PLAYERS PTY LTD v THE CORPORATION OF THE CITY OF ADELAIDE No. SCCIV-99-1273 [2001] SASC 369 (8 November 2001)

REAL PROPERTY --- VALUATION OF LAND --- PARTICULAR PROPERTIES AND INTERESTS --- LICENSED PREMISES REAL PROPERTY --- VALUATION OF LAND --- STATUTORY VALUES

Licensed nightclub complex - annual value - appeal against Council valuation of $362,700 - nature of appeal - relevant principles - `gross annual rental' - the hypothetical tenant - whether fixtures and fittings relevant - whether existence of liquor and gaming licences relevant - held, Council valuation too high - appeal allowed - valuation set aside and annual value of $262,000 substituted.

Statutory interpretation - definition of `annual value' in s5 Local Government Act 1934 - whether `five per cent of capital value' is a prescribed minimum or an alternative to `three-quarters of the gross annual rental that the land might reasonably be expected to realise if leased upon condition that the landlord were liable for all rates, taxes and other imposts on the land and the insurance and other outgoings necessary to maintain the value of the land' - held, `five per cent of capital value' is a prescribed minimum.

• Gaming Machines Act 1992 s15, s19;
• Land Tax Act 1936 ;
• Land Tax Amendment Act 1986 s4;
• Liquor Licensing Act 1997 s29, s58, s61;
• Local Government Act 1934 s172, s173;
• Municipal Corporations Act 1861 s152;
• Municipal Corporations Act 1880 s186;
• Municipal Corporations Act 1923 s340;
• Municipal Corporations Act 1890 s222;
• Parochial Assessments Act 1836 (6 & 7 Will IVc 96) ;
• Sewerage Act 1929 s63;
• Statutes Amendment (Valuation of Land) Act 1981 s6, s19, s20;
• Valuation of Land Act 1971 s5;
• Valuation of Land Regulations 1991 Reg 10;
• Waterworks Act 1932 s66, s70;
• Waterworks Amendment Act 1974 s27, referred to.
• Assessment Committee of Kingston Union & Anor v Metropolitan Water Board [1926] AC 331;
• Balquhidder Pty Ltd v Minister for Environment and Planning (1986) 40 SASR 63;
• Belgrave Nominees Pty Ltd v Barlin Scott Air Conditioning (Aust) Pty Ltd [1984] VicRp 75; [1984] VR 947;
• Cooper v City of Perth [1961] WAR 112;
• Dobrel Pty Ltd v Valuer-General (1990) 71 LGRA 161;

Counsel: MR S HENRY WITH MR M VINCENT - Solicitors: GRIFFINS

Counsel: DR R BAXTER - Solicitors: JOHNSON WINTER SLATTERY

Judgment No. [2001] SASC 369

PLAYERS PTY LTD v CORPORATION OF THE CITY OF ADELAIDE

[2001] SASC 369

DEBELLE J. This is an appeal against an assessment of annual value for rating purposes. The appellant, Players Pty Ltd ("Players"), objects to the assessment made by the Corporation of the City of Adelaide ("the Council") for the rating year ended 30 June 1999. It is agreed that the date of valuation is June 1998. Players operates an hotel at these premises.

The Council assessed the annual value of the land and premises for the year ended 30 June 1999 at $362,700. The assessment was based on a valuation made by Ms A J Carolan dated 10 June 1998. Pursuant to s 173(1)(a) of the Local Government Act 1934, Players objected to the assessment. The Council instructed Ms Carolan to undertake another valuation. She did so in 1999 and in a valuation dated 27 May 1999 she adhered to her earlier assessment of $362,700. Players appealed to this Court pursuant to s 173(14) of the Local Government Act. In this appeal the Council asserts that the annual value is $362,700. Players contend that the annual value is $157,000, basing its contention on a valuation made by Mr Christodoulou.

As will be seen, the issues in this appeal turn on the fact that Players, which is the tenant of the subject premises, has at its own cost effected substantial improvements to the building and has removed an hotel licence it had acquired to the subject premises. Before examining those questions, it is necessary to note the statutory definition of annual value and some questions which flow from that definition.

Annual value is defined in s 5(1) of the Valuation of Land Act 1971, the relevant parts of which are as follows:

" 'annual value' of land, means a value computed as three-quarters of the gross annual rental that the land might reasonably be expected to realise if leased upon the condition that the landlord were liable for all rates, taxes and other imposts on the land and the insurance and other outgoings necessary to maintain the value of the land, or as five per cent of the capital value of the land, but this definition is subject to the following qualifications-

(c) if the value of the land is enhanced by the existence on the land of any fixtures, consisting of prescribed machinery, plant or equipment the annual value of the land must (where the annual value is computed on the basis of gross annual rental, but not otherwise) be reduced by an amount representing depreciation on that machinery, plant or equipment; and

(d) where it is not reasonably practicable to determine a gross annual rental in relation to the land, the annual value of the land must be computed on the basis of the capital value of the land."

Paragraph (c) has the effect of further reducing the annual value by an allowance for the depreciation of any enhancement by prescribed fixtures and plant. The parties agree that in this case the combined effect of annual value being three quarters of the gross annual rental and the reduction allowed by para (c) results in a total statutory reduction of 30.25 per cent.

It will be immediately noticed that the definition of "annual value" is expressed in the alternative. It is either three-quarters of the gross annual rental or five per cent of the capital value. However, the definition does not state which method of assessment is to prevail if one is higher than the other. One question, therefore, is whether the higher or the lower of the two assessments is intended to be the assessment. Another question is whether the annual value of land can ever be less than five per cent of its capital value. The answer, I think, lies in the legislative history leading to the existing definition of "annual value".

Before the enactment of the Valuation of Land Act 1971, the expression "annual value" was defined in three taxing statutes in this State, the Local Government Act 1934, the Sewerage Act 1929, and the Waterworks Act 1932. The Land Tax Act 1936 did not use annual value as a basis for recovering land tax. Land tax was levied in respect of the unimproved value of land until 1986. Since then it has been levied in respect of site value: see s 4 of Land Tax Amendment Act 1986 which amended s 11 of the Land Tax Act.

Section 173(2)I of the Local Government Act 1934 defined the annual value of land in a municipality as a stated proportion of the gross annual rental "but so that no rateable property shall be assessed at an annual value which is less than five per centum of the value of the fee simple of the rateable property". Thus, s 173(2) prescribed a minimum valuation, namely, five per centum of the market value of the fee simple. The prescribed minimum of five per cent of the value of the fee simple has existed in this context since 1890: s 222 of the Municipal Corporations Act 1890 (No 497 of 1890) and s 340 of the Municipal Corporations Act 1923 (No 1558 of 1923). The annual value of rateable property in a municipality which was not built upon and which exceeded 20 acres was five per centum of the value of the fee simple: s 173(2)II.

Until 1938, if the land was within the area of a district council and improved, the annual value was a stated proportion of either gross annual rental or five per centum of the capital value of fee simple: s 173(3)I of the Local Government Act 1934. The definition was expressed as a simple alternative. However, s 31 of the Local Government Amendment Act 1938 amended the definition to provide that, in the case of improved land, the annual value should be not less than five per cent of the value of the fee simple. The annual value of land in the area of a district council which was also within a township and not built upon was five per centum of the capital value of the land.

Thus, since 1938, in the case of assessments for the purpose of local government rating of what for convenience may be called "improved land" in either a municipality or district council, the primary method of determining annual value was to assess the gross annual rental with a prescribed minimum of five per cent of the value of the fee simple.

The definition of "annual value" in both the Sewerage Act and the Waterworks Act did not coincide with that in the Local Government Act. The definitions appeared in s 63 of the Sewerage Act and s 70 of the Waterworks Act and were expressed in the same terms. In each of those statutes, the annual value of vacant land was five per cent of its market value and the annual value of other land was a stated proportion of the gross annual rental or five per cent of its capital value. Neither Act provided that the minimum should be five per cent of capital value. It will be noticed that those definitions only distinguish between vacant land and other land irrespective of whether the land was within the area of the municipality or within the area of a district council. The location of the land was therefore not relevant.

The enactment of the Valuation of Land Act 1971 resulted in one definition of "annual value" which was to apply to assessments under the Local Government Act as well as under the Sewerage Act and Waterworks Act. That was effected by the definition of "annual value" in s 5 of the Valuation of Land Act and by the repeal of the definition of "annual value" in s 173 of the Local Government Act, s 63 of the Sewerage Act and s 70 of the Waterworks Act. The definition was in the same terms as the existing definition save that para (d) was not then included. Given that the same definition of annual value applied for the purpose of recovery of water and sewerage rates as well as council rates and given that the definitions in the three enactments before 1971 differed, it could not be assumed that the preferred method of assessing annual value was by reference to the gross annual rental with a prescribed minimum of five per cent of capital value.

In 1974 the manner of rating for water rates was altered so that it was the greater of the rate applied to the number of kilolitres of water consumed or the base rate applicable to the land. Base rates in respect of all land other than land in a country water district were applied to the annual value of the land: see s 66 of the Waterworks Act as amended by s 27 of the Waterworks Amendment Act 1974. In 1981, both the Sewerage Act and the Waterworks Act were amended to delete any reference to annual value: see s 19 and s 20 of the Statutes Amendment (Valuation of Land) Act 1981. Thus, since 1981, annual value is a basis for rating in respect only of rates recovered by local governing authorities.

In 1981 the definition of annual value was also amended by the Statutes Amendment (Valuation of Land) Act. Section 6 of that Act inserted what is now para (d) of the definition.

Thus, whatever doubts may have existed before 1981 as to how the definition of annual value was to be interpreted, they were removed by the amendments to the Sewerage Act and Waterworks Act repealing any reference to annual value. As the definition of annual value now applies only in respect of rating by local governing authorities and as the Local Government Act had prescribed that the preferred method of assessment is to determine the gross annual rental provided that it was no less than five per cent of the value of the fee simple, it can now be determined that the intention is that the definition of annual value should reflect the position which existed prior to the enactment of the Valuation of Land Act. For these reasons, I conclude that annual value is to be three quarters of the gross annual rental (with the prescribed deductions) provided that the annual value should not be less than five per cent of the capital value of the land.

I think that the same conclusion was open even before the amendments to the Sewerage Act and Waterworks Act were made in 1981. Although it is well settled that, in the case of reasonable doubt, the construction of a revenue or taxing statute most beneficial to the subject is to be adopted: Pryce v Monmouthshire Canal & Railway Companies Co (1879) 4 App Cas. 197; Inland Revenue Commissioners v Ross & Coulter [1948] 1 All ER 616 at 625; Fry v Inland Revenue Commissioners [1959] Ch 86, that principle is of little assistance in this case since the definition is not a taxing act but deals with the assessment of annual value, a step which precedes the recovery of rating. The court's task is to determine the operation of the definition. The words of the definition must be construed so as to ensure validity and the attainment of the object of the legislation, that is to say, ut res magis aleat quam pereat. As a general rule, the gross annual rental will exceed five per cent of the capital value. Lessors would seek a higher rate of return than five per cent on their investment. Those two factors suggest that the preferred method of determining annual value is by assessing the gross annual rental, provided it results in an assessment higher than five per cent of the capital value. There is a further reason for this conclusion. There is little point in providing an alternative method of assessment unless one of those alternatives is to be a prescribed minimum. If five per cent of capital value is, generally speaking, less than three quarters of the gross annual rental, there would be little point in providing it as an alternative. It would be simpler to provide that annual value was an amount equal to five per cent of capital value. All this points to the conclusion that the preferred method of determining annual value is to assess the gross annual rental, provided that three quarters of that rental is higher than five per cent of capital value. That conclusion was further reinforced by para (d) when it was inserted in 1981.

The definition of annual value bespeaks a hypothetical tenancy. I will examine that concept later. I pause to note two matters.

First, the definition of annual value is ultimately derived from the Parochial Assessments Act 1836 (6 & 7 Will IVc 96). Some assistance in determining the operation of the definition may be gained from English decisions on that provision and on subsequent legislation. However, it must be noted that the definition in the Parochial Assessments Act required an assessment of "the rent at which the [hereditament] might reasonably be expected to let from year to year, free of all usual tenant's rates and taxes ..., if any, and deducting therefrom the probable average annual cost of the repairs, insurance and other expenses, if any, necessary to maintain [it] in a state to command such rent". It will be noticed that there are significant differences in the two definitions. I particularly refer to the fact that the definition in the Valuation of Land Act has no requirement that the assessment be made on the basis of a tenancy from year to year. A hypothetical tenancy from year to year has not been prescribed in South Australia since at least 1861: see s 152 of the Municipal Corporations Act 1861 (No 16 of 1861) which required the assessment to be on the basis of a term not less than 21 years; s 186 of the Municipal Corporations Act 1880 (No 190 of 1880) which referred to a term of not less than 30 years; s 222 of the Municipal Corporations Act 1890 (No 497 of 1890) and s 340 of the Municipal Corporations Act 1923 (No 1558 of 1923) which both refer to a term of not less than seven years. Thus, the decisions of English courts must be applied with care. I respectfully agree with Morris CJ in R v Warden etc of Devonport Municipality; ex parte Ferrall [1949] TASStRp 12; [1949] Tas SR 165 at 173:

"To get the annual value one is simply required to express the actual or reasonable rent in terms of rent per year. I think that in determining what is a reasonable rent, one is entitled to have regard to how such properties are usually let. If it is customary to let them on a three year term, as was stated in this case, then a reasonable rent payable under such circumstances is to be ascertained and the calculation of how much of that would be payable in respect of one year made."

Although His Honour was speaking of the Tasmanian Act which is in slightly different terms, the principle applies equally to the definition of annual value in the Valuation of Land Act. The task of the valuer, therefore, is to determine the usual term of a lease of premises comparable with the subject premises and the annual rent for such a lease.

The second matter arises out of the fact that the definition requires that the rent payable by the hypothetical tenant exclude rates, taxes and other imposts on the land and the insurance and other outgoings necessary to maintain the value of the land. In other words, it requires that the hypothetical tenant pay nothing other than rent. But, if the landlord is assumed to be paying rates and the other outgoings listed in the definition, it is reasonable to assume that the hypothetical landlord will include all those costs in the rent. Thus, in those instances where the tenant is paying those costs, it is appropriate to add them to the rental being paid by the tenant for the purpose of determining the actual rent being paid. Cf. Slaytor v Newcastle-upon-Tyne Assessment Committee [1926] 1 KB 172.

The manner in which this appeal was conducted requires an examination of appeals of this nature. The word "appeal" is not a technical term. That word and its cousin "review" are protean in nature: R v Industrial Court (SA); ex parte District Council of Karoonda East Murray (1980) 24 SASR 117 at 124 - 125; Fenton Nominees Pty Ltd v Valuer-General (1981) 27 SASR 258 at 260. The nature of an appeal must be gleaned from the legislative context in which it appears. The various meanings of "appeal" were helpfully examined by Cox J in Wigg v Architects Board of SA (1984) 36 SASR 111 at 112 - 116, an examination I respectfully adopt and do not repeat. An appeal against an assessment either under the Local Government Act or the Valuation of Land Act is not an appeal in the strict sense or an appeal by way of rehearing on the existing evidence. It is an appeal de novo where the court makes its own determination after hearing the evidence: Fenton Nominees (supra) at 260; cf. R v Rigby [1956] HCA 38; (1956) 100 CLR 146, 150.

In Fenton Nominees (supra) at 263 - 264, Wells J held that the appellant had the onus of demonstrating that the Valuer-General's assessment was too high. He said:

"I am entitled-indeed, bound-to draw the inference that the legislature intends this Court ... to decline to interfere unless error in principle or application is clearly demonstrated. This Court would not, I apprehend, have sufficient warrant for allowing an appeal under s. 25 if it found itself able to say no more than that the value to which the appellant's expert testified is lesser than that fixed by the Valuer-General, and is not demonstrably wrong or inadequate. There is no such thing as an ideally correct value for a given piece of land; neither of two valuers may be incorrect in valuing land at a figure that differs from the figure arrived at by the other valuer.

In short, the appellant faces the practical necessity of showing that the Valuer-General's value is too high for the subject land because the Valuer-General has made an error of law; has misapprehended, misused, or excluded, relevant material; has applied an incorrect principle of valuation or misapplied a correct principle; or is, in some other way, plainly guilty of error in discharging his statutory duties. I should add that, conformably with similar doctrine applicable to other appeals and reviews, an appellant will be entitled to succeed if he can show that the Valuer-General's value is excessive to such an extent that it is explicable only on the ground that the Valuer-General has committed an error, although it is not possible precisely to identify the point at which the error occurred."

His reasoning turned on the status which he held should be attributed to an assessment made by the Valuer-General: see 260 - 264. Those views were questioned on appeal by Jacobs J: (1982) 29 SASR 348 at 355 - 356. The other members of the court did not find it necessary to consider the issue and expressed no opinion on it. Later, in Myer (SA) Stores Ltd v Valuer-General (1986) 40 SASR 102 at 103 - 105, Jacobs J again questioned the approach and concluded in the light of amendments to the Valuation of Land Act that "the scope of the appellate power of this Court is now wider than it was perceived to be by Wells J.". But Jacobs J did not identify in what respect the wider powers of the court altered the approach which the court should adopt in considering whether it should interfere with the assessment.

Plainly, Wells J was concerned that the court should not interfere unless the appellant had demonstrated some error. An appeal would not be allowed because of a mere difference in the opinion of the valuers. As His Honour said, there is no such thing as an ideally correct value. Two valuers may quite reasonably and without error form a different opinion as to value of the same parcel of land. The forming of an opinion by the valuer is a process which might be likened to the exercise of the discretion by a judge. A court of appeal will not interfere with the exercise of the discretion unless some error has been made. It will interfere if the judge has acted upon a wrong principle, if he has allowed extraneous or irrelevant matters to guide or affect him, if he has mistaken the facts, if he did not take into account some material consideration, or if the decision is plainly unreasonable or plainly unjust: House v The King (1936) 55 CLR 499 at 505. Wells J was, I think, seeking to express a like principle in Fenton Nominees. An appellant might appeal on the ground that the assessed value is too high or too low. In my view, the court will not interfere unless the appellant demonstrates that the valuer whose assessment is subject to appeal has made some error of law; has acted on a wrong principle of valuation; has misapprehended, misused or excluded relevant material, in other words, has failed to have had regard to relevant factors or has had regard to irrelevant factors; has misapplied principle or has in some other way erred in discharging the task of a valuer. To adapt the observations of Jacobs J in Myer (SA) Stores Ltd v Valuer-General (supra), as a matter of practical reality the court will not be likely to interfere unless it is shown that the valuation is erroneous in principle or tainted by significant error or fact, or so obviously excessive that some such taint or error must be inferred.

One question is whether the appellant or respondent should begin? As this matter was not argued, I express a tentative view. In the past there has been a division of judicial opinion on the issue. In New South Wales and Queensland the general practice appears to be that the appellant ratepayer begins: Railway Commissioners of NSW v Petersham Municipal Council [1922] 6 LGR (NSW) 11; Australian Gas Light Co v Glebe Municipal Council [1922] 6 LGR (NSW) 39; Council of City of Brisbane v Wilson [1924] St. R. Qd. 76. It seems that for some time in Victoria the general practice was for the rating authority, which was usually the respondent, to begin: Melbourne Tramway etc Co v City of Melbourne [1897] ArgusLawRpCN 208; [1897] 3 ALR (C.N.) 73; Metropolitan Gas Co v Mayor, etc of the City of Melbourne [1899] ArgusLawRp 30; [1899] 5 ALR 76 but, following the decision in Railway Commissioner of NSW v Petersham Municipal Council, the practice in New South Wales was adopted: Stark v Water Conservation and Irrigation Commission (1926) 5 LVR 135. In my experience, the practice of this Court has always been for the appellant to begin. The utility of that practice is justified by the fact that the assessment will stand until set aside. The position could be tested by examining the consequences if neither party adduced evidence on the appeal. In that case, the appeal would be struck out and the assessment would stand: cf. Stennett v Valuer-General I respectfully adopt the reasoning of Pike J in Railways Commissioners of NSW v Petersham Municipal Council (supra) at 12 - 13. In terms of convenience and justice, the appellant is not disadvantaged by being required to begin. The rules and practice of this Court require that the parties exchange valuations so that the appellant will be aware of all that the rating authority intends to adduce at the hearing of the appeal.

I do not think that there is any onus on either party, other than the obligation on the appellant to establish that there is an error of the kind mentioned above. The appellant may, however, have the onus of proving a fact which is material to proving his grounds of appeal: Goode v Valuer-General (1979) 22 SASR 247 at 266 - 267; Brisbane City Council v Valuer-General (Qld) [1978] HCA 40; (1978) 140 CLR 41, 56 - 57.

I will now describe the subject premises and summarise the respective valuations, noting the issues in this appeal.

The subject premises are in the Central Business District of Adelaide. They consist of two adjoining buildings on separate titles in Pirie Street, a short distance east of Gawler Place. One was previously an office building and the other had been used, among other things, as an hotel. The properties were purchased in 1988 by Clone Pty Ltd ("Clone"), which intended to redevelop the land for office accommodation. The intended redevelopment has not occurred. The fall in the demand in Adelaide for office accommodation caused Clone to postpone its plans to redevelop the site. It has, therefore, leased the two buildings. There have been difficulties in letting them. On 1 March 1995 Clone granted a lease of the whole premises to Players. The lease is for a period of 10 years and will expire at the end of February 2005.

There is no dispute between the parties that the lease agreement between Clone and Players was an arms-length commercial transaction. The two companies are wholly unrelated. The initial rent was agreed at $115,000 per annum. The lease provides for rent reviews. It is agreed that in June 1998 the rent was $133,000 per annum and that the capital value of the land and improvements was $3,250,000.

The two buildings, which constitute these premises, are old and were probably constructed at least 100 years ago. They are of brick masonry construction and are of unprepossessing appearance. One building is larger than the other. The larger building is on the eastern portion of the land. It is a two-storey building, that is to say, it comprises ground floor and first floor. It has been formerly used as an office and showroom with a storage area at the rear. It was later licensed as an hotel called "The Oaks Tavern" but that tavern ceased trading. The western building is a two-storey building with a basement. It was previously used as an office building.

At the time of leasing no business was operated in these premises and the premises were not in their existing condition. The parties have agreed that Players had purchased an hotel licence under the Liquor Licensing Act 1997 from a nearby tavern which had ceased trading and had also purchased a gaming machine licence issued under the Gaming Machines Act 1992. The parties also agreed that Players obtained an order removing the hotel licence and the gaming licence to the subject premises. Players carried out extensive alterations and improvements to the eastern building and undertook extensive refurbishment of the western building. It extensively fitted out the premises with bars, a kitchen area, food storage area, self-service food areas, cool rooms, a sound and lighting system and airconditioning. The only evidence as to the cost of the works was an estimate prepared by the architect, which estimated the cost at $1.8 million. The eastern building comprises bars and an area fitted out for use as a nightclub. That portion of the premises trades as "The Planet". The western building is fitted out for dining and trades as a restaurant called "The Pescatore Restaurant". The whole of the premises is open for trade during the day operating as an hotel with a dining area. The eastern building has areas set aside for gaming. The two buildings are linked by doorways on both the ground and first floors.

The parties agree that the area of the ground floor comprises some 1500 square metres. Of that area, 684 square metres represent a storage area. Thus, about 815 square metres of ground floor are available for the hotel and nightclub. The area of the first floor is agreed to be 1000 square metres. Both valuers proceeded on the footing that the lease is in respect of an area of 2500 square metres.

I pause to question the evidence about the licences. As already mentioned, both parties proceeded on the assumption that Players had removed the gaming machine licence to these premises. Unlike the Liquor Licensing Act, the Gaming Machines Act does not allow the removal of licences. I can only infer that Players applied for and obtained a grant of a gaming machine licence in respect of the subject premises. In the result, it makes no difference whether the gaming machine licence was granted in respect of these premises or removed to them.

The Council had, pursuant to s 172(2) of the Local Government Act retained a valuer to value the subject premises for the purposes of this assessment. The Council's valuer was Ms Carolan. The Council adopted her assessment. Ms Carolan believed the premises were somewhat unique in terms of the activities carried out under the one roof. Having regard to the fact that Players had virtually rebuilt the building on the eastern part of the site and had extensively refurbished the building on the western part of the site, she equated the lease to a ground lease. She assessed the rent that a hypothetical tenant would pay for a lease on the footing that the structural improvements undertaken by Players existed for the benefit of the tenant as well as the plant and equipment. She assessed the gross annual rental at $520,000. The assessment was said to be based on, among other things, an appropriate rate of return on the capital value of a property of this nature and any likely turnover of the business as well as the activities conducted in the subject premises. However, her valuation did not state how those factors led to her conclusion.

After Players had lodged its objection, Ms Carolan reviewed her valuation. She prepared a report to the Council dated 6 October 1998. It added little, if anything, to the reasoning of her initial valuation other than to show that the gross annual rental comprised a net annual rental of $450,000 to which assumed outgoings of $70,000 had been added. Ms Carolan did not state how she assessed the outgoings to be $70,000. She affirmed her initial valuation.

After Players had instituted this appeal, Ms Carolan prepared another and more detailed valuation. It is dated May 1999. In this valuation she confirmed that the actual rent paid by Players was an arms-length transaction. That rent equated to a rate of $56 per square metre and, in Ms Carolan's view, was well below rents in Pirie Street and its vicinity, and thus did not represent a true rent for the premises as they stood. She was, therefore, not prepared to rely on it. For the purposes of assessing a hypothetical rental, she compared these premises with two licensed hotels, the Newmarket Hotel and the Stag Hotel. She described the subject premises as two virtually obsolete buildings before being leased to Players. Both the Newmarket Hotel and the Stag Hotel have large entertainment areas. The evidence shows that the Newmarket essentially relies on income earned from the operations of two nightclubs called "Joplins" and "Heaven". According to Ms Carolan, the hotel no longer operates its dining area, bottle shop, front bar trade, or gaming machines, although those activities could be resumed. The subject premises do not have a bottle department but during the day the hotel trades from its bar and its dining area which is called "The Pescatore Restaurant". The Stag Hotel operates its bar and dining areas during the day. It also has an entertainment area of a different kind from the entertainment areas at the Newmarket Hotel and the subject premises. It is common ground that the Newmarket Hotel is more comparable with the subject premises than the Stag Hotel. However, as will be seen, each valuer differs in the assistance to be gained from the Newmarket Hotel.

Ms Carolan was aware of the approximate turnover of the Newmarket Hotel and of the Stag Hotel. She was also aware of the rent paid by the lessee of the Newmarket Hotel and the underlessee at the Stag Hotel. Ms Carolan did not state how she had acquired the information either as to turnover or as to rental and there was nothing to indicate its reliability. In this respect, I note a letter dated 31 May 2000 which she sent to Mr Christodoulou, the valuer retained by Players, in which she provided him with information concerning the Newmarket and Stag hotels. In that letter she stated the rental but did not state the turnover.

Ms Carolan then made an assumption as to the turnover of the business of Players, excluding revenue from gaming machines. However, she reduced her assumed turnover figure, justifying that reduction on the ground that she should not penalise the efficient management at Players.

As she believed that the Newmarket Hotel was the more comparable kind of premises, Ms Carolan applied to the assumed turnover of Players the gross rental of the Newmarket Hotel expressed as a percentage of turnover. That yielded $520,000, which she concluded was the gross annual rental.

Ms Carolan used an additional approach for the purpose, as she said, of seeking to verify her first approach. She assessed the return which she believed would be sought on the premises in their improved state. The parties had agreed that the capital value of the premises in June 1988 was $3,250,000. Noting that yields on investment properties in the City of Adelaide ranged between 9 per cent and 14 per cent, she adopted a rate of return of 13.5 per cent. Thus, her estimate of the return which would be sought by Clone was $438,750. To that she added what she called "imputed outgoings" of $89,000 being

This resulted in a gross annual rental of $527,750 which, she believed, confirmed her valuation of the gross annual rental at $520,000. With the agreed deduction of 30.25 per cent, that resulted in an annual value of $362,700. By this means she confirmed her initial assessment.

Two aspects of this calculation call Ms Carolan's cross-check into question. First, Ms Carolan did not justify the adoption of 13.5 per cent as the appropriate rate of return. Plainly, if she had adopted a lower rate of return, her calculations would not have resulted in a gross annual rental of $527,750. The effect of Mr Christodoulou's evidence was that a return of 13.5 per cent was too high. I agree. The second observation is that Ms Carolan had in her earlier valuation stated that rates, taxes and other outgoings totalled $70,000. No explanation for the increase to $89,000 was given. Players did not led any evidence to show what the actual outgoings are. In all the circumstances, the appropriate course is to adopt the initial assessment of $70,000. That appears to be the figure on which Ms Carolan's initial assessment was based and it is the initial assessment which is under review. I therefore proceed on the footing that the rates, taxes and other outgoings total $70,000.

It will have been noticed that two factors are implicit in Ms Carolan's approach. First, she has assumed that an hotel licence and a gaming machine licence existed in respect of the subject premises. Secondly, she has assumed that the assessment of gross annual rental was to be made in respect of the premises as they had been improved by Players. As will be seen, this was not the approach of Mr Christodoulou. Both assumptions gave rise to the two issues on this appeal. Before dealing with those issues, I will first summarise Mr Christodoulou's valuation.

In making his valuation, Mr Christodoulou made the following assumptions.

(1) The building is vacant with the current tenant no longer in possession and that the premises are not licensed pursuant to the Liquor Licensing Act 1997 or the Gaming Machines Act 1992.

(2) The current tenant has retained the benefit of the licences.

(3) The current tenant is a potential tenant for the purposes of the valuation of annual value, but would be prepared to pay only a nominal sum over and above the rental which would be offered by the general market for the unlicensed premises.

(4) The prospect of another potential tenant having licences at its disposal is so remote that it does not form part of the general market for the premises.

He assumed that, when available for lease, the premises would be in their present state but vacant with Players' fittings removed. In this respect, his approach was the same as Ms Carolan. However, there was an issue as to the extent of Players' fittings which could be removed. Mr Christodoulou also assumed that, unless Players transferred the licence, the likelihood of the premises being licensed as an hotel was so remote that it was proper to exclude from the list of potential tenants a person who would conduct an hotel business on the premises. In consequence, for the purposes of assessing gross annual rental, he assumed that the premises would be in their existing state with no hotel licence nor gaming machine licence and with the premises vacant and devoid of the fittings belonging to the present tenant.

I pause to note that there was not a great deal of difference between the parties on the question of what fixtures and fittings would remain for the purposes of the hypothetical tenancy. The real difference between them concerned the question whether the hypothetical tenant held a licence. I will examine both issues in a moment.

Mr Christodoulou agreed that the highest and best use of the premises was as an hotel but, as he believed that the likelihood that another tenant would secure an hotel licence for the premises was so remote, the most likely use of the premises was as offices and showrooms for a number of kinds of retail goods, for example, electronic and electrical goods, as a café, licensed restaurant, or coffee lounge. He believed that the net rental values of the ground floor of the premises would be in the range of $130 to $150 per square metre and for the upper floor $40 to $50 per square metre. He determined the gross annual rental of the premises to be within the range of $210,000 to $240,000 per annum. He opted for the lower of those figures and determined the gross annual rental at $210,000. He then calculated the annual value to be $157,000. As that is approximately three quarters of $210,000, I infer that at this stage the parties had not agreed the deduction of 30.25 per cent would reflect the effect of the definition of annual value when the deduction in para (c) was added. Mr Christodoulou had not then addressed what was the capital value of these premises.

Ms Carolan was instructed to prepare a valuation based upon Mr Christodoulou's assumptions. That valuation was not her preferred approach. It was prepared in response to Mr Christodoulou's valuation. She determined that the gross annual rental was $470,000, thus producing an annual value of $327,825. For reasons which appear later, it is unnecessary to stay with this valuation.

Similarly, Mr Christodoulou was instructed to prepare another valuation based on the assumptions in Ms Carolan's valuation that it is likely that the premises would continue to be used as an hotel by the hypothetical tenant, that the hypothetical tenant would hold an hotel licence as well as a licence under the Gaming Machines Act, and that the premises would be available with all fixtures. I will call it his cross-valuation. Thus, there were in effect four valuations before me, two from each valuer.

Mr Christodoulou was not prepared to treat either the Newmarket Hotel or the Stag Hotel as directly comparable premises. In the case of the Newmarket Hotel, his reasons for rejecting it as comparable premises were first, that the Newmarket Hotel has a substantially larger area. Secondly, he saw the Newmarket Hotel as a traditional hotel adapted to modern trading. It has a bottle shop and large residential accommodation. Mr Christodoulou did, however, agree with Ms Carolan that the major part of the turnover was derived from the nightclub business. Thirdly, the owner of the Newmarket Hotel holds an interest in the licence. Finally, Mr Christodoulou also rejected the Newmarket Hotel as comparable because the leasehold complex had been available for some time but had not been sold. He understood the reason for buyer resistance was the high rents, high overheads and high risk of operating a business where the turnover was predominantly derived from a nightclub. He therefore saw the rent for the Newmarket Hotel as being too high for the market place, particularly when compared with gross rentals of other City hotels where nightclub and other kinds of entertainment are provided. Mr Christodoulou's evidence on these last two factors was not challenged.

The Stag Hotel was not, in his view, comparable because it has a smaller area than the subject premises. It was located in Rundle Street East, an area which he described as a cosmopolitan dining area which enabled the Stag Hotel to enjoy a more substantial bar and dining trade than the subject premises. Subject to his concerns about the Newmarket Hotel, he believed the subject premises to be more comparable to the Newmarket Hotel than to the Stag Hotel.

Having rejected both the Newmarket Hotel and the Stag Hotel as comparable premises, Mr Christodoulou believed that the rental of the subject premises should be determined by taking a broad view of rents for hotels in the City of Adelaide, having regard to the fact that the subject premises are well located and provide larger useable areas than most of the hotels which he lists in his valuation. He listed the estimated gross rentals of a number of hotels in the City which were mainly in the north-eastern corner of the City and east of Gawler Place. The highest rental in the hotels he listed was at the Stag Hotel. The next highest gross rental in his list was $135,000. Thus, apart from the Stag Hotel, the gross rentals for hotels in this area ranged between $50,000 and $135,000. Having regard to those rentals, he determined the gross annual rental of the subject premises would be $300,000. Applying the agreed deduction of 30.25 per cent he reached an annual value of $209,250 which he rounded up to $210,000.

It is implicit in Mr Christodoulou's valuation that he believes, like Ms Carolan, that the rent being paid by Players is less than the rent which the premises in their present condition can demand. I accept this evidence. I find that the existing rent should be disregarded for the purpose of assessing annual value.

Thus, there were two issues on which the parties were joined. The first was what fixtures and fittings should be assumed to remain for the purpose of the hypothetical tenancy. As I understand the evidence, both valuers agreed that the definition of "annual value" required regard to be had to the premises as they existed at the date of valuation in consequence of the alterations made by Players at its expense. There was, nevertheless, some disagreement as to what would properly be regarded as fixtures and what could be removed by Players.

The primary approach of both valuers diverges on the question whether it should be assumed that the hypothetical tenant would hold an hotel licence and a gaming machine licence in respect of the premises. This is an important issue in this case since both valuers agree that the highest and best use of the premises is as an hotel.

Before examining those questions, it is convenient to set out some of the relevant principles.

The question what is the gross annual rental is a question of fact - not a question of law: Mersey Docks & Harbour Board v Birkenhead Assessment Committee [1901] AC 175 per Lord Halsbury LC at 180; Port of London Authority v Orsett Union Assessment Committee [1920] AC 273 per Lord Buckmaster at 281. The definition requires an assessment of the rent a hypothetical tenant might reasonably be expected to pay on the assumption that the landlord pays rates, taxes and the other outgoings identified in the definition. The hypothetical tenant may include the owner of the premises, an existing tenant if there is one, or a third person. In other words, all possible occupiers are to be considered including the actual occupier: R v School Board for London (1886) 17 QBD 738 at 740; Townley Mill Co (1919) Ltd v Oldham Assessment Committee [1937] AC 419 at 436 - 437.

Where there is a tenant in occupation, the rent actually paid is prima facie evidence, but not conclusive evidence, of the rent at which the property might reasonably be expected to be let: R v School Board for London (supra) at 740 where Lord Esher MR said:

"The inquiry is not as to what rent is paid by the actual occupier. The mode of finding out the value is laid down in the Act, and it is to ascertain the rent which a tenant (not the tenant), taking one year with another, might reasonably be expected to pay; it is also implied that where the owner occupies he is to be considered as if he were a tenant. The directions given by the Act are equivalent to saying that one must look at all possible tenants, and the phraseology does not exclude an owner who himself occupies the premises."

That proposition was affirmed in London County Council v Erith & West Ham Assessment Committee [1893] AC 562 at 588, 589 and has been consistently applied since. It was reaffirmed by the House of Lords in Poplar Assessment Committee v Roberts [1922] 2 AC 93 per Lord Buckmaster at 103 and per Lord Atkinson at 107 - 108. Nevertheless, actual rents paid for comparable premises may be the best evidence: Robinson Bros (Brewers) Ltd v Houghton & Chester-Le-Street Assessment Committee of Durham County [1937] 2 KB 445 per Scott LJ at 469.

These principles have been applied in Australia. They are conveniently stated in the reasons of Sugerman J in Tooth & Co Ltd v The Valuer-General (1953) 19 LGR (NSW) 172 at 173:

"Where there is an issue of fair average annual value either party must be entitled to go behind the actual rental for the purpose of showing that it is more or less than the fair average annual value, and the other party must then be entitled to support the actual rental as a fair average annual value. Any other view of the matter would convert evidence of actual rental from prima facie to conclusive evidence of the fair average annual value, a result of which I think would not be contended for by any party concerned in this question. The actual rental may be prima facie evidence and in some cases it may be strong prima facie evidence, but it is not necessarily thereby conclusive and must be able to be supported or rebutted as evidence of the fair average annual value by other evidence. Those considerations appear to me to be peculiarly applicable to a case where, as here, it may be expected to be said that by reason of considerations peculiar to the particular lessor (i.e., as being a brewer) or to some group to which the lessor belongs (i.e., brewers) the actual rental differs from the fair average annual value of the premises, and that that fair average annual value would be better reflected by a letting of the premises by some other person or somebody outside that group and, therefore, not affected by the special considerations which I have mentioned.

If the actual rental is to be open to question as a true indication of fair average annual value and to be rebutted or supported as such, one method-and the obvious method which occurs to one first-of doing that is by comparison."

See also R v Warden etc of Devonport Municipality; ex parte Ferrall (supra) at 171 - 173. When assessing the rent, regard will be had to the marketplace. Scott LJ expressed the position in these terms in Robinson's Case (supra) at 470:

"The rent to be ascertained is the figure which the hypothetical landlord and tenant would, in the opinion of the valuer or the tribunal, come to terms as a result of bargaining for that hereditament, in the light of competition or its absence in both demand and supply, as a result of 'the higgling of the market'."

The hereditament to be valued will in each case be the premises for the occupation of which the hypothetical tenant is to be rated and that hereditament is to be valued as it in fact is, a principle expressed in the maxim rebus sic stantibus, which means things being as they are or, more literally, things being as they stand: see generally, Robinson's Case (supra) at 468. Lord Buckmaster expressed the principle in these terms in Port of London Authority v Orsett Union Assessment Committee (supra) at 305:

"The actual hereditament of which the hypothetical tenant is to be determined must be the particular hereditament as it stands, with all its privileges, opportunities and disabilities created or imposed either by its natural position or by the artificial conditions of an Act of Parliament."

The rateable quality of land is not to be determined by what it once was, or what it may hereafter become, but by what it is at the time when the rate is made: Port of London Authority v Orsett Union Assessment Committee (supra); Assessment Committee of Kingston Union & Anor v Metropolitan Water Board [1926] AC 331 at 348.

In Halsbury's Laws of England (4th edition) Vol 39(1) para 657, it is stated that the hypothetical rent is calculated with reference to the hereditament in its existing physical condition and to the manner in which it is actually used. With respect, I believe that the second part of that proposition is stated in terms which are too absolute. In Townley Mill Co (1919) Ltd v Oldham Assessment Committee (supra) at 436 - 437, Lord Maugham expressed the exercise to be undertaken in these terms:

"Thus there was a hypothetical tenant and a hypothetical rent, but I think a real and concrete hereditament. It was necessary to take into account all possible tenants, including the actual occupier and even the owner. The hypothetical tenant was assumed to be a tenant from year to year with a reasonable prospect of continuing in operation; but the hypothetical rent which the tenant could give was estimated with reference to the hereditament in its actual physical condition (rebus sic stantibus), and a continuance of the existing state of things was prima facie to be presumed."

I believe that his Lordship's observation that a continuance of the existing state of things was a prima facie presumption expresses more accurately the task confronting the valuer and the court in that it allows for those instances where the tenant might possess attributes or assets which are personal to the tenant and do not form part of the hereditament, and should therefore be excluded when assessing what a hypothetical tenant would pay as rent. I would therefore restate the manner in which the assessment of rental is made in these terms:

"The rent is calculated with reference to the hereditament in its existing physical condition and a continuance of the existing state of things is prima facie to be presumed."

This will, I think, be relevant when considering the fact that the premises might be licensed.

The principle that the premises must be assessed as they stand must be qualified by Reg 10(1)(a) of the Valuation of Land Regulations 1991 which excludes certain fixtures from the assessment. I turn to that issue.

As the premises are to be valued as they stand, for the purposes of determining the gross annual rent to be paid by the hypothetical tenant, regard will be had to the improvements effected by Players. Although that may at first sight appear to be harsh, it is a consequence of the fact that the Valuation of Land Act is legislation which, among other things, assists in the recovery of revenue by State or local government, in this case by a local governing authority. If improvements are effected by the owner of land or buildings, they will, as a general rule, be reflected in both a higher capital value of the premises and a greater capacity to earn rent. Equally, when improvements are effected by a tenant they will, as a general rule, also result in a higher capital value and therefore a higher annual value.

However, while regard will be had to improvements to the premises made by the tenant, certain fixtures and improvements are excluded by reg 10 of the Valuation of Land Regulations 1991. It is necessary to consider only reg 10(1)(a) which provides:

" 10. (1) Pursuant to section 34(ab) of the Act, the following fixtures and improvements must not be taken into account in determining or assessing the annual value or capital value of land where the determination or assessment is to be used for the purpose of raising, levying or imposing any rate, tax or impost:

(a) any item of machinery, plant or equipment that is used in connection with a trade, business or manufactory and is not fixed to the land or premises or is fixed to the land or premises so as to be capable of being removed without structural damage (other than minor or trivial structural damage) to the land or premises."

The substance of that regulation gives effect to the common law principles relating to tenant's trade fixtures.

The general rule at common law in respect of fixtures is that whatever is annexed to the realty becomes part of it. That principle is expressed in the maxim quicquid plantatur solo, solo cedit. That doctrine is subject to an exception in favour of tenants for the encouragement of trade: Geita Sebea v Territory of Papua [1941] HCA 37; (1941) 67 CLR 544 at 553; D'Arcy v Burelli Investments Pty Ltd (1987) 8 NSWLR 317 at 320 - 321. Whether a fixture is a trade fixture is a question of fact depending on the facts of each particular case and, when determining whether a chattel becomes a fixture, the intention of a person fixing it is material only so far as it can be presumed from the degree and object of annexation: Geita Sebea v Territory of Papua (supra).

The improvements effected by Players were substantial. They included extensive demolition and reconstruction of the interior part of the building, provision of bars, cool rooms, kitchen areas, food serving areas, installation of airconditioning and exhaust fans, alterations to and upgrading of plumbing, construction of a dome, a sunken dance floor, and additional toilet facilities. Most of the work is either integral to the premises or must be regarded as fixtures of the kind listed in reg 10(1)(a). The parties had agreed most of the items which were not fixtures. Some remained in dispute. I describe each of the disputed items in turn and decide whether they are excluded from the assessment pursuant to reg 10(1)(a).

There are a number of balustrades constructed in the building. They are bolted to the floor. They are of a relatively permanent nature and appear to be integral to the building in the sense that they are necessary in most cases for the safety of patrons. I do not think they can fairly be regarded as machinery, plant or equipment and do not, therefore, come within reg 10(1)(a). They form part of the premises to be assessed.

Although bolted to the floor, it appears that they could be removed with relative ease. They are equipment used in connexion with the business and are, therefore, excluded from the assessment by reg 10(1)(a).

Lighting is obviously necessary, particularly over the bar. The electrical wiring is integral to the building. I think that the lighting, but not the power points, fall within reg 10(1)(a).

These were installed after the date of valuation and must be excluded.

These are equipment used in connexion with Players' business and could be removed with little structural damage. They fall within reg 10(1)(a) and are to be excluded from the assessment.

This lift is for the purpose of lifting kegs or kilderkins of beer to the storage cellar. It is equipment used in connexion with Players' business. It can be removed with little damage to the structure. It falls within reg 10(1)(a) and is to be excluded from the assessment.

These are large structures mounted on the roof or otherwise attached to it. They enable the more comfortable use of the building as a building. Removal would leave holes in the roofing or the ceiling as the case may be. They do not therefore fall within reg 10(1)(a) and form part of the premises to be assessed. That conclusion is confirmed by the fact that they are not tenant's trade fixtures: Pan Australian Credits (SA) Pty Ltd v Kolim Pty Ltd (1981) 27 SASR 353; Belgrave Nominees Pty Ltd v Barlin Scott Air Conditioning (Aust) Pty Ltd [1984] VicRp 75; [1984] VR 947.

Although these are plant or equipment used in connexion with the business, I think that removal would result in structural damage. They do not, therefore, fall within reg 10(1)(a).

It is more difficult to decide whether or not these facilities fall within reg 10(1)(a). On balance, I think they probably do as they relate to the business and can be removed with little structural damage.

This is related to reticulation of beer from kegs to the dispensing point. As it is a fixture relating to trade and can be removed relatively easily, it falls within reg 10(1)(a).

Thus, only a few of the fixtures fall within reg 10(1)(a). In the overall result, those few fixtures would not substantially affect the assessment of rental. Although reference was made to these disputed items in opening, I do not believe that in the result they had a material bearing on any of the valuations. The dispute concerning the above items received little consideration in the evidence and in argument. In the overall result, in the particular circumstances of this case, I do not think the question as to what fixtures fall within reg 10(1)(a) could lawfully be removed is of great moment in determining the gross annual rental. That conclusion is reinforced by the fact that Mr Christodoulou included airconditioning when making his valuation.

The question whether the hypothetical tenant should be assumed to hold an hotel licence and a gaming machine licence in respect of these premises is of greater moment when assessing the gross annual rental, particularly as the use of these premises as an hotel is the highest and best use of the premises. Furthermore, as might be expected, it is well-established that, when valuing licensed premises for the purpose of determining annual value, it is necessary to take into account the value due to the existence of the licence because it is indispensable to the occupier in being able to conduct the business in which he is engaged: see, for example, Halsbury (4th edition) Vol 39(1) para 706 and the cases there cited; Ryde on Rating (10th edition) 444 and the cases there cited; Robinson's case at 477 - 478; Dunedin City Corporation v Hames (1948) 67 NZLR 962; Cooper v City of Perth [1961] WAR 112 and Dobrel Pty Ltd v Valuer-General (1990) 71 LGRA 161.

It is an interesting question whether the principle that, when assessing the hypothetical rental of an hotel, regard should be had to the premises as they stand necessarily requires the further assumption that the hypothetical tenant holds an hotel licence in respect of those premises. As a general rule, it will be appropriate to make that assumption. The practical reality in the circumstances of this case is that the valuer should proceed on the footing that the hypothetical tenant would hold both an hotel licence and a gaming machine licence. An applicant for an hotel licence under the Liquor Licensing Act must satisfy the Licensing Court that there is a need for the licence: see s 58 of the Liquor Licensing Act. The application might attract objection from other licensed premises. It is therefore necessary to make a judgment whether the Licensing Court would grant an hotel licence for the premises. It was necessary for Players to prove that a need existed at this site when removing the hotel licence to these premises: see s 61 of the Liquor Licensing Act. It is therefore reasonable to assume that the hypothetical tenant would be able to obtain the grant of an hotel licence and would hold such a licence.

It is also reasonable to assume that the hypothetical tenant would have secured a gaming machine licence. In June 1998, there was no cap upon the grant of gaming machine licences. A holder of an hotel licence was then a person who was eligible to apply for a gaming machine licence: see s 15 of the Gaming Machines Act. There was no requirement to demonstrate a need for the licence. All that is required of an applicant is that he establishes to the satisfaction of the Liquor and Gaming Commissioner that he is a fit and proper person to hold the licence: s 19 of the Gaming Machines Act. It is reasonable to assume that the hypothetical tenant would have discharged that relatively light burden.

For these reasons, Ms Carolan was correct in proceeding on the footing that the hypothetical tenant held both an hotel licence and a gaming machine licence in respect of these premises. Thus, it is necessary to examine Ms Carolan's primary valuation and Mr Christodoulou's cross-valuation in response to it. As Mr Christodoulou's primary valuation proceeded on the footing that the premises were not licensed, I am not prepared to rely on that valuation. For that reason, it is unnecessary to refer to Ms Carolan's cross-valuation.

I sympathise with the valuers in the task they were required to undertake. The task of determining a hypothetical rental is artificial, if not unrealistic. Both were confronted with the difficulty that there are no truly comparable premises. There was also an absence of any information as to the turnover of the subject premises.

Where there is an absence of truly comparable premises, turnover is one of a number of factors to which regard will be had when assessing rental: Cartwright v Guardian of the Sculcoates Union in Kingston-upon-Hull [1900] AC 150; Robinson's Case (supra) affirmed [1938] AC 321. But it must be remembered that it is but one of a number of factors. As Scott LJ noted in Robinson's Case in the Court of Appeal (supra) at 471:

"Every factor intrinsic or extrinsic, which tends to increase or decrease either demand or supply is economically relevant and is, therefore, admissible evidence."

As Pike J observed in Toohey's Ltd v Valuer-General (1922) 6 LGR (NSW) 10 at 11:

"Without further evidence I am not prepared to hold that in every case the takings are conclusive evidence as to value, because it must be apparent to anyone that the profits, which are often the basis of the valuation, may vary very greatly on the same takings."

See also Dobrel Pty Ltd v Valuer-General (supra) at 168. Thus, turnover is but one of a number of factors to which regard must be had. Mr Christodoulou rejected turnover as being of assistance. I accept his evidence that it is inappropriate. Profits are more helpful. Further, as will be seen, Ms Carolan's use of turnover was flawed.

Ms Carolan's assessment relied very heavily on turnover. She believed the Newmarket Hotel to be comparable to the subject premises. She assumed that the turnover was the same and then applied the same rent. I acknowledge that the actual process of reasoning undertaken in her valuation involved further steps. She applied the percentage which the gross rent of the Newmarket Hotel represented to its turnover to her assumptions of the turnover of the subject premises. But when stripped to essentials, the effect of her calculations was to say that the hotels had the same turnover and should therefore have the same rent. Her approach is too simplistic and I think it ignores a number of relevant factors.

I have concerns about Ms Carolan's estimates of the turnover of the Newmarket Hotel and Stag Hotel. In a letter dated 31 May 2000 to Mr Christodoulou, she gave details of the leases of those hotels. However, the letter failed to state the turnover of those hotels. That was a curious omission. I do not know whether her assertions as to turnover of those two hotels are based on actual figures or are her estimates. However, as those assertions were not tested in evidence, I have no alternative but to accept them.

There remain, however, serious questions as to Ms Carolan's assumption as to the turnover of the subject premises, which is startling for more than one reason. First, Ms Carolan had, pursuant to s 172(3) of the Local Government Act, the power to require Players "to answer questions or to furnish returns of information relevant to the valuation". Yet, Ms Carolan did not require either profit and loss accounts of Players for relevant periods or the returns required by the Liquor Licensing Act or any other information which would have thrown light on the turnover of Players. Secondly, Ms Carolan had little on which to justify what, in effect, is a leap in the dark when making her assumption. Thirdly, having stated her assumption as to turnover if revenue from gaming machines is excluded, in the very next paragraph of her valuation she reduces that turnover by $0.5 million in order not to penalise the efficient management of Players. That reduction only causes one to question the reliability of her assumptions. Next, Ms Carolan has not compared the area of the two nightclubs at the Newmarket Hotel. The total area of the Newmarket Hotel substantially exceeds the area of the subject premises. Given the larger area of the Newmarket Hotel, it would be necessary to explain how one can impute a larger turnover to smaller premises. Fifthly, Ms Carolan asserted that the premises were comparable on the footing that the capacity of the two hotels was about the same. However, her estimates as to capacity are open to question given that the area of the subject premises is quite markedly smaller than the Newmarket Hotel. Finally, regard has to be had to trading hours which will plainly affect turnover. No comparison of trading hours was made by her. Ms Carolan's uncritical, if not simplistic, use of turnover calls her valuation into question.

I have considered whether the failure of Players to adduce evidence of turnover should cause the principles in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 to be applied. Ms Carolan's reliance on turnover and her assumptions as to turnover put the question of turnover at the subject premises in issue. Players could have adduced evidence of its actual turnover but did not. Although that information was clearly within the power of Players to prove, I do not think that any adverse inference should be drawn from its failure to do so. The failure of Players to adduce that evidence must be balanced with the fact that although Ms Carolan could have obtained the turnover of the subject premises and exercise the powers contained in s 172(3) of the Local Government Act, she did not. It was thus within the power of both parties to adduce this evidence. More importantly, turnover was but one factor to be considered when assessing the rental and Players was able to discharge the task of demonstrating error without reliance on turnover. In other words, Players did not have any onus of proof in relation to the actual turnover of its business.

I also question Ms Carolan's reliance on the rent at the Newmarket Hotel because of Mr Christodoulou's unchallenged evidence that the lease of the Newmarket Hotel had been available for sale for some time and had not been sold. I accept Mr Christodoulou's conclusion that the rent was too high for the market place, particularly when compared with gross rentals of other City hotels where nightclub and other kinds of entertainment was provided and having regard to the high risks in operating a business where the turnover was predominantly derived from a nightclub. I reach that conclusion notwithstanding that the Newmarket Hotel is substantially larger than the other hotels and has a low rent per square metre.

Finally, it is necessary to give some weight to Mr Christodoulou's evidence that the owner of the Newmarket Hotel held an interest in the hotel licence. Mr Christodoulou's evidence was that the landlord of the Newmarket Hotel "leases the licence and all the plant and equipment as well as the premises". That evidence was not challenged. It is, of course, inaccurate to say that the owner leases the licence of the hotel. As s 29 of the Liquor Licensing Act makes it an offence for a person to sell liquor without holding a licence under the Act, the lessee who operates the business of the hotel must hold an hotel licence issued under the Act. I therefore infer that the lessee of the Newmarket Hotel holds the hotel licence but the lease provides that the lessee cannot either transfer or remove the licence without the consent of the owner of the hotel and that the owner has some kind of reversionary interest in the licence. By contrast, Players removed the hotel licence to the subject premises. That licence and the gaming machine licence are assets of Players. In the case of the hypothetical tenant, those licences would also be assets of that tenant because Clone does not hold a licence. Thus, for the actual as well as the hypothetical tenant, both licences are the assets of the tenant. That contrasts with the Newmarket Hotel where the owner has some kind of interest in the licence. The owner may have recovered a return on that interest by selling it to the tenant with restrictions on transfer or removal of the licence or by including the return in the rent. The evidence did not establish what had occurred. In this incomplete state of the evidence, it is not possible to reach any conclusion other than that the rent at the Newmarket Hotel should not be used as a comparison without question. It may be that some allowance must be made for the fact that part of the rent may represent a return on the owner's interest in the hotel licence.

The implications, if any, flowing from the fact that the tenant may have removed the licence to the subject premises were not examined by either valuer or by either counsel in argument. There is a question whether, when determining whether other premises are comparable, it will be relevant to enquire whether the person with the ultimate control of the licence is the landlord or tenant. Rental is a return on the value of an asset which the person leasing the asset seeks to recover. Thus, the owner of a building seeks to recover a return on his investment in the building. In the case of licensed premises, an owner of the premises who controls the licence in respect of those premises would in all likelihood seek a return on the value of the licence as well as on the premises. That return may be recovered by a price paid for the transfer of the licence to the tenant or by an increased rental. By contrast, a tenant who had purchased an hotel licence with the intention of removing it to premises would not be willing to pay rent which included a return on the value of the licence he intended to remove from the premises. As at present advised, it is not possible to determine conclusively whether it would affect the rental. My present view is that it would. In other words, one would expect a tenant who controls the licence to be paying a lower rent than a tenant who is paying rent to an owner of premises who ultimately controls the licence as well. Thus, when looking for comparable premises, it is relevant to enquire who ultimately controls the licence.

Another way of looking at the same issue is to ask, if the land on which the subject premises are erected were compulsorily acquired, would Clone, as the registered proprietor, be able to include in its claim for compensation an amount representing the enhancement due to the fact that the premises are licensed. The answer is plainly, no: cf. Toohey's Ltd v Housing Commission (NSW) (1952) 20 LGR (NSW) 236. See also, Barsby v The Valuer-General (1937) 13 LGR (NSW) 173 where it was held that the improved value of land was not enhanced by a licence held by the lessee where the lessor had no interest in the licence. See also the discussion in Ex parte Berry; re Kessell [1936] NSWStRp 47; (1936) 36 SR (NSW) 485.

I think these questions arise notwithstanding that Players has in its lease covenanted in clauses 7.4 and 7.5 that it will neither transfer the hotel licence nor remove it to other premises without the consent of Clone. As those covenants apply only for the period of the lease, Players is at liberty to deal with the licence as it wishes on the expiry of the lease. In short, the fact that the premises are licensed is relevant. Ms Carolan was correct in that regard. But it is also relevant, when comparing premises, to enquire whether the ultimate control of the licence lies with the owner of the premises or the tenant.

I am satisfied that Ms Carolan has erred in relying only on turnover in her initial approach and in making an assumption as to the turnover of the subject premises which is without foundation. She also failed to have regard to profitability which is a more reliable guide. Her assessment is, I think, manifestly too high. She has also erred in principle. She made no allowance for the fact that the hotel licence at the Newmarket Hotel was controlled by the owner. For all of these reasons, I am unable to accept Ms Carolan's assessment.

I also have reservations about Mr Christodoulou's valuation. Those difficulties stem from a comparison of the gross rents of a number of hotels referred to in the evidence when those rents are expressed as rate per square metre. He resorts in the end to his own experience and valuation judgment and produces a rental by a comparison with other City hotels, some of which provide entertainment. The table below lists the only hotels where there was evidence of both the gross rental and the area of the hotel. It also shows Mr Christodoulou's assessment of rent for the subject premises.

(The parties have a complete schedule showing gross rent and area of each hotel.)

Another hotel which was mentioned was the World's End Hotel Bistro in Hindley Street. It is a small hotel and its net rent was $142.85 per square metre. It is not very comparable in size or in trade.

Obviously, care must be taken when using this table. The most comparable hotel in size is the Newmarket Hotel although it is significantly larger than the Planet. I discount the Office Bar and Bistro because it is in modern premises, has a different kind of trade and is by far the smallest hotel in the area. Regard must be had to the fact that the Austral, Exeter and Stag Hotels are in Rundle Street East, a busy and popular area where a number of licensed hotels and other licensed premises exist. The trade at the Austral and Exeter Hotels is predominantly a bar and restaurant trade. The trade of the Stag Hotel is in its bar, restaurant and nightclub activities. As Mr Christodoulou specifically noted, the Stag Hotel benefits from being located within a popular dining precinct. It is better located than both the subject premises and the Newmarket Hotel in a busy trading area and thus gains a more consistent trade throughout the day in both its bar and dining areas. There is a substantial area of both the subject premises and the Newmarket Hotel set aside for the nightclub activities and both are larger than the like area in the Stag Hotel. As Mr Christodoulou observed, nightclubs cater to a young and fickle market. Rundle Street East is, generally speaking, busier than Pirie Street at night time. Another matter which may qualify the extent to which comparisons can be made is whether the tenants of any of those hotels have fitted out the hotel in any way and, if so, the extent of the fit out. There was no evidence on these issues.

The rental of the subject premises as assessed by Mr Christodoulou is higher than the Stag Hotel but less than that of the Newmarket Hotel. While recognising the care that needs to be taken when using the above figures, it is to be noticed that Mr Christodoulou's assessment for the subject premises results in the lowest rent per square metre when compared with all of the other hotels, including the Newmarket Hotel. Although the table suggests there is not necessarily any strict relationship between the area of an hotel and the likely rental, it is to be noted that the Newmarket Hotel is substantially larger in area than any of the listed hotels and the rent per square metre is clearly the lowest. That suggests that, while as a general rule area is not relevant, it may have some part to play in the case of premises which are substantially larger than most. Common sense supports this notion. As the subject premises have a better location than the Newmarket Hotel, thereby gaining some day time bar and restaurant trade not available to the Newmarket Hotel and as the subject premises are smaller than the Newmarket Hotel, it is likely that the rent per square metre would be higher than at the Newmarket Hotel. On this basis, I believe that Mr Christodoulou's assessment of rent is too low even though in absolute terms it is higher than the rent at the Stag Hotel.

Thus, I am not prepared to rely on the valuation of either Ms Carolan or Mr Christodoulou. In the limited state of the evidence, what can the court do? This appeal has been marked by a failure of the parties to present all relevant evidence on the issues relating to an assessment of annual value on the footing that the premises were licensed and to test the evidence in each valuation. The problem is not new: see Toohey's Ltd v Valuer-General (supra) at 11 where Pike J noted that neither party in that case had put before the court as full evidence as it might have. I am especially conscious of the fact that, although the duty of the court is to determine whether it is proper to set aside the assessment and then determine what the annual value is, the judge must never allow himself to be cast in the role of a third valuer: Bronzel v State Planning Authority (1979) 21 SASR 513; Brewarrana Pty Ltd v Commissioner of Highways (No 2) (1973) 6 SASR 541 at 544 - 546. But the court is not bound to accept either valuation and may make such adjustments as are required by the evidence: Minister for the Environment v Florence (1979) 21 SASR 108 at 111, 116 - 117, and Balquhidder Pty Ltd v Minister for Environment and Planning (1986) 40 SASR 63. The court's duty of determining this appeal is appropriately discharged by deciding which of the two valuations is to be preferred and making whatever adjustments are required by the evidence. For the reasons already expressed, I prefer Mr Christodoulou's cross-valuation but believe it must be adjusted to reflect the criticisms required of it by the evidence. I think the most satisfactory course is to make a modest adjustment to increase the rent of the subject premises in terms of a rate per square metre to a level above that of the Newmarket Hotel. As the area of the subject premises is considerably larger than all of the hotels other than the Newmarket Hotel and as it lies outside the popular east end of Adelaide, it must be a rate per square metre less than the East End hotels. I would increase the rent of the subject premises to $150 per square metre. This is necessarily arbitrary, but the incomplete state of the evidence allows no other approach. As the area of the subject premises is 2500 square metres, this approach produces a gross rental of $375,000. That is a substantial increase on the rental of the Stag Hotel.

I accept Mr Christodoulou's evidence that it is inappropriate to ask what return an investor would expect to receive on this building. The better question is, what rent would these premises yield? However, as Ms Carolan noted in her valuation, an examination of the return on the capital value of the premises provides a kind of cross-check of the rental to be adopted. On the footing that an allowance of $70,000 must be made for outgoings, the return is $305,000 per annum. The agreed capital value is $3,250,000. The rate of return is, therefore, 9.2 per cent. That is at the lower end of the range nominated by Ms Carolan but a return Mr Christodoulou thought reasonable, even allowing for his misgivings as to the utility of this exercise. I would therefore fix the gross annual rental of $375,000 which, with the agreed statutory deduction of 30.25 per cent, results in an annual value of $261,562, say $262,000.

I am conscious of the imperfections of this exercise. However, it is required by the incomplete state of the evidence. The Council has, through its valuer, the power to compel Players to disclose its turnover. If that power is exercised and if there is a more complete gathering of evidence based on the principles expressed in these reasons as well as a more complete examination of the relevant factors, the parties and, if necessary, the court will on some later occasion be the better equipped to assess gross annual rental and thereby annual value.

For all of these reasons, I allow the appeal. The assessment that the annual value of the subject premises is $362,700 will be set aside and in lieu thereof an assessment of $262,000 will be substituted.