Land and Environment Court of New South Wales CITATION : Chantal v Valuer General [2009] NSWLEC 1135 APPLICANT Chantal Holdings Pty Ltd PARTIES : RESPONDENT Valuer General FILE NUMBER(S) : 31240 & 31241 of 2007 CORAM: Bly C KEY ISSUES: VALUATION OF LAND :- commercial land; comparable sales Valuation of Land Act 1916 LEGISLATION CITED: Warringah Local Environmental Plan 2000. Land and Environment Court Act 1979 DATES OF HEARING: 17 March & 18 March 2009 DATE OF JUDGMENT: 1 May 2009 APPLICANT Mr I Hemmings Barrister Instructed by Wood Marshall Williams LEGAL REPRESENTATIVES: RESPONDENT Mr G Newport Barrister Instructed by Crown Solicitors Office JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES Bly C 1 May 2009 31240 of 2007 and 31241 of 2007 Chantal v Valuer General JUDGMENT Introduction 1 These two appeals are against the Valuer General's land value at base date 1 July 2006 under section 6A of the Valuation of Land Act 1916, for the following two adjoining properties: o 130 Old Pittwater Road, Brookvale (Lot A Deposited Plan 402556). This property has an agreed usable site area of 7,480 square metres and a 40.54 m frontage. It rises moderately steeply towards the rear. It is developed with two freestanding older style warehouse buildings. (Appeal No. 31240 of 2007) o 134-140 Old Pittwater Road, Brookvale (Lot 1 Deposited Plan 703489). This property has an agreed usable site area of 10,190 square metres and a 60.7 m frontage. It rises steeply towards the rear. It is developed with a substantial office/warehouse complex containing a number of individual units. (Appeal No. 31241 of 2007) 2 Both of these properties are subject to the provisions of Locality G10 Brookvale Industrial West and Locality G3 Open Space Reservation under Warringah Local Environmental Plan 2000. The Valuer General's land values 3 The Valuer General's land values at 1 July 2006 for these properties are: o 130 Old Pittwater Road: initially valued at $9,100,000 but adjusted after consideration of an objection from the applicant to $6,900,000. On 12 May 2008 a value of $6,800,000 was proposed on a without prejudice basis. o 134 - 140 Old Pittwater Road: initially valued at $11,700,000 but adjusted after consideration of an objection from the applicant to $10,425,000. On 12 May 2008 a value of $8,900,000 was proposed on a without prejudice basis. The applicant's contended land values 4 The applicant's contended land values (at an unsuccessful conciliation conference under the Land and Environment Court Act 1979) at 1 July 2006 for these properties were, on a without prejudice basis: o 130 Old Pittwater Road: adjusted from $4,600,000 to $4,788,000. o 134 - 140 Old Pittwater Road: $6,400,000. Expert valuation evidence 5 Expert valuation evidence on behalf of the Valuer General was given by Mr B Sheales and on behalf of the applicant by Mr M O'Brien. This evidence includes joint reports and comparable sales spreadsheets for both properties. The joint reports/evidence 6 In the joint reports the valuers refer to 12 analysed sales. The parties have now agreed that the following five sales can be utilised to determine the land value of the two subject properties: o 49-51 Mitchell Road Brookvale (frontage 35.5m area 7984m2). o 130 Old Pittwater Road Brookvale (one of the two subject sites) (frontage 40.54m area 7,480m2). o 134 - 140 Old Pittwater Road Brookvale (one of the two subject sites)(frontage 60.7m area 10,190m2). o 117 Old Pittwater Road Brookvale (frontage 63m area 8151m2). o 122 - 126 Old Pittwater Road Brookvale (frontage 68m area 19770m2). 7 Despite this Mr Sheales contended that the Mitchell Road property was least preferred and could be omitted. Additional evidence 8 The above-mentioned sales were, at my request, analysed and compared in two separate spreadsheets – one for 130 Old Pittwater Road and one for 134 - 140 Old Pittwater Road. Whilst these spreadsheets contain details and an analysis of each of the two subject properties I note that as sales, they cannot be utilised for the purposes of determining their own value. Mr Sheales contended land values 9 Taking into account a number of comparable sales Mr Sheales now contends that the land values of the two properties are: o 130 Old Pittwater Road: $6,800,000 ($909/m2). o 134 - 140 Old Pittwater Road: $8,650,000 ($849/m2). Mr O'Brien's contended land values 10 Also taking into account a number of comparable sales Mr O'Brien now contends that the land values of the two properties are: o 130 Old Pittwater Road: $4,600,200 ($615/m2) o 134 - 140 Old Pittwater Road: $7,133,000 ($700/m2). Analysis of comparable sales for 130 Old Pittwater Road 117 Old Pittwater Road 11 The valuers agreed that the analysed land value for the sale at 117 Old Pittwater Road was $942 per square metre. They also agreed that this value should be reduced by 5% on the basis that it was an "off market sale". However they disagreed in relation to further adjustments that need to be made to this value so as to derive a land value for 130 Old Pittwater Road. 12 Mr Sheales said that the analysed land value should be increased by 2% allowing for a difference in time between the two sales resulting in a final reduction of 3% (5% - 2%). On this basis he deduced a comparable land value of $912 ($914?) per square metre. 13 Mr O'Brien said that in addition to the 5% reduction a further 27.5 % reduction was required because that site is significantly superior in terms of: width to depth ratio; direct nexus to Warringah Mall; site topography; and land size (ie usable land). On this basis he deduced a comparable land value of $648 per square metre. 14 In relation to 117 Old Pittwater Road whilst I agree with Mr O'Brien that for the reasons he gives adjustments need to be made, I am concerned that the 27.5 % adjustment is excessive. The two sites are of such size that their different areas should make little difference to the analysed land value. Similarly the site's width to depth ratio will also make little difference given its not inconsiderable 41.1 m frontage. Hence, his deduced land value of $648 per square metre is likely to be too low. In this context I note that Mr Sheales made no adjustment at all although it was submitted on behalf of the respondent that some adjustment should be made but not to the extent suggested by Mr O'Brien. 134 - 140 Old Pittwater Road 15 In relation to 134 - 140 Old Pittwater Road the valuers disagreed with every aspect of the sale for the purposes of deriving a land value for 130 Old Pittwater Road, other than site area and sale price. 16 Relying on an available building area of 13,500 square metres and applying a 51% discount for the existing buildings Mr Sheales calculated an analysed land value of $849 per square metre. He makes no further adjustments and applies this as the deduced comparable land value. 17 Relying on an available land area of 12,300 square metres and applying a 20% discount for the existing buildings Mr O'Brien calculated an analysed land value of $704 per square metre. Because this property adjoins 130 Old Pittwater Road and has essentially identical site characteristics it is in his opinion the most comparable sale but still needs to be adjusted by 12.5% for its width to depth ratio. On this basis he deduced a comparable land value of $616 per square metre. 18 In relation to 134 - 140 Old Pittwater Road, I prefer Mr O'Brien's analysis. I agree that the relatively new existing buildings do not warrant a 51% reduction and accept that a 20% reduction would be reasonable. However I believe that the adjustment for the width to depth ratio should be no more than 5%, taking into account the site's not inconsiderable width of 41.1 m. Hence, his deduced land value of $616 per square metre is likely to be too low. 122 - 126 Old Pittwater Road 19 The valuers agreed that the analysed land value for 122 - 126 Old Pittwater Road was $789 per square metre. They disagreed however in relation to site adjustments for the purposes of deriving a land value for 130 Old Pittwater Road, including the costs associated with the extended and extendable settlement of this sale. 20 Mr Sheales adjusted the analysed land value down by 7% for the extended settlement (or cost of money) and up by 4% as an adjustment for time generating a deduced land value of $765 per square metre. He makes no other adjustments. 21 Mr O'Brien made no adjustment for time but adjusted the analysed land value down by 11% for the extended settlement. This together with an upward adjustment of 12.5% for site characteristics produces a deduced land value of $614 per square metre. 22 Whilst I generally agree with Mr O'Brien's analysis, I accept Mr Sheales' contention that there should be an adjustment for time (April 2003 to 1July 2006) to hence his deduced land value is likely to be too low. I also agree that the 12.5% adjustment for site characteristics is too high, taking into account the site's not inconsiderable width of 41.4 m. Analysis of comparable sales for 134 - 140 Old Pittwater Road 117 Old Pittwater Road 23 The valuers agreed that the analysed land value for the sale at 117 Old Pittwater Road was $942 per square metre. They also agreed that this value should be reduced by 5% on the basis that it was an "off market sale". However they disagreed in relation to further adjustments that need to be made to this value so as to derive a land value for 134 - 140 Old Pittwater Road. 24 Mr Sheales said that the analysed land value should be increased by 2% allowing for a difference in time between the two sales resulting in a final reduction of 3% (5% -2%). On this basis he deduced a comparable land value of $912 ($914?) per square metre. 25 Mr O'Brien said that in addition to the 5% reduction a further 20% reduction was required because that site is significantly superior in terms of: direct nexus to Warringah Mall; site topography; and land size (ie usable land). On this basis he deduced a comparable land value of $648 per square metre. 26 In relation to 117 Old Pittwater Road whilst I agree with Mr O'Brien that for the reasons he gives adjustments need to be made, I agree with Mr Sheales that the 20% adjustment is excessive. Hence, his deduced land value of $716 per square metre is likely to be too low. In this context I note that Mr Sheales made no adjustment at all although it was submitted on behalf of the respondent that some adjustment should be made. 130 Old Pittwater Road 27 The valuers reached no agreement in relation to the analysed value for the sale at 130 Old Pittwater Road for the purposes of deriving a land value for 134 - 140 Old Pittwater Road. This analysis requires the consideration of existing older style warehouse buildings. 28 Mr Sheales discounted the existing buildings by 100% and calculated an analysed land value of $909 per square metre. He makes no further adjustments, contending a deduced land value of $909 per square metre. 29 Mr O'Brien discounted the existing buildings by 50% and calculated an analysed land value of $615 per square metre. He further increased this figure by 12.5 % for site characteristics and calculated a deduced land value of $692 per square metre. 30 In relation to this sale I agree with Mr O'Brien in relation to the existing buildings that an allowance should be made on the basis that the property could be purchased for investment and used with no immediate intention for redevelopment. However given the condition of the buildings I think that his adjustment is too low. Conversely his site characteristics adjustment appears to be too high. Hence his deduced land value is likely to be too low. 122 - 126 Old Pittwater Road 31 The valuers agreed that the analysed land value for 122 - 126 Old Pittwater Road was $789 per square metre for the purposes of deriving a land value for 134 - 140 Old Pittwater Road. They agreed that no adjustments need to be made for land characteristics but disagreed in relation to time and the costs associated with the extended and extendable settlement of this sale. 32 Mr Sheales adjusted the analysed land value down by 7% for the extended settlement (or cost of money) and up by 4% as an adjustment for the time difference between the two sales, generating a deduced land value of $765 per square metre. 33 Mr O'Brien made no adjustment for time but adjusted the analysed land value down by 11% for the extended settlement producing a deduced land value of $701 per square metre. 34 I generally agree with Mr Sheales' analysis in relation to 122 - 126 Old Pittwater Road and agree that there should be an adjustment for time (April 2003 to 1July 2006) hence Mr O'Brien's deduced land value is likely to be too low. Court's conclusions 35 As affirmed by the High Court in Maurici v Chief Commissioner of State Revenue (2003) 212 CLR 111 it is perfectly rational to value unimproved land by valuing a site in its improved state and deducting the value of the improvements. This is the approach taken by the valuers for the developed properties that were utilised in this case although they disagreed as to the extent of necessary adjustments. 36 The valuation of urban land is an inexact science that requires estimations, even on the part of experts. These cases are little different in their approach to other cases that I have heard although the extent of the disagreement between Mr O'Brien and Mr Sheales is, in some instances, much more than might otherwise have been expected. The task nevertheless falls to me to decide if the cases brought on behalf of the applicant are sufficient to disturb the land values and if so what should the land value of these properties be. 37 Having considered all of the evidence I am now satisfied that the four above-mentioned sales provide, taking into account the various adjustments, sufficient evidence for me to determine the land value of the two properties. I have now reviewed these sales and for the most part have been persuaded by the evidence of Mr O'Brien and conclude that the Valuer General's land values at 1 July 2006 for the two subject properties are too high. 38 In relation to 130 Old Pittwater Road, Mr Sheales' deduced values for the three comparable sales were $912 per square metre, $849 per square metre and $765 per square metre from which he derives a concluded value of $909 per square metre. Mr O'Brien's deduced values were $648 per square metre, $616 per square metre and $614 per square metre from which he derives a concluded value of $615 per square metre. 39 In relation to 134 - 140 Old Pittwater Road Mr Sheales' deduced values for the three comparable sales were $909 per square metre, $912 per square metre, and $765 per square metre from which he derives a concluded value of $849 per square metre. Mr O'Brien's deduced values were $692 per square metre, $716 per square metre and $701 per square metre from which he derives a concluded value of $700 per square metre. 40 I acknowledge that for all of the sales, various deductions were required to enable the calculation of deduced values that form the basis of the concluded values for each of the two properties. Giving credence to the evidence of both of the experts I accept that all of these sales can be given weight. As I have already indicated, for the most part I find the evidence of Mr O'Brien to be persuasive, although I do believe his deduced values are too low. In giving some weight, as I do, to Mr Sheales analyses, this provides some further support for this conclusion, but certainly not enough to support values as high as he contends. 41 In all of the circumstances I have decided that at base date 1 July 2006 the land values of the two properties are: o 130 Old Pittwater Road, Brookvale – $5,250,000(in the order of $700 per square metre), o 134-140 Old Pittwater Road, Brookvale – $7,650,000 (in the order of $750 per square metre). Orders 42 The orders of the court are therefore: 1. The appeals are upheld. 2. Under section 6A of the Valuation of Land Act 1916 the land value at base date 1 July 2006 for 130 Old Pittwater Road, Brookvale is $5,250,000 3. Under section 6A of the Valuation of Land Act 1916 the land value at base date 1 July 2006 for 134 - 140 Old Pittwater Road, Brookvale is $7,650,000 4. The exhibits are returned. ___________________ Trevor Bly Commissioner of the Court tb/ajl 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.