Land and Environment Court of New South Wales CITATION : Gales Holdings Pty Ltd v Valuer General [2006] NSWLEC 798 APPLICANT Gales Holdings Pty Ltd PARTIES : RESPONDENT Valuer General FILE NUMBER(S) : 30945; 30946 of 2005 CORAM: Talbot J KEY ISSUES: Valuation of Land :- objection in respect of several parcels of undeveloped land with mixed potential valued in one line Environmental Protection and Biodiversity Conservation Act 1999 (Cth) LEGISLATION CITED: Land and Environment Court Rules 1996 Valuation of Land Act 1916 DATES OF HEARING: 22/11/2006, 23/11/2006, 24/11/2006 DATE OF JUDGMENT: 12/22/2006 APPLICANT Mr T F Robertson SC SOLICITORS Woolf Associates LEGAL REPRESENTATIVES: RESPONDENT Mr G Newport, barrister SOLICITORS NSW Crown Solicitors JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES Talbot J 22 December 2006 30945 of 2005 Gales Holdings Pty Ltd v Valuer General 30946 of 2005 Gales Holdings Pty Ltd v Valuer General Judgment 1 These matters are appeals to the Court following a decision of the Valuer General to disallow objections to land value respectively at base date 1 July 2003 for the 2004 tax year and 1 July 2004 for the 2005 tax year. 2 The lands the subject of the valuation are in several parcels as follows: · Lot 10, DP 857710 comprising 41.97 ha with frontages to Elrond Drive, Rotumah Street, The Tweed Coast Road, Moreton Street, Ozone Street, Pacific Street and Zephyr Street at west Kingscliff. · Lots 11, 12, 13 and 14 DP 871753 and Lots 1-9 DP 781714 comprising in total an area of 28.5 ha. Lots 11–14 have frontage to Turnock Street and Elrond Drive, Kingscliff, whereas Lots 1–9 do not have frontage to a public road. · Lot 4 DP 727425, Lot 26C and 26D DP 10715 having a combined area of 35.775 ha with a frontage to Tweed Coast Road. 3 The applicant's properties are strategically located within the areas of Kingscliff, Chinderah, and Cudgen. 4 The most northern parcel is Lot 10 comprising 41.97 ha at Chinderah. For the purpose of assessing development potential the land has been divided into that part within the 4(a) zone of which it is agreed 20.5 ha can be developed (identified as area A) and 10 ha of developable land (excluding a proposed school site) in zone 2(c) (identified as area B). 5 The land in DP 871753 and DP 781714 has been divided into four areas for the purpose of assessing development potential. These are area C comprising 2.7 ha, area D comprising 1.5 ha, area E comprising 2.2 ha and area G comprising 1.4 ha. 6 The remaining area is designated as area F of which only 5 ha has development potential. 7 Originally the respective experts in joint conference had agreed on a more intensive development potential for areas C, G and E but, as a consequence of further evidence, they reviewed the earlier agreement with the consequence that the argument devolved down to whether parcels fronting Turnock Street could each be regarded as being capable of supporting one residential site. Notwithstanding the initial agreement between the planners regarding the potential of areas C, G and E, upon receipt of further information regarding the expressed concerns regarding the habitat of endangered species on these sites postulated by the council, serious doubts are now raised that the land could be used for medium density residential purposes and that the highest and best use is likely to be confined to 3 rural lots with one dwelling entitlement each. 8 The dispute in respect of area A is whether the area of 20.5 ha can yield 50,000 m2 of industrial floor space as Mr Anderson says it can; or the 28,700 m2 for which Mr Connelly contends. 9 There is an agreement that, setting aside a potential school site, Area B can be developed with 200 units. The applicant argues that an owner would "donate" the school site to council in order to enhance the appeal of the surrounding development whereas the respondent expects that if the site is required for a school then appropriate compensation will be forthcoming. Otherwise the school site would be developed in conjunction with the whole area. 10 The development potential for areas D and F is agreed as follows: · Area D – 1.5 ha – 36 units · Area F – 5 ha – 40 lots Area F 11 Following a concession by the Valuer General that lot 4 DP 727425 does not have a dwelling entitlement the valuers have agreed that area F had a land value of $1,870,000 in July 2003 (subject to an overall "in one line discount" of 12 percent). That value is determined as follows: 40 lots @ $100,000/lot $4,000,000 1 rural lot (without a building entitlement $ 400,000 $4,400,000 Cost of Fill $2,250,000 $2,150,000 Less Profit and Risk (15%) 280,000 Land Value $1,870,000 12 Recognising market trends between July 2003 and July 2004 based on the sale and resale of developed residential lots, the value of the residential component of area F is to be increased by 15 percent over this time so that the land comprised in area F had an agreed land value in July 2004 of $2,150,000. This figure is also subject to the agreed one line discount of 12 percent referred to above. Area D 13 There is full agreement between all the experts that Area D can be developed in small allotments yielding 36 units. 14 Following a joint conference the valuers adopted the approach taken by Mr Houlden, the respondent's valuer, with a modified fill risk approach. I am satisfied to adopt the agreement as at July 2003 as follows: 36 units @ $60,000/unit site $2,160,000 Less cost to fill $ 620,000 $ 1,540,000 Less profit and risk (15%) $ 200,000 $ 1,340,000 The adjusted agreed value at July 2004 is $1,541,000. 15 The in line adjustment will be applied to these figures. Area A 16 This area is in zone 4(a) designated for industrial development. The planners Mr Connelly and Mr Anderson agree that the developable area is 200,000 m2. The difference between them arises primarily as a consequence of the site fill limitation of 50% imposed by DCP 5. The parcel is subject to flooding and trunk drainage proposals. 17 Mr Connelly assumes there could be a conventional contemporary subdivision pattern over 50% of the developable area. The rear half of the land would be left in its natural state with the balance filled to the 1 in 100 year flood level graded to the road to yield 28,700 m2 of floor space. 18 Mr Anderson argues that DCP 5 permits up to 50% of a site within the 4(a) zone to be filled to the design flood level of RL 3.3 m AHD. In his opinion the DCP also permits a building to be erected without filling the site to the design flood level provided the building is restricted in site cover to 50% of the site area. According to him, the 50% requirement would be accommodated within the individual lots thereby yielding approximately double the floor space estimated by Mr Connelly. 19 The approach by Mr Connelly has some merit as it would prevent the "pimple on a pumpkin" effect that presently exists in the adjacent industrial development along Ozone Street. It is also likely to be a subdivision pattern that fits in with the overall objective of allowing uninterrupted flood flows through the undeveloped land. Although the alternative approach to the drainage and flood control pattern may not be as appealing in terms of the presentation of the individual blocks it nevertheless has the attraction of making a more positive contribution to what Mr Anderson perceives to be a shortage of industrial land in the area. 20 Mr Anderson did not seek to contradict Mr Connelly's view that leaving 50% of Area A in its natural state would allow for a modern subdivision design on the balance of the land rather than the outdated 1970's model represented by the development in Ozone Street. 21 However there is no direct evidence of what advice the prospective purchaser would have been given in response to its enquiries to the council. On balance I am inclined to accept the advice from both of the town planners as their genuine belief as to what can be achieved. The reduced yield of floor space if Mr Connelly's view is accepted would be significantly offset by the restricted utility of the lots contemplated by Mr Anderson with an increased potential for flood waters to enter the individual sites and the necessity to design structures with that in mind. 22 There is a strong prospect that the council could have been convinced that the potential for a greater yield of industrial floor space would be an incentive to allow the whole area to be developed provided the flood and drainage impacts can be managed within the individual sites. In such a case however the market value of the lots would be less than the flood free lots predicated by Mr Connelly. 23 Based on a developable floor area of 50,000 m2 adopted by Mr Anderson the valuers agree that the rate per estimated m2 would be $55.00 giving a land value for Area A of $2,750,000. This compares to $60.00 per m2 if the alternative was adopted. On balance I prefer the former. 24 I am satisfied that, subject to the in line discount of 12%, the land value for Area A at the 2003 base rate is $2,750,000. 25 The agreed evidence is that the market for industrial land enjoyed buoyant conditions between 2003 and July 2004 to the extent that the value of the applicant's industrial land increased by 37% in the period. Accordingly I determine that at base date July 2004 the land value of Area A was $3,767,000. Areas B 26 Ultimately the difference of opinion between the town planners leads to a difference of $90,000 between the two approaches referred to in paragraph 9. 27 The valuers agree that if Mr Connelly's approach is to be adopted and the school site is excluded the 2003 land value for Area B is $2,510,000 whereas if Mr Anderson is correct and the school site is to be included the value should be increased to $2,600,000 to account for the additional area of 2 ha. Although, if the additional area is included the number of potential units is thereby increased from 200 to 240 the reflected unit value is reduced from $45,000 to $43,000 and the cost of fill is increased from $6,111,000 to $7,333,000. 28 The 15% increase to reflect the residential market trend between July 2003 and July 2004 applies to this parcel to show a value of $2,886,000 based on Mr Connelly's advice and $2,990,000 if the opinion of Mr Anderson is perceived to be the advice a prospective would have accepted. 29 In my opinion it is most unlikely that a purchaser would look positively on the prospect of "donating" the 2 ha site for any school when it is considered to be unlikely that the council has any prospect of forcing the issue. On the other hand the advice in regard to increased cost and reduced realisation expectation would cause the prospective purchase to be circumspect about the benefit of developing the additional area. Accordingly I estimate that the point of equipoise in the negotiation between the prospective vendor and purchaser would be compromised at $2,550,000 for July 2003 and $2,935,000 in July 2004. Areas C, E and G 30 The evolution of opinions expressed by the experts has been one of continuing disagreement based on fluctuating views of the development potential providing consternation until the last day of the hearing when consensus appeared to emerge. 31 The town planning experts initially conferred and agreed that 43 units or 19 lots could be developed on 2.7 ha within Area C and that 28 units or 11 lots could be achieved on 1.4 ha in Area G. In Mr Connelly's opinion Area E could have supported 28 units or 11 lots on 2.2 ha whereas Mr Anderson disagreed with that assessment. He estimated a yield of 10 lots for that area. 32 Historically the council has earmarked this land primarily for medium density residential development. Subject to the explanation for a change in the opinion of the valuers that follows, a purchaser would have recognised a potential for this to occur. 33 Mr Connelly makes the valid point that the subsequent awareness that the council almost inevitably will require the preparation and consideration of a Species Impact Statement would alert the prospective developer to possible constraints. 34 The National Parks and Wildlife Service recommended to council on 4 March 2003 a proposal that involved the retention of all the land south of Turnock Street for conservation within an environmental protection zone and the need for environmental impact assessment and the likelihood of threatened species concurrence being required for the land on the north side of Turnock Street. Alternatively, the National Parks and Wildlife Service suggested a proposal that may involve the loss of some small habit for the Mitchell's Rainforest Snail north of Turnock Street but would ensure the protection and consolidation of snail habitat south of Turnock Street. Accordingly any prudent purchaser would recognise that the prospect of developing any part of the land south of Turnock Street would not be enhanced by the National Parks and Wildlife Service report. Furthermore any development north of Turnock Street would be limited. 35 The position is further complicated by advice from Environment Australia on 11 April 2003 that although there had been an earlier decision in 2002 that proposed development for the area was not a controlled action under the Environmental Protection and Biodiversity Conservation Act 1999 (Cth) the position had been reconsidered. New information reflecting the likelihood of significant impacts on the Mitchell's Rainforest Snail warranted revocation of the original decision, so that the proposal then current to construct a staged mixed residential commercial and industrial development is a controlled action. 36 Even if some development of a far more limited character could have been contemplated such as a single dwelling on each parcel, there would be a protracted period of detailed study and assessment that would significantly delay the determination of the necessary development applications. 37 All of the above matters have been taken into account in considering what the hypothetical prudent purchaser and willing but not anxious hypothetical vendor would have considered before determining a purchase price for the land at the relevant base dates. After allowing for the cost of filling the land and providing access, a significant risk factor and the cost and delay in achieving development consent for medium density development suggested by the planners Mr Robertson submits that the land value could be determined as follows in accordance with the evidence from the valuers: Area C $ 689,000 Area G $ 368,000 Area E $ 200,000 However the valuers contend that development for that purpose is not viable. Alternatively Mr Robertson says that Areas C and G north of Turnock Street might be valued at $850,000 less the cost of fill and profit and risk factor whereas Area E would be recognised as having severe environmental constraints. Mr Newport maintains the position of the Valuer General namely that, as both sets of experts foreshadowed some form of development on the three parcels, the proposal for 3 dwellings should be embraced. Moreover he says the possibility that development consent for a single dwelling on parcel E cannot be achieved is mere conjecture unsupported by the evidence. Having taken into account all of the circumstances I support the respondent's final submission. I propose to determine the land value of the 3 parcels on the basis that might be developed for the purpose of a single dwelling. The following calculation is taken from the final joint report of the valuers. Base year 2003 Areas C, G + E 3 homesites @ $850,000/lot $2,550,000 Less cost of fill $300,000 Less cost of Access $120,000 $ 420,000 $2,130,000 Less Profit + Risk (12.5%) $ 240,000 Land Value as rounded $1,890,000 Base Year 2004 Land Value as rounded $2,173,500 The above figures in my view make adjustments appropriate to the factual circumstances outline above. Summary 38 The summary of land values determined at base date 2003 is:- Area A $ 2,750,000.00 Area B $ 2,550,000.00 Area C, G and E $ 1,890,000.00 Area D $ 1,340,000.00 Area F $ 1,870,000.00 $ 10,400,000.00 In line discount of 12% $ 1,248,000.00 Total land value 1 July 2003 $ 9,152,000,00 39 The summary of land values determined at base date 2004 is:- Area A $ 3,737,000.00 Area B $ 2,935,000.00 Area C, G and E $ 2,173,500.00 Area D $1,541,000.00 Area F $ 2,150,000.00 $ 12,566,500.00 In line discount of 12% $ 1,507,920.00 Total land value 1 July 2004 $11,058,580,00 Costs 40 Mr Robertson made a short submission at the conclusion of the hearing to the effect that notwithstanding the outcome in terms of land value determined by the Court the delay by the Valuer General in preparing and submitting its valuation evidence negated any prospect of the matter being settled without necessity for a hearing. Nevertheless there was considerable consensus reached albeit late once the valuers were able to comply with the Court's directions to confer much of which occurred while the Court undertook a protracted view of the applicant's land during the first day. As a consequence of this process the issues were significantly narrowed, as is now self evident from a perusal of the reasons for judgment. 41 The respondent's counsel Mr Newport has filed a lengthy written submission in which he seeks to shift part of the blame for the belated start to be the conferencing procedure on to the applicant's valuer. It is clear on the face of the submissions made to date and from the Court records that both parties were, prima facie at least, in default of complying with the directions made and each failed to meet the expectations raised by the Court's practice directions. Generally however many of the submissions from both sides are not wholly supported by evidence. The applicant has requested time to make further written submissions in answer to the submissions filed on behalf of Mr Newport on 29 November 2006. That indulgence has been granted to the applicant. Accordingly the question of costs will be reserved until all submissions have been received. 42 However, it should be observed that Part 16 Rule 4 of the Land and Environment Court Rules applies. It is necessary for a party to show that the making of a costs order is, in the circumstances of this case, fair and reasonable notwithstanding the initial presumption that here will be no order for the payment of costs in this class of proceedings. The principles to be applied have been reiterated on several occasions by several judges of this Court, including myself, and do not need to be repeated here. 43 The Court of Appeal has tentatively embraced those principles so that parties to this class of litigation should be in no doubt regarding the approach the Court is likely to take in assessing what is "fair and reasonable". In the circumstances enunciated so far both parties appear to have a case to answer. 44 The total aggregate land value the subject of objection at base date July 2003 was $10,600,000 and for July 2004 it was $14,900,000. In its objection the applicant contended for land values of $5,300,000 and $7,450,000 respectively. 45 It is clearly open to argument that both parties have enjoyed a modicum of success although technically the applicant has succeeded in maintaining its objections. However the presumption raised by Part 16 rule 4 does not dictate success as the sole measure of whether a costs order should be made. 46 The question of costs is reserved. 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.