Chief Minister of the Australian Capital Territory v Malcolm Mcrae; Sylvia Isobel Ruth Mcrae; Bryan John Rumble and Phyllis Amy Rumble [1992] ACTSC 96; (1992) 28 ALD 192 (Extract) (1992) 110 FLR 106 (25 September 1992)

SUPREME COURT OF THE ACT

CHIEF MINISTER FOR THE AUSTRALIAN CAPITAL TERRITORY v. MALCOLM McRAE; SYLVIA
ISOBEL RUTH McRAE; BRYAN JOHN RUMBLE and PHYLLIS AMY RUMBLE
No. SCA 69 of 1992
Valuation of Land
[1992] ACTSC 96; (1992) 28 ALD 192 (extract)
[1992] ACTSC 260; (1992) 110 FLR 106

COURT

IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Higgins J.(1)

CATCHWORDS

Valuation of land - Commercial lease - Appeal from AAT.

Valuation of land - Commercial lease - Boarding kennels for dogs and cats - Unimproved value - Method of valuation - Valuers - Assessment of market value of lease and improvements.

Administrative Appeals Tribunal Act 1989 (ACT), s.46

Australian Capital Territory Supreme Court Act 1933 (Cth)

Administrative Appeals Tribunal Act 1975 (Cth), s.44

City Area Leases Act 1936 (ACT), ss.19A, 20

Kuswardana v Minister for Immigration and Ethnic Affairs (1981) 35 ALR 186

Director-Geneal of Social Services v Hangan [1982] FCA 262; (1982) 45 ALR 23; 70 FLR 212

Blackwood Hodge (Aust) Pty Ltd v Collector of Customs (NSW) [1980] FCA 96; (1980) 47 FLR 131; 3 ALD 38

Politis v Federal Commissioner of Taxation (1988) 16 ALD 707

Federal Commissioner of Taxation v Swift (1989) 18 ALD 679

Tooheys Ltd v The Valuer-General (1925) AC 439

The Proprietors of Atihau - Wanganui v Malpas (1979) 2 NZLR 545

Minister for Home and Territories v Lazarus [1919] HCA 12; (1919) 26 CLR 159

The Commonwealth v Reeve [1949] HCA 22; (1949) 78 CLR 410

Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGRA 409

Brisbane City Council v Valuer-General (Qld) [1978] HCA 40; (1978) 140 CLR 41

Tooheys Ltd v The Valuer-General (1924) 24 SR(NSW) 154

The Commissioner of Land Tax v Nathan [1913] HCA 28; (1913) 16 CLR 654

McGeoch v The Federal Commissioner of Land Tax [1929] HCA 29; (1929) 43 CLR 277

Drysdale Bros and Co v Federal Commissioner of Land Tax [1931] HCA 28; (1931) 46 CLR 308

Peelmont Pty Ltd v Valuer-General (No. 1) (1961) 80 WN(NSW) 1545

The Commonwealth of Australia v Oldfield [1976] HCA 17; (1976) 133 CLR 612

Morrison v Federal Commissioner of Land Tax [1914] HCA 10; (1914) 17 CLR 498

Valuer-General v Fenton Nominees Pty Ltd [1982] HCA 46; (1982) 150 CLR 160

HEARING

CANBERRA
25:9:1992

Counsel for the Appellant: Mr P. Walker

Instructing solicitors: Australian Government Solicitor

Counsel for the Respondents: Mr T. Johnstone

Instructing solicitors: Messrs Snedden Hall and Gallop

ORDER

THE COURT ORDERS THAT:
1. The appeal be allowed.

2. The market value of the improvements on land formerly known as Block 3 Section 28 Fyshwick, found by the learned President of the Administrative Appeals Tribunal to be $1,000,000.00, be amended to $929,000.00.

DECISION

HIGGINS J. This is an appeal from a decision of the Australian Capital Territory Administrative Appeals Tribunal delivered on 30 January 1992 by President Todd.

2. A right of appeal is conferred by s.46 of the Administrative Appeals Tribunal Act 1989 (ACT).

3. That section provides as follows,
"46. (1) A party to a proceeding before the Tribunal

may appeal to the Supreme Court on a question of law
from any decision of the Tribunal in that proceeding.
(2) Where a person has applied to the Tribunal for a
review of a decision, or has applied to be made a party
to a proceeding for a review of a decision, and the
Tribunal decides that the interests of the person are
not affected by the decision, the person may appeal to
the Supreme Court from the decision of the Tribunal.
(3) An appeal by a person under subsection (1) or (2)
shall be instituted -
(a) not later than the 28th day after the day
on which a document setting out the terms of
the decision of the Tribunal is given to the
person or within such further time as the
Supreme Court (whether before or after the
end of that day) allows; and
(b) in such manner as is prescribed by Rules
of Court made under the Australian Capital
Territory Supreme Court Act 1933 of the
Commonwealth.
(4) The Supreme Court has jurisdiction to hear and
determine appeals instituted in that Court in
accordance with subsection (1) or (2).
(5) The Supreme Court shall hear and determine the
appeal and may make on the appeal -
(a) an order affirming or setting aside the
decision of the Tribunal;
(b) an order remitting the case to be heard
and decided again, either with or without the
hearing of further evidence, by the Tribunal
in accordance with the directions of the
Court; or
(c) such other order as the Court, in its
discretion, thinks appropriate having regard
to its decision."

4. The appeal can only be "on a question of Law". If that "question" has been decided erroneously, a decision may be made which corrects any error resulting therefrom whether that error be of law or fact. However, for the appeal to be "on" a question of law, it follows that the decision on that question must be such that, if that question was determined differently, the decision appealed from would be differently decided. The approach to and scope of the right of appeal under this Act is plainly the same as that under s.44 of the Administrative Appeals Tribunal Act 1975 (Cth).

5. It follows that, effectively, the appellant must identify an error of law upon which the decision appealed from was based (see Kuswardana v Minister for Immigration and Ethnic Affairs (1981) 35 ALR 186; 54 FLR 334; Director-Geneal of Social Services v Hangan [1982] FCA 262; (1982) 45 ALR 23; 70 FLR 212). The Court must be careful to avoid elevating a disputed finding of fact into a question of law (see Blackwood Hodge (Aust) Pty Ltd v Collector of Customs (NSW) [1980] FCA 96; (1980) 47 FLR 131; 3 ALD 38; Politis v Federal Commissioner of Taxation (1988) 16 ALD 707; Federal Commissioner of Taxation v Swift (1989) 18 ALD 679).

6. In the present case, the basic facts were not in dispute. The Commonwealth had granted a lease, pursuant to the City Area Leases Act 1936 (ACT) ("CALA"), for a term of 25 years over land known as Block 3 Section 28 Division of Fyshwick in the Territory. It commenced 1 October 1964.

7. The lease purpose clause limited the use of the land to boarding kennels for dogs, accommodation for cats and other small domestic animals and for one residential unit. Improvements were erected on the land suitable for those purposes. A business known as "Aarondale Pets Motel" was conducted from the premises.

8. The respondents purchased the lease on 21 June 1972. The President has detailed subsequent negotiations between the relevant Minister and the respondents anent the expiration of the lease. It suffices to note that it was determined that, on the expiration of the lease on 30 September 1989, the lessees would not be granted a further lease of the land. The lessees declined to accept a further lease of part of the land.

9. Section 19A (CALA) then imposed on the Commonwealth a liability,

"... to pay to the lessee -
(i)... the value of the improvements on the land;"
The term "improvements",
"... includes buildings and erections but does not
include improvements effected at the cost of the
Commonwealth unless the Commonwealth has received or is
entitled to receive payments for the improvements."

10. Section 20 (CALA) provides a method for ascertaining the "market value of the improvements", for the purposes of s.19A. Section 19A does not expressly refer to "market value". It refers only to "value". It must be concluded, however, that the term "value" in s.19A is to be taken as meaning "market value". The time at which that value is to be determined is "the prescribed date". That date is defined as the date of expiry of the lease in question.

11. In issue on this appeal, and before the Tribunal, is the method of calculation of value. The actual calculations themselves are, of course, merely questions of expert opinion, not questions of law.

12. So far as method is concerned, the following provisions are relevant,

s.20(3) (CALA),
"Where the compensation is payable by virtue of
sub-section 19A(2), the Minister shall, in valuing the
improvements, assume that the lease of land had been
renewed subject to the same covenants and conditions,
and for the same term, as the lease the term of which
had expired."

The term "market value" is also defined, stipulatively, as,

"... the amount by which the improvements increase the
value of the lease of the land, assuming that the
lease, together with the improvements, were offered for
sale at a bona fide sale on the day immediately before
the prescribed date on such reasonable terms and
conditions as a bona fide seller would require;"

13. The Minister eventually valued the improvements, for the purposes of s.20, at $350,000.00.

14. There was, initially, expert valuation advice from an independent quantity surveyor, Mr M J Dodds. That advice was that the value of the improvements was $300,000.00. The Minister made a decision, by a delegate, reflecting that advice.

15. The respondents requested a review of that decision. On 6 April 1990, they presented a valuation report which expressed the opinion that the value of the improvements was $1,000,000.00.

16. The Minister, the present appellant, was not persuaded. However, her delegate determined that $350,000.00 was the appropriate value. The $50,000.00 increase seems to have reflected some slight spirit of compromise. That determination was the subject of the appeal to the AAT.

17. Before the learned President, each side called a valuer and a quantity surveyor. Each was examined and cross-examined extensively.

18. The President referred, in his Reasons for Decision, to the explanatory Memorandum issued when the present legislative provisions were enacted.

19. As to methodology, that Memorandum had stated,

"The improvements could thus be valued on the basis of
depreciated replacement cost or on the basis of the sum
which represents the value which the improvements add
to the market value of the lease. The proposed
Ordinances (now to be cited as "Acts") seek to make it
clear that compensation will be assessed on the latter
basis ..."

20. As the learned President noted,

"15. The Government valuer, Mr D N Parkes,
nevertheless approached the matter, and appears to have
done so on instructions, on the basis of the
depreciated cost of the improvements."

21. The valuer engaged by the respondents, however, adopted a method whereby he first assessed the market value of the lease and improvements as if renewed on the previous terms and then deducted therefrom the value of the lease without the improvements. The difference, in his opinion, yielded the market value of the improvements.

22. The appellant, whilst admitting that a simple valuation of the depreciated cost of improvements was impermissible, contended, nevertheless, that the depreciated replacement cost of the improvements could be used to calculate the "improvements" component of the total market value.

23. It is not, it should be noted, sought to challenge the figure accepted as being the market value of the lease with improvements as a going concern as at the prescribed date.

24. The "added value" arising from improvements cannot be seen as equating with the depreciated replacement costs. Land may be "under-capitalised" or "over-capitalised" by the addition of "improvements".

25. Mr Walker, for the appellant, did not dispute that. However, he did submit that, effectively, there were three elements of the valuation,

. The unimproved value of the land;
. The entrepreneurial value of the land and improvements;
. The value added by the improvements per se.

26. An element of the third component would be the depreciated value of the improvements accompanied by an expert opinion as to whether that depreciated value would be over or under that value in the circumstances.

27. This suggested method, unless required by the legislation, certainly does not seem to accord with previous decisions concerning valuation of improvements on, or of unimproved values of, land.

28. In Tooheys Ltd v The Valuer-General (1925) AC 439 the Privy Council affirmed that unimproved value of land could not be ascertained by reference to incorporeal rights attaching because of the improvements. In that case it was a liquor licence. Of course, without the land and its geographic location, the improvements would not have been licensed. The enhanced value by reference to the suitability for and grant of the licence, attracted by the improvements, was, however, not something that increased the unimproved value of the land.

29. In the present case, the fact that improvements on this land were used for entrepreneurial purposes would not have been relevant to assess the "unimproved value of the land".

30. The further question, however, is not one that decision answers. That is, whether if, in the previous case, the valuation had been of the improvements only it would have been permissible to ignore the abstract or incorporeal advantages attaching to the physical improvements, such as a liquor licence or the goodwill of the business being conducted on the site.

31. Certainly, Cooke and McMullin JJ. in The Proprietors of Atihau - Wanganui v Malpas (1979) 2 NZLR 545 addressed that issue. I refer to the passage cited by the learned President at p 6 of his Reasons for Decision.

32. Their Honours state, quite unequivocally, that the value of improvements is to be ascertained by deducting the unimproved value from the capital value. That decision was based, in part, on the impracticability of valuing improvements as if they were separated from the land to which they are attached or of which they form part.

33. However, even if that methodology was, in principle, correct, Mr Walker contended that the "profit" element in the deemed sale price should have been attributed to the terms of the lease not to the improvements made to the land. The lease contained a restricted purpose clause. However, whilst that might seem to depress value, it was but one of a number of leases granted in the Territory. Few of those, and none in the immediate area, unless altered, would have permitted the kind of business conducted on the land by the respondents. In other words, there was at least a qualified monopoly attaching to the land for the duration of the lease by reason of its terms and those of other geographically proximate leases.

34. Thus, it was submitted, at least some of the "profit" element should attach to the lease and not to the improvements.

35. Reference was made, in support of that contention to Minister for Home and Territories v Lazarus [1919] HCA 12; (1919) 26 CLR 159.

36. That case involved land held by the defendant in fee simple at Hall in the then Federal Capital Territory. The land was used by the defendant for the purpose of a licensed establishment. Different dates applied for assessment of compensation depending on whether it was the unimproved value of the land or the defendant's interest in the improvements which was being assessed. The Minister contended that the value of the business should have been included in the unimproved value of the land (that is, as at 8/10/08 rather than 23/3/16).

37. Barton J reasoned as follows,

(164) "The goodwill of a business is not necessarily
destroyed if the buildings in which it is carried on
are destroyed (say) by fire or tempest. There will be
a certain loss of trade through the destruction; but
if the business at the place is attractive to customers
whose resort to it has given the owner a business
connection in respect of it, the goodwill continues to
have a saleable value, so that, if the owner sold the
bare land the next day, any purchaser would give more
for it by reason of the attractiveness and connection
mentioned."

38. Isaacs and Rich JJ. noted that it was just, in acquisition cases, to exclude any alteration in value brought about by the existence of a proposal to acquire the land in question for public purposes.

39. Their Honours also had to consider the concept of "unimproved" value. For that purpose, they said,

(166) "The land is supposed to be cleared of all
existing improvements, and its value to the owner in
its imaginary bare state is estimated as at the
appropriate date, all other conditions remaining."

40. It was considered that "goodwill", so far as it was "local" should be regarded as part of the unimproved value.

(167) "Although the unimproved value of the land
assumes the absence of the improvements, it does not
obliterate the fact that the business has been carried
on there, and can be carried on there as soon as a
suitable building is erected, and that a licence exists
permitting that business on that land. These
circumstances would be taken into account by a prudent
buyer of the land, and he would consider how much of
the goodwill was local and how much personal, and the
value of the land would be enhanced by the value
attached to the local goodwill."

41. That concept underlies the basis for a "betterment tax", an impost levied when the purposes clause of a lease is widened to permit additional uses of the leased land.

42. The Commonwealth v Reeve [1949] HCA 22; (1949) 78 CLR 410 involved the acquisition of a building, in which a coffee lounge was conducted by the respondents in one room of it.

43. Latham C.J. rejected a contention that the actual profit being derived by the respondents determined the compensation payable.

(417) "But the amount payable by the Commonwealth
would not vary with the amount of profit which the
person using the room actually happened to make and
would not depend upon the amount of possible profit
which any person could make, except insofar (if at all)
as the possibility of making such a profit affected the
value of the tenancy."

44. However, the question was the value of the interest acquired. It was unnecessary in that case to distinguish between the unimproved value of the land and the value of the improvements. The value of the land, the entire package including improvements, his Honour said,

(419) "... is determined by what a willing though not
anxious seller is prepared to take and a willing but
not anxious buyer is prepared to give. Any buyer of
land would consider, in determining what price he was
prepared to pay, the actual state and condition of the
land.

45. An example was then given of land used and developed for use as farming land but suitable for subdivision and use for building residences. That suitability might add to the price the hypothetical buyer would have to pay, even if that buyer only intended farming use, by reason of the need to outbid the potential building developers.

46. The application of such considerations is very much a matter of opinion.

47. As Williams J noted,

(437) "... it would not be proper for this Court ...
to substitute its own opinion for that of the court (or
tribunal) below unless it were satisfied that the court
below acted on some wrong principle of law, or that the
value was clearly erroneous."

48. This was not a proposition Mr Walker disputed. Of course, if there was an error of principle, a question of law warranting intervention would arise. In that respect, I respectfully concur with the opinion expressed by Hope J.A. in Leichhardt Municipal Council v Seatainer Terminals Pty Ltd (1981) 48 LGRA 409, 434, to which Mr Walker directed me.

"... There would be an error of law if the learned
judge, in making his findings, ignored a principle of
assessment or rejected as wholly irrelevant, for
grounds which were not rational, a matter which prima
facie afforded some evidence of value."

49. Gibbs J, in Brisbane City Council v Valuer-General (Qld) [1978] HCA 40; (1978) 140 CLR 41, 49-50 enunciated a similar principle,

"Of course, if the Land Appeal Court erred in principle
in arriving at its valuation, that would constitute an
error of law."

50. I turn, therefore, to the question whether any error of principle has occurred relevant to the conclusion to which the Tribunal came.

51. The primary matter is whether the goodwill or entrepreneurial value contributing to the hypothetical market price should be excluded from the sum attributable to the "value of the improvements".

52. There is difficulty in determining whether a current use, which adds goodwill or profit-making potential thereof to the overall value of the lease of the land, should be ascribed to the physical improvements or the unimproved value of the land. That difficulty is illustrated by Tooheys Ltd v The Valuer-General (1924) 24 SR(NSW) 154.

53. The question in that case also involved the value of licensed premises. It was accepted that the market value was pounds 24,100. Without the liquor licence attached to the premises, the value would have been only pounds 13,560. The buildings were purpose built for a hotel. They were valued at pounds 10,840 if available to be so used and at only pounds 6,000 if not able to be used for that purpose. The respondent had assessed the unimproved value at pounds 13,260. The Land and Valuation Court upheld that conclusion.

54. The Chief Justice considered that the unimproved value should be arrived at by deducting the value of the buildings from the total market value. Ferguson J agreed citing The Commissioner of Land Tax v Nathan [1913] HCA 28; (1913) 16 CLR 654 and Minister for Home and Territories v Lazarus (supra) as binding.

55. However, there was an appeal to the Privy Council ((1924) 25 SR(NSW) 75). The section defining unimproved value was, it may be noted, little different in effect from the provisions in contemplation in this case.

56. Lord Dunedin referred to the valuer's task in the following terms,

(76-7) "Now what he has to consider is what the land
would fetch as at the date of the valuation if the
improvements made had not been made. Words would
scarcely be clearer to show that the improvements were
to be left entirely out of view. They are to be taken
not only as non-existent, but as if they had never
existed. It is, therefore, to approach the question
from a completely wrong point of view to begin with a
valuation which takes in the improvements and then
proceed by means of subtraction of a sum arrived at by
an independent valuation in order to find the required
figure."

57. The land is not, of course, to be viewed as "prairie land". Their Lordships accepted that the market value comprised three elements. Lord Dunedin described these as,

(77) "... first the bare lands itself; second, the
buildings themselves conducted for and appropriate for
licensed premises; third, the enhanced value due to
the fact that the land and buildings in question are
not only suitable for licensed premises but are in fact
licensed premises."

58. In their Lordships' opinion it would have been absurd to regard the third ingredient, dependent as it was on the presence of suitable buildings, as part of the unimproved value. The conclusion was stated thus,

(78) "Their Lordships will, therefore, humbly advise
his Majesty that the appeal should be allowed and the
case remitted to the Supreme Court to direct the Valuer
to make a valuation of the land itself as it at present
stands with such advantages as it at present possesses,
and viewed as bare land without any buildings upon it,
and without any consideration of the value of the
subject as including de facto licensed premises."

59. This decision was followed by the High Court in McGeoch v The Federal Commissioner of Land Tax [1929] HCA 29; (1929) 43 CLR 277. It was held that the eradication, destruction and removal of prickly pear was an "improvement". Consequently, the unimproved value was to be ascertained as if that had not been done. Isaacs J dissented.

60. The majority regarded "unimproved value of land" as,

(290) "... The value at the relevant date of the land
in its natural state as for the time being affected by
extrinsic circumstances of every kind ... but not by
what has been done to it or upon it in the shape of
improvements of any kind effected by the operations of
successive owners the benefit of which continues as a
factor in the then present value of the land."

61. Isaacs J did not consider that the clearing of land or the removal of detriments was as "an improvement". Toohey's case, in his Honour's opinion, did not require such a result. His Honour agreed, however, that to value the land plus improvements and then subtract the value of the improvements was in no case permissible (see p 294). His Honour pointed out that, for example, the antecedent draining of swampland before subdivision for sale was not, in Toohey's case, regarded as an "improvement" of the subdivided portion. That "improvement" was to the area in which the subdivided land was located, not merely to the lot in question.

62. That principle was accepted in Drysdale Bros and Co v Federal Commissioner of Land Tax [1931] HCA 28; (1931) 46 CLR 308. Lands were "assigned" to a particular sugar mill. It was argued that the "assignment" should be regarded as an "improvement". In effect, the assignment meant that the lands could be used for growing cane with an assured market. Lands not so assigned had no such advantage. Had the benefit accrued from a particular licence or covenant annexed to the land it would have been an improvement. The indirect benefit from "assignment" was not (per Gavan Duffy C.J. and Starke J).

63. Referring to Toohey's case, Evatt J explained that decision in the following terms,

(321) "... The Judicial Committee regarded a
publican's licence to sell liquor upon certain licensed
premises in New South Wales, as necessarily associated
with those licensed premises. It followed that to
assume that the improvements (that is, the licensed
premises) "had not been made" necessarily resulted in
the assumed disappearance of the licence as well."

64. However, the same could not be said of the "assignment". That was "closely analogous to an enhancement arising from better transport and a better market" (324) and hence, part of the unimproved value.

65. In Peelmont Pty Ltd v Valuer-General (No. 1) (1961) 80 WN(NSW) 1545, a question arose as to whether the acquisition by the owner of provisional approval of a licence to use the land in question as a drive-in theatre enhanced the unimproved value. Sugerman J, applying Toohey's case, held that if the licence would, if granted, have to be disregarded in assessing unimproved value, preliminary steps taken towards that end should similarly be ignored. However, his Honour did say,

(1548) "This is not to suggest that the history of the
land, including the existence of the improvements and
the licence, is not to be regarded for such bearing as
it may have on the suitability, or the special
adaptability (as the case may be in particular
instances), of land for some particular purpose - in
the present case, as the site of a drive-in theatre."

66. An analogous case arose in the matter of The Commonwealth of Australia v Oldfield [1976] HCA 17; (1976) 133 CLR 612. A lease of agricultural land was terminated by the lessor. Questions arose whether timber clearing, pasture improvements and shade and shelter plantings were "improvements on or effected ... to" the subject land the value of which was to be paid to the lessee by the lessor pursuant to the terms of the lease. An arbitrator determined those questions favourably to the lessee. An application to this Court challenging that award was heard by a court of three judges (Fox, Blackburn and Connor JJ.). Their Honours dismissed that application.

67. By majority, (McTiernan J dissenting in part) an appeal to the High Court was dismissed. The leading judgment was that of Jacobs J. His Honour concluded that the meaning of the term "improvements" in the lease should be given the same connotation as in Toohey's case and the various authorities construing various rating statutes adverting to that concept. His Honour said,

(619) "It appears to me that the considerations which
led the Court in these cases to give the word
"improvements" a meaning which would include what is
done in improvement of quality of the soil and thereby
the usefulness of the land apply as much to the words
of this lease as to the words of that statute."

68. Thus any human operation on the land which enhances its value after the land has ceased to be Crown land would be included in the usual sense of the term "improvements". His Honour cited, with approval in that respect, the words of Griffith C.J. in Morrison v Federal Commissioner of Land Tax [1914] HCA 10; (1914) 17 CLR 498, 503 to the same effect.

69. More recently, in Valuer-General v Fenton Nominees Pty Ltd [1982] HCA 46; (1982) 150 CLR 160, a question arose as to the "unimproved" value of a parcel of land, being a supermarket site, created from the consolidation of a number of separate parcels of land acquired for commercial redevelopment. The "comparable sales" used for valuation purposes had been of lots on which improvements had existed but which were demolished after acquisition to enable commercial redevelopment. The appellant argued that the cost of demolition and earthworks to clear previous improvements should not be regarded as "improvements" but as part of the unimproved value.

70. The Court noted,

(165) "It is well settled that in establishing what
that capital amount (that is, the unimproved value of
the site) might be it is necessary to inquire what the
hypothetical purchaser would pay for the land in a
notional condition shorn of its improvements and that
it is not permissible to arrive at the figure by
identifying the value of the site in its improved state
and then subtracting the value of the improvements."

71. Toohey's case, their Honours held, did not preclude a conclusion that the cost of demolition of unwanted pre-existing improvements formed part of the price of the acquisition of an unimproved site. Such cost was part of the "unimproved value".

72. In the present case, in my opinion, the authorities clearly establish that "goodwill" attaching to the site as a result of the use of the physical improvements to it would have to be regarded as a necessary adjunct to the carrying out of those improvements. However, the fact that the land was leased as a site both physically and legally capable of being used for the purpose stated in the lease is a part of its unimproved value. That accords, in my opinion, with the intention behind and the wording of ss.19A and 20 (CALA).

73. The report of Mr Parkes was rightly rejected, therefore, on the grounds that the method of valuation used by him did not accord with the requirements of ss.19A and 20 (CALA).

74. Of course, the mere fact that Mr Parkes approached the task in question in an incorrect manner does not mean that Mr Wilkinson was correct in his methodology.

75. The learned President considered that Mr Wilkinson's methodology was correct. The latter adopted various alternatives. Nevertheless, the essence of it was found by the learned President to be as follows:-

(5) "17. Mr Wilkinson's approach as set out in his
report and supported by him in his oral evidence was to
deduct from his assessment of the market value of the
property, namely $1,062,000 ... the value of the Crown
Lease ..."

76. That is the methodology endorsed by the authorities to assess the value of "improvements". Mr Wilkinson assessed the Lease Value for the land unimproved at $133,000.00. Thus $929,000.00 was the residual value added to the lease by the improvements. However, he then offered the opinion that the value so arrived at should be further increased by reference to the general benefit to commercial lessees generally of s.20(3) (CALA).

77. That provision, Mr Wilkinson believed, increased the overall value of the lease by approximately $71,000.00 compared with what it would have been had the provision not

78. been made. He added that to the value of the "improvements" to arrive at the value thereof of $1,000,000.00. That provision is, however, a general circumstance affecting all commercial leases in the Territory. Whilst the quantum of the increase in value resulting from it is a matter of expert opinion, the legal categorisation of that increase as attaching to the improved or unimproved value of the land is a question of law.

79. In my opinion, it would be inconsistent with Drysdale Bros and Co v Federal Commissioner of Land Tax (supra) to regard a general provision such as s.20(3), incorporating reference to provisions rendering commercial leases generally more valuable, as enhancing the value of the "improvements". It enhances the "unimproved" value. It follows that the value of the improvements, calculated pursuant to the terms of CALA, while substantially that awarded by the learned President, should be reduced to $929,000.00.

80. It was also objected that the value, if any, to be attributed to the "purposes" clause of the Crown Lease should be regarded as part of the "unimproved" value of the land. I agree with that submission. However, Mr Wilkinson addressed the lease value question to determine what sum a prudent hypothetical purchaser would, at the relevant date, pay for the lease, shorn of improvements but containing the particular terms which it did. His only error of principle was to assign an improvement in the legislative framework concerning such leases to the value of "improvements".

81. He then proceeded by assuming that development of the kind actually in place would have been proposed by the hypothetical developer. The construction costs and promotional costs he identified at $747,900.00. The lease premium plus acquisition costs and interest thereon he valued at $175,578.00. The sum to be paid for the lease itself, he regarded as $133,000.00. I can detect no error in the method of reasoning and it is not appropriate for me to question the figures used by Mr Wilkinson and accepted by the learned President. It is clear that Mr Wilkinson had regard to the terms of the lease in considering what a purchaser would pay for it, subject only to the further "premium" he added at the conclusion of his reasoning to which I have already referred.

82. There was a further submission that it would be incorrect to compensate the respondents for the value of the lease to them as opposed to the hypothetical buyer. That is a correct proposition. It accords with the approach of the High Court as expressed in Valuer-General v Fenton Nominees Pty Ltd (supra). However, I cannot detect, either in Mr Wilkinson's report or his oral evidence, such an error. This ground of appeal cannot be sustained.

83. Insofar as the appellant's objection rested on a view that the unimproved value to be used to calculate the value of improvements is "the notional or full fee simple of the lease", I do not understand how that can exceed the price the hypothetical buyer would pay on the prescribed date for a lease on the same terms and in the same physical, legislative and administrative context as that of which the respondents were proprietors of the same site, albeit shorn of physical improvements. In the references given by Mr Walker, it seems to me Mr Wilkinson was referring to benefits conferred, at the prescribed date, not existing when the lease was first granted, which, though the terms of the lease remained nominally the same, added to its value to the Crown lessee, and which would also enhance the price a prudent purchaser would be prepared to pay.

84. It follows that the suggested error has not occurred.

85. Mr Walker also submitted that the varying conditions that had occurred during the term of the lease affecting its value, including changes in legislation and government policy, should be ignored. I have already expressed the view that those considerations are relevant. Their effect, however, is to enhance the unimproved value of the land as notionally leased to the respondents on the prescribed date. It is only by rejecting the appellant's submission on this issue that the appellant has the measure of success to which, I have concluded, it is entitled as a matter of law.

86. The next submission was that the Tribunal erred in rejecting Mr Parkes' method of valuation entirely. It was pointed out that Mr Wilkinson had also assessed the replacement cost (less depreciation) of the physical works performed on the subject land.

87. However, what the learned President rejected was not that assessment per se but the assumption that the deduction of the sum so found from the market value of the lease of the land as approved would produce only the unimproved value. Even so, there was a wide discrepancy. Mr Parkes allowed $350,000.00, Mr Wilkinson $738,000.00. The President preferred Mr Wilkinson's calculations in their entirety. He was entitled to do that. As to methodology, however, it is obvious that the calculation method of Mr Parkes was incapable in this case of producing the right answer. That is not to say that the depreciated costs of work done on or to the land is irrelevant. It may in some cases be the only "known" factor. However, it is clear that "value of improvements" is not the same, save by coincidence or in rare cases, as depreciated replacement cost of works done.

88. I do not believe the Tribunal rejected the depreciated replacement cost method of valuation as irrelevant. It could not have done so without disregarding part of Mr Wilkinson's valuation. Even had it done so, however, I am satisfied it could not have affected the conclusion to which the Tribunal came. It certainly does not affect the conclusion to which I have come.

89. It follows that the appeal will be allowed. In lieu of the sum found by the learned President of the AAT to be the market value of the improvements on land formerly known as Block 3 Section 28 Fyshwick, namely $1,000,000.00, I substitute $929,000.00.

90. I will hear the parties as to costs.