Enright Hendy and Partners Investments Pty Ltd as trustee v Valuer-General [2012] QLC 38

LAND COURT OF QUEENSLAND CITATION: Enright Hendy and Partners Investments Pty Ltd as trustee v Valuer-General [2012] QLC 38 PARTIES: Enright Hendy and Partners Investments Pty Ltd as trustee for the Enright Investment Trust (appellant) v. Valuer-General (respondent) FILE NO: LVA588-11 DIVISION: General Division PROCEEDING: Appeal against valuation DELIVERED ON: 9 August 2012 DELIVERED AT: Brisbane HEARD ON: 10 July 2012 HEARD AT: Brisbane MEMBER: Mr WA Isdale ORDER/S: 1. The appeal is dismissed. 2. The valuation of 3 Chermside Street, Newstead as at 1 October 2010 of Five Hundred Thousand ($500,000) is confirmed. CATCHWORDS: Valuation, methods of valuation Land Valuation Act 2010, ss 18, 19, 169(1), 169(3) Land Court Act 2000, ss 4(1), 7 Burnett v Department of Natural Resources and Water [2010] QLC 0057 Edwin J Down v. Chief Executive, Department of Natural Resources and Mines (V2001/0102) WM and TJ Fischer v Valuer-General (1983) 9 QLCR 44 Grahn v Valuer-General (1992-1993) 14 QLCR 327 ISPT Pty Ltd v Melbourne City Council & Anor [2008] 20 VR 447 Lawson v Valuer-General [2012] QLC 0027 -- 1 of 10 -- 2 JL & I Qualischefski & Ors v Valuer-General (1979) 6 QLCR 167 NR and PG Tow v Valuer-General (1978) 5 QLCR 378 APPEARANCES: Mr PM Enright, Director of the appellant, appeared on its behalf Mr P Prasad, A/Principal Lawyer, Department of Natural Resources and Mines, for the respondent Background [1] As required by the Land Valuation Act 2010 (the Act) the Valuer-General valued the land the subject of this appeal as at 1 October 2010. The valuation of the site was assessed to be $500,000. The owner has appealed against this assessment, contending that the land ought correctly be valued at $325,000.00 The land [2] The land the subject of this appeal is located at 3 Chermside Street, Newstead, Brisbane. It has an area of 405 m² and is described as Lot 3 on Registered Plan 9254, Parish of North Brisbane. The Act [3] Section 169(1) of the Act provides that the hearing must be limited to the grounds stated in the notice of appeal and s.169(3) states that the appellant has the onus of proof for each of the grounds of appeal. If land is improved, as is the case here, s.19 provides that its site value is its expected realisation under a bona fide sale assuming all non-site improvements had not been made. The concept of “expected realisation” is defined in s.17 as the capital sum that the land might be expected to realise if negotiated for a bona fide sale as an unencumbered estate in fee simple. In turn, the concept of a bona fide sale is defined at some length in s.18. The case presented for the appellant [4] Mr Phillip M Enright acted as the appellant’s advocate and gave evidence supplementing his written statement, which became Exhibit 2. Mr Enright made the following points:  Prior to purchase of the property in 1994 he made inquiries which established that it was not then subject to flooding.  He has recently been informed by a relevant officer of the Brisbane City Council that flooding on the land due to the Brisbane River may now be expected to be a 1 in 25-30 year event and flooding due to cross-ground flow may be expected with between a 1 in 3 year and 1 in 7 year recurrence interval. -- 2 of 10 -- 3  He has built in the ground floor of the existing house on the site, which now has a business tenant. In the process, the building and the ground floor level were raised.  He initially used the premises for his own home-based business. It was leased for business use but flooded to a depth of about 300 mm on the night of 5/6 January 2011 due to cross-ground water flow; the tenant subsequently left and he has refitted the ground floor to be resilient to future flooding, using suitable materials. While able to secure a new tenant, he expects to encounter difficulty in replacing them when their short-term occupancy comes to an end.  The land is below street level and the lowest point in a catchment about 4 ha in area. The Council is not prepared to expend the funds to improve the drainage for the small number of owners in the immediate area.  Flood insurance premiums are rising and the opportunity to derive rental income is reduced by his duty to inform prospective tenants of the flood risk.  The property is adversely affected by an illuminated, double-sided sign on Council land 7 m from its front entrance. The side facing the roadway permanently scrolls a series of advertisements and the side facing the land has a non-scrolling advertisement. This, he points out, is something that residential property is usually rigorously protected from by Council requirements. [5] Mr Enright produced photographs which were admitted into evidence along with his statement and which illustrated the flooding to which he had referred as well as the location of the property, the proximity of the sign, the lack of on-street parking at the front of the land and the structure on it as well as the position of the land below footpath and street level. [6] Mr Enright produced four pages of e-mail correspondence between himself and Brisbane City Council officers, principally Mr Christopher Wilson. Although Mr Wilson was not called to give evidence, Mr Enright’s assurance of the provenance of this material, which became Exhibit 6, was unequivocal and is accepted. The material discloses that the land at 42 Browne Street, New Farm, a sale used by the Valuer- General, has in recent years had the benefit of a multi-million dollar upgrade in drainage infrastructure. It also discloses that a proposed drainage upgrade for the subject land at 3 Chermside Street is not expected to receive funding within the next five years. As it would benefit only a small number of properties it faces strong competition for the necessary financing. The e-mailed information includes the Council officer’s calculated average recurrence interval (ARI) of recent rainfall events which are tabulated as follows: -- 3 of 10 -- 4 Event ARI 21/02/11 1 in 6 year 05/01/11 1 in 7 year 11/12/10 1 in 2 year [7] Registered valuer, Mr Phillip R Peterson provided a report, which became Exhibit 5, and gave evidence on behalf of the appellant. The Peterson Valuation Services report contends that the site value of the subject land at 1 October 2010 was $325,000. Mr Peterson’s report includes his opinion1 that the highest and best use of the property is its current use for commercial purposes upstairs with downstairs storage which is subject to flooding. The Valuer-General has valued the land on the basis that its highest and best use at the date of valuation was for a single dwelling house.2 This difference did not become a point of contention as the parties proceeded on the basis that the value would be the same either way. The valuation report provided on behalf of the appellant [8] Mr Peterson’s report states that “Whilst on short notice I have not analysed vacant or improved sales in the Newstead Precinct I have looked at in particular the 4 properties (including the subject) from 3 to 9 Chermside Street, Teneriffe.”3 There follows a table of the Valuer-General’s site values of the properties, their areas, the rate per square metre found by dividing the area into the valuation, and a brief description of the structures on the land. He then goes on to state that: “This Site Value applied to the subject appears reasonable if the property were not subject to the unique disabilities of signage, parking restrictions and overland flow path flooding.”4 [9] Mr Peterson has not made a search of flooding information but has relied on information from the owner.5 Considering the flooding situation as he understands it, the large sign on the footpath and difficulty with on-street parking he reports that: “It appears that the current Site Value assessment fails to make proper allowance for the site disabilities. I have calculated the Site Value as follows: Site Value unaffected by disability (from nearby properties) $500,000 Allowance for lack of parking and large sign - 7.5% $ 37,500 Allowance for flooding (30% of $462,500) $138,750 $323,750 Say $325,000” 1 Exhibit 5, 8.3. 2 Exhibit 7, 2.7. 3 Exhibit 5, page 7, paragraph 2. 4 Exhibit 5, page 7, paragraph 4. 5 Exhibit 5, page 9, point 7. -- 4 of 10 -- 5 [10] As he has not considered sales in arriving at his valuation, Mr Peterson’s report has used as a basis for his valuation the subject property, number 3, and numbers 5, 7 and 9 Chermside Street. The values which he has used for those properties are the values arrived at by the Valuer-General. He has assumed that they are correct without testing them against comparable sales. He has then proceeded on the basis that it “appears” to him that the Valuer-General’s value “fails to make proper allowance” for the disabilities of the subject land. He then states, from comparison with the properties at 5, 7 and 9 Chermside Street, that the subject land would have a value of $500,000 if unaffected by its disabilities. The difficulty with this approach is that the $500,000 value based on this relativity would be correct only if the values on which it is based are correct, which has not been tested against market evidence.6 If the subject value is said to be wrong, some caution is indicated before saying that based on values nearby it would be correct before the disabilities of the site are allowed for. No reason is provided for why this should be so. Mr Peterson then proceeds from this $500,000, derived as he has done, to arrive at his valuation by making two deductions. He has allowed 7.5% on account of the lack of parking and the presence of the large sign. There was no evidence from market sales or anything else that this was a suitable allowance or of how it was arrived at. It was simply his opinion. In addition, a 30% allowance was made for the overland-flow flooding on the basis that the Valuer-General allowed 20% on account of the 1974 floods if there was more than 1 m depth of flooding, 10% if less. In his view, the 2011 flood was a 1 in 30 year or 1 in 50 year recurrence interval event and the subject land will flood more frequently, perhaps with a 1 in 3 year recurrence. Information from Mr Enright was that on the night of 5/6 January 2011 the ground floor of the building on the subject land flooded to a depth of about 300 mm. That floor level had been raised previously by Mr Enright. While Mr Peterson made it quite clear how he had derived the 30% figure which he applied, there was no evidence that it was supported by sales in the marketplace. It was, like the 7.5%, purely a matter of the opinion of this experienced valuer. He noted that the flooding is likely to occur without notice, making it difficult to cope with. The valuation report produced on behalf of the respondent [11] On behalf of the Valuer-General a report was produced, which became Exhibit 7, and its author, Mr Travis Pinder, registered valuer, gave evidence. Apart from assessing the highest and best use of the land as being for a single dwelling house, a distinction which 6 The inadequacy of this approach was discussed by Member Smith in Burnett v Department of Natural Resources and Water [2010] QLC 0057 at [18] and again in Lawson v Valuer-General [2012] QLC 0027 at [29]. -- 5 of 10 -- 6 I have earlier noted made no difference to the value as far as the parties were concerned, Mr Pinder’s appreciation of the property does not appear to diverge from that of Mr Peterson in any meaningful way. A photograph in Mr Pinder’s report shows car parking spaces on the rear of the land which may be accessed by a laneway. Mr Enright did explain in his evidence that this was not the easiest for people to find, however he stated in cross-examination that seven cars can be parked in the yard. [12] Mr Pinder’s valuation was made using the method of direct comparison to vacant or lightly improved site sales for single dwelling use. The sales chosen were in close proximity to the subject land.7 Mr Pinder disagreed with Mr Peterson’s valuation approach. [13] Sale 1, 56 Sheriff Street, Petrie Terrace, was of 228 m² of vacant land which sold on 6 December 2010 for $410,000. Its analysed sale price was $405,000. Located at a low point on Petrie Terrace, Mr Pinder regarded it as an inferior location within an inferior residential suburb to Newstead. It is not subject to overland flow but with its size and location is regarded as inferior to the subject land. It is on a one-way street close to Suncorp Stadium so there are parking difficulties. The usefulness of this, and the other sales used on behalf of the Valuer-General [14] The Court is required to decide this appeal on the evidence put before it and has the benefit of the opinions of the expert witnesses. In the present case Mr Peterson was not asked to comment on the sales relied on by Mr Pinder, either in respect of the suitability of using those sales at all or concerning the conclusions which Mr Pinder drew from them. In the circumstances there has been no criticism by the valuer called for the appellant of the selection of sales, the facts related concerning the attributes of the land involved or the correctness of the conclusions drawn from those sales by Mr Pinder. The Court must therefore proceed on the basis that since challenges could have been made but were not, the matters not challenged are not in dispute. Mr Peterson did not challenge the sales relied upon by the Valuer-General in any way at all and did not produce any alternative body of sales evidence which it might have been said would be a more reliable guide to value. When Mr Pinder was cross-examined by Mr Enright, some challenge was made to the choice of sales, but it was blunted somewhat by the absence of any suggested alternative sales. [15] Sale 2, 25 Prospect Street, Fortitude Valley, was of 253 m² of vacant, fenced land which sold on 8 March 2011 for $500,000. In an inferior location to the subject it is not affected by overland flow. 7 Exhibit 7, p.12, 4.1, para.3. -- 6 of 10 -- 7 [16] Sale 3, 62 Terrace Street, New Farm, was of 263 m² of land with a rundown cottage which in the valuer’s unchallenged opinion added no value. It is located on a narrow street and not subject to overland flow. Since purchase, the owners have received Development Approval to refurbish the dwelling. It sold for $520,000 on 11 June 2011. [17] Sale 4, 21 Small Street, Newstead, was of 224 m² of land with a hundred year old weatherboard dwelling of poor standard which was considered to add $15,000 to the value. It sold on 21 November 2009 for $550,000 and $535,000 was assessed as the value of the land. It is located on a narrow one-way street and is not subject to overland flow. [18] Sale 5, 42 Browne Street, New Farm, was of 577 m² of fenced land which sold for $635,000 on 29 April 2011. Allowing for the fencing, the analysed sale price was $630,000. It is subject to five easements; for sewerage, underground drainage, overland flow and two right of way easements. It is subject to flooding from the Brisbane River and overland flow sources. The underground drainage and overland flow affect the rear 451 m² of this 577 m² block. Its ground level varies between 2.7 and 4.3 above a datum and it flooded to the 2.9 m level in January 2011. Approval for a two storey residence has been obtained. It is regarded by Mr Pinder as superior to the subject property. I note that the e-mailed information in Exhibit 6 discloses that the Council has in recent years completed a multi-million dollar local drainage upgrade benefiting this land in order to reduce the frequency and severity of overland flow flooding to it and surrounding properties. [19] Sale 6, 48 Heal Street, New Farm, was of 506 m² of land with an old highset weatherboard house recladded with brick at the front. It sold for $825,000 on 18 October 2010 and the analysed sale price was $760,000. After sale, an application was made for the house to be removed; this was approved. About 25% larger than the subject, it is located in a street with good amenity and favourable surrounding land uses. It is not subject to overland flow. [20] Sale 7, 91 Oxlade Drive, New Farm, was of 519 m² of fenced land which sold for $1,115,000 on 20 December 2009. Allowing for the fencing, the analysed sale price of the land was $1,072,000. The property has an elevation ranging from 2.3 to 3.1 m above a datum. The Q100 flood level is 3.2 m and the January 2011 flood came to 3.1 m. The property is subject to overland flow. It is about 28% larger than the subject and is in a superior location for residential use. -- 7 of 10 -- 8 [21] Mr Pinder has assessed the sales in comparison to the subject as: 1. Inferior 2. Comparable 3. Comparable 4. Comparable 5. Superior 6. Superior 7. Superior [22] In Mr Pinder’s opinion the sales evidence supports a value range for the subject land between $500,000 and $535,000. He has conservatively adopted the low end of the range. Mr Pinder’s check on relativity [23] Comparing the subject land to the allotments adjoining it on either side,8 Mr Pinder is of the view that the relativity with those blocks “seems appropriate”.9 [24] Mr Pinder has indicated the positions of the subject land and his sales 2 to 7 inclusive on the map that is Exhibit 8. Sale 1 is not on that map. The map is a New Farm “Flood Flag Map” published by the Brisbane City Council on 2 October 2009. It shows waterways, creek, river or tidal flooding and, in yellow, overland flow paths. The applicable law [25] The relevant statute law has already been referred to at [3]. This Court is not an investigating tribunal and must rely on the evidence which the parties choose to put before it.10 It has been consistently held by Courts, the decisions of which are binding on this Court, that the best test of value is to be found in sales of comparable properties, preferably unimproved or lightly improved, in the open market as close as possible to the date of valuation.11 While maintenance of the correct relativity between valuations is important where they are used for rating purposes, relativity is not to be preferred to the exclusion of relevant, even if not ideal, sales evidence.12 As the Land Appeal Court said in WM & TJ Fischer v Valuer-General13 at p.46: “It is indeed a fundamental principle of valuation that the best basis for assessment of unimproved value is the use of sales of vacant or lightly improved parcels. Whilst maintenance of correct relativity is also of considerable importance for rating or revenue type valuations, we cannot prefer in the circumstances of this case, the use of the principle of relativity to the exclusion of the sales evidence … The best test of value at any particular 8 Exhibit 7, p.22, 4.4. 9 Exhibit 7, p.22, 4.4, para.4. 10 JL & I Qualischefski & Ors v Valuer-General (1979) 6 QLCR 167 at 172. 11 NR and PG Tow v Valuer-General (1978) 5 QLCR 378 at 381. 12 WM and TJ Fischer v Valuer-General (1983) 9 QLCR 44 at 46. 13 Ibid. See also Grahn v Valuer-General (1992-1993) 14 QLCR 327 at 328-329 and the cases referred to there. -- 8 of 10 -- 9 time is the market for land, and the only sales evidence, albeit perhaps not ideal, is that provided and relied upon by the Valuer-General.” The Court’s approach [26] Although this Court is a specialised judicial tribunal14 not bound by the rules of evidence15 the Court must employ its expertise to evaluate the evidence which the parties choose to put before it rather than to substitute its own opinion for that of an expert. In ISPT Pty Ltd v Melbourne City Council & Anor16 the Court of Appeal said: “Both the evaluation of the theoretical intellectual basis of an expert’s evidence, and the probative force of the evidence founding the expert’s opinion, are proper inquiries, directed to the foundations of opinion evidence.”17 Assessing the evidence [27] I accept the evidence of Mr Enright as a witness of facts. There was no suggestion from the respondent that the Court should do otherwise. In the case of the expert witnesses, however, both parties submitted that the evidence of the expert called by the opposing party ought to be rejected. Counsel for the respondent submitted that Mr Peterson’s approach of starting with the Valuer-General’s value of $500,000, taking it to be correct if the land was not subject to the deficiencies identified and then deducting the percentages which were applied, was not an acceptable valuation method. It was pointed out that decisions of courts that are binding on this Court make clear that use of sales evidence is the best evidence of value. On behalf of the appellant it was argued that Mr Pinder does not possess knowledge of the rules relating to advertising signage, did not properly allow for the detriment of flooding and cannot yet be in a position to assess the impact of the illuminated sign due to the relatively recent introduction of this type of advertising. [28] As I have already noted, Mr Peterson’s valuation approach was to, in effect assume that the respondent’s valuation would have been correct if the detriments were not allowed for. There was no demonstrated basis for this view and it affects everything that follows from it.18 Even if it could be accepted that the 30% and 7.5% deductions from that figure were correct, the starting point is itself an assumption, the basis of which was not shown to be supported by any evidence. As the best evidence of value is to be found in sales, this Court must prefer evidence of value derived from sales to evidence of value otherwise derived. The means of arriving at the 30% allowance without use of sales 14 Land Court Act 2000, s.4(1). 15 Land Court Act 2000, s.7. 16 [2008] 20 VR 447. 17 2008 VR 447 at [26], citing Makita (Aust) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at 743-744 [85]. 18 Mr Peterson did the same thing in Edwin J Down v. Chief Executive, Department of Natural Resources and Mines (V2001/0102) Land Court Brisbane 30 May 2002. Member Scott at [8] to [11] discussed the difficulty he had with this approach, particularly in that it uses a commencement point without sales evidence that supports its validity. -- 9 of 10 -- 10 evidence has been examined and, as I have noted, there was no basis demonstrated which was said to support the 7.5% allowance. The use of sales evidence by the Valuer- General made it unnecessary for the valuer using that method to attempt to arrive at a figure to use as an allowance for flooding or anything else. By the use of evidence of comparable sales the value is determined by reference to the actions of parties in the market. In the absence of any evidence from the appellant’s valuer of a competing body of sales evidence or expert criticism of the sales evidence used I accept the sales evidence relied upon by Mr Pinder and the conclusions which he drew from that evidence. The Court must therefore dismiss the appeal and confirm the valuation appealed against. Orders 1. The appeal is dismissed. 2. The valuation of 3 Chermside Street, Newstead as at 1 October 2010 of Five Hundred Thousand ($500,000) is confirmed. WA ISDALE MEMBER OF THE LAND COURT -- 10 of 10 --