Champneys v Department of Natural Resources and Water [2007] QLC 6

LAND COURT OF QUEENSLAND CITATION: Champneys v Chief Executive, Department of Natural Resources and Water [2007] QLC 6 PARTIES: Janice Dorothy Champneys (appellant) v. Chief Executive, Department of Natural Resources and Water (respondent) FILE NOS.: AV2005/1221 and RV2005/1222 DIVISION: Land Court of Queensland PROCEEDING: Annual Valuation Appeal; Rental Valuation Appeal. DELIVERED ON: 6 February 2007 DELIVERED AT: Brisbane HEARD AT: Roma JUDICIAL REGISTRAR: Mr BR O'Connor ORDER: The appeals are dismissed. CATCHWORDS: Unimproved value – rating and State rentals – correct methodology – sales analysis – factorized approach. APPEARANCES: Mrs J.D. Champneys (for the appellant) Mr K. Fisher, Principal Lawyer (Crown Law), for Respondent. [1] These matters are appeals against the unimproved valuations by the Chief Executive for rating and rental purposes. The subject property (Tylden) is a grazing homestead perpetual lease (GHPL) held under the Land Act (Queensland) 1994 and is thus liable to assessment for State rental. However, for present purposes, the annual valuation (for rating under the Valuation of Land Act 1944) and the rental valuation require a similar -- 1 of 7 -- 2 exercise – the determination of the unimproved value as at a relevant date of 1 October 2004. [2] "Tylden" presently owned by Mrs Janice Dorothy Champneys has an area of 811.6 hectares and is located at Mt Abundance, some 42 kilometres southwest of Roma. It is situated within the Bungil Shire. [3] The Chief Executive has placed an unimproved capital value of $425,000 on the subject land while the landowner contends for a figure of $187,125. It was last valued for the Valuation of Land Act purposes in October 2000 at a figure of $131,000. [4] Evidence at the hearing was given for the appellant by Mrs Champneys and her son Glen Michael Quinlan and for the respondent by Mr Anthony Dunk, senior co-ordinating valuer in Roma. Written reports were tendered by both sides. Grounds of Appeal. Mrs Champneys has listed the following as her grounds of appeal: " 1. The valuation does not reflect the sales data in the area and is excessive and unreasonable. On one property alone, even the highest rate for a sale made on 06/10/99 and again in March 2004 was 65.4%. (i.e. the period under review) 2. As the Chief Executive has been directed by the Government regulations to use sales data regardless of circumstances and conditions the valuation does not reflect a rise of 224% to 227% in the district and the comparison of actual sales data would be less than 65.4% (taken on one property) if other sales were used to average out the rise of UCV's made on sales. 3. The Chief Executive of DNR has not made allowances for the topographical characteristics effecting the land on individual properties as all properties either sold or retained have risen by the same rate i.e. from 224% to 227% regardless of their use or description. 4. The Chief Executive of DNR has not made sufficient allowances for detrimental features or disabilities in their estimate for rises of 224% to 227% as every property has approximately the same increase. 5. The Chief Executive has failed to recognise the sales of generally similar properties in the district and has not shown the increase of 224% to 227% in the market prices during the period under review. 6. The Chief Executive of DNR has failed to take into account the climatic conditions prevailing in the district when accessing the UCV's. There has been an ongoing drought during the period under review. 7. The Chief Executive of DNR has proceeded on wrong principle and failed to take into account the correct principle, some of which are listed in DNR objectives, such as no UCV increases during periods of exceptional circumstances. 8. The unjustified rises as directed by Government in UCV's will result in unaffordable increases in rentals on leasehold lands and will also result in pushing family units and smaller enterprises off the land loosing valuable experience and knowledge passed down over generations. 9. The increases on the UCV of "Tylden" is not consistent with a neighbouring property valuation which is the only property in the district valued at less than $400 per h.a. UCV. "Tylden" on the other hand is valued at $523.66 per h.a. UCV as most properties of similar description and improvements. This neighbouring property is also not consistent with the DNR printouts, two conflicting valuations from 01/10/2000 and the DNR map on public display for viewing at the DNR office. This property seems to have at least four different UCV's for the period. 10. Our estimate of "Tylden" has been compared with the highest sales of similar properties in the district and with the estimate rise of $87,125.61 which averages at 42.84%, believe that it is a more realistic rise in the UCV's than the valuation made by the Chief Executive, Department of Natural Resources. Of course, if other -- 2 of 7 -- 3 properties of a similar type with lower sales were to be taken into account then the percentage of the rise would be less and would show a lower estimate of the UCV." [5] These are common grounds for both rental and rating appeals except that Ground 8 relates to the rental appeal only. It should be noted to this stage that the appellant is limited in her presentation to the grounds noted in his appeal form. The Valuation of Land Act 1944 s.45(4) states: "Such notice shall state the grounds of appeal and the appeal shall be limited to the grounds so stated and the burden of proving any and every such ground shall be upon the owner." Appellants Evidence [6] Mrs Champneys stated in oral evidence that her appeal Grounds 3 to 7 relate more to how the wider system of valuation operates and she relies on grounds 1, 2, 9 and 10 as her main grounds. The basic thrust of those grounds, which overlap to a fair extent, is that the "market evidence" of sales in the district between the time of the Chief Executive's valuation in 2000 and the ones now in dispute reveals an increase of 65.4% (if the main sale "Knockalong" is used) or 42.5% if the increase in a number of relevant sales is averaged. This is contrasted against an increase in the Chief Executive figures of some 225%. [7] Mrs Champneys figure of $187,125 is arrived by increasing the 2000 figure by 42.84%. [8] Her basic contention appears to be that the "market evidence" – which term I understand to equate with improved values of the sale properties – should be used as the basis for increases in subject unimproved values rather than the approach of the Chief Executive (which is outlined in Mr Dunk's evidence discussed below). [9] Mrs Champneys also challenges whether it is proper for the Chief Executive to apply a common factor (225%) to increase valuations of properties across the Shire. [10] Mrs Champneys gave evidence on a wider range of matters indirectly relating to the valuation of the subject land. These include:  The background to an attempt to convert the subject property to freehold in 1991.  Some history of the State rentals as they applied prior to the 1994 Land Act changes where factors other than unimproved capital value were relevant. e.g. the capacity of the owner to pay.  The current freeze on leasehold rentals.  Whether improvements on a subject property should be valued.  Certain perceived defects in the IVAS (Integrated Valuation System) employed by the Chief Executive. -- 3 of 7 -- 4 [11] These factors, while of wider general historical interest, are not considered directly relevant to the present task of determining the unimproved capital value as at 1 October 2004. [12] Mr Quinlan in his evidence did not really seek to introduce any additional factors but largely reiterated the main points of Mrs Champneys. He stated that he could understand the way the department came to their valuation but thought such valuation should be based more on market value of properties rather on the now large increases based on the Chief Executive approach. He alluded to the fact that Councils can lower their rate in the dollar to lessen the impact of current increases (for rating purposes) but the State rentals impact much more severely as they were set (under legislation) as a fixed percentage of unimproved value. He referred to the option of freeholding being far too expensive an exercise in relation to the income the land could produce. In cross-examination, Mr Quinlan did acknowledge that the Chief Executive did not drive the market but merely responded to such current market in analysing values. He was also aware that the sales Mr Dunk used in his evidence were all Grazing Homestead Perpetual Leases (GHPL) (the same tenure as the subject). Respondent's Evidence [13] Mr Dunk's basic approach was to analyse some 23 sales in the Bungil shire leading up to the relevant date and then select three which he considered most appropriate to compare to the subject. In essence, he analysed the market sale price of the properties, deducting the depreciated value of improvements at the sale date to arrive an unimproved value of the subject property. He then compared the sale property and its unimproved value with the subject over a range of areas to arrive at an unimproved value of the subject. In this exercise, differences in improvements between sale and subject were not considered, as the exercise was to arrive at an unimproved value. It was unnecessary to value improvements on the subject unless it itself was the subject of a sale. [14] Mr Dunk explained his approach thus: "…In our analysis of sales we are trying to arrive at the value of the land by analysing the sale and applying cost to the value of the improvements on those particular sales as per a detailed cost book that we provide by talking to agents, contractors and we apply a consistent approach in the costs to the properties and then apply a depreciation rate accordingly, depending on the obsolescence, added value, of certain improvements on the property to assess the cost-less depreciation of that improvement…" (Transcript page 31) [15] Mr Dunk then proceeded to explain how a rise in the market related to how the Chief Executive treated the unimproved value for individual properties: "…in relation to the rising market, we often find in the situation where we have a property sell, for example, for a million dollars and in the current market it's quite common where it sells for two million dollars within the same year and we've done the sale the first time at a million dollars, analysed the improvements down to say a figure of -- 4 of 7 -- 5 600,000, 12 months later we have to re-assess what the circumstances of the sale are. Usually within the 12 months there's not a major difference to the property, obviously, and on the two-million-dollar sale we analyse the improvements down and the circumstances of that sale and we might come up with $800,000, giving us an unimproved value of 1.2m. There's a perfect example where we've had a doubling in the market value, but a three times increase in the land value as a result of that sale and it's quite common on old sales for the current unimproved value to outstrip the old sale price…" (Transcript page 31) [16] He confirmed the rate of increase with these substantial increases in market values was, to a large extent, in the unimproved land values as opposed to the overall values. Mr Dunk's Sales [17] Sale 1 Araluen – Area 133.18 hectares; date of sale 24/3/04; sale price $1,413,270; analysed UCV $808,452, leading to a per hectare figure of $607.32; applied at 518.41 hectares. [18] Compared to "Tylden", the sale 1 was considered superior in situation in artificial water rainfall and size but inferior in access and slightly inferior in country (the subject has more downs). Overall the sale was considered was slightly inferior to "Tylden", valued at $523.65 per hectare. [19] Sale 2 – Knockalong - Area 777.5 hectares; date of sale 26/03/04; sale price $1,018,240; analysed UCV $669,171 giving $860.67 per hectare; applied $783.76 per hectare. [20] Compared to "Tylden" this sale property was considered superior in situation and country type but inferior in artificial water and size and similar in access and rainfall. On a rate per hectare it was seen as superior to "Tylden", principally because of it having 95% undulating downs. [21] Sale 3- Bindeyego - Area 2089.49 hectares; date of sale 24/08/04; sale price $1,755,443, analysed UCV $767,359 resulting in a per hectare rate of $367.25; applied $343.39 per hectare. [22] Compared to "Tylden" the sale 3 was considered inferior in the situation access country and superior in water and size similar in rainfall. Overall on a per hectare was considered inferior to the subject. [23] Mr Dunk also produced a map to illustrate the relativity of the valuations placed on some 20 blocks surrounding the subject. He was particularly concerned with the need for correct relativity assessment in break up of country types in this comparison. Blocks with a larger downs component to the east of "Tylden" generally have higher levels of values. Consideration of valuation approaches [24] There is no real dispute between the parties as to the description and classification of country or carrying capacity or highest and best use of the property. Indeed Mrs -- 5 of 7 -- 6 Champneys states in oral evidence that she is not disagreeing with what Mr Dunk has said about the property (Transcript p.17). She states that the way he has set it out is a credit to him. [25] What she does disagree with is the system of valuation applied in these cases. [26] The key issue then in these cases is really one of valuation methodology. Should market values changes be used to establish increases in unimproved values (as Mrs Champneys argues) or is the preferred methodology that applied by Mr Dunk in analysing market sales back to unimproved values and then comparing that figure to the subject. [27] Mrs Champneys approach results in using averaging a 42% increase over 4 years. On Mr Dunk's approach a 225% figure results. The example of Mr Dunk quoted in paragraph 15 illustrates this difference. [28] The starting point for present purposes is that the legislation (Valuation of Land Act 1944) requires the unimproved capital value(UCV) to be determined for both rating and rental purposes. (Section 14(1) and s.15(1)). As Mrs Champneys correctly points out, this was not always the case for determining State rents - a wider range of factors could come into play in rental assessments prior to changes introduced by the 1994 Land Act. However, this Court is bound by the current statutory requirements to determine UCV. (Government is obviously aware of difficulties this system can impose in the current economic climate as it has imposed a rental freeze while reviewing the present system.). [29] The reference to "market value" throughout the hearing is really a way of referring to the sales prices of improved properties – that is, the underlying land value component plus the value of timber treatment (if any), fencing, cost of waters, homestead and any structures. As Mr Dunk's example shows, in time of booming grazing property sales as has occurred throughout much of rural Queensland in recent years, it is the value of the underlying land that escalates to the greatest extent. Values of improvements on a present cost less depreciation basis tend to change to far lesser an extent. [30] It is this marked increase in unimproved value revealed from an analysis of improved market sales to unimproved level that greatly concerns Mrs Champneys (or perhaps she is more concerned with the impact on the rental liability as a landholder obviously has his equity in overall assets greatly increased by buoyant market conditions). These market increases also apply to State leasehold land as displayed by Mr Dunk's leasehold sales. These too are a ready market attraction. [31] Wider policy issues as raised by Mr Quinlan as to whether property productivity is becoming greatly disproportionate to property unimproved capital values are noted but are really beyond the Court's present task. -- 6 of 7 -- 7 [32] Given the Court's current specific task of determining the UCV, my view is that the traditional valuation methodology adopted by Mr Dunk is the correct one. This is really the only valid way of properly determining UCV's from market evidence – coming to an analysed unimproved value from sales evidence and then making a comparison with the subject property. [33] Mr Dunk has used a range of three comparable properties and performed the comparison exercise in detail using several criteria for comparison. He has supplemented this with a wide relativity comparison of surrounding properties. This is the detailed individual comparison. [34] His more generalised factorised approach of adopting a level of increase from a wider sales evidence and then applying this across the region also meets with Land Appeal Court approval. See Wilson v Chief Executive, Department of Lands 15 QLCR 63 at 71. The factor of 225% over four years, although high, is supported by evidence. [35] A final matter that should be mentioned is the 'deeming correct' provision of the Valuation of Land Act 1944 s.33. This deems the valuation of the Chief Executive to be correct until proved otherwise on objection or appeal. Evidence from the appellant has not overcome this presumption of correctness. [36] After careful consideration of all the written and oral material, my view is that the Chief Executive's valuation should not be disturbed. BR O'CONNOR JUDICIAL REGISTRAR -- 7 of 7 --