Hall v Valuer General

CASES CITED: Maurici v. Chief Commissioner of State Revenue [2003] 212 CLR 111 AMP Henderson Global Investors v. the Valuer General [2004] NSWCA 264

DATES OF HEARING: 21/04/2008, 25/06/2008 and 25/08/2008

APPLICANT Mr P. Clay, barrister Instructed by Harboard Property Lawyers LEGAL REPRESENTATIVES:

RESPONDENT Ms M. Carpenter, barrister Instructed by Crown Solicitor's Office

THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

JUDGMENT Judgment 1 This is an appeal against the revised Land Value assessed under section 6A (1) of the Valuation of Land Act 1916 in respect of the property 128 Old Pittwater Road Brookvale as at the Base Date of 1 July 2006. Background 2 The Land Value was assessed by the Valuer General at $7,700,000 but subsequently reduced, following objection, to $5,480,000 and finally, prior to the hearing, to $4,900,000. The applicant had contended that the Land Value should be $3,933,100 but prior to the hearing revised this to $4,270,000. Based on the usable area of the property, the respective final positions reflected $860 and $750 per square metre.

3 I was appointed to convene a conference under section 34 of the Land and Environment Court Act, 1979 on 21 April 2008. Agreement was not reached and the parties consented to me hearing the matter at a later date. The Subject Property 4 The property is located on the western side of Old Pittwater Road, in the north/ south section of that road, between Pittwater Road and Clearview Place. It has a frontage of 28.875 m, a depth on the northern side of approximately 358.6 m, a depth on the southern side of approximately 386.62 m and a rear alignment of 54.55 m. The area is 11,084 square metres. In its natural state the land rose steeply from street frontage. The rear portion of the land, 3770 square metres, is reserved as Open Space. The balance, 7314 square metres, is zoned Brookvale Industrial West G10, under Warringah Local Environmental Plan 2000. However, 1620 square metres is considered to be undevelopable leaving a usable area of 5694 square metres A comparatively small section, 437 square metres has been excavated in to the escarpment but subject to this the usable area can be regarded as being in its natural state.

5 Old Pittwater Road is a busy secondary road. Service vehicle entry to Warringah Mall is located diagonally opposite the property while customer vehicle entrances to the Mall are located closer to Pittwater Road and in adjacent streets. Surrounding development is reflective of the industrial zoning which permits industries, warehouses (under Category One ) and offices, vehicle body repair shops, vehicle repair stations and some types of shops (under Category Two). 6 Existing improvements comprise a comparatively large number of small industrial/warehouse units with ancillary office accommodation located adjacent to the northern boundary of the land. A concrete paved driveway, adjacent to the southern boundary, provides access and car parking while, in addition, rooftop car parking is also available. Valuation Evidence 7 Mr M. O'Brien gave expert evidence on behalf of the applicant while Mr B. Sheales gave expert evidence on behalf of the respondent. I am satisfied that Mr O'Brien discharged the onus of proof, on behalf of the applicant, as required under section 40 (2) of the Valuation of Land Act. Both men are Registered Valuers and Associates of the Australian Property Institute. They prepared a detailed and comprehensive Joint Report in which they identified four sales which were considered comparable, in the valuation sense of that word, to the subject property. Three sales were of land which can be treated as vacant while one sale, 130 Old Pittwater Rd , located immediately to the south of the subject property, had erected upon it some industrial buildings in respect of which the valuers disagreed as to whether they added any value to the land.

8 Mr Sheales is the opinion that land area is the critical issue when comparing the sales and the subject property. Mr O'Brien expressed the view that, while land area is important, consideration must also be given to the relationship between frontage and area.

9 While it was agreed that smaller properties sold for higher prices, on a square metre basis, the valuers disagreed as to what constituted a small property; Mr Sheales maintaining that the subject property should be treated as one which fell into that category. 10 Mr Sheales considered that, based on his analysis of 130 Old Pittwater Road, the four sales showed a pattern of deduced land values which supported his valuation of the subject property. Mr O'Brien concluded that his valuation was supported by the application of the deduced land values from the three vacant land sales and his analysis of 130 Old Pittwater Road.

11 Neither valuer treated the excavation of 437 square metres, previously referred to, as land improvements as defined in the Valuation of Land Act.

12 It was submitted by Counsel for the Respondent that, in the circumstances of this case , only vacant land sales should be used for comparison purposes and, therefore, the analysis of the sale of 130 Old Pittwater Road should be disregarded. I disagree with this submission. In valuing vacant land it is well established that greater weight can be placed upon direct comparison with sales of vacant land in the same condition. However, this commonsense principle does not prevent the use of land values deduced from the sale of improved property. Referring to the decision in Maurici v. Chief Commissioner of State Revenue [2003] 212 CLR 111, Tobias JA in AMP Henderson Global Investors v. the Valuer General [2004] NSWCA 264 succintly stated the law in the following terms; Rather Maurici stands for the following propositions; firstly, that 6A (1) of the Act (being the Valuation of Land Act) does not require when utilising the comparable sales method of valuation, that only sales of vacant land should be considered; and secondly, that confining one's consideration to only sales of scarce vacant land and disregarding sales of improved land which would otherwise be as comparable as the vacant land sales in terms of timing, location, outlook and other relevant features, offends the principle that a reasonably representative group of comparable sales should be considered when applying that methodology. 13 My analysis of the comparable sales evidence is set out in the Annexure A to this Judgment. Interpretation of Sales Evidence 14 On the question of frontage and area I concur with Mr O'Brien's evidence. An industrially zoned property with a small frontage is restricted in design and utility when compared with a property having the same area but a larger frontage. A comparison between the subject property and 130 Old Pittwater Road demonstrates this point. The frontage of the subject property limits the location of the driveway to one side of the land while the larger frontage of the adjoining property has permitted construction of a driveway adjacent to each side boundary enabling circular movement of vehicles on the land.

15 I disagree with Mr Sheales' evidence that the subject property can be classed as small. A distinguishing feature of a small property is its appeal to what was referred to in evidence as the "mum and dad " buyer. There is no precise demarcation between a small and large property but having regard to the sales referred to by Mr Sheales in his statement of evidence, I have come to the view that industrial properties, in this general locality, with a land area less than 2000 square metres can be regarded as small. Accordingly, the subject property and the four comparables are considered to be large. 16 A distinguishing feature between the usable area of the subject property and 130 Old Pittwater Road is that the former is, with a small exception, still in its natural state while the usable area of the latter property has been excavated to provide a near level building platform a few metres above street frontage. No evidence was submitted as to the likely cost involved in carrying out excavation on either property. However, it would be substantial with consequent benefits, which would be reflected in the land value.

17 The buildings on 130 Old Pittwater Road were leased some time after settlement at a net rental of approximately $500,000 per annum. I agree that the buildings may not necessarily represent the" highest and best" use of the land but having regard to their size and condition and the fact that the net income can be maintained for the lease terms of five to six years I am satisfied the buildings add value to the land and therefore an allowance for same needs to be made when calculating a deduced land value. Mr Sheales considered that the first step in analysing the sale of this property was to make a 10% deduction from the sale price to reflect the fact that it was purchased by the adjoining owner. Mr O'Brien made no such allowance. A purchase by an adjoining owner does not always mean that a premium has been paid; each case needs to be analysed taking into account the particular circumstances. Having regard to disparate character and age of the improvements on the two properties I do not consider that such a deduction is warranted . The purchase of a property such as this, with potential to generate an income stream, must be more attractive than vacant land (or a property where the buildings have reached or almost have reached the end of their physical and/ or economic life) with the prospect of producing, at best, a small net income. However, when the agreed deduced land values for the other three sales are considered ($858, $895 and $789 per square metre) it is apparent that Mr O'Brien has assigned too high a value to the existing buildings ( by adopting a depreciation rate of only 40%) when he calculated a deduced land value of $609 per square metre. I believe that a depreciation rate of 75% is more appropriate which indicates a deduced land value of $784 per square metre. This property must be regarded as superior to the subject by virtue of its larger frontage and comparatively level usable area. 18 170 Harbord Road and 117 Old Pittwater Road are superior properties and the deduced land values are reflective of my opinion. Both are level and can be classed as large properties even though Harbord Road is a less than 50% of the usable area of the subject property while Old Pittwater Road is 43% larger. The Harbord Road property benefits from excellent exposure to a very busy road and two other street frontages while Old Pittwater Road has a wide frontage and adjoins Warringah Mall at the rear. 122/126 Old Pittwater Road is 117% larger and has a frontage over double that of the subject property . Subsequent to the sale major excavation work was carried out. Taking all matters into account I believe that it was, at the time of sale, marginally superior to the subject property.

19 Based on the land values deduced from the sale of the two adjoining properties (122/126 and 130 Old Pittwater Road) I have come to the conclusion that Mr O'Brien's valuation of $750 per square metre of usable land area properly reflects the Land Value at the Base Date. $750 per square metre also fits the pattern of land values deduced from the two sales of vacant land (170 Harbord Rd and 117 Old Pittwater Road). Orders 20 The orders of the Court: 1. The Appeal is upheld. 2. The Land Value as at the Base Date of 1 July 2006 is reduced to $4,270,500. 3. No Order is made as to costs.

      E Craig Miller
      Acting Commissioner of the Court
      ljr

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