The State Administrative Tribunal recently overturned the Valuer General’s assessment of the gross rental value (GRV) for a remote transient workers’ accommodation facility. Any GRV assessed on a ‘comparable’ basis rather than on the ‘assessed value’ may be vulnerable.
Additionally, an ‘assessed value’ based on depreciated values of accommodation units and other facilities that were derived from accounting allocations (given that the whole facility was constructed under a lump sum EPCM contract and no values were attributable to any particular building etc) was held to be valid.
Finally, there is an anomaly in the valuation of Land Act that means that the valuation of a portion of a miscellaneous license granted under the Mining Act may be higher than the valuation of the whole. Accordingly, consideration should be given to whether a ‘specific purpose’ miscellaneous license ought be used for the construction of transient workforce accommodation facilities (TWAs) rather than using portion of a ‘multipurpose’ license.
GRV vs Assessed Value
From 2013, Local Governments became entitled to levy rates in relation to TWAs on a ‘gross rental value’ rather than on the ‘unimproved value’ of the land on which they are situated.
A challenge to the process for implementing that policy was disallowed,1 but more recently, a challenge to the Valuer General’s assessment of the gross rental value of a remote TWA was upheld by the SAT.
All rates are based on the value of the land in question. Prior to 2013, rates for mining facilities were assessed on the basis of the unimproved value of the land upon which they were situated. Given the remote location of many TWAs, the unimproved value applicable to them is low. Following a change in policy, assessment of TWAs was to be undertaken on a GRV basis. This resulted in at least one instance of rates increasing 100-fold.
The GRV of a property is assessed, if possible, on the hypothetical scenario of what a willing tenant would pay a willing landlord. In urban settings, this is most commonly done by reviewing the actual rents paid in relation to comparable properties and inferring what a reasonable rental value would be for the property from that data. As not all properties are identical, there can be reasonable adjustments made to reflect any differences between the ‘comparable’ properties and the ‘assessed’ property.
The valuation of TWAs by reference to rentals paid in relation to comparable facilities can be difficult as there are few TWAs that are leased rather than owner operated.
In the case of CITIC Pacific Mining Management Pty Ltd v Valuer General2 SAT considered the validity of assessing the GRV of a remote facility with 3 much smaller facilities. The Eramurra facility was located approximately 110 kilometres south and east of Karratha and housed in excess of 1600 workers. The facilities relied on by the Valuer General were located within the townships of Karratha and Roeburne respectively and contained between 16 and 48 accommodation units.
The argument in the case turned on the validity of using ‘comparables’ that were located a significant distance from each other, were not of the same size and not of the same standard in amenities. The Valuer General asserted that each factor could be the subject of a ‘reasonable’ adjustment. CITIC argued that in the circumstances, the adjustments were so significant as to be guesswork and therefore not ‘reasonable’.
In short, the SAT decided that the differential in size was fatal to the potential to compare the facilities in question. The remoteness of the Eramurra facility as compared with the other facilities was also a significant issue. However, any difference in amenity could be the subject of an adjustment.
Calculating Assessed value
Accordingly, the SAT then replaced the ‘comparable’ valuation with an ‘assessed' valuation in accordance with the Valuation of Land Act.
Assessed value is 5% of the capital value of the land. Capital value is in turn defined to be the unimproved value of the land plus the depreciated replacement costs of the facility in question. In this case, the facility was constructed under an EPCM contract and the value of that contract was allocated to buildings rather than necessarily to each item that formed part of the accommodation. For example, values were allocated to accommodation, mess and other facilities but not to roads, cabling and other infrastructure.
The SAT decided that, absent evidence that the method used understated the replacement of costs of the facility (and there was no admissible evidence presented to that effect) it could use the figures allocated by the mining company to calculate the depreciated replacement cost.
In determining the unimproved value of the land upon which Eramurra is situated, there is a statutory method for calculating the unimproved value of any mining tenement, being 5 times the annual rent of the tenement (in this case, $42,428). On the other hand, if land that is being assessed does not fall within any other definition, it is to be assessed on the basis of freehold (which was agreed to be approximately $6M).
SAT held that the section that applies to mining tenements did not apply in this case as the Eramurra facility was constructed on only part of a mining tenement. Accordingly, it may be worth considering whether a TWA ought to be constructed on part of a multipurpose licence or on a specific purpose licence given that this could result in a significant valuation differential.
What does this mean for holders of TWAs
The valuation for the Eramurra facility was reduced from slightly more than $12M to approximately $3.4M. That resulted in an effective rate reduction of more than two thirds.
Tenement holders will shortly be receiving rate notices. Rate reductions of the magnitude identified above will not be achievable in all cases, but there is significant potential for review of the Valuer General’s current methodology, which may result in significant cost saving. There are time limits within which one can challenge a valuation, so it may be worth reviewing the assessed value of any TWAs so that decisions can be made promptly after receiving rate notices.