Whether Occupancies at the Port Were Stand-Alone Parcels Or Formed Part of a 'Larger Property'

Valuer-General Victoria Practice note

Whether occupancies at the port were stand-alone parcels or formed part of a 'larger property' and valued accordingly – s 2(3) Valuation of Land Act 1960. Whether reclamation works are 'works relating to a port' – 2(2AA) Valuation of Land Act 1960 Summary

The Supreme Court decision in Port of Melbourne Corporation v Melbourne City Council & Valuer General Victoria provides a helpful guide to the key principles that apply to the valuation of ports in Victoria for the purposes of the Valuation of Land Act 1960. Purpose

This practice note is designed to inform valuers undertaking valuations for rating and valuation authorities [in accordance with the Valuation of Land Act 1960 (the Act)] of the Supreme Court decision Port of Melbourne Corporation v Melbourne City Council & Valuer General Victoria [2015] VSC 714. The practice note is intended to be a guide only and does not constitute legal advice. Nature of the application

The Port of Melbourne Corporation (PoMC) challenged the site value (SV) assessment of the Port of Melbourne land (the Port) returned by City of Melbourne (CoM), as at 1 January 2012. The PoMC manages a total of 530 hectares over four municipalities – Melbourne, Maribyrnong, Hobsons Bay and Port Phillip City Councils. Approximately 431 hectares is within the CoM. With the exception of two parcels of Crown land, the Port of Melbourne land is held in 36 titles. At the relevant date, most of the Port was tenanted. The tenancies were mostly on ground leases with the berths and wharfs generally on licences. Each of the parties applied the Act differently when valuing the Port and contended for a different SV. The court requested the valuers prepare a joint statement and confer on the various valuation scenarios. The SV agreed between the valuers, based on each party's application of the Act, was as follows: PoMC approach resulted in an agreed SV of $150,500,000. CoM approach resulted in an agreed SV of $655,000,000. VGV approach resulted in an agreed SV of $650,000,000.

www.delwp.vic.gov.au Main issues

The court considered two questions that raise a number of the fundamental principles relevant to land valuation law: (a) Is the Port (or any part or parts of it) a ‘larger property’ of which the individual occupancies form a part for the purposes of s 2(3) of the Act, such that the determination of the SV of each occupancy involves an apportionment based on the site value of the larger property? In the alternative, does s 13DC(9) require an apportionment? (b) What works and materials on the subject land are ‘improvements’ to be disregarded when assessing SV? In particular, do reclamation or filling works carried out by PoMC or its predecessors fall within the definition of ‘improvements’ in s 2(2AA) of the Act? The court held

Her Honour Justice Emerton considered a number of the fundamental legal principles relevant to land valuation law. For the purpose of this note, we briefly mention the foremost legal principles considered by the court. Application of s 2(3) of the Act – the Port is a ‘larger property’ for the purposes of the Act

The CoM and VGV (the defendants) contended that s 13DC(1) directs a valuation be undertaken on occupancy. If occupancies can be described separately (that is, an exclusive occupancy with a defined land area), then they must be valued separately on the basis of a hypothetical estate in fee simple and s 2(3) of the Act does not apply. It was the defendants' position that s 2(3) is to be applied only when necessary; that is, when the site value of an occupancy cannot be established on the basis of a stand-alone valuation because the occupancy is integrated or ‘inseparably interdependent’. The court found that s 13DC(1) does not direct a valuer on what or how to value land and does not call for the stand-alone valuation of occupancies. Section 13DC(1), while confirming that each separate occupancy on rateable land is to be computed at the specified values, does not say how that computation is to be carried out. It says nothing about the methodology to be used, which is left to provisions such as ss 2(2) – (10), s 5A and ss 13DC(6) – (9).1 The court confirmed that the application of s 2(3) calls for a factual inquiry into whether the occupancies form part of a larger property. In my view, because of its control over land use, roads, railways, services and waterways, PoMC’s management and development of the port was critical to the day to day operations of the port users and to the actual use that could be made by the tenants of the port of Melbourne land and waters.2

1 Port of Melbourne Corporation v Melbourne City Council & Valuer General Victoria [2015] VSC 714 at [149]. 2 Ibid at [174]. Port of Melbourne Corp v Melbourne City Council & Valuer-General Victoria [2015] VSC714 3

The court was persuaded by the following factors:

The court determined that treating separate occupancies as separate valuations did not appropriately capture the configuration and significance of the control of the Port, resulting in an outcome that was unsatisfactory. Applying s 2(3) resulted in a fairer outcome that allowed all relevant valuation considerations to be taken into account. Furthermore, the port of Melbourne land was a ‘larger property’ of which the occupancies formed a part for the purposes of the Act because the highest and best use of the land was as a port. 3 The concept of a larger property was explored by evidence comparing the Port to a shopping centre like Chadstone. It was accepted by the court that the facts and considerations regarding the use, operation and management of a shopping centre were not dissimilar to those of the Port.

3 Ibid at [178]. The defendants also referred to s 13DC(7A) of the Act which provides that if a portion of a parcel of land on which a building is erected is occupied separately from other land in the parcel, that portion must be regarded as forming a separate rateable property. The defendants suggested that this provision might limit the operation of s 2(3) of the Act. However, the court concluded that: There is no reason why a ‘separate rateable property’ cannot form part of a ‘larger property’. 4 The court did not find it necessary to consider the impact of s 13DC(9) of the Act, in light of its conclusion that that the Port was a larger property for the purposes of s 2(3). Given the court accepted the valuation approach contended for by PoMC, the valuers agreed SV of $150,500,000 was adopted for the purposes of the further apportionment exercise undertaken by the valuers pursuant to s 2(3) of the Act. The judgment does not contain the rationale underpinning the $150,500,000 figure and does not set out the resulting apportionment. Application of s 2(2AA) – Port improvements

Section 2 (2AA) of the Act provides that works relating to a port (being buildings, breakwaters, berths, wharfs, aprons, canals or associated works) are to be regarded as improvements, irrespective of who carried out those works. The provision was intended to remove the anomaly between the treatment of Crown improvements, and owner or occupier improvements. As a result of s 2(2AA), certain works made by the Crown or a statutory public body are to be treated as an ‘improvement’ and disregarded when assessing the site value of land. The defendants contended that not all port related work was intended to be an 'improvement' for the purposes of the Act. They adopted a narrower definition of 'works relating to a port’ and asserted that the provision was intended to apply only in respect of the works specifically referred to under s 2(2AA), rather than to a wider class of general works relating to a port. The court rejected the narrow view. The court, having considered the works undertaken over time at the Port and the holistic development governing port operations, held that the legislature would not have intended to ignore the reality of a commercial operating containerised port. The court recognised all works, including reclamation works and filling, as falling within the ambit of s 2(2AA) of the Act. The uses permitted on the port of Melbourne land at the relevant date were required by land use controls to be port-related uses. It is therefore appropriate, in my view, to recognise works on the port of Melbourne land, including reclamation works, as works satisfying the description ‘works relating to a port’. 5 There was a dispute between the parties as to the meaning of 'apron'. The PoMC contended that the word 'apron' encompassed all hardstand or potential hardstand areas of land within the Port and 'associated works' included reclamation and filling. The defendants contended that the word 'apron' referred to a confined area, being the hard-surfaced area of the structure alongside a waterway to which ships load and unload. The court found that all hardstand areas and associated reclamation works were 'works relating to a port' for the purposes of s 2(2AA). I am satisfied from the evidence concerning the planning and development of the port that the reclamation works were carried out in anticipation of the reclaimed land being used for the construction or extension of berths, wharfs, aprons and buildings.6

4 Ibid at [110]. 5 Ibid at [249]. 6 Ibid at [317]. Port of Melbourne Corp v Melbourne City Council & Valuer-General Victoria [2015] VSC714 5

The court concluded that: …the reclamation works carried out on the subject land between 1877 and the relevant date were improvements for the purposes of s 2(2AA).7 Relevant principals for valuations under the Act

VGV considers that the decision is relevant when considering the valuation of ports in Victoria. The decision confirms the fundamental requirement to consider the full provisions in the Act and apply them to the particular facts at hand. By and large, most valuations throughout Victoria are considered unaffected by this decision. The starting point and s 13DC(1)

Though the court did not accept that the starting point of a valuation is a stand-alone occupancy, a valuer must still have regard to occupancy and return a valuation on each separate occupancy. It is clear that valuations under the Local Government Act 1989 (LG Act) and the Fire Services Property Levy Act 2012 (FSPL Act) are to be returned on an occupancy basis. VGV is of the view that the Port of Melbourne decision is consistent with the provisions of the LG Act and the FSPL Act. Section 13DC(1) of the Act provides direction that calculations of CIV, NAV and, if required, SV are required in a general valuation of each occupancy (the output), rather than defining the start point of the valuation exercise. The court's consideration of s 2(3) of the Act largely depended on the term 'larger property'. A 'larger property' is not defined in the Act. The decision confirms that whether or not the land to be valued is a 'larger property' will depend on the facts of each case. In particular, planning, ownership and management factors, together with the nature and relationship of the occupancies said to comprise the 'larger property', were key considerations in the decision and may assist in defining the characteristics of a 'larger property'. There is no one factor or catch-all that will define a 'larger property' for the purposes of s 2(3) of the Act. Importantly, the decision makes it clear that ownership is not the only defining characteristic of a 'larger property'. A 'larger property' could be both multiple occupancies and multiple titles. VGV does not consider that the court's application of s 2(3) in this matter affects VGV's approach. Ultimately, where a separate occupancy is identified as forming part of a 'larger property', the decision requires that the apportionment exercise in s 2(3) be undertaken. When valuing land, valuers must still be aware of the provisions that may affect 'what' is to be valued as well as 'how' it is to be valued (s 5A of the Act). It is recommended that in circumstances where part of a parcel of land has been assessed separately on the basis of stand-alone 'occupancy', valuers review their determination, having regard to the full circumstances and operation of the land. The resultant values should meet the definitions under the Act; that is, CIV and SV must be the value of the land 'if it were held for an estate in fee simple' and consider the application of other relevant provisions such as ss 2 and 13DC of the Act.

7 Ibid at [325]. Valuation of ports and s 2(2AA)

The scope of s 2(2AA) applies only to the valuation of Ports. There are currently four ports in Victoria:

The Port of Melbourne decision highlights the need to identify all works when valuing ports. Port land should firstly be properly identified through relevant legislation, functions, planning and land uses so that the land the subject of a valuation exercise is a ‘port’ for the purposes of the Act. The court's judgment is limited to works on the subject land where evidence was led and did not consider areas outside the Port in the other municipalities. It is recommended that valuers consult with the relevant port authority to obtain all information regarding the port's history and development (such as maps, a list of works with associated detail and costs). This is so that all works can be properly identified and considered as part of a valuation exercise. When assessing SV, all works (being buildings, breakwaters, berths, wharfs, aprons and canals), as well as other works critical to the development of a port such as filling, reclamation and hardstand; are to be regarded as improvements within the meaning of s 2(2AA) of the Act. It is open to the valuer to consider all available evidence such as leases, licences and the value of seabed when determining value. For CIV and NAV, all works relating to a port are considered to exist and are to be considered when determining value. Though CIV was not contested in the proceeding, the court's designation of the Port as a 'larger property' also has implications for the assessment of CIV. The pending sale of the Port as a whole was a pertinent factor in the consideration of highest and best use. The income and sale of ports should be considered in the assessment of CIV when this information is available. A copy of the full decision Port of Melbourne Corporation v Melbourne City Council & Valuer General Victoria [2015] VSC 714 (11 December 2015) is at http://scv2.webcentral.com.au/vsc/. Port of Melbourne Corp v Melbourne City Council & Valuer-General Victoria [2015] VSC714 7