Victorian statute imposes a Fire Services Levy, which requires the calculation of the capital improved value of leviable land.

In a recent test case involving Ararat Wind Farm, the Supreme Court of Victoria held that the above-ground wind farm assets were chattels and therefore excluded from the land valuation.

Snapshot

  • Wind farm operators occupying land under leases from property owners will be impacted by the decision. Other operators, such as solar farms, will also likely be affected.
  • In the first instance, Fire Service Levies based on the value of the equipment put on the land by those operators will likely be too high. Valuations should be reviewed to consider whether objection is warranted.
  • The decision will likely have wider prospective application for wind and solar farms. For example, the decision may have tax implications for the treatment of wind farm, and similar, equipment as fixtures or chattels both in Victoria and in other States.

Detail

In December 2020 judgment was delivered in favour of the Ararat Wind Farm (AWF), represented by Herbert Smith Freehills, in the matter of AWF Prop Co 2 Pty Ltd v Ararat Rural City Council [2020] VSC 853.

Background

The AWF operates a wind farm facility on leased agricultural land in Ararat, Victoria. Victorian statute imposes a Fire Services Levy (FSL) on the owner of leviable land under the Fire Services Property Levy Act 2012 (Vic). Under that Act, the land owner is required to pay the FSL each year.

The FSL is calculated based on the capital improved value (CIV) of the leviable land as defined in the Valuation of Land Act 1960 (Vic), being the amount for which the land would be sold for if it was held for an estate in fee simple ‘unencumbered by any lease’. In calculating the CIV, chattels are excluded from the valuation.

The AWF’s principal ground of objection was that the returned CIV of $470.4m was too high and that, properly assessed, the CIV apportioned to the subject land within the Ararat Rural City Council municipality is no more than $10.15m.

Legal issues

The AWF was successful on all legal issues tried, namely that:

  1. Land title, not occupancy, is the starting point for valuing land. The occupancies to be valued when assessing CIV are therefore the separate occupancies created by the wind farm leases over the land owned by each separate land owner.
  2. The above-ground assets, including the wind turbines and towers, substation, wind-monitoring masts and buildings, are not part of the land to be valued for the purposes of calculating the CIV. The Court held those assets are chattels at both common law and pursuant to section 154A of the Property Law Act 1958 (Vic).
  3. The turbine foundations, roads, fences, carpark and underground cabling are not chattels and are included as part of the land to be valued.

It was appropriate to value the land by reference to the expected rental of the land by an owner to a wind farm. The rent paid under the actual leases is likely to be a guide to the market rental for occupation.