Land and Environment Court of New South Wales CITATION : Roulston and Anor v Roads and Traffic Authority of New South Wales; Galea and Anor v Roads and Traffic Authority of New South Wales [2005] NSWLEC 409 APPLICANTS Roger James Roulston and Janet Roulston RESPONDENT Roads and Traffic Authority of New South Wales PARTIES : APPLICANTS Paul Galea and Mary Galea RESPONDENT Roads and Traffic Authority of New South Wales FILE NUMBER(S) : 31286 of 2004; 31287 of 2004 CORAM: Cowdroy J KEY ISSUES: Valuation of Land :- land affected by several proposed uses - whether discount should be applied for affectation - whether affectation the public purpose for which land acquired - quantum of discount to be applied - whether land could be used to calculate floor space ratio Land Acquisition (Just Terms Compensation) Act 1991 s 55, s 56(1)(a), s 66 LEGISLATION CITED: Roads Act 1993 s 177 Baulkham Hills Local Environmental Plan 1991 cl 44 Cannavo and Anor v Roads and Traffic Authority of New South Wales [2004] NSWLEC 570; Commissioner of Succession Duties (South Australia) v Executor Trustee and Agency Company of South Australia Limited and Others (1947) 74 CLR 358; CASES CITED: Housing Commission of New South Wales v San Sebastian Proprietary Limited and Ors (1978) 140 CLR 196; The Crown v Murphy and Another (1990) 64 ALJR 593; 71 LGRA 1 DATES OF HEARING: 18/07/2005, 19/07/2005, 20/07/2005, 21/07/2005, 22/07/2005, 05/08/2005 DATE OF JUDGMENT: 09/13/2005 APPLICANTS N Hemmings QC SOLICITOR Marsdens Law Group LEGAL REPRESENTATIVES: RESPONDENT P Tomasetti SOLICITOR Blake Dawson Waldron JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES Cowdroy J 13 September 2005 31286 of 2004 ROGER JAMES ROULSTON and JANET ROULSTON Applicants ROADS AND TRAFFIC AUTHORITY OF NEW SOUTH WALES Respondent 31287 of 2004 PAUL GALEA and MARY GALEA Applicants ROADS AND TRAFFIC AUTHORITY OF NEW SOUTH WALES Respondent JUDGMENT 1 Cowdroy J: In these proceedings the applicants claim compensation pursuant to s 55 of the Land Acquisition (Just Terms) Compensation Act 1991 ("the Act") arising out of the compulsory acquisition of lands by the respondent ("the RTA"). 2 In proceedings no 31286 of 2004, the applicants are Roger James Roulston and Janet Roulston ("the Roulstons"). They were the owners of land being lots 13 and 17 in DP 1063682 known as lot 24 Old Windsor Road, Kellyville NSW ("the Roulston land"). The whole of such land was acquired by the RTA for the purposes of the Roads Act 1993 ("the Roads Act") by notice of compulsory acquisition published in the New South Wales Government Gazette on 25 June 2004. The determination of compensation assessed the market value of the Roulston land in the sum of $3,845,000. The Roulstons claim that the market value of their land at the date of acquisition was $5,892,300. 3 In proceedings no 31287 of 2004, the applicants are Paul Galea and Mary Galea ("the Galeas"). They were the owners of lot 7 in DP 844963 comprising part of the land known as 27 Burns Road, Kellyville. Such lot was subdivided in anticipation of the compulsory acquisition into two lots, namely lots 14 and 18 in DP 1063682. The RTA acquired lot 18 only ("the Galea land") for the purposes of the Roads Act by notice published in the Government Gazette on 25 June 2004. The determination of compensation assessed the market value of the Galea land as $1,380,000. The Galeas claim that the market value of their land at the date of acquisition was $1,945,800. Compensation for disturbance has been resolved separately. Description of land 4 At the date of acquisition, both the Roulston land and the Galea land were zoned Rural 1(a) under the Baulkham Hills Local Environmental Plan 1991 and were used for rural purposes. The Roulston land and the Galea land are located in an area identified for future urban development known as the Balmoral Road Release Area ("BRRA"). A draft structure plan for the BRRA ("the BRRA structure plan") had been exhibited between December 2003 and January 2004. 5 The BRRA structure plan incorporates a map known as the draft master plan, which shows that both the Roulston land the Galea land are affected by a proposed railway corridor ("the railway corridor land"). The railway corridor affects 5,892 m2 of the Roulston land and all of the Galea land (6,486 m2). The balance of the Roulston land was to be zoned as part "Employment Area" and part "Special Uses – Trunk Drainage". The employment area portion is estimated to be 11,785 m2 and the trunk drainage portion is estimated to be 1,964 m2. The Galea land is not affected by trunk drainage. 6 Expert town planners retained by the parties, namely Mr D Kettle on behalf of the applicants and Mr H M Sanders on behalf of the RTA, agree that underlying zoning of the Roulston and Galea lands is Employment Area pursuant to the BRRA structure plan. They also agree that the controls which would determine the future potential of both the Roulston land and the Galea land would be similar to those applying to land in the Norwest Business Park ("Norwest"), which are governed by Baulkham Hills Development Control Plan No 31. The Roulston and Galea lands are likely to be developed for industrial/business use (which contemplates offices, industrial and related uses), having a maximum floor space ratio of 1:1. 7 The BRRA structure plan proposes that when the Employment Area zoning is implemented, the Galea land will be denied its existing access to Burns Road. Both properties will also be denied their existing access to Old Windsor Road. In the case of the Roulston land, access will be by a new major local road shown on the draft master plan. The Galea land will have no access to a public road unless a service road is constructed. The draft master plan does not show any provision for such road but the town planners agree that it could be constructed, possibly in conjunction with adjoining owners. Valuation of land 8 Mr P I Phippen provided valuation evidence for both the Roulstons and the Galeas and Mr A Watt provided valuation evidence for the RTA. The valuers prepared a joint report dated 8 July 2005 which records the subject matters of agreement and disagreement between the valuers. Both valuers agree that the comparable sales method should be the primary method of valuation. Mr Watt also used the hypothetical development method as a secondary method. 9 Significantly, the valuers agree that sales of Norwest land are comparable and that for these purposes the Norwest land should be valued at $500/m2. Mr Watt analysed several sales of land within Norwest. Mr Phippen generally agrees with Mr Watt's analysis thereof, and agrees that such sales should be adjusted for comparative purposes to the subject property. The disagreement between the valuers relates to the adjustments which are required in order to achieve a correct valuation of the Roulston and Galea land. 10 The valuers disagree upon two issues common to both the Roulston and Galea lands. The valuers disagree upon the quantum of discount which should be applied to the $500/m2 to reflect the difference between the Norwest land and the rural lands of the Roulstons and Galeas. The valuers also disagree upon the appropriate discount which should be applied to those portions of the acquired lands which are affected by the proposed railway corridor. In respect of the Roulston land, the valuers disagree upon the value of the proposed trunk drainage land. The valuers also disagree upon the appropriate discount to be applied to the Galea land resulting from uncertainty of access. 11 Mr Watt considered that the Roulston and Galea land was in a less developed state than the Norwest land. As a result, Mr Watt considered that a prudent purchaser of the Roulston and Galea land in its englobo state would allow for costs such as purchase costs, development/service costs, holding costs and selling costs, amounting to 50-60% of the ultimate selling price. His report on each property states: Englobo lands for business park/industrial purposes, reflecting the large subdivided nature of the serviced produce often achieve values of between 35% to 50% of the serviced value on a comparable $/m2. In my experience and following analysis of other englobo land sales and from discussions with major industrial land developers, the following expenditure percentage estimates are considered reasonably average for this type of subdivision development. * Purchase costs at 6% - 8% * Development costs at 10% - 15% * Holding costs at 8% - 12% (dependent upon length of time). * Profit and risk at 20% - 25%. * Selling costs at 3% - 5%. Therefore, costs can range from between 46% to 64% (estimated) of the gross realised value for the purposes of completing industrial/business park serviced land. In his supplementary reports Mr Watt altered his estimated discount representing the above costs to 47% to 65%. 12 Having made such adjustments Mr Watt calculated a value of $200/m2 for the area proposed for Employment Area zoning on the Roulston land and the Galea Land. However, Mr Watt recognised these results to be too low and increased his valuation to $220/m2 for the Roulston land and to $240/m2 for the Galea land. 13 In respect of the Roulston and Galea lands, Mr Watt applied a further 20% discount to the railway corridor land, on the ground that a prospective purchaser would not pay full value knowing that the land would be so affected. Mr Watt adopted the discount of 20% based upon the similar allowance by Talbot J in Cannavo and Anor v Roads and Traffic Authority of New South Wales [2004] NSWLEC 570. 14 In respect of the area of the Roulston land designated for trunk drainage, Mr Watt believed such land to have minimal value and assigned a value of $45/m2. Such land currently comprises a watercourse and its banks. 15 In respect of the Galea land, Mr Watt applied a further discount of 10% because of the uncertainty of future access to the land. 16 Mr Phippen disagreed with that a prospective purchaser would discount the purchase price by 50-60% discount as suggested by Mr Watt. He believed that 40% discount was appropriate to allow for costs, profit and delay. Mr Phippen believed that no additional discount should be applied for the railway corridor affectation because the railway corridor was a public purpose which should be ignored in the assessment of compensation, in accordance with s 55 of the Act. 17 In relation to the Roulston land, Mr Phippen considered that no discount should be applied for the trunk drainage land. Even though it could not be developed, he believed it could nevertheless be utilised by an owner for the calculation of floor space ratio for future development of the land. Mr Phippen said that at the time of acquisition of the trunk drainage land, the owner would be compensated on the basis of a before and after valuation, which would produce a comparable rate to that applicable to the Employment Area zoning. 18 In relation to the Galea land, Mr Phippen did not consider that any discount was appropriate with respect to future loss of access. He attributed the loss of access to the public purpose for which the land was acquired. With regard to the loss of access to Burns Road, in consequence of the adoption of the BRRA structure plan, Mr Phippen considered that no discount should be applied for the provision of any service road since it was not established that service road would necessarily be required. Findings 19 In the assessment of compensation pursuant to the Act, the Court is required to ignore any increase or decrease in the value of the land resulting from the carrying out of, or proposed carrying out of, the public purpose for which the land was acquired: see s 56(1)(a) of the Act; see also The Crown v Murphy and Another (1990) 64 ALJR 593; 71 LGRA 1; Housing Commission of New South Wales v San Sebastian Proprietary Limited and Ors (1978) 140 CLR 196. 20 Both valuers agree that sales of land in Norwest provide the most reliable guide for the value of the Roulston and Galea lands. Mr Watt, in applying his discount of 60% to the agreed value of $500/m2 for land in Norwest, took into consideration the cost of provision of services within the industrial park including roadways, kerbing and guttering, water, sewerage, electricity and drainage. Mr Watt's estimate of the discount which a prudent purchaser would take into consideration ranges from 47% to 65% and in making his assessment of the discount he adopted the high end of his range. His reasons for doing so were that the subject land "was not zoned and that the future timing of such zoning was, at the date of acquisition, some 12-18 months away". 21 In contrast, Mr Phippen considered that both the Roulston land and the Galea land already had services provided to them and were ready for development for the same purposes as Norwest. He believed his discount of 40% would accurately allow for the costs of such services. 22 The Court finds that the need for the provision of some services is likely and that a prudent purchaser would make allowance for their cost. The Court considers that Mr Phippen has underestimated these costs and therefore his discount is too low. Nonetheless, there are factors which distinguish the Roulston and Galea lands from the usual englobo parcel. The lands are already subdivided into small lots and are serviced for rural purposes and are located adjacent to major roadways which would ameliorate the costs of upgrading their infrastructure. These factors lead to the conclusion that Mr Watt's discount is too high. 23 The Court also takes into consideration the evidence that the Roulston and Galea lands are located in a prominent position and considers that this would enhance the value of the lands relative to the Norwest land. Further, on the basis of the view and of the evidence of Mr Phippen, the Court considers that the location of the Galea land is superior to the Roulston land because of its exposure to two roadways and this will be reflected in the discount to be applied. 24 Because of the prominent location of the Roulston and Galea lands and the factors relating to provision of services discussed above and bearing in mind the principle that in compensation cases doubts should be resolved in favour a dispossessed landowner (see Commissioner of Succession Duties (South Australia) v Executor Trustee and Agency Company of South Australia Limited and Others (1947) 74 CLR 358 at 374), the Court considers that a discount close to the lower end of Mr Watt's range would be more appropriate to the Roulston and Galea lands. The Court adopts a discount of 50% for the Roulston land and 45% for the Galea land. The railway affectation 25 The Notice of Compulsory Acquisition published in the Government Gazette states that the Roulston and Galea lands were acquired "for the purposes of the Roads Act 1993". The applicants submit that under the Roads Act 1993, the RTA may acquire land for any public purpose, not limited to roads. They rely upon s 177 of the Roads Act which relevantly provides:- (1) The Minister, the RTA or a council may acquire land for any of the purposes of this Act. (2) Without limiting subsection (1), the Minister, the RTA or a council may acquire: (a) land that is to be made available for any public purpose for which it is reserved or zoned under an environmental planning instrument … 26 The words "purposes of the Roads Act" lack definition. Such terminology could extend beyond the acquisition of land for the construction of roads and could extend, as submitted, to any public purpose as provided by s 177(2). For this reason the words in the acquisition notice are imprecise. However Exhibit B in each case contains correspondence between the RTA and each applicant which establishes that the acquisition was for "Transitway No 8005 – North West Transitway". Accordingly the Court finds that the acquisition was only for the purpose of the transitway and any affectation resulting from that public purpose is to be ignored. The Court notes that given the breadth of s 177(2) of the Roads Act, it would be prudent for the acquiring authority to use more specific terminology in future notices of acquisition. 27 One of the constraints upon both the Roulston land and the Galea land is the railway corridor. The railway corridor is not the public purpose for which the lands have been acquired and accordingly, any affectation in the market value of the land attributable to the railway corridor cannot be ignored for the purposes of valuation. The precise location of the rail corridor is yet to be determined. Mr Watt considered a hypothetical prudent purchaser would anticipate the acquisition of such land and would apply a discount to its value by reason of such affectation. 28 In Cannavo, Talbot J considered a claim for compensation for the acquisition of land. Part of the land was subject to future acquisition by the local council. One of the issues for determination related to the appropriate discount which a prudent purchaser would make to take account of the future compulsory acquisition. Talbot J gave an allowance of 20% for the time and cost involved in obtaining payment, and the uncertainty of future compensation. 29 A prudent purchaser would discount the purchase price of the Roulston and Galea lands to reflect uncertainty concerning the quantum and timing of compensation to be paid in respect of the acquisition of the railway corridor land. Mr Watt proposed a discount of 20% based upon the reasoning of Talbot J in Cannavo. Mr Watt itemised his discount as comprising original purchase costs of approximately 5.75%, holding costs of 7-9% plus subsequent costs related to the public acquisition. However, the discounts of 45% and 50% referred to above already recognise the costs attributable to purchase and holdings costs pending the rezoning of the Roulston and Galea lands. The Court considers that to allow a further discount for the same items in respect of the acquisition of the railway corridor would be a duplication of the allowances. For this reason, the Court considers that a discount of 10% should be applied, being the estimate of 20% less the approximate percentage which Mr Watt attributed to purchase and holdings costs. Roulston land: trunk drainage 30 The Court accepts that at the date of acquisition the actual area of land required for trunk drainage was not publicly known. A diagram dated October 2002 showing the precise area required for trunk drainage was referred to in evidence. However, since the diagram was not publicly available at the date of the acquisition, the Court considers that it should not be used in the assessment of compensation. Mr Watt estimated that an area of 10% (1,964 m2) of the Roulston land would be affected by such constraint. Mr Phippen did not offer any assessment of the area which might be affected because he did not believe that trunk drainage operated as a constraint on the land. In these circumstances, the Court accepts Mr Watt's estimate of the area of affectation. 31 The Court finds that no development could take place on the land proposed to be zoned for trunk drainage. Nevertheless, the town planners agree that the land will have an underlying zoning of Employment Area. When the land is ultimately acquired for trunk drainage, the owner will be able to claim compensation for the resumption of that land based upon the zoning of Employment Area. Any claim for compensation is likely to be assessed using the before and after method, thereby entitling the owner to be compensated for the loss of allowable floor space on the balance of the land. 32 Based upon the town planners' evidence the Court accepts Mr Phippen's evidence that the trunk drainage land should be valued on the basis of an Employment Area zoning and rejects Mr Watt's valuation of $45/m2 for that land. However, as in the case of the affectation to the land resulting from the railway corridor, it is necessary to apply a discount in recognition of the fact that the trunk drainage land will be the subject of acquisition. The Court therefore applies the same discount of 10% as has been applied for the railway corridor affectation. Access 33 The Galea land is bounded by Old Windsor Road and Burns Road, each of which are classified roads as defined in the Baulkham Hills Local Environmental Plan 1991. Under cl 44 of such plan, land zoned for Employment Area cannot be developed unless vehicular access to and from the land is made by way of another road, not being a classified road. The BRRA structure plan does not show any means of access to the Galea land. Accordingly, the Galea land, when rezoned, cannot be developed unless alternative access is provided, possibly in conjunction with adjoining land. The Court accepts that access limitations would create uncertainty in the mind of a prospective purchaser, for which an allowance would be made in the purchase price. The Court accepts the allowance of 10% assessed by Mr Watt. Calculation of compensation 34 Applying the above findings, the Court calculates the compensation payable for the acquisition of the Roulston land and the Galea land as follows: Calculation of rates Roulston land Base rate before adjustment $500/m2 Less discount for comparability – 50% $250/m2 Trunk drainage land discount – 10% $225/m2 Railway corridor land discount – 10% $225/m2 Total land area 19,641 m2 Unconstrained englobo land 12,149 m2 X $250$3,037,250.00 Trunk drainage 1,600 m2 X $225$360,000.00 Railway corridor land 5,892 m2 X $225$1,325,700.00 Total $4,722,950 Galea land Base rate before adjustment $500/m2 Less discount for comparability – 45% $275/m2 Discount for railway affectation – 10% $247.50 (applied to whole of land) Discount for access - 10% $222.75/m2 (applied to whole of land) Total land area (affected by railway corridor and with access discount) 6,486 m2 X $222.75$1,444,756.50 Total $1,444,756.50 Orders 35 The Court makes the following orders: 1. In proceedings no 31286 of 2004, pursuant to s 66 of the Land Acquisition (Just Terms Compensation) Act 1991, the Court determines the objection to the amount of compensation offered by the respondent in the amount of $4,722,950. 2. In proceedings no 31287 of 2004, pursuant to s 66 of the Land Acquisition (Just Terms Compensation) Act 1991, the Court determines the objection to the amount of compensation offered by the respondent in the amount of $1,444,756.50. 3. The question of compensation for disturbance loss is reserved. 4. Liberty to restore on three days' notice. 5. The proceedings to be listed for mention at 9.30 am on 30 September 2005. 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.