adams' evidence was that the redevelopment proposal for Block 5 Section 28 was inconsistent with a number of mandatory rules in the CCD Code Part A3, CZ3- Services Zone - Braddon and should not have been allowed. When questioned about this, Mr McInerney agreed that a valuer should not advise a developer to contemplate a development that was contrary to the Code, but reiterated that this development had been approved and is currently proceeding.

In any case, it does not follow that an alternative development for the subject property involving a greater amount of residential development could not be designed consistently with the requirements of the Code. A simple calculation suggests that up to 20 units could be provided in the two upper floors, albeit of a smaller size than proposed by Mr Dunstone, and more could be added if the second floor was also used for residential. But no such proposal was put before us for consideration.

The only evidence about the cost of alternative development models available to the Tribunal was that contained in the hypothetical feasibility studies, to which we will now turn.

In May 2011, Mr Flannery arranged for CBRE to undertake hypothetical development feasibility studies using specialist software known as Estate Master for Excel as a check on the After Value, following receipt of information provided to them by GHD regarding contamination; from Rider Levett Bucknall regarding development costs inclusive and exclusive of decontamination; and from Dezignteam regarding various schemes for the redevelopment of the site. These were provided as attachments to the applicant's statement of Fact and Contentions, but only the drawings of Dezignteam's Scheme 2 were included. Four scenarios were studied, of which two "moved away" from Dezignteam's Scheme 2 and were described by Mr Flannery in a file note as follows:

• Scenario 3 - limiting to 2 basement levels of car parks and assuming 40 residential units above ground floor retail and first floor commercial;

• Scenario 4 - 2 levels of basement parking; same design as Scenario 3; costs based on builder/developer, ie reduced margin and costs; 17.5% profit and risk.

1. These studies essentially calculate all the costs associated with constructing a building of the nature established by the scenario and subtracting that from the anticipated revenue to be obtained from sale of the commercial and residential elements, to obtain a residual land value reduced to net present value ("NPV"). The results of the four feasibility studies were that scenarios 1, 2 and 3 yielded a negative NPV, while scenario 4 initially was found to show an NPV of $3,068,645, but this was later adjusted to $2,450,000 when recalculated in July 2011.

1. In response to these studies, Mr McInerney arranged for Mr Todd Svanberg, of the AVO's Melbourne office to undertake a similar analysis as he was experienced in using the Estate Master software. Mr Svanberg's first analysis yielded a residual land value of

$5,568,205, but after making some adjustments to his data entry to correct for errors, he subsequently reduced this to $2,958,159.

1. Mr Arthur began by cautioning the Tribunal against placing too much reliance on hearsay evidence. He acknowledged that the Tribunal was not bound by the rules of evidence and that expert witnesses may rely on the general body of knowledge accumulated by them as experts in the field, but observed that hearsay is inherently unreliable and that to allow a witness to establish as a fact, that which they were told by someone else when it is not possible to test whether the other person was telling the truth, or the particular context in which they understood the conversation to be occurring, is to introduce an element of real uncertainty and thus unreliability.

2. He drew attention to the discussion of the hearsay rule in Freckelton and Selby's Expert Evidence: Law, Practice, Procedure and Advocacy at pp 95-96, and to the words of Megarry J in English Exporters (London) Ltd v Eldonwall Ltd, and Same v Same [1971] E. No 2606 at 423, where he wrote:

A valuer giving expert evidence-in-chief (or in re-examination)...may not give hearsay evidence stating the details of any transaction not within his personal knowledge in order to establish them as matters of fact. To those propositions

I would add that for counsel to put in a list of comparables ought to amount to a warranty by him of his intention to tender admissible evidence of all that is shown on the list.

Mr Arthur's cautionary words were particularly directed at Mr McInerney's evidence in relation to Sale 1 and his assertion that the purchaser had given no consideration to the net yield from the existing property but had purchased it for redevelopment. This evidence, Mr Arthur submitted, was hearsay and should be given no weight, as it was based on an interview Mr McInerney said he had had with the purchaser, but of which he had kept no notes, nor could he relate any part of the actual conversation or identify the context in which the discussion occurred. A similar criticism was levelled at his evidence regarding Sale 2, where Mr McInerney had relied on what a colleague had said about the purchaser's intentions following a conversation with the purchaser.

Mr Arthur also criticised Mr McInerney' reliance on the recent re-sale of his Sale 4 (Blocks 1-2, Section 21, Braddon) because, as well as the addition of residential use, retail use had also been added, along with a sevenfold increase in permitted GFA (650m2 to 4,586m2). Furthermore, the CUC had been determined and paid, design and siting approval had been obtained and other significant development costs met. Hence, it was not surprising that there would be a significant increase in price, but what part of that was attributable to residential values was purely conjecture. Mr McInerney's evidence about the profit and risk margin that the developer of Blocks 1-2 Section 21 Braddon was willing to accept, which he said he had seen on a piece of paper but which he was unable to identify precisely, was also regarded by Mr Arthur as indicating that Mr McInerney's judgement should not be relied upon.

Mr Arthur submitted that this was a case in which it was appropriate to rely on the feasibility studies, in particular, Mr Flannery's scenario 4 and

Mr Svanberg's revised study, because when both valuers adopted essentially the same input values, they attained outcomes that were relatively close and the figures they arrived at were confirmation of Mr Flannery's comparable sales assessment of After Value as being more accurate that Mr McInerney's. Mr Arthur submitted that while the feasibility studies taken together with Mr Flannery's assessment do not enable the Tribunal to select a particular figure with confidence, it could be confident that the figure, whatever it is, is less than the Before Value.

He noted that the CUC paid for the four Blocks 3-16 Section 21, Braddon, in the same street and approximately 100 metres from the subject property (one of which was a corner block which would seem to be more valuable) amounted collectively to $127,500 and submitted that no CUC in this case would be consistent with that outcome.

Mr Arthur finally rejected Mr McInerney's contention that the addition of another use must add value. Rather, he said, it remains a matter which must be demonstrated by appropriate evidence and the evidence in this case shows, that at the relevant date, there was no added value for this particular lease with all its attendant features and limitations, such as that it is a single block, inland, relatively small, affected by contamination and groundwater, which go to explain why residential use may not yet be valuable, when in other locations on other sites with different characteristics, residential use would seem to be valuable.

1. Mr Sharwood noted that while Mr McInerney and Mr Flannery had both adopted the direct sales comparison approach for their After Value assessment, they had used different sales. Mr McInerney had principally relied on Braddon sales, but had considered sales in other areas. He had comprehensively analysed each sale and this often involved interrogating the purchaser or other relevant person to understand variables and motivations. He had also referred to other valuations made by CBRE that were consistent with his assessment and to evidence (for example, Exhibit 10) that Mr Flannery had himself considered much higher values for the commercial component than he had ultimately adopted.

2. There was a smaller, but not insignificant difference ($10,000 per unit) in the two valuers' rates for the residential component, but Mr McInerney's valuation was to be preferred.

3. Mr Sharwood commented on the feasibility studies that had been undertaken, observing that they were an unreliable measure of value. The studies relied on the costings of Mr Chappé, but he had been obliged to adjust some of his estimates during the hearing and in any case, he had used 2011 costings which would need to be reduced by 5% - 6% to make them consistent with 2009 values. That could alter the cost by up to $1,063,200 on this point alone. Furthermore, he observed that both Mr Flannery and Mr Svanberg had cause to re-adjust their modelling during the course of the hearing and even after consultations between them, they could not get their versions of the software to get within $200,000 of each other although though the inputs were the same. How, he asked, could the Tribunal be confident of the correct answer?

4. Mr Sharwood submitted that at its highest, a feasibility study provides a poor "check" of the values of the subject land in this case and because it involves a process that can be manipulated to achieve an outcome, it does not assist the Tribunal in determining the true values and should not be used at all.

1. In relation to demolition costs, Mr Sharwood took the view that Mr Chappé's revised estimates for them ($200,000 including for asbestos removal) were too high observing that Mr Chappé was unable to explain how he had reached that figure. By contrast, Mr McInerney estimated that $50,000 was appropriate for asbestos removal, while $70,000 was more than sufficient for demolition of a single storey workshop. Mr Sharwood noted that adopting the mid-range of Rawlinson's 2009 prices for demolition ($62.5 per m2) the cost of demolishing a building of 555m2 would be approximately $34,000.

2. In relation to the issue of decontamination, he observed that the applicant had not undertaken any investigative action such as test boring at the site which Mr Gregson said would have cost a mere $30,000 to $50,000 and conclusively determined the issue. In the absence of firm evidence, he submitted that no amount for decontamination should be deducted.

3. The effect of any aquifer in the area had not been conclusively determined and it would only become an issue if a third level of basement car parking was required. The applicant's witnesses had not been able to specify the costs of this element, but if the Tribunal was to consider that de-watering of a third level of basement car parking was necessary, Mr Sharwood submitted that in the respondent's view, it would not be a significant cost.

The Tribunal's consideration of the After Value

1. The Tribunal has carefully considered the evidence adduced by the parties as to the value of the residential component of the After Value but finds it to be less than persuasive in many cases. Most of the properties that have been chosen for analysis have little similarity to the subject property, either because of their scale or their location. It is notable that the two valuers chose totally different property sales to reach their conclusions. Furthermore, in Mr Flannery's original valuation (T245-T264) which accompanied the DA to vary the lease, he used yet another set of properties, none of which he subsequently relied on. In that set, Mr Flannery obtained values ranging from $90,000 per unit to $143,750 per unit. Two of these were in Braddon (but some distance from the CBD) which showed values of around $90,000 per unit.

2. We are satisfied that the rate per unit lies somewhere between $80,000 and $120,000. We believe that the residential units in the subject property will be attractive to purchasers in that the site is close to the CBD, allowing residents to walk to work and is in a mixed use zone which has the potential to allow people to both work and live within the same area, something that is relatively uncommon in Canberra due to planning restrictions. We also note that with a maximum building height of 22m, the top floor level of the residential use (4th floor) has the potential to be well above the 16m maximum building height of any future development to the east, allowing the potential for views across towards the park opposite Torrens Street and beyond to Mount Ainslie. We also note that the second top floor of the residential use (3rd floor) has the potential for views across to Mount Ainslie. Given that we consider that the residential component of any development will have reasonable amenity and be adjacent to the CBD we have adopted a rate of $100,000/unit for the 14 residential units resulting in a value of $1,400,000 for the residential component of the After Value.

1. The Tribunal has also carefully considered the evidence on commercial component values presented to it and again finds much of the evidence less than persuasive. The ideal comparable sale would be of a property of similar size, in the Braddon Services Area, which had been purchased at or about the relevant date with both commercial and residential uses in its purpose clause. The nearest of the comparable sales to this ideal are Mr McInerney's Sales 1 and 2, neither of which, at the time they were sold, had "residential" as a permissible use.

2. Mr McInerney's oral evidence was that in each case he had been informed that the purchaser had in fact bought with the intent of residential redevelopment and had since varied the leased, paid the CUC, sought development approval and in one case commenced building. Mr McInerney contended that the two sales showed values of $1.691/m2 GFA and $1,681/m2 GFA respectively and Mr McInerney contended that both sales supported his adopted commercial value of $1,700/m2 GFA. Our calculations however, suggest that rates of $1,605/m2 and $1605/m2 are more appropriate. While conscious of Mr Arthur's cautions about hearsay evidence, we are satisfied that both properties were bought with the intention of redeveloping them for commercial use as there is other evidence to confirm this fact.

3. Mr Flannery relied on the sale of Blocks 8 and 11 Section 29 Braddon ( 5-7 Torrens Street) for his commercial rates, but as noted above in paragraph 86, he had overlooked the GFA limit in the Crown Lease and had adjusted his value to about $1,000/m2 GFA. Mr McInerney observed that an earlier CBRE valuation of these same blocks had arrived at a figure of $1,317/m2 GFA. However, as we have said in paragraph 87, we think the correct figure is more likely to be around $1,200/m2 GFA.

1. Nor does Sale 4 (Blocks 1 and 2, Section 21, Braddon) fill us with any confidence as to an appropriate commercial rate. Mr McInerney adopted a figure of $1,482/m2 GFA for the office use, but that figure is derived simply by subtracting the total value of an assumed 50 units at $90,000 per unit from the adjusted sale price $5,100,000 and dividing the balance by the approved 405m2 of commercial space available.

1. The subsequent resale of the property in 2011 following approval of lease variation to add "residential" to the permissible uses, detailed by Mr McInerney in Exhibit 17 and approval of DA 201017831, showed an overall sale rate of $1,406/m2 GFA for 4,586m2 maximum GFA in a mixed use site. This, Mr McInerney contended, was comparable with the overall sale rate of $1,506/m2 GFA in his assessed After Value for the subject property which, he contended, is better located.

2. The Tribunal considers that there is no merit in attempting to assign differing values to the ground floor and upper floor commercial spaces, as we were given no comparative evidence on the relevant rates that might apply (other than Mr McInerney's mention, in Exhibit 16, of reported sale rates of $6,500/m2 GFA for ground floor retail and $5,570/m2 GFA for fist floor office space at the nearby "Mode 3" development, which are presumably end-user sales and were unsupported by any documentary evidence).

1. We therefore will rely on an overall rate for the commercial component, and consider that this would fall somewhere between $1,300 and $1,500/m2 GFA. We will adopt $1,400/m2. We see no inconsistency between this rate and our overall Before Value of $1,550/m2 GFA, because the Before Value rate does not involve any consideration of demolition costs, change of use charges and other contingencies, which will be taken into account by an informed purchaser. On the assumption that the total commercial space is twice the site area as adopted by Mr McInerney (2,508m2) and not the 2,250m2 adopted by Mr Flannery, this yields a total value for the commercial component of the After Value of $3,511,200, which we will round to $3,500,000.

1. There is no doubt that the building incorporates ACM extensively and as it must be removed. However, the rate for demolition should be reduced accordingly so that there is no duplication in the deductions. We consider that even Mr Chappé's reduced rate for demolition including asbestos removal ($200,000) as excessive, having regard to Rawlinson's rates. The Tribunal is of the view that a deduction for asbestos removal is justified but has decided not to change the amounts for demolition and for asbestos removal used by

Mr Flannery, which will remain at a total of $119,375 which we would round to $120,000.

1. The Tribunal notes the reference to 'Soil Contamination' in the Braddon Commercial Area - Planning Study (Exhibit 22) at page 13 where it reiterates the advice of the EPU set out in paragraph 102 above, and states that

Prior to redevelopment of known or potentially contaminated sites, contaminated sites need to be audited, assessed and remediated to a suitable level required by the Environment Protection Authority. The type of development permitted would depend on the level of remediation and an assessment of the risk that the site may pose.

1. The Tribunal is satisfied that it is highly likely that there is an aquifer under the subject property at a depth of 10m to 11m and that there is a risk of it being contaminated by hydrocarbons. It agrees that a hypothetical prudent purchaser would be aware that the land is possibly contaminated; that the contamination has not been substantiated; that the possible contamination does not prevent the land from being used for its current use prior to the proposed lease variation; and that the possible contamination may only come to the fore if the site were redeveloped to include residential use when remediation may be required because of the need to provide basement car parking.

2. The contaminated material, if it exists, will most probably need to be removed to allow residential development, and possibly also office development, and therefore should be treated as 'structures or other useless material' to be removed. As Hyam says (p168-169)

the principle is that the contaminated material, if it exists, should be seen in the same context as old structures or improvements to the land. If the use of the site is for a purpose which conflicts with any possible contamination effects, then the purchaser of the site would either have to have the decontamination undertaken by the vendor, or be prepared to decontaminate it himself

which implies that allowance should be made in the After Value for decontamination if redevelopment for residential use is envisaged.

1. An alternative view is that adjustments should not be made where the works are properly part of the subsequent development itself. The removal of the contaminated material is only required if it exists, and then if the site is to be redeveloped to include residential and commercial use. The provision of an underground car parking structure would require the removal of excavated material as part of the normal redevelopment works and as such, a percentage for the removal of any contaminated material would be expected to be included in the extent of the works.

1. The Tribunal is satisfied that an deduction from the After Value should be made for assessment and removal of any contaminated material that may be required, but in the absence of any other assessment we will adopt the amount proposed by Mr Flannery, ie $50,000.

1. The results of our calculations of the After Value components is therefore

1. A great deal of evidence and much examination and cross examination was devoted to these studies and the inputs that had been used to undertake them, but the Tribunal considers them to be of little assistance in arriving at its conclusions. The hypothetical development feasibility method is said to be widely used by valuers, in particular, when developers are seeking finance from banks and other lending institutions, but it is normally used only when there are no comparable sales data available (Hyam, p 188).

1. While its use in some cases has been endorsed, including by the High Court, it has been criticised by Courts and Tribunals because it applies an apparently scientific formula to a great number of subjectively established variables and small variations to these variables can have a very great impact on the result (Roper J, in Closer Settlement Ltd v The Minister (1942) 17 LGR 62 at 252). The changes that were made to Mr Svanberg's analysis as a result of relatively small changes in various inputs are evidence of this.

2. We do not propose to give these studies any further consideration as we do have adequate, if not ideal, comparable sales to consider.

1. The Tribunal concludes that theV2 (Before Value) of the subject property is $3,900,000 while the V1 (After Value) is $4,730,000. The difference is $830,000 and therefore the CUC payable is $622,500.

FULL REPORT ( ) CASE NOTE ( ) UNREPORTED DECISION ( )

[1] Mr McInerney said that the purchaser also owned Blocks 13 and 15 of Section 20 and was seeking changes to the purpose clauses of all three blocks, implying that a higher than market price may have been paid for Block 14; see Hyam at pp 135-136.