Chengody v Chief Executive, Department of Lands [1995] QLC 121

LAND COURT BRISBANE 12 OCTOBER 1995 Re: AV94-504 and 505 - Appeals against unimproved valuations - Valuation of Land Act Local Government: Whitsunday Judith M. Chengody v. Chief Executive, Department of Lands (Hearing at Proserpine) D E C I S I O N These appeals are against the Department of Lands' valuations of two adjoining lots in the main street (Shute Harbour Road) and business centre of Airlie Beach. One lot is zoned "Residential B" and the other "Commercial". Details of the individual appeals are as follows: AV94-504 RPD: Lot 2 RP 721624, Parish of Conway, containing an area of 708m2 Zoning:Residential B This site is developed with a block of six holiday units and a restaurant. The restaurant is now classified as a lawful non-conforming commercial use, the overall complex having been constructed with the consent of Council prior to the gazettal of the current Town Plan. Department of Lands' Valuation: $330,000 Appellant's estimate of value: $250,000 AV94-505 RPD: Lot 141 on RP 844002, Parish of Conway, containing an area of 708m2 Zoning: Commercial This site is developed with a two-storeyed commercial building comprising banking premises on the ground floor and upper level offices. Department of Lands' Valuation: $365,000 Appellant's estimate of value: $280,000 The land is situated on the southern, or inland, side of the street near opposite the Airlie Esplanade intersection. [1995] QLC 121 -- 1 of 4 -- 2 The appellant was represented at the hearing by Mr B. Conroy, registered valuer. Mr S.J. Whitfield, registered valuer, made the Department's valuation. Mr Conroy spoke of the difficulty associated with the valuation of the properties due to the general lack of comparable sales evidence. There had been a sale of a large highly improved "Residential B" site in the main street which he had analysed to show a land content equating to $228 per m2. The Department's valuation on that land was equivalent to $556 per m2. There had also been a sale of a vacant commercial site of 610m2, near the Post Office, on the opposite side of the main street, with esplanade frontage. This sale had shown (with adjustment for removal of a caveat relating to car parking), on Mr Conroy's analysis, about $655 per m2. That land was seen by him to be a much superior site in comparison with the subject lands. The Department of Lands' valuation on that sale land had been the equivalent of $590 per m2. With the lack of strictly comparable sales evidence, Mr Conroy then considered the actual situation which existed relative to the commercial site (AV94-505). The building on that land had been constructed in 1992 and, as I understood the evidence, it was custom built for a particular bank tenant which leased the whole of the ground floor, but then only part of the upper floor. The balance of the upper floor had remained vacant since its construction. Mr Conroy estimated the gross rental capable of being achieved from the premises and then calculated the net return but adjusted for a significant vacancy factor on the upper level offices. He had analysed the sales of two multi-tenanted, but in his opinion superior, commercial properties which had shown net returns of 11.4% and 12% (and on his further analysis, land content of $1,865 per m2 and $985 per m2 respectively). Adopting for the subject commercial property a yield of 12%, based on Mr Conroy's adjusted net return after vacancies, he then valued the property as improved in the amount of $1,077,080. The improvements based on actual construction costs, were valued at $792,000 leaving a land value of $285,000 or about $400 per m2. That became Mr Conroy's valuation of the commercial site. For the "Residential B" land, he took the view that it had to be worth something less than the "Commercial" zoned land and felt that a valuation of $250,000 would reflect the zoning constraint. In Mr Conroy's opinion, the relativity between the valuation of the Department on the vacant commercial sale land near the Post Office and that applied to the subject lands was not a true reflection of the superiority of the commercial lands with esplanade and water aspect. Mr Whitfield's primary basis of valuation had come from the sale of the vacant commercial site which had been referred to by Mr Conroy. After consideration of the cost of removing the car-parking encumbrance in favour of an adjoining property, and a minor encroachment, Mr Whitfield had analysed the sale to show the equivalent of -- 2 of 4 -- 3 $642 per m2. As I understood his evidence, the standard rate adopted for the relevant date of valuation, for comparison purposes, had been $670 per m2 before the adjustments considered necessary. The commercial rate of value applied to the subject lands, which Mr Whitfield readily agreed had, in comparison inferior location, was $520 per m2. Mr Whitfield took some comfort from the evidence provided by the sale of a site on the western fringe of the business area which had been purchased in May, 1992, subject to rezoning to "Special Facilities (Professional Offices)", for the equivalent of $223 per m2, then resold, as (he assumed) rezoned, in February, 1994, for the equivalent of $337 per m2. Mr Whitfield saw the sale as providing support to the overall relativity basis, when a valuation equivalent to only $210 per m2 had been applied to that sale land. Based, he said, on his interpretation of a previous Court decision in the Airlie Beach business area, he had valued the "Residential B" zoned land accepting that the partial restaurant use constituted an equivalent commercial use, (pursuant to s.3(4) of the Valuation of Land Act) but then recognised that, in the absence of actual commercial zoning, the market would be expected to recognise that defect. In effect, again as I understood the evidence - regardless of the existing partial commercial use of the land - the highest and best use, if unimproved, was considered to be for rezoning to "Commercial". Unless the specific development proposal is known, the Court was informed that the actual costs of rezoning were not available from the Council. Mr Whitfield had valued the land, zoned "Residential B", at 90% of the commercial level of value, as he saw it. He was confident that such allowance covered the risk of rezoning (which realistically should be minimal) and any normal costs of rezoning to allow a full commercial use of the land. While Mr Conroy was somewhat critical of Mr Whitfield's 10% allowance, it seems to me that he similarly, without any evidentiary support, had valued the "Residential B" land at about 87.7% of his assessment of its commercial value. Mr Conroy's valuation of the improved commercial property may well be correct, although obviously arguable when the intangible factors of vacancies and yield are considered, but his analysis of the land content depends then on a correct approach to the value of the improvements. He accepted without question that the development constituted the highest and best commercial use of that land, regardless of the owner's inability to lease a large area of the first floor. It may well be that, in the circumstances, the value which the improvements add to the land is not necessarily the replacement cost on the approach adopted by Mr Conroy. In the end result I am not convinced that if the 610m2 site in the more desirable location near the Post Office sold, theoretically without encumbrance, for about $400,000 in November, 1992, then a similarly zoned larger site of 708m2 in the -- 3 of 4 -- 4 location of the subject land would not have been saleable for $365,000 as at 30th June, 1993. Similarly I have not been convinced that Mr Whitfield's approach to the valuation of the "Residential B" site, even if it was unimproved land, has been shown to be unreasonable. Both appeals are dismissed and the valuations of the chief executive affirmed. RE WENCK MEMBER OF THE LAND COURT -- 4 of 4 --