The Western Australia State Administrative Tribunal ("the Tribunal") recently rejected applications by a number of pastoralists to review the Valuer General’s assessment of the rents payable on their pastoral leases for five years from 1 July 2009.
The pastoralists unsuccessfully challenged the methodology used by the Valuer General to assess the rent and argued it was not the correct approach under the relevant WA Act.
The WA Act required pastoral leases rental to be determined every five years. The assessments under review covered the 5 year period from 2009 and the Valuer General assessed a significantly higher rent than applicable for 2004-2009.
The WA Act says that the annual rent to be determined by the Valuer General is the "ground rent that the land might reasonably expected to realise in good condition, for a long term lease for pastoral purposes under which all normal outgoings are paid by the Lessee".
It was also noted that the Act required the Valuer General was to "consult the Board [being the Pastoral Lands Board] concerning the economic state of the pastoral industry".
The Valuer General’s expert valuer gave evidence that there were a number of possible ways to establish the rental under the Act.
He said the direct comparison approval method (relying on unimproved rental evidence) was the preferred option but there was an insufficient volume of direct rental evidence on which to base "a large rental valuation program".
Another method, which he considered to be the best method, was described as the "fair market rate of return on market value of land". This method according to the Tribunal was "the favoured methodology utilised in the Northern Territory, Queensland and South Australia with variations on the adopted rate of return".
Without going into valuation principles in any detail that method was described as involving a process of assessing the unimproved capital value of each property, and then applying an appropriate rate of return.
After consulting with the Pastoral Lands Board, as required by the Act, the Valuer General settled on a rate return of 2% which was a reduction from the rate of return of 3% which had been applied to unimproved capital values in the 2004 assessment.
Interestingly the Tribunal noted the rate of return for South Australia in its 2009 review was 2.7% whereas WA in 2004 had assessed a rate of return 3%. One reason however that the WA figure was reduced in 2009 from 3% to 2% was because of the increase in value of its base, the unimproved capital value of the land.
A number of grounds were argued by the pastoralists as to why the Valuer General’s methodology should be rejected, but they were ultimately unsuccessful.
The Tribunal, agreed with the Valuer General’s expert, and considered the Valuer General’s task was to apply ordinary valuation principles to establish a market rent. The Tribunal said the components to the calculation were firstly, the unimproved capital value, and secondly, the rate of return. The rate of return which the Valuer General accepted was 2%. The Tribunal accepted this rate of return was reasonable in relation to WA pastoral land.
The method of valuation applied by the SA Valuer General to pastoral leases, on which he must make a determination at least every five years, is based on determining the unimproved value of the land and then arriving at the appropriate rate of return, which is a similar approach to that approved by the WA Tribunal.
While the WA and SA legislation are slightly different in their wording, in both cases the Valuer General makes the assessment. The Minister in South Australia may, on recommendation of the Pastoral Board, and if so satisfied, reduce the rent taking into account factors such as the profitability of the enterprise, and other grounds.
The WA Tribunal decision will be of interest to SA pastoral leaseholders when they consider our Valuer General’s next rental determination. I should point out however that our legislation is slightly different, our experts may have different opinions, and the Tribunal’s decision does not bind on our Valuer-General, or indeed our Courts.