Trust Company Limited ATF Opera House Car Park Infrastructure Trust No 1 v The Valuer-General

Land and Environment Court (NSW)|2011-04-08|Before: Pain J, Mr J

Crown Solicitor's Office (Respondent) File Number(s): 30932, 30934, 30935 and 30936 of 2008

Judgment 1The Applicant is challenging the land value re-ascertained under the Valuation of Land Act 1916 (the VL Act) for four base dates of 1 July from 2004 to 2007 for the Sydney Opera House car park, being lot 101 DP 828946 (lot 101). As a result of my finding in Trust Company Limited ATF Opera House Car Park Infrastructure Trust No 1 v The Valuer-General (No 1) [2010] NSWLEC 161; (2010) 178 LGERA 1, lot 101 is to be valued as land under s 6A of the VL Act. I thank Acting Commissioner Miller for his assistance. 2In my first judgment I set out background information at [1] and [2], the valuation base dates, the valuation originally issued and the re-ascertained land values [3] to [6], and a description of the car park structure [7], [8], and [21]. Additional information concerning lot 101 and the car park, including the enabling Bennelong Point (Parking Station) Act 1985 (the Bennelong Act) is set out at [17] to [21], [23] to [32].

Town planning 3At the base dates of July 2004 and 2005 lot 101 was zoned "Parks and Community Places" under the Central Sydney Local Environmental Plan 1996. At the base dates of 2006 and 2007 lot 101 was similarly zoned under the Sydney Local Environmental Plan 2005. Under both Local Environment Plans car parking is a permitted use with development consent.

Legislation 4Section 6A(1) and (2) of the VL Act state: (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. 5One issue raised is the meaning of fee simple in s 6A(1). Another issue raised is whether land improvements existed which must be assumed to be made under s 6A(1). "Land improvements" is defined in s 4 of the VL Act as: (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. The relevant subsections requiring consideration are (d1)(i) and (f). 6Section 14K(1) of the VL Act provides: (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.

Relevant evidence 7Valuation evidence was given by Mr G Preston on behalf of the Applicant and by Mr D Hill on behalf of the Valuer-General. Both are registered valuers of wide experience. They submitted very detailed reports as well as two joint reports. In their joint report of 19 April 2010 (exhibit H) they agreed that, at the four base dates, the highest and best legally permissible use of lot 101 would be for a car parking station of 1,200 car parking bays. The Court concurs in their agreement. 8Lot 101 benefits from a number of easements (12 according to Mr Preston). The most significant are easements for support, for ventilation and for pedestrian access from the Sydney Opera House lower forecourt. These are described in the valuers' joint report dated 18 February 2011, exhibit W appendix G. Four easements burdening lot 101 are also identified.

Car park structure 9It is agreed that excavation of the cavern which now contains the car park structure commenced at the uppermost level, numerous rock bolts and anchors were inserted in the roof of the rock cavity thereby created and substantial excavation downward for the rest of the very large cavity was undertaken within lot 101. (Statement of Evidence of Mr P Pells, surveyor/engineer, exhibit 3, photographs A3 and A6, appendix B Australasian Tunnelling Society summary).

Land value of fee simple includes the easements benefiting lot 101

Applicant's submissions 10The Applicant argued that the fee simple had to be valued without the benefit of positive appurtenant easements being assumed. This required, according to the valuer Mr Preston, an assumption that the hypothetical prudent purchaser of lot 101 is required to obtain the easements that benefit lot 101. 11An estate or interest in any other land must not be included in the land value of a parcel of land per Gollan v Randwick Municipal Council [1961] AC 82 and Anderson v Valuer-General [2005] NSWLEC 151. An easement appurtenant to lot 101, being an interest in other adjoining land which permits the use and development of the adjoining land cannot be valued as part of the fee simple. The approach of Nott C in Anderson is a useful guide to the correct approach. That case concerned landlocked land where a right of way over adjoining land was compulsorily acquired. For the purpose of determining the land value under s 6A(1) of the VL Act, the Court considered the ease with which a right of way could be obtained on the base date, and the costs, delays, risks and compensation obligations that would have arisen as well as the operation of s 88K of the Conveyancing Act 1919. 12Contrary to the Valuer-General's submissions, s 6A(2) has no role to play. It was introduced in response to Wunderlich Ltd v Valuer-General (1959) 5 LGRA 50 and concerns valuation under s 6A(1) where a use is based on existing use rights, as explained by Tobias JA in Commonwealth Custodial v Valuer General [2007] NSWCA 365; (2007) 156 LGERA 186. In any event neither valuer relies on s 6A(2). Section 14K(1) has no part to play in these proceedings as neither party contends that at any base date the physical condition of the land was altered. It does not change the fundamental assumption that the fee simple to be valued is not coupled with an interest such as an easement.

Valuer-General's submissions 13The Valuer-General submitted that Anderson and Gollan are not authority for the proposition that when a property enjoys rights of way and other easements over adjoining properties that land is valued as if those rights are non-existent. Where such rights benefit the fee simple they should be considered as part of it for valuation purposes so that the benefit is captured in the value. The Privy Council in Gollan was not considering easements which benefited the land the subject of those proceedings. The circumstances in Anderson were different and it is not authority which applies here. 14Judicial consideration of fee simple demonstrates that statutory valuations are to be made on the hypothetical basis that the land is free of impediments to title, see Royal Sydney Golf Club v Federal Commissioner of Taxation (1955) 91 CLR 610 at 622 per Dixon CJ, McTiernan, Webb, Fullagher and Kitto JJ. Unlike easements which burden land and do affect its enjoyment, easements which benefit land do not affect ownership adversely as the restrictive impact is borne by the burdened neighbouring lot. The authorities have all considered easements which burden land, not easements which benefit it. 15Further, that valuations under the VL Act must be made on the hypothetical basis that the land is free of impediments to title is made clear in s 6A(1) and (2) and s 14K(1). Section 6A(2) assumes that the easements that currently exist continue to exist to enable lot 101 to continue to be used for any purpose for which it was being used at the date of valuation. This is further supported by s 14K(1)(b) which applies to the easement which benefits lot 101 because the words "and any other land" represent the servient tenement. The dominant tenement is assumed to be able to continue to enjoy the benefit over the burdened land. The easements are assumed to exist at the date of valuation and the cost of acquiring these does not have to be valued as part of the valuation exercise because they do not need to be obtained.

Conclusion 16Section 6A(1) requires the fee simple of land to be valued. The term fee simple is not defined in the VL Act. In Gollan at 101, fee simple is described as the highest unencumbered estate subject to no conditions, adopting Royal Sydney Golf Club at 622 - 623. The case concerned the land occupied by Randwick Racecourse which was subject to a Crown grant with various conditions. The Privy Council held that interests diminishing the value of land should not be considered part of the fee simple. 17According to the parties the issue of whether the value of fee simple includes an appurtenant easement which benefits land has not been judicially considered before. No authority which considers the valuation of a fee simple interest in land benefiting from an easement (in contrast to an easement burdening the land) was cited. The numerous authorities cited during submissions all precede or subsequently confirm the statement in Gollan and all concern encumbrances to land of some description: Royal Sydney Golf Club ; Sydney City Council v Valuer-General (1956) 1 LGRA 229 (Sugerman J); CSR Ltd v Valuer-General (1977) 42 LGRA 52 (South Australian Supreme Court, Wells J); Trust Company of Australia Limited v Valuer-General ; Perpetual Trustee Company Ltd v Valuer-General [2008] SASC 169; (2008) 160 LGERA 314 (Full Court South Australian Supreme Court, Bleby J, Duggan and Anderson JJ concurring). 18The same authorities cited by the Valuer-General are to the effect that the fee simple is the unencumbered interest in land. For example, in Royal Sydney Golf Club at 622 - 623, referred to in Gollan , their Honours said: "Unimproved value" in relation to unimproved land is defined to mean the capital sum which the fee simple of the land might be expected to realize if offered for sale on such reasonable terms and conditions as a bona fide seller would require. It seems simple enough that the fee simple here means an unencumbered fee simple. ... The interpretation of the Act which seems best to accord with the policy appearing from its provisions and also to flow from its language is that in assessing the unimproved value an estate in fee simple must be taken as the hypothesis unencumbered and subject to no condition restricting the use or enjoyment of the land. 19BJ Edgeworth et al, Sackville and Neave Australian Property Law, 8th ed (2008) LexisNexis Butterworths states at 202 that the "fee simple is the greatest interest in land recognised by the common law", citing the full Federal Court in Gumana v Northern Territory [2007] FCAFC 168; (2007) 158 FCR 349 at [83] and Gummow J in Wik Peoples v Queensland [1996] HCA 40; (1996) 187 CLR 1 at 176. These authorities stress that the fee simple enables the maximum enjoyment of property. The 12 easements referred to in the valuers' evidence as benefiting lot 101 are not encumbrances but enhancements being an ingredient of the fee simple interest which is to be valued. That the fee simple is an interest in land which enables the holder to enjoy the benefits of the land to its greatest extent suggests that the easements benefiting the land should be considered as part of the fee simple for the purpose of valuation under s 6A. 20Support for this reasoning is found in s 6A(2). This section must be applied in accordance with its terms. The section does not state that easements benefiting a property must be considered to be in place. It identifies a statutory assumption that must apply when valuing the fee simple of land under s 6A(1). The Valuer-General submitted that the section requires an assumption that such easements are in place as lot 101 could not otherwise be used for a car park, the use assumed under that section. I agree that in the circumstances of this case in order to satisfy the assumptions required in s 6A(2) the dominant tenement (lot 101) must be assumed to be able to continue to enjoy the benefits it enjoys over the neighbouring burdened land. 21The Applicant submitted that s 6A(2) applies only to existing use cases and was not relied on by the valuers. Section 6A(2) is not limited in terms explicitly or implicitly to existing use cases. While the Applicant's submissions referred to Tobias JA in Commonwealth Custodial (Spigelman CJ, Santow JA concurring on orders, dissenting on some points in obiter) as recognising that such limitation applies, I do not understand that conclusion to be the ratio of that judgment. Tobias JA explores the circumstances giving rise to the introduction of s 6A(2) at [40] - [57] which reflected the need to consider valuation of land where the highest and best use is an existing use. Ultimately at [90] his Honour concludes that the purpose of the assumption that improvements may be considered in s 6A(2)(b) is in order for the land to continue to be used for the purposes for which it was being used at the valuation date. Tobias JA refers to cases other than existing use cases which consider s 6A(1) and (2), including Maurici v Chief Commissioner of State Revenue [2003] HCA 8; (2003) 212 CLR 111 at [69] - [72]. At [16] Spigelman CJ observes that the words in s 6A(2) are not necessarily limited to the problem they are intended to overcome and that circumstance "does not lead to a reading down of general words, so as to confine the legislation to the mischief alone." 22That s 6A(2) was implemented to address existing use rights does not prevent its more general application given its wide terms. Section 6A(2) requires a statutory assumption that lot 101 is being or is to be used for a car park at the base dates. That use requires the easements benefiting the land to be in place. The section provides further support for my primary reason above as to why the easements benefiting lot 101 should be considered as part of the fee simple. That the section is not referred to by the valuers does not limit my consideration of the matters I consider relevant as judicial valuer. 23The Valuer-General also relied on s 14K(1) as this states that the manner in which land being valued, and any other land, is being (may) be used is assumed to be the same on 1 July of the base date as the valuation date. While that section appears directed to ensuring that the use of land valued is the use the land may be put to as at 1 July of the base date year, it also appears to accord with the position in Tetzner v Colonial Sugar Refining Co Ltd (1958) AC 50. In that case the Privy Council held that a valuation of unimproved land value must be carried out taking into account what exists on land surrounding the land to be valued. That case, and s 14K(1), further confirm the Valuer-General's arguments. 24I conclude that the easements benefiting lot 101 must be assumed to exist at the relevant base dates. The costs (including of delay) of obtaining the easements enabling the use of lot 101 for its highest and best use as the Sydney Opera House car park are irrelevant to this valuation exercise. 25In terms of the cases relied on by the Applicant, Anderson is not binding on me and addresses a different factual scenario concerning landlocked land where the Council acquired land over which an easement for access had existed. It does not assist in the resolution of this case. Gollan was concerned with encumbrances to land and does not purport to consider anything else. It is not authority for the Applicant's submission that no interests in land can be considered when the fee simple is being valued. 26I note for completeness that four easements are identified in the valuers' evidence as burdening lot 101. These will have to be disregarded to the extent that they impact on the value of the fee simple. I am not aware of evidence that they do.

Is owner of lot 101 and owner of adjoining land a hypothetical person? 27The Valuer-General argued in support of the assumption of the ease with which easements benefiting lot 101 would be obtained that the Bennelong Act should be considered. It was in force and specifically directed to the development of the Sydney Opera House car park, and therefore should be considered to be known to the hypothetical prudent purchaser. The Applicant submitted to the contrary, that the Court should disregard the Bennelong Act because that Act was site specific, rather than a general law of wide application. Royal Sydney Golf Club was relied on as authority supporting this submission . 28The Applicant also submitted that the identity of the neighbouring land owners (Sydney Opera House Trust and Royal Botanic Gardens and Domain Trust) and their governing statutes had to be considered. This was said to underpin a submission that getting agreement to obtain the necessary positive easements for lot 101 from the neighbouring landowners would be difficult. 29The valuation question underlying these issues is what assumptions should be made about whether the easements benefiting lot 101 should be assumed to be in place and/or the ease of acquiring such easements from neighbouring property owners. As I have held above that the fee simple is to be valued with the positive easements assumed to be in place, these issues are irrelevant and do not need to be decided. 30Another context in which the Bennelong Act could theoretically be relevant is in relation to the period which should be allowed for obtaining development consent for the car park. Development consent is required from the relevant Minister under the Bennelong Act or, if it is disregarded, from the City of Sydney Council under the planning instruments in force. While under s 6A(2) the use for the car park can be assumed, the valuers took a different view of whether there should be an allowance for the time taken to obtain development consent. Mr Hill did not allow for any time to obtain consent because, according to his report (exhibit H), he considers the use of the car park is already approved. Mr Preston considers that 12 months should be allowed, which period Mr Hill agrees with if any allowance is to be made. I consider that an allowance for a period to obtain development consent, whether from the relevant Minister under the Bennelong Act or from the Sydney City Council under the relevant planning instrument, should be allowed and that 12 months is a reasonable period.

Rock bolts and rock anchors are land improvements 31Under s 6A(1) the value of land includes land improvements. Land improvements are defined (s 4) to include excavation associated with the erection of any building or structure, in (d1)(i). The rock anchors and bolts consist of steel rods of various lengths inserted into drill holes in the rock face exposed by excavation inside the boundaries of the stratum. The work involves the cementing of the rods in the drill hole and the placing of caps and engineered nuts on the threaded ends of the rods in order to secure and tension them.

Applicant's submissions 32The Applicant submitted that the rock bolts and anchor insertions do not come within the definition of excavation which is a land improvement in the VL Act, but are separate construction or building work. They do not come within the ordinary meaning of "excavate" as found in the Macquarie Dictionary , 2nd revised ed (1987) Macquarie Library which is:

To make a hollow by removing the inner part; make a hole or cavity in; form into a hollow, as by digging;
To make (a hole, tunnel, etc) by removing material;
To dig or scoop out (earth, etc)
To expose or lay bare by digging; unearth and "excavation" is defined as: (2) A hole or cavity made by excavating 33Their purpose is to enable the construction of a car park within the excavation, and without them the car park could not be constructed or used after construction. The fact that the rock anchors and bolts may have been erected and fixed partly at a time before the commencement of the erection of a structure and partly afterwards is not to the point. The function of the works is to remain in a condition which enables the building to permanently remain. Excavation occurred after the rock bolts and anchors were inserted. It cannot be said that excavation of the walls of the circular cover or ceiling would not be achieved without rock bolts. There is no evidence that these are indispensable to the carrying out of the excavation as distinct from ensuring the long term stability of the sandstone surface for the 50 year duration of the lease of the premises (relying on Pell exhibit 3 p 9 par 5, 6).

Valuer-General's submissions 34The Valuer-General submits that the rock bolts and anchors are part and parcel of the excavation works in the sense identified by the Court of Appeal in Maurici v Chief Commissioner of State Revenue [2001] NSWCA 78; (2001) 51 NSWLR 673 at [12] - [13] of being inseparable from the excavation work. The cavern relies upon the rock bolts and rock anchors for permanent support of the excavation.

Conclusion 35The Valuer-General is correct in light of the agreed evidence that the construction process for the car park was that excavation of most of the cavity occurred only after the rock bolts and anchors had been inserted. Contrary to the Applicant's submission, these were indispensable to and inseparable from the excavation. That the anchors and bolts once inserted have an ongoing role in ensuring stability of the sandstone surface of the ceiling while the car park is in operation does not undermine this finding. The insertion of the rock bolts and anchors was inseparable from the excavation process, applying the reasoning of the Court of Appeal in Maurici at [12] - [13]. This part of the judgment was not overturned in the High Court. These should be considered as land improvements for the purpose of this valuation exercise.

Bennelong drain is a land improvement 36The definition of land improvement includes "underground drain". The issue arises of whether the cost of diverting the colonial era Bennelong drain should be included as part of the construction costs deducted because the Applicant argues this is not a benefit (improvement) to lot 101 but rather a cost. Long before the first base date this had been diverted by rerouting the drain almost but not entirely within lot 101.

Applicant's submissions 37The Applicant contends that this work was not excavation. An underground drain which does not serve the purpose of drainage of lot 101 and is an impediment to its use is not an "improvement", it is a "worsement" because it does not serve the highest and best use of the land. In Trust Co of Australia Ltd v Valuer-General [2007] NSWCA 181; (2007) 154 LGERA 437 ( Burwood Trust ) Campbell J (other members of the Court concurring) held at [68] that the construction of "improvements" by the trial judge was correct and at [17] quoted the trial judge: A structure on land is not an improvement if it does not enhance the land's value compared to its natural state. The cost of constructing the drain must be allowed for in the development costs, as Mr Preston has done, because the drain water enters the site.

Conclusion 38The Valuer-General argues that the cost of diversion should not be deducted as the underground Bennelong drain is a land improvement as defined in the VL Act. The definition of land improvement in the VL Act includes "underground drain" and there is no dispute that the Bennelong drain meets that description. Burwood Trust relied on by the Applicant dealt with the issue of whether a structure on land was an improvement as a matter of general principle under s 6A of the VL Act. It was not dealing with the statutory definition of land improvement I must apply. If the words "underground drain" are taken at face value they apply to the Bennelong drain in terms of the usual meaning of these words. The Applicant's argument requires that an additional factual requirement be read into the definition of land improvements in s 4, namely that the underground drain in question must be an improvement to the land in question as a matter of fact. 39Rules of statutory construction require the meaning of the terms of a statute to be applied as they appear unless to do so leads to absurdity or there is ambiguity if the natural and ordinary meaning of words are applied in the statute. There is no ambiguity if the definition of underground drain is applied. Where words are plain and unambiguous they should be given their ordinary and grammatical meaning, per Gibbs CJ in Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297 at 305. There is no absurdity in this approach either. 40Given this conclusion, it is unnecessary to delve into numerous authorities on statutory construction which have considered the limited circumstances where a court may introduce by implication words into a statute, for example as discussed by Spigelman CJ in R v Young [1999] NSWCCA 166; (1999) 46 NSWLR 681 at [3] - [21] referring to Cooper Brookes , inter alia. R v Young was considering the circumstances where there appeared to be an inadvertent omission by Parliament in the drafting of a statute. For discussion of a number of authorities including R v Young and Cooper Brookes see DC Pearce and RS Geddes, Statutory Interpretation in Australia , 6th ed (2006) LexisNexis Butterworths at [2.30] - [2.32] and RS Geddes, "Purpose and Context in Statutory Interpretation" in Judicial Commission of New South Wales, Statutory Interpretation: Principles and pragmatism for a new age , Education Monograph 4, June 2007 at p 141 - 157. 41The principle identified in s 33 of the Interpretation Act 1987 that a statutory construction which promotes the purpose or object underlying the Act is to be preferred to a construction that would not does not need to be invoked on this occasion. The Applicant's approach would require an impermissible gloss to be applied to the clear definition of land improvement as including an underground drain in the VL Act. The Bennelong drain is a land improvement as defined in the VL Act. The costs of diverting it cannot be taken into account in assessing land value.

Valuation methodology 42In their joint report (exhibit H at par 12) the valuers agreed that, "the lack of directly comparable sales evidence for an underground cavern used for a car parking station" dictates "that the only appropriate valuation method is that of the Residual Land Value Method or the Feasibility Study Method". 43This is a recognised method of valuation used almost exclusively to determine the value of land where there is an absence of comparable sales. It was described by Sugerman J in A G Robertson Ltd v the Valuer General (1952) 18 LGR 261 at 262: one erects a hypothetical building upon the subject land, capitalises the anticipated net return there from, and subtracts the estimated building cost from the capitalisation, the balance being treated as the unimproved value. 44The application of this method, in this case, requires the assumption that a prospective purchaser of the subject property would estimate the value of the car park as if completed at each base date, deduct all costs, make an allowance for profit and risk with the balance representing the land value.

Applying the hypothetical development method 45It is now necessary to consider the valuation and quantity surveying evidence and issues taking into account these findings.

Will the prospective purchaser sell? 46Mr Hill expressed the view that the hypothetical prospective purchaser of the land "would be buying it as a long term holding". On the other hand, Mr Preston, considered "there would be a number of classes of purchasers who would look at it" and that "it is perhaps a bit of a generalisation in my view to say one class of purchaser would be the only class of purchaser". However, on balance, having regard to lot 101 being a very special site for a car parking station and the cost of developing the land, I conclude that the more likely prospective purchasers would be an organisation that would seek to hold the property in the long-term. The valuation must not include any costs for selling the car park on completion.

Agreed data inputs 47The valuers agreed on the following inputs. (i)The number of car bays (1,200). (ii)Anticipated gross annual income at the four base dates. (iii)Gross realisation at the base dates of 2005, 2006 and 2007 (iv)On the assumption that the fee simple includes the positive easements a profit and risk allowance of 20 per cent (v)A construction period of 18 months (vi)Upfront funding cost of $125,000 payable at commencement of the project. (vii)Interest rate of 8 per cent as at 1 July 2004 rising by 0.25 per cent in each of the following years applied against the land value for 30 months, 50 per cent of total construction costs for 9 months. (viii)Debt funding of 100 per cent of all costs. (ix)Stamp duty on the estimated purchase price, in accordance with the Duties Act 1997 on the calculated land value with legal fees on purchase at 0.25 per cent being calculated on the same figure. (x)Development contributions under s 61 of the City of Sydney Act 1988 (s 61 contributions) 1.0 per cent of total construction costs (including add-on costs of preliminaries, contractors margin, contingencies and professional fees) with long service levy of 0.2 per cent, development approval fee of 0.12 per cent and construction certificate fee of 0.15 per cent all being calculated on the same figure. Interest rates to be charged at dates above. (xi)Council rates of 1.516 cents in the dollar as at the base date of 2004 with the following to apply respectively in the subsequent years - 1.570, 1.380 and 1.440. (xii)Land tax of 1.7 cents in the dollar as at the base dates of 2004, 2006 and 2007 and 1.4 cents in the dollar as at the base date of 2005. (xiii)Interest on GST payments at the interest rates specified for the respective years for 1.5 months. 48I have already held above that 12 months should be allowed to obtain development consent.

Disagreed data inputs 49The valuers did not agree on the following matters.

Include water rates 50One valuer did not include water rates. These should be included as an input at $500 per annum fixed.

Gross realisation as at 1 July 2004 51Mr Preston (exhibit H par 61 - 68) has estimated a gross realisation of $65,000 per car bay while Mr Hill adopted a gross realisation of $67,500 per car bay. 52Mr Preston based his conclusion on his adjustment of the actual sale of the lessee's interest under the terms of its lease for $75 million on 11 March 2005 which represented $62,500 per car bay. At that time the lease had an unexpired term of 39 years. Mr Preston calculated the head lessors reversionary interest at $3 million on a present value basis at 8.5 per cent. 53Mr Hill, in coming to his conclusion, noted that individual car bays within Sydney Central Business District car parking stations sold in the range of $70,000 to $90,000 per car bay. He made adjustments to reflect, inter alia, location, limitations on use, access and other matters. 54I prefer Mr Preston's mathematical approach because Mr Hill relies on car bay sales which are not directly comparable. Having adopted a figure of $65,000 per car bay I note that the valuers have agreed that the value of car bays are $70,000 and $75,000 in the two subsequent years, an increase of $5000 per car bay per annum. When I compare the agreed gross annual income adopted by the two valuers for the base dates of 2005, 2006 and 2007, the gross annual income anticipated by Mr Hill as at 1 July 2004 appears to be out of line with the subsequent years. That comparison supported the conclusion I had already reached.

Letting up allowance for individual car bays 55Both valuers agree on the anticipated gross annual income at each of the base dates. 56Mr Preston (exhibit H par 26) considered that "it would be necessary to allow a figure of 50 per cent of the estimated year one [gross] income to allow the car park to establish itself and build up to a full occupancy level of trade notwithstanding that an element of pre-marketing would be undertaken in the construction phase". 57Mr Hill adopted a letting up allowance of 25 per cent of the gross annual income anticipated at each of the base dates. He reasoned that the car park would benefit from advertising during the 18 month construction period, the demand for car parking to service the Sydney Opera House and Circular Quay activities while he noted that car parking vacancy rates in the Sydney Central Business District car parking stations were generally less than 10 per cent at the relevant base dates. 58There is no doubt in my mind that, because of the immediate proximity of the car park to the Sydney Opera House and the ease of access from it to the lower forecourt, the parking station would be used by Sydney Opera House patrons and those attending other functions within the Sydney Opera House precinct as soon as it was open for business, due also to the absence of major car parking in the vicinity. However, it would be necessary to build up a clientele of weekday daytime parkers and for that reason some letting up allowance needs to be made. Having regard to these matters I consider that Mr Hill's allowance of 25 per cent is more realistic than Mr Preston's 50 per cent.

Cost of construction of car park structure 59The cost of construction is an important input to the hypothetical development method. Expert quantity surveying evidence was given by Mr P Hammond on behalf of the Applicant and Mr G Parlane on behalf of the Valuer-General. 60I have already concluded that the rock bolts, rock anchors and the Bennelong drain are "land improvements" and must be taken to exist at each of the base dates and are thus excluded from the quantity surveyor's estimates. 61Mr Hammond estimated the net cost of works to be $30,515,204 while Mr Parlane estimated was $29,424,067. The difference is $1,091,137. However, Mr Hammond estimated the total construction cost to be $47,233,000 compared to Mr Parlane's estimate of $44,984,776. The difference of $2,248,224 results from Mr Hammond's higher allowances for add-on costs (26.2 per cent compared with Mr Parlane's 21.5 per cent for preliminaries, 6 per cent for contractors margin compared with Mr Parlane's 5 per cent, 7.5 per cent for contingency compared with Mr Parlane's 5 per cent). They agreed that professional fees should be taken into account at 12.5 per cent and the percentages that should be applied in respect of development approval fee, construction certificate fee, s 61 contributions and long service levy but these percentages were applied, in Mr Hammond's case, to larger figures. 62It would be unusual for the hypothetical prospective purchaser to obtain estimates from two quantity surveyors although, having regard to the very unusual location of the works, prudence suggests a more cautious approach to cost estimation is preferable. In such circumstances the higher estimates of Mr Hammond would, in my opinion, prevail because a prudent hypothetical purchaser would be cautious about unexpected increases in costs.

Conclusion 63The inputs for the hypothetical development method having now been decided above, the parties are to supply a final agreed land value for each of the four base dates in the form of final orders which the Court can make. A timetable for doing so will be discussed with the parties. I note the two valuers have not used identical hypothetical development method software programs so that their results may differ slightly. I do not have a view as to which software program is preferable. To the extent that different results arise when the data inputs identified in this judgment at par 46 - 62 are applied it is expected that the parties will reach agreement on the final land value for each base year as I anticipate that any differences will be small.

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: 23 May 2011

(2007) 156 LGERA 186

(2007) 154 LGERA 437

(2008) 160 LGERA 314

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