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Macarthur Central Shopping Centre Pty Ltd v Valuer-General (No. 2)[2016] QLC 80

Macarthur Central Shopping Centre Pty Ltd v Valuer-General (No. 2)[2016] QLC 80

LAND COURT OF QUEENSLAND

CITATION:

Macarthur Central Shopping Centre Pty Ltd as TTE v Valuer-General (No. 2) [2016] QLC 80

PARTIES:

Macarthur Central Shopping Centre Pty Ltd as Trustee

(appellant)

 

v

 

Valuer-General

(respondent)

FILE NO/s:

LVA076-14

DIVISION:

General Division

PROCEEDING:

Appeal against land valuation

DELIVERED ON:

23 December 2016

DELIVERED AT:

Brisbane

HEARD ON:

29, 30 August 2016, final submissions received 11 October 2016

HEARD AT:

Brisbane

PRESIDENT:

FY Kingham

ORDER/S:

The appeal is dismissed

CATCHWORDS:

REAL PROPERTY – VALUATION OF LAND – SITE VALUE – METHOD OF ASSESSING - COMPARABLE SALE – whether a sale by liquidator was bona fide - whether a development approval added value to a comparable sale – whether sales relied upon were comparable – whether the value is supported by comparable sales

REAL PROPERTY – VALUATION OF LAND – SITE VALUE - METHOD OF ASSESSING – HERITAGE LISTING – where the lot was heritage listed – where the land area rate derived from comparable sales was discounted for the heritage listing - whether a gross floor rate derived from comparable sales used to value the lot should also be reduced to account for the heritage listing

REAL PROPERTY – VALUATION OF LAND – SITE VALUE - METHOD OF ASSESSING – VOLUMETRIC LOT – where the lot was volumetric – where there were no comparable sales of volumetric lots affected by heritage listing – where Valuer-General discounted value to reflect the volumetric limitations – where the owner proposed a novel method applying differential rates to different levels of the lot – whether the valuation reflected the constraints on developing the lot arising from its volumetric nature land

Land Valuation Act 2010, s 17, s 18, s 19, s 23, s 24

Bellbird Park Developments Pty Ltd v Department of Natural Resources and Water (2009) 30 QLCR 177, followed

Body Corporate for “147-153 Mary Street Gympie” CTS v Valuer-General (2013) 34 QLCR 298, followed

Edgarhead Pty Ltd v Valuer-General [2015] QLC 18, followed

Federal Commissioner of Taxation v St. Helen’s Farm (ACT) Pty Ltd (1980-81) 146 CLR, applied

Grahn v Valuer-General (1992-93) 14 QLCR 327, applied

Mayne Property Development Pty Ltd v Chief Executive, Department of Natural Resources (1996-1997) 16 QLCR 709, applied

Qualischefski v Valuer-General (1979) 6 QLCR 167, applied

Spencer v The Commonwealth [1907] 5 CLR 418, applied

Stubberfield v Valuer-General [1991] 1 Qd R 278, applied

The Valuer-General v Queensland Club (1991) 13 QLCR 207, applied

Tow v Valuer-General (1978) 5 QLCR 378, applied

APPEARANCES:

DD Purcell of Counsel, instructed by OMB Lawyers, for the appellant

SP Fynes-Clinton of Counsel, instructed by In-house Legal, Department of Natural Resources and Mines, for the Valuer-General

  1. [1]
    Macarthur Central Shopping Centre Pty Ltd as Trustee has appealed to the Court against the Valuer-General’s 2012 valuation of a volumetric lot (Lot 1 on SP139965) in a heritage listed building at 229 Queen Street known as Macarthur Chambers. That building sits in a high-end retailing area at the corner of Queen and Edward Streets, opposite the Queen Street Mall in the Brisbane CBD. Adjacent to Macarthur Chambers is the Macarthur Central Shopping Centre.
  1. [2]
    The subject lot is a rectangular volumetric lot comprising the mezzanine, ground floor and basement levels of Macarthur Chambers. It is serviced by all standard utilities. It has a footprint of 1,036 m2, with a 26.557m Queen Street frontage and an aggregate frontage of 31.691m to Edward Street. It is currently leased for retail use as an Apple Store.
  1. [3]
    The Valuer-General assessed the site value at $4,100,000. Macarthur Central contends its site value is $3,100,000.
  1. [4]
    The Land Valuation Act 2010 governs the valuation process, an artificial exercise for rating and taxation purposes. The site value of improved land is the capital sum it might be expected to realise for its unencumbered estate under a bona fide sale assuming all non-site improvements[1] for the land had not been made.[2] A bona fide sale is one on reasonable terms and conditions assuming willing, but not anxious, buyer and seller; a reasonable period within which to negotiate the sale; and reasonable exposure of the property to the market.[3] In considering reasonable terms and conditions, regard must be had to the location and nature of the land and the state of the market for land of the same type.[4]
  1. [5]
    Those provisions give statutory expression to the test propounded by the High Court in Spencer v The Commonwealth: that the value of land is what a hypothetical prudent purchaser would entertain in purchasing it for the most advantageous purpose for which it was adapted.[5] That is synonymous with the market value of the land.[6]
  1. [6]
    Macarthur Central appealed against the valuation on the following grounds:
  1. the valuation is not supported by property sales and is excessive having regard to comparable property sales;
  1. the valuation does not reflect the physical and legal characteristics of the land and/or the constraints on the use of the land;
  1. the valuation does not achieve or preserve uniformity of value between the assessed site value and valuations of comparable parcels of land.
  1. [7]
    The Court was assisted by expert evidence from experienced valuers: Mr Schultz, engaged by Macarthur Central, and Mr Hart, engaged by the Valuer-General.
  1. [8]
    Valuing the lot is not straight forward. The experts agreed the highest and best use for the lot is retail. They also agreed there were no truly comparable sales. Nevertheless, they identified sales for a comparable sales analysis, which they adjusted to account for the volumetric nature of the lot. They both encountered difficulties in identifying a reasoned basis for making their adjustments and adopted very different approaches to that exercise.
  1. [9]
    Criticisms that appear in these reasons about either valuers’ method should be read in context. The valuers did their honest best to arrive at a value for the lot, without the assistance of truly comparable sales. Mr Hart, used an orthodox approach to adjusting for matters he could not quantify. Mr Schultz, developed a novel method which has not been market tested.
  1. [10]
    As well as the differences in approach, there were differences between the valuers about other matters. They disputed the relevance of some sales and how to analyse others. It is convenient to address those issues, as they arise, in relation to each ground of appeal.

Ground 1: The valuation is not supported by property sales and is excessive having regard to common property sales

  1. [11]
    It is well established that analysis of comparable sales, preferably of vacant or lightly improved land, is the preferred method for determining market value.[7] The comparable sales method necessarily involves some element of subjective judgment in comparing the comparable sale to the subject site.[8] The greater the differences between the properties, the greater the reliance on evaluative judgment and the less confidence the Court can have in inferences drawn from the analysis.
  1. [12]
    The valuers agree there are no truly comparable sales of freehold CBD property limited in height and depth by volumetric title. Nevertheless, they both started with a comparable sales analysis, doing their best to identify sales that might assist in a necessarily compromised process. The term comparable sales, although a misnomer in this case, is used in this judgment for those sales identified for the comparable sales analysis.
  1. [13]
    This first ground of appeal relates to areas of contention between the experts that can be addressed by the following questions:

Which sales are comparable?

How should 55 Elizabeth Street (the one common comparable sale) be analysed?

How should the gross floor area (GFA) of the subject lot be calculated for comparison with other properties?

Which sales are comparable?

  1. [14]
    The valuers agreed on only one sale as comparable (55 Elizabeth Street). Mr Schultz considered the sale of 451-461 Ann Street was also comparable. Mr Hart relied on 127 Charlotte Street and 105 Margaret Street.

451-461 Ann Street

  1. [15]
    Mr Schultz relied on the sale of 451-461 Ann Street to fix the low market parameter for the subject lot. 451-461 Ann Street was sold in 2012 for $2,525,000. Allowing for demolition and site remediation, which would be the purchaser’s responsibility, Mr Schultz analysed the site value at $2,800,000. It has an area of 1,530m2, which results in an analysed land area rate of $1,830/m2. That is significantly below the lowest land area rate that Mr Hart identified: $8,154/m2 for 105 Margaret Street.
  1. [16]
    Mr Hart rejected 451-461 Ann Street as a comparable sale because it was a sale during liquidation. He accepted a forced sale does not necessarily mean a sale is not bona fide.[9] He also agreed a liquidator or receiver selling a property is required to:

undertake appropriate inquiries to identify the true nature of the property and the market in which that property could be sold;[10]

obtain independent valuations of the property being sold, and in fact they did so in this instance;[11]

engage appropriate experts who are familiar with the property and the markets to assist in or conduct the sale, and in fact they did so in this instance;[12]

ensure the property is sufficiently advertised to bring it to the attention of prospective purchasers.[13]

  1. [17]
    Mr Hart’s opinion that the sale is not bona fide is based on the following information. The sale occurred on 1 July 2012. The liquidator was appointed in late August 2011. It was valued at $5,000,000 in November 2011. That value was confirmed in February 2012. The property was advertised in February 2012, with offers closing March 2012.
  1. [18]
    Mr Hart considered the liquidator did not have a reasonable period to negotiate the sale. Because the value was stable over the three months from November 2011 to February 2012, he inferred there was no threat of a market contraction. From the fact that the sale price was nearly half the valuation, Mr Hart inferred the liquidator had limited bargaining power.[14] Those inferences are reasonably drawn from those facts.
  1. [19]
    Mr Schultz accepted the sale price reflected the market value. He explained the discrepancy from the valuation by referring to the unqualified and unmitigated heritage risk of the sale property.[15] His evidence about this risk was vague and imprecise, and it related to its proximity to the adjoining Orient Hotel and a Church, rather than the property itself.[16]
  1. [20]
    Subsequent events in relation to this property also indicate the sale price was not its true market value. The Valuer-General’s issued site value for the property as at 1 October 2012 was $4,300,000. That value was agreed between the owner and the Valuer-General after the owner objected to the original valuation.[17]  The settled value is some 55% higher than Mr Schultz’s analysed value of $2,800,000, and comfortably close to the valuation evidence from November 2011 and February 2012.
  1. [21]
    Mr Schultz accepted sales by a liquidator are conducted in a commercial context where potential purchasers know the vendor is a party anxious to sell.[18] However, he made no adjustment to account for that circumstance.
  1. [22]
    Sales by liquidators, like those by mortgagees, demand close scrutiny before being accepted as evidence of market value.[19] There is insufficient evidence about the circumstances of the sale to overcome the usual caution exercised in relation to sales of this nature. On the evidence, the Court could not rely on this sale, with any confidence, in valuing the subject lot.

127 Charlotte Street and 105 Margaret Street

  1. [23]
    Mr Hart relies on two other sites: one is now occupied by a Mantra building at 127 Charlotte Street (for which it had a development approval in place at the time of sale); and the other is a vacant block at 105 Margaret Street. He used both properties to derive an overall land area (LA) rate for comparison purposes. From 127 Charlotte Street, he also derived a gross floor area (GFA) rate for comparison purposes.
  1. [24]
    For 127 Charlotte Street, after adjusting for the value of the development approval and other items, Mr Hart adopted an analysed sale value of $8,715,097 or $9,567/m2 as an overall LA rate and $985/m2 as a GFA rate (based on the total GFA of the development approval). For 105 Margaret Street, he adopted an analysed sale value of $11,973,817 or $8,766/m2 as an overall LA rate.[20]
  1. [25]
    Mr Schultz does not accept the sales are comparable. Both are located in a government rather than a retail precinct. 127 Charlotte Street carried no discernible heritage risk with a development approval in place.[21] 105 Margaret Street has limited retail potential.[22]
  1. [26]
    These are material points of distinction, but do not preclude their use as comparable sales, if those aspects are accounted for. Mr Hart accounted for the development approval in analysing the sale of 127 Charlotte Street. He dealt with the other distinctions in the way in which he derived the LA and GFA rates from those sales. Mr Hart’s approach to these sales was orthodox.
  1. [27]
    I am not persuaded there was any error in Mr Hart’s use of these sales in his valuation of the subject lot.

How should the sale of 55 Elizabeth Street be analysed?

  1. [28]
    There is one common sale between the valuers: 55 Elizabeth Street. The purchase price was $24,000,000. Mr Schultz analysed its site value at $21,100,000 which equates to $10,603 per m2 on an area of 1,990m2. Mr Hart analysed it as $22,760,842 or $11,392 per m2 on an area of 1,998m2.
  1. [29]
    Other than a small difference in the calculation of the area, the material difference in their analysis is what value, if any, should be attributed to a development approval, existing, but some years old, at the date of contract. That approval was for a 65 storey mixed use development (commercial and residential).[23]
  1. [30]
    Mr Schultz assessed value on the assumption that the purchaser, Grocon Developments (Brisbane) Pty Ltd (“Grocon”), intended to proceed in accordance with that development approval.[24] On that basis, he attributed an added value of $2,127,778 [25] to the approval. He calculated that by using the opportunity cost of holding the site at the weighted interested rate for a year ($1,777,778) and adding an estimate of professional fees ($350,000).[26]
  1. [31]
    Mr Hart made no adjustment for the development approval. He acted on the assumption that Grocon purchased the property intending to develop a commercial office building to meet the requirements of an Australian Taxation Office (ATO) tender. After the purchase, Grocon won the tender and constructed the building to the ATO’s requirements.
  1. [32]
    Mr Schultz was challenged about his attribution of value to the development approval. During the hearing, he produced a file note of a conversation with Mr Ponton, a Grocon employee.[27] It notes the option to buy the property was exercised before the ATO tender was finalised. It also notes Grocon was confident it would win the tender. Mr Schultz did not ask Mr Ponton what value Grocon attributed to the original development approval.[28]
  1. [33]
    The parties were given leave to lead further evidence about this sale and, after the hearing, they provided an agreed bundle of documents which reveal the following:
  1. (a)
    On 20 September 2010, the ATO sought expressions of interest for suitable accommodation to meet its future needs in Brisbane, with a closing date of 27 October 2010;[29]
  1. (b)
    On 17 November 2010, four of the proposals submitted in response to that call were shortlisted, one of which was Grocon’s proposal for 55 Elizabeth Street;[30]
  1. (c)
    On 25 November 2010, final proposals were sought from the shortlist of proponents;[31]
  1. (d)
    On 29 November 2010, Grocon entered into a put and call option for the property;[32]
  1. (e)
    Under that deed Grocon had until 28 February 2011 to exercise its call option, and the vendor had 30 days after that date to put the property to Grocon if the call option was not exercised;[33]
  1. (f)
    The purchase price upon exercise of either option was $24,000,000;[34]
  1. (g)
    On 17 December 2010,[35] Grocon applied to the Brisbane City Council for a development permit for the building which has subsequently been constructed on the site for the ATO;
  1. (h)
    On 23 December 2010, Grocon and two other parties submitted final proposals to the ATO;
  1. (i)
    On 28 February 2011, Grocon exercised its option to purchase. Grocon’s intention on that date was that the property would be used for the purpose of developing a building that would be leased to the ATO, and the property was purchased for a specific development suitable for the ATO;[36]
  1. (j)
    On 17 March 2011, Grocon obtained development approval for the building to be constructed for the ATO.[37]
  1. [34]
    On 29 November 2010, when it entered into the option to purchase 55 Elizabeth Street at a price of $24,000,000, the tender outcome was uncertain. However, Grocon knew it had been shortlisted by the ATO. It is reasonable to infer Grocon’s objective in purchasing the property was to carry out the ATO development. It must have been well advanced in preparing the development application when Grocon signed the option, because it lodged the application with the Brisbane City Council less than three weeks later, on 17 December 2010.
  1. [35]
    It is reasonable to infer the existing development approval had some value. Depending on market conditions, it could have provided a fall back development for Grocon if the tender failed.
  1. [36]
    However, given the evidence, Mr Schultz’s attribution of $2,127,778 as added value to the purchase price lacks foundation.
  1. [37]
    The parties agree the difference in the valuers’ competing analyses of this sale is not decisive in this appeal. The difference between them (a little more than $1,600,000) is less than 10% of the total analysed value. Both valuers subjected the sale to significant and subjective assessments in deriving the site value for the subject lot.
  1. [38]
    However, there is some merit in the submission made by counsel for the Valuer-General that, in assessing Mr Schultz’s subjective evaluative judgment on other matters, I should bear in mind his insistent adherence during oral evidence to an incorrect assumption made on scant information.

How should the GFA of the subject lot be calculated?

  1. [39]
    Because the subject lot is volumetric, there is a three dimensional limitation on potential development. The valuers agreed the overall LA rate had to be adjusted somehow. Both used a GFA rate for the notionally reconstructed premises on the subject lot to make this assessment. However they disagreed about how to calculate the GFA of the lot.
  1. [40]
    Mr Hart used the Gross Lettable Area – Retail (GLAR) certified by a registered surveyor shown on the plans forming part of the current lease for the Apple Store.[38]
  1. [41]
    Mr Schultz considered the calculation in the lease plans was incorrect because it did not exclude areas occupied by stairs, a recess doorway and a plant room. Mr Schultz’s calculation of the area to be excluded lacked precision as he scaled them from the lease plan.[39]
  1. [42]
    Applying the Property Council of Australia Method of Measure for Lettable area – March 1997,[40] he said these should have been excluded from the GLAR as “standard facilities”.[41]
  1. [43]
    The PCA document defines “standard facilities” to include such facilities, if they are not “purpose built”. They are “purpose built” if they are provided specifically for an individual tenant.[42]
  1. [44]
    The areas Mr Schultz wants to exclude form part of the total area leased to the current tenant. The tenant has exclusive possession of those areas. There is no evidence before the Court that the areas provide any service to, have any utility for or are accessible by any other building occupant. Adopting a common sense approach to interpreting the definitions, I am satisfied they should be included in calculating the GLAR for the sales analysis.
  1. [45]
    In valuing the lot, Mr Hart’s GFA calculation of 1,973m2, derived from the registered lease, should be used instead of Mr Schultz’s calculation of 1,786m2.

The valuers’ comparable sales analyses

  1. [46]
    For reasons already canvassed:

Mr Hart’s analysis of the common comparable sale, 55 Elizabeth Street, is preferred to that of Mr Schultz;

The sale price for 451-461 Ann Street is not persuasive evidence of its market value and should not be used to arrive at a value for the subject lot;

There is no error in Mr Hart relying on the analysed sales for 127 Charlotte Street and 105 Margaret Street in undertaking a comparative sales analysis in valuing the subject lot; and

Mr Hart’s calculation of the GFA of the subject lot is accepted.

  1. [47]
    Given those findings, the starting point in valuing the subject lot must be Mr Hart’s analysis of comparable sales.
  1. [48]
    Mr Hart’s comparable sales provide a reasonably narrow range for both LA and GFA.

Table 6

Sale No.

Address

Sale Date

Land Area (LA)

Gross Floor Area (GFA)

Sale Price (ex GST)

Analysed Rates

1

55 Elizabeth St

February 2011

1,998m2

22,767 m2

$24,000,000

LA $11,392/ m2

GFA $999/ m2

2

127 Charlotte St

May 2010

911m2

8,839 m2

$9,090,908

LA $9,567/ m2

GFA $985/ m2

3

105 Margaret St

July 2011

1,366m2

n/a

$11,977,015

LA $8,154/ m2

  1. [49]
    Based on those sales, Mr Hart adopted a notional LA rate of $14,000/m2. This is higher than any of the three sales he relied upon but reflected the lot’s superior features to each comparable sale.[43]
  1. [50]
    While he considered 55 Elizabeth Street demonstrated premiums paid for proximity to the Queen Street Mall, Mr Hart applied a higher LA rate to the subject lot because of its smaller area, superior location and continuous street corner frontage with superior exposure from and access to the Queen Street Mall. The LA rate was even higher than the rates for the other two properties (127 Charlotte Street and 105 Margaret Street) because the subject lot has a vastly superior location and street frontage to both sites.
  1. [51]
    Mr Hart heavily discounted the notional LA rate, which assumed the lot was not volumetric. The discount, overall, accounted for both the volumetric limitations and the heritage listing. Mr Hart’s methodology in discounting for those factors will be addressed under the second ground of appeal.
  1. [52]
    Given the volumetric nature of the subject lot, Mr Hart considered a GFA rate provided a better basis for comparison than an LA rate. The LA rate requires a greater level of adjustment when comparing non volumetric LA to the volumetric floor area.[44] The GFA rate uses rent-productive floor space as its point of comparison.
  1. [53]
    The comparable sales demonstrated a GFA rate of approximately $1,000/m2. Mr Hart adopted the higher rate of $2,100/m2[45] because he reasoned a prudent purchaser would pay a substantially higher rate per m2 of GLAR given its superior quality and location.[46] There are difficulties in applying a total GFA rate to the GLAR of the subject lot. Mr Hart’s method of adjusting for those different measures will also be addressed under the second ground of appeal.
  1. [54]
    Although limited by the lack of truly comparable sales, I am satisfied that Mr Hart’s analysis of the comparable sales provides a reasoned basis for making those adjustments. Macarthur Central has not made out ground 1 of the appeal on the balance of probabilities.

Ground 2: The valuation does not reflect the physical and legal characteristics of the land and/or the constraints on the use of the land

  1. [55]
    Macarthur Central identified the following physical and legal characteristics and constraints on the use of the land:

the heritage status of the property (both as a development constraint and a cost burden);

the volumetric nature of the lot; and

issues of exposure to pedestrian traffic and connectivity of the basement and mezzanine levels to the street and the adjoining Macarthur Central Shopping Centre.

The Heritage Status – Exposure and Connectivity

  1. [56]
    The location of the lot in a heritage listed building[47] makes the valuation exercise more difficult, but the parties agree the consequence is that a hypothetical prudent purchaser could only contemplate developing the vacant lot by replicating the existing heritage structure.[48]
  1. [57]
    The dispute is how to properly reflect in the site value the restriction of a future development to the same form as the existing heritage structure.
  1. [58]
    As well as addressing the question of heritage listing in general terms, I will also address arguments made about the impact on value of restrictions on visual exposure of the tenancy to passing pedestrian traffic and connectivity to the adjoining shopping centre in Macarthur Central. This is because they only arise for consideration because the heritage listing requires valuation on the notionally reconstructed existing structure.
  1. [59]
    Although the valuers had different starting points, they both applied significant discounts to some aspect of their calculations for issues which arose from the heritage listing.
  1. [60]
    Mr Hart applied a 15% discount to his notional LA rate of $14,000/m2, before further discounting it for its volumetric nature.[49] That 15% discount was accepted by counsel for Macarthur Central as being correct.[50]
  1. [61]
    The contentious issue is the treatment of heritage issues in the GFA rate that Mr Hart applied to the subject lot.
  1. [62]
    Mr Schultz took a very different approach to this than Mr Hart. The valuation method used by Mr Schultz is novel. He started with the LA rate of $3,000/m2, applied the rate differentially across the three levels (an approach I will return to) and then applied a 15% discount: 10% for the lack of storefront and 5% for limitations on subdivision of the lot.[51]
  1. [63]
    I have already rejected Mr Schultz’s comparable sales analysis, by reference to 451-461 Ann Street, so the rate of $3,000/m2 will be set to one side. However, the question is whether Mr Hart should have discounted his GFA rate of $2,100/m2 to account for issues of exposure and connectivity.
  1. [64]
    The question of exposure, or the lack of storefront, relates to the historic look of the building. Mr Hart agreed that there are two elements of exposure for a retail use: location and visual.[52] It has a high window sill (1.7m and 2.7m from the street).[53] Although Mr Hart accepted large shopfronts enhance visual exposure, he made no allowance for it in his GFA analysis.[54] He did not accept the high windows and limited visual exposure detracted from the value of the property as a retail space.[55]
  1. [65]
    He did accept that the market for retail in that type of building might be more limited. Retailers like Woolworths or BigW would not want that sort of shop front. However, he did not equate a limited market to limited value. He said there had been a surge of international retailers coming to the Brisbane CBD from about 2009, including the current tenant. [56]
  1. [66]
    Although he did not make a specific discount of the GFA rate for lack of shop front, he did check his rate using 3 properties chosen as relativity sites: Anzac Square Retail, Brisbane Arcade and 255 Queen Street.
  1. [67]
    Anzac Square Retail is a volumetric lot contained in a heritage listed building. Mr Hart considered it inferior to the subject lot because of its inferior location and inferior retail space. Its GLAR rate is $1,630/m2.[57]
  1. [68]
    Brisbane Arcade is a 2 storey heritage listed Victorian style arcade with basement. It is not volumetric, but has a similar GLAR to the subject lot. Mr Hart considered it had a superior location and superior retail floor space to the subject lot. Its GLAR rate is $4,911/m2.[58]
  1. [69]
    Both those properties had a larger GLAR than the subject lot, but of similar scale.
  1. [70]
    His third relativity property is 255 Queen Street. That is the adjoining shopping centre, Macarthur Central. It is a volumetric lot with a much larger GLAR: 13,089m2 compared with 1,973m2. For that reason, Mr Hart considered the GLAR rate for the subject lot would be higher than the GLAR rate for 255 Queen Street of $1,413/m2.
  1. [71]
    Mr Schultz did not accept any of those properties as comparable. However 2 of them were volumetric; 2 of them had heritage listings and all were retail properties. In undertaking his check using relativity sites, Mr Hart looked for properties with similar GLAR, the same highest and best use and which were volumetric.[59] I am satisfied that these properties were appropriate points of reference for the limited purpose of checking his valuation of the lot.
  1. [72]
    Mr Hart rejected the approach taken by Mr Schultz, using relativity properties to fix a rate and then further discounting for lack of shopfront and connection. He considered that involved a doubling up.[60]
  1. [73]
    That does seem to be the case when Mr Schutlz’s approach to 33 Queen Street is carefully examined. 33 Queen Street, the former Westpac building, is the most directly comparable building in the CBD, in terms of style and presentation. It has a corner location on the Queen Street Mall and George Street. It has generally similar architectural style and scale, with similar windows facing the Queen St Mall. The ground floor, a former banking chamber, has a similar mezzanine level. It has similar heritage restrictions.
  1. [74]
    Mr Schultz relied on the sale of this property for relativity purposes. Applying his disputed methodology of different values for different levels (to be addressed shortly), he applied a rate of $3,315/m2 for the ground floor of 33 Queen St.[61] 
  1. [75]
    Mr Schultz’s ground floor rate for the subject lot was $3,000, a rate he considered was supported by 33 Queen Street, amongst other sites he relied on for relativity purposes.
  1. [76]
    $3,000/m2 is already less than the ground floor rate for 33 Queen St. To apply a further discount to the ground floor rate for the subject lot, to account for restrictions that arise from equivalent heritage restrictions, assumes the subject lot is significantly inferior to 33 Queen Street.
  1. [77]
    Counsel for the Valuer-General submitted that view of the relative values of the two properties should be rejected for the following reasons:

The subject lot is central for high end retailing, as Mr Schultz acknowledged;[62]

The intersection of Edward Street and Queen Street acts as a drain from the Mall and receives heavy pedestrian traffic from all directions;[63]

The top end of the Mall, where 33 Queen Street is located, is exposed to lower end retailers and lighter pedestrian traffic than the subject lot;[64]

33 Queen Street has never been let for retail purposes although it has been available since 2012; the subject lot has been continuously let since it was converted to retail use.[65]

  1. [78]
    Given those distinctions arising from their locations, it is generous to assume the retail value of the ground floor area of those two buildings is equivalent. There is no warrant for applying an additional discount to Mr Hart’s GFA rate to account for the lack of storefront.
  1. [79]
    The same can be said about the 5% allowed for subdivision limitations which assume that the existing configuration, and heritage restrictions, would prevent multiple tenancies.
  1. [80]
    Mr Schultz approached this on the basis that it would be difficult to subdivide the volumetric lot because of its current configuration and heritage restrictions. The basement and mezzanine levels currently lack connection to either the street or the adjoining shopping centre.
  1. [81]
    A report from heritage architects was available to the valuers. It challenges Mr Schultz’s approach to issues of subdivision and connection. There appears to be some possibility of connecting to the first floor of the adjoining shopping centre at the rear of the mezzanine level. Further, the basement floor does not sit at the lower plane of the volumetric lot. If it were so located it could connect to the lower level of the adjoining Macarthur Central Shopping Centre. The heritage architects reported no heritage value in the basement floor. [66]
  1. [82]
    On the information available to the valuers, and not disputed during the hearing, heritage restrictions would likely not restrict connection in the way Mr Schultz has assumed. A discount for lack of connection could only be applied if that lack of connection arose from heritage restrictions. Otherwise, the existing improvements must be disregarded for valuation purposes.
  1. [83]
    In a hypothetical exercise, the Court need not regard the identity of the actual vendor of the subject lot in a hypothetical sale.[67]  Macarthur Central is the owner of both the subject lot and 255 Queen Street, the adjoining centre. It is reasonable to assume a vendor will maximise the value of their lot including, where it owns an adjoining parcel, facilitating access and connection between the properties to enhance the value of the sale lot.
  1. [84]
    Mr Hart applied a discount for heritage listing of 15% for his LA rate, which Macarthur Central accepts. His GFA rate was fixed with the heritage listing in mind and then checked against 3 properties, two of which are heritage listed. The alternative approach suggested by Mr Schultz involves a double discount for heritage issues. He would fix the rate by reference to like properties, such as 33 Queen Street, and then further discount for equivalent restrictions which should be reflected already in their value.
  1. [85]
    I am not satisfied that Mr Hart’s valuation does not reflect the constraints arising from the heritage listing.

The Volumetric Nature of the Lot

  1. [86]
    The more difficult issue is how to reflect the height restriction because of the volumetric nature of the lot.
  1. [87]
    Mr Hart substantially discounted his notional LA rate of $14,000 to $4,000, a discount of 66% applied after he had already discounted the LA rate by 15% for its heritage listing. So Mr Hart’s rate is approximately one third of the LA rate already adjusted for its heritage listing.
  1. [88]
    It is true there is no precision in that discount and it is a purely subjective adjustment.[68] It is not supported by market evidence,[69] but that is hardly surprising in the absence of market evidence of volumetric lots.
  1. [89]
    In evidence, he referred to his analysis of the GFA rate for 127 Charlotte Street as providing some basis for comparison. That building achieved a GFA of 8,839m2, while the subject lot can only achieve a GFA of just under 2,000m2. Assuming the site could achieve a property of the same density of 127 Charlotte Street, the volumetric lot can only achieve 22% of that overall GFA.[70]
  1. [90]
    That suggests a 78% discount rather than 66%. Mr Hart said the 66% discount reflects somewhat competing factors. On the one hand, the lot is restricted to the lower levels of the building. On the other hand, the lot occupies the most valuable part of the building. The difference between the 22% and 33% for those discount outcomes, then, appears to relate to Mr Hart’s view that the volumetric lot represents the best part of the building which can be rented for a higher and better use – retail.[71]
  1. [91]
    Although the discount must be treated with a degree of caution, Mr Hart’s reasoning to a 66% discount is transparent. The method he used, of discounting for a volumetric restriction, is the same method he used for discounting for a heritage restriction.[72] A method that Macarthur Central accepted for that purpose.
  1. [92]
    As well as deriving an LA rate, Mr Hart derived a GFA rate from comparable sales, which he adjusted to apply to the GLAR for the subject lot. He acknowledged the difficulty of applying an overall GFA to the GLAR of the subject lot.[73] Using 55 Elizabeth Street and 127 Charlotte Street, he arrived at approximately $1,000/m2.
  1. [93]
    In arriving at that rate, he took into account that 55 Elizabeth Street was a primarily commercial building, with a much larger total GFA. Regarding 127 Charlotte Street, he took into account this was purchased with the intention of constructing a residential building with a large GFA. In his experience, purchasers pay less on a rate per square metre if acquiring a larger GFA.[74]
  1. [94]
    Further, both buildings were in inferior locations with inferior street positions. He considered a purchaser would pay a substantially higher rate per square metre of GLAR for the subject lot because of its superior quality and substantially larger area in a prime retail location.[75]
  1. [95]
    There is a significant degree of evaluative judgment in that assessment. However, the difficulty for Macarthur Central is in demonstrating that, on the balance of probabilities, Mr Hart wrongly failed to account for the volumetric nature of the lot, either in arriving at his LA rate or his GFA rate. It sought to do so by proposing an alternative method which relied heavily on relativity sites.
  1. [96]
    Having started from a comparable sales analysis, Mr Schultz did not seek to adjust for the volumetric nature of the lot by reference to his comparable sales. Rather, he applied a formula for differential value to the LA rate he derived from his two comparable sales. Mr Schultz’s LA rate is not accepted because it is based on an incorrect analysis of 55 Elizabeth Street (his higher parameter) and on 451-461 Ann Street, which has been rejected for failing the bona fide sale test (his lower parameter). Putting that to one side, the question is whether the approach adopted by Mr Schultz demonstrates that Mr Hart’s valuation failed to account for the volumetric nature of the lot.
  1. [97]
    In valuing the lot, Mr Schultz adopted a ground floor rate. The rate he used, was the same as his LA rate based on his two sales. On the ground floor, he applied that rate at 100%. For the basement he applied it at 40%. For the mezzanine, he applied it at 70%.
  1. [98]
    He conceded his approach was novel.[76] That does not mean it should be rejected. However, given he was applying a methodology that has not been accepted or recognised by his profession, it was incumbent upon Mr Schultz to demonstrate its validity. There is force in the argument by counsel for the Valuer-General that evidence based on his formula is not strictly admissible if he cannot demonstrate that it has a proper foundation.[77]
  1. [99]
    Mr Schultz did not produce market evidence to support his formula.[78] Although he produced analyses of his relativity sites applying the formula, that merely represented his application of the formula to the sites. He did not derive the formula itself from the sites which he chose for comparison.[79]
  1. [100]
    The formula did not stand up to scrutiny when it was tested against the limited rental information available to the Court about one of his relativity sites.
  1. [101]
    Mr Hart said the relationship between rentals paid for different levels of a commercial building has a logical symmetry with the relationship between the freehold values for those levels, all other things being equal.[80] That proposition would not seem to be controversial. Counsel for the Valuer-General looked to the actual rentals achieved for one of Mr Schultz’s relativity sites: 180 Queen Street. An analysis of those rentals does not support Mr Schultz’s ratios.[81]
  1. [102]
    The lack of foundation for Mr Schultz’s formula is different to the lack of market evidence for Mr Hart’s discounts to the LA. While Mr Hart’s valuation was hampered by a lack of market evidence about volumetric sales, his method was orthodox: he applied a discount for factors which he could not quantify by reference to market evidence.
  1. [103]
    Mr Schultz’s formula provides the superficial attraction of mathematical precision, but the formula has not been verified and its application to the relativity sites obscures his reasoning.
  1. [104]
    Mr Hart took the same approach to arriving at an LA rate to account for both the heritage listing and the volumetric nature of the lot. His GFA analysis produced a consonant value, based on comparable sales, which gives some comfort that his discount of 66% was reasonable.
  1. [105]
    Macarthur Central has not established that it is more likely than not that the valuation does not reflect the physical and legal characteristics and the constraints on use of the land.

Ground 3: The valuation does not achieve or preserve uniformity of value between the assessed site value and valuations of comparable parcels of land.

  1. [106]
    Macarthur Central has mounted a case which rests heavily on sales used for relativity purposes. There are difficulties in that approach which I will now turn to.
  1. [107]
    The relativity approaches taken by Mr Hart and Mr Schultz are fundamentally at odds.
  1. [108]
    Mr Hart referred to relativity sites as a check on a valuation he had already derived from his comparable sales analysis.[82] His relativity sites share similar features to the subject lot. He used them for the limited purpose of checking the GFA rate that he derived from a comparable sales analysis.
  1. [109]
    Mr Schultz undertook a different exercise. He used the relativity properties to place the subject lot within the range set by his high and low market parameters.[83] His use of relativity sites was not to check a valuation he had already arrived at, it was a fundamental part of fixing the value. Mr Schultz purported to undertake a detailed analysis of site value in the CBD.[84]
  1. [110]
    Relativity is desirable, provided the valuations are soundly based.[85] Macarthur Central bears the onus of establishing the properties are comparable and that their valuations are correct.[86] Although many of the buildings include retail at ground or near ground levels, they are only useful as relativity sites if Mr Schultz’s methodology is used. Otherwise the buildings have a predominantly commercial use. Macarthur Central has not established the relativity sites are comparable or that their valuations are correct.

Conclusion

  1. [111]
    Valuation is a matter of estimation, not a precise mathematical calculation.[87] In the absence of a base of market evidence there is, necessarily, a high level of evaluative judgment in the valuations by both experts.
  1. [112]
    Although there is no presumption the valuation is valid, Macarthur Central must prove its case on the balance of probabilities on the grounds of appeal. Mr Hart’s valuation is hampered by a lack of comparable sales evidence, but his reasoning is transparent and his methodology is orthodox. To succeed on the appeal, Macarthur Central must establish that it is more likely than not that the valuation is incorrect, on one or more of the grounds stated in the notice of appeal.[88] It has failed to do so. Accordingly, the appeal is dismissed.

ORDER

The appeal is dismissed.

 

FY KINGHAM

PRESIDENT OF THE LAND COURT

Footnotes

[1]  Non-site improvements include buildings, Land Valuation Act 2010 ss 23 and 24.

[2] Land Valuation Act 2010, ss 17(1) and 19(1).

[3] Land Valuation Act 2010, s 18(1).

[4] Land Valuation Act 2010, s 18(2).

[5] Spencer v The Commonwealth [1907] 5 CLR 418.

[6] Stubberfield v Valuer-General [1991] 1 Qd R 278 at 283-284.

[7] Tow v Valuer-General (1978) 5 QLCR 378 at 381.

[8] Qualischefski v Valuer-General (1979) 6 QLCR 167 at 171.

[9]  T 2-84, lines 1-6.

[10]  T 2-82, lines 6-14.

[11]  T 2-82, lines 16-17.

[12]  T 2-82, lines 19-22.

[13]  T 2-82, lines 24-27.

[14]  Ex 8, pp 17-18.

[15]  Ex 7, p 14.

[16]  T 2-12, lines 2-15.

[17]  T 2-9, line 43.

[18]  T 2-11, lines 10-30.

[19] Mayne Property Development Pty Ltd v Chief Executive, Department of Natural Resources (1996-1997) 16 QLCR 709.

[20]  Ex 6, p 19.

[21]  Ex 6, p 17.

[22]  Ex 6, p 17.

[23]  T 2-4, lines 12-31 and T 2-76, lines 6-11.

[24]  Ex 7, p 13 at paras 76-78 and T 2-4, lines 44-45.

[25]  Ex 7, p 13.

[26]  Ex 7, p 13 at para 75.

[27]  Ex 11.

[28]  T 1-16, lines 20-25.

[29]  ATO submission No. 1, pp 2 and 8.

[30]  ATO submission No. 1, para 1.4.3.

[31]  ATO submission No. 1, para 1.4.4.

[32]  Put and call option deed Empire Square, 47-79 Elizabeth Street, Brisbane.

[33]  Put and call option deed Empire Square, Schedule 1 definitions of call option period and put option period.

[34]  Put and call option deed Empire Square, first page of contract annexed to the deed.

[35]  Date taken from covering letter to BCC in the planning report forming part of the application.

[36]  Letter dated 23 July 2013 from Grocon to Grant Jackson (valuer).

[37]  BCC decision notice dated 17 March 2011.

[38]  Ex 6, starting at p 107, with plans at pp 149-151 of the agreed bundle of documents.

[39]  T 1-35, lines 39-43.

[40]  Ex 7, Annexure B at p 201 of the agreed bundle of documents.

[41]  Ex 7, Annexure B at p 208-209 of the agreed bundle of documents.

[42]  Ex 7, Annexure B at p 207 of the agreed bundle of documents.

[43]  Ex 8, p 23.

[44]  Ex 8, p 22.

[45]  Ex 8, p 25.

[46]  Ex 8, pp 24-25.

[47]  The building is listed as a State heritage place in the Queensland Heritage Register maintained under the Queensland Heritage Act 1992.

[48] The Valuer-General v Queensland Club (1991) 13 QLCR 207.

[49]  Ex 8, p 24.

[50]  Appellant’s written submissions filed 30 September 2016 at [86].

[51]  Ex 6, p 20.

[52]  T 2-40, lines 26-30.

[53]  T 2-41, lines 24-33.

[54]  T 2-41, lines 16-21.

[55]  T 2-41, lines 35-36.

[56]  T2-42, lines 11-34.

[57]  Ex 8, p 32.

[58]  Ex 8, p 32.

[59]  T 2-62, lines 28-36.

[60]  T2-44, lines 1-17.

[61]  Ex 6, p 11.

[62]  T 1-23, lines 39-44.

[63]  T 2-37, lines 1-14; T 1-23, lines 28-42.

[64]  T 1-24, lines 16-46.

[65]  T 2-17, lines 36-37.

[66]  Ex 6, p 4; reference to Tanner Architects Report of August 2010 “Macarthur on Queen Adaption Study”.

[67] Bellbird Park Developments Pty Ltd v Department of Natural Resources and Water (2009) 30 QLCR 177 at 184.

[68] T 2-72, line 46.

[69]  T 2-73, lines 3-5.

[70]  T 2-73, lines 7-37.

[71]  T 2-73, lines 3-41.

[72]  T 2-75, lines 5- 41.

[73]  Ex 8, p 24.

[74]  Ex 8, p 24.

[75]  Ex 8, p 25.

[76]  T1-48, lines 1-15; T 2-2, lines 14-29.

[77] Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 at 743-744.

[78]  T 1-46 to T 1-51.

[79]  T 1-47, lines 28-40.

[80]  T 2-95, lines 25-45.

[81]  Respondent’s written submissions filed 30 September 2016 at [68]-[71].

[82]  T 2-43, lines 22-24.

[83]  T 2-3, lines 34-42.

[84]  Ex 6, p 8 at [91]–[92].

[85] Grahn v Valuer-General (1992-93) 14 QLCR 327 at 328-329.

[86] Body Corporate for “147-153 Mary Street Gympie” CTS v Valuer-General (2013) 34 QLCR 298 at 305.

[87] Federal Commissioner of Taxation v St. Helen’s Farm (ACT) Pty Ltd (1980-81) 146 CLR at 381.

[88] Land Valuation Act 2010 s 169(3); Edgarhead Pty Ltd v Valuer-General [2015] QLC 18 at [59].

Close

Editorial Notes

  • Published Case Name:

    Macarthur Central Shopping Centre Pty Ltd as TTE v Valuer-General (No. 2)

  • Shortened Case Name:

    Macarthur Central Shopping Centre Pty Ltd v Valuer-General (No. 2)

  • MNC:

    [2016] QLC 80

  • Court:

    QLC

  • Judge(s):

    Kingham P

  • Date:

    23 Dec 2016

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited

Case NameFull CitationFrequency
Bellbird Park Developments Pty Ltd v Department of Natural Resources and Water (2009) 30 QLCR 177
2 citations
Jump To
Cite 1 - (2009) 30 QLCR 177
Cite 2 - (2009) 30 QLCR 177
Edgarhead Pty Ltd v Valuer-General [2015] QLC 18
2 citations
Jump To
Cite 1 - [2015] QLC 18
Cite 2 - [2015] QLC 18
Hans and Else Grahn v Valuer General (1993) 14 QLCR 327
2 citations
Jump To
Cite 1 - (1993) 14 QLCR 327
Cite 2 - (1993) 14 QLCR 327
J.L. and I. Qualischefski v Valuer-General (1979) 6 QLCR 167
2 citations
Jump To
Cite 1 - (1979) 6 QLCR 167
Cite 2 - (1979) 6 QLCR 167
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705
1 citation
Jump To
Cite 1 - (2001) 52 NSWLR 705
Mary Street Gympie" CTS v Valuer-General (2013) 34 QLCR 298
2 citations
Jump To
Cite 1 - (2013) 34 QLCR 298
Cite 2 - (2013) 34 QLCR 298
Mayne Property Development Pty Ltd v Chief Executive, Department of Natural Resources (1997) 16 QLCR 709
2 citations
Jump To
Cite 1 - (1997) 16 QLCR 709
Cite 2 - (1997) 16 QLCR 709
NR and PT Tow v The Valuer-General Redland Shire (1978) 5 QLCR 378
2 citations
Jump To
Cite 1 - (1978) 5 QLCR 378
Cite 2 - (1978) 5 QLCR 378
Spencer v The Commonwealth (1907) 5 CLR 418
2 citations
Jump To
Cite 1 - (1907) 5 CLR 418
Cite 2 - (1907) 5 CLR 418
Stubberfield v Valuer-General [1991] 1 Qd R 278
2 citations
Jump To
Cite 1 - [1991] 1 Qd R 278
Cite 2 - [1991] 1 Qd R 278
Taxation v St Helens Farm (ACT) Pty Ltd (1981) 146 CLR 337
2 citations
Jump To
Cite 1 - (1981) 146 CLR 337
Cite 2 - (1981) 146 CLR 337
The Valuer-General v Queensland Club (1991) 13 QLCR 207
2 citations
Jump To
Cite 1 - (1991) 13 QLCR 207
Cite 2 - (1991) 13 QLCR 207

Cases Citing

Case NameFull CitationFrequency
Body Corporate for Ocean Plaza Apartments CTS 5879 v Valuer-General; Body Corporate for Points North CTS 4774 v Valuer-General (No 2) [2025] QLC 172 citations
BPI No 1 Pty Ltd v Valuer-General; BWP Management Ltd v Valuer-General [2021] QLC 21 citation
BWP Management Ltd v Valuer-General (No 2) [2018] QLC 302 citations
Desbois v Chief Executive, Department of Transport and Main Roads [2021] QLC 432 citations
Eumundi Group Hotels Pty Ltd v Valuer-General [2021] QLAC 22 citations
GPT RE Limited v Valuer-General (No 2) [2018] QLC 93 citations
Heatham Pty Ltd v Valuer-General [2017] QLC 262 citations
1

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