Clift Investments Pty Ltd v Valuer-General [2013] QLC 56

LAND COURT OF QUEENSLAND CITATION: Clift Investments Pty Ltd v Valuer-General [2013] QLC 56 PARTIES: Clift Investments Pty Ltd (appellant) v. Valuer-General (respondent) FILE NOS: LVA343-11 and LVA337-12 DIVISION: General Division PROCEEDINGS: Appeals against annual valuations DATE OF HEARING 15 February 2013 DELIVERED ON: 30 August 2013 DELIVERED AT: Brisbane HEARD AT: Toowoomba PRESIDENT: CAC MacDonald ORDER: 1. Appeal No LVA343-11 is dismissed. 2. The site value of Lots 1 - 2 on RP 108932 in the County of Aubigny, Parish of Drayton is affirmed at Four Hundred and Fifty-Five Thousand Dollars ($455,000) as at 1 October 2010. 3. Appeal No LVA337-12 is dismissed. 4. The site value of Lots 1 - 2 on RP 108932 in the County of Aubigny, Parish of Drayton is affirmed at Four Hundred and Fifty-Five Thousand Dollars ($455,000) as at 1 October 2011. CATCHWORDS: Valuation - site value - single unit residential lot - vacant (or lightly improved) sales best evidence of value - rationale - preferred to improved sales or applied values to other properties - need to assess added value of -- 1 of 11 -- 2 improvements. Valuation - mortgagee sales - many passed in at auction - whether evidence of falling market - countered by sales evidence showing improved trend. Land Valuation Act 2010 Barnwell v The Valuer-General (1989) 13 QLCR 13 Fischer v The Valuer-General (1983) 9 QLCR 44 Grahn v Valuer-General (1992) 14 QLCR 327 APPEARANCES: Mr CD Clift, agent, for the appellant Ms T Johnson, Senior Lawyer, Department of Natural Resources and Mines [1] This decision deals with two appeals lodged by Clift Investments Pty Ltd (the appellant) against determinations by the Valuer-General (the respondent) of the unimproved value of the appellant's land as at 1 October 2010 and 1 October 2011. The valuations were made and the appeals lodged under the provisions of the Land Valuation Act 2010 (the Act). [2] The respondent assessed the site value of the property at $455,000 as at 1 October 2010 and 1 October 2011. [3] In its Notice of Appeal, the appellant estimated the site value of the property to be $300,000 as at 1 October 2010 and $250,000 as at 1 October 2011. At the hearing, the appellant contended for a value of $225,000 as at both dates. [4] At the hearing of the appeal, Mr Colin Clift, who is a shareholder in the appellant company, appeared on behalf of the appellant and gave evidence. Valuation evidence was given on behalf of the respondent by Mr P Janke who is a registered valuer in the employ of the Valuer-General. Mr Janke is the valuer who was responsible for making the valuations under appeal. [5] The subject land is described as Lots 1 - 2 on RP 108932, in the County of Aubigny, Parish of Drayton, and has an area of 1,702 m². [6] Mr Janke said that the subject property is situated at 23 East Street, Toowoomba approximately 2.6 kms east of the Toowoomba Central Business District. Good access to the property is gained by a bitumen road which has concrete kerbing and channelling. Electricity, telephone, sewerage and reticulated town water services are available for connection to the property. -- 2 of 11 -- 3 [7] The subject property comprises two irregularly shaped residential allotments with frontage to East Street. The land is elevated above street level and slopes moderately from west to east. The property is located on the eastern range escarpment and offers filtered range views to the east. [8] The land is zoned "Neighbourhood Residential - Escarpment Residential Precinct" under the planning scheme for the Toowoomba Regional Council. It is improved with a single unit dwelling and is used for residential purposes. [9] Mr Janke said that the valuations are concessional valuations made under s.45 of the Act. Although the subject land comprises two separate residential allotments, the lots have not been valued separately. Rather, the property has been valued as a single larger residential allotment because the land is used for a single dwelling house. Statutory provisions [10] As the subject land is non-rural land, s.7(a) of the Act provides that the value of the land is its site value.1 [11] Section 19(1) of the Act provides that - "19 What is the site value of improved land (1) If land is improved, its site value is its expected realisation under a bona fide sale assuming all non-site improvements for the land had not been made." [12] Section 17 of the Act provides that - "17 What is the land’s expected realisation (1) The expected realisation of land under a bona fide sale is the capital sum that its unencumbered estate in fee simple might be expected to realise if that estate were negotiated for sale as a bona fide sale. (2) In this section - unencumbered means unencumbered by any lease, agreement for lease, mortgage or other charge." [13] Section 18 of the Act provides that - "18 What is a bona fide sale (1) A bona fide sale, for land, is its sale on reasonable terms and conditions that a bona fide seller and buyer would require assuming the following (the bona fide sale tests) - (a) a willing, but not anxious, buyer and seller; 1 The term "site value" was introduced by the Land Valuation Act 2010 for valuation of non-rural land under that Act. Under the previous legislation, the Valuation of Land Act 1944, all land was valued on an "unimproved" basis. In evidence, Mr Clift used the term "unimproved value", in discussing both the subject and other properties. Mr Clift drew no distinction between site value and unimproved value, and nothing turns on his use of the term unimproved value rather than site value. -- 3 of 11 -- 4 (b) a reasonable period within which to negotiate the sale; (c) that the property was reasonably exposed to the market. (2) For subsection (1), in considering whether terms and conditions are reasonable, regard must be had to - (a) the land’s location and nature; and (b) the state of the market for land of the same type. (3) To remove any doubt, it is declared that if - (a) there is a sale of the land in question; and (b) the bona fide sale tests are complied with; the sale is a bona fide sale. (4) In this section - land in question means land whose value is being decided." Respondent's sales evidence [14] Mr Janke said that the valuations had been assessed having regard to vacant residential sales that have occurred in the respective valuation periods, within the Toowoomba Regional Council area. He relied on three different sales for each valuation. Appeal No. LVA343-11 - Valuation as at 1 October 2010 [15] Sale 1 is a residential property situated at 2 Boyden Street, East Toowoomba which has an area of 1,153 m². The property sold on 27 May 2010 for $390,000 which Mr Janke analyzed to a site value $384,000. He applied a value of $350,000. [16] Mr Janke said that the sale property was located approximately 850m north-west of the subject property and had similar services and access as the subject. He described the sale as a near level irregularly shaped residential allotment. Mr Janke said that the sale has superior land quality, but a slightly inferior situation, inferior views and less land area when compared with the subject. Overall he considered that the sale was inferior to the subject. [17] Sale 2 is a residential property of 4,013 m² situated at 36 East Street, East Toowoomba. The property sold on 28 May 2010 for $765,000 which Mr Janke analyzed to a site value of $755,000. He applied the sale at $700,000. [18] Mr Janke said that the sale is located approximately 200m north of the subject. It has similar services and access as the subject. The sale is a moderately to steeply sloping irregularly shaped residential allotment with excellent range views to the east. [19] Mr Janke said that in comparison with the subject, the sale was inferior in land quality, located in a similar situation, and had superior views and a larger area. Overall, he considered the sale to be superior to the subject. -- 4 of 11 -- 5 [20] Sale 3 is a residential property situated at 46A East Street, East Toowoomba, with an area of 2,046 m². The property was sold on 14 March 2008 for $505,000 which Mr Janke analyzed to a site value of $505,000. The sale was applied at $405,000 (unimproved value) as at 1 October 2007. As at 1 October 2010, the sale was applied at $510,000 (site value). The evidence was that the site improvements on the sale land comprised fill but no retaining walls. [21] Mr Janke said that the sale was located approximately 20m north-east of the subject. It has similar services available and similar access. [22] Mr Janke described the sale as a moderately to steeply sloping irregularly shaped residential allotment with good range views to the east. The land has been partially filled. As compared with the subject, the sale has inferior land quality, similar situation, superior views and a larger land area than the subject. Overall he considered that the sale was slightly superior to the subject. Appeal No LVA337-12 - Valuation as at 1 October 2011 [23] Sale 1 is a residential property of 3,068 m² situated at 1A James Street, East Toowoomba. The property sold on 21 June 2011 for $605,000 which Mr Janke analyzed to a site value of $605,000. He applied the sale at $540,000. [24] The sale property is located approximately 1.1 km south-east of the subject. Similar services and access are available to the sale as are available to the subject property. [25] Mr Janke described the sale property as an irregularly shaped residential allotment. Approximately 1,392 m² of the western section of the parcel comprises near level to gently sloping land offering excellent range views to the east. The balance of the land comprises extremely steeply sloping range escarpment. [26] Mr Janke said that as compared with the subject, the sale had superior land quality, was in an inferior situation, had superior views and a larger land area. Overall he considered the sale to be superior to the subject. [27] Sale 2 is located at St Ives Court, Mount Lofty, approximately 3.6 kms north of the subject. It is a residential property of 1,026 m² which sold on 1 March 2011 for $305,000. Mr Janke analyzed the sale to a site value of $305,000 and applied $295,000. [28] The sale has similar services and access as compared with the subject. [29] Mr Janke described the sale as a moderately sloping irregularly shaped residential allotment with filtered range views to the east. He said that when compared with the subject the sale had similar land quality, was in an inferior situation, had slightly superior views and a smaller land area. Overall he considered the sale to be inferior to the subject. -- 5 of 11 -- 6 [30] Sale 3 is a residential property of 1,787 m² situated at St Ives Court, Mount Lofty, approximately 3.6 kms north of the subject. The property was sold on 16 February 2011 for $355,000 which Mr Janke analyzed to a site value of $355,000. He applied a value of $340,000. [31] The services and access to the sale property are similar to those at the subject. [32] Mr Janke said that as compared with the subject, the sale has inferior land quality, is in an inferior situation, has superior views and a slightly larger land area. Overall he considered the sale to be inferior to the subject. Appellant's evidence [33] The subject property is located on the eastern escarpment of the Toowoomba range. In general terms the escarpment is prone to land slippage. The appellant purchased the subject land in the late 1960s for $8,000 and Mr Clift had taken great care to ensure that the house he built was stable. The footings are 30" wide and 48" deep although up to 10' deep on a soft corner. He had used 54 cubic yards of concrete - over a hundred tonnes - with 1 tonne of 12 mm reinforcing rods. Mr Clift said that there is not a crack in the property after 40 years even though a Cessna 2-10 aircraft crashed through the roof into the living room in 1995. Mr Clift is justifiably proud of the quality of construction of the house including the brickwork. The principal reason for lodging this appeal, he said, was that the property was purchased in the name of a proprietary company and, therefore, did not attract an exemption from land tax as a principal place of residence. He had done this, Mr Clift said, to avoid succession duty which had severely impacted the family on the death of his parents and first wife. [34] Mr Clift challenged the respondent's valuations and sales evidence on two general bases. One was that he said that market values generally had been dropping since the global financial crisis. The other was that Mr Clift adduced sales evidence and evidence of unimproved values which, he said, demonstrated that the valuations under appeal were incorrect. General Market [35] Mr Clift said that the respondent had applied an increase of 30% across the board, in East Street. He tried to follow the real estate market in Toowoomba and, he said, the number of sales by mortgagees in possession showed that real estate values are falling seriously. Mr Clift said that he had collected notices of 2000 sales advertisements by mortgagees and tried to attend an auction sale at least once a week. In his opinion there would not be thousands of mortgagees in possession if values were static or rising. He considered that values had peaked some 6 or 7 years ago and were now down 50% to 60%. -- 6 of 11 -- 7 Sales evidence and evidence of unimproved values [36] Mr Clift said that 15,200 m² of land in Prince Henry Drive had sold to a developer for $1,150,000. This will be subdivided into 10 or 12 blocks with access roads and all services connected. Excellent views are available from the land, which is solid rock with no subsidence. If sold at $300,000 per block there would be 100% profit. [37] By contrast, Mr Clift said land in East Street on the escarpment is unstable and subject to slippage, so that unless homes are constructed appropriately, they can be damaged or even destroyed by soil movement. He produced photographs of the type of landslip that can occur. Mr Janke agreed that any land located on the eastern escarpment in Toowoomba is probably subject to landslip. [38] Brief details of Mr Clift's evidence about the properties in East Street and other properties are as follows - No. 20: The unimproved value is $540,000. Mr Clift said that the house was declared unsafe 12 months ago and, he said, was "heading down the range to Withcott". In reality, Mr Clift said, the unimproved value was zero or considerably less than zero as the house was a very serious liability. No. 24: Improved property sold for $751,000 in 2012. The unimproved value is $610,000. Mr Clift said the land was on a 45º slope and the house would cost $1,000,000 to build as crane hire would be necessary for every step in the construction. Apart from the bank, there was only one person (the purchaser) bidding at the auction. No. 3A: Improved property which sold for $460,000 in 2012 or 2011. The unimproved value is $355,000 which means, Mr Clift said, the house is valued at $95,000. Mr Clift's opinion was that the reality is that the unimproved value is $100,000 and the cost of the house is $360,000. No. 32: This property of 3,600 m² is improved with a large 100 year old wooden house. The property remains unsold although the owners have reduced the asking price of $2,000,000 to $1,000,000. The unimproved value is $740,000 which Mr Clift thought would buy both the house and land. In his opinion, the unimproved value is $200,000. No. 36: This property is Sale 2 in the respondent's 2010 valuation. As noted above, the property sold for $765,000 in May 2010. The applied site value is $700,000. Mr Clift knew that the property had been on the market for some years but it was not clear whether he was aware that it had sold in 2010. Mr Clift's opinion was that the unimproved value would be about $100,000. The property is subject to landslip and has a long, narrow shared driveway which would make it unattractive to purchasers, he said. -- 7 of 11 -- 8 No. 1/11: Mr Clift considered that the house on this small lot was too close to the boundary, and the sandstone retaining wall on the south-west side too steep and unstable. A few years ago a large slab of rock had fallen out of the retaining wall. No. 46: A lot of money has been spent renovating the property, Mr Clift said, but the footings have not been attended to. There is a large crack across the living room floor. The unimproved value is $510,000 but Mr Clift said its real value would be down to $100,000. No. 46A: This is Sale 3 of Mr Janke's sales. As noted above, the property sold for $505,000 in March 2008. Mr Janke applied an unimproved value of $405,000 as at 1 October 2007 and a site value of $510,000 as at 1 October 2010. Mr Clift said the purchaser had intended to resell the property at a profit but, despite putting it up for resale twice, had been unable to do so. The land has a slope of 30º and, in a desperate effort to attract a buyer, the owner had dumped several thousand cubic metres of soil in the north-east part of the land. There is no compaction and no retaining wall and the fill is 8 m deep, at an angle of 45º. Mr Clift estimated the cost of the retaining wall at $200,000 to $300,000, and he estimated the owner's outgoings on the property, since he purchased it, at $240,000. No. 50: The house on this property was built in 1970 with regulation footings. It has now subsided and will probably have to be demolished, Mr Clift said. The house had been purchased for $1,150,000 by a wealthy doctor who had done nothing about the problems for years. Mr Clift was offered the land in 1968 for $7,000. He investigated and found that it was unsafe to dig a hole deeper than 7 ft. He purchased No. 23 instead. No. 56: The unimproved value of this property is $1,000,000. Mr Clift does not know where that figure came from. No. 1A James Street: This is Mr Janke's Sale 1 for the 2011 valuation. The property sold in June 2011 for $605,000 and Mr Janke applied a site value of $540,000. Mr Clift seemed to think that the property had not sold. However it is clear from Mr Janke's evidence that it did sell in 2011. No. 9A Cottesloe Street: Mr Clift said that this improved property had been unsuccessfully auctioned twice and was now listed for sale for $570,000 to $590,000. The unimproved value is $315,000. Deducting that from $590,000 does not leave enough to build even half a brick house, he said. 19 East Street: This property is next door to the appellant's and has been for sale for six or seven years with no takers. It has a seepage problem which Mr Clift said would be -- 8 of 11 -- 9 difficult to rectify. Its unimproved value is $405,000 but Mr Clift's opinion was that the house and land together were not worth $405,000. 26 Skyline Drive, Blue Mountain Heights: Mr Clift said that this property comprised a big house, tennis court and swimming pool. The property had sold several years ago for $800,000 and resold a year or two ago for $500,000. That provided a fair indication of the 30% drop in values, Mr Clift said. [39] Mr Clift's general submission was that the properties on one side of East Street are worth nothing. His valuation was $455,000. He thought that a fair thing to do would be to meet halfway at $225,000, the value he contended for at the hearing. Conclusions [40] As set out above, s 19 of the Act provides that the site value of improved land is its expected realisation under a bona fide sale assuming all non-site improvements had not been made. Under s 17, expected realization is the capital sum that the estate in fee simple might be expected to realize under a bona fide sale. Section 18(1) provides that a bona fide sale assumes - "(a) a willing, but not anxious, buyer and seller; (b) a reasonable period within which to negotiate the sale; (c) that the property was reasonably exposed to the market." [41] Mr Clift challenged the notion of a sale between a willing buyer and seller saying that there are always external pressures on at least one party to a sale, such that that person could not be described as a willing party. However I cannot accept that approach for the purpose of this valuation. Section 18(1) requires me to assume, for the purpose of applying the bona fide sale test, that there is a sale between a willing but not anxious buyer and seller. [42] Mr Clift went to a great deal of trouble to provide evidence of some sales, other unsuccessful sales, and the unimproved values of a significant number of properties, particularly in East Street where the subject property is located. The first thing to be noted is that it has been held on many occasions by this Court and the Land Appeal Court that the best basis for assessment of the unimproved value of land is the use of sales of vacant or lightly improved parcels of land.2 Similarly, I consider that the best basis for assessment of site value is the use of sales of comparable parcels of land with similar site improvements to the subject, but otherwise vacant or lightly improved. Thus, for the purpose of determining this appeal, my primary task is to consider evidence about the sales of such properties. 2 Grahn v Valuer-General (1992) 14 QLCR 327 at 328 citing Fischer v The Valuer-General (1983) 9 QLCR 44 at 46 and Barnwell v The Valuer-General (1989) 13 QLCR 13 at 17. -- 9 of 11 -- 10 [43] Of all the evidence Mr Clift gave, the only sales evidence related to the land at Prince Henry Drive, 24 East Street, 3A East Street, 50 East Street, 9A Cottesloe Street and 26 Skyline Drive. The sale at Prince Henry Drive is not relevant to these appeals as the property was a large englobo lot, which is not comparable to the subject. There are also difficulties in the way of relying on the remaining sales as they are sales of improved properties, not vacant or lightly improved properties. [44] There are good reasons for using sales of vacant or lightly improved land for the purpose of determining the site value of land under the Act. This is because an owner may over- capitalise a property by building costly improvements that do not result in an equivalent rise in the value of the improved property. Thus if improved sales are used for the purpose of determining the site value of land under the Act, the site value cannot necessarily be determined by deducting the cost of the improvements from the sale price of the property. Rather, what s 25 of the Act provides is - "25 Working out the value of site or non-site improvements (1) This section applies if, under this division, it is necessary to work out the value of site improvements or non-site improvements (the existing improvements) to or on the land to decide its site value or unimproved value. (2) The value of the actual improvements is the lesser of the following - (a) the added value the existing improvements give to the land on the valuation day, regardless of their cost; (b) the cost that should have reasonably been involved in effecting to or on the land, on the valuation day, improvements of a nature and efficiency equivalent to the existing improvements." [45] I have no evidence before me of the added value of the improvements on the improved sales that Mr Clift referred to. Therefore there is no way in which I can attempt to analyze those sales by deducting the added value of the improvements from the sale price, in order to reach a site value for each of those properties. [46] Mr Clift's evidence about the remaining properties listed above was about the unimproved value of those properties as applied by the respondent. Mr Clift disagreed completely with the values that had been applied to those properties. However he provided no sales evidence to prove that those site values were incorrect so that I am left with his opinion only as to their correctness. In any event, this appeal is concerned with the site value of the subject property only, not the site values of other properties in the area. [47] Mr Clift is convinced that property values have fallen because of the number of sales by mortgagees in possession and the number of occasions where properties are passed in at -- 10 of 11 -- 11 auction. However Mr Janke was able to produce evidence of sales that had taken place in the relevant periods for each valuation, so that it appears that there has been some upward movement in the market. [48] The overall result is that I do not consider that Mr Clift adduced sufficient evidence to support his challenge to the valuations under appeal. On the other hand, Mr Janke has relied on three sales of vacant or lightly improved land to support each of the valuations. I have accepted that evidence, in the absence of any persuasive evidence to the contrary. It follows that the appeals should be dismissed. ORDERS 1. Appeal No LVA343-11 is dismissed. 2. The site value of Lots 1 - 2 on RP 108932 in the County of Aubigny, Parish of Drayton is affirmed at Four Hundred and Fifty-Five Thousand Dollars ($455,000) as at 1 October 2010. 3. Appeal No LVA337-12 is dismissed. 4. The site value of Lots 1 - 2 on RP 108932 in the County of Aubigny, Parish of Drayton is affirmed at Four Hundred and Fifty-Five Thousand Dollars ($455,000) as at 1 October 2011. CAC MacDonald PRESIDENT OF THE LAND COURT -- 11 of 11 --