AMP Society v Chief Executive, Department of Lands - Shire of Albert [1995] QLAC 3 (1995) 15 QLCR 344

LAND APPEAL COURT BRISBANE Re: Appeal against Decision of the Land Court Valuation of Land Act 1944 Shire of Albert (AV93-333) AMP Society v. Chief Executive, Department of Lands J U D G M E N T (Delivered at Brisbane this third day of March 1995) This is an appeal under the Valuation of Land Act 1944 (the Act) by the AMP Society against the decision of the Land Court that the unimproved value of 16.68 hectares of land upon which is situated the Pacific Fair Shopping Centre at Broadbeach, be determined at $34,000,000. The land is situated at Hooker and Sunshine Boulevards, Broadbeach. The Department of Lands had assessed the unimproved value as at 31 March 1992, at $37,000,000, while the valuer for the Society had assessed the unimproved value at $22,000,000. Full details of the shopping centre and the approaches to the valuation taken by both valuers are set out in the decision of the Land Court dated 20 May 1994. It is sufficient for our purpose to say that Pacific Fair is a major regional shopping centre which has as one of its major tenants a large Myer Department Store. In the Land Court the Society's valuer relied upon three sales which had potential for development as regional shopping centres, but principally upon the sale of 16.647 hectares of land situated at Browns Plains which sold on 28 June 1993 for $9,000,000. This sale represented the land content in a transaction in which the vendor contracted to construct a shopping centre development. While it was to be of much smaller scale, in the valuer's opinion the standard of construction proposed was no less than that in Pacific Fair. [1995] QLAC 3 -- 1 of 8 -- 2 The overall contractual arrangements between the vendor and purchaser in this sale involved an initial net rental guarantee, on completion of the development, amounting to $8,917,159 per annum. The appellant's valuer considered that included in the sale price of the land was an element which was referred to as the "added value of tenants" as a result of the rental guarantee. Details of the valuer's analysis of the sale are set out in the decision of the learned Member below and need not be repeated. The subject land had required extensive site improvements by way of a revetment wall and filling before construction of the Pacific Fair development could commence. In order to make a like-with-like comparison, the valuer added an amount of $7,000,000 for site improvements required to bring the Browns Plains land to a "site improved" state. The controversial part of the analysis is that he deducted an amount of $4,960,000 for the "added value of tenants" attributable to the rental guarantee. At page 16 of his valuation report he reasons: " The sale at Browns Plains incorporated tenancies in place for all major tenants plus a guarantee on the rental. A centre of this nature would not be developed unless majors were secured. Even though the demand exists for the development potential, purchasers would be wary that tenants could be lured to alternative sites." For the advantage of having the major tenants with binding agreements to lease being concluded and a net rental guarantee for the specialty shops for the initial two years, Mr Crawford adopted what he called "a conservative approach" in deducting the amount of $4,960,000 for the "added value of tenants". The analysis of the Browns Plains sale showed a "site improved" value of $9,200,000, equivalent to 1.032 times the net annual rental of $8,917,159. The valuer then applied this rental return factor directly to the rentals which could be obtained from Pacific Fair. Adopting a net rental of $28,300,000 and multiplying by the factor of 1.032, he arrived at the land value "site improved" for the Pacific Fair land of $29,200,000. From this he made certain deductions, including amounts for site -- 2 of 8 -- 3 improvements comprising fill and revetment wall totalling $3,949,000, to arrive at an unimproved value of $22,000,000. The Department of Lands valuation of $37,000,000 as at 31 March 1992 is the same as that which was applied at the previous valuation made as at 31 March 1990. The evidence for the conclusion that the value of the land had not fallen since 1990, was drawn from the sales of two much smaller properties situated at Mermaid Waters and at Nerang. The Department's valuation proceeds as follows: Site Value: 166,800 m2 @ $240/m2 - $40,032,000 Less: Fill 533,000 m3 @ $6/m3 $3,198,000 Revetment Wall 450 m @ $350/m $ 157,500 $ 3,355,500 $36,676,500 Rounded to $37,000,000 The learned Member found the evidence of the Department's valuer to be of little assistance. However, he saw some merit in the exercise conducted by the appellant's valuer in his attempt to make some cogent use of the best available sales evidence, but rejected that valuer's approach to the "added value of tenants", as he considered that the rental guarantees were "no more than a reflection of the potential of the land for development to the standard of a particular proposal". When the "added value of tenants" was excluded from the analysis of the Browns Plains sale, the "site improved value" became $14,190,000. This provided a factor of 1.591 times the net annual rental, instead of 1.032. When that factor was applied to the Pacific Fair net rental, the result was a "site improved value" of approximately $45,000,000. The learned Member therefore adopted the "site improved value" of $40,032,000 -- 3 of 8 -- 4 proposed by the valuer for the Department of Lands, but preferred the amounts for site development works assessed by the appellant's valuer. After making other adjustments, the learned Member determined the unimproved value at $34,000,000. Before us, Mr Hinson, Counsel for the appellant, argued the appeal on the single ground that the Land Court had erred in rejecting the approach to the analysis of the Browns Plains sale adopted by the appellant's valuer, of deducting a separate "added value of tenants" component from the sale price. The result of this finding was that the adjusted analysis of the Browns Plains sale altered the relationship between net rentals and the "site improved value" from a factor of 1.032 to a factor of 1.591. The appellant's argument is therefore of narrow compass, that as the "added value of tenants" is a separate component of value, it should properly be deducted in the analysis of the Browns Plains sale to arrive at a "site improved value" for that land. Mr Hinson contended that as the net rental guarantee of $8,917,159 was a separate and distinct subject of negotiation and agreement between the parties to the Browns Plains sale, it was therefore a separate component of value reflected in the sale price. This differs from the situation in Daniell v. The Federal Commissioner of Taxation (1928) 42 CLR 296, where the High Court found that in the sale of a hotel, there was no evidence that goodwill as a separate item formed the subject of negotiations between the parties. The argument advanced by Mr Hinson, Counsel for the appellant, proceeds along the lines that the development of the Browns Plains land involved both a sale contract for the land and a construction contract under which the vendor agreed to construct a shopping centre building for the purchaser. Therefore, he submitted, the "added value of tenants" attaches to the buildings, albeit that they are not constructed, because the subject matter of the rentals are the buildings themselves. Mr Hinson's argument continued that the guaranteed rentals can only add value to the completed development, when the land and improvements lost their individual identities and -- 4 of 8 -- 5 became integral components of the improved land. Therefore, by not deducting the "added value of tenants" from the sale price, he contended that the Court had incorrectly attributed the enhancement in value to the land. This must be wrong, Mr Hinson said, as the rental guarantee attaches to the proposed buildings rather than to the land itself, or the land "site improved". While Mr Hinson conceded that the "added value of tenants" is not an "improvement" as statutorily defined in the Act, he suggested that it is a component which enhances the value of the land in its improved state only,and not in its unimproved state. He referred us to the approach taken by the Privy Council to the hotel licence in Toohey's Limited v. The Valuer-General [1925] AC 439. Counsel for the respondent, Mr Paterson, argued that the approach of the valuer for the respondent in the Court below was to be preferred. However, he submitted that if the Browns Plains sale was to be considered, the "added value of tenants" cannot be deducted from the sale price as it is not an "improvement" within the definition in the Act, and that definition is a complete code of what can be deducted. Nor, he argued, is it a component of the value of improvements. It is, in his submission, merely part of the potential of the land as it relates to the type of development that can be constructed upon it. In Toohey's Limited v. The Valuer-General the Privy Council considered a somewhat similar question under the provisions of the NSW Valuation of Land Act, in respect of the unimproved value of land upon which were licensed premises. In that case the site had no special adaptability for such purposes. The unimproved value of the land was assessed by the Valuer-General at an amount arrived at by deducting the value of buildings, as appropriate to and suitable for licensed premises, from the amount which would have been realised if the whole of the land had been sold as licensed premises. The Act defined the unimproved value of land as the sum which it might be expected to realise upon sale, assuming that the improvements had not been -- 5 of 8 -- 6 made. The Privy Council held that the assessment was wrong. The valuation arrived at included the enhanced value due to the fact that the premises were licensed, while the valuation should include the advantages that the land possessed as bare land, without any buildings upon it and without any consideration of its value as including licensed premises. Their Lordships found that the assessment was contrary to the method permitted by the Act and demonstrably fallacious. At p.444 they said: " Proceedings are begun by the taking of a figure for the subject as it stands as licensed premises. It is obvious that this figure is composed of three ingredients; first, the bare land itself; second, the buildings themselves constructed for and appropriate for licensed premises; third, the enhanced value due to the fact that the land and buildings in question are not only suitable for licensed premises, but are in fact licensed premises." Their Lordships went on to find that when the value of buildings is subtracted, the result is that the enhanced value for the third item is all included in the unimproved value. They went on to say: " From this follows the extraordinary result that the land is enhanced by the value of a licence which could only be granted in connection with buildings - for a licence such as this cannot be granted to sell liquor without premises -in a calculation in which you are told to assume that no building is there." In allowing the appeal, their Lordships ordered that the valuer should be directed to make a valuation of the land itself as it presently stands with such advantages as it at present possesses, viewed as bare land without any buildings upon it and without any consideration of the value of the licensed premises. We feel that the present case can be distinguished from Toohey's Case, as there the enhancement in value was clearly attributable to the buildings which had been constructed on the site. Whilst it may be argued in this case that the rental guarantee would influence the mind of the purchaser as to what sum he would pay for the land, it seems to us that it is quite another proposition to say that the value of the guarantee should be deducted from the selling price of the land. Even if that proposition was -- 6 of 8 -- 7 correct, what sum should be deducted, bearing in mind that the security offered by the guarantee is relative to the completed development, is for a limited period, and has value only if there is a shortfall between the actual and guaranteed rental returns. We emphasise that in comparing the potential in the sale land for shopping centre purposes with the potential in the subject land for the same purpose but with much greater scope, the fact that the subject land has been successfully developed for regional shopping centre purposes does not have to be ignored in considering the "ripeness" of the potential in the land as unimproved land for the purposes of the Act. Relatively speaking then, we think the true impact of the rental agreement was an act to confirm (or to remove doubts about) the degree of "ripeness" of the sale land for shopping centre purposes and thus, as the learned Member said, is relative to the potential in the land and hence its unimproved value. We are of the opinion that a purchaser of the subject land in an unimproved state at the relevant date for its highest and best use and with all relevant zonings and approvals in place would not see it necessary to seek such guarantee. Indeed the "ripeness" of the subject site would tend to suggest that any form of tenancy agreements could be readily achieved. It seems therefore that whilst the method of comparison used by Mr Crawford may serve as a useful form of mathematical comparison, the comparison in reality must reflect the full superiority of the subject land overall as a prime site for regional shopping centre purposes. We may also observe that under the Act (s.3(1)) the requirement is to ascertain "the capital sum which the fee simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require". It was not argued before us whether the transactions covering the sale land conformed with this test. Rather, the sale appears to have been accepted as reasonable evidence for comparison purposes, notwithstanding that in our opinion the sale is limited in terms of comparability (as is evident in the applied values). Hence, caution must be -- 7 of 8 -- 8 exercised in attempting any form of comparison. In the circumstances, we find that it has not been demonstrated that the quantum of the determination is wrong. If anything we think it could be on the conservative side. Accordingly, the appeal is dismissed and the determination of the Land Court of the unimproved value of the subject land at Thirty-four million dollars ($34,00,000) is affirmed. (Signed Ambrose J) JUSTICE OF THE SUPREME COURT (Signed DM White) PRESIDENT OF THE LAND COURT (Signed JJ Trickett) MEMBER OF THE LAND COURT -- 8 of 8 --