Mirvac Projects (Retail and Commercial) Pty Ltd v Valuer General of New South Wales

Relevant legislation

1. The annual valuation of land is principally governed by s 6A of the Valuation Act which relevantly provides: 6A Land value (1) The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made. (2) Notwithstanding anything in subsection (1), in determining the land value of any land it shall be assumed that: (a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates, and (b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used, but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that the improvements, if any, other than land improvements, referred to in subsection (1) had not been made. …
2. As both the Locomotive Workshop and the National Innovation Centre are heritage restricted, the provisions of s 14G are engaged. That section relevantly provides: 14G Valuation subject to heritage restrictions under EPI (1) Land that is heritage restricted on the date by reference to which its land value is to be determined is to have its land value determined on the basis of the following assumptions: (a) that the land may be used only for the purpose, if any, for which it was used when the value is determined, (b) that all improvements on that land when the value is determined may be continued and maintained in order that the use of that land as referred to in paragraph (a) may be continued, (b1) that all improvements referred to in paragraph (b) on that land are new (without any deduction being made because of their actual condition), (c) that no improvements, other than those referred to in paragraph (b), may be made to or on that land, (d) that the cost of construction of improvements on that land has no effect on its land value, with the result that there is to be no reduction in land value because of any difference between the cost of construction of the improvements referred to in paragraph (b) as new improvements and the cost of construction of other improvements used as a basis for comparison in the determination of land value. (1A) When the land value of heritage restricted land is determined on the basis of the assumptions required by this section, there is to be no deduction from or other adjustment of that land value on account of the effect on land value of any factor concerned with the land being heritage restricted land (other than the effect of those assumptions). …
3. The statutory framework relevant to the current proceedings was summarised relatively recently by Sackville AJA in Valuer-General of New South Wales v Oriental Bar Pty Limited [2016] NSWCA 48; (2016) 217 LGERA 1 ('Oriental Bar') at [61]-[70]: [61] Subject to certain exceptions, the land value of each parcel of land in New South Wales is to be ascertained each year. The valuation is to be made as at 1 July in the valuing year in which the valuation takes place. The Valuer-General is empowered to value any parcel of land at any time. [62] Assessment of land value is to take place in accordance with s 6A(1) [of the Valuation Act]… … [63] Section 6A(1) uses the term "land improvements". That term is relevantly defined in s 4 of the VL Act as follows: "(d) the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation, …" [64] Section 6A(2) of the VL Act was introduced by the Valuation of Land and Local Government (Amendment) Act 1959 (NSW) (1959 Act). The principal purpose of the provision, as Tobias JA explained in Commonwealth Custodial Services Ltd v Valuer-General, is to ensure that land value should be determined having regard to the highest and best use of the land, including its use at the date to which the valuation relates. Section 6A(2) provides as follows: "Notwithstanding anything in subsection (1), in determining the land value of any land it shall be assumed that: (a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates, and (b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used, but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that the improvements, if any, other than land improvements, referred to in subsection (1) had not been made." [65] Section 14G of the VL Act was inserted by the Valuation of Land Amendment Act 2000 (NSW) and is in Div 2 ("How land is to be valued") of Part 1B ("Valuation of land") of the Act… … [66] In Trust Company of Australia Ltd v Valuer General, Campbell JA observed that: "[s]ection 14G(1) is in some ways the converse of s 6A(2). Both of them provide a different method for valuation of land to that which is provided by s 6A(1). Section 6A(2) is concerned with ensuring that land is not undervalued when an existing use of the land is more valuable than any use to which the land could be put if the improvements on it had not been made, while s 14G(1) is concerned with ensuring that land is not overvalued when heritage restrictions on the land have the effect that continuing its existing use is less valuable than any use to which the land could be put if the improvements on it had not been made." [67] It will be seen that there are similarities between s 6A(2)(a) and (b) and s 14G(1)(a) and (b). However, s 6A(2)(a) requires an assumption that the land may be used for any purpose for which it was being used or for which it could be used at the valuation date. By contrast s 14G(1)(a) requires an assumption that the land may be used only for the purpose, if any, for which it was being used at the valuation date. On the other hand, there is not only a close textual resemblance between s 6A(2)(b) and s 14G(1)(b), but a "clear structural resemblance". Section 14G(1)(c) and (d) have no parallel in s 6A(2). [68] The Valuer-General is required to give notice of each valuation of land to specified persons, including the owner of the freehold estate on the land. [43] A person to whom the Valuer-General has given notice may lodge a written objection to the valuation. Section 34(1) specifies the only grounds on which objection may be taken under the VL Act to a valuation. The ground relevant to the present appeal is "that the values assigned are too high or too low". [69] The Valuer-General is required to consider an objection that has been duly made and either allow or disallow it. If the objection is disallowed in whole or in part, the Valuer-General must give reasons for doing so. [70] A person entitled to object to a valuation may appeal to the L & E Court if dissatisfied with the Valuer-General's determination of the objection. Section 40(1) of the VL Act provides that on appeal the L & E Court may do any one or more of the following: "(a) confirm or revoke the decision to which the appeal relates, (b) make a decision in place of the decision to which the appeal relates, (c) remit the matter to the Valuer-General for determination in accordance with the Court's finding or decision." On an appeal, the appellant has the onus of proving the appellant's case (emphasis in original, citations omitted).
4. I respectfully adopt his Honour's analysis.

Mirvac's position

1. Mirvac submits that by reason of the operation of s 6A in tandem with s 14G of the Valuation Act, the Locomotive Workshop and the National Innovation Centre must be valued in accordance with their use, including restrictions upon their use which arise from their status as heritage restricted items.
2. In Mirvac's submission, the respondent's initial statutory valuations gave little or no attention to the various restrictions upon use, with the consequence that s 14G of the Valuation Act was not properly applied. Relying upon the evidence of Mr Nicholas Garnsey, expert valuer called for Mirvac, it contends for valuations of the Locomotive Workshop and the National Innovation Centre in the amounts of $6,300,000 and $0 (or alternatively, a nominal amount) respectively.
3. In respect of the National Innovation Centre, Mirvac takes a different approach and notes that the site is subject to a number of policies, documents, and a long-term lease to Cicada Innovations Pty Ltd ('Cicada') for annual rent of $1 ('Cicada lease'). Mirvac submits that this context, combined with the fact that, notwithstanding its nominal rent, Cicada is unable to entirely cover the cost of running the facility from its sub-lessees, means that the restrictions on use arising from the heritage restriction of the building "define" its economic potential in the sense considered in Valuer-General v Commonwealth Custodial Services Ltd (2009) 74 NSWLR 700; [2009] NSWCA 143.

Respondent's position

1. The respondent submits that Mirvac has misapplied the provisions of s 14G of the Valuation Act, particularly in relation to the National Innovation Centre. In these proceedings, the respondent relies upon the expert valuation evidence of Mr Derek Hill, who determines land value of the Locomotive Workshop at $16,475,000 and the land value of the National Innovation Centre at $6,300,000. Although these amounts are higher than the respondent's earlier statutory valuations, the respondent does not ask the Court to make orders confirming Mr Hill's assessments, but rather seeks the dismissal of the appeals.
2. With respect to the National Innovation Centre, the respondent submits that Mirvac cannot rely upon the Cicada lease or any of the other documents it raises in valuing the land. Rather, the respondent says the Court must apply s 6A of the Valuation Act which makes it clear that what is valued is "the fee simple of the land".
3. The respondent submits that the valuation method adopted by Mr Hill cannot be challenged. The respondent says that Mr Hill adopted a conventional method of valuation for heritage restricted land and avoided obvious error. Conversely, the respondent submits that Mr Garnsey errs in that he provides figures exclusive of GST; has only relied upon three "comparable" properties which the respondent says are not truly comparable; relies upon the Cicada lease in relation to the National Innovation Centre; and uses a future rental in his calculation that is five years after the base date.
4. In those circumstances, the respondent submits that the evidence of Mr Hill would be preferred and that Mirvac has not discharged its onus to prove that the Valuer General was wrong. Accordingly, the respondent submits that the appeals should be dismissed.

Valuation evidence

1. Mr Hill produced two valuation reports, both dated 26 September 2017, one in respect of each of the Locomotive Workshop and the National Innovation Centre. Mr Garnsey prepared a valuation report dated 22 February 2017 which included his findings in respect of both sites. In addition, Mr Hill and Mr Garnsey produced a joint report dated 5 October 2017.
2. The valuers agree that, given the statutory mandates in ss 6A and 14G of the Valuation Act, the 'net rental differential' method should be taken to valuing both the Locomotive Workshop and the National Innovation Centre having regard to their heritage restricted status.
3. The approach taken by each of the valuers can be summarised in the following steps: 1. Comparable sales are identified. 2. The comparable sales are adjusted to reflect their sale price as at the base date. 3. A land value rate per square metre of NLA ('NLA rate') is determined for the comparable sales as at the base date. 4. The determined NLA rates are then adjusted to the subject sites to account for any differences. This is the accepted practice in relation to the comparable sales approach and is frequently applied in this Court: see Graham Trilby Pty Ltd v Valuer-General [2011] NSWLEC 68 at [24]; New South Wales Cremation Company Pty Limited v Valuer General [2016] NSWLEC 135 at [84]-[88]. 5. The resultant NLA rates for the subject sites are then adjusted to reflect the heritage effect by utilising the net rental differential method.
4. The net rental differential method compares the existing heritage building to a hypothetical new heritage building, by utilising the following formula: NLA multiplied by the rent to be achieved in the actual heritage affected building assumed to be in a new state divided by the rent achieved in a comparable non-heritage building, expressed as a percentage.
5. The net rental differential reflects the fact that the land value of heritage buildings is usually (and in this case is) constrained by lower rental returns arising from their heritage character. The net rental differential approach is a methodology that has been frequently applied by the Court in the context of statutory valuation appeals involving ss 6A and 14G of the Valuation Act.

Locomotive Workshop

1. Mr Hill and Mr Garnsey agree that for valuation purposes the Locomotive Workshop should be separated into three distinct uses being the Commercial Use occupying an NLA of 13,502 square metres; the Hospitality Use (sometimes referred to as the convention or conference centre) occupying an NLA of 10,566 square metres; and the Blacksmith Use occupying an NLA of 1,710 square metres.
2. They further agree that the Blacksmith Use equates to a land value of $200,000 which should be added to the figures the Court assesses for the Commercial Use and the Hospitality Use to give a total figure for the land value of the Locomotive Workshop.
3. Mr Hill contends for an NLA rate of $1,000 per square metre for the Commercial Use and $650 per square metre for the Hospitality Use. Mr Garnsey contends for a rate of $470 per square metre for both of these uses. These rates are then adjusted and discounted as per [27] above.
4. In relation to Mr Garnsey's NLA rate for the Commercial Use, Mr Hill states that Mr Garnsey has inappropriately had regard to a leasing commitment or rental agreement in relation to a building that will not be completed until 2020 which he then deflates to 2015 values. Mr Hill says that this approach is highly subjective as assumptions are required to be made in calculating the deflation rate, and further that a similar approach was rejected in Commonwealth Custodian Services Ltd v Valuer General [2008] NSWLEC 310.
5. Further, Mr Hill says that Mr Garnsey determined his Commercial Use and Hospitality Use NLA rate of $470 per square metre based on a supplied "tenancy schedule" from 24 September 2015 for the Locomotive Workshop. Mr Hill opined that there are many separate tenancies within the Locomotive Workshop that entered leases at different commencement dates or had market reviews undertaken at different dates such that they are not reliable evidence of what market rent was at the base date.
6. Moreover, Mr Hill says that Mr Garnsey's reliance on these leases within the Locomotive Workshop are contrary to principle in that the net rental differential method must be based upon the statutory assumption mandated by s 14G of the Valuation Act of a completely new heritage building and fit out rather than one in its present state.
7. Additionally, Mr Hill opines that the actual lease in place shortly after the base date for the Hospitality Use, also relied upon by Mr Garnsey and based apparently upon a tenancy schedule of 24 September 2015, is conservative at $142 per square metre and suggests that the short term nature of the lease may have affected the rate that was paid. He notes that he has since learnt the lessee was the former owner-occupier and opines that this may account for the rate being below what he would consider market value.
8. In relation to the Hospitality Use, Mr Hill opines that the net rental differential reached by Mr Garnsey of 73.4% (that is, the discount Mr Garnsey applies to his deduced NLA rate to reflect the heritage status of the Hospitality Use) appears on the face of it to be quite large. Mr Hill says that the Locomotive Workshop, and more particularly that part of it used for the Hospitality Use, did not appear to be in such a poor condition as to warrant a finding that a new building would attract such a significant increase in rent.
9. Mr Hill adopts a relatively conventional approach to the Commercial Use, using the comparable sales approach. However, to address what he suggests is a paucity of comparable sales evidence in relation to the Hospitality Use, Mr Hill adopts an approach that compares the value of the land and its net income potential. Mr Hill takes the net return from the Hospitality Use and compares it with the net returns from industrial properties which he opines are similar. He then adjusts his adopted industrial NLA rate to obtain his NLA rate for the Hospitality Use.
10. Mr Hill also conducts what he calls "check calculations" on Mr Garnsey's NLA rates. First, he divides the final values reached by Mr Garnsey by the NLA of each component of the Locomotive Workshop to give what Mr Hill calls "effective" NLA rates in respect of each. He then compares these effective NLA rates to the other sales evidence.
11. Mr Hill notes that Mr Garnsey's "commercial sales" evidence (which he criticises) gives an "effective" NLA of $355 per square metre, far lower than the range Mr Hill found (in his sales analysis) for the NLA of commercial sites which was between $1,151 and $1,898 per square metre (the evidence is considered in greater detail below) and indeed lower than the range Mr Hill found for the NLA of industrial sites, which was between $650 and $714 per square metre. On the basis of his check calculations, Mr Hill maintains that Mr Garnsey's sales evidence cannot be correct.
12. I note that the "effective" NLA rates employed by Mr Hill include the net rental differential discounts applied by Mr Garnsey. For this reason, I did not find Mr Hill's check methods to be of assistance in relation to the anterior steps.
13. In respect of the Commercial Use, Mr Garnsey places some reliance on the rent which is anticipated to be received for a proposed commercial building within the ATP, due to open in 2020 ('Commonwealth Bank building'). He opines that a leasing commitment in respect of the new building which will be within 100 metres of the Locomotive Workshop is reasonable evidence, and that to go outside the ATP for rental evidence introduces further adjustments which are unnecessary in the circumstances. He further says that the South Sydney rental market typically grows in fixed increases of between 3 to 4% and that a deflation factor of 3.5%, which he adopts, is therefore appropriate.
14. Mr Garnsey also opines that the best evidence of the market rental rate for the Commercial Use is what was actually paid at the base date. Therefore Mr Garnsey says the tenancy schedule of 24 September 2015 for the Locomotive Workshop, being broadly contemporaneous with the base date, is the best indication of the building's rental value.
15. Mr Garnsey also relies on two other tenancy schedules of the same date. Those two tenancy schedules are also from buildings within the ATP.
16. Further, Mr Garnsey says it is unlikely that the whole of the Commercial Use of the Locomotive Workshop would be leased at the rate applied by Mr Hill as there are vagaries relating to size and location for which adjustment would need to be made.
17. In respect of the net rental differential, Mr Garnsey opines that the method requires considering what a new equivalent building would rent for and hence considers the leasing arrangements for the proposed Commonwealth Bank building. He then compares it to the rent the subject building could obtain if it were in a new condition.
18. In determining the heritage discount to be applied, Mr Garnsey says in the circumstances that the Locomotive Workshop is located within the ATP, with a requirement that the tenants must be involved in research, development and the commercialisation of new technology; that there is a working museum in the building which may occasion noise vibration and disturbance; and that the use of the common areas is impinged by significant public use, the Locomotive Workshop could not obtain higher rent even if it were brand new.
19. Mr Garnsey agrees with Mr Hill that the lack of sales and rentals for the Hospitality Use means that a combination of commercial and industrial rates must be used. However, he opines that the rental being achieved at the base date represents the maximum rental potential of the premises and that the Locomotive Workshop in new condition would not result in a higher rental. He adds that his discussions with Mirvac in February 2017 indicated Mirvac was not confident it would be able to find a replacement tenant.

National Innovation Centre

1. The valuers agree that at the base date the "type of accommodation" in the National Innovation Centre was retail, commercial office, and laboratory. They further agree that the NLA of the building is 6,177 square metres. However, conscious that as per s 14G of the Valuation Act they are required to assume that the land may only be used for the "purpose… for which it was used when the value is determined", they disagree as to the characterisation of the purpose for which the land may be used.
2. Mr Hill opines that the use of the building is "retail, commercial office and laboratory". He says that the purpose for which the land was used is to be identified at a suitable level of generality, and that a suitable level of generality will be one which allows for the use of the land by others than the actual occupants for the same purpose.
3. Conversely, Mr Garnsey says in the joint report that from "documents provided" and his "ongoing involvement in valuations of the entire [ATP] campus for the former owner" the relevant use at the base date was as an "innovation hub".
4. Mr Hill opines that Mr Garnsey's approach to characterising the use of the National Innovation Centre as an "innovation hub" is inappropriate, and inconsistent with Mr Garnsey's valuation approach in respect of the Locomotive Workshop, where he considered the entire Commercial Use component as one general use despite it including various uses which could be classed as retail, office, data storage, educational, and so on.
5. Mr Hill criticises the reliance Mr Garnsey places on, inter alia, the Cicada lease, saying that it is contrary to s 6A of the Valuation Act. He contends that no weight should be placed on the lease, and that to the extent that Mr Garnsey has relied upon the business model of the lessee (which is extracted in the joint report as being to "provide free or subsidised rent to start-ups and then over time become more established and hence can pay a higher yet competitive subsidised rent"), he is also in error.
6. Mr Garnsey does not agree that he has placed "great emphasis" on the Cicada lease document. In the joint report, he says that he believes "there are likely a number of historical reasons why the use of the land is as an innovation hub and I do not consider it appropriate to move outside my field of expertise in exploring matters of legal nature as to why this land use subsists at the date of valuation". Essentially, Mr Garnsey opines that, despite an underlying NLA of $680 per square metre, when regard is had to the National Innovation Centre's use as an "innovation hub", it is not capable of generating sufficient income to cover outgoings.
7. Accordingly, in respect of the net rental differential, Mr Garnsey applies a discount rate of 100% to reach an effective land value of $0 for the "non-porous laboratory fit-out" comprising 2,164.5 square metres of NLA and the "standard office fit-out" comprising 3,921.5 square metres of NLA. For the retail (café) use comprising 91 square metres of NLA, he applies a 0% net rental differential discount rate on the basis that the café would lease for the same amount were it situated in a non-heritage building.
8. In cross-examination, Mr Tomasetti, senior counsel for the respondent, asked Mr Garnsey precisely where he understood that the restriction upon use as an innovation hub arose and whether it simply arose from the Cicada lease. Mr Garnsey responded that he did not believe it arose solely from the Cicada lease, but that the use was "just an innovation hub, either through the conservation management plan or the heritage requirements for the park. I'm not sure where it comes from". He opined that "innovation hub" was the descriptor which he considered captured the use of the National Innovation Centre when he inspected the property and was the use at the base date. In oral evidence, Mr Hill repeated his view that the building use is more appropriately identified as commercial use rather than use as an innovation hub.

Adopted NLA rates

1. The adopted NLA rate, as the experts agreed, is the "starting point" in the assessment of (heritage affected) land value.
2. The differing underlying NLA rates (adjusted for comparability) adopted by each valuer in respect of the various different locations are shown in the table below: Property Hill Garnsey Locomotive Workshop $1,000/m² - Commercial Use $470/m² - Commercial Use $650/m² - Hospitality Use $470/m² - Hospitality Use National Innovation Centre $1,200/m² $680/m²

1. The choice of comparable sales considered and the adjustments made thereto define the differences in NLA rates illustrated in the table above.
2. Mr Hill opines that in all of the commercial sales evidence he has relied upon to reach his NLA rates for both the Locomotive Workshop Commercial Use and the National Innovation Centre (considered below), the pre-adjustment NLA rates are between $1,151 and $1,898 per square metre.
3. Mr Hill further says that all of these sales are business zoned lands located in the Local Government Area ('LGA') of the City of Sydney like the subject sites, that they have been developed or are being developed for commercial office and/or commercial ancillary uses that can be compared to the uses on the subject land, and are vacant land or lightly improved sales. Mr Hill opines that these sales represent the best evidence upon which to conduct the valuation.
4. Mr Hill says that the most important step in assessing heritage land value under s 14G is adopting the correct NLA rate based on sales which have a comparable use. He opines that the three sales relied upon by Mr Garnsey are not comparable to the subject sites.
5. Mr Hill opines that the sales and consequential NLA rates of Mr Garnsey better reflect industrial NLA rates rather than commercial NLA rates.
6. Mr Garnsey opines that his three sales (considered below) which all lie within the South Sydney market, represent an appropriate "bundle" from which to assess the land value at the base date.
7. In the circumstances, consideration of the sales evidence of the valuers is necessary.
8. For the purposes of the table below, Floor Space Ratio ('FSR') refers to the maximum permissible floor space to gross area ratio that is allowable under the environmental planning instruments applicable to each sale.

Mr Garnsey's sales evidence

1. Mr Garnsey relies upon three sales then analyses them to provide the adjusted rates shown in the table at par [58]. He subsequently adjusts the rates for heritage impact using the net rental differential approach.
2. The sales, and details thereof, relied upon by Mr Garnsey are extracted in the table below: Site Area Analysed Unadjusted Unadjusted Land Address Zoning FSR Sale Price Land Value at Value NLA Rate at GFA Sale Date Base Date Base Date NLA 11,470m² 1-3 Ricketty Street, B7 3:1 $15,000,000 $14,000,000 $479/m² Mascot Business Park 34,410m² 27/11/2015 29,245m² 3,002m² 9 Bowden Street, B6 2:1 $4,500,000 $4,500,000 $882/m² Alexandria Enterprise Corridor 6,004m² 9/2/2015 5,103m² 3,219m² 689 Gardeners Road, B7 3:1 $4,200,000 $4,200,000 $512/m² Mascot Business Park 9,657m² 11/8/2014 8,208m²

1-3 Ricketty Street, Mascot

1. Mr Hill notes that the 1-3 Ricketty Street, Mascot sale ('Ricketty Street sale') is not in the City of Sydney LGA, that sections of it have been leased out for industrial purposes and that it has not been the subject of any development application for commercial or industrial redevelopment since its purchase in 2015. He opines that the Ricketty Street sale was therefore likely purchased for industrial rather than commercial uses and notes that access to the site is restricted given the nature of the road and that the site is located within a flood zone within the West Mascot Flood Study Area.
2. Further, Mr Hill says the assessment of the highest and best use of the land must have regard to the physical possibility, legal permissibility, and financial feasibility of the use. Mr Hill opines having regard to the nature and the location of the Ricketty Street sale, the highest and best use is industrial rather than commercial. Further, Mr Hill opines that the 3:1 FSR provided for in the controls cannot feasibly be obtained and that the developer has not sought to develop the land from its current FSR which is below 1:1. Mr Hill says that by using a 3:1 FSR, Mr Garnsey has diluted his resultant NLA rate.
3. Mr Garnsey notes that the Ricketty Street sale is located at the juncture of Alexandria, St Peters, and Mascot and was listed in the market as an Alexandria property despite technically being in Mascot. He says that of all the sales referenced by the valuers, it is the closest in permissible GFA to the Locomotive Workshop.
4. Mr Garnsey opines that whilst the site is subject to flooding, this should not be considered a concern in the context of the area as development in the surrounds has not been inhibited.
5. Further, Mr Garnsey does not agree with Mr Hill's assessment that a multi-level building would not be feasible on the land, and refers in that regard to a development at 15-21 Doody Street, Alexandria which is relatively nearby and has been developed into a four-storey commercial building.
6. Mr Garnsey opines that the fact the Rickety Street sale has not been developed for commercial purposes is a reflection of the weak commercial office market metrics that result in a lower $/GFA rate for sites with potential for such large office developments. He maintains the sale is comparable with limited adjustment necessary.
7. For comparison to the Locomotive Workshop, he makes a ‑10% adjustment for location and a 5% adjustment for NLA size, resulting in an overall ‑5% adjustment. This gives an adjusted NLA rate of $455 per square metre. For comparison to the National Innovation Centre, he makes an adjustment of ‑10% for location and an adjustment of 50% for NLA size, giving an overall adjustment of 40% and an adjusted NLA rate of $670 per square metre.

9 Bowden Street, Alexandria

1. Mr Hill's concern with the sale at 9 Bowden Street, Alexandria ('9 Bowden Street') relates to his analysis of two sales within the same street (number 11 and number 15) which gave NLA rates of $1,227 per square metre and $1,510 per square metre respectively. Mr Hill opined that the NLA rate for 9 Bowden Street of $882 per square metre is far below the other commercial sales evidence.
2. Mr Hill notes that 9 Bowden Street has a major easement for a stormwater channel which diagonally bisects the land (and which was observed by the Court during the site view), a right of access affecting the southern frontage and boundary in favour of the adjoining property, and a further drainage easement that runs from the stormwater channel to the western rear boundary. He further notes it has just one access point, is irregular in shape, and contains a frontage far narrower than either the Locomotive Workshop or the National Innovation Centre.
3. Although 9 Bowden Street was sold in February 2015, Mr Hill notes it is yet to be developed. He opines that it would require an upward adjustment to take account of the detriment occasioned by the easements which affect enjoyment of the land.
4. Mr Garnsey opines that 9 Bowden Street represents a superior location to the subject sites. He considers that the vacant land sale is reliable such that no adjustments are necessary for the value of improvements. Although he notes the area is subject to flooding, he opines this is not a concern given that it is has not inhibited development in the locality.
5. Mr Garnsey further opines that the easement is a limited concern given the adjoining site at 11 Bowden Street also has an easement underneath an existing building but obtained development consent in 2015 for redevelopment as retail and commercial premises.
6. In view of the fact that 9 Bowden Street has "significantly lower" development potential of 6,004 square metres, Mr Garnsey opines that a significant downward adjustment is required before comparison can be made to the Locomotive Workshop.
7. Accordingly, for comparison to the Locomotive Workshop, Mr Garnsey makes a ‑15% adjustment for location and a ‑30% adjustment for NLA size, resulting in an overall adjustment for comparability of ‑45%. This gives an adjusted NLA rate of $485 per square metre. For comparison to the National Innovation Centre, he makes an adjustment of ‑15% for location and ‑5% for NLA size, giving an overall adjustment of ‑20% and an adjusted NLA rate of $705 per square metre.

689 Gardeners Road, Mascot

1. In respect of 689 Gardeners Road, Mascot ('Gardeners Road sale'), Mr Hill notes that the property sold with a building upon it and that a development application was made to demolish the building and change the use from industrial to use as an ice skating rink and café. He further notes the Gardeners Road sale is located within a flood zone within the West Mascot Flood Study Area, and that it is not located within the City of Sydney LGA but rather the adjoining LGA of Botany (now Bayside).
2. Further, and similar to the Ricketty Street sale, Mr Hill says the assessment of the highest and best use of the land must have regard to the physical possibility, legal permissibility, and financial feasibility of the use. Mr Hill opines that having regard to the nature, shape, and location the land as well as the fact that it is an inside allotment, the highest and best use is an industrial use. He maintains that the 3:1 FSR provided for in the controls cannot feasibly be obtained and this is reflected in the fact that the ice skating rink use has an FSR of 0.45:1. Mr Hill says that by using a 3:1 FSR, Mr Garnsey has diluted his resultant NLA rate.
3. Mr Garnsey opines that the Gardeners Road sale occupies a superior location to the subject sites and that as a sale of vacant land, it is reliable in that no adjustments are necessary to account for the value of improvements.
4. Mr Garnsey notes that the Gardeners Road sale comprises a site area of 3,219 square metres and is zoned to permit commercial development with an FSR three times the site area which means a permissible GFA of 9,657 square metres. Mr Garnsey says this significantly lower development potential compared to the Locomotive Workshop requires a significant downward adjustment to be made after conversion to an NLA rate. He makes a ‑10% adjustment for location and a ‑20% adjustment for NLA size, giving an overall adjustment for comparability of ‑30%. This gives an adjusted NLA rate of $358 per square metre.
5. For comparison to the National Innovation Centre, he makes an adjustment of ‑10% for location, and an adjustment to the Gardeners Road sale of 15% for NLA size, giving an overall adjustment of 5% and an adjusted NLA rate of $537 per square metre.
6. In the course of cross-examination, Mr Garnsey retreated from his reliance on the Gardeners Road sale somewhat, admitting that it is "not a great sale". He said that it was principally of relevance to compare to, and thereby support, his reliance upon the Ricketty Street sale.

Mr Hill's sales evidence

1. Mr Hill relies upon a set of sales then analyses them to provide three adjusted NLA rates in respect of each of the Commercial Use and Hospitality Use of the Locomotive Workshop and the National Innovation Centre. He subsequently adjusts the rates for heritage impact using the net rental differential approach.
2. The sales relied upon by Mr Hill, and details thereof, are as follows: Site Area Analysed Unadjusted Unadjusted Land Address Zoning FSR Sale Price Land Value at Value NLA Rate at GFA Sale Date Base Date Base Date NLA 5,533m² 12-20 Mandible Street, B7 3.5:1 $20,130,000 $18,950,000 $1,151/m² Alexandria Business Zone 19,365.5m² 26/8/2016 16,460.7m² 4,610m² 132-138 McEvoy Street, B6 2:1 $10,000,000 $9,675,000 $1,235/m² Alexandria Business Corridor 9,220m² 9/3/2015 7,837m² 2,627m² 11 Bowden Street, B6 2.187:1 $8,800,000 $5,990,000 $1,227/m² Alexandria Enterprise Corridor 5,745m² 6/3/2015 4,883.5m² B3 3,046m² 21-43 Harris Street, "Commercial Core" 6:1 $26,800,000 $29,480,000 $1,898/m² Pyrmont Business Zone 18,276m² 24/1/2013 15,534.6m² 3,041m² 108 Dunning Avenue, B7 0.91:1 $3,500,000 $3,850,000 $1,629/m² Rosebery Business Park 2,780.9m² 23/4/2013 2,363.77m² 1,510m² 15 Bowden Street, B6 1.97:1 $3,600,000 $3,826,000 $1,510/m² Alexandria Enterprise Corridor 2,979.9m² 30/7/2015 2,532.92m² 26,362m² 3-5 Anderson Street, IN1 1:1 $19,800,000 $14,550,000 $649/m² Banksmeadow General Industrial 26,362m² 12/4/2016 22,408m² 6,088m² 2 Anderson Street, IN1 1:1 $4,785,000 $4,485,000 $867/m² Banksmeadow General Industrial 6,088m² 14/1/2015 5,157m²

1. In relation to the Locomotive Workshop, Mr Hill relies upon the sales at Mandible Street, Alexandria; McEvoy Street, Alexandria; 11 Bowden Street, Alexandria; and Harris Street, Pyrmont for his consideration of the Commercial Use. He uses the two sales in Anderson Street, Banksmeadow to inform his consideration of the Hospitality Use. In relation to the National Innovation Centre, Mr Hill uses the sales at Dunning Avenue, Rosebery and 15 Bowden Street, Alexandria along with the sales he relies upon for the Commercial Use.

12-20 Mandible Street, Alexandria

1. In respect of 12-20 Mandible Street Alexandria ('Mandible Street sale'), Mr Garnsey says that the property occupies a superior location to the subject sites and that an adjustment is also required for time.
2. Mr Garnsey further says that the lower development potential in terms of GFA compared to the Locomotive Workshop requires a significant downward adjustment in the analysed rate after conversion is made to an NLA rate.
3. Mr Hill opines that the Mandible Street sale is in a superior location compared to the subject sites and he makes an adjustment accordingly. He opines that it provides a good comparison of commercial office values and states he has made an adjustment to account for the variation in the amount of GFA available at the Mandible Street sale compared to the Locomotive Workshop. He opines that he has made all appropriate adjustments to the Mandible street sale and all of the sales upon which he relies.
4. For comparison to the Commercial Use, Mr Hill makes an adjustment to the Mandible Street sale of ‑5% for location, and a 5% adjustment for NLA size, giving an overall adjustment for comparability of 0%. For comparison to the National Innovation Centre, Mr Hill makes an adjustment to the Mandible Street sale of ‑5% for location, and an adjustment of 15% for NLA size giving a 10% overall adjustment for comparability. This equates to an adjusted NLA of $1,266 per square metre.

132-138 McEvoy Street, Alexandria

1. In respect of 132-138 McEvoy Street, Alexandria ('McEvoy Street sale'), Mr Garnsey again opines that the property occupies a superior location to the subject sites. He opines that on the basis of its significantly lower development potential in respect of GFA available, it requires a significant downward adjustment after an NLA rate is reached.
2. Mr Hill opines that the McEvoy Street sale is in a comparable commercial location compared to the subject sites and he therefore makes no adjustment for comparison purposes. He further opines that the NLA of commercial space in the McEvoy Street sale is a good comparison for the Commercial Use section of the Locomotive Workshop and that he makes an appropriate adjustment to account for the disparity in GFA.
3. For comparison to the Commercial Use, Mr Hill makes an adjustment to the McEvoy Street sale of ‑10% for NLA size, an adjustment of ‑10% for access, and an adjustment of 10% for the subject land's Commercial Use which would otherwise require development consent. This gives an overall adjustment for comparability of ‑10%, and an adjusted NLA rate of $1,111 per square metre.
4. For comparison to the National Innovation Centre, Mr Hill makes an adjustment to the McEvoy Street sale of 5% for NLA size, an adjustment of ‑10% for access, and an adjustment of 10% for the development consent, giving an overall adjustment for comparability of 5% and an adjusted NLA of $1,296 per square metre.

11 Bowden Street, Alexandria

1. In respect of 11 Bowden Street, Alexandria ('11 Bowden Street'), Mr Garnsey opines that the property occupies a superior location compared to the subject sites and that an adjustment is required to account for the value of the improvements on the land.
2. Mr Garnsey states that 11 Bowden Street is burdened in a diagonal fashion by the same drainage easement that burdens 9 Bowden Street, one of the properties upon which he relies. He says that he did not consider an adjustment for the easement was necessary in respect of 9 Bowden Street and that he equally does not consider it appropriate in this case, especially as 11 Bowden Street has achieved a development consent post-acquisition.
3. Mr Garnsey opines that on the basis of 11 Bowden Street's significantly lower development potential in respect of GFA available compared to the Locomotive Workshop, it requires a significant downward adjustment after an NLA rate is reached.
4. Mr Hill opines that 11 Bowden Street is in a comparable commercial location compared to the subject sites and he therefore makes no adjustment to location for comparison purposes.
5. Mr Hill says that 11 Bowden Street is not as burdened by the drainage easement as 9 Bowden Street, as it is only affected by one easement rather than three. Further, he says that the easement on 11 Bowden Street is diagonal across the land towards the rear of the site and not the front half of the site as is the case with 9 Bowden Street.
6. Mr Hill opines that the NLA of commercial space in 11 Bowden Street is a good comparison for the Commercial Use section of the Locomotive Workshop and that he makes an appropriate adjustment to account for the disparity in GFA.
7. For comparison to the Commercial Use, Mr Hill makes an adjustment to 11 Bowden Street of ‑25% for NLA size, an adjustment of 5% for access, and an adjustment of 10% for development consent. This results in an overall adjustment for comparability of ‑10% and an adjusted NLA rate of $1,104 per square metre.
8. For comparison to the National Innovation Centre, Mr Hill makes an adjustment of ‑15% for NLA size, an adjustment of 5% for access, and an adjustment of 10% for development consent. This gives an overall adjustment rate for comparability of 0%.

21-43 Harris Street, Pyrmont

1. In respect of 21-43 Harris Street, Pyrmont ('Harris Street sale'), Mr Garnsey opines that it should not be used. He says that it is the last undeveloped commercial site within the Jacksons Landing Master Plan area which is a waterfront location at Jones Bay and is zoned to allow a commercial building with ancillary childcare and retail areas with an FSR six times that of the subject sites.
2. He notes that prior to the sale relied upon by Mr Hill, the property was sold on 21 June 2012 for $13,880,000. Mr Garnsey opines that this sale was widely acknowledged to be a result of poor commercial development metrics and an absence of any tenant pre-commitments. He notes that the purchaser, Prime Green Square Pty Ltd failed to develop the property, and sold to Net Venture Properties One (Australia) Pty Ltd for $26,800,000 seven months later on 24 January 2013, this being the sale relied upon by Mr Hill. Mr Garnsey states this price reflected an annualised growth rate of 160%.
3. Mr Garnsey opines that the rate the second purchaser paid for the property was in anticipation that it would obtain approval for residential use which has not been forthcoming and notes that the property remains undeveloped. Mr Garnsey further opines that he does not consider either sale reliable due to the location of the Harris Street sale and the lapsing of time.
4. However, if an adjustment were to be made, Mr Garnsey says that if it were adjusted 15% for time, the resulting rate would be $1,023 per square metre of NLA. He states that adopting Mr Hill's adjustments against this rate of ‑45% would result in a rate for comparison with the Locomotive Workshop of $563 per square metre, which he notes is within 17% of his figure of $480 per square metre but 43% below Mr Hill's figure of $1,000 per square metre.
5. Mr Hill opines that the Harris Street sale is in a superior location to the subject sites and that he makes an adjustment for comparison accordingly. He focussed on the later sale (to Net Venture Properties One (Australia) Pty Ltd) and observes that the owner is currently amending a commercial development application on the land whilst marketing the development for pre-commitment.
6. Mr Hill opines that the NLA of commercial space in the Harris Street sale is a very good comparison for the Commercial Use section of the Locomotive Workshop, being of similar sizes, and that he has made appropriate adjustments for comparability.
7. For comparison to the Commercial Use, Mr Hill makes an adjustment of ‑25% for location, an adjustment of 5% for NLA size, an adjustment of ‑15% for views, and an adjustment of ‑10% for access, giving an overall adjustment for comparability of ‑45%. This gives an adjusted NLA rate of $1,044 per square metre.
8. For comparison to the National Innovation Centre, Mr Hill makes an adjustment of ‑25% for location, an adjustment of 15% for NLA size, an adjustment of ‑15% for views, and an adjustment of ‑10% for access. This gives an overall adjustment for comparability of ‑35%, and an adjusted NLA rate of $1,234 per square metre.

108 Dunning Avenue, Rosebery

1. 108 Dunning Avenue, Rosebery ('Dunning Avenue sale') was not discussed as part of the joint report. Mr Hill uses it as a sale comparable to the National Innovation Centre, and opines that it has a comparable location, comparable views, and comparable access. He makes an adjustment of ‑25% for NLA size only, giving an adjusted NLA of $1,222 per square metre.

15 Bowden Street, Alexandria

1. 15 Bowden Street, Alexandria ('15 Bowden Street') was also not discussed in the joint report. Mr Hill uses it for comparison to the National Innovation Centre. He makes an adjustment of ‑25% for NLA size and an adjustment of 10% for development consent. This gives an overall adjustment for comparability of -15% and an adjusted NLA rate of $1,284 per square metre.

3-5 Anderson Street, Banksmeadow

1. Mr Hill states that he relies upon 3-5 Anderson Street, Banksmeadow ('3-5 Anderson Street') to assist his valuation of the Hospitality Use. He explains he adopts this course because there is no comparable sales evidence of convention centres, and he therefore uses industrial sales evidence to assist in the application of the NLA rate and the net rent differential rate as there is a relationship between the returns land generates and its underlying value. He opines that the returns from the Hospitality Use and 3-5 Anderson Street are generally comparable. He makes an adjustment of 10% for NLA size only, giving an adjusted NLA rate of $714 per square metre.
2. In respect of 3-5 Anderson Street, Mr Garnsey says it should not be used for comparison to the Commercial Use or Hospitality Use in the Locomotive Building as it is not a site that is appropriate for either. He further notes that it is burdened by a 10 metre wide easement for drainage, sewerage, and gas.

2 Anderson Street, Banksmeadow

1. In respect of 2 Anderson Street, Banksmeadow ('2 Anderson Street'), Mr Garnsey says, similarly to 3-5 Anderson Street, that it should not be compared to the Locomotive Workshop because it is not a location which is appropriate for use of the nature of either the Hospitality Use or the Commercial Use.
2. Similarly to 3-5 Anderson Street, Mr Hill states that he uses 2 Anderson Street to inform his analysis of the Hospitality Use. His reason for adopting this approach is the same as with 3-5 Anderson Street. He makes an adjustment for NLA size only of ‑25%, giving an adjusted NLA rate of $650 per square metre.

Sales adjustments for comparison purposes

1. Mr Hill notes that Mr Garnsey only makes adjustments to his three sales for location and NLA size. Mr Hill agrees that these are important adjustments but opines that further adjustments may need to be made for factors such as the shape of the land, its access, exposure, and views. Mr Hill also says that a further adjustment not considered by Mr Garnsey is that an allowance for the continuing retail/commercial use on the subject land must be considered. He opines that a s 14G valuation is made on the assumption that there is no risk in maintaining the present use on the site.
2. Mr Garnsey states that he considers adjustments for size and location are the main adjustments necessary in the present circumstances. He opines that he did not observe any significant view corridors from the properties he analyses, and says they were generally regular in shape with no significant exposure or significantly superior access arrangements. Hence no adjustments were required. Mr Garnsey adds that he considers too many adjustments may render sales unreliable.

Net rental differential

1. The net rental differential formula, noted at [28]-[29] above, adjusts the NLA rate reached from the comparable sales evidence in order to reflect the fact that what is being valued is a heritage building. The formula is applied by both valuers, but they disagree as to the figures which should be used and consequently as to the result.
2. However, despite disagreement as to the appropriate NLA rates to be utilised, it is agreed that a 20% rate reflects the heritage differential for the Commercial Use of the Locomotive Workshop (Mr Hill also uses the 20% rate in respect of the National Innovation Centre because, as explained above, he applies similar evidence in respect of it as he does to the Commercial Use).
3. Mr Hill contends that a net differential rate of 29.63% is appropriate in respect of the Hospitality Use whilst Mr Garnsey contends for a rate of 73.4%. Mr Garnsey applies a 100% rate in respect of the non-porous lab and office use in the National Innovation Centre and a 0% rate in respect of the retail (café) use.

Consideration

1. The meaning and application of the statutory provisions raised in these appeals, though by no means inoculated from statutory amendment, has been the subject of much judicial consideration and I consider that the relevant principles are now relatively well understood. In Trust Company of Australia Limited v Valuer-General [2007] NSWCA 181; (2007) 154 LGERA 437 ('Trust Company'), Campbell JA, with whom Beazley and Ipp JJA agreed, said at [58]: Section 14G(1) is in some ways the converse of section 6A(2). Both of them provide a different method for valuation of land to that which is provided by section 6A(1). Section 6A(2) is concerned with ensuring that land is not undervalued when an existing use of the land is more valuable than any use to which the land could be put if the improvements on it had not been made, while section 14G(1) is concerned with ensuring that land is not overvalued when heritage restrictions on the land have the effect that continuing its existing use is less valuable than any use to which the land could be put if the improvements on it had not been made…
2. In Oriental Bar, the interaction of ss 6A and 14G was discussed by Basten JA at [7]-[15] and by Sackville AJA at [61]-[70] (as I referenced and adopted above) and at [116]-[119], where his Honour said: [116] The legislation governing the determination of the land value of heritage restricted land requires the valuation to the conducted on the basis of a rather curious combination of assumptions. Section 6A(1) of the VL Act provides that the "land value of land" is: "the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona-fide seller would require." [117] However, s 6A(1) also provides that the land value is to be determined on the basis of a "counterfactual" or "notional" assumption. It must be assumed that the improvements on the land (other than so-called "land improvements") had not been made. This assumption has formed part of the legislative scheme from the beginning and is not confined to heritage restricted land. The scheme contemplates a "hypothetical sale … of something which does not exist in the real world", although the hypothetical price is "determined by reference to market conditions in the real world". Because of the character of the hypothetical sale, the concept of "land value" in s 6A(1) has been variously described as "artificial", "a mental exercise in unreality" and "unique". [118] Section 14G, introduced into the VL Act much later than the forerunner to s 6A, is specifically concerned with the determination of the land value of heritage restricted land. Section 14G(1) requires assumptions to be made that reflect the actual position on the valuation date. Thus heritage restricted land is to have its land value determined on the basis (relevantly) of the following three assumptions: "(a) that the land may be used only for the purpose, if any, for which it was used when the value is determined, (b) that all improvements on that land when the value is determined may be continued and maintained in order that the use of that land as referred to in paragraph (a) may be continued, … (c) that no improvements, other than those referred to in paragraph (b), may be made to or on that land." [119] In addition, s 14G(1)(b1) qualifies s 14G(1)(b), in that it requires an assumption that all improvements referred to in s 14G(1)(b) are new, without any deduction being made because of their actual condition. This provision manages to combine an assumption founded on the actual position (the improvements on the land at the relevant date) with a counterfactual assumption (that all improvements on the land are new, without regard to their actual condition) (citations omitted).

Comparable sales evidence

1. The valuers have adopted a method (of using comparable sales and then applying a net rental differential discount) that attempts to reflect the statutory mandates in the Valuation Act. It is common ground that the approach is appropriate and similar methods have been adopted by the Court on previous occasions. In those circumstances, it is unnecessary for me to form a view on the desirability of the net rental differential method in assessing heritage affected land values.
2. As noted above, in reaching a figure for the land value of the National Innovation Centre and the Locomotive Workshop, it is important in the first instance to properly determine the correct NLA rate to be applied in respect of each. Having regard to the evidence of the valuers, I consider that there are three discrete NLA rates to be determined: a rate for the Hospitality Use; a rate for the Commercial Use; and a rate for the National Innovation Centre. I accept the amount agreed by the valuers for the Blacksmith Use and do not therefore need to make any discrete findings in that respect.
3. The rates reached by the valuers in respect of these three headings are extracted in the table above at [58].

Mr Garnsey's sales evidence

1. Mr Garnsey analyses his three sales to determine underlying NLA rates for the Locomotive Workshop and the National Innovation Centre, and reflects the further differences in the uses between the Hospitality Use, Commercial Use, and the National Innovation Centre by way of adjustment.
2. I note that in respect of the Gardeners Road sale, Mr Garnsey candidly conceded in cross-examination that it was "not a great sale" and that he principally used it as "secondary" evidence to support the Ricketty Street sale.
3. When regard is had to the use of the Gardeners Road sale as an ice skating rink, and the fact that the maximum permissible FSR of 3:1 is unlikely to be achieved on the site, I consider that Mr Garnsey's concession was properly made. It is speculative to suggest that by virtue of the changing nature of its locality, the property will become available for use as a commercial site in the future. I find that its previous use was best identified as industrial, and that the current use as an ice skating rink more accurately reflects its economic potential than a characterisation of the site at the time of the sale as being available for commercial use.
4. Therefore, I place little weight on the Gardeners Road sale.
5. I note that a portion of the Ricketty Street sale has been compulsorily resumed since the purchase referred to by Mr Garnsey. He was unable to answer whether the purchaser would have been aware of the impending acquisition during cross-examination. However, as Mr Garnsey observed, compensation for land value and disturbance would have been payable and despite the fact that the compulsory acquisition would have had the effect of reducing the permissible floor space for any future development, in the circumstances, I find it a relatively negligible consideration.
6. Nevertheless, I do not consider the Ricketty Street sale to be particularly comparable. It is currently being used as a warehouse, and there is no indication that any development application is extant or likely to be made in the near future to change it to another use. Therefore I consider, as Mr Hill suggested, that the Ricketty Street sale was likely completed with an industrial use in mind.
7. In circumstances where I have already found that the Gardeners Road sale, which was used as a check sale for the Ricketty Street sale, is of little assistance and where I consider that the maximum permissible FSR of the Ricketty Street sale is unlikely to be achieved, I do not place weight on the Ricketty Street sale.
8. In respect of 9 Bowden Street, I note that Mr Garnsey was criticised by Mr Hill, and Mr Tomasetti in cross-examination, for not making any adjustment for the easements which burden the property. Whilst I do take some notice of the fact that 11 Bowden Street is burdened by the same drainage easement as 9 Bowden Street and it has not sterilised the development potential of 11 Bowden Street, I accept the evidence of Mr Hill that the degree of effect on 9 Bowden Street is greater.
9. Moreover, and having had the benefit of inspecting both 9 Bowden Street and 11 Bowden Street, I consider that an adjustment for the easements that burden 9 Bowden Street is appropriate as in my view, the significant drainage easement in particular would affect the development potential and land value of the site. In all, there were three easements over this property.
10. I also consider that an adjustment for the necessity of setbacks on 9 Bowden Street in the circumstance of its development which was suggested by Mr Tomasetti, and agreed with by Mr Hill, should be made as well as an adjustment for the somewhat irregular shape. In short, I consider that 9 Bowden Street would require significant upward adjustment before it can be said to be comparable to the National Innovation Centre or the Locomotive Workshop.

Mr Hill's sales evidence

1. Mr Hill relied upon a variety of sales for slightly different purposes as noted at [91] above. He opined that the most comparable sales for the Commercial Use are the Mandible Street sale, the McEvoy Street sale, 11 Bowden Street, and the Harris Street sale, in that order. In addition, he relied upon the Dunning Avenue sale to reach his NLA rate for the National Innovation Centre, and 3-5 Anderson Street and 2 Anderson Street to reach his rate for the Hospitality Use.
2. Overall, I find Mr Hill's evidence based upon his comparable sales more compelling than that proffered by Mr Garnsey.
3. In respect of the Mandible Street sale, I find that it is comparable to the Locomotive Workshop in terms of shape, views, and access. I accept the evidence of Mr Hill that it is in a slightly superior location to the Locomotive Workshop and consider that the adjustments he makes for this sale to be appropriate.
4. In respect of the McEvoy Street sale, I find it is in a comparable location and, accept the evidence of Mr Hill that the NLA of the commercial space is a good comparison for the Commercial Use section of the Locomotive Workshop. I find that the adjustments made by Mr Hill, leading to an overall ‑10% adjustment for comparability, are appropriate.
5. In respect of 11 Bowden Street, I again accept Mr Hill's analysis that this is a comparable commercial location and the adjustments made by Mr Hill are appropriate. Further, it is clear both from the documentary evidence and the site view, that 11 Bowden Street is significantly less burdened by the drainage easement that affects 9 Bowden Street.
6. In respect of the Harris Street sale, as noted above, there was debate in relation to the relevance and comparability of this sale. I share the concern of Mr Garnsey in relation to the disparity between the sales in June 2012 (for $13,880,000) and in January 2013 (for $26,800,000 - the sale relied upon by Mr Hill). Even without my concern regarding this disparity, I would find that the Harris Street sale is inappropriate for comparison purposes. This is because of the size of the adjustments Mr Hill considered it necessary to make. I consider that his 45% adjustment of the analysed NLA rate (from $1,898 per square metre to $1,044 per square metre) in relation to the Commercial Use of the Locomotive Workshop necessarily makes it less reliable.
7. Having regard to the size of the adjustment and my residual concern regarding the earlier sale and the significant difference which emerged over the seven month period referred to above, I place little weight upon the Harris Street sale.
8. In respect of the industrial sales relied upon by Mr Hill, 3-5 Anderson Street and 2 Anderson Street, it is clear that they represent very different uses to the Hospitality Use. However, I accept that the dearth of evidence of comparable sales relating to the Hospitality Use was a problem which confronted both expert valuers. In those circumstances, I accept that it is appropriate to place weight on Mr Hill's evidence that the industrial uses reap similar rental returns to the Hospitality Use and that these returns bear a relationship to the underlying land value.

Conclusion on NLA rates

1. In relation to the Commercial Use, taking into account Mr Hill's analysis of the Mandible Street sale (which required, on Mr Hill's evidence, no adjustment) of $1,151 as well as the adjustments made to the McEvoy Street sale and 9 Bowden Street, each of which he adjusted by 10% giving NLA adjusted rates of $1,111 and $1,104 respectively. I find this is appropriate evidence for Mr Hill's adopted rate of $1,000 per square metre for the Commercial Use component.
2. Conversely, as noted above, of Mr Garnsey's three comparable sales, I place little weight upon 9 Bowden Street and the Gardeners Road sale given Mr Garnsey's evidence at hearing. In the circumstances (and for the reasons noted at [136]-[138] above), the Ricketty Street sale is not persuasive and I do not place weight upon it.
3. In relation to Hospitality Use, Mr Hill's industrial sales (and his use thereof) are mildly persuasive. Whilst I harbour some concerns about Mr Hill's adjusted NLA rates of $650 per square metre and $714 per square metre in relation to the Anderson Street sales, I also have significant concerns in relation to Mr Garnsey's analysis and comparable sales which led him to a rate of $470 per square metre. Doing the best I can, I adopt an adjusted NLA rate for the Hospitality Use of $600 per square metre.
4. In relation to the National Innovation Centre, considering that a single use descriptor for the use is appropriate for reasons articulated later in the judgment, and having regard to my concerns about the sales evidence of Mr Garnsey, I consider Mr Hill's adjusted rates for the National Innovation Centre. I note that these were $1,266 for the Mandible Street sale; $1,296 for the McEvoy Street sale; $1,227 for 11 Bowden Street; $1,234 for the Harris Street sale; $1,222 for the Dunning Road sale; and $1,284 for 15 Bowden Street.
5. Given the concerns I have expressed in relation to the Harris Street sale, I do not place weight on it, but I consider that the other sales provide appropriate support for the rate of $1,200 per square metre reached by Mr Hill. I find that this is the appropriate rate.
6. Therefore, I have reached adjusted NLA rates for the Commercial Use of the Locomotive Workshop of $1,000 per square metre; for the Hospitality Use of the Locomotive Workshop of $600 per square metre; and for the National Innovation Centre of $1,200 per square metre.
7. I must now apply these adjusted NLA rates to each of the Locomotive Workshop and the National Innovation Centre. In the course of doing so, it is necessary to consider what net differential rate to apply in respect of each. Questions of some nicety arise in this process, particularly in regard to the National Innovation Centre.

National Innovation Centre

1. It is convenient to deal first with the submissions in respect of the National Innovation Centre which, given the parties' respective positions, noted at [20] and [22] above, raise the question in respect of what "use" means for the purposes of s 14G of the Valuation Act.
2. Despite Mr Garnsey being unable to cite any specific evidence in relation to his characterisation of the use of the National Innovation Centre as an "innovation hub", the following factors are relied upon by Mirvac in submissions to demonstrate that the use of the National Innovation Centre at the base date was restricted (to use as an "innovation hub") such as to severely affect its land value: 1. The National Innovation Centre's listing in the Projects SEPP; 2. Limitations arising from the Australian Technology Park Management Plan ('ATPMP'); 3. The ATP Deed ('Deed') to which Mirvac is a party; and 4. The Cicada lease (noted at [20] above).
3. Under the Projects SEPP, both the Locomotive Workshop and the National Innovation Centre are zoned "Business Park".
4. At the base date, the Projects SEPP identified the following objectives for that zone: (a) to establish business and technology parks to encourage employment generating activities that provide for a wide range of business technology and entertainment facilities in the Zone, (b) to support development that is related or ancillary to business, technology or education, (c) to permit residential development that is compatible with non-residential development, (d) to maximise public transport patronage and encourage walking and cycling, (e) to ensure the vitality and safety of the community and public domain, (f) to ensure buildings achieve design excellence, (g) to promote landscaped areas with strong visual and aesthetic values to enhance the amenity of the area.
5. Both the Locomotive Workshop and the National Innovation Centre are identified as "heritage items" by the Redfern-Waterloo Authority Sites Heritage Map within the Projects SEPP.
6. The ATPMP was endorsed by the Heritage Council on 20 March 2014. The following restrictions flow from that document: 1. Limitations of alterations to those of a "minor nature" which "do not detract from significance"; 2. A need to conserve the locomotive workshops as integral parts of "a rare surviving example of nineteenth century railway workshops including its highly significant Machinery Collection"; 3. Limitations on alterations to internal spaces to "reversible" alterations so that the "original open spatial character" may be restored; 4. Conservation of the ATP's heritage significance is to be "an integral part of the management of the place" such that conservation is to be "central to future decisions"; 5. The authenticity of the workshops as "an industrial place" should be respected and embraced with key aspects of the former use retained and interpreted, including the use of Bays 1 and 2 for blacksmithing; and 6. Promotion of viable uses which involve use or interpretation of machinery. Proposals for new uses should not be approved without consideration of the heritage significance of the place as a whole.
7. The ATPMP included as item 1.4 of Policy Objective 1 that if parts of the ATP were to be sold, then "adequate provisions should be included within the sale/lease contracts to ensure conservation and maintenance of heritage assets on the site in accordance with the endorsed CMP and Management Plan for Moveable Items".
8. Mirvac submits that it was to satisfy this policy objective that the Deed was entered. I note that the Deed was executed on 12 November 2015 and that, relevantly for present purposes, that date is after the base date.
9. The Deed provides, inter alia, that there is an agreement between the parties that "small technology entities and start-ups face pressure in paying commercial levels of rent and that benefits are obtained by co-locating such companies within the relevant parts of the Australian Technology Park".
10. Clause 3.1 of the Deed is entitled "Tech Contribution Agreement" and relevantly provides: (a) Mirvac must procure the Locomotive Purchaser, Centuria and CBA to negotiate, finalise and enter into a formal legal Tech Contribution Agreement with UrbanGrowth or its nominees acceptable to all parties (acting reasonably) prior to the Completion Date…
11. Amongst the aims of the Tech Contribution Agreement is (as per cl 3.1(b)(1)): …an acknowledgement by the parties that small technology entities and start-ups face pressure in paying commercial levels of rent and that benefits are gained by co-locating such companies within the relevant parts of Australian Technology Park.
12. It is envisaged by the Deed that a "Technology Incubation Fund" will "subsidise the rent payable by appropriately qualified and technology focussed/start-up tenants" within the Locomotive Building (cl 3.1(b)(2)(A)).
13. Further, cl 3.1(b)(14) provides that the Tech Contribution Agreement will set out: …the parties' agreement to discuss and act reasonably about whether prospective tenants who are technology focussed/start-up technology entities or persons should be located in the Locomotive Building or the Relevant UrbanGrowth Building with a view to: (A) tenants who are prepared to pay a higher or market rent being located in the Locomotive Building; and (B) tenants who are prepared to pay a lower or below market rent being located in the Relevant UrbanGrowth Building…
14. The respondent acknowledges the heritage restrictions arising from the Projects SEPP and the fact that s 14G of the Valuation Act is engaged, but otherwise submits that these factors are not relevant to the assessment of land value, emphasising that s 6A requires an assessment of the "fee simple".
15. The respondent says the meaning of "fee simple" in land value determinations was considered by the Court of Appeal in Perilya Broken Hill Ltd v Valuer-General [2015] NSWCA 400 ('Perilya'), where Leeming JA, with whom Bathurst CJ and Macfarlan JA agreed (though it should be noted that whilst Macfarlan JA agreed that the Privy Council's decision in Gollan v Randwick Municipal Council [1961] AC 82; (1960) 6 LGRA 275 ('Gollan') was binding, he commented that he nonetheless believed it was incorrectly decided), said at [62]-[69]: [62] Gollan concerned Randwick Racecourse in Sydney. Land had been granted to trustees in fee simple in 1863, subject to a pepper-corn quit rent, but on condition that it be used for various purposes mostly associated with horse racing and subject to a reservation to the Crown of the right to resume part of it for public roads and to take stone, gravel and timber from it. Should the land be used for any purpose other than those allowed by the grant, the trusts should cease and the land be forfeited, reverting to the Crown… … [66] In Gollan the appellant contended that Royal Sydney Golf Club was wrongly decided "in so far as it decided that not all restrictions were to be considered": [1961] AC 82 at 89. The questions for the Judicial Committee were whether Royal Sydney Golf Club was correct, and, if so, whether the same construction applied to the Valuation Act: see [1961] AC 82 at 99; (1960) 6 LGRA 275 at 281. [67] The advice of the Judicial Committee was given by Lord Radcliffe, who answered both questions affirmatively. The "fee simple of the land" in the Valuation Act did "not refer to the actual title vested in the owner at the relevant date but to an absolute or pure title such as constitutes full ownership in the eyes of the law": [1961] AC 82 at 101; (1960) 6 LGRA 275 at 282. [68] It followed that the unimproved fee simple valued for the purpose of assessing rates on the land owned by the trustees of Randwick Racecourse disregarded the fact that their actual estate was qualified by conditions and a reservation to the Crown of a right to resume any part for the purpose of roads and a right to take stone, gravel and timber from it. [69] Gollan therefore holds that a reservation to the Crown in the grant is disregarded for the purposes of the hypothetical fee simple valued under the Valuation Act. Gollan was confirmed in Broken Hill Proprietary Co Ltd v Valuer-General [1970] AC 627; (1969) 16 LGRA 334, another appeal from the New South Wales Court of Appeal.
16. Whilst Perilya did not deal with s 14G of the Valuation Act, I consider that it does inform the approach to be taken to s 6A. I therefore find the respondent's submission compelling in relation to this anterior step, but the statutory assumptions in s 14G require separate consideration.
17. The crucial question remains the meaning to be given to the words "the purpose for which it was used when the value is determined" in the context of s 14G. In Valuer-General v Fivex Pty Ltd [2015] NSWCA 53; (2015) 206 LGERA 450 ('Fivex'), Leeming JA, with whom Basten and Gleeson JJA agreed, said at [44]-[45] with respect to the construction of "use" in the context of s 6A(2) of the Valuation Act: [44] First, I discount the extent to which principles from planning law provide assistance. Those are "principles" in the sense identified in Walker Corporation Pty Ltd v Sydney Harbour Foreshore Authority [2008] HCA 5; 233 CLR 259 at [31], derived from a body of case law based on comparable legislative provisions. I acknowledge that they inform the legal meaning of "use" and "purpose" in the subsection. But they are far from determinative. They are of limited assistance in the different context of valuing the unimproved value of land, especially where, as here, the question is whether the subsection has a legal meaning which is narrower than its ordinary textual meaning. It is one thing to determine whether an actual use and an actual purpose in the real world complies with the applicable planning regime. It is a very different thing to make stated real world assumptions in order to value the hypothetical and highly artificial sale of the "fee-simple" of land, stripped of its improvements. [45] Secondly, if as Fivex submits and the primary judge held, the assumptions were only applicable to capture an "existing use", then it might be expected that s 6A(2) would incorporate that language. "Existing use" has long been a defined term in planning legislation. It is now reflected in Division 10 of Part 4 of the Environmental Planning and Assessment Act 1979 (NSW), and was present in cl 32 of the County of Cumberland Planning Scheme Ordinance which was central to the decision in Wunderlich Ltd v Valuer-General. Yet s 6A(2) uses different language which is capable of bearing a broader meaning. I acknowledge that those first two considerations are of relatively limited weight.
18. Section 6A(2) closely resembles s 14G(1)(a) and (b) in its language and structure. Indeed, as much was noted by Leeming JA in Fivex at [13] and [50]. However, Mr Tomasetti submits that Fivex is of limited assistance in this case and that the effect of Mirvac's submission is that the value of the land would change as tenants' change, which he says is an "absurd" outcome which should be avoided.
19. I note the comment of Leeming JA in Fivex at [49] that "only limited assistance is available from reasoning based upon avoiding anomalous results when the question of construction is as artificial as the present". Given the nature of the assumptions which the Valuation Act requires, any conclusion reached will be susceptible to being labelled "unreal". Nevertheless, I consider that there is force in the respondent's submission.
20. It would be a curious result that instruments voluntarily entered into such as the Deed or the Cicada lease could have the effect of lowering the value of the land.
21. The phrase "purpose for which it was used" in s 14G is not necessarily a term of art. However, I do not consider it extends to such a level of particularity as "innovation hub" which is only identifiable as a distinct use by the lower level of rent payable pursuant to commercial (albeit philanthropic, as the case may be) agreements.
22. Certainly no such restriction can be said to arise at the point of heritage restriction in circumstances where the environmental planning instrument which governs the uses, albeit in a planning sense, to which land may be used (Projects SEPP), provides that the land is zoned "Business Zone - Business Park". The objectives of that zone are extracted above at [160].
23. Nor could the restrictions on use be said to arise from the ATPMP. Whilst Mirvac submits the Deed was entered to satisfy item 1.4 of Policy Objective 1 in the ATPMP, item 1.4 only provides that "adequate provisions should be included within the sale/lease contracts to ensure conservation and maintenance of heritage assets". It does not require or suggest that the National Innovation Centre be used as an innovation hub, or curtail the rental that would otherwise be capable of being achieved at the site.
24. I consider that some assistance may be gleaned from the reasoning (albeit the situation in the present case is the inverse) in Commonwealth Custodial Services Ltd v Valuer General [2008] NSWLEC 310 (affirmed on appeal in Valuer-General v Commonwealth Custodial Services Ltd (2009) 74 NSWLR 700; [2009] NSWCA 143). At [23], Biscoe J said: The qualification to which I have referred concerns Talbot J's comparison of the rental "actually achieved" for the Moneybox. The Moneybox is subject to two leases, apparently between related entities, which together encompass the whole building. In the present proceedings neither Mr Hill nor Mr Dempsey relied on the rentals actually achieved because, they indicated, those leases, which are not in evidence, contained unusual provisions and the rentals actually achieved were significantly in excess of their market rental valuations. Accordingly, the rental actually achieved for the Moneybox is of no assistance. The uselessness of the rental actually achieved was apparently not identified and communicated to the Court in the earlier valuation proceedings.
25. Admittedly, [23] does not represent a finding of his Honour but is rather a recitation of the evidence before him, but there is no indication that he considered the valuers in that case were in error by relying on market rates rather than the rental rates that were actually achieved for the site, or that such an approach was mandated by the terms of s 14G.
26. In my opinion, s 14G(1)(a) represents an acknowledgement on the part of the legislature that difficulty is frequently encountered when converting a site which is heritage restricted to a different use, and indeed frequently in putting a site to an economically productive use at all. I do not consider that agreements voluntarily entered into which limit the economic viability of the land's use are relevant considerations for s 14G(1)(a). Such limitations as the Deed and the Cicada lease do not arise by virtue of the heritage restriction, but rather concern the commercial agreements entered into by the parties.
27. Accordingly, I find that the Deed and the Cicada lease should not be taken into account when valuing the National Innovation Centre land.
28. In any case, had I been otherwise minded to consider these documents, I would not have placed any reliance on the Deed as it was not executed before the base date and there was no evidence that knowledge of the Deed was or would have been available to a purchaser on the base date.

Conclusion on the National Innovation Centre

1. Given my reasoning in relation to the National Innovation Centre, I find that the purpose for which it was being used at the base date was a commercial use within a building containing two to three internal levels and retail at the ground floor level. I do not find it appropriate to further particularise the activities in the building.
2. As per my reasoning above, I find that the appropriate NLA rate for this use is $1,200 per square metre.
3. Given my rejection of Mirvac's submissions and the evidence of Mr Garnsey, where reliance was based upon the matters and documentation noted at [158] above, I reject the discount rate of 100% applied by Mr Garnsey, on his own analysis, to each of the components he separately described as the "non-porous laboratory component" and the "offices" of the National Innovation Centre and I do not accept his analysis of the "retail" component of the National Innovation Centre.
4. Given the evidence, and what appears to have been an agreement between the experts at least in relation to those comparable sales which make up the Commercial Use, I apply a 20% discount to reflect the rental differential. Accordingly, adopting an NLA rate of $1,200 discounted by 20% and applied to the agreed NLA of $6,177 per square metre, results in a determination of land value for the National Innovation Centre in the sum of $5,929,920.

Locomotive Workshop

1. Unlike the National Innovation Centre, the differences between the parties in relation to the Locomotive Workshop, as detailed above, proceeded along lines not uncommon in cases where the comparable sales approach is employed. Given the agreement in relation to the land value of the Blacksmith Use, the differences between the valuers again related first to the adoption of underlying land value NLA for each of the Commercial Use and the Hospitality Use components and thereafter the application of net rental differential discount.
2. As Mr Garnsey relies on the same three comparable sales for the Locomotive Workshop as he did in relation to the National Innovation Centre, albeit with different adjustments, my findings in relation to the reliability of those sales inevitably lead me to the view that his conclusions cannot be relied upon.
3. Mr Garnsey's adopted $470 per square metre NLA (which he applied to both the Commercial Use and the Hospitality Use) reflected his adoption of the mid-point between his adjusted sales being 9 Bowden Street (which he analysed and adjusted to $485 per square metre) and 689 Gardeners Road (which he adjusted to $358 per square metre). As I find those sales unreliable, I do not accept his determination.
4. Apart from this finding, I do not consider Mr Garnsey's net rental differential discount in relation to the Hospitality Use (being 73.4%) persuasive. His evidence in relation to the market rent that would be achieved in a comparable non-heritage building was susceptible to the criticism that it was contrary to principle in that it took account of the Commonwealth Bank building which was not completed at the date of the hearing, let alone the base date.
5. In any case, I consider the pre-commitment to lease the Commonwealth Bank building is less reliable evidence than an actual lease, and accept Mr Hill's criticism that the significant adjustments required for inflation make it less reliable.
6. I also find there is force to Mr Hill's criticism that the rate of 73.4% does not accord with the condition of the Locomotive Workshop in the circumstances that there are no deficiencies that would lead to a discrepancy of that magnitude.
7. Therefore, I do not rely upon Mr Garnsey's net rental differential rate for the Hospitality Use.
8. For the reasons set out at [150]-[156], I adopt Mr Hill's NLA rate of $1,000 per square metre for the Commercial Use component and note the agreement between the valuers that 20% appropriately reflects the net rental differential. Accordingly, I determine the land value for the Commercial Use area by adopting $1,000 per square metre, less the 20% rental differential, resulting in land value of $800 per square metre for the 13,501.6 square metres of NLA resulting in $10,801,280 for the Commercial Use component.
9. In relation to the Hospitality Use, the underlying NLA rate was determined by Mr Hill at $650 per square metre and by Mr Garnsey at $470 per square metre. Mr Garnsey opines that his figure was achieved in the same manner as the Commercial Use noted above at [191] and I make the same finding in relation to his reliance upon his three sales.
10. In determining his 30% rental differential discount, Mr Hill relied for his heritage rate upon a lease that had commenced on 22 April 2015 in relation to the Hospitality Use within the Locomotive Workshop (for what he indicated was a conservative and effective rent) and then adjusting for various outgoings and the like. However, as noted above, being unable to source sales evidence of convention centres for his non-heritage rate, he had regard to various "utilised industrial aligned sales evidence" from which he deduced the rental differential of 30% being the comparison between an assumed new industrial rental and what he considered the subject heritage convention rental, giving an effective rental differential of 30%.
11. As noted above, given the limited sales evidence in relation to convention centre/hospitality usage, I accept the analysis and adopt 30%. Accordingly, adopting my rate of $600 per square metre, less 30% rental differential, achieves $420 per square metre of NLA for 10,566 square metres, giving a value of $4,437,720.
12. Adding the above two determined values with the agreed value of the Blacksmith Use, in the sum of $200,000, results in a determination of land value for the Locomotive Workshop in the sum of $15,439,000.

Conclusion

1. For the reasons above, I have determined land values as at the base date for the National Innovation Centre and the Locomotive Workshop in the sums of $5,929,920 and $15,439,000 respectively.
2. As the amounts I have determined are greater than the sums initially determined by the respondent of $4,200,000 and $12,800,000 respectively, the appropriate order is that the appeals should be dismissed.

Orders

1. The Court orders that: In proceedings 2016/00385807: 1. The appeal is dismissed. In proceedings 2016/00385808: 1. The appeal is dismissed.

Amendments 28 May 2018 - Typographical error corrected in par [177]. 04 June 2018 - Typographical error corrected in par [184]. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 June 2018