Eaton v Chief Executive, Department of Natural Resources [1999] QLC 103

LAND COURT, BRISBANE 29 September 1999 Re: Appeal against Annual Valuation – Valuation of Land Act 1944 – Valuation Roll No: 302 Local Government: BCC-Toombul (AV98-696). Desmond J and Joan T Eaton v. Chief Executive, Department of Natural Resources D E C I S I O N Background: This matter relates to property at 875 Sandgate Road, Clayfield, and described as Lot 2 on RP46195, Parish of Toombul. The land has an area of 668 square metres and is zoned "Residential BR4X" under the City of Brisbane Town Plan of 13 June 1987, and effective at the date of valuation of 1 October 1997. The key issues are changes in the valuation, relativity, the use of the land, and comparison of sales. The subject land is on the corner of Sandgate Road and Eliza Street, and both roads are full width bitumen sealed with concrete kerb and channelling. There is good physical access to Eliza Street, however access to Sandgate Road is more difficult due to heavy traffic movements. The subject land is a regularly-shaped lot of low elevation, and with a slight fall to Eliza Street. All normal services are available, and the land has been developed into 9 flats/tenements. On 9 March 1998 the Chief Executive issued a valuation of the subject land at $133,000. Following an objection the Chief Executive confirmed that unimproved value on 25 August 1998. The appellants have now appealed that figure, claiming the unimproved value should more properly be $101,000. Mr DJ Eaton appeared and gave evidence for the appellants. Mr R Cranstoun, the Departmental Registered Valuer responsible for determining the valuation, appeared and gave evidence for the respondent. [1999] QLC 103 -- 1 of 9 -- 2 The Evidence: (1) The Use of the Land – A major concern for the appellants is the apparent classification of the subject land as Land Use Code 08 (Building Units), which they argue is inconsistent with the current use of the land which is for Land Use Code (07) – (Tenement Building). However during the evidence it was clarified by Mr Cranstoun that the Integrated Valuation and Sales System (IVAS) report supplied to the appellants for the subject land was in fact being interpreted incorrectly. Mr Cranstoun confirmed that the secondary land use code was shown as (08) Building Units, however there were further Land Use Codes which had a more direct bearing on the valuation. He explained that the valuation code and the primary land use codes were both shown as (03) – Multi Unit Dwellings (Flats). Mr Cranstoun confirmed that the subject land had in fact been valued for its current use as flats/tenements, and not as for building units. (2) Changes in the Valuation – A second matter of concern of the appellants is the percentage change in the valuation over two past periods of time. The subject land was compared by the appellants with four nearby properties in Sandgate Road for the periods 1989-1991 (3 years), and 1989-1998 (10 years). The comparative analyses revealed that for the three years (1989-1991) the other four lots increased from 175% to 210%, while the subject land increased by 249%. In the 10 year period (1989-1998) the same four lots increased by between 273% and 349%, while the subject land increased by 409%. Mr Eaton notes that such inconsistencies do little to engender confidence in the valuations. It is also Mr Eaton's argument that in view of the small area of the subject land (668 square metres), compared to the larger areas of those four parcels (759m² to 908m²), such a disproportionate increase in the valuation does not appear to acknowledge the greater limitations on the use of the smaller area of the subject land. While he gains no support from a range of adjoining single residence lots to the north of the subject land along Sandgate Road, Mr Eaton notes that those five lots of areas 506m² to 759m² vary in unimproved values between $66,000 and $79,000. He particularly notes the relativity between an adjoining parcel to the north of the subject -- 2 of 9 -- 3 land (879 Sandgate Road – unimproved value $79,000) and the subject land. That parcel sold as an improved parcel in January 1998 for $90,000. (3) The Method of Valuation – Another matter of concern to the appellants is the nexus between the unimproved value of the subject land and the rates claimed by the Brisbane City Council (the Council). Mr Eaton again notes that the general rate increase for the subject land exceeds the overall rate increase for properties in the Brisbane area. Because of this disproportionate increase, the appellants now find that the burden of rates has increased disproportionately to the gross revenue achieved from the renting of the flats. As a consequence it is Mr Eaton's opinion, based upon over 40 years as a real estate agent in the area, that a likely investment capitalisation of the annual rental supports that the land value is too high. In seeking their unimproved value for the land at $101,000, Mr Eaton has arrived at his estimate of a practical sale price of the improved property at $400,000, by capitalising at 7½% his current annual net income of $29,006. He has currently insured the improvements of building and contents at $322,000. Even under those circumstances Mr Eaton believes that it would be difficult to sell the land separately (if it were vacant) for $101,000. Mr Eaton also notes that the current Council minimal area for use as units/flats in that locality is 800 square metres, which is greater than the current area of the subject land. (4) Comparison of Sales – Mr Eaton supplies no separate sales of comparable properties, but raises some concerns with the sales provided by Mr Cranstoun, particularly the comparisons with larger sites which are used for multi-unit development. He provides photographs of each of Mr Cranstoun's sales to demonstrate the different levels of development achieved compared to the subject land. To support his valuation Mr Cranstoun provides the following sales, all zoned "Residential BR4X" in the Clayfield locality:  Sale 1 – (919 Sandgate Road – Lot 242 to 244 on RP33870). This is a 1,716 square metre vacant corner parcel about 170 metres north of the subject land. The sale has superior size and shape, similar location, elevation, slope and access, and has a 211 square metre right of way easement across it in -- 3 of 9 -- 4 favour of the Council. Overall the sale is considered superior on a rate per square metre basis. The sale sold in August 1997 for $425,000, which after allowing for improvements was analysed at $423,700, and applied at $390,000 ($227 per m²).  Sale 2 – (792 Sandgate Road – Lots 3 and 4 on RP 219871 and Lot 3 on RP 73095). This is a 1608 square metre vacant inside parcel located about 330 metres south of the subject land. The sale is superior in size and elevation, and similar in location. It has an inferior shape, slope and access, and is considered overall to be superior on a rate per square metre basis. The sale sold in May 1997 for $400,000, which after allowing for improvements was analysed at $398,700, and applied at $370,000 ($230 per m²).  Sale 3 – (101 Junction Road – Lots 75 and 76 on RP33870). This is a 948 square metre inside parcel located in a quieter street off Sandgate Road, about 220 metres south of the subject. The sale has superior location and size, similar shape, and inferior elevation, slope and access. There is also a 60 square metre drainage easement across the lot. Overall the sale is superior on a rate per square metre basis. The sale sold in July 1997 for $222,000, which after allowing for improvements ($1,000), and demolishing of an old building ($3,000), was analysed at $224,000, and applied at $217,500 ($229 per m²). Mr Eaton argues that Sale 1 is a greatly superior parcel where 18 new units have been built, and sold at prices up to $150,000 per unit. He notes that most of the units were shielded from the heavy traffic noise along Sandgate Road, by facing the units towards Wongara Street. By comparison, because of its much smaller size, he argues that an investor would find it difficult to develop the subject land, where only some two to six units might be achieved. However he concedes that the subject land does have a good relative frontage to Eliza Street, which would also assist in reducing traffic noise. In support of his method of valuation Mr Cranstoun has relied upon sales of vacant lands. He argues that percentage changes in the valuation bear no significance to his valuation, nor does the level of rates charged by the Council. He also argues that under section 3(4)(a) and (b) he is required to assess the land as if it could -- 4 of 9 -- 5 continue to be used for its current use as flats, in spite of its smaller area. For that reason he has sought sales of similarly zoned land in that locality, making due allowance for the difference in size of those sales. Decision: (1) The Use of the Land – I note that there is no inconsistency in the method of determining the value, in as much as the respondent has adopted its current use as flats and not for building units. In respect of valuing the land for its current purpose as flats, in spite of the area of the land being less than the minimal area of 800 square metres for that purpose, I note that section 3(4) states: "3.(4) – Notwithstanding anything contained in this section, in determining the unimproved value of any land it shall be assumed that – (a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates; and (b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used; but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that any improvements referred to in subsection (1) had not been made. " On that basis Mr Cranstoun is correct in valuing the land for its current use as flats. (2) Changes in the Valuation – I note that Mr Eaton has compared the percentage increases in both the subject land and nearby parcels over both a three year, and a ten year period; both of which reveal that the subject land, being smaller than the other four parcels, has been subject to the greatest increase on both occasions. While I am aware that such percentage rises in values are often of concern to appellants in seeking to have confidence that their personal property has been fairly treated in any valuation, they in fact do not prove conclusively that any error has been made in the valuation process. Such rises may, at best, be an indicator to owners that they should further investigate the -- 5 of 9 -- 6 valuation, but there may be many reasons why a valuation has changed, at what would appear to be a rate out of line with some overall statistical percentage. This matter has been considered many times by the courts, and I note from precedents a large increase in itself is not evidence of some error in the valuation. I note, for example, in the decision of NR and PG Tow v. The Valuer-General (1978) 5 QLCR 378, where the Land Appeal Court said at page 381: "It follows that a large increase over and above the previous valuation is in itself not a relevant issue provided bona fide sales of comparable parcels support the new valuation." That matter was also considered in CH and BD Henricks v. The Valuer- General (1983) 9 QLCR 59, where in the Full Court of Queensland, Macrossan J (CJ) said at page 63: "The percentage increase shown in the selected cases was in each instance considerably less than the increase applied to the subject land as between the two valuation dates. The weakness in such a selective comparison is obvious as there could be any number of reasons why blocks in the same valuation area should increase at different rates over a period of five years. " As the Full Court said, there could be many reasons why parcels of land can increase at different percentage rates over a period of time. The real test is not the percentage increase in the unimproved values, but a comparison of the subject with sales of comparable sites in the vicinity of the subject at the time of the valuation. However while a variation in the percentage change in the valuations can be influenced by many factors, what is clear from Mr Eaton's comparisons is that the larger area lots (908m²) increased less than the smaller area lots (758m²), and much less than the smaller subject land (668m²). However if I consider the relativity between the subject land and the larger parcels I find: Area (1991) (1998) Value Relativity Value Relativity 759m² $101,000 1.247 $167,500 1.259 908m² $128,000 1.580 $200,000 1.504 668m² (the subject) $ 81,000 1.000 $133,000 1.000 On that basis there is nothing to disclose that relativity has greatly changed in the period 1991 to 1998. The impact of any increase in rates is also not a matter for -- 6 of 9 -- 7 consideration by this Court. I also get no assistance from relativity with adjoining lots which are used for single residence sites, and are accordingly afforded special concessional valuations under section 17 of the Act. (3) The Method of Valuation – If I then consider the methods adopted in determining the separate valuations, I note that Mr Eaton has sought to capitalise the net rentals, and then to deduct the estimated value of the improvements. In seeking to apply what is commonly referred to as the summation method of valuation for unimproved value, Mr Eaton has adopted a capitalisation rate of 7½%, but provides no evidence of why he chose such a rate. He also adopts the insured value of the building and contents, making no allowance for any depreciation, and making no obvious allowance for any decline in the added value that the improvements bring to the land. In arriving at that figure, he finds difficulty accepting that much of the decline in value of the total property may be attributable to the decline in "added value" of the dwellings. He therefore concludes that much of the fall in value must lie in the value of the land. In this respect however I note that difficulties have been previously found in similar circumstances where appellants have sought to conclude that most of the decline in value should relate to the land and not to the improvements. In this regard I note in O'Brien Nominee Pty Ltd v. The Valuer-General (1979) 6 QLCR 280, the Land Appeal Court said at page 284: "The basic properties have sold at prices considerably below the value of the improvements assessed on the traditional method of replacement cost less accrued depreciation. In such circumstances it is unrealistic to conclude that land, the commodity basic to the enterprise, has a minus or nominal value. It is logical to assume that in times of adversity and depression, when purchasers pay less for properties as a going concern, that the lesser price attaches not only to the land component but also to the improvements. The question facing valuers in analysing improved sales in these circumstances is what value is fairly to be attributed to the improvements? It appears to us that the only tenable approach is to abandon the traditional method of replacement cost as at sale date less depreciation and to adopt an 'added value' concept. " -- 7 of 9 -- 8 The difficulty in such an approach is to determine the added value of the improvements. The appropriate method to such an approach would be to compare the value of the land with other sales of vacant lands, and to deduct that figure from the total improved value. Because of uncertainties, where sales of vacant land exist, they are preferred in determining the unimproved value. I note that this method has long been regarded by the courts as the preferred approach, and has been noted in many precedents. I note for instance in WM and TJ Fischer v. The Valuer-General (1983) 9 QLCR 44, where the Land Appeal Court said at page 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. " The principle was also clearly defined by the Land Appeal Court in PH Clough v. The Valuer-General (1981-82) 8 QLCR 70, at page 76: "It has been judicially laid down many times and in many jurisdictions that in ascertaining unimproved value, sales of unimproved land of comparable quality, situation, etc., to the subject parcel, if they are available, are to be preferred as the best guide for arriving at unimproved value. The reason is obvious. In applying such sales there is no room for error in analyzing the value of improvements. Because there is less room for difference of opinion as to value of the various items of improvements and comparison is thus simpler, it has been held that highly improved sales should be avoided in preference to sales comprising a lesser degree of improvement." (4) Comparison of Sales – In seeking comparison, the only sales I can adopt are Mr Cranstoun's three sales, all of which are seen as superior as follows: Sale 1 - $227 per m² Sale 2 - $230 per m² Sale 3 - $229 per m² Subject - $199 per m² I note also that under section 33 of the Valuation of Land Act, the onus of proof rests upon the appellant to prove his case: "33. Any and every valuation, or alteration of the valuation, of any land made, or purporting to be made under this Act by the chief executive shall be deemed to be correct until proved otherwise upon objection or appeal or until altered or further altered." -- 8 of 9 -- 9 That is further clarified by section 45(4) of the Act which establishes: "45.(4) 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." In the current matter, I believe the appellants have failed to prove their case and have therefore not satisfied the onus of proof that the Chief Executive has made an error in his determination. Conclusion: Having considered the whole of the evidence I am not persuaded that the appellants have proved their case. The appeal is dismissed and the unimproved value of Lot 2 on RP 46195 as determined by the Chief Executive in the sum of $133,000 is affirmed. (NG Divett) Member of the Land Court -- 9 of 9 --