Cairns Shelfco No. 16 Pty Ltd v Chief Executive, Department of Natural Resources [1998] QLC 118 (1998) 19 QLCR 239

LAND COURT BRISBANE 6 OCTOBER 1998 Re: Appeals against Decisions of the Chief Executive, Department of Natural Resources - Unimproved Valuations - Valuation of Land Act 1944 - V97-112; V97-93; RV97-94; RV97-361. Cairns Shelfco No. 16 Pty Ltd v. Chief Executive, Department of Natural Resources (Hearing at Cairns) D E C I S I O N These appeals relate to the unimproved value of land described as Lot 782 on Plan No. NR 802260, Parish of Cairns, County of Nares, containing an area of 1.496 ha. The land is leased by the appellant company (Shelfco) from the Cairns Port Authority (CPA). It is situated in Marlin Parade, Cairns, adjacent to Trinity Inlet, about 700 metres north-east of the Post Office and about 300 metres from the Central Business District. The land is developed with an International Hotel (Radisson Plaza) comprising 219 rooms, restaurants and function areas and the Pier Marketplace which is a retail, dining and entertainment complex. The development is serviced by a lower ground level car park providing some 313 car-parking spaces. Subsequent to objections by Shelfco and decisions on those objections by the chief executive, the unimproved valuations subject of the appeals are each in the amount of $13,500,000 - the relevant dates of valuation being as follows: V97-112 - 1 January 1995 V97-93 - 1 January 1996 RV97-84 - 12 January 1996 RV97-361 - 1 October 1996. The valuations at each of those dates had been carried out by Mr P.F. Goodman- Jones, registered valuer, who had until 1997 been employed by the chief executive. Mr Goodman-Jones was called to give evidence in support of the valuations appealed against. [1998] QLC 118 -- 1 of 12 -- 2 Mr R.L. Brett, a consulting registered valuer in private practice, was called by Shelfco. It was Mr Brett's opinion that at each of the relevant dates of valuation, the unimproved value of the land was $12,000,000 - the amount for which Shelfco contended in each matter. Evidence for Shelfco was also given by Mr M.J. Stephens, its property asset manager; Mr B.A. Hedley, a town planning consultant; and Mr B.J. Heggie, an engineer. Mr R. Bain, QC, appeared for Shelfco and Mr T. Quinn of counsel for the respondent. The history of the development of the Pier Marketplace/Radisson Hotel Complex was explained by Mr Stephens. That history is helpful in understanding the background to the valuation dispute which is now before the Court. In about 1986, the CPA had sought expressions of interest for the development of the then partially reclaimed, unfilled site "of approximately 12,000 sq. m.". Shelfco submitted a proposal which had been accepted by the CPA. A lease was executed on 12 January 1988 for a period of 75 years. Development design plans as approved by the CPA formed part of the lease documentation. The lease provided for development of the site for the following purposes: "ancillary marina facilities complex comprising a three storey 200 luxury suite international hotel, a tourist complex namely accommodation for ancillary marina services including diving equipment sale and hire, take-away food store, ships chandler, sail loft, tackle shop, boat brokers, offices, providores, newsagency and souvenir shop and a tourist vessel terminal incorporating a common waiting lounge, toilets, small booking offices for each tourist vessel operator and seaplane charter operator and adequate taxi parking areas to service such facility." The leased land was identified as containing an area of 12,510 m. The "footprint" of the building as shown on the design plans, was contained within the leased area, with external walls either on the lease boundary alignments or within those boundaries. In addition to the leased area, the lease provided for the grant to the lessee of a licence to use an additional area, containing 716 m "for the purpose of gaining -- 2 of 12 -- 3 ingress, egress and regress to the demised premises …". The hotel porte-cochere entrance driveway and associated garden areas were accommodated within the licence area, for which an annual fee was payable. The total area of the lease and licence area was 13,226 m. The design plans as approved, indicated a pedestrian walkway (boardwalk) and garden areas adjacent to the northern, eastern and part of the southern walls of the building. Where those external walls were on the lease boundary alignment, then the boardwalk was external to the lease area. The boardwalk was designed to complement and integrate with the waterfront location and, particularly on the eastern wall, an adjoining marina development. The boardwalk was constructed by and at the expense of Shelfco. Foundations for the main building had been piled, but not for the boardwalk and porte-cochere areas. The evidence was that those latter areas were subject to subsidence. The significant regular maintenance costs which resulted were the responsibility of Shelfco. It was Mr Stephens' evidence that although Shelfco had been required to carry public risk insurance for the boardwalk, there had developed some "grey areas" as to the division of responsibility between CPA and Shelfco as to the public use of the boardwalk. Limited use of certain areas of the boardwalk, in conjunction with several tenancy areas within the complex (eg outdoor dining areas etc.), had been approved by the CPA. It was agreed between CPA and Shelfco, primarily, as I understood it, to resolve any doubts as to responsibility for its public use, that the boardwalk/garden areas be included within an expanded lease, together with that part of the licence area which formed part of the complex. The lease was resurveyed accordingly and the description of the leased land amended to become, as it now is, Lot 782 on Plan NR 802260 containing an area of 14,960 m. The original lease was amended by a deed of variation made on 22 August 1995. Effective until that date, and subsequent to various objections to previous valuations (some on the grounds that certain valuations had been too low), the chief executive's valuation of the lease and licence area (13,226 m) had been, for several valuation periods, $12,000,000. Effective from the date of the deed of variation, the chief executive's valuation was amended to $13,500,000. After objections to later higher valuations, which were -- 3 of 12 -- 4 allowed in part, the valuation had remained in the amount of $13,500,000 as at the subsequent dates relevant to this matter. The thrust of Shelfco's argument was that the highest and best use of the larger site is identical to that of the original site, being for the actual development as approved by the CPA, and as constructed. It follows, in Shelfco's submission, that the unimproved market value of the site accommodating the development must be consistent with its highest and best use potential which had not altered through the increase in area. The boardwalk area was an integral part of the development as approved regardless that it was largely external to the original lease area. Although Mr Brett agreed that there could be a market perception that some advantage flowed to Shelfco through inclusion of the boardwalk infrastructure within the actual lease, he did not accept that such perception would translate into an effect on the capital value of the development. In his opinion there had been no directly comparable market evidence to prove the previous valuation of $12,000,000. However, in objections to previous valuations, "a basket" of evidence, including various sales and relativities of valuations which had been applied to other lands, had been discussed between Mr Goodman-Jones and himself. In Mr Brett's opinion, the consideration of the whole of the evidence, even if it was not directly comparable, had resulted in the valuation of the smaller area before the deed of variance, being $12,000,000. He had been prepared to accept that valuation as being fair and reasonable and had advised Shelfco accordingly. The alternative was to conduct a full development exercise, which had not been considered warranted. As the existing development represented highest and best use, the increased area had no effect on the land value component, in his opinion. The parties to this action agreed to waive privilege regarding the "without prejudice" objection conferences, as they related to the valuation history of the original lease and licence area. Mr Brett believed that it had been common knowledge that the boardwalk area had been external to the original lease. There had been, to his knowledge, no dispute between the parties as to the highest and best use of the land being the development as approved and in existence. He had been aware that Mr Goodman-Jones' earlier valuations had been derived from the application of a unit of value per m of site area. Mr Brett had not seen the need to provide any valuation basis other than the argument that the valuation of the smaller site area had been established as at 1 January -- 4 of 12 -- 5 1995 and as the highest and best use of the larger area remained unchanged, so did the unimproved value. Mr Goodman-Jones was able to correct some inaccuracies in Mr Brett's evidence as to the previous valuation history of the original lease. Nothing turns on those corrections and there was no dispute that the chief executive's valuation of the smaller site, as at 1 January 1995, effective for the period from 30 June 1995 to the date of variation of the lease, ie 22 August 1995, was as Mr Brett suggested, $12,000,000. Mr Goodman-Jones had consistently conducted the valuation of the subject land by applying a unit of value per m, based on his interpretation of the available evidence. From that calculation had been deducted the added value of the filling improvement comprising a volume of 45,000 m. In the valuation appealed against, as at 1 January 1995 (V97-112) the calculation was as follows: " 14960 m @ $950/m = $14,212,000 Less fill 45,000 m @ $19/m = $855,000 $13,357,000 Adopt $13,500,000 " The basis for that valuation had been derived from the evidence of one sale and from relativity with valuations applied to two properties. Brief details of that basis are as follows: Sale 1 - 4923 m site zoned "Main Business and Shopping" - situated Wharf and Abbott Streets, sold March 1994 for $6,750,000 improved with hotel building, analysed unimproved value $6,500,000, applied $6,000,000 ($1,220/m) - located 750 metres south of subject property, designated Residential E - 800 persons per hectare within DCP 1 - Residential Densities and has a plot ratio of 4:1 within Precinct 1 of DCP 2 - Height and Impact of Buildings. Mr Goodman-Jones considered the sale property to be inferior in location but with superior plot ratio, in comparison with the subject property. Relativities (1) Marlin Parade (Hilton Hotel site) 9,184 m zoned "Special Facilities (International Resort & Convention Hotel), (a) licensed premises, accommodation rooms, cabaret, caterers rooms, catering industry, commercial premises, indoor entertainment, restaurant; (b) shops (not exceeding 2,500 square metres aggregate lettable area); (c) car parking ; located 200 metres south of the subject property, considered by Mr Goodman-Jones to be similar in location, "situated as it is on the Inlet." -- 5 of 12 -- 6 The land is designated as Residential E - 800 persons per hectare within DCP 1 - Residential Densities and has a plot ratio of 2:1 within Precinct 2 of DCP 2- Height and Impact of Buildings; unimproved valuation $11,000,000 ($1,200/m). Mr Goodman-Jones noted that there had been a history of Land Court and Land Appeal Court determinations of the unimproved value of this land. The valuation of $11,000,000 had been affirmed by the Land Court as at 31 March 1992. (1) Abbott and Lake Streets (Cairns International Hotel site), 8,139 m, zoned "Main Business & Shopping", located in CBD, designated Residential E - 800 persons per hectare, within DCP 1 - Residential Densities and has plot ratio of 4:1 within Precinct 1 of DCP 2 - Height and Impact of Buildings; unimproved valuation $12,000,000 ($1,500/m), affirmed by Land Court as at 31 March 1992. In each of the remaining valuations appealed against (V97-93; RV97-94 and RV97-361), the application of $950 per m of site area remained unaltered. The allowance for filling was increased to $20 per m, although the valuations as rounded remained in the same amount of $13,500,000. The basis for the subsequent valuations was stated as being derived from relativity with the valuations applied to the same properties as before (the Hilton Hotel and Cairns International Hotel sites). In his valuation reports, Mr Goodman-Jones commented as follows under the heading "Zoning": " Under the City of Cairns Town Plan gazetted on 11 September 1971, the land was not zoned at the commencement of the lease. Discussions with Cairns City Council Town Planning officers indicated that the most appropriate zoning for the land with the existing development in place would be either 'Main Business and Shopping' or 'Tourist Facilities'. The property is not included in Development Control Plan 1, which relates to Residential Densities. The subject land is within Development Control Plan 2 - Height and Impact of Buildings. The major provisions of Precinct 2 include: Minimum Allotment Area - for a tall building shall be 1,500 m. Plot Ratio - Base Rate 2:1 Total Height - Shall not exceed 30 metres Under the City of Cairns Draft Planning Scheme which has been on display but not gazetted at the relevant date, the subject land is zoned 'Tourist Facilities'. -- 6 of 12 -- 7 Under the Draft Town Plan the land is included in Development Control Plan 1 - Residential Densities with a density of 800 persons per hectare." The town planning report provided by Mr Hedley confirmed the town planning status of the subject land as described by Mr Goodman-Jones, as at the relevant dates. Mr Hedley's evidence was that a major review of DCP 2 had been undertaken by the Council in 1988 and 1989 with the new DCP 2 - Height and Impact of Buildings, being gazetted in October 1989. His report contained the following comments: " The new Development Control Plan established controls for a number of aspects of building design and development, particularly the height of buildings. The Development Control Plan established 8 precincts throughout the city and there were particular controls for each precinct. The site was included within Precinct 2. The controls for Precinct 2 included a height limit of 30 metres. It is noted that the development of The Pier was nearing completion when the new Development Control Plan 2 came into force." Mr Hedley had understood that the subject development contained a gross floor area of about 50,000 m but confirmed that car-parking provision within the building is not included in plot ratio calculations. Whilst Mr Hedley was giving evidence, it was agreed between the parties (transcript p.93) that the complex contained the following floor areas: Basement Car Park 9,759 m Ground Floor 11,709 m Mezzanine Level 9,730 m Hotel First Floor 10,584 m Hotel Second Floor 7,333 m Hotel Third Floor 878 m Hotel Fourth Floor 878 m Total 50,871 m The plot ratio calculation was therefore to be based on a gross floor area of 41,112 m being the total area set out above, less the car park. Mr Hedley's evidence was that DCP 2 "specifies a maximum base plot ratio of 2:1 for sites within Precinct 2 …" but with provision for plot ratio bonuses to be granted in certain circumstances "with the absolute maximum plot ratio being 4:1." He had been aware that the Council had granted bonuses of the order of 0.5:1 to 1.25:1 for development in Precinct 2, but was unaware of any occasions where the Council had -- 7 of 12 -- 8 granted a bonus approaching the maximum of 2:1 "or, in fact, of occasions where a proponent has been able to provide the basis for a bonus approaching the maximum." There was no evidence to suggest that Mr Brett had ever been concerned about the actual plot ratio. Indeed, his verbal evidence indicated that he was under the impression, as had been Mr Goodman-Jones, that the gross floor area of the complex was about 27,000 m, excluding the car park. Mr Goodman-Jones had never disputed that the nature of the development on the site represented highest and best use. Although he had physically inspected the complex, he had always assumed that the plot ratio which had been achieved was about 2:1, based on inquiries he had made of the City of Cairns Council officers. Indeed, that is consistent with evidence to which I made reference in an unreported decision delivered 19 June 1992 in relation to appeals by Cairns Resort Investments Pty Ltd v. The Valuer- General (AV91-3 and 321), against the 1989 and 1990 relevant date unimproved valuations of the Hilton Hotel site. At p.16 of that decision under the heading "Relativity of Values", comparisons between the Hilton Hotel, Radisson Plaza and Cairns International were set out. The Radisson Plaza had been said to have an "actual GFA" of 27,000 m (approx) with a "Plot Ratio" of approx 2:1 having been achieved. Mr Goodman-Jones' written and verbal evidence made it clear that the plot ratio potential of the subject site, and of the comparative evidence, was one criterion which he accepted as influencing value. In his opinion, the correct methodology to be adopted in the valuation of land with highest and best use potential of the nature of the subject land is to establish and apply a value per m. He has consistently adopted that approach which had found the approval of the Land Appeal Court in Cairns Resort Investments Pty Ltd v. Chief Executive, Department of Lands (1994-95) 15 QLCR 1. At p.7 in that judgment (which allowed appeals against my decision, to which earlier reference was made) the Court said: " For reasons that potential developments may differ (and in fact do differ) in size, quality and mix of the components contained therein we prefer the method of valuation used by Mr Goodman-Jones to that used by Mr Malone who makes valuation comparisons between the subject site and comparable hotel sites on 'per room' or on a 'gross floor area' (plot ratio) basis. Mr Goodman-Jones has valued the sites on a value per square metre basis, taking into consideration matters such as plot ratios, areas, situation, zoning and the like." It seems to me that had the subject land been notionally stripped of its improvements pursuant to s.3(1)(b) of the Valuation of Land Act 1944 (the Act) and -- 8 of 12 -- 9 valued strictly in terms of base development potential in accordance with that permitted in Precinct 2 of DCP 2, and as freehold land, as Mr Goodman-Jones' approach was said to have been, then the increased site area should be more valuable, all things being equal in terms of physical quality, than the smaller area. The evidence relative to the high maintenance costs of the structures on the additional area, would have relevance to unimproved value only if the physical quality of that additional land was inferior. The evidence is that the maintenance problem was caused by the foundations not having been piled as they were for the main building. There is no engineering evidence to suggest that, as reclaimed, the additional area was of different physical quality to the original lease area. The whole of the site, "in comparison with a more traditional unfilled 'land-based' site", according to Mr Heggie, is subject to tidal movements in Trinity Inlet. It was the appellant's case that, even if it was assumed, in accordance with s.3(1)(b) of the Act, that the improvements did not exist, the inclusion in the site of the area capable of accommodating only the boardwalk as an integral part of the complex, had no effect on the highest and best use of the site. It followed, in the appellant's submission, that it was then inappropriate to value the land at a pro-rata rate per m which had the effect of increasing the overall valuation of the site. As Mr Brett said, no prudent purchaser would pay more for the larger site than the smaller site if the development potential was identical. One of the difficulties with the appellant's case is that, by inference, the Court is asked to presume that valuations, not before it for determination - ie the valuations which had earlier related to the smaller area - are correct. It is the chief executive's relevant date valuations of the larger site area which, pursuant to s.33 of the Act, shall be deemed to be correct until proved otherwise. Then, s.45(4) of the Act places the burden of proving any and every ground of appeal upon the owner. Although the evidence provided by the one sale relied upon by Mr Goodman- Jones in the valuation as at 1 January 1995 is not, by itself, conclusive, there is no evidence before the Court to suggest that the valuations of either the Cairns International Hotel site, or the Hilton Hotel site, were fundamentally wrong. It was on that basic principle which the Land Appeal Court adopted relativity as a basis for the earlier in time valuations in the Cairns Resort Investments Pty Ltd judgment (supra). Clearly, plot ratio, amongst other matters, had consistently been a comparison criterion utilised by Mr Goodman-Jones in his valuation methodology and a criterion considered in arriving at -- 9 of 12 -- 10 his base value of $950 per m for the subject land in these valuations. There was no challenge to his allowance for fill either in terms of volume or its added value. It is clear from an analysis of his evidence that, while he accepted that the existing development represented highest and best use of the site, his primary interest for comparison purposes, as far as the existing building was concerned, was that it was believed to have corresponded with the maximum base plot ratio which would have been achieved had the building been constructed in accordance with that permitted in Precinct 2 in DCP 2. As I understood his evidence, he would not have been concerned had the gross floor area achieved been less than the Precinct 2 permissible plot ratio, because, in accordance with s.3(1)(b) of the Act, he saw his task as being to assess the unimproved fee simple value of the land on the assumption that the building did not exist. As unimproved freehold land, a larger site developed in accordance with the DCP 2 Precinct 2 plot ratio would have greater gross floor area potential than an otherwise equivalent smaller site. Although it is factually correct, as the appellant submitted, that the development of the unzoned site was controlled by the CPA, I am unable to accept that, with the assumption of fee simple status, the control of the CPA should become an issue in this matter. For valuation purposes, as freehold land, there was nothing, in my opinion, which required assumption that the land could not be developed or zoned to allow development for use of the nature which existed. The appellant's submission included the argument, as I understood it, that as Shelfco was, pursuant to s.7 and in particular subsection (2)(e)(ii) of the Act ("a lessee of land held from … a port authority"), the "owner" of the land, any restrictions or limitation on the use of that land by the "owner", were matters to be considered. I accept that any physical or statutory restriction or limitation on the otherwise highest and best use of any freehold land are matters which could impact on the market value of that freehold land. I do not see the argument as having any relevance in this matter however as there seems to be no dispute that the highest and best use of the land as created by the lease, was in conformity with its zoning potential had the land been held in fee simple. The nature of the highest and best use was considered by Mr Goodman-Jones correctly, in my opinion, to be capable of comparison with the highest and best use of both the Hilton Hotel site and the Cairns International Hotel site and, where applicable, the sale property, not only through the zoning of those sites but also the relevant plot ratios under the DCP 2. -- 10 of 12 -- 11 What has been revealed in these matters however was that, apparently since the land became subject to valuation under the Act, Mr Goodman-Jones had never known that the plot ratio achieved on the original site was not 2:1 as he believed, but in fact 3.1:1 (41,112 m gross floor area:13,226 m site area). While the plot ratio then reduced to about 2.75:1 when the site area was increased to 14,960 m, that was still well in excess of the maximum base plot ratio potential of 2:1 which had been assumed by Mr Goodman-Jones. In real terms the gross floor area of the existing development was about 50% greater than either Mr Goodman-Jones or Mr Brett had assumed. It was Mr Goodman-Jones' evidence that had he been aware of the actual plot ratio he would have found a higher valuation. It would follow that if, in fact, the higher plot ratio should result in a higher valuation, then the earlier valuations of the smaller area with even higher plot ratio, should also have resulted in the application of a higher value per m. Indeed, the evidence was that Shelfco had objected to a valuation of $10,000,000 for the smaller area as at 31 March 1992, contending then for a valuation of $14,000,000 on the basis of comparison with the $11,000,000 applied then, and at the relevant dates here, to the Hilton Hotel site. The objection had been allowed, but only in part, and at that date the valuation had been increased to $12,000,000. It seems to me that the circumstances surrounding the existing development and use of this land are such as to require the provisions of s.3(4) of the Act to be considered in the establishment of the basis of valuation. Section 3(4) provides: " 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." Section 66 of the Act relevantly provides: " Upon an appeal under section 55 the Land Court … may - -- 11 of 12 -- 12 (a) affirm the valuation appealed against; or (b) reduce or increase the amount of that valuation to the extent necessary in its opinion to determine the same correctly under, subject to, and in accordance with this Act;". There would have been seen to be merit in the appellant's argument had the unimproved value of the original, smaller area of land been established strictly in accordance with s.3(4) of the Act as it appears it should have been. However there is no doubt that the chief executive, through Mr Goodman-Jones, has never conducted the valuation on the basis of the actual plot ratio now known to have been achieved. The evidence indicates to me that the amount of the valuations appealed against has not been proved wrong or unreasonable. Indeed, the valuations are seen to be conservative and possibly significantly so. Bearing in mind the valuation history of the land, and the manner in which the hearing evolved, I find it appropriate to give, what I believe to be the benefit of doubt, to the appellant, and not disturb the level of value appealed against. There is seen to be good reason for future valuations of this land to be more closely considered by the chief executive, in light of the evidence relative to plot ratio, if as seems reasonable, plot ratio is one of the comparison criteria affecting market value. Each of the appeals is dismissed and the chief executive's valuations affirmed. RE WENCK MEMBER OF THE LAND COURT -- 12 of 12 --