50 Long Pty Ltd and Arras Pty Ltd & Anor v Chief Executive, Department of Natural Resources [1999] QLC 65 (1999) 20 QLCR 162

LAND COURT, BRISBANE 8 June 1999 Re: Determination of Unimproved Values – City of Brisbane – Division of Brisbane – (Refs. AV98-894 and AV98-895). 50 Long Pty Ltd and Arras Pty Ltd (AV98-894) and 50 Long Pty Ltd, Arras Pty Ltd and Conias Corporation Pty Ltd (AV98-895) v. Chief Executive, Department of Natural Resources D E C I S I O N Two appeals have been lodged by the above parties against determinations by the respondent Chief Executive of the unimproved values of two adjoining “Central Business” zoned parcels of land situated respectively at 168 Edward Street (AV98-894) and 162 Edward Street (AV98-895) within the Central Business District of the City of Brisbane. Details are more particularly – AV98-894 – An unimproved value of $565,000 ($2,050 per m²) for a 276 square metre site described as Lot 1 on RP 591, County of Stanley, Parish of North Brisbane – appellants’ estimate of unimproved value as contained within the notice of appeal $390,000. AV98-895 – An unimproved value of $825,000 ($1,820 per m²) for a 455 square metre site described as Lot 2 on RP 592, County of Stanley, Parish of North Brisbane – appellants’ estimate of unimproved value as contained within the notice of appeal $650,000. The relevant date for each of the Chief Executive’s determinations is 1 October 1997 and the sole ground of appeal as contained within each notice of appeal is: “The Department of Natural Resources failed to adequately take into account all factors affecting the unimproved value of this property.” The 168 Edward Street land is developed with a six level building (including basement) and the 162 Edward Street land is developed with a three level building (including basement). Both properties are used for commercial purposes. The appeals were heard together, and at the outset of the appellants’ case, it was indicated that the ground of appeal to be pursued was more specifically that the respondent Chief Executive failed to take into account in his valuations of each of the appeal parcels [1999] QLC 65 -- 1 of 11 -- 2 that the proprieties were subject to building encroachments which had not been addressed under the provisions of Part 11 – Division 1 of the Property Law Act 1974. It is submitted by the appellants that the encroachments have a deleterious effect on the value of the subject properties. Should there not have been any encroachments, then the appellants would not challenge the valuations under appeal. It is convenient to here say that the respondent Chief Executive resisted the appeals on the basis that what he describes as minor building encroachments within the Brisbane CBD has no effect on the unimproved value of CBD lands such as the subject parcels. Three witnesses were called by the appellants. They are Mitchell Gerard Ogilvie who is a director of the appellant companies; Spero Conias who is a real estate agent and investor; and Sweden Jade Harley who is a practising registered valuer. The respondent called George William Lindberg who is a registered valuer in the respondent Chief Executive’s employ, and Alan Ross Kirby who is also a registered valuer employed by the State Valuation Services. The Appellants’ Case: Mr Ogilvie presented the Court with an identification survey plan (No IS 119329) which identifies two specific encroachments near the rear of Lot 1 on RP 591 (168 Edward Street) where an access easement from Elizabeth Street abuts it in the north-west corner. He says there are a number of encroachments from the adjoining lands (Lot 2 on RP 591 and Lot 2 on RP 592). In all Mr Ogilvie says that there are about nine encroachments on Lot 1 on RP 591 including what he describes as the two major encroachments which are a set of fire stairs from the building on Lot 2 RP 591 and which are located in the north-west corner of Lot 1 on RP 591, and an exhaust ducting discharging onto 168 Edward Street from a Chinese restaurant in the basement of the building on Lot 2 on RP 591. Mr Ogilvie has attempted to resolve the encroachments on 168 Edward Street for a number of reasons. He says he has had difficulty getting tenants in the top floor of the building because of the smells emanating from the exhaust ducting which removes fumes from the restaurant cooking facilities. He has tried to remove this encroachment but without success. Its existence has meant increases in insurance premiums for the 168 Edward Street building. Mr Ogilvie has been advised that his companies would be liable for the loss of income for the restaurant if he just demolished this particular encroachment, and that demolition could cost him many hundreds of thousands of dollars over the years. -- 2 of 11 -- 3 One of Mr Ogilvie’s main concerns is that building encroachments which have not been legalised by way of conveyance, transfer or lease of the encroached land prevent the strata titling of 168 Edward Street. He says that it is going to take a considerable amount of time to resolve the encumbrance problem, and at a probable cost of $100,000 for just the fire stairs and the exhaust ducting encroachment. Mr Ogilvie expressed the opinion that the market value of a property such as 168 Edward Street is affected “very much in the negative way” by the existence of the encroachments. He told us that when his companies purchased the property in about 1994 he was not aware of the encroachments. With respect to the appeal property at 162 Edward Street (AV98-895), Mr Ogilvie told us that the appellant companies entered into a contract to purchase this property from Westpac Bank in 1996. After signing the contract, investigations were made to see whether there were any encroachments. The encroachments were identified, and he thought one of the purchaser’s options was to rescind the contract, but the contract conditions did not provide for the recision of the contract in the event that there were any encroachments. The purchasers read the contract after it was signed. Then there was an approach made to Westpac in an attempt to negotiate a reduced price but to no avail. As a result, the contract price was paid for the property. Mr Ogilvie says that the majority of sale contracts these days provide that the purchaser can rescind if there are encroachments. Mr Ogilvie told us that the contract provided for an entitlement for damages in the event that encroachments affected the property, and as a result negotiations for damages with Westpac have commenced but they too have been so far unsuccessful. Mr Conias, whose interest in 162 Edward Street is represented by Conias Corporation Pty Ltd, told us that this property was put up for sale by public auction by the Westpac Bank. Following a suggestion by Mr Ogilvie (whose companies already owned the adjacent 168 Edward Street), Mr Ogilvie’s companies and Conias Corporation Pty Ltd decided to buy 162 Edward Street together to avoid bidding competition. Following the auction, which went to $925,000, the property was purchased for $1,050,000. Mr Conias says there was no identification survey on display at the auction and he, like Mr Ogilvie, was unaware of any encroachments on the property. He confirmed that the contract did not identify any encroachments and he says that if there were encroachments, the vendor should have disclosed them prior to the auction. Mr Conias believed when negotiating for the property that there would have been a clause in the contract similar to Clause 9.3 in the Standard Commercial Conditions in Contracts recommended by the REIQ. Clause 9.3 reads: -- 3 of 11 -- 4 “If there is any material error in the boundaries or area of the Land or any material encroachment, the Purchaser shall be entitled to elect by notice in writing to the Vendor given on or before the Date of Completion either; (a) to terminate this Contract; or (b) to complete this Contract with compensation, in which event the Purchaser shall be entitled to such compensation as the case may require and shall not be entitled to delay completion or to withhold any part of the Purchase Price by reason of such claim for compensation.” Had this clause been in the Westpac contract, then Mr Conias believed the purchaser would have had the right to compensation as he believes the encroachments are material encroachments. Tendered in evidence was Identification Survey Plan IS 25522 for 168 Edward Street which shows the encroachments along the boundaries. Since purchasing 162 Edward Street, Mr Conias sought advice from Clarkesurvey Pty Ltd (Mr Peter Clarke) on the building encroachments on that property. Mr Clarke’s advice was that there are a number of encroachments. The 162 Edward Street building encroaches upon the adjoining property to the south in its south-east corner by 50mm. The 162 Edward Street building also encroaches upon 168 Edward Street in its north-east corner by 30mm. A galvanised iron carport erected on the property adjoining 162 Edward Street to the south encroaches onto 162 Edward Street land by 15mm and the render at the top of the side wall at the south-east corner of the adjacent property encroaches upon 162 Edward Street by 20mm. The render at the top of the building at the north-east corner of 162 Edward Street encroaches upon 162 Edward Street land by 5mm, and the render to an abutting building encroaches by 7mm at the fourth floor level. Mr Conias was asked in evidence as to whether he could remove the carport encroachment by trimming it, but he says he has no right to trim it as it does not belong to him. Mr Conias summarises his evidence as to effect of the building encroachments by saying that the 162 Edward Street building encroaches onto the adjoining properties and there are at least four encroachments onto 162 Edward Street by neighbouring buildings. He says that the removal of any encroachments, even small encroachments, involves quite considerable expense, and told us that the cost would be tens of thousands of dollars to remove one minor encroachment. Mr Conias also considered and would have liked to strata title 162 Edward Street but he says there is no chance of doing that while the encroachments exist. Mr Conias has had the legal firm Clayton Utz investigate the cost of the removal of the encroachments pertinent to 162 Edward Street. Its advice is that the likely costs involved -- 4 of 11 -- 5 would be approximately $130,000. A copy of the detailed estimate is in evidence (Exhibit 8). Had he known of the cost involved in removing the encroachments, Mr Conias says that the purchasing companies should have paid $130,000 less for the 162 Edward Street property. Ms Harley has used a rather unusual method of assessment in support of her valuation of each of the subject parcels. It is her advice to the appellants that the valuations under appeal cannot be challenged without the building encroachment factor. Ms Harley has caused enquiry to be made of real estate agents as to the diminution in the contract sale prices of properties which are affected by encroachments. She tendered in evidence two schedules – the first schedule shows the affect of the discovery of encroachments after the parties entered into sale contracts. The schedule covers eight residential properties within the suburbs of Brisbane. Each of the sale contracts fell over after encroachments were disclosed. The second schedule purports to show the effect of the discovery of encroachments upon the contract sale prices of three suburban residential properties and of two industrial properties – one at Kingston and one at Mansfield. The schedule, which shows the renegotiated prices for the properties in percentage terms reads: Address Year Type % Result 1 12 Ella Street, Red Hill 1998 Res 3 Property went under contract for $175,000 and was rescinded by the purchaser when it was found the eaves encroached on the adjoining property. The property was resold later for $170,000 with full disclosure about the encroachment prior to the offer being made. 2 11 Duke Street, Toowong 1996 Res 6 Property went under contract for $295,000. The purchaser found that the fence encroached on the adjoining owner’s property and rescinded the contract. The vendor got the contract back together again privately for $277,000. 3 59 Hill Street, Spring Hill 1998 Res 5 Property went under contract for $520,000. The vendor’s solicitor pointed out the encroachment (a brick retaining wall encroaching onto the subject) to the purchasers and they rescinded the contract. They then renegotiated at $495,000 with the condition that the vendors pay to remedy the encroachment. 4 22-24 Marble Drive, Kingston 1997 8 Property sold at Auction for -- 5 of 11 -- 6 $480,000. Subject encroached onto neighbour’s property. Contract was renegotiated down to $443,000 prior to settlement. 5 24 Dividend Street, Mansfield 1997 6 Offer of $360,000 made on property. Offer was reduced to $329,000 after purchasers became aware of encroachment. Ms Harley has produced two graphs based upon the second of the schedules which suggest to her that the unimproved value of 168 Edward Street as assessed by the Department of Natural Resources ($565,000) should be reduced by a factor of about 8.5% due to the encroachments, and that the unimproved value of 162 Edward Street as assessed by the Department of Natural Resources ($825,000) should be reduced by a factor of about 12.5%. But, as I understand Ms Harley’s evidence on the point, because each of the subject properties is affected by a number of encroachments, she says that the unimproved value diminution factor for them should be greater – and in the order of 20 to 25%. I note that the unimproved values as contained within the Notices of Appeal (which were inserted by Ms Harley) represent diminution factors of 33% (AV98-894) and 21% (AV98-895). The Respondent’s Case: Mr Lindberg has made each of his valuation assessments on the basis of the following sales evidence. Sale No 1 – Lot 4 on RP 857048 – 1192 square metres – Traxview Pty Ltd to Pawleena Pty Ltd on 21.10.96 for $3,500,000 – analysed unimproved value $3,499,000 – applied unimproved value $2,800,000 ($2,350 per square metre) – situation 299 Adelaide Street, City – Zoning “Central Business”. Mr Lindberg comments that the sale property is larger than each of the subject properties, and is superior in elevation and position to them. The sale property is affected by easements. Mr Lindberg considers the sale property overall to be superior to each of the subject lands. Sale No 2 – Lots 4-6 on RP 1128, Lot 1 on RP 1130, Lots 1 and 2 on RP 1131 and Lot 3 on RP 1132 – 927 square metres – McGown Development Pty Ltd to 540 Queen Street Pty Ltd on 22.08.96 for $1,450,000 – analysed unimproved value after allowing for cost of demolition of existing structures $1,550,000 – applied unimproved value $1,300,000 ($1400 per square metre) – situation 530 Queen Street, City – Zoning “Central Business”. -- 6 of 11 -- 7 Mr Lindberg comments that the sale property is larger than both of the subject properties, and has better elevation. He considers the sale property to be inferior in location and shape to each of the subject parcels and considers it to be overall superior to the subject lands. Sale No 3 – Lot 2 on RP 592 – 455 square metres – Westpac Properties Ltd to 50 Long, Arras, & Conias on 09.05.96 for $1,050,000 – analysed unimproved value $825,000 – applied unimproved value $825,000 ($1820 per square metre) – situation 162 Edward Street, City – Zoning “Central Business”. It is to be observed that this sale property is one of the subject properties. Mr Lindberg told us that he was aware of the encroachments affecting each of the properties. He says he took them into account to the extent that he did not consider them to be of any great detriment. It is Mr Lindberg’s experience that there are many such encumbrances on properties within the Central Business District and he has knowledge of dozens. He told us that of all the sale properties he looked at within the CBD for the valuation of the CBD lands, he cannot remember one without encroachments. His Sale No 1 land is affected by a number of easements, a party wall easement which is the result of an encroachments and a right-of-way easement. His Sale No 2 property was also affected by encroachments but the structural improvements on this sale property have subsequently been demolished and the encroachments removed. Since the issue of the encroachments was raised, Mr Lindberg has made further enquiries from a Mr Andrew Parker of F.A. Pidgeon who is involved as a party to the transaction in Sale No 1. He says F.A. Pidgon is well known in property development circles. Mr Parker says that minor encroachments on a property are not important. Mr Parker’s primary concern is what the site would yield on development. Mr Lindberg also contacted the purchaser of his Sale No 2 property – 540 Queen Street Pty Ltd. The principal of this company is a Mr John Jamieson who has been around the property development scene in Brisbane for many years, having sold and purchased property in the CBD on many occasions. Mr Jamieson was aware of the encroachments on this sale land and he did not consider them to be a problem. He told Mr Lindberg that one could find encroachments anywhere in the CBD and they have never worried him except when he wished to obtain strata-title. But Mr Jamieson said he believed this strata titling problem has now been overcome. Mr Jamieson purchased a property in Edward Street which is affected by encroachments but he said they are nothing to worry about. But Mr Lindberg told us that some properties which were subject to building encroachments have been strata titled. He instanced that Bostonian apartments, which adjoin Mr Jamieson’s property in -- 7 of 11 -- 8 Edward Street, have been strata titled and there were wall encroachments. He further indicated that the building on Lot 5 on RP 867178 (which adjoins the subject 162 Edward Street on its southern boundary) has two building unit plans registered over it (BUP 102940), and as the appellants have pointed out in this case, it is affected by building encroachments. The respondent placed in evidence a document titled “Registrar of Titles – Directions for the Preparation of Plans”. At point 9.20.4 the document reads: “Maximum amount of encroachment: Where the action taken to cover the encroachment is by other than the acquisition of a freehold title, the amount of the encroachment of a building may not be such that the boundary of a Building Format lot would project beyond the boundaries of the base parcel. That is, the maximum amount of encroachment permitted is limited to half the width of the wall. ” Mr Lindberg imagines that this provision could have come into effect when BUP 102940 was registered. During the course of the presentation of his evidence, Mr Lindberg was asked to comment on the method of valuation used by Ms Harley. He told us that the properties referred to by Ms Harley to illustrate the affect encroachments have on the sale prices are all outside the Brisbane CBD. For the most part, they are improved residential properties and Mr Lindberg stressed that the best method of valuation, which has been adopted over many years, is the use of vacant or lightly improved sales evidence. With this comment I agree. Mr Lindberg says the graphs prepared by Ms Harley have also been based on improved property sales and he finds it difficult to extract any assistance from the graphs when valuing CBD properties. Mr Kirby gave evidence as to the result of a conversation he had with a Mr Bob Huckenswager, who is a surveyor in the employ of the Department of Natural Resources. In particular Mr Kirby asked Mr Huckenswager about the requirements of the Titles Office in respect of Building Unit Plan encroachments. Mr Huckenswager told Mr Kirby that strata titling of a property can go ahead irrespective of whether there is an encroachment or not. Mr Huckenswager said that when a surveyor performs a survey and an encroachment is discovered, that encroachment should be shown on the plan and the adjacent owner, or the owner who is subject to the encroachment, must be notified and the surveyor has to notify the Titles Office. Titles Office personnel examine the plan to ensure that a period of one month has passed since the owner has been notified of the encroachment, and then the plan registers provided it shows the encroachment. -- 8 of 11 -- 9 Mr Kirby understands that one way of dealing with an encroachment is to register an easement. He says that in the case of building encroachments, a width of up to half a wall thickness is allowed as an encroachment and this does not have to be dealt with by way of easement, and that the Titles registering authority views the issue of encroachments as being between registered proprietors. Before proceeding any further with this decision, it will be helpful if I insert some of the defined meanings as contained within the Valuation of Land Act 1944. They are: Section 3(1)(b) – meaning of “unimproved value” “For the purposes of this Act – ‘unimproved value’ of land means – in relation to improved land – the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that, at the time as at which the value is required to be ascertained for the purposes of this Act, the improvements did not exist.” Section 6(1) – meaning of “improvements” ‘Improvements’ means, in relation to land, improvements thereon or appertaining thereto, whether visible or invisible, and made or acquired by the owner or the owner’s predecessor in title, ….” Now it is clear that the Valuation of Land Act requires us to assume the improvements on each of the subject parcels do not exist. Now certainly on this basis it cannot be said that these improvements – acquired by the appellant companies – can, in terms of the Act, encroach upon neighbouring lands. But the same does not apply to the buildings which encroach upon each of the subject parcels. They cannot be regarded as improvements within the definition of section 6(1) of the Act since the structures were not made or acquired by the appellant company owner or the owner’s predecessor in title. It follows that for the purpose of the determination of unimproved value, those encroachments cannot be notionally removed from each of the subject parcels. So that what has to be determined is the unimproved value of each of the subject parcels taking into account the encroachments from the encroaching owner’s land. Now, apart from the fire escape and the exhaust ducting from the Chinese restaurant, I cannot find on the basis of Mr Clarke’s advice to Mr Conias, that the encroachments onto the subject parcels are other than minor encroachments and on the basis that they are minor, I follow and accept the evidence of Mr Lindberg that they do not affect the value of the subject parcels in the marketplace if they are considered to be devoid of improvements. Certainly, if the subject lands, for valuation purposes, are assumed to be devoid of improvements, then the -- 9 of 11 -- 10 removal of the encroachments under the provisions of the Real Property Act 1974, prior to development by commercial buildings, would appear to be much more easily accommodated. As a result of my finding based on the requirements of the Valuation of Land Act, I cannot be influenced in this decision by the evidence of Mr Ogilvie and Mr Conias about the cost involved to remove the encroachments affecting the subject properties (as improved by commercial buildings), and about extra insurance costs for the building at 168 Edward Street, and about the problems the encroachments may present in the event of the strata titling of the buildings on the subject properties. While I accept that the fire escape and the exhaust ducting are material encroachments which could affect the value of 168 Edward Street land in a minor way, I simply have no evidence from the appellants which would help to quantify the effect in value terms. Certainly the evidence of Ms Harley on the point is not helpful since it only quantifies the effect of encroachments on the sale prices of improved properties. The preferable evidence is the sales evidence relied upon by Mr Lindberg (Sales Nos 1 and 2), especially as I have already adopted his evidence about the affect of minor encroachments on value. I have examined Mr Lindberg’s evidence concerning the application of Sales No 1 and No 2, and on the basis of it, cannot conclude that the valuations under appeal are excessive or unreasonable. Reference was made by the appellants to a decision of the Land Court in re: CH & PA Parker v. Chief Executive, Department of Lands (AV93-206) in which the learned Member concerned accepted and followed the evidence provided by a valuer called by the Chief Executive that a minor encroachment by a building on an adjacent property diminished the value of the Parker land by $1,000. (This part of the decision was confirmed by the Land Appeal Court). But as I understand it, the reference was made only to show inconsistency between the policy used by valuers in the employ of the Chief Executive as to the effect on value of encroachments. I do not find this reference helpful here as the outcome in each case largely depends upon the evidence presented in it. In the circumstances, I cannot find that the onus resting upon the appellants under the provisions of section 45(4) of the Valuation of Land Act has been discharged. It follows that each appeal be dismissed and that the following determinations be made: AV98-894 – The unimproved value of $565,000 as determined by the respondent Chief Executive for Lot 1 on RP 591, Parish of North Brisbane, is affirmed. AV98-895 - The unimproved value of $825,000 as determined by the respondent Chief Executive for Lot 2 on RP 592, Parish of North Brisbane, is affirmed. -- 10 of 11 -- 11 (CH Carter) Member of the Land Court -- 11 of 11 --