Maurici v Chief Commissioner of State Revenue

(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.

"Land improvements" referred to in s 6A is defined by s 4 of the Valuation of Land Act to mean: (a) the clearing of land by the removal or thinning out of timber, scrub or other vegetable growths,

(c) the improvement of soil fertility or the structure of soil,

(d) the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation,

(d1) without limiting paragraph (d), any excavation, filling, grading or levelling of land for the purpose of the erection of a building, structure or work, not being for the purpose of irrigation or conservation,

(e) the reclamation of land by draining or filling together with any retaining walls or other works appurtenant to the reclamation, and

I give below the case citations for the original judgment and the subsequent judgments under the name Maurici v Chief Commissioner of State Revenue: Original judgment (Nott C) …… [1999] NSWLEC 299. Cowdroy J in this Court…………[1999] NSWLEC 282; (1999) 105 LGERA 318. Court of Appeal…………………[2001] NSWCA 78; (2001) 51 NSWLR 673. High Court of Australia…………[2003] HCA 8; (2003) 212 CLR 111.

It appears from the judgment of Cowdroy J that the applicant challenged the original judgment in relation to three questions: (1) whether retaining walls are "land improvements" as defined in 4(1) of the Valuation of Land Act 1916; (2) whether my rejection of the applicant's valuer's method of valuing improvements disclosed an error of law; (3) whether sufficient regard was given to improved land sales and whether a scarcity factor caused the sale price of vacant land to be inflated.

As regards the first question, in the original hearing I had held that certain retaining walls (which were not seawalls) were "land improvements" (s 4(1)). These walls were necessary for the purpose of improving the surface of the land by filling or levelling or for the purpose of a proposed building site and were therefore part of the land value referred to in s 6A(1). Cowdroy J took a contrary view, but the Court of Appeal confirmed my decision, and there was no challenge on this ground in the High Court.

Secondly, I had held that it was an incorrect approach to valuation to roughly equate the added value of improvements to the difference in cost between: (1) the quantity surveyor's cost to reconstruct the improvements with new materials and (2) the cost to renovate the existing improvements to a new condition. Cowdroy J and the Court of Appeal found that there was no error of law, and the issue was not raised in the High Court. In the present hearing, the applicant accepted that the method used in the original hearing to value the improvements was deficient; and the applicant's new or at least revised method is summarised at par 20 above and is dealt with in detail in parts 9 and 10 of the present judgment.

As to the third challenge, Cowdroy J said: [25] Whilst there is nothing to suggest that such [vacant land] sales do not represent a comparable sale for use in assessing the value of the appellant ' s land, it is not clear from the judgment whether the Commissioner paid any regard to the remaining valuations and if he did, the extent of such consideration. The learned Commissioner said that he reached his conclusion ' principally ' upon the first six valuations.

[26] Had it not been for the acknowledgement by the respondent of the existence of a scarcity factor, this ground would be rejected. However as it is acknowledged to exist and as it is not clear whether such factor has caused the sales of vacant parcels of land to be inflated, this issue must be addressed. I uphold this ground of appeal.

In relation to the matters in the original judgment that Cowdroy J said were not clear or had not been addressed, I propose to elaborate further. The "first six sales" mentioned by his Honour (at [25]) were listed in a schedule to the original judgment. These six sales related to vacant land or land on which the improvements were regarded as having relatively little or no value, and I was able to determine a land value for each of these properties (as set out in column C of that schedule) and then, after making adjustments for the different features of the comparable sale and the subject land, to infer a land value for the subject land.

The remaining nine sales in that schedule were improved properties. In the original judgment I had held, contrary to the submission of Mr Croker, that:

[31] It is an acceptable method of valuation to deduct the added value (if any) of the improvements from the contract price for an improved property in order to get an estimated value for that property and then by way of comparison to infer a land value for the subject land: cf. Nock v Minister for Capital Territory (1982) 48 LGRA 293, Morling J; Nap Nap Station Pty Ltd v Valuer-General (1969) 72 LGRA 293, Stein J. But in valuing residential properties for the purpose of s 6A(1) of the Act, this method is generally not as reliable as using sales of vacant land or of land where the improvements may be regarded as having little or no value.

In respect of properties in each of the remaining nine sales, it was not possible to put a land value in column C of the schedule, because not having accepted the applicant's valuer's method of valuing the improvements, I had no reliable evidence of the value of the improvements to deduct from the contract price to arrive at a land value for each of the improved comparable sales. Accordingly, column C and remaining columns of the schedule were not filled in for the remaining nine sales. The applicant had not discharged the onus of proof (par 55 above) of showing what land value should be inferred from the improved land sales. In saying (at [73] of the original judgment) that I had reached my conclusion by "a direct comparison of the subject land with the comparable sales, principally sales 1-6 in the attached schedule", I intended to indicate that the improved sales were not excluded from consideration but that, as I stated, it was not possible to arrive at a land value for the subject land from them.

The question of scarcity only arose towards the end of the original hearing, and was not dealt with at all in the reports of either valuer. In oral evidence Mr Byron did not claim that any deduction should be made from the land value of a vacant land sale on account of a scarcity factor when inferring a land value for an improved property. Not having any acceptable evidence from the applicant as to what value would be inferred for the subject land from improved sales, I had no way of quantifying the amount (if any) by which the price inferred from a vacant land sale should be reduced on account of there being fewer vacant land sales compared with the number of improved sales, and again (although I did not say so expressly), it seemed to me that the applicant had not discharged the onus of proof.

No transcript of the submissions in the original appeal is available. However, as I recall, Dr Birch made a submission similar to the proposition that he put to Mr Croker in cross-examination (OrigT 51): if every improved property at Hunters Hill is notionally rendered vacant and if its land value is determined from scarce vacant land sales, then that land value would include a premium for scarcity, even though the properties being valued are in fact built upon, and even though they would obviously not possess that premium if they were rendered vacant at the same time.

In the original judgment, I did not deal with the paradox raised by that proposition, since it seemed to me that the solution to the paradox was clear having regard to valuation law and the practice of determining land value (formerly, "unimproved value") in New South Wales. In ascertaining the land values of improved properties, property "A" was first valued by making the assumption required by s 6A (formerly, the repealed s 6) that the improvements (other than land improvements) had not been made and that the property being valued was vacant. However, the assumed vacant property was valued having regard to the actual condition of the surrounding properties with any improvements on them. Then when the adjoining property "B" came to be valued, it was assumed to be vacant but the first property "A" was now treated as having the improvements on it. Likewise, each property in turn was valued as if it were vacant but as if all other surrounding lands and any improvement on them were in their actual condition. This method of valuation was consistent with the Privy Council case of Tetzner v Colonial Sugar Refining Co Ltd [1958] AC 50. As far as I am aware this method or procedure was followed consistently in all cases, even though a degree of artificiality was sometimes involved resulting from the required statutory assumptions: see for example, MLC Properties Pty Ltd v Chief Commissioner of State Revenue [1999] NSWLEC 300 at [21] and [38]; Venti Seven Pty Ltd v Chief Commissioner of State Revenue [2000] NSWLEC 285 at [4]-[6].

Moreover, the manner of valuing (referred to in the immediately preceding paragraph) of taking the surrounding properties in their actual physical condition was mandated by s 57(1) of the Land Tax Management Act 1956 and is required to be followed for the determination of land value in the present hearing (pars 53 and 56 above).

The High Court's judgment does not mention s 57(1) of the LTM Act or the equivalent provisions in the Valuation of Land Act 1916; and it is not clear whether senior counsel expressly brought that section to the attention of the High Court (T 465).

On appeal from the decision of Cowdroy J, the Court of Appeal had found no error of law in the original judgment concerning the third challenge of the applicant. However, the High Court held (at [17]-[18]) that the respondent's valuer had been unreasonably selective in valuing the subject land by reference to a small number of vacant land sales. The High Court went on to say:

A fair estimate [of land value] could only be made here on the basis of a fair, that is to say, a reasonably representative group of comparable sales. A group of comparable sales cannot be representative if it does not go beyond sales of scarce vacant land. That is not to say that sales of comparable vacant land may not provide useful evidence of value. But as J F N Murray observes in Principles and Practice of Valuation [4th ed (1969) at 120] in discussing valuations under federal land tax legislation of land in its notionally unimproved state, "sale evidence [must be] relevant and sufficient in volume " (emphasis added). So too, sales relied on, such as of scarce vacant land, are likely to be to a special and different class of buyer from buyers of improved land.

The High Court said that the Court of Appeal had erred by approving the respondent's flawed method of valuation [22].

A question was raised in the High Court as to how, in view of the deficient state of the evidence adduced in the original hearing, the High Court should dispose of the appeal. The same deficient state of the evidence was before the High Court. The High Court ordered that the matter should be remitted to me for rehearing and determination in accordance with the judgment of the High Court, and stated that it would be a matter for me to determine whether, in the light of the clarification of the legislation and the proper approach to its application, I may and should receive further evidence [22]-[25].

I respectfully agree with the opinion of Tobias JA in AMP Henderson Global Investors v Valuer General [2004] NSWCA 264, (2004) 134 LGERA 426 at [66] that the High Court's decision in Maurici stands for the following propositions: (a) Section 6A (1) of the Act does not require when utilising the comparable sales method of valuation, that only sales of vacant land shall be considered;

(b) Confining one ' s consideration to only sales of scarce vacant land and disregarding sales of improved land which would otherwise be as comparable as the vacant land sales in terms of timing, location, outlook and other relevant features, offends the principle that a reasonably representative group of comparable sales should be considered when applying that methodology.

In the present hearing, the parties have presented evidence of 19 improved comparable sales (including sale 19a) and 7 vacant land sales, all of waterfront properties. Both parties excluded from their consideration all non-waterfront sales, of which there were no doubt many. The huge volume of evidence relating to the analysis and comparison of the 26 sales of waterfront properties has enabled the Court in the present hearing to consider (among other questions) whether the sale prices of the vacant properties should be adjusted downward by a scarcity factor when inferring a land value for the subject land.

The Court's findings in the present hearing in respect of the additional market evidence indicate that no adjustment for scarcity is needed. The land value of the subject land deduced from the improved properties has been found not to vary significantly from the vacant land sales.

For the reasons given below, I am of the opinion that it is necessary to take into account the effect of a new development consent for the erection of a house on land value. In particular, in deriving the so-called improvements increment from an exercise of comparing the sale of a vacant property with the resale of that property after a development consent has been obtained, the value of the consent should be excluded from the improvements increment and should be regarded as part of the land value.

It is clear that a valuation for the purpose of 6A(1) of the Valuation of Land Act 1916 must take into account restrictions imposed by or under town-planning law, such as Hunters Hill Local Environmental Plan No. 1, which prohibits the erection of a dwelling-house unless development consent is obtained: cf. Royal Sydney Golf Club v Federal Commissioner of Taxation (1955) 91 CLR 610. However, the granting of a development consent is the relaxation of the prohibition, which must also be taken into account under s 6A(1).

As has often been said, "…development approvals operate, as it were, in rem and may be availed of by subsequent owners and other occupiers of land" (Parramatta City Council v Shell Co. of Australia Ltd [1972] 2 NSWLR 632 at 637 per Hope JA). In Eaton & Sons Pty Ltd v Warringah Shire Council (1972) 129 CLR 270 at 293, Stephen J described a consent as "essentially impersonal in the sense that it does not concern itself with and is not limited to the applicant but is a consent to the world at large in relation to the land which is its subject. Once granted it makes lawful, in a town planning context, what would otherwise be unlawful but does so by reference to the acts done and not to the identity of the actor".

Once a development consent has been granted, it is usually the case that the property acquires an increased value because of the consent. And any value accruing from the consent forms part of the land value under s 6A(1): Illawarra Meat (Developments) Pty Ltd v Valuer-General (Land and Valuation Court, Rath J, 10 March 1978). During the present hearing I made available to the parties the full transcript of the judgment of Rath J, and I reproduce the relevant part of it in Appendix 1 hereto.

In the Illawarra Meat case the land being valued had the benefit of a development consent for an abattoir, which made the abattoir land so much more valuable than a comparable sale (the "Owikeno land") that the comparable sale was rejected as not capable of reasonable adjustment. In other cases, however, it has been found that the difference between the land being valued and the comparable sale is not so great, and a development consent in respect of one or other of the properties can be taken into account by an appropriate adjustment. Each case must be considered on its own facts, and the amount by which the land value of a property is increased because of a development consent will vary widely.

The increased value due to a development consent is often (but need not necessarily be) expressed as a percentage of the value of the land (assuming there was no consent).

It seems that the value of a consent would usually include the total of the following costs: (1) the costs of engaging experts (such as a surveyor, chartered architect, landscape architect and engineer) to prepare development application plans, including a survey plan, architectural drawings and specifications, landscape plan and concept drainage plans; (2) the cost of preparing the required statement of environmental effects to accompany the development application, which is often prepared by a town planner; (3) council's fees for the lodgement of the development application; (4) any additional fees paid to expert consultants who may be required to provide additional or supplementary advice or information to the council during the consideration of the development application; (5) holding costs, such as rates and charges and land tax, during the development application process; and (6) interest on the capital cost of the land and on the other development costs during the development application process, against which is to be offset any appreciation in value of the land.

In addition, the value of the consent in theory would also include entrepreneurial profit or an amount of compensation for the developer's or owner's time and energy in engaging the experts and in overseeing the development application process from the beginning up to the granting of development consent.

A development consent could become more valuable if, for example, the zoning is subsequently changed or more restrictive development standards come into force that would make it more difficult or unlikely that a similar consent would again be granted.

Where a development consent has been granted and has not expired, the existence of this consent is often used by a new developer as a stepping-stone to obtaining a modified or new development consent.

Once a house has been erected, the statutory assumption in s 6A(2) applies to the improved land. As explained by Rath J in the Illawarra Meat case, the former s 6(2) (now s 6A(2)) applied not only to non-conforming existing uses but also to conforming uses permissible with consent in the zone (the abattoir was a conforming use).

When inferring a land value for an improved site from a vacant land sale, if the market evidence does establish that vacant land has a premium over and above the land value of a comparable improved property, there may have to be an adjustment downward of the contract price of the vacant land on account of that factor, but there may also have to be an upward adjustment of the vacant land price to take into account the benefit of the development consent in respect of the improved property or the benefit of the statutory assumption in s 6A(2), which benefits the vacant land does not possess. The two opposing adjustments could but need not necessarily balance each other.

I accept the evidence of Mr Byron that there would generally be greater difficulty in getting a development consent for a waterfront property than for a non-waterfront property, because of issues relating to such matters as view-lines and setbacks from the water (T 28-29).

If the American textbooks The Appraisal of Real Estate or Appraising Residential Properties are referred to in relation to the method of valuing improvements, it seems that care needs to be taken not to attribute wholly to the value of the improvements any item that would more properly be related to the land value. This is because the concept of "land value" as used in those books does not appear to have the same specialised meaning that has been judicially given to the concept in s 6A(1) of the Valuation of Land Act 1916, and there is no consideration of a statutory assumption similar to s 6A(2). In respect of valuations for land tax or rating purposes in New South Wales, the costs of obtaining a development consent would be part of the increased land value due to that consent.

Dr Birch referred to copyright law, but it is not apparent to me that the above considerations would be affected in the present case. As a general principle, unless there is an agreement to the contrary, a landowner who pays for plans has an implied permission or consent to use those plans for the purpose for which they were brought into existence, namely to erect a house; and the landowner has an implied right to transfer the right to use the plans to a new owner: Torpey Vander Have Pty Ltd v Mass Constructions Pty [2002] NSWCA 263, (2002) 55 IPR 542 at [13]-[18].

I adopt the following passages from the original judgment describing the subject land at the relevant date: [8] The subject land comprises lot 1 DP 217282 having an area of 1,764 m2, and a leased area below mean high water mark of 38 m2.

[9] Lot 1 of the subject land has a street frontage of about 19.69 m, a waterfront boundary of 31.42 m, a western boundary of 82.74 m and an eastern boundary of 67.71 m. Lot 1 is owned by the applicant Mr A. Maurici. Erected on the lot is a three-level house having a floor area of 379 m2 (excluding balconies) built in about 1970 and extensively refurbished in about 1996. Other improvements include: a two-storey outbuilding with a floor area of 111 m2, having a large office on the upper floor; a pool; a double garage; and an inclinator between the two main levels of lot 1.

[10] From the street frontage to about halfway down lot 1 the land is fairly level and then drops approximately 8 to 10 m to another generally level area towards the waterfront.

[11] The leased area of the subject land of about 38 m2 below mean high water mark is the site for a timber jetty, ramp, and floating pontoon. The leased area includes the site also of three mooring piles, which enable a private vessel to be moored between the piles. The leased area is owned by the Marine Ministerial Holding Corporation (formerly the Maritime Services Board) and is leased from the Corporation by Mr Maurici, the owner of lot 1.

[12] At the waterfrontage, more or less forming the waterfront boundary of lot 1, is a sandstone seawall, which retains filling on that part of lot 1 which apparently was formerly below mean high water mark. This seawall is in need of repair. …

[14] The subject land enjoys a north-facing waterfrontage to the Lane Cove River, and there are excellent views across the river to Northwood and Longueville. As mentioned earlier, the width of the waterfrontage of lot 1 of the subject land is approximately 31 m.

The broad, flat, grassed area and the water frontage can be seen in some of the 20 photographs of the subject land (ex H.). The shape of the land is shown on the deposited plan.

The applicant's property is a large one, being larger than 24 of the 26 comparable sales, and this fact must be taken into account when considering the sale prices for smaller properties in the comparable sales.

At the base date (1 July 1997) and relevant date (9 September 1997), the subject land was zoned Residential 2(a2) under Hunters Hill Local Environmental Plan No. 1 ("LEP"). The LEP (as in force on those dates) is exhibit G, and the zoning map referred is exhibit F. The map shows that the comparable sales were also zoned Residential 2(a2), except for 18 Vernon St, which was zoned Residential 2(a3).

In the 2(a2) zone, the minimum area for the creation of a lot by subdivision was 900 sq m; but when calculating the area of a hatchet-shaped lot, the area of the access corridor had to be excluded (clause 10 of the LEP). The minimum area for the erection of a dwelling house on a lot in that zone was also 900 sq m (cl 12). The minimum area for the creation of a lot by subdivision and for the erection of a house in the 2(a3) zone was 1000 sq m, exclusive of any access corridor.

Other planning controls in the LEP applying to the properties in the 2(a2) and 2(a3) zones included - (1) A building could not be erected containing habitable rooms on more than two floors or having a height greater than 8 m measured vertically from any point on natural ground level to the ceiling of the topmost floor (cl 15). (2) The council could not grant consent to the erection or use of a building unless there was a garden area equal to or greater than 60% of the area of a lot. "Garden area" was defined to mean "any area within the lot which has not been built on and which, in the opinion of the council, is designed, constructed or adapted for outdoor living or outdoor recreation but does not include terraces, decks, balconies, verandas, driveways, parking areas, drying yards or other service areas" (cl 16A). (3) A foreshore building line as shown on the zoning map was fixed by cl 18 for all the waterfront properties. Subject to some minor exceptions, a building could not be erected between the foreshore building line and a bay, creek, harbour or river. The foreshore building lines are shown on the LEP map (ex F).

Additionally, in respect of a development application to erect waterway facilities (such as jetties or pontoons) on the southern side of the Woolwich peninsula, I take judicial notice that the consent authority had to consider Sydney Regional Environmental Plan No. 22 - Parramatta River (T370).

I have briefly referred to the evidence and have expressed my finding on the adjustments to be made to contract prices for movement in the market (par 16 above). Further details are now given in this part of the judgment.

Comparable sales that occur after the date at which the land value is to be determined may be used: cf. Federal Commissioner of Land Tax v Duncan (1915) 19 CLR 551; Daadine Pastoral Co Proprietary Ltd v Commissioner of Land Tax (1943) 7 The Valuer 299 at 304.

In respect of any comparable sale occurring after the base date, it was necessary for the valuers to adjust the contract price downward to reflect the lower prevailing market values at the base date, 1 July 1997. Conversely, for a sale occurring before the base date, the contract price had to be adjusted upward for the period from the contract date to the base date.

Mr Byron adjusted the contract price (which covered both the land and the improvements at the date of contract) for movement in the market to the base date, and his resultant adjusted prices for both land and improvements are set out in column I of Table 1. He then deducted the value of the improvements at the base date from the adjusted contract price to get a land value at the base date.

The quantity surveyors for both parties had prepared the costing sheets in their reports based on what the improvements would cost if erected at the base date. (And other evidence was given for the purpose of establishing that the condition of the improvements at the base date was the same as at the date of contract.) To avoid the expense of having the costings reworked so as to determine the costs of the improvements at the date of contract, it was agreed by the parties that I should accept the costings as at the base.

Accordingly, the procedure adopted was that the contract price was adjusted for movement in the market from the contract date to the base date, after which the value of any improvements as at the base date were deducted from the adjusted contract price.

However, for future cases (and as has been done in some other cases) it seems to me that it might be better first to deduct from the contract price the value of the improvements as at the date of contract to arrive at the land value for that property at the date of contract, and then (having regard to the movement in the market) to adjust that land value to the base date. Such a procedure avoids the need to consider whether renovations or alterations to the buildings may have been carried out between the date of contract and the base date. In addition, certain other distortions may be avoided, such as a different rate of appreciation (or depreciation) applying to the improvements as distinct from the rate for the land or for the combined land and improvements.

How is the movement in the market to be ascertained? In some cases, valuers have used a number of instances where the sale and resale of the same property has occurred in the locality of the land to be valued. If this is done, no material change should have occurred to the property between the two sale dates, or an adjustment should be made to take account of any minor change. The movement in the market (normally an upward movement) between the first sale date and the second sale date can then be ascertained. Desirably, a number of sales and resales should be used to see whether some consistent pattern emerges.

There were four cases where in each case a sale and resale of the same waterfront property occurred in Hunters Hill or Woolwich in the period from August 1996 to August 1999. I have calculated the percentage change between the sale dates and have set out the particulars in Table 4:

One of the problems with the sales in Table 9 is that in the first three cases the period between the first sale date and the second date is more than two years. It is possible, for example, that the market could have been relatively quiet from August 1966 to the end of 1997, with larger increases in prices occurring in 1988 or 1999, in which case applying an average percentage increase for a sale occurring in 1996 would give an adjusted price at the base date that is too high. Another problem is that the fourth sale and resale in Table 9 seems inconsistent with the three other cases.

Because the evidence on movement in the market seemed somewhat unsatisfactory, I inquired of the parties why the statistics in the NSW Department of Housing Median Sale Prices for the local government area of Hunters Hill had not been used. These statistics are used for the purpose of s 34A(2)(a) of the Land and Environment Court Act 1979. Subsequently, these Department of Housing statistics for June 1997 to December 2003 were tendered (ex 13). Having examined the Department of Housing statistics, during the present hearing I expressed a tentative view that the statistics could not be used for the present valuation (T 364). Although some written submissions had been made on behalf of the respondent that the Department of Housing's statistics should be used, both parties then accepted my tentative view, effectively disposing of the issue as to whether these statistics were helpful. The major problem with the statistics was that the number of houses sold at Hunters Hill each quarter was relatively small, and each quarter's movement seemed to be erratic, probably due to the different sizes and types of houses sold in Hunters Hill each quarter. For example, in one quarter there could have been a large waterfront property included within the relatively small number of houses that were sold for that quarter leading to a high median house price for that quarter, and in the next quarter there may have been only non-waterfront properties giving a much lower median house price. For the same reason, the parties ultimately did not rely upon the Real Estate Institute's Median House Prices for Hunters Hill (ex 8).

In the circumstances, I have preferred Mr Byron's use of the Australian Bureau of Statistics' Established House Price Index for the Sydney region even though at times there could be a divergence between the movement in the market at Hunters Hill and in the Sydney region as a whole (par 16 above). Also, it seems these statistics are based on transfer dates rather than contract dates of sale (T 364). So, on one view, the index points that Mr Byron interpolated for the comparable sales should relate to a month or two later. The applicant did not seek to amend the interpolated index points shown on all the spreadsheets for the comparable sales (ex R), and any resultant error from the small change would appear to be relatively insignificant, as the distance in time between the index points for the contract date and the base date would remain the same, if the index point for the base date should also be moved to one or two months later. Of more importance is any differential movement in the market at Hunters Hill compared with the Sydney region, particularly a movement over many months.

The importance of applying an appropriate adjustment for movement in the market is seen if the sale of 20 The Point Rd is taken as an example. It sold on 23 May 1996 for $2,125,000. Using the ABS statistics, Mr Byron adjusted this sale price by 4.58% for movement in the market over the period of 13 months. If, however, the true movement in the market for waterfront properties at Hunters Hill (or for waterfront properties in the region) during the same period jumped significantly compared with the movement for all properties in the whole of the Sydney region and was 12.5%, then the contract price adjusted to the base date would have to be approximately $200,000 more than the figure determined by Mr Byron.

In the circumstances, even though the ABS statistics are used to adjust the contract prices, it is apparent there can be greater confidence in the accuracy of a land value inferred for the subject land from a comparable sale that occurred within a month or two of the base date than a value derived from a sale that occurred many months from the base date, all other things being equal. Therefore, less weight should be given to those sales that occurred further from the base date.

The time between the contract date and the base date is more clearly shown below in Table 5, which (with other matters) I have taken into account in deciding what weight to give to each comparable sale (pars 332 ff):

This part of the judgment is related to the next, part 10, which examines in more detail some of the other elements of Mr Byron's method of valuation of the improvements. I have briefly summarised Mr Byron's method and given my main findings in part 2 (at pars 17-23).

What is meant by this new concept of "improvements increment" introduced by Mr Byron? Is it perhaps not so new after all, but merely a nominal distinction from an already-known valuation concept?

Mr Byron defined "improvements increment" as an increment included in the added value of the improvements, being an amount additional to the cost of improvements (ex K p 3). His more detailed explanation at p 5 was as follows (I have added the paragraph numbering in brackets): 1.2 Improvements Increment (1) When improvements are made to land acquired at market value, which are appropriate for that land and which are marketable, having regard to design and building standards at the time, the value added to the land by those improvements will normally exceed the costs of those improvements by an increment, which in this report I will refer to as the Improvements Increment.

(2) This Improvements Increment exists by virtue of the improvements being made and accordingly forms part of the added value that those improvements adds to the land.

(3) This can be understood by considering the example of a residential property developer who buys land, constructs residences on that land and aims to sell the land and house packages for a "margin" or "profit" which exceeds development costs taking account of all relevant matters including holding costs, interest, and builder's margin.

(4) A prudent purchaser who purchases an improved property will factor into the purchase price a margin to reflect the effort, time and risk associated with improving land. If this Improvements Increment did not exist, then there would be little or no property development if the price to be paid for an improved property was limited only to the sum of the various costs and expenses in improving it.

(5) The Improvements Increment is a component included in the added value of improvements regardless of whether or not those improvements are new, or newly renovated or upgraded, provided that those improvements retain marketable value or utility.

(6) The Improvements Increment will differ for different segments of the real estate market. It will also vary depending on the relative strength or weakness of the property market at any given time.

(7) I have analysed this increment having regard to actual sales of comparable properties to the subject land in the Hunters Hill area.

1.3 Improvements Increment in Hunters Hill Area (8) In order to determine the range of this increment I have sought to identify sales of comparable properties in the Hunters Hill area in circumstances where following such sale, either new improvements have been added to such properties, or existing improvements have been renovated or upgraded to a high standard, followed by a subsequent sale of those properties in their new improved or renovated and upgraded state.

(9) In order to derive the Improvements Increment I have analysed sales of the following three properties: (a) 26A The Point Road, Woolwich - This property was purchased in 1999 for $1,525,000 following which a new house was constructed on the land, the property being resold for $4,275,000 in 2001. (b) 1 Fern Road, Woolwich - This property was purchased in 1998 for $1,550,000 following which the purchaser constructed a new house on site. It was then resold in 1999 for $3,850,000. (c) 73 The Point Road, Woolwich - This property was purchased in 1997 for $1,730,000 and later renovated and upgraded to "as new" standard. It subsequently sold in 2001 for $3,950,000.

(10) In deriving the Improvements Increment I have adopted the following methodology: o From the net proceeds of sale of the newly improved property I have deducted the original purchase costs and other estimated costs of purchase, construction costs based on the estimates of Napier and Blakeley Pty Limited, holding and interest costs, and made allowances for property market movements. The balance remaining I have called the Improvements Increment. o Napier & Blakeley Pty Limited has estimated the construction costs of the improvements at 26A The Point Road, Woolwich as at 1 July 1999 and for 1 Fern Road, Hunters Hill as at 30 September 1998. For 73 The Point Road, Woolwich I have relied on the costs estimated by Napier & Blakeley Pty Limited to renovate and upgrade that property as at 1 July 2000. These dates were chosen to approximate the dates that the work was done. Attached in Section 2 are schedules showing my calculation of the Improvements Increment for each property.

(11) In each of the three samples analysed, I have expressed the derived Improvements Increment as a percentage of the sale price of the improved property, of the cost of the improvements and of funds invested.

(12) In order to apply the increment to my analysis of the sale of comparable properties, I have decided that the most appropriate and practical means of doing so is to apply it as a percentage of the cost of improvements. My methodology is explained in paragraph 1.9.

(13) The analysis of the increment for each of the above three properties expressed as a percentage of the costs of the improvements on those properties is, as shown by the calculations in Section 2, as follows: 26A The Point Road, Woolwich … 74% 1 Fern Road, Woolwich……………37% 73 The Point Road, Woolwich……82%

(14) For the purposes of this Report I have adopted 40% as the appropriate Improvements Increment to apply in deducing the land value of comparable properties as at the Base Date. I have adopted this factor of 40% rather than, for example, to take an average of the above percentages because the two higher increments were derived from sales occurring in 2001 in a stronger and more active market.

Mr Byron's calculations for the three properties referred to in (13) of the preceding paragraph were also reproduced in the spreadsheets at pp 2-4 of ex R. However, the applicant subsequently submitted amended spreadsheets for these three key properties (T 341) indicating the following lower percentages for an improvements increment - 29.3%……derived from 1 Fern Av 70.9%……derived from 26A The Point Rd 81.9%……derived from 73 The Point Rd. I reproduce the applicant's amended spreadsheet for 1 Fern Rd in Table 6 (par 120).

Details of the land and two relevant sales at 1 Fern Rd include:

Title: Lot B in DP 386368 Dimensions: Irregular battleaxe shape, approx. 11 m frontage to Parramatta River Area: 1,625 sq m (1,512 sq m excluding access strip) Zoning: Residential 2(a2)

FIRST SALE SECOND SALE Vendor: Gloria Mortimer. Purchaser: Rack Constructions (No. 1) Pty Ltd Vendor: Rack Constructions (No. 1) Pty Ltd Contract Date: 13/3/98 Purchaser: Lois Agnes Turk Transfer Date: 11/6/98 Contract Date: 05/11/99 Sale Price: $1,550,000 Transfer Date: 25/01/00 Sale Price: $3,850,000

The property at 1 Fern Rd had an old residence on it when it was purchased on 13 March 1998. This residence was subsequently demolished and a new two-storey rendered brick residence with tile roof and three-car garage together with a concrete in-ground swimming pool and garden facilities were erected on the land. The completed residence was sold on 5 November 1999. This property was inspected by Messrs Byron and Hammond in December 2003.

Using these two sales of 1 Fern Rd, Mr Byron derived the 29.3% improvements increment given in the second-last row of the spreadsheet in Table 6 below:

During the hearing the applicant in submissions equated the improvements increment to "entrepreneurial profit" or "entrepreneurial incentive". There is a distinction between each of these concepts. In the first concept the profit is actually received, whereas the second concept refers to what is expected to be received by the entrepreneur. The concepts are defined in The Appraisal of Real Estate (12th edition, 2001) at p 370 as follows: Entrepreneurial profit: A market-derived figure that represents the amount an entrepreneur receives for his or her contribution to a project and risk; the difference between the total cost of a property (costs of development) and its market value (property value after completion), which represents the entrepreneur's compensation for the risk and expertise associated with the development.

Entrepreneurial incentive: A market-derived figure that represents the amount an entrepreneur expects to receive as compensation for providing coordination and expertise and assuming the risks associated with the development of a project. 122. It was the applicant's case that where an owner of land arranged for others to carry out the building project under his supervision, an amount equivalent to entrepreneurial profit should still be reflected in the improved value of a newly constructed, well-designed home that makes the optimal use of the land. If this is so, Mr Byron's "improvements increment" might be a better concept to reflect either the value that a developer receives for providing coordination, expertise and assuming the risks associated with the project or (in the case of an owner carrying out the development) to reflect the time and energy and the inconvenience associated with the project. In cross-examination, Mr Norris agreed, for example, that if an adjoining parcel is acquired and a house built on it by the land owner, when the two houses are sold in the market it could be expected that they would command roughly the same market price, all other things being equal (T 66).

It is important to observe that when considering the various opinions and methods relating to valuation of improvements, "cost" is often used to embrace different items. In the above passages (par 116), Mr Byron's improvements increment was 40% of all other costs (which elsewhere he called the "adjusted cost of improvements"), which was then added to all those costs to arrive at what Mr Byron said was the value of the improvements. The other costs to which the improvements increment was added included professional fees and (built in to the building costs) allowances for builder's margins and preliminaries. A typical example of the application of the improvements increment is shown in Table 9 (par 161 below). Mr Croker did not make any allowance at all for developer's profit and risk within his costs or as a percentage on top of his costs. In some textbooks, developer's profit and risk is included within rather than being separated from "reconstruction costs new". As I indicated, it is important to note in what sense the word "costs" is used in its context when comparing different descriptions or methods of valuing improvements.

It was common ground that the particular methods chosen by Mr Croker and Mr Byron had a starting point of ascertaining the cost of constructing as new the improvements on the land. However, in relation to Mr Byron's improvements increment of 40%, Mr Croker said (p 2 of ex 3): In over 40 years as a valuer, I have never previously encountered even one example of an " improvements increment " as an element in the sale prices of established houses. An allowance for entrepreneurial " profit and risk " is an element of the analysis of a sale of " en globo " land and also large redevelopment sites. Only the original subdivider/developer enjoys any margin for " profit and risk " - it certainly is not a factor in the purchase price of established houses. The " supply/demand " forces of the market determine the sales prices of established housing. In cases such as those sales considered by Mr Byron above, the builder could expect a " builder ' s margin " which is already included in Mr Hammond ' s estimates of cost. To expect an additional 40% " profit and risk " return is an unrealistic expectation not evident in real market transactions.

The accepted theory in relation to the cost approach to valuation of an improved property is that a purchaser will not normally pay more for the property than it would cost to purchase comparable land and have improvements of comparable utility constructed on the land without undue delay. To apply the cost approach, the valuer estimates the cost (including entrepreneurial profit) of reproducing or replacing the existing structure with a new building, deducts an appropriate amount for the loss in value caused by depreciation, and then adds the value of the depreciated improvements to an estimate of the land value. See Appraising Residential Property (3rd edition, 1999) ch 12, published by the (American) Appraisal Institute. It is made clear in this book that entrepreneurial profit is added to all other costs of constructing the new building.

In ch 14 (p 352) of The Appraisal of Real Estate (12th edition, 2001), the Appraisal Institute states: The thesis of the cost approach is that the cost of new improvements plus an appropriate entrepreneurial profit or incentive minus depreciation plus the value of the land equals market value. That is: Cost + Entrepreneurial Profit or Incentive - Depreciation + Land Value Market Value

The Appraisal of Real Estate (at p 356) sets out a ten-step procedure for deriving the market value of a property by the cost approach, and an essential element in that approach is to estimate an appropriate entrepreneurial profit or incentive from analysis of the market. In my opinion, subject to the qualifications that are applicable to the cost approach, there is no reason why the same procedure could not be applied in reverse, where the indicated value of an improved property is already known from its sale price and the aim is to arrive at a land value for the property after deducting the value of the improvements.

Is the theory of valuation any different in Australia? The authors of Valuation Principles and Practice (1st edition 1997) published by the Australian Institute of Valuers and Land Economists (Inc) refer to the hypothetical development method and the reverse hypothetical development method. In my opinion, the latter method would be relevant in the present appeal. I quote from the book (at pp 147-148), which briefly discusses both methods: Hypothetical Development Method …The Hypothetical Development method of valuation is used either as a secondary check valuation or when there are no comparable sales to guide the valuer. The method requires a great many assumptions, not all of which may in fact be correct, and which may therefore lead to an erroneous valuation. However, under certain circumstances it has been accepted by the Courts as being the most suitable method.

The valuer would have to assemble information on: o Cost of site o Cost of stamp duty and legal charges on purchase of site o Costs of rates and taxes over development period o Costs of site works in preparation for building o Cost of building construction, including all professional fees o Loss of interest on capital outlaid on purchase of site o Loss of interest on capital outlaid on construction o Minimum profit required by developer o Legal costs and commission on sale of property The total of these costs would indicate the sale price needed to achieve the minimum profit sought by the developer. If it was thought that the price could be achieved, then the project, at least from this analysis, would appear to be viable. This type of Hypothetical Development is called a "static analysis". The static analysis is still valid, however it is now more common to use Discounted Cash Flow analysis, which allows the expenditure and income to be plotted on a time scale.

Reverse Hypothetical Development Reverse Hypothetical Development is used to calculate the value of land. The sale price of the developed land is known and so are all the costs of development. So it is a subtraction exercise, and what is left at the end is the value of the bare land. It is used for the appraisal of land when there are no useful comparable sales. The most common uses are for calculating the site value of city building sites in the central business district, usually for local taxation purposes but sometimes for ground rent calculations, and for calculating the value of broadacres "accommodation" land for residential subdivision.

Of importance to the dispute between the parties in the present appeal are the fifth bullet-point (professional fees) and the second-last bullet (developer's profit) mentioned in the immediately preceding quotation. These fees and profit should be taken into account. However, the authors do not expressly turn their attention to the special considerations and distinctions arising from s 6A of the Valuation of Land Act 1916 (pars 77 ff above). Most of the developer's profit and professional fees would relate to a value attributed to the improvements. In respect of a new building that makes optimal use of the land, it seems that some part of the profit and fees from the whole development (of the land and building) would be derived from an enhanced land value, because of a development consent for the new building having been granted or because of the required statutory assumption that the new building may continue to exist on the land to enable the current use to continue. A vacant parcel of land without such consent does not have the same enhanced value, all other things being equal.

The clear weight of authority supports the proposition that according to good valuation practice, the value of a new building would ordinarily include an amount for developer's or owner's profit. In further support of that proposition, I give a simple example in Table 7 below from the Australian textbook by D J Hornby in Appraisal 1: Introductory Valuation (8th edition 1996) at p 68 (a copy of which was made available to the parties during the hearing):

There was an issue between the parties as to whether the improvements increment or an amount equivalent to the developer's profit remains after the first sale of the improved property. Mr Croker stated (ex 3 p 2): "only the original subdivider/developer enjoys any margin for profit and risk - it certainly is not a factor in the purchase price of established houses." Mr Byron was of the opinion that the improvements increment was a continuing component of the improved value, and I tend to agree. Mr Byron gave his reasons: If A is a professional developer who acquires land and improves it by constructing a residence, he expects to sell the improved property at a profit additional to the sum of the costs and expenses of the development. If B purchases the property for his personal use, for a price including that profit increment, then the value of that property in the hands of B does not at that time diminish through "evaporation" of the improvements increment. The property does not drop in value immediately it is acquired by B. Rather, the increment is embedded in the added value of the improvements, and will remain as a component of the added value of the improvements provided they retain marketable value or utility.

As a new building gets older, depreciation of the cost of reconstruction or replacement as new must be allowed. The value originally inhering in the building relating to the part of the developer's profit attributable to the improvements would also be depreciated with the other elements that go to make up the replacement cost as new. (Depreciation is considered in more detail at pars 175 below.)

Accepting that an improvements increment (that is, an amount equivalent to entrepreneurial profit or developer's profit) is part of the value of improvements as new, the next question is: what percentage of all other costs of construction should be allowed for the improvements increment?

It seems that the improvements increment derived from 73 The Point Rd and to a lesser extent the increment derived from 26A The Point Rd are not sufficiently reliable, for a number of reasons. One reason is that there is insufficient certainty relating to the movement in the market, particularly over a lengthy period of time (par 99 ff). As a reason for using sales where adjustments had to be made for a lengthy period, Dr Birch submitted:

Whilst the sales for 26A The Point Rd and 73 The Point Rd span 29 months and 41 months respectively, the sales of the comparable sales in Exhibit R span a period of 39 months, which is a similar time span. In my opinion this is not a good argument. For one thing, the longest period for which a comparable sale has to be adjusted is not 39 months but 25 months, as seen in Table 5 above (par 113). More importantly, the sales of 26A The Point Rd and 73 The Point Rd are key or foundational sales, the analysis of which affects Mr Byron's valuation of all the improved comparable sales. Thus, a greater degree of reliability is needed for the key sales. A single error in the beginning derived from these key sales and applied to all the improved sales can lead to a large error of valuation in the end. Because there were many comparable sales, it is possible to give different weight to the sales according to reliability, and this distinguishes the comparable sales from the key sales. I have given less weight to those comparable sales where adjustments have to be made for lengthy periods of time when inferring a land value for the subject land. The sale on 29 January 1999 of 26A The Point Rd, as well as being used as a key sale to determine the improvements increment, was also used as a comparable sale (sale 13). When I later consider the weight to be given to each comparable sale, I give this sale the least weight of the vacant land sales, because of the time over which the movement in the market has to be adjusted and because of the large adjustment that has to be made for the small size of the property (par 338). (However, when considering the first comparable sale (sale 12) of this same property, it is considered to be a little more reliable than sale 13, since the period from the contract date to the base date in sale 12 was 10.5 months.)

I am not prepared to accept that an improvements increment of the magnitude suggested by the applicant's analysis of 26A The Point Rd or 73 The Point Rd should be applied. The examples of entrepreneurial profit (expressed as a percentage of total building costs) provided in the textbooks give much lower figures (such as 15% or 20%). In the only decided case that Dr Birch referred me to (Strongsville Board of Education and City of Strongsville v Auditor and Board of Revision of Cuyahoga County and Hewlett Packard Co ( Nos 1996-N-595 & 596, 30 July 1999), the Ohio Board of Tax Appeals allowed 10% entrepreneurial profit on top of costs for a two-storey office building and associated improvements, originally built by and occupied by the owner of the 25.77-acre property, Hewlett Packard Co. In my opinion more reliable market indications of an improvements increment would be needed before such a high fixed percentage of 40% could be applied to all improved properties in the comparable sales.

Entrepreneurial profit is a fluid amount that varies with market conditions. Such profit (or the improvements increment) should be determined as at the date of contract of each improved property (or, accepting for the purpose of this case the agreement of the parties concerning the estimation of costs, as at the base date). That is, entrepreneurial profit has to be determined at the time as at which the valuer is required to estimate the cost to construct the improvements as new. The amount of the entrepreneurial profit is not be determined from different market conditions four years after the base date. There was a strong rising market by mid-2001.

A criticism of Mr Norris was that actual costs were not used for these three key sales (ex 4 p 3), and I think that this criticism is justified. For the comparable sales where buildings may have been erected many years earlier, the situation is different. The actual costs that could have been obtained would of course include not only what was paid to or incurred by the main contractor and his subcontractors but other costs relating to numerous other works that are often dealt with separately from the main building contract, such as landscaping, installation of air-conditioning units, swimming pools, and specially built-in items in the house installed after the main contractor has completed his work.

The actual costs could vary from what Mr Hammond estimated. In respect of those comparable sales where both Mr Martin and Mr Hammond had prepared estimates and conferred, Mr Hammond's original figures in a couple of cases were 13% higher and in one case 19% higher than what both quantity surveyors ultimately agreed upon. Significant upward adjustments from the originally estimated costs for various comparable sales were also made by Mr Martin in coming to an agreed position.

Because the respondent or its valuer rejected the concept of an improvements increment, Mr Martin was not given any instructions by the respondent to inspect and cost the improvements on the three key properties of 1 Fern Rd, 26A The Point Rd and 73 The Point Rd.

In relation to the construction of the two new residences at 1 Fern Rd and 26A The Point Rd and the extensive renovation and upgrading of 73 The Point Rd, Mr Norris said (ex 4 p 3 3rd point): "It would appear that council approval would have been required for such undertakings and yet when Mr Byron has arrived at his increment the increment is totally sheeted home to the improvements when in theory it would seem that some of the increment would be captured in the land value (if one accepts the theory of the Improvements Increment)." I agree with that view.

In respect of the first sale of 26A The Point Rd, there was a delayed settlement of about six months, which was not explained. None of the contracts for sale of land for the three key sales was tendered in evidence. The date of the granting of development consent for the houses at 26A The Point Rd and 1 Fern Rd is not known, and assumptions were made as to when building work commenced and when it finished, although actual details concerning these matters could probably have been obtained and put before the court. The analysis of 1 Fern Rd would appear to be less unreliable than the other two key properties, because the time period between the acquisition of the property and the sale after the completion of the new house is not unduly long. There is also the complicating factor that both 26A The Point Rd and 73 The Point Rd were available for occupation by the owner or leasing to a tenant. It seems to me that the more reliable method of estimating an improvements increment along the lines used by Mr Byron would be where a property is purchased and thereafter, without undue delay, development consent is obtained for the demolition of any existing buildings and for the erection of the new building, and where marketing of the property commences towards the end of construction and the property is sold in a brand-new condition.

Another criticism dealt with in written submissions from the respondent was that the method used by Mr Byron of ascertaining his improvements increment differed from the way in which The Appraisal of Real Estate (12th edition, 2001) recommends that entrepreneurial profit should be established, which is by interviewing developers. I do not think this is a reason to necessarily reject the method used by Mr Byron, but information obtained from such inquiries could have been used at least as a check for the method in Table 6 above and for the spreadsheets for the other two key sales.

A further reason that the sales of the property at 73 The Point Rd are not suitable for ascertaining an improvements increment to be applied to all improved comparable sales is that the house that existed at the date of the first contract on 18 December 1997 was not demolished but extensive works were carried out to renovate and upgrade it, and there were minor additions (ex K p 39). The property was not sold until 41 months later on 8 May 2001. At the date of the first contract in May 1997 the house was substantially inferior in appearance and had variations in layout compared with the extensively upgraded house (with enhanced garden facilities) that was sold in May 2001. Although Mr Byron, using the different costings of Mr Hammond, has sought to take into account these various changes, I am of the opinion that the changes are qualitatively too different to obtain a reliable improvements increment to be used in respect of the comparable sales.

One of the first steps in the method of valuing improvements according to the "construction costs as new" method assumes that the new house is built to the same size, has the same number of rooms, and is identical as possible to the existing building.

In relation to the quantity surveyor's costings for 73 The Point Rd, I brought to the attention of the parties what appeared to be an accidental understatement of the floor area. My measurement of the plans (ex P) indicated a floor area (not including balconies) of approximately 340 sq m, whereas Mr Hammond had costed an area of 271 sq m. Upon checking, Mr Hammond stated that the floor area should be taken to be 327 sq m (56 sq m greater than originally costed) (T 368-369).

It seems to me that the analysis of 73 The Point Rd should not be relied on at all as indicating an appropriate improvements increment. While I do not completely reject the analysis of 26A The Point Rd, I place little weight on it. The improvements increment from the sales of 1 Fern Rd is likely to be less unreliable, although it too has some problems. For the purpose of this appeal only and exercising a discretionary judgment, I am of the opinion (as indicated below) that the increment should probably be about 27% or perhaps one or two percentage points less that that figure.

Returning to the consideration of Table 6, the evidence suggests that the table needs to be amended in at least three respects. First, it was agreed by Mr Byron that demolition costs in respect of the old house that existed on the property at the date of the first sale were not taken into account, and this could have been done (T 37). In the absence of actual costs being obtained from the developer, an estimate for those costs should have been added to the contract price: cf. Valuer General v Fenton Nominees Pty Ltd (1982) CLR 160. I propose to add a conservative $20,000 for demolition costs and removal of debris.

Secondly, the estimate for land tax should be increased to $25,238 (ex 14).

Thirdly, it is wrong to describe the whole of the "leftover" amount in row 59 of Table 6 of $360,594 as an "improvements increment". Having regard to the enhancement of the land value of 1 Fern Rd due to the granting of a new development consent for the luxurious house there, it would be better to describe the increment as "Increment relating to development consent and improvements" The effect of a development consent on land value was discussed at pars 77 ff above.

The respondent submitted that the applicant should have taken into account the value of the new development consent in the calculations in Table 6, but the respondent did not provide a critical analysis of the applicant's method to indicate how that would be done. However, in his valuation method applied to the comparable sales, Mr Croker did in effect take into account the value of a development consent, because he excluded application fees and professional fees from the cost as new of the improvements. But I do not think he should have excluded the whole of the professional fees, some of which would relate to supervision and other professional work after the granting of approval.

In my opinion the applicant has failed to take fully into account the value of the new development consent granted in respect of each of 26A The Point Rd and 1 Fern Rd. To that extent the analysis in Table 6 is deficient.

I have reproduced Mr Byron's Table 6 in Table 8 below but have made two simple amendments by including (in bold font) a figure for demolition costs and changing the land tax figure, for the reasons indicated earlier - the other figures in Table 8 only change automatically as a consequence of these two bold-font figures. I have also amended (in bold) the description of some of the items:

Comparing the second-last rows of Tables 6 and 8, it appears that the applicant's improvements increment derived from 1 Fern Rd of 29.3% would have to be reduced to an improvements increment of 26.7%, merely because of the insertion of a figure for demolition and the correction to the land tax figure, leaving out of consideration what other changes might be necessary because of the development consent.

During an adjournment in the proceedings I raised by letter dated 23 August 2004 addressed to the representatives of the parties the question of how the value of a development consent should be taken into account in the analysis of 1 Fern Rd. I received written submissions on behalf of the applicant (including the amended spreadsheet in Table 6 for 1 Fern Rd and amended spreadsheets for the other two key properties, as mentioned above at par 117) and later, oral submissions from both parties. Having reviewed those submissions, it seems to me that the applicant may have taken into account in Table 6 the costs relating to a development consent referred to in par 83, insofar as those costs could be included in part of the 10% allowance for professional fees of $107,000 (Table 6 row 37). However, it seems that the applicant has failed to fully take into account the value of the new development consent, which increases the land value rather than the value of the improvements. Although the applicant's 29.3% is said to be in the nature of entrepreneurial profit, that profit is attributed wholly to the improvements, whereas a small part should be allocated (as indicated in par 84) for compensation to the developer or owner in managing the development application process and in obtaining a development consent. I reject the applicant's written submission that the value of the development consent has been fully taken into account.

Accordingly, the applicable percentage for an improvements increment derived from 1 Fern Rd would be lower than the 26.7% in row 51 of Table 7. I am prepared to assume for the purpose of this case that it might be lower by only one or two percentage points. That is, I am prepared to assume that the improvements increment derived from 1 Fern Rd could be about 25%. Also, it would appear necessary when considering the improved comparable sales that the improvements increment should be applied to Mr Byron's adjusted costs of construction, after some amount has been extracted from those costs to account for the value of the development consent.

However, in the alternative, and having regard to the uncertainty on any view as to the amount of the improvements increment, and giving some slight weight to the higher but less reliable result from 26A The Point Rd, it would not be unreasonable to assume a slightly higher improvements increment than the abovementioned 25%, in which case I would be prepared to apply an improvements increment (that is, an increment attributable only to the improvements) in the order of 27%.

Part 16 of this judgment reviews the application of possible alternative percentages for an improvements increment, resulting in an inferred value for the subject land not significantly different from the inferred value from the vacant land sales, given the greater degree of uncertainty and room for error in the valuation of improvements.

During the hearing the applicant pointed to the lower percentage ratio in the third-last row of Table 6, where the increment is expressed as a percentage of 9.4% of the final sale price. In respect of 1 Fern Rd, where it appears that the purchaser in the first sale may have been a builder, that profit would be in addition to the builder's margin and preliminaries that both quantity surveyors agreed were built into the construction costs. The apportionment of the increment between the development consent and improvements would not alter the total profit from the development.

10. Other elements in the valuation of improvements

In this part I consider in detail other aspects of the methods used by Mr Byron and Mr Croker to value any improvements on the comparable sales. Mr Byron's method of valuing the improvements was more complicated because he endeavoured to deal expressly with various elements that comprise the method. I propose to comment or make findings as I proceed to consider the various elements. In addition, it is necessary to consider the evidence of the quantity surveyors whose estimates of costs were important elements of the methods adopted by the valuers.

How Mr Byron's Table 1 and the associated spreadsheets work 160. In column J of his Table 1 above, Mr Byron gave the added value of the improvements (if any) on the properties that were sold. Two of the properties that did not have houses on them did have other improvements such as gardens or waterfront facilities, and Mr Byron used the same method for valuing these improvements. Mr Byron's Table 1 is in fact the first spreadsheet of exhibit R, which contains 34 pages of spreadsheets, one page for each of Mr Byron's 25 comparable sales, and there are several other sheets relating to his calculation of an improvements increment and a scarcity factor.

161. In order to explain Mr Byron's method and to comment upon it, it is sufficient to take the spreadsheet for 15 Lloyd Av, which is typical of his method applied to all other improved comparable properties. This spreadsheet is reproduced in Table 9 below:

162. As indicated by Professor A. F. Millington in A Commentary on Developments in Property Markets and Valuation Practice: 1980-1992, which was published as a supplement to the 1993 reprint of the book by Rost and Collins, Land Valuation and Compensation in Australia (3rd edition), the development of micro-computing capabilities has allowed the average valuer to now do complex valuation calculations very rapidly. For example, whereas 25 years ago it might have taken a matter of days to do a hypothetical development valuation and a series of tests for sensitivity, such calculations can be done now in a fraction of the time to a high degree of accuracy. In the present case, the Court was assisted by the parties filing or tendering electronic versions with of some of their hard-copy documents.

163. In particular, the applicant made available on computer disc the Microsoft Excel spreadsheets in ex R. The spreadsheet in Table 9 above, and the spreadsheets for Mr Byron's 24 other comparable sales were linked electronically to the spreadsheet in Table 1. Thus, the particulars appearing in columns D, E, F, H, I, J, and M of Table 1 were automatically inserted from Table 9 and from the spreadsheets for the other comparable sales. Working in the opposite direction, if for example a change was made to the improvements increment in the box near the top left-hand corner of Table 1 (for instance, by inserting 28% instead of 40%) an identical change was immediately made in cell H632 of Table 9 and in the spreadsheet for each other improved sale, and the land value as shown in cell H640 of Table 9 and in each other improved sale was instantly recalculated and the new figures automatically transposed into Mr Byron's adjustment schedule in Table 1 above, which then automatically recalculated from each comparable sale the new deduced land value of the subject land. However, the valuer still had to exercise a professional discretionary judgment in respect of a number of items in Table 9, particularly in respect of the allowance for design/functional obsolescence (Table 9, cell I625). And value-judgments were also exercised in respect of the degree of superiority or inferiority of various features of the subject land compared with the land in the comparable sale (reflected in the percentage adjustments in columns 0 to U of Table 1).

Inspection and measurement of the improvements 164. Table 9 relates to the sale of 15 Lloyd Ave, and more details of this sale and a brief description of its improvements are given at pars 257 ff below. Photographs (ex T) were taken of 15 Lloyd Ave by quantity surveyor Mr Hammond when he first inspected the property in December 2003 for the purpose of preparing his estimate of costs (ex N). Quantity surveyor Mr Martin also prepared costings (ex 7). He had inspected the property with Mr Croker in June 2003.

165. The task faced by the quantity surveyors was not an easy one, because of the time gap between the date of sale and the date of their inspection. For example, 15 Lloyd Av was sold by contract dated 4 March 1997, five years before the quantity surveyors and valuers inspected the property. They had to ascertain the condition of the property as at the date of contract. The many photos that were taken of this property and of other properties in the comparable sales could easily be misleading as to the condition of the property years earlier. Nine properties were inspected in 1999, but there were 11 comparable properties that were not inspected until 2003. The quantity surveyors and the valuers had to rely on discussions with the owners, some of whom were not the same owners as at the date of contract. There were other sales outside the 18-month period either side of the based date - for example, 18 Vernon St was sold in February 1998 and again in October 2001. It is not uncommon for changes to be made to houses in preparation for a sale or immediately after the purchase by a new owner who wishes to place his or her imprint on the house.

166. The quantity surveyors were able to look at some plans of the houses on the properties in the comparable sales. These plans (in ex P) were either obtained from the owners or the council, but the council plans do not bear any stamp of approval. In a number of instances, there is only one sheet of plans. The date on some plans is unclear and a plan for one of the properties is marked "superseded". As Mr Martin said, some of the plans are lacking in detail or in the specifications.

167. As I indicated, the difficult task of the quantity surveyors and the valuers was to ascertain what would have been the physical condition, layout, size and finish of the buildings as at the date of contract, which in many instances was years earlier than their inspections. Because of the method they adopted (pars 103-105 above), they also had to ascertain whether the improvements that they had made reasonable assumptions about as at the date of contract were in the same physical condition as at the base date.

Cost to construct improvements as new 168. Both quantity surveyors prepared an estimate of the construction costs to construct as new the improvements that existed on 15 Lloyd Ave as at 1 July 1997. They based their estimates of costs on relevant figures from Rawlinsons Australian Construction Handbook. Incorporated within the quantity surveyors' costs for improvements of buildings, garden facilities and waterfront facilities were allowances for builder's margins and preliminaries, and these allowances were not shown separately. Mr Hammond also included in his costings for 15 Lloyd Av separate items for professional fees of $87,201, being 10% of the other costs of constructing the improvements afresh, and approval fees for the development application of $5,000, being 0.5% of the other costs of construction (see Table 9, H610 and H611). Mr Hammond considered that these fees should not be included.

169. During the early part of the present hearing, the quantity surveyors had conferred for many hours and produced a joint estimate of costs (ex Q) for ten of the improved properties. They agreed on the construction costs as new (other than professional fees and approval fees) for 15 Lloyd Ave. Similarly, they also came to an agreement as to the construction costs as new for nine other properties: 6 Campbell St, 10A Gale St, 26 Gale St, 13 Lloyd Av, 20 The Point Rd, 68 The Point Rd, 16 Viret St, 30A Viret St and 9 Werambie St. Mr Martin also agreed that if, contrary to his view, professional fees and approval fees should be added to the other costs of construction, then the percentages of 10% for professional fees and 0.5% for approval fees were appropriate.

170. As mentioned earlier, the final agreed costings for these ten properties in some cases varied significantly from the original figures that the quantity surveyors had adopted. The quantity surveyor would appear to have a considerable discretion as to rates that may be adopted for new buildings from Rawlinsons Australian Construction Handbook (taking into account such matters as the quality and finish of the building). For example, Mr Hammond used the rate of $2,200 per sq m for the cost to construct new the house at 26A The Point Rd. For 15 Lloyd Av, in his original costings he used a rate of $1,500 per sq m for an area of 396 sq m. However, when the quantity surveyors conferred, they agreed on a floor area for the dwelling at 15 Lloyd Av of 440 sq m and an average rate of $1,175 sq m - a note on the agreed statement of quantity surveyors (ex Q) says that Mr Martin produced an additional floor plan for the middle floor of 15 Lloyd Av and that both quantity surveyors "made assumptions for the lower level".

171. Mr Martin was not instructed to do costings of the other improved properties relied on by the applicant, because of difficulties of gaining access for inspection and also because Mr Croker considered that the number of improved sales that he had selected for the present hearing was sufficiently representative.

172. In the cost approach to valuing improvements, the ascertainment of the cost to construct existing improvements afresh is the starting point of the method. However, the American textbooks distinguish between reproduction cost and replacement cost. The Appraisal of Real Estate (12th edition 2001) at p 357 defines these terms: Reproduction cost is the estimated cost to construct, as of the effective appraisal date, an exact duplicate or replica of the building being appraised, insofar as possible using the same materials, construction standards, design, layout, and quality of workmanship and embodying all the deficiencies, super-adequacies, and obsolescence of the subject building. Replacement cost is the estimated cost to construct, as of the effective appraisal date, a building with utility equivalent to the building being appraised, using contemporary materials, standards, design, and layout. When this cost basis is used some existing obsolescence in the property is assumed to be cured.

173. On the same page, the book goes on to state: …in theory, the use of reproduction cost or replacement cost should yield the same indication of value, but in practice both cost estimates and depreciation estimates will be different. If reproduction cost or replacement cost is used inconsistently, double counting of items of depreciation and other areas can be introduced. The cost basis selected for a particular appraisal must be clearly identified in the report to avoid misunderstanding and must be consistently applied throughout the cost approach to avoid errors in calculating an estimate of value.

174. The significance of the distinction between replacement cost and reproduction cost as used in the American textbooks was not the subject of special consideration in the present appeal and it seems that at times the expressions "cost to produce a replica", "replacement cost" and "cost to construct as new" or similar terms were used somewhat interchangeably (e.g. T 290-291).

Depreciation 175. "Depreciation" in relation to the valuation of improvements has a technical meaning and may be divided into three types: (1) physical deterioration; (2) design and functional obsolescence; and (3) external or economic obsolescence.

176. Physical depreciation is tangible depreciation that can be seen by the valuer upon inspection of the building, for example, the need for paint and repair. It is caused by ageing, structural wear and tear, deterioration and disintegration. It is increased by poor maintenance and/or a badly designed building. It is either "curable" or "incurable" (D J Hornby, Appraisal 1: Introductory Valuation (8th edition 1996) at p 155).

177. Mr Hammond carried out a second costing exercise for each improved property: he estimated what it would cost to renovate the improvements as they existed at the base date to bring them to "as new" condition. Mr Byron reproduced this cost in his spreadsheets - for example, as seen in rows 614-620 of Table 9 above. Subtracting the renovation costs from the construction costs as new gave the cost of the unrenovated improvements. The renovation costs would rectify the curable physical depreciation, which is the first type of depreciation above.

178. Mr Croker did not engage a quantity surveyor to carry out this second costing exercise of estimating renovation costs. It is not essential for a valuer to engage a quantity surveyor, either to estimate the construction costs as new or to estimate the renovation costs. The Appraisal of Real Estate in chapter 15 gives a lengthy description as to how a valuer who is not a quantity surveyor may go about establishing these costs. Because Mr Croker's method did not have the step of a quantity surveyor estimating renovation costs, Mr Croker rightly had to depreciate the costs as new by a large percentage, in order to cover the physical depreciation in the buildings, as well as to cover the second type of depreciation, namely design and functional obsolescence; whereas Mr Byron, using a different approach also rightly took into account Mr Hammond's two costings for each property, from which he established the unrenovated cost, which would cover physical depreciation, and then Mr Byron only had to make an allowance for design and functional obsolescence.

179. For 15 Lloyd Av, Mr Byron allowed $100,000 for design and functional obsolescence (Table 9, I624) and also made an allowance for this item in respect of the other improved properties. In his report and in oral evidence he did not explain the criteria he used to decide what amount should be allowed for design and functional obsolescence other than to say that it was based on his experience as a valuer. Likewise, in respect of each property, Mr Croker did not elaborate on the general statement he made concerning his percentage reduction for total depreciation. However, for future cases it seems to me that the expert valuer should be able to give more details concerning the obsolescence allowance.

180. The analysis of architectural style and functional utility is dealt with at pp 248-254 of The Appraisal of Real Estate, and for further discussion of residential properties, this book refers the reader in a footnote to Appraising Residential Properties (3rd edition 1999), which has a whole chapter (ch 14) on estimating depreciation for residential properties.

181. In assessing depreciation, particularly in respect of design and functional obsolescence, there could be wide differences of opinion. This is just another element in the valuation of improvements where divergent though legitimate expert opinion means that, as a general rule, a land value derived from an improved sale is not likely to be as accurate as a land value derived from a vacant land sale.

182. External or economic obsolescence is a loss in value due to influences outside the property, and such loss may need to be allocated between the land value and the value of the improvements (Appraising Residential Properties pp 298-299).

183. Mr Byron deducted the allowance he made for design/functional obsolescence from the cost of the unrenovated improvements, then added interest costs for half the period of construction, to arrive at his "adjusted cost of improvements" of $558,902 for 15 Lloyd Av, as seen Table 9 above.

Application of the improvements increment 184. As can be seen in rows 632 and 633 of Table 9, Mr Byron then added his improvements increment of 40% to the adjusted cost of improvements to arrive at the added value of improvements of $782,462.

185. Alternatively, instead of applying an improvements increment at the end of the spreadsheet, query whether (following Mr Byron's method) entrepreneurial profit could be taken into account earlier in the spreadsheet in respect of the construction costs and again in respect of the renovation costs, before deducting an allowance for obsolescence, in which case an upward adjustment in the amount of the obsolescence may also be required. But the appropriateness of such an exercise was not the subject of submissions in this appeal.

186. In respect of the 15 Lloyd Ave, the respondent's figure for the added value of the improvements in column J of Table 2 did not take into account the amended cost to construct the improvements as new that was agreed by the quantity surveyors.

187. In part 9 of this judgment I dealt with questions relating to Mr Byron's improvements increment, and for the purpose only of this case I have concluded that it would be appropriate to apply about +27% to the adjusted costs of improvements for those comparable sales where it is appropriate to use Mr Byron's method. For example, if no changes were made to Mr Byron's figures in Table 9 other than applying +27% the resultant value of the improvements for 15 Lloyd Ave would be $709,805.

188. However, if Mr Byron's method is to be used correctly, it seems to me that the improvements increment of +27% should probably be applied only to those costs (in the spreadsheet of ex R relating to improved properties) that relate to construction and not to any costs that are more properly attributable to obtaining a development consent, for the reasons given in parts 5 and 9 of this judgment. If I am not correct in that view, my ultimate determination of the land value will not alter, having regard to the basis upon which it has been determined (par 349 below).

Limitations 189. Mr Croker considered that a higher depreciation rate ought to apply to garden facilities (including landscaping) and waterfront facilities than the depreciation rate applied to dwelling houses. In contrast, Mr Byron relying on the cost estimates of Mr Hammond (who applied different rates for these facilities) determined their unrenovated cost facilities and deducted a sum for obsolescence, after which he applied his +40% improvements increment. It seems to me that Mr Byron's valuation of these items in the case of 11A Viret St is probably too high. In respect of vacant land, construction works and site activities during the erection of a new house often destroy existing gardens.

190. In Appraising Residential Properties (3rd edition 1999) the estimation of a value for site improvements is dealt with separately from valuing dwelling houses: Site improvements are often appraised at the contributory value, i.e., directly on a depreciated cost basis (p 63) . The value of… paving, landscaping, fences and walls, patios, swimming pools, and other site improvements are estimated either by the amount they contribute to the property or the depreciated cost of these items (p 258).

D J Hornby, Appraisal 1: Introductory Valuation at 67 states: Ground improvements…are valued as a single or "lump" (one) sum because they are only a minor part of the total value of the cottage. The "opportunity cost" of the ground improvements can be used to determine value if they are new and represent the "highest and best" use of the land.

191. In the original judgment, I dealt with garden facilities at [47]-[49] and with waterway facilities at [52]-[56]. The parties used the expression "garden facilities" to include garden beds, special plantings and all other landscaping. I propose to take a similar approach in the present hearing and have inserted in my Table 3 a lump sum for the value of the garden and waterfront facilities as at the base date for each of 11A Viret St and 30B Viret St - at that time there was no house on each of these properties. Further particulars concerning these properties are given in part 14 of this judgment. The lump sum in each case is nevertheless closer to the value estimated by Mr Byron than to that given by Mr Croker.

192. In relation to the added value of garden facilities in the other comparable sales, Mr Byron's valuations are based on Mr Hammond's costings (which seem more appropriate for buildings than landscaping) and could well be too high. Also, in respect of all the improvements, it is not clear as to what items the lump sum for obsolescence relates. Nevertheless, for the purpose of this case only, I have not made changes to the spreadsheets in ex R in respect of garden facilities, except for 11A Viret St, 30B Viret St and 1 Angelo St, where I have not used Mr Byron's spreadsheets at all to generate the added value of improvements as at the base date (in column I of Table 3) on those properties.

193. In the original judgment (at [39]), I referred to what has generally been recognised, that it is possible even for a completely new house to have a value less than the cost of its construction. The layout of rooms may be inappropriate or there may be various features of the building not in keeping with a desirable modern design, even though all the materials used in the building are new. In such a situation the construction costs as new (including entrepreneurial profit) would be reduced by the application of an appropriate allowance for design and functional obsolescence. The textbooks indicate that such obsolescence could already exists at the date of completion of the new building.

194. It has also been recognised in respect of an older house that a point may be reached in its economic life where a decision has to be made whether to completely renovate the existing house (remodelling all interior rooms and modernising most building components) or whether it should be razed and the site redeveloped with a new house. In either case, such an existing house may have little or even no value. The special case of the house at 1 Angelo St is dealt with at pars 229 ff below.

11. Matters affecting the degree of confidence in valuations of improved properties

195. Specialist courts hearing valuation cases have often held that determining a land value for another property from the sale of improved property is not as reliable as inferring a land value from a vacant land sale. In valuing improvements, there are a number of variables or matters of discretionary opinion that could lead to a wide margin of error in the improved value. I quote several extracts referring to the reliability of valuing improvements:

(1) D J Hornby, Appraisal 1: Introductory Valuation (8th edition 1996) at p 161: Replacement Cost New is not a market transaction and although it can be analysed from sales of new properties that represent the highest and best use of the land, it is usually determined from costs obtained from builders, owners, and contractors. A reasonably accurate assessment of costs can be found for new or modern buildings but there is a large error in costing older buildings.

(2) The Appraisal of Real Estate (Appraisal Institute, 12th edition, 2001): When improvements are considerably older or do not represent the highest and best use of the land as though vacant, the physical deterioration, functional obsolescence, and external obsolescence of the structure are more difficult to estimate. Furthermore, relevant comparable data may be lacking or the data available may be too diverse to indicate an appropriate estimate of entrepreneurial profit (i.e., the profit actually earned from a completed project) (p 355). Estimating an appropriate amount of entrepreneurial incentive remains a challenge for appraisers because expectations of profit vary with different market conditions and property types. Consistent relationships between profit and other costs are difficult to establish ( p 370).

(3) Appraising Residential Property (Appraisal Institute, 3rd edition, 1999) at p 62: The cost approach is most reliable when the property improvements are new or nearly new and reflect the highest and best use of the site. If the utility and condition of the property are close to ideal, depreciation will be minimal. Because depreciation can be difficult to estimate, the cost approach is less reliable and less convincing when it is used to value older properties.

196. Some matters reducing the confidence one may have in the accuracy or reliability of a land value derived from the analyses of improved sales have been mention above in pars 134, 138, 139, 142, 165-167, 170, 174 and 180. The analyses of vacant land sales do not suffer from the problems peculiar to improved sales.

197. This part provides supplementary material to my findings concerning the applicant's scarcity factor. My factual findings are comprehensively given at pars 24-48. I also considered a legal submission about scarcity at pars 68-71.

198. Details of the two pairs of key sales used by Mr Byron to ascertain his scarcity factor of -30% are as follows. In the first pair of key sales, the large property held as a single parcel at 13-15 Viret St was sold on 31 July 2001 for $9,000,000 and had a land area of 3331 sq m. Mr Byron estimated the added value of the improvements as at 1 July 2001 to be $3,853,047, giving a land value of $5,146,953 or $1,545 per sq m.. The adjoining vacant land at 11A Viret St was sold by contract dated 29 October 2001 for $4,000,000 having an area of 1,271 sq m. Mr Byron deducted the added value of the garden and waterfront improvements of $182,174, arriving at a deduced land value at 21 July 2001 of $2,829 per sq m.

199. In the second pair of sales, 30A Viret St was sold by contract dated 4 July 1996 for $1,450,000, and the land area was 988 sq m or, excluding the access strip, 824 sq m. Mr Byron was of the opinion that the added value of the improvements on the property as at the base date (including the +40% improvements increment) was $609,081, resulting in a land value of $840,919 or $1,021 sq m. The adjoining vacant land at 30B Viret St was sold by contract dated 4 July 1996 for $1,600,000, and the land area was 1,130 sq m exclusive of the access strip. Mr Byron deducted $127,791 for the added value of garden and waterfront facilities, to get a deduced land value at the base dated for 30B Viret St of $1303 per sq m. 200 Using the above particulars, Mr Byron's calculations of a scarcity factor from each pair of properties is given in Table 10:

201. As indicated in the main findings of this judgments, an alternative and probably better exercise to that of Mr Byron's is to take many improved sales and infer a single land value from them for the subject land, after making necessary adjustments for the different features of each improved sale compared with the subject land, and then to take a group of vacant land sales and without making any deduction for scarcity infer a single land value for the common property. If the value inferred from the vacant land sales is noticeably higher than the land value inferred from the improved sales, then an appropriate adjustment could be made to take account of what would appear to be a premium included in the land value of the vacant property compared with the land value of a similar improved property. As will be seen, my findings in respect of the market evidence in the present hearing indicate that no adjustments are needed to the prices of the vacant land sales on account of the sales being fewer in number than the improved land sales or on account of there being any premium in the land value derived from vacant land sales.

202. The comments that follow in this part of the judgment are not essential to my determination of the ultimate land value from the subject land. If, contrary to what might be suggested below, the findings in respect of the sales evidence had indicated that an adjustment was needed to the vacant land sales on account of some scarcity factor, I was prepared to make an appropriate adjustment.

203. The Court of Appeal and the High Court did not have available for consideration the additional evidence that has since been presented in the present hearing. What is apparent is that there is a relative scarcity in Hunters Hill and Woolwich of waterfront properties that come on the market for sale, whether those properties have houses on them or are vacant land. In the eighteen months either side of the base date there were seven vacant land sales used as comparables and a further sale at 1 Fern Rd in March 1998 treated as if it were vacant. The fact that two of these properties were sold a second time before a house was subsequently erected on each of them does not detract from the fact that there were still eight vacant land sales. In the same period, there were 19 sales of improved properties used as comparables and two other improved land sales.

204. Insofar as the subject land is assumed under s 6A of the Valuation of Land Act 1916 to be vacant, the seven vacant land sales were clearly a sufficiently representative group from which to infer a land value. However, I have also given detailed consideration to a land value inferred for the subject land from the improved land sales.

205. The sale price of vacant land is usually taken as indicating its land value as at the date of contract for the purpose of the Act, particularly if that land value is confirmed from an analysis of several other sales. It would seem somewhat strange if, after a development consent is obtained and a new house is erected and associated improvements made, the former land value of the property at the date of contract had lost value merely because the property had become an improved one.

206. There was no empirical evidence before me as to the class of purchaser of vacant waterfront properties as distinct from the class of buyer for improved waterfront properties at Hunters Hill, or if there is a different class of buyer, how that class distinction is reflected in different land values. It could be that there is a generic class of buyer of scarce residential waterfront land (whether improved or not).

207. Also, the evidence does not enable me to make any finding as to the number of persons seeking to purchase improved waterfront properties relative to the number of sales of such properties compared with the number of persons seeking to purchase vacant waterfront properties relative to the number of such vacant land sales.

13. Adjustments for different features of the land sold compared with the subject land

208. While the ordinary layperson intending to buy a residential property might not compare the size of that property with other properties using a price per sq m, a prudent purchaser nevertheless does take into account differences in size (T 58). The size of a block often influences the size of a house that may be erected on the site (T 59), and the land-size affects the capacity of the land to accommodate desirable ancillary buildings or works, such as a swimming pool, cabana, tennis court or gazebo.

209. It is open to an expert valuer, when advising an intending purchaser, to prepare a comparison schedule using a price per sq m. I have heard many cases where the valuers for both parties have determined a land value of a residential property using a price per sq m and where various adjustments are made to take account of other differences between a comparable sale and the property to be valued.

210. Although this method is sometimes referred to as the quantitative method, it still involves a direct comparison of the subject land with the comparable sale just as there is a direct comparison if one speaks globally in terms of the total price of the whole land of the comparable sale and seeks to infer a value for the whole of the subject land. The American textbooks also recognise both approaches. And in Western Australia in Duffy v Minister for Planning [2003] WASCA 294, (2003) 129 LGERA 271, the Full Court of the Supreme Court said: [69] Finally, although aspects of the trial judge's criticism of Mr McMahon's use of the quantitative approach in this case were appropriate, it should not be taken as a justifiable criticism of the quantitative approaches in general. They are used and approved of in other jurisdictions. The disadvantages identified by Gobbo J in R. K Morgan Holdings Pty Ltd v Melbourne & Metropolitan Board of Works (1992) 77 LGERA 102 can or may be obviated: see Rowland P, The Use of Comparable Sales for Market Valuations", The Value February 1991, 332 at 333.

211. In the present hearing both valuers used a price per sq m when comparing the subject property with the comparable sales. Both valuers agreed that, all other things being equal, as the size of the land increases the price per sq m decreases; and as the size of the land diminishes the price per sq m increases. Most of the comparable sales have areas smaller than the subject land. Accordingly, the valuers agreed that where the area of a comparable sale was smaller than the subject land, a minus percentage adjustment on account of size has to be made to the land value (expressed as a price per sq m) of the comparable sale when deducing a land value for the larger area of the subject land. If no other adjustments were needed for different features of the two properties, the adjusted price per sq m derived from the comparable sale would then be multiplied by the area of the subject land to give the value for the whole of the subject land. However, the valuers disagreed about the extent of the adjustments to be made for size.

212. In the original hearing, Mr Byron did not use a percentage adjustment to the price per sq m to take account of differently sized properties. The first time that he had made such adjustments was in the present hearing. To take account of the difference in size between the subject land and 13 Lloyd Ave, Mr Byron applied a minus 40% adjustment to the price per sq m of 13 Lloyd Ave. However, he agreed that it would not be unreasonable for another valuer to apply a minus 32% adjustment (T 265). Again, he agreed it would not be unreasonable for another valuer to apply minus 23% to the price per sq m of 49 Wybalena Rd (on account of size) to arrive at a value for the subject land.

213. Mr Byron's minus percentage adjustments for the size of the different comparables are generally consistent with his size-adjustment schedule (p 365 of ex K). However, it seems to me that his size-adjustment schedule itself adopts minus percentage adjustments that are, for the most part, consistently a little too large. Mr Byron's larger minus adjustments contribute to an underestimation of the land value of the subject land. In contrast, Mr Croker's minus percentage adjustments appear to be too small (except in two cases), and there are several significant inconsistencies in his percentages when comparing the comparable sales among themselves.

214. In Table 11 below, I have listed all the comparable sales used by the parties, starting with the property having the smallest area and ending with 1 Angelo St which has the largest area. I have also set out the percentage adjustments for size that the respondent submitted should be made, the adjustments used by Mr Byron, and (in the last column) the percentage adjustments that I consider to be reasonable to adopt (subject to several further comments that I make immediately below the table):

215. On one view, the large area of 1 Angelo St would suggest that a positive adjustment of about five percent should be made to its price per sq m when inferring a land value for the subject land. However, Mr Byron considered that no adjustment should be made for the size of 1 Angelo St, because that property comprises two lots, whereas the subject land does not have the same subdivision potential. In my opinion, it is not altogether clear that 1 Angelo St would have a higher value as two separate parcels than if the land were retained as a single holding. A house on the eastern irregularly shaped lot of 1 Angelo St would probably have to be erected partly forward of the existing house on the western lot and might reduce the water views now enjoyed from the existing house. In other cases involving large waterfront properties having subdivision potential, it has not been uncommon to find (based on the expert evidence) that the highest and best use of the property was for a large single dwelling house with associated facilities rather than having the property split up into smaller holdings. However, in the original hearing of this appeal, I did consider that the subdivision potential of 1 Angelo St probably added value to the property over and above its value as a single-dwelling site, and in the present hearing I propose to again recognise that added value by adopting Mr Byron's opinion that there should be a zero percentage adjustment for size.

216. In respect of a battleaxe lot, the area of the lot exclusive of the area of the access handle was compared with the area of the subject land.

217. I have transferred the Court's adjustments in Table 11 above to column L of my Table 3.

General approach to adjustments for different features apart from size 218. In Table 3, I have considered the other differences between each property in the comparable sales and the subject land under the broad headings of location, topography, shape, views and waterfrontage. In other appeals I have sometimes considered the features of the properties under an extra heading "Other", but where there is no such extra heading, any feature influencing value was considered under the heading most closely related to it.

219. The consideration of the waterfrontage included any land below mean high water mark that was leased for waterfront facilities such as a jetty, mooring piles or pontoons. As regards the land immediately above mean high water mark, I limited my consideration of "waterfrontage" to the area between the water and approximately the foreshore building line, so as not to overlap with other considerations relating to the balance of the land.

220. Under each broad heading in columns M to Q of Table 3, I inserted a percentage adjustment to the price per square metre of the comparable sale to reflect the degree of superiority or inferiority of the subject land. Leaving aside the adjustment for size which was specially dealt with above, in respect of all other features the "rule" was: if the subject land was superior to the comparable property in respect of a particular feature, a positive percentage adjustment was made; and if the subject land was inferior to the comparable, a negative adjustment was made. The cumulative total adjustment in column R was applied to the price per square metre of the comparable, to give the deduced land value of the subject land expressed also as a price per square metre, which was then multiplied by the area of the subject land to get the deduced value for the whole of the subject land. The use of an Excel spreadsheet (of which Table 3 is a copy) facilitated the automatic calculation of the figures.

221. In deciding upon the extent of the adjustments, I have taken into account the expert evidence as well as other evidence such as the many photographs and deposited plans, and have been assisted in the task by my inspection of all the properties, particularly from the waterway.

222. In general, the magnitude of Mr Croker's adjustments appeared to be excessive, resulting in an indicated land value for the subject land that was too high. On the other hand, having examined all the evidence and having had the benefit of an inspection of the comparable sales, I have also made some different adjustments to those of Mr Byron. In the next part of this judgment, I consider in more detail the various feature of each comparable property.

14. Analysis of 26 comparable sales (alphabetically according to street address)

223. For most of the improved comparable sales I have not repeated below the value of the improvements that I have determined, which has been inserted automatically in column I of Table 3 from the associated spreadsheets in ex R using (for the purpose of this case only) an improvements increment of +27%. Where Mr Byron's spreadsheets are not used or are otherwise changed, I say so (and see part 16 of this judgment).

224. Although the size of each comparable property is given, I usually do not comment on it. Adjustments for size were considered at pars 208 ff above. When considering the sale price of a comparable sale and making a lump-sum comparison, it should be remembered that most of the properties are smaller than the subject land.

225. Details of the land and sale at 17 Ady St include:

Title: Lot 1 in DP 421242 Vendors: Linetta & Angela Lamo Dimensions: 28.65/37.81 irr x 40.23 Purchaser: Helene Pearl Scarf Area: 1,182 sq m Contract Date: 27/02/98 Zoning: Residential 2(a3) Transfer Date: 04/09/98 Sale Price: $1,855,000

Improvements on 17 Ady St 226. The property was inspected by Messrs Byron and Hammond in August 1999. This sale is not analysed by Mr Croker. The improvements comprise a single-level brick residence with metal roof with attached two-car carport, a timber deck and a concrete swimming pool supported by steel columns, and garden facilities. At the base date, the buildings were around 35 years old and in a good general condition.

Comparison of subject land with 17 Ady St 227. The land at 17 Ady St has a northerly aspect with extensive views. There are steps down from the entry at Ady St to the residence, and there is a sloping driveway to a carport. The building platform is on the upper level, beyond which the land falls very steeply by around 10 to 15 m to the waterway, where there is a jetty. Mr Byron's adjustments under the two headings of topography and waterfrontage totalled +15% for the superiority of subject land, and I make the same total adjustment of +15% for these two headings. (Although the waterfrontage adjustment is greater than Mr Byron's because of the very steeply sloping land below the foreshore building line, my adjustment made for topography for the rest of the subject land is less than Mr Byron's). The whole of the property is located downhill from the adjoining two-storey residence at 15 Ady St, and the location of the property is a little inferior to the subject land. The adjustments I would make are set out in columns L to R of Table 3.

228. Details of the land and two sales of 1 Angelo St include:

Title: Lots 100 and 101 in DP 861106. Dimensions: 98.54/61.52 irr x 24.78/HWM. Area: Lot 100: 750 sq m Lot 101: 1287 sq m. Total: 2037 sq m. Zoning: Residential 2(a2).

Vendors: Ian D Allen and Mariko Allen Vendor: Dani Lynette Howard Purchaser: Dani Lynette Howard Purchaser: Peter David Campbell Contract Date: 13/08/96 Contract Date: 16/10/98 Transfer Date: 25/09/96 Transfer Date: 07/12/98 Sale Price: $3,270,000 Sale Price: $3,750,000

Improvements on 1 Angelo St 229. These sales of 1 Angelo St were used by both valuers in the original hearing. There was a large two-storey brick residence with a tile roof on the property. Other improvements comprised a brick garage with tile roof, in-ground concrete swimming pool, timber cabana, garden facilities and waterfront facilities comprising a concrete slipway.

230. Mr Byron said that the original building was around 70 years old and had been renovated and extended at various times. He said that further extensive renovations and extensions were commenced in about 1996 (p 115 ex K). Mr Byron does not go on to say whether those extensions were completed or to give an account of the property as at the base date. However, an examination of the many photographs of the property taken in 1999 (ex H) gives the impression that these renovations and extensions did not result in a desirable sort of building for a prestige waterfront site. While some new brickwork is evident in the photographs, the general condition of the property exteriorly as at 1999 was not good. It seems to me that in a period of three years parts of the building could not have deteriorated to the extent that some of the photographs show unless those parts had already deteriorated as at the date of the first contract in August 1996. This is a case where the cost of the improvements in my opinion clearly had little relationship to the value of the improvements. The photographs taken of the house in 1999 (particularly photographs I have marked 11, 12 and 13 in the bundle ex H) show part of the interior where a large floor area had been completely removed and interior walls demolished, and the interior of this large section of the house gives the impression that a rebuilding of the house would be needed. In the circumstances I cannot see how the building could have a value anywhere near that attributed to it by Mr Byron. The photograph of the modern house on 1 Angelo St taken in July 2004 (ex 6) is in stark contrast to the unattractive looking building shown in the photographs of 1999. From the July 2004 photograph, one would not know which parts (if any) of the building that were existing as at the sale dates were retained. The form of construction of the building as shown in the July 2004 photograph compared with the 1999 photographs is different: the front part of the new building appears to extend with its large balconies further towards the waterfront than the building existing at the sale dates. A completely new roof has been constructed substantially different from what Mr Byron said was a new tiled roof appearing in the 1999 photographs. The building in 1999 (and at the sale dates) had only two storeys but in 2004 it has another floor within the higher roof form, with at least three small recessed balconies with a set of double doors leading onto each balcony from the rooms at this new upper level in the roof. On the eastern side of the new house, a ramp coming down from Angelo St has been constructed to provide a new access to a garage at the ground-floor level, when previously the house that existed at the sale dates had no parking available at that level.

231. The extensive rebuilding or new construction work that was necessary for the house now seen in the July 2004 photograph confirms the view that I formed in the original hearing that the building that existed on the site at the sale dates had little value compared with the cost of the structure. The brochure of October 1998 that relates to 1 Angelo St and to the adjoining lot at 26A The Point Rd highlights the features of the land itself and its location but does not refer to the buildings on 1 Angelo St, even though they are shown in the brochure. (A copy of the brochure is at p 230 of ex K and another copy is annexed to Mr Croker's first report, ex 1.)

232. Mr Croker was of the opinion that no value should be attributed to the house that existed at 1 Angelo St at the sale dates. In addition, in support of his opinion he annexed to his first report an article by the property editor of the Investor concerning 1 Angelo St, which relevantly reads: OzEmail chief Sean Howard and wife Dani have sold off two parts of their derelict Woolwich waterfront for more than $3.5 million. The Angelo Street property was to be offered at auction yesterday in three separate parcels, which included the house and a large tract of land on each side of the building. But on Friday, a mystery purchaser picked up the home and one adjoining slice of land that has its own private beach… The house is a three-level 1970s-style dark brick building that is surrounded by overgrown gardens. It has not been lived in for several years. Half of the floors have either caved in or been demolished and several ceilings have been pulled out. Vandals have smashed windows and pulled apart the kitchen cupboards. The business whiz bought the property from pie man Ian Allen in August 1996… and set about gaining a development approval to build a waterfront mansion…. However, Mr Howard…has never lived in the Woolwich property, opting for a home in Cammeray.

233. The textbooks referred to at par 195 above indicate that the parties' methods of determining the value of improvements (namely, a method starting from the cost determined by the quantity surveyor to erect a new building of the same type and layout, and then depreciating that cost) is not as reliable for an older building. Because of the poor and partly derelict condition of the house on 1 Angelo St at the sale dates, I am of the opinion that the application of Mr Byron's method was unsuited to this sale. The method did not sufficiently recognise the extent of the deterioration, and a quite inadequate amount was allowed for design/functional functional obsolescence of the house.

234. Having regard to the evidence previously given by Mr Croker in the original hearing about the intentions of the purchasers, it seems to me that it would be open to hold that the house that then existed in fact added no value or relatively little value. The property was ripe for demolition, and in fact development consent had been obtained to erect a completely new home. Nevertheless, in favour of the applicant I am prepared to assume that the improvements that then existed at the sale dates could have had some value up to a maximum of $300,000 (as adjusted to the base date) insofar as parts of the older structure could be retained in a substantially rebuilt building.

Comparison of subject land with 1 Angelo St 235. The property at 1 Angelo St has a northerly aspect with very good views and has an extensive frontage to Angelo St. It slopes gently from its southern boundary to the Lane Cove River where there is a sandy beach. The land has a total waterfrontage of about 75 m. The land is in two lots with the above improvements being located on lot 101. Mr Croker made a total comparative adjustment of +10%, whereas Mr Byron made a total adjustment of -25%. Having reviewed the evidence, I consider it appropriate to make a total negative adjustment of -32%, which is less than I made in the original hearing but still a greater negative adjustment than that made by Mr Byron, and which indicates the inferiority of the subject land compared with 1 Angelo St.

236. Details of the land and sale at 6 Campbell St include:

Title: Lot 2 in DP 406723 Vendors: Michael and Rosalie F. David Dimensions: 3.96/22.86 x 50.37 irr 94.26 irr Purchasers: George and Suzanne J. Adams Area: 935.8 sq m (827 sq m excluding access handle) Contract Date: 08/05/98 Zoning: Residential 2(a2) Transfer Date: 06/11/98 (per Mr Croker) Sale Price: $2,560,000

237. The contract for sale was not tendered in evidence, so it is not possible to see whether there were any special conditions relating to the six months' lapse of time from the contract date to the date of settlement. A delayed settlement can affect the contract price that is negotiated. Accordingly, I would give less weight to the sale than would otherwise be the case for a sale occurring about 10 months after the base date.

Improvements on 6 Campbell St 238. The property was inspected by Messrs Byron and Hammond in December 2003 and by Messrs Croker and Martin in June 2003. At the date of sale the improvement comprised a large three-level cement rendered brick residence having a tile roof with attached double carport, extensive paving and garden facilities and waterfront facilities including a timber jetty on concrete and timber piles, pontoon and 4 timber piles. The buildings are now around 20 years old and in a good general condition.

Comparison of subject land with 6 Campbell St 239. The land has a northerly aspect with good views. The lot has a battleaxe shape, and the main part of the land is located at the end of a long concrete driveway, but otherwise the land has a good shape. The land falls moderately and then steeply in a series of terraces to the waterway. The overall fall from the southern boundary to the waterfront is around 8 to 10 m. As regards location in comparison with the subject land, Mr Byron made a -10% adjustment and Mr Croker +5%; I consider it appropriate to make a +2% adjustment because of the marginal superiority of subject land in this regard. For other factors apart from size, I adopt Mr Byron's adjustments.

240. After adjustments, the inferred value for the subject land is so out of line with other inferred values from the improved sales that I give no weight to this sale.

241. Details of the land and sale at 10A Gale St include:

Title: Lot 1 in DP 232458 and Lot 1 in DP 579294 Vendor: Leslie Allen Maurer Dimensions: irr Purchasers: Urs & Elizabeth Wolfensberger Area: 1941 sq m (approximately 1590 sq m excluding access strip) Contract Date: 24/12/98 Zoning: Residential 2(a3) Transfer Date: 07/01/99 Sale Price: $3,440,000

Improvements on 10A Gale St 242. At the time of the inspection by Messrs Croker and Martin on 14 October 2003, there was no house on the land, but they took measurements of the rock excavations, boatshed and jetty. Messrs Byron and Hammond inspected the vacant land in December 2003.

243. At the date of sale a substantial two-level brick residence with tile roof existed on the land, together with garden facilities and waterfront facilities including a timber jetty and aged boatshed and a timber skid. From the site plan (ex P) a small concrete ramp at the waterfront appears to be outside 10A Gale St and appears to relate to the small open-space zone at Collingwood St (ex F). According to information given to Mr Byron, the residence at 10A Gale St was occupied for about 3 years after the date of sale, before it was demolished. Subsequently a new boatshed was constructed and extensive excavations for a new house were done. These excavations remain and the new house was never constructed. Mr Byron disagreed with the approach taken by Mr Croker who concluded that the improvements at the date of sale had no value and who added $30,000 to the sale price for demolition, even though the residence was occupied for sometime after the sale date. In support of Mr Byron's contention that the added value of the house and other improvements was $708,439, the applicant's senior counsel tended a two-sentence letter addressed to the applicant from the purchaser Urs Wolfensberger, who wrote: When I purchased the above property, it had recently been renovated and was in good condition and readily habitable. From purchase to the time of demolition (approximately three years), the house was occupied by family members and business associates. What the letter does not say is why the house was demolished. No photographs were available of the interior of the house, which had not been inspected by either valuer. The only photographs made available to Mr Byron are set out pp 148-150 of ex K. Although the house was in reasonable condition from the outside as seen in the photographs, the architectural design and appearance was of a two-storey house of an earlier period. In my opinion, the house did add value to the land, but I cannot accept that it had the value contended for by Mr Byron. Having regard to the fact of the demolition of the house and to the photographs of the exterior and to the floor plan of the house, it seems likely that the building (although habitable) did not meet desirable modern-day design and layout requirements. The floor plan dated July 1997 (ex P) indicates an awkward disposition of rooms. It seems to me that this is a case where an inadequate amount of $100,000 was allowed for obsolescence (p 33 of ex R). The amount for obsolescence should have been at least $200,000, which is still below the obsolescence allowance of $300,000 in the case of 29 Wybalena Rd, and which results in an added value of improvement at 10A Gale St of no more than $768,000. In the circumstances, it is appropriate that minimal weight be given to this sale in the final determination of the land value for the subject land.

Comparison of subject land with 10A Gale St 244. Comparing the different features of the subject land and the land at 10A Gale St, it seems to me that Mr Byron's adjustments are closer to the mark than Mr Croker's are. However, the subject site appears to be better located insofar as the main body of 10A Gale St does not have an attractive entrance, being located at the end of a long access corridor, partly shared with three neighbours to the west. The land at 10A Gale St has a northerly aspect with good views, and the body of the land has an easy fall towards the waterfront. The adjustments I would make are set out in columns L to R of Table 3.

245. Details of the land and sale at 26 Gale St include:

Title: Lot 1 in DP 563003 Vendor: Bernard Douglas Blogg Dimensions: 5.12/HWM x 93.39/irregular Purchasers: Jinxia N & Guanglong Huang Area: 1,473.6 sq m Contract Date: 28/02/97 Zoning: Residential 2(a3) Transfer Date: 28/04/97 Sale Price: $3,850,000

Improvements on 26 Gale St 246. Messrs Croker and Martin inspected the property in October 2003, and Messrs Byron and Hammond inspected it in December 2003. At the date of sale improvement comprised a substantial three-level brick residence with detached double garage with basement storeroom, substantial garden facilities including sandstone fencing and in-ground swimming pool, waterfront facilities including a timber jetty and pontoon with four timber piles. The residence is around 30 years old and was extensively renovated in the early 1990s.

247. The house was in very good general condition with a high standard of finish (ex 7) at the time of the valuers' inspections in late 2003. The house was well presented (see the photos at p 158 of ex K; and ex T). However, at the time of my inspection with the parties on 27 July 2004 extensions or additions were being made to the upper level of the residence, as seen in the photograph in exhibit 6. This case illustrates the fact that purchasers of waterfront improved properties are prepared to expend significant sums in altering existing buildings to suit their needs.

Comparison of subject land with 26 Gale St 248. The land at 26 Gale St has a northerly aspect and falls gently from the southern boundary towards the water frontage where there is a sandy beach. It has an extensive frontage to the Lane Cove River of around 70 m, which offers excellent water views through a wide arc. As regards the shape, although the land has an actual frontage to the street of only 5.12 m, the boundaries of the land fan out from this frontage at about 110 degrees so that internally the land has very good proportions for the building area of a large house and its curtilage and recreation areas. The long eastern boundary of this property is separated from Gale St by a narrow triangular sliver of Crown land that in some respects has the appearance of a nature strip. Mr Croker thought 26 Gale St was substantially inferior in shape to the subject land. Overall however, it seems to me that 26 Gale St is superior in shape.

249. With some minor variations, the adjustments that I would make in columns L to R of Table 3 for shape and the other heads of comparison, to equate 26 Gale St with the subject land, accord closely to those made by Mr Byron.

250. Details of the land and sale at 5 Kareelah Rd include:

Title: Lot 5 in DP 11354 Vendor: Daphne Mary Thornton Dimensions: 17.3/12.19 HWM + 82.3/79.25 Purchasers: Michael G & Karen T O'Brien Area: 1,132 sq m Contract Date: 17/04/97 Zoning: Residential 2(a2) Transfer Date: 09/05/97 Sale Price: $900,000

251. The property was inspected by Mr Byron in July 2003, when a new house had been erected. However, at the base date any improvements then on the land were regarded as having no value.

Comparison of subject land with 5 Kareelah Rd 252. The land has a southerly aspect and slopes gradually from the street frontage to just in front of the presently erected house, where the land falls very steeply to Tarban Creek. The property is affected by the noise of traffic on the elevated Tarban Creek Bridge. The subject site is in a far superior location. As well, the subject site has better views. There is a foreshore building line of 15 m at 5 Kareelah Rd, and the land from the mean high watermark to the foreshore building line is practically unusable because of its steepness, in contrast to the broad and flat waterfront grassed area of the subject land. There are no mooring or waterfront facilities at 5 Kareelah Rd.

253. In the original hearing, I gave less weight to the value inferred from 5 Kareelah Rd because I had little information about the property. No deposited plan or photographs concerning this property were tendered in the original hearing and the parties did not request that I take a view. In the light of the additional evidence now presented and having had the benefit of a view from the waterway, different percentage adjustments should be made, particularly in respect of topography and waterfrontage, for which Mr Byron made adjustments of +20% and +5%, or +25% for both these factors. I have now adopted for topography +1% and +12% on account of the superior waterfrontage of the subject land. The subject land is better shaped than 5 Kareelah Rd, which is a relatively narrow lot having an average width of about 14 m, as seen on the deposited plan (p 166 of ex K). Taking into account the inspection that I had of the property from the waterway, I have set out in columns L to R of Table 3 above the percentage adjustments to 5 Kareelah Rd to infer a value for the subject land. The sale would indicate a land value for the subject land of approximately $1,822,000.

254. Details of the land and sale at 13 Lloyd Av include:

Title: Lot 9 in DP 212762 Vendor: Ian Noel Pryde Dimensions: 18.52 irr/HWM x 43.13/39.32 Purchasers: Kong Chau & Nie Ling Koo Area: 720.8 sq m Contract Date: 01/07/98 Zoning: Residential 2(a2) Transfer Date: 16/10/98 Sale Price: $1,800,000

Improvements on 13 Lloyd Ave 255. The property was inspected by Messrs Croker and Martin in June 2003 and by Messrs Byron and Hammond in December 2003. At the date of sale, improvement comprised a two-level brick residence having concrete floors and a tile roof, together with a double brick garage having a tile roof and a metal-framed glass door located on the street frontage. Other improvements comprised paving and garden facilities and a steel spiral staircase, which gave access to the land on the waterfront. The residence is approximately 30 years old and was renovated and extended in 1989. It is in a good general condition.

Comparison of subject land with 13 Lloyd Ave 256. The land has a northerly aspect and has good views, like the subject land. It falls gradually from the street frontage for a distance of around 30 m where there is a steep cliff to the waterfront. The relevant A-3 size photograph (ex 6) shows that at the base of this fall there is a rock shelf about 2 m high, on which a flight of stairs from the higher part of the land ends. Access from the top of the rock shelf to the narrow strip of sand underneath the rock shelf would be very difficult. There are no waterway facilities associated with this property. Mr Croker gave evidence to the effect that the current Waterway's policy is to refuse applications for new leases, but such were available, albeit with delay and inconvenience as at July 1998 (ex 2 p 70). In addition to obtaining a lease, the owner would have had to apply for and obtain development consent for any waterway structures within the leased area. It seems to me that Mr Byron did not sufficiently take into account the inferiority of the waterfrontage of 13 Lloyd Ave compared with the subject land. Looking at the factors relating to waterfrontage and topography together, I would make a combined adjustment for these two factors of about +13%. In respect of location, Mr Croker applied +10%; and Mr Byron, -10%. I consider that no adjustments are needed under the headings of location, shape and views. This sale indicates a land value for the subject land of $2,036,000.

257. Details of the land and sale at 15 Lloyd Ave include:

Title: Lot 8 in DP 212762 Vendors: George & Katherine H Panin Dimensions: 13.64/HWM x 43.59 Purchasers: Ian L & Corinne A Brittain Area: 822 sq m Contract Date: 04/03/97 Zoning: Residential 2(a2) Transfer Date: 22/04/97 Sale Price: $2,030,000

Improvements on 15 Lloyd Ave 258. The property was inspected by Messrs Croker and Martin in June 2003 and by Messrs Byron and Hammond in December 2003. At the date of sale, improvement comprised a three-level brick residence having a metal roof, and a double carport on the street frontage. Other improvements comprised driveways and garden facilities including a concrete in-ground pool, a concrete spiral staircase which gives access to level land on the waterfront and waterfront facilities comprising a timber jetty and slip, weatherboard boatshed having a metal roof and metal roller door and five timber piles. The residence is between 30 to 35 years old and is in good general condition for its age.

Comparison of 15 Lloyd Ave with the subject land 259. The land has a northerly aspect with extensive views and falls gradually from the street frontage for a distance of around 30 m where it falls steeply by about 10 m over a cliff to the waterfront where there is a further area of level land. The level land at the base of the spiral staircase, referred to by Mr Byron, is a narrower strip compared with that of the subject land, and the waterfrontage of 13 Lloyd Ave is narrower than 15 Lloyd Ave; and 15 Lloyd Ave has a boatshed, jetty and mooring piles, which 13 Lloyd Ave does not have. In my opinion, both 13 Lloyd Avenue and (to a lesser extent) 15 Lloyd Ave are clearly inferior to the subject land in respect of topography and waterfrontage, but not as much as indicated by Mr Croker's adjustments. The adjustments I would make are set out in columns L to R of Table 3.

260. Details of the land and sale at 29 Nelson Pde include:

Title: Lot 2 in DP 840284 Vendors: Thomas H & Hilda M Farrell Dimensions: irr/irr HWM x 69.64/73.3 Purchaser: Jennifer Anne Druery Area: 1,473 sq m Contract Date: not ascertainable Zoning: Residential 2(a2) Transfer Date: 14/10/98 Sale Price: $1,250,000

261. This sale was not relied upon by the respondent. Mr Byron assumed that the date of contract was the same as the date of a transfer relating to the right of footway, namely 14 October 1998. However, the stamp of the Office of State Revenue on the transfer appears to indicate an original payment of stamp duty on 24 July 1998. The actual date of contract could be several weeks earlier than the payment of stamp duty. In adjusting the contract price back to the base date, Mr Byron made a deduction of $119,668 (p 19 ex R). If, as appears to be the case, the contract date was at least three months earlier than the date Mr Byron assumed, the deduction would be reduced to about $116,300 or less, giving a land value for 29 Nelson Parade adjusted to the base date of at least $1,133,700, which I have adopted as being more likely. However, because of uncertainty as to the date of contract, and because the more likely time of contract is still about a year after the base date, I give slightly less weight to this sale than to the first sale of the vacant land at 30B Viret St.

262. The property was inspected by Mr Byron in December 2003. He regarded the land as vacant at the base date and there was no need to make any deduction for any improvements.

Comparison of 29 Nelson Pde with the subject land 263. The property at 29 Nelson Pde has a southerly aspect and looks directly towards the large, busy marina adjoining the waterfrontage of this property, which makes the location of this property significantly inferior to the subject land. The marina is associated with the development at Pulpit Point. The land at 29 Nelson Pde falls fairly steeply from its northern boundary to the Parramatta River. Looking at the photograph in exhibit 6, there would appear to be a vertical drop in excess of 30 m over the length of the property. Unlike the subject land, No. 29 does not have waterfront facilities. Immediately adjoining the mean high water mark, across the whole of the waterfrontage of No. 29 is a vertical rock shelf about 2 m to 3 m high. At the south-western corner of No. 29, below this rock shelf, there is a small area of sand exposed at low tide, and on the adjoining land to the west is a grassed area at the base of Francis St Reserve. However, access to the small sandy area or to the grassed area from No. 29 would appear difficult because of the sloping terrain. There is a of right of footway 2.1 m wide in favour of the uphill property along the western side boundary of No. 29, but at the date of the hearing there was no inclinator or stairs constructed within this right of footway. Having viewed the property, it seems to me that the subject land has a greater degree of superiority to 29 Nelson Pde than allowed by Mr Byron. I make the comparative adjustments set out in columns L to R Table 3. This sale indicates a land value for the subject land of $1,875,000.

264. Details of the land and sale at 20 The Point Rd include:

Title: Lot 57n DP 64522 and Lot 1 DP 928751 Vendor: Dominic Mittiga Dimensions: 20.041/HWM x 63.7/61.09 Purchasers: George & Kay E Daskalopoulos Area: 765.1 sq m Contract Date: 23/05/96 Zoning: Residential 2(a2) Transfer Date: 20/06/96 Sale Price: $2,125,000

Improvements on 20 The Point Rd 265. The property was inspected by Messrs Croker and Martin in October 2003 and by Messrs Byron and Hammond in December of the same year. At the date of sale, improvement comprised a three-level Federation brick residence having a tile roof, together with an attached brick garage with an attic room at the street frontage. Other improvements comprised garden facilities including a concrete in-ground pool, sandstone stairs and paths and waterway facilities being a timber jetty and pontoon with four mooring piles. The original residence was fully renovated and extended in around 1988 and is in a very good condition.

Comparison of subject land with 20 The Point Rd 266. Like the subject land, 20 The Point Rd has a northerly aspect and extensive views. There is a level area at 20 The Point Rd on the wider part of the land near the street frontage, where the residence is situated. The land then falls fairly evenly by around 6 m to the waterfront. The relatively narrow shape of 20 The Point Rd is inferior to the subject land: from about half way between the street frontage and waterway, the width of the land decreases from about 15 m wide to an oblique width at the waterfront of only 9.8 m. I accept the adjustments for topography and shape made by Mr Byron, but in addition, would make an adjustment of about +7% for the superior waterfrontage of the subject land.

267. Details of the land and two sales of 26A The Point Rd include:

Title: Lot 5 in DP 556783 Dimensions: 13.64/HWM x 43.59 Area: 866.3 sq m (754 sq m excluding access strip) Zoning: Residential 2(a2)

FIRST SALE: SECOND SALE: Vendor: Sargents Developments Pty Ltd Vendor: Dani Lynette Howard Purchaser: Dani Lynette Howard Purchaser: Stanley William O'Brien Contract Date: 13/08/96 Contract Date: 29/1/99 Transfer Date: 25/09/96 Transfer Date: 6/7/99 Sale Price: $1,050,000 Sale Price: $1,525,000

268. In respect of the second sale, there is an unexplained gap of about six months between the contract date and the date of settlement. It is not apparent that the valuers interviewed the parties to the contract to ascertain the circumstances of this sale, and the terms and conditions of the contract and of any variation to it were not tendered in evidence. As the land was vacant, one possibility for the delayed settlement was that the purchaser was seeking development consent from the council for the erection of a house, and it is not clear when development consent was obtained for the house that was subsequently erected. There are plans for a house on No. 26A dated July 1999 (ex P), but these plans do not bear any stamp of approval from the council. It is not possible on the evidence to know whether there were any unusual or special conditions relating to the payment of interest or whether the contract was subject to the purchaser obtaining development consent in respect of an earlier set of plans. Accordingly, less weight should be given to this sale in comparison with the other comparable sales, in addition to the lower weighting that would be given because of the fact that the sale occurred 19 months after base date.

Improvements on 26A The Point Rd 269. The property was inspected by Mr Byron in June 1999 and December 2003. Mr Byron said that at each sale date, 26A The Point Rd was substantially vacant, and any improvements were regarded as having no value. These sales were not relied upon by Mr Croker, even though he admitted that they could be regarded as comparable to the subject land.

Comparison of subject land with 26A The Point Rd 270. Having regard to the differences between the subject land and 26A The Point Rd, I make the adjustments set out in columns L to R of Table 3. Like the subject land, 26A The Point Rd has a northerly aspect and has very good views. It is of battleaxe shape with the body of the lot falling gradually to the river frontage. The subject land is slightly superior in width and shape, 26A The Point Rd being 15.3 m wide measured perpendicularly from one side boundary to the other. The waterfrontage of the subject land is much wider. In addition, at each of the sale dates, it is not apparent that 26A The Point Rd had the benefit of a waterway lease or of development consent for waterway facilities and the property was inferior to the subject land in this regard. The absence of waterfront facilities is indicated on the coloured leaflet advertising the sale of the property in October 1998 (ex K p230). The plan in ex P dated July 1999 also does not show the jetty and pontoon that was subsequently erected to serve both 26A The Point Rd and the immediately adjoining property to the east, 1 Angelo St.

271. The first sale of 26A The Point Rd indicates a land value for the subject land of $1,732,000, whereas the second sale indicates a land value substantially greater of $2,145,000. One reason for the disparity might be that the movement in the market adopted for either sale could vary significantly from the true rate of movement. Another reason might be special contractual arrangements (par 268). A further reason might have something to do with the fact that Dani Howard bought both this property and the immediately adjoining property at 1 Angelo St on the same day and then later sold both properties.

272. Details of the land and sale at 68 The Point Rd include:

Title: Lot 2 in DP 217282 Vendor: Colin McMaster Rodgers Dimensions: 23.63/36.4 HWM x 67.71 irr/47.18 irr Purchasers: Chi Lau and Lai Fong Lau Area: 1,347 sq m Contract Date: 11/04/97 Zoning: Residential 2(a2) Transfer Date: 30/5/97 Sale Price: $4,000,000

Improvements on 68 The Point Rd 273. Messrs Croker and Martin inspected the property in June 2003, and Messrs Byron and Hammond inspected it in August 2003. At the date of sale, the improvements included a substantial brick waterfront residence with a tiled roof, a double garage, and a thatched-roofed brick cabana (containing a bar and a spa) on the waterfront. Other improvements comprised substantial garden facilities including an in-ground pool and waterfront facilities including a timber jetty and pontoon and three timber piles. The improvements were substantially rebuilt around 9 years ago.

274. Assessor Davies determined the land value of 68 The Point Rd as at 1 July 1989 to be $1.85 million, having regard to comparable sales that occurred around this earlier date: Rodgers v Value-General No. 30457 of 1991, decided on 7 November 1991, unreported. However, because of the significant time (eight years) between Assessor Davies' determination and the base date for the present appeal, it would not be appropriate to adjust that determination for movement in the market, as a means of checking the analysed land value for 68 The Point Rd derived from the April 1997 sale.

275. If the applicant's methodology (as adjusted in the manner described earlier in this judgement) is used, the April 1997 sale of 68 The Point Rd indicates a land value at 1 July 1997 for that property (which is smaller than the subject land) of $2,028,000.

Comparison of subject land with 68 The Point Rd 276. Being next door to the subject land, 68 The Point Rd has similar features to it, and the only adjustment that the valuers made was in respect of size (as to which see par 214 above). For the other features, I agree that no adjustments should be made, except for "waterfrontage", in respect of which it seems to me that a slight adjustment of -1% is warranted. The deposited plan shows the width of the reclaimed land at 68 The Point Rd (to the north-east of the original high water mark) measured practically in a straight line along the new north-eastern waterfront boundary is 36.4 m, whereas the angled waterfrontage of the subject land measures a total of 31.4 m. No adjustment is made for shape, because although the south-western boundary of 68 The Point Rd has an indent, the area to the north-east of the indent quickly widens out, so that at the (northern) elevation of the existing house on 68 The Point Rd, the land is about as wide as, if not wider than, the width of the subject land.

277. The analysis of the sale of this parcel of land, which immediately adjoins the subject land, indicates that the subject land would have a land value at 1 July 1997 of $2,364,000. Of course, other sales also have to be considered.

278. Details of the land and sale at 18 Vernon St include:

Title: Lot 3 in DP 625801 and lot 1 DP 113740 Vendors: John J & Diana M Storey Dimensions: 38.3/HWM x irr/irr Purchasers: Neill A & Jane-Marie G Whiston Area: 1,933 sq m Contract Date: 06/02/98 Zoning: Residential 2(a3) Transfer Date: 12/03/98 Sale Price: $3,300,000

Improvements on 18 Vernon St 279. The property was inspected by Mr Byron in December 2003 and the sale was not analysed by Mr Croker. At the date of sale, improvements comprised a substantial three-level Federation-style brick residence with tile roof, having a brick garage with tile roof at the street frontage, and a further two-level sandstone cottage having a tile roof adjacent to the waterfront. Other improvements comprise substantial garden facilities, an in-ground pool with spa on the waterfront and waterfront facilities comprising a timber slip and timber jetty. The improvements have been maintained in excellent condition.

Comparison of subject land with 18 Vernon St 280. The land has a northerly aspect with good views (equivalent to the subject land), a frontage of 38.3 m to Vernon St and a frontage of 14.57 m to the Lane Cove River. The land falls gradually by about 10 to 15 m from Vernon St to the waterfront. I have made an adjustment of +4% for size, and in respect of other features I adopt the adjustments made by Mr Byron. As set out in Table 3, this sale indicates a land value for the subject land of $1,679,000, which is near the bottom end of the indicated range of values for the subject land.

Title: Lot 1 in DP 189271 Vendor: Michael Siu Man Cheng Dimensions: 10.61/25.05 HWM x irr/ 60.35irr Purchaser: Magdalen O. Simpson Area: 1,271 sq m Contract Date: 03/12/98 Zoning: Residential 2(a2) Transfer Date: 18/02/99 Sale Price: $2,000,000

Improvements on 11A Viret St 282. The property was inspected by Mr Byron in September 1999. In the original hearing, I found that the applicant attributed too much value to the garden facilities and waterfront improvements ([1999] NSWLEC 299 at pars 49 and 56). Mr Croker visited the site in July 2003 and witnessed the serious destruction of the garden improvements during the construction of the new residence. It seems to me that the applicant's assessment of the value of the improvements at $129,926 (including an improvements increment of 40%) as at the base date is again too high, and Mr Croker's figure of $50,000 is too low. I adopt about $95,000 as the value for all improvements, which results in a land value for that property at 1 July 1997 of approximately $1,681,800 (using Mr Byron's percentage adjustment for movement in the market).

Comparison of subject land with 11A Viret St 283. At the base date, the lot at 11A Viret St was vacant and had a sloping driveway leading down to a flat brick-paved area, and the land then fell gently to near the waterfront, where it fell very steeply for about 3 or 4 m to the Lane Cove River, as seen in the photographs (ex K pp 89-90, and ex H). A steep timber stair led down from the upper flatter area to a timber jetty and associated pontoon and piles. I consider that the subject land has a superior waterfrontage. In relation to shape and topography, I accept Mr Byron's adjustments.

284. As regards location, there were opposing views as to whether the properties in Viret St, Hunters Hill were in a better location than the subject land in Woolwich. Mr Croker considered Woolwich to be a better address and made a +10% adjustment to 11A Viret St on this account, whereas Mr Byron made a -10% adjustment. In the earlier hearing, I considered that the subject land had a superior location, being in Woolwich and being relatively close to Valencia St wharf, from which ferries make a short trip to Circular Quay. The properties in Viret St are located a considerable distance from the ferry-wharf. Having reviewed the evidence in the present hearing, it seems to me that the large luxurious property at 13-15 Viret St, adjoining 11A Viret St, adds a certain prestige to the locality. However, the location of 11A Viret St gives it an easterly aspect, compared with the better north-north-easterly aspect of the subject land. Accordingly, the different positive and negative locational features of the subject land and of 11A Viret St appear to me to be nearly evenly balanced.

285. Although the views from the subject land are quite good, the views from the 11A Viret St appear to be better, as the impression I gained on the inspection from the watercraft was that part of the top the arch of the Harbour Bridge could be visible in the distance from 11A Viret St.

286. Looking at the shape of the two properties as disclosed by the deposited plans, 11A Viret St has a narrow street frontage, but after proceeding about 20 m from the street frontage the land has widened out so that the relationship of the width to the depth of the remainder of the land is good. Compared with the subject land, I adopt Mr Byron's zero percentage adjustment for shape.

287. In his report for the original hearing, Mr Croker made a total adjustment of minus 20%, but in the present hearing he made a total adjustment of plus 55% for all differences between 11A Viret St and the subject land. This is an extraordinary change, which I reject. Mr Byron made a total adjustment of -40%, which appears too much.

288. Having reviewed the evidence in the present hearing, I now make a total minus percentage adjustment for all factors that is a little larger than I made in the original hearing, resulting in a more favourable outcome for the applicant than in the original hearing. In my opinion, the analysed sale of 11A Viret St suggests a land value for the subject land of about $1,820,000 as set out in Table 3.

289. Details of the land and two sales at 12 Viret St include:

Title: Lot 1 in DP 938727 Dimensions: 20.115/12.52 x 70.28 irr/66.46 Area: 1,202 sq m Zoning: Residential 2(a2)

FIRST SALE SECOND SALE Vendors: James S-Y Lee & Jean Y-J Lee Vendors: Keith & Jill Mary Mitchell Purchasers: Keith & Jill Mary Mitchell Purchasers: Lindsay J & Gail M Edmonds Contract Date: 23/04/98 Contract Date: 29/07/99 Transfer Date: 23/06/98 Transfer Date: 09/09/99 Sale Price: $2,200,000 Sale Price: $2,600,000

Improvements on 12 Viret St 290. The property was inspected by Mr Byron in December 2003. This sale was not relied on by Mr Croker. At the date of sale, the improvements comprised a Federation slate-roof residence of brick construction on a sandstone base. Other improvements comprised garden facilities and a boatshed with timber slip. The improvements were in a fair to good general condition at the date of sale. However, they were extensively renovated and extended in about 2000.

Comparison of 12 Viret St with the subject land 291. The land at 12 Viret St has a northerly aspect and a reasonably wide street frontage. However, 12 Viret St has a narrow waterfrontage of 12.52 m to the Lane Cove River compared to the waterfrontage at the subject land, which is 31.4 m. The subject land is relatively flat near the street frontage, but the land at 11A Viret St drops approximately 4 to 5 m from the street frontage (see photographs in ex T) and is then generally level for around 30 m, before again falling (by about 10 m) to the narrow waterfrontage, where there is a sandy beach. For the drop of the land to the waterfront, see the photograph in ex 6. Overall, the topography of the subject land is only slightly worse. Although the beach at 12 Viret St is clearly an advantage, there is no wide expanse of lawn at the waterfront as is the case at the subject land; and 12 Viret St does not have an associated leased area for a jetty giving easy access to deeper water, as at the subject land.

292. There is a 15-metre foreshore building line at 12 Viret St compared with the 10-metre building line at the subject land. Also, the adjoining waterfront land on the eastern side of 12 Viret St projects more into the Lane Cove River, so that a house on the adjoining battleaxe lot has been erected forward of the house at 12 Viret St, which would appear to limit water views from the house itself at 12 Viret St in a north-easterly direction - see the coloured aerial photograph (p 275 of ex K) and the plan of the lot layout in the locality (p 150 of ex 2).

293. Although 12 Viret St is located in the same street as one of the most expensive waterfront property in Hunters Hill (at 13-15 Viret St), a negative aspect of its location is that it is below the street and is overlooked by users of the access corridor for two other properties. This access corridor is immediately adjoining about half of the length of the eastern side boundary of 12 Viret St and is elevated above the curtilage of the house at 12 Viret St.

294. Having regard to all the various differences and similarities between the subject land and 12 Viret St, it seems to me that Mr Byron's overall negative adjustment is too large. I make the adjustments set out in the columns L to R of Table 3.

295. Details of the land and sale at 16 Viret St include:

Title: Lot B in DP 347296 Vendors: Griffith Wyn & Llayna V Richards Dimensions: 3.05 m/HWM x irr/50.04 m Purchasers: Simon D Hastings & Anne M E Ainsworth Area: 1,454 sq m (1,220 sq m excluding access handle) Contract Date: 14/11/97 Zoning: Residential 2(a2) Transfer Date: 12/12/97 Sale Price: $2,800,000

Improvements on 16 Viret St 296. The property was inspected by Mr Byron in December 2003. At the date of sale, improvements comprised a brick residence with a tile roof as seen in the photographs at the time of the sale (pp 287-291 of ex K). Other improvements comprised garden facilities and a timber jetty with pontoon. These photographs at the time of the sale show that there was no boatshed at that time (one was subsequently erected), but do show that there was a pool. The original buildings appeared to be in fair condition.

297. It is not clear when the coloured aerial photograph (p 286 of ex K) was taken - this photograph shows what appears to be a pool or pond directly in front of the northern side of the house. In his costings, Mr Hammond (who visited the property for the first time in December 2003) included amounts relating to a swimming pool.

298. According to Mr Byron, after the date of sale the owners extensively "renovated and extended" the residence while keeping the building structure and roofline. However, from the single plan dated July 1998 (ex P), it is not possible to say how much of the building was "extended", as the plan does not sufficiently distinguish between what was existing and what was proposed to be built. The plan does show a pool on the northern side of the house but it was located close to the western side boundary.

299. Having regard to the costings of Mr Hammond, Mr Byron determined that the added value of the improvements as at 1 July 1997 was $925,261.

300. According to the evidence of Mr Croker, the original house (c. 1910) had three different extensions carried out over the years. The extensions were unsympathetic to the original building, and little effort had been made to blend them with each other. After the November 1997 sale, the Ainsworth family did not immediately occupy the house. Mr Croker said that as soon as the owners had obtained building approval, they had the entire interior gutted. Only the external shell and the roof were retained together with some internal walls. All doors and architraves plus many windows were replaced, and a new kitchen and multiple bathrooms were installed. The roof tiles were replaced after the internal renovations were completed, including a small addition. The cost of this work was said to be $1,600,000. Mr Croker said that the pool and considerable landscaping were added after the purchase. In these circumstances, Mr Croker was of the opinion that the value of the improvements at 1 July 1997 was only $100,000.

301. On the above evidence it seems more probable that there was a pool on the property at the date of sale and that it should be costed. I consider that the value of the improvements at the date of sale would have been well in excess of the $100,000 allowed by Mr Croker. However, having regard to the apparent unsuitability of the interior design for a modern home, it seems to me that Mr Byron's obsolescence allowance of $100,000 in his spreadsheet at p 28 of ex R is too small and that it should be probably double that figure. Amending the obsolescence factor to $200,000 and applying the revised improvements increment in the same spreadsheet, the value of the improvements would be $707,600, indicating a land value for that property of $2,014,000.

Comparison of 16 Viret St with the subject land 302. The land at 16 Viret St is of battle-axe shape, as seen on the deposited plan. Access to the main part of the land is gained from Viret St by travelling north for a distance of about 35 m along the access corridor (which is about 3 m wide), which then turns almost 90 degrees and proceeds for about a further 23 m before arriving at the main part of the land. In the centre of the main part of the land the width between side boundaries is about 19.5 m and the depth of the main part of the land from the rear boundary to the waterfront is about 67 m.

303. Although the location or address of this property is Viret St, the main part of the property does not have a street presence, and at the date of sale the entry to the main part of the land was along the 3-metre wide access (described above). When compared with the subject land, I am of the opinion that no adjustment need be made for factors coming under the heading of location.

304. The topography of 16 Viret St is superior to the subject land, since the main part of 16 Viret St falls gradually from the southern boundary of the lot towards the foreshore building line, where the waterfront part of the land falls more steeply to the high water mark, and at low tide a small beach is exposed.

305. Having regard to the photographs and my inspection from the waterway of 16 Viret St, it seems to me that the waterfrontage of the subject land is superior, while in respect of topography above the foreshore building lines, the subject land is clearly inferior. As set out in Table 3, this sale indicates a land value for the subject land of $2,330,000. However, because of the problem of ascertaining the true value of the improvements at the date of sale, I place little weight on this sale.

306. Details of the land and sale at 24 Viret St include:

Title: Lot 3 in DP 208509 Vendor: Barbara Gaye & Guy C Riley-Smith Dimensions: Irr Battleaxe Shape Purchaser: Lindy Louise De Stoop Area: 753.6 sq m (535 sq m excluding access strip) Contract Date: 02/09/97 Zoning: Residential 2(a2) Transfer Date: 14/10/97 Sale Price: $2,160,000

Improvements on 24 Viret St and comparison with the subject land 307. This sale was used by Mr Croker, who said: This smaller, north-facing waterfront site is a "battleaxe", and has a very steep driveway that, as currently paved, could be impassable in wet weather. The land then falls steeply, in a series of terraces to the waterfrontage. A Waterways leasehold of 64m2 and the sites of two piles was assigned to the purchaser upon completion of the sale. These areas provide the sites for a jetty and the mooring area for a pleasure craft. The current plan discloses an area of 73m2. The old house was said to be in such poor repair as to be beyond economic renovation. It was said to be occupied intermittently, and minor repairs were undertaken until the owners announced to their neighbour at No. 16 that they had "gone broke" and asked if he would be interested in buying the property. Mr Ainsworth said that he indicated an interest, and subsequently purchased the property by private treaty after it was marketed through local estate agents. He purchased the property on 1 May 2001 for $2,750,000, and promptly demolished the old house. He is about to spend some $300,000 on landscaping the site as an extension to No. 16's gardens. In these circumstances, the added value of the old house is considered to be a maximum of $200,000 [as at 2 September 1997]. This amount deducted from the sale price of $2,160,000 produces an estimated land value [for that property] as set to September 1997 of $1,960,000. This amount requires no adjustment for time as the sale date is less than two months after the base date…

308. After making adjustments for the differences between this property and the subject land, Mr Croker's analysis indicated a land value for the subject land of $6,461,532, as set out in Table 2.

309. Mr Byron, who did not inspect the property until December 2003 and who did not rely of this sale, stated: At the date of sale [2 September 1997], improvements comprised a brick residence, swimming pool and waterfront facilities comprising a timber jetty and slip. In the absence of plans or photographs of the improvements at the date of sale, any analysis of this sale is likely to be unreliable. Mr Croker expresses the view that the improvements were beyond economic renovation and in poor repair yet has allowed $200,000 as the added value of the improvements. It may well be that the improvements then existing may have added a much higher value to the land. Given the paucity of available data on the property as at 1 July 1997, any analysis is likely to be flawed and unreliable and therefore should not be used.

310. Having regard to the photographic evidence and my inspection of the property from the waterway, I am inclined to make smaller positive adjustments for the differences (apart from size) between this property and the subject land than Mr Croker did. In relation to size, a large negative adjustment has to be made. Even if the house on 24 Viret St at the date of sale in September 1997 had a value of $500,000, the resultant indicated land value for the subject land would be about $3,941,000, as set out in my Table 3. When compared with the indicated land values for the subject land derived from all the other sales, the land value indicated by 24 Viret St is grossly out of line, and in my opinion the sale should not be relied on. Although I have included this sale in Table 3, this sale has no influence on my determination of the final land value for the subject land, because in calculating the weighted average from all the sales this sale is given zero weight.

311. Details of the land and sale at 30A Viret St include:

Title: Lot 10 in DP 787366 Vendor: Ho Ming & So Chun Cheng Dimensions: Irregular with frontage to Lane Cove River of approximately 17.8 m Purchaser: Tuan Le & Lee Trinh Area: 988 sq m (824 sq m excluding access strip) Contract Date: 04/07/96 Zoning: Residential 2(a2) Transfer Date: August 1996 Sale Price: $1,450,000

Improvements on 30A Viret St 312. The property was inspected by Mr Byron in September 1999 and December 2003. At the date of sale, the improvements comprised a two-level rendered and painted brick residence with a tile roof. Other improvements comprised garages and laundry, in-ground swimming pool, driveways and garden facilities. Following the sale date, the property was further renovated and waterfront improvements were added. The building appeared to be about 30 years old and to have been renovated at various times. At the date of sale, the improvements were in good condition.

Comparison of subject land with 30A Viret St 313. The land at 30A Viret St has a northerly aspect with good views over the Lane Cove River and has access via a shared driveway to Viret St. The land is almost level near the southern boundary falling around 3 to 4 m to the water frontage. The property has a width of 17.8 m at the waterfront, including the width of a right of footway (1.8 m wide) in favour of another property along the whole western boundary of 30A Viret St. For the combined total for waterfrontage and topography generally, I make the same total adjustment as Mr Byron. In respect of location I make no adjustment.

314. This sale indicates a land value for the subject land that is grossly out of line with all other improved sales, whether Mr Byron's figures in Table 1 are accepted or the Court's figures in Table 3. It should not be used as a comparable sale, given that the analysed result is obviously so odd.

315. Details of the land and two sales of 30B Viret St include:

Title: Lot 11 in DP 787366. Dimensions: The lot is irregular in shape having frontage to Lane Cove River of approx. 18.05 m. Area: 1,217 sq m (1,130 sq m excluding access strip). Zoning: Residential 2(a2).

FIRST SALE: SECOND SALE: Vendor: Ho Ming & So Chun Cheng Vendor: Jill Margaret Seckold Purchaser: Jill Margaret Seckold Purchaser: Malcolm B Rose Contract Date: 04/07/96 Contract Date: 05/05/99 Transfer Date: 15/08/96 Transfer Date: 30/06/99 Sale Price: $1,600,000 Sale Price: $1,725,000

Improvements on 30B Viret St 316. The property was inspected by Mr Byron in September 1999 and August 2003. Mr Croker also inspected the property in 1999 but only relied on the first sale. At the date of each sale, improvements comprised garden, a timber jetty on concrete piles with pontoon and four mooring piles. As in the original hearing, I adopted the amount of $65,000 as the value of all improvements at the base date ([1999] NSWLEC 299 at pars 49 and 56), and I again adopt the same amount, which is close to the same value given to the improvements by Mr Byron in the present hearing.

317. Mr Byron's land value of 30B Viret St derived from each of the two sales varies markedly, which suggests that there may be problems in the use of the Housing Price Index (which relates to the whole of the Sydney region) to adjust these two sales of a prime waterfront property at Hunters Hill. The movement in the market between the base date and each of the contract dates could have been quite different at Hunters Hill from the median for the whole of the metropolitan area. The second sale should be given less weight because of the longer period between the base date and the contract date.

Comparison of subject land with 30B Viret St 318. The lot at 30B Viret St has a north-westerly aspect. It is a battleaxe block, a little closer to Viret St than the adjoining 30A Viret St, and although the sloping access corridor to the main body of the land is pleasant, overall there is some uncertainty as to the relative merits of a Viret St location compared with the location of the subject land, and for the purpose of this case I treat the locational features of the subject land and this property as about equal. The main body of the lot slopes gently from the south towards the river frontage - the topography of the house site and its curtilage is obviously superior to the subject land. The subject land is slightly superior in shape.

319. The width of the water frontage at 30B Viret St is significantly less than the subject land, and there are steps down through a high sandstone retaining wall near the water's edge, giving access to a jetty. The waterfrontage of the subject land, even with the old seawalls that existed at the subject land in 1997, is clearly superior.

320. Having regard to these and other features disclosed by the photographs and the view, I make the comparative adjustments set out in columns L to R of Table 3.

321. Details of the land and sale at 9 Werambie St include:

Title: Lot A in DP 36306893 Vendor: Michael Kelaher Dimensions: 15.24/23.06 x 71.44 irr/75.48 Purchaser: Elysium Nominees Ltd Area: 1,397 sq m Contract Date: 18/04/97 Zoning: Residential 2(a2) Transfer Date: 04/06/97 Sale Price: $2,050,000

Improvements on 9 Werambie St 322. The property was inspected by Mr Byron in September 1999 and August 2003. As at the date of sale, improvements comprised a three-level brick residence with tile roof together with a brick and timber frame garage with a metal roof and a timber frame carport. Other improvements include extensive garden facilities, in-ground pool and waterfront facilities including a timber jetty, slip and sandstone river pool. The improvements were around 40 years old at the date of sale and were renovated thereafter.

Comparison of 9 Werambie St with the subject land 323. Like the subject land, 9 Werambie St has a good aspect with extensive views. The land is level at the street frontage to a depth of approximately 20 m, after which there is a gradual fall, before dropping steeply to flat land at the base of a rock shelf near the waterfront. The water frontage is 23.06 m to the Lane Cove River. It seems to me that the waterfrontage of the subject land at the base date was a little better than 9 Werambie St, indicating a minor positive adjustment, but otherwise I agree with Mr Byron that no adjustments are needed for location, topography, shape and views. As set out in Table 3, this sale indicates a land value for the subject land of $1,605,000. Although this property is located only about 65 m from the subject land, the sale was not used by Mr Croker. In my opinion considerable weight should be given not only to this sale (that indicates a land value more favourable to the applicant) but also to the sale of the other most comparable property, 68 The Point Rd, that adjoins the eastern side boundary of the subject land. As mentioned earlier, 68 The Point Rd indicates a land value of $2,364,000. The use of a large number of other sales, whose indicated land values for the subject land generally fall between those indicated by 9 Werambie St and 68 The Point Rd, assists in the determination of an appropriate and reasonably reliable final land value that lies between the above two amounts.

324. Details of the land and sale at 29 Wybalena Rd include:

Title: Lot 2 in DP 20378 Vendor: John C & Francis W Poole Dimensions: 11.43/HWM x 74.98/70.1 Purchaser: Angela Kallinicos Area: 1,062 sq m Contract Date: 13/02/98 Zoning: Residential 2(a2) Transfer Date: 30/06/98 Sale Price: $1,900,000

Improvements on 29 Wybalena Rd 325. The property was inspected by Mr Byron in August 1999. At the date of sale, the improvements comprised a brick residence with a tile and metal roof having an attic room, double timber frame garage with room above having a tile roof and a large four-car steel-framed carport also having a tile roof. Other improvements comprised extensive paving and garden facilities, in-ground pool and waterfront facilities including a timber jetty and mooring piles. The improvements were around 60 years old in fair general condition requiring general maintenance.

Comparison of 29 Wybalena Rd with the subject land 326. In contrast to the subject land, 29 Wybalena Rd is located on the southern side of the Hunters Hill peninsula and has a south-westerly aspect. There are extensive views from 29 Wybalena Rd towards Drummoyne and the Gladesville Bridge. However, the location of 29 Wybalena Rd exposes it to traffic noise from this elevated bridge. The noise would be more pronounced than the noise that was evident from the waterfront balcony of 1 Fern Rd, which is located further from the Gladesville Bridge than 29 Wybalena Rd. The land at 29 Wybalena Rd falls from Wybalena Rd by around 7 to 8 m to the Parramatta River. The shape of 29 Wybalena Rd is not as good as that of the subject land: the deposited plan of 29 Wybalena Rd indicates that near the street the width between the side boundaries is about 12 m, and at about a third of the way down the block from the street the width has increased to about 13.6 m, and at the waterfront the width between the side boundaries is about 22 m.

327. The usable flat land of the waterfrontage of 29 Wybalena Rd is inferior to the wider breadth and depth of the flat area of the waterfrontage of the subject land, and it seems to me that an adjustment of about +5% should be made in this regard rather than Mr Byron's 0%. After making the other adjustments set out in columns L to R of Table 3, this sale indicates a land value for the subject land of $1,614,000.

328. Details of the land and sale at 49 Wybalena Rd include:

Title: Lot A in DP 354712 Vendor: Keith James Aldridge Dimensions: 15.24/12.19 HWM x 70.1/irr Purchaser: T J Hogan & D Huyser Area: 948.5 sq m Contract Date: 04/04/97 Zoning: Residential 2(a2) Transfer Date: Probably 04/97 Sale Price: $2,000,000

Improvements on 49 Wybalena Rd 329. The property was inspected by Mr Byron in August 1999. As at the date of sale, the improvements comprised a substantial three-level brick residence having metal-framed windows and a tile roof with attached four-car carport having a tile roof on the street frontage, patios, in-ground pool, garden facilities and waterfront facilities comprising a boatshed, concrete ramp, timber jetty and pontoon and four mooring piles. An inclinator gave access from the house to the waterfront. The buildings are around 20 to 30 years old and in a good general condition. The boatshed on the land is set back some distance from the mean high watermark and is in a cutting partly covered by the sloping land.

Comparison of subject land with 49 Wybalena Rd 330. The land at 49 Wybalena Rd is located on the southern side of the Hunters Hill peninsula and has a westerly aspect with extensive views towards the Gladesville Bridge. This property would also experience noise from traffic on the Gladesville Bridge, as it is located closer to the bridge than 1 Fern Rd. (On my inspection, while standing on the waterfront balcony of this latter property it was evident that traffic noise was heard.) The land at 49 Wybalena Rd is around 4 m below the level of the road and falls evenly by around 6 to 8 m to the waterfrontage.

I agree that the adjustment for location should be no less than +15%, as made by Mr Byron, or it could be slightly more because of the much superior location of the subject land. In my opinion other adjustments are needed, particularly for the waterfrontage. Although the upper part of the land at 49 Wybalena Rd is about 15 m wide, at about 24 m from the water the width of the land narrows to about the 11 m (measured perpendicularly between the side boundaries), and this same width continues down the land to the waterfront. The waterfrontage itself, below the foreshore building line, is thus also inferior to the subject land. Accordingly, I make the adjustments set out in columns L to R of Table 3. This sale indicates a land value for the subject land of $1,692,000.

15. Weight to be given to the comparable sales according to reliability

In an idealistic world where, in respect of each sale, the contract price agreed by a vendor and a purchaser perfectly reflected the market value of the property sold, and where expert valuers were able to make perfect or near-perfect adjustments to each comparable sale in order to derive a valuation for another property, it could be expected that each adjusted sale would indicate approximately the same valuation for the property to be valued.

However, as can be seen from the parties' analyses of the comparable sales (as summarised in their Tables 1 and 2, at par 10 above), there is a wide range of possible land values for the subject land. Likewise, my Table 3 discloses a wide range of values. However, if the vacant land sales are separated from the improved land sales, the wide range of values is particularly evident from the list of improved sales, whereas there is a tighter range of values derived from the vacant land sales. Therefore, a further step in the valuation process is needed, namely to review each analysed comparable sale to determine its degree of reliability, and to give greater weight to those sales that are likely to more accurately indicate the appropriate land value of the subject land, to give less weight to less reliable comparable sales, and to reject or give no weight to any comparable sale from which it would be plainly unreliable to deduce the land value.

I do not accept the applicant's submission that if the comparable sales are adjusted in accordance with the adjustment factors in columns O to U of the applicant's Table 1, then no further discretionary judgment or weighing of the evidence is required, and that it is then just a matter of adopting the straight average of all the land values or, alternatively, the median land value. Adopting a straight average of the land values or the median land value might be appropriate if all sales were equally reliable or if a reasonable value-judgment could not be made as to the degree of reliability of the sales.

I adopt what is said in The Appraisal of Real Estate (12th edition 2001): When many adjustments are applied by the appraiser and when their individual and collective amounts are substantial, the appraiser must ask, " Is the comparable property really comparable? " The greater the amount of collective adjustment, the more the appraiser may reduce the weight placed on a given comparable, or the appraiser may determine that it is not sufficiently comparable to be used at all. [pp 458-459] … Re-examining an appraisal helps ensure its accuracy, its consistency, and the logic of leading to the value indications. An appraiser relies more on professional experience and judgment in reconciliation than in any other part of the valuation process. The appraiser weighs the relative significance, applicability, and defensibility of each value indication and relies most heavily on the approach that is most appropriate to the nature of the appraisal problem. [p 600]

A straight average (or arithmetic mean) of all the values deduced from the comparable sales does not necessarily give a sufficiently accurate final land value for the subject land. A straight average pays no regard to the degree of reliability or likely accuracy of the particular land value indicated by each of the sales, whereas a weighted average can. A weighted average allows the sales that have been judged to be the more reliable to have a greater influence on or contribution to the ultimately-determined land value.

The weighted average may be obtained as follows: In respect of each particular sale, multiply the value of the subject land which is deduced from the particular sale by the weight attributed to that sale, to get a resultant value; add up the resultant values from all the sales, to get the total of resultant values; and then divide the total of resultant values by the total of all the weights. This can be done laboriously with a hand-calculator. Alternatively, the weighted average can be calculated automatically in a Microsoft Excel spreadsheet. For example, the Excel formula for the weighted average of $1,885,000 (rounded to the nearest thousand) contained within cell D9 of Table 12 below is: =ROUND(SUMPRODUCT(C2:C8,D2:D8)/SUM(D2:D8),-3) The weighted average is one of the mathematical tools that an expert valuer may use when advising a prospective purchaser as to the likely value of a property, based on a comparison of that property with many comparable sales.

In columns C of Table 12 below, the values for the subject land deduced from the vacant land sales have been copied from column T of my Table 3 above, and the weighted average land value has been calculated as $1,885,000:

Table 13 shows the weighted average land value for the subject land of $1,894,000 derived from all the improved sales:

A weight factor of 10 was chosen as the theoretical maximum and it would mean that the comparable sale in all respects is perfectly reliable and produces a most highly accurate inferred land value. At the other end of the scale, a zero weighting (which applies to three of the sales) means that the sale is so unreliable as not to be used in the ultimate determination of land value of the subject land.

In giving appropriate weight to each sale, I have taken into account that in general the inferred value for the subject land is likely to become less reliable as the adjustments to the sale become larger. I have taken into account not just the total adjustment in column R of Table 3 but also the magnitude of the individual adjustments. A value inferred from a sale of a small land area where an adjustment for size of -40% (24 Viret St) has to be made is likely to be less reliable than one where the adjustment is -10% (68 The Point Rd).

Sales occurring at a greater point in time from the base date are, even after adjustment for the estimated movement in the market, likely to be less reliable than sales occurring at the base date (par 107 ff). That is why when there has been a second sale of the same property at a further point in time from the base date, less weight has been given to the second sale (sale 22 of 30B Viret St).

I have given sales of properties adjoining or close to the subject land slightly more weight than sales further removed where there may be some uncertainty in the adjustment I determined for location.

I have mentioned in the course of consideration of the individual sales in part 14 of this judgment other matters affecting the weight to be given to some sales.

After making all necessary adjustments, the land values inferred for the subject land from the sales of the three improved properties at 6 Campbell St, 30A Viret St and 24 Viret St are so out of line with the values inferred from other improved sales that I have given no weight to these three sales.

The improved properties at 68 The Point Rd (adjoining the subject land) and 9 Werambie St (about 60 m away) were both sold just before the base date in April 1997. Relatively small adjustments have to be made when comparing them to the subject land. These two sales set the range within which using as well other sales, the final land value may be determined. Neither sale at 68 The Point Rd nor at 9 Werambie St should be rejected, as the deduced values from them are not out of line with the values from several other sales clustering at each end of the range.

16. Differences between Tables 1 and 3; possible alternatives

This part of the judgment first briefly recapitulates the differences between Mr Byron's Table 1 and the Court's Table 3. Then some alternative figures relating to the improvements increment are mentioned, several of which I have not accepted.

As indicated earlier (par 160), Table 1 was the first spreadsheet in ex R, and connected to Table 1 were 25 "associated spreadsheets" (also in ex R), one sheet for each of Mr Byron's comparable sales. If a change was made to dates or figures in an associated spreadsheet, the result of the change was automatically reflected in Table 1.

The Court's Table 3 differs from Table 1 as a result of the following changes I have made:

(1) Table 3 includes Mr Byron's 25 sales as well as Mr Croker's sale 19a. There was no associated spreadsheet for sale 19a. (2) Lump sums were inserted in column I of Table 3 for the added value of the improvements at 1 Angelo St (as to which, see pars 229 ff), 11A Viret St and 30B Viret St (par 191) and 24 Viret St (par 307). Mr Byron's associated spreadsheets were not used to generate the added value of improvements for these properties. (3) The obsolescence allowances were changed in the spreadsheets for 10A Gale St (par 243) and 16 Viret St (par 301). (4) The contract date was altered in the spreadsheet for 29 Nelson Pde (par 261), affecting the adjustment for movement in the market. (5) Comparative adjustments for the different features of the comparable sales and the subject land were made in columns L to R of Table 3, as discussed in parts 13 and 14 of this judgment. (6) A weight factor for reliability was inserted in column U of Table 3, and the weighted average land value automatically calculated (pars 332 ff). (7) No scarcity factor was used (pars 24-48). (8) Subject to the above and for the purpose of this case only, a +27% improvements increment (par 156) was applied in the associated spreadsheets to the adjusted costs of improvements, without otherwise making changes to those costs.

As discussed earlier, I have rejected the applicant's +40% improvements increment. However, if +40% had been used, and given my findings on other matters and changing only +27% in par 349(8) to +40%, the result from Table 3 would have been:

If the applicant's 29.3% from 1 Fern Rd (par 120) had been accepted, and given my findings on other matters and changing only +27% in par 349(8) to +29.3%, the result from Table 3 would have been:

If a 25% improvements increment (referred to in par 155) had been substituted in par 349(8), the result from Table 3 would have been:

I indicated (at par 188 above) that using the improvements increment that I have adopted of about +27%, the increment should probably be applied to costs in the spreadsheets that relate only to construction (and not to costs more properly allocated to the value of the development consent). If that view is correct, the value inferred from each improved sale in Table 3 would probably increase by the value attributable to the development consent. Although the respondent had made a general submission to the effect that a development consent should be taken into account in determining the percentage of the improvements increment (and I have done that), neither party made specific submissions on the particular application of the improvements increment in the associated spreadsheets. So for the purpose of concluding this appeal, I do not base my determination of the land value on this alternative.

In considering the ultimate determination of the land value, the likely large margin of error in the valuation of improvements also has to be borne in mind (pars 195 ff).

In part 2 of this judgment, I gave an overview of this appeal and expressed my main findings, and I will not repeat them here.

This case has raised for consideration some important valuation principles. The applicant's senior counsel considered the present hearing to be a test case (T 385). The applicant put before the Court evidence of the valuation or analysis of practically every known sale of a comparable waterfront property at Hunters Hill or Woolwich within 18 months of the base date. This was a course of action that the applicant wished to pursue but it was not required by this Court or by the High Court. No objection to this course was taken by the respondent. In retrospect it seems to me that a much smaller reasonably representative group of sales could have been chosen, with substantial savings in costs and time for the parties and the Court. However, in the end, the applicant has been successful in having the assessment again reduced by a small amount.

As set out in Table 3, I have found that the inferred value for the subject land from all the improved sales is about the same as the inferred value from the vacant land sales. However, on some alternative findings the result would be that the land value inferred from the improved sales would be higher than the inferred value from the vacant land sales. In the circumstances, I am of the opinion that a small percentage variation between the two inferred values it is quite acceptable, taking into account the large margin of error inherent in the valuation of improvements. Having regard to all the evidence, my inspection of the properties and the written and oral submissions, I am of the opinion that it is appropriate to determine a land value of $1,890,000.

At the first call over after the High Court's decision, I raised with the parties various points relating to the preparation for the present hearing (as set out in file note dated 11 April 2003). One of those points was the desirability of representatives conferring with a view to settling the appeal, without further hearing. As is apparent, the appeal was not settled. I believe my determination of the land value of $1,890,000 is a reasonable one in the light of the extensive findings of fact that I have made. An appeal may be brought from a decision of a Commissioner only on a question of law. If there is any legal issue arising from my consideration of valuation principles that either party may wish to challenge, and if a contrary finding by a Judge of this Court would be unlikely to affect my ultimate determination of the land value, it seems to me that it would be better for the parties to allow the present hearing to be the conclusion of this lengthy and expensive litigation: cf. Barmuncol Pty Ltd v Maroochy Shire Council (1983) LGRA 309; Guideline Drafting and Design v Marrickville Municipal Council (1988) 64 LGRA 275. The question of law could be left for reconsideration should it later arise in some other matter.

Accordingly, the orders of the court are:

1. The appeal is allowed.
2. The land value of 66 The Point Rd, Woolwich, as at 1 July 1997 is determined to be $1,890,000.
3. Costs are reserved. ___________ A J Nott, Commissioner of the Court Appendix 1

Judgment in Illawarra Meat (Developments) Pty Limited v Valuer-General

The following is an exact copy of the official transcript of relevant parts of an unreported judgment of Rath J on the question of the effect of a development consent on unimproved value. I have added paragraph numbering, and have omitted parts or paragraphs that are unrelated to that question. I have referred to his Honour's judgment at par 80 above.

• Nott C.

IN THE LAND AND VALUATION COURT No. 119 of 1977 CORAM: RATH, J. Friday, 10 March 1978 Illawarra Meat (Developments) Pty Limited v The Valuer-General

[1] HIS HONOUR: This is an appeal under s. 38 of the Valuation of Land Act, 1916 from a determination of an unimproved value of $185,000 as at 1st January, 1975 in respect of lot 1, D.P. 236249 at Yallah Rd, Yallah in the City of Wollongong.

[2] The appellant called one valuer, Mr. J.M. Bell…

[3] The [appellant's] land has an area of 32.37 ha… The principal part of the land (32.11 ha)…is zoned Non-urban "B" under the Illawarra Planning Scheme, which was prescribed on 19th January, 1968.

[4] …In this Non-urban "B" zone there is a prohibition in respect of industries other than rural industries… These excepted industries are permissible with the consent of the responsible authority. There is an abattoir on the land. Conditional approvals for this use were given on 13th September, 1971 and 19th July, 1973… An abattoir would appear to fall within the definition of "rural industry"…

[7] Mr. Bell's primary sale is a sale of the Owikeno land on 11th July, 1973… Mr Dunn, who has been town planner for the Wollongong City Council for thirteen years, gave evidence that he could see no reason why the development of the [Owikeno] land for a meat-works should not have been approved in July, 1973 subject to reasonable conditions. At that time it was most unlikely that council would have required an environmental impact study. In 1974, although possibly no "impact statement" would be required, his department would have made investigations. In 1975 it would be practically certain that such a "statement" would be required…

[8] …Mr Bell thought that because an approval for an abattoir would, on his information, be likely to be granted in July, 1973, there was little added advantage for the subject land in its having an actual approval for that use. This might be true if the valuation of the subject land was being made in 1973. But by January, 1975 an actual approval was a distinct advantage, and I think that there is great difficulty in comparing the realised and valuable potentiality in 1975 with an unrealised potentiality in 1973. The circumstances in 1973 were such that a purchaser looking for land with this potentiality would probably have a wider choice than he would have in 1975. In 1975 the change in environmental planning would give a value to the abattoir approval that would make the subject land in an important respect not comparable with other Non-urban "B" land. The precise position at 1st January, 1975 in regard to an application for approval of an abattoir does not appear in the evidence; but it was apparent that more stringent controls were exercised at that date than in 1973. Thus the subject land, with its approval as an abattoir site, was distinguishable in an important respect from other Non-urban "B" lands not having such an approval on the date as at which the value was determined (that is, 1st January, 1975). That distinction was of appreciably less consequence in July, 1973, and the basis for comparison between the subject land at the valuation date and the Owikeno land at the sale date is insecure and unreliable. The difference between the two things posed for comparison is one of kind, and not capable of reasonable adjustment (as would a difference, for example, such as town water being available to one site and not to another).

[9] Inherent in the above discussion are two proposition, the first being that the unimproved value of the subject land is to be determined on the basis that the existing use as an abattoir may be continued; or alternatively on the basis of an existing approval of an abattoir use. Either alternative would have substantially the same valuation consequences. The first alternative is based upon s. 6(2), which so far as material reads:

"(2) Notwithstanding anything in subsection (1), in determining the unimproved 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…"

The words "the date to which the valuation relates" mean in this case the date on which the valuation was made, that is 23rd June, 1975 (s. 14A(1)(a), (4) and (6)). Section 6(2) appears to have been inserted in the Act as a consequence of the decision of Hardie J. in Wunderlich Ltd. v Valuer-General ((1959) 5 L.G.R.A. 50; see Act No. 31, 1959 ss. 2 and 4). In that case it was held that the unimproved value must be determined without taking into account a non-conforming use of the land the continuance of which depended upon there being buildings on the land that might be maintained pursuant to cl. 32 of the County of Cumberland Planning Scheme Ordinance. Though the immediate purpose of the Legislature was to deal with this particular state of affairs, I think the plain meaning of the language is that the continuance of an existing use is to be assumed, whether or not in the zone in which the land lies the use is a non-conforming use. As Else-Mitchell J. said in Pye v. Valuer-General (29 L.G.R.A. 160 at 162) "the purpose or object of the amendment was to remove the obligation which ensued from s. 6(1) to determine the unimproved value on the basis of the land having no potentiality of use for the very purpose for which it was in fact being used at the date of the valuation".

[10] The alternative view is that the unimproved value is to be determined on the basis of an approval for an abattoir having been given. It is the fee simple that has to be valued, and it is to be valued on the hypothesis that it is unencumbered by any restrictions created in the Crown grant or between parties (Gollan v. Randwick Municipal Council (1960) 6 L.G.R.A. 275). Restrictions imposed by the general law, such as town planning legislation, are to be taken into account (Royal Sydney Golf Club v. Federal Commissioner of Taxation 91 C.L.R. 610; 20 L.G.R. 48); but where such a restriction no longer effectively exists in regard to a parcel of land because of an approval given, the valuation must in my view be made in accordance with the reality of the case. In the present case I think that the subject land is to be valued on the basis both of the existing abattoir use and the approval for such use, though as I have said either alternative would produce substantially the same value, as would also the combination of the alternatives.

[11] Counsel for the appellant submitted that s.6(2) requires the assumption in effect of an approval whenever a use is permissible with approval. If this submission was correct, there would be no substantial advantage in the existence of the abattoir use or approval. The second proposition I referred to above is that this submission is not valid. The submission depends on construing the words "any purpose…for which it could be used" in s. 6(2)(a) as applying to a purpose permissible only with consent, so that in the case of such a purpose it must be assumed that the land may in fact be lawfully used for that purpose, whether or not an approval exists in fact. In my view, the words "for any purpose…for which it could be used" refer to a purpose lawful in respect of land at the relevant time, but not the subject then of any actual use. So construed the words cover the situation of an existing use under cl. 32 of the Cumberland Planning Scheme where there is no actual use, but existing use rights have not been abandoned (op. Woollahra Municipal Council v. Banool 129 C.L.R. 138 at 144).

[12] For these reasons I regard the sale of the Owikeno land in July, 1973 as an unreliable guide to the value of the subject land as at 1st January, 1975.

The documents tended in evidence in the original hearing and additional documents tended in the present hearing are listed below:

ex Applicant ' s Exhibits Original hearing: A Report of valuer Mr P Byron dated 27 August 1999. B Reply of Mr Byron (to report of Mr Croker) by letter dated 8 September 1999. C Letter of Mr A Maurici dated 26 August 1999 re condition of retaining wall at 66 The Point Rd. D Construction Cost Estimate Report (Additional Properties) dated September 1999: estimates for 1 Angelo St, 30B Viret St, 9 Werambie St and 11A Viret St. E Letter of Mr Maurici dated 26 August 1999: condition of retaining wall. F Zoning map referred to in Hunters Hill Local Environmental Plan No. 1. G Hunters Hill Local Environmental Plan No. 1. H Bundles of photographs taken in August or September 1999 of: 1 Angelo St, 11A Viret St, 30A Viret St, 30B Viret St, 9 Werambie St, 29 Wybalena Rd, 49 Wybalena Rd and subject site. J Construction Cost Estimate Report (Supplementary Information) by Mr Hammond dated 14 September 1999. Present hearing: K Supplementary report of Mr Byron dated 12 February 2004 (376 pages). L Plan of Hunters Hill Municipality showing location of properties referred to by the parties. M Report of Mr Byron dated to July 2004, commenting on reports of Mr Norris and Mr Croker. N Construction Cost Estimate Report of Mr Hammond dated 5 February 2004 (125 pages). O Letter dated 23 July 2004 from U Wolfensberger of 10A Gale St, Woolwich. P Blue folder of plans or photographs of buildings. Q Comparison of cost estimates by Messrs Martin and Hammond (28 July 2004). R Mr Byron's adjustment schedule and analyses of sales, being 34 pages of spreadsheets dated 1 August 2004. S Page 99 of 1998 edition of Rawlinsons. T Large blue folder of photographs of comparable properties taken by Mr Hammond. U 25 photographs of 73 The Point Rd taken in September 1999. V Affidavit of Mr P Hammond sworn on 13 August 2004 with annexed photographs taken in July, August or September 1999. W E-mail of Mr Hammond dated 19 August 2004 re floor area of 73 The Point Rd. X Comparison of consumer price index and Rawlinsons building price index, 2004. Y Affidavit of statistician Mr D Sinclair sworn on 20 August 2004.

ex Respondent ' s Exhibits Original hearing: 1 Report of valuer Mr M Croker dated 10 September 1999. Present hearing: 2 Supplementary report of Mr Croker dated 31 October 2003 (150 pages). 3 Report of valuer Mr M Croker (in reply to Mr Byron) dated 22 March 2004. 4 Report of valuer Mr K Norris dated 2 April 2004. 5 Letter of Mr Norris dated 16 July 2004 (in reply to Mr Byron). 6 Waterfront Pictures (25 coloured photographs) dated 9 July 2004, taken in July 2004 (A4 size and another copy in A3 size). 7 Report of quantity surveyor Mr P Martin dated October 2003. 8 Real Estate Institute: Median House Prices for Hunters Hill. 9 12 photographs by Mr Martin (taken 2003) of the interior and pool of 68 The Point Rd. 10 23 photographs of 13 Lloyd Ave. 11 Six photographs of 9 Werambie St. 12 Parliamentary Papers 1976: Final Report of Commission of Inquiry into Land Tenures (February 1976). 13 Rent and sales statistics of NSW Department of Housing from June quarter 1997 to December quarter 2003 and copy on CD-ROM.. 14 Calculation of land tax - 1 Fern Rd.

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