The authority's valuers argued that where a municipality bought residential land for parkland purposes and then had imposed on the land a reservation for public open space, its value was immediately reduced. It is difficult to understand why this is so, for the municipality is the main factor in the market for parkland. It will clearly be prepared to pay the original price it paid for the very good reason that, if it did not buy this land at that price, it would be compelled to pay that price for residential land, there being no parkland so zoned available for sale.
(The emphasis is mine.)
23 Gobbo J took into consideration evidence of sales of residential land purchased by the council for parkland, and arrived at a market value which reflected the history of parkland purchases, which showed that the council generally purchased parcels that were wholly suitable for parkland purposes but which had some factor that brought about a reduced price as residential land (at 270). That is, the council had paid prices for the most part which were at a lower level than prevailing residential values, because the particular properties that it had purchased were impaired in some respect. The level was in order of 75 to 80 per cent of residential values generally. This seemed to his Honour to be confirmatory of the market value of the subject land and as being reflective of the history of parkland purchases by the council, which showed generally that it purchased land suitable for parkland purposes but which had some factor, such as a physical constraint, which brought about a reduced price as residential land.
24 Importantly, Gobbo J rejected a claim put forward on behalf of the claimant which had, as its basis, the replacement cost of residential properties, as essentially reinstatement (at 272), which is not open to the disposed owner. His Honour held that the claimant was confined to market value in accordance with s 11B of the Act, but it was the fact that there was an ascertainable market value in that case.
25 In Roads and Traffic Authority of New South Wales v Blacktown City Council at [40] to [42], the Court of Appeal accepted the practice of using comparable sales of properties acquired by councils for open space purposes, but which had residential zoning or residential uses. Spigelman CJ also accepted the long established practice that a person who wishes to acquire land for the purpose of open space is, in fact, prepared to pay residential values to make such an acquisition (at [44]). His Honour said (at [44]):
This is an example of the "willing but not anxious purchaser" element of the market valuation test, the traditional test now found in s 56(1) of the Just Terms Act.
26 Spigelman CJ acknowledged (at [45]) that the "willing but not anxious seller" element of the hypothetical transaction required compensation for the additional value of the residential use. For this reason his Honour thought that sales of residential land were not determinative, but saw nothing wrong with an approach that accepts the relevance of such transaction and then proceeds to apply a discount (at [46]).
27 I find the City of Brighton case particularly informative. As in that case, the evidence in the present case shows that there is a market for land purchased for use as open space and that market value is readily ascertainable. I have found that the market value for such land in the Leichhardt area is about $1,175 per square metre. That is the price that a willing but not anxious hypothetical purchaser who wishes to buy land for open space purposes is prepared to pay. The purchasers interested in buying the land in the hypothetical sale may not only include the council, but also State government authorities, developers seeking open space to maximise floor space ratios or to offset contributions under s 94 of the Environmental Planning and Assessment Act 1979, sporting and recreation clubs, schools and universities (who were accepted by Sheahan J in the Sutherland case as potential purchasers). The willing but not anxious vendor would know this, would know the price that the hypothetical purchaser would be prepared to pay and would be unlikely to settle for less.
28 In the City of Brighton case, Gobbo J was prepared to adopt as the relevant market the prices paid by the council for residential land which it intended to use as parkland. I am prepared to adopt the same approach in the present case. The evidence shows that there is a market for such land in Leichhardt and the evidence also shows the price that a hypothetical purchaser is prepared to pay for such land.
29 As noted by Davies AJA in the Ashfield case, however, the seller in such cases would require compensation for the additional value of the residential use, so it would be appropriate to apply a discount. In my analysis of the comparable sales, however, I deducted the value of the improvements from the comparable sales in arriving at an average of $1,175 per square metre. Any further discount, if any, need not be great, because the purpose of the hypothetical transaction is to put the land to its use as open space, and the price paid for land to be put to that use was $1,175 per square metre. All that the restriction upon use does is to restrict the range of potential purchasers (which, as noted in par [27] above, may include the council, but may also include others). However, as Gobbo J also noted in the City of Brighton case (at 263), it is necessary to guard against the view that restrictions, because they restrict the class of potential purchasers, inevitably mean a lower value.
30 The fact that there are restrictions on the use of the land and consequently a restricted class of potential purchasers may have some depressing effect on the hypothetical sale of the subject land, but for the reasons explained the reduction in the present case, if any, would at most be marginal. This approach is entirely consistent with that which was adopted by Gobbo J in the City of Brighton case and by Davis AJA in the Ashfield case, as noted in pars [18]-[21] above.
31 The factors which influenced Gobbo J to adopt a value in the order of 75 to 80 per cent of prevailing residential values in the City of Brighton case are not present here. Those comparable sales in the present case which were impaired in some respects, have been taken into account in arriving at the average of $1,175 per square metre.
32 In the Sutherland case, Sheahan J accepted the fact that the appropriate discount to apply in a particular case will depend upon its own facts and circumstances (at [95]). In that case Sheahan J applied a one-third discount to residential values, in a case where the acquired land was zoned public open space. The evidence in that case showed that the provision of open space in Sutherland had recently stabilised, the amount of open space was generous compared to general standards of open space provision, and the council had apparently resolved to acquire less open space (at [79] and [92]).
33 The facts and circumstances of the present case are different from those in the Sutherland case. Unlike Sutherland, there is a severe shortage of open space in Leichhardt. Leichhardt Council is active in the market of acquiring land for the purpose of open space. That is, the council is a buyer of land in the market for open space, it accumulates open space, there is a shortage of open space in the municipality and the council pays residential values to obtain it. The hypothetical willing but not anxious seller, with the knowledge of the market, would be aware of the prices paid by the willing but not anxious buyer and would thus be unwilling to settle for less than a full residential value in the hypothetical sale.
34 As in the City of Brighton case, the market value disclosed in the present case reflects the history of purchases by the council for open space in Leichhardt. Moreover, as noted by Gobbo J in the passage set out at par [22] above, this may lead and, in fact, has led, to the council having to pay the equivalent of residential values. Accordingly, in my opinion, the discount due to the fact that the subject land is zoned for open space, on the facts and circumstances of the present case, should be nil. It represents the price that a willing but not anxious purchaser is prepared to pay and a willing but not anxious seller is prepared to accept, for land intended to be used for open space in Leichhardt. The result is a market value for the acquired land of $1,175 per square metre, that is, the sum of $1,053,740.