Agreedto Pty Ltd v Department of Natural Resources and Mines [2013] QLAC 1 (2013) 34 QLCR 77

LAND APPEAL COURT OF QUEENSLAND CITATION: Agreedto Pty Ltd v Department of Natural Resources and Mines [2013] QLAC 1 PARTIES: Agreedto Pty Ltd (appellant) v Chief Executive, Department of Natural Resources and Mines (respondent) FILE NO: Appeal No. LAC007–12 Land Court No. LAA951-10 DIVISION: Land Appeal Court of Queensland PROCEEDING: Appeal ORIGINATING COURT: Land Court of Queensland DELIVERED ON: 28 March 2013 DELIVERED AT: Brisbane HEARING DATE: 27 September 2012. Final submissions 31 October 2012. THE COURT: Peter Lyons J Mrs CAC MacDonald, President of the Land Court Mr WA Isdale, Member of the Land Court ORDER: The appeal is dismissed. CATCHWORDS: Valuation - unimproved value for conversion of tenure - meaning of "as if it were held in fee simple" - whether sub-lease and easements on improved lease part of hypothetical fee simple - need to consider scope and purpose of governing legislation (Land Act 1994) - all registered interests to be ignored in hypothetical valuation - relevance of similar terms in Valuation of Land Act 1944 - Land Act ss.170, 172, 432-440. Chief Executive, Department of Natural Resources & Mines v Kent Street Pty Ltd [2009] 171 LGERA 365. Gollan v Randwick Municipal Council [1961] AC 82. Jewells (Properties) Pty Ltd v Minister for Natural Resources and Minister for Mines [2002] QLC 69. -- 1 of 8 -- 2 Seafarm Pty Ltd v Minister for Natural Resources and Water [2008] 29 QLCR 72. Harbours Act 1955 Land Act 1994. ss.166, 167, 170, 172, 434 Valuation of Land Act 1944 Valuation of Land Act (No 2) 1916 (NSW) COUNSEL: Mr CL Hughes SC with S Holland for the appellant Mr MD Hinson SC with SP Fynes-Clinton for the respondent SOLICITORS: Holman Webb for the appellant In-house Legal, Department of Natural Resources and Mines, for the respondent THE COURT: [1] The appellant holds a Perpetual Lease over land at Urangan, under the provisions of the Land Act 1994 (Qld) (Land Act). It has applied to have the lease converted to freehold land. It appealed against the purchase price for the conversion, determined by the respondent, to the Land Court, and now appeals from the Land Court’s decision. The outcome of the appeal depends upon whether the purchase price is to be determined by, or without, reference to interests created by way of sub-leases and easements, affecting the land. Background [2] On 31 October 1991, a lease (the Harbour Lease) was granted under the Harbours Act 1955 to Great Sandy Straights Marina Pty Ltd (GSSM) over land then described as lots 7-10 on Plan 801116, for a term of 75 years. The lease was granted for the purpose of constructing a resort and marina at the Urangan Boat Harbour. GSSM carried out dredging work and provided associated facilities, and constructed 30 residential units on that land. It surrendered that lease on 22 January 1998, and on 26 January 1998 Perpetual Lease 209524 (the Perpetual Lease) was issued to it, over land then described as lots 7-10 on SP 105258. The area of that land was 7.265 hectares. The land was to be used for commercial, business and tourism purposes. [3] Some sub-leases had been granted, of what were referred to as “units”, during the currency of the Harbour Lease. Sub-leases which had been granted under the Harbour Lease were registered in respect of the Perpetual Lease. [4] The Perpetual Lease required the lessee to carry out further development, including the construction of: (a) Eleven blocks (minimum) of residential units; (b) An air-sea rescue centre; (c) A tourist terminal, retail centre and tavern; and (d) A resort hotel; -- 2 of 8 -- 3 [5] The lessee was also required to carry out other works including the provision of roads, car parking, landscaping, and a boat and barge ramps. [6] The work was carried out by 2003. Interests in the development were sold as residential units and commercial premises, this being effected by the grant of long term sub-leases under the Perpetual Lease. Some of the sub-leases were for a term of 75 years, but most were for terms of 999 years. [7] The sub-leases were granted after the construction of the buildings, or parts of buildings, to which they relate. The premises, the subject of each sub-lease, were identified by reference to a plan depicting a volumetric space bounded by physical elements of a building. A lump sum was paid for each sub-lease. The sub-lessees are not bound to pay rent in the conventional sense, their ongoing obligation being only to pay a proportion of outgoings, including a proportion of the rent payable under the Perpetual Lease. [8] A number of easements have been registered over the land which is the subject of the Perpetual Lease. Some1 burden parts of the subject land in favour of what appear to be other parts of the subject land, and generally in favour of parts which are subject to sub-leases. These easements are for access purposes, in most cases pedestrian access, though in some cases also for motor vehicle access. A number are associated with use of buildings that have been constructed on the land, though one permits access to part of a car park. One easement in the Easement Table appears not to burden any part of the land the subject of the Perpetual Lease.2 [9] Other easements over the land are in favour of nearby land, permitting motor vehicle and pedestrian access to a marina, access ramps and car parking areas; or to the marina switchboard and marina hydrant booster pump; or to facilities for the marina; or simply to the marina and an area referred to as adjoining land. The Easement Table does not identify the nature of the grant for easement 13. [10] On 21 December 2006, the Perpetual Lease was transferred to the appellant for the sum of $660,000. [11] An earlier application by the appellant for the conversion of the Perpetual Lease to freehold land was withdrawn. A further application, which has led to these proceedings, was made to convert an area of 5.4075 hectares, being part of the land the subject of the Perpetual Lease, to freehold. It is agreed that the land the subject of this application is described as parts of lot 8 on SP171735, part of lot 9 on SP129067, and lot 13 on SP171735. The case has been conducted on the basis that the respondent received the application on 6 April 2010. [12] The Land Act requires the respondent, in a case like the present one, to decide the purchase price for the conversion of the Perpetual Lease. The respondent initially determined the purchase price at $11,500,000; but on review this was reduced to $10,000,000. The appellant appealed unsuccessfully from that determination to the Land Court. 1 Identified in the Easement Table filed 31 October 2012 (Easement Table) as easements numbered 14-21. 2 This easement is in favour of the land, not over it. -- 3 of 8 -- 4 Statutory provisions relating to conversion of Perpetual Lease to freehold land [13] Section 166 of the Land Act provides for an application to convert a Perpetual Lease to freehold land. Section 167 then makes provision for the respondent to decide whether or not to offer to convert a lease to freehold land, including conditions.3 [14] The purchase price is determined under s 170 of the Land Act which includes the following: “s 170 Purchase price if deed of grant offered (1) Unless a price or formula has already been stated in the lease to be converted, the chief executive decides the purchase price for the conversion of a lease to a deed of grant. (2) The lessee may appeal against the chief executive’s decision on the purchase price. (3) The purchase price is an amount equal to the total of— (a) the unimproved value of the land being offered, as if it were fee simple; and (b) the market value of any commercial timber that is the property of the State on the land. (4) The unimproved value of the land is calculated at the day the chief executive receives the conversion application.” [15] The issue of a new tenure as the result of a conversion application is regulated by s 172, which includes the following: “172 Issuing of new tenure (1) On acceptance of the offer a tenure (the new tenure) may be issued by— (a) if the new tenure is a deed of grant or freeholding lease— the Governor in Council; or (b) if the new tenure is a term or Perpetual Lease—the Minister. Note— See also section 153 (Lease must state its purpose). (2) The new tenure must be issued in accordance with the terms of the accepted offer. (3) Additional unallocated State land may be included in the new lease, if chapter 4, part 1, division 2 is complied with. Editor’s note— Chapter 4, part 1, division 2 is about interests available in land without competition. (4) If the new tenure is a lease, it must be issued for the same purpose as the lease (the old lease) the subject of the conversion application. (5) The new tenure is issued subject to all relevant registered interests to which the old lease was subject, and in the same priorities. (6) On the registration of the new tenure, the old lease is taken to have been wholly surrendered. (7) The surrender must be registered.” 3 See also s 169 of the Land Act. -- 4 of 8 -- 5 [16] It was common ground that s 434 applied to the determination of the unimproved value of land under s 170(3)(a). Section 434 is as follows: “434 Meaning of unimproved value (1) In this Act, the unimproved value of land is the amount an estate in fee simple in the land in an unimproved state would be worth if there were an exchange between a willing buyer and a willing seller in an arms-length transaction after proper marketing, if the parties had acted knowledgeably, prudently and without compulsion. (2) The unimproved value must be decided without regard to the commercial value of the timber. (3) To remove any doubt, it is declared that the Land Valuation Act does not apply to the meaning of unimproved value in this section. (4) In this section— paid to the State does not include rent paid to the State. unimproved state includes, if the value of improvements and development work to the land performed by the State has not been paid to the State, the improvements and development work finished before the lease started or the deed of grant was issued.” Determination of Land Court [17] Before the Land Court, the appellant contended that the unimproved value of the land was to be determined on the assumption that the land was subject to the sub- leases and the easements. It relied upon the provision in s 434(1) which refers to the parties acting both knowledgeably and prudently; and on s 172(5), the effect of which was said to be that, on conversion to freehold land, the resulting estate in fee simple is subject to the sub-leases and easements. The respondent controverted those contentions. [18] The Land Court Member accepted the respondent’s submissions. His Honour held that there was no link between s 172, and the determination of the purchase price under s 170. He relied upon earlier decisions in the Land Court, being Seafarm Pty Ltd v Minister for Natural Resources and Water4 and Jewells (Properties) Pty Ltd v Minister for Natural Resources and Minister for Mines5. He noted that the land was to be valued as if it were held in an estate of fee simple, and considered that that carried with it the notion that the estate was not encumbered by interests which affect the lease. He also referred to a passage from the Court of Appeal decision in Chief Executive, Department of Natural Resources and Mines v Kent Street Pty Ltd,6 where it was said, in respect of the determination of the unimproved value of land under the Valuation of Land Act 1944, that leases of shops in a shopping centre were not to be taken into account. Accordingly, he adopted the valuation presented on behalf of the respondent, in the sum of $10,000,000. 4 [2008] 29 QLCR 72. 5 [2002] QLC 69. 6 [2009] 171 LGERA 365. -- 5 of 8 -- 6 Contentions on appeal [19] In substance, the contentions of the parties have not changed. The appellant submitted that the outcome of the appeal depended upon the proper construction of the relevant provisions of the Land Act. That required a consideration of other provisions of that Act. Accordingly, s 172(5) was to be taken into account, no doubt because the notional parties referred to in s 434(1) should be taken to act knowledgeably and prudently. It submitted that the purpose of the provisions relating to the purchase price was to determine “fair and proper compensation”; and given that what the appellant would receive would be an estate in fee simple subject to the sub-leases and easements, the purchase price determined by the Land Court would not represent fair and proper compensation. It submitted that authorities on the determination of the unimproved value of land in other statutory contexts were irrelevant. It submitted that the earlier Land Court decisions relied upon by the Land Court did not deal with the question which has to be determined. It submitted that Kent Street was not applicable, because it was based upon differently expressed legislation, which expressly nominated an assumption (there described as “necessary”)7 not found in the Land Act; and s 434(3) expressly excluded the application of the meaning of the expression “unimproved value” found in the Valuation of Land Act. [20] For the respondent, it was submitted that the critical matter (for present purposes) identified by s 434(1) is the subject matter of the determination of unimproved value, namely, an estate in fee simple in the land, in an unimproved state. The reference to parties acting knowledgably and prudently related to the way the valuation was to be carried out, but not to the subject matter of the valuation. Accordingly, the effect of s 172(5) was not to be taken into account. The estate in fee simple which was to be valued was no more than that, not an estate encumbered by sub-leases or easements. Analysis of statutory provisions [21] Section 170(3) identifies the purchase price, for present purposes, as an amount equal to the unimproved value of the land being offered, as if it were held in fee simple. Section 434 provides that the unimproved value of land is the amount an estate in fee simple in the land in an unimproved state would be worth, if there were what might be broadly described as a market transaction. [22] These provisions require the value to be determined on 6 April 2010, as if the land were then held in fee simple. That requires the value to be determined on a hypothetical basis. [23] In Gollan v Randwick Municipal Council8 the Judicial Committee had to consider a similar question, although in a different statutory context (Valuation of Land Act (No 2) 1916 (NSW), where the valuation was required for rating purposes). Their Lordships considered the hypotheses and their consequences, and continued:9 “These considerations do not, however, go far enough to supply the answer to the question upon which this appeal turns and which can 7 See [114]. 8 [1961] AC 82. 9 Pages 94-95. -- 6 of 8 -- 7 be expressed as follows: Is the fee simple assumed to be sold a ‘pure’ estate in the land without reference to the actual title under which it is held, or is it that actual title, with the consequence that there enters into the valuation, notice of any restrictions on user and enjoyment by which the title is affected? Either construction would be consistent with the mere words ‘fee simple’ in the statutory formula … .” [24] Their Lordships then went on to consider “the scope and purpose of the Valuation of Land Act”.10 The question was ultimately determined by their Lordships on the basis that unimproved value in the New South Wales Act was primarily used for rating purposes; and by a detailed consideration of the provisions of that Act. [25] It would follow that the issue in the present appeal is to be determined, not by relying simply on the expression “fee simple” as connoting a title unaffected by other interests, but by a consideration of the scope and purpose, and the language, of the relevant provisions of the Land Act. [26] The land is to be valued as if it were held in fee simple. The Perpetual Lease is a statutory lease, available in respect of allocated State land. It is not a form of lease which can be granted in respect of land held in fee simple. Accordingly, if the land is to be valued as if it were held in fee simple, then it must be valued as if it were not subject to the Perpetual Lease. Indeed, since the purchase price to be determined is the amount payable for the conversion of the Perpetual Lease into an estate in fee simple, it is highly unlikely that the statute would intend that price to be determined as if land remained subject to the lease. [27] If the purchase price is to be determined on the basis that the land is not subject to the Perpetual Lease, it might be said to follow that interests derived from the Perpetual Lease are also to be disregarded. The sub-leases are such interests. It would appear that some of the easements were granted to provide rights to use land, ancillary to the interests created by the sub-leases. It would then follow that they, too, are to be disregarded. On this approach, it would follow that the purchase price is to be determined on the basis that the land was not subject to the sub-leases and the easements. [28] The sub-leases were sub-leases of parts of buildings. The purchase price is to be determined, by reference to s 434, on the basis that the land is “in an unimproved state”. Accordingly, it must be valued as if the buildings did not exist. That consideration makes the reasoning in Kent Street11 applicable. If the sub-leases are to be disregarded, it would seem to follow that the ancillary interests created by the easements should also be disregarded. [29] The appellant submitted that the effect of s 434 was simply to require the value of improvements to be disregarded; but that the section did not require the valuation to be carried out on the basis that the improvements did not exist. It also submitted that the language of s 434 was materially different from that used in s 3 of the Valuation of Land Act which required the value to be determined “assuming that, at 10 See p 95. 11 Particularly [115]. -- 7 of 8 -- 8 the time as at which the value is required to be ascertained for the purposes of this Act, the improvements did not exist.” [30] The language of s 434 does not support the first of these submissions. It requires the value to be determined by reference to “the amount an estate in fee simple in the land in an unimproved state would be worth” (emphasis added). In other words, the task is to be performed by reference to an assumed state of the land; not by disregarding the value of improvements. [31] The differences in language between the Valuation of Land Act and the Land Act are not material. The former expressly requires the making of an assumption. However, s 434, although not using that term, has a similar effect. The provision requires the relevant amount to be determined on a basis which is not true; or in other words, on the basis of an assumption contrary to the fact. [32] These considerations suggest that the easements not associated with development on the land should also be ignored in determining the purchase price. It seems unlikely that it was intended that this should be determined on the basis that some, but not all registered interests should be taken into account in the determination of the price. [33] There is force in the appellant’s submissions based upon the reference in s 434(1) to the determination of this amount on the basis of a transaction in which the hypothetical willing buyer and willing seller are taken to act knowledgeably and prudently. However, it is first necessary to identify that in respect of which they are to be taken as having acted in that way. When that is identified, it can be seen that they are to be taken to have acted knowledgeably and prudently in respect of land held in fee simple, and unimproved. They are accordingly to be considered as acting in respect of land not subject to the Perpetual Lease and interests derived from it; and land which is not developed with buildings which give rise to those sub-leases and interests. Conclusion [34] The appeal should be dismissed. ORDER: The appeal is dismissed. PETER LYONS J CAC MacDONALD PRESIDENT OF THE LAND COURT WA ISDALE MEMBER OF THE LAND COURT -- 8 of 8 --