Bullen v Chief Executive, Department of Natural Resources [1998] QLC 12

LAND COURT BRISBANE 11 FEBRUARY 1998 Re: Appeal against annual valuation Valuation of Land Act 1944 Valuation Roll No.: 13997 Local Government: Toowoomba City Council AV97-214 Kathryn M and Kenneth E Bullen v. Chief Executive, Department of Natural Resources (Hearing at Toowoomba) D E C I S I O N Background: This matter relates to a property No. 2A Dorge Street, Middle Ridge, located at the junction of Dorge and McStay Streets, Middle Ridge, Toowoomba and described as Lot 1 on RP 159936, Parish of Flagstone. The parcel is located about 8 km south-east of the Toowoomba Post Office, and has an area of 1.083 ha. The key issues are the nature of the land, comparison of sales, the sale of the subject, the value of improvements, and the impact of disabilities. The subject has an irregular shape, comprising approximately 3,300 m² of moderately sloping land, then falling away to steep and virtually inaccessible terrain. Located upon the edge of the escarpment, the subject has panoramic range views towards the east, although partly obscured by timber near the subject. Access is good via Dorge Street which is bitumen sealed with concrete kerbing and channelling. Services include town water, electricity and telephone. There is no sewerage connected. The land is zoned as "Rural Residential" under the Town Planning Scheme of the Toowoomba City Council of 10 June 1989, and effective at the date of valuation of 1 October 1996. The subject is used as a residential site, with improvements of two small dwellings. Its highest and best use is as a single residential site. On 1 April 1997 the Chief Executive, Department of Natural Resources issued a valuation of the subject at $131,000. Following an objection, the Chief Executive on 1 July 1997 issued an amended valuation at $128,000. The appellants have now appealed that figure, claiming the valuation should more properly be $50,000. [1998] QLC 12 -- 1 of 10 -- 2 Mr KE Bullen appeared and gave evidence for the appellants. Mr BM Tannock appeared for the respondent, calling evidence from Mr PJ Janke, the departmental registered valuer responsible for determining the valuation. Evidence: Mr Bullen argues that the valuation of the subject is excessive, bearing in mind that he had only acquired the subject as an improved property for $130,000 on 6 January 1997. The purchase followed an extensive period of seeking interest by the former owner, The Blessed Sacrament Congregation of Box Hill Victoria. The former owner had sought to market the site for about six to nine months during late 1996, finally going to tender. The appellants were the successful of two tenders at a total of $130,000. The Blessed Sacrament Congregation had not sought to renegotiate a higher figure with either of the tenderers, to the appellants' knowledge, and had apparently been satisfied with the price submitted. Mr Bullen noted that he was the owner of an adjoining vacant lot (Lot 1 on GTP893). He purchased the subject to ensure that he retained the views from the adjoining GTP parcel, as the only usable area of the subject adjoins that parcel. He feels he was successful in the tender for that reason, as the other tenderer had also apparently offered $130,000 in their submission. Mr Bullen was not aware of the extent of public advertising of the sale, as he had only heard about it from a friend who was a real estate agent. From memory, he recalled that the tenders were called about June or July 1996, and closed in October 1996. The appellants' tender was submitted apparently following personal inquiries to the former owner in Victoria. When they submitted their tender, Mr Bullen was aware that comparable flat sewered vacant land of area about 0.4 ha in that area was selling for about $130,000. The appellants' current plans are to rent their existing residence at 43 Panorama Crescent, and to renovate and occupy one of the existing dwellings upon the subject. Once they have constructed their new home on the adjacent Lot 1 on GTP893, the appellants will then rent out the dwelling upon the subject. The appellants bought the GTP lot about two years previously for $90,000 and they were aware of the market for similar land as they had purchased several other properties in the area. As an informed property investor, Mr Bullen claims his purchase price of $130,000 for the subject reflected something in excess of $50,000 for the land, and the balance for the existing dwellings. He has insured the two dwellings at a conservative replacement cost of $80,000. He agrees that his decision was -- 2 of 10 -- 3 influenced by his owning the adjoining GTP lot, and the potential rental capacity of the dwellings for between $100 and $150 per week. The appellant argues that the steep parts of the subject are liable to land slippage, as evidenced by the distorted growth of some trees. The clearing of any timber in order to improve the range views would also impact the instability of the land. During heavy rain the surface water forms into a waterfall into a gully near the north-western corner of the parcel. There is also stormwater erosion from Dorge Street and McStay Street into that gully near the front boundary. Mr Bullen has had professional advice suggesting that any buildings upon the subject should be restricted to an area of 1,800 m² adjoining Lot 1 on GTP893 in order to avoid damage from potential slippage. In supporting his valuation, Mr Janke noted that he had assessed the property as a single residential parcel under s.17 of the Valuation of Land Act, ignoring any possible subdivision potential, which he agreed was unlikely due to the difficult nature of the land. He investigated eight sales of vacant land in the area, calling evidence in particular on four rural residential vacant parcels:  Sale 1 - (Rowbotham Street - Lot 4 on RP 124407). This is a 4,047 m² irregular shaped parcel located about 600 metres north-west of the subject. The sale slopes moderately from the road towards the east, and there are no range views. The sale is seen as superior land, but inferior in views, and therefore is considered overall inferior to the subject. The sale sold in July 1996 for $140,000, which after allowing for improvements was analysed at $127,500, and applied at $120,000.  Sale 2 - (Donaghy Court - Lot 11 on RP 849263). The sale is a slightly elevated irregularly shaped lot of area 4,217 m², located about 680 metres west of the subject. The sale has a moderate slope towards the east, currently with good range views towards the south-east, but these could be restricted by a future building on the adjoining lot. The area is a newer subdivision and has high quality homes. It is better located, but the views are not as extensive as the subject. Overall the sale is seen as superior to the subject. The sale sold in September 1996 for $175,500, which after allowing for improvements was analysed at $172,500, and applied at $152,500.  Sale 3 - (Dorge Street - Lot 28 on RP 883346). This is a regularly shaped parcel of area 4,000 m², with a moderate slope towards the east. There are no range views, and the sale is intersected by a gully through it, through its north-eastern part. It is located 260 metres west of the subject, in an area of more moderate quality homes. The sale has superior land but inferior views. Overall it is seen as inferior. -- 3 of 10 -- 4 The sale sold in October 1996 for $131,000, which after allowing for improvements was analysed at $126,000, and applied at $120,000.  Sale 4 - (Mackenzie Street - Lot 2 on RP 220760). This is an irregular shaped parcel of area 4,007 m², located about 680 metres north-west of the subject. The sale slopes gently from north to south, and has no range views. The sale is superior land, but has inferior views, and overall is seen as inferior to the subject. The sale sole in January 1997 for $140,000, which after allowing for improvements was analysed at $137,000, and applied at $120,000. Mr Janke adopted sales of vacant land as the preferred method established by the Courts. He used his Sale 4, which post dated the date of the valuation, as the sale was also in line with the other three sales. He noted that there had been an upward change in the market during 1996, and provided two additional schedules of sales (Exhibit 5), to demonstrate that change. Mr Janke argues that the evidence of sales of vacant land between 1 January 1996 and 1 October 1996 demonstrates that lots of area 0.4 ha in the Middle Ridge location increased on average by 20%. Because of the improvements to the subject, Mr Janke did not rely upon it during his analysis for the current valuation of the subject. Following the objection he personally interviewed Father Knowles of the Blessed Sacrament Fathers' Trust, and formed the view that the sale of the subject was out of line with the market. Father Knowles indicated that the property was never fully listed and tested on the open market. The tender offer was accepted eventually because it aligned with the valuation of the property obtained from a local valuation firm in Toowoomba in January 1996. Mr Janke felt that the vendor was not aware of the movement in the market during 1996, perhaps because they resided interstate, although Mr Bullen disputes that conclusion. The schedule submitted provided little specific details of the individual sales, except that they were of rural residential parcels, and of area approximately 4,000 m². The sale prices of the five lots for the valuation at 1 October 1996 varied from $131,000 to $195,000, and all indicated a rise of 20% above the former valuation at 1 January 1996. The two lots in the second schedule for the valuation at 1 January 1996, provided sale prices of $111,000 and $135,000, and a nil variation from the former valuation at 1 January 1995. In noting relativity between the subject and surrounding parcels, Mr Bullen argues that the specific disabilities were not adequately addressed in the original relativity prior to the current valuation. To maintain the old relativity now, further ignores the agreed disabilities. Mr Janke agreed that relativity was a key matter for consideration during a valuation, but he believes the current relativity is appropriate. -- 4 of 10 -- 5 Decision: In considering this matter, I note that the respondent has relied in his valuation upon a comparison of sales of vacant land in the area. In so doing, he has followed precedent established in many Courts in respect of the determination of unimproved value of land. I note, for instance, in WM and TJ Fischer v. The Valuer-General (1983) 9 QLCR 44, the Land Appeal Court said at p.46: "It is indeed a fundamental principle of valuation that the best basis for assessment of unimproved value is the use of sales of vacant or lightly improved parcels. Whilst maintenance of correct relativity is also of considerable importance for rating or revenue type valuations, we cannot prefer in the circumstances of this case, the use of the principle of relativity to the exclusion of the sales evidence." That was also supported in AC and AA Ussher v. The Valuer-General (1986-87) 11 QLCR 169, where the learned Member found at p.176: "I am unable to accept this submission. Courts of the highest authority in many cases have approved the method of valuation whereby analysed sales of comparable lands are used as a basis for comparison with the subject land, in order to determine an unimproved value. Valuation text books support this approach." However, the clearest guidance is perhaps provided in PH Clough v. The Valuer-General (1981-82) 8 QLCR 70 (LAC), where the Land Appeal Court said at p.76: "It has been judicially laid down many times and in many jurisdictions that in ascertaining unimproved value, sales of unimproved land of comparable quality, situation, etc., to the subject parcel, if they are available, are to be preferred as the best guide for arriving at unimproved value. The reason is obvious. In applying such sales there is no room for error in analyzing the value of improvements." In considering his comparison of sales, Mr Janke has drawn upon four sales. Three of those sales (1, 3 and 4) are seen as inferior at applied unimproved values of $120,000, and Sale 2 is seen as superior at $152,500. Clearly the existence of range views adds considerably to the value of parcels in the Middle Ridge area. The subject has good range views, although partly obscured by timber on the near slopes. The appellant provided only one sale of an improved property, the subject itself. In the matter of the nature of the land, I note that there is agreement that only 3,300 m² of the subject has potential for living areas, and the remainder of the 1.083 ha is virtually inaccessible. I note also that there is no disagreement that only 1,800 m² of the subject is suitable for building purposes. I note also that, due to the precipitous nature of much of the -- 5 of 10 -- 6 land, and some potential for slippage, there are disabilities of the land that would inhibit future development, in comparison to the sales evidence. On balance, except for the extensive range views, the subject has little special attraction for possible purchasers. In comparison with Mr Janke's Sale 2, I would agree that the subject is considerably inferior to that sale. However, in considering the special attraction of range views, I note that none of Sales 1, 3 or 4 have any range views, and it would seem reasonable that the subject, with range views, is not likely to be inferior to those sales. I turn then to the sale of the subject, which also occurred within the relevant period. In considering the relevance of that sale, I note the well-established principle for determining the unimproved value of land set out by the High Court of Australia in Spencer v. The Commonwealth of Australia (1907) 5 CLR 418, where Griffith CJ said at p.432: "In my judgment the test of value of land is to be determined, not by inquiring what price a man desiring to sell could actually have obtained for it on a given day, i.e., whether there was in fact on that day a willing buyer, but by inquiring 'what would a man desiring to buy the land have had to pay for it on that day to a vendor willing to sell it for a fair price but not desirous to sell?' It is, no doubt, very difficult to answer such a question, and any answer must be to some extent conjectural. The necessary mental process is to put yourself as far as possible in the position of persons conversant with the subject at the relevant time, and from that point of view to ascertain what, according to the then current opinion of land values, a purchaser would have had to offer for the land to induce such a willing vendor to sell it, or, in other words, to inquire at what point a desirous purchaser and a not unwilling vendor would come together." In this matter I note also the findings of The Chief Executive, Department of Lands v. J & L Lorenzen (AV93-22), 1 June 1994, unreported, where the Land Appeal Court said at p.4: "Whilst we agree that a sale of the subject land should always be considered in assessing its value we hasten to stress that such a sale is only prima facie evidence of its value. The weight which will be given to the sale is dependent upon a number of factors, the most important of which is whether the sale is in reasonable conformity with the market as demonstrated by other sales of comparable land." I note that the sale of the subject was considered by the High Court in Jowett v. The Federal Commissioner of Land Tax (1926-27) 38 CLR 325, where Rich J said at p.329: "A sale of the subject land, or of comparable land, affords the best means of arriving at the fee simple value of any land, ..." -- 6 of 10 -- 7 However, in dealing with that matter Rich J was considering the approach taken by the Department in arriving at the unimproved value of several large Crown leases in Queensland. The methods adopted by the departmental witnesses were criticised by the High Court, which said at p.327: "The witnesses who gave evidence in this case on behalf of the department had little or no practical experience in the pastoral industry, and were hampered by departmental rules, which they applied in a rigid and automatic fashion to the valuations in question, without exercising any individual judgment in the matter." In the current matter there is no evidence to suggest that Mr Janke has applied an arbitrary approach to the valuation, or has failed to exercise any individual judgment. In adopting the sale of the subject, Mr Bullen is confronted with the problem of determining the value of improvements which should be deducted from the sale price in order to arrive at the unimproved value of the land. He has sought to arrive at a conservative depreciated value of the improvements, rather than seek to ascertain the added value which the improvements bring to the property. The difficulties in this approach were explored by the Privy Council in the matter of Tooheys Limited v. The Valuer-General (1925) AC439, where the Privy Council concluded that the improved value of a property was not an appropriate starting point for determining unimproved value, because of the existence of a licence connected with the improvements. In the current matter there is no similar restriction upon the subject, however, the matter of determining the added value of the improvements was also explored in O'Brien Nominees Pty Ltd v. The Valuer-General (1979) 6 QLCR 280, at p.284: "The basic properties have sold at prices considerably below the value of the improvements assessed on the traditional method of replacement cost less accrued depreciation. In such circumstances it is unrealistic to conclude that land, the commodity basic to the enterprise, has a minus or nominal value. It is logical to assume that in times of adversity and depression, when purchasers pay less for properties as a going concern, that the lesser price attaches not only to the land component but also to the improvements. The question facing valuers in analysing improved sales in these circumstances is what value is fairly to be attributed to the improvements? It appears to us that the only tenable approach is to abandon the traditional method of replacement cost as at sale date less depreciation and to adopt an 'added value' concept." -- 7 of 10 -- 8 The difficulty for Mr Bullen is to ascertain the added value of the improvements. The appropriate method in such circumstances would be for Mr Bullen to compare the land with other sales of vacant land, and then to deduct that value from the improved sale price. In the context of this exercise, the use of sales of vacant land is clearly preferred. In the context of checking the market, as determined by Mr Janke's sales, the analysis of the sale of the subject, has some relevance, although it is fraught with some difficulties. I note also the findings of the Land Appeal Court in PN & KJ Fitzgerald Re: Perpetual Lease Selection No. 6191, Roma District (1965) 32 CLLR 260, which said at p.261: "Unimproved values obtained by analysing the sale of one highly improved area do not normally provide a safe basis upon which to make determinations of value of comparable land." While that matter related to a conversion of a tenure of a selection to an agricultural farm, the principle holds also in the current matter, as Mr Bullen has relied solely upon the one sale of an improved property. The matter of the relevance of adopting a sale of the subject was also clearly defined by the President of this Court in Determination of Rents and Unimproved Values for Conversion Purposes - Perpetual Lease Selections and Grazing Selections - Goondiwindi District (1974) 1 QLCR 45, who said at p.48 "Whilst a sale of a subject property around the relevant date in normal circumstances is cogent evidence of its value, it is always necessary to check the analysed value against the standard reflected by other sales of comparable properties to ensure that it conforms to the 'norm' of the market. If the sale does not so conform caution must be used in its application and it may even be proper to reject it if it is shown to be a sale out of line with the market 'norm'. This check becomes vital, in my opinion, in times of a varying market be it rising or falling or in times of an erratic market. One cannot assume, ipso facto, that the analysed sale figure equates fair market value for the subject purposes." In considering now the sale of the subject I note that, while tenders were called and considered over an extended period of time, the final acceptance of the offer from Mr Bullen appeared to lean heavily upon the valuation report prepared in January 1996. Based upon the additional sales provided by the respondent, there would appear to have been some movement in the market since that date, perhaps unknown to the vendor. In the end, Mr Bullen agrees that he bought the subject at an attractive price. I would agree that his purchase was most astute, and I can understand Mr Janke's reluctance to place too much weight upon the sale -- 8 of 10 -- 9 itself. I note also that as Mr Bullen is an adjoining owner, with a special reason for acquiring the subject in order to retain some views for the group title lot, there is also further evidence to query whether the sale aligned with normal market expectations. While the purchase by an adjoining owner may reflect a special value to the purchaser rather than market value, that does not always apply. For example, in Hurdis v. The Minister (1957) 2 LGRA 132, Hardy J said at p.140: "It is true that in many cases a purchase by an adjoining owner of property, whether in a city, suburban, or rural area, reflects special value to the purchaser rather than market value. That, however, does not apply in all cases. Where, as here, there are no other sales available to support a party's contention that the sale to an adjoining owner reflects something more than market value it is incumbent on that party to point to some circumstances associated with the sale or with the property itself or the position, needs and desires of the purchaser to justify the inference that the selling price was an excessive one." Conversely, in the current case the same onus really falls upon the respondent to prove that the sale of the subject was at a lower price than the market. In the end, I prefer to rely upon the comparison of the other sales of vacant lands. I turn then to the matter of relativity with surrounding parcels, and note that Mr Janke has sought to maintain the former relativity. The significance of maintaining correct relativity was identified in TF & SA Shepherdson v. The Valuer-General (1992-93) 14 QLCR 83, where the learned Member found at p.87: "Applying to this case the principles of law summarised above, it is desirable that valuations of comparable lands should bear proper relativity. The appellants are entitled to rely on the valuations of properties in the vicinity of the subject land as being correct." However, the matter of whether there was a sound basis for the relativity was explored in R & MM Barnwell v. The Valuer-General (1989) 13 QLCR 13, where the Land Appeal Court found at p. 16: "We are conscious that it is desirable that valuations made for the purposes of the Valuation of Land Act of comparable lands should bear proper relativity, one to the other, if the valuations are soundly based. It is, however, untenable to adopt a value for one parcel on relativity with another which has no sound basis." While relativity is therefore a matter of concern, particularly in respect of the purpose of the Valuation of Land Act to provide valuations which provide a fair and equitable basis for the determination of liability to rates and taxes, it must be considered in the context of -- 9 of 10 -- 10 whether there was an appropriate former determination. The evidence suggests that the disabilities associated with the nature of the land may have formerly been underestimated. While the subject has good range views, the limitations upon its further development, when compared to Sales 1, 3 and 4, would appear to balance those views. I believe a reasonable estimate of the valuation would be comparable at $120,000. Conclusion: Having considered the whole of the evidence, I am persuaded that the appellants have partly proved their case. The unimproved value as determined by the Chief Executive, Department of Natural Resources is set aside, and the unimproved value of Lot 1 on RP 159936 is determined at One Hundred and Twenty Thousand Dollars ($120,000). NG DIVETT MEMBER OF THE LAND COURT -- 10 of 10 --