Quach and Ors v Fairfield City Council

SOLICITORS Allens Arthur Robinson LEGAL REPRESENTATIVES: RESPONDENT Mr J Ayling SC

SOLICITORS Ritchie and Castellan

JUDGMENT: IN THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES 31618 of 2003

Thu Hong Quach Ngoc Duyen Luu Trung Cang Luu Applicants v Fairfield City Council Respondent

Judgment 1 By application class 3 filed on 23 December 2003 the applicants object to the amount of compensation offered by the respondent ("the council") pursuant to a Compensation Notice in respect of land being lot 1 in DP 509105 ("the land"). The land is also referred to as lot 2 and lot 12 in DP 883460 and is known as 261 Cabramatta Road, Cabramatta dated 5 December 2003. The land was compulsorily acquired by the council on 29 August 2004 pursuant to the Land Acquisition (Just Terms Compensation) Act 1991 ("the Just Terms Act"). 2 In response to a Proposed Acquisition Notice issued by the council to the applicants in respect of the land the applicants submitted a "Claim for Compensation Form" to the council on 26 November 2003. The applicants claimed the amount of compensation they were entitled to for the compulsory acquisition of the land was the amount of $2,250,000 in respect of the market value of the land pursuant to s 55(a) of the Just Terms Act and an unspecified amount for disturbance pursuant to s 55(d) of the Just Terms Act. The amount of compensation offered to the applicants in the Compensation Notice dated 5 December 2003 was $1,548,600. Such an amount included an amount of $73,600 for disturbance. 3 The land is located within the Fairfield City Council Local Government Area and is zoned "3(b) District Business Centre" under the Fairfield Local Environment Plan 1994. Two residential flat buildings containing a total of 12 flats are erected on the land. Pursuant to the 3(b) zoning, residential flat buildings are a permitted use with the consent of the council. The land is located at the southern end of the Cabramatta Business District and is adjacent to the rear boundary of properties which have frontages to John Street. John Street is the major retail precinct in the Cabramatta town centre. 4 The issues in dispute relate to the highest and best use of the land, the valuation of the land on the basis of such a use and whether there is an "adjoining owner influence" based an alleged special interest in the land held by the council. 5 Section 55 of the Just Terms Act provides:- In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division): (a) the market value of the land on the date of its acquisition, … (d) any loss attributable to disturbance, … (f) any increase or decrease in the value of any other land of the person at the date of acquisition which adjoins or is severed from the acquired land by reason of the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired. 6 Section 56 of the Just Terms Act relevantly provides:- 56 Market value (1) In this Act: market value of land at any time means the amount that would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer, disregarding (for the purpose of determining the amount that would have been paid): (a) any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired, and (b) any increase in the value of the land caused by the carrying out by the authority of the State, before the land is acquired, of improvements for the public purpose for which the land is to be acquired, and (c) any increase in the value of the land caused by its use in a manner or for a purpose contrary to law. (2) When assessing the market value of land for the purpose of paying compensation to a number of former owners of the land, the sum of the market values of each interest in the land must not (except with the approval of the Minister responsible for the authority of the State) exceed the market value of the land at the date of acquisition.

The evidence 7 The expert valuers for each party, namely John Corbin for the applicants and Frank Carrapetta for the respondent relied upon the sales of five properties which were common to each, namely number 7, number 9 and number 13 Bridge Street, Cabramatta, number 12 Acacia Street, Cabramatta and number 146 Longfield Street, Cabramatta. Each property was in close proximity to the land although none were as close to the Town Centre. Number 12 Acacia Street was the only comparable sale located on the same side of the railway line as the land. Each property had erected upon it a residential flat building of similar style to those erected on the land. From external appearance each of the comparables appeared to be in better condition than those buildings erected upon the land. 8 The Court conducted a view of the land and of each of the comparable sales sites. It was apparent from the view that the improvements on the land were in a very poor state both externally and internally. Generally the condition of the exterior of the improvements on the comparable sites were superior. 9 A joint report was prepared by the valuers. The report shows that the only disagreement between the valuers arises from the method of valuation.

Applicants' Valuer 10 Mr Corbin uses the comparable sales to make a direct comparison of those sales and then makes adjustments to reflect the differing time of the sales and the attributes of the properties. Mr Corbin then used the capitalisation method as a check. Mr Corbin also adds a percentage to reflect "adjoining owner influence". 11 In his report dated 12 May 2004 Mr Corbin assessed the value of the land at $2,250,000. He arrived at this amount by assessing the value of the 12 flats and adding a 10 per cent premium in respect of adjoining owner influence. To assess the value of each flat in the comparable sales Mr Corbin divided the sale price of the building by the number of flats. No adjustment was made for any difference between each flat. For example the number of bedrooms, the existence of balconies, laundry facilities, parking or garaging. He made observations relating to the condition of the flats and their location compared to the land. He described the two buildings as comprising:- Front Block (Units 1-8) Rear Block (Units 9-12) 4 x 1 bedroom flats 1 x 1 bedroom flat 3 x 2 bedroom flats 2 x 2 bedroom flats 1x 3 bedroom flats 1 x 3 bedroom flat 12 Mr Corbin concluded as follows:- 12 flats @ average of $155,000 per flat = $1,860,000 + 10% premium $ 186,000 $ 2,046,000 + GST $ 204,000 $2,250,600 As $2.25M 13 During the hearing a schedule was prepared in which the omission to consider the attributes of each flat was sought to be remedied, at least in part. However this comprised his subjective assessment of the value of each flat having regard to the provision of the number of bedrooms and did not address the other attributes of each flat. Having done such calculation he then arrived at an amount per flat which he then escalated by percentages of 10 per cent to 21.5 per cent to represent an escalation of value from the date of the comparable sale to the acquisition date. The percentages increases were based upon adjustments to data published by the Real Estate Institute of New South Wales for properties in the Fairfield Local Government Area between the September quarters of 2002 and 2003. His calculations are as follows:- SALES PROPERTY PRICE DATE ACCOMMODATION ANALYSIS ESCALATED PRICE TO ACQUSITION DATE

7 Bridge $1.54M 6/03 11 x 2 bedroom $140,000/2 bedroom unit 10% $154,000/2 bedroom unit

12 Acacia $1.028M 10/02 7 x 2 bedroom $146,857/2 bedroom unit 21.50% $178,430/2 bedroom unit

9 Bridge $980,000 9/02 6 x 2 bedroom $128,000/2 bedroom unit 21.50% $155,520/2 bedroom unit 2 x 1 bedroom $106,000/1 bedroom unit 21.50% $128,790/1 bedroom unit

13 Bridge $980,000 9/02 6 x 2 bedroom $128,000/2 bedroom unit 21.50% $155,520/2 bedroom unit 2 x 1 bedroom $106,000/1 bedroom unit 21.50% $128,790/1 bedroom unit

146 Longfield $1M 12/02 8 x 2 bedroom $125,000/2 bedroom unit 21.50% $151,875/2 bedroom unit

5 x 1 bedroom units @ $135,000/unit = $ 675,000

5 x 2 bedroom units @ $165,000/unit = $ 825,000

2 x 3 bedroom units @ $180,000/unit = $ 360,000 $1,860,000

14 As an alternative Mr Corbin used a capitalisation of gross income method. At the date of acquisition the land produced a gross rental income of $1,480 per week or $76,960 per annum. He compared the rental yields for two comparable properties. Number 12 Acacia Street sold in October 2002 at a 4.96 per cent capitalisation rate and number 7 Bridge Street which sold in May 2003 produced a 4.22 per cent capitalisation rate. Mr Corbin concluded that the appropriate gross yield for the land was between 4.0 per cent and 4.22 per cent and adopted 4.2 per cent as the capitalisation rate for the land. Applied to the land on the gross income produced a value of $1,830,000 which he calculated was equivalent to a value of $152,000 which he considered compared favourably to the direct comparable sales method. In the joint valuers report he acknowledged that sales evidence showed yields of 4.96 per cent, 5.3 per cent and 5.8 per cent in the 9 to 11 months prior to the acquisition date. The most recent sale reflected a yield of 4.42 per cent, such sale being concluded in June 2003. He maintained that 4.2 per cent was the correct capitalisation rate for the land.

Respondent's Valuer 15 Mr Carrapetta used a capitalisation of gross income method relying upon the identical sales and rental income as Mr Corbin. Mr Carrapetta derives capitalisation rates of between 4.48 per cent and 5.8 per cent for the common comparable sales, based upon the gross rentals of those properties. 16 Mr Carrapetta selected 5.25 per cent as representing the appropriate capitalisation rate for the land, being a rate which lies between the highest and lowest capitalisation rates demonstrated by the comparable sales. Applying such rate to the gross rental income derived from the land of $77,480 he calculated the value of the land to be $1,475,000. 17 As an alternative Mr Carrapetta considered the value of the site for redevelopment purposes and concluded that on this basis that the land would have a value of $1,300,000 less demolition costs. This becomes unnecessary to consider since each valuer agreed that the highest and best use of the land was for residential purposes. 18 Mr Carrapetta made no allowance for any "adjoining owner influence". In the joint valuers report his opinion is expressed as follows:- Council is only a keen buyer for the purpose of acquiring land for a public purpose which has been an ongoing process, with failed negotiations with affected owners, resulting in a compulsory acquisition.

Findings 19 The experts agreed that the highest and best use of the land was its current use. Mr Corbin suggested however that the current use should be considered with its possible future commercial development potential. No special value however was allocated by him to the land in respect of this consideration. Instead he applied a premium representing an "adjoining owner influence". Accordingly the final issues for determination are in a narrow compass, namely the appropriate method of calculating the value of the land and whether an "adjoining owner influence" applies. 20 The Court has the benefit of five sales of land containing apartment buildings of similar style to that of the improvements on the land. The condition of each building and the accommodation provided differs but, after making allowance for those factors and their locations, the Court is satisfied they provide a reliable basis for the determination of the value of the land. 21 The direct comparison method of valuation, which eliminates substantial estimates and subjective factors is recognised as being a more reliable guide than methods which require extensive calculations: see Gwynvill Properties Pty Ltd v Commissioner for Main Roads (1983) 50 LGRA 322 at p 326; Pamalco Pty Ltd v Minister Administering the National Parks and Wildlife Act 1974 [No 3] (1990) 71 LGERA 441. 22 Mr Corbin's valuation relied upon calculation of an average price per flat contained in each of the comparable sales. His report contained no attempt to assess the individual differences which may have led to an accurate reflection of the value of each unit. Nor did the report make any reference to the attributes of each flat for example the provision of balconies, laundries and garaging. 23 The Court rejects Mr Corbin's approach. To adopt it would require the Court to accept a valuation premised upon multiple subjective assessments including uncertainty arising from the adjustments made by Mr Corbin in his valuation and his failure to take into account possible major differences between each flat which could impact substantially upon valuation, for example in the attributes of each flat the provision of laundries, balconies, garages and accommodation. Taking into account the fact that the Court has been provided with an alternative method of valuation which does not involve such subjective assessments, a more reliable guide is provided. 24 The 4.2 per cent capitalisation rate selected by Mr Corbin is unsupported by any evidence and lies well below the range of the rates derived from the same comparable sales relied upon by each valuer. By comparison Mr Carrapetta selected a capitalisation rate of 5.25 per cent. His higher yield gave recognition to the poor condition of the improvements on the land, poor location in relation to noise, access and no visitor on-street parking. He believed the improvements on the land had no potential for strata conversion because of the operation of State Environmental Planning Policy No. 10. He believed that the yields ranging from 4.42 per cent to 5.8 per cent reflected the appropriate yield and that 5.25 per cent was reasonable within that range. 25 Taking into consideration the capitalisation rates demonstrated by the common comparable sales, the rate selected by Mr Carrapetta is within the range of those rates and therefore has a sound basis. Accordingly the Court will adopt 5.25 per cent as the appropriate capitalisation rate for the land.

Adjoining owner influence 26 The concept of adjoining owner influence has been recognised in a limited class of cases. In Croghan v Hawkesbury City Council (1998) 99 LGERA 375 Bignold J reviewed numerous authorities and held that an adjoining owner influence applied to the land resumed. His Honour awarded a 10 per cent premium to the market value of such land as appropriate compensation for such influence. The council was already the owner of adjoining land on which a sewage treatment plant was located and the owner's land was resumed for the purpose of the disposal of treated effluent. It was established that the acquisition of the adjoining land was critical to the continued viability of the sewerage treatment works, and at p 387 His Honour held:- Moreover, in my judgment the evidence establishes that the resumed land possessed a special potentiality in the hands of the council, by enabling the council, in acquiring it, to continue to operate the McGraths Hill STP, by virtue of being land that adjoined the council's land accommodating that STP. 27 The Court has heard submissions from both parties concerning the applicability in this case of such an allowance. Based upon Croghan the Court concludes that an adjoining owner influence may exist in certain cases where the facts demonstrate a critical need for the acquisition of land for public purposes. In this instance a public purpose has been demonstrated, namely the acquisition of the land as part of a future public carpark. 28 In contrast to the facts in Croghan, the applicants have relied upon council records to show that the proposals for the carpark have altered from time to time and that it is even possible that either the whole or part of the land may not ultimately be required by the council for a carpark. It is apparent that the proposals for the carpark still lack certainty. 29 A public purpose is not, of itself, sufficient to attract an added premium, especially in view of the provisions of s 56(1)(a) of the Just Terms Act. Such premium could only be justified in the circumstances explained in Raja Vyricherla Narayana Gajapatiraju v The Revenue Divisional Officer Vizagapatam [1939] AC 302 in which Lord Romer delivering the decision of the Judicial Committee of the Privy Council said (at p 312):- But sometimes it happens that the land to be valued possesses some unusual, and it may be, unique features, as regards its position or its potentialities. In such a case the arbitrator in determining its value will have no market value to guide him, and he will have to ascertain as best he may from the materials before him, what a willing vendor might reasonably expect to obtain from a willing purchaser for the land in that particular position and with those particular potentialities. 30 The acquisition by a public authority for a public purpose is not to attract a premium: in Raja Lord Romer said (at p 318):- Any enhanced value attaching to the land by reason of the fact that it has been compulsorily acquired for the purpose of the acquiring authority must always be disregarded… 31 In the present circumstances there are no special or unique features applicable to the land and there is ample evidence of market value. Accordingly there is no justification for awarding a premium for an adjoining owner influence. Such conclusion accords with the operation of s 56(1)(a) of the Just Terms Act. Section 56(1)(a) of the Just Terms Act requires the Court to assess compensation having regard only to the stipulated provisions. No allowance is specified for any adjoining owner influence. Such allowance could only arise if the circumstances explained in Raja namely the unique features of the land and absence of any market value for guidance are found to exist. Ultimately the Court is required to assess the value based upon the position of a willing but not anxious seller to a willing but not anxious buyer. 32 Accordingly the Court determines the market value of the land at the date of acquisition pursuant to s 55(a) of the Just Terms Act to be $1,475,000. 33 The Court will postpone the making of any orders pending agreement on the parties concerning the issue of disturbance and costs. The Court adjourns the proceedings for this purpose to 9.30 am on 23 August 2004.

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