Limina Holdings Pty Ltd ITF Galileo Superannuation Fund v Valuer General of New South Wales

Relevant Statutory Provisions

1. Section 14A(1) of the Valuation of Land Act 1916 ("the Valuation Act") provides: 14A Valuer-General to ascertain land values (1) The land value of each parcel of land in New South Wales, other than: (a) lands of the Crown, or (b) land that is within the Western Division and is not within the area of a rating or taxing authority, is to be ascertained each year.
2. Section 6A of the Valuation Act provides: 6A Land value (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. (3) Notwithstanding anything in subsection (1), in determining the land value of any land, being land in relation to which, at the date to which the valuation relates, there was a water right: (a) the land value shall include the value of the right, and (b) it shall be assumed that the right shall continue to apply in relation to the land. (4) For the purpose of determining the value of a water right, the value of any water secured by, or referable to, that right is to be ignored.
3. Section 40 of the Valuation Act provides: 40 Powers of Land and Environment Court on appeal (1) On an appeal, the Land and Environment Court may do any one or more of the following: (a) confirm or revoke the decision to which the appeal relates, (b) make a decision in place of the decision to which the appeal relates, (c) remit the matter to the Valuer-General for determination in accordance with the Court's finding or decision. (2) On an appeal, the appellant has the onus of proving the appellant's case.

The Evidence

1. Each party called expert valuation and town planning witnesses of high standing and long experience.
2. All were cross-examined - for the Applicant: Valuer Peter Kempthorne (of Rawlinsons - Exhibit A2), and Planner Gerard Turrisi (of GAT and Associates - Exhibit A1); and for the VG: Konidaris (Exhibit R2), and Planner David Haskew (of HDC Planning - Exhibit R1).
3. The Valuers also provided a joint report (Exhibit R3).
4. While the four experts gave oral evidence, Dr Ragusa did not.
5. It is fair to say that the experts modified their original opinion evidence when questioned in the witness box.
6. The Applicant also tendered an engineering report from Cardno (Exhibit A3), and some "benchmark/component" reports from Property NSW (Exhibit A4), both of which were admitted on a provisional basis. Dr Ragusa sought to rely on Cardno for evidence of "the difficulties that would arise in trying to build a very large building on the site" (Tp9, LL30-31).

The Site

1. The "duplex" building presently on the site has a GFA of approximately 200m².
2. It is single-level, and of rendered cavity brick construction, with a terracotta tile roof.
3. It includes an L-shaped timber-framed extension at its rear, and very little of the subject site remains undeveloped (see aerial photographs in various parts of the evidence, e.g. Exhibit R1 pp7-8, Exhibit A1 p4, Exhibit A2 p6, Exhibit A3 p4, and Exhibit R2 p8).
4. The original duplex was constructed in the early 1900s, perhaps in about 1906 (Haskew Exhibit R1, par 8), and has only "modest architectural value".
5. It is said, however, to have some historic significance, and is on the National Trust Register, as it was, at one stage (1965-1977 - Haskew Exhibit R1, sec 3.4, pars 27 to 32), the home of well-known musicians the Young Brothers (of "AC/DC" fame) (Respondent's subs par 4, and Exhibit R2, p10). There are some other recognised/listed heritage items in the vicinity (Turrisi, Exhibit A1 p10), but Haskew notes (par 32): Council resolved at its meeting of 22 March 2016, to not list the site due to it not meeting significance assessment criteria. As such, there is no formal heritage listing over the site. The National Trust record has no statutory force and does not preclude the site form being developed.
6. The subject site is noted by Konidaris (Exhibit R2, p7) to be surrounded by: ... established commercial development in the form of older semi-detached residential dwellings converted for use as professional cottages and modern redevelopment for high rise commercial office. Retail development is dominant on Burwood Road. Significant redevelopment of the Town Centre is occurring with older buildings making way for medium and high rise mixed use developments. Many of these sites require consolidation for the purpose of redevelopment. The suburb of Burwood is a small established suburb located approximately 11kms west of the Sydney CBD by road. It adjoins Strathfield to the west and Ashfield to the east. It offers a sought-after location proximate to the geographic centre of the Sydney Metropolitan Area.

The Valuation Figures

1. The Respondent's land valuations under appeal are $1.33M as at base date 1 July 2015, and $2.12M at 1 July 2016. Its expert valuer, Konidaris, arrived at valuations of $3.32M (2015) and $3.59M (2016) (see Exhibit R2, pars 14.4 and 15.1), but the Respondent is content to defend its published valuations, determined pursuant to s 6A(1) of the Valuation Act ([20] above).
2. The Applicant contended for values of $800K, as at 1 July 2015, and $900K, as at 1 July 2016, and bears the onus of proof.
3. However, Konidaris states (Exhibit R2, par 12.0) that Dr Ragusa sold the property to the Applicant company in November 2011 for $962,500, in a "not ... at arm's length" transaction. Dr Ragusa retains a caveat on the title (Exhibit A2, Attachment 9).
4. The Applicant's expert valuer, Kempthorne (Exhibit A2), arrives at valuations of $1.05M (2015) and $1.51M (2016).
5. Ms Hammond prepared the following table (subs par 9): Subject Property 1 July 2015 1 July 2016 Valuer General issued land value $1,330,000 (not changed on objection) $2,120,000 (not changed on objection) Applicant's objection $800,000 $900,000 Applicant's expert valuer $1,050,000 $1,510,000 Respondent's expert valuer Scenario 1 (site in isolation) $3,270,000 Scenario 1 (site in isolation) $3,580,000 Scenario 2 (amalgamation) $3,320,000 Scenario 2 (amalgamation) $3,590,000

The Planning Context

1. The subject property is "centrally located", in "Area 1" of Burwood Town Centre, which sits within the B4 Mixed Use zone, under the Burwood Local Environmental Plan 2012 ("the LEP").
2. It also falls within Burwood's "commercial core" (p54 of the Burwood Development Control Plan ("DCP") - Exhibit A2, Attachment 10), and is within easy walking distance to Burwood train station, and numerous business, commercial and retail services on Burwood Road.
3. The subject property's current zoning permits (a) mixed-use development, (b) a 70m building height, and (c) a floor space ratio ("FSR") of 6:1.
4. It is clear that its maximum development potential would be achieved only if it were amalgamated with one or more neighbouring properties, such as No 2 to its North, or No 6 to its South, or part of Council's Elizabeth Street public car park, which sits behind both Nos 4 and 6.
5. Indeed, Turrisi, after discussing the "standalone" and "amalgamation" options at length (Exhibit A1, pp16-19) concludes (p20 - emphasis mine): It is my view that a future redevelopment on 4 Burleigh Street would be unable to achieve its maximum potential in terms of FSR if developed in isolation. The site should be amalgamated with, at the minimum, its two adjoining properties (Nos. 2 and 6 Burleigh Street) to create a lot size capable of achieving compliance with applicable controls discussed within this report and allowing for realisation of the maximum potential of the sites. Notwithstanding this, ideally the three Burleigh Street properties and the three Railway Parade properties (Nos. 20, 22 and 24) should be amalgamated to the (sic) create a best possible outcome for these sites based on a number of factors, including the subdivision pattern and vehicle access.
6. He added (Tp26, LL35-37): ... in my view, you would be amalgamating 2, 4 and 6. In a perfect world you would actually take all the way to the corner which would give you a better urban outcome. (See also Tp37, LL44-45.)
7. No 2 Burleigh Street and No 22 Railway Parade apparently enjoy common private ownership, with No 2 known to be owned by A & G Sheiban Pty Ltd (Exhibit A2 sec 14, p33), but No 6 is owned by Council, and adjoins its open public carpark.
8. No 2, having an area of 284m², is currently occupied by a private tuition business, and No 6 (209m²) is an art studio.
9. Like the subject property, none of those three sites has any on-site parking.
10. On its own - "in isolation" - the subject site's development potential has been described as "quite problematic" (Tp22, L46). The relevant planning control is in the DCP, as varied from time to time (sec 3.3 of Exhibit R1 includes DCP cl 3.26).
11. It is, on any definition, a small lot, with no on-site parking, and a narrow frontage to a narrow one-way street, described by Turrisi (Exhibit A1 p5) as "a narrow, one way laneway providing vehicle access to the rear of a number of premises fronting Burwood Road to the west, including shop top housing developments".
12. The Applicant and its valuer, Kempthorne, relied not only on the town planning advice provided by Turrisi, but also on some advice Ragusa had received from Burwood Council, in response to an inquiry he made of Council in February 2018. (The relevant email exchange is contained in Attachment 4 to Exhibit A2, and the emphasis added below is my own.)
13. Ragusa emailed Council planner Toohey, on 20 February 2018: I am the owner at 4 Burleigh st (sic) Burwood. I understand that the zoning for this property is B4 Mixed Business with an FSR of 6 to 1. The size of the land is 266 sqm. I would be grateful if you could tell me what regulations and restrictions apply to the site if I wanted to develop it as it is. I am particularly interested in maximum height, storeys and floor area.
14. He followed up with Council planner Anthony Cohen on 3 April 2018: ... Basically l would like to know what I can do with my property as it is.
15. Cohen replied later that day: To consider potential development for your property you should firstly look at the [LEP]. ... Under Part 2 - Land Use Table, you will find a description of the permissible / prohibited types of development within the B4 zone. As discussed over the phone, there is a maximum Floor Space Ratio of 6:1 and a minimum lot size of 500m2. The FSR of 6:1 only applies to certain types of development such as Mixed Use / Residential Flat Buildings. The component of the development that can be residential / commercial is further described in Part 4.4 and 4.4A (check minimum lot size map for 'Area' the site is located within) of the [LEP]. This is the initial information / controls to consider for potential development of the site. Further detail / description of requirements for the different types of development is found within the [DCP]; ... The [DCP] contains detailed requirements for development in centres and corridors. Your property of 4 Burleigh Street is located within the 'commercial core' of the town centre (the [DCP] has certain requirements for development identified in the commercial core area). As the minimum lot size is 500m2, the subject property would need to be amalgamated with an adjoining property to reach the 500m2 minimum requirement. In regards to intensifying your current development (single storey dwelling) it is likely you would be able to get approval for a second level, however this would be subject to assessment once a development application was received by Council where all details of the development and locality can be taken into account. It would be best to discuss potential development of your site with a private consultant planner for a clearer picture of what your site might be best utilised for. Council's role in providing development advice to the community is normally limited to advising of the relevant planning instruments that guide development (i.e. the [LEP] and [DCP]).
16. I note here that no Council officers played any part in these proceedings, and that they, as Ms Hammond submitted (Tp88, LL1-4), in an effort to help the inquirer, were not fully aware of the context of the inquiry, and were "providing advice in a vacuum".
17. Kempthorne argues (Exhibit R3, last point) that Council's advice "states" that the subject property "has no latent potential". He also argues that any possible amalgamation is not relevant to this appeal, and that the Court should have regard, rather, to Haskew's evidence.
18. Konidaris notes (Exhibit R3, p4) that "sites are consolidated over a period of time rather than as a single acquisition".

Economic Viability?

1. The question of economic (or financial) viability of a hypothetical development scenario is not easily separable from other practical parameters.
2. Under the LEP, the minimum lot size is 500m², and development of small sites in isolation is discouraged.
3. Residential developments must provide on-site parking, and Kempthorne opines (Exhibit A2, p23) that there is little demand for a small commercial office building on that site, and (p29) that redevelopment is not economically viable. (See also Tp43, LL29-31). He opined (Tp44, LL11-14) that the commercial office space market in Burwood is for older stock, and "very thin or small". He added (at Tp44, LL28-29): I don't think there'd be a demand for that hypothetical building, no.
4. Haskew conceded (Tp19, LL40-42) that questions of economic viability were "not within [his] expertise".
5. Konidaris commented (Exhibit R2, par 15): The Burwood commercial market is generally characterised by one of the following types of commercial stock: entry level shop top office space, 1970s-80s low rise development or low to medium quality, mid 1990s low rise development of a higher standard and modern office space (which is rare and characterised by development at 9 Deane Street in Burwood. Most tenancy sizes are small with a strong dominance from small to medium businesses in this location. Tenancies typically vary from between 90sqm - 400sqm. Tenancies larger than this are rare. The lack of high quality office stock would provide further scope to investigate further.
6. Kempthorne adhered to his "not economically viable" view in the joint valuation report (Exhibit R3), but Konidaris opined (p1) that "the market in this location is constructing commercial floor space to its full potential and therefore is viable. Secondly, limited vacancy and small floor plates that would be envisaged are considered to be well received by the market".
7. Konidaris added, orally (at Tp43, L49-p44, L1): ... I would have thought that the - the highest and best use would have been a strata subdivision and small foot - small floor plates that would have been on sold.
8. He further added (Tp45, LL29-33): ... it's my view that the small floor plates and the - the 6:1 potential that's been outlined in the planning report would be fully developed, and would be very appealing to the market, just because of the nature of the market within Burwood, typically comprising small floor plates for small to medium businesses.
9. The valuers also disagreed on the advantages or disadvantages of the serious limitations on inclusion of parking within a hypothetical development.
10. Kempthorne opined (Tp47, LL21-28, and 38-40): ... potential lessees would be fairly reluctant to sign new leases, and I think potential purchasers of commercial office space would be reluctant to - to buy the office space without on site parking. ... [The] public car park ... doesn't provide secure 24 hour card key access, which ... I think is a ... requirement for modern - or, for the market today, in both the potential lessees and potential commercial strata office purchasers. ... ... there is a reluctance for occupiers - whether they're lessees or owners - they want the benefit of being able to drive in, park their car in the building, catch the lift up to their office, and continue to work.
11. Konidaris responded (Tp48, LL16-37): I think the location of the property close to - close to Burwood train station would - would mostly offset that detriment. Again, the number is unclear because I haven't done the studies either, but having - having office space so close to - to public transport, to railway, to the main road where there is bus - bus services also, would provide a very strong link for - for anyone that is looking to - to buy or rent office space within Burwood. And a lot of the office space in Burwood, to my understanding, that's of - of an older nature doesn't have parking in any case. So, existing shop top type retail accommodation with - without a relaying, generally doesn't have any - any parking to start with. So, it's - it's not uncommon within the Burwood market, to my experience. ... ... I am aware of ... office space within Burwood that has no parking. I was actually looking to lease there while I still have my own business not long ago. I was looking to lease in Burwood when I was - when I was - and a lot of the - a lot of the properties within Burwood didn't have parking ...
12. Cardno's Cosmo Farinola (Exhibit A3, p3) said: ... [T]his report ... outlines the construction issues that may be encountered with the construction of a multi-level structure on a small site area. It is our opinion that the width and overall size of the existing site does not provide a safe and risk adverse construction process to construct a multi-level structure. It is also our opinion that the requirement for setbacks, lifts, fire stairs and amenities will considerably reduce the floor space yield and increase the complexity of the construction in a confined space (floor plate area).
13. Earlier in his report, Farinola had commented (Exhibit A3, p2): It is my opinion that the width of the existing property will not provide adequate lateral resisting elements to be placed within a potential structure without considerably reducing the floor space yield and compromising the planning of each floor. The width of the property in my opinion does not enable a safe and risk adverse construction process to be carried out when elements such as site setbacks, temporary tower crane installation and the requirement for lift and fire stairs are taken into consideration.
14. On questions of isolation/amalgamation of sites, this Court follows a planning principle best articulated by Tuor C in Karavellas v Sutherland Shire Council [2004] NSWLEC 251 ("Karavellas").
15. Tuor C's judgment in Karavellas built upon the principles Brown C had stated, in Melissa Grech v Auburn Council [2004] NSWLEC 40, and elaborated on what Tuor C herself had earlier said, in Cornerstone Property Group Pty Ltd v Warringah Council [2004] NSWLEC 189 ("Cornerstone").
16. The first relevant step to be taken by the proponent of redevelopment is the early opening of negotiations with the owners of relevant "target" properties. In the present case, however, I have no evidence of any approaches made to any owners on the Applicant's behalf.
17. If amalgamation is not "reasonably feasible", Tuor C said in Cornerstone (quoted in Karavellas, at [19]): The key principle is whether both sites can achieve a development that is consistent with the planning controls. If variations to the planning controls would be required, such as non compliance with a minimum allotment size, will both sites be able to achieve a development of appropriate urban form and with acceptable level of amenity. To assist in this assessment, an envelope for the isolated site may be prepared which indicates height, setbacks, resultant site coverage (both building and basement). This should be schematic but of sufficient detail to understand the relationship between the subject application and the isolated site and the likely impacts the developments will have on each other, particularly solar access and privacy impacts for residential development and the traffic impacts of separate driveways if the development is on a main road. The subject application may need to be amended, such as by a further setback than the minimum in the planning controls, or the development potential of both sites reduced to enable reasonable development of the isolated site to occur while maintaining the amenity of both developments.
18. Haskew noted (Exhibit R1 sec 3.3, par 26 on p14) that the DCP control reflects Karavellas.
19. Haskew's report commented (Exhibit R1 pars 59, 60 and 70): 59. Having regard to the applicable planning controls, I would advised (sic) the hypothetical parties that attempts for amalgamation should be pursued with both adjoining properties. Should amalgamation with only one adjoining property be possible, then of the two, I would advise that amalgamation with No. 6 should be regarded as more critically important. This is because No. 2 Burleigh Street would still retail amalgamation potential with its northern adjoining neighbours and therefore would not be isolated in the event that No. 4 and 6 develop. 60. The DCP and Karavellas set out the requirements for attempting to achieve amalgamation. Should amalgamation with none of the adjoining properties prove possible, the site is capable of accommodating a commercial redevelopment (with no residential component) up to maximum FSR. However this scenario would require all off-street parking to be provided by way of Section 94 Contribution. ... 70. The planning controls direct a preference for the site to be amalgamated. I would advise the hypothetical parties that amalgamation should be attempted with both adjoining properties. Should that no (sic) be possible, basement parking and hence the ability to provide residential floor space is achievable if amalgamation occurs with only one adjoining property. Subject to bonafide offers for purchase being made before a Development Application is lodged, the principles set out within Karavellas as well as within the DCP make clear that amalgamation is not a pre-requisite for any redevelopment to occur.
20. The Respondent (subs pars 26-27) criticises the approach taken by Turrisi, on the grounds that his report was prepared on the basis of the most recent LEP and DCP, rather than the versions applying as at the base dates.
21. Despite that, the town planners on both sides of this case are in quite substantial agreement.
22. The valuation experts were questioned about their attitude to potential amalgamation.
23. Kempthorne agreed with Ms Hammond (Tp49, LL30-50) that he ignored the prospect of amalgamation, because of the smallness of the most relevant lots, namely Nos 2, 4, and 6. He added (Tp50, LL17-20): ... I'm not saying that one of the adjoining owners may not wish to purchase it, but at this point in time it stands alone - this doctor - the applicant doesn't own any adjoining properties, so I can't see the site amalgamation approach.
24. He also opined (LL33-41) that the owner of No 2 would focus more on potential amalgamation with its Railway Parade property, and (Tp50, L49-p52, L2) that developers would be expected to be more interested in "large sites". He concluded (p52, LL1-2): The potential of the [subject] site at present is nil, in my view, because of its size. (See also Tp53, LL42-43.)
25. Konidaris opined, in response (Tp52, LL39-41), that if the subject site "were put to market tomorrow, the adjoining owner would highly likely be the winning bidder at an auction".
26. The valuers' disagreement continued (Tpp53-66), and, on balance, I found Kempthorne to be the stronger witness. He repeatedly questioned Konidaris's methodology, and adhered to his fundamental position that the best approach was (as he said at Tp54, LL5-6) to: ... look at similar small sites within the Burwood Town Centre. And - and analyse those on a pure land value basis, using 6A(1), noting (at Tp61, L50) "an absence of any smaller sites in the Burwood Town Centre."
27. He repeated (at Tp62, LL27-28): ... you look at similar sized properties, disregard their development potential, and analyse them purely on a land value basis, having rejected (at Tp55, LL6-10) Ms Hammond's proposition: that the planners agreed that something more akin to perhaps a four storey and a lower FSR building might be able to be built.
28. None of the experts involved in this appeal could identify a "directly comparable" site or sale, for valuation purposes, but the two valuers identified the site directly opposite the subject, namely Nos 7-9 Burleigh Street (394.8m² - Exhibit R2 p13, sale 3)), as either the "best comparable" (Applicant), or "of greatest assistance" (Respondent - see Tp91, LL9-13).
29. However, as Dr Ragusa noted (Tp92, LL48-50), the purchaser of that site was the adjoining owner, so the property at 7-9 Burleigh Street was "no longer comparable to 4 Burleigh Street". (Haskew noted (Exhibit R1, par 37) that an 18-storey mixed use development was approved for the amalgamated site on 21 December 2017).
30. As noted in the joint valuation report (Exhibit R3), Kempthorne used smaller sites from outside "Area 1", whereas Konidaris relied primarily on larger sites within "Area 1", adjusted downwards.
31. Kempthorne saw no benefit in "relying upon or reanalysing" any of Konidaris's sales, whereas Konidaris found Kempthorne's sales, when analysed on a FSA basis, supportive of the rates he adopted.

The Principles

1. The valuation task performed by the VG, at first instance, and by the Court, on appeal, in cases such as the present, has been described as "artificial" or "lacking in reality" (VG subs par 15), but it was well described in the Respondent's written submissions (at 16 to 25), with which Dr Ragusa took no issue. Ms Hammond said in those submissions (with some emphasis now added - footnote omitted): 16. The task is to determine the land value of the fee simple in its unimproved state. How is that task undertaken? In Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111 at [16] the High Court answered the question as follows: "The first step to be taken under s 6A is to identify what is capable of being regarded as 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 unexceptional 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." 17. In Perpetual Limited v Valuer-General [2013] NSWLEC 1227, Moore SC, as his Honour then was, said as follows at [16]-[17]: "...I am mindful of a number of propositions that flow from the decision of the High Court in Maurici v Chief Commissioner of State Revenue [2003] HCA 8; (2003) 112 CLR 111; (2003) 195 ALR 236 and [2003] HCA 8; (2003) 77 ALJR 727. There are a number of propositions that come from that decision, as I understand it, that inform me in my approach to the present valuation task I am to undertake as a statutory valuer. The first is that it is appropriate to use, when it is possible to do so, comparable sales methodology as the basis for valuation and, that although other valuation methodologies are available and are valid, comparable sales provides a starting point appropriately in circumstances such as this. The second proposition that flows is that even a single appropriately comparable sale is a sufficient basis for undertaking such an analysis. The third proposition that flows is that although it might be desirable that such comparable sales be of vacant land, as is the comparison to be undertaken actually or notionally pursuant to s 6A of the Act, it is permissible to use improved sales provided they are appropriately deconstructed to reflect what would be a proper analysis giving rise to a value consistent with s 6A of the Act." 18. Whether a sale is sufficiently comparable is a question of fact and degree. Some adjustment is always necessary; too much adjustment will render it unsafe to use: Brewarrana Pty Ltd v Commissioner of Highways [(No 2)] (1973) 32 LGRA 170 at 180. 19. There is no explicit recognition in the Act of the concept of "highest and best use". However, it is well established that that concept is to be used for the purpose of ascertaining the land value under the Act: Trust Company of Australia Ltd v Valuer-General (2007) 154 LGERA 437 at [32] per Campbell JA, citing [Spicer v Valuer-General (1963) 10 LGRA 319 ("Spicer")]. As his Honour explained in that case: "Section 6A(1) requires the postulation of a notional sale. It has been accepted that this notional sale is one that is assumed to take place in a market, and that the seller would conclude the sale for the highest price it could obtain in that market. As well, if there is some use of the property that is more beneficial than its present use, it is assumed that the potential purchasers in the market would include at least one who was prepared to pay more for the land by reason of the land being able to be used in that more beneficial way. In this way, the concept of highest and best use comes to be applied through the notional sale that s 6A requires to occur." 20. Thus the law (under the Act) is "quite plain" that the value of the (unimproved) land must be based on the best or most profitable potential use. 21. Whilst the court is required to value the subject land as vacant (without improvements), it assumes it is located in the neighbourhood as it exists in the real world: Tetzner v Colonial Sugar Refining Co Ltd [1958] AC 50. 22. Further, it is assumed that the notional sale takes place in an efficient market, in which the hypothetical buyers and sellers have access to all currently available information that affects the property. In determining the "value of land", the relevant principles to be applied are those articulated in the judgment of the High Court in Spencer v The Commonwealth of Australia [1907] HCA 82; 5 CLR 418 [("Spencer")]. The principles there articulated have been accepted as relevant to the application of s 6A(1): Commonwealth Custodial Services Ltd as Trustee for the Burwood Trust Fund; Trust Company of Australia Ltd v Valuer-General [2006] NSWLEC 400; 148 LGERA 38 [("Burwood Trust")] at [13]. 23. In Spencer the Chief Justice said (at 432): "In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e. whether there was in fact on that day a willing buyer, but by inquiring "What would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?" It is, no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural. The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together." 24. The judgment of Isaacs J in Spencer is also relevant, being cited with approval by McHugh J in Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; 199 CLR 413. In the latter case McHugh J said at [49] - [50] (omitting citation of authority): "49. Value is determined by forming an opinion as to what a willing purchaser will pay and a not unwilling vendor will receive for the property. In determining that value, there must be attributed to the parties a knowledge of all matters that affect its value. Those matters will include the predicted impact of future events as well as the experience of the past and the rates of return on other investments. As Isaacs J pointed out in Spencer v The Commonwealth: "We must further suppose both to be perfectly acquainted with the land, and cognisant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property." ... The market for the property is, therefore, assumed to be an efficient market in which buyers and sellers have access to all currently available information that affects the property." 25. That passage from the judgment of McHugh J was, in turn, adopted by the High Court in Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5; 233 CLR 259 at [51].
2. As I have already noted, the VG argues that the "highest and best use" of the subject land is as part of a land banking exercise, aimed at its eventual amalgamation with nearby lots, with a view to a major multi-storey development.
3. On the other hand, the Appellant argues, on the basis of the current constraints on the site, that its highest and best use is its current use as professional rooms, albeit with some future potential (see [11] to [13] above).
4. There is no statutory definition of "highest and best use", but the Australian Property Institute considers it to be "the use of the property that maximizes its potential which is physically possible, legally permissible, and financially feasible" (Exhibit A2, p19, sec 8.5).
5. The valuation exercise proceeds on the presumption that some valuable "step-up" in use should be considered when attempting to describe what a hypothetical purchaser is looking for.
6. It is necessary, however, for the Court to review relevant authority and commentary.
7. In a recent compensation case heard by me, Alexandria Landfill Pty Ltd v Roads and Maritime Services; Boiling Pty Limited v Roads and Maritime Services (No 6) [2019] NSWLEC 98 ("ALF"), the Applicant argued for the subject land to be valued on the basis of a hypothetical development scenario occupying a period of 29 years from the date of acquisition, while the Respondent argued for a more limited 8 year concept.
8. In the end, I accepted, in most respects, the Respondent's submissions, and determined compensation accordingly. I said ( at [539]): The Court does not accept the propositions for that extended period, and prefers the Respondent's submission that Lot 2 would be sold at the end of year 8, without any prior subdivision of the land, rather than the Applicant's suggested subdivision of surplus land and operation of a RRWTF in years 9 to 29.
9. In the compensation context, Handley JA noted, in Roads and Traffic Authority of New South Wales v Mosca (2006) 146 LGERA 335; [2006] NSWCA 159, at [15]: ... The basic principle of compensation law is that the land must be valued at the relevant date in its existing condition with all its potentialities as potentialities
10. The present is a case of disputed potentialities.
11. In a leading s 6A case in this Court, Burwood Trust ([88]22 above), Biscoe J said (at [13]-[15], and [23] - some emphasis added): 13 There is some difficulty in construing s 6A, partly because it is an artificial construct and partly because it is elliptical. Although it should be explicit, there are omissions that must be implied, including reference to a bona-fide purchaser. In my opinion, s 6A(1), apart from its improvements assumption and land improvements exception, reflects, partly explicitly and partly implicitly, the ordinary principle of ascertaining the value of land stated in [Spencer] at 441. That is, the value of land is the price arrived at by a willing but not anxious buyer negotiating with a willing but not anxious seller, both perfectly acquainted with the land and cognizant of all circumstances which might affect its value. In Commissioner of Land Tax v Nathan (1913) 16 CLR 654 at 661 the High Court held, in the context of construing land tax legislation, that the ordinary principle of ascertaining the value of land is as stated in [Spencer] unless a new special rule of law is introduced by a statute which sets up some artificial standard. 14 In my opinion, under s 6A(1) land must be valued on the basis that the hypothetical purchaser is purchasing the land for the purpose of its highest and best use, which may not be its current use. "The law is quite plain that under the Valuation of Land Act the unimproved value of land must be based upon the best or most profitable potential use and if the land was legally capable of being subdivided for residential purposes… it was proper to value it on a subdivisional basis": [Spicer] at 320 per Else-Mitchell J. In Stubberfield v Valuer-General [1991] 1 Qd R 278 at 283 Carter J said: "It is also a well recognised principle that land be valued for its highest and best use. What it can best be used for will be reflected in its true market value which takes account of any detriment the land possesses relevant to its use as well as any potential it has for its present or other use. Again the relationship between value and land use is immediately apparent". In Goode v Valuer-General (1979) 22 SASR 247 at 256, 61 LGRA 424 at 434 Wells J said that: "The sale referred to in the definition of unimproved value is a sale of the land in a market where at least some of the potential buyers are interested in making a use of the land that will realise the highest price". Similarly in relation to compulsorily acquired land, "It is now settled, and for good reason, that a dispossessed landowner should be compensated for the value of his or her land on the basis of its highest and best use": Boland v Yates Property Corporation Pty Ltd (1999) 167 ALR 575 at 649 [271] per Callinan J. 15 There is no statutory definition of "highest and best use". It has been described in the High Court as "the most advantageous purpose for which [the land] was adapted": [Spencer] at 441 per Isaacs J. It "is the present value alone of such advantages that falls to be determined": Cedar Rapids Manufacturing and Power Co v Lacoste [1914] AC 569 at 576 per Lord Dunedin. In Park v Allied Mortgage Corporation Ltd (FCA, 5 July 1995, unreported) [("Park")] Hill J said at [70]: "As Spencer's case itself makes clear the valuation must proceed by reference to the best use of the property. For this purpose the valuer will take into account not only the present use to which the land is applied, but any more beneficial use to which it may reasonably be applied. This is the process which a purchaser negotiating to purchase the property would undertake. Thus, it is not inappropriate in valuing property to take into account a potential development of the property, for among the range of hypothetical purchasers can be assumed to be a person who would undertake such a development as would maximise the usage of the land". In Adelaide Clinic Holdings Pty Ltd v Minister for Water Resources (1988) 65 LGRA 410 [("Adelaide Clinic")] at 415 (SC/SA) Jacobs J said: Common experience shows that land ideally suited for commercial development will fetch a higher price per unit of area than residential land, but it does not follow that the highest and best use of all land is a commercial use, for the highest and best use means exactly what it says - the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential. The first task of the valuer is to determine what that use is and then to value the land on that basis. It is not appropriate to determine the highest and best use by reference only to value. ... 23 In my opinion, s 6A(1) of the Act requires improvements (other than defined "land improvements") on the subject land to be ignored when determining "land value", but permits regard to be had to the neighbourhood as it actually exists in the real world, including neighbourhood improvements.
12. In ALF, I applied Biscoe J's statements of principle in Burwood Trust, concluding (at [479]): Applying these principles, I have considered the feasibility and commercial utility of the alternate valuation scenarios, submitted to the Court by both the Applicant and Respondent, and concluded that the "highest and best use" of Lot 2 is not simply a matter of having regard only to its value; the Court has to determine the feasibility of each aspect of the valuation scenario, in the light of all the expert evidence.
13. In the end, I rejected the Applicant's case in ALF, which took the hypothetical use/development beyond the 8 years, finding it "speculative, and not a proper assessment of market value" ([543]), as it "would require considerable regulatory, financial, environmental and geotechnical consideration, in order to be accepted as part of the highest and best use" ([550]).
14. In the 5th edition of his well-respected text, "The Law Affecting Valuation of Land in Australia" (2014), Alan Hyam of counsel surveys relevant authority on "Highest and Best Use" (at pp175-183), and his quotations and commentary are worthy of consideration here.
15. Hyam refers (at 175) to Spicer, where Else-Mitchell J said (at 320 - quoted by Biscoe J in Burwood Trust, at [98]14 above)): ... the unimproved value of land must be based upon the best or most profitable potential use and if the land was legally capable of being subdivided for residential purposes ...
16. Hyam goes on (at 176) to quote the passage from Jacobs J's judgment in Adelaide Clinic, quoted by Biscoe J in Burwood Trust (at [98]15 above).
17. He then refers to some remarks made by Gobbo J in Equity Trustees Executors and Agency Co Ltd v Melbourne and Metropolitan Board of Works (1993) 81 LGERA 86 ("Equity Trustees"), at [92]-[93], before turning to the judgment of Hill J in Park, to which Biscoe J had also referred ([98]15).
18. Hyam quotes more fully from Park than Biscoe J did, and I will set out in full the passage quoted by Hyam (at 176-177 - emphasis mine): As Spencer's case (1907) 5 CLR 418 itself makes clear the valuation must proceed by reference to the best use of the property. For this purpose the valuer will take into account not only the present use to which the land is applied, but any more beneficial use to which it may reasonably be applied. This is the process which a purchaser negotiating to purchase the property would undertake. Thus it is not inappropriate in valuing property to take into account a potential development of the property, for among the range of hypothetical purchasers can be assumed to be a person who would undertake such a development as would maximize the usage of the land. An obvious example can be seen in broadacres suitable for subdivision. The process involved in valuing subdivisional land is discussed by the Full Court of High Court in Turner v Minister of Public Instruction (1956) 95 CLR 245. The same method can be adopted for any land ripe for development. In the case of subdivisional there is involved the determination of the gross proceeds of the subdivisional land (based upon hypothetical subdivision), deducting therefrom the costs of subdivision, holding charges and expenses of sale. There is taken into account by way of discount a risk factor and a figure representing the profit a developer would seek. It can not be doubted that a valuation which proceeds on such a basis is an open market valuation. It makes no assumptions as to the actual use by the owner of the land but proceeds on the basis that a hypothetical purchaser desiring to purchase the land for its best use would determine the amount that purchaser is to pay on a commercial basis.
19. Hyam then considers Trandos v Western Australian Planning Commission (2001) 117 LGERA 257, where Anderson J, in the Full Court of the WA Supreme Court, said (at 277 - emphasis mine): It seems to me that an evaluation of highest and best use does not necessarily depend on an assessment of the subjective intentions and personal views of the particular Minister of the day. ...The potentiality of the land is to be judged by reference to planning considerations viewed objectively, the question being: what is the most advantageous use to which the land can be put, having regard to the dictates of orderly and proper planning? No doubt, this question can be posed in terms of what uses the relevant planning authorities were likely to approve, but care must be taken not to turn the question into a subjective one. I do not think it would be to the point to prove, for example, that a particular Minister was given to disregarding sound planning advice.
20. Hyam then turns to Biscoe J's judgment in Burwood Trust (at [15] - quoted in [98] above), before again drawing attention (at 177) to what Jacobs J had said in Adelaide Clinic, at 415.
21. The learned author then turns his attention, at some length (177-180), to the decisions in both the Victorian Civil and Administrative Tribunal ("VCAT") and the Victorian Court of Appeal: ISPT Pty Ltd v City of Melbourne [2007] VCAT 652, and ISPT Pty Ltd v Melbourne City Council [2008] VSCA 180 ("ISPT").
22. A key issue at both levels of the ISPT case was the identification of the highest and best use of the subject land, and I now quote from the original reports.
23. At first instance, the then President of the VCAT (Justice Stuart Morris) said (at [61]-[68], see Hyam p178 - emphasis mine): 61 Counsel for the applicant argued that it was necessary to identify a precise highest and best use for the land being valued before embarking on the process of ascertaining and considering comparable sales. 62 Highest and best use represents the most profitable potential use to which land can be put having regard to both planning and like controls and the circumstances of the land. It is to be distinguished from the present use of land; although the present use might also be the highest and best use. When land is sold, the market values the land at its highest and best use: as buyers will not be constrained to continue the existing use; and the seller will seek to achieve the highest price for the land. This is why highest and best use is relevant in assessing value, whether improved value or site value [see [Spicer], at 320 per Else-Mitchell J]. 63 As Jacobs J pointed out in [Adelaide Clinic], at 415, highest and best use is not the value of land assuming there are no planning or like controls. Rather it is the most profitable use having regard to the physical, economic and legal constraints on the use of the land. 64 Often the highest and best use of land will be obvious, but this will not always be so ... When land is in a business zone the identification of the highest and best use becomes even more complex: this is because the range of permitted uses is broader, and the identification of highest and best use will involve identifying both the nature and the intensity of use. 65 In a mixed zone, such as that applicable in central Melbourne, different categories of buyers of land compete for opportunities. Some buyers might seek to maintain land in its present condition and seek a rental return. Other buyers might buy to 'land bank' with a view to selling or developing the land at some future time. Other buyers may seek to develop the land for commercial uses. Yet other buyers may seek to develop the land for residential purposes. The highest and best use in this situation is the use to which the highest bidder wishes to put the land. 66 When it comes to the assessment of site value, the land is to be assumed to be without improvements that add value. Land in such an assumed state may not attract the investor seeking a rental return; but the land banker, the office developer and the residential developer will all compete in the market to purchase the land. Indeed there will be developers who build both offices and apartments or some mix of the two, depending on what is regarded as more profitable. The decision as to how to develop the land might not even be made at the time of the purchase. 67 The applicant's submission does not recognise the reality of the marketplace. In my opinion, at least, in the circumstances of this case, it is not necessary to identify a precise highest and best use of the land in order to assess site value. I would add that, if the highest and best use must be ascertained, it might be identified in general terms: such as an intense use for office, residential, hotel, club or retail purposes (or some combination of these); without specifying a single, precise use. 68 I accept that in identifying comparable sales it will be relevant to consider what uses are likely to be most profitable for the subject land and to look for sales of land with similar characteristics in that respect. And if a sale was in respect of land with a different use profile, then it might be disregarded or be accorded less weight. But where realistic options for the development of land might be a residential tower or an office tower, the sale of such land is likely to be relevant even if the actual purchaser had one or other type of development in mind when the land was purchased.
24. The Court of Appeal in ISPT said (at [37]-[46], see Hyam pp179-180 - emphasis mine): 37 The concept of highest and best use is implicit in the theoretical basis of assessment of market value at a given point in time. Such value is understood to be ascertainable in accordance with the formulation of Isaacs J in Spencer's case [5 CLR 418, at 441]: "To arrive at the value of the land at that date, we have, as I conceive, to suppose it sold then, not by means of a forced sale, but by voluntary bargaining between the plaintiff and a purchaser, willing to trade, but neither of them so anxious to do so that he would overlook any ordinary business consideration. We must further suppose both to be perfectly acquainted with the land, and cognizant of all circumstances which might affect its value, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding features, the then present demand for land, and the likelihood, as then appearing to persons best capable of forming an opinion, of a rise or fall for what reason soever in the amount which one would otherwise be willing to fix as the value of the property." 38 It is implicit in this formulation that both vendor and purchaser are to be regarded as aware of the potentially most advantageous use of the land and not simply its current use, when formulating the relevant value. Such potential is a circumstance which necessarily affects the value of the land either advantageously or prejudicially. 39 Further, in Turner v Minister of Public Instruction (1956) 95 CLR 245 Dixon CJ stated: After all the purpose (of valuation) is to ascertain the full return which may reasonably be expected from the sale of the land, not the most conservative value. [The Court of Appeal then quoted from Burwood Trust at [15], including references to Park and Adelaide Clinic - see [98] above - and then from the VCAT judgment at [62], with which it expressed agreement.] ... 42 [VCAT] also expressly referred to the notion of most advantageous use articulated by Jacobs J in the passage quoted above from the Adelaide Clinic case . Such a notion takes account of all factors relevant to the land affecting its present and future potential. 43 Further, as the Tribunal recognised in the course of its judgment, the highest and best use of a particular piece of land is flexible and may, at a particular point in time, be to 'bank' the land with a view to future development rather than to use it actively. [There was a footnote to [43], which said: '"Thus it has been recognised in respect of land which has a potential for development for urban purposes that there is a clear distinction which may be drawn between land ripe for subdivision and land having the potential for future subdivision and 'banked' for that purpose: Crompton v Commissioner of Highways (1973) 32 LGRA 8, at 25." [per Wells J]] 44 ... it can be seen that the Tribunal was required to take into account the highest and best use to which the land might reasonably be expected to be put at the relevant time and to any potential use where it was relevant. In the present case the question of highest and best use was potentially relevant both to the question of valuation generally ... and more specifically to questions of comparability of sales of other land ... 45 The language of the subsections is in our view deliberately flexible and capable of application to a potentially wide variety of circumstances as they may develop over time. 46 The role and weight to be given to the factor of highest and best use in a valuation exercise must in turn logically depend upon its relationship to other relevant factors disclosed by the evidence and affecting value.
25. What principles should be distilled from an analysis of these cases, and how should they be applied to the present case?
26. I infer from the writings of judges as distinguished as Dixon CJ, Isaacs J, Wells J, Else-Mitchell J, Hill J, and Biscoe J, the importance of recognising, for the purposes of identifying the highest and best use of relevant land, underpinning concepts of feasibility, realism, practicality, and reasonableness, reviewed in the context of all the "circumstances" of the land - what Jacobs J called the "planning and all other relevant factors affecting its present and future potential" (Adelaide Clinic - see [98]15 above).
27. In ALF (at [553]), I rejected the Applicant's case as "speculative" ([100] above) and that is the descriptor Dr Ragusa gave to the evidence in the present case of the VG's expert valuer, Konidaris (Tp60, L24 and p8, LL26 and 29), and its planner, Haskew (Tp81, L26).
28. Just as I did in ALF, I must again, here, look at what is both reasonable, and genuinely capable of achievement - to find what Hill J described (in Park) as a "beneficial [higher] use to which [the land] may reasonably be applied", and, not necessarily, to adopt the words Morris J used (in ISPT - see [110]67 above), "a [single] precise highest and best use".
29. As Morris J said (ISPT, at [68]), the Court must consider "realistic options".
30. The subject land, without its being joined with any neighbouring lots, might be capable of being redeveloped alone, certainly to two-storeys - probably not four, let alone seven (see Tpp5 and 25) - despite its many legal, economic and physical constraints, and Council might view such a modest redevelopment favourably under its planning instruments, considered objectively.
31. There is no evidence of any interest on Council's part, despite its DCP, in amalgamating Nos 4 and 6, and one gathers, from the limited evidence before the Court, that the owner of No 2 will prefer to look in another direction (towards Railway Parade) for augmentation of his land.

Reviewing the Evidence in its Final Form

1. It is not sufficient to weigh up only the competing written opinions of the planning and valuation witnesses, as summarized above, as all the experts qualified their evidence under cross-examination.
2. I have set out above the valuers' final positions on the evidence, and have expressed my preference of the expert opinions of Kempthorne ([82]).
3. The planning witnesses took widely differing views.
4. The longer their oral evidence ran (Tpp14-39), the harder it became for the Court to accept that any hypothetical development larger in scale than two storeys on this site, without any amalgamation, could prove to be feasible.
5. On its own - and enlargement/amalgamation does not appear to be a viable option at present - No 4 is a "very small" site, on any definition.
6. Any development of No 4 on its own will have a major impact on the other half of the duplex (No 2), and the complex range of planning and development issues which arise will have a major impact on the development footprint: Parking is obviously one major logistical and space issue, and a major potential cost; setbacks, solar access, cross-ventilation, and questions of design excellence would be crucial; so too would the need to cater on-site for waste and other services, deliveries, loading/unloading facilities, lifts, stairwells, fire measures, wall thickness, and perhaps a podium, to name just some of the issues raised in the evidence; not to mention the limitations on what any development would yield, in terms of "lettable spaces", either residential or commercial (see Tp80, LL1-11).
7. Dr Ragusa complained (Tp81, LL12-19) that any building hypothesised for the site would look "more like a bell tower than a ... commercial building".
8. When asked by Ms Hammond if he would "accept that a more than two-level building", and perhaps that "at least four or more will be possible on the site", Turrisi responded (Tp32, LL1-5): I don't know if I would go to that extreme.
9. Towards the end of his competing evidence, Haskew conceded that the development options being discussed created "some very obviously real world constraints" (Tp33, L1). He explained (LL3-8): ... if you were to approach this site from a real world perspective, you do find that there is an attached building that's attached to another building, and if you have to start demolishing that building as before you get to your vacant site, then you're doing all sorts of, incurring all sorts of different impacts than the types of impacts I'm envisaging when I'm starting with a theoretically vacant site. and then conceded (LL14-16) that: ... it would be very difficult to imagine anything other than a two-storey development or a second level sitting on top of that very lightweight existing structure. (but cf. Hammond at Tp87, LL45-46)
10. I find that the "real world" complications with the site overwhelm the VG's opinions and hypothesis.

Conclusion

1. As I find the evidence of the Applicant's experts, Turrisi and Kempthorne, more convincing than that called by the VG, whose development scenario relied on unrealistic expectations of amalgamation, and bordered on the fanciful, the appeals should be determined by the Court's acceptance of Kempthorne's opinion and valuation.
2. There was no argument about costs, and I would not make any order for costs in an appeal of this kind.

Orders

1. The Court makes the following orders: 1. The appeals are upheld. 2. The valuation of the Applicant's property as at the base date 1 July 2015 is determined as $1,050,000.00. 3. The valuation of the Applicant's property as at the base date 1 July 2016 is determined as $1,510,000.00. 4. All exhibits are returned.

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