Land and Environment Court New South Wales Medium Neutral Citation: Speter v Roads and Maritime Services [2016] NSWLEC 128 Hearing dates: 5, 6 and 7 September 2016 Date of orders: 30 September 2016 Decision date: 30 September 2016 Jurisdiction: Class 3 Before: Robson J Decision: 1. The amount of compensation payable to the applicants for the acquisition of the land comprising Lot 5 in Deposited Plan 777484, known as 467 Warringah Road, Frenchs Forest, is $1,761,250. 2. The respondent is to pay the applicants' costs as agreed or assessed. 3. The exhibits are returned. Catchwords: COMPULSORY ACQUISITION – investment property – compensation payable – market value of land – use of common sale – appropriate adjustments COMPULSORY ACQUISITION – investment property – compensation payable – disturbance – correct interpretation of "relocation" and "actual use" Legislation Cited: Land Acquisition (Just Terms Compensation) Act 1991 (NSW) Roads Act 1993 (NSW) Warringah Local Environmental Plan 1985 (NSW) Warringah Local Environmental Plan 2011 (NSW) Cases Cited: Al Amanah College Inc v Minister for Education and Training (No 2) [2011] NSWLEC 254 Bezzina Developers Pty Ltd v Leichhardt Municipal Council (2006) 146 LGERA 249; [2006] NSWLEC 175 Blacktown Council v Fitzpatrick Investments [2001] NSWCA 259 Cannavo v Roads and Traffic Authority of New South Wales [2004] NSWLEC 570 G. Suonaf Holdings Pty Ltd v Roads and Maritime Services [2016] NSWLEC 116 Kirela Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (No 2) (2004) 132 LGERA 90; [2004] NSWLEC 68 McBaron v Roads and Traffic Authority (1995) 87 LGERA 239 McDonald v Roads and Traffic Authority (2009) 169 LGERA 352; [2009] NSWLEC 105 Category: Principal judgment Parties: Harold Speter (First Applicant) Deirdre Speter (Second Applicant) Roads and Maritime Services (Respondent) Representation: Counsel: S Nash (First and Second Applicants) M J Astill (Respondent) Solicitors: Project Lawyers (First and Second Applicants) Corrs Chambers Westgarth (Respondent) File Number(s): 2016/00157439 Publication restriction: No Judgment 1. The applicants, Harold Speter and Deirdre Speter ('applicants'), owned land being Lot 5 in Deposited Plan 777484 known as 467 Warringah Road, Frenchs Forest ('subject property'). The subject property was compulsorily acquired by Roads and Maritime Service ('RMS') under the Roads Act 1993 (NSW) on 21 August 2015 ('date of acquisition') for the purpose of constructing works forming part of the "Northern Beaches Hospital Connectivity and Network Enhancement Works Project". The applicants held the subject property as an investment property, and leased it for use as a small medical practice. 2. The Valuer General assessed, and RMS offered to the applicants, compensation in the sum of $1,522,000 comprising $1,425,000 for the market value of the subject property and $97,000 for disturbance. 3. The applicants objected to the amount of compensation and commenced these proceedings on 22 December 2015 pursuant to s 66 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) ('Just Terms Act'). 4. In their Points of Claim, the applicants sought compensation in the sum of $2,442,628.90 comprising $2,300,000 for market value of the subject property and $142,628.90 for disturbance. At hearing they revised their claim to seek $2,757,937.90, comprising $2,600,000 for market value and $157,937.90 for disturbance. The applicants' disturbance claim included stamp duty on the purchase of a replacement investment property. 5. RMS contended for total compensation in the sum of $1,451,686.30 comprising market value of $1,430,000 and $21,686.30 for disturbance. Background 1. The applicants had owned the subject property since 1988. The land comprised 593.8m² with a frontage to Warringah Road of 14.325 metres and a depth of 41.5 metres. At the date of acquisition, improvements on the land comprised a single storey detached double-brick building with two attached double garages facing (but set back from) Warringah Road. The building comprised of a series of rooms used as medical consulting rooms combined with a reception, office, storeroom, lunchroom and kitchen. 2. The subject property benefitted from a development consent granted on 29 June 1994 by Warringah Council ('Council') for use as "professional consulting rooms". At the time the applicants were notified of the acquisition, the premises were being leased to the Health Administration Corporation, a NSW Government entity that was using the subject property for medical consulting rooms. 3. The evidence of the applicants was that at the date of acquisition (and since 2002) they considered the subject property and the income therefrom to be their "superannuation". Evidence 1. The Court received detailed expert evidence in the form of town planning and valuation evidence. Lay evidence was also given by way of two affidavits of the first applicant, Harold Speter. Planning evidence 1. The town planning experts, Mr Haynes for the applicants and Mr Chambers for RMS, prepared detailed individual reports and a joint report dated 20 July 2016. They generally agreed in relation to planning matters, and it was common ground that at the date of acquisition: 1. the subject property was zoned R2 – Low Density Residential under the Warringah Local Environmental Plan 2011 (NSW), which permitted "health consulting rooms" with consent; 2. a development consent granted on 29 June 1994 by Council in relation to the subject property provided for use of the existing premises for "professional consulting rooms" as defined under the then Warringah Local Environmental Plan 1985 (NSW) ('1994 consent'); 3. the Northern Beaches Hospital, which is to be a 9 storey development with 488 hospital beds and associated facilities, was being constructed on the northern side of Warringah Road, directly opposite the subject property; 4. the subject property was leased to Health Administration Corporation and operated under the name of "Frenchs Forest Community Health Centre"; and 5. Council was preparing a Precinct Structure Plan which involved providing support for "health-related land uses and infrastructure" in an "Investigation Area" around the Northern Beaches Hospital, and that the subject property was within this area. 1. Although there was some disagreement between the planning experts in relation to (a) the likelihood of Council approving a first floor addition to the premises, and (b) the timing of any review of planning controls in relation to the subject property, these two matters did not play a significant part in the valuation evidence. Both planning experts agreed that the highest and best use of the subject property at the date of acquisition was its use as professional consulting rooms pursuant to the 1994 consent. Valuation evidence 1. The greater area of dispute was between the valuers, Mr Sanidas, who was briefed by the applicants, and Mr Dempsey, who was briefed by RMS. Each prepared a detailed primary report and together prepared two joint reports. Mr Sanidas also provided a "statement of clarification" after preparation of the second joint report. Both adopted a direct comparison methodology, although each used different comparable sales and analysis. 2. Although at hearing the essential differences between the valuers were distilled down to an analysis of the nature and extent of adjustments to what was the one common comparable sale, being 8 Hilmer Street, Frenchs Forest ('the common sale'), it is important to consider how each reached their separate opinions. Applicants' primary valuation report 1. In his primary report, Mr Sanidas acknowledged that the highest and best use of the subject property was "medical accommodation". He considered and analysed "…as his primary evidence those properties that are within the professional medical sector". His methodology involved deriving a "building rate" by dividing the purchase price of his six "medical sales" by the building area of each sale. Having derived a "building rate" (a "rate per square metre of building area"), he applied that rate to the building area of the subject property (excluding car parking). He then made adjustments, primarily in relation to time, location, size and zoning, with some consideration for the potential to add floor space. This analysis gave the following results: Address Sale Date Sale Price Building Area Building Rate Adjusted Value 8 Hilmer Street, Frenchs Forest Sep 2014 $1,200,000 181 $6,630 $2,358,663 795a Warringah Road, Forestville Sep 2015 $1,020,000 124 $8,226 $2,267,032 100 Ryde Road, Hunters Hill May 2015 $2,310,000 250 $9,240 $2,195,424 2,3&5/247 Ryedale Road, Eastwood Aug 2015 $3,300,000 363 $9,091 $2,312,727 2/114 Majors Bay Road, Concord Aug 2013 $2,430,000 197 $12,335 $2,353,523 7/108 Willoughby Road, Crows Nest Aug 2014 $3,500,000 256 $13,672 $2,258,594 1. Mr Sanidas deduced a building rate of $10,850 per square metre which he applied to the building area of the subject property (approximately 212m²), giving a contended market value of $2,300,200. 2. Mr Sanidas then undertook a market capitalisation approach to the valuation as a check method, which gave him the slightly lower market value of $2,210,987. He concluded that the market value of the subject property at the date of acquisition was $2,300,000. RMS' primary valuation report 1. Mr Dempsey also adopted an analysis of comparable sales when assessing the market value of the subject property. He primarily relied upon six sales of land relatively close to the subject property and adjusted these sales for time, location, land area, improvements and approvals. He ultimately concluded that market value of the subject property was $1,430,000. 2. Mr Dempsey did not adopt a building rate approach. His six comparable sales (including two resales) involved four separate properties, three of which were in Frenchs Forest and one in Forestville. Mr Dempsey noted in his primary report that each of these sales was in close proximity to the subject property and, being within the same market, they required the least amount of adjustment. 3. An examination of each of Mr Dempsey's sales is unnecessary, except to note that: 1. Mr Dempsey applied a blanket rate of 2% per month in order to adjust earlier sales for time (this amount was derived from resales of two of his comparable sales); and 2. given that many of the properties could not be used as health consulting rooms, Mr Dempsey applied a blanket adjustment rate of 20% in order to account for the need to obtain relevant approvals. 1. The only common sale between Mr Dempsey and Mr Sanidas was the common sale. Mr Dempsey adjusted the common sale by 19% (giving his concluded market value at $1,428,000) as follows: 1. 22% for time, at the above noted rate of 2% per month; 2. -15% for location, as it was on a quieter street with surrounding single story residential development; 3. -8% for land area, as the land of the subject property was 66m² smaller; and 4. 20% for development approval (making no discrete allowance for improvements to the land). 1. Mr Dempsey's remaining five sales had adjusted land values between $1,279,550 to $1,428,000. First joint report 1. The valuers prepared two joint reports. In the first joint report, they agreed that: 1. the direct comparison method represents the primary valuation method to assess the market value of the subject property; 2. the comparable market sales evidence prior to the date of acquisition should be adjusted for time at 1.5% - 2% per month; and 3. the "most comparable" sale was the common sale. 1. Despite the above, the valuers disagreed upon the nature of some of the comparable market evidence and the adjustments required to be made to the same. 2. Mr Dempsey was critical of the four sales of Mr Sanidas which were not proximate to the subject property, including the sales at Hunters Hill, Eastwood, Concord and Crows Nest. Mr Dempsey noted that those sales, being in other suburbs, offered little assistance as market evidence as the adjustments required were so great as to render them unreliable, whereas his sales captured the land use potentials within the R2 – Low Density Residential Zone, and properly considered any future change in the land use potential which may occur as a result of the construction of the Northern Beaches Hospital. 3. Mr Sanidas considered the "residential" evidence adopted by Mr Dempsey to be of little assistance in circumstances where there was "medical sales evidence, rents and yields…available". He also opined that his building rate approach "closely mirrors a hypothetical vendor and purchaser environment" because it "captures the commerciality and potentiality of each sale". Further joint report 1. At the pre-trial mention in the week before the hearing, the Court was informed that Mr Sanidas had obtained further information since completing the first joint report, and directed Mr Sanidas and Mr Dempsey to prepare a further joint report that addressed the differences between the valuers in relation to adjustments made to the common sale as a result of this new information. 2. The essential difference between the valuers was the manner in which each dealt with the circumstances of the common sale. The common sale involved the purchase of an unrenovated residential property on 11 September 2014, in circumstances where the purchaser knew that she would be required to spend an amount of money (later estimated at $520,000, but which ultimately was over $800,000) to modify the residential building and land so it could be used by three practitioners as health consulting rooms. 3. Mr Sanidas, in effect, sought to add the cost of the renovations (or a proportion thereof) to the sale price to create equivalence with the subject property. 4. Mr Dempsey disagreed with this approach, and considered that no adjustment should be made for the cost of the renovations. Mr Sanidas was critical of Mr Dempsey adding no value in his adjustments for improvements when he was aware that the purchaser incurred significant costs to enable the common sale to be used as consulting rooms. Mr Sanidas' statement of clarification 1. Mr Sanidas, in his 'statement of clarification' produced at hearing, made a number of further amendments to his position. In particular, Mr Sanidas: 1. abandoned three of his comparable sales (leaving only the common sale, 100 Ryde Road, Hunters Hill and 247 Ryedale Road, Eastwood); and 2. contended for an upward adjustment of 3.5% per month, rather than the 1.5% - 2% he had agreed to in the first joint report. 1. Whilst Mr Sanidas did not provide his calculations to the Court, it is noted that as a result of these amendments his valuation of the subject property increased from $2,300,000 to approximately $2,600,000. This was the figure that was ultimately relied upon by the applicants, and is calculated by making the following adjustments to the $1,200,000 sale price of the common sale: 1. an adjustment of 10% for location ($120,000), as contended in Mr Sanidas' primary report and the first joint report; 2. an adjustment of 58% for improvements (approximately $700,000), as contented in Mr Sanidas' statement of clarification; and 3. an adjustment of 42% for time (approximately $500,000), as contended in Mr Sanidas' statement of clarification. 1. Given this shift in position, it appears that Mr Sanidas did not ultimately rely upon his "building rate" valuation, as specified in his primary report. However, to the extent that this is not the case, I will consider this method of valuation below regardless. Consideration 1. For reasons I shall shortly give, I find that the sales relied upon by Mr Dempsey provide more assistance than those relied upon by Mr Sanidas. I find that, with the exception of the common sale, the five other sales originally relied upon by Mr Sanidas provide little assistance. In relation to Mr Sanidas' (remaining) sales, being 100 Ryde Road, Hunters Hill, and the strata sale at 247 Ryedale Road, Eastwood, I find these sales do not assist the Court as each is in a different local government area and both are a significant distance from the subject property. Further, 100 Ryde Road has a specialised "dental fitout" in a large residential house situated on 726m² of land, whilst 247 Ryedale Road is comprised of three strata lots located on the ground floor of a two storey building within the established Ryde Hospital precinct. 2. I agree with Mr Dempsey's view that no reliable adjustments could be made to either of these properties to create equivalence with the subject property. Further, while not ultimately relied upon, the other three properties analysed by Mr Sanidas (which were relied upon in his initial report to deduce his building rate) are of even less assistance. The first, 108 Willoughby Road, Crows Nest, was the sale of a ground floor chemist shop in a different local government area with different zoning. The second, 114 Majors Bay Road, Concord, was also a ground level retail shopfront. Whilst the third, 795a Warringah Road, Forestville, was within the same local government area as the subject property, it is not directly comparable as it is the sale of a two-storey townhouse and is outside the "Investigation Area" referred to in paragraph 10(5) above. 3. As five of the six sales relied upon by Mr Sanidas to justify his building rate approach are of little assistance, I find that this approach is unreliable. 4. In light of these findings, the remaining dispute between the valuers related to the appropriate adjustments to be made to the common sale. In particular, there was disagreement as to appropriate adjustment for each of improvements and approvals, location, area and time. As this is the most comparable sale, it is convenient to deal with each such adjustment. Approvals and improvements 1. Both experts agreed that an upward adjustment should be made to the common sale to account for the need to obtain development approvals and, in Mr Sanidas' view, engage in construction work to enable the common sale to be used for health consulting rooms. 2. Relevantly, there was evidence before the Court that the purchaser of the common sale was a medical practitioner who lodged a development application with Council in August 2015, approximately 11 months after the date of purchase on 11 September 2014, seeking consent for modifications to the existing dwelling to accommodate health consulting rooms. Documentation lodged with Council estimated the construction costs at $520,000. As noted in paragraph 27 above, the building modifications ultimately cost over $800,000, and that no such consent or development was necessary for the subject property as it was already permitted to operate health consulting rooms pursuant to the 1994 consent. Applicants' submissions on improvements and approvals 1. The applicants submitted that, based upon Mr Sanidas' evidence, the fact that the purchaser spent over $800,000 to enable the common sale to be used as professional health consulting rooms is of assistance when determining the value of the subject property, which was already permitted to operate health consulting rooms, and could hypothetically have been purchased as a going concern. 2. Mr Sanidas criticised Mr Dempsey for making no discrete adjustment for improvements. In his statement of clarification, Mr Sanidas calculated an adjustment of 58% ($700,000) for what he called an "adjustment factor for DA cost" by: 1. beginning with what he called a "conversion cost from residential to commercial" of $800,000 and discounting this amount by 20% on the basis of "new vs old", as the improvements at the common sale would be more valuable than those on the subject property, leading to the figure of $640,000 (calculated as 53% of the sale price of the common sale); 2. applying an adjustment of 5% for what he called "Profit and Risk" to the $1,200,000 sale price of the common sale, reaching the figure of $60,000; and 3. applying the above adjustments to the subject property, and deducing a "Total Adjustment Factor" of 58% (being $700,000). 1. In final submissions, the applicants submitted that the Court should adopt Mr Sanidas' 58% uplift and criticised Mr Dempsey's approach (which adopted the blanket 20% adjustment for the risk for all his comparable sales noted above in paragraph 19(2)) as "quite unsound" based upon Mr Sanidas' opinion that unlike the subject property, the common sale could not be used as health consulting rooms without paying for significant works. 2. Counsel for the applicants therefore submitted that a "liberal estimate" of cost of works to achieve comparability for the common sale should therefore be adopted by the Court. RMS' submissions on improvements and approvals 1. Mr Dempsey was not prepared to make adjustment for "improvements" on the basis that the "conversion" of the subject property pursuant to the 1994 consent was done (based upon historical evidence including DA documents) at no cost. As such, Mr Dempsey did not accept that the total cost of the renovation of the common sale (or a proportion thereof) was required to be taken into account to create equivalence with the subject property. 2. Mr Dempsey gave evidence that his 20% adjustment was for the risk that the purchaser of the common sale may not be able to obtain development consent, and that any construction costs that might follow were to be regarded as a separate proposition. He made no discrete adjustment for the likely construction costs. 3. RMS submitted that, in accordance with Mr Dempsey's evidence, a 20% adjustment should be made for "approvals". It is also submitted that to apply the cost of works at the common sale to "inflate" the value of the land is both illogical and wrong in principle. Finally, it was submitted that Mr Sanidas' discount for "old for new" is misleading, as there was no fitout of the subject property, and therefore there was neither "old" nor "new" improvements from which an adjustment could be derived. Consideration of improvements and approvals 1. It is inappropriate, as RMS submitted, that the Court would look simply at a residential sale and suggest that the sale price should be adjusted using the cost of the improvements that were incurred 11 months afterwards as a base. I find that a "conversion cost" of 58% as suggested by Mr Sanidas, regardless of whether it is adjusted for "new for old" or "Profit and Risk", is inappropriate. 2. I also find Mr Dempsey's 20% adjustment is too low. I accept that the common sale was not at equivalence with the subject property at the date of sale, and required both a development consent and some works to allow it to function at its highest and best use as health consulting rooms. This means that there should be an upwards adjustment for both the cost and risk of obtaining the development consent, and the cost of improving the common sale to the point that it was at equivalence with the subject property. 3. Upon review of the development application lodged in relation to the common sale, it is clear that the estimate of $520,000 does not include the costs of obtaining the development consent. The costs of obtaining the development consent are necessary costs that the purchaser would have been forced to expend to bring the common sale into equivalence with the subject property. Whilst there was also some risk involved in obtaining the consent, given that the property was within the Investigation Area where such uses were to be encouraged, I consider this risk to have been low. Whilst it is not clear why Mr Sanidas provided an adjustment only for risk, and not for the actual costs of obtaining an approval, I consider that the adjustment of Mr Dempsey for solely obtaining development consent is too high, and that an upwards adjustment of 5% is appropriate. 4. With regards to the costs of physically developing the common sale, I consider that the better prediction of the likely costs of the development actually undertaken at the common sale is $520,000, rather than the $800,000 postulated by Mr Sanidas. This was the predicted cost provided to Council in the development application, and whilst it was submitted almost a year after the purchase of 8 Hilmer Street, it represents what a prudent purchaser that was perfectly acquainted with the land would have likely estimated the cost of the development to be. 5. I also consider that the purchaser of 8 Hilmer Street sought consent for premises that was superior to the subject property in many ways. Based on the evidence before the Court and what was observed on the view, 8 Hilmer Street now presents as a recently developed building with a number of facilities that the subject property lacked, such as certain facilities tailored towards disabled persons and a pathology room. Further, the development at 8 Hilmer Street is also built to higher fire standards, and was generally designed with specific health consulting rooms in mind. The subject property, however, was a dated residential building that had been internally converted to facilitate medical consulting. It lacked any specialist fitouts. 6. I therefore consider that the adjustment should be substantially lower than the predicted $520,000, and find that $240,000 (or 20%) is a more appropriate adjustment to bring the two properties towards equivalence. 7. Taken together, I find that an upwards adjustment of 25% for the cost of approvals and improvements is appropriate in the circumstances. Location 1. The valuers were well apart in relation to adjustment for location, with Mr Dempsey adopting a downwards adjustment of -15% and Mr Sanidas adopting an upwards adjustment of 10%. Applicants' submissions on location 1. The applicants submitted that the subject property was in a better location, as it was in a highly visible location on a busy arterial road with good exposure, particularly given that it would have been located immediately opposite the new Northern Beaches Hospital in an emerging "hospital and health precinct". The applicants further submitted that, to the extent that the highest and best use of the subject property is professional health consulting rooms, such a use exists in a market different to residential dwellings, where a quiet, tree-lined street would be more desirable than exposure to an arterial road, such as Warringah Road. In particular, greater exposure would mean that any business operating from the subject property would derive greater benefit from any business identification signage. The applicants also submitted that the proximity between the subject property and public bus routes further enhanced its value when used as health consulting rooms. 2. The applicants contended that, given these advantages that the subject property enjoys because of its location on Warringah Road, the location of the common sale on a residential street was comparatively disadvantageous, because any development at that property: 1. would have substantially more limited physical exposure to prospective clients; 2. would have to integrate with the quieter immediate locality; and 3. would therefore not be able to take the same advantage of the health precinct as the subject property. 1. The applicants therefore submitted that Mr Sanidas' evidence should be preferred, and an upward adjustment of 10% should be made to account for the superior location of the subject property. RMS' submissions on location 1. RMS submitted that Mr Dempsey's adjustment of -15% is more appropriate because the subject property fronts an arterial road, which in turn restricts vehicular access to the subject property, as it can only be accessed by westbound traffic, and traffic may only egress the subject property towards the west. It was contended that the common sale, on the other hand, was on a quiet street with no such restriction. Given the traffic lights at the intersection of Hilmer Street and Warringah Road, vehicles would be able to access and leave the property heading both east and west. It was also submitted that the common sale had a larger land area, which would permit a greater number of car spaces than the subject property. 2. RMS further submitted that both the subject property and the common sale had effectively the same proximity to the Hospital and, given that potential clients do not "impulse buy" medical services, the presentation to Warringah Road is unimportant, and the proximity of both locations to the Hospital is of more importance. Consideration of location 1. I find that the reduction of -15% adopted by Mr Dempsey too large, and equally the Mr Sanidas' upward adjustment of 10% is not warranted. 2. On balance, I find that the locational advantage for purposes of identification and potential for signage and exposure is an advantage that outweighs to a large extent the disadvantage in terms of access. Although medical services are not an "impulse buy", this does not mean that brand recognition cannot be improved by signage on a busy thoroughfare. Further, whilst there are some access issues from the subject property, I note that a person travelling east on Warringah Road could easily turn right into Hilmer Street, turn around and head eastwards towards the subject property, and that a person seeking to egress to the west would likely be able to find a parking spot in Hilmer Street, allowing persons to turn right and head west after visiting the subject property. 3. I find that an upwards adjustment of 5% is appropriate compromise between the advantages and disadvantages of both locations. Area 1. It is common ground that the area of the common sale is approximately 860m², whilst the area of the subject property is approximately 594m². Mr Sanidas made no adjustment for land size, given that he adopted a building rate rather than a land rate in his primary report. Mr Dempsey applies a downwards adjustment of -8% adjustment to the value of the common sale, given the subject property is smaller in size. 2. Given my findings in relation to building rates, I find that a small downwards adjustment of -8% is appropriate in the circumstances. Time Evidence of time adjustment 1. The adjustment for time between the date of acquisition and the sale of 8 Hilmer Street raised a number of concerns at the hearing. Mr Dempsey in his primary report made an upwards adjustment of 22% for elapsed time. Mr Sanidas originally adopted 14%. As noted above, in the first joint report it was agreed that the appropriate adjustment was 1.5% - 2% per month (being a range of 16.9% - 22.6%). 2. Despite this agreement, and as a result of the receipt of further information, Mr Sanidas sought to revisit the adjustment for time. In the further joint report, Mr Sanidas added the resale of 500 Warringah Road, Frenchs Forest, as an indicator of market activity in 2014 and 2015, and stated that the value of the land "has increased beyond a rate of 24%", although he did not specify what this amount was. 3. Mr Sanidas went further in his statement of clarification, and stated that a 3.5% adjustment for time was more appropriate. This opinion was based on both the 500 Warringah Road resale, and the sales of two separate (but similar) properties at 124 and 130 Frenchs Forest Road, Frenchs Forest. Mr Sanidas contended an upwards adjustment of 42% to the price of the common sale. 4. With regard to the 500 Warringah Road resale, the first sale occurred on 20 November 2014 for $1,986,600, whilst the resale occurred on 3 May 2016 for $4,200,000. This amounted to a raw market uplift of 6.37% per month, which Mr Sanidas adjusted for land size and reduced to 3.65%. 5. With regard to the Frenchs Forest Road sales, Mr Sanidas compared the sale of 124 Frenchs Forest Road on 31 October 2014 for $1,398,500 with the sale of 130 Frenchs Forest Road on 11 August 2015 for $3,700,000. After making an adjustment of 50% to 130 Frenchs Forest Road for "size and scale", Mr Sanidas considered that there had been a market uplift of 3.2%. 6. Mr Sanidas' was extensively cross examined on his calculations and assumptions, and RMS made a number of critical submissions regarding his reliability on this point. These criticisms included: 1. given that Mr Sanidas acknowledged that he knew of the four sales prior to agreeing to the 1.5% - 2% adjustment in the joint report, his explanation why he had earlier ignored the resale of 500 Warringah Road (based on market "gossip") was not compelling; 2. the use of 500 Warringah Road to adjust the price of the common sale upwards was an unacceptable approach, given that Mr Sanidas was earlier of the opinion that 500 Warringah Road was not a comparable property; and 3. the use of 124 and 130 Frenchs Forest Road, being the sale of two separate properties, is inappropriate because they do not represent the resale of identical blocks of land and the latter sale of $3,700,000 was an outlier and cannot be relied upon in any event. Consideration of time adjustment 1. Whilst I accept that Mr Sanidas obtained certain information at a late stage, I find that the above criticisms are justified. In the circumstances, I am unable to place any significant weight upon his statement of clarification. I note that: 1. Mr Sanidas dealt with 500 Warringah Road in his primary report, and criticised Mr Dempsey's reliance upon it in some detail, without articulating any concern in relation to his knowledge that, based on "gossip" or otherwise, it was a related party transaction; 2. Mr Dempsey gave evidence that the later sale of 500 Warringah Road on 2 June 2016 was an "extreme outlier" because (a) the sale could not have been anticipated at the date of acquisition (21 August 2015) and (b) the proximity of the new Northern Beaches Hospital appeared to have been a material consideration because that property is on the same side of Warringah Road as the Hospital; 3. Mr Sanidas' adjustments made to the resale of 500 Warringah Road, and in particular the adjustment for "15% adjustment for size", was not reliably substantiated in oral evidence; 4. there was an obvious error in Mr Sanidas' calculations insofar as he relied upon the transfer dates of the Frenchs Forest Road properties rather than the sale dates, meaning that the market uplift of those two properties of 164% was experienced over approximately 4 months, rather than 9 months; 5. I accept the criticism that the use of the sale of the two different Frenchs Forest Road properties to adjust for time as if those sales were a resale is neither orthodox nor satisfactory; and 6. I accept that, in relation to the Frenchs Forest Road properties, the adjustment down of the 130 Frenchs Forest Road sale "by 50% for size and scale" is an unjustifiable adjustment. 1. Given my concerns regarding the further evidence of Mr Sanidas, and noting the previous agreement between the valuers, I find that 2% is an appropriate monthly uplift, which equates to an upward adjustment of 23%. Adjustment findings 1. My findings in relation to the adjustments may be summarised as follows: 1. improvements and/or approvals 25%; 2. location 5%; 3. area -8%; 4. time 23%; and 5. total percentage 45%. 1. Although there was ultimately some agreement between the experts, I prefer the approach adopted by Mr Dempsey, insofar as he adopted a more conventional approach to the consideration of comparative sales and his analysis thereof, than that adopted by Mr Sanidas. In particular I find: 1. Mr Sanidas' approach in his primary report based upon his "building rate analysis" of six sales was unreliable. Leaving aside Mr Dempsey's rejection of that approach, it is relevant that of the six sales relied upon, Mr Sanidas ultimately abandoned three sales, and, apart from the common sale, there were only two sales upon which he ultimately relied. As noted above, I find that those sales, in combination with the abandoned sales, do not justify the selection of a building rate as a general proposition as an appropriate approach. 2. The conventional approach which requires sales to be geographically and temporally proximate preferably with the same zoning and similar physical characteristics would have been (and in the case of Mr Dempsey were) more compelling. 3. The comparison of values of the subject property with general commercial premises when there are other more orthodox approaches available lends weight to a preference for Mr Dempsey's approach. 4. In circumstances where there was a common sale, using that sale (with appropriate adjustments) is the appropriate way to approach the valuation of the subject property. 1. Given the above, I find that the market value of the subject property was $1,740,000 at the date of acquisition. Disturbance 1. The applicants make the following claims for disturbance pursuant to ss 55(d) and 59(1) of the Just Terms Act: 1. legal costs in the sum of $13,650, pursuant to s 59(1)(a); 2. valuation costs in the sum of $7,600, pursuant to s 59(1)(b); 3. financial costs in connection with relocation, pursuant to s 59(1)(c), comprising: 1. conveyancing costs associated with the purchase of a replacement property in the sum of $3,014; and 2. "due diligence" costs associated with acquiring a replacement property to the sum of $3,795. 1. stamp duty in the sum of $128,490, pursuant to s 59(1)(d) and calculated on market value of $2,600,000; and 2. financial costs incurred in connection with the discharge of a mortgage, and execution of a new mortgage, in connection with relocation in the sum of $1,388.90, pursuant to s 59(1)(e). 1. The applicant alternately submitted that claims (3), (4) and (5) above could be made pursuant to s 59(1)(f) of the Just Terms Act. 2. RMS did not oppose the amounts claimed for legal and valuation costs, and conceded that Mr Speter's two affidavits potentially provided sufficient evidence to suggest that the applicants intended to incur the expense of purchasing another investment property. However, RMS did dispute the remaining claims for disturbance because: 1. no relocation had occurred, and so no claim for disturbance could be brought under ss 59(1)(c), (d) and (e) of the Just Terms Act; and 2. there was no actual use of the land, and so no claim for disturbance could be brought under subsection 59(1)(f) of the Just Terms Act. Just Terms Act 1. Section 55(d) of the Just Terms Act, which allows for a claim for disturbance, relevantly states: In determining the amount of compensation to which a person is entitled, regard must be had to the following matters only (as assessed in accordance with this Division): … (d) any loss attributable to disturbance… 1. The phrase "loss attributable to disturbance" is defined in section 59(1) of the Just Terms Act, which relevantly states: In this Act: "loss attributable to disturbance" of land means any of the following: … (c) financial costs reasonably incurred in connection with the relocation of those persons (including legal costs but not including stamp duty or mortgage costs), [Emphasis added.] (d) stamp duty costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the purchase of land for relocation (but not exceeding the amount that would be incurred for the purchase of land of equivalent value to the land compulsorily acquired), [Emphasis added.] (e) financial costs reasonably incurred (or that might reasonably be incurred) by those persons in connection with the discharge of a mortgage and the execution of a new mortgage resulting from the relocation (but not exceeding the amount that would be incurred if the new mortgage secured the repayment of the balance owing in respect of the discharged mortgage), [Emphasis added.] (f) any other financial costs reasonably incurred (or that might reasonably be incurred), relating to the actual use of the land, as a direct and natural consequence of the acquisition. [Emphasis added.] Disturbance submissions 1. The applicants made two alternate submissions in their primary claims for disturbance regarding the construction of "relocation". First, the applicants submitted that "relocation" is not restricted to the relocation of persons, but could be expanded to anything that could qualify as relocation. The applicants noted that previous cases have found that this conceptually includes the relocation of businesses. It was submitted that the applicants' investment in the property was a business, as the applicants were involved in an enterprise that derived a profit, and that the investment could therefore be relocated. 2. Alternatively, the applicants submitted that because the correct construction of "relocation" was not restricted to persons or businesses, the relocation of an investment that was not a business could also qualify. Whilst the applicants were unable to provide any authority in support of this submission, they did seek to distinguish a number of cases that referred solely to the relocation of businesses by saying that such findings merely described the circumstances of those respective cases, and that it had not been found that investments could not be relocated. 3. With regard to the applicants' secondary claim for disturbance under s 59(1)(f) of the Just Terms Act, the applicants relied on the submission that they operated an investment business, and submitted that this constituted an actual use of the land. It was submitted that the applicants' investment was not a passive investment, as the subject property was put to the "actual use" of generating income, and was not passively held only for capital gains. 4. RMS submitted that this case includes neither a "relocation" nor an "actual use". RMS submitted that the applicants were "the classic examples of a passive investor", as they received rental income and capital gains without undertaking any physical work involving the subject property. It was submitted therefore that the applicants could not be considered to have been relocated, nor could they have incurred costs relating to their actual use of the land, as they were not engaging in any "actual use". Disturbance findings 1. Before proceeding, I note that s 59(1)(c) of the Just Terms Act refers to the "relocation of those persons". I have seen no evidence, nor heard any submissions from the applicants, which suggested that any person, natural or corporate, has been relocated as a result of this resumption. Given this, I find that the applicants' claim for financial costs pursuant to s 59(1)(c) cannot be maintained, as the applicants have not been personally relocated. 2. Sections 59(1)(d) and (e) of the Just Terms Act, however, refer simply to "relocation". Given that this term is not defined in the Just Terms Act, it should be read in context and given its ordinary meaning. The word "relocate" is defined in the Macquarie Dictionary as "to move (a firm, a factory, etc.) to a different place". Its context, and in particular the exclusion of the words "of those persons", suggests that the disturbance for the relocation of something other than the applicants personally can be claimed. 3. This is consistent with previous authorities. In McBaron v Roads and Traffic Authority of New South Wales (1995) 87 LGERA 239, Talbot J found at 248 that the applicant was entitled to stamp duty for the relocation of a dairy farm. In Kirela Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (No 2) (2004) 132 LGERA 90; [2004] NSWLEC 68 ("Kirela"), Cowdroy J found at [14] that because the applicant had not relocated its business, it was not entitled to compensation under s 59(1)(d) of the Just Terms Act. It was also noted by Talbot J in Bezzina Developers Pty Ltd v Leichhardt Municipal Council (2006) 146 LGERA 249; [2006] NSWLEC 175 at [112] that a claim pursuant to s 59(1)(d) of the Just Terms Act was not maintained because "no physical activities [were] to be relocated" as a result of the acquisition. 4. The applicants' primary submission on this point was that their investment was a business, and so could be relocated. I do not accept this. Whilst some investments may be businesses, this is not necessarily the case. Operating a business requires some level of engagement with a commercial enterprise. Whilst the applicants did derive an income from leasing the subject property, they were not engaged in any enterprise beyond passively receiving that income. Mr Speter deposed in his affidavit dated 28 May 2016 that "the tenant was also paying all outgoings", implying that the applicants had little to do with the property. Mr Speter also deposed that the subject property was the applicants' "main source of income", and that they did not have "any significant savings or superannuation" aside from the subject property, suggesting that the applicants were not generally in the business of investing, but rather simply held this single significant investment. Finally, Mr Speter characterised their ownership of the property as the applicants' "superannuation". Whilst I have concerns characterising it as such in a legal sense, this further reinforces that the applicants were not operating a business. I therefore find that the applicants' investment in the subject property should not be considered a business. 5. However, if I am wrong on this point, I also find that to the extent that the applicants operated a business, it has not been relocated. When a business sells a land asset, compulsorily or otherwise, it is not forced to relocate unless it was physically operating from that land asset. The applicants, who had leased out the entire property to the NSW Health Administration, did not operate any business from the subject property. Rather, if it were considered that the applicants were engaged in business, that business would be operated from another location which had invested in the subject property. As such, the applicants' business would not have been relocated in any event. 6. The applicants' secondary submission on this point was that relocation is not limited to persons or businesses, but can be expanded to the relocation of anything. I also do not accept this submission. When an investment property is resumed, the property is acquired and the money invested in that property returned to the investor. That investor may then invest that money how they wish. Investing this money in another property is not a relocation of the original investment, but rather a reinvestment of the money paid for the original investment. Nothing has been physically moved to another place. Reinvestment is therefore conceptually different to the relocation of a person or a business from a resumed property to another property. 7. Given this, I find that the applicants' investment has not been relocated for the purposes of ss 59(1)(d) and (e) of the Just Terms Act. 8. The applicants alternately claim reimbursement for the amounts in paragraph 75(3), (4) and (5) pursuant to s 59(1)(f) of the Just Terms Act. This provision has been the subject of much judicial discourse, from which the following principles may be distilled: 1. the term "financial costs" should be interpreted broadly: McDonald v Roads and Traffic Authority of New South Wales (2009) 169 LGERA 352; [2009] NSWLEC 105 at [110]; 2. the actual use must exist in fact at the time of the acquisition, and cannot be either "a future use or potential use": Blacktown Council v Fitzpatrick Investments [2001] NSWCA 259 at [26]-[27] (Brownie AJA) ("Fitzpatrick"), Kirela at [12] (Cowdroy J); 3. actual use can include "land banking" for future development of that land (Fitzpatrick at [31] (Brownie AJA)) and construction that is being conducted on the land at the date of acquisition (Al Amanah College Inc v Minister for Education and Training (No 2) [2011] NSWLEC 254 at [44] (Biscoe J)); 4. an applicant must be more than "a passive investor": Fitzpatrick at [34] (Brownie AJA); and 5. holding land as an "investment rather than as trading stock" is not an actual use of the land: Cannavo v Roads and Traffic Authority of New South Wales [2004] NSWLEC 570 at [46] (Talbot J). 1. It was also recently held by Preston Ch J in G. Suonaf Holdings Pty Ltd v Roads and Maritime Services [2016] NSWLEC 116 at [61] that the applicant in those proceedings had not established that financial costs incurred in relation to the purchase of a replacement residential property to be tenanted constituted costs related to the actual use of the acquired land that would be incurred as a direct an natural consequence of the acquisition. 2. It is clear from Mr Speter's 28 May 2016 affidavit that any intention to develop the subject property was only a potential future use, and that no consent had been obtained to allow any further development of the subject property. It was not submitted by the applicants that this was otherwise. 3. Given this, the applicants must rely upon the proposition that their use of the subject property was more than just as an investment, and that they were more than just passive investors. I find that this cannot be maintained. As noted in paragraph 87 above, the applicants have not established that they have any involvement with the property other than deriving an income and potentially making a capital gain. I accept the submission of RMS that the applicants are "the classic examples of a passive investor", and find that they are not entitled to financial costs pursuant to s 59(1)(f) of the Just Terms Act. 4. As such, I find that the claimants are entitled to disturbance of $21,250 pursuant to s 55(d) of the Just Terms Act, being comprised of $13,650 for legal costs and $7,600 for valuation costs. Costs 1. As I have awarded the applicants compensation in an amount greater than the amount offered in the Notice of Compensation and contended for by RMS, they should be awarded their costs of the proceedings. Orders 1. The Court orders that: 1. The amount of compensation payable to the applicants for the acquisition of the land comprising Lot 5 in Deposited Plan 777484, known as 467 Warringah Road, Frenchs Forest, is $1,761,250. 2. The respondent is to pay the applicants' costs as agreed or assessed. 3. The exhibits are returned. ***************** Amendments 05 October 2016 - File number corrected in coversheet. 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. Decision last updated: 05 October 2016