Krisgay Pty Limited v The Valuer-General

KEY ISSUES: Valuation of Land :- construction of definition of "heritage valuation" in s 123 Heritage Act 1977 (NSW) - method of assessing heritage valuation - method of assessing land value - method of assessing heritage allowance

LEGISLATION CITED: Heritage Act 1977 ss 123, 124, 125, 126, 127 Valuation of Land Act 1916 ss 6A, 14G, 34(1)(a), 37, 40(2)

AMP Henderson Global Investors v Valuer-General (2004) 134 LGERA 426; Australian Mutual Provident Society v Overseas Telecommunications Commission Australia [1972] 2 NSWLR 806; Commissioner for ACT Revenue v Rosnet Pty Ltd (1994) 83 LGERA 440; Commonwealth Custodial Services Ltd v Valuer-General of New South Wales [2006] NSWLEC 775; Commonwealth Custodial Services Pty Ltd v Valuer-General (NSW) (2006) 148 LGERA 38; CASES CITED: James v Valuer-General (1942) 15 LGR (NSW) 110; Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111; McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1; Myer (SA) Stores Ltd v Valuer-General (1986) 60 LGRA 158; Toohey's Ltd v Valuer-General [1925] AC 439; Trust Company of Australia Ltd v Valuer General [2007] NSWCA 181; Valuer-General v Fenton Nominees Pty Ltd (1982) 150 CLR 160

APPLICANT: Mr J J Webster SC and Mr I J Hemmings, barrister SOLICITORS: Leitch Hasson Dent LEGAL REPRESENTATIVES: RESPONDENT: Mr J B Maston, barrister SOLICITORS: Crown Solicitors Office

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

JUDGMENT introduction 1 HIS HONOUR: The main issue in this appeal is the proper construction of the definition of "heritage valuation" in s 123 of the Heritage Act 1977 (NSW). The appeal is against the Valuer-General's assessment of the land value and the heritage valuation at the base date of 1 July 2003 in relation to land at 240 Princes Highway known as the Bulli Heritage Hotel.

2 The property was listed on the State Heritage Register. Consequently, Part 6 Division 6 of the Heritage Act applied which required the Valuer-General to make or cause to be made a heritage valuation.

3 The statutory valuations for the base date originally issued by the Valuer-General assigned a "land value", as defined in s 6A of the Valuation of Land Act 1916 (V of L Act), of $1,030,000; and a "heritage valuation", as defined in s 123 of the Heritage Act, of $930,000. The applicant objected on the ground specified in s 34(1)(a) of the V of L Act that the values assigned were too high. The objection was upheld by the Valuer-General who reduced the land value to $940,000 and the heritage valuation to $650,000. It is those last two figures which are the subject of this appeal.

4 An objector who is dissatisfied with the Valuer-General's determination of an objection to land value may appeal to the Land and Environment Court: s 37 V of L Act. Pursuant to s 126(a) of the Heritage Act, the provisions of Part 4 (ss 37 - 42) (appeals to the Land and Environment Court) of the V of L Act apply to a heritage valuation in the same way as they apply to a valuation for rating or taxing purposes under the V of L Act. Consequently, pursuant to s 40(2) of the V of L Act, in this appeal "the appellant has the onus of proving the appellant's case".

The Land 5 Originally built in the 1880's, the hotel is a substantial three storey building with Victorian parapets and verandas. The hotel is the dominant building in a suburban style shopping strip. The subject land has an area of 3,427 square metres. It is generally rectangular with a 37 metre frontage to the Princes Highway and a depth of approximately 93 metres along a side lane. Immediately to the rear is a modern townhouse development.

6 The land is zoned 2(b) medium density residential under the Wollongong Local Environmental Plan 1990. This zoning permits the land to be utilised for residential purposes including construction of villas and townhouses, subject to the consent of the relevant authorities, to a floor space ratio (FSR) density of 0.5:1. The existing hotel use appears to be pursuant to existing use rights.

THE VALUERS' COMPETING METHODOLOGIES 7 The applicant's valuer Mr Drew Roberts and the respondent's valuer Mr Rodger Wall agreed, and I accept, that for the purpose of assessing land value under s 6A of the V of L Act, the highest and best use of the land under its zoning at the base date, stripped of all improvements and disregarding heritage restrictions, was medium density residential development. 8 The valuers' assessments compared with the Valuer-General's assessments the subject of the appeal were as follows: Land value: - Heritage Allowance: s 123 Heritage Act = Heritage Valuation: s 123 Heritage Act s 6A V of L Act Roberts scenario 1 $880,000 47 % $466,400 Roberts scenario 2 $880,000 202% - $897,600 Roberts scenario 3 $235,243 Wall $1,300,000 30 % $910,000 Valuer-General $940,000 30.85 % $650,000

9 Whether any of the competing valuation approaches adopted by the valuers are permitted depends upon the construction of the definition of "heritage valuation" in s 123 of the Heritage Act, which relevantly provides: 123 Definitions

In this Division: heritage valuation, in relation to land, means a valuation of that land obtained by adding to or by deducting from a valuation for rating or taxing purposes of that land any allowance determined as a consequence of making the following assumptions with respect to that land, namely:

(a) that that land may be used only for the purpose, if any, for which it was used at the relevant date, (b) that all improvements on that land as at the relevant date may be continued and maintained in order that the use of that land as referred to in paragraph (a) may be continued, and (c) that no improvements, other than those referred to in paragraph (b), may be made to or on that land. … 10 Mr Roberts was instructed by the applicant to prepare a heritage valuation on three different scenarios. Scenario 1 was described by him as "existing pub versus hypothetical hotel". It proceeds in five steps: · Step 1. Assess the "land value" under s 6A of the V of L Act on the basis of its highest and best use of medium density residential development. That step is legally uncontroversial. However, there is a strong factual contest between the valuers as to the resultant valuation assessment. That contest largely turns on the appropriateness of, and conclusions to be drawn from, comparable sales and yields of residential units. By reference to comparable sales and yields, the land value was assessed by Mr Roberts at $880,000 and by Mr Wall at $1,300,000; · Step 2. Assess the market value of the existing going concern hotel. Mr Roberts assessed it at $1,430,000 based upon a net profitability of $210,741 and a market capitalisation rate of 14.75 percent; · Step 3. Assess the market value of a hypothetical brand new going concern hotel on the land (unrestricted by the heritage assumptions in s 123 of the Heritage Act). Mr Roberts assumed that the hypothetical brand new improvements would be limited to the scope of the existing building areas. He considered that an increase in net profitability of 49 percent could be achievable which would result in an annual net profit of $314,035 equating to a value of $2,100,000. He added that a brand new going concern hotel on this site would not be feasible because the cost of construction, licensing and fit-out would exceed the going concern value of the hotel on completion; · Step 4. The difference between the values in steps 2 and 3 equates to 47 percent of the step 2 value. · Step 5. The 47 percent equates to a sum of $413,600, which is then deducted from the land value in step 1 ($880,000) to yield a heritage valuation of $466,400. 11 Mr Wall did not carry out the assessments required by steps 2 to 5 of scenario 1 because they involved the valuation of a business which he considered was irrelevant to a heritage valuation under the Heritage Act. He did dispute some limited aspects of Mr Roberts' financial analysis. Mr Roberts' heritage valuation assessment of $466,400 appears inconsistent with Mr Wall's assessment of land value alone of $1,300,000 (step 1 above). 12 Scenario 2 by Mr Roberts was described by him as "existing hotel versus highest and best use" . It also involves five steps, of which steps 1 and 2 are identical with steps 1 and 2 in scenario 1. Steps 3 to 5 are as follow: · Step 3. Assess the market value of the land developed to its highest and best use (i.e. medium density residential). Mr Roberts assessed this at $4,320,000 by adopting an average value per unit on completion of $360,000 and 12 unit redevelopment; · Step 4. The difference between steps 2 and 3 is $2,890,000 or 202 percent. · Step 5. The discount allowance of 202 percent equates to a sum of $1,777,600 which when deducted from the land value in step 1 ($880,000) yields a large negative heritage valuation of - $897,600. 13 Mr Roberts considered that scenario 2 was inappropriate for four reasons. First, it does not take into consideration the cost that would need to be incurred in order to derive the gross realisation of $4,320,000. Second, the methodology does not truly reflect the opportunity cost to the owner for operating a hotel as opposed to an alternate use. Third, it does not take into consideration the value of the realisable assets of the going concern hotel (i.e. poker machine entitlements, plant, furniture, fixtures and fittings) which have a value in addition to the land value and any perceived value of the improvements. Fourth, it does not address what a prudent purchaser would pay for the vacant land on the basis of constructing an hotel on the site. These criticisms have weight, and in the absence of any expert support for scenario 2, I propose to reject it.

14 Scenario 3 by Mr Roberts may be shortly described as "existing going concern hotel value less non-heritage improvements". This was the scenario pressed most strongly by the applicant. It proceeds in three steps:

· Step 1. Assess the market value of the existing hotel as a going concern. Mr Roberts assessed this at $1,430,000 based upon a net profitability of $210,741 per annum and a capitalisation rate of 14.75 percent. This is the same as step 2 of scenario 1. · Step 2. Assess the value of the hotel licence (which would need to be purchased to operate a hotel on the site), the value of poker machine licences and entitlements (which would need to be obtained to generate the current income), the depreciated value of improvements other than the shell of the building (ie "operational" improvements required to turn the bricks and mortar of the building into an operational hotel) including plant, furniture, fixtures, fittings and finishes, and the value of the goodwill of the going concern hotel. · Step 3. The difference between steps 1 and 2 is the heritage valuation of $235,243. It was said by Mr Roberts to reflect what the land value and the shell of the building would sell for in the market. 15 Mr Wall did not carry out the valuation assessments in scenario 3 because he considered that a heritage valuation was not concerned with the valuation of an existing going concern business. A heritage allowance, he thought, should be determined on a hypothetical basis with the only restrictions being the existing use and existing improvements. He considered that it was not reliable to deduce land value by apportionment of the value of an improved hotel into the land component and improvement component because the primary determinant of a going concern hotel was the hotel's financial trading position which depended upon factors such as the quality of management. 16 Mr Wall's methodology was to follow the literal text of s 123 in three steps: · Step 1. Assess the land value under s 6A of the V of L Act. He assessed this at $1,300,000 having regard to permissible density and comparable sales; · Step 2. Determine the heritage allowance as a consequence of making the assumptions referred to in s 123 of the Heritage Act (i.e. that the land may be used only for the purpose of a hotel and that only the existing hotel as at the base date may be continued and maintained). He determined the allowance at 30 percent. His explanation in his written report as to how he arrived at this percentage was as follows: In relation to the heritage allowance for heritage hotels generally I note the following · The layout of a structure built in the 19th Century, even with subsequent modifications and additions, is unlikely to be as efficient as a newer structure which is better adapted to current market conditions/requirements · The layout of an historic hotel can lead to inefficiencies in terms of staff movement/access within the hotel, modern keg room requirements and supervision/servicing of all customer areas · The provision of small bedroom accommodation rooms with (for example) common bathrooms may not meet contemporary market requirements · The size of some heritage hotels limits activities such as entertainment, however this does not appear to be the case in relation to the subject hotel. The above factors must be weighed against the market advantages that can be available to a hotel due to heritage character and appeal. In many cases the presence of historic features on a site is a significant asset and may command a premium price. The sales of heritage listed hotels in the annexed schedule do not appear to have suffered from any discounting in relation to the overall hotel market. Accordingly, whilst it could be reasonably suggested that no deduction for heritage matters be made I consider that a fair and reasonable allowance for the heritage nature of the subject property, having regard to all factors, is in the order of 30 % of the land value as zoned and as with existing use rights for hotel use. · Step 3. Deduct the heritage allowance (step 2) from the land value (step 1) to yield a heritage valuation of $910,000. SUBMISSIONS 17 In summary, the applicant submitted as follows:

(a) Mr Roberts' scenarios 1 and 2 are applications of the approach to heritage valuation approved in Commonwealth Custodial Services Ltd v Valuer-General of New South Wales [2006] NSWLEC 775 (Talbot J). Although that case was concerned with a valuation of heritage restricted property under the V of L Act , the heritage valuation provisions of the Heritage Act are relevantly the same and therefore that case is also authoritative in the latter context; (b) Mr Roberts' scenario 3, which involves deducting improvements from the current improved value in order to ascertain the heritage value, is permitted under the heritage valuation provisions of the Heritage Act . That method is either in accordance with the decision of the Privy Council in Toohey's Ltd v Valuer-General [1925] AC 439 approved by the High Court in Valuer-General v Fenton Nominees Pty Ltd (1982) 150 CLR 160 at 165 or Toohey's is distinguishable. The rejection of the scenario 3 approach in Commonwealth Custodial (above) was erroneous; and (c) there is no satisfactory evidence to assist understanding of Mr Wall's heritage allowance of 30 percent. 18 In summary, the respondent's submissions were as follows:

(a) each of Mr Roberts' methods of valuation is contrary to the statutory requirements of s 6A of the V of L Act and s 123 of the Heritage Act. Neither depends upon a business on the land or the improvements, except to inform the assumptions in s 123: Toohey's ; Fenton ; (b) the operation of the heritage valuation provisions of the Heritage Act are indistinguishable for present purposes from the heritage valuation provisions of s 14G of the V of L Act . Accordingly Commonwealth Custodial is authoritative in principle in the present context but does not support Mr Roberts' scenarios 1 and 2 and rightly rejected scenario 3; (c) Mr Roberts' scenarios 1 and 2 step 1 which seeks to determine land value under s 6A of the V of L Act , is unreliable because of Mr Roberts' reasoning and the sales transactions upon which he relies; (d) scenarios 1 and 2 steps 2 to 5 erroneously attempt to analyse the heritage allowance based on the existing going concern hotel and not by reference to the value of the land assumed to be devoid of improvements and restricted only by the assumptions set out in the definition of heritage valuation in s 123 of the Heritage Act ; (e) scenario 2 was disclaimed by Mr Roberts himself and produces an absurd negative heritage valuation; and (f) when considering s 126 of the Heritage Act , there is no relevant inconsistency between the V of L Act and Division 6 of Part 6 of the Heritage Act . In any event, under s 126, Division 6 of Part 6 prevails.

HERITAGE ACT 1977 19 Reference has been made above at [9] to the critical definition of heritage valuation in s 123 of the Heritage Act. It appears in the context of Division 6 (ss 123 - 128) of Part 6 of the Act which relevantly provides: 123 Definitions

In this Division: heritage valuation, in relation to land, means a valuation of that land obtained by adding to or by deducting from a valuation for rating or taxing purposes of that land any allowance determined as a consequence of making the following assumptions with respect to that land, namely: (a) that that land may be used only for the purpose, if any, for which it was used at the relevant date, (b) that all improvements on that land as at the relevant date may be continued and maintained in order that the use of that land as referred to in paragraph (a) may be continued, and (c) that no improvements, other than those referred to in paragraph (b), may be made to or on that land.

land includes stratum within the meaning of the Valuation of Land Act 1916 .

rating or taxing authority means: (a) a council, (b) a county council established under the Local Government Act 1993, (c) the Sydney Water Corporation referred to in the Water Board (Corporatisation) Act 1994 , (d) the Hunter Water Corporation referred to in the Hunter Water Board (Corporatisation) Act 1991 , (e) a water supply authority within the meaning of the Water Management Act 2000 , (f) the Commissioner of Land Tax.

relevant date , in relation to a heritage valuation, means:

(a) where that heritage valuation is made pursuant to a request made by the Minister under section 124 (1) - the date determined in accordance with section 124 (1) (a) or (b), or (b) where that heritage valuation is made pursuant to section 125 - the date on which that heritage valuation is made.

valuation for rating or taxing purposes , in relation to land, means a valuation of that land made under a valuing law and which is the valuation on which a rate is made and levied or a tax is levied in respect of that land by a rating or taxing authority.

valuing law means the Valuation of Land Act 1916 . 124 Request to make heritage valuations

(1) As soon as practicable after the date on which a listing on the State Heritage Register takes effect with respect to land, the Minister shall, by instrument in writing, request each person by whom a valuation for rating or taxing purposes of that land has been made or caused to be made to make or cause to be made a heritage valuation or heritage valuations of that land as at:

(a) except as provided by paragraph (b) - the date on which that listing on the State Heritage Register took effect with respect to that land, or (b) where, immediately before that date, that land was subject to an interim heritage order - the date on which that interim heritage order took effect with respect to that land. (2) Where, immediately before the date on which a listing on the State Heritage Register took effect with respect to land the subject of a request by the Minister under subsection (1) that land was subject to an interim heritage order, the Minister shall notify the person to whom that request is made that that land was subject to an interim heritage order and of the date on which that interim heritage order took effect with respect to that land. (3) A person to whom a request under subsection (1) is made shall comply with that request as soon as practicable after its receipt. 125 Making of heritage valuations with other valuations

Whenever, pursuant to a valuing law, a person makes or causes to be made a valuation for rating or taxing purposes of land, the person shall, in addition, where that land is subject to a listing on the State Heritage Register, make or cause to be made a heritage valuation or heritage valuations of that land. 126 Application of valuing laws to heritage valuations

Except to the extent of any inconsistency with this Division: (a) the Valuation of Land Act 1916, applies to a heritage valuation derived from a valuation for rating or taxing purposes made under that Act in the same way as it applies to that valuation for rating or taxing purposes, … 127 Payment of rates and taxes

(1) Where land is subject to a listing on the State Heritage Register, a rating or taxing authority which would, but for this Act, make and levy a rate or levy a tax on a valuation for rating or taxing purposes of that land shall make and levy that rate or levy that tax on the heritage valuation of that land derived from that valuation for rating or taxing purposes. (2) Where a heritage valuation is made with respect to land pursuant to a request made by the Minister under section 124 (1), the amount of any rates or taxes payable in respect of that land shall be redetermined on the basis of that heritage valuation as from the date determined in accordance with section 124 (1) (a) or (b), as the case may be, of that heritage valuation and any amount paid in excess shall be refunded and any amount short-paid shall be recoverable as arrears. (3) Where land ceases to be subject to a listing on the State Heritage Register, the amount of any rates or taxes levied in respect of that land shall, as from the date on which that land ceases to be subject to that listing on the State Heritage Register, be redetermined on the basis of the valuation for rating or taxing purposes of that land and any amount paid in excess shall be refunded and any amount short-paid shall be recoverable as arrears. VALUATION OF LAND ACT 1916 20 The "valuation for rating or taxing purposes" defined in s 123 of the Heritage Act is the "land value" referred to in s 6A of the V of L Act, which provides: 6A (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. …

" Land improvements " are defined in s 4. 21 An issue arises as to whether the operation of the heritage valuation provisions of the Heritage Act are the same as the operation of s 14G of the V of L Act which concerns valuation of land that is heritage restricted under a planning instrument. Although s 14G is inapplicable in the present case, the assumptions to which it refers are virtually identical with the assumptions referred to in s 123 of the Heritage Act. 22 Section 14G of the V of L Act provides: 14G Valuation subject to heritage restrictions under EPI

(1) Land that is heritage restricted on the date by reference to which its land value is to be determined is to have its land value determined on the basis of the following assumptions: (a) that the land may be used only for the purpose, if any, for which it was used when the value is determined, (b) that all improvements on that land when the value is determined may be continued and maintained in order that the use of that land as referred to in paragraph (a) may be continued, (c) that no improvements, other than those referred to in paragraph (b), may be made to or on that land. (2) Land is heritage restricted as at a particular date if the Valuer-General has determined that it would be reasonable to make the assumptions referred to in subsection (1) in respect of the land as at that date because of any provision of a planning instrument concerned with the heritage significance or heritage value of the land or any building, work or other thing on or in the land. (3) The Valuer-General may, and on the application of the owner of land must, make a determination as to whether a particular parcel of land is heritage restricted. (4) An application under subsection (3) is to be in the form required by the Valuer-General and accompanied by such supporting information as the Valuer-General may request. (5) The Valuer-General is not to determine that land is heritage restricted as at a particular date if the land is the subject of a listing on the State Heritage Register under the Heritage Act 1977 as at that date. CONSTRUCTION OF Section 6A VALUATION of land ACT 1916: LAND VALUE 23 Section 6A(1) of the V of L Act requires improvements (other than "land improvements" as defined) to be ignored when determining land value: Toohey's Ltd v Valuer-General [1925] AC 439 (PC). Toohey's was concerned with the original s 6 of the V of L Act which was virtually identical with the present s 6A(1) except that it referred to "unimproved value" rather than "land value" and made no allowance for "land improvements". In delivering the judgment of the Privy Council, Lord Dunedin said at 443: Now, what [the valuer] has to consider is what the land would fetch as at the date of the valuation if the improvements made had not been made. Words could scarcely be clearer to show that the improvements were to be left entirely out of view. They are to be taken, not only as non-existent, but as if they never had existed. It is, therefore, to approach the question from a completely wrong point of view to begin with a valuation which takes in the improvements and then proceed by means of subtraction of a sum arrived at by an independent valuation in order to find the required figure. What the Act requires is really quite simple. Here is a plot of land; assume that there is nothing on it in the way of improvement; what would it fetch in the market? It will be observed that the value is not what has been sometimes designated by the expression prairie value. The land must be taken as it exists at the date of the valuation. 24 Toohey's was approved by the High Court in a joint judgment in Valuer-General v Fenton Nominees Pty Ltd (1982) 150 CLR 160 at 165: It is well settled that in establishing what that capital amount might be it is necessary to inquire what the hypothetical purchaser would pay for the land in a notional condition shorn of its improvements and that it is not permissible to arrive at the figure by identifying the value of the site in its improved state and then subtracting the value of the improvements ( Toohey's Ltd. v. The Valuer-General [1025] A.C. 439, at p. 443).

25 The legislative history of the change in wording and content in s 6(1) from "improved value" to the similar "land value" - which differs essentially because it brings into the valuation "land improvements" as defined - has been traced by Campbell JA (Beazley and Ipp JJA agreeing) in Trust Company of Australia Ltd v Valuer General [2007] NSWCA 181 at [70] - [95]. There is no relevant difference between the original s 6 construed in Toohey's and the present s 6A(1) so far as concerns the order of operations that the section requires to be notionally performed: Trust Company at [35]. Section 6A(2) is not a reason for distinguishing Toohey's. The former s 6(2), which was in the same terms as the current s 6A(2), was introduced in 1959 to remove an anomaly arising from a court decision that the unimproved value of land must be assessed on the basis of its zoning notwithstanding that the planning scheme protected existing uses: Trust Company at [78] - [83].

26 In contrast to the principle in Toohey's, it is permissible under s 6A to use reasonably contemporaneous sales of improved land for comparative purposes by subtracting the added value of improvements from their sales prices to derive unimproved values: Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111. There, the High Court in a joint judgment said at [16] and [19]: 16. The first step to be taken under s 6A is to identify what is capable of being regarded as improvements, other than land improvements . The second step is notionally to remove the improvements from the land. It is at the third point that difficulties arise. How is the land in its notionally unimproved state to be valued? The traditional, and usually unexceptionable method is to seek out relatively contemporaneous sales of comparable properties between parties at arm's length, unaffected by special circumstances, such as, for example, a strong desire by a purchaser to buy an adjoining property, and to use those sales as a yardstick for the valuation of the relevant land. …

19. Improved sales are used daily for the purposes of statutory valuations under provisions similar to s 6A(1) of the Valuation of Land Act , by subtracting the added value of the improvements to them from their sale prices to derive unimproved values. It may be that in such a desirable area as Hunters Hill where there are apparently many mansions, their presence and the presence of lesser houses may add little, or much less than replacement value to the sale prices of the land on which they stand. But that does not mean that the respondent is entitled to ignore reasonably contemporaneous sales of comparable improved land. Such sales, particularly in the case of a scarcity of vacant land cannot be disregarded. The contrary approach is required by the Act. 27 The High Court in Maurici did not refer to Toohey's nor to their earlier decision in Fenton in which they approved Toohey's. Of course, both Fenton and Maurici bind lower courts. So the common technique, when determining the unimproved value of a comparable sale of improved land, of making a deduction of the value of improvements from the improved value (the sale price), is not permitted when applied to the subject land itself. Is that anomalous? Jacobs J thought so in Myer (SA) Stores Ltd v Valuer-General (1986) 60 LGRA 158 at 163: It is to my mind something of an anomaly that, if this technique of arriving at the site value by analysis of comparable sales of improved land is permissible, the same technique cannot be applied to the subject land itself, consistently with the decision of the Privy Council in Tooheys Limited v Valuer- General [1925] AC 439 where it was held that it is not permissible to arrive at the unimproved value by identifying the value of the site in its improved state and then subtracting the value of the improvements . That case is too well-established to be questioned, and it was recently cited with approval in Valuer-General v Fenton Nominees (1982) 150 CLR 160 at 56 ALJR 778 at 780; 47 LGRA 95 at 98; 42 ALR 371 at 374… 28 His Honour referred to similar misgivings expressed by Roper J in James v Valuer-General (1942) 15 LGR (NSW) 110 at 112. James was decided before Toohey's was approved by the High Court in Fenton. Roper J felt able to distinguish Toohey's and thereby to permit the unimproved value of the subject land to be assessed by the technique which Toohey's prohibits. With respect, in my view Toohey's was indistinguishable in James and is indistinguishable in the current context of s 6A(1), as was recently affirmed by the Court of Appeal in Trust Company (above). 29 In Commissioner for ACT Revenue v Rosnet Pty Ltd (1994) 83 LGERA 440 at 447 Higgins J said that the dictum in Toohey's, quoted above, was "…not a statement which forbids the deduction of the value of improvements from the improved value to find the unimproved value of a parcel of land. If it were, it would be impossible to value land where there are no comparable sales of unimproved land". Although perhaps unclear, I assume that his Honour was intending to only refer to the method (subsequently approved in Maurici) of ascertaining the unimproved value of sales of comparable improved land.

30 Can Fenton/Toohey's and Maurici be rationalised? Suppose there are two identical buildings on adjoining lots A and B. Lot A is to be valued for its "land value" as at a certain base date under s 6A of the V of L Act. Lot B was sold shortly before the base date and is a comparable sale to which regard should be had when determining the land value of Lot A. Under Fenton/Toohey's the land value of Lot A cannot be determined by taking the improved value of Lot A and deducting the improvements. However, under Maurici the unimproved value of Lot B can be determined by that method for the purpose of utilising it as a comparable sale. If this is capable of being rationalised, it may be on two bases. First, as a matter of construction, the V of L Act simply mandates that improvements (other than "land improvements" as defined) must be kept entirely out of view. It is only then that the notional sale occurs. Second, there has been no actual sale of Lot A whereas Lot B has actually been sold. Where there is a sale, the sale price is a reliable indicator of value; and the value of improvements is in view, even if not expressly identified and segregated in the sale contract from the unimproved value. Where there has been no sale, the value of improvements is not in view, at least not in the same way.

31 Section 6A of the V of L Act expressly assumes that any improvements had not been made and implicitly assumes that the hypothetical purchaser is purchasing the land for its highest and best use: Commonwealth Custodial Services Pty Ltd v Valuer-General (NSW) (2006) 148 LGERA 38 at [14] (Biscoe J), affirmed on appeal under the name Trust Company of Australia Ltd v Valuer-General [2007] NSWCA 181 at [32]. My decision in that case should not be confused with the decision of Talbot J in the identically named but unrelated case referred to above at [17]. The latter well established assumption is implicit rather than explicit for s 6A does not expressly refer to the highest and best use. CONSTRUCTION OF Section 123 HERITAGE ACT: HERITAGE VALUATION 32 In contrast to s 6A, s 14G of the V of L Act, like s 123 of the Heritage Act, expressly mandates that a heritage valuation must be determined on the assumptions that the land may only be used for its actual use as at the base date and by reference to the actual improvements at that date and no other improvements. This difference between s 6A and s 14G was recognised in Trust Company (above) at [56] - [58] by Campbell JA (Beazley and Ipp JJA agreeing) who said: 56 Section 14G(1)(b) contemplates that improvements enable the existing use of the land to be maintained, regardless of what is the highest and best use of that land…

57 Again, the Appellant could submit that section 14G is an exception to the general principle upon which land value is to be ascertained…

58 Section 14G(1) is in some ways the converse of section 6A(2). Both of them provide a different method for valuation of land to that which is provided by section 6A(1). Section 6A(2) is concerned with ensuring that land is not undervalued when an existing use of the land is more valuable than any use to which the land could be put if the improvements on it had not been made, while section 14G(1) is concerned with ensuring that land is not overvalued when heritage restrictions on the land have the effect that continuing its existing use is less valuable than any use to which the land could be put if the improvements on it had not been made… 33 Section 123 of the Heritage Act speaks of a "heritage valuation". Section 14G of the V of L Act does not; but it is convenient to also refer to a s 14G valuation as a "heritage valuation" for that is what it is. Both sections, in my opinion, are to the same effect: a heritage valuation is the unimproved value of land (except for land improvements as defined) assuming that it can only be used for its existing purpose and with the existing improvements (and no other improvements). To that extent, both sections displace s 6A of the V of L Act which requires an assessment of the unimproved value of land (except for land improvements as defined) assuming that it can be used for its highest and best use.

34 My reason for concluding that both sections are to the same effect are as follows. First, the likely legislative purpose is that the heritage valuation regimes under the two statutes should be the same. It would be illogical, if not irrational, if they were different. That is because the differences in subject matter are insignificant. Under s 14G of the V of L Act, a heritage valuation is concerned with land that is heritage restricted under a planning instrument. Under s 123 of the Heritage Act, a heritage valuation is concerned with land that is listed on the State Heritage Register. It is unlikely that the legislature would have intended a different valuation regime to apply to each.

35 Second, the assumptions referred to in each section are virtually identical. Third, the textual difference between the two sections, on analysis, is insignificant. The textual difference is that s 123 expresses a two step approach while s 14G does not. That difference is explained by the fact that the legislature has chosen to refer to a s 14G valuation as "land value" with a special meaning. The ordinary meaning of "land value" is otherwise found in s 6A of the same statute. Section 123 of the Heritage Act appears in a different statute where the legislature has preferred to use the term "heritage valuation" and to define it partly by reference to s 6A of the V of L Act and partly by reference to the same assumptions as are found in s 14G.

36 The two steps under s 123 are: (i) a valuation under s 6A of the V of L Act less; (ii) an allowance determined as a consequence of assuming that the land may be used only for the purpose for which it was used at the relevant date and that only the improvements on the land as at that date (and no other improvements) may be continued and maintained in order that the use of that land may be continued. Section 14G of the V of L Act does not expressly spell out those two steps but simply provides that land value is to be determined on the basis of the same assumptions. No heritage hotel sale could capture all those assumptions because in the real world such a sale is not as restricted as the heritage assumptions require. That tends to suggest to that it is implicit in s 14G of the V of L Act that the same two steps are necessary. 37 The applicant submitted that Mr Roberts' scenarios 1 and 2 are consistent with the decision of Talbot J in Commonwealth Custodial Services Ltd v Valuer-General of New South Wales [2006] NSWLEC 775 at [41] and that the rejection in that case of a methodology equivalent to Mr Roberts' scenario 3 was erroneous. The respondent submitted that Mr Wall's heritage valuation was consistent with the dictum of Talbot J at [18]. That case concerned a valuation under s 14G of the V of L Act of a heritage restricted city office building. After holding that ss 6A and 14G are not inconsistent, Talbot J said at [18] - [19]: 18 The language in s 14G is inelegant. The section identifies what improvements may be made on the land and to what use they may be put for the purposes of valuation under the Act by reference to all improvements on the land when the value is determined . Upon a cursory reading, the reference to existing improvements appears to be contrary to the assumption that the land is vacant. However, the reference to existing improvements does not require the valuer of the land to consider the improvements to physically exist except for the purpose of defining the extent and impact of heritage restrictions on the land value within the meaning of s 6A. The improvements and their use are simply a means of identifying an assumption for the purpose of s 6A.

19 The additional assumptions required by s 14G impose an implied restriction or constraint on the use of the land and strictly limit the identity of improvements that can be placed on it. Section 14G says nothing about the reality of the state of the land except by reference to what is there for the purpose of identifying the terms of the restricted use that impacts upon value.

38 In that case, because there were no comparable sales (nor could there be, given the s 14G assumptions), the applicant's valuer proceeded by determining the improved value of the land with its existing heritage improvements and then deducting the value of the improvements: at [20]. Talbot J held that this method was unavailable since Toohey's was adopted in Fenton. Alternatively, he said, even if Toohey's could be distinguished it would not be permissible to go beyond consideration of the intrinsic value of the land and improvements. His Honour adopted the methodology advanced by the respondent's valuer in that case which, as I understand it, involved the following steps: · Step 1. Assess the s 6A land value (unaffected by heritage restrictions and based on the same highest and best use in a modern office building). This was assessed at a rate of $1,900 per square metre of net lettable area based on comparable sales: at [30]; · Step 2. Discount the s 6A rate in step 1 to reflect the s 14G heritage assumption that the only improvements that may be made are those on the land. As I understand it, this was done as follows: (a) discount for those areas of the building that attracted lower rentals due to the heritage restrictions. Those areas commanded rentals that were 50 to 60 percent less than elsewhere in the building. This resulted in a reduction in the overall rate of $1,900 per square metre of net lettable area referred to in step 1 down to $1,749 per square metre: at [38]; (b) further discount the last-mentioned figure for the " design and efficiency of the heritage building ". This discount was assessed at 17 percent being the percentage differential between the rental rate actually achieved ($352.96 per square metre) and the rental rate for a hypothetical new building on the site ($425 per square metre). Apply this discount of 17 percent to the rate of $1,749 per square metre referred to in (a) above to produce a rate of $1,452 per square metre. Multiply the last-mentioned figure by the net lettable area of 24,530.3 square metres to produce a s 14G valuation of $35,617,995 before adding value attributable to " land improvements " (as defined in s 4): at [39] (c) after adding value for land improvements, arrive at a final s 14G valuation of $37,525,000: at [45]. 39 Talbot J expressed his conclusions as follows at [46] - [48]: 46 The task set for the Court is to determine the land value affected by the limitation on improvements to those actually in existence. The best indication of the effect heritage restrictions exactly corresponding to the improvements on the site is to look at the actual effect those very improvements have on the value of the property. This effect can be quantified by a comparison of the rental return actually achieved on the site with a hypothetical return that could be achieved if the site were not heritage restricted. Using this logic Mr Hill derives a discount of 17% to be applied to the s 6A land value of the subject land for the heritage restrictions to be taken into account under s 14G. I find this to be an reasonable approach and accordingly I adopt Mr Hill's methodology.

47 I reject the valuation put forward by the applicant through its valuer. I accept the respondent's case. While Mr Hill's valuation is a lower figure than that determined by the Valuer-General, it is within the accepted range of valuation judgement. Mr Hill's evidence supports the figure determined by the Valuer-General and demonstrates that the figure contended by the applicant is wrong…

48 The appeal is upheld and the land value of the subject property at base dates 1 July 2002, 1 July 2003 and 1 July 2004 is determined in the sum of $37,525,000.

40 Three comments on this analysis may be made. First, there appears to have been a slip in [46] of his Honour's judgment because, as analysed above, the discount of 17 percent appears to have been applied not to the s 6A land value, which was $1,900 per square metre of net lettable area, but to an intermediate s 14G discounted figure of $1,749 per square metre of net lettable area. Second, it may have been clearer if steps 2(a) and (b) had both been described as a discount for the "design and efficiency of the heritage building" or, better still, as the heritage allowance. Third, the judge had to do the best he could on the valuation evidence that was put before him.

41 Commonwealth Custodial is distinguishable. First, in that case the highest and best use was identical with the purpose for which the land was actually used at the base date. In the present case, that is not so, primarily because of the medium density residential zoning of the land. Second, in the present case no rental market value existed because the premises were owner operated. Third, Commonwealth Custodial was not concerned with the going concern value of an existing or hypothetical business.

42 In my opinion, land value under s 6A of the V of L Act and a heritage valuation under the Heritage Act and s 14G of the V of L Act are a far cry from the assessment of the going concern value of businesses. Their main focus is unimproved value assuming, in the case of s 6A land value, the highest and best use and assuming, in the case of a heritage valuation, the existing use restricted by the existing improvements. It seems unlikely that the legislature would have intended to introduce into the notion of a heritage valuation or heritage allowance the going concern valuation of businesses where the primary determinant of value is the financial trading position influenced by the quality of management. 43 Accordingly, I do not accept Mr Roberts' scenario 1 and 2. In addition, I have rejected scenario 2 for other reasons referred to above at [13]. 44 Mr Roberts' scenario 3 values the existing hotel as a going concern and deducts the value of the hotel licence, poker machine licence and entitlements, operational entitlements and the value of the goodwill of the going concern hotel. The resultant figure is said to represent what the land value and the shell of the building would sell for in the market. In my opinion, that methodology is not available under s 123 of the Heritage Act. Section 123 is not concerned with the value of a going concern business, nor with the actual value of the shell of the existing building. The existing business and building are only relevant to the assumptions to which s 123 refers. The methodology of subtracting improvements from improved land value is impermissible to assess land value under s 6A of the V of L Act, where the implicit assumption is a sale for the highest and best use (Fenton/Toohey's). It logically follows that the methodology cannot be used to assess the heritage valuation under s 123 of the Heritage Act (or s 14G of the V of L Act) where the explicit assumption is the more limited existing use restricted by the existing improvements. That was also the conclusion reached by Talbot J in the context of s 14G of the V of L Act in Commonwealth Custodial at [26]. Accordingly, I do not accept Mr Roberts' scenario 3.

45 Mr Wall's approach, set out at [16] above, follows the requirements of s 123. He used his general expertise to assess the quantum of the heritage allowance at 30 percent. Although that is open to criticism that it is difficult to test, it is permitted by s 123 and is a reasonable general approach in this case. Nevertheless, in all the circumstances, I have concluded that his percentage is too low.

46 In assessing the quantum of the heritage allowance, a question posed by Mr Wall in the passage from his report quoted above at [16] was whether heritage listed hotels have suffered from any discounting in relation to the overall hotel market. That question does not go far enough. Under s 123 of the Heritage Act the question is what discount (allowance) should be applied to the s 6A land value. The s 6A land value assumes that the subject land is purchased for its highest and best use of medium density residential development. Section 123 of the Heritage Act requires the heritage allowance to be assessed on a different assumption that the land is purchased for use as a hotel, restricted to the existing hotel. At one point Mr Wall appeared to rationalise his thirty percent on the basis that the sales of heritage listed hotels to which he referred do not appear to have suffered from any discounting in relation to the overall hotel market. However, in cross examination it emerged that he had not really conducted any analysis in that regard. He also ultimately conceded that he did not rely on such sales to quantify the heritage allowance (as distinct from the s 6A land value).

47 On the whole of the evidence and informed by the view that I had of the hotel and comparable sites, I have reached the conclusion that the heritage allowance should be reasonably assessed at 40 percent of the s 6A land value.

assessment of Land Value: section 6A Valuation Of Land Act 48 The valuers assessed land value under s 6A of the V of L Act on the basis of the subject land's agreed highest and best use of medium density residential development. There are three differences between the valuers: yield (i.e. number of residential units); value per residential unit; and the sales evidence to be relied upon. 49 Mr Roberts: (a) analysed the density of local sales to determine a density of 270 m2 per unit site for the subject property; (b) analysed two sales and a check sale to derive an average adjusted rate per unit of $73,333 for the subject site; (c) adopted a yield of 12 villa/townhouse sites for the subject land by dividing its area of 3,427 m2 by 270 m2; and (d) thereby concluded that the land value of the subject site was $880,000 ($73,333 x 12). 50 Mr Wall's initial approach was to analyse other sales for medium density development, general business and neighbourhood business, and industrial zoned parcels, which indicated an underlying value in the range of $350 to $400 per square metre which, when applied to the area of the subject site, produced a land value in the range of $1,199,450 to $1,370,800. He adopted $1,300,000. Later, in oral evidence, he also followed a method of adopting a yield of 14 villa/townhouse sites for the subject land based on analysing comparable sales to derive an average rate per unit of $92,857 for the subject site. Under this method he also concluded that the land value of the subject site was $1,300,000 (14 x $92,857). 51 The valuers' analyses may be summarised as follows: Table 1: Subject Property Base Date Land Area m2 Yield Rate/Unit Rate/m2 Density Land Value Heritage Valuation $466,400 Roberts Scenario 1 1-Jul-2003 3,427 12 $73,333 Roberts - 270m2 per unit Roberts $880,000 Roberts -$897,600 Roberts Roberts Scenario 2 $235,243 Roberts valuation Scenario 3 14 $92,857 $380/m2 Wall $1.3 million $1.3 million minus 30% = $910,000 Wall Wall Wall Wall $940,000 Valuer General $650,000 Valuer General

Table 2: Mr Roberts' Comparable Sales and Yields Address Contract Date Land Area m2 Sale Price Yield Rate/Unit Rate/m2 Density 24 - 26 Campbell Street, Woonona 27-Oct-2003 2,664.60 $1.1 million 6 x 3 bedroom villas and 3 x 3 bedroom townhouses $122,000 $413/m2 296m2 per unit (9 units total actual) 204 - 206 Princes Hwy, Bulli Feb-1996 1,818 $215,000 (this was adjusted to obtain rate/unit) 8 $60,300 (using a 96.3% increase for age) - 227m2 per unit 224 Princes Hwy, Aug-2005 935 $286,000 - - $283/m2 - Bulli 208-210 Princes Hwy, - 1,809 - 7 units - - 258m2 per unit Bulli (actual) 232 Princes Hwy, - 2,161 - 11 units - - 196m2 per unit Bulli (actual)

Table 3: Mr Wall's Comparable Sales and Yields Address Contract Date Land Area m2 Sale Price Yield: Rate/Unit Rate/m2 24 - 26 Campbell Street, Woonona 27-Oct-2003 2,664.60 $1.1 million 6 x 3 bedroom villas and 3 x 3 bedroom townhouses (9 units total actual) $122,000 $413 185 The Avenue, Figtree 31-May-2004 1983.4 $950,000 5 units (estimated) $190,000 (estimated) $479 481 Princes Hwy (Corner Gray Street and Princes Highway) Woonona 8-Apr-2003 2,957 $1.565 million 13 units (estimated) $120,000 $529 (estimated)

Yield 52 As stated, the yield of potential residential development on the subject site was calculated by Mr Roberts at 12 residential units and by Mr Wall at 14 residential units. 53 Mr Roberts' calculation was by reference to residential unit yields on four other comparable sites zoned residential 2(b) within the Bulli area viz: 196 m2, 227 m2, 258 m2 and 296 m2: see Table 2 above. For the subject site Mr Roberts adopted 270 m2 which yielded 12 residential units. The four sites analysed for yield by Mr Roberts were as follows: (a) 24 - 26 Campbell Street, Woonona. Approval was granted for the construction of nine residential units: 6 three bedroom villas, and 3 three bedroom townhouses, on 2,664.6 m2 of land. This represents one unit per 296 m2. If the permitted FSR of 0.5:1 had been applied, there would have been something like 13 units on the site. (b) 204 - 206 Princes Highway, Bulli. This property comprises an established residential development completed in June 2001 consisting of 8 villas situated upon approximately 1,818 m2 of land. This represents one unit per 227 m2.

(c) 208 - 210 Princes Highway, Bulli. Development approval has been granted for seven residential units to be constructed on the site which comprises a land area of 1,809 m2, representing an overall ratio of 1 unit per 258 m2.

(d) 232 Princes Highway , Bulli. This property is situated near the subject hotel. The residential development, which was completed in 2002, comprises an 11 unit complex situated on a 2,161 m2 allotment. This represents an overall ratio of one unit per 196 m2. 54 The applicant also analysed the yields of two other comparable sales used by Mr Wall for valuation purposes: (a) 185 The Avenue, Figtree: area 1,983.4, 396 m2 per unit, number of residential units estimated at five; (b) 481 Princes Highway, Woonona (Corner of Gray Street): area 2,957 m2, 227 m2 per unit, number of residential units estimated at 13.

55 Mr Wall's calculation of 14 residential units was based on the 0.5:1 FSR permitted by the relevant local environmental plan. Mr Roberts disagreed with Mr Wall's reliance on the permitted FSR because that was just one of a number of criteria to which the consent authority would have regard. In his experience, a residential development rarely achieved the permitted FSR, particularly having regard to complaints about density from owners of adjoining properties. 56 The preferable approach, in my view, is to have primary regard to the yields of other properties rather than just to the permissible FSR.

57 Mr Wall criticised Mr Roberts for adopting 270 m2 per unit for the subject property because it was towards the high end of the yields of the four properties that Mr Roberts analysed. Mr Wall also criticised Mr Roberts for not carrying out a check exercise involving a direct comparison of a rate per square metre. Notwithstanding these criticisms, I am prepared to adopt Mr Roberts' yield of twelve units for the subject site. Land value 58 The land value per residential unit lot was assessed by Mr Roberts at $73,333 and by Mr Wall at $92,857.

59 In order to assess the land value per residential unit, the valuers had regard to sales of other properties but they disagreed as to which properties were comparable. These properties were also zoned 2(b) except for one to which Mr Wall had regard, 185 The Avenue, Figtree which was zoned 2(a). That zoning permits low density residential development with a maximum FSR of 0.3:1. I viewed those properties, as well as the subject property, accompanied by the parties' legal representatives and valuers.

60 The applicant's valuer Mr Roberts had regard to the following sales which are analysed in Table 2 above: · 24 - 26 Campbell Street, Woonona. This was in a superior location and therefore its value has to be discounted when using it to assess a value for the subject property; · 204 - 206 Princes Highway, Bulli. This was an old sale which occurred in 1996 and therefore was heavily adjusted for time by Mr Roberts; and · 224 Princes Highway, Bulli. This was used as a check to give a per lot price for gross realisation of a hypothetical four lot subdivision of the subject land. 61 The respondent and its valuer Mr Wall ultimately had regard to the following comparable sales which are analysed in Table 3 above:

· 24 - 26 Campbell Street, Woonona; · 185 The Avenue, Figtree; · 481 Princes Highway, Woonona.

24 - 26 Campbell Street, Woonona 62 Both parties submitted that this was a relevant sale and, as stated earlier, the applicant appeared to place primary reliance upon it in closing submissions. It was chosen by both valuers in their individual reports as a comparable sale. However, in the valuers' subsequent joint report, Mr Roberts appeared to reject it as of no assistance. He said that it was in a superior residential location than the subject property and that there was no way of determining what level of discount should be applied to reflect the inferior location of the subject property. Nevertheless, the applicant's closing submissions appeared to place primary reliance upon it. 63 This property was sold on 27 October 2003 for $1,100,000. It has a total land area of 2,664.6 m2. It comprised two adjoining cottages which were purchased for demolition for the construction of home units. It is located in a side street off the Princes Highway within an established residential environment approximately a block from the coastline, beach and sporting fields. It is in a superior residential location to that of the subject property.

64 The property was purchased without development approval. A development application was subsequently lodged and approved for the construction of nine residential lots: 6 x 3 bedroom villas and 3 x 3 bedroom townhouses. They were under construction at the time of the hearing. This represents one residential unit site per 296 m2 which translates to a rate of $122,000 per unit site and a rate of $413 per square metre. In order to apply that unit rate to the subject site, a discount has to be made for the superior location of the Campbell Street site.

65 The unit rate for the subject site was initially assessed by Mr Roberts at $70,000 and was assessed by Mr Wall at $92,857. However, Mr Roberts' figure of $70,000 was adjusted upwards as a result of Mr Roberts' cross-examination because he had erroneously assumed that the Campbell Street property had been sold with the benefit of development approval. If this property had been sold with development approval, that would have increased its value by an amount which Mr Roberts estimated at $30,000 and Mr Wall estimated at $100,000. This increases Mr Roberts' initial assessment of the value per unit on the subject property from $70,000 to $73,333 if Mr Roberts' estimate is correct ($30,000 divided by 9) or to $81,111 if Mr Wall's estimate is correct ($100,000 divided by 9). Very little evidentiary assistance was provided to the Court to choose between the two estimates. I am prepared to accept Mr Roberts' estimate of $30,000. Subject to that adjustment, I broadly agree with Mr Roberts' assessment of value per unit for the subject land compared with the value per unit for this property and, consequently, would be inclined to adopt a valuation of $75,000 per unit for the subject land.

66 In cross-examination, Mr Wall appeared to agree that (on his FSR approach) at the time of sale of this property (which was prior to the grant of development approval for nine residential units) a purchaser would have anticipated development of 11.6 units based on the permissible maximum FSR of 0.5:1 compared to the nine units subsequently approved. On this basis, he appeared to agree that the properly analysed rate for that property should be calculated by dividing the $1.1 million sale price by 11.6 which would have shown $94,827 per unit and not $122,000 per unit (the latter being the sale price divided by 9).

67 In final submissions the respondent demonstrated that the calculation for the Campbell Street sale on the basis of which Mr Wall was cross-examined (i.e. dividing total floor area of available floor space ratio by the "typical" 120 m2) yields 11.1 units rather than the 11.6 units put to him. Dividing the sale price of the Campbell Street site of $1.1 million by 11 gives $100,000 per unit (although the rate per metre does not change).

204 - 206 Princes Highway, Bulli 68 This property is located approximately one kilometre from the subject site. It was sold in February 1996 for $215,000, which equates to an overall value per unit site of $30,714. In order to adjust the sale price to 1 July 2003 (the relevant base date) Mr Roberts applied an increase of 96.3 percent to the sale price. The resulting current value as at the base date of 1 July 2003 equates to $60,300 per unit site. This may be compared with the $73,333 per unit site adopted by Mr Roberts for the subject site. Mr Wall's view was that this was a highly unreliable sale to compare because it was seven and a half years prior to the base date, which was in a boom market period. I agree.

224 Princes Highway, Bulli 69 This property was not used by Mr Roberts as a comparable sale but as a check. In his report, Mr Roberts sets out his conclusions from his analysis of comparable sales and then sets out how he derives support from this property, as follows: When having regard to: the locality of the subject property; its proximity to the Princes Highway; its topography; vehicular access to the site; and the nature of the surrounding development, I consider that the appropriate land value per unit site applicable to the subject property, without an approved Development Application, equates to $70,000 per site.

Accordingly, I consider that the vacant land value of the subject property, unaffected by heritage constraints, based upon a 12 unit redevelopment of the allotment, at a rate of $70,000 per unit, equates to a total land value of $840,000.

This value is also supported by a hypothetical subdivision of the subject land based upon the sale in August 2006 of a 935 square metre, similarly zoned property, situated at 224 Princes Highway , for $286,000 which equates to a land value per square metre of $283/ m2

Assuming the subject property is subdivided into 4 allotments of a similar size to the above sale, the resulting gross realisation (GR) of the subdivided site equates to $971,288. When deducting subdivision and project costs (inclusive of agent's fees and a profit and loss component) at a conservative total estimate of say 15% (of GR), the resulting pre-subdivision land value equates to $825,500.

It is therefore, my considered opinion that the unimproved value of the subject property, assuming a residential highest and best use unaffected by heritage, equates to a value of $825,000. 70 Mr Wall's view, contrary to that of Mr Roberts, was that because it is a battleaxe block it would be substantially more difficult to develop than the subject site. I am unable to see why the battleaxe shape would make it any more difficult to develop into four allotments. Of course, no-one suggested that the highest and best use of the subject property, which is larger, would be limited to only four residential allotments.

71 This sale was some two years after the base date. Mr Wall therefore thought it was irrelevant. A sale so long after the base date has to be used cautiously. If between the base date and the date of the subsequent sale, supervening events occur which alter the conditions previously existing, the subsequent sales would not, or may not, be comparable: McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1 at 16; Australian Mutual Provident Society v Overseas Telecommunications Commission Australia [1972] 2 NSWLR 806 (CA) at 823 - 824; AMP Henderson Global Investors v Valuer-General (2004) 134 LGERA 426 at 431. In the present case the evidence indicates that the market boom which existed as at the base date was over by August 2005. Mr Roberts accepted this and agreed that by August 2005 there was a subdued market and development was slower and that there was a different set of circumstances compared with the base date. In the circumstances, it seems to me that the sale of this property is of little assistance. 185 The Avenue, Figtree (Cnr Princes Highway) 72 This property was sold on 31 May 2004 for $950,000 without a development consent. It comprises a large corner site of 1,983.4 m2 which is approximately 58 percent of the area of the subject property. It is located approximately 12 km south of the subject site, opposite a Westfield Shoppingtown on a prominent corner of the Princes Highway. It was previously used as a Mobil service station but was decommissioned prior to sale (i.e. sold as a remediated vacant block of land). The underlying zoning is Residential 2(a) which allows a FSR of 0.3:1. This permits a lower density than the subject property's Residential 2(b) zoning which allows a floor space ratio of 0.5:1. Its area multiplied by the FSR of 0.3 yields approximately 594 m2 of potential development which, in turn, yields about five 120 m2 villas. 73 The sale price indicates a rate of $479 per square metre. Mr Wall estimated that five medium density dwellings could be approved on the land which represents $190,000 per unit. . The values assigned by Mr Wall to the subject land represent a 20 percent discount from the rate per metre for this property. 74 Mr Wall understood that this property was sold with a commercial purpose in mind and the purchaser was looking to rezone the property. Mr Roberts' understanding was similar. However, this has not occurred to date. The applicant submitted that this sale was irrelevant or of little assistance because the property was sold for a commercial purpose. I accept that its usefulness is limited for that reason. 481 Princes Highway, Woonona (corner of Gray Street) 75 This sale is the most similar to the subject property, ignoring heritage issues, in that it was just prior to the base date, its area is similar, it has two street frontages and it is located on the Princes Highway within two kilometres of the subject property. The respondent appeared to place a good deal of reliance upon it in submissions. 76 This property sold for $1,565,000 in April 2003. It has a land area of 2,957 m2. The sale value was $529 per square metre. It was sold as a medium density residential development site with dated industrial shedding. According to Mr Wall, it could accommodate up to 13 x three bedroom townhouses, which showed a value of approximately $120,000 per unit site based on apartment size of approximately 125 m2. This seems to be arithmetically incorrect because the area divided by the unit size (2,957 125 m2) multiplied by the FSR of 0.5 yields 11.8 units.

77 Mr Wall considered that this sale was comparable. Mr Wall's valuation of the subject land at a yield of 14 units represents $92,857 per unit. This represents an adjustment downwards of $27,143 or 22.6 per cent per unit from the value per unit of $120,000 which he attributed to this property. Mr Wall's rate of $380 per square metre for the subject land represents a discount of a $149 in the rate per square metre as compared with this property.

78 Mr Roberts did not consider this was a comparable sale. He considered that the purchaser paid too much for this property because it sold for $529 per square metre, 28 percent more than the $413 per square metre for 24 - 26 Campbell Street which was in a superior location. The applicant therefore submitted that this sale should not be relied on as evidence of value because it was so far out of line with the sale of 24 - 26 Campbell Street. I would not go so far but, in my view, the sale should be treated cautiously because it does appear to be inconsistent with 24 - 26 Campbell Street. Consequently, I consider that a larger discount should be attributed to the subject land in comparison to this sale than was attributed to it by Mr Wall. I am inclined to adopt a valuation of $75,000 per unit for the subject site by comparison with this sale. Decision as to land value 79 I have explained why I consider that the Campbell Street site is the most comparable, followed by the 481 Princes Highway site, and why I am minded to adopt a land value of $75,000 per unit for the subject land having regard in particular, to those two sales. I have also indicated why I consider that the other sales are of little or less significance. In my view, taking into account the whole of my analysis above, the land value per residential lot for the subject land should be assessed at $75,000. Applying that rate to the 12 residential lots which I have earlier determined was the yield for the subject site, results in a total land value of $900,000.

Conclusion 80 From the land value of $900,000 there should be deducted the heritage allowance of 40 percent of land value. That produces a heritage valuation of $540,000.

81 The appeal is upheld. The land value and the heritage valuation of the subject property at the base date of 1 July 2003 are determined in the sums of, respectively, $900,000 and $540,000. The exhibits may be returned.

19/10/2007 - typographical error. - Paragraph(s) 44 last sentence "not" instead of "no"

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