Ferreira v Chief Executive, Department of Natural Resources and Mines [2001] QLC 75

LAND COURT BRISBANE 19 JULY 2001 Re: LA99-1539 Determination of Unimproved Value - Application for Conversion to Freehold Tenure LK Watson & PLD Ferreira v. Chief Executive, Department of Natural Resources and Mines D E C I S I O N Ms Watson and Mr Ferreira are the lessees of Special Lease No. 9/36983 being Lot 237 on Plan DA421, Parish of Garioch, County of Dagmar, containing an area of about 4.7 ha. On 2 July 1996, the lessees made application to convert the lease to freeholding tenure. It is at that date when the unimproved value of the land (excluding an area of about 160 m² required for access to adjoining land) is to be determined. The land is situated fronting Baker's Road about 2 km southwest of the Mt Molloy Post Office, about 35 km southwest of Mossman and 90 km northwest of Cairns. Access at the relevant date was of formed gravel construction for about 1 km to the bitumen sealed Peninsula Development Road (Mareeba to Cooktown and beyond). Telephone was connected but electricity mains are about 600 metres distant. There is no reticulated water or sewerage service. The land is within the Shire of Mareeba and is zoned "Rural A". It is a site of near triangular shape, the hypotenuse of which is the southern boundary fronting Baker's Road. The land in its natural condition comprised an easy to moderately sloping forest ridge broken by small gullies. A large area of the land has been degraded by removal of topsoil and gravel. Opposite its western section on the southern side of Baker's Road is a large sanitary reserve, within which at a distance of about 250 metres from the road and not readily visible from it, was at the relevant date, the local rubbish tip and now a refuse transfer station. Adjoining the sanitary reserve to the east, opposite the eastern section of the subject land is the Mt Molloy Cemetery. [2001] QLC 75 -- 1 of 11 -- 2 On 20 April 1999, the Department offered the lessees a Deed of Grant excluding the small area required for access, at a purchase price of $25,000. The application had been made on the understanding that "should approval be granted for the conversion of the whole or part of the lease area, any survey must be undertaken at the lessees' expense, and at no cost to the Crown". The Department's decision was appealed by way of an application for internal review. The grounds upon which the review was sought were extensive. The level of value sought by the Crown was contested, based on the available sales evidence; the cost of servicing the land with electricity and water; the proximity to the transfer station; degradation and contamination issues relating to previous usage of the site; effects of contamination on groundwater and flooding susceptibility. As a result of the review by the departmental officer the valuation for conversion was reduced from $25,000 to $22,500. The lessees remained dissatisfied with the review decision and appealed to this Court accordingly. Ms Watson conducted the lessees' case and gave evidence in support of a comprehensive tendered statement. Mr Ferreira gave brief evidence. The valuation which resulted from the review decision was defended by Mr IS Quirk-Anderson through whom was tendered a formal valuation report. The lessees appealed on grounds generally similar to those upon which the review decision had been sought. Their valuation as contained in the Notice of Appeal is $15,000. The lessees had, in 1996, contested in the Land Court the question of unimproved value of the land pursuant to the Valuation of Land Act 1944, as at valuation dates of 30 June 1993 and 1 January 1995. In a decision dated 9 September 1996, the learned President determined reduced unimproved values in the amounts of $17,000 and $23,000 respectively. The lessees said that those determinations were not appealed due to the costs involved. They had also been assured by departmental officers that if the valuation for conversion was unacceptable to them, an appeal process was available. Both the reviewing officer and Mr Quirk-Anderson saw the Land Court's 1 January 1995 determination of unimproved value in the amount of $23,000 as providing support to the reviewed valuation of $22,500 as at 2 July 1996, as similar issues as were now raised by the lessees in this matter were canvassed in the earlier hearing and brought to the attention of the State. -- 2 of 11 -- 3 The meaning of "unimproved value" as required to be determined in this matter is relevantly found in s.434 of the Land Act 1994: " (1) In this Act, the 'unimproved value' of land is the amount of 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 knowledgably, prudently and without compulsion. (2) … (3) To remove any doubt, it is declared that the Valuation of Land Act 1944 does not apply to the meaning of unimproved value in this section." Having regard to sub-s.(3) s.434 and the evidence now before me, I will not be influenced in this matter by the determination made by the President pursuant to the Valuation of Land Act 1944. I do accept however, that Mr Quirk-Anderson was fully aware of the grounds upon which the lessees contend that the valuation remains too high. The lessees summarised their dissatisfaction with the review decision as follows:  That the valuations of comparable blocks in the area were too high, in 1995 (based on Julatten valuations and not the stagnant Mt Molloy property market).  That the Crown's purchase offer for L237 is too high compared with sales of blocks in the area (in 1995 and since then).  That land degradation on the site has not been adequately assessed and compensated for in the final offer, despite the fact the Department requires us to sign an intimation that we acknowledge the land has been notified to the Environmental Protection Agency as contaminated land.  That the land has other disadvantages over the comparable sales properties, which have not been adequately addressed or deducted from the value.  That excised land from the lease of a 20 m frontage on the western boundary, for access purposes to the neighbouring leasehold block, diminishes the size and utility of the block, thus reducing its value.  That the market valuation does not take into account additional expenses which should be deducted from the sale price, ie the cost of survey and the cost of remediating the degraded land. The lessees contend that the immediate Mt Molloy locality should not be compared with the locality of Julatten for the purpose of considering the market value -- 3 of 11 -- 4 of rural residential sites. Their inquiry of a real estate agent was said to confirm their opinion that the rural residential market in Mt Molloy has been "static throughout the 90's", and rising valuations made for rating purposes have been wrongly influenced by the rising market in Julatten. Mr Quirk-Anderson had relied on two sales brief details of which are as follows: (1) Howsan to Lynch, Lot 22 RP 808487, 3.64 ha, zoned "Rural A", $45,000, improvements comprising "Clearing & Bore: $5,000", analysed to show an unimproved value of $40,000. The sale land was described as a "gently undulating forest allotment, slightly irregular in shape with small non-permanent creek slopes level with road. Access is via the bitumen sealed Peninsula Development Road, the main road to the locality. Limited rural outlook, phone is connected. Not connected to mains power at the time of the sale." In comparison with the subject land, Mr Quirk-Anderson described the sale land as smaller but superior overall with "superior access, situation and services marginally inferior topography, no contamination or degradation". (2) Landpac to Locke & Willie, Lot 7 RP 867035, 4.094 ha zoned "Rural Residential", 20 March 1995, $65,000, improvements comprising "Clearing & Bore 5" $5,000" analysed to show an unimproved value of $60,000. Mr Quirk-Anderson described the land as "Moderate sloping, elevated scrub/forest allotment slopes above road, located in the Julatten locality about 10 km north-east of Mt Molloy. Power and telephone are connected, battleaxe frontage to the bitumen sealed McLeans Bridge Road which provides all weather access, good elevated rural outlook." In comparison with the subject land he stated "Slightly smaller than the subject, superior topography. Superior services, access, locality and outlook. Inferior shape and frontage. No contamination or degradation. Subject is inferior." The lessees dispute Mr Quirk-Anderson's analysis of Sale 1 which clearly was the most relevant of the two sales relied upon. Ms Watson said at the hearing that it was her understanding that the sale price had included fencing, a tractor with a dozer blade and implements, and the "materials" for a 10 m by 20 m aluminium shed, suitable for a dwelling" which was subsequently constructed. Mr Quirk-Anderson's evidence was that he had not been able to interview the purchasers personally but the sale had originally been analysed, after inspection, by another valuer at about the time of the sale. Then the officer responsible for the decision review had contacted the purchasers who "confirmed that the only improvements that existed on the site at the time of purchase was a shallow bore". According to Mr Quirk-Anderson it had been his perception that the reviewing officer had formed the opinion that if other items -- 4 of 11 -- 5 had been sold by the vendors to the purchasers then there must have been a separate arrangement. After hearing the conflicting evidence I was of the opinion that compliance with natural justice (see s.429(1)(c) of the Land Act 1994) would not have been served if my decision was made in the absence of further evidence regarding the details of this sale. Orders were issued, subsequent to the hearing, requiring Mr Quirk- Anderson to further investigate the sale, personally interview the purchaser/s and obtain, if available, a copy of the relevant contract of sale. He was then required to file and serve on the lessees an affidavit setting out the results of his further inquiry, a copy of the contract of sale if available and if found to be necessary, a revised analysis of the sale. The lessees were then given 14 days to respond. Mr Quirk-Anderson's affidavit deposed that he had personally interviewed the male purchaser and was advised that the sale price of $45,000 was apportioned as $40,000 for the land and $5,000 for a 1967 Ford Major tractor and a dozer blade. He was further advised that at the time of sale, ground improvements consisted of: "▪ 150 mm PVC lined bore to a depth of 25 mtrs. ▪ Poor quality 3 barb wire, steel post fence along the road boundary. ▪ Materials for a steel and timber frame shed in very poor condition. The shed in question consisted of a steel 'I beam' frame and hardwood timber batons which were severely degraded by white-ants. There was no cladding or sheeting included. Mr Lynch advised him that the structure had no added value and that he had given what he could of it away." Mr Lynch informed Mr Quirk-Anderson "that he did not consider the land to have been cleared at the time of the sale, although there may have been some historical selective removal of timber". A copy of the Contract of Sale could not be obtained in the time permitted. Mr Quirk-Anderson's revised analysis of the sale was then as follows: "Sale Price $45,000 Less: Tractor: $2,000 Dozer Blade $500 Bore: $1,700 Fence $300 Shed: No Added Value Unimproved Value: $40,500 " -- 5 of 11 -- 6 Ms Watson's affidavit deposed that she had attempted to obtain, from the purchasers Lynch, confirmation of the information they had previously supplied to her, but received no further cooperation from them. However she had been able to interview the vendors Mr and Mrs Howsan. Mr Howsan had informed her that he had valued the tractor and blade at $5,000, the secondhand materials for the shed which had been acquired and transported to the site not long before the sale, at $3,000, the bore at $3,000 and said that the site had been fully fenced to comply with a condition to permit its excision from a larger block; that there was sufficient clearing for a house site. An old unregistered truck which Mr Howsan suggested was worth $500 for farm use, also passed with the sale. He had confirmed his estimates of the value of the tractor, shed materials and bore by email which was attached to Ms Watson's affidavit. According to her, Mr Howsan advised that he was prepared to speak directly to a departmental officer if further confirmation was required. While Ms Watson had not originally been correctly informed, it appears, about the shed materials which were included with the sale having been later used in the construction of the shed/dwelling, much of her earlier evidence had been confirmed by the vendor. As she pointed out, Mr Quirk-Anderson had resiled from his original analysis of the sale with regard to the value of clearing and the bore being $5,000, now finding only $1,700 for the bore and nothing for the clearing. Instead he had now included $2,500 as the added value of the tractor and blade and $300 for fencing based on his conversation with Mr Lynch, resulting in a slightly higher unimproved value analysis than before. The Court's interest in the further investigation and any reviewed analysis of this sale was limited to establishing if items of value other than clearing and the bore were included in the sale. It was expected that had the analysis, for explicable reasons, been deficient with regard to those other items, at least the Court could be satisfied that the values attributed to the clearing and bore had been based on professional investigation and opinion. Clearly the vendors and purchasers have different opinions or recollections as to the value and extent of the components which were included in the sale. The evidence remains, unfortunately, unsatisfactory as to a true analysis of the unimproved land component shown by that sale. I am inclined to the view however, that an unimproved analysis no more than $37,000 might have been expected. The cost of extending electricity to the sale land was either $8,000 or $9,000 depending on -- 6 of 11 -- 7 whether Ms Watson's evidence or the reviewing officer's evidence was accepted. In contrast the cost of extending electricity to the subject land was quoted by the relevant supply authority as being $23,000. I am unable to gain any assistance from the second sale at Julatten, on which Mr Quirk-Anderson relied. Mention had been made by the lessees of an after-date sale of Lot 257 on the opposite side of Baker's Road, adjoining to the east and south the cemetery reserve and adjoining to the east the sanitary reserve. They said that land "without any degradation, a 2-storey block home, water tanks, a bore and pump, generator and solar power system" was initially passed in at auction, (after the death of the owner in 1997) for $50,000 then sat on the market for a further two years before it was purchased for $35,000. The review officer (whose report was tendered as Exhibit 8) had established that the property had been sold in 1999 for $50,000 after wide marketing, public auction and long subsequent negotiations. He had described the structure as "a 2-storey masonry block shell". After investigation of the sale and interviewing the purchasers he estimated "the sale to analyse to $27,500". He made the comment that "together with Mr Quirk-Anderson's Sale 1, this last-mentioned sale would be the best source of evidence". Mr Quirk-Anderson had inspected Lot 257 and had interviewed the owner but had not analysed the sale. Although he had been aware of the review officer's comments, he had been personally of the opinion that the evidence was not reliable, because the sale took place well after the relevant date and was of an improved property, the added value of the improvements being questionable. The lessees also referred to a sale in 2000, of a 26.5 ha site, also adjoining the sanitary reserve, for $62,000. the information provided is insufficient for that evidence to be of any assistance, but it appears that the purpose of its introduction was for comparison to be made with a 32 ha block at Julatten advertised for sale at $160,000. The evidence of after-date sales is admissible if the market conditions have remained static in the intervening period. The 1999 sale of the 8.8 ha partially improved Lot 257 could be, if anything, argued to indicate that values in Baker's Road had fallen since 1995. Apparently, again on the lessees' evidence, Lot 257 had been valued for rating purposes at $36,000 in 1995. Of course, the lessees' argument has been consistently that land in Baker's Road has been over valued by the Department -- 7 of 11 -- 8 for rating purposes during the 1990's due to some reliance having been placed on Julatten sales. Although Mr Quirk-Anderson's comments about the weight which might be placed on improved sales generally, are in accordance with the authorities, the state of the alternative evidence in this matter is such that I agree with the review officer's opinion, that the sale of Lot 257 is of some assistance. However, it seems to me that on the sales evidence which the review officer accepted as having relevance, including the after-date Baker's Road sale, strong argument could be mounted to suggest that, free from degradation or contamination, the subject site in the environment in which it was situated at that time, and lacking the ability to economically connect to services, would not exceed $26,000. I am unable to accept that excision or loss of use of the small area required for access to the adjoining land would, regardless of the lessees' stated intentions for the future use of that part of the land would have any deleterious effect on market value. While the lessees also spoke of a flooding disability in the gullies I am not persuaded that the site would realistically be regarded in the marketplace as having any abnormal flooding disability. It now remains to be considered what effect the potential contamination of the land and its degradation might have on market value. The "intimation" which the lessees are requested to execute as a condition of the conversion requires them to acknowledge that they are aware that the subject land "has been notified to the Department of Environment and Heritage as contaminated land under Schedule 3 of the Environmental Protection Act 1994 being suspected of previous usage for storage, treatment or disposal of waste". Such intimation is sufficient to alert potential purchasers to the past use of the land as a rubbish dump, unofficial or otherwise. The lessees have established that the services of an environmental consultant in assessing the extent of contamination, if any, would be in the vicinity of $5,000, before the cost of remediation or management of any contamination could be estimated. The lessees accept that there is as of right use for a residential building and are not required to remediate the site, under existing legislation. They expressed concern however that if the existing legislation was amended they may then be required to remediate the site, if it was found to be in fact contaminated. They say that they were intending to create a wetland from the western gully, which they were advised "would -- 8 of 11 -- 9 be an acceptable method of remediation". The construction works involved had been quoted as costing $5,000, additional to the environmental consultant's fee. With regard to the specific contamination issue, both the review officer and Mr Quirk-Anderson accepted that if an owner of the site was obliged to notify a prospective purchaser that the site was listed on the Environmental Management Register, that would effectively constitute a "blot on title" and some diminution in value would result even though the highest and best use of the land would remain as a rural residential site. Based on an interpretation of the precedent established by the Land Appeal Court in Caltex Oil (Australia) Pty Ltd v. Chief Executive, Department of Lands (1996-97) 6 QLCR 435, Mr Quirk-Anderson, as had the review officer, made an allowance of 10% for contamination issues. No doubt there would be some otherwise potential purchasers who would not proceed at any price once discovering the contamination potentiality. Realistically, the concern of others would relate to the factual situation regarding past usage while recognising that the highest and best use of the land remained as a rural residential site. As a single specific issue, I accept that, in the circumstances which led to the potential for contamination of this site an allowance of 10% would be sufficient to interpret realistic deleterious effect on market value. On the valuation which I have decided to adopt for the land, notionally free from contamination and degradation, there remains the degradation issue to be considered. Mr Quirk-Anderson's evidence was that about 2 ha of the site "has been cleared with the topsoil removed as the site of an old rubbish tip. The removal of the topsoil has prevented any natural regrowth of the tip area. Fill for road construction by the local authority has also been removed off other parts of the site." The lessees referred to evidence given in the 1996 hearing before the President who said in his decision: "It was common ground that at least 75% of the area had been so degraded, Mr Quirk-Anderson even conceding it may have been more. The degradation has resulted in considerable further gully and sheet erosion which is apparent … ." They even suggested that the degradation could extend to 100% of the site if indicative boundary lines superimposed on aerial photography accompanying Mr Quirk-Anderson's report were accurate. I accept however that the superimposed boundary lines were intended to be no more than indicative of the location of the site. It was the review officer's and Mr Quirk-Anderson's opinion "that a prudent purchaser -- 9 of 11 -- 10 would not attempt to re institute topsoil to those areas where topsoil had previously been removed" due to cost and overcapitalisation considerations. The lessees say that it would need extensive remedial work to establish trees to hold the soil on the degraded surfaces. Their "Environmental Management Plan would involve building swales to contain topsoil and planting with trees suitable for clayey, degraded soil." They have successfully established a miniature rainforest "only after installing a bore and irrigation, applying copious amounts of natural fertiliser and nurturing the trees over a number of years" on an area of about 4,000 m² which had been "relatively untouched in the removal of topsoil". While the lessees are clearly environmentally conscious, and may themselves eventually outlay significant expenditure in efforts to rehabilitate the site, the matter to be determined is the unimproved value of the land in its existing worsened state. Not all potential purchasers would be expected to even consider significant rehabilitation due to the costs involved. Although the scarred area is aesthetically unattractive and visually dominant, it continues to provide private open space to the home site area which has been developed. In the evidence he had given before the President in the 1996 hearing, Mr Quirk-Anderson had been of the opinion that a diminution in site value of about 30% would have been expected for the combined effects of potential contamination and degradation. In the circumstances such a total diminution assessment seems to me to be realistic. I will therefore adopt an unimproved value of the site in its worsened condition with the acknowledgement required in the "intimation" as to contamination issues, of $18,000 rounded from 70% of an unaffected site value of $26,000. Cost of Survey Another issue raised by the lessees was the cost of surveying the site having to be paid by them. It is an understandable complaint because the meaning of unimproved value pursuant to sub-s.(1) of s.434 of the Land Act 1994 clearly requires consideration of "an estate in fee simple" which definition connotes an estate for which title may issue as a result of survey. Nevertheless, the survey condition for conversion is clearly one of government policy and one of which the lessees would have been aware at the time conversion application was made. -- 10 of 11 -- 11 Summary The extent of the reasons for this decision has been necessitated by the issues involved and the unusual investigatory process which was found to be necessary in an endeavour to provide natural justice. Orders (1) The review decision is set aside. (2) The unimproved value for conversion purposes is determined in the amount of Eighteen Thousand Dollars ($18,000) on the basis of the conditions of offer contained in correspondence from the Department of Natural Resources to the lessees dated 1 November 1999, varied in accordance with this determination. RE WENCK MEMBER OF THE LAND COURT -- 11 of 11 --