Alkina Pty Ltd v Brisbane City Council [1998] QLC 104

LAND COURT BRISBANE 18 SEPTEMBER 1998 Re: Claim for Compensation Acquisition of Land Act 1967 (A93-85). Alkina Pty Ltd v. Brisbane City Council J U D G M E N T The claimant in these proceedings seeks compensation in respect of the resumption of land under the provisions of the Acquisition of Land Act 1967. The land was resumed by notice in the Queensland Government Gazette dated 16 March 1991, for "road purposes". The land resumed, which was 342 square metres in area, was part of freehold land owned by the claimant at the corner of Ipswich Road and O'Keefe Street, Buranda, and described as Lots 1-3 on RP 12021 in the County of Stanley, Parish of South Brisbane. Before the resumption the total land area was 1587 m². The area of the remaining land is 1,245 square metres. The final claim for compensation made by the claimant was for $340,000 and an additional $68,756 for disturbance items. On 14 December 1994 the claimant received $231,000 from the Brisbane City Council comprising $196,000 by way of compensation and $35,000 as an advance against disturbance. The subject land lies about 4 km by road south-east of the Brisbane GPO. It is on the north-east corner of the Ipswich Road-O'Keefe Street intersection. On the western side of Ipswich Road is the Princess Alexandra Hospital complex. The northern boundary of the site is the corridor of the Cleveland rail line. Ipswich Road is an urban arterial road carrying a high traffic volume. O'Keefe Street carries significant traffic between Logan and Ipswich Roads. The purpose of the resumption was to enable the north-east corner of Ipswich Road and O'Keefe Streets to be truncated. Ipswich Road was widened by the addition, on the eastern side, of an extra southbound lane, and a "feeder" lane, extending south past the subject site into O'Keefe Street. As a result of the construction carried out on and adjacent to the subject site, traffic can now travel in the "feeder" lane and turn left into O'Keefe Street. This access [1998] QLC 104 -- 1 of 21 -- 2 to O'Keefe Street is no longer controlled by the traffic lights which control the rest of the intersection of O'Keefe Street and Ipswich Road, but by a "turn left at any time with caution" sign. The improvements on the subject site include a two-storey office building which is steel framed and sheeted with fibrous cement. This building is located near the northern boundary of the property. There is also an open-sided six-car carport used as a workshop detailing area. The property is secured by a two metre high steel security fence on the Ipswich Road and O'Keefe Street frontages. Apart from the area occupied by the buildings, the site is used for open air vehicle display. This area is sealed. The subject site has been a vehicle sales yard since 1963. It is zoned as "Residential B (R3)" under the City of Brisbane Town Plan 1987, but its continued use as a car yard is permitted by the Brisbane City Council as an existing non-conforming use. If the car yard business were to cease operating for a period in excess of six months, the right to continue this use would be lost. It was accepted by both parties that the highest and best use of the site before and after the resumption was as a vehicle sales yard. The claimant purchased the subject premises in 1982. From that time until 1988 the claimant conducted a high performance prestige used car sales yard on the site which was operated by Mr RN Appleton, a director of the claimant. In 1988, the business was acquired by Palron Pty Ltd and thereafter the premises were leased to Palron Pty Ltd which continued to conduct the prestige car sales business. The terms of that lease were evidenced by an informal document executed on 14 December 1988, by Mr Appleton and Mr Mick Harradine (a director of Palron Pty Ltd). That document, entitled "Heads of Agreement" provided inter alia, that the rent for the premises was to be fixed for two years at $20,000 per year, paid monthly in advance, plus all outgoings, that the term of the lease was to be in total 11 years, being 2+3+3+3 years, and that the rent for the additional three year terms was to be renegotiated by the parties. The document also provided that Alkina Pty Ltd would give Mick Harradine or his company the option to lease 1065 Ipswich Road if after two years the business could not perform and be profitable. In 1991, on the expiry of the original lease, Alkina Pty Ltd granted a lease of the premises to Palron Pty Ltd for a term of three years at an annual rental of $60,000. The date of commencement of the lease was 1 February 1991. The lease was executed on 31 May 1991. The lease also provided that the lessee was to pay outgoings of rates, taxes, etc. The -- 2 of 21 -- 3 lease contained no option to renew. The subject land was resumed by the Brisbane City Council on 16 March 1991. Although this lease was executed after the resumption of the land, it was accepted by the respondent as a valid lease and it appeared from the evidence that Palron Pty Ltd was compensated by the Brisbane City Council in respect of the losses suffered by that company as a result of the resumption on the basis that the lease was a valid and enforceable lease. The lessee remained in possession of the site until 31 January 1995, vacating the premises only when the respondent was about to commence construction work in relation to the truncation of the corner. The site was not used as a car yard from January 1995 until June 1995 while the services were relocated and other works carried out. Alkina Pty Ltd commenced trading again on the premises in June 1995 and continues to trade there. Evidence as the effect of the resumption on the value of the land was given on behalf of the claimant by Mr MJ Slater, a registered valuer, and on behalf of the respondent by Mr LGF Wright, a business valuer, and Mr PL Hillas, a registered valuer. Physical Effect of the Resumption The area of land resumed was 342 m². The northern side of the site has been reduced by 7.855 metres and the southern or O'Keefe Street boundary by 28.17 metres. The resumed land was unimproved except for the hard seal and a 2 metre high steel security fence on the perimeter of the property. The fence has been relocated to the post-resumption property alignment. The existing improvements on the remainder of the land are otherwise unaffected. Apart from the loss of the resumed land, the resumption was detrimental to the owner of the site because of the nature of the business conducted there. Access to the site, the capacity of the site to carry cars, the manoeuvrability of cars on the site and visibility of the display area to passing traffic were all adversely affected by the resumption. Access to the Site: Prior to the resumption there were three cross-over points of access (each allowing the entrance and exit of vehicles to the site) in O'Keefe Street. In addition "informal" access to Ipswich Road could be obtained by driving across a driveway on vacant land to the north of the site (owned by Queensland Railways). As a result of the resumption, two of the access points in O'Keefe Street were closed, leaving only one official cross-over to the site. Further, Mr Appleton said that it was no longer possible to use the informal access to Ipswich Road because of the height of the new gutter that had been constructed and the construction of the feeder lane in Ipswich Road, -- 3 of 21 -- 4 which had the effect that the traffic using that lane was moving fairly constantly, because the access around into O'Keefe Street was not controlled by traffic lights. Capacity: Conflicting evidence was given as to the capacity of the subject site to display cars for sale both before and after the resumption, particularly after the resumption. The capacity of a car yard affects the income able to be derived from the business carried on on the site, and therefore the value of the property. The capacity of this site was affected in a number of ways. Apart from the decrease in the size of the yard, the reduction in the number of access points had the result that wider lanes had to be left between the rows of cars on display as more manoeuvring room was needed to enable cars to be taken out for test drives, etc. Further, there was evidence that whereas before the resumption cars had been displayed partially across the surrounding footpath, this was no longer possible because the strip of land outside the yard is narrower, as a result of the road construction work. Mr Appleton also gave evidence that the truncation of the corner has reduced the possibility of cars parking on O'Keefe Street, immediately outside the property and therefore he has to provide additional space in the yard to enable customers and staff to park. Mr Appleton also gave evidence that the tenant, Palron Pty Ltd, had operated the site with about 60 cars, prior to the resumption. Other evidence was that Palron Pty Ltd normally had about 55 cars on site. After the resumption, Mr Appleton said, the site was only large enough to accommodate 24 cars. Diagrams illustrating the layout of cars on the site both before and after resumption were tendered as evidence. These diagrams appeared to support Mr Appleton's evidence. However, on closer examination, it emerged that there were some discrepancies between the diagrams. Some of the cars in the "after" diagram are bigger than those in the "before"; the cars are spaced more widely apart in the "after" diagram than in the "before"; the internal driveways are wider in the "after" diagram than in the "before" and the remaining legal access to the property is actually smaller in the "after" diagram than the "before". The diagrams were prepared by an architect at the request of Mr Appleton. Mr Appleton said that the reason for the extra space between the cars was to provide more room for manoeuvring the cars necessitated by the fact that there was now only one point of access to the site. The increased width of the internal laneways was, he said, necessary to provide additional car-parking space for customers because there was no longer any parking space available immediately outside the property. While these propositions are generally correct, and were supported by evidence from Mr Hillas and Mr Wright, the other discrepancies in the -- 4 of 21 -- 5 diagrams were not explained. I am not therefore satisfied that the "after" diagram represents the only possible configuration of cars in the yard and thus the definitive capacity of the yard post-resumption. It was clear from other evidence that the degree to which a car yard is stocked varies between operators. It also depends on the type and size of car offered for sale. Mr Hillas was of the opinion that the effect of the resumption was to reduce the capacity of the yard by 40%. On the basis that the capacity was 60 vehicles prior to the resumption, the capacity after resumption on this calculation would be 36 cars. It was put to Mr Appleton that on at least some occasions after the resumption, he had operated the yard with 34 or 35 cars for sale. Mr Appleton denied that there were 34 to 35 cars for sale, saying that cars in the cleaning area and the on-site customer car park (on the eastern boundary of the property) were not displayed for sale. However, Mr Slater said that he was of the view that the number of cars the yard would accommodate was in the low 30s, depending on the size of the cars. He counted 34 the day he inspected the property although not all those cars were for sale. Exposure: The display of vehicles on the site has been affected by the resumption in two ways. Firstly, prior to the resumption, the whole of the intersection of Ipswich Road with O'Keefe Street travelling south along Ipswich Road was controlled by traffic lights. This meant that while drivers were stopped at the red lights, they had the opportunity to look to their left and see the cars on display. Now, the extreme left-hand lane, the slip lane, is not controlled by traffic lights and in general traffic in that lane does not stop for any length of time. That moving line of traffic also obscures the view of the car yard by drivers stopped at the lights in the centre lane. Secondly, the surface of the car yard was re-laid, as a result of the resumption, and the resultant new contouring of the yard was such, said the claimant, that the yard ran from a high level round the external perimeter closest to the footpath, to a low level running through the centre of the yard, to another high point round the office building towards the back of the yard. There is thus a dip through the middle of the yard, which causes minor flooding in the yard. Previously, the surface of the yard ran from a high level at the back to a lower level round the footpath perimeter and water ran off the car yard into the gutters and drainage system outside. In addition, the effect of the re-contouring is that cars on display in the second row are more difficult to see, and those in the front row (nearest the footpath) have their bonnets higher than the boots, which is not, the claimant says, the most effective form of display. As part of its claim, the claimant seeks $19,840 to enable the yard to be -- 5 of 21 -- 6 re-contoured to its previous shape. This claim is considered further under the heading "Disturbance Items". Method of Valuation Mr Slater determined the effect of the resumption on the property by comparing the value of the property before and after the resumption. In each case the valuations were made by capitalisation of the market rental. Mr Slater adopted this method of valuation in his written report without any reference to the appropriateness of the choice or his reasons for preferring this method of valuation over any other. In his oral evidence he said that although, theoretically, there were two methods of valuation possible, namely direct comparison with sales and capitalisation of market rental, there were in fact practical difficulties with the direct comparison method in this case because of variations in sites such as exposure, length of frontage and extent of improvements. There were fewer practical difficulties with the method he adopted, he said. In his written report, Mr Hillas said (at page 11): "When valuing a property on which a commercial venture is being operated, it is generally accepted that the appropriate method of valuation is capitalisation. ... There are occasions, however, when insufficient information is available to determine either the market rental or the appropriate rate. For instance, many vehicle sales yards are operated by the owners of the land and, as such, the rental is either non-existent or not necessarily indicative of the market level. For this reason I have undertaken the valuation of the property by direct comparison as well as capitalisation. " Although there is a degree of ambiguity in the passage quoted as to which method of valuation Mr Hillas primarily adopted, he gave oral evidence that his main method of valuation was by direct comparison with comparable sales, and that he used the capitalisation of rental method as a secondary or check method only. Under cross-examination Mr Hillas maintained this position, saying that he had tried, initially, to value the property by capitalisation of net income but because he was not confident with the evidence available to him as to market rental of the property, he had used direct comparison as his primary method. (The evidence as to the market rental is considered later in this decision). This is not supported by his statements on page 19 of his written report because there he appears to adopt the capitalisation of income method. However, I have concluded that Mr Hillas did adopt direct comparison of sales as his primary method of valuation and it is noted that Mr Slater -- 6 of 21 -- 7 said that in his view Mr Hillas relied principally on comparisons of square metre rates derived from sales, rather than the capitalisation method. Mr Wright's evidence was directed principally towards determining whether a viable used car business could be conducted on the site, post resumption. Within that context he also considered the value of the property by adopting the before and after method of valuation, and the capitalisation of income method. For the purposes of this decision, I have considered the evidence resulting from both methods of valuation and have reached my conclusions by comparing the results reached from each. For his "before" valuation, Mr Slater applied a capitalisation rate of 10.25% to a rental of $60,000 per annum to reach a value of $585,000. To value the property "after" the resumption, he adopted a capitalisation rate of 12.25% and a net rental value of $30,000 per annum, reaching a value of $245,000. His assessment of the decrease in value of the property caused by the resumption was, therefore, $340,000. Mr Wright applied a pre-resumption capitalisation rate of 12.25% to a rental of $60,000 per annum to reach a value of $489,000. Post-resumption, he applied the same rate of 12.25% to a rental of $36,000 per annum reaching a value of $293,000. Mr Hillas said that he agreed with Mr Wright's figures concerning the capitalisation of income method. He did not conduct an independent valuation based on this method, but checked Mr Wright's figures and was comfortable with them. In addition, Mr Wright and Mr Hillas valued the property by comparison with sales of other properties. On this approach Mr Wright said that the pre-resumption value of the property was $488,000 and the post-resumption value was $292,600. He came to the conclusion that the before valuation was $489,000 and the after valuation was $293,000, with the consequence that the amount of compensation payable was $196,000. Mr Hillas adopted $490,000 as the market value of the property prior to resumption and $294,000 as the value post-resumption. He therefore assessed the compensation payable as $196,000. Capitalisation of Income The differences between the parties in relation to this method of valuation came down to two matters. The first was as to the appropriate capitalisation rate to be adopted in respect of the pre-resumption valuation. The second was as to the rental to be adopted in respect of the post-resumption valuation. -- 7 of 21 -- 8 Capitalisation Rate - Pre-Resumption Essentially, the difference between the parties was that Mr Slater adopted a pre-resumption capitalisation rate of 10.25%, whereas Mr Wright and Mr Hillas adopted a rate of 12.25%. As noted earlier, both parties adopted the same rate in respect of the post-resumption valuation, that is, 12.25%. In his evidence, Mr Slater said that the reason he had adopted the lower rate for the pre-resumption calculation was that in his view there should be a difference in rates between the "before" and "after" valuation because of the differing circumstances applying. He identified those differences as follows. Before the resumption, the property was leased to a good tenant whose business was performing strongly compared with other used car businesses at the time. After the resumption, there was no lease (the tenant had been compensated for the effect of the resumption on its business and had vacated the premises in January 1995); the capacity of the car yard was diminished, the yard had gone from being a good yard to an ordinary yard, the premises were no longer viable for use as a prestige performance yard, and the site goodwill had been lost. The principal evidence given on behalf of the respondent in support of a capitalisation rate of 12.25% was given by Mr Wright. Mr Hillas confirmed that he agreed that 12.25% was an appropriate rate to apply in respect of the pre-resumption valuation but said that he had not done his own calculations in this regard but simply had checked Mr Wright's evidence. The reasons Mr Wright gave for assessing the rate at 12.25% were that that rate reflected what the market would pay for an investment property, the long-term bond rate was 11.5%, he was concerned about the rent applied and reflected that concern by applying a higher capitalisation rate and, finally, he applied the rent from the subject property to sales of other sites and came up with a range of yields which varied considerably. The market evidence supporting adoption of either rate was not conclusive. The only sale relied on by Mr Slater was of a property situated at 190 Logan Road, Woolloongabba which was sold on 19 December 1989 for $460,000. The property had been a service station, and was purchased with service station improvements which, said Mr Slater, prevented efficient use of the site. The area of the property was 1,533 m². It was leased after the sale for $48,000 per annum which reflects a yield of 10.4% and supports the capitalisation rate applied by Mr Slater to the subject site. In Mr Slater's opinion, the property was inferior to the subject site and, he said, the rent ($48,000) compared with the subject site supports this. -- 8 of 21 -- 9 In Mr Hillas's opinion, the site at 190 Logan Road was comparable with the subject site pre-resumption, although possibly slightly inferior. Mr Wright adopted a capitalisation rate of 12.25% "after considering all relevant information and facts concerned with the subject property, and after inspection and examination of relevant sales ...". However, he did not provide any details in his written report of the sales on which he relied to reach this conclusion. The rent payable under the lease: Both Mr Wright and Mr Hillas gave evidence that they had been instructed by the respondent to accept the lease as a valid lease for the purposes of the claim by Palron Pty Ltd and therefore they proceeded on that basis in respect of the current claim. However both these witnesses indicated that they were "uncomfortable" with the lease in the sense that they were not satisfied that the tenant was paying $60,000 a year rent and outgoings. The profit and loss account for Palron Pty Ltd for the year ended 30 June 1992 (the first full financial year under the second lease) showed that Palron Pty Ltd had paid $48,000 in rent. Mr Wright said that he was advised that there was an arrangement between Mr Appleton and Mr Harradine that was not reflected in the lease, the effect of which was that Mr Harradine sold cars on behalf of Mr Appleton and that the amount owing by Mr Appleton in respect of that service was set off against part of the rent and the outgoings payable by Palron Pty Ltd under the lease. An affidavit sworn by Mr M Pollock, the accountant for Palron Pty Ltd, was tendered, which indicated that on one occasion the amount owing by Palron Pty Ltd to Alkina Pty Ltd was offset by the transfer of a Harley Davidson motor cycle from Palron Pty Ltd to Alkina Pty Ltd. Nevertheless, because Mr Wright and Mr Hillas were not satisfied that the full market rent plus outgoings was being paid by the lessee in accordance with the terms of the lease, they reflected their discomfort in the capitalisation rate adopted in respect of the pre-resumption valuation. Neither of these witnesses referred to their discomfort in their written reports but both gave oral evidence of this problem. Mr Wright also said that he considered that $60,000 was at the high end of the market rental range and that $48,000 reflected a more comfortable rental. Mr Wright did concede that if he had been comfortable with the rent, he would have adopted 10.5% as the appropriate capitalisation rate to apply prior to the resumption. It is surprising that neither Mr Wright nor Mr Hillas explained in their written reports that an important reason for their adoption of a capitalisation rate of 12.25% was their concern as to whether the full rent and outgoings were being paid by the tenant. However, it -- 9 of 21 -- 10 is clear from the evidence that the rent of $60,000 only became payable under a lease commencing very shortly before the date of resumption. Prior to that date, the tenant had paid $20,000 per annum, a rent which all parties agreed was below market value. In the circumstances, a very real question is raised as to whether a prudent purchaser would have been satisfied as at the date of resumption that $60,000 per annum was a sustainable rent. At that time, there was no history of the tenant paying such a rent, although there was some evidence that the tenant's purchase of the business had been financed by the vendor (Alkina Pty Ltd), and that the tenant had paid off the purchase price, as well as paying the rent of $20,000 per annum during the term of the first lease. It is reasonable therefore to reflect that uncertainty in the capitalisation rate. Although there is some merit in Mr Slater's opinion that there should be a difference in the rates pre- and post- resumption, it appears he has failed to take into account that uncertainty. I have therefore concluded that a rate of 12.25% is appropriate to apply to the pre-resumption valuation. The Rental of the Property Post-Resumption The second area of conflict between the claimant's valuer and the respondent's valuers was as to the appropriate rental to be adopted following the resumption. It was accepted by both parties that the highest and best use of the subject premises, both before and after the resumption, was as a vehicle sales yard. There are of course many types of motor vehicle sales business that may be carried on, on land of this nature. Prior to the resumption, the business which had been carried on by Palron Pty Ltd (and prior to Palron Pty Ltd's purchase of this business, by the claimant) on the subject site was the sale of second-hand prestige high performance cars. It was also agreed by all the parties that after the resumption the site was no longer suitable for carrying on a business of this nature, and indeed Palron Pty Ltd, the owner of the business at the time of the resumption, was compensated on this basis by the Brisbane City Council and vacated the premises when the road works in connection with the resumption commenced. The question then is what use could be made of the premises after the resumption. Accepting that the highest and best use of the premises was as a vehicle sales yard, there was no real consensus as to the type of car sales business that might be conducted. Mr Wright and Mr Hillas were of the view that the site could be used successfully for the sale of small family-type cars and that a business of this nature could be successfully conducted on the balance site and pay a rental of $36,000 per annum. Mr Slater said that he regarded the balance land as having significantly reduced appeal as a car yard and that the property lacked the attributes that it previously enjoyed as an investment property. -- 10 of 21 -- 11 The market rental value was severely impacted by the loss of land, the severance and the elimination of all but the single access point. Compounding these difficulties was a poor trading environment in the used vehicle market. Taking these matters into account, he said that he considered the rental value of the reduced site at the date of resumption was $30,000 per annum net. Mr Appleton gave evidence that he had acted on the suggestion of the Brisbane City Council that the property could be used as a site for a business selling family cars and had endeavoured to lease the property to such a business. Although he had not placed the property in the hands of any real estate agent for this purpose, he had placed advertisements in the used car section of the "Courier Mail" on four or five occasions but had no response. When queried as to his method of advertising the property for lease, he said that he was extremely familiar with the used car business and that this was an appropriate method of advertising that such a property was available for lease. He also said that he had mentioned to some real estate agents that the property was for lease. Because of his failure to attract any tenant to the premises in their post-resumption state, Mr Appleton was of the view that it was highly unlikely that the premises could be used successfully for the type of business envisaged. Palron Pty Ltd vacated the premises in January 1995. The site was then unusable for a period of some five or six months while the road construction works took place and while utilities such as the electricity lines, etc., were re-laid. Once the site was able to be used again, Mr Appleton resumed trading and, initially, endeavoured to sell small family cars. However this proved to be unsuccessful and after a few months Mr Appleton reverted to selling prestige high-performance cars, together with family cars. His lack of success in conducting a family car business re-enforced his views that the site was not suitable for that purpose. In his view, the maximum rental achievable, post resumption, was $24,000. In order to determine the viability of using the subject site for the purposes of carrying on a used car business trading in small and medium sized cars, Mr Wright examined the trading performance of a company called "Story Bridge Wholesale Cars". The gross trading performance for that business over a period from 1989 to 1994 was examined and as a result Mr Wright came to the conclusion that a traditional car yard selling small and medium sized cars in the under $10,000 price range would trade profitably at a sales level of 136 cars per annum at a gross profit level in the vicinity of 10% and paying a rental of approximately $36,000 per annum. Mr Wright therefore concluded that the subject site would trade -- 11 of 21 -- 12 profitably as a traditional car yard and support a rental of $3,000 per calendar month. Mr Wright also said in his written report that he had discussed this question with several car yard owner-operators and examined rentals achieved by comparable car yard properties at the date of resumption in reaching his conclusion that $36,000 per annum would be an appropriate rental. Mr Hillas accepted that an operation specialising in high-performance prestige cars would be unlikely to trade successfully at the site in the long term. He considered that a less intense, family-type operation, specialising in smaller or family cars could display approximately 40 vehicles on the post-resumption site. The emphasis could shift from large American sports cars to smaller British, European and/or Japanese cars such as Fiats, Toyotas, Mazdas, Hondas, etc., thereby increasing the potential number of cars displayed on site post-resumption and decreasing the area required for manoeuvrability. Mr Hillas noted that Mr Wright had estimated the post-resumption market rental to be in the range of $3,000 - $3,500 per month. Assessing the post-resumption rental at $3,000 or $36,000 annually, Mr Hillas said that that rent equated to $692 per week which equates to less than one sale per week. Even taking into account that there would be additional operational overheads, in his view that rental for a site with an area of 1245 square metres was most reasonable. There remains the question as to whether a family car type business could be operated successfully on that site. In addition to the matters canvassed above, there was evidence that such a business may be less successful because the yard is a stand-alone yard. By comparison where car yards are located within close proximity to one another, for example, on the Moorooka Magic Mile or at Logan Road, Mt Gravatt, then the yards feed off one another in terms of attracting potential customers. The specialised nature of the business conducted on the subject site prior to resumption attracted a particular type of customer who was in a different category from the person seeking to purchase a family car. In the light of the uncertainty as to the success of a second-hand small to medium car business, if the site were to be used for that purpose, I have come to the conclusion that Mr Slater's evidence reflects a more reasonable estimate of the rental achievable after the resumption. I have therefore adopted $30,000 as the rental value of the premises post-resumption. Conclusion as to valuation by capitalisation of income Before Valuation: Market rental $60,000 per annum -- 12 of 21 -- 13 Capitalisation rate 12.25% Adopt $490,000 After Valuation: Market rental $30,000 per annum Capitalisation rate 12.25% Adopt $245,000 Loss in value of the property caused by resumption $245,000 Valuation by Comparative Sales As discussed earlier, Mr Hillas valued the property on the basis of direct comparison of sales. He did not rely on rates per square metre. This evidence was criticised by the respondent on two grounds: (1) that this was not in fact his chief method of valuation and (2) that this was not an appropriate method of valuation in the circumstances. As to the former of these grounds, the evidence in this regard has been discussed earlier in this decision and I have come to the conclusion that in fact Mr Hillas did rely on the direct comparison method as his principal method of valuation. As to the latter, it is my view that it is appropriate to consider valuation by comparative sales as well as by capitalisation of income. The sales relied on by Mr Hillas to support his pre-resumption valuation of $490,000 were as follows: 190 Logan Road, Woolloongabba: Mr Hillas said that this property was a slightly inferior site to the subject. It lacked a little exposure in comparison with the subject site, however it is more easily accessed and has superior off-site parking available. It is very similar in size and is considered to provide a good indication of value. Mr Slater said that in his view this site was the best evidence of the value of the subject site but that it was inferior to the subject site. The property is zoned "Warehouse and Transport". It sold on 19 December 1989 for $460,000 which equates to $300 per m². 57 Gympie Road, Kedron: This property was sold on 8 April 1992 for $475,000 ($293 per m²). It has an area of 1619 square metres and is zoned "Business". The property is located at a corner allotment on an arterial road. In Mr Hillas' opinion, it is similar to the Alkina site in that it lacks a little in exposure to southbound traffic, otherwise it has excellent exposure. It is similar in area to the subject site and has a similar stock capacity. The zoning is superior although in Mr Hillas' view the car sales operation is at present the highest and best use. In his view the property is comparable with the subject site in its pre-resumption state. Mr Slater said that this site was inferior to the subject site because it -- 13 of 21 -- 14 had been sold without a tenant, was on the less desirable side of the road, carried only 50 cars and therefore was of lower capacity than the subject site, and was exposed to only one busy road. 1391 Sandgate Road, Nundah: This property was sold on 1 May 1992 for $450,000 ($329 per m²). It is zoned "P.D.11" and has an area of 1,366 square metres. In Mr Hillas' view, the property is comparable with the subject site. Its location on Sandgate Road affords it good exposure and its corner location provides flexibility of access and on-street parking. At the time of the sale, the vendor advised that the market rental was between $60,000 and $66,000 per annum. Mr Slater gave evidence that the vendor of this property had told him that the sale had been forced on the vendor by his wife and that he had sold the property cheaply. In Mr Slater's opinion therefore the sale was unreliable. However, Mr Hillas said the vendor had told him that he was satisfied he had obtained market price. Conclusion re pre-resumption value using comparative sales method The property at 190 Logan Road, Woolloongabba, provides the best evidence of the value of the subject site prior to the resumption. This property sold for $460,000 in December 1989 and the evidence was that there had been a slump in used car sales and the price of used car sites in 1990/1991. Although 190 Logan Road is inferior in exposure to the subject site, it has other advantages - easier access and superior off-site parking. This evidence is supported by the sale at 57 Gympie Road, Kedron. Taking into account these sales, I have accepted Mr Hillas' valuation of the property, using this method, at $490,000. To support his post-resumption valuation of $294,000, Mr Hillas relied on four sales. 1290 Wynnum Road, Tingalpa: This property was sold on 19 June 1992 for $220,000 ($200 per m²). It has an area of 1103 square metres and is zoned "P.D. 118 (Vehicle Sales Yard)". Mr Hillas said that the car sales yard has a small frontage (22 metres), a smaller site area than the subject site after resumption and lacks exposure. It has a capacity of approximately 27 vehicles. Mr Slater said that in his view this property was inferior to the subject site post-resumption but is a good indication of the post-resumption value. 2442 Logan Road, Eight Mile Plains: This property was sold on 11 April 1990 for $260,000 ($190 per m²). It is zoned "P.D. 118" and has an area of 1366 square metres. Mr Hillas reported that the property is located in an outer suburb on a portion of an arterial road which has had a large amount of passing traffic volume diverted away from it by the South-Eastern Freeway. The property therefore lacks the exposure of the subject site. It -- 14 of 21 -- 15 also has additional access problems due to a median strip in Logan Road. The yard has only one point of access/egress and has little off-site parking available. He considered the property to be inferior to the subject site post-resumption. Mr Slater said that in his view this site was superior to the subject site because it is larger and has a better site configuration. 1291 Logan Road, Mt Gravatt: This property was sold on 10 June 1990 for $550,000 ($260 per m²). It has an area of 2,115 square metres and is zoned "P.D. 118 (Vehicle Sales Yard)". The property is differently located from the subject site in that it is situated on Logan Road in the vicinity of a number of other car sales yards. It is not located on a corner and has only one access/egress point. The improvements such as the office building and pavement are far superior to that of the subject site. The contours also display the stock advantageously. Mr Hillas said that the property was inferior to the subject site before resumption but superior to it in the after situation. The main reason he selected the site was to demonstrate that a car yard can operate successfully with only one access egress point. In Mr Slater's view this property represented a reasonable comparison with the subject site. 73 Enoggera Road, Newmarket: This property was sold on 7 June 1990 for $226,000 ($283 per m²). It is zoned "Residential B (RDA3)" and has an area of 798 square metres. Mr Hillas commented that the yard has little exposure despite its location on an arterial road. It has poor accessibility and little if any on-street parking available. It has only a 20 metre road frontage. In his view the property is inferior to the subject in its post-resumption state. Mr Slater said that in his view the property is inferior but supports his post-resumption valuation. Counsel for the claimant submitted that this sale supports Mr Slater's opinion that the use of the comparative sales method of valuation is fraught with difficulty in this case because, although Mr Hillas considered it to be inferior to the subject site, he in fact has placed a lower value per square metre ($236 on the subject site) than applies to this property at Enoggera Road ($283 per square metre)). Conclusion re post-resumption value using comparative sales method The properties at 1290 Wynnum Road, Tingalpa and 73 Enoggera Road, Newmarket are inferior to the subject, post resumption. No useful comparison is possible with 1291 Logan Road, Mt Gravatt because of the site and location of that property and the nature of the improvements on it. The property at Logan Road, Eight Mile Plains is comparable, but difficult to equate because of its size. I have come to the conclusion that the capitalised value of $245,000 adopted by me is consistent with the sales evidence concerning the post-resumption value of the subject site. -- 15 of 21 -- 16 Disturbance The following amounts were claimed as disturbance losses: 1. Repairs to fence moved by Brisbane City Council $1,500 2. Damage to floodlights when moved by Brisbane City Council $2,204 3. Regrading of car yard to regain former display for cars and to alleviate flooding $19,840 4. Valuation fees $3,500 5. Loss attributable to programmed works (including interest of $2,780) $41,712 1. Repairs to Fence The fence was moved by the Brisbane City Council and reconstructed to fit the new frontage. The welding carried out on behalf of the respondent had to be rewelded. The claim of $1,500 was not contested by the respondent. 2. Damage to Lights The halogen floodlights around the property were removed by the Council, stored in the downstairs office onsite, and subsequently re-erected in June 1995. While the lights were in storage, they were affected by water flooding into the office. Following their relocation, the lights proved to be faulty on a number of occasions, necessitating various repairs. The amount claimed for this work totalled $1,952.06. The most substantial part of this claim was an invoice for $1,113.89 dated 20 March 1996 (some nine months after the lights were reinstalled), the work necessitated by the fact that there was a complete failure of the lights. In addition, the sum of $252 was claimed for the replacement of the fluorescent tubes in the office, that damage being caused, said Mr Appleton, by the fluctuations in the power supply to the site caused by the Council works. The respondent did not contest liability, in principle, for damage caused to the lights by the works, but queried whether the claim of $252 for the fluorescent lights and the claim of $1,113.89 for repair work to the floodlights were properly claimed or whether they should be regarded as routine maintenance. On balance, I consider that the claim for $252 should be allowed, but the claim for $1,113.89 is too remote, in time, from the relocation of the lights to enable this amount to be allowed. Therefore, I am allowing $1,090.11 for this item. 3. Regrading of Car Yard After the truncation of the corner, the site was recontoured by the Council as part of the restoration works. The recontouring has changed the lie of the land causing, the claimant -- 16 of 21 -- 17 says, two problems. The first is that the lower floor of the office building now floods, in heavy rain, and the second that the display of vehicles has been adversely affected. The claimant claims $19,840 as the cost of recontouring the site to rectify these problems. Evidence in support of this part of the claim was given by Mr Appleton and Mr TH Sunderland, a registered builder who is contracted to work for Kopa's Earthmoving, the contractor who supplied the quotation of $19,840 for recontouring the site. In summary, Mr Appleton said that the problems were caused by the fact that the Council had raised the level of the land at the perimeter of the site. The result was that the land sloped down away from the perimeter to a gully running through the middle of the yard and then sloped up to a higher level towards the back of the yard around the office block. There are two gaps in the land around the office block to enable access to the lower offices. When there is heavy rain, water accumulates in the gully and then flows through one of the gaps in particular, into the offices. In addition, because the land now slopes down from the perimeter, it is necessary to put the front row of cars on stands so that they are displayed level. Both Mr Appleton and Mr Sunderland gave evidence that the purpose of the proposed works was twofold - to alleviate the flooding and to restore the level of the site to enable the cars for sale to be displayed in the manner which was used prior to the construction works, that is without the use of ramps. Counsel for the respondent argued that the claimant was not entitled to claim separate compensation for the costs of restoring the yard to a similar incline to restore the display area because to do so would result in the claimant being compensated twice for the same loss. The method of valuation adopted, that is assessing the value of the property before and after the resumption, entails the valuation of the property in its after state, that is with the altered elevation. Any diminution in value caused by the effect of the recontouring on the display area has thus been taken into account, he submitted. It was accepted by the respondent that the claimant was entitled to compensation for the cost of rectifying the flooding problem, but the respondent disputed the amount claimed. Counsel for the respondent suggested that the flooding might be cured in ways other than by recontouring the yard. It was suggested to Mr Appleton that the gap through the bund could be raised to a higher level and thus the flooding of the offices could be avoided. However, Mr Appleton rejected this suggestion because, he said, that would cause an unacceptable build-up of water through the yard, which would then disperse in concentrated form into O'Keefe Street down the eastern side of the property. Mr Sunderland said that he had not considered that option but water would still flow onto the adjoining property on the eastern -- 17 of 21 -- 18 boundary. Alternatively, it was suggested that the flooding could be rectified by constructing a gully box through the middle of the yard. Mr Appleton said that this was impractical because of the expense, although he had not had the proposal costed. Mr Sunderland said that he did not believe that such a proposal was feasible because it would be necessary to interfere with a number of services (such as telephone lines, power lines, traffic control lines etc) in the footpath in order to get to the stormwater drain in the road. Given the evidence, I do not accept that either of these proposals would provide a satisfactory solution to the problem. Counsel for the respondent also suggested that the proposed regrading of the yard was more extensive than necessary to rectify the flooding. Mr Sunderland's quote proposes that the bund surrounding the office block be raised by about 300 mm and was prepared on the basis that his plan would cure both problems. Because he had this twofold purpose, Mr Sunderland was unable to say definitely whether it was necessary to take the bund so high simply to remedy the flooding, but he did not believe it was much higher than was needed to alleviate the drainage problem. Since the evidence I have accepted indicates the need for the yard to be recontoured to rectify the flooding problem, I allow the sum of $19,840 as claimed for this item. 4. Valuation Fees Valuation fees of $3,500 have been agreed between the parties. 5. Loss attributable to the Programmed Works The claim under this heading is based on the fact that the claimant was left in possession of the whole of the subject site from the date of resumption (16 March 1991) until January 1995. During that period the tenant continued to occupy the site, initially pursuant to the lease commencing on 1 February 1991 which expired in January 1994 and thereafter paying rent of $5,000 per month and outgoings. The tenant vacated the site in January 1995 when the construction work commenced. Thereafter the site was unusable as a car yard until June 1995 when the claimant resumed trading, principally to avoid losing the benefit of the site's non-conforming use status. Compensation of $231,000 was paid to the claimant on 14 December 1994. The basis of this claim is that the claimant remained in possession of the site, and therefore no interest is payable on any compensation amount until the site is vacated. The claimant therefore seeks an amount of $76,712.23 ($35,000 plus $41,712.23) to compensate for losses caused by the claimant's inability to use or let the site to its full potential while the -- 18 of 21 -- 19 claimant remained in possession, and subsequently, while the works were carried out. The principle which the claimant's valuer, Mr Slater, used to quantify this claim was that until the expiry of the second lease at the end of January 1994, the owner suffered no loss. After that date, in the absence of the resumption, it would have been expected that the rental would be renegotiated to a market rental. However, because of the impending works, this was not possible and the tenant remained in possession paying $5,000 a month rent. Mr Slater calculated, largely by comparison with a property at 1006 Ipswich Road, Moorooka, that the market rent payable, if a new lease had been fully negotiated, would have been $7,000 per month, an increase of $2,000 per month. The claimant therefore claims $2,000 per calendar month plus interest from 1 February 1994 to the end of November 1994. In December 1994 the Council took possession of the site and thereafter Mr Slater estimated that the market rent of the reduced site would have been $3,500 per month. However, with the prospect of the roadwork, he took the view that a prudent lessee would only pay a significantly reduced rent of $1,750 with the result that the owner would lose half the rent and would not recover outgoings. Thus this part of the claim includes rent of $1,750 per month from 1 December 1994, outgoings from 1 February 1995 and interest, until August 1996. To be set off against this claim is a credit of $35,000 paid by the respondent to the claimant in December 1994 as part of the compensation package. I have decided that this claim should not be allowed. The claimant is entitled to payment of compensation from the date of resumption, and in the absence of immediate payment, to interest on the unpaid amount. As from the date of resumption, the evidence was that the claimant remained in possession of the whole of the site, receiving rent for the whole of the site at $5,000 per month plus outgoings. On Mr Slater's evidence, the market rent for the reduced site was 50% of the market rent for the whole site. Therefore, from the date of resumption until the end of the lease, a period of three years, the claimant received approximately $2,500 per month above that to which it was entitled, a total of $90,000. Thereafter, assuming for the purpose of this discussion that the market rent for the whole site was $7,000 per month plus outgoings, the claimant received $5,000 per month plus outgoings when the market rent for the balance site would have been $3,500 per month. This amounts to $1,500 per month more than that to which it was entitled for the period from February 1994 to December 1994. These sums exceed any amount the claimant would have been awarded as interest payable on compensation of $245,000 for the period between March 1991 and December 1994. -- 19 of 21 -- 20 The claimant has received a payment of $35,000 in respect of any further losses attributable to the works (including the closure of the site), which appears, from the evidence, to be adequate compensation for such losses including any further temporary disturbance caused by the works. Determination of Compensation Loss in value of the property caused by the resumption $245,000 Disturbance items: Repairs to fence $1,500 Damage to lights $1,090 Regrading of car yard $19,840 Valuation fees $3,500 $25,930 $270,930 Compensation under all headings is determined in the sum of Two Hundred and Seventy Thousand Nine Hundred and Thirty Dollars ($270,930). Interest on Compensation An advance payment of $231,000 was made on 14 December 1994. The Court was not advised of all of the dates of any payment by the claimant of the disturbance items. The claimant remained in possession of the whole of the site until December 1994. As discussed above, the claimant received rental for the whole of the site until December 1994. In G & M Core Pty Ltd v. The Commissioner for Railways (1976) 3 QLCR 342 at 349, the Land Appeal Court said: "... we believe that any interest ordered to be paid upon the amount of compen- sation determined by the Court is solely for the purpose of ensuring that the dispossessed owner receives an amount when the compensation is paid equal to that he would have accumulated at that date, if such had been paid to him on the day the land was taken and he had invested it with the caution to be expected of the well-known hypothetical prudent person." The claimant has received more, by way of rental flowing from its continued possession of the whole site, than it would have received as interest. Therefore, no interest is awarded on compensation for the period from the date of resumption until the date of payment of compensation on 14 December 1994. It is ordered that the respondent pay to the claimant interest at the rate of 7.75 per cent per annum on the amount of $49,000 as and from 14 December 1994 up to and including the date on which payment of compensation is made. -- 20 of 21 -- 21 It is further ordered that the respondent pay to the claimant interest at the rate of 7.75 per cent per annum on $25,930 being the amount of disturbance items from the date when and if payment of such items was made, up to and including the date on which payment of compensation is made. CAC MacDONALD MEMBER OF THE LAND COURT -- 21 of 21 --