What is the relevance of unaccepted offers to purchase the land in compulsory acquisition cases?

The Court of Appeal of Queensland’s recent decision in Moreton Bay Regional Council v Caseldan Pty Ltd [2017] QCA 72 provides a useful review of the relevance of unaccepted offers to purchase land to the determination of the value of that land in resumption matters.

The Background of the Case

In July 2012, the Moreton Bay Regional Council (Council) resumed land from Caseldan Pty Ltd for recreation purposes. The land was located on the eastern side of South Pine Road in Brendale, Queensland, and had an area of 10.1 hectares. Access was via a service road off South Pine Road.

At the time of the taking, the land was zoned for sport and recreation under the Council’s planning scheme and was being used for as a 10 hole golf course, 18 hole mini golf course, associated golf facilities, a restaurant and a caretakers residence.

The resumed land was bounded to the south by land referred to as the “Comiskey” land. The Comiskey land was zoned the same as the resumed land (i.e. sport and recreation), but by the time of the taking, the Comiskey land had the benefit of an approval for a hotel and motel, and an appeal was on foot in the Planning and Environment Court for a large supermarket and associated uses.

To the north and north east of the resumed land was land owned by the Council, which had in part been developed for an existing sporting complex. A private road was located on the Council’s land along the northern border of the resumed land which provided access to the Council’s existing sporting complex. The Council land included land purchased by the Council in 2007, and referred to as the Murphy land. The Murphy land was also zoned the same as the resumed land (i.e. sport and recreation) at the time of its purchase.

By the time of the taking, the Council had applied to itself for a preliminary approval to facilitate an expansion of the existing sporting complex. The preliminary approval contemplated, amongst other things, commercial development along part of the Murphy land and the use of Council’s road as access to South Pine Road.

There was evidence of a total of nine offers, some conditional and some unconditional, to purchase the resumed land made prior to the taking (between June 2005 and July 2011). The offers ranged in value from $3.69 million to $8 million. Three of those offers were unconditional offers made by the owner of the adjoining Comiskey land.

The Land Court of Queensland found that the highest and best use of the resumed land was for sport and recreation purposes, with a small uplift for possible further development, and valued the land at $1.8 million in accordance with the Council’s valuation evidence. The evidence of the offers to purchase the land was not taken into account in any way in determining the value of the resumed land.

The Land Appeal Court of Queensland found a number of errors with the Land Court’s assessment, including with the treatment of the offers to purchase the land. The Land Appeal Court found that there were good prospects for mixed use development of the resumed land, but determined that neither the Council nor Caseldan’s valuation evidence properly reflected the value of the resumed land.

Ultimately, the Land Appeal Court determined the value of the resumed land at $4.1 million, on the basis that this would better reflect the differences between the resumed land and the comparable sales (which included the Murphy and Comiskey land sales). The Land Appeal Court did remark that this value would ‘not be inconsistent with the unconditional offers’.[1]

Alleged errors relating to offers

The Council attacked the Land Appeal Court’s treatment of offers from a number of bases, which can be summarised as including the following:

• that it had erroneously categorised one of the offers, namely the ‘Flaskas offer’, as unconditional;

• that the remaining unconditional offers were verbal only and so not capable of giving rise to legally enforceable contacts (pursuant to s59 of the Property Law Act 1974 (Qld)) and therefore were not ‘true offers’;

• that it had erred in having any reference to the conditional offers, as they removed risk and so did not establish market value;

• that it had erred in its treatment of the Comiskey offers, which were verbal only, and were made by adjoining owners so were unreliable; and

• ultimately, that it had incorrectly relied upon the offers as primary or direct evidence for determining the value of the resumed land.

The Court of Appeal’s decision

In relation to the Flaskas offer, the Court of Appeal of Queensland found that the Land Appeal Court did err in its categorisation of the Flaskas offer as an unconditional offer, because on the evidence the offer was conditional. However, that error was determined to be immaterial, given that it did not cause the Land Appeal Court to review or adjust the value it had determined,[2] and consequently did not vitiate the Land Appeal Court’s determination of value.

In relation to the Council’s contention that verbal offers are not ‘true offers’, the Court of Appeal commented that the Council did not renew that submission at hearing, which was not ‘unsurprising’ as the proposition was not based on any authority and was incompatible with the proposition endorsed in Auxil Pty Ltd & Anor v Terranova & Ors.[3]

That authority supported the proposition that genuine offers were relevant to determining market value, but inferred that matters, such as whether the offer was verbal, were matters that may go to the weight to be given to the offer. Accordingly, the Court of Appeal found that there was no error in having regard to verbal offers, or more particularly to the Comiskey offers, which were verbal.

The Court of Appeal considered it unnecessary to resolve the alleged errors relating to the treatment of the conditional offers. This was due to the fact that the Land Appeal Court remarked that the utility of the conditional offers is inevitability ‘quite limited’, but did not attribute any role to the conditional offers in determining the value of the resumed land.[4]

The Court of Appeal noted that the Land Appeal Court discussed statements of principle relating to the relevance of offers in its reasons,[5] and had quoted from MMAL Rentals Pty Ltd v Bruning[6] and Auxil, but that no issue was taken by the appellant with respect to that discussion.

While in oral submission, the Council acknowledged that unconditional offers may have relevance as a ‘check’ in accordance with the propositions set out in Auxil, the Council argued that the Land Appeal Court had erred in that it had used the unconditional offers as direct evidence of the value of the resumed land.

The Court of Appeal stated that it was not prepared to make the inferences the Council had invited it to draw,[7] because the Land Appeal Court had expressly indicated that the valuation methodology was one of comparison of the resumed land with the comparable sales, and additionally, at several points throughout its reasons, had referred to use of the unconditional offers as a ‘check’.

What are the implications of the decision?

The Court of Appeal’s decision in Moreton Bay Council v Caseldan confirms the current legal position, and provides an overview and consolidation of the existing legal principles relating to the treatment of offers.

The decision endorses the propositions set out by Buss JA in Auxil, which provided a review of the relevant authorities, as follows:

[46] First, the general rule of admissibility is that an unaccepted offer to purchase land is not admissible as ‘direct evidence’ of its value.

[47] Secondly, the general rule does not exclude evidence of an unaccepted offer in each and every case.

[48] Thirdly, where evidence of an unaccepted offer to purchase land is sought to be tendered, the purpose for which the tender is made should be ascertained and analysed.

[49] Fourthly, although an unaccepted offer to purchase land is not admissible as ‘direct evidence’ of its value, the evidence may be admissible, in a particular case, for limited or general purposes.

[50] Fifthly, the limited or general purposes for which evidence of an unaccepted offer may be admissible include establishing:

1. that later sales sought to be relied on in assessing the value of the land were not forced sales;

2. the existence of a person who might be prepared to pay more than the ordinary market value of the land;

3. the demand in the market for the land in the context of evaluating whether a mortgagee of the land breached its duty of good faith in exercising its power of sale;

4. the special potentiality of the land for a specific purchaser where the offer has been made by that purchaser and in respect of that land.

Also, an unaccepted offer to purchase land may be admissible for the general purpose of providing some assistance in determining the lower limit of the market value of the land in the case of a purchaser’s actual unconditional open offer to purchase at a specific price or for the limited purpose of checking the methodology adopted by an expert valuer in his or her evidence. The illustrations I have given are not, of course, intended to be exhaustive.

[51] Sixthly, evidence of an unaccepted offer to purchase land should not, ordinarily, be accorded any weight unless the trial judge has found that the offer was genuine. Factors to be considered in evaluating the genuineness of an offer include, for example, whether the purchaser was willing and able to complete the purchase in accordance with the terms of the offer, whether the purchaser was at arm’s length from the vendor, and why the offer was not accepted.

Therefore, Moreton Bay Council v Caseldan provides further authority that unaccepted unconditional offers to purchase resumed land are unlikely to be admissible as direct evidence of its value. However, depending on the circumstances surrounding the offer, and provided that it is genuine, it is possible that such offers would be relevant to the determination of value, at least for the purposes of a ‘check’ of the methodology and valuation evidence.

The fact that the offer is verbal is not fatal.

The decision has left open the question of the relevance of conditional offers. It does seem doubtful that conditional offers will be of relevance, but if relevant, their relevance would be especially limited.