NSWNSWLEC

Rostam Pty Ltd v Valuer General; Shavran Pty Ltd v Valuer General

[2011] NSWLEC 1387

Land and Environment Court (NSW)|2011-08-22

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Source facts

Court

Land and Environment Court (NSW)

Decision date

2011-08-22

Source

Original judgment source is linked above.

Judgment (24 paragraphs)

[1]

Miss M Carpenter (Respondent) Solicitors Gadens Lawyers (Applicants)

[2]

Crown Solicitors Office (Respondent) File Number(s): 30589, 30590, 30591, 30592, 30593 and 30594 of 2010

[3]

Judgment 1These are appeals under s 37 of the Valuation of Land Act 1916 (the Act) in respect of land values assigned under s 6A of the Act in respect of two adjoining properties 523/527 and 529/531 Elizabeth Street Surry Hills as at the base dates of 1 July 2007, 2008 and 2009. 2Section 40(2) of the Act states that " on an appeal, the appellant has the onus of proving the appellant's case ." 3Land value is defined in s 6A of the Act in the following terms: (1) The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bone-fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner's predecessor in title had not been made. (2) Notwithstanding anything in subs (1), in determining the land value of any land it shall be assumed that: (a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates, and (b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used, but nothing in this subs prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that the improvements, if any, other than land improvements, referred to in subs (1) had not been made. 4Land improvements are defined in s 4 of the Act and mean: (a) the clearing of land by the removal or thinning out of timber, scrub or other vegetable growths, (b) the picking up and removal of stone, (c) the improvement of soil fertility or the structure of soil, (d) the restoration or improvement of land surface by excavation, filling, grading or levelling, not being works of irrigation or conservation, (d1) without limiting paragraph (d), any excavation, filling, grading or levelling of land (otherwise than for the purpose of irrigation or conservation) that is associated with: (i) the erection of any building or structure, or (ii) the carrying out of any work, or (iii) the operations of any mine or extractive industry, (e) the reclamation of land by draining or filling together with any retaining walls or other works appurtenant to the reclamation, and (f) underground drains.

[8]

Description 10The properties are located on the western side of Elizabeth Street near Belvoir Street. In their respective joint reports the valuers agree on the following: 523/527 Elizabeth Street Land area + The land has a total site area of 392.37 m² + The dimensions of the site are 13.41/13.41 x 27.71/28.22 metres + The subject land is rectangular in configuration sloping gently down in a south westerly direction + The land is serviced by Little Buckingham Street to the rear Planning + As at the relevant base dates the subject land was zoned 10 "Mixed Uses" in accordance with the South Sydney Local Environmental Plan 1998 + The maximum floor space ratio on the site is 2:1 + The maximum height limit on the land is 15 m + The subject property is not listed as an individual heritage item under the relevant planning instrument nor is it listed under Schedule1 of the State Heritage Register Existing improvements + As at the relevant base dates the subject improvements comprised an older style two-storey building with roller door loading access from Little Buckingham Street to the rear. Highest and best use + As a mixed use site containing either retail/commercial or retail/residential unit uses with basement car parking Land value basis + The approach to value the subject land is in accordance with s 6A1 of the Act Land improvement + The level of excavation on the subject land is minimal and both valuers agree that there is little, if any, the value of excavation attributable to land improvements. Adopt value as nil Floor space area + 784.74 m 2 529/531 Elizabeth Street Land area + The land has a total site area of 291.2 m 2 + The dimensions of the site are 13.45/13.41 x 21.66/22.15 m + The subject land is rectangular in configuration sloping gently down in a south western direction + The land is serviced by Little Buckingham Street to the rear + The land is set back from Elizabeth Street Planning + As at the relevant base dates the subject land was zoned 10 "Mixed Uses" in accordance with the South Sydney Local Environmental Plan 1998 + The maximum floor space ratio of the site is 2:1 + The subject property is not listed as an individual heritage item under the relevant planning instrument nor is it listed under Schedule 1 of the State Heritage Register + As at the relevant base dates the subject land had approval for commercial retail/office use with a FSA of 2271.36 m 2 . This equates to an FSR of 7.8:1. This information has been sourced from Council's records - D 2007/1957 Existing improvements + As at the relevant base dates are subject improvements comprised an eight-storey brick building with basement parking accessed from Little Buckingham Street to the rear Highest and best use + As a retail/commercial development with basement parking having regard to the existing approved commercial use on the subject land as at the relevant base dates Site set back from Elizabeth Street + The land was subject to a building the line the setback due to a proposed RTA road widening of Elizabeth Street that has now been abandoned. The land, known as Lot 10 in deposited plan 833333 is in the ownership of City of Sydney Council and adjoins the subject land to the East and Elizabeth Street to the West Land improvement + As at the relevant base dates the subject land contained an excavation that was used to basement parking. The site excavation of the subject property is a "land improvement" as defined in s 4(d1) of the Act. Therefore this benefit is reflected as an added value when assessing the land value. Once the land value of the subject site is established from comparable sales evidence then the added value of the land improvements, (benefit of the excavation) is to be allowed in the land value + As at the relevant base dates for the added value of the land improvements, as per s 4 (d1) of the Act the valuers adopt: o Base date 1 July 2007 $58,240 o Base date 1 July 2008 $69,160 o Base date 1 July 2009 $69,160 Floor space area + 582.40 m 2 under planning controls current at the base dates.

[11]

The sale of the subject properties 13In Inez Investments Pty Ltd v Dodd (1979) 26 The Valuer 501 at 505 Carmichael J held: Where persons answering the descriptions of willing but not anxious seller and willing but not anxious buyer enter into a binding contract for the sale and purchase of a particular piece of land, the value of that piece of land at that day is the price stated in their contracts. It follows that where a valuation of a piece of real estate is sought as at a particular date the most relevant information for analysis is the sale of that very property, if there be one, at or close to that date. The matters requiring analysis are the terms and conditions of the contract, and was it a voluntary sale of a not anxious seller and a not anxious buyer? I conclude therefore that a prime matter for investigation when a valuation is sought is to ascertain whether there is current a contract for sale of the property and, if so, to make an analysis of that sale to see how it complies with the test of value as laid down in Spencer's case (1907) 5 CLR 418. 14The subject properties, together with two adjoining properties (four in total), were sold by three vendors to three related purchasers, with vacant possession, by a single contract dated 4 December 2006 being some seven months prior to the first base date of 1 July 2007. The contract price was $9,820,000. The contract states that the transaction was not a taxable supply as the " vendor... is neither registered nor required to be registered for GST ". 15The valuers agreed that the sale of the four properties in one line was an " arms length transaction ". Notwithstanding the fact that the contract provided a twelve month delayed settlement, which would logically indicate a higher price paid than for a settlement within the customary six-week period, the valuers also agreed that the sale price properly reflected the total market value of the properties sold. It was common ground that the improvements on 523/527 Elizabeth Street added no value to that property. 16The sale price was apportioned between the three purchasers and referrable to specific properties. Rostam Pty Ltd was nominated as the purchaser of 523/527 Elizabeth Street and the similar property adjoining on the northern boundary at a price of $1 million each, Shavran Pty Limited was nominated as the purchaser of 529/531 Elizabeth Street for $7,400,000 while the property adjoining it on the southern boundary was purchased by Mr N Samadi for $420,000. 17Mr Foley-Jennings gave evidence that the four properties were offered the sale, by auction, individually, some time shortly prior to December 2006. The highest bid for 523/527 Elizabeth Street and the similar property adjoining it on the northern side was $825,000 in each case. His evidence was that these bids were made by or on behalf of Rostam Pty Ltd. No evidence was adduced as to the highest bid in respect of the other two properties. 18The schedule containing the special conditions relating to the sale of 529/531 Elizabeth Street refers to not only the land the subject of this appeal but to the land extending to the common alignment of Elizabeth Street in the ownership of the Council of the City of Sydney. Special condition 9 provides, in part, that " the vendor is in the course of negotiating a proposed transfer to itself or transfer directly to the purchaser " of the said Lot 10 DP 833333. In the event that a transfer does not occur by the date of settlement the price payable at that time for this property shall be reduced by $400,000. Provision is made that if Shavran Pty Ltd or its successor in title purchases Lot 10 within two years after settlement an adjustment to the price paid will be made. The area of this lot is 88.2 m 2 . $400,000 is equal to $4,535 per m 2 or $2,268 per m 2 of FSA. Neither valuer referred to this special condition. I have decided that no conclusions, which can be of assistance to me, can be drawn from that simple calculation. 19Critically, no evidence was adduced by the applicants in these proceedings (who were the purchasers of three of the four properties referred to in the contract of sale) as to how the purchase price was apportioned. The apportionment may or may not have fairly reflected the market value of each of the properties and in the absence of evidence that could be tested I have come to the conclusion that no reliance can be placed on the apportioned purchase price.

[13]

147 - 149 Regent Street Chippendale 22This property is located almost on the corner of Regent Street and Cleveland Street. The site area is 276.5 m 2 . 23It was sold on 17 February 2010 for $900,000 with development approval (D 2008/1625) for the demolition of the existing building and the construction of a mixed-use building of three stories with a floor space ratio of 1.75 to 1 (483.9 square metres). The land is rectangular in shape with an irregular rear boundary which is lower than street level. The property does not join a rear lane while access from street frontage is difficult due partly to the difference in height between the footpath and the road pavement and the 24 hour slip lane from Cleveland Street to Regent Street preventing parking immediately in front of the property. A railway tunnel, in strata, is located beneath the property but in my opinion its presence is not material and was treated as such by the valuers. The ground floor of the new building is designed for retail use and the upper floors for residential purposes. 24The valuers agree that the sale shows $1,808 per m 2 of the FSA after adjustments for demolition costs, the value of the development approval ($30,000) and market movement to 1 July 2009. However, I disagree. I have come to the conclusion that the sale shows $1,777 per m 2 of FSA after deducting the value of the development approval at 10% of the sale price ($90,000) and adding $50,000 for demolition costs. I make no allowance for market movement over the seven months following the 1 July 2009 base date. 25Comparison to the subject property exposed divergent views. Mr Foley-Jennings considers Chippendale to be superior to Surry Hills and makes a deduction of 22.5% to arrive at a figure of $1,401.27 per m 2 FSA for the subject property as at 1 July 2009. Mr Hill considers this property to be " far inferior " to the subject property to the extent of 33% and arrives at a figure of $2400 per m 2 FSA; $1000 per m 2 FSA higher than Mr Foley-Jennings. 26During his evidence Mr Hill referred to schedules showing differences in prices for houses and units between Chippendale and Surry Hills but these schedules were not tended as exhibits. Subsequent to the conclusion of the hearing, and with the consent of the applicants, these schedules were provided to me on the basis that " the material was not previously shown by Mr Hill to Mr Foley-Jennings and was not the subject of any discussions between them ." 27These schedules show that in the year ending December 2007 the median house price in Surry Hills was 44.3% higher than in Chippendale, in the following year 32% higher and in 2009 24.4% higher. In the year ending 2010 the median house price for Surry Hills was 22.9% higher than Chippendale while the median price for units was 32.7% higher. I agree with Mr Miller's observation that Surry Hills is not a homogeneous suburb with the area in the immediate vicinity of the subject property (where views over Prince Alfred Park are not available) being in the less favoured portion of Surry Hills. The same can be said of Chippendale; it is also not a homogeneous suburb. I have formed the opinion that the subject property and the Regent Street property are both located in one of the less favoured sections of the respective suburbs. 28I do not accept the evidence of either valuer on the question of comparison to the subject property. While the properties have different attributes I consider, on balance, that they are relatively comparable.

[22]

529 - 531 Elizabeth Street 55As already noted, the valuers, in the joint report, agreed that the highest and best use of this property was, " As a retail/commercial development with basement car parking having regard to the existing approved commercial use on the subject land as at the relevant base dates ." In their joint report, they acknowledged that the current planning controls would limit FSA to 582.4 square metres, being approximately 25% of the FSA of the existing improvements. 56During evidence, Mr Foley-Jennings recanted from that position referring to his " Hypothetical Feasibility Valuation Study " as at 1 July 2007, showing on one assumption that the development in accordance with the existing improvements was not viable (indicating a negative land value) and on another resulting in a land value of only $500,000. 57Mr Hill did not provide a feasibility study to support his contention as to the highest and best use of the land and appeared to place great weight on the fact that the existing improvements were in place. However, he acknowledged that where an existing development would not be permitted under the general law prevailing at the relevant base, s 6A(2) does not require that the land must be valued on that assumption; the key words in ss 2 (a) being " the land may be used, or may continue to be used ". 58Miss Carpenter submitted that the use of a feasibility study to determine land value should only be undertaken in the absence of comparable sales and referred to the judgment of Pain J in Trust Company Ltd ATF Opera House Car Park Infrastructure Trust No 1 v Valuer General (No3) [2011] NSWLEC 85 at [42] to support her view. The important difference is that Mr Foley-Jennings did not use his feasibility study to determine land value, but only to demonstrate that development of the property for commercial purposes in accordance with the existing use was not viable. 59There has been for many years commercial office development in the vicinity of Central Railway Station. On the eastern side of the Station this development has been concentrated in Elizabeth Street extending south from Albion Street to Devonshire Street, in Devonshire Street itself, in Chalmers Street extending south from Devonshire Street, where it is interspersed with residential developments overlooking Prince Alfred Park, and in Foveaux Street. Mr Foley-Jennings' feasibility study confirmed an opinion which I formed on the view that at each of the base dates the highest and best use of this property was not for commercial office space, but for a mixed use development with predominantly residential accommodation in accordance with the current development controls, namely, a floor space ratio of 2:1 and a maximum height limit of 15 m. The existing improvements on the land are an example of economic obsolescence; in other words, improvements that may have been economically viable at the time they were constructed, but would not be replicated at any of the base dates, due to external influences reducing the demand for commercial office space in the immediate vicinity of the subject property. 60Accordingly, I conclude that this property should be valued under s 6A(1) of the Act. The values that I have applied to the adjacent property are equally applicable to this property, namely, $1,910 per m 2 of FSA as at 1 July 2007 and $1719 per m 2 of FSA as at the two subsequent base dates, subject to an allowance to reflect the adverse effect of the setback from the original Elizabeth Street frontage and the value of the land improvements. 61During the hearing, the parties agreed that access to any new development on this land across land in the ownership of the Council of the City of Sydney would be available without cost or penalty. 62However, the fact that such new development would be set back from the original street frontage, thus limiting advertising potential to any ground floor retail tenant and street exposure to the new building (which would have a tendency to reduce its appeal). In addition, some landscaping works, at the landowner's expense, on the Council owned land would need to be undertaken requiring negotiations with the Council. 63Mr Hill made no adjustment. Mr Foley-Jennings considered that a deduction of 1.85% of land value would be appropriate, but I consider that a deduction of 2.5% is more appropriate having regard to the sum which this percentage generates.

Rostam Pty Ltd v Valuer General; Shavran Pty Ltd v Valuer General - [2011] NSWLEC 1387 - NSWLEC 2011 case summary — Zoe