Speter v Roads and Maritime Services - [2016] NSWLEC 128 - NSWLEC 2016 case summary — Zoe

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Speter v Roads and Maritime Services

[2016] NSWLEC 128

Land and Environment Court (NSW)|2016-09-07|Before: Robson J

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At a glance

Source facts

Court

Land and Environment Court (NSW)

Decision date

2016-09-07

Before

Robson J

Catchwords

COMPULSORY ACQUISITION - investment property - compensation payable - market value of land - use of common sale - appropriate adjustments

Source

Original judgment source is linked above.

Catchwords

COMPULSORY ACQUISITION - investment property - compensation payable - market value of land - use of common sale - appropriate adjustments

Judgment (31 paragraphs)

[1]

Judgment

The applicants, Harold Speter and Deirdre Speter ('applicants'), owned land being Lot 5 in Deposited Plan 777484 known as 467 Warringah Road, Frenchs Forest ('subject property'). The subject property was compulsorily acquired by Roads and Maritime Service ('RMS') under the Roads Act 1993 (NSW) on 21 August 2015 ('date of acquisition') for the purpose of constructing works forming part of the "Northern Beaches Hospital Connectivity and Network Enhancement Works Project". The applicants held the subject property as an investment property, and leased it for use as a small medical practice.
The Valuer General assessed, and RMS offered to the applicants, compensation in the sum of $1,522,000 comprising $1,425,000 for the market value of the subject property and $97,000 for disturbance.
The applicants objected to the amount of compensation and commenced these proceedings on 22 December 2015 pursuant to s 66 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) ('Just Terms Act').
In their Points of Claim, the applicants sought compensation in the sum of $2,442,628.90 comprising $2,300,000 for market value of the subject property and $142,628.90 for disturbance. At hearing they revised their claim to seek $2,757,937.90, comprising $2,600,000 for market value and $157,937.90 for disturbance. The applicants' disturbance claim included stamp duty on the purchase of a replacement investment property.
RMS contended for total compensation in the sum of $1,451,686.30 comprising market value of $1,430,000 and $21,686.30 for disturbance.

[12]

Consideration

For reasons I shall shortly give, I find that the sales relied upon by Mr Dempsey provide more assistance than those relied upon by Mr Sanidas. I find that, with the exception of the common sale, the five other sales originally relied upon by Mr Sanidas provide little assistance. In relation to Mr Sanidas' (remaining) sales, being 100 Ryde Road, Hunters Hill, and the strata sale at 247 Ryedale Road, Eastwood, I find these sales do not assist the Court as each is in a different local government area and both are a significant distance from the subject property. Further, 100 Ryde Road has a specialised "dental fitout" in a large residential house situated on 726m² of land, whilst 247 Ryedale Road is comprised of three strata lots located on the ground floor of a two storey building within the established Ryde Hospital precinct.
I agree with Mr Dempsey's view that no reliable adjustments could be made to either of these properties to create equivalence with the subject property. Further, while not ultimately relied upon, the other three properties analysed by Mr Sanidas (which were relied upon in his initial report to deduce his building rate) are of even less assistance. The first, 108 Willoughby Road, Crows Nest, was the sale of a ground floor chemist shop in a different local government area with different zoning. The second, 114 Majors Bay Road, Concord, was also a ground level retail shopfront. Whilst the third, 795a Warringah Road, Forestville, was within the same local government area as the subject property, it is not directly comparable as it is the sale of a two-storey townhouse and is outside the "Investigation Area" referred to in paragraph 10(5) above.
As five of the six sales relied upon by Mr Sanidas to justify his building rate approach are of little assistance, I find that this approach is unreliable.
In light of these findings, the remaining dispute between the valuers related to the appropriate adjustments to be made to the common sale. In particular, there was disagreement as to appropriate adjustment for each of improvements and approvals, location, area and time. As this is the most comparable sale, it is convenient to deal with each such adjustment.

[16]

Consideration of improvements and approvals

It is inappropriate, as RMS submitted, that the Court would look simply at a residential sale and suggest that the sale price should be adjusted using the cost of the improvements that were incurred 11 months afterwards as a base. I find that a "conversion cost" of 58% as suggested by Mr Sanidas, regardless of whether it is adjusted for "new for old" or "Profit and Risk", is inappropriate.
I also find Mr Dempsey's 20% adjustment is too low. I accept that the common sale was not at equivalence with the subject property at the date of sale, and required both a development consent and some works to allow it to function at its highest and best use as health consulting rooms. This means that there should be an upwards adjustment for both the cost and risk of obtaining the development consent, and the cost of improving the common sale to the point that it was at equivalence with the subject property.
Upon review of the development application lodged in relation to the common sale, it is clear that the estimate of $520,000 does not include the costs of obtaining the development consent. The costs of obtaining the development consent are necessary costs that the purchaser would have been forced to expend to bring the common sale into equivalence with the subject property. Whilst there was also some risk involved in obtaining the consent, given that the property was within the Investigation Area where such uses were to be encouraged, I consider this risk to have been low. Whilst it is not clear why Mr Sanidas provided an adjustment only for risk, and not for the actual costs of obtaining an approval, I consider that the adjustment of Mr Dempsey for solely obtaining development consent is too high, and that an upwards adjustment of 5% is appropriate.
With regards to the costs of physically developing the common sale, I consider that the better prediction of the likely costs of the development actually undertaken at the common sale is $520,000, rather than the $800,000 postulated by Mr Sanidas. This was the predicted cost provided to Council in the development application, and whilst it was submitted almost a year after the purchase of 8 Hilmer Street, it represents what a prudent purchaser that was perfectly acquainted with the land would have likely estimated the cost of the development to be.
I also consider that the purchaser of 8 Hilmer Street sought consent for premises that was superior to the subject property in many ways. Based on the evidence before the Court and what was observed on the view, 8 Hilmer Street now presents as a recently developed building with a number of facilities that the subject property lacked, such as certain facilities tailored towards disabled persons and a pathology room. Further, the development at 8 Hilmer Street is also built to higher fire standards, and was generally designed with specific health consulting rooms in mind. The subject property, however, was a dated residential building that had been internally converted to facilitate medical consulting. It lacked any specialist fitouts.
I therefore consider that the adjustment should be substantially lower than the predicted $520,000, and find that $240,000 (or 20%) is a more appropriate adjustment to bring the two properties towards equivalence.
Taken together, I find that an upwards adjustment of 25% for the cost of approvals and improvements is appropriate in the circumstances.

[22]

Evidence of time adjustment

The adjustment for time between the date of acquisition and the sale of 8 Hilmer Street raised a number of concerns at the hearing. Mr Dempsey in his primary report made an upwards adjustment of 22% for elapsed time. Mr Sanidas originally adopted 14%. As noted above, in the first joint report it was agreed that the appropriate adjustment was 1.5% - 2% per month (being a range of 16.9% - 22.6%).
Despite this agreement, and as a result of the receipt of further information, Mr Sanidas sought to revisit the adjustment for time. In the further joint report, Mr Sanidas added the resale of 500 Warringah Road, Frenchs Forest, as an indicator of market activity in 2014 and 2015, and stated that the value of the land "has increased beyond a rate of 24%", although he did not specify what this amount was.
Mr Sanidas went further in his statement of clarification, and stated that a 3.5% adjustment for time was more appropriate. This opinion was based on both the 500 Warringah Road resale, and the sales of two separate (but similar) properties at 124 and 130 Frenchs Forest Road, Frenchs Forest. Mr Sanidas contended an upwards adjustment of 42% to the price of the common sale.
With regard to the 500 Warringah Road resale, the first sale occurred on 20 November 2014 for $1,986,600, whilst the resale occurred on 3 May 2016 for $4,200,000. This amounted to a raw market uplift of 6.37% per month, which Mr Sanidas adjusted for land size and reduced to 3.65%.
With regard to the Frenchs Forest Road sales, Mr Sanidas compared the sale of 124 Frenchs Forest Road on 31 October 2014 for $1,398,500 with the sale of 130 Frenchs Forest Road on 11 August 2015 for $3,700,000. After making an adjustment of 50% to 130 Frenchs Forest Road for "size and scale", Mr Sanidas considered that there had been a market uplift of 3.2%.
Mr Sanidas' was extensively cross examined on his calculations and assumptions, and RMS made a number of critical submissions regarding his reliability on this point. These criticisms included: 1. given that Mr Sanidas acknowledged that he knew of the four sales prior to agreeing to the 1.5% - 2% adjustment in the joint report, his explanation why he had earlier ignored the resale of 500 Warringah Road (based on market "gossip") was not compelling; 2. the use of 500 Warringah Road to adjust the price of the common sale upwards was an unacceptable approach, given that Mr Sanidas was earlier of the opinion that 500 Warringah Road was not a comparable property; and 3. the use of 124 and 130 Frenchs Forest Road, being the sale of two separate properties, is inappropriate because they do not represent the resale of identical blocks of land and the latter sale of $3,700,000 was an outlier and cannot be relied upon in any event.

[23]

Consideration of time adjustment

Whilst I accept that Mr Sanidas obtained certain information at a late stage, I find that the above criticisms are justified. In the circumstances, I am unable to place any significant weight upon his statement of clarification. I note that: 1. Mr Sanidas dealt with 500 Warringah Road in his primary report, and criticised Mr Dempsey's reliance upon it in some detail, without articulating any concern in relation to his knowledge that, based on "gossip" or otherwise, it was a related party transaction; 2. Mr Dempsey gave evidence that the later sale of 500 Warringah Road on 2 June 2016 was an "extreme outlier" because (a) the sale could not have been anticipated at the date of acquisition (21 August 2015) and (b) the proximity of the new Northern Beaches Hospital appeared to have been a material consideration because that property is on the same side of Warringah Road as the Hospital; 3. Mr Sanidas' adjustments made to the resale of 500 Warringah Road, and in particular the adjustment for "15% adjustment for size", was not reliably substantiated in oral evidence; 4. there was an obvious error in Mr Sanidas' calculations insofar as he relied upon the transfer dates of the Frenchs Forest Road properties rather than the sale dates, meaning that the market uplift of those two properties of 164% was experienced over approximately 4 months, rather than 9 months; 5. I accept the criticism that the use of the sale of the two different Frenchs Forest Road properties to adjust for time as if those sales were a resale is neither orthodox nor satisfactory; and 6. I accept that, in relation to the Frenchs Forest Road properties, the adjustment down of the 130 Frenchs Forest Road sale "by 50% for size and scale" is an unjustifiable adjustment.
Given my concerns regarding the further evidence of Mr Sanidas, and noting the previous agreement between the valuers, I find that 2% is an appropriate monthly uplift, which equates to an upward adjustment of 23%.

[27]

Disturbance submissions

The applicants made two alternate submissions in their primary claims for disturbance regarding the construction of "relocation". First, the applicants submitted that "relocation" is not restricted to the relocation of persons, but could be expanded to anything that could qualify as relocation. The applicants noted that previous cases have found that this conceptually includes the relocation of businesses. It was submitted that the applicants' investment in the property was a business, as the applicants were involved in an enterprise that derived a profit, and that the investment could therefore be relocated.
Alternatively, the applicants submitted that because the correct construction of "relocation" was not restricted to persons or businesses, the relocation of an investment that was not a business could also qualify. Whilst the applicants were unable to provide any authority in support of this submission, they did seek to distinguish a number of cases that referred solely to the relocation of businesses by saying that such findings merely described the circumstances of those respective cases, and that it had not been found that investments could not be relocated.
With regard to the applicants' secondary claim for disturbance under s 59(1)(f) of the Just Terms Act, the applicants relied on the submission that they operated an investment business, and submitted that this constituted an actual use of the land. It was submitted that the applicants' investment was not a passive investment, as the subject property was put to the "actual use" of generating income, and was not passively held only for capital gains.
RMS submitted that this case includes neither a "relocation" nor an "actual use". RMS submitted that the applicants were "the classic examples of a passive investor", as they received rental income and capital gains without undertaking any physical work involving the subject property. It was submitted therefore that the applicants could not be considered to have been relocated, nor could they have incurred costs relating to their actual use of the land, as they were not engaging in any "actual use".

[28]

Disturbance findings

Before proceeding, I note that s 59(1)(c) of the Just Terms Act refers to the "relocation of those persons". I have seen no evidence, nor heard any submissions from the applicants, which suggested that any person, natural or corporate, has been relocated as a result of this resumption. Given this, I find that the applicants' claim for financial costs pursuant to s 59(1)(c) cannot be maintained, as the applicants have not been personally relocated.
Sections 59(1)(d) and (e) of the Just Terms Act, however, refer simply to "relocation". Given that this term is not defined in the Just Terms Act, it should be read in context and given its ordinary meaning. The word "relocate" is defined in the Macquarie Dictionary as "to move (a firm, a factory, etc.) to a different place". Its context, and in particular the exclusion of the words "of those persons", suggests that the disturbance for the relocation of something other than the applicants personally can be claimed.
This is consistent with previous authorities. In McBaron v Roads and Traffic Authority of New South Wales (1995) 87 LGERA 239, Talbot J found at 248 that the applicant was entitled to stamp duty for the relocation of a dairy farm. In Kirela Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (No 2) (2004) 132 LGERA 90; [2004] NSWLEC 68 ("Kirela"), Cowdroy J found at [14] that because the applicant had not relocated its business, it was not entitled to compensation under s 59(1)(d) of the Just Terms Act. It was also noted by Talbot J in Bezzina Developers Pty Ltd v Leichhardt Municipal Council (2006) 146 LGERA 249; [2006] NSWLEC 175 at [112] that a claim pursuant to s 59(1)(d) of the Just Terms Act was not maintained because "no physical activities [were] to be relocated" as a result of the acquisition.
The applicants' primary submission on this point was that their investment was a business, and so could be relocated. I do not accept this. Whilst some investments may be businesses, this is not necessarily the case. Operating a business requires some level of engagement with a commercial enterprise. Whilst the applicants did derive an income from leasing the subject property, they were not engaged in any enterprise beyond passively receiving that income. Mr Speter deposed in his affidavit dated 28 May 2016 that "the tenant was also paying all outgoings", implying that the applicants had little to do with the property. Mr Speter also deposed that the subject property was the applicants' "main source of income", and that they did not have "any significant savings or superannuation" aside from the subject property, suggesting that the applicants were not generally in the business of investing, but rather simply held this single significant investment. Finally, Mr Speter characterised their ownership of the property as the applicants' "superannuation". Whilst I have concerns characterising it as such in a legal sense, this further reinforces that the applicants were not operating a business. I therefore find that the applicants' investment in the subject property should not be considered a business.
However, if I am wrong on this point, I also find that to the extent that the applicants operated a business, it has not been relocated. When a business sells a land asset, compulsorily or otherwise, it is not forced to relocate unless it was physically operating from that land asset. The applicants, who had leased out the entire property to the NSW Health Administration, did not operate any business from the subject property. Rather, if it were considered that the applicants were engaged in business, that business would be operated from another location which had invested in the subject property. As such, the applicants' business would not have been relocated in any event.
The applicants' secondary submission on this point was that relocation is not limited to persons or businesses, but can be expanded to the relocation of anything. I also do not accept this submission. When an investment property is resumed, the property is acquired and the money invested in that property returned to the investor. That investor may then invest that money how they wish. Investing this money in another property is not a relocation of the original investment, but rather a reinvestment of the money paid for the original investment. Nothing has been physically moved to another place. Reinvestment is therefore conceptually different to the relocation of a person or a business from a resumed property to another property.
Given this, I find that the applicants' investment has not been relocated for the purposes of ss 59(1)(d) and (e) of the Just Terms Act.
The applicants alternately claim reimbursement for the amounts in paragraph 75(3), (4) and (5) pursuant to s 59(1)(f) of the Just Terms Act. This provision has been the subject of much judicial discourse, from which the following principles may be distilled: 1. the term "financial costs" should be interpreted broadly: McDonald v Roads and Traffic Authority of New South Wales (2009) 169 LGERA 352; [2009] NSWLEC 105 at [110]; 2. the actual use must exist in fact at the time of the acquisition, and cannot be either "a future use or potential use": Blacktown Council v Fitzpatrick Investments [2001] NSWCA 259 at [26]-[27] (Brownie AJA) ("Fitzpatrick"), Kirela at [12] (Cowdroy J); 3. actual use can include "land banking" for future development of that land (Fitzpatrick at [31] (Brownie AJA)) and construction that is being conducted on the land at the date of acquisition (Al Amanah College Inc v Minister for Education and Training (No 2) [2011] NSWLEC 254 at [44] (Biscoe J)); 4. an applicant must be more than "a passive investor": Fitzpatrick at [34] (Brownie AJA); and 5. holding land as an "investment rather than as trading stock" is not an actual use of the land: Cannavo v Roads and Traffic Authority of New South Wales [2004] NSWLEC 570 at [46] (Talbot J).
It was also recently held by Preston Ch J in G. Suonaf Holdings Pty Ltd v Roads and Maritime Services [2016] NSWLEC 116 at [61] that the applicant in those proceedings had not established that financial costs incurred in relation to the purchase of a replacement residential property to be tenanted constituted costs related to the actual use of the acquired land that would be incurred as a direct an natural consequence of the acquisition.
It is clear from Mr Speter's 28 May 2016 affidavit that any intention to develop the subject property was only a potential future use, and that no consent had been obtained to allow any further development of the subject property. It was not submitted by the applicants that this was otherwise.
Given this, the applicants must rely upon the proposition that their use of the subject property was more than just as an investment, and that they were more than just passive investors. I find that this cannot be maintained. As noted in paragraph 87 above, the applicants have not established that they have any involvement with the property other than deriving an income and potentially making a capital gain. I accept the submission of RMS that the applicants are "the classic examples of a passive investor", and find that they are not entitled to financial costs pursuant to s 59(1)(f) of the Just Terms Act.
As such, I find that the claimants are entitled to disturbance of $21,250 pursuant to s 55(d) of the Just Terms Act, being comprised of $13,650 for legal costs and $7,600 for valuation costs.

Speter v Roads and Maritime Services

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Judgment (31 paragraphs)

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