St Marys Land Limited v Valuer General

The Valuation Framework 8Section 6A of the Act provides: 6A Land value (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 bona-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 subsection (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 subsection 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 subsection (1) had not been made. (3) Notwithstanding anything in subsection (1), in determining the land value of any land, being land in relation to which, at the date to which the valuation relates, there was a water right: (a) the land value shall include the value of the right, and (b) it shall be assumed that the right shall continue to apply in relation to the land. 9Definitions relevant to the proceedings are contained in s 4 of the Act: 10The power for the respondent to make a subsequent valuation in the present circumstances is provided in s 27B of the Act: 27B Lots in subdivisions to be separately valued (1) The Valuer-General may make valuations, in accordance with this section, of the land in a deposited plan on registration of the plan. (2) If: (a) one or more lots in a deposited plan in which all lots are owned by the same person, or (b) one or more lots in a deposited plan that are owned by the same person and included in one valuation (whether or not made under this section), is or are sold or otherwise conveyed to another person or is or are compulsorily acquired, fresh valuations of the land in the plan or included in the valuation concerned must be made by the Valuer-General in accordance with this section. (3) Subsection (2) (a) does not apply if the Valuer-General has made a valuation under subsection (1) of the land in the deposited plan concerned. (4) Separate valuations are to be made in respect of each lot comprising the land that is the subject of the valuation. (5) However: (a) the Valuer-General may, at the Valuer-General's discretion (but subject to section 26 (1)), include adjoining lots that are owned by the same person in the one valuation (which may also include other adjoining land owned by that person), and (b) the Valuer-General must (subject to section 28) include in one valuation lots owned by the same person if those lots are worked in one holding for agricultural or pastoral purposes. (6) Land that is required to be separately valued under this section is to be valued, for the purposes of any relevant rating or taxing authority: (a) as at the 1 July by reference to which the land was valued for the purposes of the valuation list for that authority current at the time the land became required to be separately valued, and (b) as at the 1 July by reference to which the land has been valued for the purposes of any subsequent valuation list for that authority. (7) Rates and taxes (other than land tax under the Land T ax Management Act 1956 ) levied or leviable on the land in the deposited plan for the rating and taxing years following the sale or other conveyance or compulsory acquisition (or, if the valuation was occasioned by the registration of a deposited plan, following that registration) are to be based on valuations made under this section. Those valuations are to be used until the land is included in a later valuation that may be used for rating or taxing purposes. (8) If part only of a lot in a valuation under this section is subject to a particular rate, the value of the land is to be apportioned so as to show separately the value of that part. 11Section 14K of the Act provides: 14K Assumption as to physical condition and manner of use of land (1) For the purpose of valuing any land, it is to be assumed: (a) that the physical condition of the land, and of any other land, and (b) that the manner in which the land, and any other land, may be used, were the same on 1 July of the valuing year in respect of which the land is being valued as they were on the date on which the valuation is made. (2) For the purpose of ascertaining any allowance or apportionment factor for any land, it is to be assumed: (a) that the physical condition of the land, and of any other land, and (b) that the manner in which the land, and any other land, may be used, were the same on 1 July of the valuing year in respect of which the allowance or apportionment factor is being ascertained as they were on the date on which the land became eligible to have an allowance or apportionment factor ascertained for it. 12In order to understand my reasons for judgment it is necessary to outline the facts, as I understand them.

Background 13The land is 972.9 hectares and situated at 1070-1274 The Northern Road, Llandilo NSW 2747 in the Penrith Local Government area. It was previously part of a larger parcel of land, some 1539 hectares, known as the former Australian Defence Industries site (ADI). 14The whole site comprises three Precincts - Eastern, Western and Central but this appeal is only concerned with the Western and Central Precincts. 15The land is unique not only because of its size and environmental issues but also because of its site-specific environmental planning instruments. With the exception of two large industrial style buildings, which are located in the south-eastern corner of the property, and a large transmission line/easement, which crosses it, the land is essentially vacant. It is described as follows: 2. Title Details (a)At 1 July 2006, the subject property comprised part of Lot 1 in DP 1079444, being located in the Penrith Local Government Area. (b)On 22 February 2007, by registration of DP 1104194, the subject property comprised part of Lot 3 in DP 1104194. (c)On 28 November 2008, by registration of DP 1132380, the subject property comprised the whole of Lot 2 in DP 1132380. (d)The subject property is burdened by numerous easements, as indicated on the deposited plans identified above. 4. Zoning The subject property was zoned pursuant to Sydney Regional Environmental Plan No. 30 - St Marys (as amended by Amendment No 1 on 11 April 2006) as at the valuation base date (1 July 2006) as follows: (a) Urban - 324.5 ha; (b) Employment - 31.5 ha; (c) Regional Open Space - 39.14 ha; (d) Regional Park - 553.6 ha; (e) Drainage -19.72 ha; (f) Road and Road Widening - 4.21 ha; and (g) Deferred Matter - 0.23 ha. The subject property was zoned pursuant to Sydney Regional Environmental Plan No. 30 - St Marys (as amended by Amendment No 2 on 27 February 2009) as at the date of valuation (9 April 2009) as follows: (h) Urban -317.6 ha; (i) Employment - 38.4 ha; (j) Regional Open Space - 40.44 ha; (k) Regional Park - 553.6 ha; (I) Drainage -19.72ha; (m) Road and Road Widening - 2.91 ha; and (n) Deferred Matter - 0.23 ha. 5. Planning Chronology The planning instruments, policy decisions, agreements and development controls considered in this appeal include: (a)Sydney Regional Environmental Plan No. 30 - St Marys was gazetted on 19 January 2001; (b)St Marys Environmental Planning Strategy 2000 was issued on 19 January 2001; (c)St Marys Development Agreement was executed on 13 December 2002; (d)St Marys Eastern Precinct, Precinct Plan dated 4 February 2004 was made; (e)St Marys (Blacktown) Development Agreement dated 23 September 2004 was made; (f)Sydney Regional Environmental Plan No. 30 - St Marys (Amendment No 1) was gazetted on 11 April 2006; (g)St Marys Penrith Planning Agreement and related Deed of Variation was resolved to be adopted by the Penrith City Council at its ordinary meeting on 15 December 2008 and was resolved at that meeting to take effect from the date of adoption of the Precinct Plans for the Central and Western Precincts. The St Marys Penrith Planning Agreement and related Deed of Variation were executed on 12 May 2009; (h)Sydney Regional Environmental Plan No. 30 - St Marys (Amendment No. 2) was gazetted on 27 February 2009; (i)St Marys Central Precinct Plan was adopted by Penrith City Council on 23 March 2009; and (j)Penrith City Council adopted St Marys Western Precinct Plan on 23 March 2009. 6. Site Features (a)The subject property comprises a substantial parcel of undulating land with a 2.2km frontage to The Northern Road along its western extremity. It extends eastwards comprising level to gently undulating land with an eastern boundary to South Creek. (b)The subject property has substantial secondary frontages comprising its northern boundary to Ninth Avenue of approximately 3km and its southern boundary of slightly irregular shape adjoins the suburbs of Cambridge Gardens, Werrington Downs and Werrington County. (c)Matters that are material to the valuation include the requirement to make provision for: (i)affordable housing contribution; (ii)macro fauna management; (iii)remediation; (iv)Regional Park contributions; (v)Regional Park subdivision and transfer to State Government (NPWS); (vi)Regional Park fencing; (vii)Regional Open Space; (viii)bulk servicing of employment land; (ix)Employment Development Strategy; (x)skilling and employment centre set up and ongoing costs; (xi)water quality monitoring and maintenance; (xii)filling for the Central precinct; (xiii)detention basins; (xiv)demolition; (xv)roads and road widening; and (xvi)Asset Protection Zones. 16The aims of the State Regional Environmental Planning Plan No 30 (SREP) are contained in cl 3 and state: (a) support the St Marys Environmental Planning Strategy, 2000 of the Department of Urban Affairs and Planning by providing a framework for the sustainable development and management of the land to which this plan applies, and (b) rezone certain land for urban and employment-generating development, and (c) rezone land for conservation purposes and conserve the significant heritage values of the land to which this plan applies, and (d) ensure that urban development on the land achieves desirable environmental, social and economic outcomes, and (e) provide opportunities for recreation facilities that meet the needs of the regional and local community, and (f) ensure that development of the land to which this plan applies is integrated with established surrounding areas. 17Part 3 contains provisions relating to the creation and status of a precinct plan for the development on land under the SREP. Clause 10 provides detail on the content of a precinct plan and states: (1) Each draft precinct plan is to illustrate a proposed pattern of development for land within the precinct and explain how each proposed development type and form meets the requirements of this plan and the environmental planning strategy. (2) A draft precinct plan is to include proposals for, and information about, the following, for the land to which it applies: (a) phasing of development, in general terms, (b) distribution of major land uses, including location of retail centres, non-residential uses and areas for higher density housing, (c) trunk public transport routes, pedestrian, cycle and road access and circulation networks, and flood evacuation routes, (d) an indicative subdivision road pattern, (e) drainage systems and flooding issues, including an assessment of the risk of flooding and damage likely to result, (f) location of public facilities, (g) location of open space, its function and landscaping intent, (h) management of the potential impacts of development on the existing physical and environmental characteristics of the land, including significant native flora and fauna habitat and soil characteristics. The information is to include specific details of those characteristics and to explain how development should be planned and configured to minimise adverse impacts on areas of significance for biodiversity, (i) guidelines for the design, siting and construction of buildings, (j) management within the precinct of Aboriginal heritage relating to the land to which this plan applies, (k) any items of non-Aboriginal heritage significance or of archaeological significance on land to which this plan applies and any potential impacts on these, (l) design principles drawn from an analysis of the land to which this plan applies and its context, (m) the impact of the proposed development on any adjoining land that is zoned Regional Park or Regional Open Space, (n) any other major infrastructure, such as above- or below-ground trunk electrical systems, trunk sewerage or water supply lines, (o) management of remnant contamination risk, (p) any other matter required to be addressed by the relevant council or notified to the relevant council by the Minister. 18Clause 20 (2) of the SREP imposes two important limitations on the power of the consent authority to grant development consent. It states: Consent must not be granted for development within a precinct unless: (a)there is a precinct plan for the precinct and the consent authority has taken that precinct plan into account, and (b)the consent authority has taken into account whether the proposed development is consistent with the terms of any relevant development agreement. 19A development agreement is defined in the SREP to mean: "A legally enforceable agreement to which the owner of the land to which this plan applies is a party, together with one or more of the Crown in right of the State of New South Wales, Penrith City Council or Blacktown City Council, and which makes provision for services, infrastructure or facilities to support the development of land to which this plan applies or for the transfer of land ownership." 20Whilst the existence of a development agreement is not a precondition to the grant of development consent, cl 20(2)(b) requires the consent authority (Penrith City Council) is to take into account whether the proposed development is consistent with the terms of any relevant development agreement. 21There are two development agreements for the land - the St Marys Development Agreement executed on 15 December 2002 (amended in May 2004) and the St Marys Penrith Planning Agreement and related deed of variation executed in May 2009. 22The respondent submits that The St Marys Development Agreement executed on 15 December 2002 (amended in May 2004) is for the whole of the SREP site. It provides for state and regional contributions. It also imposes under part 2 significant expenses and obligations for development of the land. The St Marys Penrith Planning Agreement and related deed of variation were adopted by the Penrith City Council on 15 December 2008 at that time it was resolved that they would take effect from the date of adoption of the Precinct plans for Central and Western Precincts on 23 March 2009. 23Up until 2007, (when the land was identified as Lot 3 DP 1104194 and had an area of 984.7 hectares and before the excision of the South Dunheved employment land), the respondent valued the land on the basis that a purchaser of the land could not satisfy the requirements of SREP 30 to obtain development consent. This is reflected in the 2007 valuation issued by the Respondent for the 2006 Base date in the sum of $20,000,000. 24The land valuation for 9 April 2009, the subject of this appeal, has been determined on the basis that a purchaser of the land can satisfy the requirements of the SREP to obtain development consent. This is because the respondent has had regard to the adopted Precinct plans and planning agreements under s14K (1) (b) of the Act.

The valuation evidence 25The following valuations are relevant. 26The valuation for the land dated 9 April 2009 for the 2006 base date in the sum of $70,000,000. 27The valuation of the land dated 12 January 2010, issued after consideration of the applicant's objection and after receipt of an independent valuation lodged by the applicant by Colliers International dated 28 September 2009 and an independent valuation for the respondent by BEM Property Consultants and Valuers (BEM) for the base date of 2006 at $62,750,000. (BEM assumed the same interpretation of s 14K contended by the respondent, but concluded that the market evidence did not support the land value determined by the respondent and recommended a reduction in the valuation - Exhibit F, tab 3). 28The valuation of the land dated 31 January 2011 by Mr Watts (AW) the respondent's valuer at $106,800,000 (exhibit 3). (I note if he adopts the applicant's interpretation of s 14K of the Act his land valuation is reduced to $70,651,000). 29The valuation of the land dated 25 January 2011 by Mr McKinnon (RMcK) the applicant's valuer at $48,500,000 (exhibit C). 30The valuers joint report exhibit D. (I note that AW's primary method of valuation is through "direct comparison" of sales evidence but he agrees with RMcK that both the "direct comparison" and the "hypothetical residual analysis or feasibility approach" are both suitable methods in which to make a valuation of the land. Although the valuers disagree about the application of these methods and the variety of adjustments and inputs which determine the result (para 8 p 3 of exhibit D). 31In respect of the hypothetical residual analysis or feasibility approach, the experts agreed inputs and assumptions are detailed at para 14 at p 4 of exhibit D. 32In respect of the direct comparison approach, the valuers identify and analyse 6 comparable sales (although they have different analysis of each): The are:

• Lot 1 DP 533370 The Northern Rd Cranebrook
• Raby House, Camden Valley Way, Catherine Filed
• Oran Park House, Cobbitty Rd Catherine Field
• Brabham Drive and Reen Rd Eastern Creek
• Corner Mamre and Erskine Park Roads, Erskine Park
• The Hermitage Camden Valley Way, Catherine Field

What do the valuers say about the interpretation and application of s14 K of the VL Act 33RMcK adopts the applicant's interpretation of s14K of the VL Act which assumes "...at the valuation date of 9 April 2009 the Western and Central Precincts plans and accompanying variation to the Council planning Agreement were not ratified at that strict point of time and therefore not factors significantly de - risking the site.... That is, as at the July 2006 base date, the Precinct Plans and the accompanying variation to the Council agreement were not executed and therefore not factors contributing to the land value " per RMcK at para 20 p 14 exhibit D. 34To account for this in his direct comparison analysis valuation (p 38 of exhibit C) RMcK "... applied a discount to the headline rate." To account for this in his feasibility calculation he "... extended the lead in time to physical construction start of 30 months and targeted a 30% P&R facto" ( para 20 at p 14 of exhibit D). 35Irrespective of his interpretation of s 14K, if the applicant's interpretation is not correct and the Precinct Plans were taken into account RMcK is of the opinion his evidence is that they would not increase the land valuation. This is because: "...Precinct Plans by their nature are actually high level structure planning documents that give guidance only to the future development footprint, arterial road locations, open space and regional park, and future desired built product outcomes etc. They are not detailed design documents - hence whether s14K applies or not, the subject project will experience a lengthy delay in time before physical construction start, which impacts on the residual value. For a large project the holding costs in terms of debt in particular are substantial. Further time will be spent by the developer undertaking detailed site design (road and lot layouts, bridges, hydraulics, sewer, parks etc) achieving subdivision consents, achieving Construction certificates and letting contracts." 36Therefore, RMcK adopts for his feasibility study "... 2.5 years to construction start ie all consents are achieved and construction is underway " p 15 of Exhibit D. 37RMcK's evidence is that the analysis must reflect comparable sales and project costs and revenue at the time (base date July 2006). He is of the opinion that the DSL (Developer Services Levy) charges, (which were repealed in December 2008) are project costs and have a place in the valuation calculations either as a DSL or a construction cost by the developer by proxy. (pp 16 and 17 exhibit D and p 35 Exhibit C). 38The respondent's valuer AW adopts the respondent's interpretation and application of s 14K. His evidence is that it must be assumed that: "The physical condition of the subject land (and any other land) and the manner in which the subject land (and any other land) was capable of being used were the same on the base date to which the valuation applies (1 July 2006) as it was on the date on which the valuation was actually made being 9 April 2009 (being the date valuation)." 39In his opinion, the impact of this clause requires the valuer to assume a retrospective valuation to an earlier base date (in this case 1 July 2006). That is, that the physical condition and manner in which the land can be used on the actual date the valuation was being undertaken (date valuation made), in this case 9 April 2009, forms the basis of the potential of the land directly at the retrospective date. While AW appreciates that market conditions are relevant for the retrospective date, he says "... those conditions are assumed to apply to a parcel of land which is capable of being used and developed in exactly the same way as at the date valuation made ." (p 15 exhibit D). 40AW is of the opinion that s 14K provides the opportunity to value the land on the base date, on the assumption that the planning framework as detailed in the Facts and Legal Assumptions filed had been settled and that the land was capable of benefiting from the process of achieving a development approval for the proposed residential subdivision/urban subdivision. He is also of the opinion that s 14k requires the land value to reflect the planning frameworks and also the repeal of the requirement to meet the payment of Sydney Water DSL levies as a condition of consent, which on his calculation is a saving of an agreed amount of $18,263,000. In turn, he says it increases the residual land value by approximately $8,380,000 by removing the DSL levies no longer required as part of the development consent p 15 Exhibit D. 41AW notes that the Western and Central Precinct plans were adopted on 23 March 2009 and this brought into effect the St Mary's Penrith Planning Agreement and variation. He rejects the applicant's interpretation of s 14K and a delay of 30 or so months before a development application could be lodged and approved. In support of his position, he refers to the fact that development applications for the stage 1 development of the Western Precinct (Jordan Springs) and approvals were granted in November 2009 - 8 months after adoption of their relevant Precinct plans (p 16 exhibit D). 42AW's land valuation (adopting the respondent's view of the interpretation and application of s 14K) is $106,800,000. If he adopts the applicant's view of s14K and adds back the DSL and allows for a 3-year period, the land valuation is $70,651,000 (para 21 at p 16 Exhibit D).

Legal Context 43The parties agree that the primary task of the valuer in arriving at land value is to comply with s6A (1) of the Act Toohey's C ase: Toohey's Ltd v Valuer-General [1925] AC 434 confirmed in Fenton Nominees Pty Ltd v The Valuer- General (Wells J)[27S.A.S.R] (1981). 44Therefore, the first step must be the statutory assumption in s 6A (1) remains: the improvements on the land to be valued are to be removed and the land is valued as if they had not existed. 45This task involves what is an essentially a conventional valuation methodology. As McClellan stated in Valuer-General v Commonwealth Custodial Services Ltd [2009] NSWCA 143 at para 22 "... Section 6A(1) is concerned with the value of vacant land and, for this reason, the valuer must assume that the improvements, if any, have not been made. However, the Act recognises that the value of vacant land, which will be a product of its commercial or other potential, may be affected by the purpose or purposes for which it may be lawfully used" . In order to avoid undervaluation of the land the Act invites the valuer to make assumptions in certain circumstances: Toohey's Ltd v Valuer-General [1925] AC 439. 46The zoning of the land and its lawful use is a relevant consideration under s6A (1) of the Act. 47An improvement that enables an existing use can be taken into account because of s6A (2): Wunderlich Ltd v Valuer-General (1959) 5 LGRA 50. Secion 6A(2) (or its predecessor) was introduced into the Act following Wunderlich and was designed to accommodated situations in which undervaluation was possible due to the precieved requirement under s6A(1) that existing use benefits be discounted where the use was carried out within the improvements. Commonwealth Custodial Services Pty Ltd v Valuer General (2007) 156 LGERA 156 (CA) at [50]. 48If there is a physical change to the land between the valuation date and the base date s14K (1) (a) of the Act directs the valuer to assume that the physical condition of the land and of any other land and the manner in which the land and of any other land can be used were the same on the valuing year as they were on the date of the valuation. 49But how is a change in " the manner of use of the land' not arising from physical change to the land (between the base date and the valuation date) assumed unless s 14K (1) (b) operates independent of s14K (1) (a)? 50And if it is not taken into account then how is the commercial potential of the land reflected in the valuation? 51There is no suggestion in this case that there was any relevant change in the physical condition of the land between 2009 and 2006. However, the respondent's position is that there is a change in the manner in which it might be used between 2009 and 2006 due to Council's adoption of the Precinct plans and the planning agreements. 52The respondent submits that the reference to "manner in which the land, and any other land may be used " cannot rationally be regarded as directed only to the physical possibility, rather than to lawfulness. 53Without the respondent's interpretation of s 14K, there is no opportunity for the valuer to have regard to the precinct plans or the planning agreement adopted by the council on 23 March 2009 before the valuation date and after the base date. Because the Precinct Plans and planning agreement are not an EPI and therefore relevant under s6A (1) of the Act. 54Accepting that the value is to be determined by what would be arrived at by "... a hypothetical vendor (not the actual vendor) and hypothetical purchaser, neither being anxious, both being willing to treat, and both fully appraised of the facts affecting the land's potential, both adverse and positive : Walker Corporation Pty Limited v SHFA (2008) 233CLR 259, citing at [51] Kenny & Good Pty Limited v MGOCA (1992) Ltd (1999) 199CLR 413 at [49] -[50], it must be accepted that the hypothetical parties to this valuation were aware of the SREP and the Precinct plans and the Planning agreement having been adopted by Council on 23 March 2011. These facts were publicly available. 55However, for the purposes of valuation, can they be assumed under s 14K(1) as relevant assumptions for the highest and best use of the land for the purpose of s6A (1) of the Act?

What is the correct interpretation of S 14K of the VL Act? 56The respondent submits that the meaning of s 14K becomes clear after a consideration of its historical context. 57In support of that, it refers the Court to the table of amendments at the end of the Land Valuation Act 1916 No 2 (at tab 25 of the bundle) where it records that s 14K was inserted into the Act by an amendment in 2000 No 106, Sch 1[14] and it was further amended in 2006 No 38, Sch 1[4]. 58According to the evidence, s 14K replaces the repealed s 14A, which was inserted into the Act in 1973 and therefore predates the current s 6A. However, the respondent submits that the words and meaning of s 14A is very similar in current wording in s 14K. While there is little case law to assist understanding of the meaning of s 14A, the Court was referred to a decision by Bignold J in North Sydney Brick and Tile Company Limited v The Valuer General [1994] NSWLEC 87. The facts of that case are different (because it concerned a valuation of land made by the respondent pursuant to s60A of the Act following a planning instrument being amended). Bignold J in North Sydney Brick held that s 14A allowed changes in planning controls for the land at the date of valuation to be assumed at the base date in the s 6A assessment. 59The Respondent contends that while 6A(1) covers zoning and permitted purposes for the land, s 14(K) allows changes to planning controls (such as Precinct Plans and Agreements) which are not environmental planning instruments and relevant under s 6A(1) but change the manner in which the land may be used to be considered in the valuation exercise. 60The applicant contends that "the manner in which the land may be used" does not refer to the permitted purposes for which the land might be used in accordance with statutory planning instruments that could apply to the land or to statutory charges such as the DSL. It bases this contention on the following matters: (i)The heading to s 14K only refers to physical condition; (ii)As a deeming provision, the Act must be construed strictly; (iii)Varying expressions are used Act to describe the permissible purposes for which land may be used under planning instruments; (iv)Sub-section 14K (1) (a) and (b) are "conjoined with the physical change" citing Leichhardt Municipal Council v Container Terminals (1981) 48 LGERA 409. 61The respondent contends that the applicant's interpretation is wrong. The respondent says: (i)The Interpretation Act 1987 provides that headings of sections in an Act are not to be taken to be part of the Act: s.35 (2) (a); (ii)The meaning, object and purpose of s.14K in the context of the Act is clear; (iii)Sub-section 14K (1) (a) and (b) are distinct; (iv)The Container Terminals case of 1981 did not deal with s 14K or any analogous provision. 62The respondent submits that parity and fairness would not be achieved if, as the applicant argues, actual planning opportunities and constraints as at the relevant date (the date on which the valuation was made) were ignored. This would mean that the applicant's land, for the balance of the valuation cycle, would be, or would be likely to be, undervalued and/or not valued upon a basis which reflected its actual potential, as compared with other land in the local government area. An approach, which did not reflect actual potential, would not be consistent with the exigencies of s 6A of the Act, which continues to govern the valuation exercise.

Finding - interpretation of s14K (1) 63I accept the respondent's interpretation of s 14k (1) of the Act for the reasons outlined in its written submissions and oral submissions. 64It is well established that the concept of the "highest and best use" is to be adopted for the purpose of ascertaining the land value under the Act. Trust Company of Australia Ltd v The Valuer General [2007] NSWCA 181 (26/7/2007);(2007) 154 LGERA 437 at [32] and [33] per Campbell JA (RWS para23). 65Furthermore, it is essential to commence that task of construction of s14K (1) by reading the provisions in context: Project Blue Sky v Australian Broadcasting Commission (1998) 194 CLR 355 at 381. The presumed intention of the drafter must be gleaned from the provision itself and the other provisions in the Act, which may inform it meaning: CIC Insurance Limited V Bankstown Football Club Limited (1997) 187 CLR 384 at 408. 66The highest and best use of the land is identified by first determining the lawful uses that may be made of the land. The respondent submits this indicates "the manner in which the land may be used. " 67The applicant submits that s14K only deals with land improvement such as: filling of land, which might change the manner in which the land may be used. But as the respondent submits what is the point of determining the physical possible uses of the land following filling if that use is prohibited by a planning instrument or at law? On the applicant's version of the meaning of s14K (1) (b) a change in land improvements in those circumstances will have no impact on the manner in which the land may be used, whereas in the respondent's submission physical capability coupled with legal permissibility determine the highest and best use of the land for valuation purposes. 68The respondent submits the assumption of legal use "manner in which the land may be used" extends to any law regulating the prospective use of the land in addition to environmental planning laws - capable of informing the manner in which the land may be used for its highest and best use. Therefore the adopted precinct plans and planning agreements are relevant. 69I agree with the respondent's reasoning as outlined in its written submission at paragraph 28 and find that s14K is simply a provision which contains assumptions that must be made in carrying out the s6A (1) valuation. Consistent with the rule of statutory interpretation in Coopers Books (Wollongong) Pty Ltd v FCT (1981) 35 ALR 151 at 156-7,169 " Problems of legal interpretation are not solved satisfactorily by ritual incantations which emphasis the clarity of meaning which words have viewed in isolation, divorced from their context. The modern approach to interpretation insists that the context be considered in the first instance, especially in the case of general words, and not merely at some late stage when ambiguity might be thought to arise ." K&S Lake City Freighters Pty Limited V Gordon & Gotch Limited (1985) 157 CLR 309 per Mason J at [4]. 70After careful consideration of the both parties' written submissions and the law, I am of the opinion that:" s14K simply transfers a state of fact and law at later date back to the consideration of the value at the base date. It does not, as the respondent submits "...inhibit and in reality requires, the transposition of the consideration of potential under 6A(1) to be undertaken in that different assumed timeframe. If this were not so, the purpose of the exercise would be entirely frustrated and indeed it is hard to see how a valuer could value the land in the face of the necessity to take into account two legal situations which may be mutually inconsistent ." (RWS Paragraph 28 -30). 71The applicant's interpretation of s 14K ignores the continuing operation of s 6A (1) which mandates the carrying out, as at the base date, of an exercise which includes reference to the land's potential as likely to be understood by the hypothetical parties of the sale. The Act requires a consideration of what the understanding of the hypothetical parties would be about the legal potential of the land as a the valuation date, although the land must still, as far as basic financial constraints are concerned be valued as at the base date. 72In this case the hypothetical paries to the sale must be aware of the SREP, which operates like a local environmental plan. It zones the land and lists uses permissible with or without consent or prohibited. There is no issue that the parties at the valuation date were fully aware of the land zoning. 73The SREP in Part 3 specifically recognises and gives weight to a Precinct Plan, it provides details for the plan in cl10, and its force and effect are provided in cll15 and 16. It must be assumed for the valuation that the consent authority, Penrith City Council's approval and adoption of the plan on 23 March 2009 meant that the plan was in full force and effect at the valuation date. The formal execution of the plan some weeks later by the General Manager of the council does not lessen its legal effect for the purpose of valuation. 74Council's resolution on 23 March 2009 to adopt the Precinct Plans brought the Planning agreements into effect. It is irrelevant, for the purpose of valuation under the Act, that the hypothetical parties are not signatories to those agreements. The SREP obliges any hypothetical purchaser that proposes to develop the land to enter into the St Marys Development Agreement and negotiate an agreement with Penrith Council. A notional purchaser with that capability must be assumed under the Act. Although I concede the market price will reflect the onerous obligations in the agreements and that the pool of hypothetical purchasers for this land may be smaller because of the obligations under the SREP and plans and agreements. However, the Act requires the existence of a sale. If there is some prerequisite, qualification for a purchaser she is assumed to have it. This is not a case where the land has no market and one must assume a sale to a specific party to avoid dispossession without remedy: Raja Vyricherla Narayana Gajaputiraju v Revenue Divisional Officer, Vizagapatam [1939] 2 All ER 317 . 75I accept the respondent's submission that with the adoption of the precinct plan there is opportunity to lodge a development application and obtain a development consent. Under cl 20(2) the council will take into account whether the development is consistent with the terms of any relevant development agreement but the existence of a development agreement is not a pre condition to consent. 76Due to the operation of s 14K the valuation under s 6A(1) was required to take into account that the development of the land was possible as soon as a purchaser could obtain consent and put itself into a position where it could begin works. The respondent submits that there is no additional risk beyond the ordinary commercially accepted risks inherent in any transaction. Accepting that the physical commencement of the development of the land cannot be taken on the day of settlement, and requires a process to be undertaken the respondent contends that market sales of zoned land do not need to be adjusted to take account of ordinary delays. 77I accept as the respondent contends that the land would be worth on the day of the hypothetical sale what other comparable land in a similar legal state was worth evidenced by sales, subject to adjustment for size (which in turn can be offset or extinguished by other factors of advantage and possibly physical constraints (RWS Para 17). Adequate compensation concepts are not relevant to the valuation process. The vendor will not have access (as Mr McKinnon conceded in oral evidence) to intricacies of the transaction funding purposes or an understanding of the purchasers' plans or intentions or the risk entailed.

Valuation 78As stated earlier, the applicant seeks to make out a case under s34 (1)(a) that the value assigned is too high. The applicant must prove this to be the case (s 40(2)). 79This means that I need to be persuaded that the valuation evidence of the applicant's valuer RMcK in his statement of evidence exhibit C, and in the joint report exhibit D and the oral evidence, support a valuation in the sum of $48,500,000 adopting the respondent's interpretation of s14k which I have found to be correct. 80Unless the Court is satisfied that the onus of proof has been discharged, the appeal must be dismissed. The Courts have held that a value will not be too high if it is within a range of value judgments, which the Court accepts as the level of accuracy to be expected of a valuer Commonwealth Custodial Nominees v Valuer-General [2006] NSWLEC 775 at [47] per Talbot J. 81The Act requires the value not to be too high. 82I have considered the evidence of the valuers and the written and oral submissions of the parties and the transcript, which I received in June 2011. Based on that I have decided not to accept the applicant's valuation evidence for the reasons outlined in the respondent's written submissions. 83At p 40 of exhibit C in section 14, RMcK states that his alternate valuation is $58.25m (exclusive of GST). However, the alternate valuation, as the respondent points out, appears to rely on only the hypothetical development (residual land values) rather than the direct comparison method. RMcK does not explain how section 14K considerations would have impacted on the direct comparisons inputs relied upon. Because of that the Court does not have evidence from the applicant's valuer about the value derived from the direct comparison if his suppositions about the operation of s 14K are wrong (which I have found them to be). 84I accept the respondent's submission that the applicant has attempted to discharge its onus of proof that the valuation is too high by relying on the evidence of RMcK in exhibit C, which is his valuation report as at 1 July 2006 (base date). However, RMcK did not change the conclusions of that report in oral evidence despite the fact that he was prepared to vary the detail of matters upon which he relied to reach his conclusion. For example, he admitted in oral evidence that he had underestimated gross realisations. He also agreed in cross-examination that the figure he arrived at for the comparable sale at Oran Park which he applied to the subject land did not involve any discount for the extraordinary costs, which the applicant contends significantly impacts on the price and which were not represented by equivalent costs in the comparison sale. 85The respondent's counsel asked RMcK if the rate per square metre he used to reach his valuation did not reflect the additional extraordinary costs the valuation he should have arrived at was so low it would render the subject land worthless. The transcript records that his response was "not quite". I refer to the respondent's written submission at para 43. 86I accept that this appeal seeks to reduce the land value from $62.75 million to a figure just 7.17 % below the issued land value. It is a slim margin and miscalculations have a significant effect on the valuation.

Discount for size 87RMcK evidence is that he made a 20-25% adjustment, a discount for size, but did not say why such a discount is warranted. In any event, a discount can be cancelled out by the ability of the purchaser on the base date to control the whole development and the lease of the land. A 20% increase on RMcK $58.25 million would result in a land value of $69.9 million, which is higher than the issued valuation (after objection) at $62,750,000. 88With respect to the Hermitage sale, RMcK omitted to mention the grant back to the vendor of a 25-year lease and a project agreement with obligations to construct a golf course. The applicant had not obtained the lease, which was produced by AW in the hearing. The correct analysis of the sale is to regard it as a sale of land with residential potential of $51 million. I accept the respondent's submission that there is no rational basis for removing $24 million because that was what had been paid for the golf course land under a different development scenario. Relevantly, RMcK regarded the Hermitage as having the advantage of being immediately developable. Having regard to the correct analysis of the effect of the precinct plans and precinct agreements addressed earlier, the subject land is in a like condition, where development applications for subdivision on a progressive basis could occur immediately, subject to preparation of the application and supporting information. As AW points out in exhibit D, pp 8-10, the Hermitage sale is closely comparable and the result would be the subject land being valued at $92,925,000 based on RMcK's area of land of 258.2 hectares.

Quantum of gross realisation of any lots 89On pp 18 and 19 of the joint report, RMcK explained how, when it was suggested by AW in joint conference that RMcK carry out a more 'forensic' examination of the sales in Ropes Crossing, RMcK was able to deduce a 6% increase to the original gross realisations adopted in this feasibility study. However, this sales evidence from Ropes Crossing (which he accepted to be the best evidence of the process that would have been obtainable for the end allotments) led him to "remain comfortable with the estimates adopted in his valuation report". AW's calculation of the end sale prices in Ropes Crossing from 2005 to 2007 broken down, as RMcK desired, into categories of lot sizes (where available) and using the lowest prices achieved, led to end values which more than made good the 6% increase in gross realisations found by RMcK, and in fact more (about 10%). 90AW's analysis of probable realisations was based on an extrapolation from the sales of actual lots in Ropes Crossing in 2005 and 2006 (although 2007 sales were similar). That analysis was conservative. AW choose a price for each lot size which was as low as the list of sales would support - that is, at the bottom end of each range of prices. This would support a reduction in overall prices realised in later years, although accept this does not really matter, as the base date is 2006 and later sales would not have influenced a purchaser carrying out (if any purchaser would have done so) a like exercise in 2006. 91AW efforts produce a gross realisation of $834 million for the residential land alone. One would have to add in whatever realisations could be expected from the employment land and retail land - which additions are 14,000,000 respectively - and the insertion without argument of those figures into RMcK's feasibility analysis, changing no other inputs, gives, according to AW, a total land value of $70,650,000. If one is to accept the respondent's principal methodology, therefore, without bothering to argue other inputs such as P & R or IRR, or any of the costs estimates, the land value comfortably exceeds $62,750,000 and on that basis I accept the applicant has failed to discharge its onus.

Profit and risk factor in residual analysis 92RMcK accepted (at p 21 of the joint report) that he would adopt a profit and risk of 27.5% (which he admits to being only a small change to the 30% he at p 21 of the joint report exhibit D. As AW explained on pp 21-22 of the joint report and in his oral evidence, RMcK's 30% was to compensate for the additional risk, and the developer reward, in negotiating precinct plans and the Council planning agreement variation which removed the uncertainty of actual dwelling yield from the project feasibility. 2.5% seems to be quite insufficient to reflect these benefits. A more significant reduction below 30% should have been made: p 22 of the joint report. Mr Watt's view was that the P & R properly to be expected was in the vicinity of 20%. Unfortunately (or perhaps mercifully) the Court has not had the benefit of the model being run at 25%, 22.5% or any other rate between 20% and 27.5%. Even without this, it seems apparent that a drop below 27.5% would probably cast doubt upon the applicant's assertion that $48.5 million is the land value.

Affordable Housing Contribution 93Clause 17.2 of the State Planning Agreement required a contribution of 3% of all residential allotments for affordable housing. The proper construction of these provisions does not lead to a requirement for a contribution of 3.32% as was asserted by RMcK in his evidence. This adds a significant cost: RMcK's 3.32% represents an allowance of $25,059,858, representing 120 lots. This needs to be reduced to the correct multiple of 3% for the subject land. Assuming the same value per lot, a change to 3% drops the allowance to $32,275,409 (that is, by adding $1,784,449 to the land value) or 108 lots. 94The difference between the parties is a matter of construction of cl 17. The respondent says that the sentence "for the avoidance of doubt" at the end of cl 17.5 makes it clear. The provisions require only 3% of the total lots to be dedicated for affordable housing. The trigger for the requirement for actual transfer is the completion of more than 499 lots, but that is not the trigger for the obligation, which begins even before a single lot is produced. The definition of "relevant percentage" makes this clear. At 500 lots without transfer of any, the developer "owes" 15 lots. He must thereafter dedicate at 4% until he has caught up with the shortfall, after which he dedicates 3%. At a 1% rate, he will have caught up when he has dedicated 15 extra lots: that is, after 1500 more lots at 4%.

Contributions 95AW explained in his oral evidence, the average total development costs of bringing land within the subject to completion is far cheaper than generally experienced on other projects primarily due to the higher costs of the State Infrastructure Contributions that are levied on those projects: p.26 of the joint report exhibit D. The so called "extraordinary items" are in lieu of s.94 contributions, not additional costs, although there may be from time to time some remaining local s.94 contributions, dealing with the creation by the development of a need unanticipated by the development agreements, to be paid on the development of the subject land. However, the subject land has a lower total level of contribution than any of the comparable land.

DSP Levies 96The parties disagree as to whether the assumption should be made that these levies, payable for water and sewerage infrastructure, should be regarded as an element of development cost as at the base date. By the valuation date the levies had been abolished. The respondent's submission is that if the "manner in which the land may be used" (section 14K(1)) at the valuation date is to be determined by looking at the controls which affected land use as at that date, it would be irrational if the section 6A(1) exercise as at the base date were to be obliged to proceed simultaneously on that basis and on the basis of other planning considerations affecting potential (such as cost) which were dependent on matters (such as the DSP levies) which did not exist at the valuation date. The DSP levies are correctly disregarded. 97As discussed earlier in this judgement at paragraphs [74] -[76], it must be assumed that the hypothetical purchaser can carry out the work required for the staged development applications and in fulfilling obligations under the planning instruments and planning agreements. This is because 6A (1) requires this. I accept as the respondent submits: S.6A (1) of the VL Act engages the Spencer v Commonwealth (1907) 5 CLR 418 concept of market value. This requires the assumptions that a sale took place on the valuation base date and that both vendor and purchaser were hypothetical parties (not the actual parties) "perfectly aware" of every relevant consideration Walker Corporation Pty. Ltd v SHFA (2008) 233 CLR259 at [51]). It is an "efficient market" in that respect. Therefore to be assumed that the vendor has provided the purchaser with all relevant information to obtain the highest price available in the hypothetical concluded sale. If the hypothetical purchaser is to be assumed to know what preparations have been completed (as he must be) he would inevitably be moved to pay less for the land if for some reason he was to be denied the opportunity to obtain the benefit of that work. But we must also assume a vendor who wishes to strike the bargain most favourable to his financial position. Denying the purchaser access to the benefit of preparatory work gains the vendor nothing and costs him the detriment of a lower price. The requirement that it be assumed that the parties are aware of every relevant consideration necessarily (at least in a case like this one) requires the logically connected assumption that rational parties will behave rationally when dealing with those considerations in the context of their bargain. It has long been accepted that evidence of steps taken with respect to the land by the actual owner is admissible to show what "could be done" at the base date: McKee v Valuer- General [1971] NZLR 436; Holcim Australia Pty. Limited v Valuer-General (supra) at [21] where, in those cases, the benefits of a development consent actually obtained were taken as effectively available to the purchaser, without risk, albeit that they arose by virtue of the personal efforts of the actual owner. Transmission line/easement burdening the land 98Section 6A(l) requires a "pure fee simple" free of all restrictions and other interests in the land: Royal Sydney Golf Course v FCT (1955) 91 CLR 610 at 623; Gollan v Randwick Municipal Council (1961) AC 82 at 101; Andreas v The Valuer-General (1953) 55 SR (NSW) 323 at 326 per Street J. and Herron J; Shell Company of Australia Ltd v City of Melbourne (1955) 88 LGERA 326 at 385.7. It is not the actual fee simple with all its restrictions on title that is valued: the existing easement must be taken not to exist and the costs to extinguish it are irrelevant. I accept as the respondent submits that the cost of relocating this easement and towers in it, to the extent that it would be borne by the purchaser, was already factored into the feasibility analysis upon which both valuers relied. 99The valuers adopted different approaches to the quantification of developable land. RMcK's approach was to say the land provided a "gross developable area" (GDA) of 258.2 hectares. AW referred to the "englobo developable area" (EDA) which reflected the unusual feature that the land had large tracts of reserved land that, it came to be accepted, should not be counted (and were assigned a nil value). That is, the hypothetical parties would not seek or obtain any additional price for it. RMcK deducted from his GDA infrastructure certain additional areas for such things as roads, drainage reserves, schools, asset protection zones as well as local parcels of land for dedication for public purpose. These are areas zoned as developable land and have a value. 100AW explains at pages 13 and 14 of exhibit "D" his EDA of 356 hectares (see p.100 of exhibit 3), included local roads, school land, asset protection zones and local parcels of land for local drainage and local open space form a valuable part of the land in its full urban context. Not to count these would distort the direct comparison valuation because the sales had similar requirements. He states that "all of the urban and employment zoned land is developable and should be analysed and valued as such". 101Further, it was AW's evidence that not only had the comparable sales have similar features, there the features represented a substantially higher percentage of the total developable land area than in the case of the subject land. He stated that the subject land was impacted by factors which only affected about 10% of the total. The implication is that a purchaser, who must be taken to know that not every square centimetre of his purchase will become building blocks, would accept such a low percentage as not adversely affecting value, whereas he might be expected not to take the same view if the land he was buying had a very large proportion of "useless" land. (Obviously, utilities such as roads and drains, and areas likely to be sold or resumed for schools, parks and other public purposes, are not useless in fact, and should not be treated as having a lower value than the land to which what they contain is to be appurtenant. That this is so is borne out by the fact that in a case like the subject, if the State Government resumed a school site, it would almost certainly have to pay residential value for it.) 102The analysis of the 6 comparable sales listed at the top of page 4 of the joint report (exhibit "D") is set out in exhibits "C", 3 and "D" as amplified in oral evidence. The fact that sales post date the 1/7/2006 base date is not an impediment to their use : Daandine Pastoral Company Pty. Limited v Commissioner of Land Tax of the Commonwealth of Australia (1943) 7 The Valuer 299 at 304 per Williams J; McCathie v Federal Commissioner of Taxation (1944) 69 CLR 1 at 16; John Bridge Limited (In Liq) v Commonwealth (1951) 11 The Valuer 375 at 377; Kelly v Western Australian Planning Commission [2006] WASC 208 at [393] per Simmonds J; Commonwealth v Arklay (1952) 87 CLR 159 at 170 per Dixon CJ, Williams and Kitto JJ; Housing Commission of NSW v Falconer [1981] 1 NSWLR 547 at 576 per Mahoney JA: Wilson Bros. Pty. Limited v Commonwealth [1948] SASR 61 at 67 per Mayo J. 103While it is correct that in the Central Precinct much of the land will have to be filled before subdivision there is little evidence as to what this will actually involve. Based on the evidence before me it should not be assumed the filling is a major constraint.

Conclusion 104After a careful consideration of the evidence and the comprehensive written submissions of the parties (for which I am grateful) I accept that the applicant's valuation evidence has deficiencies, which means that the onus of proof on the applicant has not been discharged. Therefore, the Court cannot be satisfied that the issued land value (reduced on objection) is "too high". Accordingly, the Court Orders are: (1)The appeal is dismissed. (2)The valuation issued on 9 April 2010 (after objection) in the sum of $62,750,000 is confirmed. (3)The exhibits are returned. Susan Dixon Commissioner of the Court

Amendments 21 November 2011 - Typo - 'appellant' changed to 'applicant' throughout 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: 21 November 2011