Goodman v Roads and Traffic Authority of New South Wales

Under Baulkham Hills LEP 1991 the bulk of the land is zoned Residential 2(a) while that part subject to the Restriction on User is identified as being within the zone Special Uses 5(b) for road widening purposes.

The land was so encumbered and zoned when Mr Goodman purchased the property in April 1998 for $250,000.

Prior to formal acquisition in August 1999 the RTA offered to purchase the property for $387,500 in full satisfaction of all claims arising from the acquisition. The offer was rejected.

Pursuant to s 47 of the Just Terms Act the Valuer-General determined compensation at $437,500 as the value of the land and improvements together with $3,000 allowed for reasonable legal and valuation fees and a further amount of $4,050 allowed for fees for design and documentation for a proposed townhouse development on the subject property.

Ultimately, the formal Determination of Compensation was $437,500, noting that pursuant to s 26 of the Just Terms Act items of special value, loss attributable to severance or disturbance and solatium had not been included.

In response to the Compensation Notice issued pursuant to s 42, the applicant commenced these proceedings seeking compensation for the market value of the property in the sum of $560,000, plus costs and fees outlaid as loss attributable to disturbance and solatium.

At the commencement of the hearing Mr Hyam refined the applicant's claim to the following:- Market value $560,000 Legal and Valuation fees as disturbance costs $4,000 Solatium $15,000

Each item of the claim is disputed by the RTA. It contends for market value at $486,000 and denies the claim for the disturbance items and solatium, having regard to the provisions of s 26 of the Just Terms Act which provide as follows:- The special value of land, any loss attributable to severance or disturbance and solatium (as referred to in Part 3) need not be taken into account in connection with an acquisition of land under this Division, despite anything to the contrary in that Part.

Section 26 is in Div 3 of Pt 2 of the Just Terms Act which deals specifically with owner-initiated acquisition in cases of hardship.

In final submissions Mr Hyam informed the Court that the claim for solatium is not pressed. In the Court's opinion, this concession was properly made because, as will appear from the judgment, compensation has been calculated on the highest and best use which is above the value based on the existing use as a single dwelling house. Furthermore, the evidence is that the applicant was aware of the zoning and Restriction on User at the time of purchase. The need to relocate arose as a consequence of the hardship the owner was experiencing in relation to his financial affairs and therefore not directly as a consequence of the acquisition. His pressing financial needs precipitated a forced sale of the property which could not be achieved on the open market because of the road widening proposal.

There is now no dispute between the parties or their experts that at the date of acquisition the land had a potential to be developed for medium density residential units in the form of five townhouses on the basis that the RTA's proposal for road widening be ignored, as is now required by the definition of market value in s 56(1)(a) of the Just Terms Act.

The applicant's valuer, Mr Murray, carried out a valuation of the land as at the date of his inspection on 20 January 2000 on the basis that five townhouses could have been erected if the property had not been affected by the road widening proposal. The failure to carry out the valuation exercise as at the relevant date of 22 October 1999 has some bearing on the outcome, but there is no significant change in matters of principle at the date of acquisition.

He formed the opinion that the existing residence added no value to the land. He used what he referred to as a residual value technique based on the feasibility of a hypothetical project. He says this technique estimates the "on-completion" value of the individual townhouses and deducts from that figure all costs, including developer's profit and development and holding costs, to arrive at a residual land value.

He identified a number of sales of medium density sites along Old Northern Road, Round Corner and at Castle Hill. All of these sales took place in 1998. Mr Murray did not adopt the comparable sales method to determine the market value of the land as a site for medium density housing development because of the perceived intervening market changes.

The respondent's valuer, Mr John Kinchington, had regard to sales of nearby sites along Old Northern Road which were subsequently redeveloped with townhouses and for sales of, and asking prices for, townhouses within these developments. He also considered the value of the subject property using the Hypothetical Development Method as a useful guide in comparing the value of the subject property with values indicated by the sales of nearby townhouse sites.

Mr Kinchington, however, thinks that the subject site may have been more suitable for redevelopment with four three bedroom townhouses because even if five townhouses could be achieved, they would be of lesser area and dimension than nearby developments, thereby limiting the potential end price compared to the prices achieved in the other developments. On the basis of the highest and best use of the property Mr Kinchington assesses the value to reflect the potential for redevelopment with four three bedroom townhouses.

However, the parties proceeded to deal with the evidence primarily on the basis that five three bedroom townhouses could be built on the site, with Mr Kinchington maintaining that the quality of the units offered for sale would thereby be compromised and reflected in a lower selling price for each unit.

He did not consider the sales in Castle Hill identified by Mr Murray to be of any real significance on the basis that they were in a different market and therefore could not be treated as truly comparable.

Mr Murray explained that in his experience a buoyant market in 1997 suffered from the effects of the Asian economic crisis in 1998 followed by a revival in early 1999 so that by September 1999 a steady increase had been apparent. He estimates that between April 1998 and October 1999 the market for medium density housing sites increased by more than 12 per cent.

Only one sale of a 12 townhouse site at 546 Old Northern Road took place in the immediate locality of the subject site. The remaining sales identified were at Castle Hill and, in the Court's view, clearly distinguishable. The sale of 546 Old Northern Road was a larger site with development consent for 12 three bedroom townhouses in a better location.

The Court does not propose to take any greater account of the sales of development sites beyond using them as a check to be satisfied that a value derived by using the hypothetical development method is not dramatically inconsistent with that evidence.

The relevant issues remaining between Mr Murray and Mr Kinchington at the conclusion of the hearing can be summarised as follows:- (a) Whether the total selling price to be achieved for a block of five townhouses would be $1,625,000 or $1,610,000. (b) Whether the estimated legal and selling costs should be $45,000 or $48,000. (c) Whether the profit and risk factor should be allowed at 17.5 per cent or 20 per cent. (d) Whether an allowance for a contingency should be made in the sum of $10,000 or $15,000. (e) Whether an allowance for promotion of the development should be allowed at $10,000 or $15,000. (f) The interest component of the development costs.

The respondent also relies on a marginal increase in the allowance for demolition and building costs including kerb and guttering, based on concessions made by Mr Murray during cross-examination which would increase the total allowance in that respect by $2,500.

Originally Mr Murray valued the subject townhouses at $330,000 each. He ultimately recognised this figure as being $5,000 over the highest comparable sale identified by him. He conceded that further information received and more detailed analysis justified an estimated selling price, which a prudent theoretical purchaser would adopt, of $325,000.

Mr Kinchington agreed with this assessment in respect of three of the units proposed in the concept plan generated by the applicant's consultant but detected discrepancies in the layout, size and location of the other two townhouses which justified an expectation of only $320,000 in one case and $315,000 in the other case.

The Court accepts that there is some substance in the criticism by Mr Kinchington and that some allowance should be made which recognises the difference in quality of the units which could affect not only the selling price but also the time for realisation.

Mr Kinchington was of the opinion that the profit and risk factor should be allowed at 20 per cent in order to take account of the time factor for the sale and realisation of the two units which were of lesser quality in the design, the lack of a council approval to the development at the date of acquisition in circumstances where a council election had resulted in members of an action group against further development in the shire being elected on the platform of a moratorium on approvals for medium density townhouses, and the prospect of the impact of the GST to be introduced from 1 July 2000.

I accept what Mr Murray says that in his experience the GST prospect was not a matter that weighed heavily on the minds of developers in October 1999.

Mr Hyam submitted on behalf of the applicant that the Court was entitled to accept that if the property had not been affected by the road widening proposal Mr Goodman would have obtained development consent for five townhouses on the site in October of the previous year, so that it could be assumed the property would have been offered with the benefit of that consent together with a building approval or construction certificate, at the date of acquisition.

Although the fiction developed at common law and perpetuated in s 56(1)(a) of the Just Terms Act entitles the Court to disregard any increase or decrease in the value of the land caused by the proposal to carry out the public purpose of road widening, it does not go so far as to justify any presumption that a landowner would have taken particular steps that were not in fact taken. The market value must be determined at the date of acquisition on a basis which disregards the affect on value of the proposed use of the land for the public purpose. Decisions such as Housing Commission of New South Wales v San Sebastian Pty Ltd & Ors (1978) 140 CLR 196 go no further than that (see Griffith City Council v Polegato and Anor (1990) 71 LGRA 208 particularly at 212).

It is nevertheless appropriate for the Court to take into account the actions of the applicant and his discussions with the council, which included an indication that in the absence of the road widening proposal the best use of the land was for townhouse development to conclude, as I do, that at the date of acquisition a theoretical purchaser would have been satisfied that development consent would be forthcoming from the council, without extended delays arising from opposition to the proposal.

Mr Goodman had raised the matter with council 12 months previously and had received an encouraging response. He had proceeded to lodge a development application for a two lot subdivision in an attempt to maximise his realisation from the property on the advice of council officers that he could not achieve a townhouse development on the residue of the land after making due allowance for the road widening proposal.

Although there is evidence before the Court that the average time for obtaining development consent and building approval for townhouse development on nearby sites in Old Northern Road was approximately 9-10 months, nevertheless, in the circumstances the Court is prepared to assume that the consents could have been obtained in a shorter time than the average for the purpose of assessing the profit and risk factor. An appropriate capitalisation rate is a matter for judgment. In the case of doubt the Court adopts a rate that results in a more liberal award of compensation (see Commissioner of Succession Duties (SA) v Executor Trustee & Agency Company of South Australia Ltd & Ors (1947) 74 CLR 358 and Gregory & Anor v Commissioner of Taxation (1971) 123 CLR 547).

Mr Kinchington took into account a longer prospective selling period in respect of the smaller units with lesser amenity. However, the Court is not satisfied that if the price of those units was adjusted to reflect that differential, the selling period would be any different to the time it would take to sell the better units. Furthermore, the evidence also shows that developers during the relevant period had been successful in selling townhouse units off the plan, thereby further reducing the risk of an extended selling period.

The estimates made by Mr Murray and Mr Kinchington are only guidelines and the council is not bound to accept either of them. However, the Court as judicial valuer takes the opinions expressed into account along with all other relevant factors and the whole of the evidence to assess compensation.

In this case the Court proposes to accept the rate proposed by Mr Murray based upon a profit and risk factor of 17.5 per cent.

The appropriate interest factor to be allowed as part of the estimated development cost is to be determined by reference to a period in between the nine months which Mr Murray used for the time it would take the theoretical purchaser/developer to achieve a return from sales and the 18 month period which Mr Kinchington preferred.

The ultimate range between the results of the analysis by the two valuers is $93,000 for each achievable townhouse site at Mr Kinchington's lower end, up to $115,400 for each site achieved by Mr Murray on the assumption that development consent and building approval had been obtained at the date of resumption. If it is to be assumed, as the Court does, that the developer or the vendor would first of all be required to obtain those consents, Mr Murray calculated the value of a townhouse site at $108,000.

The Court has done the best that it can to take account of a longer selling period than that estimated by Mr Murray but a shorter period than that adopted by Mr Kinchington and by making minor adjustments to development and holding costs on the basis of the evidence to conclude, based on a gross estimated realisation from sales of five townhouses at $1,610,000, that the hypothetical purchaser/developer would have deduced a reasonable purchase price for each townhouse site as being between $103,000 and $104,000. Giving the dispossessed owner the benefit of any doubt in that regard the Court adopts $104,000. This produces a market value for the whole site at the date of acquisition of $520,000.

Notwithstanding that the sale of 546 Old Northern Road with development approval for 12 three bedroom townhouses in June 1998 showed $98,000 for each townhouse site given the better location of the sale site on the one hand and taking into account the market preference for smaller sites on the other hand, the adoption of $104,000 for each townhouse site at the date of acquisition in October 1999 appears in line with the sale some 16 months earlier after making an adjustment for an increase in the market in the meantime.

Both parties agreed ultimately that the effect of s 26 of the Just Terms Act is to give the Court a discretion to take into account the special value of land, any loss attributable to severance or disturbance and solatium in cases of owner initiated acquisition on the ground of hardship in accordance with Div 3 of Pt 2 of the Act.

The Court agrees that this is clear from the use of the words "regard must be had to" in s 55 and the words "need not be taken into account" in s 26. It will depend upon the circumstances of each case before compensation for those additional matters will be awarded to an owner who requires the public authority to acquire the land on grounds of hardship.

As I have already noted, the applicant withdrew any claim for solatium in the course of the hearing.

There is no claim for special value of the land or compensation for loss attributable to severance.

The claim for loss attributable to disturbance is confined to legal and valuation fees in the sum of $4,000. The allowance for disturbance should be made notwithstanding that the applicant has been allowed the market value based upon highest and best use above that of its existing use as a residence. There is no reason why the applicant should be denied reimbursement of this loss notwithstanding that he required the RTA to acquire the land.

Compensation is determined as follows:- Market value $520,000 Legal and Valuation fees as costs attributable to disturbance $4,000 Total $524,000

The question of costs will be reserved as both parties expressly requested the Court for an opportunity to make submissions in respect of that issue after judgment.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

50. The claim for loss attributable to disturbance is confined to legal and valuation fees in the sum of $4,000. The allowance for disturbance should be made notwithstanding that the applicant has been allowed the market value based upon highest and best use above that of its existing use as a residence. There is no reason why the applicant should be denied reimbursement of this loss notwithstanding that he required the RTA to acquire the land.

52. The question of costs will be reserved as both parties expressly requested the Court for an opportunity to make submissions in respect of that issue after judgment.