Reported Decision : (2001) 113 LGERA 270 Land and Environment Court of New South Wales CITATION : Hillpan Pty Limited v Roads and Traffic Authority of New South Wales [2001] NSWLEC 51 APPLICANT Hillpan Pty Limited PARTIES : RESPONDENT Roads and Traffic Authority of New South Wales FILE NUMBER(S) : 30007 of 2000 CORAM: Cowdroy J KEY ISSUES: Valuation of Land :- Compulsory acquisition - highest and best use - land suitable for townhouse development and single allotment home sites - assessment of physical constraints on land of road widening and slope - affect upon valuation - compensation assessment LEGISLATION CITED: Land Acquisition (Just Terms Compensation) Act 1991 s 55, s 56 Blacktown City Council v Lasseter (NSWCA, 5 December 1996, unreported) ; Carson v Minister for Environment & Planning (1990) 70 LGRA 215 at 221). Camilleri & Anor v Roads and Traffic Authority of New South Wales (Waddell AJ, NSWLEC, 15 December 1994, unreported); Crown v Murphy (1990) 64 ALJR 593; Housing Commission of New South Wales v San Sebastian Propriety Limited & Ors (1978) 140 CLR 196 ; CASES CITED: McBarron v Roads and Traffic Authority (1995) 87 LGERA 238; N Stephenson Pty Ltd v Roads & Traffic Authority (1994) 83 LGERA 248); Petar Rukovina & Anor v Council of the City of Wagga Wagga (Pearlman J, NSWLEC, 2 April 1993, unreported) ; Pointe Gourde Quarrying and Transport Pty Ltd v Sub-Intendent of Crown Lands [1947] AC 565; Richardson v Roads & Traffic Authority (1996) 90 LGERA 294; The Commonwealth Australia v Arklay (1952) 87 CLR 159 ; DATES OF HEARING: 21/11/00, 22/11/00, 25/01/01 DATE OF JUDGMENT: 03/02/2001 APPLICANT Mr J Ayling (Barrister) SOLICITORS Coudert Brothers LEGAL REPRESENTATIVES: RESPONDENT Ms J Blackman (Barrister) SOLICITORS Crown Solicitor JUDGMENT: IN THE LAND AND MATTER No. 30007 of 2000 ENVIRONMENT COURT CORAM: Cowdroy J OF NEW SOUTH WALES DECISION DATE: 2/3/01 Hillpan Pty Limited Applicant v Roads and Traffic Authority of New South Wales Respondent JUDGMENT Background By application class three filed on 4 February 2000 Hillpan Pty Limited ("the applicant") seeks an award of compensation pursuant to the provisions of the Land Acquisition (Just Terms) Compensation Act 1991 ("the Just Terms Act") for the acquisition of Lot 45 of DP 874374 known as Lot 45 Banks Road, Hinchinbrook ("the land" or "Lot 45"). Such land was compulsorily acquired by the Roads and Traffic Authority of New South Wales ("the respondent") for a transport corridor on 10 December 1999. 2. The land comprises an area of 5,169 m2 and is a residue lot in a subdivision of Lot 15 in DP 3032 ("Lot 15"). The land is generally rectangular and has a frontage along Banks Road of 154.33 m to the east, a frontage of 26 m along South Liverpool Road to the north and approximately 143.11 m along Silvereye Place to the west. It has a depth of 36.942 m along its southern boundary between Banks Road and Silvereye Place. The land slopes generally to the west and south west. 3. At all relevant times the land has been affected by the provisions of the Interim Development Order No 74 and the Liverpool Local Environmental Plan 1997 ("the LEP") administered by the Liverpool City Council ("the council"). Pursuant to the LEP the land was designated as a 'Deferred Matter'. The zoning of the land had been deferred as a result of uncertainty regarding the use of the land for a proposed bus transitway. Lands adjacent to the land are zoned Residential 2(a) and pursuant to the provisions of the LEP such zoning permits residential development, including houses, duplex housing and medium density housing. 4. The council's Development Control Plan No 4 dated May 1997 ("the DCP") provides the development standards for the land and specifies, inter alia, the minimum areas required for various housing types. With respect to multiple dwellings, the minimum area required for a three-bedroom dwelling is 300 m2 with 80 m2 of courtyard, and for each two-bedroom dwelling, 260 m2 with 55 m2 of courtyard. The DCP contains no restrictions concerning the density of development on any land except in relation to minimum area. A minimum area for single lot development is fixed at 450 m2. 5. The Determination of Compensation issued by the Valuer General assessed the compensation in the sum of $682,150 including $5,000 for legal and valuation fees. However during the hearing an agreement was reached between the parties that if the Court found that the highest and best use of the land was for subdivision into residential lots the value of the land would have a value of $700,000. The applicant's valuation 6. Mr Frank Charles Carrapetta, a valuer for the applicant, considered that the land should be valued according to the zoning of the surrounding land namely, 2(a) Residential zoning. Such zoning permits development of land as single residential allotments and medium density townhouse or villa development, and as integrated development with consent of the council. 7. Several examples of medium density development exist in close proximity to the land. Mr Carrapetta referred to a development consent of 21 August 1998 granted for a nearby site on the south-western corner of South Liverpool Road and Sanderling Street. Such consent had been granted for the erection of three three-bedroom townhouses and one three-bedroom villa home upon a site measuring 999.2 m2 in area. 8. Whilst Mr Carrapetta considered that single lot development or medium density development would be a suitable development for the land he concluded that medium density housing would represent the highest and best use. Nevertheless he assessed the land upon the basis of a 10 lot subdivision although he did not consider such development to represent its optimum potential. He estimated that from a gross realisation of $1,300,000, a net amount of $720,000 would be derived after the deduction of a profit and risk factor of 15%; development costs assessed at $295,500 per lot; and an acquisition and holding cost of $88,907, or $8,890 per lot. However, the parties have agreed that $700,000 is the correct valuation on the basis of such subdivision. 9. Mr Allan Caladine, consultant town planner retained by the applicant confirmed that the land, being bound by three street frontages, would enable a designer or architect to create a suitable medium density development. He said:- It is my view that although this situation is a hypothetical one, a yield for the subject site of between 19/20 townhouses varying in 2 and 3 bedroom sizes is not unreasonable given that the controls are performanced based and each application is considered on its town planning merit. Mr Carrapetta assessed the nett of such townhouses to be $45,000 per dwelling. On this basis the total value of the land is estimated to be between $855,000 to $900,000 including a profit and risk factor of 15% and development costs. Respondent's assessment of valuation 10. Mr Gregory John Windred, a valuer engaged by the respondent, considered that if the land had not been the subject of proposed road works it would have been zoned Residential 2(a) and developed at the same time as the remainder of Lot 15. Mr Windred believed that the subject lot was created solely because of the proposed roadwork, otherwise the land would have been subdivided in conjunction with Lot 15. Mr Windred prepared his valuation of the land adopting the 'before and after' method upon the basis that the land formed part of an en globo Lot. On this basis and having had regard to comparable sales he valued the land at $610,000. As a 'stand alone' parcel, Mr Windred valued the land at $671,970. 11. Mr Windred also stated that the land was best suited to residential subdivision because of its elongated configuration and street frontages. Mr Windred believed the land had potential for a 10 lot subdivision. In view of the agreement reached it becomes unnecessary to have regard to the detail of this valuation. It is nevertheless incorporated hereunder to show the methodology adopted by Mr Windred. 12. Mr Windred considered that each lot would sell for $130,000 and that the nett value of the land calculated on this basis would be as follows:- Gross Sales Realisation - 10 lots @ $130,000/lot:- $1,300,000 Less: Legal & Selling Expenses (2.5%):- $ 32,500 __________ $1,267,500 Less: Profit & Risk Allowance (17.0%):- $ 184,167 _________ $1,083,333 Less: Development Costs :- $323,500 Rates and Taxes:- $ 2,000 Finance on Development:- (6 months @ 9.0%):- $ 7,462 $ 332,962 _______________________ $ 750,371 Less: Land Holding Costs (9 months @ 9.0%):- $ 47,447 Land Purchasing Costs (4.25%):- $ 28,656 $ 76,103 _______________________ $ 674,268 Say, $ 675,000 However, Mr Windred then reduced the valuation because it was a 'residue' lot in consequence of the proposed resumption and stated:- . . . we have assessed compensation in this matter on a 'Before and After' basis as at 10 December 1999 (exclusive of disturbance items) in the sum of $610,000. 13. Mr Windred concurred with Mr Carrapetta's assessment that a medium density development would be the highest and best use of the land with an estimated value of $45,000 per unit after the deduction of all development expenses. However, he considered that a yield of 19 to 20 was excessive and that 14 units would be the maximum because of two site constraints. Mr Windred took into consideration a requirement of the council contained in a letter to the respondent from the council dated 17 March 2000 that any subdivision of the land would need dedication of a strip of land 3 m in width along Silvereye Place. 14. Secondly a study entitled 'Soil Conservation and Urban Land and Planning' ("the study") written by I D Hannam (Regional Research Officer, Urban Areas Investigation, Sydney) and R W Hicks (Soil Conservationist, Urban Areas Investigation Sydney), concludes that a slope in excess of 20% is not suitable for medium density development. Along the north-east frontage to Silvereye Place and south eastern frontage to Banks Road the land slopes in excess of 20% over a total area of 734 m2. The respondent accordingly submits that those parts of the subject land with a slope of 20% or more are unsuitable for the construction of medium density housing. 15. Mr Harvey Sanders, an expert town planner retained by the respondent, supported Mr Windred in his assessment of the potential subdivision of the land. Mr Sanders testified that but for the compulsory acquisition Lot 15 would have been subdivided into 54 or 55 residential allotments. Mr Sanders also supported the opinion of Mr Windred that the appropriate number of residential lots which might be derived from the land (that is, Lot 45) was a maximum of 10 lots and accordingly, a 'before and after' assessment was an appropriate valuation method. Applicant's response 16. The requirement for dedication of a 3m strip of land beside Silvereye Place by the council is acknowledged by the applicant but it submits that compensation would be paid by the council. As to any constraint due to the slope, the applicant submits that the land having a slope in excess of 20% could be incorporated into a medium density type development, by the design of a 'Paddington' style development of terrace house with garages underneath. Findings (a) Valuation Method 17. Section 55 of the Just Terms Act entitles the former owner to the market value of resumed land on the date of its acquisition (s 55(a)). The market value is defined in s 56 of the Just Terms Act and it is not to incorporate, inter alia, 'any increase or decrease in the value of the land caused by the carrying out of, or the proposal to carry out, the public purpose for which the land was acquired' (s 56(1)(a)). The value to be reached is that which would have been paid for the land if it had been sold 'by a willing but not anxious seller to a willing but not anxious buyer' (s 56(1)). 18. The statutory definition of 'market value' in s 56 of the Just Terms Act acknowledges that the purpose of the resumption can only be considered to determine whether the actual market value at the date of the resumption has been affected by the market's knowledge of a possible resumption for a public purpose: see Housing Commission of New South Wales v San Sebastian Propriety Limited & Ors (1978) 140 CLR 196; see also Petar Rukovina & Anor v Council of the City of Wagga Wagga (Pearlman J, NSWLEC, 2 April 1993, unreported); Crown v Murphy (1990) 64 ALJR 593; Pointe Gourde Quarrying and Transport Pty Ltd v Sub-Intendent of Crown Lands [1947] AC 565. 19. In determining the highest and best use for the land the respondent submits that the Court should take into consideration the fact that Lot 15 has been developed with single lot housing and that considered on a 'before and after' basis the land (ie. Lot 45) would assume the same character of development as Lot 15. In Camilleri & Anor v Roads and Traffic Authority of New South Wales (Waddell AJ, NSWLEC, 15 December 1994, unreported), Waddell AJ considered the valuation of a remnant parcel of land following the severance of the remainder by a realignment and said:- . . . it cannot be said that the notice of realignment caused the applicants to retain the subject land. There is no ground for using the "before and after" method. This conclusion means that the land should be valued as a single lot. 20. Mr Carrapetta stated that, 'the 'parent' parcel was developed at a time when the reservation for the proposed road was in its early planning stages and … it was hypothetically possible, that the road proposal was not going to proceed'. The land must therefore be valued on the assumption that the value thereof has not been affected by the resumption process since it comprised a separate parcel when resumed (see Blacktown City Council v Lasseter (NSWCA, 5 December 1996, unreported). Additionally, where the valuation assigned per lot is the same both 'before' and 'after' the 'before and after' method has no utility because the same result is achieved by merely valuing the resumed land as a parcel (see Carson v Minister for Environment & Planning (1990) 70 LGRA 215 at 221). 21. It follows that the application of the 'before and after' valuation method adopted by Mr Windred is inappropriate for the circumstances of this claim and that the value to be ascertained is the highest and best use of Lot 45 as a single parcel. b) Constraints upon development (i) Road widening dedication 22. In respect of the requirement for road widening Mr Carrapetta stated:- While I understand that road widening needs to be carried out in Silvereye Place such constraint should also not reduce the yield for the site. 23. However the Court accepts the evidence contained in the letter from the council dated 17 March 2000 that a dedication of the strip of land along the Silvereye Place would be required as a condition of any development and that such dedication would reduce the area available for development. It would therefore impact adversely upon the price which would be paid for the land by a prudent purchaser (see The Commonwealth Australia v Arklay (1952) 87 CLR 159 at 169-170). Mr Sanders calculates that such a dedication would result in a loss in an area of 455 m2, leaving an area of 4,714 m2 available for development. (ii) Slope 24. There is no evidence that council has adopted the study, which was written in 1980, as part of its design requirements for medium density development and it is not referred to in the DCP. Nor is there any evidence from council that such study would prevent or inhibit this type of development. Mr Sanders states in his report:- Indeed, the characteristics of the subject land are such that the yield might be reduced due to the fact that some 730 m2 of the site displays gradients that are greater than would otherwise be appropriate for medium density residential development … [emphasis added] In the circumstances, there is no certainty that the development potential of the land would in fact be affected by slope considerations. However such a matter is one which would be considered by a developer when valuing the land. Highest and best use 26. Whilst Lot 15 has been developed for the purpose of single lot dwellings, it is apparent that there are numerous medium density housing projects in the immediate vicinity. Lot 45 would therefore lend itself to such development, as well as to a subdivision of 10 residential lots. 27. Although the respondent submits that a 'Paddington Style' of development would be 'fanciful', some type of medium density development would be permissible, and thus represent the highest and best use of the land. However the area of land which could be utilised for such purpose must also be determined. The Court finds that a prudent purchaser would take into account the effect of potential road widening and reduce any valuation accordingly. The same considerations apply with respect to the slope on the land. It would be an imprudent developer who would ignore such factors in assessing the development potential of the land, especially when there is no evidence of any medium density developments in the area on slopes exceeding 20%. Valuation 28. The evidence supports the respondent's contention that the land was eminently suitable for a residential subdivision of 10 lots. Simultaneously a medium density development, modified from the proposals of the applicant, would also be possible. The Court is required to assess the highest and best use of the land and to consider the sum which a prudent purchaser would pay for its development potential. The Court must also give the benefit of the doubt to the dispossessed landowner (see: Richardson v Roads & Traffic Authority (1996) 90 LGERA 294; McBarron v Roads and Traffic Authority (1995) 87 LGERA 238; N Stephenson Pty Ltd v Roads & Traffic Authority (1994) 83 LGERA 248). Accordingly, the Court finds that the highest and best use of the land is the medium density development asserted by the applicant, reduced by the potential requirement of a dedication for road widening and for the potential impact of slope on the land. 29. If the area of 5169 m2 of the land is reduced by 455 m2 for potential road widening dedication the remaining area for development purposes is 4714 m2. Adopting 300 m2 as the required area for a three-bedroom townhouse or villa the Court accepts the respondent's submission that the applicant could construct 14 townhouses without any impact on such development due to the slope of the land. Such construction would occupy an area of 4,200 m2 with a residue of 514 m2 remaining. 30. The LEP permits not only single lot housing for which a 450 m2 is required but also small lot housing subdivision for which an area of 270 m2 per lot is required. It might be possible to create two such lots to maximise the use of the residue. Assuming $70,000 per single lot was achievable, the highest and best use of the land would be as follows:- 14 x 3 bedroom townhouses @ $45,000 = $630,000 2 residential allotments @ nett $70,000 = $140,000 ________ Total $770,000 Orders 31. For the above reasons the Court:- 1. Finds the compensation payable by the respondent to the applicant pursuant to s 55(a) of the Land Acquisition (Just Terms Compensation) Act 1991 is the sum of $770,000. 2. Orders that the proceedings be stood over for determination of issues relating to disturbance and costs. 3. Directs that the proceedings be placed before the Registrar at 9.00 am on Thursday 15 March 2001 for directions. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.