Daikyo (North Queensland) Pty Ltd v The Valuer-General [1992] QLC 306 (1992) 14 QLCR 344

LAND COURT, BRISBANE 17th December, 1992 Re: Appeal against a determination of the Valuer-General - City of Cairns - AV91-4 76. Daikyo (North Queensland) Pty Ltd V. The Valuer-General (Hearing at Cairns) DECISION As at 31st March, 1990, the Valuer-General determined the unimproved value of certain land adjacent to Trinity Inlet in Cairns, as described below, in the sum of $7,700,000. The owner has appealed against the Valuer-General's decision, estimating the value at that date to be $4,500,000. The land is situated on the north-eastern side of Wharf Street, about 330 metres south-easterly of the Post Office. It is leased from the Cairns Port Authority and is described as follows: Lease J on Plan NR 7508; Parish of Cairns, County of Nares, containing an area of 6972 square metres. There is agreement between the parties that, of the surveyed area, 5464 square metres is above the high water mark with the balance area of 1508 square metres below that mark, but over which is constructed a concrete original wharf. The land is zoned "Special Purposes", and is developed with the Trinity Wharf complex comprising ground level retail shops and coach terminal, first level retail shops, food outlets, restaurant and tavern, then second level offices and cruise liner terminal. The latter facility and a radio control tower are provided, as a condition of the lease, for the exclusive use of the Cairns Port Authority. Part of the structure on the leased land is erected on the original wharf. The areas of argument in the valuation are contained largely to the effect of the zoning then the correct method of valuation of the land below the high water [1992] QLC 306 -- 1 of 12 -- 2 mark, in terms of the relevant provisions of the Valuation of Land Act 1944 (the Act). Valuation evidence for the appellant was provided through Mr K.F. Malone, registered valuer. He assessed the unimproved value at the relevant date in the amount of $5,700,000. He saw the majority of the uses of the land to be "consent uses" under the existing zoning, but the "bus passenger terminal" as being a prohibited use. He had found on enquiry of the Town Planning officers of the Cairns City Council that a rezoning of the land to "Special Facilities" would be a preferred option even with the existence of "Main Business and Shopping" zoned land adjoining to the north. He agreed that the existing uses were aligned to the Main Business and Shopping zone, except that part of the structure tower contravened the as of right height limitation for certain uses within that zone. He agreed that to establish the level of value relevant to the highest and best use of the site, it was realistic to make comparisons and draw evidence from the Main Business and Shopping zone. He did not agree that the present use of the land represented such highest and best use, because of its trading history and changed conditions since the Trinity Wharf complex had been designed and constructed. He agreed that there was no provision within the Act which allowed valuation of the land as being subject to any restriction which might result from the terms of a lease of this nature. It is common ground that there was no strictly comparable sales evidence to assist in the valuation of the land at the relevant date. Mr Malone provided details of nine sales (one of which was a sale of the subject property as developed, in March, 1990, for $12 million, but under circumstances which did not assist the establishment of unrestricted unimproved freehold market value). He found none of the sales evidence to be directly comparable. No good purpose is seen to be served by including here, the details of these sales. In the end result, Mr Malone found that, subject to a rezoning to Main Business and Shopping or Special Facilities, he would value the land above high water mark at $1,100 per square metre as at the relevant date. He was assisted in this assessment by a comparison with the values applied by the Valuer-General to nearby waterfront -- 2 of 12 -- 3 lands as follows : Lease B - 2782 square metres (Main Business and Shopping) - $3 ,200,000 ($1150 per m 2 ) Lease F - 3105 square metres (Main Business and Shopping) - $3,600,000 ($1159 per m 2) Both of these sites were above the high water mark. Mr Malone valued the land below high water mark at $370 per square metre, again subject to rezoning. He was aware of Court decisions relative to the valuation of unimproved value of submerged land, which indicated to him that, depending on the individual circumstances, unimproved value might be expected to fall within the range of 25% to 50% of the unimproved value of land above high water mark. His report contains the following passage: The land of the subject below high water mark is improved with a concrete jetty on a concrete piled foundation which was constructed in 1915. The existing Trinity Wharf buildings were constructed over part of the wharf in 1987. II Mr Malone set about establishing the added value of this wharf structure. Engineering advice was "that an amount of $2,200,000 would adequately reflect a reasonable order of costs to erect a similar structure capable of supporting the existing development". Then with consideration to the age of the existing wharf, and the designed life expectan_cy of the Trinity Wharf building, he formed the opinion that the existing wharf possessed an added value equivalent to 50% of the cost of providing an equivalent supporting structure - i.e. $1,100,000. This equated $730 per square metre for the land below high water mark, which he deducted from the dry land value of $1,100 per square metre to find the "wet" value of $370 per square metre. This assessment which is about 33 1/3% of the dry land value, fell within the range of the 25% to 50% suggested, in his opinion, by Court precedent. Having arrived at a value for the land, on a rezoned basis, he then went through an exercise of considering the risk of obtaining rezoning (which he saw to be minimal) then the holding charges (rates and interest) which would have affected the unimproved value as zoned, at the relevant date. -- 3 of 12 -- 4 His calculations are as follows: Land Above H.W.M. 5,464m2 @ $1, 100/m2 Land Below H.W.M . 1,508m2 @ $370m2 Less: Risk factor for obtaining zoning change @ 5% _ 6=•=56=8=,3=6=0_ X 5 1 105 Less: Council Rates during rezoning period Less: Loss of interest for 9 months @ 12% While obtaining change of zoning UNIMPROVED VALUE For practical real estate purposes, adopt $6,010,400 $557,960 $6,568,360 $312.779 $6,255,581 $46,795 $6,208,786 $512,652 $5,696,134 ======= $5,700,000 In summary, Mr Malone's valuation represents, in his opinion, the unimproved freehold value of the land, as zoned (Special Purposes) and excluding the added value of the wharf structure. The Valuer-General's valuation was carried out by Mr P.F. Goodman-Jones, registered valuer, with the Department of Lands. He explained that, while there had been sales evidence in the annual period prior to the relevant date, which indicated an increasing level of value, there had been a degree of uncertainty in the real estate market at the immediate relevant date. This was caused in the first instance, by the pilots' dispute which commenced in August 1989 as well as the following general recessionary economic climate. A decision was taken by the Valuer- General not to apply the trend of increasing value indicated by the sales prior to the relevant date. Instead the 1989 levels of value were re-written. Then, in about mid- 1990, the first evidence appeared which showed that a down-turn in the city -- 4 of 12 -- 5 commercial market had occurred. With the benefit of this hindsight, a further decision was taken to provide the benefit of doubt as to the actual, but unconfirmed, situation at the relevant date. Commercial valuations as at that date were reviewed and reduced, in the range of 10% for those properties with prime location to 20% for those on the fringe, below the 1989 level. The subject valuation, against which the appeal was lodged, represents a reduction of about 15% below the original March 1989 valuation. Mr Goodman-Jones agrees with Mr Malone's opinion that there was no sales evidence of comparable land at the relevant date. The subject valuation did, in his opinion, maintain reasonable relativity of valuations within the commercial area. Mr Goodman-Jones provided a schedule of the sales evidence which had been investigated. No reliance was placed on the evidence, other than to indicate trends in value. As with Mr Malone's sales evidence, there is no purpose served in its repetition here. A schedule showing the valuations applied to four other properties, (one of which was a property referred to by Mr Malone), was included in Mr Goodman- Jones' report, to confirm his evidence as to the maintenance of relativity. It is Mr Goodman-Jones' opinion that while the actual development on the subject land may not now represent the highest and best mix of uses on the subject property, the actual uses are closely aligned to those permitted within the Main Business and Shopping zone. He agreed that the existing use of the land might well be uneconomic and could well have been considered futuristic at both the time of development and the date of valuation. It is his opinion, and the submission for the Valuer-General, that the provisions of Section 1-2(1A) of the Act are relevant to this valuation, and that the land should be valued on the basis that the use is equivalent to that which would be permitted in the Main Business and Shopping zone. Section 12(1A) of the Act provides: Notwithstanding anything contained in this section, in determining the unimproved value of any land it shall be assumed that - -- 5 of 12 -- 6 (a) the land may be used, or may continue to be used, for any purpose for which it was being used, or for which it could be used, at the date to which the valuation relates; and (b) such improvements may be continued or made on the land as may be required in order to enable the land to continue to be so used, but nothing in this subsection prevents regard being had, in determining that value, to any other purpose for which the land may be used on the assumption that any improvements referred to in subsection (1) of this section had not been made. " On this basis, Mr Goodman-Jones' valuation of the land above high water mark, on the "solid land" as he describes it, is $1150 per square metre. In terms of Section 12(1A) of the Act, he does not discount that value to the "as zoned" basis as did Mr Malone. The next major difference between the valuers is the method employed in the valuation of the land below high water mark. Mr Goodman-Jones valued this land, which he describes as "apron area on wharf" at $950 per square metre. He had established that the depth from the top of the wharf to the bed of the Inlet was about 12 metres. He said that he notionally brought the land below high water mark to a solid state, by filling, a_r:id allowed $200 per square metre of surface area for that hypothetical development. He said that the wharf was in the ownership of the Cairns Port Authority and he "looked at that in terms of s.12{2)(c) of the Act - that structure is there and ..... it's not something that had to be constructed by the lessee". Under cross-examination, Mr Goodman-Jones indicated that in reality he viewed the wharf as forming part of the land. He agreed that his filling allowance was indicative of his perception that if the wharf was to be seen as part of the land, allowing the erection of buildings supported by the wharf structure, and its foundations, that wharf area would still be less valuable than the adjoining solid land. He agreed that his allowance of $200 per square metre of surface area (based on a cost of filling of about $15 per cubic metre) did not include the provision of revetment walls or ancillary works. He maintained however that the -- 6 of 12 -- 7 allowance was no more than a method of reducing the solid land value to a perceived acceptable level for the less valuable wharf surface area of the site. It was Mr Goodman-Jones' opinion that while the cost of providing a comparable supporting facility as had been supplied to Mr Malone may have been realistic, he would have expected a piling operation to be more efficient. He had not investigated the costs of improving the site from the natural unimproved condition. There are some incidental issues which need to be discussed in terms of relativity of valuations. Firstly, the appellant suggests that it is a basic principle of valuation that, as the size of a site increases, its value on a unit of area basis will decrease. Mr Goodman-Jones agrees that such could well be the case when the size difference is a matter of significance, but he says it has been his experience that, within defined ranges of size of commercial lands in Cairns, increased size does not necessarily cause reduced levels of value. He points to the activities of developers in the amalgamation of small sites in the creation of commercial redevelopment sites. He maintains the opinion that, in the examples of relativity of valuations, an adjoining lot of about 3000 square metres possesses the same pro rata unit of area value, as the subject which is in excess of twice the size, all other things being equal. It is accepted that in many cases the market might logically be expected to differentiate between lands of varying size, particularly when those sizes are above or below a local market standard in terms of desirability or viability of scale of development. The relevant principle of valuation is however that those interpreting the market must do just that - and not substitute opinion, however logical it might seem, for the factual market place. The question also arises as to the effect of the adjacency of an 8-9 metre section of wharf, separating the subject lease from the nearby waterfront, in comparison with adjoining lands with direct waterfront availability. The appellant sees the lack of control over the public wharf area and the potential for wharfage activities as being detrimental to the market value of the subject land. Mr Goodman-Jones accepts that there could be some disabilities associated with this strip of wharf but sees the advantages of having wharf access, particularly in terms -- 7 of 12 -- 8 of cruise-ship berthing, as at least equalising the potential disadvantages. I find no evidence before the Court which proves the Valuer-General's adopted basic value of $1,150 for the subject land as unrestricted freehold solid land, on a Main Business and Shopping zoned basis, as being proved wrong. The appellant's estimate on this basis is $1100 per square metre and that difference, in valuation terms, is not significant, although intended to reflect the subjective opinion of relativity. Having decided that $1150 per square metre is not unreasonable as a starting point, it is then necessary to decide whether that value should be applied in the circumstances of the subject case. It is submitted by the appellant that the existing use is not the highest and best use although it is suggested that "the difficult to decide" highest and best use or uses, might well fall within those permitted by the Main Business and Shopping zone. It is suggested that a more appropriate zone might be, when the highest and best use was established, the Special Facilities zone, and that the use might incorporate accommodation facilities. Mr Goodman-Jones as mentioned earlier, does not disagree that the actual existing uses might not equate the highest and best use, but is confident that the existing use or uses are at least equivalent to those permitted in the Main Business and Shopping zone. He says that, if the height restriction imposed within that zone is in fact exceeded, then that would be an additional advantage. It seems to me that it is inherent in the appellant's submission that for the provisions of Section 12(1 A) of the Act to be applied, the non-conforming use must equate the highest and best use of the site. I agree that the legislation provides the Valuer-General with the machinery to apply an unimproved valuation based on highest and best use potential. If that use does not reflect the existing zoning, then in the absence of sales evidence, it might be quite appropriate for the exercise in which Mr Malone engaged to be considered in finding the correct value as vacant land, and as zoned. Here, however, the existi,ng use is seen by the Valuer-General, correctly in my opinion, to equate those permitted within the Main Business and Shopping zone and the level of value from that zone has been adopted. Although it was found not to be relevant in J.R. Stubbertield v. The Valuer-General (1988-89) -- 8 of 12 -- 9 12 Q.L.C.R. 328 (F.C.), the history of the legislature leading to the inclusion of Section 12(1 A) in the Act, and its interpretation were dealt with at some length by Carter J. in that matter. At pp. 335, 336, His Honour said: Section 12(1A) should be construed to mean that in assessing unimproved value the assumption may be made that land may be lawfully used and continue to be lawfully used for the purpose for which it was in fact being used at the valuation date and that the improvements thereon may continue to be used or may be made as required to enable the land to be continued to be so used. The saving provision in s.12(1A) permits the valuer to also have regard to any other use for which the land might be used on the assumption that the improvements had not been made. • While in this matter there was mention that the effects of the town-planning scheme do not necessarily apply to land under the control of the Cairns Port Authority, I accept that the land has been included in the relevant Town Plan. The viability of use of improvements is relevant only in times of improved value. It is not a consideration here. The value to be found is the unimproved value of the land. Section 12(1A) of the Act requires consideration of improvements, only so far as they relate to town planning conformity and then (as it was found in GFM Investments Pty Ltd v. The Valuer-General (1990-1991) 13 Q.L.C.R. 244 (L.A.C.)). To the degree of utilisation of the land. Once that is decided the land becomes unimproved for the purposes of the Act. There is no evidence before me to suggest that the land is not fully utilised. I agree with the Valuer-General's conclusion that existing use was at least equivalent to that omitted in the Main Business and Shopping zone, and that unimproved value should be equivalent to the level adopted for comparable land within that zone. The next matter is the question whether the Valuer-General was wrong in law and principle in the valuation of that part of the land below the high water mark. Mr D.B. Fraser of counsel for the appellant refers me to Glebe Municipal Council v. Sydney Coal Company (1921) 21 NSW SR 162, in which matter it was held, on appeal, that the original Judge was right in deducting from the improved capital value of leased Sydney Harbour Trust land, the value of reclamation works. Here, if the wharf in this matter was to be regarded as a "visible" improvement then an approach of deducting the added value of that improvement, however assessed, from the improved land value, could be a correct approach in consideration of -- 9 of 12 -- 10 unimproved value. It then follows, as the critical point in this aspect of the matter, whether the wharf is to be regarded as a "visible" or "invisible" improvement. While that might seem academic and simple enough to answer - for all before me had no difficulty in seeing the object - it is not so simple a question to answer in terms of the legislation. Section 12(2)(c) defines "Improvements" for the purpose of the Act and commences: 'Improvements' means, in relation to land, improvements thereon or appertaining thereto, whether visible or invisible, and made by the owner or his predecessor in title ..... ". That is clear enough, but then the proviso is: Provided that in the determination of the unimproved value of land the term does not include invisible improvements, other than timber treatment, where such invisible improvements have been made by the Crown, whether in right of a State or in right of the Commonwealth, (including a statutory body representing the Crown), a Local Authority or a Harbour Board except to the extent, in the case of a purchaser or lessee from the Crown, statutory body, Local Authority or Harbour Board, to which the Crown, statutory body, Local Authority or Harbour Board has been recouped in respect of expenditure on such invisible improvements by such purchaser or lessee otherwise than by payment of rent, rates or taxes. " Consequently, if the improvement in this matter is to be dealt with under the proviso to s.12(2)(c) of the Act, and regarded as "invisible", then it merges with the land, for it is known that the lessor did not construct the improvement, nor pay for it. The proviso referred to above was inserted into the Act in 197 4. In 1977 the learned former President of the Land Court, Mr W.F.G. Smith, was required to decide whether or not "filling" was an invisible improvement in Amoco Australia Pty Limited v. The Valuer-General (1977) 4 Q.L.C.R. 427. It seems that not since then has the question been tested, as there is now no dispute that filling should be regarded as an invisible improvement. Mr Smith saw the need, thankfully, to deal with the definition of "invisible improvement" at length. Rather than an "eye-sight" criterion, which he had discussed earlier in his decision, he said at p. 443: It appears to me that those who professionally practise valuation and/or are versed in its principles, generally accept that filling is an invisible improvement and that an 'invisible improvement' is one which merges (i.e. loses its character or identity) with the land, is an -- 10 of 12 -- 11 improvement of or to the land and generally changes and enhances or maintains the quality of the land in that it enables it to be put, or continue to be put, to a higher and more beneficial use than in its natural state; The term 'invisible' is thus one of professional or technical meaning and significance. It is generally under$tood within the valuing profession as having a different meaning to its ordinary common every day usage. In these circumstances and as the Valuation of Land Act deals with a technical subject - the valuation of land - it is, in my opinion, the professional and technical meaning which should be adopted in interpreting the terms of the Act. • What he said then equally applies now, in my opinion. As I understand the evidence, the "wharf" on the subject land, does not now constitute a wharf as such, but rather, a surface area capable of supporting and acting as the foundation for part of the commercial complex which was constructed. In a practical sense, it is capable of use in the same manner, (although in the opinion of Mr Goodman-Jones, not as efficiently) as would solid fill. The engineering advice provided to Mr Malone indicates that the actual structure is, in engineering terms, in excess of an equivalent structure which might serve the same supporting role. It was upon that equivalent platform-type basis that the cost of replacement had been estimated. (Mr Malone, for his own reasons, took that added value concept a step further, by depreciating the estimated replacement cost.) If the improvement is seen not as a "visible" improvement, but one which has merged with the solid land, used in the role of supporting a building for commercial usage, then it, in my opinion, by whatever structural description, equates a site improvement, which in the context and intent of the legislation as I interpret it, could be correctly described as an "invisible" improvement. The remaining test is whether that is an unreasonable conclusion. The lessee is not, in my opinion, disadvantaged, whether the site improvement is of solid fill or of a platform-type nature, except to the extent of the degree of efficiency. The structure relieved the lessee/ developer of the cost of providing the necessary foundations. Any wharf usage of the site relates to a facility adjacent and external. The allowance made by Mr Goodman-Jones does not relate, in the practical sense, to any filling operation, but a perception that the platform is in some way -- 11 of 12 -- 12 less efficient than solid fill. This is subjective opinion, it seems, which could well be to the advantage of the lessee in terms of the valuation of that area being reduced by $200 per square metre. While there is substance in the argument put forward by the appellant with regard to the wharf structure, I find against the submission. The appeal therefore fails on all grounds. The valuation of the Valuer- General is affirmed. (Signed) R. E. Wenck Member of the Land Court -- 12 of 12 --