In April this year the NSW Land and Environment Court will consider the interpretation of section 6A of the Valuation of Land Act 1916 (NSW), and decide whether the Valuer-General appropriately ignored contamination when valuing land.

On 3 February 2015, in Challenger Listed Investments Ltd v Valuer-General [2015] NSWLEC 7, Justice Biscoe ordered that a separate question be determined in relation to the manner in which contamination of land is to be taken into account when valuing land. The question to be answered is as follows:

Having regard to the agreed facts that the land is contaminated and that the source of the contamination are [sic] the improvements on the land or their operation, is the contamination of the land a matter to be disregarded in the determination of 'land value' under the Valuation of Land Act 1916?

The Court’s determination of this question could alter the appropriate valuation methodology carried out on contaminated sites. This decision has the potential to impact parties transferring property and authorities who compulsorily acquire land.

BACKGROUND

Challenger owns a contaminated site comprising a manufacturing and distribution facility in Sydney’s southwest (Site). Between 2011 and 2013, the Valuer-General (VG) determined the land value of the Site three times in accordance with section 6A of the Valuation of Land Act (Valuation Act). Challenger contested these determinations, contending that the land had no value at each valuation base date, largely due to the cost of remediating the contamination.

THE CURRENT VALUATION METHODOLOGY

In summary, section 6A of the Valuation Act provides:

  • subsection 6A(1): the value of the land consists of the expected sale value, assuming that any improvements had not been made;
  • subsection 6A(2): it is assumed that the land may be used or continue to be used for any purpose for which it was being used or could be used, and such improvements may be continued or made on the land as required in order to enable the land to continue being used. Nothing in subsection 6A(2) prevents the valuer from having regard to any other purpose for which the land may be used on the assumption that the improvements referred to in subsection 6A(1) had not been made.

The VG’s current valuation methodology does take contamination into account in accordance with subsection 6A(1). However, under subsection 6A(2), the VG 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 VG in relation to the Site, who considered that remediation was a long term issue as the Site could continue to be used as a manufacturing and distribution facility without remediation occurring. As a result, the VG did not factor in the contamination in determining the land value over the three respective years.

Challenger claimed that the VG wrongly interpreted section 6A(2) of the Valuation Act. In doing so it relied on Fivex Pty Ltd v Valuer-General [2014] NSWLEC 27 (Fivex) in which it was held that the costs of improvements were to be deducted from the valuation. Challenger also relied on its own draft valuation evidence which assessed the land value of the Site as nil once the improvements to remedy the contamination were taken into account.

The VG is currently appealing the Fivex decision, and argued that the issue of contamination in the Challenger valuation should be stayed until the Fivex appeal was finalised. This argument was rejected by the Court. Biscoe J found that resolution of Challenger’s question would result in substantial savings in time and expense, and would significantly narrow the field of litigious controversy.

IMPLICATIONS

The Court has set a hearing date for April 2015. The outcome of the hearing is potentially significant if the decision is made in Challenger’s favour. Such a determination would mean that the VG would need to overhaul its current policy in relation to contaminated sites. This could result in changes to the approach to land valuation generally, which would impact parties transferring properties and public authorities resuming land. We will publish a further update on the hearing outcome once the Court publishes its decision.