Land and Environment Court of New South Wales CITATION : Nairobi Finance v Parramatta City Council [2007] NSWLEC 134 Applicant: Nairobi Finance and Development Pty Ltd PARTIES : Respondent: Parramatta City Council FILE NUMBER(S) : 31609 of 2005 CORAM: Roseth SC KEY ISSUES: Valuation of Land :- compulsory acquisition, whether land is likely to receive consent as a separate residential allotment LEGISLATION CITED: Land Acquisition (Just Terms Compensation) Act 1991 Blacktown City Council v Lasseter (unreported, NSWSC, 05/12/1996); Yates Property Corporation v Darling Harbour Authority (NSWLR 156 at 179E-F); CASES CITED: Melwood Units v Commissioner of Main Roads [1979] AC 426 at 434E-F; De Ieso v Commissioner of Highways [1981] 27SASR 248 at 249; Housing Commission of NSW v Falconer NSWLR 1981 547 DATES OF HEARING: 07/11/2006, 29/01/2007 and 08/03/2007 DATE OF JUDGMENT: 20 March 2007 Applicant: LEGAL REPRESENTATIVES: Mr P McEwen SC instructed by I Plowes of N Lawson & Co Respondent: Mr P Clay, barrister instructed by A Nicol of Home Wilkinson Lowry JUDGMENT: ENVIRONMENT COURT OF NEW SOUTH WALES Roseth SC 20 March 2007 31609 of 2005 Nairobi Finance and Development Pty Ltd v Parramatta City Council JUDGMENT 1 Senior Commissioner: On 30 September 2005 Parramatta City Council acquired lot 5 DP 1079534, Cocos Avenue, Eastwood (the subject land) under the Land Acquisition (Just Terms Compensation) Act 1991 (the Act) for the purpose of environmental protection. The Compensation Notice, dated 8 November 2005, offered the amount of $285,000, as determined by the Valuer-General (the statutory valuation). On 29 December 2005 the applicant lodged an objection to the compensation offered. In its Points of Claim dated 5 April 2006 the applicant contended that the compensation payable is $533,030 ($525,000 land value and $8,030 for loss attributable to disturbance). In its Points of Defence filed with the Court on 12 May 2006, the respondent contended that the market value of the land is $75,000 and left the assessment of the loss attributable to disturbance for later. 2 However, during the hearing the applicant revised its position and reduced the compensation claimed to $474,250 plus $10,000 for disturbance. Also during the hearing, the council increased the compensation offered to $157,200 plus $10,000 for disturbance. The dispute is therefore between land values of $474,250 and $157,200. The subject land 3 The subject land was created by the subdivision of lot 23 DP 8002 into lots 3, 4 and 5. Lot 3 has access from Cocos Avenue. Lot 4 is a battle-axe allotment with an access handle to Cocos Avenue that runs along the side boundary of lot 3. Lot 5 has no access, though access could be obtained if the access handle of lot 4 were extended to reach the south boundary of lot 5. 4 The subject land, lot 5, is located on the north side of Cocos Avenue, on the corner with Railway Avenue. The land is at the rear of 1 Cocos Avenue and adjoins the Edna May Hunt Reserve. The surrounding development is low-density housing. Eastwood railway station and shopping centre are some 700m south of this location. All services are available to the land. 5 The subject land is an irregular parcel that slopes gently towards the Reserve, which is on its northern boundary. The east boundary adjoins the railway line. The south boundary adjoins lot 4. The west boundary adjoins a residential property. The site's area is 1,123m2. Relevant planning requirements 6 Parramatta Local Environmental Plan 2001 (the LEP) zones the subject land 9(d) Environmental Protection (Proposed). Adjoining land is zoned 2(a) Residential. It is common ground that the underlying zoning of the subject land is 2(a). The subject land complies with the LEP's requirements for a battle-axe allotment. 7 Clause 47 of the LEP deals with development on land abutting an environmental protection zone, ie (1) The consent authority must not grant consent to development on land abutting land within Zone 7 or 9 (d) unless it has taken into consideration all of the following: (a) the need to retain any bushland on the land, (b) the effect of the proposed development on bushland, including the erosion of soils, the siltation of streams and waterways and the spread of weeds and exotic plants within the bushland, overshadowing, overland flows and stormwater runoff, removal or degradation of existing vegetation, (c) the requirement for provision of a buffer zone on the abutting land to protect the bushland area, (c1) the protection of endangered ecological communities and recovery plans prepared and approved under the Threatened Species Conservation Act 1995 , (d) any other matters which are relevant to the protection and preservation of the bushland area. (2) Despite any other provisions of this plan, no building is to be erected within 6 metres of the boundary of Zone 7. 8 Parramatta Development Control Plan 2001 (the DCP) deals, among other things, with battle-axe subdivision. At the time the subject site was acquired, in September 2005, the DCP included the following statement: Multiple battle-axe subdivision of lots is not permitted. 9 It is common ground that at the time of acquisition a draft amendment to the DCP was on exhibition proposing to alter the above statement to Multiple battle-axe subdivision of lots is strongly discouraged. The statutory valuation 10 The Valuer-General's (VG's) valuation of the market value of the subject land of $275,000 was carried out by Mr Errol Ferdinands, a certified valuer. The valuation report is in evidence, though Mr Ferdinands is not an expert in the proceedings. 11 Mr Ferdinands valued the subject land by two methods. The first method assumed that the land could not be developed as a residential property, its value being in extending the size of lot 4. Mr Ferdinands found that the market value of lot 4 at the time of acquisition was $550,000, since this is what it was sold for in January 2005. In Mr Ferdinands' view, a purchaser would pay 50% more for lot 4 if it included the area of the subject land. Hence the market value of the subject land was $275,000. His report contains no evidence in support of the 50% additional value (the reason, for example, why it is not 40% or 60%). This omission may be due to the fact that there are no comparative sales to substantiate his assumption. 12 Mr Ferdinands' second method of valuation was based on the assumption that the subject land can be developed as a residential property. In this case the combined market value of lots 4 and 5 would be $1,050,000, since the subject land would have a value of $550,000 and lot 4 would have a value of $500,000 having lost $50,000 in value due to the loss of land required for the access way to serve the subject land. The costs of development of the two lots would be in the order of $260,000, leaving a net value for lots 4 and 5 of $$790,000. The difference between the total value of lots 4 and 5, on the one hand, and lot 4 alone, on the other, is $240,000 ($790,000 - $550,000). Consequently Mr Ferdinands came to the conclusion that the subject land had a greater value as an extension of lot 4 than as a separate residential allotment. He determined the market value at $275,000. 13 I note that Mr Ferdinands did not address the question whether or not consent for the development of the subject land as a separate residential allotment was likely. He looked at the value of the subject land as a separate allotment and as an extension to lot 4, and based his estimate on the higher of the two values. The planning evidence 14 The applicant's planning expert was Mr Greg Boston, a consultant town planner. The respondent did not rely on a planning expert. Mr Boston concluded that the subject land met all the numerical standards required of battle-axe allotments in the LEP and DCP. He disposed of the note in the DCP that "multiple subdivision of battle-axe lots is strongly discouraged" on the basis that another multiple battle-axe lot subdivision existed at 56-60 Eastwood Avenue. His report ignores the fact that the version of the DCP in operation in September 2005 included the term "not permitted" rather than "strongly discouraged" (though the term "strongly discouraged" was on exhibition as a draft). 15 Mr Boston's does not appear to have enquired whether 56-60 Eastwood Avenue (on which he relied as a precedent) was created before or after the coming into force of the DCP. It is common ground that the subdivision was created in the 1960s. Mr Boston's assumption that the council applied the DCP inconsistently (and would have applied it inconsistently again in September 2005) is therefore without any basis. This destroys the value of his evidence and hence I can place no weight on it. The ecological and arborist evidence 16 Mr David Thomas, an ecological consultant and Dr Steve Ward, an environmental scientist retained by the applicant, and Mr Scott Gatenby, an arborist retained by the respondent, gave concurrent evidence. The three experts agreed that a building platform of 150m2 was possible on the subject land without endangering significant vegetation. Two major differences remained between them. First, Mr Thomas and Dr Ward did not believe that the vegetation on the site amounted to an ecological community, while Mr Gatenby thought that it did. Second, Mr Thomas and Dr Ward thought that use of the subject land could be successfully regulated by covenants, while Mr Gatenby believed that the behaviour of the future residents on the subject land is unlikely to be regulated successfully by covenants. He considered residential use and the long-term retention of valuable native vegetation (whether or not an ecological community) to be incompatible. 17 The above evidence relates only obliquely to the question I am required to answer, namely what a willing but not anxious buyer would have assumed in September 2005 in respect of the influence of the existing vegetation on the likelihood of consent for the subject land as a residential allotment. The rationale for the applicant's valuation 18 The applicant's valuer was Mr Russell Briggs, a licensed valuer. Mr Briggs acted on the advice of Mr Boston and assumed that the subject land would receive consent to be developed as a residential allotment. He noted that the most comparable sale for the subject land was that of lot 4, which sold for $550,000 in January 2005. He accepted that the development of the subject land would reduce the value of lot 4. He estimated this reduction to be $25,000; hence he assessed the market value element of compensation at $525,000. This is the estimate supporting the applicant's Points of Claim for $533,030 ($525,000 land value and $8,030 for loss attributable to disturbance). 19 I note that, in reaching this estimate, Mr Briggs did not take into consideration any costs that would arise from the development of the subject land, such as the construction of the access way to it, professional costs and fees such as s94 contributions for the additional allotment. In his supplementary report tendered on the third day of the hearing, he did take some of these costs (though not s94 contribution) into account, which is the reason that he reduced his estimate from $525,000 to $474,250 (see Exhibit R). 20 At the request of the Court, Mr Briggs also estimated the value of the subject land as an extension of lot 4. In his opinion, the per m2 value would be $256, based on 50% of the adjusted per square metre value of several comparative sales. This brings the total value to $287,000 (rounding down of $256 x 1,123m2). Mr Briggs added that he had no issue with Mr Ferdinands' estimate of $275,000, as it was close enough to $287,000. The rationale for the respondent's valuation 21 The respondent's valuer was Mr Frank Carrapetta, a licensed valuer. Mr Carrapetta sought his own planning advice by consulting the LEP and the DCP and by asking the advice of the council's planning department. He took into consideration the tree survey of the site carried out by Mr Thomas. He concluded that the subject land would be unlikely to receive consent as a separate residential allotment and that its highest use would be as an extension of lot 4. Thus far his reasoning is similar to that of Mr Ferdinands; however the value he estimated for the subject land as an extension to lot 4 was significantly less than that of Mr Ferdinands. 22 Mr Carrapetta reduced the value of lot 4 at the date of acquisition to between $500,000 and $525,000, on the grounds that the residential real estate market experienced a fall between January 2005 (when contracts were exchanged on lot 4) and September 2005. He estimated the value of lots 4 and 5 together to be between $575,000 and $600,000. The difference between the two values is $75,000. This is the valuation supporting the respondent's estimate of compensation in its Points of Defence, ie $75,000 plus disturbance. 23 In support of his extremely low valuation Mr Carrapetta relied on the history of one property, namely 10 Hillside Crescent, Epping. No 10 Hillside Crescent adjoins the Edna Hunt Reserve and has an area in excess of 2,000m2 and there is an existing house on it. The council purchased the property by negotiation in 2002 for $650,000. The council then subdivided the rear yard and put the house on the market. The house failed to sell under auction, however there was a firm offer of $650,000 for it in November 2004, which the council rejected. Since 10 Hillside Crescent remains unsold, it is not a comparable sale. Mr Carrapetta relied on it presumably because the property has many similarities with lots 4 and 5. 24 Mr Carrapetta also took into account the sale history of lot 4. That allotment had been to auction twice during 2004 without selling. It was then listed for sale with an asking price of $645,000. It was eventually sold to the buyer of lot 3 for $550,000. 25 I note that, in considering what a willing but not anxious buyer would pay for the combined lots 4 and 5 as against only lot 4, Mr Carrapetta assumed that the purchaser would compare a situation in which all of lots 4 and 5 would be in his/her private control as against a situation in which the subject land would be undeveloped public land controlled and maintained by the council. I do not think that this reasoning is allowed under the Act, which requires that the valuation disregard "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". The hypothetical purchaser would therefore not have assumed that the subject land would be part of a reserve. 26 In oral evidence, on the third day of hearing, Mr Carrapetta increased his estimate. He abandoned his estimate of $75,000 and replaced it with $157,000. His reasoning was as follows. On the basis of the adjusted per square metre value of several comparative sales he derived a value of $400/m2 for the subject land as a residential allotment. Since the subject land has an area of 1,123m2, its value as a residential allotment would be $449,200 ($400 x 1,123). Mr Carrapetta then assumed that, if the highest and best use of the subject land were as an extension to lot 4, a buyer would pay 35% of the residential value, 35% of $449,200, ie $157,220. The reason for selecting 35% was that part of the subject land could be used for additional building, while part of it could not be built on in order to maintain the existing vegetation. Mr Carrapetta assumed that those parts of the subject land that could be built on would be worth 50% of the residential value, while those that could not be built on would be worth only about 20%. On average the value of the subject land as an extension to lot 4 would be 35% of its value as a residential allotment. 27 I note that the above estimate and reasoning came to the Court in oral evidence and not in a written report. However, since it was Mr Carrapetta's final word in the case and since it was more reasoned than his arbitrary estimate of $75,000, I have accepted it as representing the council's position. The submission of the council's advocate, Mr p Clay, confirmed that this was its position. Findings 28 Section 55 of the Act sets out the relevant matters to be considered in determining the compensation for land acquired for a public purpose. The major part of compensation is, of course, the market value of the land at the time of acquisition. Section 56 defines the market value as follows: Market value of land at any time means the amount that would have been paid for the land if it had been sold at that time by a willing but not anxious seller to a willing but not anxious buyer, disregarding (for the purpose of determining the amount that would have been paid): a. 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; and b. Any increase in the value of the land caused by the carrying out by the authority of the Sate, before the land is acquired, of improvements for the public purpose for which the land is to be acquired; and c. Any increase in the value of the land caused by its use in a manner or for a purpose contrary to law. 29 Applying s56 to this appeal, the Court's task is to answer the following questions: 1. Would a willing but not anxious buyer of the subject land have assumed in September 2005 that development of the subject land as a separate residential allotment is likely to obtain consent? 2. If yes, what would that buyer pay for the subject land? 3. If no, what would that buyer pay for the subject land for its only alternative use as an extension of lot 4? It goes without saying that in the "no-case", the buyer would be a person who already owns lot 4 or is intending to buy lot 4. 30 On the first question I am inclined to the view that a potential buyer of the subject land would have assumed in September 2005 that there was little chance of a development consent for the subject land as a separate residential allotment, for three major reasons: · The DCP in operation in September 2005 stated: "Multiple battle-axe subdivision of lots is not permitted". While the exhibited draft DCP softened the words "not permitted" to "strongly discouraged", the change of words is unlikely to have suggested to a prudent buyer that it would be easy to obtain development consent for a form of development that is not permitted at the time and proposed to be strongly discouraged in the future. · There was no evidence that the council did not apply its DCP consistently in respect of its prohibition or discouragement of multiple battle-axe allotments. If the buyer had obtained planning advice (from someone other than Mr Boston), that advice is likely to have suggested extreme caution. · The presence on the site of threatened species is also likely to have rung alarm bells with a willing but not anxious buyer. Even if the ecological advice were that the vegetation did not amount to an ecological community, the buyer would have assumed that development consent would not be easily obtained, and if granted, would be subject to restrictions involving the size of the house and the maintenance of the native vegetation. 31 However, it is likely that a willing but not anxious buyer would have paid more for the subject land than its value as an extension to lot 4 on the grounds that there was a small chance of obtaining consent for it as an individual lot. Neither expert dealt this aspect. Despite this, in my opinion, it is a consideration that should be taken into account. 32 Given the above finding, the second question does not arise. On the third question, the evidence is divergent. Mr Ferdinands considered that the value of the subject land as an extension of lot 4 was 50% of the value of lot 4. He did not take into account that the subject land is smaller than lot 4, so its addition to lot 4 does not double the size of lot 4. Mr Briggs agreed (or almost agreed) with Mr Ferdinands. He calculated the per square metre value of the subject land to be $256 (50% of the value of comparable residential sales). Mr Carrapetta's two estimates were far apart, $75,000 at first and then $157,200. In reaching the lower estimate, he assumed that a buyer would take into account the public acquisition of the subject land, an assumption that s56 of the Act does not permit. 33 From the above plethora of values the Court is required to determine the real value. I am unable to adopt any expert's evidence as a whole, though I accept certain aspects of each. First, I accept that the correct way to value the subject land is by determining a per square metre value and then multiplying it by its area of 1,123m2. This is consistent with the approach taken by both Mr Briggs and Mr Carrapetta in their final estimates (though not in their first estimates). 34 Second, I find that the per square metre value of the subject land is 50% of the per square metre value of lot 4, adjusted to September 2005. This is similar to Mr Ferdinands' estimate, though not the same, since he did not take into account the relative sizes of the subject land and lot 4. It is also similar to Mr Briggs' reasoning, though not the same, since he relied on the per square metre value of $256/m2, which is higher than the adjusted per square metre value of lot 4. However, my determination of the per square metre value of the subject land is higher than Mr Carrapetta's, who maintained that the value as an extension to lot 4 would be only 35% of its value as a separate residential lot. 35 The adjusted per square metre value of lot 4 is $350/m2 (see attachment to Exhibit R). Fifty percent of that value is $175/m2. The value of the subject land is therefore $197,000 (rounding up of $175 x 1,123). However, this value should be increased because, as I stated above, a willing but not anxious buyer of the subject land would assume that consent for it to be a separate residential lot, while unlikely, is possible. The question is: how much additional money would a buyer pay for this chance? 36 Neither expert dealt with this aspect. In my opinion, the amount of additional money a willing but not anxious buyer would pay would depend on the probability he/she attributes to obtaining consent for the subject land as a separate residential allotment. A reasonable and well-informed person would consider the probability to be around 25%. It is reasonable therefore to assume that such a buyer would pay 25% more for the subject land than he/she would pay if there were no chance whatever of it being given consent as a separate residential allotment. Adding 25% to the value of $197,000 results in a value of $246,000. 37 I am aware, of course, that in augmenting the value of the subject land by 25% I have no expert evidence to rely on and that the estimation of probability is highly subjective. The fact, however, that other people may reach a different conclusion (as was the case with all the values in these proceedings) is not sufficient reason to leave this aspect of the valuation out of consideration. I am comforted by Mr Clay's submission that it would not be inappropriate to take this aspect into account and also by the fact that, even with the augmentation of 25%, my finding of the value of the subject land is below the statutory valuation carried out by Mr Ferdinands. Cases cited by the applicant 38 The applicant's counsel, Mr P McEwen SC, drew my attention to several cases dealing with the compensation paid for land acquired for a public purpose. 39 In several cases too numerous to mention here, the general principle has been upheld that where there is doubt about the amount of compensation, that doubt should be resolved in favour of a more liberal estimate. I have followed this principle. I do not think that the principle extends to blind acceptance of any claim by an applicant. If it did, there would be no litigation for compensation. 40 In Blacktown City Council v Lasseter (unreported, NSWSC, 05/12/1996) the Court found that any characteristics of the land resulting from the resumption, or the decision to resume, should be ignored. I have ignored all such characteristics, including the subdivision of the subject land, which was for the purpose of resumption. 41 In Yates Property Corporation v Darling Harbour Authority (NSWLR 156 at 179E-F) the Court found that it must ignore the effect on the value of the property of the decision to resume it. I have followed this principle. 42 In Melwood Units v Commissioner of Main Roads [1979] AC 426 at 434E-F, the Court found that the fact that an applicant knew of the intended resumption when he bought the land does not affect its value. This matter did not enter my decision, as I have not enquired when the applicant bought the land. 43 In De Ieso v Commissioner of Highways [1981] 27SASR 248 at 249, it was held that the "before and after method" is appropriate in cases where the resumed land is excised from a larger parcel. The "before and after" method is "to value the original land before acquisition and the remaining land after subdivision, and to subtract the latter from the former". Mr McEwen submitted that the "before and after" method is not appropriate in this case as the subject land was not excised, it being a separate allotment at the date of acquisition. I do not think this is correct. The creation of the subject land was specifically for the purpose of resumption and must therefore be ignored. Alternatively, one may consider the creation of the subject land as an excision, since it was cut off lot 4 in order to serve the purpose of resumption. In any case, it is a moot point whether or not the valuation rationale in this judgment relies on the "before and after" method. To the extent that it values combined lot 4 and 5 as a single parcel and then deducts the value of lot 4 from it, it relies on that method. To the extent that the rationale relies on the estimate of "how much more would a willing but not anxious buyer have paid for combined lot 4 and 5 than for lot 4 alone", it does not rely on the "before and after" method. 44 In Housing Commission of NSW v Falconer NSWLR 1981 547, the Court formulated ten principles on determining compensation. To the extent that these principles could be applied to these proceedings, I have applied them. In my opinion, the decision in this judgment is consistent with the principles in all the judgments to which Mr McEwen SC took me. Conclusion 45 The parties were in dispute on two main issues: · Whether a willing but not anxious buyer would have bought the subject land in September 2005 in the belief that it would receive consent as a separate residential allotment? and · Whether the value of the subject land as an extension to lot 4 was worth $157,000 or $287,000? 46 The Court's finding is that a willing but not anxious buyer would have put a low probability on the subject land receiving consent as a separate residential allotment. The buyer would have paid for the value of the subject land as an extension to lot 4 plus a premium for the chance that, after all, it might be permitted as a residential allotment. Following this reasoning the value of the subject land is $246,000. Since it was common ground that the amount to be paid for disturbance under s55(d) of the Act is $10,000, the amount of compensation to be paid is $256,000. Orders 1. The Court determines the amount of compensation to which the applicant is entitled for the resumption of lot 5 DP 1079534, Cocos Avenue, Eastwood, pursuant to s55 of the Land Acquisition (Just Terms Compensation) Act 1991 to be two hundred and fifty six thousand dollars ($256,000). 2. The exhibits are returned except Exhibits 1, L, M, N, R and S. ___________________ Dr John Roseth Senior Commissioner 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.