Continental Cake Shop Pty Ltd v The Yaluer-General [1991] QLC 221

LAND COURT, BRISBANE 31st July, 1991 Re: Appeal against determination of Valuer-General - City of Gold Coast. AV90-613. Continental Cake Shop Pty Ltd V. The Yaluer-General DECISION {Hearing at Southport) This appeal is against the determination of the Valuer-General of the unimproved value of Lot 1 on RP 90910 in the sum of $1.5 million for the purposes of the Annual Valuation of the City of Gold Coast as at 31st March, 1989. The appellant is contending that the unimproved value of the lot should be fixed at $800,000 on grounds that the "valuation is wrong in and contrary to law" . The subject land is a rectangular-shaped lot of 175 square metres in area with a frontage to the Gold Coast Highway of about 4 metres. The land is situated on the western side of the Highway at 3220 Gold Coast Highway between Elkhorn Avenue and Cavill Avenue. The lot is within a retail and business precinct. The current development of the site comprises a small single level retail cakeshop to the front portion of the property with major baking facilities attaching to the rear and covering the balance of .the site. About 7 perches at the rear of the lot is subject to an easement for right of way which, with other easements over adjoining properties, was designed to afford rear access to the relevant lots, However, in the report on the property written by Mr M.J. McLaren, registered valuer in the employ of the Department of Lands, "possible vehicular manoeuvrability would not comply [1991] QLC 221 -- 1 of 8 -- 2 with Council's requirements for ingress and egress movements without considerable difficulty". The lots adjoining the subject lot on the south and the north are, broadly speaking, of comparable size and shape to the subject lot (being subdivisions of old surveyed lots). At the relevant date, the zoning of the land was "Comprehensive Development". The land is designated within the existing Development Control Plan as being part of the "core district" which is Precinct No 1 (reflects highest intensity of commercial use and greatest diversity of activity generally characterised by a wider diversity of functions directly related to the function of the area as a tourist centre). In the opinion of Mr McLaren, the highest and best use of the lot is basically as a holding proposition for amalgamation. In his report he said that the "considered optimum development of the subject property, as with all properties of smaller size located in the core or main retailing areas of the Surfers Paradise Central Business District, is a way of future amalgamation within a more serviceable sized property capable of optimizing maximum development yield; i.e. 4.5-5 plot rates". Having said this, I return to the grounds of the appeal. The case for the appellant was conducted by Mr R.J. Goldstein. He is an accountant by profession and a director and shareholder of the appellant company. His brother, Mr F.D. Goldstein, also gave evidence. They have been associated with the subject land since the 1950's and have a familiarity with the business activity of the area. At the outset Counsel for the Valuer-General took objection to the grounds of the appeal, submitting that an explanation was required from the appellants as to the error in law made by the Valuer-General and pointing out_correctly that an appellant was bound by the grounds of his appeal. Counsel admitted that the Valuer- General would not be taken by surprise if the alleged error in law related to the -- 2 of 8 -- 3 application of sales. This was indeed the case for the appellant. Primarily the case was founded upon what the directors believe should be the proper application of a sale of a lot about 3 lots removed to the north of the subject lot. But before considering this evidence I may state a couple of general principles. Firstly, if it can be shown that the Valuer-General has ignored a relevant principle in valuation in making the assessment or has rejected as wholly irrelevant a transaction which prima facie afforded some evidence of value for reasons which were not rational, an error of law may be proved - (see Me!wood Units Pty Limited v. The Commissioner of Main Roads (1978) 5 Q.L.C.R. 145 P.C.) The principles which have application in this case are found in s.12(1)(b) of the Act. Transposed into layman's language they mean: In Spencer v. The Commonwealth (1907) 5 C.L.R. the High Court propounded the proper test for the easement of land value. It is the price which a willing purchaser would at the date in question have had to pay to a vendor not unwilling, but not anxious to sell. It seems to me that that test finds statutory expression in the Valuation of Lands Act. In defining 'unimproved value' for the purposes of the Act, it recites that that value is 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. In simple terms it is synonymous with the market value of the land. • (Stubberfield v. The Valuer-General (1988/89) 12 Q.L.C.R. 328 per Carter J. at pp. 330/1.) The sale relied upon by the appellant for the purpose of demonstrating that the assessment of the Valuer-General is in .error comprises the sale of Lot 1 on RP 94748 containing an area of 162 square metres and situated at 3226 Gold Coast Highway. This lot has a frontage of about 6 metres to the Highway and a depth of about 27 metres. The land was improved at sale with a single level retail structure 30-35 years old. The lot sold from Coulson to Mayfair Trading Co Pty Ltd by contract dated 7th December, 1987, for $1,757,500 with vacant possession. It was again put on the market through P.R.D. Realty on 20th -- 3 of 8 -- 4 October, 1988, at a reserve price of $3.6 million. The land was passed in at $2.8 million (auctioneers bid). The land was re-offered for sale in June, 1989, through Richard Ellis and sold at the end of that month for $1. 7 million. It is this sale which is relied upon by Mr Goldstein in supporting his case. Subsequent to the purchase made in December, 1987, the premises were let for a term of three years commencing on 14th December, 1988, with a commencement rental of $169,988 per annum, with the rental being reviewed yearly in accordance with the CPI and providing that the lessee paid rates, insurance, repairs and maintenance but not Land Tax. Mr Goldstein says that a three year option of renewal was written into the lease from 13th December, 1991, with market rental at the commencement and then CPI adjustments annually. He said that the lessee trades in women's clothing. He would analyse the sale by allowing - Sale Price $1.700,000 Less Buildings $130,000 Added value of tenancy $200,000 Land Value $1,370,000 By comparison he would value the subject land at $1 million. The comparison includes his opinions on the relativity between the two sites in terms of size, shape, frontage and location. He is of the opinion that the ~ental contracted to be paid under the lease was above market levels and should have been of the order of $100,000. He supports this reasoning with evidence given by Mr F.D. Goldstein who said that the tenant (Betty O'Kane) took the tenancy when she had to move from the Chevron Building (since demolished), that she had operated very successfully in the past and that she was urgently seeking premises. He said further that the agreement allowed her to vacate the premises and for the landlord -- 4 of 8 -- 5 to pay her $150,000 for such vacancy. He said that the rental has been reduced to $120,000 per annum and that even at that figure the lessee has problems in that turnover currently is about $5,000 per month. After referring to her successful operations with another outlet in Coolangatta, he said - II I'm bringing that point out to show that she is a successful term trader and ought to have known what she was doing at the time of leasing those premises but at this time and very soon in taking over those premises found that the rental viability was just not there and the rental being asked for that property was nowhere near the viable rental that anybody in my opinion could have possibly paid for premises on that side of the street in Surfers Paradise. · 11 The Valuer-General is not relying on this sale, although he has given it consideration. It is an after date sale. Nor is he relying on the sale of the lot in December, 1987, although his analysis of that sale would tend to support the value of $1.6 million applied to the site in 1989. His analysis includes a tjepreciation and obsolescence factor of 50%. The resultant land value is $1,656,375. The crux of the evidence of Mr McLaren is that the market rose and peaked at or about the date the Annual Valuation was required to be made - March, 1989. This is not in dispute. Mr R.J. Goldstein would argue that this was caused by speculators entering the market. Values have since declined and so too it would appear has the rental level. For the purposes of the Annual Valuation of the area as at March, 1990, the subject land is valued at $975,000. In the sales evidence of Mr McLaren there is found a basis for his reasoning on the highest and best use of the subject land. His fourth sale comprises the sale of the land adjoining the subject land on the north - Lot· 3 on RP 94748 - containing 149 square metres and situated at 3222 Gold Coast Highway. This land sold in April, 1988, for $1,540,000. The evidence is that the purchaser of this lot purchased the land at 3226 Gold Coast Highway in June, 1989. Such evidence would appear also to add strength to his allowing an -- 5 of 8 -- 6 obsolescence factor in his analyses of the sales. Coming then to his remaining sales in April, 1989, at about the relevant date, two parcels connected at the rear, one with frontage to the Gold Coast Highway and the other with frontage to Elkhorn Avenue sold for $5.3 million improved with a single level shop. The purchaser owned the adjoining land and enclosed in the corner by the sale land. After making the usual allowances including an allowance for adjoining owner influence, a value of $3.6 million was obtained for the land. The value applied to the area in March, 1989, is $2,940,000 which if applied to the area of the sale · land which is unencumbered of 220 square metres reflects a value per square metre of $13,243, including rear access. Mr McLaren said that the sale is superior to the subject land as it is located on the eastern side of the Gold Coast Highway, forming part of the major retail core. The value that he has applied to _the subject site is equivalent to a value per square metre of $8,600. The value applied to the basic sale land used by Mr Goldstein is $1.6 million and reflects a per square metre value of about $9,860. The value applied to the land immediately adjoining the subject land on the north (the fourth sale) is equivalent to $11,100 per square metre. On 11th March, 1989, Lot 1 on RP 89862 which is situated at 3120 Gold Coast Highway sold for $3,950,000. This site has an area of 405 square metres and is situated on the western side of the Highway between Hamlyn Street and Trickett Street. The sale reflected an unimproved value of $3.4 million. It is regarded by Mr McLaren as a high sale. He said that he was informed by Mr Shudo, on behalf of the purchaser, -- that the purchaser paid the high prices because he believed that was the market level at the time. For the purposes of the current Annual Valuation of the Area this land has been valued at $1.9 million for $4,700 per square metre. The site is seen as being considerably inferior to the subject site as it is south of the central core -- 6 of 8 -- 7 area. These last two sales occurred virtually at the relevant date. They may be taken as market indicators at the time. In his workings, Mr McLaren also looked at capitalisation rates. In relation to the sale surrounding the corner of Elkhorn Avenue and Gold Coast Highway which was sold with vacant possession, he estimated a rent at sale of about $1500 per square metre over 164 square metres of lettable area. At that time the sale three doors from the subject land upon which Mr Goldstein relies as a basis, was rented at about $170,000 for 120 square metres of lettable area or $1416 per square metre. The sale land on the corner of Gold Coast Highway and Elkhorn Avenue was subsequently let (1st November, 1989) at $195,000 or $1196 per square metre (the revised rental on the sale used by Mr Goldstein at $120,000 is equivalent to a rent of about $1,000 per square metre). Mr McLaren's estimated capitalisation rate for the sale land on the full sale price _ equalled 4.6 and on the adjusted sale price ($3,850,000) 6.3%. He contends that there were market expectations of capital growth. His workings would support that opinion. So also would it appear that amalgamation and redevelopment had crossed the minds of at least two purchasers - those sales within close proximity to the subject land and the sale 1and just discussed on the corner of Elkhorn Avenue and Gold Coast Highway. Mr McLaren concedes that rental levels have fallen - in his opinion by at least 20%. Land values have also fallen to March, 1990. However, the subject matter must be determined on the "then present demand for land" - 31st March, 1989 - "whether the land becomes more valuable or less valuable is immaterial". (Spencer case - Isaacs J. p. 440/1). This test would defer consideration of both the early sale and the later sal~ relied on by Mr Goldstein when there is evidence of value coinciding with the date the land is required to be valued. Mr McLaren has not ignored the sale advanced by Mr Goldstein but rather -- 7 of 8 -- . -- ·· .. '•• - -.. - --· ·-·· . -· ·-·- ···-' · ... ;..L.- ..r..i- ~-.. -,.- ,~,,.,. ·J.. '., ··· ·---- 8 has considered it and having considered it in relation to the market has applied the more relevant evidence. I find that he ~as followed correct valuation principles in so -- - - doing. Accordingly I must hold that the appellant has not proved that the value applied to the subject land is wrong in law and contrary. to law. Accordingly, the appeal is dismissed and the determination of the Valuer-General affirmed. Member of the Land ·eourt -- 8 of 8 --