Richard Capuano v Roads and Maritime Services

Background

1. Following a conciliation conference, orders were entered by consent by the Court on 10 March 2017 reflecting the agreement between the parties that in respect of claims relating to disturbance under s 59(1)(a), (b), (c), (e) and (f) of the Just Terms Act, the applicant is to receive the sum of $60,949.70 and in respect of the claim under s 55(e) of the Just Terms Act, the applicant is to receive the sum of $26,710. The parties also agreed that the applicant is entitled to stamp duty to be determined in accordance with the Court's determination of the subject property's market value.
2. As a result of the above, the primary matter for determination is the market value of the subject property pursuant to s 55(a) of the Just Terms Act.
3. The following matters as to the subject property's location, characteristics, and improvements immediately prior to acquisition are uncontroversial: 1. The subject property had a land site area of 107.5m² with a road frontage of 4.1 metres, and was zoned "IN2 Light Industrial" under the Marrickville Local Environmental Plan 2011 (NSW); 2. A two-storey, three-bedroom, semi-detached brick terrace dwelling, circa 1910, ('terrace') was located on the subject property and was occupied by the applicant; 3. The terrace had a total gross building area of approximately 115.9m², comprising 107.3m² of enclosed area, and a veranda/balcony area of 8.6m²; 4. The ground floor of the terrace contained a living room, a lounge/family room, a small kitchen, a laundry, and an external toilet. The first floor contained three bedrooms, a bathroom, and a balcony; 5. The subject property did not enjoy any rear lane access or off-street parking and was located on a narrow two-lane section of Campbell Street, where on-street parking was not permitted; 6. The subject property was located approximately 20 to 30 metres north of the site known as the Alexandria Landfill site which was an approved landfill and recycling site (for non-putrescible waste); and 7. The terrace and all improvements were demolished prior to hearing.

Evidence

1. The Court received extensive documentary and expert evidence (the tender bundle comprising 1,000 pages and the Court book comprising some 400 pages), including an affidavit of the applicant sworn 29 August 2017, detailed background material in relation to the "M5 East Project", as well as reports of building experts (Michael Wadell retained for the applicant and Peter Ellis retained for RMS), and extensive expert valuation evidence (Steven Szalay retained for the applicant and David Lunney retained for RMS). The hearing was conducted over three days.
2. The need to retain building experts arose as a result of concerns expressed by a valuer previously retained for RMS. At hearing, the valuers agreed that the expert building evidence was of limited assistance.
3. As a consequence of the joint reporting, Mr Szalay's assessment of market value was revised downwards from his earlier report to be $1,360,000 and Mr Lunney's assessment was revised upwards from his earlier report to be $950,000. Accordingly, the difference in relation to market value between the valuers at hearing was approximately $410,000.
4. Despite Mr Szalay's reliance on a number of different approaches, it was ultimately agreed between the valuers that the comparable sales method of valuation (sometimes referred to as the "direct comparison approach") is the appropriate method for valuing the subject property.

Consideration

1. Given that there was debate about the appropriate valuation approach to be taken, and some disquiet about the methodology adopted by the valuers, more particularly by Mr Szalay, it is worthwhile to briefly outline the now well-established position in relation to the comparable sales approach.
2. It is generally accepted that, insofar as there are comparable properties available, being sales of properties sufficiently similar to the subject property as to allow a comparison to be made between them, the conventional valuation method is the comparable sales approach. The manner in which that method should be applied is now well-known: River Bank Pty Ltd v Commonwealth (1974) 4 ALR 651; (1974) 31 LGRA 244 at 652; Graham Trilby Pty Ltd v Valuer-General [2008] NSWLEC 217 at [27]; Graham Trilby Pty Ltd v Valuer-General [2011] NSWLEC 68 at [24]; Holcim (Australia) Pty Ltd v Valuer-General [2009] NSWLEC 225 at [31]; New South Wales Cremation Company Pty Limited v Valuer General [2016] NSWLEC 135 ('Cremation Company') at [84]-[88] and [97]-[104].
3. The accepted methodology for the comparable sales approach is that it be undertaken in four steps, being accumulation, analysis, adjustment, and application: Constantine v Blacktown City Council (No 2) [2016] NSWLEC 81 at [100] (Moore J); Hoy v Coffs Harbour City Council [2015] NSWLEC 128 at [83] (Pain J) (leave to appeal this judgment was refused in Hoy v Coffs Harbour City Council [2016] NSWCA 257; (2016) 281 LGERA 411 at [61] (Bathurst CJ, with Simpson and Payne JJA agreeing)); Allandale Blue Metal Pty Ltd v Roads and Maritime Services (No 6) [2015] NSWLEC 18 at [344] (Pain J); Marroun v Roads and Maritime Services [2012] NSWLEC 199 at [197] (Sheahan J and Parker AC) ('Marroun') (affirmed on appeal in Marroun v Roads and Maritime Services [2013] NSWCA 358; (2013) 211 LGERA 391 at [75] (Tobias AJA, with Basten and Gleeson JJA agreeing)); Cremation Company at [99].
4. First, the valuer (which includes the Court acting as valuer on appeal) is to accumulate comparable properties. In Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111; [2003] HCA 8, McHugh, Gummow, Kirby, Hayne and Callinan JJ commented at [18] that the "sales to be treated as comparable sales need to be truly comparable", although they added that the Court should not be "unreasonably selective".
5. Secondly, the valuer should analyse those comparable sales. This often involves converting the value of those sales into another measurement that can be easily compared: Marroun at [201] (Sheahan J and Parker AC).
6. Thirdly, the valuer (judicial or otherwise) should adjust those properties it considers comparable to create equivalence with the unimproved subject property. I note the comments of Biscoe J in Holcim (Australia) Pty Ltd v Valuer-General [2009] NSWLEC 225 at [31]: The basis for the valuers' valuation assessments is the sales comparison method. Accepted valuation practice permits adjustments for differences, such as in location, area and time to enable valuers to have comparable values which, following adjustment, account for the various differences with the subject property. Such adjustments are generally based on a reasoning process drawing on the skill and experience of the valuer and are undertaken to derive an opinion of value through a deductive process. Because properties are rarely identical, adjustments for differences are obviously necessary but caution is required through making as few adjustments as possible, in a consistent manner, to ensure the reliability of the comparable sale when related to the subject property. Too many adjustments potentially render the comparable sale unsafe to rely upon. Caution is therefore required where large adjustments are to be made. Reflecting the significant roles of skill, experience and personal assessment in the adjustment process, the scope for differences in the quantum and direction of adjustment between valuers can be considerable. Third, the Court should then apply these adjusted values to the subject property. The purpose of this is to determine, based on comparable sales and as best it can, what value the subject property would obtain if it were to be sold on the market.
7. Fourthly, the valuer should apply the comparable sales approach to determine a value of the subject property based on the adjusted values of the comparable properties.
8. Although there has been some judicial debate, it is now accepted that the process of making explicit adjustments for differences in the valuation method allows the adjustment process to be logical and transparent as opposed to an implicit process comprising a single adjustment that risks rejection for want of transparency: Trust Company Limited v Minister Administering the Crown Lands Act 1989 [2012] NSWLEC 73; (2012) 211 LGERA 158 at [115]; Tomago Aluminium Company Pty Limited v Valuer General [2010] NSWLEC 4 at [45]; and Marroun at [203]-[207].
9. Each of the valuers prepared a detailed individual report and then participated in the preparation of two joint reports, the second styled "Supplementary Statement on the Points Reserved by Mr Szalay in Joint Valuation Report dated 31 August 2017" (which was later the subject of further revision in a document styled "Corrections Made to Joint Valuation Report by Mr Szalay"). As I noted during the hearing, the form and content of the first joint report was unusual and unhelpful. It was replete with significant sections highlighted in yellow (which were later discretely addressed in a subsequent report by Mr Szalay), likely due to Mr Szalay's earlier unavailability to jointly confer, was not prepared in accordance with the Practice Note - Class 3 Valuation Proceedings p 7-11 (esp 10-11), and was of limited assistance. The difficulty was compounded by the fact that much of Mr Lunney's further material replied in detail to Mr Szalay's primary report material, a proportion of which was later abandoned.
10. Mr Szalay's earlier valuation report was criticised by RMS primarily because he adopted five separate valuation "approaches" which were variously described and referred to respectively as a "Statistical" approach, a "Global Adjustment" approach, a "Land Area" approach, a "Building Area" approach, and an "Explicit Adjustment" approach. These approaches were described by Mr Lunney as "unusual" and/or "novel". RMS submits they are "unorthodox" in relation to the valuation of residential dwellings. During oral evidence, Mr Szalay indicated that he did not further rely upon his "Statistical", "Land Area", or his "Building Area" approaches, although he had relied upon those methods to provide support for his "primary" valuation determination, being market value in the sum of $1,395,000. The effect of this was that he continued to rely upon both his "Global Adjustment" and "Explicit Adjustment" approaches.
11. I accept RMS's criticism of Mr Szalay's various earlier approaches. Specifically, I accept the reasoned criticism of the earlier approaches made by Mr Lunney detailed in Annexure 1 to the joint valuation report of 31 March 2017. Despite this, I accept that, notwithstanding my additional concern regarding the form and content of the joint report, at hearing Mr Szalay relied upon and gave his opinion on the more usual, and acceptable, comparable sales approach by way of explicit adjustments. Given this evidence, I do not give consideration or weight to Mr Szalay's other "approaches".
12. While accepting Mr Szalay's abandonment of the earlier approaches, RMS submits that the valuation conclusions reached by Mr Szalay in adopting those now abandoned approaches have inappropriately influenced his consideration of the more usual "Explicit Adjustment" approach. Although I have some concerns regarding Mr Szalay's earlier approaches and his further evidence, I do not accept that Mr Szalay engaged in a process of "working back" from his opinions which were earlier reached through the adoption of his "Global Adjustment", or any of his other approaches, in the sense considered by Jagot J in Graham Trilby Pty Ltd v Valuer-General [2008] NSWLEC 217 at [25].
13. Whilst Mr Szalay relied upon 9 comparable sales in his original report, as a consequence of joint conferencing, he excluded 4 of those sales leaving 5 comparable sales upon which he relied. Similarly, Mr Lunney originally relied upon 7 comparable sales and later excluded 3 of those sales.
14. At hearing, Mr Szalay's assessment of market value was $1,360,000 and the comparable sales he relied upon were: 1. 19 Campbell Street, St Peters ('common sale'); 2. 41 Lackey Street, St Peters ('41 Lackey Street'); 3. 23 Lackey Street, St Peters ('23 Lackey Street'); 4. 57 May Street, St Peters ('57 May Street'); and 5. 19 Brown Street, St Peters ('19 Brown Street').
15. At hearing, Mr Lunney's assessment of market value was $950,000 and the comparable sales he relied upon were: 1. 19 Campbell Street, St Peters ('common sale'); 2. 14 Campbell Road, Alexandria ('14 Campbell Road'); 3. 140 Church Street, St Peters ('140 Church Street'); and 4. 37 Lackey Street, St Peters ('37 Lackey Street').
16. Prior to considering the material in detail, it is appropriate to record that, as a result of the joint conferencing, earlier differences in relation to market movement (or time) adjustment to be applied to each of the identified comparable sales is no longer an issue.
17. The Court, in company with the legal representatives of the parties and the valuers, conducted an on-site view, inspecting the exterior of each of the comparable sales on the first day of the hearing.
18. Although there was only one comparable sale in common between the valuers, each valuer considered that the other valuer's nominated sales were "able" to be considered. A detailed spreadsheet of the comparable sales was prepared by Mr Lunney containing property details including the sale price, the date sold, the land and building areas, the respective adjustments made by each valuer, and the agreed adjusted price for time/market movement for each sale, as well as containing "averaging" figures of each valuer's final adjusted market value for each comparable sale. The spreadsheet became Exhibit 1, and is Annexure A to this judgment. The applicant also produced a table for each sale setting out the competing adjustments made for each comparable sale and these tables became Exhibit D and are variously extracted below for convenience.
19. Mr Szalay accepted that the comparable sales nominated by Mr Lunney are "generally comparable". However, despite analysing and providing adjustments to Mr Szalay's nominated comparable sales, Mr Lunney maintained that his four comparable sales provide a more relevant guide to market value because they were transacted closer to the date of acquisition and therefore require fewer adjustments by reference to the explicit factors according to which adjustments should be made. He maintained that, despite the fact that the adjusted price of each comparable sale for time/market movement was ultimately agreed between the valuers, a number of Mr Szalay's sales are older and thus require a significant adjustment for market movement (that is, time adjustment) before adjustment for other factors can be considered. He cited, by way of example, Mr Szalay's reliance on sales at 41 and 23 Lackey Street, which require agreed time adjustments of 24.75% and 18.04% respectively. These could be compared to the agreed adjustments for market movement relevant to Mr Lunney's sales, which range from "-0.91% to -7.24%".
20. As a result of Mr Lunney's evidence, RMS submits that there is no justification for placing reliance upon Mr Szalay's older sales in circumstances where there are available comparable sales transacted closer to the acquisition date which require less adjustment. I accept this submission and find that the significant adjustments necessary for the passage of time and market movement, although agreed, in relation to (Mr Szalay's) sales of 23 and 41 Lackey Street make those sales less reliable. Further, although there was some dispute between the valuers, I accept the evidence of Mr Lunney (Tcpt 13 September 2017, p 139(25-29)) that Mr Szalay's sale of 41 Lackey Street (which sold at auction for $1,220,000 on 23 May 2015) was "out of line" with the other sales (particularly 37 Lackey Street, which sold for $1,003,000 on 16 July 2016).
21. In accordance with the approach adopted by Biscoe J in Holcim (Australia) Pty Ltd v Valuer-General [2009] NSWLEC 225 at [31], I consider that caution is required where large adjustments are made to create equivalence. In so finding, I accept that adjustments are necessarily made by valuers to account for the various differences with subject properties because properties are rarely identical. I also accept that such adjustments are generally based upon a reasoning process drawing on the skill and experience of the valuer.
22. I am also conscious of the comments of Pain J in Trust Company Limited v Minister Administering the Crown Lands Act 1989 [2012] NSWLEC 73; (2012) 211 LGERA 158 at [110]: While all comparable sales evidence may be considered relevant and so cannot be disregarded, the level of relevance of different comparable sales to the property may vary leading to the valuer attributing differing weight to different comparable sales. In Brewarrana Pty Ltd v Commissioner of Highways (1973) 6 SASR 541 at 551, Wells J observed: … there is no hard and fast rule by the application of which a valuer may, whatever the circumstances, draw the line that clearly separates the sales that are comparable from those that are not.
23. In all of the circumstances, and noting there are other comparable sales capable of adjustment, I place less weight upon the sales of 23 and 41 Lackey Street.
24. I approach consideration of the valuation evidence on the basis that the valuers, at least at the time of hearing, adopted appropriate approaches in relation to the direct comparison methodology. Therefore, the Court is required to attend to the consideration of the various adjustments made by the valuers to the sales identified as comparable in order to draw equivalence to the subject property. I shall consider closely the respective positions of the valuers in relation to the common sale, derive a tentative value for the subject property, and then give consideration to the other analysed sales in the light of my general findings regarding the common sale, particularly where there are fundamental differences between the valuers.
25. The common sale is an unrenovated terrace building with two bedrooms, two living rooms, and off-street parking for two to three cars and is located virtually opposite the subject property. Analysis of the respective adjustments made to the sale illuminates that there are two adjustments (posited by Mr Szalay) about which the valuers differed significantly. Whilst these are most clearly reflected in the table and 'NOTES' extracted below from Exhibit D (and also seen in Annexure A), similar, although less significant, differences appear in a number of the other sales. 19 Campbell Street, St Peters (common sale): sold for $1,121,000 on 29 October 2016 Adjustment Mr Szalay Mr Lunney Negative Public 25% 0% Purpose influence Land size/frontage/ -12.5% -15% off-street parking (-10% land size; (-10% land size; -2.5% off-street parking) -5% off-street parking) Building improvement 2.5% (fabric only) 0% size and fabric Condition/state of repair 0% -5% 4th bedroom capability 15% 0% Ornate features 2.5% 0%

NOTES: 1. Agreed adjustments: a. Time/market movement: -6.07% 2. Mr Szalay adjusted price: $1,395,166 3. Mr Lunney adjusted price: $842,364

1. Clearly, the significant difference between the valuers springs from the adjustments made by Mr Szalay for "negative Public Purpose influence" and "4th bedroom capability". Therefore, I shall consider these adjustments in some detail specifically in relation to the common sale. I shall then consider the other adjustments made to the common sale, and the differences between the adjustments generally in relation to the other comparable sales.
2. The "negative Public Purpose" adjustment was specifically relied upon by Mr Szalay. The applicant submits that s 56(1)(a) of the Just Terms Act mandates that in determining market value, any increase or decrease in the value of the subject property caused by the carrying out of the Public Purpose must be disregarded. Mr Szalay contended that this required significant adjustments to at least four of the comparable sales (the common sale, 14 Campbell Road, 140 Church Street, and 19 Brown Street), on the basis that if this was not done, the negative effect of the Public Purpose on the value of the subject property would not be "disregarded" contrary to s 56(1)(a). He opined that the common sale was significantly negatively affected by the Public Purpose.
3. According to Mr Szalay, the negative effect is due to amenity impacts such as the presence of the new multi-lane road and consequent visual impacts, increased noise and traffic movement, and air quality concerns. He referred to extracts of the "WestConnex - Environmental Impact Statement" ('EIS') and directed the Court to discrete references in relation to noise and vibration impacts, heavy vehicle access arrangements, and human health concerns including air quality and visual impacts. On this basis, he made an adjustment of 25%. As will be seen from the extracts from Exhibit D below, he made the same adjustment to the sale of 14 Campbell Road; a 12.5% adjustment to 19 Brown Street; and makes a 10% adjustment to 140 Church Street.
4. Contrary to Mr Szalay's position in relation to the negative effect of the Public Purpose, Mr Lunney's evidence was that he considered both the positive and negative aspects of the Public Purpose (Tcpt, 13 September 2017, p 51(7-27)) and he could not find any empirical evidence of any "dampening effect". RMS submits that Mr Lunney "intentionally sought to find sales data" for properties close to the project works to ascertain if there was any market evidence of the negative effect compared to properties within St Peters further away from the works - but found that the values were not significantly different after adjustments (see Tcpt, 13 September 2017, p 54(20-28) and Tcpt, 13 September 2017, p 56(35-50)). In the circumstances, Mr Lunney concluded that the Public Purpose had no net effect on the value of any of the comparable sales properties and consequently he makes no adjustment in relation to any Public Purpose influence in relation to any of the comparable sales.
5. I accept that, as a matter of principle, in order to fulfil the s 56(1)(a) mandate, it is necessary to determine whether the common sale or any comparable sale needs to be adjusted to account for a negative effect on the value caused by the Public Purpose as contended by Mr Szalay. Whilst any such adjustment would also require consideration of positive effects, which Mr Lunney says he has taken into account, the applicant submits that there is no evidence for the "positive" effects on the value of the common sale (or any of the other comparable sales) caused by the Public Purpose.
6. The applicant submits that, to the extent that RMS places some weight on the closure of the Alexandria Landfill site, this is not part of the Public Purpose. Further, if there were any adverse effects on the St Peters locality generally caused by the landfill site, which may have negatively influenced values in St Peters, the applicant submits its closure, and therefore any positive benefits flowing from this, is embedded in the sale price of the comparable sales properties particularly those on Campbell Street to which regard may be had.
7. The applicant further submits that the mere "existence" of the Alexandria Landfill site is a matter which is common to all properties in St Peters and therefore is a neutral factor in the assessment of market value in this case.
8. The applicant also submits that the property was affected by sub-surface stratum acquisition by RMS and it is submitted that Mr Szalay has sought to "collectively quantify" these affectations for the purpose of making an appropriate adjustment in relation to the variances of the sales.
9. RMS reminds the Court that, in his initial report, Mr Szalay applied an adjustment to the common sale of 10% for what he called "Public Purpose" decrease in the value resulting from the public project and, in his final evidence to the Court, he increased the adjustment in respect of the common sale to 25% (which RMS notes is a 250% increase). In his oral evidence, Mr Szalay, although he was unable to identify "empirical" evidence, identified further investigations that he undertook subsequent to his initial report to explain this increase. Mr Szalay asserted that the reasons for his increase from 10% to 25% adjustment related to, inter alia, further interviews and analysis of background data which had been provided by Mr Lunney.
10. RMS criticised Mr Szalay's reliance upon "anecdotal discussions" (with, as Mr Szalay stated, "a number of owners and purchasers …plus …a number of real estate agents…") and submitted that there was no objective evidence before the Court to support the adjustments (to a number of the sales) to account for the Public Purpose adjustment contended for by Mr Szalay. RMS submits that Mr Lunney's opinion, that this material is not "objective" evidence, would be preferred.
11. In the circumstances, RMS submits that the anecdotal evidence proffered by Mr Szalay to support his 25% adjustment to the common sale (and adjustments to other sales) should not be accepted or should be given very little, if any, weight by the Court because the evidence was tainted by the manner in which the enquiries were made. These methods included Mr Szalay interviewing property owners who had been earlier approached by the applicant personally after receiving Mr Lunney's report (see Tcpt, 13 September 2017, p 61(31-44)). RMS's position is that, in the absence of cogent evidence, the Court would not allow any adjustment for the alleged "blight" in any of the comparable sales.
12. RMS further submits that the only objective and uncontested evidence is that the market movement of property prices in the vicinity of the project was either at or above the market movement for prices in surrounding suburbs (Exhibit A, p 310 at [110] and Exhibit A, p 368 at [110]). RMS further submits, and I accept, that the valuers agreed that the residential housing market in St Peters and surrounding suburbs has been "very buoyant" since 2014 (Exhibit A, see B11 at p 296 at (29)) also (see Tcpt, 13 September 2017, p 76(20-39)).
13. Considering the evidence of each of the valuers, and the material to which the Court has been directed, it is apparent that there was a general upward movement in housing prices in the St Peters market and while it is also clear that the common sale was "hard up against" the Public Purpose as submitted by the applicant, I do not find any compelling evidence that there has been a measurable effect of the scale opined by Mr Szalay.
14. It is clear that there are likely to be some deleterious effects of the Public Purpose, particularly during the construction phase, just as there will be some positive effects. Although RMS in opening and closing submissions referred in some detail to the suggested positive attributes of the proposal detailed in the EIS (such as the proposed future provision of improved pedestrian access and connectivity, new green space, new public open space, cycle-ways, as well as the closure and remediation of the Alexandria Landfill site, works to enhance and upgrade local streets, and changes to the character of the area and the like), I accept the applicant's submission that Mr Lunney's evidence does not involve any quantification of any suggested positive effect on values about which he has made some comment.
15. To this extent, and with some reluctance given my concerns about the nature and extent of the inquiries undertaken by Mr Szalay, I accept that, having regard to the fact that the common sale (unlike some of the other comparable sales) will front a multi-lane major thoroughfare and although there will be cycle-ways, amphitheatres, and the introduction of vegetation including trees, there is likely to be some, albeit small, effect of the Public Purpose on that property, to which it is appropriate to have regard.
16. I therefore find some minor adjustment should be made. Although, I do not consider that the "inquiries" with selling agents and the like undertaken by Mr Szalay to be particularly compelling, I do accept as the applicant submitted, that the common sale property will transition from being located on a moderately trafficked residential street to a location opposite an undoubtedly intensifying busy multi-lane major road comprising part of the WestConnex project.
17. I do not consider that the existence or otherwise of a subterranean stratum acquisition (5m below ground level) would have caused any concern to the market and there is no evidence to that effect.
18. Considering the above circumstances, and doing the best I can, I do not accept Mr Szalay's 25% adjustment to the common sale and I find that a more modest adjustment is appropriate. As such, I consider that there should be an adjustment of 10% to reflect the "negative Public Purpose influence". As noted below, I find that the other comparable sales, with the exception of 14 Campbell Road which I consider should also be adjusted by 10%, are much less affected.
19. The other significant difference in the adjustments is that Mr Szalay has made significant upward adjustments (varying from 10% to 22.5%) in his analysis of each of the comparable sales on the assumption that the dwelling on the subject property had the potential to be reconfigured into a four-bedroom terrace. Mr Szalay considered that this potential was a unique and valuable advantage not shared by any of the comparable properties.
20. More particularly, although not an explicit adjustment made in his primary report, Mr Szalay suggested that the number of bedrooms offered (or "capable of being offered") by a property is a significant influence on the market. Mr Lunney does not accept that such an adjustment is appropriate and makes no adjustment. The specific adjustments made by each valuer are conveniently shown in the tables in Exhibit D, extracted at [36] above in relation to the common sale, and below in relation to each of 14 Campbell Road, 140 Church Street, 57 May Street, and 37 Lackey Street. For completeness I have included the tables of adjustments for 23 and 41 Lackey Street although I place less reliance upon those sales for the reasons set out at [30]-[34] above. 14 Campbell Road, Alexandria: sold for $1,100,000 on 31 October 2016 Adjustment Mr Szalay Mr Lunney Negative Public 25% 0% Purpose Location/rear access/ -2.5% -5% (location) off-street parking (rear access only) -5% (rear access) Condition/ -10% -15% state of repair Improvements and size 0% 5% 4th bedroom capability 15% 0% Ornate features 5% 0%

NOTES: 1. Agreed adjustments: a. Time/market movement: -6.07% 2. Mr Szalay adjusted price: $1,369,030 3. Mr Lunney adjusted price: $826,584 140 Church Street, St Peters: sold for $1,207,000 on 2 November 2016 Adjustment Mr Szalay Mr Lunney Negative Public 10% 0% Purpose Location/rear access -2.5% -10% (-5% location; (location only) -5% rear access) Condition/ -10% -12.5% state of repair Improvements and size 2.5% 5% 4th bedroom capability 12.5% 0%

NOTES: 1. Agreed adjustments: a. Time/market movement: -7.24% b. Land size: 5% 2. Mr Szalay adjusted price: $1,315,546 3. Mr Lunney adjusted price: $979,662 37 Lackey Street, St Peters: sold for $1,003,000 on 16 July 2016 Adjustment Mr Szalay Mr Lunney Negative Public 2.5% 0% Purpose Location/rear access -7.5% (-5% location; -10% (-5% location; -2.5% rear access) -5% rear access) Condition/ -7.5% -5% state of repair 4th bedroom capability 15% 0% Ornate features 5% 0%

NOTES: 1. Agreed adjustments: a. Time/market movement: -0.91% b. Building improvement size: 5% 2. Mr Szalay adjusted price: $1,118,107 3. Mr Lunney adjusted price: $894,485 57 May Street, St Peters: sold for $1,300,000 on 17 October 2016 Adjustment Mr Szalay Mr Lunney Location/rear access/ -5% -5% (excluding off-street parking (off-street parking) off-street parking) Land size/ -15% off-street parking -10% (-10% land size; -5% off-street parking) Condition/ 5% 0% state of repair 4th bedroom capability 15% -5% Improvements and size 0% -5% Ornate features 5% 0%

NOTES: 1. Agreed adjustments: a. Time/market movement: -6.07% 2. Mr Szalay adjusted price: $1,343,199 3. Mr Lunney adjusted price: $915,750 19 Brown Street, St Peters: sold for $1,295,000 on 10 December 2016 Adjustment Mr Szalay Mr Lunney Negative Public 12.5% 0% Purpose Location/rear access 0% -5% (location) Land size/ -12.5% -20% off-street parking (land size only) (-15% land size; -5% off-street parking) 4th bedroom capability 17.5% 0% Ornate features 7.5% 0%

NOTES: 1. Agreed adjustments: a. Time/market movement: -7.31% b. Condition/state of repair: -10% c. Building improvement size: 5% 2. Mr Szalay adjusted price: $1,440,403 3. Mr Lunney adjusted price: $840,000 23 Lackey Street, St Peters: sold for $1,125,000 on 16 September 2015 Adjustment Mr Szalay Mr Lunney Negative Public 2.5% 0% Purpose influence Location/rear access/ -7.5% -10% off-street parking (-2.5% off-street parking; (-5% location; -5% location) -5% rear access) Land size/ 0% -5% (includes off-street parking off-street parking) Condition/ -10% -15% state of repair 4th bedroom capability 22.5% 0% Improvements and size -2.5% 0% Ornate features 5% 0%

NOTES: 1. Agreed adjustments: a. Time/market movement: 18.04% 2. Mr Szalay adjusted price: $1,465,200 3. Mr Lunney adjusted price: $929,600 41 Lackey Street, St Peters: sold for $1,220,000 on 23 May 2015 Adjustment Mr Szalay Mr Lunney Negative Public 2.5% 0% Purpose influence Location/rear access/ -7.5% -10% off-street parking (-5% location; (-5% location; -2.5% rear access) -5% rear access) Land size/frontage/ 0% -5% (off-street parking) off-street parking Condition/ -7.5% -5% state of repair 4th bedroom capability 10% 0% Ornate features 2.5% 0%

NOTES: 1. Agreed adjustments: a. Time/market movement: 24.75% b. Building improvement size: 5% 2. Mr Szalay adjusted price: $1,598,048 3. Mr Lunney adjusted price: $1,293,700

1. The basis of Mr Szalay's "4th bedroom capability" adjustment is a little unclear to the extent that some "statistical data" upon which he relied in his earlier "approaches" were not further relied upon by him. Despite this, he maintained that a four-bedroom "offering" is more attractive to purchasers such as families who can more easily take advantage for "gender segregation" and investors who can derive higher incomes.
2. The applicant submits that Mr Szalay has "forensically analysed" the building footprint of the properties, and in particular the common sale and, in that sale, makes his 15% adjustment noting that the subject property has "a superior ability and configuration to provide the reinstated fourth bedroom". Further, the applicant submits that the Court would note that the common sale was a two-bedroom terrace (with potential for a third bedroom) which had no ready or easy ability to provide an additional fourth bedroom - despite its larger building area. This, the applicant submits, justifies an adjustment in favour of the subject property.
3. RMS submits that there is no evidentiary basis to support the making of an adjustment for this factor in relation to any of the comparable sales in that there is no evidence that four-bedroom properties attract a premium in value compared to two or three-bedroom properties in circumstances where all other factors are equal. Further, RMS submits that there is no evidence that the ability to convert to four bedrooms is unique or that the comparable properties, most of which had larger gross building areas, did not also have the potential to be reconfigured to create additional bedrooms.
4. Moreover, RMS submits that the basic premise upon which the adjustment is proffered is flawed, primarily because the sale prices of comparable properties already reflect whatever potential they (and implicitly the subject property) had for additional bedrooms. Further, RMS says that Mr Szalay has not provided any evidence that discloses his workings or reasoning in determining the size of the adjustment he has made and that at hearing he was unable to explain his reasoning even though the adjustments were large and numerically specific. For example, in relation to the common sale, the adjustment was 15% however in relation to 23 Lackey Street, a sale which I consider does not provide assistance for the reasons noted above, Mr Szalay's adjustment was 22.5%. Further, RMS finally submits that when challenged, Mr Szalay accepted that there was no market evidence to support the quantum of a number of the adjustments and that the adjustments were a matter of "common sense".
5. Given the evidence before the Court, and particularly Mr Lunney's analysis at pars 141 to 162 of the valuers' joint report, I do not find that any "adjustment for 4th bedroom capability" is justified in relation to the common sale or in relation to the other comparable sales. Although I accept that a potential for a fourth bedroom may be a matter that would separate one property (in this case one or more comparable sales) from the subject property, I do not accept that there is a proper evidentiary basis and, in particular, no market evidence, to support the making the adjustment to the extent proffered by Mr Szalay.
6. Further, in making this finding, I do not accept Mr Szalay's evidence that the ability to reconfigure the layout of the dwelling on the subject property to provide four-bedroom accommodation is an advantage which was uniquely enjoyed by the subject property and not enjoyed by any of the other comparable properties. As such, I accept Mr Lunney's evidence that, whilst it would be open to an owner of the subject property to convert one of the two living areas into a fourth bedroom (with the addition of a new partitioned wall), that ability to convert the layout and accommodation is not an advantage that was uniquely enjoyed by that dwelling. Moreover, it would come with the consequence of a reduced living room area.
7. In making these findings, I accept that neither valuer had the benefit of an internal inspection of the subject property before it was demolished and I note that Mr Szalay had understandably assumed that the subject property, at an earlier time, had a fourth bedroom before a wall had been removed, and that he also relied upon what he understood to have been the owner's intentions to "reinstate" the wall, as well as further commentary in the building report prepared by Mr Waddell for the applicant. However, I do not consider this evidence helpful.
8. Further, if it were the fact that the dwelling on the subject property was substantially larger than dwellings which were erected upon the relevant comparable sales properties, and that it could be converted to provide for four-bedroom accommodation without materially compromising the living room accommodation, I would accept that it may be appropriate to consider an adjustment for such an advantage, however that is not the case. The land area and estimated building area for each of the comparable sales is detailed in Annexure A. I accept the evidence of Mr Lunney that the subject dwelling is smaller (described by Mr Lunney as "quite small" - at 107.3m²) than all but one of the analysed comparable sales. He also stated "107 square metres gross building area would be a very small gross building area to provide four bedrooms together with other rooms, bathrooms, living rooms, and the like…" (Tcpt 13 September 2017, p 81(45-48)).
9. Accordingly, I do not consider that there is available market evidence which would provide a sound basis for making the adjustments propounded by Mr Szalay or to qualify the amount of any of his suggested adjustments for "4th bedroom capability" in relation to any of the comparable sales.
10. The remaining four adjustments to the common sale are less significant. In relation to the adjustment for "land size/frontage/off street parking", the differences between the valuers are a "very minor matter" as noted by Mr Nash, counsel for the applicant, in final submissions (Tcpt 14 September 2017, p 180(9-10)). The difference between the experts is 2.5% (Mr Szalay adjusting for -12.5% and Mr Lunney adjusting for -15%). I accept the applicant's submission that, given the highly urbanised environment where public transport use is an important feature, care must be taken not to overstate the importance of off-street parking, and resolving any doubt I have in favour of the applicant, I make -12.5% adjustment suggested by Mr Szalay.
11. The three remaining contested adjustments are "building improvements, size and fabric", "condition/state of repair" and "ornate features". Although there is some slight difference in the wording of the categories of the explicit adjustments employed in each of Exhibit D and Annexure A, I shall confine my consideration to the categories in Annexure A which I consider encapsulate the essential differences between the valuers, whilst noting that there is some internal overlap in the descriptors used in each of the exhibits.
12. In relation to the adjustment for "condition/state of repair", Mr Szalay makes no adjustment and his evidence is that the state of repair of a property is not a significant influence on value in the market because purchasers place significant weight upon properties with "good bones" (that is, properties that are structurally sound and ripe for refurbishment) which enables renovations to suit purchasers' tastes. Mr Lunney makes a 5% downward adjustment to the common sale to reflect "its superior presentation and condition in comparison to the [subject property] as at the sale date". The applicant submits that Mr Lunney's adjustment over-emphasises the importance of an existing renovation and points to Mr Lunney's oral evidence that the condition and state of repair of the common sale was "similar" to the subject property and therefore Mr Lunney's -5% adjustment is not justified. I find that some downward adjustment is appropriate to reflect, as Mr Lunney says, the superior presentation of the common sale in comparison to the subject property. I also note, as Mr Lunney did, that the building expert evidence indicates that the subject property, whilst structurally sound, would have required some capital expenditure to bring it to a habitable state. The photographic material before the Court confirms this position. In the circumstances, I find that a -2.5% adjustment is appropriate.
13. In relation to the adjustment for "building improvements, size and fabric", the applicant submits (Tcpt, 14 September 2017, p 183(44-49)) that Mr Szalay's 2.5% positive adjustment relates only to the "fabric", being the rear area of the comparable sale which is not of brick construction and as such would be less attractive to the market compared with the full brick construction of the building on the subject property. I do not accept that there is a material difference in relation to "fabric" and that the adjustment for "fabric" is more likely caught up in the adjustment for building improvement which I consider is encapsulated in the adjustment I make for "condition/state of repair".
14. In relation to Mr Szalay's adjustment in the common sale, and in six of the other comparable sales, for "ornate features", his evidence is that purchasers are prepared to pay more for properties which offer ornate features. He therefore makes a 2.5% positive adjustment to the common sale as he says it has fewer "ornate features than the [subject property]" and emphasises the importance of heritage features. In relation to the common sale, he bases his opinion on the photographic material which was available to him and some notations in a report from Extent Heritage Pty Ltd, accessed by Mr Szalay from the WestConnex website, which provided details of "historical building fabric" of a number of properties including the subject property.
15. I do not find that the evidence given by Mr Szalay at hearing about the matters he relied upon (which were not articulated in his report) in relation to "ornate features", to be persuasive. Again, there is no market evidence (as distinct from Mr Szalay's "experience," upon which he claimed reliance) to substantiate the adjustment he makes. The photographs of the subject property do not appear to have any discrete features that are materially dissimilar to the photographic material in relation to the other sales referred to, and, in particular, the photographic material in relation to the common sale. Mr Lunney's evidence was that "ornate features" were captured in any adjustment to be made for either "improvements, accommodation or size" (as per categories in Annexure A) or "improvements, condition and repair" (as per categories in Exhibit D). I accept this evidence.
16. Further, I do not accept the applicant's submission that "ornate features" is confused or conflated by Mr Lunney with state of repair and condition. There is necessarily some overlap in the actual description of the adjustments and this can be seen by the slightly different nomenclature used for the categories of adjustments in Exhibit D, which was prepared to a large extent using Mr Szalay's descriptions, and Annexure A which contains nomenclature extracted from both experts' reports.
17. In the circumstances, I find that there is insufficient evidence to indicate that the discrete adjustment should be made for ornate features in relation to any of the comparable sales.
18. In the light of my findings regarding the adjustments to the common sale, being 10% for "negative Public Purpose influence"; 0% for "4th bedroom capability"; -12.5% for "land size/frontage/off-street parking"; 0% for "building improvement, size and fabric"; -2.5% for "condition/state of repair"; and 0% for "ornate features", and adopting the experts' agreed adjustment for time/market movement (-6.07%), which gives a time adjusted sale price of $1,052,955, my derived value of the subject property is $1,000,307.
19. The findings which I have made in respect of the common sale, particularly those relating to my consideration of the differences between the valuers in relation to "Public Purpose influence", "4th bedroom capability", and "ornate features" continue to have application in my analysis of the other sales. Accordingly, I now proceed to consider each sale in turn.
20. In relation to 14 Campbell Road, this sale is in a superior location to the subject property as it is adjacent to and backs onto Sydney Park, has practical rear access, and is located on a wider section of Campbell Road. I accept Mr Lunney's evidence that at the time of sale it was newly renovated and well-presented. For the reasons generally noted above in relation to the common sale, and again with some reluctance, I make a 10% adjustment for "negative Public Purpose influence". I do not make any adjustment for "4th bedroom capability", in accordance with my general finding above and accept Mr Lunney's evidence that this property had potential to provide a third bedroom and was newly renovated and well-presented both internally and externally. This presents a material advantage in comparison to the subject property which was poorly presented. As such, I make a downward 15% adjustment for "condition/sate of repair". I accept Mr Lunney's evidence that this property enjoys a superior location to the subject property, being adjacent to and backing onto Sydney Park and as such I make a downward 5% adjustment for "location". As this property and the subject property are similar in terms of land size and frontage, I make no adjustment for "building improvements/size"; and finally, for reasons noted above at [72]-[74], I make no adjustment for "ornate features". Adopting the experts' agreed adjustment for time/market movement (-6.07%), which gives a time adjusted sale price of $1,033,230, my derived value is $929,907.
21. In relation to 140 Church Street, the sale was transacted six months after the acquisition date and was a fully renovated three-bedroom terrace dwelling in a better location than the subject property. Although the lot size was slightly smaller, it had a similar frontage and I accept Mr Lunney's evidence that the property was newly renovated and well-presented. In accordance with my general findings above, and given the property's location, I make no adjustment for "negative Public Purpose" and no adjustment for "4th bedroom capability". Whilst there was some dispute in relation to rear lane access, I find there was some rear lane access, and I make a -5% adjustment for "location/rear access". As I accept Mr Lunney's evidence that the property had a superior presentation and condition, I make a -10% adjustment for "condition/state of repair". As the terrace dwelling on the subject property was larger than that on this comparable sale and was semi-detached, I make a 2.5% adjustment, as suggested by Mr Szalay, for "improvements and size". I accept and adopt the experts' agreement in relation to adjustment for "land size" (5%). Adopting the experts' agreed adjustment for time/market movement (-7.24%), which gives a time adjusted sale price of $1,119,613, my derived value is $1,035,642.
22. In relation to 37 Lackey Street, the sale was transacted three months after the acquisition date and located in a conventional residential area opposite a park and sporting ground. It was a quieter "more enjoyable" location than the subject property. It had an identical lot size with similar frontage to the subject property and provided two-bedroom plus attic accommodation (noting that the subject property provided three-bedroom accommodation), and was renovated at the date of sale such that its state of repair was better than the subject property. In the circumstances, and again in accordance with my general findings above, and noting the location adjacent to a small park, I make no adjustment for "negative Public Purpose" or "4th bedroom capability". I make a -7.5% adjustment for "location/rear access" (adopting Mr Szalay's view) and I make a -7.5% adjustment for "condition/state of repair" (adopting Mr Szalay's view). For matters noted at [72]-[74], I make no adjustment for "ornate features". I accept the valuers' agreement on a 5% adjustment for "building improvements/size". Adopting the experts' agreement in relation to adjustment for time/market movement (-0.91%), which gives a time adjusted sale price of $993,873, my derived value is $894,486.
23. In relation to 57 May Street, this property is in a superior location, and is a significantly larger allotment than the subject property (being 215m² compared to 107.5m²), has rear lane access, off-street parking, and a wider frontage. In these circumstances, I accept Mr Lunney's evidence that there are significant advantages over the subject property and this sale requires a material downward adjustment. Mr Szalay adjusts 15% for "4th bedroom capability". For the reasons above, I do not accept the "4th bedroom capability" adjustment suggested by Mr Szalay. I find that no adjustment should be made for "ornate features". I make adjustments of -5% for "location/rear access/off-street parking"; and -10% for "land size"; and 5% for "condition/state of repair". Further, I make no adjustment for "building improvements/size". Adopting the experts' agreed adjusted price for time/market movement (-6.07%), which gives an adjusted sale price of $1,221,090, my derived value is $1,098,981.
24. In relation to 19 Brown Street, this sale was a single-storey Californian bungalow-style building on a significantly larger (271m²) lot. Mr Szalay's adjustments for "negative Public Purpose", "4th bedroom capability", and "ornate features" (cumulatively 37.5%), starkly reveal the differences between the valuers. For reasons noted above, I do not accept Mr Szalay's adjustments for "negative Public Purpose", "4th bedroom capability", and "ornate features". I accept the valuers' agreed adjustments in relation to "condition/state of repair" (-10%); and "building improvements/size" (5%). In relation to "location/rear access", I make no adjustment. In relation to "land size/off-street parking" I make a -15% adjustment. Adopting the experts' agreed adjustment for time/market movement (-7.31%), which gives an adjusted sale price of $1,200,336, and adopting the adjustments agreed between the valuers and my adjustments, my derived value is $960,269.
25. In relation to 41 Lackey Street, which Mr Szalay regarded as "most comparable" to the subject property and Mr Lunney considered "out of line", this sale was a terrace dwelling on land of a similar size to the subject property and comprised two bedrooms, one bathroom, and one car garage at rear. In addition to my concerns noted at [30]-[34] above regarding this sale, I accept the evidence of Mr Lunney that it enjoys advantages over the subject property including that it is renovated, it is opposite an attractive small park, it is in a quieter residential street, and it has rear lane access and off-street parking. Mr Szalay notes that it is a "quieter, more enjoyable location though parking is more difficult and there is industrial opposite". I accept the valuers' agreed 5% adjustment for "building improvement size". Although Mr Szalay adjusted for "negative Public Purpose", for the reasons noted above, I again make no adjustment. I make an adjustment of -7.5% for "location/rear access/off-street parking" as suggested by Mr Salzay. Again, I do not accept the "4th bedroom capability" adjustment suggested by Mr Szalay. In relation to "condition/state of repair", I accept -7.5% adjustment suggested by Mr Szalay and again do not make any adjustment for "ornate features" for the reasons noted above. In relation to "land size/frontage/off-street parking", I accept the -5% adjustment for off-street parking suggested by Mr Lunney. On the basis that I accept the experts' agreed adjustment for time/market movement (24.75%), about which I have noted some concern, the time adjusted sale price would be $1,521,910, and my derived value would be $1,293,624.
26. In relation to 23 Lackey Street, a three-bedroom unrenovated terrace dwelling opposite an attractive small park, again shows the stark differences between the valuers with Mr Szalay's adjustments for "negative Public Purpose", "4th bedroom capability", and "ornate features" being 30%. I make no adjustment for "4th bedroom capability" based upon my reasoning above, and again, make no adjustment for "ornate features". I do not adopt the adjustment of Mr Szalay for "negative Public Purpose" (2.5%) given my reasoning above and, additionally, the location of the property. In relation to "location/rear access", I adopt Mr Szalay's adjustment (-7.5%). In relation to "land size/off-street parking", I make no adjustment. In relation to "condition/state of repair", I adopt Mr Szalay's -10% adjustment. I adopt Mr Szalay's adjustment for "improvements and size" (-2.5%). Noting again my concerns at [30]-[34] above, if I adopted the experts' agreed adjustment for time/market movement (18.04%), about which I have expressed by concerns at [30]-[34], the time adjusted sales price would be $1,328,006, and my derived value would be $1,062,405.
27. Accordingly, my findings as to the adjusted comparable sales are as follows: Address Derived value 19 Campbell Street, St Peters $1,000,307 14 Campbell Road, Alexandria $929,907 140 Church Street, St Peters $1,035,642 37 Lackey Street, St Peters $894,486 57 May Street, St Peters $1,098,981 19 Brown Street, St Peters $960,269 41 Lackey Street, St Peters $1,293,624 23 Lackey Street, St Peters $1,062,405

Conclusion

1. In the light of my analysis above, considering that the common sale is the most comparable sale, and confirming that I placed less weight upon the sales at 23 and 41 Lackey Street, I find the appropriate calculation of market value of the subject property to be $1,000,000.
2. I direct the parties in the light of the consent orders made by the Court on 10 March 2017, and taking into account my determination of market value pursuant to s 55(a) of the Just Terms Act, to calculate the final quantum accordingly. Upon receipt of the parties' calculations, the Court will make final orders.

Orders

1. The Court orders that: 1. Compensation for market value pursuant to s 55(a) of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) is determined in the amount of $1,000,000. 2. The parties are directed to calculate the final quantum of compensation taking into account the determined market value and the matters agreed between the parties reflected in Court orders of 10 March 2017. 3. The respondent is to pay the applicant's costs as agreed or assessed.

Addendum made on 24 April 2018

1. The parties having provided agreed figures reflecting the Court's findings, the final orders of the Court are: 1. Compensation under Pt 3 Div 4 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) for the compulsory acquisition of the land comprising Lot 9 in Deposited Plan 242778, known as 28 Campbell Street, St Peters, is $1,128,149.70 comprising: 1. $1,000,000 for market value pursuant to s 55(a); 2. $26,710 for solatium pursuant to s 55(e); 3. $40,490 for stamp duty pursuant to s 59(1)(d); and 4. $60,949.70 for disturbance pursuant to s 59(1)(a), (b), (c), (e) and (f). 1. The respondent is to pay the applicant's costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 April 2018