As foreshadowed in our article last month, the NSW Land and Environment Court has now handed down its decision in Challenger Listed Investments Limited v Valuer General (No 2) [2015] NSWLEC 60 (Challenger No.2) in answer to a separate question ordered by Justice Biscoe on 3 February 2015 in Challenger Listed Investments Ltd v Valuer-General [2015] NSWLEC 7 (Challenger No.1). The separate question asked whether contamination of land is a matter to be disregarded in the determination of ‘land value’ under the Valuation of Land Act 1916(Valuation Act) in circumstances where the contamination of the land has been caused by the improvements and operations on the land?   

During the period between Challenger No.1 and Challenger No.2 (Challenger Proceedings), the Court of Appeal handed down Valuer-General v Fivex Pty Ltd [2015] NSWCA 53 (Fivex). Although the Fivex decision was not specifically in relation to land contamination, the Court of Appeal undertook a detailed analysis of section 6A(2) of the Valuation Act, the reasoning of which was directly applicable to the separate question in Challenger No.2

As a consequence of the decision in Fivex, the Valuer-General conceded that the separate question in Challenger No.2 was answered in the negative and the Valuer-General sought to vacate the hearing of the separate question. However, Justice Pepper considered that there was utility in hearing the separate question to clarify the impact of Fivex in the context of contaminated land.

THE IMPACT OF FIVEX IN THE CONTEXT OF CONTAMINATED LAND VALUATION

Prior to Fivex, the Valuer-General’s valuation methodology did take contamination into account in accordance with subsection 6A(1). However, under subsection 6A(2), the Valuer-General can issue a determination that does not account for the cost of remediating the contamination if the current use of the land can continue indefinitely. This proposition was relied upon by the Valuer-General in the Challenger Proceedings in which it was argued that remediation was a long term issue as the land could continue to be used without remediation occurring. As a result, the Valuer-General did not factor in the contamination in determining the land values for  the three valuation years the subject of the proceedings. Challenger’s position was that the language of section 6A(2) mandated that the Valuer-General considered the contamination in conducting a valuation and the value of the land had to necessarily take into account the fact that it was contaminated. This submission was made on the basis that any prudent purchaser or vendor to a hypothetical sale would have regard to the contamination and the requirement that the land be remediated. 

The Court of Appeal in Fivex held that the major premise of section 6A is to derive the highest price that the seller might reasonably expect to receive upon the notional sale of that hypothetically vacant land and that regard may be had to a range of possible uses in the determination of value, so as to select the “highest and best use”. By reference to Fivex, Justice Pepper confirmed that the assumptions in section 6A(2) are expressed in mandatory language and the Valuer-General must make an assumption as to how land and improvements may be used. However, while the existence of contamination is relevant to the valuation exercise, the effect of the contamination and any need for remediation will continue to be a matter of fact for the valuer to assess in accordance with section 6A of the Valuation Act.

IMPLICATIONS

Challenger No.2 and the Fivex decision could potentially see the inundation of claims from owners of contaminated land seeking to challenge previous valuations. However, the important qualification for landowners is that it remains open to the Valuer-General to assume that the present use of the land continues and the factual circumstances, such as the contamination coexisting with the current use of the land and the effect of that contamination on the value of the land, are still matters to be determined by the Valuer-General based on the available evidence.