Meriton Property Development Pty Limited v Valuer General [2009] NSWLEC 1240

Land and Environment Court of New South Wales

CITATION : Meriton Property Development Pty Limited v Valuer General [2009] NSWLEC 1240

APPLICANT Meriton Property Development Pty Limited PARTIES : RESPONDENT Valuer General

FILE NUMBER(S) : 30933 of 2008

CORAM: Moore SC

KEY ISSUES: VALUATION OF LAND :-

LEGISLATION CITED: Valuation of Land Act 1916

DATES OF HEARING: 4, 5 and 11 June 2009

EX TEMPORE JUDGMENT DATE : 11 June 2009

APPLICANT Mr D Russell QC Mr M Seymour, barrister LEGAL REPRESENTATIVES: RESPONDENT Mr J Aitkin, barrister INSTRUCTED BY NSW Crown Solicitor

JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES

MOORE SC 11 June 2009 30933 of 2008 Meriton Property Development Pty Limited v Valuer General JUDGMENT This decision was given as an extemporaneous decision. It has been revised and edited prior to publication. 1 SENIOR COMMISSIONER: The Valuer General's valuation of 2 Corea Street, Sylvania at the base date of 1 July 2006 was $15,950,000. The applicant in the proceedings has exercised its right of appeal pursuant to s 37 of the Valuation of Land Act 1916 (the Act) to object to that valuation. The Court has wide powers pursuant to s 41 of the Act. I note that, in addition, s 40(2) of the Act specifically places an onus on the appellant in such an objection to prove the appellant's case. 2 The report of Mr Halias, the expert valuer for the respondent in the proceedings (whose report was exhibit 2), contended for a valuation of $15,100,000 in lieu of $15,950,000 as at the base date and, as a consequence of that reduction, the onus on the applicant is discharged. 3 I have been assisted by evidence given by expert valuers for each of the parties, being Mr Halias and Mr Wood on behalf of the applicant. I will have something further to say about their evidence a little later both as to the manner of its giving and as to its content. 4 The applicant says that the valuation as at the base date should be $10,630,000 and this is based on a statement of evidence given by Mr Wood. 5 On the first day of this hearing, accompanied by the legal representatives of the parties and those advising and instructing them, I had the opportunity to inspect a variety of properties – being those that were on the comparable sales lists of both Mr Halias and Mr Wood. There was considerable but not entire correspondence between those lists. 6 The properties that were inspected included a number in the immediate precinct of the site and these were inspected during the course of a walk around that precinct. Those properties comprised 10 Corea Street, 7 Murralin Lane, 14-20 Madeira Street, 3-9 Madeira Street and 11-15 Madeira Street. 7 There were two other sites, one in Kirrawee and one in Gymea, that were included in the comparable sales. Those sites were not pressed for the purposes of sales comparison but the site in Kirrawee (at 17-21 Clements Avenue) was used by Mr Halias for the purposes of demonstrating the value added by the presence of an approved development application in a sale. His original calculation for this required an adjustment of ten per cent but I note that, during the course of the oral evidence, he quite properly made a concession that this adjustment should be fifteen per cent. The site in Gymea was not pressed for any purpose. 8 After the oral evidence concerning the necessary adjustments for a further site at 25-31 Richmount Street, Cronulla and the pointing out to Mr Wood of an arithmetical typing error in his comparison table (correction of which led to a total adjustment for that site of sixty per cent), Mr Wood indicated he did not press it as a comparable sale and it was not pressed by Mr Russell QC for the applicant. Had I been required to deal with that sale, the zoning and nature of its development – together with its remoteness from the site in the appeal – would cause me not to have regard to it in any event. 9 Mr Wood, in the course of preparing his statement of evidence, did not rely on 10 Corea Street because of the temporal distance between the time of its sale and the relevant base date. He did, however, undertake an adjustment analysis for that site. I note that there was agreement between him and Mr Halias that the market movement adjustment appropriate to be made for that site to reflect that period of time between the sale of that site and the base date was identical. 10 I consider that it is, therefore, appropriate to use that site for the purposes of this decision. In this regard, I note the proper position that Mr Wood took as an expert giving his opinions to this Court because, in the final analysis, 10 Corea Street – the site which he did not initially press – was that which was most advantageous to his client's interests. 11 The approach that was taken during the course of the oral evidence of the two valuers was to consider an adjustment table that was provided to me in two versions – that is, one based on Mr Halias's statement of evidence and one based on Mr Wood's. 12 Each of these adjustment tables, however was based on eight agreed adjustment elements as being appropriate to be considered in adjusting each of the comparable sales to reflect the site that is the subject of the appeal. Although there were some disputes between the witnesses as to what might comprise the various elements of any of the adjustments, the adjustment nature or designation was not disagreed. Those eight adjustment elements were as follows: * market movement; * whether or not the site had a development approval; * the yield; * the density; * the location; * access; * waterfrontage and/or views; and * site constraints. 13 There was also an agreement between the experts that there was what was described, in at least part of the evidence, as a "tipping point" at about thirty units as a development scale that would divide the developer market for such a site. As a consequence, the sites at 10 Corea and 7 Murralin would fall above that tipping point whilst the other three comparable sales in the precinct fell below that point. 14 The evidence that Mr Halias gave on that point was that somewhere in the vicinity of twenty five to thirty units would constitute that tipping point; that the larger the number of units the smaller of the number developers who would be in the market to undertake such a project – to which Mr Wood (agreeing with Mr Halias) added the comment that there would also be a greater risk to sell the totality of the units. 15 As a consequence, I put the proposition to the advocates that the sales of 10 Corea and 7 Murralin in fact represented the principal comparable sales and that the sales of the other three sites in the precinct would be appropriately relevant to check whether any conclusions that I might draw from 10 Corea and 7 Murralin were unreasonable or not.They did not demur to this approach. 16 For 10 Corea, there was agreement between Mr Wood and Mr Halias on four of the adjustment items and I do not need to consider them. For 7 Murralin there was an agreement on three of the eight adjustment items and I do not need to consider them. I should interpose, at this stage, that I am grateful to Mr Halias for having provided me with an electronic copy of the spreadsheet – this avoided my arithmetical skills being taxed in making any adjustments I might have considered were appropriate. 17 The process which then followed, during the course of concurrent oral evidence from the expert valuers, was to work through an examination of all of the relevant adjustment factors that were in contention – including those that were disagreed adjustment factors for each of the lesser comparable sites within the precinct. 18 I should also note at this stage, because I consider it is desirable to commend them for this, that each valuer properly made concessions against the interest of his respective client as the evidence and discussion process of concurrent evidence took place. The experts are to be commended for this as this is precisely the purpose of the implementation of concurrent evidence and the discursive and inquisitorial process that is involved rather than the traditional adversarial evidence gathering process. 19 I now turn to the differences in each of the adjustment elements for 10 Corea and 7 Murralin and what should be derived therefrom. With respect to 10 Corea, the matters which I need to consider relate to access, waterfront views and site constraints and the question of the premium for a development application. 20 I will deal briefly with the question of a premium for a development application as it applies to all of the sites. 21 During the course of the discussion relating to the Clements Avenue site in Kirrawee, it was pointed out to Mr Halias that he had not taken into account market movements between the date of that sale and the subsequent sale of the same site that had caused him to derive a premium of ten per cent. 22 After taking that into account, he put the proposition that a fifteen per cent premium was appropriate and he advanced the proposition that it should be applied uniformly across all sites. I accept the basis of his calculation for the development premium for Kirrawee and, absent any contrary persuasive evidence of an arithmetic nature (noting that there is an opinion expressed to the contrary by Mr Wood as to why there should be some variability but not accepting this proposition), I accept Mr Halias's evidence on that point. I have, therefore, adopted, to the extent that it is relevant, a fifteen per cent adjustment for a development approval for each of the comparable sales where this occurs. 23 Having said that, there then three extra matters that need to be considered relating to 10 Corea, they are, access, waterfrontage/views and site constraints. 24 Mr Halias's assumption, in his initial approach,was that the access position for 10 Corea was less desirable than that for the site because of his assumption that, at the time of this sale there was not in place the right of way which we had the opportunity of observing during the site view. This has been negated by the evidence contained in exhibit J (which is a deed of assignment relating to that right of way which demonstrates that it was in existence prior to the date of sale, having apparently come into existence sometime in March 2000). 25 I therefore conclude that 10 Corea and 2 Corea have the same access from Corea Street to the Princes Highway. In addition, 10 Corea has limited laneway access down Murralin Lane, although that is tempered by what appeared to be signposted constraints. However, Mr Wood put the proposition that I should regard these accesses as being equal and rather than endeavouring to add any value to 10 Corea Street, I adopt Mr Wood's valuation adjustment in that regard. Therefore Mr Halias's allowance of ten per cent should be reduced to zero on that point. 26 The site was the subject of an appeal in this Court (see Meriton Apartments Pty Limited v Sutherland Shire Council [2006] NSWLEC 139 being a decision by Bly C). That decision imposed significant constraints on the site relating to the retention of trees. This retention of vegetation on the site is relevant to both the issues of views that might be enjoyed from any development on the site and constraints for the construction of any structures on the site pursuant to any development consent. 27 In this regard, I note that there is an existing development consent given by Sutherland Shire Council, in 2009, for the erection of fifty seven dwellings on the site and that the valuers have agreed that the notional development potential of the site as at the base date should be regarded as fifty seven dwellings. They have also accepted, as I understand it – at least by necessary implication – the fact that I should have regard to the plans of the present approval, not for the purposes of fine specificity but for the purposes of understanding the broad constraints that might apply to the site (and, certainly, Mr Russell and Mr Aitkin, counsel for the Valuer General, have questioned the experts on that basis. 28 Dealing now with the question of waterfrontage and views, it is clear from what is presently constructed on 10 Corea (the parties and I having had the benefit of permission to enter that site and inspect it) that the development consent for 10 Corea that was inherent in the sale of that property effectively permitted a clear felling of all vegetation on that site. That is clear from what is shown in the photograph from the Georges River which is exhibit 8 in the proceedings and that which was available to be seen during the course of the site inspection. That is also a matter relevant to be taken into account on both the view and site constraint issues. 29 I turn to the question of waterfront and/or views for 10 Corea. The site of has a wider waterfrontage than 10 Corea but access, in each case, either is (in the case of 10 Corea) or will be (in the case of the site) limited to pedestrian access down a steep pathway and, in the case of the site, likely to be by steps. We did not have the opportunity, perhaps due to time constraints, physically to explore the access on 10 Corea to the waterfrontage but, from the contoured air photo in Mr Wood's statement of evidence, it is clear that the topography from the development to the waterfrontage will be identical or virtually identical in each case. In each case, there is likely to be little usable waterfrontage land for any form of active or passive recreation on either site. 30 Page three of annexure E to Mr Spira's affidavit comprises the eastern and western elevations of the approved development (being plans DA 5.00 revision J). They show the extent of the built form on each of those elevations coupled with the vegetation that has been agreed to be retained on the site and which follows from the constraints on the site imposed following the decision of Bly C. 31 Exhibit K comprises two north/south sections showing the location of the approved structures and the extent of the excavation necessary and also provides a clear idea for those sections of where the vegetation will be located. These comprise DA 4.00 revision G of the same set of plans. Page 2 of annexure G to exhibit G is the tree retention diagram (which is a coloured diagram showing, in red, the trees that are to be removed as a consequence of the development and those, in green, which are to be retained). That diagram comprises DA 6.00 revision B of the same plans. Finally in this regard, p 2 of annexure G to exhibit G is the site and roof plan confirming the tree retention as laid out in the tree plan. This plan is DA 2.00 revision G. 32 What can be derived from each of these plans is that there are a number of distinct elements to the development. Although they are described in the sections as comprising three precincts (being the precinct effectively to the north of the ridge top as precinct 1; that which is on the ridge top comprising precinct 2; and that to the south and to the south of the access driveway to 10 Corea comprising precinct 3), it is also relevant to note that for the purposes of view assessment, precinct 1 can be regarded as two groups of buildings – a matter to which I will return. The site and roof plan, however, makes it clear that the vegetation described in the tree plan is to be retained, including a significant number of significant canopy trees contained on the site. 33 The conclusions that I should draw about the views from these plans to which I have referred is that the dwellings in precinct 1 on 2 Corea, except for the upper level of the southern row in precinct 1, will, at best, have filtered water views. These are the dwellings that could be regarded as being broadly analogous to those facing north on 10 Corea to the north of the central aisle in that site. Some dwellings at the eastern end of precinct 2 of 2 Corea should be added to these dwellings as it is reasonable to assume that some of them will also have views around the eastern end of the precinct 1 dwellings towards the Georges River. It is reasonable to assume that, with the exception of this limited number of dwellings in precinct 2, the remainder of the dwellings in precinct 2 and all the dwellings in precinct 3 should be regarded as having views to the south similar to the south facing dwellings on 10 Corea. 34 Mr Halias provides an adjustment of ten per cent for the site for its views compared to those on 10 Corea. Mr Wood adjusts ten per cent in the opposite direction, there thus being a twenty per cent adjustment difference between them. Without attempting to provide a precise unit count for either of the sites, I consider that the level of views of 10 Corea is superior to that of 2 Corea because of the degree of the filtration. Because of the difference in quality of looking over intervening development on both sites, and thus the difficulty of applying a precise formula counting dwellings, it is not possible for me to draw a conclusion to some fraction of a percentage. However, I start from a preference for Mr Wood's approach, that is that the views from 10 Corea are superior to those of the site but consider that he has given insufficient weight in allowing for the value of the filtered views that would be derived from the site and the values of the views that would be of the vegetation itself rather than the far more sterile nature of the development on 10 Corea. I therefore do not accept his adjustment but accept that there should be an adjustment of minus two per cent for this purpose. 35 In this regard, I further consider that Mr Halias' concerns adequately reflect the constraints imposed by the vegetation and I accept his site constraints for 2 Corea do warrant some further consideration. I note he made (properly in light of the evidence) a concession in this regard. The tree diagram and the sections show both the degree of excavation necessary on 2 Corea and the extent to which it will be necessary to have regard to the critical root protection areas of the trees to ensure their survival and thus meet the aspirations discussed by Bly C in his decision. 36 During oral evidence, Mr Halias conceded that his previous assessment of no difference in constraints between the two sites was wrong and that there was an appropriate adjustment of five per cent to be made compared to his previous equality. Mr Wood proposes an adjustment of ten per cent. The evidence that was given in this regard by Mr Wood was that the physical constraints of the site were significant as a consequence of the protective measures that necessarily flowed from Bly C's decision and these were ecological and flora and fauna construction constraints. There are also constraints, as I understood, it that arise from the need to protect a number of the sandstone outcrops that are on the site. As a consequence of that, I do not consider that Mr Halias' concession should be gone beyond and I do accept that his concession reflects a proper adjustment. I therefore accept that there are constraints on the site; that the constraints compared to those on 10 Corea do warrant an adjustment; but that the five per cent adopted by Mr Halias is preferable to that adopted by Mr Wood. 37 As a consequence of all of that, on my mathematics (but I am happy to have my mathematics checked in this regard), there is a resultant price per dwelling for 10 Corea of $193,023 or a deduced value for the totality of the site of approximately $11,002,000 based on the 10 Corea site valuation. 38 I now turn to 7 Murralin. Mr Halias' report shows, in an aerial photograph at p 17 of exhibit 2, the location of this block compared to the site. It is somewhat to the east of the site and will have access up Murralin Lane – a street which is somewhat narrower than that which serves the site and which also serves more development than merely this site. 39 The areas that were in dispute between the experts relating to this property were whether there should be an adjustment for density, for access, for water frontage and views, and for site constraints. 40 I turn to the question of the difference in density. Mr Halias said that there was a difference in area per dwelling of some thirty per cent or so between 307 square metres per dwelling on the site and the 244 square metres on 7 Murralin. He said that there should be an adjustment as a consequence because of the greater aesthetic value that would exist on the site because of this lesser intensive development and the nature of the vegetated areas and ambience that would be retained. Mr Wood simply said that no adjustment was necessary because the yield was all that I should have regard to. I do not accept his evidence on that point. It would seem to me that the ambience and aesthetics of a development are necessarily elements of what will make it attractive and to suggest that the value of having the green space and already vegetated landscaping that will apply on the subject site is a significant positive and that that arises from the density. As a consequent I accept Mr Halias' adjustment factor and allow five per cent for that purpose. 41 I turn now to the question of comparative access. 2 Corea has access in both directions to the Princes Highway. It has a comparatively uncluttered short length of what amounts to a secondary roadway serving the site before entering onto Corea Road itself. Any traffic exiting the site (without taking into account any rat run that might be available by turning to the right out of the short extension of Corea Road that serves the site) will be both to the left and to the right on the Princes Highway with reasonably good sight lines (as we were able to see during the course of the site inspection). 42 Murralin has a left turn in, left turn out restriction. It has a narrower road for part of it and it is also a narrower road which serves a greater intensity of development. Contra that, I noticed, during the course of the site inspection, that there were two entry points to 7 Murralin as opposed to the single entry point that is approved for the present site. 43 I accept, for the reasons given by Mr Halias, that there is, as a consequence of what I have discussed, a qualitative difference between the accesses. It is what he described as the "necessity to go round the block". Although this may be a perception difference as well as a practical one, nonetheless I accept that a limitation exists. However, I also consider that Mr Halias has overestimated the adjustment that is necessary. The access to 7 Murralin is still good but not as good as 2 Corea. Ten per cent in my view overstates the degree of real or perceived restriction and I would allow five per cent in this regard. 44 I turn now to the question of waterfrontage or views for 7 Murralin. The evidence that was given in this regard by Mr Wood was that there was a better waterfrontage and that there was some modestly less a degree of slope. It was Mr Halias' view that most of the dwellings would not have views and that there was a narrower water frontage that should be taken into account. Mr Halias had not made any calculation of the number of dwellings within that site that would have water views. Mr Wood pointed out there was no filtration by vegetation, there having been a similar, what might delicately be described as a clear-felling approval or largely clear felling approval given to that site. 45 There is no satisfactory basis to assume that there is any material difference for this site over 2 Corea in my view. There is interruption on 2 Corea by the vegetation and the topography, as I have previously outlined. There is however a significant but unquantifiable interruption of views toward the water by the built form on 7 Murralin. I am not persuaded, however, that there is any material qualitative difference between them and therefore I would not allow any adjustment for this factor. 46 I turn to the site constraints for 7 Murralin. It was Mr Halias' evidence that there had been an existing motel that had been on part of the site and that there had been a necessity to demolish it. The motel was in the south-eastern corner covering approximately twenty per cent of the site and that there was hard stand parking and vegetation over the rest. He was not aware of there having been any asbestos contamination to the motel that would have added to its demolition costs. Mr Wood put the counter proposition that there were no physical constraints to this site; that the nature of the consent was as I have described it, a largely clear-felling one and that it was easily accessible. 47 I have accepted that five per cent would be an appropriate adjustment for 10 Corea compared with the site taking into account the constraints of the two sites here compared. There is only a difference of the demolition of the old motel and the hard stand parking – this is, however, to be balanced by the fact that the area to be cleared for 7 Murralin is significantly smaller, being in rough terms approximately half the area of the site. It is unreasonable to say that the constraints are the same as 2 Corea. I accept that a comparison with 10 Corea is a better measure and I would adopt an adjustment of five per cent for the site constraint on 7 Murralin. As a consequence of that on my calculations is a resultant value for 7 Murralin of $211,351 per dwelling, giving a resultant valuation of approximately $12,047,000 for the site on a comparative basis. 48 That means, on a broader sense using the usual sorts of adjustments that are made by valuers in rounding, an adopted value of $11 million for 10 Corea and $12,050,000 for 7 Murralin which would give, on a strictly averaging basis, a deduced value for the site of $11,525,000. 49 Mr Halias' evidence was that in addition to adopting the strict mathematical approach through a comparable sales analysis such as that which he and Mr Wood have undertaken (and which I have considered and varied in some respects), one should also step back and rely on some form of broader intuitive approach to a consideration of how one should consider the deduced values from a comparative sales basis. I am unaware of any authority which would support such a proposition and I decline to take such an approach. 50 I have considered, during the period while I have been undertaking this analysis, in broad terms only, the three additional lesser comparable sales in the precinct and the adjustments that were made to them as a result of the oral evidence. I am satisfied after consideration of those comparable sales that two things flow. 51 First, they are not sufficiently comparable to provide a firm basis for the mathematical exercise that has been undertaken with respect to 10 Corea and 7 Murralin. Second, however, I have had regard to the concessions that I have already noted were made, in some respects, concerning the 10 Corea and 7 Murralin sites (which were otherwise properly made by each of the valuers) during the course of consideration of the adjustment factors for the other three comparable sites. These comparable sites do not cause me to set aside or modify in any respect or consider unreasonable the conclusion which I have reached with respect to the adjusted, deduced value arising from 10 Corea and 7 Murralin. 52 Similarly, the alternative valuation methodologies proffered by the applicant also provide a degree of comfort to my conclusion, particularly with respect to the discounted cash flow method (if a modestly higher [and not unrealistically higher] sale price were to be assumed for the purposes of such a calculation). I see nothing in any of the additional material of check methods provided by the applicant that would cause me to revisit the conclusions that I have reached on the comparable sales basis. 53 Therefore, the orders of the Court are as follows: 1. The objection to the valuation of 2 Corea Street Sylvania as at the base date of 1 July 2006 is upheld; 2. Pursuant to s 40(1)(b) of the Valuation of Land Act 1916 the sum of $11,525,000 is determined to be the value of 2 Corea Street, Sylvania as at 1 July 2006; and 3. The exhibits are returned.