Willis v Roads and Maritime Services

Willis v Roads and Maritime Services - [2015] NSWLEC 165 - NSWLEC 2014 case summary — Zoe

[8]

Approaches to Valuation

Both valuers agreed that the appropriate technique for valuing the land was the 'before and after' method (see generally Gosford Shire Council v Green (1980) 48 LGRA 201 at 208 and Mir Bros Unit Constructions Pty Ltd v Roads & Traffic Authority of NSW [2006] NSWCA 314 at [10] - [11] per Spigelman CJ).
The valuers also agreed that the appropriate method of establishing value in both the before and after scenarios was by the direct comparison of comparable sales.
Furthermore, the valuers disavowed the hypothetical development method of valuation (see, for example, A G Robertson Ltd v Valuer-General (1952) 18 LGR (NSW) 261 at 262 and Gwynvill Properties Pty Ltd v Commissioner for Main Roads (1983) 50 LGRA 322 at 326). This method takes the cost of development, holding costs, and the cost of selling the completed development, and establishes the gross amount that may be realised from the sale of the lots produced (in the case of a subdivision). After making an allowance for profit and the risks associated with carrying out the development, interest, rates and other expenses, the amount remaining is the market value of the land.
Notwithstanding the matters in agreement, as the expert evidence unfolded, and at the valuers' request, the Court directed RMS to file and serve expert evidence as to the costs of subdividing the IN1 zoned land in order to determine whether the subdivisions proposed by the parties' town planners and engineers were economically viable. This evidence was necessary to address one of the main differences between the parties in relation to the valuation of the land, namely, the feasibility of development and subdivision of the IN1 zoned land.
Another critical difference between the parties was the value of the land zoned R5 within the western part of lot 101, together with lot 1 DP 170992.
The mixed zoning of the parent parcel drove the valuers to consider the values of the separately zoned areas in both the before and after scenarios according to their separate zoning. The existing lots comprising the parent parcel did not, in the main, reflect the zone boundaries affecting the land. With respect to the IN1 and R5 zoned land, the valuers approached the exercises as if the areas in the respective zones were separate parcels which could be considered in isolation from the remainder of the land. Land zoned E3 and RU1 was assigned value on a rate per hectare.
Overall compensation was determined by the valuers adding together the values of the separate areas of the differently zoned land in order to arrive at a total market value of Mr Willis's land in the before and after scenarios.
Neither valuer was particularly concerned with any adjustment of the separate values of the IN1 and the R5 zoned land to reflect the difference between the price that would have been paid for the whole of the land acquired, and the price that would have been paid for the separate parts assuming that they would have been sold individually. The variously zoned parts of Lot 101 were treated as separate but unsubdivided portions of the parent parcel. In these circumstances, the question of whether it was appropriate to assume single or multiple buyers of the land did not arise (cf Maori Trustee v Ministry for Works [1959] AC 1; [1958] 3 All ER 336 at 340 - 343; Hazcorp Pty Limited v The Roads and Traffic Authority of NSW [2006] NSWLEC 661 at [14] and Turner v Minister for Public Instruction (1956) 95 CLR 245).

[9]

Highest and Best Use of the Land

The highest and best use of land is the most profitable potential use to which land can be put having regard to planning and other controls, together with the circumstances of the land (Spencer v The Commonwealth (1907) 5 CLR 418 at 441 per Isaacs J; Turner at 267 per Dixon CJ and Commonwealth Custodial Services Ltd as Trustee for Burwood Trust Fund; Trust Company of Australia Ltd v Valuer-General (NSW) (2006) 148 LGERA 38 at [14] - [15] per Biscoe J upheld on appeal in Valuer-General v Commonwealth Custodial Services [2009] NSW 143; (2009) 74 NSWLR 700). A present use may be the highest and best use.
Both valuers expressed their view of the highest and best use of the land, including the 10.4 ha area of IN1 zoned land.
Mr Potter stated in his expert report that: The highest and best use of the site on a before basis is for industrial and rural residential development holdings. In the after scenario, a reduced size, access restricted industrial holding and an unappealing rural residential allotment is considered the highest and best use.
In both his individual report, and in the joint valuation reports, Mr Potter emphasised that he viewed the IN1 zoned land in the before scenario, on Mr Connelly's advice, as englobo industrial development land suitable for industrial subdivision into 38 allotments for sale, and that 11 lots were available in the after scenario.
RMS's planner, Mr Palmer, did not agree. His view was that the numerous constraints affecting the IN1 zoned land, including the difficulties of providing satisfactory legal and practical access to the land, would have made any industrial development and subdivision of it unrealistic.
The additional expert evidence filed by RMS revealed that the development cost of carrying out the 38 lot industrial subdivision proposed by Mr Connolly was $16,835,939, and moreover, that such development would have been completely unviable because the value of the finished lots would have been far less than the development costs of producing them.
In the after scenario the development costs were accepted as being $6,591,510 for the 11 lots proposed. Ultimately, however, Mr Potter did not rely on Mr Connelly's proposed industrial subdivisions in either the before or after scenarios.
In his report Mr Dempsey described the highest and best use of the land in the following way: The highest and best use is for [rural residential subdivision] and low lying rural land with long term potential over part of the land for industrial subdivision.
Mr Demsey added that the land had limited grazing potential as at the date of acquisition. He maintained the views he expressed in his individual report in both of the valuers' joint reports.

[10]

Town Planning Evidence

Both town planners were experienced experts who regularly practised in the local area. Each provided an expert report and, following joint conferencing, prepared a joint report dated 13 December 2013.
The town planners agreed on the zoning of the various parts of the land, as well as the hypothetical zoning of areas whose zoning had been influenced by the proposal to carry out the public purpose for which the land was ultimately acquired. This included agreement as to the underlying zoning of part of the land as at the date of acquisition, namely, the zoning that would, but for the acquisition, have applied to it in accordance with s 56(1)(a) of the Act.
The particular area affected was the southernmost area of Lot 101, west of the existing Pacific Highway. In this regard, the planners agreed that the part of the land actually zoned RU4 before acquisition (as seen in Mr Connelly's zoning map (Plan 2.1) in his principal report) would have been zoned R5 in its entirety. This was determined conformably with the assumptions required by s 56(1)(a) of the Act (see Smith v Road and Traffic Authority of NSW [2005] NSWLEC 438; Goluzd v Minister Administering the Environmental Planning and Assessment Act 1979 [2012] NSWLEC 25 and Maloney v Minister Administering the Environmental Planning and Assessment Act 1979 [2011] NSWLEC 121 at [91] - [92], and the cases cited therein).
As a consequence, the planners further agreed that the zoning of the land on the western side of the existing Pacific Highway could be taken to be: 1. IN1 (General Industrial) - 10.4 ha; 2. E3 (Environmental Management) - 8.7 ha; and 3. R5 (Large Lot Residential) - 12.1 ha.
This gave a total area of 31.2 ha.
In relation to the R5 zoned land, the planners agreed that prior to acquisition the land had large lot residential subdivision potential for nine lots with a minimum size of one hectare, whereas after acquisition the residue land had potential for a subdivision of three rural residential lots.
As mentioned above, Mr Potter accepted with respect to the IN1 zoned land, that neither the suggested 38 lot industrial subdivision in the before scenario, nor the 11 lot industrial subdivision in the after scenario, were economically feasible, with the result that Mr Connelly's industrial subdivision development scenarios were rejected by both valuers for want of viability.

[11]

Engineering Evidence - Industrial Development Constraints

Mr Emery for RMS provided two expert reports, the first in January 2014, and the second in May 2014. In the January report, he noted that the areas indicated as potential industrial lots by Mr Connelly were generally located within the "1% AEP Flood Extents" mapping, were located on soft soils, and that works necessary for development would involve the filling of the flood prone land, together with work to remove, replace, and consolidate those areas containing soft soils, to make the land suitable for new roads and subdivisional allotments.
Mr Emery doubted the feasibility of Mr Connelly's 38 and 11 lot proposals because of the cumulative effect of the: 1. high costs of development; 2. unacceptable location of lots on, or adjacent to, flood prone lands; 3. potential difficulties with achieving satisfactory onsite effluent disposal; 4. unsuitability of the proposed access roads for heavy vehicles; 5. unsuitability of use of an existing right of way from a cul-de-sac on Alex Pike Drive for access to part of the subdivision, and the need to legalise access by dedication of public roads and widening of Short Cut Road; 6. necessity for drainage; 7. presence of acid sulphate soils; and 8. significant risk of obtaining development consent for the proposals.
With respect to flooding, Mr Emery warned that because the IN1 area was within the floodable extents of flood storage areas of the Bellingen River, filling was only permissible if the volume of fill placed below the general flood planning level ("GFPL"), being the 1:100 average recurrence interval flood, could be compensated for on the subject land. Should a compensation volume not be available, it was unlikely that the council would allow the proposal to proceed.
There was no subsequent evidence to demonstrate that this requirement could be met.
As to sewerage, Mr Emery noted that no assessment had been carried out of the feasibility of onsite sewerage treatment for each proposed lot. He suggested that Mr Connelly's proposed lot sizes, the steep terrain, and the flooding issues, would provide significant constraints on disposing of sewerage onsite.
He also noted that two electrical transmission line ("TL") easements passed through the land in a north-south direction. In the west there was a dual 132,000 volt TL (Transgrid) and in the east there was an 11,000 volt TL (Essential Energy). These were required to be located in their easements of 30m and 5m wide, respectively. Both restricted the construction of buildings.
Further, in order to access fill material which lay above the GFPL, it would be necessary to relocate the 11,000 volt TL infrastructure. The overall relocation costs were substantial.
Mr Green, for Mr Willis, published an engineering report dated 22 July 2014. The engineers, joint report was dated 12 August 2014.
Mr Green generally agreed with Mr Emery, but added that the extent of the bridging of the soft soils required confirmation by geotechnical investigations and that onsite sewerage disposal would be at the cost of each lot purchaser. He noted that the right of way that had been created from the cul-de-sac head of Alex Pike Drive in the adjoining industrial area would have steep grades over a distance of 50 to 60m of between 15% and 20%, between reduced level ("RL") 14m at Alex Pike Drive and RL 4m (the GFPL), and that the access to the lots would have to be sealed. He did not challenge Mr Emery's opinions that the council would require public road access over the right of way, assuming development approval, or that the servient owner would be required to consent to dedication of the freehold title to the land for that purpose.
In light of this engineering evidence, there can be no doubt that the proposed development of the land was subject to formidable constraints.
In an apparent attempt to overcome the topographic, access, flooding, and cost constraints, Mr Green: 1. proposed for the first time in Court a suggested alternative, namely, that two large industrial lots could be developed for the pre-acquisition scenario via the existing 20m wide right of way off Alex Pike Drive; 2. noted that provision of any additional lots off Alex Pike Drive would present significant design issues and that several investigations would need to be undertaken, including engineering investigation and cost-benefit analyses, to determine whether his proposed development was viable; 3. stated that a third industrial lot could be potentially developed within the western portion of the site utilising an internal access road off Short Cut Road; 4. stated that the availability of onsite fill required for the proposed subdivision was dependent upon the 11000 volt TL being able to be relocated, and if it could not, the volume of fill would be insufficient and that additional fill would need to be obtained elsewhere at a greatly increased cost; and 5. the three suggested lots were proposed to be raised above the general flood planning level by filling the flood plain. Each would provide 2,000m2 of flood free land.
A detailed estimate of development costs in the before scenario for the three lot proposal was given by Mr Emery. The total cost was $497,834. It was agreed in the engineers' joint report that the existence of development consent had been assumed for the purpose of costing, however, no development consent had been granted for any industrial subdivision on the land.
Curiously, Mr Green was not instructed to review Mr Emery's costings. They should be accepted. In any event, the engineers' joint report contained agreement that the extent of soft soils was unknown, that detailed geotechnical investigation was required, and that the cost estimates were prepared on the assumption that the environmental constraints that exist would have been identified and addressed in any development application process.
In short, the engineering evidence presented considerable, if not insurmountable, challenges to the likely development of the subject land as proposed by Mr Willis.

[12]

IN1 Zoned Land Before Acquisition - Sales Evidence

The valuers' individual reports were dated March 2014. As at that date, the valuers did not have Mr Green's July 2014 report. However, Mr Potter had been informed of Mr Green's belated proposed three lot industrial subdivision in the before scenario.
Mr Potter did not address the viability of the small scale subdivision suggested by Mr Green. Rather, he proceeded to assess market value of the IN1 zoned land by examining comparable market sales.
Mr Potter's original valuation of March 2014 confirmed that his method of valuation was the before and after technique, using the direct comparison of comparable sales approach to determine value in each scenario. Furthermore, he stated that the subject 10.4 ha of IN1 zoned land was approached on an englobo basis. After allowing for roads and infrastructure, this translated to 7.6 ha for subdivisional lots.
Mr Potter's valuation was derived from consideration of four sales: 1. sale 1 at 28 Alex Pike Drive, Raleigh (also referred to as 26 Alex Pike Drive). This was a single allotment of 1.51 ha zoned industrial, of which 8,000m² (53%) was said to be usable and estimated to be $40/m². The remainder of 7,100m² was land described as highly constrained to which Mr Potter assigned $6.30/m². The rate of $40/m2 was apparently derived by apportionment of the sale price but no step by step reasoning for adjustment, analysis, or application was provided; 2. sale 2 at 9 and 11 Alex Pike Drive, Raleigh. There sales were of sloping land requiring filling and benching in order to be usable. Although smaller in area (2,455m2 and 2,429m2, respectively), the prices for these sales ($115,000 and $125,000, respectively) were $147 and $57m2; 3. sale 3 at the Woolgoolga Sawmill Site. This was 4.3 ha of industrial 4A zoned land with exposure to the Pacific Highway. Mr Potter estimated a rate per m² of $120-$200/m², the basis of which was not explained. This was not one of the sales he ultimately relied on in the proceedings. The site was not viewed or contained in the list of sites to be inspected by the Court and no reference was made to it in Mr Willis's closing written submissions. Woolgoolga is about 25 km north of Coffs Harbour; and 4. sale 4 at 23 Wingara Drive, Coffs Harbour. This is an 8,117m2 generally level, single subdivided lot, adjacent to a fully serviced industrial estate in Coffs Harbour. The land lies to the rear of industrial lots with street frontage. The site was partially filled and level, with no direct street access. It was purchased by the adjoining owner whose land fronted Wingara Drive, and who could readily provide public road access.
None of these sales appeared to be directly, or even indirectly, relevant to the subject 10.4 ha englobo parcel of IN1 zoned land. For example, sale 1 had an area of about 15% of the subject land. It was a single allotment in a completed registered subdivision sold to a single user. It had little comparability for the englobo value of the subject land. Further, there was a lack of transparency of analysis and adjustment of the sales referred to by Mr Potter to enable any deductions to be made as to the likely value of the subject parcel having regard to the numerous constraints referred to in the evidence.
In relation to sale 2, in Mr Potter's opinion, both of those properties were superior to the subject land, and as a result, the subject land could not anticipate to receive more than $115,000 per retail lot.
As for sale 4, the obvious topographical, geographical, amenity and market differences between the subject land and an industrial allotment in a subdivision in Coffs Harbour, together with problems of analysis due to the adjoining owner purchase, were not meaningfully addressed by adjustments in any explicit manner.
In my opinion, these sales provide no cogent foundation for a valuation of the subject IN1 zoned land at $10/m² or $100,000/ha, which is the englobo rate initially proposed by Mr Potter for the subject parcel.
In the valuers' first joint report, Mr Potter revealed the proposal for a three lot subdivision for the subject land. At paragraph [56] of that report, Mr Potter stated that based on the engineers' advices he found it necessary to amend his valuation of $10/m² for the IN1 zoned land in the before scenario to $9/m². He then stated that "this indicated a value of $684,000 or $6.84/m² across the 10 ha of industrial zoned land". He proceeded to make the general assertion that "the adopted rate was supported by the sales evidence… given the purchaser profile and price point market entry". This is a reference to "the purchaser profile" in paragraph [53] of the valuers' first joint report. The profile consists of a list of features, some of which are very general in nature, including the potential to subdivide into two or three allotments in the "short term". There is no further analysis of the sales in that report.
In the valuers' second and final joint report, completed on 2 September 2014, Mr Potter made adjustments to the costing of Mr Green's three lot subdivision (which, it should be recalled, assumed both development consent and that approval would be obtained to move the 11,000 volt TL to enable the use of onsite fill beneath and beyond the TL, notwithstanding that there was no evidence of consent or approval from the authority) and stated that, "my consideration of value as detailed in the [first] valuers' joint report … remains unchanged".
Although there is further reference to the sale of 28 Alex Pike Drive, and to the sales of 11 and 9 Alex Pike Drive, there is no real analysis or adjustment of those sales.

[13]

There is No Real Potential for Industrial Subdivision and Development

The two and three lot "fill-pad" industrial subdivision proposals were conceded by Mr Willis to be "presently not viable". Nevertheless, a value in the before scenario of $684,000 was, he submitted, able to be derived from Mr Potters' comparable sales, and, he contended, reflected the land's potential, as reflected in the Bellingen Shire Employment Lands Strategy Final Draft Report, dated April 2012 ("the ELS"), which discussed potential business opportunities in the future to expand the use of the industrial Raleigh precinct consequent upon the upgrade to the Pacific Highway.
In my view, however, none of the industrial subdivisions proposed by Mr Willis were demonstrated to be an economically or practically viable development.
Mr Willis' witnesses claimed there could be many other development alternatives of the subject land, including industrial development not involving subdivision. However, again, the steep topography, the fact that the major part of the land zoned IN1 is flood prone land ranging from natural wetlands to land frequently and regularly inundated over a wide area, coupled with the risks and cost of providing acceptable access to the land, together with the constraints discussed above, would have led a willing but not anxious hypothetical purchaser and vendor to have concluded that industrial use of the land was fraught with a plethora of difficulties. These difficulties included, by way of illustration, the uncertainty of obtaining development consent and other required approvals and the likely high costs associated with access, flooding, and soft soils. It was for this reason that Mr Dempsey regarded the land as "marginal" with no short or medium term potential for industrial development.
As for the adjoining Alex Pike Drive subdivision, it had been developed by the local council in the late 1970s and there were still several apparently undeveloped industrial lots remaining at the date of acquisition. In addition, the existing subdivision was developed on higher, more level land, which enabled provision of flood free public road access to the allotments. The continuing existence of these undeveloped industrial lots tells against any "strong appetite", as suggested by Mr Willis, for more industrial development at the locality as reflected in the ELS. The expected demand for industrial land has not materialised and is unlikely to do so, as Mr Dempsey observes, in the short, medium or even long term.
Finally, Mr Willis conceded that the IN1 zoned land was not "immediately developable or ripe for intensive industrial subdivision on a large scale".
The Court is therefore unable to accept the evidence of Mr Potter as to the valuation of the subject 10.4 ha of IN1 zoned land.
I prefer the evidence of Mr Dempsey, who consistently maintained his view throughout the proceedings that the highest and best use of the lands zoned IN1, both before and after acquisition, was for its existing rural use as low lying rural land with only long term potential over part of it for industrial subdivision. It was his view, based on the town planning evidence, that the uncertainties and risks relating to the development of the IN1 zoned land were so great that the parties to the hypothetical transaction would reasonably agree a land value equivalent to that of rural land.
Mr Dempsey's assessment of the IN1 zoned land in the before scenario was based on sales of rural land in the locality. From these sales he derived a value of $10,000 per hectare, as set out in his individual report (at p 46). This rate was equally applied by him to the land zoned E3 and the land east of the existing Pacific Highway.
I accept Mr Dempsey's evidence in this regard for the reasons given above. Accordingly, I find that the value of the 10.4 ha of IN1 zoned land, prior to acquisition, was $104,000.
The changes in the market, in the context of the land, that would be required to take place in order to enable any long term potential of the IN1 zoned land to be realized in the future, as well as the length of time before the land would be ripe for industrial development, were not explored in the evidence, and it is neither appropriate or possible for the Court to speculate about such matters.
In these circumstances, I am unable to ascribe any particular additional value to the long term industrial potential of the subject land.

[16]

Before Acquisition

The issues with respect to the value of the R5 zoned land related to the selection and analysis of comparable sales. Mr Dempsey treated Mr Potter's sales 1, 2 and 3 at Nana Glen as not comparable because they were in an area which was remote from the subject land and in a different environment and market. The area in which the sales were located at Nana Glen was level or gently undulating open rural country. There was no convincing evidence that the value of englobo land at Nana Glen had any demonstrable relationship to the value of the R5 zoned land at Raleigh.
In my view, Nana Glen would appeal to purchasers with different aspirations to the subject land. I therefore do not consider the Nana Glen sales to be comparable. I agree with Mr Dempsey that the Nana Glen sales are too remote from the subject land to be of any use, and moreover, that the environment of Nana Glen is materially different. There are, in any event, difficulties with Mr Potter's treatment of those sales, which I note briefly below.
Mr Potter advanced a range of values per potential subdivided lot based on the three Nana Glen sales from $66,070 per lot up to $99,000 per lot. The lower figure relates to sale 3 and the higher figure relates to sale 2. Sale 1 was analysed by Mr Potter as showing $80,000 per lot and sale 4 at Bellingen as $72,000 per lot. The latter was applied directly to his valuation of the subject land.
Sale 1 at 19 Orara Street comprised 18.43 ha. It sold in October 2012. There were substantial improvements on an 11.43 ha portion of the site. The remaining seven hectares (38%) was zoned R5. There was no transparent reasoning as to the contribution to the total price paid for the improved portion of the land. The estimate of four rural residential lots on the seven hectares R5 zoned section of the site was not adequately explained. Four lots would average 1.75 ha per lot.
Sale 2 at 13 Orara Street, took place on 17 May 2010. It had development approval for a six lot community title subdivision. Adjustment was needed to the sale to account for the benefit of the development consent. When divided by five (based on an approval obtained after sale) this sale, on Mr Potter's approach, showed $89,000 per englobo lot. The result is an average rate derived for lots of significantly varying sizes ranging from 8,200m² to 5.5 ha. Despite there being no explicit adjustments, he regarded this sale as "slightly superior" to the subject land.
Sale 3 at 1251 Morrows Road, Nana Glen on 2 October 2008 was for $1,000,050. It had an area of 35.11 ha and was an irregularly shaped rural vacant allotment that was partly timbered. Access crossing over a railway line adversely affected its appeal as the railway line was adjacent to the western boundary of the land. Access included a level railway crossing. There was development approval for 15 residential allotments with completed lot prices being $235,000. The sale showed $66,670 per two hectare lot overall. However, the outlook, ambience and general rural setting was superior to the subject land.
It was submitted by Mr Willis that the Nana Glen sales supported Mr Potter's ultimate per lot value for the R5 zoned land in the before scenario of $72,000. Mr Potter's analysis yielded $66,670 per lot englobo overall. However, I cannot accept the sales at Nana Glen as comparable. They are both distant and in a different, and better, market. In particular, the developed lots in Thoroughbred Close (1251 Morrows Road) demonstrate a very different potential market for the Nana Glen sales. For example, Mr Potter's analysis of this sale suggests that the market in that location is not paying different prices for lots varying between 1.8 to 2.72 ha. No detailed analysis of the individual features and characteristics of the separate and differently sized lots was been undertaken. In addition, inadequate explanation was given as to how the $66,670 rate derived by Mr Potter could be applied to the two hectare and one hectare lots on the subject land.
Sale 4 at 301 Northbank Road, Bellingen ("no 301"), was relied upon by both valuers and while the analysis of the sale was ultimately agreed to, the adjustments were not. The land falls into two zones. The total area of the site is 24.6 ha. It sold on 22 May 2012 (about six months prior to the date of compulsory acquisition of the subject land). The two zones are RU2 (Rural Landscape), comprising approximately 12 ha, and R5 (Large Lot Residential). The price paid was $650,000. There were no improvements on the land of any value. The land was close to Bellingen and was well located with good amenity. The R5 zoned land was not steep country.
By comparison, the subject land is close to the existing Pacific Highway. It is steep in parts and is impacted by road noise. There is low lying tea tree land below the suggested R5 subdivision. The existing Raleigh industrial area is on the next ridge and there is no open outlook and the rural residential amenity is poor.
On this basis, Mr Dempsey adjusted the sale of no 301 downward by 30% to account for these differences. Mr Potter regarded no 301 as a "good comparison" to the subject property, but made no explicit adjustments to relate it to the subject land. In my view, it is appropriate to make the adjustment for location as recommended by Mr Dempsey.
Mr Dempsey agreed with Mr Potter that the residue RU2 zoned land of approximately 12 ha with a single dwelling entitlement required a deduction from the sale price of $146,000. Mr Dempsey was challenged about his 5% downward adjustment for size on the basis that the sale involved a total land area double to that of the subject R5 zoned land. I consider that this adjustment is appropriate because of the complication of having to purchase the additional 12 ha of rural zoned land in order to obtain the R5 parcel, and for the reasons given by Mr Dempsey (amplified in cross-examination: see generally at T170 and T174).
The result of the analysis of the sale of no 301 indicates a total cost for the R5 zoned land of $504,000, after deducting the agreed allowance for the RU2 zoned land. Mr Potter contemplated a yield of seven R5 lots at $72,000 each (englobo), despite the agreement of the planners that a nine lot subdivision was possible in the before scenario. Mr Dempsey accepted the opinion of the engineer Mr Emery that the 12.1 ha of R5 zoned acquired land could be more profitably subdivided if nine lots were produced. On this basis, Mr Dempsey determined that the englobo market value per lot was $26,000 per lot in the before scenario and $24,000 per lot in the after scenario for three lots (see p 45 of his report dated 3 March 2014 and paragraph 46 at p 10 of the first joint valuers' report).
However, the analysis of no 301 indicates a slightly higher rate, as follows: sale price (for RU2 and R5 zoned land) $650,000 deduct agreed value of the RU2 zoned land $146,000 total: $504,000 adjustments: deduct 30% for location and amenity and deduct 5% for size = total deductions of 35% $176,400 value of subject R5 zoned land $327,600 rate per lot (9 lots) $36,400

[17]

On this basis, the subject R5 land had an englobo value prior to acquisition of $327,600.
The only other englobo sale involving R5 zoned land was that of 197 Northbank Road, Bellingen. This property sold on 12 March 2010 for $1,000,400. It had a land area of 71 ha and was partly zoned R5 and partly zoned RU2. The land was in a superior location with extensive views to the nearby national park. The front section had been subdivided prior to the sale into six, one hectare lots. There was a large area north and east of a creek that was zoned R5. About 70% of the property was cleared. There was likely, however, to be additional cost in providing access for subdivision to the rear section which would add to the overall cost of development. It was estimated by Mr Dempsey to have potential for 32 rural lots. Mr Dempsey deducted $150,000 for improvements, giving a net land price of $1,250,000. He considered the developed lot values could approach $300,000, and would be in the order of 30% more than the subject property. Mr Dempsey considered that the sale reflected a land value of $17,600 per ha and $39,063 per lot. His adjustments for this were explicitly set out in his adjustment table.
However, in my view, this sale is only indirectly relevant to the subject land because of its considerably larger size and the uncertain additional costs of development. Furthermore, in cross-examination Mr Dempsey accepted that the price he derived per lot was premised on placing the same value or the undeveloped difficult to access lots at the rear as those at the front and that a greater proportion of the sale price would need to be weighted to contemplated lots. He was correct to do so.
Mr Willis submitted that, assuming a per lot value for the R5 zoned land in the before of $72,000, the total value for the R5 and non-IN1 land in the before scenario was $666,000, comprising 8 x 1 ha R5 lots at $72,000, plus a ninth residual one hectare lot, comprising a homesite together with the E3 zoned land and the land on the eastern side of the existing Pacific Highway of approximately 36 ha, was assessed at an englobo value of $90,000.
It is not clear, however, how the estimated area of 36 ha is derived. The total area is closer to 40 ha, being the 4.1 ha remainder of the 12.1 ha of R5 zoned land left over after Mr Potter's assumed eight one hectare lot subdivision, plus the agreed 8.7 ha of E3 zoned land and the land west of the existing Pacific Highway, together with 27.2 ha of land east of that highway. Moreover, without further explanation the assistance to be derived for the valuation of the subject R5 land from a comparison with, in particular, sale 1 (19 Orara St, Nana Glen), or sale 4 (no 301), is, in my view, minimal.
With respect to the residual lot, Mr Dempsey approached the before value of the E3 zoned land and the land east of the existing Pacific Highway and land zoned RU1 and RU4, as land which had an equivalent base rural value for its existing use, or purpose, despite having differently defined uses in the LEP. Mr Potter took a somewhat similar approach insofar as he included in the residual R5 lot holding the land zoned E3 and the land east of the existing Pacific Highway.
The principal difference between Mr Potter's treatment of this land and that of Mr Dempsey, is that the latter considered the various parcels of differently zoned land comprising the residual R5 land and E3 zoned land, as well as land east of the existing Pacific Highway having no small lot subdivisional potential, as having a base value of $10,000 per hectare in the before scenario and $8,717 in the after scenario. For the reasons given in this judgment both above and below, Mr Dempsey's analysis is to be preferred.
In my opinion, therefore, as elaborated above, there is no foundation for a per lot value of the R5 zoned portion of the subject land in the before scenario in the order of $72,000 as asserted by Mr Potter. Rather, I consider the sale of no 301 as the best evidence of the value of the subject R5 land and, for the reasons given above, I adopt Mr Dempsey's rate of $36,400 per lot for an assumed nine lots. On this basis, the R5 zoned land had a before englobo value of $327,600.

[18]

R5 Zoned Land After Acquisition

Mr Potter took the view that the three lot subdivision in the after scenario for the R5 zoned land, while possible, was not a feasible undertaking. Accordingly, he adopted the approach of combining the rural land and the E3 zoned land post acquisition into a single rural residential holding of 39 ha, noting that it was split by the existing Pacific Highway. He stated that this land would be heavily impacted by the proposed new road. Having concluded that the three lot subdivision in the after scenario was not viable, he had regard to several large rural single home site sales to fix the value of the land on the basis that its highest and best use was for this purpose.
The sales relied upon by the valuers for this category were as follows: 1. Mr Dempsey: 1. 1180 Northbank Road, Raleigh, which had an area of 39.38 ha and which sold in November 2010 (two years prior to the date of acquisition) for $490,000. It required only a 15% downward adjustment for location. The sale showed $10,360/ha for the R5 zoned land after acquisition. The improvements were minor; 2. 40 McBaron Street, Raleigh, which showed an analysed and adjusted value per hectare of $10,114; and 3. 78 Pulsford Place, Fernmount, which after minor adjustments showed a value of $10,095/ha; and 1. Mr Potter: 1. 358 South Arm Road, Urunga, which sold in May 2011 for $382,000, comprising 31.26 ha. It was said to show $7,677/ha. It had river frontage and was improved with a single storey timber dwelling house. It was close to the new road works. Adjustments were neither explicit nor transparent.
Mr Potter estimated that the subject rural residential land and the E3 zoned land post acquisition had an area of 39 ha, which he treated as a single rural residential holding, albeit split by the existing Pacific Highway. He considered that the land was heavily impacted upon by the acquisition in the after scenario. He derived $300,000 as its value by adopting the rate of $8,717 per ha from within a range of sales between $7,677 and $12,441 per ha. For 39 ha this amounted to approximately $340,000 (rounded), but as the sales were unaffected by the acquisition, but the subject land was, he made an explicit adjustment of 12% for the affectation. Using these methods he confirmed an after value of $300,000 per hectare.
Mr Dempsey adopted the rate of $9,000 for the after scenario for land which included RU1, E3 and RU4 zoned land.
There is minimal difference between these rates. I therefore adopt the lower estimate which favours the dispossessed owner of $8,700 (rounded down) per ha (Commissioner of Succession Duties (South Australia) v Executor, Trustee & Agency Company of South Australia Ltd [1947] HCA 10; (1947) 74 CLR 358 at 374).
RMS contended that the three lot subdivision in the after scenario was a viable development, contrary to Mr Potter's view. Mr Dempsey adopted $24,000 per lot as the rate for the R5 zoned land in the after scenario, giving a total value of $72,000 englobo.
In the after scenario, the R5 zoned land will lie between the existing highway and the proposed new highway diversion. No access from Short Cut Road in the southwest is possible. Any access would therefore need to be from the existing highway. Mr Emery did not provide a costing for the agreed three lot proposal in the after scenario, although he did provide a costing for an eight lot proposal in the before scenario. During cross-examination he agreed that all of the costs of accessing the land for the eight lot subdivision would be incurred for the after subdivision and that "most" of the other costs included in the total estimate of $483,470 would also be required for the three lot subdivision. For example, the future intersection with the existing Pacific Highway (when downgraded to a council road) alone could cost $123,570.
I therefore doubt whether a prudent purchaser would consider it worthwhile to incur the expenses estimated by Mr Emery and, in addition, pay $72,000 for three potential lots within the R5 zoned area after acquisition. The estimated value per lot, given Mr Dempsey's four sales of one hectare R5 zoned completed lots, would be approximately $160,000, taking a conservative point in the range of values in the sales. When interest and other expenses are considered, the exercise would likely have negative value.
Accordingly, I find that the value of the R5 zoned land in the after scenario should be calculated at the rate of $8,700 per ha.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (29 paragraphs)

Parties

Cases Cited (15)

Cited By (3)