• Richard Altson, Director of Property Acquisitions for Mirvac;
• Andrew Biasci, town planner
• Grant Jackson, valuer
• Justin Ganly, retail/economic consultant

For the Moonee Valley City Council and the Valuer-General Victoria

Mr Stuart Morris QC and Ms Aileen Ryan of counsel, instructed by the Victorian Government Solicitor's Office.

Mr Morris and Ms Ryan called the following witnesses:

With the Tribunal's leave, a witness statement was also filed from Bernard McNamara, town planner, but the applicant did not require Mr McNamara to attend for cross-examination.

1. In March 2007, the Coles Group sold to Mirvac Funds Ltd a number of adjoining parcels of land in the Moonee Ponds shopping centre. The total land area was 13,115m² and the contract price was $8,892,000. The contract of sale required Mirvac to develop the site in accordance with an agreed development plan, and to lease back to Coles two tenancies for a K-Mart and a 'First Choice' liquor store.
2. The March 2007 contract was the culmination of an extended negotiation during which the development plan and Coles' tenancy requirements changed significantly. Reflecting this, the purchase price had also fluctuated. Mirvac's initial EOI and bid-proposal to Coles in 2005 had indicated a purchase price for the land in the order of $10 million, and a 'memorandum of understanding' between the parties in December 2005 had indicated a purchase price of $8,474,000.
3. Within this same period, the Moonee Valley Council undertook its two-yearly general valuation of land in its municipality for rating and taxation purposes. As at 1 January 2006, the Council valued the land, as the aggregated value of the various land parcels, at $11,725,000. This valuation was confirmed in two supplementary valuations in 2007. Mirvac's initial objection to the valuation in October 2007 was disallowed.
4. Mirvac now seeks to review the Council valuation, arguing that the contemporaneous sale of the subject land from Coles to Mirvac is itself the best and most reliable indicator of its value. Allowing for holding costs and site remediation costs, Mirvac now contends that the adjusted site value of the land is $7,070,000. The Council contends that the Coles sale was not a sale 'in ordinary circumstances', and that it should be disregarded. It seeks to maintain its overall site valuation of $11,725,000 based on other comparable sales.
5. The Valuer-General Victoria has joined the proceeding, seeking to uphold the Council valuation, and it presented a joint case for itself and the Council.
6. In order to determine the correct value of the land, the following issues arise for our consideration:
   • Should all of the land be valued together or as separate parcels?
   • Was the sale from Coles to Mirvac a sale 'in ordinary circumstances' having regard to the statutory definition of site value?
   • If the sale was not a sale in ordinary circumstances, should it be disregarded or can it still be adjusted and used as a relevant sale?
   • Is the Council's valuation approach and analysis of comparative sales reasonable and defensible?
   • Should there be a further adjustment for site remediation?
7. Mirvac's grounds for review contest each of the site value, capital improved value, and net annual value of the land. However, the proceeding is really a debate about site value. It is common ground that, for this valuation exercise, there are now no material improvements to be taken into account. The CIV will therefore be the same as the assessed site value, and the NAV will be a standard 5% of CIV.

1. As at 1 January 2006, the Coles land in Moonee Ponds comprised 43 lots held in 39 titles. There were four shops fronting Puckle Street, an Officeworks store, and the balance used for car parking. Parts of the land were owned separately by two Coles Group entities and with the four shops and Officeworks store in separate occupancies. Having regard to this, the Council initially valued the land in eight parcels, with an aggregated site value of $11,725,000.
2. In mid 2007, the Officeworks store was demolished and the 4 Puckle Street shops were partially demolished save for the facade. This triggered a supplementary valuation. The 4 Puckle Street shops and an adjacent car park area were combined into a single assessment, meaning that there were now four land parcels assessed by the Council for rating purposes in 2007-08 (rather than the original eight parcels). The aggregated site value of the four parcels remained at $11,725,000. These four assessments led to the four valuation objections by Mirvac in October 2007 that, in turn, form the basis of the 4 applications for review before the Tribunal.
3. Also in 2007, the land was consolidated into two titles -
   • Lot 1 on PS 544834N (Certificate of Title 11049 Folio 349), now known as 4-16 Hall Street, comprises the land between Hall Street and Homer Street, with an area of 10,450 m²; and
   • Lot 2 on PS 544834N (Certificate of Title 11049 Folio 348), now known as 72-80 Puckle Street, comprises the land between Puckle Street and Hall Street, with an area of 2,665 m².

The consolidation triggered a second supplementary valuation in November 2007. The aggregated site value of the two land parcels remained at $11,725,000. For the purposes of this proceeding, the land remains in these two titles.

Objection on basis that land should have been included in one valuation

1. In its original valuation objections and applications for review, in addition to contending that the aggregated valuation was too high, Mirvac has also objected on the basis that land had been valued separately that should have been included in one valuation[1]. The Council's valuer did not directly address this issue in his response to the objections.
2. Section 13DC(6) of the Valuation of Land Act 1960 provides that, if several parcels of land in the same municipal district are occupied by the same person and separated only by a road across which movement is reasonably possible "the parcels must be regarded as together forming rateable land and valued accordingly".
3. We agree with Mirvac that, at least from the time of the first supplementary valuation (i.e. following the transfer to Mirvac, and the demolition of the Officeworks store and Puckle Street shops), the land was in a single occupancy despite still being in several separate land parcels and separated by roads. Section 13DC(6) therefore applies. At the hearing, the respondents did not contest this view.

What is the consequence (if any) of valuing the land 'together'?

1. Implicit in Mirvac's contention that the land should be included in a single valuation is an apparent view that the land should be valued only as a single large integrated development site of 13,115 m². We do not share this view.
2. Section 13DC(6) of the Valuation of Land Act 1960 refers to the land parcels being regarded as together forming rateable land and valued accordingly. The valuation of the land parcels as 'together forming rateable land' does not mean that the combined land holding must be valued as a single homogenous site where all parts of the land are necessarily of equal value, or where a common valuation rate per square metre necessarily applies uniformly across the site. The requirement that the land be 'valued accordingly' simply means that the common ownership or occupancy must be taken into account as part of the valuation exercise. Depending on the circumstances, this may attract an adjustment to the overall value.
3. We agree with the respondents that, notwithstanding the land is to be valued as 'together forming rateable land', the configuration of titles existing at the valuation date is still a relevant factor in assessing value, as are potential attributes of the land including its shape, size, situation, aspect and potential use[2]. The land's potential could conceivably include the separate sale, development or use of individual lots, or in some cases the benefits and potential for further consolidation or subdivision. A valuation based on a single integrated development site may often reflect the highest and best use of the land and provide the best evidence of value. But not always. The relevance and weight of various factors influencing value will vary from case to case.
4. It follows that, in valuing the land 'together' for a single rating assessment, relevant parts of the land may still be considered separately as part of the valuation process if this better reflects the underlying value of the land as a whole, and with these parts then aggregated to provide the overall valuation. Indeed, the valuation of a large site by the aggregation of values of individual lots is not uncommon. The fact that the Council's overall site valuation of $11,725,000 here has been reached through an aggregation of the value of individual lots or parts of the land does not of itself undermine the integrity of the valuation.
5. In this case, the smaller Lot 2 fronts Puckle Street, Moonee Ponds - arguably one of Melbourne's prime shopping strips. In our view, the Council valuer was entitled to separately consider this portion of the land, and apply a higher rate of value per square metre, rather than valuing it at a lesser rate as an amorphous part of a larger site. This reflects the fact that this portion existed on a separate title with a different and much higher potential as prime retail floor space.

Was the sale from Coles to Mirvac a sale 'in ordinary circumstances'?

1. Section 2(1) of the Valuation of Land Act 1960 defines site value as follows:

site value of land, means the sum which the land, if it were held for an estate in fee simple unencumbered by any lease, mortgage or other charge, might in ordinary circumstances be expected to realise at the time of the valuation if offered for sale on such reasonable terms and conditions as a genuine seller might be expected to require, and assuming that the improvements (if any) had not been made. (our emphasis)

1. It was common ground that a contemporaneous sale of the subject land will ordinarily be the best guide to its value, provided there are no special circumstances that affect value. An actual and genuine 'open market' sale between a willing but not anxious vendor and purchaser removes debate about what a hypothetical sale might be expected to realise at the valuation date.
2. Here, there is a contemporaneous sale. Coles sold the land to Mirvac through a 'memorandum of understanding' in December 2005 and a formal contract in March 2007 - these transactions straddle the valuation date of 1 January 2006. Mirvac argued that the date on which the price was initially fixed is of significance[3], and contended that this was actually the date of the MOU only a few weeks before the valuation date. Whilst the sale price was adjusted after the MOU, it remained within a similar range ($8,474,000 under the MOU and $8,892,000 under the contract) - both well short of Council's valuation of $11,725,000.
3. For a contemporaneous sale to be a reliable indicator of value, it must be at arm's length and unaffected by special circumstances[4]. The Council valuer had initially disregarded the Coles sale using terminology that suggested it was not an arm's length transaction between the parties. The Valuer-General also initially supported this view in material filed with the Tribunal. The respondents now concede that the Coles' sale was a genuine arm's length transaction between two separate and commercially motivated parties. However, the respondents contend that the sale from Coles to Mirvac was a sale subject to special and unique circumstances that make the actual sale price unreliable as an indicator of site value. In short, it was not a sale 'in ordinary circumstances' or 'unaffected by special circumstances' where the terms of sale reflect an open market sale of the land.

What are the special circumstances affecting the sale from Coles to Mirvac?

1. The evidence and submissions disclose a multitude of special circumstances that affected the sale from Coles to Mirvac. In our view, these lead to an inescapable conclusion that the sale price of $8,474,000 (under the MOU) and $8,892,000 (under the contract) is not a reliable indicator of market value at the relevant date.
2. These special circumstances arise for both the vendor and purchaser. In essence:
   • Coles was a willing vendor only subject to its very specific development requirements being met by the purchaser, and its specific rental/occupancy cost requirements as a future tenant being agreed to by the purchaser. The EOI and sale process therefore limited the pool of prospective competitive bidders, and effectively ruled out a purchase or development by a rival to Coles, or a potentially more optimal or profitable development of the site.
   • Mirvac was a willing purchaser only subject to meeting its objectives as a funds manager, seeking asset growth in its property portfolio through the accumulation of an additional land holding in the area and obtaining longer-term benefits of scale and integration. By its own admission, Mirvac had great difficulty in achieving a return on cost from the purchase and development of the Coles land alone.
   • There was also an inter-relationship between the parties. Mirvac already owned an adjoining property where Coles was the anchor tenant with a Coles supermarket.
3. In relation to the special circumstances affecting the vendor, the supporting material includes the following:
   • The Coles 'Information Memorandum'[5] seeking expressions of interest noted that Coles had secured a development plan overlay approval "identifying the highest and best use of the site to achieve its retailing and corporate objectives" and indicated that participants that provide "certainty of delivery on the optimum terms and conditions for Coles" would be invited to submit a final bid. The intent was to maximise net sale proceeds "whilst still providing Coles-Myer with a highly competitive and attractive occupancy cost platform for their business units".
   • The contract of sale included within its terms two detailed Agreements for Lease, two redevelopment agreements, and two restrictive covenants[6], as well as Coles retaining a right of first and last refusal to re-purchase the land for the lesser of $8,892,000 or its then market value[7].
   • Mr Altson conceded in evidence that Mirvac would have preferred to use its standard form of lease, as it would have produced a higher rental return than that achieved from the Coles standard lease, which formed the basis of the Agreements for Lease in the contract of sale. There was ultimately an inter-relationship between the nature and form of the lease-back arrangements and the amount Mirvac was prepared to pay for the land.
   • The initial approved development plan had allowed for a mixed-use development including retail, office, hotel and residential totalling 34,850 m2 with 963 car spaces. Despite being a well-regarded residential developer, even Mirvac could not make a residential component viable given the other development requirements and constraints. What was ultimately agreed and built was approx. 9,814m2 of retail, 3,184m2 of office, and associated car parking[8].
   • We do not agree with the evidence of Mr Biasci and Mr Ganly that, despite the Coles requirements, the development and lease-back arrangements still facilitated a reasonably optimal use of the land consistent with what might be expected having regard to local planning controls and the retail dynamics of the location. Whilst there might remain a legitimate debate about what the best form of development might have been, we prefer the evidence of Mr Milne and Mr McNamara[9] that the ultimate design, layout and tenancy mix necessitated to meet the Coles requirements here created a sub-optimal outcome for the site that had a negative impact on land value.
4. The Coles requirements removed the 'blank canvas' through which an unencumbered purchaser/developer could have maximised the site's potential. Amongst other things, the Coles requirements:
   • removed the opportunity to attract Coles' rivals in a competitive market for the anchor tenancies;
   • sought to optimise access to the Coles supermarket on adjoining land at the expense of other development opportunity on the subject land itself, involving large areas for wide malls and travelators;
   • reduced the ability to locate the anchor tenants to maximise available and well-located floor space for higher yielding specialty shops. For example, the 'First Choice' liquor store is located with access only from an under-croft car park, and does not serve as an anchor for any specialty shops;
   • required car spaces to be provided well above normal planning scheme levels (with 534 being provided rather than the 463 required under the planning permit); and
   • created atypical construction costs.
5. We disagree with Mr Jackson, the valuer called by Mirvac, who expressed a view to the effect that there will always be something in any commercial sale that could be described as a 'special' circumstance, and that the circumstances here (as between Coles and Mirvac) were not sufficiently unusual to have had a significant impact on value. We agree instead with Mr Milne that the obligations imposed by Coles provide a clear and unambiguous explanation for the low sale price, and that the sale "was encumbered by economic blight to meet the wider commercial needs of the vendor".
6. In relation to the special circumstances affecting the purchaser, the supporting material also includes the following:
   • From Mr Altson's witness statement, it is clear that Mirvac was interested in the site because it already owned the adjacent Moonee Ponds Central Shopping Centre with Coles as an anchor tenant, and perceived some scope to integrate and link the supermarket to Puckle Street and thereby improve its investment portfolio. Indeed, despite a preliminary feasibility report prepared by Mirvac that showed that meeting the Coles development requirements would lead to the project only just breaking-even with a site value of $8.5 million (rather than achieving a 'normal' return on cost of 5-10% or an internal rate of return of 18%), Mirvac was prepared to enter into negotiations with Coles because of these broader objectives related to its overall investment portfolio in Moonee Ponds[10].
   • In submitting its initial EOI in February 2005, Mirvac stated that "the ability to achieve all of the Coles-Myer business unit requirements is difficult". [Mirvac therefore proposed a second option without an Officeworks store, and this store was later removed from the development]. Mirvac's EOI indicated a desire to achieve the best possible result for the land and its adjoining centre[11].
   • Mr Altson's witness statement reveals several other parts of the negotiation affecting land value. For example, he had requested at one point that the land value be reduced by $2 million (from the $10 million offered in the EOI) due to Coles' choice of development option having increased construction costs, to maintain commercial viability, and after taking into account variations to the rentals to be paid for Coles tenancies[12].
   • In final submissions, Mirvac's counsel conceded that Mr Altson's evidence was that Mirvac only considered purchasing the site because it owned the adjoining property and that otherwise the project was not feasible.
7. Mr Altson took the view that, if anything, Mirvac had paid too much for the land and would not have paid what it did but for the benefit of accumulating the land with other adjoining land it already owned. This may be so, but only because of the specific contractual obligations embedded in the sale by Coles. From Mirvac's own material, there is ample evidence that it was not 'a willing but not anxious purchaser' in an open sale. It was perhaps the opposite. We agree with the respondents that Mr Altson's evidence in fact supports a view that the Coles obligations demonstrate a sale that did not encompass the highest and best use of the land, but rather reveals a use to Coles' commercial advantage. Mirvac was prepared to entertain this arrangement at a reduced land value and would have preferred (or so it now seems) to have paid even less for the land and its obligations. This is still indicative of a below-market sale rather than the reverse.
8. The combined outcome of the Coles and Mirvac positions is that there was an affected vendor and an affected purchaser both coming to a deal, albeit through an arms length negotiation, that served to sufficiently meet their respective needs. It was not however a deal that maximised the potential use and development of the land. Both appeared willing to trade 'value' in the land sale in order to achieve other commercial objectives.
9. It is also a reasonably accepted industry position that Woolworths is looking to expand its DDS network in Melbourne, and Woolworths traditionally achieves a higher return per square metre of retail floor space than Coles. We were told that, for these reasons, Coles needed to protect its position in Moonee Ponds. A feasibility study prepared by Charter Keck Cramer for the Council in 2003[13] had noted that the proposed K-Mart was about half the size of a usual DDS and that the lack of a good anchor would have negative impacts for attracting quality specialty shops and for the shopping centre generally, including integration with the centre containing the Coles supermarket. The study expressed a view that Coles was unlikely to pursue the K-Mart in such circumstance. Indeed, Coles did not ultimately risk the venture itself, but instead passed the risk on to Mirvac through conditions on the land sale. It is reasonable to assume that this risk was built into the sale price.
10. For all of these reasons, we consider that the sale from Coles to Mirvac was not a sale in ordinary circumstances, but was affected by its own special circumstances.

1. In addition to the special circumstances that prevailed as between Coles and Mirvac, there are other factors and surrounding circumstances that support the view that the sale price did not reflect the market value of the land at the relevant date and was not a sale in ordinary circumstances. First and foremost, the sale of the land from Coles to Mirvac was well below the prevailing market rates for development land indicated by sales of other development land in the area. We will return to the comparative sales evidence later in these reasons.
2. There are three other matters deserving of note:
   • Coles had purchased part of the land in 1997. The Readings Group had also purchased a large adjoining site in 1997. The information from these sales reveals that, if Mirvac's view of the value of the land in this proceeding is correct, the land value had not increased at all between 1997 and 2007. This cannot be correct, both intuitively and having regard to the general movement of the property market during this ten year period attested to by Mr Lynch (who suggested the market probably doubled in this period) and by Mr Milne. By comparison, Mr Ganly and Mr Jackson were unable to adequately explain this anomaly.
   • Coles had itself had the subject land formally valued by Fitzroys in June 2003 for financial reporting purposes[14]. The market value of the unencumbered freehold interest in the land was then $12 million. Interestingly, this valuation was derived by an aggregation of the values of a 2,664 m2 site fronting Puckle Street (valued at $5 million at a higher rate per square metre) and the balance 10,400 m2 site (valued at $7 million). Why would Coles sell land it was told was worth $12 million, three years later in a rising market, for less than $9 million?
   • In its EOI in February 2005, even Mirvac had been prepared to make an initial offer in the order of $10 million.
3. This additional material is obviously not in the form of contemporaneous sales evidence that can be used to positively value the land as at the relevant date. We reject Mirvac's submission that it has been used in such a way. The additional material does however provide something of a reality check on the other material before the Tribunal, and bolsters the view that the sale of the land from Coles to Mirvac was not a sale in ordinary circumstances or at a price that reflected its true market value.

Should the sale from Coles to Mirvac be adjusted or disregarded?

1. Just because the sale from Coles to Mirvac was not a sale in ordinary circumstances, it does not follow that it must be automatically disregarded. It is necessary to consider whether the sale can be adjusted for its special circumstances to still provide comparative evidence of valuation.
2. In Valuer General v Fenton Nominees Pty Ltd,[15], a case brought to our attention by Mirvac, it was stated that valuers will generally exclude a sale affected by special circumstances where the circumstances "are such as plainly take the sale out of the ordinary run of transactions that together constitute the relevant market". We agree with this sentiment.
3. There was some debate as to which party (if any) bore the onus of proof on this issue, and on the issue of special circumstances generally. The respondents argued that Mirvac, as the applicant, bore the onus of proof in establishing that the Council valuation was wrong, including the onus of proof in relation to the Council's view of the 'special circumstances' affecting the Coles sale[16]. Mirvac had argued that the respondents were the party that asserted 'special circumstances' and therefore bore the onus of proof on that particular issue, notwithstanding that Mirvac may bear the overall onus in the proceeding generally.
4. We would generally prefer a view that, in the 'review' jurisdiction of the Tribunal (as opposed to its original jurisdiction), and in the absence of a statutory provision to the contrary, there is no over-riding burden of proof such as might apply before a court [17]. The Tribunal should ordinarily decide a matter on the totality of the material before it, as this better accords with the principles that underscore the review jurisdiction established under the Victorian Civil and Administrative Tribunal Act 1998. Despite this, a party asserting a particular contention within the proceeding may bear the responsibility of satisfying the Tribunal about that particular contention.
5. Even if we are wrong on this, and if the respondents bear the onus of proving 'special circumstances' in this proceeding as Mirvac asserts, we are satisfied that the Valuer-General and Council have discharged that onus. We do not accept Mirvac's contention that the respondents have merely speculated, without any real evidence, on the issue of special circumstances. The respondents have demonstrated to our satisfaction that there are special circumstances that plainly take the Coles sale out of the ordinary market to the extent that it should be disregarded.
6. We agree with Mr Milne that Coles' commercial requirements raise fundamental questions as to whether it is appropriate to consider the transaction. We agree in particular with Mr Lynch and Mr Milne that it would be virtually impossible to adjust for this sale. The commercial factors that may have motivated the parties lack sufficient detail to be quantified and adjusted in dollar or percentage terms.
7. We also disagree with Mr Jackson that the existence of an approved development plan and lease pre-commitment is in fact something that attracts a premium value for the land. We are of course aware that, amongst the 'tools of trade' for valuers, it is common to make standard adjustments in the absence of other available information - for example, a 5% or 10% premium for adjoining ownership, the existence of a planning permit, or a lease pre-commitment that benefits the land. These assumptions are however rebuttable in the circumstances of a particular case and here the evidence clearly points the other way. The sub-optimal development and lease-back obligations would suggest, if anything, a substantial discount to value rather than a premium. However, as we have indicated, the commercial issues and special circumstances affecting the Coles sale make it an unreliable indicator of market value and impossible to adjust on any meaningful or objectively justifiable basis on the evidence before us.
8. It follows that the sale from Coles to Mirvac should be disregarded in the assessment of site value in this proceeding. We are satisfied as a matter of fact that the Coles' sale is not a reliable comparative sale.

Is the Council valuation reasonable and defensible?

1. It is fair to reflect that much of Mirvac's case in this proceeding falls over if the Coles sale is disregarded. Reliance on that sale is pivotal to Mr Jackson's valuation evidence, and the other comparable sales he relied upon were of limited relevance.
2. It is still however necessary to reasonably satisfy ourselves that the Council valuation is reasonable and defensible.

1. Mirvac argues that the Council's valuation is undermined because it is not based upon the identification of the highest and best use of the land as a preliminary step to ascertaining and considering relevant comparable sales. It is clear that Mr Lynch did not identify a single highest and best use. However, whilst there was some debate about the highest and best use of the land at the relevant date, we think the issue presents as somewhat of a 'red herring' in this case.
2. Section 5A(3) of the Valuation of Land Act 1960 requires a valuer to take into account, where it is relevant, the highest and best use of the land and any potential use. In ISPT Pty Ltd v Melbourne City Council[18], the Court of Appeal (following the Tribunal decision at first instance) indicated that the role and weight to be given to this factor will turn logically upon other relevant factors disclosed by the evidence. It will not always be necessary to identify a precise highest and best use before considering comparative sales, and the highest and best use may extend to a range of potential uses.
3. Indeed, in business and activity centre zones, there may be mixed use opportunities where different categories of buyers compete for different opportunities, and where the highest and best use is a moveable feast that is effectively the use to which the highest bidder wishes to put the land. It will thus be sufficient in most cases to describe a highest and best use in general terms - for example, intensive retail and mixed use. That sentiment applies here. It is not necessary to go the level of specificity that Mr Jackson articulated - for example, valuation as a sub-regional shopping centre (which was not clearly substantiated here), or valuation consistent with the actual designated use under the approved development plan.
4. In a business and activity centre context, there is also some danger in being too prescriptive as to what the highest and best use might be. To argue that the actual Mirvac development represents the single highest and best use of the land is flawed. The valuation exercise by Mr Milne perhaps demonstrates this. He uses a prescriptive highest and best use of 10,000m2 retail, and 5,500 m2 non-retail (i.e. not dissimilar to the subject site) to derive a site value for the land of $15.3 million - well in excess of the Council valuation. However, Mr Milne bases his valuation on comparative sales for other infill retail/residential development sites at Camberwell and Highett and his opinion of a more optimal development and tenancy mix for the Moonee Ponds land. A very prescriptive highest and best use becomes very sensitive to, and reliant upon, the other assumptions made.
5. The planning framework for the Moonee Ponds land in this case included the possibility of retail, office, hotel and residential development. The land was initially in several parcels, and consolidated into two lots with different attributes. Multiple opportunities existed for development and use. We think in these circumstances, the Council valuer was not obliged to identify a single or precise highest and best use before ascertaining and considering relevant sales of comparable development land.

Council's approach and analysis of comparative sales - is it defensible?

1. In our view, a valuation based on comparative sales is clearly appropriate in this case. It is the most conventional method for land valuation. Although there are relatively few comparative sales, we consider there are sufficient for the valuation exercise undertaken in this case.
2. We generally accept the analysis of Mr Lynch as set out in his witness statement and evidence. Whilst Mr Lynch himself readily conceded that he did not have the broader 'retail' valuation experience of Mr Jackson, he has more than 20 years experience in municipal valuations in the inner north-west of Melbourne. Indeed, his office is in Moonee Ponds and he demonstrated to us a sound, independent and intuitive knowledge of his 'local' market and the key factors affecting value in the activity centre precinct in which the subject land is situated.
3. Mr Lynch initially relied on five comparative sales, as set out in his witness statement. He indicated he considered these because the land was vacant and/or purchased for development in Moonee Ponds or surrounding suburbs. When reviewing Mirvac's objection, Mr Lynch had also considered a small number of additional sales[19], some of these being potentially more relevant for a larger site such as Lot 1 within the subject land. Whilst we have considered all of Mr Lynch's sales evidence as forming a satisfactory basis for his assessment, we consider the most relevant of his sales evidence to be the following:
   • 34-38 Young Street, Moonee Ponds (981 m²) - Sale 15/02/06: This is a relatively small development site within a Business 2 zone located one block south of Puckle Street, directly adjacent to the Safeway supermarket. Mr Lynch has adjusted the sales rate of $2,243/m² to $2,396/m² to reflect estimated demolition costs. The site has been considered for redevelopment (although a permit for retail/residential development has lapsed), but is in a secondary location compared to the subject land.
   • 34-36 Margaret Street & 56-62 Aspen Street, Moonee Ponds (1,802 m²) - Sale 10/07/06: Although Mr Jackson treats this as 2 separate sales, it comprises a combined sale to Readings within a Business 2 zone approx. two blocks west of the subject land. Mr Lynch has adjusted the sales rate of $2,014/m² to $1,949/m² to reflect a time adjustment and estimated demolition costs. Whilst closer to the railway station, this site is also in a secondary location further from the main retail/commercial activity centre, and is inferior to the subject land - particularly Lot 2.
   • 23-39 Dean Street, Moonee Ponds (2,478 m²) Sale 26/05/05: another Business 2 zoned site, located on the other side of Mt Alexander Road, east of the subject land. Mr Lynch has adjusted the sales rate of $1,252/m² to $1,334/m² to reflect a time adjustment and minor demolition works (as it was largely vacant land). The subject land is in a superior zone (Business 1), with a clearly superior location and capable of a higher use.

We are satisfied that the minor adjustments for time and/or estimated demolition costs are appropriate in each case.

1. From these and the other sales, Mr Lynch derived a valuation rate of $2,500/m² for the front section of 1,266 m² of Lot 2 fronting Puckle Street, being clearly superior to the other comparative sales. This might even be considered conservative for this portion of the land given the Young Street sale, Mr Lynch's evidence of a later sale in March 2007 of 17-31 Pratt Street (adjoining Safeway)[20], and his oral evidence of sales rates up to $5,000/m2 for other Puckle Street shops. Mr Lynch also derived a rate of $1,250/m2 for the rear of Lot 2 fronting Hall Street, and a much lower rate of $750/m2 for the larger Lot 1 land.
2. As we have indicated earlier, we consider it appropriate for the Council valuer to have undertaken the valuation in a manner that separately recognises and reflects the higher value of the portion of the land comprised in Lot 2, rather than valuing it at a lesser rate as part of the larger site. Lot 2 exists on a separate title with a different and much higher potential as prime retail floor space, particularly at the Puckle Street frontage. There is no valuation principle that automatically requires a discount to be applied for all larger sites, or the purchase of adjoining sites. Although this may be a statistical outcome derived from the anlaysis of multiple sales evidence, and is sometime therefore applied to comparative sales in the absence of other information, it is a rebuttable assumption. Some scarce or prime land may in fact attract a premium as smaller sites. We agree with the respondents that, given the scarcity and demand for shops in the prime shopping strip in Puckle Street, a developer wanting larger premises fronting Puckle Street would not obtain any discount for size, and would simply pay the prevailing rate.
3. Given Lot 2 has an area of 2,665 m², and the Puckle Street frontage area within this lot is 1,266 m², this means that comparative sales for smaller lots (such as the Young, Margaret, and Dean Street sales mentioned above) are of relevance to this part of the assessment. It is not appropriate to rely only on comparative sales for larger lots similar in size to the combined Lots 1 and 2 (i.e. 13,115 m² in total). It follows that we do not accept Mr Jackson's criticism that the land should have been valued only as a single integrated development site, nor that the sales relied upon by Mr Lynch are not comparable by reason of size.
4. As indicated, Mr Lynch derived a much lower rate of $750/m2 for the larger Lot 1 land. Some of the larger sales he has referred to, including 94-110 Keilor Road and 42-70 Mt Alexander Road, support this rate, and it clearly reflects an allowance for the location, zone and size of the comparable sites. Indeed, the adjusted rate for the latter 15,350 m² site at Travencore is a similar $741/m², whereas the subject land is in a major activity centre with a superior zone. We do however agree with Mr Jackson that one of Mr Lynch's larger sales - a 5,723 m² site at 28 Victoria Street, Coburg -may have been of improved land affected by special circumstances (future development for a transport hub) and is perhaps less reliable. Its removal from the pool of comparative sales does not in our view affect the outcome.
5. Mr Lynch's valuation of the site value of the land is $11,725,000, made up of $4,585,000 for Lot 2 and $7,140,000 for Lot 1. The Lot 2 component comprises $3,165,000 for the Puckle Street frontage area and $1,750,000 for the Hall Street frontage, with an adjustment of $330,000 for demolition of the former shops. The Lot 1 assessment incorporates an adjustment of $700,000 for demolition of the former Officeworks store. The basis for these calculations is set out in the spreadsheet on page 2 of Annexure 8 of Mr Lynch's witness statement, based on the derived valuation rates we have noted above.
6. Although a valuation based upon comparative sales draws upon valuers' intuition, judgement, skill and experience, rather than being an exact science, we are satisfied that Mr Lynch's opinion and approach is defensible having regard to his primary sales evidence. The comparative sales information is bolstered in our view by the 'reality check' material referred to earlier in these reasons (the 1997 sale, the Fitzroy's valuation in 2003 etc.) that gives some comfort to us, as it did to Mr Lynch, that his derived valuation better reflects the site value of the land than the Coles sale in special circumstances.
7. We have indicated, in coming to this view, why we disagree with Mr Jackson's approach in this case. We thought Mr Jackson's approach to comparative sales on behalf of Mirvac in this case was more of a 'desktop' analysis applying general valuers' 'rules of thumb', and applying more generalised assumptions and adjustments than the specific analysis of Mr Lynch. As we have reflected earlier, Mr Jackson's evidence was also based almost exclusively on the sale from Coles to Mirvac being accepted, rather than on other comparative sales. We also note that Mr Jackson's adjusted sale rates for the three sales referred to earlier (i.e. the Young, Margaret, and Dean Street sales) are not identical to Mr Lynch's, but very much within the same ballpark - e.g. $2,224/m² vs $2,396/m² for Young Street, and $1,287/m² vs $1,334/m² for Dean Street. The difference is therefore not so much on the underlying values per se, but Mr Jackson's view (with which we disagree) that these sales of smaller sites are not comparable.
8. We have noted our acceptance of Mr Milne's view that the Coles sale was a sale very much affected by its unique and special circumstances, and that it should be disregarded. We also note Mr Milne supports Mr Lynch insofar as, adopting a direct comparison approach as a check methodology, he considers the subject land superior to the other comparable sales utilised by Mr Lynch.
9. Given our general acceptance of Mr Lynch's valuation, it is unnecessary to comment on Mr Milne's alternative valuation for the respondents, where he contends for a much higher site value of $15,300,000. The respondents submitted that we should prefer Mr Lynch's valuation assessment, and use Mr Milne's assessment only if we found some basis upon which Mr Lynch's valuation could not be supported. To the extent Mr Milne's analysis of other comparative sales at Camberwell and Highett might be said to cast some doubt on Mr Lynch's assessment, we note that Mr Milne's valuation exercise relied upon specific assumptions for the amount of retail and residential development for the comparable sales sites, the optimal tenancy mix, and the derived rates for retail land value. We were not necessarily satisfied that the derived retail land value rates were supported by the limited material provided, although we express no concluded view on this. It is sufficient to indicate that we prefer the overall assessment by Mr Lynch, relying in this case on comparable sales in the immediate area. In any event, in the absence of Mirvac's own valuation being accepted by us, we consider that Mirvac is entitled to have the more conservative of the two rating authority valuations applied.

Should there be a further adjustment for site remediation?

1. It was common ground that part of the land had low-level contamination. Coles had disclosed a preliminary soil contamination assessment as part of the sale documentation. Mirvac had investigated the matter as part of its due diligence and had estimated the remediation cost at $350,000. Remediation was undertaken primarily through the removal of contaminated soil during development.
2. Mr Lynch had not been aware of the contamination when undertaking the Council valuation, and he made no allowance for it. The respondents argued that the possibility of contamination was 'built in' to the comparative sales, and there was therefore no need to separately adjust for it. Mr Lynch had however conceded in evidence that, if a hypothetical purchaser had done its due diligence, it would have factored this into the sale price.
3. We agree with Mr Jackson and Mr Milne (and perhaps, implicitly, Mr Lynch) that a hypothetical purchaser of this land would have undertaken a due diligence that included an initial assessment of contamination and the likely costs of remediation. Given the evidence of a cost estimate of $350,000 for this land (and that figure being uncontested by the respondents), we think an allowance in that amount should be made in this case.
4. Mr Jackson had expressed an opinion that the actual costs of remediation should be allowed as an adjustment, rather than just the estimate at the time of the sale. In his witness statement in reply, he itemised these costs at $995,788. We disagree with Mr Jackson's view. What is relevant to the valuation exercise is the state of knowledge of the hypothetical vendor and purchaser at the relevant date, attributing to the parties the benefits of an efficient market where the parties would have all of the then available knowledge of matters affecting value. As was stated in Kenny & Good Pty Ltd v MGICA[21], this would include "the predicted impact of future events as well as the experience of the past and the rates of return on other investments". The purchaser is not taken to have a state of perfect knowledge of matters not then known.
5. At the relevant date, a hypothetical purchaser of the land, having undertaken its due diligence, would have predicted remediation costs of $350,000. It would have factored this into the amount it was willing to pay for the land, just as it would have made other predictions on construction costs, timing, etc. It would have then accepted the 'ups and downs' and risks and vagaries of the development process. It would not have factored in the actual remediation cost because that was not then known.
6. Although not necessarily determinative by itself, our view is reinforced by a Mirvac email[22] dated 31 May 2006 that had expressed the view that, whilst excavation and remediation costs are deductible for the assessment of site value for land tax purposes, "it will be difficult for us to establish that we didn't factor these costs in the purchase price".
7. In any event, Mr Jackson's evidence did not satisfy us that the actual cost of remediation, derived some time after the Coles' sale and relevant date, was in fact in the amount he now claimed. Accounts for the cartage and disposal of soil were provided to us, but these were not fully itemised or explained. From the other submissions and evidence, it was apparent that the construction of the basement car park on the land had necessitated substantial excavation. A large component of the contaminated soil (perhaps the majority) would have been removed from the land in any event as part of the ordinary process of construction, and is not necessarily a separate remediation cost.
8. For these reasons, we think an allowance for the reasonable estimate of remediation costs should be made. The Council valuation will be reduced by $350,000.

1. It follows from all of the above that we believe the Council valuation of the land at $11,725,000 is appropriate and should be generally confirmed, save for an adjustment of $350,000 for the estimated costs of remediation affecting its value at the relevant date.
2. This equates to a valuation of site value of $11,375,000. As indicated the capital improved value is therefore also $11,375,000 and net annual value (at 5% of CIV) is $568,750. The Council valuation is varied accordingly.

[1] This is an available ground of objection under s 17(d) of the Valuation of Land Act 1960.

[2] See, for example, potentially relevant factors to be taken into account in s 5A(3) of the Valuation of Land Act 1960

[3] Following Albany v Commonwealth (1976) 12 ALR 201

[4] Following Maurici v Chief Commissioner of State Revenue [2003] HCA 8; (2002) 212 CLR 111 at 120 (High Court)

[5] Exhibit RA-1 to witness statement of Richard Altson, at page 3

[6] Clause 5.1 of the contract of sale, included with annexures in the Tribunal Book at Vol 2(b), Tab 22

[8] These figures are taken from the amended development plan endorsed by the Council on 13 December 2006, and the accompanying report by Collie Pty Ltd, urban planners - see Tribunal Book at Vol 2(a), Tab 19. Other reports, permits, and witness statements use slightly different figures, but they are in the same general order. For example, amended permit 2/02/07 MV18130/2006 refers to 9,675m² retail and 2259m² office, and Mr Milne refers to the retail component being 10,012 m².

[9] The respondents had sought an adjournment on the basis that Mirvac's reply material (in the form of a witness statement from Mr Ganly) had raised new material via a new witness. We refused the adjournment, but granted leave to the respondents to reply to that material through a further witness statement (from Mr McNamara). Mirvac did not seek to cross-examine Mr McNamara.

[10] Witness statement of Richard Altson, at paragraphs 3 to 7

[11] Letter from Mirvac to Coles' property consultants JLL dated 11 February 2005. Exhibit RA-2 to witness statement of Richard Altson

[12] Witness statement of Richard Altson, at paragraph 15.

[14] Exhibit R-9, provided by Coles at the respondent's behest under a summons to produce, and tendered by the respondents.

[15] [1982] HCA 46; (1982) 42 ALR 371, at page 375 (High Court)

[16] Generally following 101 Collins Street Pty Ltd v City of Melbourne (unreported decision of the Supreme Court No. 4098/1993, Batt J, 2 April 2006) at pp73-80.

[17] See for example, Re Golem and Transport Accident Commission (No.1) [2002] VCAT 319; (2002) 19 VAR 265 per Judge Bowman VP, and the cases cited in Pizer's Annotated VCAT Act (3rd Edition) at para [3759].

[18] [2008] VSCA 180 (Court of Appeal), following the Tribunal decision at [2007] VCAT 652.

[19] As set out in Annexure 8 to witness statement of Michael Lynch.

[20] Referred to in paragraph 29 of his witness statement.

[21] (1999) CLR 413, 436 per McHugh J, cited with approval by the High Court in Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5 at paragraph 51.

[22] Exhibit R-2, provided by Coles under discovery, and tendered by the respondents.