Oriental Bar Pty Limited v Valuer-General

Valuation of Land Act 1916

1. The relevant sections of the VL Act provide as follows. 4 Definitions Land improvements means: (a) the clearing of land by the removal or thinning out of timber, scrub or other vegetable growths, … (d) the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation, … 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. … 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). (2) Land is heritage restricted as at a particular date if the Valuer-General has determined that it would be reasonable to make the assumptions referred to in subsection (1) in respect of the land as at that date because of any provision of a planning instrument concerned with the heritage significance or heritage value of the land or any building, work or other thing on or in the land. … 40 Powers of Land and Environment Court on appeal (1) On an appeal, the Land and Environment 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. (2) On an appeal, the appellant has the onus of proving the appellant's case.

Improvements on land

1. At the base dates, the land at 701 George Street (Mountbatten Hotel) was improved by a three level building used for hotel (pub) and budget accommodation uses. The existing uses within the building were: 1. Basement level - ancillary hotel uses. 2. Ground Floor - public bar area, gaming area (internal and external), office area, right of way. 3. First Floor - five dormitory accommodation rooms, communal dining, kitchen, laundry, communal toilet and bathroom, storage and a manager's office with bedroom. 4. Second Floor - ten dormitory accommodation rooms, communal toilet and bathroom and storage facilities.
2. At the base dates, the Triple Ace Hotel was improved by a three level building above ground with a small basement cellar. The improvements were as follows: 1. Ground Floor - two public bars, toilet facilities, TAB, inside and outside gaming area; 2. First floor - Restaurant, commercial kitchen & toilet facilities; and 3. Second Floor - eight accommodation rooms, with communal kitchen and bathrooms.
3. At the base dates the Star Hotel was an improved building comprising three levels above ground floor. The improvements were as follows: 1. Ground Floor - one public bar, toilet facilities, TAB, inside and outside gaming area; 2. First Floor - five accommodation rooms, common kitchen, laundry and bathroom facilities; and 3. Second Floor - nine accommodation rooms, common bathroom facilities.

Evidence tendered

1. The Applicants tendered the following: 1. Grounds of objection in 14/30010 and 14/30011 (Mountbatten) (exhibit A); 2. Grounds of objection in 14/30012 and 14/30039 (Star Hotel) (exhibit B); 3. Grounds of objection in 14/30013 and 14/30014 (Triple Ace) (exhibit C); 4. Mr Roberts's report in 14/30010 and 14/3011 (Mountbatten) (exhibit D); 5. Mr Roberts's report in 14/30012 and 14/30039 (Star Hotel) (exhibit E); 6. Mr Roberts's report in 14/30013 and 14/30014 (Triple Ace) (exhibit F); 7. Mr Roberts's curriculum vitae (exhibit G); 8. The joint valuers' report in 14/30010 and 14/30011 (Mountbatten) (exhibit H); 9. The joint valuers' report in 14/30012 and 14/30039 (Star Hotel) (exhibit J); 10. The joint valuers' report in 14/30013 and 14/30014 (Triple Ace) (exhibit K); 11. The Valuer-General's Valuation of Sales Report (exhibit L); 12. View list and maps (exhibit M); 13. Extracts from Mr Hill on subject properties and the Bounce Hotel (sale 7) (exhibit N); 14. Extracts from Mr Hill on subject properties and the Blue Building (sale 1) (exhibit O); 15. Extracts from Mr Hill on subject properties and the beer garden and terrace house (sale 2) (exhibit P); 16. Section 14G heritage land values - summary of reviews (exhibit Q); 17. Photographs of the Bounce Hotel (exhibit R); 18. Further joint valuers' report dated 12 September 2014 (exhibit S); 19. Three plans on building efficiency (exhibit T); 20. Mr Roberts' further comment on Rawlinsons Construction Handbook (30th ed 2012) (exhibit U); and 21. Net lettable area - Property Council of Australia (exhibit V).
2. The Valuer-General tendered: 1. Mr Hill's report in 14/30010 and 14/3011 (Mountbatten) (exhibit 1); 2. Mr Hill's report in 14/30012 and 14/30039 (Star) (exhibit 2); 3. Mr Hill's report in 14/30013 and 14/30014 (Triple Ace) (exhibit 3); 4. Facilities at the Bounce Hotel (exhibit 4); and 5. Undated joint report of valuers concerning improvements at Riley Street premises (exhibit 5).

Evidence of valuers

1. Mr Roberts valuer prepared a report on the value of each property dated 1 August 2014, as follows: Mountbatten Hotel exhibit D, Star Hotel exhibit E, and Triple Ace Hotel exhibit F and gave expert oral evidence on behalf of the Applicants. Mr Hill valuer prepared a report on the value of each property dated 25 July 2014, as follows: Mountbatten Hotel exhibit 1, Star Hotel exhibit 2, Triple Ace Hotel exhibit 3 and gave expert oral evidence on behalf of the Respondent. Mr Roberts and Mr Hill also contributed to four Joint Reports dated 3 September 2014 (exhibits H, J and K) and an undated report (exhibit 5).
2. The valuers agree that a comparable sales approach can be taken to derive land value. The first question which must be determined is what is the highest and best use of the properties within the scheme of the VL Act which in turn guides the selection of comparable sales. The valuers' and hence the parties' extensive disagreement stems in large part from their different approaches to the application of s 6A(1) in light of s 14G(1) to the identification of the highest and best use of the land. The valuers disagree on this issue and hence have different comparable sales, but for one late adoption by Mr Roberts of one of Mr Hill's sales (the Riley Street premises).
3. A summary of the valuer's evidence of values for the 2012 base date for all three properties based on exhibit Q follows: Property Site area VG Based on Estimate m2 VG Based on * Actual m2 Mountbatten 309.8 $2,125,000 $1,722,704 Star 246.6 $1,400,000 $1,249,033 Triple Ace 328.8 $1,200,000 $1,115,630 *agreed actual GFA

Property ROBERTS * GFA - m2 $ GFA / m2 Mountbatten $700,000 675.3 $1,037 Star $695,000 535.3 $1,298 Triple Ace $610,000 663.8 $ 919 *agreed actual GFA

Property HILL *GFA - m2 $ GFA / m2 Mountbatten $2,510,000 675.3 $3,717 Star $1,780,000 535.3 $3,325 Triple Ace $1,850,000 663.8 $2,787 *agreed actual GFA

1. The above table identifies in the third column that the Valuer-General used an estimate of the GFA. The fourth column shows land valuations using the actual GFA applied to the Valuer-General's analysis which results in lower land values than the Valuer-General's original calculations. The parties agree that theoretically the actual GFA should be used in any calculation of land value.
2. The issues which arise are generally common to all properties but for the issues of land improvement and an efficiency concession (not pressed in closing submissions) which relate to the Mountbatten Hotel only. For convenience the parties referred to the reports prepared in relation to the Mountbatten Hotel as findings in relation to that property will equally inform the analysis of the other two properties the subject of various appeals. That is also the approach taken in this judgment.

Mr Roberts

1. Mr Roberts in exhibit D p 15-16 described his approach to the Mountbatten Hotel as follows: 10. METHODOLOGY The 4 step approach that is contended in this valuation is based upon the reasoning in Valuer-General v Commonwealth Custodial Services Ltd [2009] NSWCA 143; (2009) 74 NSWLR 700 [Moneybox (No 2) (CA)], where McClellan CJ at CL, at [24] states: "…..There is no difficulty in valuing the land upon the assumption that it is vacant land but with its potential development and ultimate return confined by the existing building and the purpose or purposes for which it may be used. That existing building may be more or less marketable than a new building and may have greater maintenance costs, but it is that building which the statute assumes will remain and accordingly defines the potential of the land as vacant land." Outline of 4 Step Approach Accordingly, for the purposes of the Valuation of Land Act, the s14G unimproved heritage land value, has been calculated by undertaking the following steps: 1. S6A(1) Rate of Unimproved Land Value Derive a s6A(1) unimproved land value, for the land, on a rate per square metre of Gross Floor Area ("GFA"). 2. Apply 'Density' Concession Multiply the rate per square metre GFA determined in step 1 by the actual GFA of the premises being [675.3m2]. 3. Apply 'Rental Differential' Concession Multiply the figure derived in step 2 by the "rental differential adjustment". The rental differential adjustment is calculated as follows: Numerator: rental rate per square metre of Net Lettable Area ("NLA") achieved for the actual building (though assuming that all improvements are new, in accordance with the requirements of s14G(1)(b1) (ie, new / old). Denominator: rental rate per square metre of NLA achieved for a hypothetical, new modern building (new/new) of the same NLA. 4. Apply 'Efficiency' Concession [this applies for Mountbatten property only] Multiply the figure derived in Step 3 by the "NLA adjustment". That is an adjustment to allow for the inefficiencies in the new/old building compared with the new/new building. Those inefficiencies result in a building with the same GFA having less NLA in the new/old building when compared with the new/new. That is, expressed as a calculation: Unimproved land value per square metre of GFA x actual GFA x (rental rate per square metre of NLA for existing use (new/old) / rental rate per square metre of NLA of (new/new)) x NLA adjustment. Application of 4 Step Approach After making adjustments for density concessions in Steps 1 and 2, the 4 Step approach then centres on the rental return capacity of the existing heritage building, as follows: Step 3 - The rent applicable for the existing building is assessed and compared with the rent that would be generated assuming the space was used for the same highest and best purposes that were in use at the properties relied upon as sales evidence to assess the $GFA/m2 in Step 1, in this case open plan office space. Step 4 - An adjustment to account for any inefficiencies arising from the GFA basis used in Steps 1 to 2, and the NLA basis used in Step 3.
2. Mr Roberts stated in the joint report (exhibit H) at p 6-7 1. I agree that the heritage land value is to be assessed based upon the existing use of the land and that the improvements upon the land presently comprise licenced premises, within which the business that is being operated is a going concern hotel comprising the following component assets: liquor licence; poker machine entitlements / permits; plant, furniture, fixtures and fittings (PFFF); the building upon the land, the land itself; and the associated goodwill of the business. 2. Section 6A(1) requires that (with the exception of land improvements) the assessed land value is to be based upon the assumption that the land is vacant, and excludes improvements thereon or appertaining thereto, made or acquired by the owner or the owner's predecessor in title. 3. Therefore, on the basis that the liquor and gaming entitlements appertaining to the land are to be excluded from the assessment, the capacity to serve alcohol and operate gaming machines at the premises would not be possible. Accordingly, I contend that the relevant current use for the 'open-plan' ground floor level is a commercial retail use devoid of any added business value, whilst the relevant current use for the basement and upper levels is storage and budget rental accommodation, respectively. 4. In terms of highest and best use, I contend that as the ground floor layout is open plan, the highest and best use for the ground floor level is a commercial retail use, with the basement used for ancillary storage. With respect to the upper level, the internal layout of the heritage building would enable a commercial use, which I believe would be the highest and best use of the space. 5. In other words, I contend that the relevant current use for the ground floor level is a commercial retail use, which is also the highest and best use; however, it is my contention that, whilst the current use of the upper two levels is budget rental accommodation, the structural scale and internal layout of the heritage building would enable 'possible' alternate uses both physically and economically, including a commercial office space use, which would likely be the highest and best use of the space. With respect to my 2012 land value assessment I can confirm that I had regard to the Sydney Local Environmental Plan 2005 to the extent that I compared the floor space ratio and height allowances for the subject property, however I believed it appropriate to rely upon the provisions of the Sydney Local Environmental Plan 2012 for the following reasons: (a) The Sydney LEP 2012 was Gazetted 14 December 2012. (b) It is my understanding that had a development application been lodged as at the base date 1 July 2012, the adopted planning provisions would have been significantly influenced by the Sydney Draft LEP 2012. (c) Both the Sydney LEP 2005 and the Sydney Draft LEP 2012 reflected an FSR of 7.5:1 for commercial use. (d) The more conservative of the FSR's within the Sydney LEP 2005 and the Sydney LEP 2012 has been adopted, which is more favourable to the respondent's position, in that: (i) with respect to the subject property the allowable GFA based on the FSR has no bearing on the outcome as it is the GFA of the existing floor space that is multiplied by the $GFA/m2 . (ii) utilising a higher FSR in the analysis of comparable commercial sales evidence would yield a lower $GFA/m2, having the effect of lowering the resulting land value of the subject property when multiplied by the GFA of the existing heritage building.
3. Mr Roberts described the selection of comparable sales in Step 1 in his report as the determination of s 6A(1) non-heritage land value on a $AGFApsm (Allowable Gross Floor Area (AGFA)) basis. For consistency he assumed that the s 6A(1) Adjusted Land Values (ALV's) as provided by the Valuer-General for each of the comparable sales contained in the Valuation Sales Report for the valuing year 1 July 2012, have been accurately assessed and are based upon the highest and best use of the land as required by the VL Act.
4. Accordingly, as the ALV's for the comparable sales reflect the highest and best use of the land, the AGFA has been assessed for each property by multiplying the site area and the floor space ratio of 7.5:1 (as specified in the City of Sydney Local Environmental Plan 2012 (LEP), with the ALV then expressed as a rate per square metre of AGFA.
5. The table below represents a summary of the above information. Each property has been assessed based upon its comparability with the subject property (refer Annexure 3 "Comparable Sales Evidence" exhibit 1). Address - Comparable Sales VG s 6A(1) ALV (Adjusted Land Value) Site Area SqM Allowable FSR (x:1) (Floor Space Ratio) AGFA SqM ALV to AGFA $/m2 (Allowable Gross Floor Area) Sale 1 - 16 Broadway $2,725,000 230.0 sqm 1.75 403sqm $1,819* Sale 2 - 60 Clarence St $3,600,000 372.2 sqm 7.5 2,978sqm $1,209 Sale 3 - 50 Park St $3,150,000 235.8 sqm 7.5 1,886sqm $1,670 Sale 4 - 187-191 Clarence St $4,100,000 425.8 sqm 7.5 3,406sqm $1,204 Sale 5 - 8 Spring St $8,200,000 518.2 sqm 7.5 4,146sqm $1,978 Sale 6 - 79 Commonwealth St $2,435,000 390.0 sqm 6.0 2,340sqm $1,041

*based on recent redevelopment with AGFA 1,498sqm

1. Accordingly, based on those comparable sales considered, Mr Roberts' analysis suggests that the s 6A(1) ALV of the comparable sales when applied to the AGFA of the comparable sales indicates a value range of $1,204psm to $1,978psm AGFA.
2. Mr Roberts then considered the comparable sales evidence with regard to use, allotment size, allotment shape, location and extent of development, opining that the rate for the subject property should be between that for 50 Park Street (sale 3 $1,670psm) and those for 60 Clarence Street (sale 2 $1,209psm) and 187-191 Clarence Street (sale 4 $1,204psm). He considered the appropriate rate for the subject property to be $1,300psm AGFA (exhibit D, p 19). On the basis the subject property can be fully developed at a FSR of 7.5:1 for retail and commercial office use to the AFGA of 2,323.5sqm, the resulting s 6A(1) ALV for the subject property equates to $3,020,550 (exhibit D, p 19).
3. Having asserted an adjusted land value for the subject property for the purposes of s 6A(1) as Step 1, Mr Roberts contends that s 14G requires application through his Step 2 (Density Concession), Step 3 (Rental Differential Concession) and Step 4 (Efficiency Concession) to derive the relevant unimproved value for the subject property as at the relevant date.
4. Mr Roberts' Step 2 (Density Concession), was described above and seeks to reflect the heritage constraint on the subject property limiting development to the size of the existing built envelope, being 675.3sqm GFA, rather than the AGFA under the LEP of 2,323.5sqm and represents a "Density Concession" for the purposes of s 14G of 70.9%. Mr Roberts asserts this reduces the adjusted land value from $3,020,550 to $877,890 for the subject property (exhibit D, p 20).
5. Mr Roberts' Step 3 (Rental Differential Concession) was described above and seeks to reflect the impact of the heritage nature of the subject property compared to a modern property for the purposes of s 14G, through a reflection of the difference in rental that a modern property may achieve compared to a heritage property. Mr Roberts compared the gross revenue for retail and office floors at 60 Clarence Street (Sale 2) and 50 Park Street (Sale 3) (modern properties, with a revenue of $650psm retail and $580psm office) with an imputed rental for an assumed ground floor retail use and upper floor budget accommodation use within the existing heritage built envelope at the subject property. This was asserted to be $601.25psm retail and $445.53psm budget accommodation resulting in a discount of 17.15%. The adjusted land value was reduced from $877,890 to $727,367 for the subject property for the purposes of s 14G (exhibit D, p 23).
6. Mr Roberts' Step 4 (Efficiency Concession) was described above and seeks to reflect the impact of the heritage nature of the subject property on the gross/net floor area ratio compared to a modern property. Mr Roberts asserted a discount of 3.40% for relative efficiency reducing the ALV from $727,367 to $702,623, rounded to $700,000, for the subject property for the purposes of s 14G (exhibit D, p 24, 25). This part of the claim was not ultimately pressed in final submissions.
7. In the course of his oral evidence 50 Park Street was considered to be most comparable by Mr Roberts. This is a tall commercial building with eleven floors used for office and one for retail. Other sales relied on were 60 Clarence Street, an eight storey office building and 8 Spring Street, a 13 level office block, consisting of 12 levels of office and ground and lower ground retail space.

Mr Hill

1. Mr Hill adopted a significantly different approach to that of Mr Roberts. Mr Hill's valuation report (exhibit 1) is extracted as follows: 8 VALUATION METHODOLOGY 57. In determining the land value of the subject land the approach which should be adopted to this heritage restricted valuation is as follows: a) The land is to be considered to be, at the moment at which its valuation is determined, in the notional condition of being devoid of improvements, other than land improvements. Land improvements, as defined in section 4 of the Act, must be taken into account to the extent, if at all, to which they would contribute to the value of the land in its notionally unimproved state. In this case, they do so contribute. … b) Sales of the subject land must be assumed to have occurred on the base dates, between willing but not anxious parties. c) The "purpose for which the land was used" on the respective base dates must be identified. d) The identification of the purpose for which the land was used on those dates is to be determined at a suitable level of generality. Under normal circumstances, a suitable level will be one at which the use of the land for the purpose can be categorised in such a way as to contemplate the use of the land for the same purpose by others than its actual occupants at the relevant moment. e) In the present case, the purpose, so determined, for which the land was used on the relevant base dates was that of a hotel (pub) and ancillary uses to the basement and ground floor levels with the upper levels for residential budget accommodation and ancillary uses. f) Section 14G of the Act requires one to assume that there is no legal or other impediment to the continuation and maintenance of the improvements on the land at the base dates. However, these issues only attain relevance in so far as they bear upon the capacity of the improvements to continue to be used for their purpose. g) Any potential for adding to, replacing or altering the improvements on the land at the base dates must be disregarded: the section demands that it be assumed that no other improvements may be made to or on that land. h) On each of the base dates the use of the subject property was for hospitality purposes comprising hotel and residential accommodation uses. i) This section of the Act requires the subject land to be valued on the assumption of its use as at the base date. This use is assumed the only use to which the land may be put and therefore is deemed the highest and best use of the land. j) The analysis of sales for hospitality-aligned uses is considered the best form of evidence to assess the value of the heritage restricted land. The analysis of sales evidence for these uses provides an analysed rate per square metre of GFA that may be applied to the subject property after adjustments are made for comparability. k) Sales of unimproved or notionally unimproved sites (those purchased for the purpose of demolition or regeneration of existing improvements and construction for hotel and/or accommodation use) transacted may conveniently and appositely be analysed on the basis that the price has been agreed by reference to a rate per square metre of gross floor area ($GFA/m2). l) Such sales must be examined and analysed, with appropriate adjustments, in order that a $GFA/m2 rate for the land may be derived. m) In undertaking the land valuation regard has been given to the subject building as it determines the town planning considerations that are required when undertaking the land valuation. n) These considerations, as based upon the approved use on the subject land as at each of the base dates include; ∙ the use - retail pub and residential accommodation; ∙ the maximum quantum of gross floor area that may be derived on the land - 675.30 square metres as existing; and ∙ height controls - as per the existing building height limit. o) For analysed Sales Evidence, …I adopt a rate per square metre of gross floor area at each base date. (…Step A) p) The next step is to make due allowance, if any is required, for the Rental Differential. … q) The net rent differential is expressed as a percentage and is then deducted from the rate adopted for the gross floor area rate as at each of the relevant base dates. r) The resultant GFA rate is then applied to the gross floor area of the building, i.e. 675.30 square metres to provide a land value. (… Step B) s) As at each base date there was an excavation on the land that is considered a Land Improvement as per Section 4(1)(d1) of the Act. This allowance is then added on to the land value. Refer to Section 11, page 26, "Land Improvement". (… Step C)
2. Concerning Step A, Mr Hill's relevant sales, in order of most to least importance, are as follows: 1. Sale 1 246 Cleveland Street (Blue Building); 2. Sale 3 55-61 Riley Street (Riley Street Garage) (the second of two sales for this property); 3. Sale 4 403 Crown Street; 4. Sale 6 8-14 Broadway (Posh Hotel); 5. Sale 7 20-28 Chalmers Street (Bounce Hotel) (heritage building-sold with DA for pub at ground level and backpacker hostel); 6. Sale 2 105-107 Cleveland Street.
3. Mr Hill analysed the comparable sales to determine the transaction price expressed as a dollar rate per square metre of building floor area after allowance for improvements and market movement, then adjusted the analysed rates to reflect differences between each of the comparable sales and the subject property including location, size or quantum of floor area, shape, topography, access, exposure, height, views and development approval.
4. A summary of Mr Hill's adjusted rates for the Mountbatten Hotel is given in the table, below: Address Date of Sale Sale Price Site Area Sq M GFA (per Mr Hill) SqM Adjusted Rate PSM Floor Area June 2012 Sale 1 - 246-250A Cleveland Street, Surry Hills August 2013 $2,970,000 276.4 997.8sqm $3,696 Sale 2 - 105-107 Cleveland Street, Darlington April 2013 $1,280,000 267.3 467.78sqm $3,607 Sale 3 - 55-61 Riley Street, Woolloomooloo November 2012 $3,600,000 422.21 800sqm $4,194 Sale 4 - 403 Crown Street, Surry Hills May 2011 $891,000 63.2 153.85sqm $4,163 Sale 6 - 8-14 Broadway, Chippendale July 2008 $4,768,500 355.1 1041sqm $3,572 Sale 7 - 20-28 Chalmers Street, Surry Hills (Bounce) December 2007 $7,000,000 521.4 1953.11sqm $3,248 (Court notes that actual GFA is 2148sqm)

1. Based on those comparable sales, Mr Hill's analysis and adjustment indicated a range for the s 6A(1) land value of $3,248psm to $4,194psm GFA. Mr Hill asserted the appropriate rate for the subject property to be $3,925psm actual floor area giving a s 6A(1) land value of $2,650,553 for the subject property (exhibit 1, p 22).
2. Mr Hill's Step B (rental differential) was described above and seeks to reflect the impact of the heritage nature of the subject property compared to a modern property for the purposes of s 14G, by reflecting the difference in rental that a modern property may achieve compared to a heritage property. Mr Hill compared the net effective rents of a heritage office property in the Sydney CBD with those for modern office properties in the Sydney CBD and found little difference leaving the s 6A(1) land value unchanged (exhibit 1, p 25, par 99).
3. Within Step B, Mr Hill considered the envelope design limitations of the subject property and asserted that a deduction of 10% should be adopted reducing the s 6A(1) land value from $3,925psm ($2,650,553) to $3,532.50psm actual floor area ($2,385,497) for the subject property for the purposes of s 14G (exhibit 1, p 26, 29).
4. Mr Hill's Step C (allowance for land improvement as per s 4(1)(d1) of the VL Act) concerns the basement excavated beneath the Mountbatten Hotel for which Mr Hill attributed a cost of $160 per cubic metre or $123,920. Added to the land value of $2,385,497 results in a land value of $2,509,417, rounded to $2,510,000, for the subject property for the purposes of s 6(A)1/s 14G (exhibit 1, p 29)

Applicants' submissions

1. It is necessary to consider the value of the fee-simple. The s 6A(1) land value is often called the unimproved land value. In fact, it is less than that. Any parcel of land may have any number of features, or characteristics, which potentially add to, or detract from, its value according to common understanding. That might include the benefit, or burden, of easements, rights of way or other restrictions on title. As Gollan v Randwick Municipal Council [1961] AC 82 at 100-101; (106) 6 LGRA 275 at 282 made clear in 1960 that which is being valued has been referred to as "an absolute or pure title", that is a fee-simple unencumbered and subject to no conditions.
2. A development consent forms no part of the fee-simple. It is a benefit, or right, attaching to the land, and one which adds value in the common meaning of the word, but which is in addition to the fee-simple which must be ignored. This was the conclusion to which Biscoe J came, for example, in Holcim (Australia) Pty Ltd v Valuer-General [2009] NSWLEC 225. It can, however, lead to difficulties in determination of market value.
3. The common approach to the assessment of s 6A(1) land value is by use of comparable sales. Inevitably, comparable sales need to be analysed, and then adjusted. A question arises therefore as to whether those sales need to be adjusted (down) if they have the benefit of a development consent. Holcim makes the answer to that question clear. A comparable sale that has the benefit of a development consent must be adjusted down in order to meet the artificial assumption for the land being valued that it does not have the benefit of a development consent (even if there are improvements on the land). That is because any valuation, whether it is one purely pursuant to s 6A(1), or one which is subject to the 6A(2) higher and better use assumptions or even one pursuant to the s 14G heritage assumptions, must always proceed upon the basis that the only thing being valued is the fee-simple.
4. Because each of the properties is heritage restricted, for the purpose of determining land value pursuant to s 6A(1) of the VL Act, the Court must make the assumptions referred to in s 14G(1) of the VL Act, which in most cases will reduce land value. Section 14G(1) however does not negative the assumption required by s 6A(1) that the improvements upon the land are to be valued as if they had never been made. Section 14G(1) is therefore not a separate valuation exercise. Rather, it identifies the assumptions that are to apply in the s 6A(1) valuation.
5. How the s 14G assumptions work for the purposes of the s 6A(1) valuation of fee-simple, being the only valuation that is undertaken, must be determined. Any approach which implements the s 14G assumption is acceptable in the absence of a specific requirement for how this is to be done in the VL Act. The Applicants' valuer's approach takes this into account. First the rate per square metre of land is derived assuming it is not heritage affected. The second step, which is agreed, is to multiply by the actual GFA. The third step is to multiply the rental differential adjustment between the value of the land and the income the land can produce per Biscoe J in Commonwealth Custodial Services Ltd v Valuer General [2008] NSWLEC 310 at [16] (Moneybox (No 2)), In Adam Pty Ltd v Valuer-General [2011] NSWLEC 55 at [8]. Mr Roberts applies a variable differential adjustment to each property while Mr Hill applies 10% to all.

Respondent's submissions

1. Section 14G provides a different method for valuation of land to that which is provided by s 6A(1): Trust Company of Australia Ltd v Valuer-General [2007] NSWCA 181; (2007) 154 LGERA 437 at [58]. As Handley AJ said in Valuer-General v In Adam Pty Limited [2012] NSWCA 20 (In Adam) at [22], the assumptions in s 14G(1) do not operate in a vacuum. The section operates in conjunction with s 6A(1) and both must be applied in the valuation exercise. In the real world an informed and willing, but not anxious, purchaser of heritage restricted property would take into account the restrictions which reduce its value.
2. Land is valued under s 6A(1) on the assumption that it may be developed for its highest and best use, see Moneybox (No 2) per Biscoe J at [9].
3. In Commonwealth Custodial Services Ltd v Valuer General [2007] NSWCA 365; (2007) 156 LGERA 186 (Moneybox (No 1) (CA)), the Court of Appeal was determining land value of the Martin Place Commonwealth bank (Moneybox) building. Tobias J made the following observation: 128 ….[The] continuance [of the improvements] under both ss 6A(2)(b) and 14G(1)(b) is to be assumed but only for the limited statutory purpose of ascertaining highest and best use to which the land may be put in determining its value. Contrary to the view of the Chief Justice, the text of the provisions referred to are incapable of extending beyond that consideration. Sugerman J so held in Ritchie (see [33] above) and he was one of the most experienced judges in this area of the law whose views are entitled to considerable respect.
4. This is a critical observation for the purposes of this case. Section 14G(1)(b) identifies the highest and best use to which the property could be put in determining its value. Similarly s 14G(1)(c) identifies the scale of the development that can take place on the land for the purposes of determining its value.
5. The following principles apply to valuing heritage restricted property: 1. The assumptions in s 14G must be made; 2. Under s 14G the land is still valued on the assumption that the improvements had not been made; 3. In considering the use to which the land can be put, and the scale of development that could take place on the land, the assumption has to be made that no improvements can be made to the land other than the improvements that are actually there at the base date or dates (the highest and best use restriction); 4. There is one further assumption that must be made, having regard to s 14G(1)(b1). The existing heritage building on the land is assumed to be new on the date of valuation (without any deduction being made for its actual condition).
6. For each parcel of land, the valuers are required to value it as vacant land (other than for land improvements) upon the basis, first, that it would only be used for the purpose for which it was being used at the date of valuation; and, second, that the only building in which that use could be continued was the existing building upon the land, albeit in a new condition.
7. The valuers agree that the site excavation beneath the building is a land improvement as defined in s 4(d1) of the VL Act. Mr Hill considers the benefit of the land improvements must be added on when assessing the value of the subject land. Mr Roberts does not.

Onus of proof

1. The parties made conflicting submissions on how the onus of proof should apply in this case. Section 40(2) of the VL Act states the Applicants bear the onus of proof. They submit the onus is discharged as soon as it is shown that the land values are too high. As it is already accepted that the actual GFA should be used for the properties, not the higher GFA estimate used by the Valuer-General, the valuation figures must be lowered. These figures are identified in the table at par 12. This it was submitted discharged the Applicants' onus and the Court would thereafter decide value and make orders as provided for in s 40(1)(a)(b) or (c), the approach in Kogarah Town Centre Pty Limited v Valuer General (No 3) [2014] NSWLEC 1124 and Commonwealth Custodial Services Ltd v Valuer-General of New South Wales [2006] NSWLEC 775 (Moneybox (No 1)) by Talbot J at [47].
2. The Valuer-General submitted that the Applicants bear the onus of discharging their case meaning establishing the land value figures contended for in Mr Roberts' evidence. If Mr Roberts' sales are discarded by the Court the Applicants are unable to discharge their onus.
3. In my view the Court's powers on appeal identified in s 40(1) arise separately and apart from the onus provision in s 40(2). Section 40(1) specifies the Court's jurisdiction and should not be construed as being curtailed by s 40(2) in the manner contended by the Valuer-General's submission; see most recently Valuer-General v Kogarah Town Centre (No 3) at [34]-[40] which reasoning I adopt. The Applicants' approach to the application of the onus of proof is correct. At a minimum new valuation figures may be issued by the Court to take account of the actual GFA of the three properties.

Application of statutory scheme

1. The challenge in this case is the application of the highly artificial statutory scheme identified in s 6A(1) and s 14G, described as requiring a mental exercise in unreality by Tobias JA in Moneybox (No 1) (CA) at [119]. Application of the precise terms of the statutory scheme is required. I note for completeness that it appears settled that s 6(2) assumptions are replaced by s 14G(1) assumptions where s 14G applies: Moneybox (No 1) (CA) per Tobias JA at [112]-[115]. As the Respondent submitted a heritage building is generally subject to legislation or planning instruments which impede demolition and redevelopment. 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: Trust Company at [58] per Campbell JA (Beazley and Ipp JJA concurring) cited in Krisgay Pty Ltd v Valuer-General [2007] NSWLEC 600; (2007) 159 LGERA 29 at [32].

Methodology - approach to highest and best use

1. Section 6A(1) requires the valuation of the fee-simple of land, assuming a sale of the land whereby no improvements other than land improvements have been made. Section 14G(1)(a) requires that land value be determined on the assumption that the use of the land may only be the use at the time of the valuation. Section 14G(1)(c) requires the assumption that the only improvements that may be made are those that already exist on the land. Both valuers agree a comparable sales approach can be taken whereby the value of the subject property is determined by reference to transactions of other properties with generally similar characteristics, such as location, area and size, inter alia.
2. In considering unimproved land value of the fee simple the valuers take different approaches at the first step of selecting comparable sales. The Applicants' submissions correctly summarise the essential difference. Both valuers assume the land is vacant. The Respondent's valuer Mr Hill's first step includes a s 14G "use" restriction whereas the Applicants' valuer Mr Roberts does not. Mr Roberts' first step starts with the identification of sales based on his opinion of the town planning highest and best use and then adjusts as required by s 14G in a later step. Step 2 applies the GFA and so accounts for limitations on size. Step 3 applies a downwards adjustment for the rental differential between the highest and best use and the restrictions due to the heritage use required by s 14G. Mr Hill in Step 1 assumes the land can only be used for its current purpose because of the s 14G(1)(a) restriction. The VL Act does not specify a particular valuation approach so that provided the assumptions required by the VL Act are made more than one valuation approach could be appropriate.
3. A significant difference between the parties' valuers arises because of the difference in approach to the highest and best use and hence selection of comparable sales from which a rate per square metre is derived. The Applicants' valuer first selects comparable sales based on the highest and best use which results in values some three times higher than the Respondent's valuer's comparable sales. While this may appear counterintuitive because an applicant generally prefers lower values in cases of this kind, following the large deduction by Mr Roberts in his Step 2 allowing for the difference in GFA the unimproved land value was said to be $877,890. These initial steps are conceptually similar to Mr Hill's Step A from which he derived a value of $2,650,553.
4. A key issue which I would ideally resolve based on the valuers' evidence is how the highest and best use is to be considered in the context of s 6A(1) and s 14G. It has not been possible to do so entirely because of the view I took of Mr Roberts' comparable sales approach. I conclude below at par 66-67 and 70 that I cannot adopt any of his sales. The different approaches taken by the valuers in this case to the highest and best use did not arise directly in Moneybox (No 1) or Moneybox (No 2) because it was agreed by the valuers in those cases that the existing use of the Moneybox building was its highest and best use. That factual circumstance is reflected in the judgment of Tobias JA in Moneybox (No 1) (CA) (see [111], [116]) set out below.
5. It is useful to set out some of Moneybox (No 1) (CA) where Tobias JA held: 111 In my opinion, two critical conclusions can be drawn from the authorities. First, that s 6A(2) or, in the case of heritage restricted land, s 14G(1), do not negative the assumption in s 6A(1) that the improvements upon the land to be valued "had not been made". It is a consequence of this proposition, as Campbell JA noted in the Trust Company case at [33], that it is only once the improvements are notionally removed from the land to be valued that the notional sale of that land as called for by s 6A(1) can occur. Second, as the assumptions in ss 6A(2) or 14G(1) do not replace the assumption in s 6A(1) for the purpose of determining the capital sum which the fee simple of the relevant land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, the improvements upon that land are to be ignored as if they had never been made. It follows, as Jagot J noted in Long Reach Capital Pty Ltd v Valuer-General [2007] NSWLEC 721 at [39], that the assumption in s 6A(2)(b) or the similar assumption in s 14G(1)(b) refers to the continuance of the improvements existing upon the land as at the date of valuation only for the purpose of enabling the land to be valued upon the basis, if it be the case, that its highest and best use is the continuation of its existing use as permitted by s 6A(2)(a) and as required by s 14G(1)(a). 112 The foregoing propositions are not only supported by the dicta of Campbell JA in the Trust Company case but also by the observations of Sugerman J in Ritchie at 297 that s 6A(2) was introduced into the Act to overcome the difficulty illustrated by the decision of Hardie J in Wunderlich that the assumption required to be made by s 6(1) as to the absence of existing improvements could result in the land being valued on the footing that it was not available to be used for the very purpose for which it was in fact being used where that use, where it was an existing use, was its highest and best use. As Sugerman J observed in Ritchie and I repeat, "It was to overcome that difficulty and provide in the future for valuation and similar cases on the basis of present and potential lawful use that sub-s (2) was introduced into s 6. In my opinion the subsection on its true construction, does not go beyond that." (Emphasis added) … 115 Furthermore, in my view, there is nothing anomalous in permitting the use of comparable sales of improved land to be used for the purpose of deducing therefrom an unimproved value of the same land which is then applied, with or without adjustments, to the land to be valued but outlawing the use of that method with respect to the land to be valued by valuing it in its improved state and then deducting, in order to obtain its land value, the added value of its existing improvements where the statute as a matter of construction mandates that result. This is so not only for the reasons suggested by Biscoe J in Krisgay at [30] which I have recorded in [106] above and with which I respectfully agree, but also because the history, the objective and the text of ss 6A(2)(b) and 14G(1)(b) and (c) cannot, as I have already noted, be construed in a manner which has the effect of impliedly repealing of that part of s 6A(1) which requires land value to be determined upon the express assumption that the improvements upon the land at the date of valuation had never been made. 116 … In the context of the present case it required the valuers to value the property as vacant land (other than for land improvements) upon the basis first, that it would only be used for the purpose for which it was being used at the date of valuation; and, second, that the only building in which that use could be continued was the existing building upon the land with all its perceived benefits as a heritage building on the one hand and its perceived deficiencies in terms of its design, internal layout etc., on the other. … 128 However, this does not mean that the improvements which in fact exist are to be ignored. Their continuance under both ss 6A(2)(b) and 14G(1)(b) is to be assumed but only for the limited statutory purpose of ascertaining highest and best use to which the land may be put in determining its value. Contrary to the view of the Chief Justice, the text of the provisions referred to are incapable of extending beyond that consideration. Sugerman J so held in Ritchie (see [33] above) and he was one of the most experienced judges in this area of the law whose views are entitled to considerable respect. 129 Although I accept that the notional removal of the improvements from the land to be valued is a requirement of the statute, that notional removal is to take place before the land is valued. This is because, as a matter of logic, the land cannot be valued until that assumption is made. Only then does the valuer know exactly what it is that he is to value.
6. The approach outlined by Tobias JA particularly [115]-[116] and [128] albeit viewed in a different highest and best use context appears to support the two step approach of Mr Roberts. His Honour also refers approvingly to Krisgay, which I also refer to below. I should note for completeness that in Valuer-General v Fivex Pty Ltd [2015] NSWCA 53 Leeming JA (Basten JA and Gleeson JA concurring) at [40]-[42] did not approve [111]-[112] of Tobias JA in Moneybox (No 1) (CA) in considering in a different context the application of s 6A(2). It is unnecessary to further consider Fivex in this matter.
7. Mr Roberts cited McClellan CJ at CL in Valuer-General v Commonwealth Custodial Services Ltd [2009] NSWCA 143; (2009) 74 NSWLR 700 (Moneybox (No 2) (CA)) at [24] to support his approach, although that passage does not really assist as it is addressing the different circumstance that the existing use was the highest and best use.
8. Biscoe J considered the valuation of a heritage listed hotel in Krisgay a case neither party referred to. While that matter concerned the valuation of land under the Heritage Act 1977 (NSW), his Honour considered at length the relativity of provisions under that Act with the VL Act, concluding "Both sections [s 123 of the Heritage Act 1977 and s 14G of the VL Act] in my opinion, are to the same effect"; [33]. The highest and best use of the subject property in Krisgay, if not heritage constrained, was agreed to be medium density residential and so differed from the actual use being hotel. Biscoe J accepted the following approach to the valuation of the heritage hotel of: 1. assessing the value of the land assuming its highest and best use of medium density residential developments; [16], [45], [46]. 2. adjusting the assessed land value to reflect the constraint on use to the existing hotel; [46], [47].
9. Because of the valuers' different approaches, this case raises the issue of whether the valuation approach should consider s 6A(1) first in isolation in selecting comparable sales and then make the assumptions required by s 14G(1) in adjusting those sales. If done separately as Mr Roberts did the assumption made is of no hotel improvements on the land, and the highest and best use is a 7.5:1 FSR for retail and office use. A reduction is then made in accordance with the s 14G(1) assumptions. Mr Hill's methodology was to consider s 6A(1) in accordance with the assumptions in s 14G(1) at the outset which restricted the uses of comparable sales to those existing at the Mountbatten Hotel. Mr Roberts' approach is theoretically in accordance with the statutory scheme, and was the approach explicitly applied by Biscoe J in Krisgay.
10. As stated in In Adam by Handley AJ at [24]: Most of the assumptions in s 14G(1) modify the basic, but artificial, assumption in s 6A(1), that the improvements, other than land improvements, have not been made. Those assumptions introduce facts from the real world.
11. Mr Hill's approach is not supported by Krisgay. It does result in the necessary assumptions required by s 14G(1) being made in the s 6A(1) context, as referred to in In Adam.

Development consent

1. Another matter requiring resolution is the approach to comparable sales with development consents where a property benefits from a development consent. The Applicants contend for a downward adjustment of 10% when comparing a sale to the subject if at the time of sale it benefitted from a development consent. That these benefits are unrelated to the fee simple can be accepted. The Applicants relied on Toohey's Limited v The Valuer-General [1925] AC 439; 7 LGR (NSW) 48 where three ingredients were identified as relevant to land value, the bare land, the building and the enhanced value due to the premises being licensed to support a submission that the enhancements from the development consent are not part of the fee simple and are additional ingredients that must be adjusted to take into account any enhancement. To the extent s 14G assumptions required consideration of improvements, they are only relevant in order that the use of the land may continue at the relevant date. They are otherwise to be ignored and a valuation based on comparable sales should adjust these down if they have the benefit of a development consent, relying on Holcim.
2. Holcim did not consider s 14G only s 6A(1), as the Respondent submitted, so that it is of limited assistance in this case given the specific assumptions in s 14G which must be applied. The Respondent submits that s 14G(1)(a) restricts the use to be assumed to be that in existence at the date when the property is being valued. The words "may be used only" convey that. The Respondent submits there is inherent in these words the assumption that the property could be lawfully put to those uses. Subparagraph (b) extends that assumption to the existing improvements as it requires the assumption that these must be continued and maintained in order that the existing uses may continue. The provision requires the valuer to assume there are no legal impediments to the business of continuing and maintaining the improvements on the land. Paragraph 1(c) further reinforces this approach. Section 14G requires the assumption that there is no legal impediment to continuing the existing use of the land. This impediment would exist if there was no development consent on the subject land. Accordingly no adjustment to take into account a development consent benefitting a comparable rate is warranted.
3. Section 6A(1) addresses unimproved land value and in this case I am required to also consider s 14G. The Respondent's submissions correctly identify the approach to development consents given the assumptions required by s 14G. Toohey's was addressing unimproved land value only, not the assumptions required by s 14G and does not therefore assist in the application of the statutory scheme before me. Further the Privy Council was considering a liquor licence which does not run with the land, unlike a development consent or existing use. The same observation about the focus on s 6A(1) can be made in relation to the Privy Council decision in Gollan, another authority relied on by the Applicants.
4. The Mountbatten Hotel had existing use rights and I am required to assume no potential for alternative development under s 14G(1). Therefore comparable sales with existing use rights or development approvals in place do not require adjustment relative to the Mountbatten Hotel.

Mr Roberts' sales cannot be relied on

1. While I have made some findings above in par 59-61 on the correct approach of the valuers to valuation under s 6A(1) and s 14G(1) these must be tempered by the practicalities of what can be achieved given the valuation evidence in this case. A fundamental difficulty with Mr Roberts' comparable sales is his adoption without further investigation of some of the Valuer-General's sales in the notice of land determination. That notice states that it is "normal valuation practice to consider sales across the whole property market to establish land values. Therefore there may be sales on this list that are not directly comparable to your property". Thirteen sales are listed by the Valuer-General. Mr Roberts initially identified eighteen sales in his report for the Mountbatten Hotel in a table on p 17 of exhibit D. Seven sales in the notice from the Valuer-General were stated to be relied on in oral evidence. Subsequently in oral evidence two sales, 50 Park Street and 60 Clarence Street, were stated to be particularly relied on. Mr Roberts assumed as identified in his report that the sales identified by the Valuer-General had been accurately assessed in relation to the subject property and were based on the highest and best use of land as required by the VL Act.
2. I agree with and adopt the Valuer-General's criticism of the use of these sales by Mr Roberts. There is no explicit adjustment of the sales by the Valuer-General in the notice or elsewhere in documents before the Court. The notice lists sales of vacant and improved properties, their area, the price and the adjusted land value. These sales cannot be analysed by the Court for their comparability to the subject site as insufficient information about them has been provided. Further, the exercise undertaken by the Valuer-General does not address the precise statutory scheme before the Court. I do not, therefore, accept Mr Roberts' sales as Mr Roberts did not independently accumulate a set of comparable sales which he considered relevant to the valuation of the subject property.
3. To the extent there was criticism of inconsistency in the approach of the Valuer-General in that notice and the Valuer-General's approach in these proceedings by the Applicants, it was not disputed that as part of the objection process an independent valuer's report was prepared by Mr Hill. His report did not refer to any of the office block sales referred to in the Valuer-General's report relied on by Mr Roberts.
4. There remains a fundamental difference between the valuers in relation to their selection of comparable sales, reflecting their different views of the appropriate highest and best use in light of the statutory scheme. Mr Roberts articulated in his report that he selected office block with retail use sales as his comparable sales because this reflected the highest and best use of the land under the relevant LEP in his opinion and also took into account his view of the statutory scheme that development and other consents such as liquor and gaming licences must be ignored.
5. I agree with further criticism of Mr Roberts' sales by the Respondent. Indeed his reliance on the unanalysed sales identified in the Valuer-General's notice may contribute to this second criticism. Each of the sales relied upon by Mr Roberts in his reports have little demonstrated comparability in terms of location with the subject properties on the present evidence, or lack of more accurately. As already identified, Mr Roberts did not seek to investigate the sales listed by the Valuer-General but essentially accepted these at face value. The usual valuation exercise of investigating these sales for comparability was not carried out by him in the accumulation phase. Each sale is a tall, modern office building located in or very close to the central business district of Sydney whereas the subject properties are somewhat removed from the CBD. The subject properties are materially different in scale and more importantly location from these office buildings. There is no demonstrated actual potential for any of the subject properties to be redeveloped into an office building of similar scale to be comparable regardless of the zoning in the relevant LEP. Mr Roberts did not carry out his own accumulation exercise which may have found evidence to support up to eight levels or more of retail and office development potential at the southern end of CBD. In the absence of such evidence I cannot accept these sales as comparable on this basis also.
6. As I have not been able to accept Mr Roberts' evidence I must do the best I can given what remains of the evidence, namely Mr Hill's sales. Given the six day hearing undertaken by the Court an outcome should be achieved if at all possible.
7. Mr Hill's methodology in section 8 of each of his reports is set out in detail above in par 27 and following. Mr Hill applied the s 14G(1) assumptions in relation to the highest and best use of the land and therefore to the selection of comparable sales. Mr Hill assumed the land is vacant, that the highest and best use of the land is the existing use and that the maximum scale of what can be built on the land is confined to the existing building envelope. He researched sales of other properties which have similar use potential and size and examined and analysed those sales, with appropriate adjustments, in order that a $GFA psm rate for the Mountbatten Hotel may be derived. Mr Hill made an allowance for the s 14G(1)(b1) assumption in the "rental differential". He deducted the rental differential from the rate adopted for the gross floor area. Mr Hill applied the GFA rate to the gross floor area of the hotel to derive a land value. An allowance for "land improvements" can be added where necessary in his view.
8. The only sale of Mr Hill's adopted by Mr Roberts was the Riley Street premises so that I will now consider that sale. In closing address the Applicants' counsel also relied on the Bounce Hotel sale which I also consider further below.

55-61 Riley Street, Woolloomooloo

1. 55-61 Riley Street, Woolloomooloo is an improved property, being a former car garage/workshop, which may be described as follows based on Mr Hill's evidence. The property is subject to a heritage listing. Adjustment Subject Property 55-61 Riley Street, Woolloomooloo Relativity to Mountbatten Hotel - Mr Hill Location Haymarket Woolloomooloo Inferior Area 309.8sqm 422.21sqm Comparable Shape "L" shaped Rectangular Superior Access Multiple accesses Multiple accesses Inferior Exposure Prominent corner Corner, side street Inferior Date of sale 1 July 2010 24 November 2012 29 and 5 months post 1 July 2012

1. Mr Hill adopted the second sale of this property, following the grant of development consent, of $3.6 million with a contract date of 24 November 2012. Mr Hill made a deduction for the added value of improvements and for demolition to derive a land value (exhibit 1, p 45). The first sale at $2.675 million was in September 2011 and the difference in sale price between the dates was generally agreed to reflect the securing of development approval and a primary service authority (liquor licence), market movement and a profit and risk component.

Allowance for DA at 55-61 Riley Street

1. The Applicants contend that a deduction must be made to reflect the value of the development consent applying to this sale. This is reflected it is submitted in the difference in sales 1 and 2 of about $1 million dollars so that the value of the land should be reduced by that amount.
2. According to Mr Hill the $1 million reflects the value of the DA, liquor licence, passage of time and entrepreneurial risk. The second Riley Street sale with DA is conceptually comparable with the Mountbatten Hotel having existing use rights. No adjustment for the development application is required as I found above at par 65.
3. The shape of the Riley Street premises is superior and the area is comparable to the Mountbatten Hotel. The second sale is post GFC with location, access and exposure being inferior. I accept Mr Hill's view that the second sale is comparable.

Value of improvements for deduction at 55-61 Riley Street

1. To determine the unimproved land value of 55-61 Riley Street requires analysis of the sale to deduct the value of improvements from the transaction price.
2. The valuers provided extensive further written and oral evidence on the added value of improvements to the Riley Street premises during the hearing which need to be deducted as required by s 6A(1). In the initial joint report on this topic (exhibit S) improvements were valued by Mr Roberts at $1750psm ($1.4 million) and by Mr Hill at $888psm ($710,400). Subsequently, Mr Hill in exhibit 5 stated these should be valued at $800psm, ($640,000) and Mr Roberts in exhibit U stated $1534psm ($1,227,320) to be the value of improvements.
3. That Mr Hill contended for $0.64 million and Mr Roberts for $1.23 million reflected differences in their application of Rawlinsons as a cost guide and in their views on the cost of load bearing brickwork for a two level building and the cost of a clear span roof. In exhibit U Mr Roberts considered cl 8.1.4.6 industrial-two storey owner occupation at Rawlinsons p 86 applied. This included a number of sub-categories for components of the building which he adjusted by removing columns, internal screens and services. He added large adjustments for footings to external load bearing walls, internal brickwork to cavity wall, load bearing brickwork in cavity wall increased and clear span adjustment of metal roof trusses to arrive at an adjusted figure of $1,765 less $60.85 of $1,704.15. With a floor area of 800 square metres the total building cost was $1,363,320 from which was deducted $136,000 to arrive at $1,227,320.
4. In exhibit 5 Mr Hill reviewed Rawlinsons and based on his experience including inspecting the building prior to the second sale and after later redevelopment he considered four different building cost scenarios were most applicable. In the industrial warehouse category in Rawlinsons at p 45, section 8, he considered industrial warehouse single storey cl 8.1.1.1 (scenario 1), industrial warehouse multi storey cl 8.1.3 (scenario 2), industrial factory cl 8.2.3.2 (scenario 3). Mr Hill also referred to offices lettable cl 9.1.1.4 for two storey offices with standard finishes (scenario 4). He considered scenarios 1 (building rate of $540-580psm) and 3 ($875-945psm) were most relevant to derive a building area rate of $800psm ($640,000). Mr Hill considered the rate of $875-$945psm from Rawlinsons for a new large span industrial factory building with brick external walls and metal roof (and other inclusions) to support an estimate of $800psm.
5. Both valuers were cross-examined about their approaches to Rawlinsons and the extent to which the difference in price between the two sales was due to the gaining of development consent and/or additional factors.

Finding on improvements deduction for 55-61 Riley Street

1. Mr Roberts effectively doubled the construction cost through tripling the allowance for foundations, doubling the allowance for external walls and quadrupling the allowance for a clear span roof over Rawlinson's cost guide (exhibit V), as submitted by the Respondent's closing submissions at par 55. I also note that Mr Roberts stated in evidence: I am not an engineer and I don't profess to understand why, however in my experience clear span construction is more expensive than conventional construction comprising internal load bearing walls and supports (Exh S).
2. The magnitude of changes made to the Rawlinsons cost guide figures by Mr Roberts on the basis of his limited understanding suggests I should not accept his evidence.
3. Mr Hill's position identified in exhibit 5 adopts a category in Rawlinsons which best fits the building as sold in the second sale and accords with the building as seen on the view in my opinion. Having viewed the property I consider that the description from Rawlinsons referred to by Mr Hill appeared similar to the Riley street sale. I accept Mr Hill's assessment of $800psm or $640,000 for the added value of improvements. I agree with the Respondent that Mr Roberts' figures are too high in making an allowance for foundations, doubling the allowance for brick walls and quadrupling the allowance for the roof.
4. As Mr Hill's allowance of $150,000 for "excavation" was not explored in oral evidence, I accept this allowance.
5. Accordingly, I consider the analysed rate of the unimproved unexcavated land at Riley Street to be $3,513psm derived as follows from Mr Hill's evidence. Sale Price $3,600,000 million Less Value of Improvements $640,000 Less Excavation $150,000 Land Value $2,810,000 Land Value PSM Floor Area $3,513

Adjusted rate from 55-61 Riley Street for application to Mountbatten Hotel

1. Having regard to 55-61 Riley Street, Woolloomooloo, I note that the analysed rate of $3,513psm floor area requires upward adjustment for location, access and exposure with downward adjustment for shape. I accept Mr Hill's overall upward adjustment of 10% (exhibit 1, p 46) resulting in an adjusted rate of $3,864psm floor area as at the date of sale on 24 November 2012 for the Mountbatten Hotel.

Section 14G(1)(b1) adjustment - rental differential

1. The valuers agree that an adjustment for rental differential should be made, reflecting the assumptions required to be made for heritage restriction affecting the use of the land in light of s 14G(b), (b1) and (c) directly and indirectly. They disagree on the amount.
2. For the Mountbatten Hotel, Mr Roberts' Step 3 adopts a discount of 17.15% whereas Mr Hill's Step B adopts a discount of 10% for rental differential. As I have not accepted the sales which were the basis for Mr Roberts' calculations I will not adopt his figure.
3. I accept Mr Hill's discount of 10% for rental differential. When applied to the rate of $3,864psm floor area the result is a rate of $3,478psm floor area for application to the Mountbatten Hotel.

Efficiency deduction

1. The part of the Applicants' claim referring to an efficiency deduction was not pressed in final submissions by the Applicants' counsel.
2. Section 14G(1)(d) does not need to be addressed in these matters. Consequently, and as held above, when the rate of $3,478psm floor area is applied to the gross floor area of the Mountbatten Hotel of 675.30sqm, the resulting land value is $2,348,693. Mr Hill's final figure has changed in light of the additional evidence provided during the hearing in relation to the value of improvements requiring adjustment of the Riley Street sale with consequential changes for its adjustment in relation to the Mountbatten Hotel.

Land improvements (Mountbatten Hotel only - Mr Hill's Step C)

1. The Mountbatten Hotel has an excavated basement defined as a land improvement. Both valuers agree that this is an area for which a prospective purchaser will pay. The issue arises of whether the benefit must be added to the land value meaning the cost of excavating the improvement being $123,000 according to Mr Hill.
2. Mr Hill adds the cost of excavation incorrectly according to the Applicants because the cost of excavation is irrelevant under s 6A(1), double counts the excavation and Mr Hill assumed the whole site was excavated when only part, 61.2 sqm/36% of the site, was.
3. I am cogniscent that 55-61 Riley Street has an excavated basement area covering part of the site only, which Mr Hill analysed to derive an unimproved, unexcavated land value using the cost of excavation about which there was no objection. Accordingly, in the absence of evidence concerning the cost of partial excavation, I accept Mr Hill's evidence of the cost of excavation of $123,920 which may be added to the land value of $2,348,693 to give $2,472,613.

Bounce Hotel

1. In final submissions, counsel for the Applicants sought to rely on the Bounce Hotel sale in addition to the Riley Street sale as providing some assistance if analysed differently to Mr Hill's approach. The evidential basis for doing so is unclear given that Mr Roberts did not adopt this sale in his analysis. Mr Hill derived a rate of $2,406 psm floor area which was adjusted to a rate of $3,248 in relation to the Mountbatten Hotel. Located at 20-28 Chalmers Street, the Bounce Hotel was a heritage building in disrepair which sold in December 2007 for $7 million with a DA for a pub use at ground level and a backpacker hostel use above, a use broadly similar to the Mountbatten Hotel. I consider this sale briefly as it requires substantial adjustment which renders it incomparable due to at least three factors. Firstly, the sale occurred in 2007 well before the 2012 (and 2010) base date, at a high point in the market just prior to the onset of the GFC in 2008. Secondly, based on site area and a FSR of 3.75:1 the useable floor area was 1953.11sqm according to Mr Hill. The actual floor area was 2,148sqm. The Mountbatten Hotel has a GFA of 675.3sqm, some three times smaller.
2. Thirdly, the cost of the extensive renovations to improvements planned on the site was likely to be significant. The sale was of the shell of an old building which according to Mr Hill was bought in expectation that $5.5 million would be spent on the development for which consent had been granted. That is not a situation which is comparable to the improvements on the subject property. While improvements must ultimately be discounted as required by s 6A(1) the magnitude of the difference means this sale is markedly different from the existing Mountbatten Hotel where much smaller improvements exist and are in a reasonable state of repair.

Land value of Mountbatten Hotel

1. Applying the Riley Street sale the land value for the subject property at 1 July 2012 is $2,472,613 which I round to $2,500,000. While this has been concluded on the basis of only one of Mr Hill's sales the unusual circumstances of the valuation evidence suggests that it the sensible course in this matter. No utility is served by further considering Mr Hill's other comparable sales. That amount is greater than the $2,125,000 figure of the Valuer-General identified in the table in par 12. The Valuer-General is not seeking substitution of the higher figure as the s 6A(1) land value for the Mountbatten Hotel.

Whether land value GST exempt not determined

1. According to the Applicants the fee simple does not include GST. In Storage Equities Pty Ltd v Valuer-General [2013] NSWLEC 137 Craig J held that it did. The Applicants submitted that finding was not correct for various reasons. It is unnecessary that I resolve this issue as the amount of land value is substantially more than 10% greater than the amount contended for by the Applicants.

Conclusion

1. I assume that my finding in relation to the Mountbatten Hotel also means that the land values for the Star and Triple Ace Hotels will be as found by Mr Hill, meaning higher than the amounts found by the Valuer-General. As indicated in par 49 the s 6A(1) land values of the three subject properties must be amended to reflect their actual GFAs as identified in the last column of the table in par 12. Accordingly all the appeals are upheld. That table refers to the 2012 base dates only. The parties must file draft final orders for the Court to approve for the 2010 and 2012 base dates in the six appeals. Costs will be reserved and an order made returning the exhibits.

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