Falk v Chief Commissioner of State Revenue

LEGAL REPRESENTATIVES: RESPONDENT Mr W Webster, valuer

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

99/30128 : J S Falk v Chief Commissioner of State Revenue

1 Commissioner: This is an appeal under s 38A of the Land Tax Management Act 1956 in respect of the property at 18 Sims Street, Darlinghurst. The Chief Commissioner of State Revenue ascertained the land value as at 1 July 1998 to be $122,000. The applicant has objected on the ground that that value is too high and contends for a land value of $85,000.

2 At the hearing, the applicant (who is a consultant town planner) appeared for himself and gave evidence. For the respondent, evidence was given by expert valuer Mr W Webster of the Valuer-General's office. In accordance with s 38A of the Land Tax Management Act 1956 , the Taxation Administration Act 1996 (and in particular Part 10 Division 2 thereof) applies.

3 Under s 101 of the latter Act it is stated that on an appeal the appellant has the onus of proving the appellant's case. This onus of proof can be discharged in a number of ways as was stated in Flack v Valuer-General (1952) 18 LGR NSW 157 at 158. That case of course dealt with earlier legislation but what was stated in Flack's case is of relevance still for the present appeal. His Honour said: As a principle it requires the objector to begin and to adduce evidence on which the Court could arrive at a conclusion as to the value of the subject property at the relevant date. He may do that in more than one way. He may, for example, rely upon expert opinion or upon evidence of sales of comparable lands or he may follow those methods in combination or he may employ any other available method. The expert opinion that his Honour was referring to was the expert evidence of a valuer.

4 It seems to me that there are two fundamental difficulties or problems apparent in the applicant's case. The first relates to the use of statutory land values of the subject property itself and of other nearby properties. I have not as a matter of law excluded that evidence presented by the applicant, but in the circumstances of this case where there is expert valuation evidence and evidence of comparable sales, it seems to me to be appropriate to give no weight to the statutory land values of the subject land or of other properties.

5 A landowner is less likely to object to a low land value than to a high land value. Insofar as the present applicant relies upon other statutory land values, it has not been shown that those land values determined in the course of a general valuation are more correct than the land value presently objected to. However, the comparable sales which I will refer to in a moment do seem to establish that the land value is at least $122,000.

6 In Deputy Federal Commissioner of Taxation v Gold Estates of Australia (1903) Ltd (1934) CLR 509 the High Court held that the trial judge had erred in simply taking the Deputy Commissioner's assessment of values for the year 1929 and applying a uniform fifteen percentage adjustment to those values to arrive at the assessed values for the subsequent year of 1930. In their joint judgment, Rich, Dixon and McTiernan JJ said at 514:

We think this method of arriving at a value was unsatisfactory. It depended entirely upon the correctness of the Commissioners assessme nt for the previous year and the soundness of the view that land values had fallen uniformly by 15%. There had been no examination by the witnesses of the correctness of that assessment and its reliability was presumed only from the fact that it was made and not appealed from. It is apparent that a valuation made in the ordinary course of routine administration is unlikely to have received the same consideration and care as has been bestowed by the witnesses called at the hearing upon the estimates to which they deposed.

7 It is not for the Court to conduct, as it were, a commission of inquiry as to the correctness or not of land values of other adjoining properties or to correct apparent inequities. It is merely for the Court to determine, having regard to s 6A of the Valuation of Land Act 1916, the land value of the property which is the subject of the appeal.

8 A second problem it seems to me in the applicant's case was the valuation of improvements . The best evidence, of course, is evidence of sales of comparable vacant land. However, evidence of sales of improved properties is not excluded, but that evidence must be looked at carefully. The applicant claimed in respect of one property that the value of the improvements was $200,000 which he estimated was the insurance value, presumably the insurance value based on a replacement of the improvements with new buildings.

9 There have been many cases in this Court, however, where quite livable properties, clearly having a substantial insurance value, have been treated as adding no value to the land. For example, the livable house on the property might not be the optimal use of the land, and the land is purchased merely for the demolition of that house. Even if the improvements on the land are, in floor area, the optimal use of the land, the configuration of the rooms or the condition of the premises may mean that the value is considerably less than the insurance value.

10 It has therefore been held on many occasions that the cost, or depreciated cost, of a building or its insurance value, does not necessarily equal the value which the building adds to the unimproved value of the property.

11 In Rost and Collins, Land Valuation and Compensation in Australia , 3rd Edition, at p 120 it is stated:

An improvement which is old or obsolete or one which is either inadequate or excessive will not make the best use of land, consequently the value which it adds to the land may not be even distantly related to cost.

12 In Collins v Livingstone Shire Council (1972) 127 CLR 477 at 500 Gibbs J said:

Evidence of the cost of improvements may be relevant to the value of the land in its improved state but it is the value, not the cost, that is the matter for ultimate determination. Some improvements increase the value of land to a greater extent than the cost but in other circumstances the cost of an improvement may greatly exceed value, eg because its wasteful design renders it unnecessarily expensive to construct or because it is redundant or out of place and cannot be put to profitable use having regard to its situation.

13 In respect of the comparable sales referred to by Mr Webster he did rely on one sale of an improved property and in respect of that property he formed the opinion that the improvements had a value of $100,000. He arrived at this value, it seems, principally having regard to costings from Rawlinson's figures. This is an appropriate exercise but as I mentioned earlier and as the cases indicate, cost does not necessarily equal value.

14 I tend to agree with the oral opinion of Mr Webster that the value of the improvements on the property at 5 Sims Street, which is sale 1 of Mr Webster, could well be less than $100,000 as at the date of the contract of sale of that property. I accept the analysis of the sales generally that Mr Webster carried out.

15 After deducting the value of the improvements for 5 Sims Street he arrived at a land value for that property of $145,000 or $3,825 per square metre. That property is considerably smaller than the subject land, and so following the general rule of thumb, to which there are exceptions of course, I would be inclined to make a substantial reduction to the price per square metre of that sale to take account of the difference in size . The general rule of thumb is that as the size of the subject land increases (relative to the size of the comparable sale), the price per square metre (derived from the comparable sale) decreases. There are also other adjustments that possibly have to be made when comparing each of the sales with the subject land.

16 Coming back to sale 1 again, I have taken into account the location of that property which is among other dwellings with garage doors facing the street, and quite possibly that property is affected by more noise from the main road than the subject land. I have taken into account, however, that that property has parking available outside of it whereas the subject property does not.

17 Overall, I would be inclined to accept Mr Webster's opinion that at least there should be no adjustment made on account of location when comparing that property and the subject land. So after making a substantial adjustment for size it seems to me that that sale still indicates that the subject land has a value substantially in excess of $122,000.

18 When comparing sale 2 with the subject land, which sale related to 240 Palmer Street, Darlinghurst, there is somewhat more difficulty because of the different location of that property, being closer to the centre of the CBD, but it is also affected by nearby traffic noise and there is a question as to whether its location adds to or detracts from its value having regard to the proximity of brothels.

19 That property has an area of 132.8 m2. The subject land has an area of 50.6 m2. Ordinarily an upward adjustment of the price per square metre would be made on account of the difference in size. The extent of the adjustment is a matter for professional expert opinion. That sale, in my opinion, clearly supports the land value ascertained by the respondent.

20 Likewise, without going into the particulars of the sale of 38 Adelaide Street, Surry Hills, set out in Mr Webster's statement of evidence, I am of the opinion that that sale also supports a land value for the subject land in excess of $122,000.

21 Mr Falk referred to the fact that the contracts for two of the sales were after the base date. This fact does not preclude reliance being placed upon the sales to which those contracts relate: see Federal Commissioner of Land Tax v Duncan (1915) 19 CLR 551; Daadine Pastoral Co Proprietary Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299 at 304. However, an adjustment should be made for any movement in the market between the base date of 1 July 1998 and the date of contract. Such an adjustment was made by Mr Webster.

22 Having considered all the evidence including other matters referred to by Mr Falk in his written statements, I am of the opinion that the applicant has not shown that the land value objected to is too high, and therefore I propose to make an order simply dismissing the appeal.

23 However, as the question whether a determination by the Court should be made of a land value in excess of that objected to was raised by Mr Webster, I should make the comment, briefly, that as a matter of law it would appear that it would be open to the Court to make such a finding and determine a particular land value in excess of the $122,000.

24 Among other things, s 100 of the Taxation Administration Act 1996 does not limit the appellant's or the respondent's cases on appeal to the grounds of the objection. However, it seems to me that looking at the legislation as a whole, the Court is not required to make that (higher) determination, although it may do so.

25 Another alternative open to the Court is simply to disallow the objection. The Court stands in the shoes of the Chief Commissioner of State Revenue. And under s 91 of the Taxation Administration Act 1996 the Chief Commissioner must consider an objection and either allow the objection in whole or in part or disallow the objection.

26 In this particular case, the objection was that the land value was too high. So the powers of the Commissioner in that circumstance was simply to disallow the objection, which he has done, and I consider that it is appropriate that the Court do likewise.

27 This does not preclude the Commissioner of State Revenue from subsequently ascertaining or re-ascertaining a new (higher) land value and issuing a new assessment, as is clear from other provisions of the legislation such as s 55 of the Land Tax Management Act 1956.

28 The course which I propose to adopt has with some exceptions generally been the course adopted in the past by this Court and by the former Land and Valuation Court: see, for example, Seatainer Terminals Ltd v Valuer-General (1974) 29 LGRA 6 at 13 per Else-Mitchell J.

29 Accordingly, the orders of the Court are: 1. The appeal in respect of the objection to the land value of $122,000 as at 1 July 1998 for the property at 18 Sims Street, Darlinghurst, having an area of 50.6 m2 is dismissed. 2. The exhibits may be returned.

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