Subdivision - Case Law

Question 1

Neil Construction Vs Manakau City Council (1977)

Answer 1

Main Points - Supreme Court ruling.

• Hypothetical subdivision
• Blocks vs Hypothetical Subdivision
• Profit and risk allowance

Case - Involved a block of land owned by Neil Construction which was to be acquired by compulsory acquisition by the Manakau City Council for a proposed reserve. The case involves the correct method of assessing the value of a block of land with subdivision potential.

Held
- The best evidence is comparable block sales close to the valuation date, other sales that are not directly comparable may be useful in determining an appropriate profit and risk allowance.

- A second method is the Hypothetical Subdivision method. The input variables of this approach can be difficult and are found by looking into the market for information, inputs include:
\+ Gross realisation
\+ Profit and Risk
\+ Development Period
\+ Interest rate / opportunity cost

• In this case the market was indicating a profit and risk of 25%
• P&R = Net realisation - expenditure

Question 2

Carlton Heights Vs Ministry of Works (1963)

Answer 2

Main Points

• Hypothetical subdivision
• Compulsory acquisition
• Willing buyer/willing seller
• Profit and risk

Case
Involves the compensation for land compulsorily acquired for a school. The case revolved around the issue of profit and risk. Evidence was given that a number of building companies in the location were purchasing land at full realisable value, and making a profit from the building work.

Held
- The valuation needs to allow for profit and risk unless there is evidence that there is a purchaser for the land who is prepared to pay in cash the full amount expected to be realised from the sections - willing buyer/willing seller principle.
- Profit and risk of 25% and steps & steps of Hypo Sub were set out:
+ Valuation must reflect a number of buyers
+ Developers are less bona fide purchasers/sellers

Question 3

Boat Park Vs Hutchinson (1998)

Answer 3

Main Points

• Hypothetical subdivision
• Appropriate methodology
• Valuation of raw land

Case
-Involved the sale of land capable of subdivision. Hutchinson entered into an agreement to sell the land to Boat Park Ltd subject to vendor finance which was to be based upon a valuation supplied by Boat Park Ltd.

-A number of valuations were obtained by Boat Park, all of which were rejected by Hutchinson on the basis they did not reflect current market value. Each of the valuations had been assessed using the hypothetical subdivision approach, as it was claimed there was no comparable sales evidence. All valuations were significantly in excess of the purchase price of the block.

Held
- It is necessary when valuing a block of land prior to subdivision to calculate the current market value of the land, taking into account that it has subdivision potential. In other words, the amount that a developer might pay for a raw parcel of land.

• The valuer should select the most reliable valuation method and arrive should arrive at the value using a second approach/method as a check.
• The sales comparison approach ith preferred.

Question 4

Whareroa Vs Ministry of Works (1959)

Answer 4

MAIN POINTS

• Hypothetical subdivision
• Compulsory Acquisition

CASE
Involved the valuation of a 91-acre block of land capable of subdivision that was in the process of being acquired through means of compulsory acquisition by the Crown under the doctrine of eminent domain by proclamation for “better utilisation”, so the crown could subdivide the land and sell it to industrial applicants including fertilizer and oil companies.

The question was whether the property should be valued…
+ Using a hypothetical subdivision approach, or
+ Sale as a block to a hypothetical purchaser/developer

HELD
+ The value is the amount a willing seller might be able to realise on a specific date.
+ The value must be of the land “as is” on the valuation date, taking into account it’s development potential.
+ The value must be as a block unless separate titles have been issued
+ The value of the land as a whole must take into account the suitability of:

• The land for subdivision
• Prospective yield
• Subdivision costs
• Margin for contingencies
• Profit and risk

Question 5

Minister of Works Vs Green & McCahill (1965)

Answer 5

MAIN POINTS

• Hypothetical subdivision
• Compulsory acquisition
• Profit & Risk
• Soil as land value

CASE
- Involved the compulsory acquisition of land at Hamlin’s Hill which was used for the extraction and sale of topsoil and clay, and intended for eventual subdivision.

The dispute was over the level of compensation for the soil and clay, in addition to the land capable of subdivision.

HELD
+ 30% was suitable for P&R in this case. Should be assessed on a case by case basis.
+ There should be no additional compensation for soil/clay as this was included in the valuation of the land, but rather that is should form part of the added value to the land.