Land and Environment Court (NSW)|1993-05-07|Before: Bignold J, Cripps J

LINDA HARVEY v. BURWOOD MUNICIPAL COUNCIL [1993] NSWLEC 59 (7 May 1993)

This is a claim for compensation following the resumption on 17 February 1989 by the Burwood Municipal Council ("the Council") of a property known as No 33 Russell Street, Strathfield then in the ownership of the Applicant ("the Claimant").

The resumption was effected pursuant to the provisions of the Local Government Act 1919 by Notice published in Government Gazette No 23 of 17 February 1989. The Gazette Notice stated that the purpose of the resumption was "providing, controlling and managing a public park in accordance with the reservation of the land for open space (Recreation)".

This stated purpose of the resumption reflected the fact that as at the date of resumption, the resumed land was reserved for the purpose of "open space - recreation" by virtue of clause 8 of the Burwood Planning Scheme Ordinance ("the Planning Scheme"). That same reservation applied to the four adjoining parcels of land (No 35, 37, 39 and 41 Russell Street) immediately to the west of the resumed land. At the date of resumption all those properties had been acquired by the process of negotiation by the Council and parts thereof were already established as a park.

The resumed land which is rectangular in shape comprises an area of some 696 m2 having a frontage of 15.24 m to Russell Street and a depth of 45.72 m.

At the date of resumption the resumed land was developed by a brick cottage dating back to the 1940's and associated garage and outbuilding.

Russell Street is a short residential street running between the Boulevard in the west and Wentworth Road in the east. Russell Street is located in the suburb of Strathfield and is a few minutes walk from Strathfield Railway station and shopping centre. Its predominant form of development is residential flat buildings mainly erected between the late 1950's and mid 1970's. There are some 18 residential flat buildings erected on properties fronting Russell Street (aggregating some 245 residential units) and five or six single dwelling-houses.

As earlier indicated, at the date of resumption the resumed land was reserved for a public purpose under the Planning Scheme.

Apart from it (and the adjoining four properties likewise reserved) all other properties fronting Russell Street were zoned Residential "2C1" under the Planning Scheme. This zoning permitted residential flat development at the highest density: vide cl 66 (eg one "medium dwelling" per 116 m2 of site area). Additional controls (referable to minimum street frontage and minimum lot sizes) on residential flat development were imposed by cl 67 of the Planning Scheme.

All valuations presented in evidence have ignored the reservation under the Planning Scheme and have, instead, assumed a Residential 2C1 zoning for the resumed land. This approach is clearly correct and reflects the effect of relevant statutory provisions namely:

(a) cl 12 of Schedule 3 to the Miscellaneous Acts (Planning) Repeal and Amendment Act 1979; and

Although s 116 was repealed by the Land Acquisition (Just Terms Compensation) Act 1991 (vide s 75) that Act does not apply to any acquisition effected before its commencement (vide Schedule 3 Part 2 cl 2) and s 116 and the Public Works Act 1912 continue to apply to acquisitions effected prior to the Just Terms Compensation Act. It is the now repealed law that governs the present case.

Section 116(1) of the EP&A Act relevantly provided that where land affected by a relevant reservation (such as was the resumed land) is resumed "the value of the land shall be determined as if it had not been so reserved..."

In Wimpey Construction UK Limited v. The Minister (1983) 53 LGRA 75 Cripps J held that although s 116 removed the necessity (enunciated in Housing Commission of New South Wales v. San Sebastian Pty Ltd [1978] HCA 28; (1978) 140 CLR 196) for a connexion to be established between the reservation for a public purpose and the subsequent resumption of that land so reserved, in order to apply the principle of valuation law embodied in s 124 of the Public Works Act 1912, both the decision in San Sebastian and the effect of s 124 otherwise continued to apply to the assessment of compensation for land compulsorily acquired.

Section 124 of the Public Works Act (as adapted by s 536C(1) of the Local Government Act 1919 requires the Court to assess compensation "according to what it finds to have been the value of such land... and without reference to any alteration in such value arising from the construction of any works upon the land taken".

The underlined expression is the relevant adaptation or modification of the following corresponding expression in s 124:

"and without reference to any alteration in such value arising from the establishment of railway or other public works upon or for which such land was resumed."

In Abbey Orchard Property Investments Pty Ltd v. Sydney City Council (1978) 37 LGRA 230 Rath J considered the effect of this modification or adaptation to s 124 in the following passage at 241, that I would respectfully adopt for myself:

"It is understandable that some modification was made to these words for the purposes of a resumption under the Local Government Act; but the change from "establishment" to "construction" does suggest the possibility of a different intended meaning. However, I discern no significant difference in the connotation of the two words in their context. The effect of qualification such as is contained in the words of the Public Works Act had as far back as 1890 been authoritatively described as: "the land is to be assessed at the value it would have had if the railway for which it is resumed had never been contemplated": Black v. Commissioner for Railways (1890) 11 NSWLR(l) 160 at p 165, per Innes J. It would require a much clearer expression of legislative intent than such a change of words to warrant any departure from such a long standing interpretation of the qualification, particularly as that interpretation is consistent with English authority, also of long standing, dealing with principles of assessment of compensation where the relevant statute has no such qualification. I shall make reference later to some of this authority. For these reasons I reject the submission that the words "the construction of any works" relate only to actual construction. In my opinion the words in s 124 of the Public Works Act, included the steps taken for the establishment of the work."

4) The Highest and Best Use of the Resumed Land

Throughout the history of this dispute (before and after the litigation was commenced) the highest and best use of the land has remained the principal issue in dispute between the parties. When the proceedings commenced, it appeared to be common ground that the highest and best use of the resumed land was as a dual occupancy residential site. This use obviously did not reflect the Residential 2C1 zoning which all valuers have assumed the land would have, ignoring the reservation. In her original claim the Claimant had pressed the potential of the resumed land to accommodate residential flat development. However the Council's offer of compensation ($250,000) did not reflect any such potential and by the time the case came before the Court the valuers proceeded (erroneously in my opinion) upon the premise that the resumed land had no such potential.

However as the hearing progressed, the Claimant re-asserted the higher use potential of the resumed land and by the end of the case the Claimant asserted a residential flat development potential fully reflecting the assumed 2C1 zoning as the highest and best use of the resumed land either as (i) an isolated site accommodating 6x2 bedroom flats or (ii) part of an agglomerated site contributing thereto the equivalent of 6x2 bedroom flats.

The Council's consultant valuer, Mr Hubbard, made concessions in the course of his evidence, which demonstrated that his valuation of $250,000 reflecting a highest and best use of the resumed land only as a dual occupancy residential development could not be sustained. However, as will be seen, his valuation, assuming a residential flat development potential was not appreciably greater than his original valuation of $250,000.

There are two separate difficulties raised by the Council that confront the Claimant's case that the resumed land should be regarded as having a highest and best use as residential flat development, yielding 6x2 bedroom flats namely:

(a) as an isolated site, the resumed land appears to be deficient in terms of the requirements of the Planning Scheme and the Council's Residential Flat Code pertaining to minimum lot size, street frontage and boundary set backs; and

(b) as part of an agglomerated site, the adjoining land to the west (ie the land similarly reserved under the Planning Scheme for the purposes open space - recreation) has been acquired by the Council and developed as a local park and accordingly was not available for site agglomeration.

It is axiomatic that the zoning of the resumed land most materially affects, but does it not itself create, the highest and best use of that land: see D. Brown "Land Acquisition" 3rd ed para 3.19.

Earlier in the same paragraph Brown states that a claimant asserting a highest and best use (above the existing use) must establish the following:

"(a) the use must be legal - it must come within the planning and building regulations;

(b) the use must be within the realm of probability and it must be likely, not speculative or conjectural; and

I would respectfully adopt this statement of principle, as being applicable to the present case.

The Council contends, in effect, that notwithstanding the assumed Residential 2C1 zoning of the subject land, development consent for a residential flat development would be unlikely to be obtained because (i) the resumed land lacks the requisite physical dimensions to support that type of development as an isolated site; and (ii) there is no real prospect for site agglomeration, especially because the adjoining land forms part of the local park established by the Council.

It is interesting to note that each of these demurs is essentially founded upon a decision-making power vested in the Council, in a different capacity from its capacity as a resuming authority. For example it is in its capacity as the local planning authority whose consent is required to any residential flat development that it, as the resuming authority, asserts the unlikelihood of development consent being granted to residential flat development on the resumed land considered as an isolated site and it is in the same capacity (together with its capacity as a public authority holding land on public trust) that it denies the possibility of the resumed land being agglomerated with adjoining land to create a larger and more congenial development site for residential flat development.

But far from rendering the Council's position unassailable these submissions, based upon the Council's different capacities and functions, only serve to highlight the difficulty posed for the application of the classic test (propounded in Spencer v. The Commonwealth [1907] HCA 82; (1907) 5 CLR 418) of the hypothetical parties to the hypothetical sale being "cognisant of all circumstances which affect the land's value". Worse still they appear to create a dilemma of the Council being placed in a position of conflicting interests.

Fortunately, however, established principle provides the solution to the dilemma posed by the present case. Firstly it needs to be recalled that it is not the likely decision of the planning authority on a development application that is directly decisive - rather it is the opinion of the hypothetical prudent purchaser (developer) that is decisive - see De Ieso v. Commissioner of Highways (1981) 47 LGRA 412. In the present case the Court must be very circumspect in its evaluation of evidence given by the Council's planning servants which down grades that potential.

Secondly, and more fundamentally, it is necessary to discard the effect on the value of the resumed land of the entire scheme for the reservation and establishment of the public park: see Black v. Commissioner for Railways (1890) 11 NSWLR 160; Nelungaloo Pty Ltd v. The Commonwealth [1947] HCA 58; (1948) 75 CLR 495; Pointe Gourde Ouarrying and Transport Co Ltd v. Sub-Intendant of Crown Lands [1947] AC 565; Rugby Joint Water Board v. Shaw-Fox [1973] AC 202; Housing Commission of New South Wales v. San Sebastian Pty Ltd [1978] HCA 28; (1978) 140 CLR 196; Abbey Orchard Property Investments Pty Ltd v. Sydney City Council (1978) 37 LGRA 230; Melwood Units Pty Ltd v. Commissioner of Main Roads (Qld) [1979] AC 426; The Crown v. Murphy [1990] HCA 42; (1990) 71 LGRA 1; Rees and Anor v. Minister for Planning and Housing (1993) 76 LGRA 167.

In the present case, this means ignoring the effect on value of the resumed land of the reservation for open space (recreation) purposes wrought by the Planning Scheme on each of the properties Nos 33, 35, 37, 39 and 41 Russell Street - the entire reservation being the relevant public work: William Chalmers v. The Minister (1978) 25 The Valuer 228; Fraser v. City of Fraserville [1917] AC 187; Rugby Joint Water Board; Abbey Orchard Property Investments.

Accordingly, it is appropriate to assume a Residential 2C1 zoning for each of those properties, which because of their size, obviously lend themselves to site agglomeration in order to realise their full development potential for residential flat development in accordance with that zoning.

The Council has urged, as a matter of principle, that it is inappropriate to apply this fundamental valuation principle in the present case because the Claimant purchased the subject land (i) fully aware of the reservation under the Planning Scheme and (ii) fully aware of the Council's proposal to resume the property. In my judgment these facts do not justify any displacement of the principle: see Melwood Units.

Applying these established principles to the present case, I have no difficulty in concluding that the hypothetical prudent purchaser (developer) would have regarded the resumed land as having potential for residential flat development as part of an agglomerated site, formed by it and land to its immediate west (ie No 35 or Nos 35 and 37). Additionally he would have regarded the resumed land as having potential for residential flat development, as an isolated site development. However he would regard this latter potential as carrying a greater risk compared with the risk involved in an agglomerated site. The risk of development as an isolated site, arises principally because the resumed land lacks the ability to comply with standards imposed by the Council's Residential Flat Code eg. minimum lot size and minimum street frontage and boundary set backs.

I do not think the requirements of cl 67 of the Planning Scheme would have presented such a risk, because properly construed, the street frontage requirement (only applying to a "main or country road" (which Russell Street is not) and the minimum lot size requirement are cumulative: cf Wentworth v. Woollahra Municipal Council [1982] HCA 41; (1982) 149 CLR 672 and 675.

No doubt the hypothetical prudent purchaser would be aware of the fact that the Residential Flat Code is only an advisory document and that its provisions provide a degree of flexibility in the case of a property which had become "isolated" prior to the Code coming into force. (The relevant Code was adopted in 1974.) Likewise he would be aware of the dispensational operation of State Environmental Planning Policy No 1 - Development Standards.

However I do not think that the hypothetical prudent purchaser (developer) would regard the resumed land, as an isolated site, with the optimism of the Claimant's valuer, Mr Sykes, who was of the opinion that there was virtually no risk involved in the development of the resumed land by a 6x2 bedroom residential flat development. That opinion was founded substantially upon the Council's approval in 1972 of a three storey 6x2 bedroom residential flat building at No 45/47 Russell Street and the fact that that development was said to be a prestigious building in Russell Street.

In expressing this opinion, I think Mr Sykes has been overly optimistic, because it is in the nature of planning policies to change over the years and what was accepted as choice development 10 or 20 years ago often is viewed askance from a contemporary view point. In saying this I hasten to say that Russell Street had acquired by the mid to late 1970's a very definite quality and a settled condition. It was by no means, unattractive and I do not accept the Council's case that the prevailing development is undesirable. On the contrary the development of properties in Russell Street is attractive so far as flat zones go, but the prevailing aura is that of development 20-30 years old.

Having regard to all the evidence I would conclude that the hypothetical prudent purchaser would allow a 30% risk factor in regarding the resumed land as an isolated site for residential flat development at the permissible density of 6x2 bedroom flats and that he would allow a 15% risk factor in regarding the resumed land as part of an agglomerated development site for residential flat development (of which the resumed land would yield the equivalent of 6x2 bedroom flats).

However one thing is clear beyond reasonable doubt and it is that but for the Council's scheme to create a local park/open space of Nos 33, 35, 37, 39 and 41 Russell Street those lands would have been zoned Residential 2C1 in conformity to all of the other land fronting Russell Street and it is likewise very clear, as a matter of probability, that those lands would have been developed or were available to be developed consistently with that zoning.

It is because of these very clear facts that the hypothetical prudent purchaser would regard the resumed land as having very clear potential for residential flat development and would be prepared to purchase the land with the intention of immediately exploiting that potential, but making the reasonable risk allowances I have specified.

Accordingly, I conclude that the highest and best use of the resumed land was as the site of a residential flat development yielding a development density of 6x2 bedroom flats.

Having concluded that the highest and best use of the resumed land was as a site for residential flat development it follows that much of the valuation evidence given in the case is not relevant because it is predicated upon a lower and less valuable highest and best use (ie as the site of a residential dual occupancy development, which is a potential possessed by virtually every parcel of residentially zoned land). However the valuation evidence given on this erroneous assumption provides some indication of the value of the resumed land as the site of a residential flat development and for that reason I shall briefly consider it, after I have determined value according to the highest and best use that I have determined.

Mr Hubbard's valuation (on behalf of the Council) of the resumed land as part of an agglomerated residential flat development site was $325,000 estimated as follows:

His estimate of $67,500 per unit englobo was based upon his analysis of three separate sales of agglomerated sites for residential flat development. I shall for convenience simply refer to these agglomerated sites slaes as follows:

Mr Hubbard deduced the following rates (per unit englobo) from these sales:

In applying this sales evidence, Mr Hubbard considered the resumed land to be superior to Wentworth Road, but inferior to both Park Avenue and Margaret Street. It was apparently for these reasons that Mr Hubbard adopted $67,500 as the englobo unit rate for the resumed land.

The Claimant's valuer, Mr Sykes, who came into the case late, analysed these same three sales differently from Mr Hubbard and applied the evidence yielded from his analyses to the resumed land, differently from Mr Hubbard. Firstly he regarded the resumed land as being superior to the sale properties and secondly he made greater adjustments for the time factor (some of the sale transactions preceded the date of resumption and some post-dated it) he being of the opinion that the residential market peaked at about the time of resumption (having rapidly escalated in the preceding 12-15 months) and thereafter dipped a little (5-10%), before plateauing. Mr Sykes' valuation was $750,000 based upon an englobo unit rate of $125,000 without allowing any risk factor.

I do not think it is necessary to delve too deeply into the competing analyses of the sales.

It is apparent that each of the sales presents difficulties of analysis. In particular the Park Avenue sales (some of the transactions involved the Council as a direct party) are complicated and the Margaret Street sale (which involved two adjoining parcels of land) is difficult to understand, in the absence of further investigations made of the parties to the transactions (and this was not undertaken). I think it is sufficient, if I say that each of the englobo rates deduced by Mr Hubbard's analysis, could, in my opinion, very reasonably be increased. This conclusion is supported by the evidence provided by the resales of the Wentworth Road and Park Avenue properties, which Mr Hubbard excluded because of his view that the resales (i) were "out of line"; (ii) were purchased with Hong Kong funds as part of an Australian Portfolio acquisition; and (iii) involved sales with the relevant development consents already in place.

I am not persuaded that Mr Hubbard was correct in deliberately ignoring the resales (which occurred soon after the original transactions and soon after the resumption date). Although any use in the present case of the evidence resales obviously requires adjustment to make allowance for the fact that the resales involved lands which had the benefit of existing development consents (whereas the hypothetical sale of the resumed land does not), the resales provide some evidence of value and are untrammelled by the considerable complications which cloud the Park Avenue original sales. As I have said, at the very least, the resales suggest that Mr Hubbard's englobo unit rates deduced from the three sales requires some adjustment upward.

Having regard to all of the sales evidence and the evidence pertaining to the different locations and residential amenities of the sale properties and the resumed land, I would regard the resumed land (as a residential flat development site) as vastly superior to Wentworth Road, as appreciably superior to Park Road and at least equal to Margaret Street. In this respect I do not accept Mr Hubbard's opinions and I prefer Mr Sykes' opinion of comparability. I have been assisted in my understanding of all the evidence, and in evaluating the competing opinions, by a number of views that I have taken of the relevant localities.

Having regard to the sales evidence I think an englobo unit rate of $110,000 is entirely reasonable to apply to the resumed land. This produces a value of $660,000 (ie 6 x $110,000) which, for the reasons I have already given, requires adjustment to reflect the risks I have identified concerning the development of the site (i) as an isolated site (allowing a risk of 30%) = $462,000; and (ii) as part of an agglomerated site (allowing a risk of 15%) = $561,000.

These results in my judgment are substantially corroborated by the sale of Nos 29/29A Russell Street upon which the Council ultimately placed considerable significance (see Exhibit "P" being Mr Hubbard's reply to Mr Sykes' valuation). That property (developed by a duplex residential building) is identical in size to the resumed land and just a few metres removed from it. It is zoned Residential 2C1. It sold in June 1988 for $352,000 (the purchaser paying an additional $25,000 to obtain vacant possession from a protected tenant). It is the adjustment for time in a rapidly escalating property market which makes this transaction difficult to apply to the resumed land. (This is highlighted by the fact that Mr Sykes' analysis makes a 56% adjustment for time, whereas Mr Hubbard only allows a 171/2% adjustment). Accepting for the moment, Mr Hubbard's conservative adjustment, on account of time, the sale property, directly applied to the resumed land, shows a value of $442,000 which Mr Hubbard considers to indicate "the optimum value for an isolated site in Russell Street as at February 1989" (Exhibit "p" p 3).

That analysis, much relied upon by the Council. fully corroborates the $462,000 that I have determined as the value to the resumed land as an isolated site. It also corroborates the higher value of $561,000 based upon an agglomerated development because the sale property, unlike the resumed land, lacks the ability to form part of an agglomerated site.

In passing I would say that of the valuations that were in evidence earlier in the proceedings when the assumption of the highest and best use for the resumed land was as a dwelling-house site only (including a dual occupancy) I would have preferred the opinions of Mr Reilly (who was then acting as the Claimant's valuer) to the competing opinions of Mr Hubbard. (Mr Reilly's valuation was $430,000 whereas Mr Hubbard's valuation was $250,000.) Of all the sales referred to in the earlier valuations the two sales (Nos 29/29A Russell Street and No 5 Lyons Street) of Strathfield properties provided, in my judgment, vastly more reliable evidence of value of the resumed land than did the sales of properties situate in the Burwood suburb upon which Mr Hubbard relied.

For all the foregoing reasons I determine that the market value of the resumed land at the date of resumption was $561,000. To this sum there should added a sum reflecting legal costs and stamp duty and valuation and related expenses of acquiring a replacement property to the same value as the value of the resumed land, on the basis that the resumed land had been acquired and held by the Claimant as an investment property.

The Claimant has also claimed 10% solatium. In my judgment there is no basis, legal or factual, for awarding any solatium. The Claimant's further miscellaneous claims for valuation expenses, research expenses litigation expenses etc will be adequately addressed by an order for costs which I propose to make in her favour (recognising that because she has not been legally represented, having appointed her husband to be her agent, she will only be entitled to out of pocket expenses rather than full legal costs: see Cachia v. Hanes (1991) 23 NSWLR 304).

Finally the Claimant asked for interest to be awarded at compound interest rates. In my judgment the interest that is payable upon the compensation awarded is governed by the provisions of ss 126A and 126B of the Public Works Act 1912.

I do not have any power to alter the rate of interest prescribed by s 126A(3) ie as specified by the Treasurer in the manner required by subsection (5) or where no such action is taken as fixed by cl 2 of the Ninth Schedule to the Public Works Act. The reference to "interest" therein mentioned prima facie is a reference to simple interest: see South Australia Land Commission v. Perry (1977) 15 SASR 315 at Brown para 3.45.

1. Compensation payable in respect of the resumption of property No 33 Russell Street, Strathfield is determined as follows:

(a) $561,000 being the market value of the land; plus

(b) an amount reflecting stamp duty, legal and related expenses of acquiring a replacement property to the same market value; plus

I HEREBY CERTIFY THAT THIS AND THE PRECEDING 20 PAGES

ARE A TRUE AND ACCURATE COPY OF THE REASONS FOR JUDGMENT

______________________________________________________________

KEYWORDS: Resumption of land reserved under local planning scheme for open space - reservation to be ignored - s 116 Environmental Planning and Assessment Act 1979 - assumed zoning -Residential "2C1" - highest and best use as residential flat development as part of an agglomerated site - allowance risk of consolidation - solatium not recoverable -interest not at compound rates.

HEARING DATE: 16, 17/7/92; 4, 13/8/92; 8, 9, 12, 18, 19, 26/2/93.

Applicant's written submissions 12/3/93; Respondent's written submissions 26/3/93; Applicant's written reply 22/4/93.

APPEARANCES: Applicant: Mr DeSouza (Agent of Claimant)

Local Government Act 1919

LINDA HARVEY v. BURWOOD MUNICIPAL COUNCIL [1993] NSWLEC 59 (7 May 1993)

At a glance

Court

Decision date

Before

Source

Judgment (79 paragraphs)

LINDA HARVEY v. BURWOOD MUNICIPAL COUNCIL [1993] NSWLEC 59 (7 May 1993)

Legislation Cited (1)

Cases Cited (7)