Bon Accord Pty Ltd v Chief Executive, Department of Natural Resources [1998] QLC 67

LAND COURT, BRISBANE 16 June 1998 Re: Determination of Unimproved Values - Local Government: BCC - Sandgate. (AV97-382 and AV97-383) Bon Accord Pty Ltd v. Chief Executive, Department of Natural Resources D E C I S I O N Two appeals lie against determinations of unimproved values for two parcels of land each of which is zoned "Business" under the provisions of the Brisbane City Council Town Planning Scheme which was gazetted on 13 June 1987. The relevant date for the determination of the unimproved values of both parcels is 1 October 1996. The respective real property descriptions, areas, unimproved values and situation of the appeal parcels: Ref. AV97-382 - Lots 2/3 on RP 807/18 and Lot 5 on Plan S 2729 and Lot 1 on RP 110117 and Lot 6 on RP 110118, Parish of Nundah, County of Stanley - 3306m2 - unimproved value $495,000 ($150 per m2) - situation Eastern Corner Lagoon and Hancock Streets, Sandgate; and Ref. AV97-383 - Lot 7 on Plan S2779 (Auction Perpetual Lease No 26979), Parish of Nundah, County of Stanley - 1611m2 - unimproved value $255,000 ($158 per m2) - situation Western Corner Lagoon and Hancock Streets, Sandgate. It is accordingly to be noted that the appeal parcels are separated only by Hancock Street. AV97-382 parcel is improved with a retail/commercial building known as the "Bon Accord Shopping Centre" (the shopping centre site), while AV97-383 parcel is developed for carparking purposes (the carpark site) for use by customers of the shopping centre and for an adjoining development owned by Jeays Hardware Pty Ltd upon which the business being conducted is known as Mitre 10. The appellant company contends within the notices of appeal for unimproved values of $344,000 for the shopping centre site and $142,500 for the carpark site, but led evidence through Kenneth Mervyn Shaw to unimproved values of $192,000 for the shopping centre site and $161,000 for the carpark site. [1998] QLC 67 -- 1 of 9 -- 2 Mr Shaw, who is a chartered accountant with many years experience and a director of Bon Accord Pty Ltd, furnished evidence in the matters. Before commenting in this decision in more detail upon Mr Shaw's evidence, I should say now that the general tenure of it was mainly directed to the history of the financial unviability of the Bon Accord shopping centre of recent years, together with a financial analysis of it. Mr Shaw formed Bon Accord Pty Ltd in 1965 by his own family and a number of his clients. He organised the building of the shopping centre and found the original tenants. The shopping centre building was erected following advice from architects and structural engineers, and Mr Shaw claims it to be a well-constructed building equal to, if not superior in construction standard compared with other retail shops used for commercial premises in Sandgate. But Mr Shaw says that by the relevant date for these valuations, Sandgate was in a retail shops backwater. He says its main shopping centre, which is in Brighton Road to the north-east of the subject parcels and separated from them by a public carpark and a lagoon known as "Einbinpin Lagoon", is also in a retail shops backwater. The Brighton Road shopping centre is an old- fashioned strip shopping centre along the eastern side of the road with most shops facing in a westerly direction. But not withstanding the overall unattractiveness of the Sandgate retail shops, Mr Shaw said that the shops in Brighton Road attract an overwhelming preponderance of shoppers in the Sandgate Central Business District. By way of comparison, Mr Shaw sees the subject shopping centre site to be disadvantaged by its remoteness and by the shopping habits formed by the population of Sandgate. He told us that there is no major modern shopping centre at Sandgate, and that retailing in the suburb has shown a gradual decline for about 20 years, and especially of more recent times, as there is competition from nearby modern shopping centres at Telegraph Road, Bracken Ridge (with a Coles Supermarket), and at Braun Street, Sandgate (with a Franklins Supermarket). There is a Woolworths Store in Brighton Road which Mr Shaw says is rather old-fashioned and dated and with structural design problems in comparison with modern shopping centres. Mr Shaw told us that the history of the Bon Accord Shopping Centre mirrors that of Sandgate generally - except that it is much worse judged by the unlet space in the centre. The initial base tenant in the shopping centre was Barry & Roberts Limited which company leased about 1,500 square metres of the centre for a supermarket for 21 years (from 1966 to 1987) when it "walked out" in September 1987. Cut Price Stores then occupied this space for a short period but it also vacated the premises due to unprofitable trading. The supermarket space, which equates about three-quarters of the lettable space in the shopping centre, then sat vacant for a period. There are five long-standing tenants in the building - Friendly Care Chemist, Suncorp, Jeays Auto, Townsley-Cake and Muller-Optometrist (who has recently asked for rent relief). -- 2 of 9 -- 3 These tenants lease direct street frontage floor areas. Of the available letting space in the building of about 2800 square metres, only 792 square metres is let to these tenants. It is significant to note that there are three street frontage shop areas which are still vacant with a total floor area of 300 square metres - so that the total street frontage lettable space is about 1100 square metres. Due to the large area of vacant supermarket space (formerly Barry & Roberts), Bon Accord Pty Ltd engaged Hogan McIntosh Real Estate in early 1988 to assist the owner to rejuvenate the shopping centre. Its brief was to carry out an investigation and preparation of the building, to market lease negotiations for commercial leasing and the implementation of the leases. Hogan McIntosh prepared a business plan and scoured Brisbane to find tenants. Possible tenants included Franklins (which declined), and Hogan McIntosh did not find a single tenant notwithstanding their quoted fee was $11,600. Mr Shaw says that eventually two tenants were found for the space vacated by Barry & Roberts for short periods at reduced rentals. They were LA Matthews and later Retravision (electrical goods) and Grainger and later his successor (furniture). Each of these tenants have also long since departed the building. A hairdresser has also left. Mr Shaw told us that Ray White Marketing was engaged at a cost of about $6,000 to advise about refreshing the building and finding tenants or finding a buyer. This activity was also unsuccessful, notwithstanding the building having been looked at by Leda, Kilcor Pty Ltd and Equivest. In due course, two more tenants vacated the premises - Jeays Floor Coverings and Condoleon - fruiterer. It was at this stage that the shopping centre was left with only the aforementioned five long-term tenants, two of which advised that they needed larger premises and who also advised of their intention to shift their businesses elsewhere if Bon Accord could not accommodate them. As a result, Bon Accord carried out a major refurbishment of the building for the five tenants (at a cost of approximately $1 million) and in addition hoped to obtain new tenants which were needed to provide an adequate return on the funds invested. Bon Accord then embarked upon negotiations with many possible tenants who showed some interest. Hoped for tenants included Coles, Bi-Lo, Woolworths Variety Store, Spar and Jewell (subsidiaries of Davids), Crazy Clarks and Matthews (discount stores), three video shopping firms, five coffee shop and/or restaurant firms, and five sundry shops. Mr Shaw says that all of these possibilities did not even produce one tenant, notwithstanding that the sought-after rentals were set by independent firms (LJ Hooker - Sandgate, and Ray White, Chermside). Other agents engaged in attempts to find tenants included Raine and Horne (Milton) and Spectrum Properties - without success. Mr Shaw describes the net result of his company's outlay of nearly $1 million on reimbursement of the building as only succeeding in holding the five long-term tenants. Mr Shaw told us that the shopping centre has been in distress for many years. He claims that the source of the distress is not in the standard of the building on the site, but in the site's -- 3 of 9 -- 4 position in Sandgate, and that this detrimentally affects the unimproved value of the shopping centre site. Another factor of influence upon the unimproved value of the shopping centre site is what Mr Shaw describes as its unstable foundation "being a swamp". He says that owing to the foundation difficulties it was necessary, on the advice of engineers Messrs Cardno and Davies, to sink no fewer than 79 piles to a depth of 25 feet (7.5 metres) to obtain a stable foundation beneath the building, and he produced a drawing prepared by that firm (No 1-461B - Sandgate shopping centre foundations) in support of this contention. Mr Shaw has recently engaged the architectural firm, Messrs Ellick and Partners, to advise the present day estimate of the over-costing for sinking the piles for the building over and above costs for foundations required on sound footings. This over-cost estimate was in the sum of $138,040, and it is claimed by Mr Shaw that this additional cost should be taken into consideration when the unimproved value of the shopping centre site is being assessed. Mr Shaw told us that the general comments he has made in respect of the shopping centre site also apply to the carpark site save that he believes there to be no justifiable claim for additional foundation costs if a building was ever erected on that land as it is higher in nature and has sound natural foundations. Mr Shaw produced on behalf of the directors of Bon Accord Pty Ltd five valuation scenarios for the shopping centre site. They include firstly the methods of capitalisation of net rental returns, secondly the capitalisation of a hypothetical development on the shopping centre site (on the assumption that the land was vacant at the relevant date for valuation), thirdly comparison with sales evidence. The first method produced an unimproved value of $35,470 after an allowance of $138,040 for the extra costs of piling was made, and the second, a negative unimproved value. Both of these valuation assessments were abandoned by the appellant company during the hearing of the matters, and no further discussion need be had on input factors such as rental revenues, disputed development (building) costs, lack of tenancies, and developers profit and risk, although it must be said that a considerable amount of the evidence in the case was directed to a disputed replacement cost of the shopping centre building. The values contended for by the appellant for both parcels arose from information gained by Mr Shaw (presumably at a failed Court supervised preliminary conference) that the respondent Chief Executive had used the analyses of two comparable sales as a basis for his respective valuation assessments. One of his sales of a vacant shopping centre site situated at 153 Hamilton Road, Wavell Heights (more detailed particularisation will follow in this decision) was analysed to show an unimproved value of $229 per square metre and the Chief Executive applied an unimproved value of $201 per square metre to that site for his 1 October 1996 relevant date valuation. Using the applied value, Mr Shaw suggests that the value of the subject shopping centre site, and for that matter the carparking site, should be $100 per square metre -- 4 of 9 -- 5 The shopping centre site - 3306m2 @ $100/m2 - say $330,000 Less Extra piling costs $138,000 (half the rate applied to the Hamilton Road site). He accordingly arrives at the values contended for during the course of his evidence as follows: $192,000 The carpark site - 1611m2 @ $100/m2 - say $161,000 Mr Shaw outlined in evidence the reason why he thinks the subject lands should be valued at 50% of the unimproved value rate which was applied to 153 Hamilton Road. He says that since the sale of 153 Hamilton Road, a block of six shops has been erected on that land of which five are already let. There is a pharmacy, a medical centre (two shops), a bakehouse and a cheesecake shop. There is parking provided in front of the shops for 23 cars, in comparison with the very limited on-site parking at the Bon Accord Shopping Centre. But this, of course, is a direct result of the much higher site coverage of the subject shopping centre site. Mr Shaw told us that adjoining 153 Hamilton Road on both sides are two more retail shopping buildings with 11 shops. In addition, there is a Post Office, a swimming pool parts vendor, and a very large fruit shop opposite 153 Hamilton Road. Further, Mr Shaw says that Hamilton Road carries a significantly higher volume of vehicular traffic than that which passes the subject land. He recognises that the Chief Executive discounts the applied value to 153 Hamilton Road by a factor of about 25% when valuing the subject land parcels, but feels a discount factor of 50% is more appropriate. I should say here the fourth and fifth valuation methods used by Mr Shaw involve calculating a value on a speculative holding basis and on a comparison using as a standard, Brisbane City Council rating assessments. Neither method is recognised as being of merit in cases of this nature. Kenneth John Shaw, who is the son of the first called Mr Shaw, also furnished evidence in the matter. Mr KJ Shaw's evidence was largely confirmatory of Mr Shaw Senior's view about the lack of viability of the Bon Accord Shopping Centre. He especially made reference to the fact that 153 Hamilton Road site is located in a "Business" zoned area of only 4,000 square metres which serves a very large residential area of superior class to that existing in Sandgate. To lend weight to his father's opinion about the relative merits of the Bon Accord Shopping Centre site and 153 Hamilton Road, Mr Shaw, Junior, pointed out that in Sandgate there is about 40,000 square metres of land which is zoned "Business". Mr Shaw, Junior, also reaffirmed his father's evidence about the much higher traffic volume in Hamilton Road in comparison with that in Lagoon and Hancock Streets, Sandgate. The valuation under appeal was made by Mervyn Wellesley Cowley who is a Registered Valuer in the employ of the Department of Natural Resources. Mr Cowley describes the nature of the shopping centre site as being near-level, the elevation is moderate in relation to the -- 5 of 9 -- 6 surrounding area, while he says the carpark site land in its natural topography includes a gentle slope falling from the west to the east with moderate elevation in relation to the surrounding locality. During the presentation of his evidence, and after examining architectural plans put in evidence by the appellant, Mr Cowley was less certain that his description of the land as being near level was accurate, but I think it was. Mr Cowley has made the valuations under appeal in relation to the analyses of two sales of "Business" zoned sites. Details of these sales, together with Mr Cowley's description of the sites are: Sale 1 - Lot 2 on RP 83093 and Lot 1 on RP 98445 - 1392m2 - V and RM Kuen Wu to Foxray Pty Ltd on 6 June 1996 for $320,000 - analysed unimproved value $318,500 ($229 per m2) - applied unimproved value $280,000 ($201 per m2) - situation 153 Hamilton Road, Wavell Heights. Mr Cowley describes this land as being an inside lot, irregular in shape and possessing a gentle slope falling below road level. He says the frontage to Hamilton Road is approximately 43 metres and the depth is approximately 40 metres. Mr Cowley describes the elevation of 153 Hamilton Road land as being moderate in relation to the surrounding area. Sale 2 -Lots 416-420 on RP 32988 - 2015 square metres - the Shell Company of Australia Pty Ltd to Heritage Properties Commercial Pty Ltd on 21 November 1995 for $795,000 - analysed unimproved value $743,000 ($369/m2) - applied unimproved value $665,000 ($330 per m2) - situation 95 Tingal Road (Cnr Edith Street) Wynnum. Mr Cowley describes this site as being near-rectangular in shape with a north-western frontage to Edith Street of 37.341 metres and a south-west frontage to Tingal Road of 48.953 metres. He says the land has moderate elevation in relation to the surrounding area and is near level. Mr Cowley makes a comparison between his sales and the shopping centre site as follows: Sale 1 - This site is considerably smaller in area than is the shopping centre site. Hamilton Road carries a higher volume of traffic, but the sale site does not have a corner position and is not exposed to or within walking distance of a business centre such as Sandgate. The sale site was subsequently developed with a small tilt slab neighbourhood shopping centre with a considerably lower site coverage due to parking requirements. Mr Cowley sees the shopping centre site to be slightly inferior on a rate-per-square-metre basis due to its larger site area. Sale 2 - Mr Cowley says this sale property has the same zoning as the appellant's land and is also located in a secondary, bayside, commercial locality. A three tenancy, part two level building has been constructed on the land since its purchase. The Commonwealth Bank and -- 6 of 9 -- 7 Credit Union Australia occupy two tenancies and the other is vacant. Mr Cowley says that this sale site has better exposure to a distributor level road, but has less off-site public parking available. However, due to the sale site's smaller area, the appellant's shopping centre site is considered to be inferior on a rate-per-square-metre basis. Similarly, Mr Cowley makes a comparison between his sales and the carpark site as follows: Sale 1 - This sale property has a slightly smaller area than the carpark land. He again says that Hamilton Road carries a higher volume of traffic, but Hamilton Road again does not have a corner position and is not within walking distance of a business centre such as Sandgate. Overall, due to its inferior exposure, Mr Cowley says the carpark land is slightly inferior on a rate-per-square-metre basis. Sale 2 - Mr Cowley again says that this sale land is located in a secondary, bayside commercial locality. He comments that this site has better exposure to a distributor level road, but has less off-street parking available. However, due to this site's more exposed position, again Mr Cowley says the carpark site is inferior on a rate-per-square-metre basis. Mr Cowley considers he has made sufficient allowance in his valuation of the subject parcels for the matters raised by the appellant, including the lack of exposure to vehicular traffic in comparison with that available from the much busier Hamilton Road, and the lower unimproved value of the subject lands per square metre in comparison with higher valuations per square metre of "Business" zoned lands in Brighton Road. He also says that a search of Departmental records suggests that an allowance was made for site disabilities for the shopping centre land back as far as in 1968, but he cannot be certain that this allowance has been carried through to the 1 October 1996 relevant date valuations. Mr Cowley fairly and properly concedes that if a commercial building was to be erected upon the subject land at the relevant date, although the site coverage available under the Council ByLaws (50%) would be much less than the coverage of the existing building - (there would in all probability be a requirement for additional off-street carparking) - then piling of a building would be in all probability a constructional requirement. But Mr Cowley believes that with more modern modular-style construction available as at the relevant date, then the piling requirement would be less than in the existing building where piling is used to support load-bearing walls. I am satisfied on the weight of the evidence that piling would be required for the construction of a building on the shopping centre site as at the relevant date for valuation, especially as the appellant tendered in evidence (Exhibit 18) an old photograph of the area within which the subject lands are situated which clearly shows surface water lying on a significant area of the parcel. But the only direct evidence of the additional cost of piling is for the existing building, and the parties are in agreement that it would be imprudent to construct a building at -- 7 of 9 -- 8 relevant date with the floor area of the existing building with its large vacancy in the rental market. Clearly the potential of the shopping centre site would be realised with the construction of a building to provide lettable space on both street frontages with carparking provided at the rear. So what allowance do I make in the determination of the unimproved value of the shopping centre site for the additional costs of piling in relation to the costs of building on the topographically sounder sale evidence sites? Mr Shaw (Junior) came up with a suggestion in his address that the Court should use a pro rata basis in relation to the floor area permitted under the ByLaws at relevant date (1650 square metres based on Mr Cowley's advice of a permissible 50% site coverage) in relation to the existing lettable building floor area of about 2800 square metres - calculating to an extra piling cost of about $80,000. Now while I have no evidence that the extra cost of piling for a hypothetical lesser floor area building at relevant date would be the same per square metre as for the existing building, this is perhaps the best solution to the problem of quantifying what allowance should be made for extra piling costs for the construction of a hypothetical shopping centre building at the relevant date of valuation. But I have some doubt, particularly after examining the architectural drawings in evidence (Plan 1 - 461B), that a modern street frontage only style building would involve extra piling costs of as much as $80,000. Taking an overview of all the relevant evidence, including the difficulties with the sites' location as a commercial proposition, especially in comparison with 153 Hamilton Road, the lack of exposure on the subject sites, again especially in comparison with 153 Hamilton Road, the differing sizes of the subject sites (particularly the shopping centre site's large area of 3306m2), and the sale parcels, the probable extra building (piling) costs for the hypothetical development of a shopping centre site with a floor area of about 1650 square metres, I make the following determinations: Ref. V97-382 (the shopping centre site) - The appeal is allowed, the determination of the Chief Executive is set aside, and the unimproved value of Lots 2/3 on RP 807/18 and Lot 5 on Plan S2729 and Lot 1 on RP 110117 and Lot 6 on RP 110118, Parish of Nundah, County of Stanley, is determined in the sum of One hundred and fifteen dollars per square metre - in the rounded-off value of Three hundred and eighty thousand dollars ($380,000). Ref. AV97-383 (the carpark site) - The appeal is allowed, the determination of the Chief Executive is set aside, and the unimproved value of Lot 7 on Plan S2779 (Auction Perpetual Lease No 26979), Parish of Nundah, County of Stanley, is determined in the sum of One hundred and thirty dollars per square metre - in the rounded-off value of Two hundred and ten thousand dollars ($210,000). -- 8 of 9 -- 9 (CH Carter) Member of the Land Court -- 9 of 9 --