Alma Investments Limited v Chief Executive, Department of Natural Resources and Mines [2001] QLC 59

LAND COURT BRISBANE 22 June 2001 Re: Appeals against general valuation Valuation of Land Act 1944 Property ID No: 400407681 Local Government: Pine Rivers (V99-313 and V00-371) Alma Investments Limited v. Chief Executive, Department of Natural Resources and Mines D E C I S I O N Background: (1) These matters relate to land at Whitehorse Road, Dakabin, and described as Lot 502 on RP 903815, Parish of Redcliffe. The subject land has an area of 6,603 m² and is located about 20 metres east of the intersection of Whitehorse Road and Marsden Road, about 5 kilometres north of the Kallangur District shopping centre, and 1 kilometre east of the Dakabin Railway Station. The Dakabin High School is located immediately across Marsden Road to the west, and the Dakabin Primary School is about 1 kilometre south-east of the subject land. (2) All normal utility services are available, and access is good to Whitehorse Road. However there is a current limit on the capacity of the existing sewer treatment system. When the commercial centre is developed there will be no direct access available to Marsden Road. At the intersection of Marsden road and Whitehorse Road, there is an existing water pumping station (Lot 505). The subject land is currently zoned as “Local Business” under the planning scheme of the Pine Rivers Shire Council (the “Council”) of 7 May 1998, and effective at the relevant dates of valuation of 1 October 1998 with effects from 30 June 1999 (V99-313) and 9 June 2000 (V00-371). The key issues are the use of the land, relativity and comparison of sales. (3) On 24 March 1999, the Chief Executive issued a valuation of the subject land at $400,000. Following an objection the Chief Executive amended the valuation to $350,000 on 15 June 1999. The appellant then appealed that valuation on 25 June 1999 arguing the unimproved value should more properly be $150,000 (V99-313). [2001] QLC 59 -- 1 of 12 -- 2 (4) On 9 June 2000 the Chief Executive issued a further valuation at $350,000. Following a further objection the Chief Executive confirmed that figure on 3 August 2000. The appellant has now appealed claiming the unimproved value should more properly be $135,000 (V00-371). At the hearing on 28 March 2001, the appellant was granted leave to amend his estimate of the valuation for V99-313 to $135,000. (5) Eric Gordon Oxenford, a director of Alma Investments Limited, appeared and gave evidence for the appellant, also calling evidence from Paul Kenneth Fleming. Mr D Grealy, counsel of Crown Law, appeared for the respondent, calling evidence from Gavin John Dunn, the departmental registered valuer responsible for determining the valuations. Both matters were heard concurrently. The Evidence: (1) The Nature of the Land - (6) In its current undeveloped state the subject land has access to Whitehorse Road which, like Marsden Road, is bitumen sealed with earth verge and gutters. The subject land is well elevated, above street level, with a gentle fall towards the west and the south. The water pumping station (Lot 505) occupies an area of 294 m², and is an aboveground building with shrubs and landscaping. (7) While the subject land is currently zoned “Local Business”, and is agreed by both parties that its eventual highest and best use is as a commercial shopping centre, that change of zoning from Residential A was approved by the Executive Council on 7 June 1996, subject to a contractual Deed of Agreement between the former owners of the subject land and the Council. When the current appellants subsequently acquired the subject land it also assumed the legal responsibility to complete the development requirements detailed in the contractual Deed of Agreement. Those matters are discussed later. (8) The subject land is part of an overall development proceeding by the appellant called Alma Heights Estate, containing residential lots and a child care centre two lots removed to the east of the subject land (Lot 504). Part of that estate includes a community centre (Lot 503) vested in the Council, and adjoining the subject land. (9) Mr Oxenford argues that future developments in the locality are at a standstill, due partly to the current limits on the capacity of the sewerage treatment works for that area. Until that is upgraded further development is on hold. Because of those problems Mr Oxenford argues that the only immediate use of the subject land at the relevant date was probably for residential purposes. However he concedes that such -- 2 of 12 -- 3 development would barely cover the likely costs under the Deed of Agreement for the rezoning, and any additional back zoning required, and could not be seen as the highest and best use of the land. Mr Oxenford notes that at the date of the hearing about 110 new dwellings had already been constructed on the total 143 new lots created in the Estate. (10) In respect of the potential impact of the Dakabin High School across Marsden Road, Mr Oxenford agrees that has a total population of about 1,700 students and staff, and represents a future potential demand for the commercial shopping centre once it is established. Mr Dunn agrees that he has determined the unimproved value of the subject land for its highest and best use as a shopping centre, while noting that the works identified in the Deed of Agreement have still to be completed. (2) The Impact of Zoning - (11) It is agreed that the current zoning of the subject land for “Local Business” can only be capitalised upon once the commitments of the Deed of Agreement have been completed. However there is difference between the parties in respect of the quantum of costs involved in the appellant’s meeting of those responsibilities on that matter. (12) It is Mr Oxenford’s argument that the responsibilities to execute the agreed conditions are guaranteed by a $30,000 bank bond of 15 December 1995 in favour of the Council (Exhibit 2). Mr Oxenford further provides evidence of details of preliminary estimates of cost provided by consulting engineers (JF & P Consulting Engineers Pty Ltd), in order to satisfy the deed requirements. Those preliminary estimates have been updated on a 6 monthly basis, and relevantly indicate $199,765 (25 June 1998) and $200,825 (18 January 1999). (13) The specific requirements of the nature and extent of works in the rezoning approval were detailed in Clause 10 of the Deed of Agreement. That clause refers to an agreed amended site layout plan of 7 November 1994, but also refers to further detailed engineering drawings, schedules and specifications, still to be provided to Council for approval (Clause 10(b)). There is no specific mention of the quantum of the works in the Deed Agreement. (14) Mr Dunn seeks to estimate the anticipated additional costs of offsite works to complete the rezoning agreement, relying in part upon the JF & P Consulting Engineers Pty Ltd preliminary estimates. There was extensive discussion between the parties about the relevance of certain fees and charges. Eventually it was agreed that a reliable estimate of cost for engineering fees for the subject land as part of a combined development for both the shopping centre and the child care centre, could -- 3 of 12 -- 4 be $11,500. The child care centre engineering fees would be a further $6,000, giving total engineering fees of $17,500. In view of the overall complex nature of negotiations between the engineers and the Council, I will accept those figures. (15) The preliminary estimates supplied by the Consulting Engineers were provided without detailed engineering drawings, and must therefore be seen to represent an approximate estimate of what might be the Council’s final requirements. As a guide to those requirements, I note the letter of the Council of 3 August 1994 to the former consultants Keilar Fox McGhie Pty Ltd. That letter specifically identifies details of layout, road works, drainage and other infrastructure requirements including headworks charges. That letter notes amongst others that roadworks are to be to the “adopted Council alignment” and states that the grounds for decision on approval is to ensure that the proposed works are unlikely to adversely affect the amenity of the area. (16) Mr Oxenford argues that since the original approval conditions by the Council, extensive negotiations between the consulting engineers and Council officers in respect of an option to purchase (discussed later), have disclosed further requirements as part of any approval of final developments. Those additional items were included in a letter from the Council officer to the consulting engineer of 1 December 1999, and have been preliminarily estimated at a further cost of $86,350, subject to final design drawings. The major component of the additional costs relate to widening the carriageway of Whitehorse Road, and the provision of bikeways for the school children. (17) Mr Dunn argues that the extent of any anticipated costs of external works associated with the rezoning of the subject land must be seen in the perspective of the relevant date of 1 October 1998. Mr Dunn notes that the additional requirements of Council relate to a period in 1999, well after the relevant date. Mr Dunn also notes that from his inspection of the Council file on this matter, he had formed the view that the Council was of a mind to pay some of the costs for the further road widening of Whitehorse Road beyond 5.3 metres up to the now required 6.5 metres width. Mr Oxenford has no knowledge of such a proposal, and argues that would be completely inconsistent with the normal Council requirement for developers to have to contribute the full costs of such external works. (18) In his comparison of external works costs to be allowed for the subject land, Mr Dunn had originally allowed $173,800, after making some adjustments to the anticipated figures supplied by the consulting engineers in 1996. He now agrees that -- 4 of 12 -- 5 figure should be adjusted to the extent of the now agreed engineering and surveying fees. Mr Dunn had based his assessment on guidelines from Rawlinsons cost book on industry rates. However Mr Dunn concedes that the longer the external roadworks are delayed, the more likely will be the need for increased cost to complete them. Mr Dunn also notes that the external works relate to the whole 6,603 m² of the shopping centre site. (3) An Option to Buy - (19) Mr Fleming, an experienced property developer, provides evidence that he had entered into an option on 11 November 1999 to buy the subject land as a developed shopping centre, subject to his obtaining commitment from suitable tenancies. However Mr Fleming had been unable to obtain firm commitments from several prospective tenants that he considered would be essential for the economic viability of the project, and the option lapsed in September 2000. The option price was $430,000 for a developed site of 1,055 m² of commercial space approved under rezoning deed, with a reduction up to $15,000 for early settlement. Mr Fleming argues that the site has commercial potential, but its development would appear to be more feasible at a later date. The option agreement included the appellant completing all works, including external works, as part of the Deed of Agreement for rezoning. Mr Fleming rejects any proposal to develop the centre in stages, which he argues could not be supported at the asking price of $430,000. Mr Fleming agrees that the close proximity of the Dakabin High School was a key attractive feature of the subject land. Mr Fleming also sees the catchment area for the subject land as a smaller pocket north of the main Kallangur Shopping Centre. (20) Mr Oxenford argues that an estimate of the unimproved value of the subject land based upon the option agreement indicates a figure of $430,000, less $280,000 external development works or $150,000 for the land. (4) Relativity - (21) Mr Oxenford seeks relativity with a property at 76 to 84 Ney Road, Capalaba, which has been developed as a similar local shopping centre to that proposed for the subject land. The Ney Road centre also has a child care centre adjoining, and is surrounded by residential development. The Ney Road centre has a gross lettable commercial area of 990 m² under its zoning deed, and has 803 m² developed on the site. Capalaba is seen as a superior locality compared to Dakabin. (22) The Ney Road development has been applied by the respondent at an unimproved value of $520,000 for 990 m² of gross lettable area or $525 per m². Mr -- 5 of 12 -- 6 Oxenford draws comparison with those figures for the subject land at 1,055 m² of gross lettable area, concluding an unimproved value of $553,875. From that figure he deducts an anticipated external works costs of $286,000, giving an unimproved value of the subject land by that approach at $273,875. He notes such a comparison completely ignores that the Capalaba site has been fully operational as a shopping centre for 11 years, while the subject land cannot attract prospective tenants. He argues the unimproved value of $273,875 is obviously excessive, and Mr Oxenford concludes a figure of $135,000, allowing for the commercial risks of development at the relevant date. (23) Mr Dunn confirms that the unimproved value of the Ney Road site was $520,000 at the relevant date, but argues that represents a site of area 4,942 m² ($105 per m²). Mr Dunn agrees with Mr Oxenford that the Ney Road site is a superior site, and suggests the applied values of $105 per m² (Ney Road) and $53 per m² (subject land) reflects that comparison. Mr Oxenford argues that the key to comparisons for commercial shopping sites is not the overall area of the site, but the actual area of gross lettable space allowable under the zoning deed. (24) In drawing direct comparisons between the Ney Road site and the subject land, Mr Dunn argues that as a fully developed site the subject land would have reflected about $80 per m², before allowing for external works. Mr Dunn argues that relativities between similar shopping sites demonstrate, Capalaba ($105 per m²) and Kallangur ($100 per m²), reflecting the potential of those sites. The reduced rate of $80 per m² for the subject land reflects the prematurity of developing that potential. (5) Comparisons of Sales – (25) To support his estimate of the unimproved value, Mr Oxenford provides the following sale:  Sale 1 – (Cnr Gympie Road and Brickworks Road, Kallangur). This is a 2.78 hectare site sold with approvals in place for a neighbourhood shopping centre fronting Brickworks Road. The sale has frontage to four roads, and Gympie Road has passing vehicles of 9,200 per day at that point. There is an easement of about 500 m² covering a watercourse passing across the sale. The sale sold in June 1998 for $665,000 ($23.92 per m²), and was analysed at $29.10 per m² of useable land. The sale is again on the market at $650,000, and no development has proceeded. (26) Mr Oxenford argues that direct comparisons with his Sale 1 at $29.10 per m² would equate the subject land at $192,147, but Sale 1 has superior exposure to 9,200 vehicles per day, compared to the impact of the Dakabin High School. On that basis Mr Oxenford argues the subject land must be less than Sale 1, which supports his -- 6 of 12 -- 7 estimate of $135,000 for the subject land. However he concedes that he was unfamiliar with the actual area of useable land on his Sale 1. (27) To support his valuation, Mr Dunn provides the following sales of vacant lands with all utility services available:  Sale 1 – (Cnr Anne and Marsden Road, Kallangur – Lot 2 on RP 106179) This is a 3,043 m² “Local Business” parcel located about 3.5 kilometres south of the subject land, nearer to the Kallangur Shopping Centre. The sale is smaller, in an inferior location, and without direct access to the Dakabin High School, and its 1700 students and teachers. The sale is seen as commercially inferior on a rate per square metre basis, and overall inferior. The sale sold in August 1998 for $220,000, was analysed at $223,000 ($73.28 per m²), and applied at $210,000 ($69 per m²).  Sale 2 – (Cnr Bunya Road and Arlington Drive, Arana Hills – Lot 101 on RP 865682) This is a 4,500 m² “Neighbourhood Facility” parcel (including a child care centre), located about 44 kilometres south of the subject land. The sale is now developed as a neighbourhood centre, with frontage to a busy feeder road. Overall the sale is seen as superior to the subject land. The sale sold in July 1997 for $564,000, was analysed at $561,500 ($124.78 per m²) including development plans, and was applied at $440,000 ($97.80 per m²).  Sale 3 – (Gympie Road, Lawnton – Lot 17 on RP 812759) This is a 6,995 m² “Special Facilities-showroom restaurant, offices and intensive recreation and take-away food” site. The sale was a partly developed site and is located about 14 kilometres south of the subject land. The sale suffers from limited access and exposure to Gympie Road, and is in a back street opposite the Lawnton Railway Station. The location is slightly superior, and the rate per square metre and the overall comparison is superior to the subject land. The sale sold in June 1997 for $453,500, was analysed at $450,500 ($60.40 per square metre) and applied at $435,000 ($62.18 per m²). (28) In respect of the appellant’s Sale 1, Mr Dunn argues that his investigations of that sale revealed that the sale also involved an exchange of units, and he therefore places no emphasis upon that sale. However in now seeking some comparisons, he notes that the area of flood prone land on that sale was greatly in excess of the approximate 500 metres claimed by Mr Oxenford for the easement in the actual waterway. Mr Dunn argues that from memory the area of unsuitable land for development reflected about 8,000 square metres. (29) Mr Dunn agrees with Mr Oxenford that the best exposure to that sale would be on the Gympie Road frontage, and any contemplated use for local business on the -- 7 of 12 -- 8 remaining areas of the 2.8 hectare site removed from Gympie Road would not be feasible. Mr Dunn argues that if the 4,500 m² of useable land was fully developed, it would reflect a rate of $95 to $100 per m² or $450,000. The remaining $215,000 reflects the value of the remaining land. Mr Dunn saw the unimproved value of the 2.8 hectare site at $33 per m². (30) Mr Dunn also notes that his Sale 1 was purchased with 5 metre wide buffer strips required between the shopping and the adjoining residential uses. The purchaser was an experienced developer (Cominski) who subsequently renegotiated with the Council to reduce the buffer areas to 3 metres in width. Mr Oxenford agrees that if the subject land could be fully tenanted then the larger area of 6,600 m² would be an advantage compared to the smaller area of Sale 1 (3,043 m²). However he notes that the smaller site was likely to be easier to tenant. (31) Mr Dunn argues that by direct comparisons to his Sale 2 he feels, as a fully developed site, the subject land would have an unimproved value of about $100 per m². However to reflect its undeveloped state, Mr Dunn also draws support from his Sale 3 at Lawnton. That was part of the 1991 development of the Tavern site, but has inferior access to Gympie Road, and new roadworks and drainage have been completed since the sale in 1997. The key comparison with Sale 3 lies in its direct access to the railway station. Mr Dunn notes that Sale 3 shows $64 per m² before all of the external works were completed, although he concedes that his Sale 3 is a little riper for development than the subject land. Mr Dunn sees his Sale 3 as a fully developed site at $85 per m². (32) Mr Dunn notes that adopting his comparison rate of $80 per m² for the subject land ($528,000) and then deducting his estimate of the external development cost of about $180,000, supports the applied value of $350,000. (33) Mr Dunn concedes that there had been a recent decline in the demand for commercial space in the Kallangur area, but argues that the market was more healthy at the relevant date in October 1998. It was in recognition of the lack of ripeness for development that Mr Dunn had reduced the value of the subject land as a fully developed site from $100 per m² to $80 per m². Mr Dunn also notes that sales in the Kallangur CBD area have been quite strong, but they reflect rates from $150 per m² to $200 per m², although vacancies do occur in all centres. -- 8 of 12 -- 9 Decision: (i) The Use of the Land – (34) It is agreed that the highest and best use of the subject land is for a local shopping centre. It is also agreed that any development of the subject land would be subject to completion of certain agreed external works in accordance with the rezoning Deed of Agreement. The only difference between the parties on that matter is the likely total cost of meeting those commitments under the Deed of Agreement. (35) It is also agreed that development for shopping purposes was influenced by the demand for shops in that area, and the then constraints upon overall development as a consequence of the incapacity of the sewerage treatment works to accommodate growth. The key to realizing the highest and best use of the site lies in its ripeness for development purposes. (36) While I acknowledge Mr Dunn’s adoption of the preliminary estimates of costs from the consulting engineer’s report for external works, as amended by Mr Dunn, I believe those costs must be seen in the context of their provision to the appellant. Mr Dunn concedes that as the development is delayed, so it is likely that the costs actually required by the Council are likely to increase. It is Mr Dunn’s conclusion that it is the anticipated known costs at 1 October 1998 which should be taken as relevant to the unimproved value. (37) However it is also agreed that the demand for shopping in that locality was premature, as demonstrated by the unsuccessful option to buy the developed site in 2000. There must therefore be some relationship between the estimate of the external works and the level of ripeness for development. On that basis alone it would seem not inappropriate to make allowance for any additional costs occasioned by the delay in developing the site. If I then considered the known facts as it was agreed in the rezoning Deed of Agreement, I note that the outcomes for the works external to the site were best encapsulated in the letter to Keilar Fox McGhie Pty Ltd of 3 August 1994. Two unspecified features of that approval involved the final definition of what was to be determined as the “adopted Council alignment”, and also the need to ensure that the proposed works were unlikely to affect the amenity of the area. (38) The need for the extra width to the Whitehorse Road carriageway, and the need for bikeways apparently occurred subsequent to 3 August 1994, and prior to 1 December 1999. However that is not to say that it would not have been known to the Council at 1 October 1998, should a prudent purchaser at that date have made enquiries to the Council. Bearing in mind the known existence of the rezoning Deed -- 9 of 12 -- 10 of Agreement, such enquiries would have represented a reasonable approach by any purchaser in order to ascertain the additional external works costs that would pass with the land. (39) In terms of whether the cost of the external works could have been interpreted to have been contemplated by any developer of the subject land, I refer to guidance in Spencer v. The Commonwealth of Australia (1907) 5 CLR 418, where the basis of a prudent vendor and buyer was defined at page 441. On that basis I can accept that the actual costs of completing the external works could have exceeded the consulting engineer’s preliminary estimates in January 1999 of $200,825, less adjustment to engineering fees of $3,500, or $197,325. If I then add the now known additional works that figure could extend to $283,675. (40) In assessing what figure to allow in any comparison as a fully developed site in the current matter, I believe those costs should be seen in the same context as the “Risks” that a developer may take in developing the site. The principle of adopting a hypothetical approach to englobo lands for subdivision is well documented. However one weakness in such an approach, which is recognised by the courts, is the matter of what might constitute an appropriate risk element in the calculations. (41) It has been held that the hypothetical subdivision technique should not be used where the land is not immediately ripe for subdivision. That was held in Redeam Pty Ltd v SA Land Commission (1977) 40 LGRA 151, where Jacobs J said at page 154: “For reasons which will appear in due course, I have dealt at length and in detail with a description of the subject land and its potential for future subdivision, but the parties and their expert valuers now agree that, for the purposes of valuation, the land should not be regarded as ripe and ready for subdivision at the date of acquisition, or within a short predictable time thereafter, and that it would not be correct to attempt to ascertain the value of the land upon the basis of its value in hypothetical subdivision. The rejection of that method of valuation, in the circumstances of this case, is plainly correct.” (42) That principle was also followed in Crompton v Commissioner of Highways (1973-76) 32 LGRA 8, where at page 20, Wells J noted the findings of Turner v Minister of Public Instruction (1956) 59 CLR 245; and also in Brewarrana Pty Ltd v Commissioner of Highways (No 1) (1973-76) 32 LGRA 170, where Wells J said at page 181: “The evidence leaves me in no doubt that, once again, the question resolves itself in one of degree. Plainly, a calculation based on a hypothetical subdivision will not be vitiated simply because some very slight delay might be experienced before realization could begin, but an -- 10 of 12 -- 11 inordinate delay of, say, several years could, equally plainly, render the whole undertaking so speculative that a conclusion as to value would be wholly unreliable. In between those two extremes, the skilled valuer will have to decide at what stage the speculative element looms so large that the method becomes unsafe. His decision will depend upon all the circumstances of each particular case.” (43) As the evidence in the current matter demonstrates that the subject land was not ripe for development as a shopping centre, any use of final cost to complete the offsite works should be treated with some caution. Any use of the “option to buy” figures of $430,000 would also suffer from the same problem of being unsure in determining the final costs to complete the offsite works. (ii) Relativity – (44) On the basis of relativity there is nothing inconsistent with Mr Dunn’s assessment of the subject land at $80 per m² as inferior overall to the Ney Road Capalaba shopping centre site at $105 per m². The reduced rate of $80 per m² reflects the lack of ripeness for development, which would otherwise reflect about $100 per m² for a fully developed subject land site. On that basis I will accept $80 per m² as a value for a fully developed site as at 1 October 1998. (iii) Comparison of Sales – (45) Comparing Mr Oxenford’s Sale 1, I believe its unimproved rate of $33 per m² for the entire 2.8 hectare site bears little comparability to the 6,600 m² of useable land on the subject land. I will accept Mr Dunn’s estimate of 4,500 m² of useable land at Sale 1, and his analysed figure for such a comparison at about $100 per m² for a fully developed site. However I note that Sale 1 would appear to have physical locational problems for a shopping centre, and it is also back on the market for resale. I will therefore treat that sale with some caution. If I then turn to the respondent’s sales I find: Sale Area Rate per m² Comparison 1 2 3 3 Subject land 3043 m² 4500 m² 6995 m² 6995 m² 6603 m² $69 $97.80 $62.18 $85 $80 Inferior Superior Superior on a partly developed site basis Superior as a developed site As a developed site -- 11 of 12 -- 12 On that basis there is nothing to discredit Mr Dunn’s direct comparisons with his sale and a rate of $80 per m² for a fully developed site, but not yet ripe for development, would be appropriate. (iv) Summary – (46) The actual determination of the unimproved value as a developed site in the market place at 1 October 1998 would have been 6,603 m² at $80 per m² or $528,240. In order to allow any uncertainty in assessing the likely cost of completing the external works, I am guided by the principle of Commissioner of Succession Duties (SA) v Executor Trustee and Agency Co of South Australia Ltd (1947) 74 CLR 358, per Dixon J at page 373. On that basis I will allow possible costs to satisfy the Deed of Agreement for the rezoning at $280,000, giving an unimproved value of $248,000, say $250,000. Conclusion: Having considered the whole of the evidence I am persuaded that the appellant has partly proved his case. The two valuations as determined by the Chief Executive are set aside, and the unimproved values of Lot 502 on RP 903815 are determined at $250,000 (V99-313) and $250,000 (V00-371). NG DIVETT MEMBER OF THE LAND COURT -- 12 of 12 --