VICTORIAN CIVIL AND ADMINISTRATIVE TRIBUNAL
CIVIL DIVISION
BUILDING AND PROPERTY LIST	
vcat reference No. BP1228/2021	
CATCHWORDS	
CO-OWNERSHIP DISPUTE – determination of reserve selling price - factors to consider when the property in question is affected by a Public Acquisition Overlay – whether the value of the property is affected if sold under a terms contract compared to a sale under a cash contract. 	

first APPLICANT	Kenneth Wright Harris	
SECOND APPLICANT	John Good Nominees Pty Ltd (ACN 005 367 073)	
RESPONDENT	Corlett Pty Ltd (ACN 005 098 920)	
WHERE HELD	Melbourne/Videoconference – remote	
BEFORE	Deputy President E Riegler 	
HEARING TYPE	Hearing	
DATE OF HEARING	4 October 2023	
DATE OF ORDER	11 October 2023	
CITATION	Harris v Corlett Pty Ltd (Building and Property) [2023] VCAT 1161	

THE TRIBUNAL ORDERS THAT:

1.	Having regard to the Tribunal’s orders dated 22 June 2023 the reserve price for the sale of the property, the subject of this proceeding is $*** (‘the Determined Reserve Price’).
2.	Order 1 of these orders is subject to the parties otherwise mutually agreeing on a reserve price that differs from the Determined Reserve Price. 
3.	Under s 146(4)(b) of the Victorian Civil and Administrative Tribunal Act 1998, no person other than a party to the proceeding or their legal representatives may inspect the Tribunal’s file of this proceeding unless the Tribunal orders otherwise.
4.	Costs reserved.
5.	Liberty to apply. 

E Riegler 
Deputy President			

APPEARANCES:		
For the Applicants:	Mr C Rechnitzer, solicitor	
For the Respondent:	Mr A Comben, director	

Reasons
introduction
1.	On 22 June 2023, the Tribunal made orders, predominately by consent, for the sale of rural land comprising 71.79 hectares (177 acres) located at 2182-2356 Boundary Road, Mount Cottrell in the State of Victoria (‘the Property’). The Tribunal’s orders dated 22 June 2023 left open the question of the reserve selling price. In the absence of agreement between the parties, that question was to be determined by the Tribunal, subject to receiving written submissions or other material from the parties. 
2.	Since the making of the 22 June 2023 orders, the parties have filed written submissions, a sworn valuation and a market appraisal in answer to the question as to what the reserve price should be. 
3.	On 4 October 2023, the proceeding was listed for a further hearing to hear any submissions in reply. At that hearing Mr Rechnizter, solicitor, appeared on behalf of the applicants. He was accompanied by Mr Les Brown, a certified practising valuer and a director of M3 Property, the firm that prepared the valuation report for the Property, and which is relied upon by the applicants. The respondent was represented by Mr Andrew Comben, a director of that company. 
4.	The parties are at odds as to what the reserve selling price should be. According to the applicants, the reserve selling price should be $***. In contrast, the respondent submits that the reserve selling price should be set at a price between $*** and $***, based upon an appraisal conducted by Harvir Hans of Raine & Horne Land Victoria.
nature of land
5.	The sale of the Property is complicated by the fact that the Property is affected by the Western Grasslands Reserves Public Acquisition Overlay. The objectives of a public acquisition overlay include: 
… to reserve land for a public purpose and to ensure the changes to the use and development of land do not prejudice the purpose for which the land is to be acquired. 
6.	This means that the Minister for Planning and responsible authorities may be given power to compulsorily acquire the Land. Although a public acquisition overlay (‘PAO’) does not prohibit a private sale of the Property, it can materially affect its market price. 
7.	Consequently, the legislature provides a mechanism whereby persons who sell property affected by a PAO for less than the market price of the land, if not affected by a PAO, are entitled to compensation on sale. Alternatively, the land can be voluntarily sold to the planning authority at a value to be agreed between the owner or owners of the land and the Minister for Planning (through their delegate). If land is sold to the planning authority, it is no longer open to make a compensation on sale claim. In other words, the price of sale is the gross amount received.
8.	In this proceeding, the orders made on 22 June 2023 contemplate that the property will be sold to the Minister responsible for administering Part 2 of the Crown Land (Reserves) Act 1978 (Vic). As part of that process, the owners have negotiated with the valuer general, being the delegate of the Minister, for the purpose of agreeing on a sale price. However, no agreement was reached. To some extent, those negotiations have been hampered because the applicants and the respondent were unable to agree as to what their “bottom line” for the sale price should be.
9.	Consequently, the parties have sought orders from the Tribunal determining what the reserve price should be, principally to assist them in reaching common ground as between them in order to assist with their negotiations with the valuer general. To be clear, the determination of the Tribunal of the reserve selling price does not set the benchmark for what the parties may ultimately sell the Land for. In other words, it does not mean that if the valuer general were to offer the reserve selling price, the parties are obliged to accept that offer. 
The valuations/appraisals
10.	As indicated above, there are two reports relied upon by the parties in support of their respective positions. They respondent relies upon a market appraisal prepared by Havir Hans of Raine & Horne Land Victoria (‘the Raine & Horne Report’) dated 14 August 2023. The market appraisal is based upon a comparative market analysis, whereby several properties are highlighted as comparative. In essence, Raine & Horne Report discloses a sale price of four properties said to be comparative, although there is limited information given in relation to three of those properties. Indeed, although the sale price and location of those three properties is stated, it is not clear how they have been taken into account in the valuation analysis. 
11.	The remaining fourth property, located in Mount Cotterell Road, Mount Cotterell, appears to be the predominant comparator, for the purpose of valuation analysis (‘the Mount Cotterell Road Property’). Indeed, the respondent also relies upon that property as being the best indicator of the unencumbered market value of the Property. According to the Raine & Horne Report, that property sold in 2018 for $*** pursuant to a five-year terms contract. It is expected to settle in November 2023. The site area is 43 ha, which equates to $*** per hectare. 
12.	The Raine & Horne Report concludes: 
This neighbouring property demonstrates the undervalue of 2182-2356 Boundary Road.
With this sale – used as a guide in determining its current true value, I believe it is worth a similar price per Acre.
Taking into account the encumbered land (10.34 hectares), this will impact the value and a more agreeable value can be determined. There are 152 Acres of unencumbered precious land that has river access along with a picturesque landscape.
Appraisal price range
$*** - $*** 
13.	The applicants rely upon a report prepared by Michael Leech, certifying practising valuer and a director of M3 Property. He prepared a sworn valuation report dated 15 August 2023 (‘the M3 Property Report’). 
14.	Mr Leech also used a comparative analysis in reaching his opinion. However, he provided more detail concerning the comparative properties and how their value compared to the Property. He also conducted his analysis based upon an assumption that the Property was not affected by the PAO and was within a Green Wedge Zone or alternatively, a Rural Conservation Zone. This allowed the Property to be compared to other properties in a like-for-like manner.
15.	According to Mr Leech, the “unaffected” value of the Property fell within a range between $*** to $***, if the Land were assessed as unaffected but within a Rural Conservation Zone. This equates to a rate of $*** to $*** per hectare. Alternatively, Mr Leech assessed the unaffected value of the Property fell within a range between $*** to $***, if the Property were assessed as unaffected but within a Green Wedge Zone. In differentiating between the two planning zones, Mr Leech stated:
It would appear from the evidence that the GWZ sales achieve higher rates per hectare compared to RCZ land. One reason for this could be the perceived likelihood of inclusion of GWZ land into any future realignment of the UGB [urban growth boundary].
As stated previously, for the purposes of establishing a reserve price, we would recommend the lower end of the range.
16.	In reaching that valuation, Mr Leech had regard to several comparative properties, which ranged in size, proximity and development. In that regard, he either discounted or uplifted his valuation comparison depending upon those factors. For example, properties which contained improvements such as dwellings or outbuildings were discounted to take those improvements into account. Similarly, properties with smaller land area were discounted because Mr Leech opined that properties with larger land areas attracted a lower rate per hectare. In other words, he was of the opinion that it was inaccurate to use the rate per hectare of a property with a small land area as the comparative rate to assess the market value of a property with significantly more land area. 
17.	In relation to the Mount Cotterell Road Property, used as the principal comparator by Mr Hans in the Raine & Horne Report, Mr Leech stated: 
Comparison
Regular shaped property, located in a superior position, close to the UGB. Smaller sized property. Overall, we consider a lower rate per hectare is appropriate.
Submissions
18.	The respondent submitted that it was more appropriate to take into consideration the Mount Cotterell Road Property as a direct comparator. He relied upon the Raine & Horne Report in support of that submission. The respondent further submitted that it was appropriate to wait until after November 2023 before determining the reserve price because a settlement of the Mount Cotterell Road Property at the contract price of $*** would undoubtably uplift the valuation prepared by Mr Leech and importantly, provide persuasive evidence to the valuer general that the price of the Property was significantly more than what the valuer general had previously offered. 
19.	Mr Rechnizter submitted that the reserve price should be set at $***, being the lower of the range determined by Mr Leech. He argued that it was inappropriate to take the Mount Cotterell Road Property into account because of the factors set out in the M3 Property Report. He called Mr Les Brown, a director of M3 Property, to explain why that was the case. 
20.	Mr Brown said that there is a significant difference in the market price of land sold under a terms contract (such as the Mount Cotterell Road Property) compared to land sold under a cash contract. Specifically, land sold under terms contract is said to be ‘speculative’ and attracts a much higher contract price than the same land, if sold under a cash contract with, say, a 60 day settlement. To some extent, the higher price compensates the vendor in not being able to realise the sale until many years after the contract is entered into. Further, there may be provisions within the terms contract that allow the purchaser to either readjust the contract price or opt out if certain conditions crystallise or do not crystallise. Mr Brown explained that the MS Property Report prepared by Mr Leech discounted the price of the Mount Cotterell Road Property to $***, to take into account that it was a property sold under terms contract. That amount was further discounted by $*** to take into account improvements on the property. In other words, the analysed value of that property, as a comparator, was reduced $***. That equates to $*** per hectare. Mr Brown further explained that the Mount Cotterell Road Property was superior to the Property, in terms of its market value. He pointed to a number of factors, which he said were reflected in the M3 Property Report. Specifically:
(a)	the Mount Cotterell Road Property had significantly less land area than the Property Land and therefore attracted a higher rate per hectare by that fact alone;
(b)	the Mount Cotterell Road Property was in a superior position, closer to the Urban Growth Boundary, which increased the possibility of it being re-zoned for residential development at some future time; and
(c)	the Mount Cotterell Road Property was capable of being subdivided into two lots. 
FINDINGS  
21.	In my view, the M3 Property Report, being a sworn valuation, provides the best evidence for determining the reserve selling price. That report offers more analysis by way of comparison, taking into consideration a number of factors which influence the valuation of the Property. 
22.	Importantly, the M3 Property Report takes into consideration the difference between sales which are the subject of a terms contract to sales under a cash contract. I accept that there is a material difference between these two different types of sales. In my view, a terms contract, which provides for settlement to occur several years after the contract is made, is by its nature, a form of speculative investment. The investment relies upon an assumption that the land in question may be rezoned within the settlement period or not long after. This means that the purchaser is able to secure land at an early point in time without having to pay the full contract price at that time and on the assumption that the value of land will increase considerably by the date of settlement. 
23.	In contrast, cash sales represent the value of land as at the date of contract. The vendor receives the value of the contract within a short settlement period, while the purchaser pays the full contract price, notwithstanding that it may have to wait several years before the prospect of rezoning comes to fruition, if that is what is intended. I accept, as a general proposition, that a property sold under a cash contract will have a lower contract price compared to the same property if sold under a terms contract. Therefore, I find that it is appropriate in the circumstances to discount the comparative value of the Mount Cotterell Road Property by that factor.
24.	I also accept that there are material differences between the Property and the Mount Cotterell Road Property which also affect the value of each of those parcels of land. Specifically, I accept, as a general proposition, that properties with less land area attract a higher rate per hectare, compared to properties with higher land area. 
25.	Finally, I accept as trite that the location of a property will affect its value. In the context of this proceeding, I find that properties which are close to or bordering an Urban Growth Zones may have a greater potential to be incorporated within the Urban Growth Zone should it expand its boundaries. Consequently, I accept that a property which is located closer or borders an Urban Growth Zone may be more valuable than a property which is some distance from an Urban Growth Zone. 
26.	The degree to which those factors ultimately impact on the value of a property is difficult to ascertain. Nevertheless, I find, having regard to the material filed and the submissions made, that the starting point is to determine the reserve price based on the “unaffected value” of the Property assuming an underlying zone of Green Wedge. I consider this to be a more accurate method of comparison, given that most of the comparative properties were located within a Green Wedge Zone. 
27.	Therefore, I find that the range for the reserve price should be set at a figure between $*** and $***. Doing the best that I can with the evidence before me, I find that the midway point to be the most appropriate figure. Consequently, I set the reserve price at $***, subject to the parties otherwise agreeing to a lesser or higher figure.

E Riegler
Deputy President