Aria Securities Pty Ltd as Tte v Valuer-General [2018] QLC 2

1 LAND COURT OF QUEENSLAND CITATION: Aria Securities Pty Ltd as TTE v Valuer-General [2018] QLC 2 PARTIES: Aria Securities Pty Ltd as Trustee (appellant) v Valuer-General (respondent) FILE NO: LVA082-17 DIVISION: General PROCEEDING: Appeal against valuation under the Land Valuation Act 2010 DELIVERED ON: 1 March 2018 DELIVERED AT: Brisbane HEARD ON: 30 & 31 October 2017 Submissions closed 12 December 2017 HEARD AT: Brisbane MEMBER: WA Isdale ORDER/S: 1. The appeal is dismissed. 2. The valuation appealed against namely the site valuation of Lot 1 on Survey Plan 159911 as at 1 October 2015 in the amount of Twenty Three Million Dollars ($23,000,000) is confirmed. CATCHWORDS: REAL PROPERTY – VALUATION OF LAND – OBJECTIONS AND APPEALS – QUEENSLAND – where site value is the basis of valuation – where the highest and best use of the land is not in dispute – direct comparison of analysed and improved sales Land Valuation Act 2010 Body Corporate for Wendall Court & Anor v Valuer-General [2015] QLC 16 -- 1 of 14 -- 2 Fairfax v Department of Natural Resources and Mines [2005] QLC 11 Finlayson & Anor v Valuer-General (2013) 34 QLCR 101 Hans and Else Grahn v Valuer-General JL & I Qualischefski v Valuer-General (1979) 6 QLCR 167 Musumeci v Valuer-General (2014) QLC 15 NR and PG Tow v Valuer-General (1978) 5 QLCR 378 Thompson v Department of Natural Resources and Mines [2007] QLC 92 APPEARANCES: DD Purcell of Counsel for the appellant JP Hastie (instructed by In-house Legal, Department of Natural Resources and Mines) for the respondent Background [1] The respondent has routinely issued an annual valuation of the appellant’s land. The date of the valuation is 1 October 2015. The valuation is made under the Land Valuation Act 2010 (“the Act”) and is on the basis of a site value, a term defined in the Act and not in dispute. The respondent valued the land at $30,000,000 and, after objection, reduced the valuation to $23,000,000. The appellant has appealed that decision to the Court, contending that the correct valuation is $20,800,000. The land [2] The land is Lot 1 on Survey Plan 159911 in Brisbane City. It has an area of 2,738 m2 and there are no easements or encumbrances. It is zoned Principal Centre (City Centre) under the Brisbane City Plan 2014, which was in force at the date of valuation. This is a High Density Mixed-Use zone where a block of land at least 1,800 m2 can be developed to a maximum building height of 30 storeys with a maximum of 80% site cover. There are intricate planning rules relating to how such outcomes may be achieved. The Court had copies of parts of the City Plan put before it and it became clear that the Court’s consideration was significantly simplified by the fact that the subject land and the three comparable sales which both valuers used to value it are all in the same zone and within a short distance of each other. The highest and best use [3] The valuers agreed that the highest and best use of the land would be for the 30-storey development which has been referred to, with the required public open space and design excellence. -- 2 of 14 -- 3 [4] The land is on the corner of Merivale and Peel Streets, South Brisbane, within 1 km radially of the central business district (“CBD”). It is a regular, rectangular, block with a two metre fall across it. [5] The three sales will be considered in detail later. At present it is useful to note that Sale 3 is considered by Mr Ladewig, the appellant’s valuer, to, when developed, impede city views from the subject. The respondent’s valuer, Ms McNabb, said that at the valuation date the subject was capable of development that would have city views. [6] Although aspects of town planning and traffic were referred to by the parties, neither called experts in those fields. The parties chose to limit their cases to each calling one witness, their valuation expert. The valuers [7] The valuers produced just one report, their joint report. In it each declared that they understood that their duty to the Court overrides any obligation to the party calling them. The Court is greatly reliant on the independent expertise of witnesses who, as experts, are allowed to give their opinion. The ability of the Court to do its duty under section 170(b) of the Act “to correctly make the valuation under this Act” depends fundamentally on the candour of the expert witnesses who, in order to do their duty, may have to give evidence contrary to the interests of the party who calls them. Such candour, which will require integrity and more than a little bravery, is required of a person able to be trusted by a Court to give their opinion as an expert. [8] In this case, the whole weight of responsibility for providing expert opinions to the Court fell on the valuers who were stretched by some questioning towards areas of expertise which they did not occupy. They correctly endeavoured to remain within their area of expertise. [9] The outcome in this case will depend on the opinions of the valuers and their application of the three common sales in comparing them with the subject land. The locale [10] Merivale Street is a three lane one-way street and Peel Street is four lanes and two- way. This area is replete with one-way streets. There is a heritage listed church to the -- 3 of 14 -- 4 west on the opposite side of Merivale Street, some two-storey commercial properties to the south, the east and across Peel Street. There were a number of high-rise developments going on or in prospect in the area at the relevant date. [11] The land has good street frontage and exposure. Mr Ladewig saw the market as cooling off by the date of valuation. Ms McNabb saw it as still buoyant then.1 Valuation method [12] Both valuers stated that they valued the subject land by direct comparison on a rate per m2 of site area basis, with vacant or lightly improved sales, in fee simple, but with existing use rights, and allowing for any encumbrances. The valuers have endeavoured to agree on as much factual matter relating to each sale as is possible; where the valuers disagree is on things such as the comparability or analysis of a sale. The sales [13] The valuers prepared a useful table which sets out much relevant information about the comparable sales.2 It is reproduced below: 1 Ex 1, doc 6, paras 42 and 43. 2 Ex 1, doc 6, page 18. -- 4 of 14 -- 5 Sale Address Sale Date Settlement Date Settlement Period Area Sale Price $/m2 CL Analysed Sale Price $/m2 EM Analysed Sale Price $/m2 Applied Sale Value 1/10/2015 $/m2 Code Comments/Comparison 1 Common Sale 2 Cordeila St, South Brisbane 09/10/2015 10/10/2016 12 mth 2,307m2 $20,000,000 $8,669/m2 $18,728,561 $8,118/m2 $19,821,047 $8,591/m2 $17,500,000 $7,585/m2 30 storeys Common Sale. 2 Common Sale 22-28 Merivale St, South Brisbane 22/04/2015 04/05/2015 1 mth 2,733m2 $22,150,000 $8,105/m2 $21,472,338 $7,857/m2 $21,322,338 $7,802/m2 $21,000,000 $7,683/m2 30 storeys Common Sale. 3 Common Sale 38-58 Hope St, South Brisbane 07/09/2015 04/07/2014 14/09/2015 11/07/2014 1 week 1 week 2,238m2 $23,694,696 $10,587/m2 $22,061,439 $9,858/m2 $22,061,439 $9,858/m2 $22,000,000 $9,830/m2 30 storeys Common Sale. Caveat lodged 22/5/14 for 38 Hope St. Subject 25 Merivale St, South Brisbane 2,738m2 $23,000,000 $8,400/m2 30 storeys Appellant $20,800,000 ($7,597/m2) Respondent $23,000,000 ($8,400/m2) -- 5 of 14 -- 6 [14] The applied site value column requires some explanation. It is clear from the two columns, headed “CL” and “EM” what the two valuers who gave evidence decided was the analysed sale price of the sales. They have not had the benefit of unimproved land sales but have had to analyse the three improved sales in order to notionally return them to sites, the basis upon which they must compare them to the subject. The valuers’ own expertise has led them to the following analysed sale prices for the three sale sites: Mr Ladewig Ms McNabb Sale 1 so $18,728,561 $8,118 per m2 $19,821,047 $8,591 per m2 Sale 2 so $21,472,338 $7,857 per m2 $21,322,338 $7,802 per m2 Sale 3 so $22,061,439 $9,858 per m2 $22,061,439 $9,858 per m2 [15] The next column, applied site value as at 1 October 2015 shows: Sale 1 $17,500,000 $7,585 per m2 Sale 2 $21,000,000 $7,683 per m2 Sale 3 $22,000,000 $9,830 per m2 [16] In relation to the subject, the table shows: $23,000,000 $8,400 per m2 [17] There is no disagreement between the figures the valuers have shown in relation to the applied site value. This is because it is not their figure derived from the sales that they analysed. They are simply reporting it. It is the Valuer-General’s figure applied to the land on 1 October 2015 in the yearly mass-appraisal valuation. In the cases of Sales 2 and 3, it is noticeable that each valuer’s analysed sale price is quite close to -- 6 of 14 -- 7 the figure that the Valuer-General applied. This indicates that the applied figures in those cases are well supported by the sales analysis that each valuer, despite some disagreements in detail, has performed. Which of these things is not like the others? [18] Sale 1 shows an analysis by each valuer that is not as close as in the case of the other two sales but an applied site value over $1,200,000 less than the lower of the two analysed figures. Why is this so? [19] Near the conclusion of the hearing, Exhibit 32 was admitted into evidence. It is a decision on objection letter dated 14 December 2016. It is addressed to the valuation firm that Mr Ladewig works for. It shows that Sale 1 was valued at $23,000,000 on the relevant day and, on objection, reduced to $17,500,000. The letter, signed by the Valuer-General, said that when compared to sale prices of similar properties “the delegate decided a change in the valuation should be made.”3 What is the significance of this? [20] The valuers who gave evidence used, they stated in their joint report, direct comparison of sales.4 In the absence of vacant sales, they analysed improved Sales 1, 2 and 3. [21] In cross-examination, Mr Ladewig made it very clear that in this process, in order to reach his valuation and not merely to, for instance, check it, he also considered the applied site value.5 [22] This is a fundamental error which permeates and invalidates the method which Mr Ladewig applied to value the subject. Mr Ladewig has departed, at this point, from valuing the land himself. Mr Ladewig has contaminated the process by introducing something arrived at by someone else, the conclusion of the delegate. It produced a figure adopted by the Valuer-General. The Court is not aware of the delegate’s 3 Ex 32, page 1. 4 Ex 1, doc 6, para 46. 5 T 1-91, line 9 to T 1-92, line 20. -- 7 of 14 -- 8 reasoning and it is quite irrelevant to the process in this Court, as well as a contaminant of the process which Mr Ladewig claimed to be applying. [23] It can now be seen that Mr Ladewig was not valuing the subject site on the basis of his own research and inquiry but, by including in his deliberations the $17,500,000 applied site value, used the opinion of the delegate and the respondent, that was arrived at in another process. [24] Ms McNabb was quite clear that she did not proceed in that way but valued the land by the method stated in the report. That method is a standard one, approved many times in the Courts. [25] Since the Court must consider the opinion evidence of expert valuers who provide evidence before it, rather than the opinions of, in this case, people not giving evidence before it, the Court reminded Ms McNabb of the importance of giving her own opinion even where it might not be the same as that of, for instance, the respondent. Commendably, she appeared to have no difficulty in being frank and open with the Court. When asked for her opinion in relation to the $17,500,000 applied site value6 Ms McNabb, having analysed the sale, did not support it, and was of the opinion that $19,000,000 would have been appropriate. [26] This serves to illustrate that the $17,500,000 figure, arrived at by an administrative process in relation to Sale 1, while it may be perfectly correct within the context of that process, is not useful in this case. As already discussed, it is inapplicable in principle. If it were applicable in this case, the evidence shows that it is not agreed by the valuer responsible for giving evidence in this case. Ms McNabb did not consider it at all, quite correctly, and would have been incorrect if she considered she was in any way bound by it. It is the result of another process, the outcome of which must not influence the analysis of sale 1 in this case. [27] Once the Valuer-General’s applied site values are allowed to intrude into the valuation process, it is no longer an analysis of the evidence of sales but becomes contaminated by the addition to it of the concept of relativity with other values. While used to ensure that values of an area bear acceptable relativity to each other, it is however a tool useful when valuing an area, as the Valuer-General does in yearly 6 T 2-58, line 36 to T 2-59, line 12. -- 8 of 14 -- 9 mass-appraisal valuations. This is a process different to the Court’s task of considering the value of the subject. [28] As Member Scott said in Thomson v Department of Natural Resources and Mines:7 “This issue has come up in more than one occasion in the past, one example being found in Gibson v Chief Executive, Department of Lands (V92-64 unreported Land Appeal Court 9 June 1995) at 6: “We reiterate what has been said often before – and what is Mr Tighe’s chief concern – the importance of correct relativity in the equitable distribution of the rating burden cannot be overstated. However the question before this Court is the correct valuation of the subject land, not the correct valuation of an area. It would not advance the appellant’s case to satisfy us that her neighbour’s land was undervalued: … The appellant must show that the valuation of her land was incorrect.” A similar opinion is expressed by the Land Appeal Court in Bignell v Chief Executive Department of Lands (AV92-65 unreported Land Appeal Court 4 March 1996) at 11: “What has to be decided in this case is the proper value of the subject land by reference to sales evidence about comparable unimproved properties. … If a proper valuation of the subject land makes it inconsistent with the relative values of neighbouring blocks then so be it. The question before this Court is ‘the correct valuation of the subject land, not the correct valuation of the area’.””8 [29] In Musumeci v Valuer-General,9 the learned President considered valuation methodology. It was a case where there was a self-represented appellant who was the sole witness in support of the appeal. The respondent’s valuer had used sales evidence. The President said: “Mr Gilbert did not use the applied values of the sales properties in determining the subject values. Rather he used the analyzed sale prices, as stated above. This issue was considered by the Land Appeal Court in Chief Executive, Department of Natural Resources v Radlett Enterprises Pty Ltd. In that matter the respondent had challenged the valuation methodology adopted by the department. The evidence was that it was the value "applied" to the sale lands rather than the unimproved value analyzed from the individual sales which had been adopted as the basis of comparison for the valuation of the subject land. The chief executive had identified the sales which were considered to be comparable with the subject land and thereafter had considered details of other sales before values were applied to the sale lands. The Land Appeal Court interpreted the relevant evidence to suggest that the 7 [2007] QLC 92 [7]. 8 Ibid [8]. 9 (2014) 35 QLCR 185. See also Body Corporate for Wendall Court & Anor v Valuer-General [2015] QLC 16, [37] but note [22] and [23] also. -- 9 of 14 -- 10 totality of vacant or lightly improved sales evidence in the local government area had been considered in deciding the range of values indicated for the various classes of land in that area. Ten "out of line" sales were identified and discarded, narrowing the range suggested by the market for those various classes of land. The values applied were conservative as compared with the analyzed values shown by the sales. The Court held that such an approach was desirable when all land within a particular Local Government Area is to be valued. It would be a different matter, said the Court, if the overall sales evidence had been disregarded and supplanted by unsupported valuation opinion. The effect of that decision is that the Land Appeal Court has said that it is desirable, when valuing all land within a particular local government area that the valuations should proceed on the basis of the values applied to the sales properties. The advantage of that approach is that it should ensure that valuations of comparable lands, made for the purposes of the legislation, bear proper relativity to one another. It has long been recognised that it is desirable that valuations of comparable lands made for the purposes of the Act should bear proper relativity to one another, provided the valuations are soundly based. Accordingly I consider that the valuer has been in error in using the analyzed sales prices, rather than the applied values of the sales, in valuing the subject land. The consequences of that error will be considered in relation to each of the appeals.”10 [30] In that case, the learned President had valuation evidence from only one valuer and that valuer used sales evidence. The Court explained the usefulness of applied values when all land in an area was being valued. In that case, there was no valuer providing evidence for the appellant and the Court, in those circumstances, considered it to be an error for the valuer to use analysed sale prices. [31] The use of applied values, as recognised in both the Musumeci and Thompson cases, is particularly applicable when the valuation task is the correct valuation of an area. [32] In the present case, the task is the valuation of the subject land only. The experts have agreed on the method to be applied and the use of applied values is not part of it. [33] As Member Scott said in Thompson: “The Land Appeal Court said in PH Clough v Valuer-General (1981-82) 8 QLCR 70 at 76: “It has been judicially laid down many times and in many jurisdictions that in ascertaining unimproved value, sales of unimproved land of comparable quality, situation, etc., to the subject parcel, if they are available, are to be preferred as the best guide for arriving at unimproved value. The reason is obvious. In 10 Ibid [11] to [15]. -- 10 of 14 -- 11 applying such sales there is no room for error in analysing the value of improvements. Because there is less room for difference of opinion as to value of various items of improvement and comparison is thus simpler, it has been held that highly improved sales should be avoided in preference to sales comprising a lesser degree of improvement.””11 [34] Here, it was necessary for the valuers to deal with analysis of improved sales, so some differences of opinion are to be expected. Their stated method excluded the use of values applied by the Valuer-General. This method is consistent with a long line of authority which binds this Court. The applicable law [35] This Court is not an inquisitorial body. It is a Court which must consider the evidence put before it by the parties.12 The appellant must prove his case, a task facilitated by the assistance of a registered valuer.13 [36] The Court is bound by the decisions of the Land Appeal Court. That Court said in NR and PG Tow v Valuer-General that:14 “Courts of the highest authority have laid down that the best test of value is to be found in the sales of comparable properties, preferably unimproved, on the open market around about the relevant date of valuation and between prudent and willing, but not over-anxious parties. … It follows that a large increase over and above a previous valuation is in itself not a relevant issue provided bona fide sales of comparable parcels support the new valuation.” [37] This Court has said:15 “A valuation deduced from relativities with other valuations made by the Valuer-General and that were not themselves tested in the present proceedings by reference to sales evidence cannot safely be relied upon. Where, as in the present case, the subject valuation is said to be incorrect, it would not be safe to rely on other valuations and to assume that they are correct so as to draw a conclusion about the valuation of the subject land.” [38] In Hans and Else Grahn v Valuer-General, the Land Appeal Court considered the previous Act. The Court’s comments are equally applicable to the current Act. The Court said: 11 Thompson v Department of Natural Resources and Mines [2007] QLC 92, [5]. 12 JL & I Qualischefski v Valuer-General (1979) 6 QLCR 167, 172. 13 Ibid. 14 (1978) 5 QLCR 378, 381. 15 Finlayson & Anor v Valuer-General (2013) 34 QLCR 101, [30]. -- 11 of 14 -- 12 “The decision of the High Court of Australia in Brisbane City Council v The Valuer-General ((1978) 140 CLR 41, 5 QLCR 283) and the decisions of the Land Appeal Court in cases such as WM and TJ Fischer v The Valuer- General ((1983) 9 QLCR 44) and R and MM Barnwell v The Valuer-General ((1989) 13 QLCR 13) are authority for the following propositions: (a) It is desirable that valuations made for the purposes of the Valuation of Land Act 1944 of comparable lands should bear proper relativity, one to the other, so long as the valuations are soundly based. It is, however, untenable to adopt a value for one parcel on relativity with another which has no sound basis. (R and MM Barnwell v The Valuer-General (1989) 13 QLCR 13, at p. 16 and cases cited in it). (b) The best basis for assessment of unimproved value is the use of sales of vacant or lightly improved parcels of land (WM and TJ Fischer v The Valuer-General (1983) 9 QLCR 44, at p. 46; R and MM Barnwell v The Valuer-General (1989) 13 QLCR 13, at p. 17). … (e) Whilst maintenance of correct relativity is of considerable importance for rating valuations, the use of the principle of relativity should not be preferred to the exclusion of relevant (even if not ideal) sales evidence (WM and TJ Fischer v The Valuer- General (1983) 9 QLCR 44, at p. 46). (f) If possible, the Valuer-General should obtain uniformity between different blocks in the same land category or type, but should do so (preferably by reference to sales of comparable land) by correcting inaccuracies rather than by making an inaccurate assessment in order to secure uniform error (R and MM Barnwell v The Valuer- General (1989) 13 QLCR 13, at pp. 16-17 and cases cited in it).”16 [39] The superiority of sales evidence when valuing land is illustrated by the words of the President in Fairfax v Department of Natural Resources and Mines:17 “The principles for determination of the "market value" of land were established by the High Court in Spencer v The Commonwealth (1907) 5 CLR 418. In that case, the High Court found that the value of land is determined by the price that a willing but not overanxious buyer would pay to a willing but not over-anxious seller, both of whom are aware of all the circumstances which might affect the value of the land, either advantageously or prejudicially, including its situation, character, quality, proximity to conveniences or inconveniences, its surrounding facilities, the then present demand for land and the likelihood of a rise or fall in the value of the property. (See Griffith CJ at 432 and Isaacs J at 411). It has been well established that the unimproved value of land is ascertained by reference to prices that have been paid for similar parcels of land. In Waterhouse v The Valuer-General (1927) 8 LGR (NSW) 137 at 139, Pike J said that: 16 (1992-93) 14 QLCR 327, 328, 329. 17 [2005] QLC 11, [11] to [12]. -- 12 of 14 -- 13 "Land in my opinion differs in no way from any other commodity. It certainly is more difficult to ascertain the market value of it but - as with other commodities - the best way to ascertain the market value is by finding what lands comparable to the subject land were bringing in the market on the relevant date - and that is evidenced by sales."” [40] Mr Ladewig revealed in cross-examination that the method he used to value the subject18 was not the method which he stated in the joint report was the method used by both valuers.19 The method which he in fact used is not an acceptable and reliable method when used in the way he proceeded, blending the Valuer-General’s issued valuation into the valuation expressed to be derived from analysis of comparable sales. That course departs from the avowed method and the outcome will be unreliable. It has been discussed how the decision of the delegate in that process is a valuation, the reasons for which are not before the Court. The outcome of that process can therefore not be a component of the valuation process. [41] The fact that the Valuer-General changed the valuation of what is, for present purposes, Sale 1 does not validate the use of that figure in this case. [42] The Court asked Ms McNabb, in view of Exhibit 32, the decision on objection, for her views, since she is the expert before the Court for the respondent. She did not support the decision and was of the opinion that $19,000,000 would be an appropriate valuation. The parties were given an opportunity to ask any questions arising out of this. [43] The decision in this case is not influenced by this piece of evidence. The decision is inevitable in view of the defect in the approach used by the appellant’s valuer. No reliable conclusion on valuation could be safely drawn from the appellant’s valuation evidence, which was the appellant’s entire case. Accordingly, the appeal must be dismissed, the appellant having failed to prove its case. [44] In accordance with section 170(a) of the Act, the Court confirms the valuation appealed against. [45] It may be useful to briefly note some aspects of the respondent’s case. Although not satisfied that the Valuer-General’s applied site value was correct in relation to sale 1, 18 T 1-27, lines 8-38; T 1-101, lines 11 to 25. 19 Ex 1, doc 6, page 16, para 46. -- 13 of 14 -- 14 Ms McNabb’s valuation did not use the applied site values of the three sales so it is not invalidated by her view of what was applied. Expressing her own opinion was in accordance with her duty to the Court. [46] In view of the basis upon which it was necessary to decide this appeal, it is not useful to examine the disagreements between the valuers in relation to the distinctions between the sales and the subject. Ms McNabb considered the matters which were addressed in the evidence and simply held different opinions which led to a different conclusion on value. No defect in the method applied by Ms McNabb was shown, and in view of the failure of the appellant to establish a competing level of value it is neither necessary nor helpful to comminute Ms McNabb’s valuation, the Court not being an inquisitorial body or a third valuer. ORDERS: 1. The appeal is dismissed. 2. The valuation appealed against namely the site valuation of Lot 1 on Survey Plan 159911 as at 1 October 2015 in the amount of Twenty Three Million Dollars ($23,000,000) is confirmed. WA ISDALE MEMBER OF THE LAND COURT -- 14 of 14 --