David v Chief Executive, Department of Lands [1995] QLC 32

LAND COURT BRISBANE 26th May, 1995 Re: Application for Conversion of Tenure of Grazing Homestead Perpetual Lease 4102 - Mackay District Determination of unimproved value. Peter David v. Chief Executive, Department of Lands (Hearing at Mackay) DECISION On 12th October, 1994, Mr David, the lessee, declined to accept the Minister's determination of the unimproved value of the land involved in the conversion of tenure of the above described lease. The matter was referred to the Court for determination, on 11th November, 1994. The relevant date of valuation, being the date of application for the conversion, was 24th July, 1987. The Minister's determination of unimproved value was $160 per hectare. Mr S.F. Penny, a registered valuer employed by the Department of Lands, was responsible for the valuation. The land involved comprises an area of about 1,440 hectares of the original lease, which contains an area of about 1,704 hectares, being Lot 10 on Plan Mc394, Parish of West Hill. An application for conversion of tenure of the whole of the lease had been made by previous lessees. The relevant date in that matter had been 18th October, 1983, and the determination of unimproved value had eventually become, on appeal, a judgment of the Land Appeal Court delivered on 10th July, 1985 in the amount of $70 per hectare. The conversion of tenure had not proceeded. The lease was then sold to Mr David in 1987. The sale was initially to be conditional on the conversion of tenure being available at $70 per hectare. However, by letter dated 14th July, 1987, the solicitors for the vendor (and for the lessee in this matter) were advised by the Land Administration Commission that "In view of the time elapse since the previous application a fresh application should be made..." and that "The valuation will be reviewed as it is possible it could even be reduced." Fresh application was made on 20th July, 1987 and Mr David agreed to waive the condition in the contract of sale which [1995] QLC 32 -- 1 of 9 -- 2 related to conversion of tenure being available at $70 per hectare. Mr David's evidence relative to this matter was that he "only paid $500,000 for this property" (including clearing and pasture improvement, fencing and yards, water improvements, plant and stock). He stated that "If the freeholding was going to cost more I would have argued most strongly in respect to the purchase price...". There was no direct evidence provided to the Court as to analysis of this sale of the subject leasehold property which had taken place virtually at the relevant date. Mr David was the owner of adjoining land. Information tendered to the Court by counsel for the lessee and obtained under Freedom of Information legislation, from the Department of Lands, indicated that the sale had, in a departmental report dated 14th March, 1989, been analysed and included in a schedule of sales. Information relative to the actual analysis had not been released. However, a comment had been made in that report, by the valuer, Mr Penny, that "Being an adjoining owner purchaser, I have not had direct regard to this sale. However, the UCV reflected is considered to be in line with the available market evidence and the value adopted, although it may reflect a small premium because of the adjoining owner influence." Neither party sought to rely on the sale in any way, before this Court. Evidence was introduced relative to the potential, or lack of it, for the subject land to be used for cultivation for the growing of sugarcane. The formal Department report contained the comment - "Large area of block has been assessed by QDPI as Class 3 Cane Land suitable for sugarcane cultivation with moderate limitations." Then, in the basis of valuation under the final heading "Comments or Additional Information" is found the following: "The applied rate of $160 per hectare is based on a grazing value. However, this block attracts a premium value due to its potential use for sugarcane cultivation which could be realised at any time. Basic Sale 1 also contains land with arable potential suitable for sugarcane cultivation and in this regard Basic 1 and the subject are similar and would be seen by a prudent purchaser as having this higher potential usage....". Under cross-examination, Mr Penny would not be drawn into expressing any opinion as to the quantum of "premium value due to its potential use for sugarcane cultivation". It should be said here that immediately prior to the hearing of this matter was the hearing of an appeal against the unimproved value of the land comprising the whole of this lease, as at 31st March, 1992. The decision in that matter will also be delivered today. (Appeal reference RV94-0203). Much of the evidence overlapped, and as suggested in that matter the two decisions should be read together. At the later date relevant there, I had not been convinced that the land should be found to possess -- 2 of 9 -- 3 any premium in value "due to potential for growing sugarcane" due mainly to the unproved viability of such activity in the absence of irrigation and with such poor quality, poorly drained soils with the probability of a salinity disability. Any realisable potentiality at the earlier relevant date in this matter is seen as even more remote. It is also seen as relevant that the report under the hand of Mr Penny as at 14 March 1989 as released under the Freedom of Information application, stated that the land had no "area suitable for agriculture or horticulture". Mr Penny's explanation was that he had not at that time been aware of the Department of Primary Industries report. Mr J.D. Dodds, the registered valuer who gave evidence in the 31st March, 1992 relevant date matter, had also carried out the valuation for the lessee in this matter. Mr Dodds assessed the unimproved value at $80 per hectare. His primary basis of valuation was again the evidence provided by a sale of property known as "Marklands" but in this case an earlier sale as at 23rd July, 1985 (the property had resold in 1992). More will be said of Mr Dodds' analysis of the sale later. In this matter, the 1985 sale also provided Mr Penny's primary evidence of value. Mr Dodds gained support for his valuation from the Land Appeal Court decision to which earlier reference was made, and then two other sales. The second sale was of an area of 1,144 hectares which sold in February, 1988, unimproved except for some fencing, to show an analysed unimproved value of $72 per hectare. This sale land was 20 kilometres to the north and was described as comprising "moderate to steep poor quality forest ridges timbered with Ironbark, Messmate and Grasstree, falling to Central Creek with some 330 hectares of Ti-tree, Bloodwood and Poplar Gum creek flats. Suitable for cattle breeding." The third sale was of an area of 2,437 hectares as at June 1988, to show on Mr Dodds' analysis, an unimproved value of $80 per hectare. This property was located 15 kilometres to the south and the land was described as being "undulating coastal forest on the eastern side with small poplar gum creek flats, rising to moderate to steep ridges in the far west." Mr Dodds described the subject land as being "level to undulating generally poor coastal forest country, with a small section of marine plain and sandy forest country at the eastern end severed from the bulk of the block by mangrove creeks and salt pan and with small intrusions into the block of mangrove swamp and salt pan." (It is the area of mangrove creeks and salt pan within the original lease which has been excluded from the conversion offer). Mr Dodds more precisely classified the subject land as comprising: • 1,214 hectares of poor coastal ti-tree forest (with scattered poplar, blue -- 3 of 9 -- 4 gum and bloodwood, poorly drained grey sandy loam soils with extensive areas of heavy devil-devil) • 110 hectares of open marine plain • 70 hectares of mixed forest and scrub along the eastern boundary • 85 hectares of mangroves and salt pan. As in the later date valuation (but for an area of 1,704 hectares) Mr Dodds' estimate of carrying capacity of the land in its unimproved condition was 150 head, then 1,150 head of adult mixed cattle if all of the higher forest was available for clearing and pasture improvement. Again he made reference to "special conditions being imposed on timber management" with the effect of reducing the area available for improvement by 25 per cent and the carrying capacity to 930 head. While this perception of restriction on clearing is arguable, even on the basis of the land remaining leasehold, it is not a valid approach to the valuation of land being converted to freehold tenure. More will be said later about carrying capacity estimates. Again Mr Dodds described the development of the "available" coastal forest which has been effected by Mr David since his acquisition. He estimated the 1987 cost of that development as follows: "Pushing stacking and burning $250 ha Blade ploughing $150 ha Raking and burning $ 35 ha Disc harrowing $ 70 ha Fertiliser and seed spreading $ 19 ha Cost of seed $ 58 ha Fertiliser $203 ha Total $785 ha " Mr Dodds referred to the more common practice at the relevant date of developing the coastal forest in smaller areas and controlling any minor regrowth with slashing. However, he says, "It is only through DPI research and modern machinery that the development of this country has become possible in recent years and while a high carrying capacity can eventually be achieved it is difficult in an Unimproved Value assessment to compare the country with other classes of grazing land in the District". After his analysis of "the most comparable sale" - that of Marklands - comprising superior quality land, none of which, in his opinion, required blade ploughing to -- 4 of 9 -- 5 overcome regrowth, Mr Dodds had come to the conclusion that at the relevant date "it was not an economically feasible exercise to develop the subject land and that its true unimproved value is as poor coastal forest country suitable for cattle breeding with low stocking rates". There was no argument between the respective valuers as to the nature of the land. In fact it could be fairly said that Mr Dodds had accepted Mr Penny's classification. Where the differences occurred, and significant differences at that - as between two experienced local valuers - was in the sustainable carrying capacity of the land when fully developed; the cost of development to improved pasture; the analysis and application of the one common sale (Marklands); the sustainable carrying capacity of the Marklands property. The evidence of Mr Penny and his knowledge of Marklands has provided the Court with a now balanced perception of the relative merits of the sale and the subject properties in their unimproved condition. The differences of opinion as to the subject property and Marklands and the sale analyses are highlighted as follows: Mr Dodds Mr Penny Subject property: Unimproved valuation $80 ha $160 ha Full potential Grazing, improved Grazing, improved pasture (but not pasture, cultivation economically viable) for sugarcane. Carrying Capacity Unimproved 150 head 144 head Fully developed (ex ponded pasture) 1150 head 576 head Cost of Pasture Development $785 ha $450 ha Marklands Sale: Analysed unimproved value $150 ha $216 ha -- 5 of 9 -- 6 Structures $74,000 $60,247 Yards 17,905 20,288 Water 33,000 27,154 Fencing 31,050 16,315 Levy Banks - roadworks - 78,200 Timber Treatment & pasture 376,500 151,890 Total Area Timber Treatment 1,210 ha 520 ha Livestock 419,000 466,670 Plant & Equipment (Chattels) 35,000 23,660 Carrying Capacity 1,900 head mixed adult 1,190 male As in the later rental matter and as I understand Mr Dodds' evidence, he did not intend to find the true unimproved value of Marklands. Instead his exercise was to notionally convert Marklands to a hypothetical unimproved state requiring timber treatment on areas which, due to natural attributes (e.g. open creek flats and lightly timbered plains) did not require such treatment. This explains, in part, the significant differences in the opposing analyses of the sale, under the heading of timber treatment. It was the intention of Mr Dodds to create, as near as possible, a "like with like" comparison with the subject property. While the reason may be obvious in terms of the result which would have been achieved, he did not also allow for notional blade ploughing of developed areas on Marklands. He held the opinion, however, that one of the basic differences between the two properties at least as far as the coastal forest areas were concerned was the need for blade ploughing on the subject land to achieve effective control of regrowth, while the Marklands forest did not. Mr Dodds made no allowance for the levee bank construction on Marklands, again, as I understand it, for the purpose of like with like comparison. While there had in fact been levee bank construction to protect and provide ponded pasture on the marine plain area of the subject land, such work would not have been warranted had the potential beneficial effects not been available to extend onto the lessee's adjoining property. Mr Penny, and correctly so in my opinion, dealt with the analysis of the Marklands sale on a factual basis. There were some differences in the opposing analyses relative to the valuation of the various other components. Mr Penny conceded that his valuation of a tractor and four-wheel drive vehicle may have been overly conservative, but then, for example, his valuation of the livestock included in the sale was higher than was Mr Dodds'. Mr Penny's analysis has adopted the correct methodology and it seems to me, with one probable exception, it is reasonable to accept his apportionment of values. The exception is the allowance for timber treatment and pasture establishment. Mr Dodds was in the position of being able to analyse the actual costs of pasture development on -- 6 of 9 -- 7 the subject property. Based on his own experience of costs and with adjustments to the relevant date of valuation, he estimated the total cost including blade ploughing, then fertiliser and seeding to be $785 per hectare. Mr Penny in his report, estimated the cost of full pasture development of the subject property, no doubt based on his assessment of common practice, to be $450 per hectare. He has allowed on the analysis of the Marklands sale one item of 298 hectares of "thick ti-tree, pulled, blade ploughed and raked" as adding value of $250 per hectare (before pasture development). Mr Penny did not agree that the Marklands coastal forest was so superior as to not require blade ploughing and was quite adamant that his estimates for timber treatment were reasonable. However, on his description of the country involved in the Marklands timber treatment above, and the actual costs later expended, on the evidence, on the subject property, I have gained the impression that Mr Penny has been too conservative in his assessments of cost or even added value of effective timber treatment in this class of country. Doing the best I can in the circumstances, I will adopt an unimproved value analysis for the sale of Marklands (as it was in its actual unimproved condition) of $190 per hectare. It seems to me, on the evidence, that potential for cane expansion on Marklands as opposed to the subject property, would have been at least closer in time at the date of sale. There seems no argument that the grazing carrying capacity potential was, on a fully developed basis, significantly greater than on the subject land and then at significantly lesser pro rata development cost due to the natural attributes of the land classifications. Even had Mr Penny's analysis of the sale been adopted as correct, the relative worth of the subject property should, on my interpretation of the evidence, have been, significantly less than the $160 per hectare found by him. Indeed, a more realistic unimproved value would be seen to go further towards supporting Mr Dodds' contention that full development of the available area of coastal forest on the subject land was not economically viable at the relevant date. Nevertheless, there was market interest in such land, even if it was for future or progressive development, as was demonstrated by Mr David's activities in the Carmila area. The potential of the land, limited as it may have been then, placed it in a market category somewhat superior to that of the two supporting sales used by Mr Dodds. This then brings me to the second basic sale used by Mr Penny. I have gained the impression that this sale had a dominating influence on Mr Penny's opinions with regard to not only the subject property but its comparison with the Marklands property. The sale was of an area of 2,330 hectares in the Parish of Undercliffe, 11 kilometres westerly of the subject land and in an inferior situation with far inferior access. The land is described as comprising about 9 per cent of open creek flats, about 41 per cent -- 7 of 9 -- 8 of sloping/undulating heavily timbered coastal forest, about 37 per cent sloping to steeply sloping coastal range and about 13 per cent thick and heavy coastal scrub. It is clearly land of a nature different to the subject. In its very lightly improved condition as at the date of sale the land was considered by Mr Penny to be capable of carrying one beast to 6.5 hectares with potential for further development limited to one beast to 5 hectares. The property sold in July 1984 to show an analysed unimproved value of $122 per hectare. Mr Penny made the following comparison - "Subject has superior situation, access and quality of country and arable potential which the sale does not enjoy. Basic 2 has no services available. Overall Basic 2 inferior." The evidence indicates to me that this sale falls into a different market category. In its lightly improved state it is capable of a higher carrying capacity than is the subject but is of country with limited development potential. It is not difficult to accept that the property would satisfy a particular segment of the grazing market, differing even from those properties the subject of Mr Dodds' supporting sales. The subject property required the injection of a large capital investment with questionable viability but was demonstrably capable of attracting the attention of an entrepreneurial type of market. However, Mr Penny's comparison, in my opinion, over-emphasises the potential of the subject land in its unimproved condition for viable development and particularly for the growing of sugarcane. This matter has posed some difficulties, due to the divergence of valuation opinion. Mr Penny says that he was not influenced at all by the earlier Land Appeal Court decision, because his opinion was based on the market evidence available to him. He was quite entitled to take that approach. However, in the market climate which was said to have existed, real caution was warranted in arriving at a valuation so much higher than a contested determination as at 18th October 1983 which resulted from Land Court then Land Appeal Court hearings. This need for caution would be seen to be even more warranted when part of the evidence on which Mr Penny relied emanated from a sale on 19th July, 1984, about nine months after the then relevant date of determination and of land clearly difficult to compare. Any comfort which was obtained by Mr Penny from the so-called primary evidence provided by the 1985 Marklands sale should also have been tempered with similar caution due to the differing nature of country involved. Criticism was again directed towards Mr Dodds' use of the "after date" second and third sales, but for the same reasons as given in the 1992 valuation matter, that criticism is not warranted in the light of the market conditions which existed, but which if anything were on the rise. I find Mr Dodds' additional sales to be of some assistance, not so much in supporting his valuation, but in indicating a level of value for land with development -- 8 of 9 -- 9 opportunity even more limited than the subject. In this matter the land involved is superior in potential compared to the overall area of the lease considered by the Land Appeal Court and I accept that some increase in the level of value for grazing land with perceived development potential had emerged in the period from 1983 to 1987. It is however land in two physically severed parcels regardless of the availability of any leasing arrangement for the excluded area if the conversion of tenure proceeds. With consideration to the evidence as it was presented to the Court and as discussed, I will determine the unimproved value of the land, for conversion purposes, as at 24th July, 1987 at $100 per hectare. RE Wenck Member of the Land Court -- 9 of 9 --