Francis v Valuer General

[2024] NSWLEC 1055

Land and Environment Court (NSW)|2023-12-07

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At a glance

Source facts

Court

Land and Environment Court (NSW)

Decision date

2023-12-07

Source

Original judgment source is linked above.

Judgment (57 paragraphs)

[1]

JUDGMENT

These Class 3 proceedings comprise an appeal under s 37 of the Valuation of Land Act 1916 (Valuation Act) by Mrs Rixta Francis (the applicant) challenging the land value determined by the Valuer General (respondent) for the valuing year 1 July 2022 (Valuing Year) under the Valuation Act in respect of Lot 170 in DP 1094976 (also known as 41 Denman Street, Maitland, NSW) (Subject Land).
Pursuant to ss 6A of the Valuation Act, the respondent ascertained the land value of the Subject Land in the amount of $291,000 for the Valuing Year (Valuation).
On 29 January 2023, the applicant lodged an objection with the respondent in respect of the Valuation. On 11 April 2023, the respondent rejected the objection and upheld the Valuation. The applicant was dissatisfied with the determination of the objection and appealed pursuant to s 37 of the Valuation Act on 1 May 2023. The proceedings were therefore commenced within the time period prescribed by s 38 of the Valuation Act. The proceedings fall within Class 3 of the Court's jurisdiction pursuant to s 19(b) of the Land and Environment Court Act 1979 (LEC Act).
The applicant's position as to the correct valuation of the Subject Land in the Valuing Year changed over the course of the matter. In the applicant's Valuation Objection Form dated 29 January 2023 (attached to the applicant's Class 3 Application filed 1 May 2023 (Exhibit 1, Tab 1)), the suggested land value was $145,500. In the applicant's Grounds of Objection (attached to the respondent's Statement of Facts filed 21 July 2023 (Exhibit 1, Tab 3)), the applicant contended that the land value of the Subject Land as at the Valuing Year was "around $1,000/m2" (which would equate to $151,900). During the hearing, the applicant contended that the land value was "around $50,000…" however, "could even be as low as $30,000".

[2]

[3]

Legislative framework

For the purposes of the Valuation Act, the Subject Land is to be valued under s 6A of the Valuation Act which provides as follows: 6A Land value (1) The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made. (2) Notwithstanding anything in subsection (1), in determining the land value of any land it shall be assumed that - (a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates, and (b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used, but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that the improvements, if any, other than land improvements, referred to in subsection (1) had not been made. (3) Notwithstanding anything in subsection (1), in determining the land value of any land, being land in relation to which, at the date to which the valuation relates, there was a water right - (a) the land value shall include the value of the right, and (b) it shall be assumed that the right shall continue to apply in relation to the land. (4) For the purpose of determining the value of a water right, the value of any water secured by, or referable to, that right is to be ignored.
Section 40 of the Valuation Act relevantly provides as follows: 40 Powers of Land and Environment Court on appeal (1) On an appeal, the Land and Environment Court may do any one or more of the following - (a) confirm or revoke the decision to which the appeal relates, (b) make a decision in place of the decision to which the appeal relates, (c) remit the matter to the Valuer-General for determination in accordance with the Court's finding or decision. (2) On an appeal, the appellant has the onus of proving the appellant's case.

[4]

Evidence

The parties agreed that a view of the Subject Land and relevant comparable properties was not required due to the nature of the applicant's challenge to the Valuation being in respect of the valuation methodology.
The applicant elected not to engage an expert witness or tender any evidence in the proceedings.
The respondent engaged Mr Angelo Konidaris, registered valuer, who prepared a statement of evidence on behalf of the respondent (Exhibit 1, Tab 4) (Konidaris Report). Mr Konidaris was also cross examined by the applicant.
The Konidaris Report states that multi dwelling housing and shop top housing are both permitted on the Subject Land under the B4 Mixed Use zone. However, Mr Konidaris did not consider the Subject Land capable of supporting either use due to: 1. the dominant use of the surrounding land for continued residential use; 2. the location of the Subject Land outside of the local "High Street" retail location; 3. the small land size of the Subject Land requiring amalgamation with several adjoining properties to reasonably allow higher intensity residential uses such as attached housing, multi dwelling housing or shop top housing; and 4. no recent examples discovered of amalgamation of sites occurring for more intensive land uses in the immediate vicinity in recent years.
It was Mr Konidaris' view that although detached residential dwellings are actually prohibited under the B4 Mixed Use zone, the highest and best use of the Subject Land was a single detached dwelling with the benefit of existing use rights.
Mr Konidaris then went on to consider comparable sales to determine the value of the Subject Land, absent the Improvements, for the purposes of s 6A of the Valuation Act.
After noting that there was a paucity of similar B4 zoned sales evidence within the immediate Maitland locality in the relevant year, further exacerbated by a lack of any market evidence less than 200m2, Mr Konidaris identified seven comparable sales relevant to the analysis and determination of the value of the Subject Land. These sales consisted of five transactions comprising improved residential parcels in the Maitland locality and two vacant land parcels in Horseshoe Bend, the adjoining locality to the east of Maitland.
Given that most of the analysed sales transacted before 1 July 2022, and Mr Konidaris' research indicated that that there was strong market movement in the years between 2020 and 2022, Mr Konidaris considered that an adjustment for market movement was required. In order to quantify this movement, Mr Konidaris relied upon the sale and resale of a vacant land parcel at 20 Abbott Street, Maitland, with no changes made to the site between sale dates (Abbott Street Property).
The Abbott Street Property originally sold in December 2021 for $482,000 and re-sold in December 2022 for $620,000 with no changes made to the property apart from market conditions over the 12 months. In Mr Konidaris' opinion, the paired sale of the Abbott Street Property reflected a market movement of 28.6% over a 12 month period (which can also be expressed as 2.4% per calendar month). Mr Konidaris subsequently relied on his analysis of the paired sale of the Abbott Street Property to adjust his sales evidence to the July 2022 base date.
In relation to quantifying the value of the improvements on the improved residential sales, Mr Konidaris stated that he relied on Rawlinsons Construction Cost Guide 2022 and, resolving any doubt in favour of the landowner, the adopted rates were not adjusted to reflect depreciation and applied on an "as new" basis. Mr Konidaris states that his adjustments were made inclusive of GST.

[12]

Applicant's submissions

The applicant outlined two key criticisms of the Valuation in the Applicant's Statement of Basic Facts (Exhibit 1, Tab 3), being: 1. the Valuation reflects an increase of 120% in three years from the statutory valuations made under the Valuation Act in respect of the Subject Land which is significantly greater than the market increases during the same period; and 2. the valuation of the Subject Land by the respondent is out of line with the property transactions that occurred in the local area in 2022.
In relation to the first argument, the applicant stated that the Valuation comprised a 120% increase from the statutory valuation of the Subject Land three years prior at $132,000. In the applicant's submission, in 2022, the average increase in value in Maitland was around 13%. Further, it was the applicant's view that the Subject Land had increased in value by 110% over a 14 year period (from 2006 to 2020) and then a further 120% in just three years. In the applicant's submission, the 120% three year statutory increase and its relationship to the market was never explained by the respondent.
In relation to the second criticism, the applicant contended the Valuation (which equated to $1,915.73/m2) did not reflect sale prices in the area. The applicant made a list of 2021 and 2022 transactions in the area which were all sold improved with dwellings (with the exception of sale (l) below) as follows: 1. 15 November 2022, 597 High Street - $532,000/430m2 = $1,235/m2; 2. 14 November 2022, 61 Lee Street - $615,000/504m2 = $1,518/m2; 3. 03 November 2022, 20 Hannan Street - $550,000/1,200m2 = $458/m2; 4. 13 October 2022, 28 Hannan Street - $605,000/443m2 = $1,366/m2; 5. 10 October 2022, 11 Rose Street - $515,000/322m2 = $1,599/m2; 6. 29 September 2022, 17 Catherine Street - $500,000/369m2 = $1,355/m2; 7. 20 September 2022, 10 Bonar Street - $580,000/558m2 = $1,039/m2; 8. 12 August 2022, 8 Wolfe Street - $725,000/1,278m2 = $567/m2; 9. 27 June 2022, 109 Bourke Street - $540,000/379m2 = $1,425/m2; 10. 7 June 2022, 62 Regent Street - $1,000,000/1163m2 = $860/m2; 11. 16 May 2022, 73 Bulwer Street - $1,100,000/765m2 = $1,438/m2; 12. 24 March 2022, 112 High Street (land only) $286,000/463m2 = $618/m2; and 13. 17 May 2021, 33 Denman Street - $407,000/252m2 = $1,615/m2.
In the applicant's opinion, the respondent had failed to demonstrate how the Valuation was correct in the face of these transactions which all yielded a lower rate per m2 than the Subject Land despite the fact that all but one of the applicant's comparable sales were improved with dwellings.
In the applicant's oral submissions during the hearing, the applicant advanced some additional arguments, including: 1. value can only be determined by the free market and nobody can say what land may be expected to realise outside of the free market; 2. the Valuation Act, and the artificial valuation exercise required under the Valuation Act, is invalid; and 3. the comparable sales put forward by the respondent were a matter of opinion only and there was "no basis whatsoever for these calculations".
The applicant concluded, in oral submissions, that she did not know the real value of the Subject Land and that "nobody can know until the free market has been able to establish itself again". The applicant stated that if she had to guess, she would think that a price of around $50,000 was realistic and could even be as low as $30,000.

[13]

Respondent's submissions

The respondent submitted that the expert evidence of Mr Konidaris should be accepted on the basis that: 1. he had adopted "the conventional direct comparison approach to arrive at the land value" by identifying and analysing a pool of relevant comparable sales; 2. the comparable sales methodology is the "most widely accepted method of determining the value of land, citing Richard Capuano v Roads and Maritime Services [2018] NSWLEC 59 at [13]-[19]; and 3. there was a "clear, stepwise process enabling scrutiny of the facts and assumptions relied upon by Mr Konidaris in reaching his conclusions."
The respondent clarified that although Mr Konidaris had valued the Subject Land at $300,000, the respondent was not pressing for this amount and instead sought orders that the valuation of $291,000 be confirmed.
The respondent further submitted that the arguments raised by the applicant should be rejected on the basis that: 1. the applicant is not a valuer and the applicant's approach to the valuation of the Subject Land was wrong as a matter of valuation principle; 2. the applicant's reliance on previous statutory land valuations to criticise the percentage increase to the Valuing Year is an approach that has been consistently rejected by the Courts, as to adopt that approach is to assume the correctness of the previous valuing year (as per Roper J in Hillman v Valuer General (1938) 14 LGR (NSW) 14 at 15 and Parker AC and Maston AC in Barrett v Valuer General [2015] NSWLEC 1141 at [34]); 3. the applicant's assertion that the land value in Maitland has increased by 13% is not supported by any evidence and it is unclear over which period, or what land type (eg vacant or improved), this percentage refers; and 4. the sales relied on by the applicant in the Maitland area in 2021 and 2022 cannot be given any weight because there has been no: 1. analysis to determine whether these sales are comparable; 2. analysis of the value of the improvements; and 3. consideration of, or adjustments made in relation to, size, location, zoning, flood liability or market movement etc.
The respondent concluded in oral submissions that, on the basis of the above, in addition to the applicant's failure to identify or establish an alternative value of the Subject Land, the applicant had failed to discharge its onus of proving the applicant's case (as per s 40(2) of the Valuation Act) and the appeal should be dismissed.

[14]

Consideration

By virtue of s 40(2) of the Valuation Act, the applicant has the onus of proving its case. This means that the applicant must establish that the Valuation as determined by the respondent in the Valuing Year was incorrect.
The applicant's first argument was that the Valuation reflects an increase of 120% in three years from the statutory valuations made under the Valuation Act in respect of the Subject Land which is significantly greater than the market increases during the same period (estimated to be at 13%). I accept the respondent's submissions in relation to this argument, namely that the case law has established that it is inappropriate to place weight on previous statutory land valuations in circumstances where the correctness of these valuations are unlikely to have been tested.
This is particularly the case where the comparable sales approach is able to be utilised. It is generally accepted, as submitted by the respondent, that the most widely accepted method of determining land value is via the comparable sales methodology (Richard Capuano v Roads and Maritime Services [2018] NSWLEC 59 at [13]-[19]).
In this matter, it appeared that both parties considered there to be sales available for consideration in the Maitland area. I am therefore satisfied that the comparable sales approach is the appropriate methodology to determine the value of the Subject Land in this case and have placed no weight on previous statutory land values for the Subject Land or any market increases in the area (which were not the subject of evidence by the applicant in any event).
This leads to the applicant's second argument, being that the valuation of the Subject Land by the respondent is out of line with property transactions that occurred in the local area in 2021 and 2022.
Although the applicant referred the Court to a number of sales which were stated to have transacted in the local area in and around 2022, no expert or lay evidence was tendered in respect of those sales. I accept the respondent's submission that these sales cannot be given any weight in the absence of analysis of improvements and consideration of, or adjustments made in relation to, size, location, zoning, flood liability, market movement or other relevant factors.
The further arguments made by the applicant in oral submissions during the hearing did not assist the applicant's case. The statutory framework for determining the value of land is set out in s 6A of the Valuation Act. The fact that s 6A requires a hypothetical or artificial valuation exercise to be carried out does not render the section, or the Valuation Act, invalid.
Further, although the comparable sales put forward by Mr Konidaris for the respondent were a matter of opinion, Mr Konidaris (being a registered valuer) had set out the basis for his calculations in the Konidaris Report and further explained his approach during cross examination at the hearing. I accept the respondent's submission that Mr Konidaris had provided a "clear, stepwise process enabling scrutiny of the facts and assumptions relied upon by Mr Konidaris in reaching his conclusions".

[21]

It was Mr Konidaris' view that although detached residential dwellings are actually prohibited under the B4 Mixed Use zone, the highest and best use of the Subject Land was a single detached dwelling with the benefit of existing use rights.
Mr Konidaris then went on to consider comparable sales to determine the value of the Subject Land, absent the Improvements, for the purposes of s 6A of the Valuation Act.
After noting that there was a paucity of similar B4 zoned sales evidence within the immediate Maitland locality in the relevant year, further exacerbated by a lack of any market evidence less than 200m2, Mr Konidaris identified seven comparable sales relevant to the analysis and determination of the value of the Subject Land. These sales consisted of five transactions comprising improved residential parcels in the Maitland locality and two vacant land parcels in Horseshoe Bend, the adjoining locality to the east of Maitland.
Given that most of the analysed sales transacted before 1 July 2022, and Mr Konidaris' research indicated that that there was strong market movement in the years between 2020 and 2022, Mr Konidaris considered that an adjustment for market movement was required. In order to quantify this movement, Mr Konidaris relied upon the sale and resale of a vacant land parcel at 20 Abbott Street, Maitland, with no changes made to the site between sale dates (Abbott Street Property).
The Abbott Street Property originally sold in December 2021 for $482,000 and re-sold in December 2022 for $620,000 with no changes made to the property apart from market conditions over the 12 months. In Mr Konidaris' opinion, the paired sale of the Abbott Street Property reflected a market movement of 28.6% over a 12 month period (which can also be expressed as 2.4% per calendar month). Mr Konidaris subsequently relied on his analysis of the paired sale of the Abbott Street Property to adjust his sales evidence to the July 2022 base date.
In relation to quantifying the value of the improvements on the improved residential sales, Mr Konidaris stated that he relied on Rawlinsons Construction Cost Guide 2022 and, resolving any doubt in favour of the landowner, the adopted rates were not adjusted to reflect depreciation and applied on an "as new" basis. Mr Konidaris states that his adjustments were made inclusive of GST.

[55]

By virtue of s 40(2) of the Valuation Act, the applicant has the onus of proving its case. This means that the applicant must establish that the Valuation as determined by the respondent in the Valuing Year was incorrect.
The applicant's first argument was that the Valuation reflects an increase of 120% in three years from the statutory valuations made under the Valuation Act in respect of the Subject Land which is significantly greater than the market increases during the same period (estimated to be at 13%). I accept the respondent's submissions in relation to this argument, namely that the case law has established that it is inappropriate to place weight on previous statutory land valuations in circumstances where the correctness of these valuations are unlikely to have been tested.
This is particularly the case where the comparable sales approach is able to be utilised. It is generally accepted, as submitted by the respondent, that the most widely accepted method of determining land value is via the comparable sales methodology (Richard Capuano v Roads and Maritime Services [2018] NSWLEC 59 at [13]- [19]).
In this matter, it appeared that both parties considered there to be sales available for consideration in the Maitland area. I am therefore satisfied that the comparable sales approach is the appropriate methodology to determine the value of the Subject Land in this case and have placed no weight on previous statutory land values for the Subject Land or any market increases in the area (which were not the subject of evidence by the applicant in any event).
This leads to the applicant's second argument, being that the valuation of the Subject Land by the respondent is out of line with property transactions that occurred in the local area in 2021 and 2022.
Although the applicant referred the Court to a number of sales which were stated to have transacted in the local area in and around 2022, no expert or lay evidence was tendered in respect of those sales. I accept the respondent's submission that these sales cannot be given any weight in the absence of analysis of improvements and consideration of, or adjustments made in relation to, size, location, zoning, flood liability, market movement or other relevant factors.
The further arguments made by the applicant in oral submissions during the hearing did not assist the applicant's case. The statutory framework for determining the value of land is set out in s 6A of the Valuation Act. The fact that s 6A requires a hypothetical or artificial valuation exercise to be carried out does not render the section, or the Valuation Act, invalid.
Further, although the comparable sales put forward by Mr Konidaris for the respondent were a matter of opinion, Mr Konidaris (being a registered valuer) had set out the basis for his calculations in the Konidaris Report and further explained his approach during cross examination at the hearing. I accept the respondent's submission that Mr Konidaris had provided a "clear, stepwise process enabling scrutiny of the facts and assumptions relied upon by Mr Konidaris in reaching his conclusions".

Francis v Valuer General

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