Clearmaize Pty Ltd as trustee & Ors v Chief Executive, Department of Lands [1996] QLC 51

LAND COURT BRISBANE 26 APRIL 1996 Re: Appeals against annual valuations Valuation of Land Act 1944 Shire of Emerald Clearmaize Pty Ltd as trustee, Alan J Mann and Terre A Mann v. Chief Executive, Department of Lands (AV95-273) David C McCullagh and Jennifer A McCullagh and McCullagh Nominees Superannuation Fund v. Chief Executive, Department of Lands (AV95-274) (Hearing at Emerald) D E C I S I O N The abovementioned appellants are the owners of certain irrigation farms situated in the Parish of Selma, to the north-west of the Town of Emerald in Central Queensland. The farms are in the Emerald Irrigation Area and are used for growing irrigated cotton. They are in close proximity to Emerald, with access by means of the bitumen sealed Gregory Highway. As far as I can ascertain from the evidence, the ownership of the subject lands are as follows. Clearmaize Pty Ltd as trustee, Alan J Mann and Terre A Mann are the owners of Lot 140 on Plan DSN 691, with an area of 219.3 ha; David C McCullagh and Jennifer A McCullagh are the owners of Lot 139 on Plan DSN 653, with an area of 216.961 ha; and David C McCullagh and Jennifer A McCullagh as trustees for the McCullagh Nominees Superannuation Fund, are the owners of Lot 141 on Plan DSN 714, with an area of 209.962 ha. Under the provisions of the Valuation of Land Act 1944, the respondent determined the unimproved values of those lands as at 1 January 1995 as follows: Lot 140 $427,500 Lots 139 and 141 $830,000. The owners appealed to the Land Court against those determinations, advising that their estimates of the unimproved values are: Lot 140 $330,000 Lots 139 and 141 $650,000. The grounds of appeal are virtually the same for each appeal and range from the difficulties of water allocation by means of open earth supply drains, the difference between the valuation of downs soil and scrub soil, and the problems associated with agricultural land [1996] QLC 51 -- 1 of 8 -- 2 situated close to town. However, the main argument in respect of both appeals was that the subject lands were valued out of relativity with other properties. The Evidence for the Appellants Evidence on behalf of the owners was given by Mr DC McCullagh, whose family members are the owners of all three lots. Mr McCullagh explained that he drew Lot 139 at a ballot in 1973 and purchased Lot 141 about 14 years ago. Family members purchased the adjoining Lot 140 on 20 December 1993. Mr McCullagh seemed to have exercised considerable influence in the purchase of Lot 140. He said that the purchase of that neighbouring property was, as he put it, the only way that he could take family members into the farming business was “to have the property next door and I paid what the next-door neighbour would sell for". Later he said "it's more the family than the value of the property". In an analysis of the sale of Lot 140, he estimated that they had paid about $50,000 more than the market value of the property because of its adjacency to Lots 139 and 141, owned in various capacities by himself and his wife. Mr McCullagh explained that the Department of Primary Industries and the Water Resources Commission had originally subdivided the land in the scheme area so as to ensure that each block was an equal living area. Pumped farms received more land and more water than did gravity supplied farms to compensate for extra capital costs. Farms with soils of variable quality received larger areas to compensate for the soil quality. Most of that land of lesser quality has been developed for cotton production and, Mr McCullagh said, modern farming practices and better irrigation control have made it just as productive as the best soils. Limiting factors are water allocation and area. Mr McCullagh disagreed with the relativity of the most recent unimproved values applied by the respondent in the area. He set out a schedule of previous and present unimproved values as follows: Lot No Previous Valuation Present Valuation (as at 30.6.1993) (as at 1.1.1995) Lot 162 $145,000 $313,000 Lot 138 $155,000 $342,500 Lot 139 $155,000 $410,000 Lot 141 $150,000 $420,000 Lot 140 $195,000 $427,000 Lot 143 $155,000 $330,000 Mr McCullagh was of the opinion that the previous valuation of Lot 140 was out of relativity because it had been owned by an absentee owner who had not bothered to object to the earlier valuations. It was, he thought, very little different to Lot 139. Mr McCullagh preferred the previous relativity of valuations to the present one. He thought that Lots 138, 139 and 140 were much the same, particularly Lots 138 and 139, which he considered to be almost identical. While he conceded that Lot 138 had some broken -- 2 of 8 -- 3 country, stone and duplex soils, it had the same yields and potential as Lot 139. He said that for 20 years he had objected to the valuations on Lot 139, which valuers had regarded as superior to Lot 138. He had finally achieved similar valuations, only to have the relativity altered with the present valuation. Mr McCullagh said that prior to his family purchasing Lot 140, he had been offered Lot 138 for $850,000. However, they had wanted a farm further from town because of the spray problem and they purchased Lot 140 for $850,000. He thought that the two properties were worth about the same. Apart from Lot 139 looking better than Lot 138 because of his better farming practices, Mr McCullagh thought that the difference in their unimproved values resulted from the fact that Lot 138 was almost all scrub and coolibah soil, whereas Lot 139 had a fair proportion of downs country. He thought that the Departmental valuer had considered downs to be the best country because it cost less than scrub to clear and develop to cultivation. However, in his opinion, the downs is harder to manage, because after years of farming the yield from the downs country declines. He said that he had most trouble with Lot 141, which is predominantly downs. It was a difficult farm to water and to manage, but he admitted that it looks good. The subject lots have long open drains from the supply channels and lost quite a bit of water. The only way to overcome that problem was to pipe water from the supply channel. This had already been done on Lot 141 and Mr McCullagh felt that they were going to have to pipe water on the other lots. The Evidence for the Respondent Evidence on behalf of the respondent was given by Mr DP Jones, a registered valuer employed by the Department of Lands. He explained that Lots 139 and 141 had been amalgamated at the time of the previous valuation. However, they were in different ownerships and would have to be valued separately. Therefore, in anticipation Mr Jones assessed the unimproved value of each lot separately. Mr Jones valued the subject lands by direct comparison with six sales. He regarded the sale of Lot 140 as the most relevant and he felt that it was supported by the other sales. Of his six sales, four had been purchased by owners of adjoining farms which, he said, was a feature of the market for cotton properties in the Emerald District. Lot 138, one of the properties sold to an outsider, he regarded as a high sale. It had analysed to show a far higher unimproved value than he applied to the property. He was of the opinion that the purchaser was not as informed as the adjoining owner purchasers. In comparing the subject lands with the sales, Mr Jones said that the sales on Foley's Road generally showed 100% increase, while the sales closer to town showed 110% to 120% increase. Previously there had been no locality loading applied to the valuations of those properties handier to town. Mr Jones said that to be able to use the four sales closer to town he had felt it necessary to make some adjustments for their better location compared with those 15 -- 3 of 8 -- 4 to 20 km out of town on Foley's Road. Therefore he had added a premium of 10% to those closest to town, reducing to zero at approximately 10 km from town. He reasoned that as Sale No. 3, situated about 8 km east of Emerald, had not shown so much of an increase, a 7% locality allowance was appropriate, compared with 9% on Sale No. 1 (Lot 140) situated 5 km from Emerald and 10% on Sale No. 4 (Lot 138)which was adjacent to the town. In these cases, Mr Jones has not only significantly increased the valuations of the three subject lots compared with other irrigated cotton farms, but has substantially changed the relativity of the valuations. He has done so by directly comparing the subject lands with the unimproved values derived from the analyses of sales of six highly improved irrigation farms. Mr Jones contended that there were two reasons for the changed relativities. First, land which was previously unproductive has since been brought into production by drainage and other development. Second, he had applied locality loadings, whereas no such loadings had been made in previous valuations for proximity to Emerald. Mr Jones may have had cause to change the relativity of values because land previously considered to be unproductive was now productive, but closer examination is required to determine if there is any foundation in the sales evidence for Mr Jones’ reasoning to apply a locality loading to the valuations of those properties close to Emerald. Before doing so, however, it will be necessary to consider the sales themselves. The Basic Sales Three of the sales (Sales 2, 3 and 5) are situated on the east bank of the Nogoa River and considerably further removed from Emerald than the subject lands. Sale 2, of 251 ha, is situated 15.5 km north-east of Emerald. It analysed to show an unimproved value of $558,920, or $2,227 per ha. However, only $480,000, or $1,910 per ha, was applied as at the relevant date which is an increase of 100% on the previous valuation. Mr Jones described that property as an excellent downs irrigation block, with weaker scrub and forest balance, overall slightly inferior to the subject lands. He noted that it was sold on favourable terms that suited both parties. The fact that he applied only 85.9% of the analysed unimproved value indicated that he thought the sale to be high. Sale No 3, of 334 ha, is situated 8 km east of Emerald. It analysed to show an unimproved value of $395,685, or $1,184 per ha. However, only $335,000, or $1,002 per ha, was applied as at the relevant date, an increase of 120% on the previous valuation. Mr Jones described that property as an inferior scrub irrigation block, broken by duplex sand ridges, substantially inferior overall to the subject lands. He noted that it was sold to an adjoining owner and as he applied only 84.7% of the analysed unimproved value, he appears to have considered that sale also to be high. Sale No.5, of 241.8 ha, is situated 18.5 km north-east of Emerald. It analysed to show an unimproved value of $591,581, or $2,447 per ha. However, only $540,000, or $2,235 per ha, was applied as at the relevant date, an increase of 100% on the previous valuation. Mr -- 4 of 8 -- 5 Jones described it as superior to the subject lands, with better country types and slopes. He remarked that it is considered to be the best block in the scheme. It was purchased by a previous share farmer. As he applied 91.3% of the analysed unimproved value, it seems that he considered the sale to be somewhat high. Another sale (Sale No. 6) was challenged by Mr McCullagh as not comparable because its pivot irrigation system was not suitable for cotton growing. It is so obviously different to the subject lands that it was of no assistance in arriving at the unimproved value of the subject lands. The two sales in close proximity to Emerald are Sale No. 4 (Lot 138) and Sale No. 1 (Lot 140, one of the subject lands). Lot 138 (Sale No. 4), with an area of 225.05 ha, sold in December 1993 for $880,000. Mr Jones analysed that sale to show an unimproved value of $433,262 but applied only $342,500 as at the relevant date, 1 January 1995, which is only 79.1% of the analysed unimproved value. However, the applied value of $342,500 included a locality loading of 10% for adjacency to Emerald, and is an increase of 125% from the previous valuation of $155,000. Lot 138 is predominantly a scrub block with some downs country. It also had areas of hard box duplex soils. Mr Jones considered Lot 138 to be inferior to the subject lands, although the downs country types were similar, but with less stone and slope problems. The poor duplex soils were unique to the sale. The Sale of Lot 140 The most relevant sale was Mr Jones' Sale No. 1, Lot 140, one of the subject lands. Lot 140 of 219.3 ha, sold in December 1993 for $850,000. The sale was analysed by Mr Jones to show an unimproved value of $483,998. As at 1 January 1995 the respondent had applied an unimproved value of $427,500, or $1,950 per ha , which is 88.3% of the analysed unimproved value. Mr Jones described Lot 140 as being one of the top scrub and downs irrigation blocks on the Selma Channel. He considered it to be a good mixed scrub and downs property. His applied value of $427,500 included a locality loading of 9%. Mr McCullagh challenged Mr Jones' analysis of the sale of Lot 140. His own analysis of that sale was somewhat unconventional. To the sale price of $850,000 he added a further amount of $27,000 for the cost of the pipeline and pump which were installed to overcome the lack of water in high use periods and $24,000 for the cost of clearing an additional 30 acres of land. From the resulting $901,000, he deducted the value of buildings of $80,000, the adjacency factor of $50,000 and the land treatment costs of $420,000 to arrive at an unimproved value of $351,000. Mr McCullagh said that figure did not take into account the closeness to Emerald which prevented spraying unless the wind was from the south-east. That interfered with his spraying -- 5 of 8 -- 6 program, as cotton had to be sprayed up to 10 times and yields decreased if spraying was not carried out when necessary. Delays of up to 10 days had been experienced. Mr McCullagh said that instead of adding 10% for closeness to Emerald, a deduction of 25% should be made. Mr McCullagh endeavoured to support his timber treatment cost by producing a quote given by a contractor to clear 100 acres (40 ha) of land nearby. He also produced the actual costs which had been incurred in clearing 30 acres (12 ha) of land on Lot 140 since purchase. However, while I do not doubt the accuracy of those figures, they are in respect of relatively small areas and on that evidence I am not prepared to reject the costs adopted by Mr Jones, which he said were based on historical costs and costs obtained from both within the area and other areas. While I am not without reservations about the analyses of the sales undertaken by Mr Jones, I cannot find on the evidence before me that the appellants have produced better evidence as to the general level of valuations for irrigated cotton land. The Valuation of Lot 139 Mr Jones described Lot 139 as a mixture of soil types and slopes, varying from shallow, steeply sloping downs soils on the western end to deep lightly gilgaied easy sloping scrub soils across the centre of the block onto heavy clay soil swampy scrub flat on the eastern end. In arriving at an unimproved value of $405,000, he applied the various rates per hectare which he derived from the sales. However, he added a locality loading of 10%, but offset it by deducting a 5% town spray buffer allowance. The Valuation of Lot 141 Mr Jones described Lot 141 as predominantly a downs property with areas of stone and with scrub influence on the south-east boundary and areas of soaks. Soils are all Class 3 and the property is severed by a channel and a road. From his sales he applied a rate per hectare to the various classes of land. However, his unimproved value of $430,000 included a locality loading of 8%, because of proximity to Emerald. The Loading for Proximity to Emerald In trying to make some sense of the somewhat confused pattern of analysed unimproved values as disclosed by his six sales, Mr Jones reasoned that the sales closer to Emerald must have somewhat higher valuations because of their location. This, he thought, was somewhat offset in the case of the sale of Lot 138 owing to the restrictions on spraying because of its closeness to Emerald. I do not accept Mr Jones' reasoning. He applied none of the analysed unimproved values from his sales in full. However, he endeavoured to rationalise that by saying that he had made allowance for the fact that the majority of the sales were to adjoining owners, while Sale No. 4 (Lot 138) was to an uninformed outsider. Because the sale of Lot 138 showed such a high unimproved value, he came to the conclusion that a premium must have been paid because -- 6 of 8 -- 7 of its proximity to Emerald, so he applied an additional 10% to the valuation of that property. However, it is situated almost adjacent to the Town of Emerald and he thought there should be something deducted for the spray restrictions. Therefore he deducted a 5% buffer allowance. It is clear that Mr Jones regarded the sale of Lot 138 as a high sale. He applied only 79% of the sale, which is an increase of 125% from the previous valuation. Mr McCullagh’s evidence tends to lend support to Lot 138 being a high sale. He said that he had been offered that property for some $30,000 less than the ultimate sale price, but had refused it because it was too close to Emerald. Members of his family had purchased Lot 140 for the same price ($850,000), because it was a little further removed from Emerald where the spray restrictions would not be as severe. In respect of his Sale No. 1, Lot 140, Mr Jones applied approximately 88% of the analysed unimproved value. Somehow he reasoned that a premium of 8% had been paid because of its proximity to Emerald. However, he allowed nothing for a spray buffer in respect of that property. Mr McCullagh gave evidence that Lot 140 was purchased because it adjoined other family land. He estimated that the "closeness factor" was $50,000. The difference between Mr Jones' analysed unimproved value and the applied unimproved value makes more than sufficient allowance for that adjacency factor. However, if that factor was deducted from the analysed unimproved value, the analysis becomes $433,998. The applied unimproved value of $427,500, would then be 98.5% of the analysed unimproved value, which would be much higher than his application to any other sale. Of the remaining sales, Mr Jones applied approximately 85% of the analysed sale price in respect of Sales 2 and 3 and approximately 91% of the analysed sale price of Sale No. 5. Somehow he reasoned that a premium of 7% had been paid for Sale No. 3 because it was situated only 8 km from Emerald Findings I cannot accept that the conclusion can be drawn from the sales evidence that any premium had been paid because of proximity to Emerald. Whatever reasoning process was involved, Mr Jones has not demonstrated to my satisfaction that the sales evidence provides any foundation for the loadings which he applied. Nor has he convinced me that he has made sufficient allowance for the problem of restrictions on spraying on properties such as Lot 139 which virtually adjoin the town. I prefer the evidence of Mr McCullagh that proximity to Emerald is a positive disadvantage for cotton-growing land. Indeed, he gave evidence that spraying on his properties is restricted except when the wind is from the south-east. He was unable to grow the highest yielding crops and aimed for only 85% of optimum yield. -- 7 of 8 -- 8 I propose to remove the loading for proximity to Emerald from the valuations of the subject lands. It is clear that Lot 139 is more disadvantaged than either Lot 140 or Lot 141, therefore an allowance of 10% for the restriction on spraying will be allowed. Adopting Mr Jones' valuation calculations, but removing the 9% locality allowance, and deducting a 5% town spraying buffer allowance, the unimproved value of Lot 140 becomes $372,366, rounded to $372,000. Removing the 10% locality allowance and increasing the town spraying buffer allowance to 10% on Lot 139 brings its unimproved value to $346,275, rounded to $346,000. Finally, removing the 8% locality allowance and deducting a town spraying buffer allowance of 5%, brings the unimproved value of Lot 141 to $380,667, rounded to $380,000. Orders In respect of the valuation of Lot 140 on Plan DSN 691 owned by Clearmaize Pty Ltd as trustee, Alan J Mann and Terre A Mann, the appeal is allowed, the valuation of the Chief Executive is set aside and the unimproved value of that land is determined at Three Hundred and Seventy-two Thousand Dollars ($372,000). In respect of the valuation of the combined Lots 139 on Plan DSN 653 and 141 on Plan DSN 714, the appeal is allowed, the valuation of the Chief Executive is set aside and the unimproved values of Lots 139 and 141 is determined at Seven Hundred and Twenty-six Thousand Dollars ($726,000). However, I am told that these valuations should be valued separately as they are in different ownerships. In that case, the valuation of Lot 139 will be Three Hundred and Forty-six Thousand Dollars ($346,000) and the valuation of Lot 141 will be Three Hundred and Eighty Thousand Dollars ($380,000). JJ TRICKETT PRESIDENT OF THE LAND COURT -- 8 of 8 --