Valuer-General v New South Wales Golf Club

The statutory framework for determining the land value

13The land value of land is defined in s 6A(1) of the VL Act to be: "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." 14The concept of "land improvements", referred to in s 6A(1), is defined in s 4(1) of the VL Act to mean: "Land improvements means: (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." 15The primary judge found that land improvements on the golf course included clearing, excavation, grading, levelling, filling, remediation and drainage, as well as planting and forming fairways, roughs, bunkers, greens and tees, and fertilising of planted grasses: at [21], [23]-[25]. 16Where the land to be valued is Crown land subject to a lease, s 14I of the VL Act requires that the land value be determined taking into account certain restrictions: "(1)Land that is Crown lease restricted is to have its land value determined taking into account the restrictions on the disposition or manner of use that apply to the land by reason of its being the subject of the lease concerned." 17Land is "Crown lease restricted" if it is subject to a lease granted under Pt 4 of the CL Act, amongst other interests: see s 14I(2) of the VL Act. The land here is subject to a lease granted under Pt 4 of the CL Act and hence is Crown lease restricted. 18The lease concerned contains numerous conditions which regulate what the lessee and lessor can and cannot do. The primary judge summarised the conditions of the lease that he considered to be relevant in [7] of his judgment. The primary judge characterised these conditions of the lease as "restrictions". The primary judge said: "The relevant restrictions under the lease are as follows: Clause 12 - Minister's approval required for "doing or executing any act, manner or thing". Clause 30 - Use restricted to a golf course. Clause 38 - Lessee cannot part with possession without Minister's consent. Clause 54 - If improvements are totally destroyed, lessee can rebuild to original design, or to an approved design, or surrender lease. Clauses 58, 59 - Lessee cannot erect or demolish improvements without consent. Clauses 82, 83 - Lessee cannot "harm, kill or destroy any of the trees or vegetation on the land except weeds". Clause 87 - The lessor does not have to provide access "over other land held by the lessor or any other land". (As all adjoining land is owned by the lessor, some doubts must arise as to the ongoing use of the existing access; otherwise the subject land is landlocked.) Clause 89 - Lessor covenants to provide quiet enjoyment. However, a helicopter base with a large hangar has been established on adjacent land with flights occurring over the subject land. Clause 90 - Upon three (3) months notice the Minister may withdraw any part of the subject land "and no compensation shall be payable for such withdrawal". (Such a restriction would have obvious impacts in relation to securing finance to develop the land.) Clause 105 - Lessee to maintain footbridge adjacent to the sixth tee for public access. Clause 109 - Lessee to allow various government offices vehicular access across the land to Henry Head. Clause 112 - The Minister's consent is required to alter playing areas of the golf course."

19The primary judge found that all of these conditions were relevant to be taken into account under s 14I of the VL Act as they all related to either the disposition or the manner of use: at [8]. The Valuer-General challenges the primary judge's finding that cl 90 of the lease was relevant to be taken into account under s 14I as being a restriction on the disposition. 20Clause 90 of the lease provided: "The Minister may (on giving the notice specified or referred to in Column 2 of Item 110 of Schedule 1) pursuant to section 136 of the CLA withdraw such parts of the land comprised in this Lease as are specified or referred to in Column 2 of Item 111 of Schedule 1 that is required for a public purpose and no compensation shall be payable in respect of such a withdrawal." 21The section referred to in cl 90, s 136(1) of the CL Act, provides as follows: "The Minister may, by notification in the Gazette, withdraw from any lease or licence under this Act or the Crown Lands (Continued Tenures) Act 1989 any land required for a public purpose." 22The "Minister" referred to in both cl 90 of the lease and s 136(1) of the CL Act is the Minister of the Crown for the time being administering the CL Act or any other Act replacing or consolidating that Act: see cl 2 of the lease.

23The primary judge considered the evidence of the parties' respective valuers, preferring the evidence of valuation based on the potential income of the golf course. The primary judge considered the price the hypothetical purchaser would pay, based on potential income, but taking into account the need for and the cost of improvements such as a clubhouse: at [42]-[54]. Based on this evidence of land value derived from potential income, the primary judge initially adopted a land value of $2.37 million: at [50], [54]. However, the primary judge then found that "it is highly unlikely that a hypothetical purchaser would pay anything like this having regard to the requirement under s 14I of the Act to take into the account the restrictions on the disposition or manner of use that apply to the land by reason of its being the subject of the Crown lease": at [55]. 24The primary judge then referred to cl 90 of the lease as a restriction on the disposition, which would have such a depreciating effect on the price that a hypothetical purchaser would be prepared to pay that the land value for the land should be determined as nil. The primary judge's reasons for so concluding are set out in paras [56]-[59]: "56.Clause 90 of the lease, noted at para [7] above, states that the Minister may on three months' notice withdraw any part of the land and "no compensation shall be payable for such withdrawal". Mr Maston submits that the utilisation of cl 90 is highly unlikely and that there would be a reasonable expectation on the part of the Club that its tenure was secure. I pointed out during the hearing, however, that I was personally aware of - and thus had judicial notice of - an instance where the Crown had done just that, in giving the lessee three months' notice of termination notwithstanding a reasonable expectation that its tenure would continue. 57.As also noted at para [7] above, this restriction would have an obvious impact upon the ability to secure finance to either purchase or develop the land with such facilities as a clubhouse, car park, irrigation system, dam, the paving of cart paths and the like. It would also limit the field of potential purchasers, who would hesitate before acquiring an interest in land which can be unilaterally terminated on three months' notice. It would clearly have a depreciating effect on the price that a hypothetical purchaser would be prepared to pay. Mr Dupont did not think that this was material to the value of the land. Mr Dundas, however, was of the opinion that it was an overriding risk: '... the Crown could given them a letter, when they get back to the office today, there could be a letter from the Crown saying you have to vacate in three months and you don't get anything for anything you've built there. The letter might arrive next week or next year, no one knows, but it could happen and someone would take that into account in assessing their risk, that's what I think.' 58.It is for this reason that Mr Dundas contended that the price which the hypothetical purchaser would be prepared to pay would be nil. I concur. This must be particularly so when it is appreciated that the hypothetical purchaser would have to expend a substantial sum of money in providing the facilities which would be necessary to enable the land to be used as a functioning golf course, as described by Mr Dundas - in particular the provision of some sort of clubhouse. For the same reason, a nil valuation would also apply if one were to adopt the capitalisation of rents method of assessment. 59.I conclude, therefore, that the appeal should be allowed and the value be determined at nil."

The Valuer-General's submissions on the construction of s 14I and cl 90 25The Valuer-General submitted that cl 90 of the lease is not a restriction on the disposition that applies to the land by reason of its being the subject of the Crown lease, within the meaning of s 14I(1) of the VL Act. 26The Valuer-General submitted that cl 90 of the lease does two things. First, it draws attention to the Minister's power under s 136(1) of the CL Act to withdraw from the lease land required for public purposes. Clause 90 is not a covenant pursuant to which the power of withdrawal arises: at [19] of the Valuer-General's written submissions. The Valuer-General developed this first point orally on the appeal. Section 14I(1) of the VL Act only requires restrictions on the disposition that apply to the land "by reason of its being the subject of the lease concerned". The Valuer-General submitted that the source of the power of the Minister to withdraw from the lease land required for a public purpose lies within s 136 of the CL Act and not within cl 90 of the lease. Put another way, the power to withdraw the land comprised in the lease does not apply to the land by reason of its being the subject of the lease concerned but rather by dint of s 136 of the CL Act. 27The second thing the Valuer-General submitted cl 90 does is to make provision that no compensation is payable for land withdrawn pursuant to s 136 of the CL Act: at [19] of the Valuer-General's written submissions. Section 136(4) of the CL Act provides that: "Subject to the conditions attaching to, or the provisions applying to, a lease or licence, compensation is payable for land withdrawn under this section." 28Clause 90 of the lease, however, provides that no compensation is payable to the lessee in the event that land is withdrawn by the Minister from the lease pursuant to s 136(1) of the CL Act. By reason of the caveat in s 136(4), this lease condition that compensation is not payable applies. 29The Valuer-General further submitted that "clause 90 imposed no impediment or restriction upon the lessee of the land [the Club] from disposing of its interest in the land leased to it": at [20] of the Valuer-General's written submissions. The power of, and the procedure for, the lessee to assign or dispose of the lessee's interest in the land was dealt with under other terms of the lease, notably cl 38 which permitted such dealing by the lessee with the lessor's written consent. Clause 90, however, was irrelevant to what would be assigned or disposed of by the lessee: at [21] of the Valuer-General's written submissions. 30The Valuer-General also submitted orally that the power of the Minister under s 136(1) of the CL Act to withdraw land comprised in the lease cannot be characterised as a "restriction on the disposition" of the land as it empowers not restricts the Minister to withdraw the land comprised in the lease. 31Hence, the Valuer-General submitted that the primary judge erred on a question of law in holding that cl 90 was a restriction on the disposition that applied to the land by reason of it being the subject of the lease concerned, within the meaning of s 14I(1) of the VL Act: at [17]-[22] of the Valuer-General's written submissions.

The Club's submissions on the construction of s 14I and cl 90 32The Club accepted as correct the Valuer-General's submission that the plain words of cl 90 of the lease themselves imposed no impediment or restriction upon the lessee from disposing of its interest in the land: at [2] of the Club's written submissions. However, the Club submitted that: "... the proper question to pose is whether what is encompassed within the direction of s 14I(1), viz "(4) Land value [to be] determined taking into account the restrictions on the disposition or manner of use that apply to the land by reason of it being the subject of the lease concerned", necessarily directs attention and regard to be given to the Minister's reserve power in clause 90. That question is answered by enquiring whether or not the clause 90 reserve power is a prospective restriction on the lessee's disposition or manner of use of the land, under the lease. If the clause 90 power is not such a restriction, then the trial judge was wrong. However, to the contrary, it is submitted that the plain and ordinary construction of the s 14I words (and the construction the hypothetical prudent purchaser would give to them) was that the risk of the clause 90 power was relevant to his assessment of value he may ascribe to the land, as it could impact on the full term of the lease or on part of the land granted by it (the trial judge relied upon the unchallenged evidence of Mr Dundas as to the impact clause 90 would have on the hypothetical prudent purchaser (Judgment [57])": at [3] and [4] of the Club's written submissions. 33In response to the Valuer-General's submission that s 136(1) of the CL Act, and not cl 90 of the lease, is the source of the Minister's power to withdraw land comprised in the lease, the Club submitted that even if s 14I did not require consideration of the risk that the Minister could exercise the power under s 136 of the CL Act to withdraw land comprised in the lease when determining the land value, such a risk could still be taken into account in determining land value under s 6A of the VL Act. The difficulty with this submission is that this is not the approach the primary judge adopted, rather the primary judge characterised cl 90 as a restriction on disposition within s 14I of the VL Act and took it into account under s 14I of the VL Act. It is therefore not an answer to the Valuer-General's submission that the primary judge erred in law in determining the land value of the land.

The primary judge erred in construing s 14I and cl 90 34The Valuer-General's task, and the task for the Land and Environment Court in determining an appeal under s 37(1) of the VL Act, is to determine the land value of the land. This requires assessing the value of "the fee-simple of the land": s 6A of the VL Act. The "fee-simple of the land" means the fee simple as the highest estate unencumbered and subject to no conditions. The High Court in Royal Sydney Golf Club v Federal Commissioner of Taxation (1955) 91 CLR 610 at 623 explained this meaning of the fee simple. Although the case concerned the fee simple in the definition of "unimproved value" of land under the Land Tax Assessment Act 1910-1950 (Cth), there is no material difference to the fee simple in the definition of "land value" in s 6A(1) of the VL Act. The High Court said: "It seems clear enough that the fee simple here means an unencumbered fee simple. Encumbrances upon land or estates in reversion appear to have been regarded as giving to reversioners or encumbrancers beneficial interests to be enjoyed by them. But the owner of the first estate of freehold was selected as the taxpayer who was to represent all persons beneficially entitled to the land. The value upon which he was to be taxed was the unimproved value of the fee simple, that is to say the capital sum which the fee simple might be expected to realize. It seems evident that the fee simple mentioned must be taken as free from encumbrances which, if they impaired the value of his estate, nevertheless operated to confer upon some other person or persons an estate or interest in the land. Were it otherwise the taxable value of the land would be diminished but the correlative estate or interest would not come into tax, unless by some chance it were an interest falling under some specific provision imposing liability. When the definitions of "unimproved value" in s. 3 speak of "the fee simple" they cannot mean, notwithstanding the definite article, that estate in fee simple which has been granted. For under s. 26 the hypothesis is that there has not been a Crown grant. In the Act as it stood before the enactment of the Land Tax Assessment Act 1914, s. 27 applied to leases from the Crown where there was no fee simple: yet s. 27 (4) (b) in conjunction with the definitions of "unimproved value" required that a fee simple should be assumed. The expression "the fee simple of the land" naturally means the fee simple as the highest estate unencumbered and subject to no conditions. Doubtless estates in fee simple may be granted by the Crown subject to conditions or reservations which operate only in the public interest. The corresponding advantages which ensue may be enjoyed only as of public right: they are not an interest in land enjoyed by a specific person or persons. But the Act does not draw any distinction based upon this possibility. The general policy was reflected in a general rule. 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." 35This meaning has been applied in valuing the fee simple of the land for the purpose of the VL Act: Sydney City Council v The Valuer-General (NSW) (1956) 1 LGERA 229 at 235. 36The fact that the fee simple is a hypothetical fee simple unencumbered and subject to no conditions restricting enjoyment or use, does not mean, however, that public laws which affect the value of land are not to be taken into consideration; they are to be, including restrictions imposed by planning laws and instruments made thereunder: Royal Sydney Golf Club v Federal Commissioner of Taxation at 624 and Sydney City Council v The Valuer-General (NSW) at 230. 37Although the fee simple of the land to be valued under s 6A(1) of the VL Act is this hypothetical fee simple free from encumbrances, special provision has been made for valuing Crown lease restricted land, such as Crown land subject to a lease under Pt 4 of the CL Act. Section 14I was introduced by the Valuation of Land Amendment Act 2000. Section 14I(1) requires the land value of the hypothetical fee simple of the land to be determined taking into account restrictions of the kind described in s 14I(1) which would not otherwise be taken into account in valuing the hypothetical fee simple of the land under s 6A(1) of the VL Act. Only restrictions of the kind described in s 14I(1) of the VL Act may be taken into account in determining the land value of the land. 38In order for a term of a Crown lease to be a restriction described in s 14I(1), it must be:

• a restriction;
• on the disposition or manner of use;
• that applies to the land by reason of its being the subject of the lease concerned. 39In this case, the Club's valuer proposed, and the primary judge accepted, that cl 90 of the lease did impose a restriction on the disposition of the kind described in s 14I(1) of the VL Act and that it should be taken into account under s 14I(1) in determining the land value of the land. In my view, they were in error. 40As the Valuer-General submitted, cl 90 has two components: first, it refers to the statutory power of the Minister under s 136(1) of the CL Act to withdraw from the lease land required for a public purpose and, secondly, it provides that no compensation is payable in respect of such a withdrawal. 41The first component is not a restriction on the disposition that applies to the land by reason of its being the subject of the lease, for three reasons. First, the power of the Minister to withdraw the whole or part of the land comprised in the lease derives from s 136(1) of the CL Act, and not cl 90 of the lease. That is clear from the terms of cl 90 of the lease and cl 136(1) of the CL Act. Hence, the Minister's power to withdraw land from the lease does not "apply to the land by reason of its being the subject of the lease concerned." 42Secondly, an exercise by the Minister of the power under s 136(1) of the CL Act to withdraw land comprised in the lease does not involve a "disposition" of the land. The concept of disposition of an interest in land involves the person with the interest undertaking the act of disposing of the interest. A lease of Crown land can involve a disposition of Crown land: see s 42 of the CL Act. This is because the owner of the land, the Crown in right of New South Wales, in granting the lease is conferring an interest in the land on the lessee for the time period of the lease. 43It does not follow, however, that the withdrawal of land comprised in the lease by the Minister under s 136(1) of the CL Act is also a disposition of the land. Neither the lessor nor the lessee can be said to dispose of land when the Minister exercises the power under s 136(1) of the CL Act to withdraw from the lease land required for a public purpose. The lessor is the Crown in right of New South Wales. The lessor has no power under s 136(1) of the CL Act, only the Minister. The exercise by the Minister of the power under s 136(1) does not involve the disposition of an interest in the land by the lessor. The lessor does not get rid of any interest in the land but rather, as a consequence of the withdrawal, has an unencumbered fee simple free of the leasehold interest. The lessee, the Club, has not itself disposed of the leasehold interest in the land, but rather has been dispossessed of that interest by the Minister withdrawing from the lease land comprised in the lease. Either way, therefore, the withdrawal by the Minister of land comprised in the lease does not involve the disposition of the land by the lessor or lessee. 44I note that in an earlier case involving the same parties, the same land and the same lease, New South Wales Golf Club v Valuer-General (NSW) [2007] NSWLEC 40; (2007) 151 LGERA 360, Talbot J held that the power of the Minister referred to in cl 90 of the lease to withdraw such parts of the land that may be required for a public purpose, was not a restriction on disposition imposed by the lease required to be taken into account under s 14I: at [22]. 45Thirdly, the power of the Minister under s 136 of the CL Act to withdraw land comprised in the lease is not a "restriction" on the disposition. Section 136(1) gives the Minister a statutory power that is not available to a lessor under the lease, namely the power to withdraw the land the subject of the lease. Even if the withdrawal of the land from the lease could be characterised as a disposition of the land (which I do not consider it is), the statutory power in s 136(1) of the CL Act and cl 90 of the lease which refers to that statutory power, cannot be characterised as a "restriction" on the withdrawal of the land; to the contrary, the statutory power enables the withdrawal of the land. 46The second component of cl 90 of the lease is the provision that no compensation is payable in respect of a withdrawal of land by the Minister pursuant to s 136(1) of the CL Act. This component does impose a restriction that applies by reason of the lease. Section 136(4) of the CL Act provides that compensation is payable for land withdrawn under s 136(1) but such provision is subject to the conditions of the lease. In this case, cl 90 of the lease provides for no compensation. Such a contrary provision in the lease can be seen as a restriction on the compensation that would otherwise by payable under s 136(4) of the CL Act. 47However, this restriction on compensation is not a restriction "on the disposition." The subject matter of "the disposition" in s 14I(1) of the VL Act is the land to be valued (or an interest in that land). The restriction in cl 90 of the lease on the compensation payable for land withdrawn under s 136(1) of the CL Act is not a restriction "on the disposition" of the land or an interest in the land. Even if the withdrawal of land comprised in the lease can be characterised as being a disposition (which I do not consider it is), cl 90 imposes no restriction on such withdrawal; it is the compensation for the withdrawal that is restricted. 48For these reasons, cl 90 of the lease is not, and does not impose, a restriction on the disposition that applied to the land by reason of its being the subject of the lease concerned, within the meaning of s 14I(1) of the VL Act. The primary judge was in error in concluding that it did and in taking it into account under s 14I(1) of the VL Act in determining the land value. Accordingly, the Valuer-General's first ground of appeal should be upheld. 49In light of this conclusion, it is not necessary to determine the Valuer-General's second ground of appeal. 50The Valuer-General submitted that if its appeal is upheld, the proceedings should be remitted to the Land and Environment Court for determination in accordance with this Court's decision. The Club did not oppose this course. It is the appropriate course. The land value of the land needs to be redetermined in accordance with the determination of this Court.

Outcome and orders 51The orders I propose are as follows: (1)Appeal allowed. (2)Set aside the orders of the Land and Environment Court of 19 June 2012. (3)Remit the proceedings to the Land and Environment Court for determination by that Court in accordance with the decision of this Court. (4)The respondent to pay the costs of the appellant of the appeal. 52WARD J: I agree with Preston CJ of LEC.

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