Australia: Just the Facts – Land Valuation Act 2010 (Qld)

The process for the next round of annual valuations is currently underway. For the first time, these annual valuations will be prepared for non-rural land using the "site value" methodology introduced in the Land Valuation Act 2010 (Qld) (LVA).

The Land Valuation Act took effect on 20 September 2010, following the introduction of a bill on 1 September 2010. The Land Valuation Act follows a series of litigation and legislative amendments involving the Valuation of Land Act 1944 (Qld) (VLA), which is repealed by the LVA. Aspects of these have been the subject of other papers and presentations.¹

This paper makes some notes on the processes in the LVA, particularly in the context of the litigation and legislation that have come before it.

The key matters covered are:

1. the concept of site value
2. transitional provisions to deal with site works
3. the objection and appeal process
4. some additional matters, and
5. key things to remember.

What is site value?

The most significant aspect of the LVA is that it moves away from the concept of unimproved value used in the VLA to a concept of site value for non-rural. Rural land continues to be valued using an amended concept of unimproved value. According to the DERM, of the approximately 1.6 million properties to be valued in this round of valuations only 200,000 are defined as rural.²

Site value is defined as:

A non-site improvement is defined as:

1. ...work done, or material used, on the land other than a site improvement.
2. The work done or material used is a non-site improvement whether or not it adds value to the land.

A site improvement is defined as:

1. ...any of the following done to the land—
   1. clearing vegetation on the land
   2. picking up and removing stones
   3. improving soil fertility or soil structure
   4. if the land was contaminated land as defined under the Environmental Protection Act 1994—works to manage or remedy the contamination
   5. restoring, rehabilitating or improving its surface by filling, grading or levelling, not being irrigation or conservation works
   6. reclamation by draining or filling, including retaining walls and other works for the reclamation
   7. underground drainage
   8. any other works done to the land necessary to improve or prepare it for development.
2. However, a thing done as mentioned in subsection (1)—
   1. is a site improvement only to the extent it increases the land's value
   2. ceases to be a site improvement if the benefit was exhausted on the valuation day.
3. Also, excavating the land for any of the following is not a site improvement—
   1. footings or foundations
   2. underground building levels

   3. Example of an underground building level—

      an underground car park.

In simple terms, the key elements that come out of the definition of site value are:

1. land is valued as though non-site improvements (buildings and structures) on the land had not been made
2. site improvements to the land such as cut, fill, drainage and clearing of vegetation, removal of stone and reclamation are assumed to have been made
3. in effect it is the "flat land" or "developable land" value that is ascertained.

Site value is used as a valuation concept in New South Wales, South Australia, Western Australia and Victoria.

One of the significant issues in dispute in previous amendments and litigation was the value to be ascribed (if any) to leases, development approvals and infrastructure credits. Prior to the LVA, the law was that the value of development approvals and infrastructure credits remained in the unimproved value of the land. However, the value of leases was not.

The LVA does not specifically deal with leases, development approvals and infrastructure credits. The DERM's explanation for this omission is that it was a compromise reached, under which the Minister would make statements to the effect that those matters are not included in the value of land, but would not include specific provision in the LVA. The second reading speech did that:

The explanatory notes to the LVA make it abundantly clear that:

However, statements in Parliament and in the explanatory notes carry only some weight in understanding the legislation. The absence of specific exclusion of the value of leases, development approvals and infrastructure credits in the LVA is an omission that may be the subject of future debate, particularly when the definition of site improvements gives some room for an interpretation that would include such things within its ambit.⁴

Transitional provisions

The introduction of the site value method for valuation brought with it the real potential for significant increases in the annual valuation of sites on which considerable site works such as cut and fill have been undertaken. In some instances these works would have produced unimproved values millions of dollars below the value of the land derived on a site value basis.

To ameliorate the potential impact from the change to site value, two mechanisms have been put in place in the LVA:

1. a Site Improvement Deduction
2. an Offset Allowance.

The first mechanism involves a deduction that may be claimed for site improvements made in the 12 years prior to the introduction of the LVA on 20 September 2010 (Site Improvement Deduction).⁵ The deduction may only be claimed by a land owner if it was that land owner which made the improvements. The Site Improvement Deduction is claimable over a maximum of 12 years from when the works were performed and is applied annually to the determined site value of the land. For example, if site improvements were made by a land owner in the last three years, that land owner may claim a Site Improvement Deduction for those works for the next nine years, or until sold.

The Site Improvement Deduction is only claimable by a land owner that paid for the relevant site improvements. It is generally lost upon the sale of the land.

The Site Improvement Deduction may be claimed for more than one set or works. For instance, if some works were effected on 21 September 2007 and an earlier set of works were effected on 21 September 2000, a Site Improvement Deduction may be claimed for each set of works for a further 10 years and 3 years, respectively.

The second mechanism is a phasing in of any increase in the annual valuation, described as an offset allowance by the Department of Environment and Resource Management (DERM) (Offset Allowance).⁶ This applies for properties where the increase in annual valuation is more than $1 million. The Offset Allowance is given over 12 years and equates to a 13th of the increase in value divided by the number of years left of the 12 years. The LVA gives a useful example:

Example

A owns particular non-rural land on the 2011 valuation-making day and continues to own it at all relevant times. Immediately before the 2011 valuation-making day, the land's unimproved value was $600000 and its site value on the 2011 valuation-making day is $9m.

The amount of the offset is as follows—

Like the Site Allowance Deduction, the Offset Allowance is generally lost once the land owner that claims it sells the land.

It is anticipated by the DERM that a land owner would elect whether to claim a Site Improvement Deduction or an Offset Allowance. However, the wording of the relevant provisions in the LVA suggests that where an Offset Allowance is applicable, it is automatically applied, and a Site Improvement Deduction cannot be sought.⁷

The DERM has stated that it is intended that a land owner would elect in 2011 which mechanism to use.⁸ However, the provisions in the LVA do not actually contain a requirement for any election to be made next year – so arguably one could be made in a subsequent year.

Despite this unclear wording, and assuming the DERM's intentions for land owners to make a choice are carried out, a land owner needs to consider carefully which option will provide it the most financial benefit.

The objection and appeal process

The objection process introduced in early 2010 by an amendment to the VLA was a particularly difficult process, heavily weighted against the land owner. The LVA provides a considerably more balanced process. Some key aspects of it are:

1. the objection period has been extended from 45 to 60 days
2. the appeal period against a decision on an objection has been extended from 42 to 60 days
3. where a correction notice has been issued for an objection an objector has 28 days (increased from 14 days) to correct the objection to ensure it is properly made
4. a land owner may refer a dispute about whether an objection is properly made to the Queensland Civil and Administrative Tribunal
5. the VLA contained an onerous provision that restricted a landowner's grounds of appeal to the grounds stated in the objection. This provision is removed in the LVA. This is a sensible outcome, as the previous VLA provisions effectively required a land owner to prepare an objection as though preparing for litigation
6. the LVA provides for a mutual exchange of information between the land owner and the DERM (where previously information relied on by the DERM's was not made available) and requires mandatory conferences between the DERM and landowners for properties with issued valuations of over $5 million.

Other additional matters

The VLA contained an indexation formula to calculate the value of a number of regional shopping centre sites. The index was based on the increase in the value of commercial land in a local government area. Instead of this index being used, under the LVA shopping centres are now valued according to the site value formula. For the next round of annual valuations, the DERM has contracted a private valuer to undertake the valuations of these shopping centres (as well as to value barrier reef tourist resorts on islands).

The LVA reintroduces the position of a Valuer General. This position is an independent position. The Valuer General is responsible for (among other things) annual valuations and the objection process under the LVA.

Concessional valuation arrangements continue for land used for a single dwelling house or farming and for land that is subdivided, but not yet developed. These concessions must be reviewed by December 2012.⁹

Key things to remember

1. The LVA offers a land owner choice between claiming a Site Improvement Deduction for works done by that land owner or claiming an Offset Allowance for increases in annual value over $1 million. This choice can be made only once and cannot be reversed.
2. For sites where considerable site works have been undertaken, preparations for claiming a Site Improvement Deduction ought to be commenced sooner rather than later as a considerable amount of work might be required to obtain historical information on the extent and cost of the works.
3. Land owners, valuers, financiers, asset managers, lawyers and other property industry consultants will need to be aware of the presence of a Site Improvement Deduction or Offset Allowance when assessing the purchase of land, or a going concern. This is because a Site Improvement Deduction or Offset Allowance over land will be lost after sale. A purchaser must therefore remember that the rates and land taxes for that land might increase dramatically after sale, affecting the value of the land or going concern. We understand that the presence of a Site Improvement Deduction or Offset Allowance will be indicated by a note on a title search.¹⁰

1. Environment and planning QLD 2008 digest

Environment and planning QLD 2009 digest

Dollar, pound, euro or rouble – making cents of amendments to the Valuation of Land Act 1944

2. Des Lucas, Department of Environment and Resource Management, Property Council of Australia seminar, 2011 Land Valuations: Queensland's New Valuation System, 8 October 2010.

3. The Honourable Stephen Robertson, Minister for Natural Resources, Mines and Energy and Minister for Trade), Hansard, 16 September 2010 at page 3459. See also pages 3450 and 3455.

4. Section 23(1)(h) is a catch-all provision that, arguably, leaves scope for argument.

5. Sections 38 to 44.

6. Sections 274 and 275.

7. See section 274(1) and (2) and section 280.

8. Des Lucas, Department of Environment and Resource Management, Property Council of Australia seminar, 2011 Land Valuations: Queensland's New Valuation System, 8 October 2010.

9. Section 262.

10. Neil Bray, Valuer General, Queensland Environmental Law Association seminar, Land Valuation, 1 November 2010.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.