That as 1 January 2008 the evidence suggests sales having an area in the region of 1,500 sq m had a land value in the range of $3,000 to $3,486 per square metre.

1. The applicant was represented by Mr Watters of Counsel. He contended that Council's valuation was flawed and excessive. First he submitted that Council's valuer failed to take into account the risk or perceived risk 'that the property might become subject to heritage controls or its demolition in some way prevented'. In any event he said the sales relied upon by Council's valuer as comparable were not in truth comparable and a far lower value should have been assessed.
2. Mr Watters submitted that the risk or perceived risk that a purchaser would be precluded from demolishing the building was amongst those circumstances which might affect the value of the property prejudicially and should therefore be taken into account. He referred to Kenny and Good Pty Ltd v MGICA [1999] HCA 25; (1999) 199 CLR 413 [49] per McHugh J and Spencer v The Commonwealth [1907] HCA 82; (1907) 5 CLR 418 per Isaacs J. The principles dealing with compensation for compulsory acquisition dealt with Spencer's case were he said equally applicable to rating cases. He referred to Martin v Commissioner of Land Tax (1965) 12 LGRA 142, 146.
3. Even although the building and improvements form no part of the property for valuation in the site value assessment, restrictions of demolition can affect the value of the underlying land and should be considered. He referred to Royal Sydney Golf Club v Federal Commissioner of Taxation [1955] HCA 13; (1955) 91 CLR 610 and McEwin v Valuer General (1993) LGRA 12, 18.
4. According to Mr Watters there was a risk that the building might become subject to heritage control. He noted that the Hawthorn Heritage Study which was a reference document within the Boroondara Planning Scheme at the relevant time states with respect to (c) grade buildings, (that is those which are merely contributory to the streetscape), that their demolition is 'prohibited where visible'. This prohibition was not at that time carried over into the heritage controls in the Planning Scheme but he submitted the existence of such a proposal would act as a negative factor in the market.
5. He referred to Edinburgh Pty Ltd v The Minister (1962) 8 LGRA 45 per Else-Mitchell J.
6. In that case he said that a prospective purchaser would be concerned with the nature of development which would be permissible (1962) 8 LGRA 45, 50. Mr Watters said that a hypothetical purchaser at the relevant time would have seen that the buildings at No. 733 were clearly an example of Federation design which had been recognised as of heritage significance in the 1993 study. That study he said imposed a heritage overlay on the neighbouring property and properties had been added to the heritage overlay from time to time between 2000 and 2008. He said further that in 2007 the Glenferrie Structure Plan - Heritage Report had recommended the Heritage Study of Glenferrie Road and in January 2008 tenders had been called for such a study to be done for Hawthorn. Therefore it was a possibility that if a demolition permit was sought as ultimately was the case last year, Boroondara City Council would seek interim heritage protection. Therefore he said a hypothetical purchaser at the relevant time would fear the worst and the price which could be obtained on sale would be much depressed. He referred to Morrison v The Commonwealth (1971) 34 LGRA 273, 289 where Stephen J sitting as a Judge of the Supreme Court of Victoria said that uncertainty relevant to compulsory acquisition would cause a purchaser to fear the worse and possibly depress the price that would otherwise be available. In that case he said His Honour preferred the view of the valuers who gave due regard to the uncertainty which in this case concerned expansion plans for Mangalore Airport. The same uncertainty existed here he said in 2008 with respect to the heritage issue. This issue should have been taken into account and it was not.
7. According to Mr Watters this approach was entirely consistent with Sections 2(8) and 2(9) of the Valuation of Land Act 1960. Neither was directly applicable here but he submitted there was nothing in either sub-section 'that would prohibit a valuer from taking into account perceived risks that a demolition permit would not be issued for a particular building'. He said that the applicant's valuation expert Mr Browne had made his assessment cognisant of the heritage issues and his valuation should either be accepted in whole or subject to appropriate adjustment.
8. Mr Watters noted that Council contended that as at the relevant time in 2008 Council's policies would have permitted the demolition of 733. He said this evidence should not be countenanced 'if there is no evidence that its policies were publicly available at the time'. In Morrison's case Stephen J rejected evidence from valuers acting for the Commonwealth of Australia who took account of information which was not publicly available. A hypothetical purchaser would not be possessed with the knowledge of these internal procedures and therefore no weight should be given to them. He referred to Manufacturers' Mutual Insurance Limited v Gosford City Council (1981) 27 The Valuer 214, 215; Hyam, The Law Affecting Valuation of Land in Australia (4th Ed 2009) 503. In contrast he said in the Edinburgh case Else-Mitchell J said it was proper to take into account anticipated changes in the planning scheme because this was in the nature of public information (1971) 34 LGRA 45, 51. What was available, he submitted, and what should be taken into account was the recommendation as to valuation in the 1993 study. He said a rating authority was required to act 'in a highly principled way'. He referred to R v Tower Hamlet London Borough Council; ex parte Chatnik [1988] AC 858 and Commissioner of State Revenue v Royal Insurance Australia Limited [1994] HCA 61; (1994) 182 CLR 51, 65 per Mason J referring to State Revenue Authorities_._ To proceed in valuation as Council did in the face of recommendations in the same consultant as to restriction to be placed on redevelopment was not consistent, with that obligation he submitted.

1. Mr Cantor, Solicitor appeared on behalf of the Council. He submitted that the following questions arose:
   1. In light of the statutory definition of site value, is there any inconsistency with the context or subject matter by assuming that the improvements on the land had not been made as at the relevant date of 1 January 2008?
   2. Depending on the answer to question 1, what is the highest and best use of the land?
   3. Having regard to the answer to question 2, what is the best sales or other evidence to rely on [in] determining the site value?
2. Mr Cantor submitted it must be assumed that the buildings on the subject property did not exist on 1 January 2008. The highest and best use of the property he submitted was for a commercial use consistent with the Business 1 Zone, most probably retail use. The best sales evidence was he submitted the four primary sales relied on by Mr Patel.
3. According to Mr Cantor the concept of 'site value' was defined in Section 2(1) of the Valuation of Land Act 1960. This was to be contrasted with the definition of 'capital improved value' as defined in the same Act. In either case he said it was necessary to assume 'that the land is unencumbered by any lease, mortgage or other charge'. He referred to the well known principles in Spencer v The Commonwealth [1907] HCA 82; (1907) 5 CLR 418 and Good v Valuer-General (1997) 22 SASR 247, 259-60 per Wells J. It was necessary to assume that there was a hypothetical valuer wiling but not over anxious to purchase at the relevant time. It was not open to hypothesise that there were too many problems associated with the property to attract a buyer at all. He referred to an unreported decision of the Land Valuation Board of Review, Brenchley Gardens v City of Caulfield (20 December 1991).
4. He referred to the definition of improvements in Section 2(1) of the Valuation of Land Act noting that the Act acknowledges the possibility that a building will not always be an improvement to the value of land.
5. He noted that by virtue of Section 2(9) of the Valuation of Land Act that in certain stipulated circumstances the value of rateable land must be calculated on the basis that a building cannot be pulled down or removed. Those requirements with respect to the subject property. There was nothing he said in the Boroondara Planning Scheme which prohibits the pulling down or removal of the building. He noted that under a Business 1 Zone no permit was required under the Planning and Environment Act to demolish or remove a building.
6. Section 29A of the Building Act deals with permits under the Building Act and may provide an obstacle to demolition. He submitted however that based on the evidence of Ms Widan, an officer of Boroondara City Council, that as at the relevant date in 2008, a permit under that Section would have been forthcoming. He referred to some 56 consents for building permits for demolition of dwellings relative to C grade or contributory buildings granted in the period January 2007 to March 2008. Accordingly he submitted it was inappropriate to adjust the value of land for any heritage issue.
7. The first task of a valuer he said was to determine what the use of land is and then to value the land on that basis. He referred to Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410.
8. Next he said that there was no statutory definition of the concept of 'highest and best use' but that the notion permitted a combination of actual and potential uses. He referred to ISPT Pty Ltd v Melbourne City Council [2008] VSCA 180 [37] - [38]. The hypothetical purchaser must on these principles he said be perfectly acquainted with the prospect of being able to demolish the building so as to develop the land to its highest and best use. He noted it appeared that the applicant had sought advice from Mr Negri of Contour Consultants but that no evidence had been put on from that consultancy. It was reasonable to infer therefore in accordance with the principle of Jones v Dunkel (1959) 101 CLR 298 that Mr Negri's evidence would not have been of assistance to the applicant or at any rate would have cast no doubt on the opinion of Mr Patel.
9. He submitted that the value of land needed to be calculated by one of two methods, either by considering what the land would fetch if it was unimproved and with the assistance of comparable sales evidence of other vacant land assessed the site value or secondly consider what the land would fetch in its improved state, then deducting from the figure the value of the improvements on the land depending on whether they constitute an enhancement or a reduction. This second method he said was specifically contemplated in Victoria by virtue of Section 2(2) of the Valuation of Land Act despite the decision of the Judicial Committee of the Privy Council in Toohey's Limited v Valuer General [1925] AC 439. He said:

Both approaches would in ordinary circumstances be appropriate and in ordinary circumstances rigid adherence to one in preference to another might be an area of law.

1. He referred to Maurici v Chief Commissioner of State Revenue [2003] HCA 8; (2003) 212 CLR 111. Generally he said the first method would be preferred 'where one can find and has available sales evidence of comparable vacant land'. Where that is not available the 'deduced value' approach would be appropriate. In the present case he said both Mr Browne and Mr Patel 'have relied on comparable sales of vacant or near vacant land (or development land)'. He then said 'once it is accepted that the statutory assumption can be made, the task of the Tribunal in comparing land sales may proceed'. He referred to ISPT Pty Ltd v City of Melbourne and Valuer General [2007] VCAT 652 [50] - [53]. He said Mr Patel's sales should not be regarded as improved sales 'in the true and legal sense as the buildings do not add value'.
2. With respect to Mr Browne's evidence, Mr Cantor observed that in a report of 18 March 2008 he assessed the current market value subject to the existing leases at $1.5m and at $4m unencumbered by the leases. This could not be consistent with the view expressed in his report of 22 September 2010 that the land was valued at $2.132m.
3. In any event he said Mr Browne relied primarily on sales of Business 2 zoned properties for prices ranging from $3,000 to $3,500 per square metre which Mr Cantor said were not comparable. He said it was wrong to make any adjustment for additional risks as being required to retain existing buildings as had been done by Mr Browne. He submitted Mr Browne had made inappropriate adjustments to analyse land values and wrongly rejected sales relied on by Mr Patel. He also submitted adjustments of 10% for the time involved in obtaining planning permits was inappropriate.
4. According to Mr Cantor, in contrast Mr Patel, a valuer of 23 years standing had carried out a proper and appropriate assessment and adopted a proper method. He noted that the detail of the adjustments made by Mr Patel were set out in Appendix 7 to his report. He continued:

It is conceded by the respondent that there is no perfect sale. In particular, there is a lack of depth highly comparable sales in the immediate vicinity of the subject land. However, it is submitted that Mr Patel's sales analyses proceeds by way of clear and reasonable adjustments where required.

1. None of the primary sales relied on by Mr Patel he submitted was 'incomparable'. Mr Cantor said that the Tribunal should confirm the assessment made by Council.

1. The Valuation of Land Act 1960 defines site value which is the value relevant for the purposes of this proceeding as follows:

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

1. It will be seen that a fundamental element of the definition is the requirement to assume that the 'improvements' had not been made. Improvements are defined in the Act as follows:

improvements, for the purpose of ascertaining the site value of land, means all work actually done or material used on and for the benefit of the land, but in so far only as the effect of the work done or material used increases the value of the land and the benefit is unexhausted at the time of the valuation, but, except as provided in subsection (2AA), does not include -

(a) work done or material used for the benefit of the land by the Crown or by any statutory public body; or

(i) the removal or destruction of vegetation or the removal of timber, rocks, stone or earth; or

(ii) the draining or filling of the land or any retaining walls or other works appurtenant to the draining or filling; or

(iii) the arresting or elimination of erosion or the changing or improving of any waterway on or through the land -

unless those improvements can be shown by the owner or occupier of the land to have been made by that person or at that person's expense within the fifteen years before the valuation;

1. Section 5A sets out certain general principles governing the determination of the value of land as follows:

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

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

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

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

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

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

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

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

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

1. Sub-sections 2(8) and 2(9) of the Act provide in the circumstances described for a differential treatment of 'improvements'. Those sub-sections are as follows:

(8) Despite anything in this Act or the Local Government Act 1989, the capital improved value, net annual value and site value of any rateable land which is a registered place within the meaning of the Heritage Act 1995 or on which there is situated a building which is included in the Heritage Register established under that Act must be calculated on the basis -

(a) as to the part actually occupied by the building included in the Heritage Register established under the Heritage Act 1995 -

(i) that the land may be used only for the purpose for which it was used at the date of valuation; and

(ii) that all improvements on that land as at the date of valuation may be continued and maintained in order that the use of the land referred to in subsubparagraph (i) may be continued; and

(iii) that no improvements, other than those referred to in subparagraph (ii), may be made to or on that land; or

(b) as to any part (not actually occupied by the building which is included in the Heritage Register and which is not land that is included in the Heritage Register) that the building which is included in the Heritage Register cannot be removed or demolished and that any land referred to in paragraph (c) must not be subdivided or developed unless a permit to subdivide or develop the land has been granted by the Heritage Council; or

(c) as to any land that is included in the Heritage Register established under the Heritage Act 1995 that the land cannot be subdivided or developed or if a permit to subdivide or develop the land has been granted by the Heritage Council, that it can be subdivided or developed only in accordance with that permit.

(a) a planning scheme under the Planning and Environment Act 1987 prohibits the pulling down or removal of a building; or

(b) a planning scheme under the Planning and Environment Act 1987 provides that a permit is required before a building may be pulled down or removed and -

(i) the responsible authority has refused to grant a permit; or

(ii) the Administrative Appeals Tribunal or the Victorian Civil and Administrative Tribunal has directed that no permit issue -

then despite anything in the Local Government Act 1989 or this Act the capital improved value, net annual value and site value of any rateable land that includes the building must be calculated on the basis that the building cannot be pulled down or removed.

1. For completeness we should also refer to Section 2(2) of the Valuation of Land Act 1960 which is relied on by Mr Cantor which is in the following terms:

(2) In estimating the value of improvements on any land for the purpose of ascertaining the site value of the land, the value of the improvements is the sum by which the improvements upon the land are estimated to increase its value if offered for sale on such reasonable terms and conditions as a genuine seller might in ordinary circumstances be expected to require.

1. Despite the submission made by Mr Cantor that it was proper simply to ignore the building on No. 733 altogether, as the definition of site value requires the assumption that the improvements (if any) had not been made; in determining the site value of land in accordance with Section 5A, the effect of any regulation that may affect the use or development of the land are not ignored. It is also noted that the requirement to assume that the improvements have not been made only applies if the improvements on the subject property accord with the definition of improvements under Section 2. The High Court decision in Royal Sydney Golf Club v Federal Commissioner of Taxation [1955] HCA 13; (1955) 91 CLR 610 relied upon by Mr Watters and Section 5A(3)(b) of the Valuation of Land Act both support the view that it is necessary to give consideration to the impact of the heritage overlay which attaches to the buildings and not to the bare land. The decision of Emmerton J in Pattas v Stonington City Council [2010] VSC 487 is an example of this principle. In that case however there was an actual heritage overlay affecting the subject property in Chapel Street, Prahran, in contrast to the situation which exists in this case where the overlay was at most 'threatened' at the relevant date.
2. The existence of heritage restrictions even if they are not to be found in the planning scheme or in a way which would invoke the operation of Sections 2(8) or 2(9) of the Valuation of Land Act requires to be taken into consideration as to the site value. In the hallowed words of Isaacs J in Spencer v The Commonwealth [1907] HCA 82; (1907) 5 CLR 418, 441:

To arrive at the value of the land at [the relevant] date, we have, as I concede, to suppose its soul then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognisant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason so ever in the amount which one would otherwise be willing to fix as the value of the property.

1. The hypothetical purchaser must in accordance with this principle be regarded as 'cognisant' in His Honour's words of the heritage issues.
2. Mr Browne's view was that the suggested control on buildings such as No. 733 which merely contribute to the heritage qualities of the relevant precinct might 'spook' the market.
3. Mr Patel and Mr Cantor in submission contended that a hypothetical purchaser in rendering himself cognisant of all circumstances would have made enquiry in 2008 of Boroondara City Council on these heritage issues. Mr Cantor noted evidence from Ms Widan, a council officer involved in these matters tracing the various measures and procedures adopted by council to monitor the demolition of buildings which might be part of the municipality's heritage. Her evidence which stood uncontradicted was that at all material times in 2008 a person seeking authority to demolish a purely contributory building such as No. 733 would have been given that permission. He referred to various policy documents enunciating these rules.
4. Mr Cantor conceded that these documents were not publicly available. We need not stay to consider whether the relevant documents might have been available under the Freedom of Information Act 1982. The ordinary process for a potential purchaser in making himself cognisant with the circumstances of the land would entail standard enquiries on matters such as the availability of an authority to demolish from responsible council officers. We accept the evidence of Ms Widan and conclude that a person having the level of knowledge supposed by the analysis of Isaacs J in Spencer's case would have been aware at material times in 2008 that an authority to demolish would have been forthcoming. All this has changed now but as Isaacs J remarked in Spencer's case:

All circumstances subsequently arising are to be ignored. Whether land becomes more valuable or less valuable afterwards is immaterial.

[1907] HCA 82; (1907) 5 CLR 418, 440

1. We put the heritage issues to one side. We are fortified in this view by the further consideration that Mr Browne gave evidence that he had carried out previous valuations of 733 in 2008 and 2005 for mortgage purposes. In 2004 he gave the very conservative valuation of $1.2m. In his evidence he was inclined to attribute that low valuation for mortgage purposes to apprehensions as to heritage issues. He also mentioned the existence of leases held by a number of tenants. Aside from these matters he said, the property could have been valued at $4m.
2. If the heritage issues are put to one side and the leases are ignored as they must be for the purposes of the site valuation to be conducted in this proceeding, Mr Browne's opinion to that affect is supportive of Council's valuation. Moreover, as Mr Cantor observed, Mr Browne's report of 2008 which was available to him though not placed in evidence before us, attributed the depressed valuation of $1.5m to the existence of the leases and stated 'and I consider the value of the property unencumbered by the leases is in the range of $4m'.

1. In our view the sales chosen by Mr Patel are more appropriately comparable than those to which primary weight was given by Mr Browne. Mr Patel criticised Mr Browne's approach as giving too much weight to sales of Business 2 zoned properties such as No. 616 Glenferrie Road. Mr Patel said it was incontrovertible that as at 2008 a Business 2 zoned building on a main road without major passing pedestrian traffic should command a price of $3,000 to $3,500 per square metre of land area; but such a sale was not he said comparable because 733 is in the core area of the Glenferrie Road shopping precinct. We accept that opinion. No. 616 for instance is beyond the edge of the shopping precinct an to the south of the major intersection of Glenferrie Road and Burwood Road.
2. Mr Patel said that the highest and best use for No. 733 would be a combined redevelopment with retail outlets at the Glenferrie Road frontage perhaps a café or restaurant on the side bounding with residential or office developments above. He conceded that Business 1 Zones and Business 2 Zones have as to this type of development, the same development potential. Indeed there were two nearly adjacent Business 2 zoned properties in Glenferrie Road which had been the subject of such redevelopment. The difference according to Mr Patel between 733 and the Business 2 zoned properties relied on by Mr Browne was that the Business 2 zoned properties there lacked substantial passing pedestrian traffic which was possessed by No. 733. We accept that analysis.
3. We do not believe that there was any justification for Mr Browne simply to ignore and disregard the sale in Riversdale Road, Camberwell. We agree with Mr Browne's observation that the properties in South Yarra relied upon by Mr Patel are in superior locations. Mr Watters in final address and in cross-examination laid emphasis on the degree to which Mr Patel had adjusted the values of these properties and others upon which he relied. Clearly an unscrupulous valuer could by a purported process of adjustment of values and with the appearance of exactness, torture a group of sales to prove almost anything he wanted to prove RK Morgan Holdings Pty Ltd v MMBW (1992) 77 LGRA 102, 108-9 per Gobbo J . In the present case however there was nothing in submission or cross-examination to our minds showed that the concept of comparability had been stretched beyond what could reasonably be accommodated by adjustment nor that the adjustments made by Mr Patel were excessive, inconsistent or inappropriate.
4. For all these reasons we prefer the opinion of Mr Patel as to what should flow from an analysis of comparable sales, supporting as it does the confirmation of Council's assessment of value as at 1 January 2008.
5. Whilst we accept that what were described in the judgment of Stephen J in Morrison v The Commonwealth (1971) 34 LGRA 273 as being 'secret facts' cannot be taken into consideration in judging what a hypothetical purchaser might have offered to purchase 733 on 1 January 2008 there is no evidence that any such 'secret facts' existed. Council's policy as to the demolition of buildings that were merely contributory to heritage was available to any prospective purchaser who chose to make the usual enquiries which someone contemplating a redevelopment would make.
6. Mr Browne also sought to support his lower value by expressing the view that early 2008 was a turbulent time in the real estate market. He referred to the global financial crisis. Mr Patel said that according to his recollection the turbulence for the Australian market began in September 2008 and that in January 2008 the market remained strong. Mr Patel's view of things is supported by the continuing increase in value of the Chapel Street property which was one Mr Patel's comparable sales and which was resold in mid-2008 on what was then still a strong market. Mr Patel's understanding of how events occurred accords with our own recollection.
7. In cross-examination and submission Mr Watters raised the question of seeking comparable sales in Sydney Road, Brunswick. This possibility was not raised by either of the expert witnesses who gave evidence before us. We have no evidence of any Sydney Road sales much less their comparability. We put Sydney Road sales aside as mere speculation.

1. We have heard no submissions on the question of costs and so we will reserve them.