VALUATION OF LAND - unimproved value - crematorium with memorial gardens - improvements - determined interred ashes are not improvements, but containing structures and gardens are improvements
Source
Original judgment source is linked above.
Catchwords
VALUATION OF LAND - unimproved value - crematorium with memorial gardens - improvements - determined interred ashes are not improvements, but containing structures and gardens are improvements
Judgment (36 paragraphs)
[1]
Judgment
New South Wales Cremation Company Pty Ltd ('the applicant') operates the Rookwood Memorial Gardens and Crematorium ('Rookwood Crematorium') on a 9.045 ha parcel of land within the grounds of the 283 ha Rookwood Necropolis ('subject land'). The Rookwood Necropolis is situated between Strathfield and Parramatta approximately 15km west of the Sydney CBD and is comprised of Crown Land held by the NSW Government. The applicant leases the subject land in accordance with a lease dated 7 September 1926 ('Rookwood Lease') that was made under s 8B of the (now repealed) Rookwood Necropolis Act 1901 (NSW) ('1901 Act'). The Rookwood Lease was entered into for 99 years, and is due to expire on 6 September 2025.
A number of improvements have been made to the subject land that together make up the Rookwood Crematorium, comprising the crematorium facilities (including a crematorium building, amenities block, caretaker's cottage, machinery shed, memorial/niche walls and roads and pathways) and various memorial gardens. The crematorium building is a Spanish Mission style that is laid out in a cruciform pattern with chapels to the west, east and south and cremator room to the north of the cruciform.
As will be explored further below, the annual rent payable by the applicant is calculated by determining the greater of:
1. 10% of the unimproved value of the subject land as at 1 July each year; or
2. 5% of the imputed revenue of the lessee in the previous year.
It was not in dispute that the first method was appropriate to calculate the applicant's rental payments. This method involves obtaining a valuation by the Valuer General in accordance with a number of statutory assumptions, which are outlined below. On or about 5 May 2015 the Valuer General, the first respondent, determined that the value of the unimproved land comprising Rookwood Crematorium at 1 July 2015 was $10,600,000.
On 20 July 2015 the applicant commenced these appeal proceedings seeking orders that:
1. the Valuer General's valuation of the Rookwood Crematorium dated 5 May 2016 be set aside; and
2. the Court determine the value of the unimproved land making up the Rookwood Crematorium as at 1 July 2015 to be $1,000,000.
The second respondent, the Minister for Lands and Water, has determined under s 34A of the Crown Lands Act 1989 (NSW) that the rental payments are payable to the Rookwood Necropolis Trust. It is noted that the Rookwood Necropolis Trust requested that the Minister respond to these Class 3 proceedings, and that the Valuer General filed a submitting appearance and did not appear at the hearing.
Despite the Valuer General's valuation of the unimproved subject land at $10,600,000, the second respondent contended that a true valuation of the unimproved subject land was between $17,185,500 and $17,800,000 at 1 July 2015.
I note that I have had the advantage of Acting Commissioner Parker sitting with me in these proceedings. Professor Parker is a highly qualified and experienced property expert with an extensive knowledge of valuation matters.
[2]
Legal context
For the purposes of the present matter, the Rookwood Lease is governed by the Cemeteries and Crematoria Act 2013 (NSW) ('2013 Act'). Part 5 of Sch 5 of the 2013 Act contains provisions relating to the assessment of rent payable under the Rookwood Lease (defined as the "general crematorium lease" in the 2013 Act). Clause 22(1) of Sch 5 of the 2013 Act states:
general crematorium lease means the lease referred to in section 8B of the 1901 Act, as that lease was in force immediately before the appointed day, and includes the terms and conditions specified in Schedule 3 to that Act.
It is also noted that either the lessor or the lessee is granted a right to appeal to the Land and Environment Court pursuant to cl 22(3) of Sch 5 of the 2013 Act:
(3) The lessor or lessee under the general crematorium lease, or the new RNT, may appeal to the Land and Environment Court against a valuation made, or purporting to have been made, by the Valuer-General under the terms of the lease.
Note: As at the appointed day, the terms of the lease included those prescribed by Schedule 3 to the 1901 Act, clause 5 of which provided for the valuation of the general crematorium site by the Valuer-General for the purpose of determining the rent payable in relation to that site.
For present purposes, the relevant provisions of the 1901 Act are found in cll 4 and 5 of Sch 3, which state as follows:
4 Rent
(1) The rent payable by the lessee is payable on 1 August in each year.
(2) The amount of rent payable on 1 August in a year is the amount which is the greater of the following:
(a) 10 per cent (or such other proportion as may be agreed on by the lessor and the lessee) of the value of the land as at 1 July immediately preceding that 1 August,
(b) 5 per cent of the imputed revenue of the lessee during the period of 12 months ending on 1 July immediately preceding that 1 August.
…
5 Calculation of rent - value of land
(1) For the purpose of ascertaining the rent payable, the value of the land shall be determined in accordance with this clause.
(2) The value of the land at a particular time is the value determined by the Valuer General (appointed under the Valuation of Land Act 1916) in accordance with subcl (3) and notified to the lessor most recently before that time.
(3) The value of the 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 seller in good faith would require, assuming that:
(a) the land were to continue to be used in connection with a crematorium,
(b) the land were to be sold as 1 parcel, and
(c) the improvements, other than land improvements (within the meaning of the Valuation of Land Act 1916), made or acquired by the lessee had not been made.
…
The term "land improvements" is defined in s 4 of the Valuation of Land Act 1916 (NSW) ('Valuation Act') as meaning:
(a) the clearing of land by the removal or thinning out of timber, scrub or other vegetable growths,
(b) the picking up and removal of stone,
(c) the improvement of soil fertility or the structure of soil,
(d) the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation,
(d1) without limiting paragraph (d), any excavation, filling, grading or levelling of land (otherwise than for the purpose of irrigation or conservation) that is associated with:
(i) the erection of any building or structure, or
(ii) the carrying out of any work, or
(iii) the operations of any mine or extractive industry,
(e) the reclamation of land by draining or filling together with any retaining walls or other works appurtenant to the reclamation, and
(f) underground drains.
Given this legal context, the task of the Court is therefore to determine the hypothetical market value of the land if it were to:
1. continue to be used in connection with a crematorium;
2. be sold as a single parcel; and
3. have no improvements added to it, other than land improvements.
[3]
Evidence
Both parties relied on expert quantity surveyor reports prepared by Mr Peter Hammond on behalf of the applicant and Mr Douglas Martin on behalf of the second respondent, and expert valuation reports prepared by Mr Peter Dempsey on behalf of the applicant, and Mr Adrian Watt on behalf of the second respondent. The applicant also relied on lay evidence from Mr Christopher Mooney, its Group Financial Controller, relating to the use of Rookwood Crematorium as at 1 July 2015.
Both parties agreed that the highest and best use must be a use in connection with a crematorium pursuant to Sch 3, cl 5(3)(a) of the 1901 Act. It is agreed that this includes the facilities associated with conducting memorial services and cremations, condolence room facilities (function rooms for post-service receptions), necessary amenity and ancillary buildings, memorial gardens (for the burial of ashes), niche walls (walls with gaps for the interment of ashes and placement of memorial plaques) and other necessary improvements such as roads, car parks and gardens.
[4]
Mr Mooney's lay evidence
Mr Mooney gave evidence as to how the Rookwood Crematorium was utilised as at 1 July 2015. He deposed that:
1. 13.9% of the subject land was occupied by the main crematorium building, the cottage and facilities ('Crematorium Facilities');
2. 43.5% of the subject land had been used for crematorium purposes including the memorialisation of ashes in memorial gardens and niche walls ('Memorial Gardens'); and
3. 42.6% of the subject land was "available for use" ('Unused Land').
In oral evidence, Mr Mooney agreed that the Memorial Gardens were a vital part of the "business" at Rookwood Crematorium and that they provided serene and aesthetic surroundings and as such assisted in "attracting and retaining customers". Mr Mooney also accepted that the crematorium's location proximate to population was an advantage, and that it drew most of its custom from persons residing to the south and west of the subject land.
Mr Mooney provided evidence in relation to what occurred to ashes once the human remains had been incinerated. He deposed that whilst approximately 2,000 deceased persons are cremated at the facility each year, only around 600 of these sets of cremains are actually interred in the Memorial Gardens, with the remaining ashes not remaining onsite.
During cross examination, Mr Mooney clarified that there were a number of fees payable for different services related to cremations, and in particular outlined that, for a fee, ashes could be:
1. interred in the ground, with a memorial plaque above the ground;
2. interred into a niche wall or another standing memorial, with a memorial plaque identifying those ashes;
3. scattered onsite, generally within the Memorial Gardens, with or without a memorial plaque being placed in the Memorial Gardens; and
4. removed from the site, with the option of placing a memorial plaque onsite.
He clarified that these services can generally be purchased whilst one was still living, allowing "customers" to reserve places within the Memorial Gardens.
In relation to the 43.5% of the subject land (39,346 square metres) that comprises the Memorial Gardens, Mr Mooney clarified that some of this area remained available for further interment and memorialisation because there remained some space for further interments. The Memorial Gardens, including the niche walls, were an important part of the annual revenue stream of the business at Rookwood Crematorium, and generated approximately three quarters of the applicant's revenue. The Memorial Gardens were not only a source of revenue, but were a further attraction because they were manicured, tended and looked after, and provided an important part of the ambience that drew people to Rookwood Crematorium. Mr Mooney also noted that the niche walls could be enlarged vertically, increasing the number of interments that could be placed above the same land.
Further, Mr Mooney noted on the site view that a number of niche walls at the border of the subject land, which surrounded both the Memorial Gardens and the Unused Land, were used both to house ashes, and to mark the boundary between the subject land and the wider Rookwood Necropolis. The purpose of this was to dissuade those occupying the surrounding land, who operated a cemetery, from conducting any non-cremated burials on the Unused Land.
In relation to the 42.6% of the subject land (38,532 square metres) comprising the Unused Land, Mr Mooney agreed that this area was available for the "future use" of developing further memorial gardens, meaning that this land also provided a potential income generator for an operator of a crematorium on the land.
Finally, Mr Mooney also provided evidence as to the revenue and outgoings of Rookwood Crematorium for the financial years 2011 to 2015. In particular, Mr Mooney deposed that the revenue for Rookwood Crematorium in the 2015 financial year was $4,964,610, whilst the outgoings were $4,739,699.
[5]
Quantity surveyor evidence
Little turned on the quantity surveyor evidence, which related principally to Mr Dempsey's residual land valuation approach.
In summary, the quantity surveyors, Mr Hammond and Mr Martin, provided evidence of the costs of undertaking the development of the notionally unimproved subject land for the purposes of providing the crematorium buildings, ancillary structures and other improvements on the subject land including roads, parks, memorial walls and gardens, as well as estimates of the costs of a condolence facility (in addition to the main crematorium building).
[6]
Valuation evidence
There was a considerable difference between the approaches taken by the valuers in this matter. In particular, they differed on the correct primary method of valuation, the relevant comparative sales evidence when both adopted a comparative market valuation and the final assessment of the value of the unimproved subject land.
[7]
Mr Dempsey
Mr Dempsey undertook both a residual land value and a comparative market value approach, and relied on both of these valuations and his "valuation judgment" to derive a value of $1,000,000 for the subject land.
[8]
Residual land value approach
Mr Dempsey was of the view that, as there were no truly comparable sales and given the unique circumstances of the subject land, a hypothetical residual land analysis should be adopted to determine the amount a reasonable purchaser would pay for the subject land. In particular, Mr Dempsey considered that:
1. the constrained use of the subject land as a crematorium burdened the land and reduced its value;
2. only the Unused Land (being the 42.6% of the subject land which had not yet been utilised) was income producing, and that no income could be "extracted" from the other 57.4% of the subject land, further burdening the land (although it is noted he partially retracted this assumption during cross examination);
3. the area of land that could be utilised would decrease over time, meaning that the subject land had a limited time use potential, such that income would cease once the subject land was fully utilised;
4. the subject land would become a "burden in perpetuity", given the ongoing maintenance costs (even after the subject land ceased being able to generate an income); and
5. the subject land was therefore a "wasting asset", as it could not be redeveloped once it was fully utilised and the improvements no longer generated income.
Mr Dempsey concluded that the hypothetical parties would determine the sale price based upon the present value of the net income that could be extracted from the subject land, after all development and ongoing costs were deducted and it was recognised that the purchaser would be forced to continue to pay the costs of maintaining the subject land "in perpetuity". He opined that the memorials present on the subject land were therefore not improvements, but should instead be considered "worsements" that reduced the value of the subject land. This meant that the Memorial Gardens should be taken into account when valuing the value of the unimproved subject land.
In undertaking his residual approach to the valuation of the unimproved subject land, Mr Dempsey undertook a number of steps. The first steps, which were used to derive a "total cost" or an initial capital outlay, are as follows:
1. the "building cost" agreed by the quantity surveyors ($10,768,186) was added to allowances for:
1. "roads, carparks and footpaths" which were $2,013,668 on Mr Hammond's costings, and $1,712,488 on Mr Martin's costings;
2. "external memorial gardens", which were $8,361,843 on Mr Hammond's costings, and $6,566,402 on Mr Martin's costings;
3. a "sec 94A levy" of $212,574; and
4. a "long service levy" of $69,360,
giving a "sub-total cost" of $21,425,631 on Mr Hammond's costings, and a "sub-total cost" of $18,230,043 on Mr Martin's costings;
1. these subtotals were added to various "land costs" (i.e. hypothetical purchase prices) ranging from $1,000,000 (a benchmark price set by Mr Dempsey) to $15,925,000 (the amount originally contended by the second respondent), to give "total costs before other DA costs and interest";
2. these "total costs before other DA costs and interest" were then multiplied by 15% to give a "developer profit margin"; and
3. the respective "total costs before other DA costs and interest" and "developer profit margins" were then added together to give "total costs".
The total costs were then multiplied by 7.5% to give a "required return on total cost before profit". This amount accounts for the different hypothetical purchase prices that were available to Mr Dempsey at the time that he wrote his report.
Mr Dempsey then undertook an analysis to derive a "net profit and return on cost as an owner operator" by relying on the evidence of Mr Mooney summarised in paragraph 24 above, and undertaking the following steps:
1. the "operating costs" of $4,739,699 (including the lease payments) were subtracted from the "total revenue" of $4,964,610;
2. the "lease payments" of $1,030,000 (which would not need to be paid by an owner operator) were "disregarded" from this amount, giving "revenue ignoring the lease" of $3,709,699; and
3. the "revenue ignoring the lease" was then subtracted from the "total revenue" to give a "net profit and return on cost as an owner operator" of $1,254,911.
Mr Dempsey then subtracted the relevant "required return on total cost before profit" (which he also termed "lessor required economic rent") to determine an "operational loss". By way of example, the operational losses found by Mr Dempsey using Mr Hammond's costings are as follows:
1. where a purchase price of $1,000,000 (Mr Dempsey's benchmark) was paid, the return was -8.60%;
2. where a purchase price of $10,600,000 (the Valuer General's original valuation) was paid, the return was ‑23.10%; and
3. where a purchase price of $15,925,000 (the second respondent's original contention) was paid, the return was ‑31.15%.
These "returns on business operations" were approximately 5% higher when Mr Martin's costings were adopted.
Concluding that "the development of the land for the limited permitted use is not viable", Mr Dempsey assessed the unimproved land value to be $0 using his residual land value approach.
[9]
Comparable sales approach
Mr Dempsey then engaged in a comparative sales approach to value the subject land, which resulted in a valuation of $4,200,000.
In undertaking this approach, Mr Dempsey relied upon five comparable sales of cemetery land. Mr Dempsey obtained the per square metre ('psm') value of each comparable sale by dividing the sale price by the land area, giving a range of values from $41.76 psm to $144.79 psm. He then adjusted for each of "blot on title and improvements", use potential, date of sale, size and location. These adjustments ranged from -35% to +30% and gave an adjusted value range of $29 psm to $120 psm.
Using this comparative sales evidence, Mr Dempsey then undertook the following calculations (using the areas articulated in Mr Mooney's evidence summarised in paragraph 16 above):
1. for the 13.9% of the subject land that would likely be occupied by the main crematorium facilities, Mr Dempsey multiplied a $40 psm value by 12,572.55 square metres to give a value of $502,902;
2. for the 43.5% of the subject land that comprise the Memorial Gardens (which, in Mr Dempsey's opinion, should be included as they were not improvements) and had ongoing maintenance costs, Mr Dempsey multiplied a $40 psm value by 39,345.75 square metres to give a value of $1,573,830; and
3. for the 42.6% of the subject land "available for use", Mr Dempsey multiplied a $55 psm value by 38,531.70 square metres to give a value of $2,119,244.
Mr Dempsey, using these numbers, assessed the value of the unimproved subject land from a comparable sales approach to be $4,200,000 as at 1 July 2015.
Mr Dempsey, however, considered that this valuation should be considered in the context of the $0 value derived using his residual land value approach. Using the adage that "all land has some value", he "adopted the upper end of a reasonable range of $1 to $1,000,000", and with regard to both valuation methods and his own "valuation judgment", assessed the value of the unimproved subject land to be $1,000,000 as at 1 July 2015.
[10]
Mr Watt
Mr Watt only conducted a comparable sales approach to the valuation. In undertaking this approach, Mr Watt notionally divided the unimproved subject land into two parcels. The first parcel was approximately 1.7 ha in area, and included facilities "more closely associated with commercial and industrial land use" such as the chapels, cremator, condolence facilities, amenities and car parking ('First Parcel'). The second parcel was approximately 7.345 ha in area, and was comprised of memorial gardens which involved a use "more similar to the use of land for cemetery (burial plot) purposes", although it was recognised that the crematorium use is of a higher density ('Second Parcel').
In undertaking the valuation of the First Parcel, Mr Watt relied upon six sales of industrial land which he analysed to provide a value range of $269 psm to $452 psm. He then adjusted for "constraints", being size and time, and made adjustments between +4% to +42%. This provided a value range of $340 psm to $470 psm, from which Mr Watt determined a value of $400 psm. He then applied this to the First Parcel, which he valued at $6,800,000 as at 1 July 2015.
In undertaking the valuation of the Second Parcel, Mr Watt relied on four sales of cemetery land (being for the interment of remains, including ashes) which he analysed to provide a value range of $64 psm to $220 psm. He then adjusted for location, size and time with adjustments ranging from -5% to +95%, giving a value range of $122 psm to $240 psm. He then derived a value rate of $150 psm, which he applied to the Second Parcel, which he valued at $11,017,500 as at 1 July 2015.
Combining the values of the First and Second Parcels, Mr Watt adopted an unimproved value of $17,800,000 for the subject land as at 1 July 2015.
[11]
Are the Memorial Gardens improvements?
Before proceeding, the issue raised by Mr Dempsey in paragraph 30 above (and expanded in the submissions of the applicant) of whether the ashes interred and scattered in the Memorial Gardens, and the structures, gardens and plaques contained in the Memorial Gardens, should be considered improvements for the purposes of Sch 3, cl 5(3) of the 1901 Act requires consideration.
[12]
Applicant's submissions
In summary, the applicant submitted that the interred ashes located under and contained in the gardens and the niche walls in the Memorial Gardens, and to some degree the gardens and niche walls that contain those ashes, are "worsements" rather than improvements, and thus are not excluded pursuant to Sch 3, cl 5(3) of the 1901 Act for the purpose of determining the value of the unimproved subject land.
The applicant accepted that, in the light of further evidence given by Mr Dempsey and Mr Mooney, insofar as the Memorial Gardens do not contain interred ashes, they should properly be considered improvements because they generate revenue and therefore enhance the value of the subject land. However, the applicant maintained that the interred ashes (and the parts of the niche walls and memorial gardens that contained them) were not improvements on the basis that the presence of interred ashes (a) meant that the portion of the land or wall containing the interred ashes was no longer available for use or sale, and (b) constituted an impost in the form of a maintenance cost in perpetuity, as the ashes could not be exhumed. In particular, it was submitted that those ashes that were interred in the ground became part of the subject land.
With regard to point (b) above (regarding the exhumation of ashes), it was submitted that the Rookwood Crematorium was governed on 1 July 2015 by Pt 3, Div 2 of the Crown Lands (General Reserves) By-law 2006 (NSW) ('Crown Lands By-law'), as Pt 4, Sub-Div 3 the 2013 Act, which will govern 'interment rights', has not yet commenced. It was submitted that whilst there is no reference to perpetuity in this Division, cl 34A(1) of the Crown Lands By-law does not allow the exhumation of human remains even in the case of a "renewal scheme", and so human remains should remain buried in perpetuity, although it was noted that memorials may be removed as part of a renewal scheme. It was submitted that no such renewal scheme was in operation at the Rookwood Necropolis as at 1 July 2015.
In the circumstances, it was submitted that this meant that any ashes that were already interred in the Memorial Gardens would not increase the value of the subject land from the perspective of a potential operator of a crematorium, and therefore reduce the value of that land. It was further submitted that this was the case notwithstanding any contribution the already utilised parts of the Memorial Gardens made to the amenity of the crematorium, as these areas would have the same market value as open space.
The applicant relied upon the judgments of Campbell JA in Trust Company of Australia Ltd v Valuer-General (2007) 154 LGERA 437; [2007] NSWCA 181 ('Trust Company') and Biscoe J in Commonwealth Custodial Services Ltd v Valuer General (2006) 148 LGERA 38; [2006] NSWLEC 400 ('Commonwealth Custodial'), and submitted that interments did not add value to the subject land, and should therefore not be considered as improvements for the purposes of Sch 3, cl 5(3) of the 1901 Act.
Despite these contentions, the applicant also emphasised that whilst the interred ashes should not be considered as improvements, Mr Dempsey did not take this into account in his calculations. Although Mr Dempsey did not actually reduce the value of the unimproved subject land because of the interred ashes, it formed the basis for him delineating different psm values for the unimproved area comprising the existing Memorial Gardens (which he assumed did not produce a profit, but required maintenance in perpetuity) and the Unused Land (which he assumed was capable of producing an income).
[13]
Second respondent's submissions
The second respondent submitted that the Memorial Gardens and the niche walls are improvements for the purposes of s 5(3)(c) because they add, and continue to add, value to the subject land as revenue generators within the property. The interment of ashes was submitted to be "part and parcel" of operating a crematorium with memorial gardens. It was thus submitted that they fall within the definition of improvements, and therefore cannot be taken into account in the valuation process.
[14]
Consideration
In Trust Company, Justice Campbell, with whom Beazley and Ipp JJA agreed, gave detailed consideration of what constitutes an "improvement" in the context of s 6A of the Valuation Act. His Honour stated:
[24] …the notion of an increase in value or profitability is an inherent part of the concept of an "improvement".
[25] There is ample recognition in the case law of the need for an improvement to ameliorate the land…
…
[31] When the context in which the word "improvements" appears is, in the present case, a statute dealing with the means of ascertaining the value of land, that context itself underlines that the type of "improvement" that is being talked about is one having an effect on the value of land. [emphasis added]
His Honour considered that the way that this increase in value should be assessed is whether "any human operations on the land have the effect, as at the date of valuation, of enhancing its value compared with its natural state": Trust Company at [10], [11], [17] and [108].
Trust Company was an appeal from the decision of Biscoe J in Commonwealth Custodial, where he stated at [42]:
In my opinion, "improvements", within the meaning of s 6A(1) of the [Valuation Act], are human operations of persons on land which have the effect, as at the date of valuation, of enhancing its value compared with its natural state. A structure on land is not an improvement if it does not enhance the land's value compared with its natural state…
The Court of Appeal upheld this construction on appeal: Trust Company at [17], [68] and [95] (Campbell JA, with Beazley and Ipp JJA agreeing).
Given that Sch 3, cl 5(3)(c) of the 1901 Act is both worded similarly to s 6A of the Valuation Act and specifically adopts the definition of "land improvements" in the Valuation Act, it is appropriate to adopt a similar approach to that taken by Campbell JA when considering the term "improvement" for present purposes.
As noted in paragraph 19 above, there are three ways which ashes may become part of the Memorial Gardens. In particular, the ashes can be:
1. interred in the ground, with a memorial plaque above the ground;
2. interred into a niche wall or another standing memorial, with a memorial plaque identifying those ashes; and
3. scattered onsite, generally within the Memorial Gardens, with or without a memorial plaque being placed within the Memorial Gardens.
It is important to qualify that the memorial plaques and the ashes, whilst related, are different things. Ashes may be interred or scattered without a plaque, and ashes may be removed from the site whilst a plaque identifying those ashes may remain as a memorial.
It should also be noted that the ashes are not maintained in any sense. The ashes are contained in urns or other containers, which are not within the view of the public, and cannot be easily accessed. Rather, it is the structures, gardens and plaques which contain and mask the ashes that are maintained. Given this, I find that the submission that the ashes must be maintained in perpetuity, presenting an ongoing cost to the owner of the land, cannot be sustained.
It should finally be noted that the applicant did not submit that the structures or gardens that do not yet contain interred ashes were not improvements. Counsel for the applicant submitted that these would, at some point, cross a threshold as they were filled, and would cease to be improvements when the crematorium operator would no longer be able to derive an income from them. As such, the only structures and gardens discussed below are those that were either substantially or completely utilised as at 1 July 2015.
With these points in mind, the Court must determine whether:
1. scattered ashes constitute an improvement to the subject land;
2. interred ashes, whether in the ground or other structures, are improvements; and
3. the structures, gardens and plaques that already contain interred ashes are improvements.
[15]
Scattered ashes
I find that scattered ashes should not be considered as improvements. They do not increase the value of the subject land, nor ameliorate it, in any sense, and so do not fall under the test specified by Campbell JA in Trust Company.
However, I also consider that this is of little relevance. Scattered ashes, whilst of course meaningful for those who mourn the loss of the deceased person, have little physical impact on the subject land. As noted by the applicant, it is reasonable to assume that scattering can be done "over and over and over again" on the same patch of land. Undertaking this operation is "part and parcel" of operating a crematorium. As such, whilst scattered ashes may not constitute improvements, I do not consider that they would have any actual impact on the value of the unimproved subject land, particularly given that the subject land is to continue to be used in relation to the operation of a crematorium.
[16]
Interred ashes
I also find that interred ashes are not improvements. Similar to scattered ashes, they do not inherently increase the value of the subject land. In particular, they do not add any amenity value, as they cannot be sensed in any physical manner. Further, and subject to matters below in paragraphs 67 to 70, I find that at least some of these ashes will remain interred in perpetuity, meaning that other ashes cannot be interred in the same spot.
However, I again consider this to have little impact on the valuation of the subject land. It was agreed by the valuers that there was a very slow "take up" of the subject land. Whilst Mr Dempsey originally opined that this would take 87 years, he conceded during cross examination that this number was likely larger, as he had assumed that the Memorial Gardens had been fully utilised when deriving his original figure. Mr Watt stated in cross examination that ashes could continue to be interred in perpetuity. As such, I do not consider my finding that at least some of these ashes may remain in perpetuity will mean that other ashes cannot be interred on the subject land in the future.
Further, I do not consider that the ashes will necessarily use space in perpetuity in any event. Whilst I accept the submission that cl 34A(1) of the Crown Lands By-laws implies that cremated remains should not be exhumed, and that there is no renewal scheme in place at the Rookwood Crematorium, this is to be expected given the amount of land that is yet to be utilised. However, should it become necessary to engage in a renewal scheme in order to allow the Rookwood Crematorium to continue functioning, there is no reason to expect that this would not be granted if a reasonable application is made. Clause 34B(2) of the Crown Lands By-laws allows the Minister, when considering a proposed renewal scheme, either to approve it or return it to the proponent for resubmission. It is not open to the Minister to reject a plan outright. Whilst it is possible that a Minister could require a proponent to resubmit its proposal indefinitely, this would be unlikely where a need exists at some point in the future. I find that it is likely that further cremated remains could share a space with the existing cremated remains, allowing the Memorial Gardens to be reused indefinitely, further limiting its impact on the unimproved value of the subject land.
Additionally, I consider that at least some weight can be given to renewable burial rights under Pt 4 of the 2013 Act. Whilst the 2013 Act gained legislative assent on 27 November 2013, not all sections have commenced by proclamation, as required by s 2. Amongst these is Pt 4, which contains provision for "renewable interment rights". Although the relevant aspects of the 2013 Act were not yet in effect as at 1 July 2015, they were legislated and available to be considered. I consider that it was and remains likely that they would take effect by way of proclamation at some point in the future.
Under s 54 of the 2013 Act, the applicant will be able to offer "renewable interment rights", which are in effect time limited licences that allow cremated remains to be interred in the land for up to 99 years, with unlimited options to renew. Under s 55 of the 2013 Act, if this period were to expire without being renewed, a crematorium operator may generally reuse the land where those remains are interred, provided it complies with some preconditions. In order to allow this to occur, the operator of a crematorium may either return the remains to the holder of the renewable interment right, or scatter them in the cemetery. Whilst I accept that there will still be perpetual interment rights available pursuant to s 47 of the 2013 Act, and that these renewable interment rights will not apply to interments under the Crown Lands By-law pursuant to s 45 of the 2013 Act, I also consider that the availability of these renewable interment rights will further reduce any impact that future interred ashes will have on the land. As such, even if the presently interred ashes were to remain in perpetuity, I consider that, as at 1 July 2015, the likely introduction of renewable burial rights would further reduce the impact of those existing ashes on the value of the unimproved subject land.
As such, I find that whilst the interred ashes are not improvements, they also have little impact on the value of the unimproved subject land because they do not prevent it from generating income in any meaningful way.
[17]
Structures, gardens and plaques
I find that the structures, gardens and plaques which contain or mask interred ashes are, subject to my findings below, improvements to the subject land. The test is whether the structures, gardens and plaques ameliorate the subject land as compared with its natural state. I consider this to be the case for three reasons.
First, these structures add to the amenity of the subject land. I do not accept the applicant's submission that improved amenity does not increase the value of the subject land. When compared with the land in its natural state, the Memorial Gardens (and the structures, gardens and plaques within) add at least some amenity to the subject land, particularly to a hypothetical prudent purchaser who was to use the subject land as a crematorium with memorial gardens. Mr Mooney's evidence was that the Memorial Gardens attracted customers because they provided "serene and aesthetic surrounds for mourners to frequent". Mr Mooney deposed that this is the purpose of any ongoing maintenance, not the preservation of the interred ashes themselves. This attraction (for increased patronage) would therefore ameliorate the subject land and increase its value above what it would have been worth had it remained in its natural state.
Second, I do not accept that all structures, gardens and plaques are required to remain in perpetuity. As outlined above, there are mechanisms under both the Crown Lands By-laws (which presently applies) and the 2013 Act (which was legislated as at 1 July 2015, but was awaiting proclamation), which allow for existing and likely future interments to be renewed. In particular, cl 34A(3)(b) of the Crown Lands By-Laws allows an operator of a crematorium to "remove, relocate or dispose of a memorialisation placed on the burial place to which the burial licence relates" if a renewal scheme is in place. It is possible that at some point in the future the structures and gardens will be repurposed, and the plaques removed and replaced. As such, I do not consider that the 'fully utilised' structures or gardens, or the existing plaques, will necessarily remain as they presently exist in perpetuity, and will potentially still be capable of producing income in the future.
Third, at least some of the existing structures serve other purposes. For example, it was stated by Mr Mooney at the site view that a number of the niche walls around the border of the subject land served the purpose of dissuading the operators of the cemetery from using lands occupied by the Rookwood Crematorium. This type of use also adds value to the subject land.
However, to the extent that I am incorrect on this point and the structures, gardens and/or plaques are not improvements, I also find that they would only have a negligible impact on the value of the unimproved subject land. As noted in paragraph 67 above, the uptake rate of interments is slow, and will likely be able to continue in perpetuity. Further, the possible introduction of a renewal scheme under the Crown Land By-laws and likely adoption of renewable interment rights under the 2013 Act mean that any potential loss in value caused by the structures, gardens and/or plaques is not likely to materially reduce the value of the unimproved subject land.
[18]
Conclusions on improvements
Whilst I find that scattered and interred ashes are not improvements, I also find that the structures, gardens and plaques that contain interred ashes are improvements.
However, regardless of whether the scattered ashes, interred ashes, or structures, gardens and plaques are improvements, I do not consider that any of these, separately or in combination, would have any more than a negligible negative impact on the value of the unimproved subject land, and so can be disregarded for the purposes of the valuation in any event. This is reflected by the fact that Mr Dempsey does not take interred ashes into account when undertaking his residual land value approach, and only accounts for them in his comparative land value valuation insofar as land with ashes already interred cannot produce income, and so would be worth less than land where ashes can be interred.
[19]
Valuation methodology
As noted above, the parties were in dispute as to the appropriate valuation methodology.
[20]
Applicant's submissions
The applicant submitted that the Court should have regard to a residual land value approach given that there were not any truly comparable sales that could be relied upon. It was submitted that because the subject land was "unique" in this respect, utilising the combined residual land value and comparable sales method as adopted by Mr Dempsey would be the more reliable approach in the circumstances. The applicant submitted that Mr Dempsey's residual land value approach, which derived its inputs from the existing Rookwood Crematorium and the quantity surveyors' reports to find that there would be a return on income of least -3.77% on Mr Martin's costings or -8.60% on Mr Hammond's costings, indicated that a hypothetical prudent purchaser would likely purchase the unimproved subject land at a substantially lower price than that contended for by the second respondent.
In light of Mr Dempsey's analysis, which found that the unimproved subject land should be valued at $1,000,000 (but only because "all land has some value"), it was submitted that the comparative sales approaches adopted initially by the Valuer General and subsequently Mr Watt were not reliable, as a purchase based upon these valuations would produce a substantial negative return. It was therefore submitted that because income cannot be economically derived from the hypothetical unimproved block of land, the Court should be "very cautious indeed of embracing" the valuations derived by the Valuer General or Mr Watt.
[21]
Second respondent's submissions
The second respondent submitted that a residual land value approach should not be adopted because of inherent flaws with Mr Dempsey's application of the method. It was submitted that the value of the unimproved subject land should not be assessed with reference to the operating costs and income streams of the existing facilities which should be disregarded for the purposes of the valuation, consistent with the reasoning in Toohey's Ltd v Valuer-General (1924) 25 SR (NSW) 75; [1925] AC 439. It was further submitted that a number of the assumptions adopted by Mr Dempsey were simply incorrect, such as his assumption that the Crematorium Facilities produced no income. It was also submitted that a common sense approach to the valuation demanded that any method which reached a valuation sum of $0 is not an accurate methodology.
The second respondent finally submitted that these concerns were consistent with those raised in previous authorities, including the judgment of Biscoe J in Graham Trilby Pty Ltd v Valuer-General [2011] NSWLEC 68, and that a residual land value analysis should be disregarded where a comparable sales approach can be adopted.
[22]
Legal context
It is generally accepted that, insofar as there are comparable properties available, the conventional valuation method is the comparable sales approach: River Bank Pty Ltd v Commonwealth; Rumble v Commonwealth (1974) 4 ALR 651 at 653 (Stephen J); Graham Trilby Pty Ltd v Valuer-General [2011] NSWLEC 68 at [24] (Biscoe J); Redeam Pty Ltd v South Australian Land Commission (1977) 17 SASR 508 at 513 (Jacobs J).
Whilst the comparative sales methodology may be the conventional approach, other methodologies can be acceptable where appropriate. As noted by Wells J in Bronzel v State Planning Authority (1979) 21 SASR 513 ('Bronzel') at 516:
…it seems to me that if [Spencer v Commonwealth (1907) 5 CLR 418] is to keep its practical worth in this jurisdiction, this Court should be slow to reject any method that, in expert hands, is capable of yielding a result within bounds that are not unreasonable. The limitations of every method must, of course, always be kept clearly in mind. I am of the opinion that the approach likely to result in the most direct and reliable resolution of the outstanding differences between the valuations is to consider the particular features of each valuation that are capable of yielding to adverse criticism.
In Graham Trilby Pty Ltd v Valuer-General [2008] NSWLEC 217, Jagot J considered competing residual land value approaches, noting the caution expressed by Wells J in Bronzel, and stated at [27]:
…it is well recognised that, if comparable sales are available, direct comparison has repeatedly been identified as the "conventional valuation technique". The basis for this preference is obvious - if comparable sales are available then they represent direct evidence of the market's evaluation of all of the variables that a valuer must otherwise account for by a subjective opinionative process in the residual or hypothetical development approach. This proposition underscores why the fact that developers buying en globo parcels may routinely use a residual analysis to determine land value is an insufficient reason (at least considered in isolation) to disregard or place little, if any, weight on comparable sales. [references excluded]
Further, it is also recognised that the residual approach is not the preferred method for the valuation of land where the more conventional comparable sales are available. As noted by Cripps J in Gwynvill Properties Pty Ltd v Commissioner for Main Roads (1983) 50 LGRA 322 at 326 ('Gwynvill'):
It has been said that because many estimates and assumptions must be made the hypothetical development method ought not be used where some use can be made of a comparable sale.
I also note that the use of the comparable sales approach was previously adopted by Lloyd J for the purpose of determining the unimproved value of the subject land in New South Wales Cremation Company Pty Limited v Valuer General [2006] NSWLEC 393 at [11].
[23]
Consideration
I find that the comparable sales approach is the more reliable valuation methodology in the present circumstances.
One of the difficulties in Mr Dempsey's adoption of the residual land value approach is that it is highly sensitive to the input assumptions. Whilst there is no doubt that the net income that can be obtained from land is generally a consideration when determining the amount that should be paid for the land, Mr Dempsey made a number of discrete assumptions, including:
1. that the total building costs, including the cost of purchasing the unimproved subject land and construction of the buildings (including a condolence room) and gardens of a similar size to the Memorial Gardens, were initial outlays;
2. that a profit margin of 15% should be adopted on the total cost of developing the unimproved subject land;
3. that the income and outgoings from the existing facilities should be adopted without adjustment (other than not including rental payments);
4. that only the income and outgoings from the 2015 financial year should be adopted, when information for the 2011 to 2015 financial years was available;
5. that any income from operating a condolence room should not be considered (Mr Dempsey conceded in the joint report that this was an error); and
6. that the outgoing of paying off the initial cost of developing the unimproved subject land should be paid in 7.5% per annum instalments in perpetuity.
I consider that these assumptions are unreliable, either because they are inappropriate in the circumstances or are logically inconsistent.
Further, whilst it may be possible for some of these assumptions to be recalibrated, and a different final figure calculated, I find that there are other substantial issues with utilising the residual land value approach in the present circumstances.
First, I consider that it is not possible to accurately adjust a number of the assumptions. In particular, whilst the initial capital outlays have been assessed in some depth by the quantity surveyors, the only evidence available regarding the ongoing outgoings and income streams is the data provided in relation to the existing crematorium by Mr Mooney for the 2011 to 2015 financial years. There is insufficient information available to accurately adjust these values, particularly given that:
1. the initial capital outlays costed by the quantity surveyors, which involve constructing a more modern building with further facilities, will likely derive a greater income than the older existing building; and
2. the only estimate regarding any increased revenue from a condolence room was made in passing by Mr Mooney, who suggested that when one was constructed at Macquarie Park Cemetery, the Northern Suburbs Memorial Gardens and Crematorium (which was located close to Macquarie Park, and did not have a condolence room) lost approximately 25% of its custom.
Second, I consider that any analysis which results in a value of $0 to a 9.045 ha piece of land, regardless of its location or permitted use, is likely to be unreliable. As conceded by Mr Dempsey and the applicant in submissions, all land has value. The corollary of this is that a reliable valuation approach should result in a positive value of that land. This is not the case on Mr Dempsey's analysis.
Third, and as outlined below, I consider that there are sufficient comparable sales otherwise identified and relied upon by both Mr Dempsey and Mr Watt to undertake a comparable sales analysis, and that this would be a more reliable method of valuation in the present circumstances. Whilst I am not bound by the decision of Cripps J in Gwynvill, I consider that his Honour was correct to suggest at 326 that a comparable sales approach should generally be preferred to the "hypothetical development method" (or residual land value approach).
As such, I find that a comparable sales approach should be adopted in the present case, and that the residual land value approach of Mr Dempsey should be disregarded.
[24]
Legal context
There has been much judicial consideration of the correct approach when undertaking a valuation using the comparable sales methodology.
In Crompton v Commissioner of Highways (1973) 5 SASR 301, Wells J stated at 317:
…ideally, the valuer should, in the first instance, look at the sales of land over a wide geographical and temporal range, and from these select those that appear potentially useful as a basis for comparison. Those selected should then be carefully analysed by reference to an extensive list of characteristics of land sales the compilation and assessment of which fall clearly within the province of the experts. Whether or not one or more of those sales is, and how it or they ought, to be compared with the subject land becomes then a matter of degree, and a final decision is reached, often by those same experts drawing a series of nice distinctions. Obviously, no two sales of land will be found to be the same, or even similar in all respects. Those that bear a close similarity to the assumed sale of the subject land will be more reliable than those whose similarity is less proximate and in respect of which adjustments or allowances must be made before they can be safely introduced into the valuation process. At a particular point it will be found that, in respect of the remaining available sales, the adjustments and allowances that would need to be made are of such a magnitude that it ceases to be safe or sound to treat them as sufficiently similar to the assumed sale of the subject land, and they must thenceforward be rejected.
It has been accepted that a generally valid method of conducting a comparable sales approach is to undertake it in the four steps of accumulation, analysis, adjustment and application: Constantine v Blacktown City Council (No 2) [2016] NSWLEC 81 at [100] (Moore J); Hoy v Coffs Harbour City Council [2015] NSWLEC 128 at [83] (Pain J) (leave to appeal this judgment was refused in Hoy v Coffs Harbour City Council [2016] NSWCA 257 at [61] (Bathurst CJ, with Simpson and Payne JJA agreeing)); Allandale Blue Metal Pty Ltd v Roads and Maritime Services (No 6) [2015] NSWLEC 18 at [344] (Pain J); Marroun v Roads and Maritime Services [2012] NSWLEC 199 at [197] (Sheahan J and Parker AC) ('Marroun') (affirmed on appeal in Marroun v Roads and Maritime Services [2013] NSWCA 358 at [75] (Tobias AJA, with Basten and Gleeson JJA agreeing).
First, the valuer, judicial or otherwise, should accumulate comparable properties. In undertaking this process, the "sales to be treated as comparable sales need to be truly comparable", although the Court should not be "unreasonably selective" of its comparable properties in any event: Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111 at [18] (McHugh, Gummow, Kirby, Hayne and Callinan JJ).
As stated by Pain J in Trust Co Ltd v Minister Administering the Crown Lands Act 1989 (2012) 211 LGERA 158; [2012] NSWLEC 73 at [110]:
While all comparable sales evidence may be considered relevant and so cannot be disregarded, the level of relevance of different comparable sales to the property may vary leading to the valuer attributing differing weight to different comparable sales. In Brewarrana Pty Ltd v Commissioner of Highways (1973) 6 SASR 541 at 551, Wells J observed:
… there is no hard and fast rule by the application of which a valuer may, whatever the circumstances, draw the line that clearly separates the sales that are comparable from those that are not.
Second, the valuer should analyse those comparable sales. This often involves converting the value of those sales into another measurement that can be easily compared: Marroun at [201] (Sheahan J and Parker AC). Examples of this process include converting those sales into unitary rates, such as a psm rate.
Third, the valuer should adjust those properties it considers comparable to create equivalence with the unimproved subject land. As stated by Biscoe J in Holcim (Aust) Pty Ltd v Valuer-General [2009] NSWLEC 225 at [31]:
The basis for the valuers' valuation assessments is the sales comparison method. Accepted valuation practice permits adjustments for differences, such as in location, area and time to enable valuers to have comparable values which, following adjustment, account for the various differences with the subject property. Such adjustments are generally based on a reasoning process drawing on the skill and experience of the valuer and are undertaken to derive an opinion of value through a deductive process. Because properties are rarely identical, adjustments for differences are obviously necessary but caution is required through making as few adjustments as possible, in a consistent manner, to ensure the reliability of the comparable sale when related to the subject property. Too many adjustments potentially render the comparable sale unsafe to rely upon. Caution is therefore required where large adjustments are to be made. Reflecting the significant roles of skill, experience and personal assessment in the adjustment process, the scope for differences in the quantum and direction of adjustment between valuers can be considerable. Third, the Court should then apply these adjusted values to the subject property. The purpose of this is to determine, based on comparable sales and as best it can, what value the subject property would obtain if it were to be sold on the market.
Fourth, the valuer should apply the comparable sales to determine a value of the subject land based on the adjusted values of the comparable properties.
I shall consider each of these points in turn.
[25]
Accumulation of comparable properties
The Court was, understandably, not provided with any comparable sales evidence which arose from the sale of vacant land for use as a crematorium. As such, the Court was directed to a number of other sales relied upon by Mr Dempsey and Mr Watt that were said to be the most comparable sales available.
The majority of the sales evidence relied upon by the valuers involved sales of land that were used, or were to be used, for the purposes related to the operation of cemeteries. The valuers identified and relied upon four common sales of cemetery land, each of which was inspected by the Court during the course of the hearing. These were:
1. 110 Racemosa Close, Kemps Creek, which was a 26,840 sqm, vacant parcel of land zoned RU4 - Rural Small Holdings (but approved for use as a cemetery), that was purchased by the adjoining cemetery in June 2013 for $1,900,000 to be used for cemetery purposes ('Racemosa Sale');
2. 230/260 Western Road, Kemps Creek, which was an 81,190 sqm parcel of land zoned RU4 - Rural Small Holdings (but approved for use as a cemetery), that was already being used as a cemetery and sold in August 2008 for $7,500,000 ('Western Road Sale');
3. 6 Richardson Road, Narellan, which is a 10,360 sqm parcel of land zoned SP1 - Special Activities Cemetery, that was already used as a cemetery and sold in July 2008 for $1,500,000 ('Narellan Sale'); and
4. two separate but related sales of:
1. Lot 5003 of DP1158929 on Schofields Road, Rouse Hill, which was 15,090 sqm and at the time zoned Residential 2(a), that was purchased by the adjoining cemetery on 30 June 2011 for $1,500,000 to be used for cemetery purposes; and
2. Lot 12 and 13 of DP 1173804 on Windsor Road, Kellyville Ridge, which was 15,089 sqm and at the time zoned 5(a) Special Uses Cemetery and Crematorium, that was purchased by RMS on 30 June 2011 for $1,500,000 to be used to widen Windsor Road (together, 'Schofields and Windsor Sales').
While these sales identified and relied upon by the valuers may not be directly comparable sales, insofar as they do not concern land that was to be used in relation to a crematorium, I find that they are sufficiently comparable in the circumstances of this matter. Whilst cemetery burials involve larger plots of land than interment of ashes, both purposes relate to the memorialisation and interment of remains, and both (generally) have facilities for funerals and mourners more generally.
As such, I find that these four sales are sufficiently comparable in the circumstances, and are able to be appropriately analysed and adjusted. I consider that it is unnecessary to consider the other comparable sales relied upon by the valuers. In particular, I find for the reasons below that the six sales of industrial land relied upon by Mr Watt to be of little assistance.
[26]
Industrial sales
The second respondent submitted that Mr Watt's separation of the 1.7 hectare commercial/industrial land use is entirely logical in circumstances where:
1. cemetery sales do not necessarily capture the ability of the unimproved subject land to develop a crematorium and associated facilities; and
2. there have been no discrete comparable sales associated with crematorium use.
Whilst Mr Watt has adjusted the six sales of industrial land, the applicant submitted in response that:
1. none of the industrial sales relied upon by Mr Watt was purchased for the purposes of a crematorium;
2. the parties to those sales had entirely different business considerations when purchasing those properties; and
3. those properties were likely purchased for their highest and best use, which would have been a higher and better use than that of a crematorium.
Mr Dempsey also opined, and I accept, that the broad range of potential purchasers of industrial land is greater than the limited purchaser demand for cemetery and crematorium land use.
I consider that each industrial sale would require more detailed adjustment than those undertaken by Mr Watt. Although Mr Watt defended his reliance on and analysis of industrial sales, and opined that the analysed sales provide an understanding of the market for industrial land which is suitable for a very wide range of uses including, in some cases, crematoria, I do not consider that such sales can be reliably adjusted in the circumstances.
In circumstances where there are sales which are more closely related to crematorium use, I do not find the use of sales of industrial land as reliable. I again note that a similar position and conclusion was reached by Lloyd J in New South Wales Cremation Company Pty Limited v Valuer General (2006) NSWLEC 393 at [21].
[27]
Analysis of comparable sales
Once comparable properties have been accumulated and selected, the second step is to analyse those comparable properties. I consider that the approach of obtaining a psm rate, which was adopted by both valuers, is appropriate in the circumstances.
With regard to the Racemosa Sale, Mr Dempsey made no deduction, whilst Mr Watt made a downwards -10% amended to account for an "adjoining owner premium", which he calculated with regard to prevailing sales in the same locality. I accept that this analysis is appropriate, and adopt an analysed rate of $64 psm for the Racemosa Sale.
With regard to the Western Road Sale, Mr Dempsey considered that the existing improvements were "agreed at" $1,280,000, which he deducted from the sale price giving a land value of $6,220,000 (at $76 psm). Mr Watt, however, estimated the value of the unimproved land at $7,120,000 (which would have a rate of $88 psm). I do not accept Mr Watt's analysis that the psm rate should be increased because only 70% of the land was available for burials, given my findings regarding improvements in paragraphs 64 to 78 above. Given that neither of the valuers provided sufficient reasons for these analysed rates, I adopt the mid-point of $82 psm for the Western Road Sale.
With regard to the Narellan Sale, Mr Dempsey did not make any changes, and Mr Watt only made a deduction for the amount of land that remained available for burials, which I again do not accept. As such, I adopt an analysed rate of $145 psm for the Narellan Sale.
With regard to the Schofields and Windsor Sales, Mr Dempsey and Mr Watt both applied a rate of $100 psm, which Mr Watt stated in the joint report was the rate adopted in both sales according to material produced under subpoena. As such, I also adopt an analysed rate of $100 psm for the Schofields and Windsor Sales.
Accordingly, the analysed rates of the comparable sales may be summarised as follows:
Address Analysed Rate
Racemosa Sale $64 psm
Western Road Sale $82 psm
Narellan Sale $145 psm
Schofields and Windsor Sales $100 psm
[28]
Adjustments to comparable sales
The third step is to then adjust these comparable sales to create equivalence.
Both Mr Watt and Mr Dempsey then adopted a number of adjustments in regard to each property. Each adjusted the properties for location, time and size, whilst Mr Dempsey also made an adjustment for use potential. However, there is little consistency between the valuers as to the magnitude or direction of each of these adjustments.
[29]
Location
Mr Dempsey specifically made no adjustment for location, and opined that this was not necessary as there was no substantial difference between the cost of obtaining cremation services depending on location. Mr Watt, however, took the opposite view, and stated that because the subject land is located within inner metropolitan Sydney, whilst the other sales were located either in outer metropolitan Sydney or rural areas some distance from the CBD, an adjustment for location should be made. Mr Dempsey disagreed, and stated that all sites are proximate to the populations of people that utilise them, and the catchments of each comparable property were not in direct competition with the Rookwood Necropolis.
Mr Watt also considered that an adjustment for location should be made because the subject land was located within an established cemetery in the Rookwood Necropolis, which set it aside from the comparable sales. Mr Dempsey disputed this proposition as well, because if this proposition was accurate, the price of obtaining crematorium services at the subject land would be higher.
I find that there should be at least some adjustment for location. Land which is closer to urban areas is, when all other things are equal, generally of greater value than land further from urban areas. Further, I consider that at least some value should be attributed to the subject land's location within the greater Rookwood Necropolis.
[30]
Area
It is well recognised that smaller sites generally sell for higher psm rates than larger sites. I therefore consider that adjustments should be made for size.
[31]
Time
Mr Watt only made an upwards adjustment of 10% for time for the Windsor Sale, and made no adjustment for either the Western Road or Narellan Sales because there was a large dip in the market after 2008. He gave no reason as to why no adjustment was made to the Racemosa sales.
Mr Dempsey, however, made upwards adjustments for time for each of the comparable sales. Whilst Mr Dempsey was not asked to justify all of these adjustments, I do note the explanations given for the Western Road Sale and the Narellan Sale. Whilst both of these sales occurred in mid-2008, Mr Dempsey adopted an adjustment of 30% for the Western Road Sale, and 10% for the Narellan Sale. He sought to justify this during cross examination by stating that the value of Narellan had risen only 10% because it was zoned SP1 - Special Activity Cemetery, whilst the value of Western Road had risen by 30% because it was zoned a more general RU4 - Rural Small Holdings.
Whilst I find that some adjustment should be made for time, particularly given the often substantial differences between contract dates and 1 July 2015, I consider that neither Mr Dempsey nor Mr Watt gave sufficient reasons to support their respective positions.
[32]
Use potential
Whilst Mr Watt did not make a specific adjustment for use potential, he did consider that the part of the unimproved subject land that would be used for crematorium facilities would be worth more than the land that would be used for memorial gardens, and used 'comparable' industrial sales to obtain a value for the former. Whilst this approach was rejected in paragraphs 110 - 114 above, it should be noted that Mr Watt also stated in oral evidence that the land that would become the memorial gardens was worth at the least the same amount as cemetery land, as more remains could be interred in a smaller space.
Mr Dempsey made a downwards adjustment of -20% for use potential for the Racemosa, Narellan and Schofields and Windsor Sales. Mr Dempsey opined that cemetery land was more valuable than land used to inter ashes, as the income could be brought forward and the land used up more efficiently, given that buried remains that had not been cremated took up more space.
I find that a crematorium that includes both crematorium facilities and a memorial garden is likely to be of greater value than cemetery land. I consider that:
1. more income would likely be derived from that land over a greater period of time because interments take up less room than burials;
2. the furnaces housed in crematoria can be used to cremate remains that are not interred in memorial gardens, as noted by Mr Mooney in paragraph 18 above;
3. income can be brought forward using presales and reservations for both cemeteries and crematoria, meaning that there is little difference in value from this perspective.
[33]
Consideration
With regard to the adjustment of the Racemosa Sale, I consider that an upwards adjustment is required for the location, the limited passage of time and the difference in use, whilst a downwards adjustment should be made for its smaller size. Doing the best I can, I consider that this comparable sale should be adjusted to give a rate of $95 psm.
With regard to the adjustment of the Western Road Sale, I consider that an upwards adjustment is required for the location, the considerable passage of time and the difference in use, whilst a downwards adjustment should be made for its smaller size. Doing the best I can, I consider that this comparable sale should be adjusted to give a rate of $130 psm.
With regard to the adjustment of the Narellan Sale, I consider that an upwards adjustment is required for the location, the considerable passage of time and the difference in use, whilst a downwards adjustment should be made for its significantly smaller size. Doing the best I can, I consider that this comparable sale should be adjusted to give a rate of $160 psm.
With regard to the adjustment of the Schofields and Windsor Sales, I consider that an upwards adjustment is required for the location, the moderate passage of time and the difference in use, whilst a downwards adjustment should be made for its significantly smaller size. Doing the best I can, I consider that this comparable sale should be adjusted to give a rate of $130 psm.
Accordingly, my findings as to the adjusted values of comparable sales are as follows:
Address Adjusted rate
Racemosa Sale $95 psm
Western Road Sale $130 psm
Narellan Sale $160 psm
Schofields and Windsor Sales $130 psm
[34]
Application
With regard to the four adjusted values of the comparable sales, and doing the best I can, I find that the appropriate rate to be applied to the unimproved subject land is $130 psm.
Noting that the area of the subject land is 9.045 ha, I therefore find that the value of the unimproved land comprising the Rookwood Crematorium as at 1 July 2015 is $11,750,000.
[35]
Conclusions
I find that the value of the Rookwood Memorial Gardens and Crematorium in accordance with cl 22(1) of Sch 5 of the Cemeteries and Crematoria Act 2013 (NSW) and cl 5(3) of Sch 3 of the Rookwood Necropolis Act 1901 (NSW), as at 1 July 2015, is $11,750,000.
Given that my finding is greater than the valuation of the Valuer General made on or about 5 May 2015 that forms the subject of this appeal, the appropriate order is to dismiss the proceedings. However, I direct the parties to confer and consider appropriate orders, and to provide any agreed orders to my associate on or before 4:00pm on 4 November 2016.
If agreement cannot be reached, the matter will be listed before me at 9:30am on Tuesday 8 November 2016 for short submissions in relation to final orders.
[36]
Amendments
07 November 2016 - Paragraph 18 - corrected typographical error
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Decision last updated: 07 November 2016