Valuation Objections and Determining Improvements

On 19 December 2008, the Queensland Land Appeal Court upheld an appeal against the $90million unimproved land value assessment of the Department of Natural Resources and Mines and found the correct value to be $47.49 million.

The decision of Kent Street Pty Ltd & Ors v Department of Natural Resources and Mines is of particular interest to commercial property holders as it was the first case to be decided in the Queensland Land Appeal Court after amendments were made to the Valuations of Land Act in March 2008. 

The case concerned the unimproved land value for the Pacific Fair Shopping Centre (at Broadbeach on the Gold Coast) as assessed by the Department of Natural Resources and Water in October 2002.

The critical issue in the case was the meaning of 'unimproved value' following the amendments to section 3 of the Valuations of Land Act a brief outline of which is are as follows:

• Section 3(2A) states that the unimproved value in relation to improved land is limited to the notional removal of the improvements at the time of the valuation;
• Section 3(2B) holds that the unimproved value of land includes an increase in the value of land as a result of a local planning instrument or a development approval; and
• Section 3(2C) states that the meaning of unimproved value does not require an assumption that the improvements have never been made.

In relation to improved land, the unimproved value is assessed on the assumption that improvements do not exist at the time of the valuation.

The owners of the land and the managers of the shopping centre alleged that in determining the unimproved value, any leases must be assumed to not exist. They also alleged that it would be wrong for the valuer to assume, despite the successful trading history of the shopping centre, that any improvements on the land would be capable of being replaced immediately after that date free of any business risk.  

The Department argued that the assessment of the unimproved value in relation to improved land is to include material elements of what would ordinarily be part of the goodwill of the business on the land.  

The Court ruled that in determining the unimproved value, any leases must be ignored. It was also decided that knowledge of past trading history would not have an affect on the unimproved value of the land. The unimproved value of the land being $47,490,000 was derived by deducting from the site improved value ($73,590,000) and the value of development approvals ($3,900,000) the value of the site works ($30,000,000).

It should be noted that the Department of Natural Resources and Mines has lodged an appeal against this decision which is due to be heard within the next 6 months.

The outcome of this appeal and the principles used to guide the assessment of unimproved value will be important to all commercial property holders in terms of future liabilities for tax and other associated issues.