ISPT Pty Limited v Valuer General [2008] NSWLEC 114 | Case summary

LEC Nos. 30818 of 2006 & 30527 of 2007 ISPT PTY LIMITED v VALUER GENERAL [2008] NSWLEC 114 EX TEMPORE JUDGMENT 1 HIS HONOUR: The court has come to a clear view as to the outcome of this appeal and is prepared to deliver judgment now, although it will not be as complete or as thorough as a judgment which is reserved. 2 There are two appeals before the court. The first is an appeal against the disallowance of an objection to land value assessment as at the base date of 1 July 2005. The second is an appeal against an objection to land value assessment as at the base date of 1 July 2006. 3 The appeals concern a property known as Fairfield Forum at No 36 Station Street, Fairfield. The Valuer General has valued the property at each base date at $17 million. The applicant contends that the valuation should have been $10,280,000 for the 2005 base date and $11,130,000 for the 2006 base date. 4 The valuation in each case is governed by the terms of s 6A(1) of the Valuation of Land Act 1916: 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, made or acquired by the owner of the owner's predecessor in title, had not been made. 5 The subject property has an area of 4.282 hectares and is presently occupied by an older style sub-regional shopping centre. It is within zone 3(a) Sub-regional Business Centre under Fairfield Local Environmental Plan 1994. 6 In early 2005, Fairfield City Council placed on public exhibition draft local environmental plan amendment number 102 which differs little from the 1994 plan and contains an objective of "providing for residential development to support business activity in the centre" in a 3(a) Sub-Regional Business Centre mixed use zone. 7 In 2004 a draft development control plan was prepared. It provides that the land, as one of the larger holdings in Fairfield, would have its built form determined by a site specific development control plan to be prepared by the developer. The town planning experts agree that there was a relatively high level of certainty that the main substantial controls in the draft plans would most likely come into effect and consequently it was reasonable to give due consideration and weight to the draft plans. Their conclusions are the same for both base dates. Subsequently, the draft development control plan came into force by resolution of the council in November 2006. 8 The town planning experts agree that as at 1 July 2005, there were two reasonable and likely development scenarios; (i) a mixed use development comprising a mixed retail and commercial office development covering the majority of the site and residential development on the north-western part of the site or (ii) a mixed retail and commercial development over the whole of the site. 9 The existing shopping centre on the land was built many years ago. It is poorly designed, somewhat obsolete, drab and tired looking and, as a consequence, functions poorly and appears undoubtedly to be struggling. It does not represent the highest and best use of the land. The presence of the existing centre must be ignored, of course, for the purpose of assessing the unimproved value of the land. 10 The parties' valuers, Mr G Jackson for the appellant and Mr A Watt for the respondent, have, in addition to providing their individual reports, provided two joint reports. Both valuers agree that a direct comparison with sales evidence, adjusted for comparison to the subject land, is the preferred method of valuation. The case thus turns on the selection and adjustment of comparable sales. 11 On the first day of the hearing, the court took a view of the subject property, its surrounding area and a number of other properties that are said to represent comparable sales. It did so with the legal representatives of the parties and the two valuers. There are no relevant sales of vacant land within the Fairfield Town Centre, although there are sales of improved properties and in particular two other shopping centres within that centre, one of which, known as Neeta Shopping Centre (or Neeta City), is a sub-regional shopping centre. 12 The other sales are of properties outside the Fairfield Town Centre and in most cases many kilometres away, such as at Kellyville and Plumpton. These areas bear little resemblance to Fairfield. Although many of these sales were of vacant land, most of them are considerably smaller than the subject site and have been developed or purchased for development as neighbourhood shopping centres based on a supermarket. They are not sub-regional shopping centres and do not have such retail outlets as discount department stores and the like, as are found in sub-regional centres. 13 Fairfield Town Centre, on the other hand, has been nominated by the State Government as one of the seven major sub-regional centres within the Sydney Metropolitan area. The court is of the view that the sales outside Fairfield are of properties that are simply not comparable to the subject site, either in size or location. Apart from their remoteness, they serve a different market. They are generally smaller than the subject site. As I have noted, they are mainly sales for the purpose of supermarket based neighbourhood centres and none of them is a major sub-regional shopping centre. 14 It follows that the most comparable and reliable sales are in Fairfield itself and particularly the Neeta Shopping Centre. They are, admittedly, improved land sales. It is not at all uncommon for valuers to be faced with improved land sales and then having to adjust those sales to take account of the improvements. This is a well recognised and accepted method of valuation: see Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111 at [15]-[21] where the High Court noted that improved land sales are used daily for the purposes of statutory valuations under provisions such as s 6A(1) of the Valuation of Land Act. 15 As I have noted, the parties' valuers accept that a direct comparison with sales evidence is the preferred method of valuation. That is, the views of the hypothetical seller and the hypothetical buyer of the subject land are best ascertained through comparable sales. Those sales in turn have taken account of such factors as demographic characteristics, local economic circumstances, and the li As I have noted, the parties' valuers accept that a direct comparison with sales evidence is the preferred method of valuation. That is, the views of the hypothetical seller and the hypothetical buyer of the subject land are best ascertained through comparable sales. Those sales in turn have taken account of such factors as demographic characteristics, local economic circumstances, and the like, so that separate evidence of such characteristics or circumstances is, having regard to the approach of the valuers, irrelevant. 16 It is, as noted above, the Fairfield sales that provide the best indicator of value. There were sales of two shopping centres in the Fairfield Town Centre. The first was that of a shopping centre with ground floor shops and an office tower known as Fairfield Chase for $17.9 million, which took place fourteen days after the July 2005 base date. Although the sale took place after the base date, the parties would have been negotiating the price at or about the base date. 17 The second sale, that of a sub-regional shopping centre in Fairfield, was a mixed retail and commercial centre known as Neeta Shopping Centre or "Neeta City", which took place about seven weeks before the 2006 base date for $90 million. Both of the parties' valuers accept that this sale, rather than the Fairfield Chase Sale, is the most relevant. I note that Mr Watts made a 5% adjustment to bring his figure back to the 2005 base date. 18 Both valuers, Mr Jackson and Mr Watt, say they have adopted the approach of adjusting sales where considered necessary in accordance with accepted valuation practice. The relevant sale of Neeta City, within the Fairfield Town Centre, therefore is an improved sale requiring adjustment to provide evidentiary comparable value. Adjustments, using a conservative 30% depreciation rate for the improvement known as Neeta City were made by Mr Watt, resulting in a deduced land value of $18,600,000, or $837 per square metre. 19 The deprecation rate adopted by Mr Watt was heavily criticised by Mr Jackson as overly cautious. He suggested that a depreciation rate of 20% rather than 30% was more appropriate. His reasoning was that Neeta City had been substantially refurbished and could now be regarded as a new shopping centre. The view of that centre by the court, however, confirms Mr Watt's assessment that, although substantial, the refurbishment of Neeta City has not corrected its inherent functional obsolescence. It is self evident that Neeta City presents as an old shopping centre with some design shortcomings. The court thus prefers the evidence of Mr Watt on this point. 20 The applicant offered no sales evidence that the court considers to be relevant, although Mr Jackson was critical of the analysis by Mr Watt of the Neeta City sale. In particular, Mr Jackson questioned Mr Watt's capitalisation approach, although his own approach appears, at least to this bench, to be novel. The capitalisation approach adopted by Mr Watt enables the earning capacity of an investment property such as Neeta City to be used directly in assessing the capitalised worth of the income stream. This resultant capital value, using an appropriate capitalisation rate, accounts for such matters as demographic movement, local economic circumstances and in particular broader economic issues such as interest rates. This is particularly so in the case of the Neeta City sale, since the demographic characteristics and economic circumstances are identical to those for the subject land. 21 The value of the leases is embedded in such an analysis and hence the reluctance of the court to accept Mr Jackson's approach in this area. The leases that Mr Jackson considers separately are not ground leases, but leases of an area or areas within the building known as Neeta City. The income stream generated on site is derived from these leases as a result of the construction of the retail premises. It is the view of the court that the removal of the buildings removes the leases conceptually, leaving a residual pure fee simple. 22 Being informed by the Neeta City sale, Mr Watt then deduced a land value of $22,690,000 for the 2005 base date and $23,440,000 for the 2006 base date for Fairfield Forum. I note that Mr Watt suggested that the highest and best use of the subject land was for the purpose of a sub-regional shopping centre over 70% of the site and medium to high density residential development over 30% of the site. However, the court is prepared to assume that the site would be used solely for the purpose of a sub-regional shopping centre as its highest and best use. The court otherwise accepts the evidence of Mr Watt, whose approach is consistent with and in accordance with valuation principle. 23 The appellant bears the onus of proving the appellant's case (s 40(2) of the Act). The approach of Mr Watt is, as I have noted, generally in accordance with valuation principle. Having rejected the approach of Mr Jackson, the court is not persuaded that the Valuer General's assessment of $17 million is wrong. On the contrary, the valuations of Mr Watt of $ 22, 690, 000 and $23, 440, 000 respectively appear to be most conservative. 24 Finally, I acknowledge the expert assistance of Acting Commissioner J. Sheehan, who heard the case with me. The appeals in each case are dismissed. The exhibits may be returned. 25 HALE: Your Honour, I've been instructed to ask whether you would reserve the issue of costs while instructions are sought. HIS HONOUR: The court rule provides that costs are not generally awarded in these cases. HALE: We fully appreciate that. Part 16 r 4 sub r 2 covers these cases. We would ask you to reserve the issue of costs, giving us the opportunity perhaps to make an application if I'm so instructed. I do not have the instructions as we stand here now. HIS HONOUR: Well I'll simply make no order as to costs. You can put on a motion for costs if you want to. I hereby certify that the preceding 25 paragraphs are a true copy of the reasons for judgment herein of the Honourable Mr Justice D H Lloyd.

ISPT Pty Limited v Valuer General

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