Brisbane Square Pty Ltd recently achieved a significant reduction to the 2013 statutory valuation of its iconic Brisbane Square property in the Brisbane CBD. The successful challenge resulted from the Court's acceptance of an argument regarding planning risk affecting the hypothetical development potential of the site, as well as the evidence led by Brisbane Square of the comparable sale of the former Queensland Supreme Court building at 304 George Street.
Clayton Utz acted for Brisbane Square in its appeal to the Land Court, successfully arguing that the Valuer-General's statutory valuation should be reduced, because of the likelihood that planning authorities would require a large portion of the site to be reserved for public use and exempt from potential development (Brisbane Square Pty Ltd v Valuer-General [2016] QLC 69).
The Brisbane Square site
Brisbane Square is a large parcel located in Brisbane city, uniquely positioned at the intersection between the Queen Street Mall, Victoria Bridge and George Street, and adjacent to the Treasury Casino.
Approximately 30% of the site is subject to a 99 year lease to the Brisbane City Council. The leased area is known as Reddacliff Place and is used for public purposes, including weekly markets, art exhibits, and a public thoroughfare for pedestrians walking through the mall, across the bridge or through George Street.
Valuing Brisbane Square: the effect of the public space
As the Court stated in the decision, "The valuation is an artificial exercise governed by the Land Valuation Act 2010 involving hypotheses about the land at the time of valuation".
In this vein, leases cannot be taken into account for statutory valuations, which value the unencumbered site. However, Brisbane Square argued that the planning provisions applying to that area of the CBD would require a hypothetical prudent purchaser intending on developing the land to dedicate a similar portion of the land as a public space, as that secured by the Council's lease. This argument was supported by expert evidence from an experienced town planner.
President Kingham found that a prudent purchaser would be advised they would have to provide a public space in developing the site, and would be expected to negotiate a meaningful discount to reflect this constraint on the highest and best use.
Bringing the constraint into the valuation
To bring the constraint to account in the valuation, she found that the burdened area reflecting the public space (which she set at 15% of the land) should be valued at 25% of the value per square metre applied to the remainder of the land, which was unburdened.
The burdened rate fixed at 25% of the unburdened value reflected the utility of the public area. A hypothetical purchaser could not develop the public area, however it would still have some utility, for example, the subterranean area could be used for a basement carpark.
The application of the burdened and unburdened rates devised by President Kingham meant that the valuation was reduced from $58.9 million to $50.7 million, a reduction of over $8 million for the landowner.
Brisbane Square was also assisted by introducing evidence of the recent sale of the adjacent and comparable site at 304 George Street. One of the difficulties in applying the hypothetical valuation process required by the Act is the absence of recent and relevant sales of comparable properties. The 304 George Street property was sold in May 2013 for $63 million and provided a suitable benchmark. A concession by the Valuer-General during the trial regarding the site value of 304 George Street being $61.5 million was important as it provided the starting point for valuing Brisbane Square at $7,793 per square metre.
Key tips for factoring constraints into land valuation
The principle of allowing a discounted rate for a "burden" or constraint on land has been applied to burdens other than a public space requirement. For example, it can apply to other legal constraints affecting the land (such heritage laws or easements), or physical attributes (such as ground quality and characteristics). These are all constraints affecting value that should be brought to account in a valuation, particularly if those burdens do not affect comparable sales properties.
In each case, the question is whether the constraint would reduce the value of the land in the eyes of the hypothetical prudent purchaser. The key to appealing on this basis is to identify the constraint and, from the outset of the appeal, form a coherent and compelling case that is supported by appropriate expert evidence.
The other key tip for landowners proceeding to an appeal is to leverage off the evidence, submissions and ultimately the Court's decision in other cases concerning CBD properties. The relativity principle in valuation means that the submissions and findings made in other appeals may be highly relevant to cases concerning similar properties.
Why valuation objections and appeals can be worth it
Litigation is clearly not a desired course for landowners, but the benefit of obtaining the Court's opinion of the impact of an inherent burden on a particular site means that the same principles can be applied in subsequent valuation years and used in negotiations with the Department. The result is that the benefit of successful litigation increases over time.
The valuation year ahead
The Department is required to issue valuation notices by 31 March each year, and will do so shortly (if the valuations have not already issued). Landowners will then have 60 days in which to lodge an objection notice.
If the valuation is upheld on objection, landowners can lodge an appeal to the Land Court.
In addition to the issue of site constraints that was recently considered in Brisbane Square, another contemporary issue is the extent to which sales involving a seller or purchaser that may not be fairly described as "willing but not anxious" should be treated as comparable sales evidence.
Clayton Utz is well placed to help landowners with complex or high value appeals. In addition to the successful Brisbane Square appeal in 2016, in January 2017 Clayton Utz also acted for the landowner of the Riverside Centre in a valuation appeal involving complex issues of engineering and valuation evidence.