Land and Environment Court of New South Wales CITATION : Vazenios v Transport Infrastructure Development Corporation [2004] NSWLEC 187 Kosmas Vazenios (Appl) PARTIES : Georgia Vazenios (Appl) Transport Infrastructure Development Corporation (Resp) FILE NUMBER(S) : 31019 of 2003 CORAM: McClellan CJ Compulsory Acquisition of Land :- Amount of compensation for commercial premises Appropriate capitalisation rate Comparable sales KEY ISSUES: Discount for vacancy and repair Disturbance COSTS: Right of successful applicant in a claim against a resuming authority to costs. LEGISLATION CITED: CASES CITED: DATES OF HEARING: 1 March 2004 EX TEMPORE 03/01/2004 JUDGMENT DATE : I Hemmings (Appl) Colin Biggers & Paisley (Solicitors) LEGAL REPRESENTATIVES: R Lancaster (Resp) Clayton Utz (Solicitors) JUDGMENT: IN THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES 31019/03 McCLELLAN J MONDAY 1 MARCH 2004 VAZENIOS Applicant v TRANSPORT INFRASTRUCTURE DEVELOPMENT CORPORATION Respondent Judgment Introduction 1 HIS HONOUR: Kosmos Vazenios and Georgia Vazenios sought compensation for the compulsory acquisition of the property which they owned, being Lot C in DP 413622, known as 95 Argyle Street, Parramatta. The property was acquired on 24 April 2003 for the purpose of facilities associated with the Parramatta Rail Link. The Parramatta Rail Link is a major augmentation of the railway system in the north-west of Sydney, which has been under discussion for many years and which, as this acquisition reflects, was the subject of a decision that it should go ahead some years ago. 2 The land acquired has an area of 221.3 square metres. At the date of acquisition the land had been developed and was comprised of a ground-floor shop and a first floor which as I understand the position, had been used as a cafe. The property is located approximately opposite one of the entrances to the Parramatta Railway Station, which is a major regional transport facility. 3 The property is approximately eight properties from the corner of Argyle Street and Church Street at which, on the western side, there is located a major pedestrian access to the Westfield Shopping Centre. That centre provides a regional facility and is one of the largest of its type in Australia. 4 One of the features of the subject site is its exposure to Argyle Street and the pedestrian movement which occurs in that street of people making their way from the railway, to and from the Westfield Shopping Centre. Although it would appear that many persons could make that journey without actually passing the resumed premises, nevertheless, with appropriate signage, many would be made aware of it. Accordingly, the site provides an attractive commercial and retail opportunity. 5 The land is controlled by the Sydney Regional Environmental Plan No 28 – Parramatta which was made in August 1999. It is zoned "City Core", which provides a potential for a floor space ratio to be developed on the site of 6.0:1, with a maximum height of 90 metres. Being opposite the railway, the block in which the site is located has obviously been identified as appropriate for significantly more floor space than that which presently exists in the locality. However, there is no evidence to suggest that, but for the resumption, redevelopment may have occurred within any particular time frame. 6 Each party engaged a valuer and I was impressed by both of them. Mr Verheyden gave evidence of his experience within the area, which is obviously extensive. He has a knowledge not only of the capital value of properties in the immediate location, but has also been involved in a significant number of rent reviews. He has an optimistic view of the commercial quality of the resumed land. 7 The respondent called Mr Gothard, who was also an experienced real estate valuer and consultant. He does not hold quite the same view of the desirability of the resumed property as does Mr Verheyden although, when ultimately analysed, I do not believe their opinions are far apart. 8 Argyle Street, as I have indicated, joins Church Street which, apart from providing access to the Westfield facilities, has been developed south of the junction of Church and Fitzwilliam Streets, with a number of properties providing Asian and particularly Chinese food and other facilities. It has been described as Parramatta's Chinatown, which is, in my view, an apt description. The concentration of uses in that area has enhanced the value of the properties, with the consequence that although some of the buildings may not be modern they are, nevertheless, desirable and achieve significant rentals. 9 In this case, the valuers met and endeavoured to resolve matters. Although they have been able to agree the appropriate method of valuation, they have not been able to agree upon the figure for compensation. What they have agreed is that it is appropriate to look at a small group of sales and determine, by capitalising the income from those sales, the appropriate capitalisation rate which can be utilised for the purpose of deriving the value of the subject property. 10 Mr Verheyden is of the view that the appropriate rate is 5.2 percent, without any discount or allowance for vacancies or the need for structural and other repairs. Mr Gothard believes the appropriate rate is 5.5 percent but would, in addition, allow for the prospect of vacancies and matters of repair. In his written evidence, Mr Gothard has allowed a vacancy allowance of five percent with a structural repair allowance of three percent. Mr Verheyden does not believe that if you adopt a capitalisation rate of 5.2 percent it is necessary to allow any vacancy allowance, but says that he would, within that 5.2 percent, accommodate a repair allowance of the order of one percent. 11 The valuers have identified sales and are agreed that the sale of 114-116 Church Street is comparable. However, Mr Gothard believes that, being located in Chinatown, it is in a much better location, and is superior to the subject land. He also understands that the purchaser of the sale owns adjoining properties and may have paid a premium at auction in order to assemble a long-term development site. 12 The site sold in November 2002 and evidence was tendered of a lease which was entered into in May 2003. Mr Gothard used the May lease when deriving a yield from the property which he calculated to be 5.13 percent. If the rentals at the date of sale are utilised, I understand the calculation would be 4.8 percent. 13 There is no evidence before me as to the knowledge of the purchaser/lessor of the prospective lease and the rent which might be expected in May 2003, some six months after the property changed hands. Although it is possible that the lessor acquired the property with knowledge that he may be able to achieve an increase in rental, there is no evidence from which I can draw that conclusion. 14 Accordingly, I believe it appropriate to assume that the yield upon which that property changed hands was less than 5.13 percent. I accept Mr Gothard when he says that that sale is superior to the subject property and I do not understand Mr Verheyden to disagree with that proposition. However, the extent of its superiority is where the valuers have different opinions. 15 The property at 179 Church Street was also referred to. That property sold in October 2002. It is a two-storey shop said to have a building area of 500 square metres and fronts the mall. Mr Gothard describes it as being located on the western side of Church Street, immediately north of the railway overbridge, which means that it is on the other side of the railway to the Westfield Centre. As such, he says, "[i]t is not in the prime retail area." 16 Mr Verheyden did not look at this property and I infer he did not consider it appropriate to utilise the sale, distant from Westfield and separated by the railway line, for the purpose of the analysis in this matter. In this respect, I accept Mr Gothard's opinion that the property is not in the prime retail area and I believe it is appropriate to put it to one side as Mr Verheyden indicates. 17 Reference was also made to the sale at 151-153 Church Street. That property is located adjacent to Westfield on the western side of Church Street. It benefits from its relationship with the Westfield Shopping Centre and also its proximity to Chinatown. That sale analyses with a capitalisation rate of either 5.48 or 6.5 depending upon assumptions which are made as to any premium paid as it was purchased by an adjoining owner. 18 There was a sale of a property known as 148 Church Street, which is located in Church Street not far from the intersection of Argyle Street. When analysed, that sale reflects a capitalisation rate of 6.6 percent. However, Mr Verheyden indicates that from his work with rentals in the area, the rental which that property is achieving is substantially above the market and accordingly the capitalisation rate may not be an adequate guide to the rate appropriate for the subject site. 19 A sale also occurred of property immediately adjoining the subject property at 93 Argyle Street. It sold in November 2002 for $1.8 million. It is said that the site had a building area of 300 square metres and the building was in good order when sold. However, no details of the occupancy are available and, accordingly, it is difficult to utilise that site when the valuers are agreed that capitalisation of rentals is the appropriate approach to adopt in relation to the subject site. 20 The final sale which is relevant to refer to is 129 Church Street, Parramatta, which sold on 21 November 2003. It too is described by Mr Gothard as being located on the western side of Church Street in the Chinatown part of Parramatta. He records his information in relation to its letting which, when analysed, reflects a net yield of 5.25 percent. He says that the property is in a much better location and is superior to the subject land. 21 As I have indicated, I accept Mr Gothard's evidence that the properties in Church Street, in particular the properties at 114-116 and that of 129, are superior to the subject site. Any purchaser of those properties would appreciate the benefits which are available from the concentration of activity related to the Chinese community which Church Street now affords. Property in Argyle Street has the benefit of exposure to the many pedestrians who utilise the railway station, but there is not the concentration of commercial activity which the Chinatown atmosphere brings. 22 Nevertheless, I am satisfied that the subject property, along with others in Argyle Street, are significant commercial properties and any purchaser, but for the expectation of acquisition for a public works such as the present, would have paid a price which reflects the fact that the financial return from such a property is likely to be stable in the immediate and medium term, and that maybe in the longer term the development potential reflected in the regional plan would be realised. 23 Part of the resumed property was vacant at the date of resumption and the lease for the other part had approximately four months to run. Because of those matters, Mr Gothard came to the view that he should make a particular allowance for the prospect of vacancy to which he attributed 5 percent. I do not think I can accept his opinion in this respect. 24 There is no evidence before me which would enable me to form a judgement as to whether or not any vacancy of the sale property at the date of acquisition was connected in any way with the prospect of its being resumed for the State Government project. However, it would be likely that anyone making enquiries with a view to entering a lease at that point in time would have been aware of the prospect of such a project and may have been deterred from entering a lease. 25 It may be that in some circumstances a fully informed market would approach the sale of such a property by providing a specific allowance for vacancy. Indeed, if the property was sold at a time when it was vacant and inquiry revealed there may be some difficulty in immediately letting it, then no doubt a discount would be provided. However, in the present case, information in relation to that aspect of the matter is simply not available, or at least not from the evidence. 26 The subject premises were apparently significantly damaged by fire some ten years ago. Although not completely rebuilt, the structure was, as I understand it, refurbished. Undoubtedly, a purchaser of any property must have in mind the necessity to set aside some funds for its ongoing maintenance and repair. However, the evidence does not persuade me that there is a need in the present case to provide any separately identifiable allowance for that matter. If the building was known to have some identifiable problems or was of an age when significant maintenance would be required, then a purchaser in the marketplace would be likely to provide some particular allowance for that aspect. However, the evidence does not persuade me that this is such a case. 27 It is necessary to determine the appropriate capitalisation rate which should be applied. Once determined, that rate will determine the value or the compensation which must be paid. It has been acknowledged by counsel for both parties that, in determining such a rate and having regard to the comparable sales, it is not possible to be entirely definitive. The matter is one for expert judgment. As a consequence, courts must look at the evidence and the opinions expressed by the valuers for both parties and endeavour to derive a fair figure for compensation. Any doubts or ambiguities must, however, be resolved in favour of the applicant. 28 In the present case, I accept that the resumed property is inferior to the sales in Church Street. The sale of 114-116 Church Street reflects a capitalisation rate of less than 5.13 percent. The other, 129 Church Street, reflects a capitalisation rate of 5.25 percent. Both those rates, so far as the evidence discloses and the valuers are aware, have built into them allowance for any vacancy and repairs. 29 Having regard to the rates derived from those sales, I am of the opinion that Mr Verheyden, by attributing a rate of 5.2 percent to the subject site, determined a capitalisation rate which is too low. I was urged by counsel for the respondent to apply a rate without discount for vacancy or repair of the order of 6 percent. In my opinion, such a figure would be too high, having regard to the proximity of the subject site to the railway and its location adjacent to and, in some respects, on the pedestrian pathway from the railway to Westfield. 30 I am satisfied it is appropriate to use a capitalisation rate in the present circumstances of 5.5 percent, without any discount or allowance for vacancy or structural repairs. 31 The applicant also claims an additional sum with respect to an area of land at the rear of the property said to be able to be used for car parking. As I understand the position, when leased, only one of the potential car spaces, of which there are five, was tied to the lease. Accordingly, it was suggested that four spaces would be available to be let in the market at an annual rental from which must be deducted the parking levy required to be paid to the State Government to derive the appropriate return. 32 The evidence satisfies me that there is a shortage of parking in the immediate vicinity and that there would be a commercial value in a parking space. However, the sales with which the subject site would then compare, as I understand it, have provided parking for tenants and I would expect that to achieve appropriate market rental for the subject property, the rear land would have to have been given over to provide parking for tenants and their customers, together with facilities for loading and unloading. 33 Accordingly, I believe that in identifying the appropriate capitalisation rate as 5.5 percent, adequate allowance has been made for the commercial value of the rear land which can be used for parking and that no separate sum should be provided for it. 34 There has been some disagreement between the parties in relation to the sum which should be provided for disturbance, however, I understand that matter has been agreed and it is unnecessary for me to rule in relation to it. On Costs 35 It is important that those who have their land taken are adequately compensated. If they have succeeded in a claim against the resuming authority, which is greater than any offer made, then the authorities, in my opinion, rightly indicate that applicants should have an order for costs. This has occurred in the present case. I note that Mr Lancaster has nothing to say in opposition to an order. Accordingly, in my view, it is appropriate that the applicant, having succeeded in sustaining a claim which was more than that which was offered by the resuming authority, should have an order for its costs. Accordingly, I order the respondent to pay the applicant's costs. 36 I formally note that the respondent should be the Transport Infrastructure Development Corporation and I will make orders one, two and three in document headed 'Orders' which I have initialled and dated. ********** 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.