ANZ Holdings Ltd v Chief Executive, Department of Lands [1994] QLC 307

[1994] QLC 307 Re: Appeal against Annual Valuation Valuation of Land Act 1944 City of Ipswich (AV93-334) ANZ Holdings Ltd v. Chief Executive, Department of Lands (Hearing at Ipswich) DECISION LAND COURT BRISBANE 28 OCTOBER 1994 ANZ Holdings Ltd is the owner of land described as Lot 3 on Registered Plan 166867, Parish of Ipswich, County of Stanley, containing an area of 644 sq. metres. It has two common wall easements along the western boundary (Easements C and D) while it is also subject to two easements (Easements G and H) which provide access to the rear of the adjoining properties. In accordance with the provisions of the Valuation of Land Act 1944 (the Act), as at 31st March, 1992, the respondent determined the unimproved value of this land at $429,000. An objection to this valuation was disallowed and an appeal was lodged on the owner's behalf by Raine & Horne Valuations (Qld) Pty Ltd, with wide grounds of appeal, advising an estimate of the unimproved value of $320,000. Mr AD Crombie, registered valuer, appeared and gave evidence on behalf of the appellant, while valuation evidence was given for the respondent by Mr BJ McDonald, registered valuer, employed by the Department of Lands. The land is situated at 102 Brisbane Street, Ipswich, being a hatchet shaped allotment with a frontage of approximately 13 metres to Brisbane Street and a depth of 40.234 metres, the "hatchet handle" consisting of a long thin strip with frontage of 3.018 metres to Limestone Street and a length of 40.254 metres. The strip of land provides rear access to the subject land, while easements over that area -- 1 of 16 -- 2 provide access to adjoining lands. The front part of the property is developed with a two-storeyed concrete block bank building, while the rear part is bitumen sealed and used for access and car parking. Brisbane Street is a one-way, two-lane, full width bitumen carriageway with concrete kerbing and channelling. The footpath is sealed and metered street parking is available. Access from Brisbane Street is good, as is the rear access from Limestone Street, which is also a one-way, two-lane, full width bitumen carriageway in the other direction. Water, sewerage, electricity and telephone services are available. The subject land is an inside allotment, level with Brisbane Street at its frontage, sloping gently downhill from west to east, with a gentle cross-fall to the east. It is of medium elevation and has adequate drainage. The rear access strip rises gently from Limestone Street. The land is zoned "Comprehensive Development" under the Ipswich City Town Planning Scheme. The two valuers have adopted different approaches to the valuation of this land. Mr McDonald values the land fronting Brisbane Street, with dimensions of 13 metres frontage by 40.2 metres depth, at $30,000 per metre frontage, or $390,000. He then adds 10 per cent, or $39,000, for the access strip to Limestone Street, for a total valuation of $429,000. On the other hand, Mr Crombie values the land on the basis of its area as follows: 500.69 sq. metres @ $585 per sq. metre 143.31 sq. metres $160 per sq. metre Total Adopt $292,903 $22 ,929 $315,832 $320,000 Mr McDonald had regard to three sales in arriving at his valuation. His Sale -- 2 of 16 -- 3 No. 1 is situated at 221 Brisbane Street, somewhat to the west of the subject land. It has an area of 526 sq. metres, zoned "Comprehensive Development", and sold in May 1991 for $205,000. Mr McDonald analysed this sale to show an unimproved value of $105,163 and applied a valuation of $84,000 in the 1992 valuation. Mr McDonald's Sale No. 2 is situated at 42 Brisbane Street, somewhat to the east of the subject land. It contains an area of 749 sq . metres, zoned "Comprehensive Development", and sold in January 1992 for $465,000. Mr McDonald analysed this sale to show an unimproved value of $218, 199 and applied $193 ,000 in the 1992 valuation. However, it is Sale No . 3 that Mr McDonald relies most upon. This sale is also situated in Brisbane Street in close proximity to the subject land, but on the opposite side of the street and on the corner with Bell Street. This property contains an area of 402 sq . metres, is zoned "Comprehensive Development", and sold from Fairweather to Costello in January 1992 for $1,260,000. Mr McDonald analysed this sale to show an unimproved value of $513,788 and applied a valuation of $398,000 in the 1992 valuation . Mr Crombie also relied upon this sale as a basis for his valuation. However, he analysed it to show an unimproved value of $312 ,959. This sale property is the site of the Westpac Bank. Mr Crombie describes the building as a three-level, modern, purpose-built, bank premises constructed of reinforced concrete slab floors, exposed granite walls and a metal colourbond roof. The ground and first floors are used for banking purposes and the second level houses the lunch and locker rooms, the plant room and an open-air tiled patio area. The building was approximately 14 years old at the date of sale. There is an easement over an area of approximately 60 .6 sq. metres at the rear of this property which provides access to the rear of the adjoining land. -- 3 of 16 -- 4 Mr Crombie comments that the property was sold with 8½ years of a 10 year lease to Westpac still to run and so represented a very secure investment, both in terms of the length of the lease and the quality of the tenant. The rent was $113,530 per annum with reviews every 2½ years. Mr Crombie analysed this sale as follows: Sale Price Less value of building Less value of lease 3 months letting up Less cost of leasing 10% of $113,530 Less value of tenant increase yield by 1.25% Land Value $755,208 $28,383 $11,353 $152,097 $1,260,000 $947 ,041 $312,959 Mr Crombie then apportioned this analysis between the easement area and the balance area: Easement area 60.6 sq. metres $234.88 per sq. metre Balance area 341.4 sq. metres $887 per sq. metre Total $14,234 $298 ,725 $312,959 Mr Crombie offers the following explanation for his approach to the analysis of this sale: "In our analysis we have taken cognisance of these facts by making the appropriate allowances in the following forms:- (i) The cost of the leasing agents commission. (ii) The loss of rent during a letting up period. In this case we have adopted a three month period which we consider to be conservative. (iii) The added value of having a national tenant leasing this building at a market rent for a ten (10) year lease with two, five year options." Mr Crombie goes on to state that the added value in (iii) is clearly demonstrated by sales of two adjoining parcels of commercial and industrial land situated in Anzac Avenue, Kallangur, both of which sold in March 1994. Property -- 4 of 16 -- 5 A, with an area of 1,700 sq. metres, sold for $720,000. It was tenanted by Amalgamated Food and Poultry Pty Ltd (a subsidiary of Coles Myer) with a lease for 10 years, plus two five year options, which commenced on 3rd September, 1991, at a rent of $65,799 per annum net. This showed a yield of 9. 13 per cent. Sale B, with an area of 2,460 sq. metres, sold for $660,000 with a tenant, Video Ezy, the lease being for five years plus one five year option which commenced on 10th December, 1992, at a rent of $78,000 per annum net. This showed a yield of 11.8 per cent. Mr Crombie goes on to state: " It is obvious from these two sales of new premises adjoining one another that the existence of a long term lease to a major, national tenant is of significant value to the property. In this case it is 2.67 per cent. For the purposes of our analysis of the Westpac building we have adopted a conservative 1.25 per cent." Mr Crombie argued that additional support for his theory is provided by the sale of a vacant block of land situated in Sumner Park, with an area of 2,000 sq. metres. This land sold in February 1994 for $250,000, or $150 per sq. metre, subjec;;t to an agreement with Australia Post for the purchaser to erect a building which Australia Post would lease at a predetermined rental of $81,700 per annum net, for a 10 year lease with two five year options. Rental increases were related to CPI with a minimum of 3 per cent and a maximum of 5 per cent, with a five yearly market review. In contrast to this arrangement, three other sales of vacant land in the Sumner Park/Richlands area, all of which sold in March 1994,with areas varying from 2,839 sq. metres to 4,460 sq. metres, had sale prices varying between $66.82 per sq. metre and $73.61 per sq. metre. Mr Crombie draws the conclusion: II The value which the Australia Post lease adds to the block of land has -- 5 of 16 -- 6 enabled the purchaser to pay approximately $110,000 above the market value of the property and still maintain a profit margin." On the other hand, Mr McDonald has approached the analysis of the Westpac sale as follows: Sale Price Improvements Three Storeyed Bank Building 706 sq. metres @ $1,000 Easement Driveway and Gate Plus Interest on Building 9½ % for ½ year Professional Fees 8% Rates and Land Tax Less Depreciation 15% Value of Building Less Development Interest 9½% for 1 year Less Clearing Analysed Unimproved Value $706,000 $2,200 $708,200 $33,640 $56,656 $20 ,946 $819,442 $122,916 $1,260,000 $696,526 $563,474 $48,886 $800 $513,788 This sale is of crucial importance in this case, as both valuers rely on it as the basis for their respective valuations of the subject land. The other two sales on Mr McDonald's schedule, while indicating the prices paid for fringe commercial areas of Ipswich, are not directly comparable with land in the main commercial area. Before examining more closely each valuer's approach to the sale, it is necessary to consider an earlier sale of the Westpac site. The present sale shows a yield of 9 per cent. However, the property sold previously on 16 May 1990 for $950,000, showing a yield of 11.95 per cent. The -- 6 of 16 -- 7 earlier sale occurred when Westpac sold the property to FJ and DI Fairweather, with a lease-back as described previously, which commenced on 16 June 1990. At first glance the resale of the Westpac land from Fairweather to Costello would seem to indicate that the market for commercial land in Ipswich increased rapidly between May 1990 and January 1992. However, Mr Crombie argued that other sales show that this is not so. He referred to the sale of the property situated at 127-133 Brisbane Street, from the Kern Corporation to CL & T Edwards, (the Woolworths site) which sold at auction on 8th August, 1991, for $550,000. This occurred about six weeks before the Kern Corporation went into receivership. According to Mr Crombie, the receivers did not consider the sale to be out of line and the agent thought that-it was a "good buy". Mr Crombie did not analyse this sale, but he said it is in a good position, situated only three shops from The Mall and indicates that the market for such land in Ipswich was not booming. The Lands Department applied an unimproved value to this property of $812,000, as at 31 March 1992, far in excess of the improved sale price. However, Mr McDonald does not regard this sale as reliable, because it occurred at the time when the Kern Corporation was disposing of property in an effort to avoid going into receivership. The second sale referred to by Mr Crombie is the property situated at 87 Brisbane Street, which sold for $1,080,000 on 2nd September, 1992. This property is a small shopping development and Mr Crombie contends that it was purchased for less than the value of the building. According to Mr Crombie, it is further evidence of the market for land in Ipswich at the time. Against that background, I turn now to consider each valuer's analysis of the sale of the Westpac site from Fairweather to Costello. -- 7 of 16 -- 8 From his analysis, Mr Crombie arrives at a land value of $312,959, but only after allowing for the value of the tenant, the letting-up period and leasing agent's commission. Mr McDonald did not allow for the value of the tenant. He reasoned that the provisions of the Act require that only the value of improvements is deducted from the sale price and the definition of "improvements" does not include the value of the tenant. However, after arriving at an unimproved value of $513,788, he applies only $398,000 to the subject land. Mr Crombie was critical of this approach, as the applied value is so much less than the analysed unimproved value derived from the sale. However, Mr McDonald argued that it represented a conservative approach to a rating valuation. I note also that Mr McDonald applied figures somewhat less than his analyses to the lands in Sales 1 and 2. Mr Crombie argued strongly that the sale price should be adjusted for the quality of the tenant and the length of the lease. However, if that is so, the same reasoning should apply to the earlier sale in May 1990 for $950,000. The property sold at that time subject to the lease-back to Westpac, so the increase in sale price cannot be attributable to any change in the lease arrangements. On the other hand, Mr McDonald thinks that the earlier sale was somewhat below market value at that time. This would seem to be confirmed by the yield of 11.95 per cent. The question then arises, was the sale of the Westpac property in January 1992 in excess of market value? Mr Crombie obviously thinks so and has made allowance for the quality of the tenant and the length of the lease. Mr McDonald, on the other hand, thinks this is the wrong approach, but then he applies only 77.5 per cent of the analysed unimproved value. It is well established that in analysing the sale of a property, the valuer must -- 8 of 16 -- • 9 accept the actual sale price for land and improvements and not adjust that price to bring it into line with the price which the valuer thinks it should have realised. In re Collins and Others (1st May 1936), Pike J of the New South Wales Land and Valuation Court said: " You have either got to take the sale as representing the fair market value, or reject it. You cannot take a sale at a price and say, 'That was the sale price, but in my opinion it is not the correct price; I am going to alter the price paid by this particular purchaser'. If that is done in the analysis of sales, one might as well reject the whole of those sales, and simply say what is the witnesses' opinion of the land to be valued." ("The Valuer" Vol. 4 p.156). In the present case, while neither valuer has attempted to adjust the sale price, each in his own way has made allowance for what he considers to be a sale in excess of market value. It appears that both have accepted that a purchaser would pay more for a building with a quality tenant and a long-term lease than he would for a building with vacant possession. However, in the analysis of such a sale to arrive at the unimproved value, is it open to the valuer to deduct an amount for the added value of that tenant? The definition of "unimproved value" appears in s.3 of the reprinted Act, the relevant parts of which read as follows: II (1) (a) . .. (b) in relation to improved land - 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, assuming that, at the time as at which the value is required to be ascertained for the purposes of this Act, the improvements did not exist. (2) However, the unimproved value shall in no case be less than the sum that would be obtained by deducting the value of improvements from the improved value at the time as at which the value is required to be ascertained for the purposes of this Act." -- 9 of 16 -- 10 Section 5 defines the phrase "the value of improvements" thus: " 5.(1) 'The value of improvements' means, in relation to land, the added value which the improvements give to the land at the time as at which the value is required to be ascertained for the purposes of this Act, irrespective of the cost of the improvements, including in such added value the value of any hotel licence the value of which has been included in the improved value. (2) However, the added value shall in no case exceed the amount that should reasonably be involved in effecting, at the time as at which the value is required to be ascertained for the purposes of this Act, improvements of a nature and efficiency equivalent to the existing improvements." Section 6 defines "improvements", but it is sufficient for this purpose to say that nothing in the definition could be construed to extend to the added value of tenants. Mr McDonald has concluded that the Act provides that it is only the added value of improvements that can be deducted from the sale price. His reasoning would appear to be based on the provisions of s.3(2). However, this subsection clearly states that the unimproved value shall not be less than the amount obtained by deducting the value of improvements from the improved value. Even if it is assumed that the sale price represents the "improved value" as defined, the exercise contemplated by s.3(2) sets the statutory minimum unimproved value ("shall in no case be less than") rather than the "real" unimproved value. (See Valuer-General v. Dunlop Rubber Australia Ltd (1958) 3 LGRA 125). There is clear authority for the deduction from the improved value of an ingredient other than the value of improvements. In Toohey's Limited v. The Valuer- General (1925] A.C.439, the Privy Council considered the question of the "unimproved value", in the context of the New South Wales Valuation of Land Act, of land upon which were buildings occupied as licensed premises under the Liquor Act NSW Their Lordships said at p.443: " It is with the latter of the two sections that the valuer has to do. Now, what he has to consider is what the land would fetch as at the date of the -- 10 of 16 -- 11 valuation if the improvements made had not been made. Words could scarcely be clearer to show that the improvements were to be left entirely out of view. They are to be taken, not only as non-existent, but as if they never had existed. It is, therefore, to approach the question from a completely wrong point of view to begin with a valuation which takes in the improvements and then proceed by means of subtraction of a sum arrived at by an independent valuation in order to find the required figure. What the Act requires is really quite simple. Here is a plot of land; assume that there is nothing on it in the way of improvement: what would it fetch in the market?" Later, when considering the process of arriving at the unimproved value, Their Lordships said at p.444: " 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 cornposed 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. When, however, the subtraction sum is entered upon it is only item 2 that is subtracted from the total figure; the result being that item 3 is all included in the unimproved value. 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." Similarly, if in the present case the sale price of the Westpac site is enhanced by the value of the tenant, this could only be in connection with the building, and yet the Act requires that it must be assumed that no building exists. Therefore, any such enhancement in the sale price cannot be attributed to the land or reflected in the unimproved value. The difficulty in this case is to isolate the enhancement in value attributable to the tenant. Mr Crombie has suggested a method, but I am not prepared to accept his reasoning based as it is on completely different circumstances in a different environment. He has attempted to make allowance for this by adopting what he calls a conservative 1.25 per cent increase in yield. In the absence of proof of the quantum to be attributed to the added value of -- 11 of 16 -- 12 the tenant, there is one thing that is certain. Mr Crombie has allowed in his analysis of the sale an amount for the letting-up period. If the tenant is already in place, then this amount at least should be excluded. The same reasoning applies to the letting agent's commission. Although he felt that the Act provided him no latitude to deduct the value of a tenant, Mr McDonald admitted that a prudent purchaser would be more interested in a property that was leased than in a property which was not leased. However, later in his evidence he said that he did not think that a purchaser would pay any more for a leased property than the leasing-up period, and he said that in this case it would be a period of six months. If the added value of the tenant amounts to a six months' letting-up period, or $56,765, plus the cost of leasing at 10 per cent of the yearly rent of $11,353, and Mr Crombie's analysis of the sale is adjusted accordingly, it would result in a land value of $436,674. This is only slightly higher than Mr McDonald's applied unimproved value of $429,000 . Some support for the conclusion that a sale price can be affected by a tenancy can be drawn from the remarks of Sugarman J of the New South Wales Land and Valuation Court in AG Robertson Ltd v. The Valuer-General (1952) 18 L.G.R. 261 . There His Honour was dealing with the sale of land which was subject to tenancy affected by the Landlord and Tenant (Amendment) Act 1948-1951. His Honour said at p.263: " The 'fee simple of the land' referred to in those sections is, in my opinion, the fee simple in possession. It is not the fee simple in reversion or remainder expectant upon the determination of some prior estate. No more is it the fee simple subject to the rights or immunities conferred upon a tenant or a tenant holding over by the legislation already referred to, whether by way of prolonging the contractual tenancy or by way of creating some new estate or interest in the land." Sugarman J went on to point out that the fact that premises are let to a tenant is not in all circumstances necessarily depreciatory of value. Under appropriate -- 12 of 16 -- 13 circumstances as to rent, duration and covenants, which are not disadvantages to the lessor, they might be expected to bring as much as if they were vacant. In dealing with the analyses of such sales, His Honour said at p.264-65: " The very point of Toohey's Case is that you cannot ascertain the unimproved value by subtracting the value of improvements, merely as such, from a value of the aggregate which is itself affected by a factor attributable to the existence of the improvements on the land, because you are required to assume that those improvements do not exist and never have existed. Subtraction by the conventional method of the value of improvements, merely as such, would appear to run counter to this where the subtraction is from a value of the aggregate appreciated or depreciated by factors particularly attributable to the existence and characteristics of the particular improvements and to other considerations affecting them. And the same reasoning would seem to be applicable to any other mode of distributing such a value of the aggregate over land and improvements, if some such method could be devised. Even if another view were taken on the difficult question which I have mentioned there would remain the practical problem of distribution. I have referred earlier to the analogy of the depreciatory effect of a disadvantageous lease, and reference may also be made to the appreciatory effect of an advantageous lease." Then at p.265 His Honour went on to say: " What I have said does not mean that the analysis of sales of improved land is altogether without use. It may happen that its result will represent the unimproved value. But since that would be fortuitous, it may be of no assistance unless it is possible to show that it has occurred in the particular case. However, as an hypothesis which seems likely to be correct in many cases, it may be suggested that analysis of sales with vacant possession and analysis of sales without vacant possession respectively ought to provide at least the upper and lower limits of the range within which the unimproved value lies." Unfortunately in this case, I do not have evidence of any other comparable sales, let alone sales with vacant possession, as none of the other sales is directly comparable to the subject land and none of them provide an alternative basis for the valuation. Therefore, I am left with no basis which I can apply with confidence. However, this appeal must be determined on the evidence and although have expressed my concerns about the basis used by each of the valuers, the only sales evidence that they have put before me in this case is the sale of the Westpac -- 13 of 16 -- 14 site. While leaving open the question of the extent to which a quality and long-term tenant may add to a sale price, I am not prepared to hold that Mr Crombie has demonstrated that the added value of the tenant in this case exceeds the value of a six-month letting-up period. When his analysis of the sale is adjusted accordingly, the resulting unimproved value is higher than that applied by Mr McDonald . Therefore, while I have reservations about Mr McDonald's basis of valuation, Mr Crombie has not convinced me that the applied value is excessive. It remains to say something about the relative valuation methods used by the two valuers. Mr Crombie has adopted a rate per sq. metre because he considers it is the appropriate way to value commercial land, particularly land with potential for multi-storey buildings, than a rate per metre frontage. However, he has not offered any further explanation. On the other hand, Mr McDonald expressed the opinion that frontage is still the most important element of value of the commercial area of Ipswich, where there is little development above the ground floor. He thinks that the rate per metre frontage method is the most appropriate in this case, as various allowances must be made for corner influence, depth factors and easements. He regards this as much easier to achieve with a rate per metre frontage method than with a rate per sq. metre. Without detailed argument, I am reluctant to depart from the traditional rate per metre frontage method of valuing the commercial land in Ipswich. This method has been accepted by valuers in other cases before this Court involving the valuation of commercial land. (See Outridge Holdings Ply Ltd v. Chief Executive, Department of Lands (not reported) decision 29 October 1993). However, it is timely to heed the warning of the Land Appeal Court that the method is appropriate only in certain -- 14 of 16 -- 15 circumstances and should be departed from where the evidence so indicates. In Proprietors of 108 Flinders Street Building Units v. Valuer-General (1985) 10 QLCR 212, when dealing with land with potential for development for multi-unit purposes, the Land Appeal Court said at p.217: " However, whilst the method of valuation on a linear metre frontage basis may be appropriate in retail areas or where it is agreed that frontage carries the predominant value of the land, the method is less suitable where and as we view the circumstances of the subject cases, the worth of the frontage component of the lots rests more in their potential for development in the future than in the present use, or what may be considered an appropriate use at the relevant date." In all the circumstances of this present case, I am not satisfied that Mr Crombie has discharged the burden of proving that the valuation applied by the respondent to the subject land is incorrect. Therefore, the appeal must fail. Accordingly, the appeal is dismissed and the unimproved value of the subject land is affirmed at $429,000. (JJ Trickett) MEMBER OF THE LAND COURT -- 15 of 16 -- -- 16 of 16 --