Concept illustrations of proposed Dairy Road units. Image: Molonglo Group.
The ACT Government’s bid to levy a $100 million charge on a major Canberra developer was manifestly absurd, the ACT Civil and Administrative Tribunal has ruled.
ACAT Acting Presidential Member Gregory Curtin said in a recent decision relating to the calculation of a lease variation charge for the proposed 700-home Dairy Road development that the amount assessed would have made the project unviable, with Molonglo Group actually taking a loss.
But Molonglo, which had argued that it should not incur any charge, did not escape scot-free, with the tribunal finding that it was liable for about a quarter of what the government had hoped for, or precisely $26,480,938.
Molonglo plans a multi-unit residential development on the 14-hectare site, and in late 2022, the Planning Authority approved the development application for an Estate Development Plan (EDP).
This required Molonglo to lodge a DA for a lease variation to allow multi-unit housing on the land, which, if approved, would attract a charge, given the uplift in the land’s value.
Mr Curtin said the central dispute in this case was whether some or all the costs of the EDP works were caught by the definition of “improvement” in the legislation.
The Commissioner for ACT Revenue originally assessed the LVC at just under $37 million, but Molonglo sought a review, only to have the assessment increased to $101.55 million.
The case turned on the interpretation of two sections of the legislation, two different methods for calculating the LVC, whether development costs should be taken into account and where, and what was the highest and best use of the land.
Both parties submitted that the highest and best use of the land was for subdivision after the completion of the full EDP works.
But the tribunal ruled that the highest and best use of the Molonglo land was the 192,000 sqm of gross floor area and the 700 multi-unit dwellings.
Commissioner Michael Dyson argued that a modified ‘hypothetical development’ assessment method, which did not credit the developer’s construction costs, was more reliable than the ‘comparable sales’ method, which compared the land with the sale of other serviced blocks.
But Mr Curtin said the land should not be valued solely on the improvements, ignoring the cost of those improvements.
“To modify the hypothetical development method in that way would result in fictional land valuations in most if not all cases, a result we regard as being unreasonable or absurd,” he said.
Mr Curtin said it was implausible to imagine that the purpose of the legislation was to create fictional or unrealistic assessments of the value of increased rights, such as those in Mr Dyson’s assessments.
He said the result of Mr Dyson’s assessments was “manifestly absurd or unreasonable”, and that the result would have been a development that would not have been economically feasible if the costs of construction of the hypothetical development were, as Molonglo submitted, in the order of $70 million.
“On that assumption, the developer would make a loss of approximately $20 million,” he said.
“Inflating the after value by not deducting construction costs would result in the developer paying 75 per cent of the construction costs as an LVC, and then have to pay 100 per cent of the construction costs when construction actually took place.
“In substance, a developer would end up paying 175 per cent of construction costs if it developed the site,” Mr Curtin said.
“Another way of putting it was, as Molonglo submitted, the LVC would then be a charge or tax of 75 per cent on construction costs of the hypothetical development.
“Most fundamentally, he did not value the correct highest and best use development, either on the revenue or the costs side.”
However, the tribunal found that Molonglo overstated its EDP costs by including works on land that was outside the lease. It then incorrectly deducted them to reach a result that would have meant no LVC payable.
The Lease Variation Charge was set aside and replaced with a new one for $26,480,938.
The parties can make applications on costs.
