Debate resumed from an earlier hour.

The Hon. MELINDA PAVEY (Parliamentary Secretary) [3.34 p.m.]: The Valuation of Land Amendment Bill 2011 clarifies the practice of the Valuer General in two significant areas: the valuation of land subject to a heritage restriction and the making of valuations not specifically required by legislation. Heritage valuations have been given to heritage-restricted land for more than 30 years. Over that time the assumptions used to value heritage land have been standardised and are now reliable and well accepted. The recent case of In Adam Pty Ltd v Valuer General has added a level of complexity that was never intended by the legislation.

The legislation prescribes a mechanism that gives a discount to the extent to which a heritage building prevents land from being developed to its highest and best use. The legislation does not require that the actual condition or state of repair of the heritage building be taken into account. In this regard, the legislation requires the valuer to assume that the building is new. This allows a valuer to consider the effect that the heritage building has on the potential use of the land without having to make a physical inspection of the property to review its state of repair. In the In Adam the Land and Environment Court determined that the legislated assumptions required a valuer to apply a discount to the value of heritage land that was described as being a "heritage cost penalty". This heritage cost penalty was determined to be the difference between the cost to construct a new existing heritage building and the cost to construct a new non-heritage building.

The heritage cost penalty is not referred to in the legislation and was never intended by the legislation. It is a concept developed by the court, not Parliament. If it were to be introduced it would result in a potentially larger heritage reduction than that proposed by Parliament and it would be much more difficult to calculate. The bill restores the status quo and confirms that the cost of construction of the building is not to be considered in the process of making a heritage valuation. To calculate the heritage cost penalty in the manner decided in the case of In Adam would require a quantity surveyor to calculate the cost of constructing a heritage building today using heritage materials and techniques and compare it against the cost of constructing a modern building.

This type of calculation would be costly and time consuming. It would also be very subjective and open to disagreement, leading to an increase in objections. This would have the potential to undermine confidence in the whole valuation process. Valuation lists are to be given to the Office of State Revenue by 31 December 2011. To enable this to be done the methodology to be used for valuing heritage land must be settled before that date. Although an appeal has been lodged by the Valuer General against the In Adam decision it is unlikely that the appeal will be determined before the end of this year. The bill is urgent and needs to be passed during this parliamentary session to provide certainty for both landowners and the Government.

The bill also deals with an unrelated but significant matter. The Valuer General is required by the Valuation of Land Act to make valuations for rating and taxing purposes and to make valuations as required by other legislation. These are not the only tasks that the Valuer General performs. The Valuer General often receives requests to make valuations outside the strict ambit of the Act. These "private valuations" are undertaken at the request of the parties to a private agreement such as a lease or other contract. The majority of these private valuations would relate to a rent review clause in a lease or the determination of a fair market price in an option agreement. The Valuer General uses the services of contract valuers to undertake these private valuations in the same way as contract valuers are used to make valuations for the purposes of the Valuation of Land Act. A recent court decision has raised doubt as to whether the Valuer General can rely on the provisions of the Valuation of Land Act that govern the use of contract valuers when called upon to make a valuation not specifically required by the Act.

This bill proposes to amend the Act to remove any doubts raised by the decision and to provide the clarity required to ensure that the important functions the Valuer General provides can continue. The amendments will make it clear that the Valuer General may conduct valuations outside the stated statutory functions of the Act. This will specifically allow the Valuer General to conduct private valuations when requested to do so for the purposes of a private agreement. While the provisions of the Act as they currently stand do not preclude the Valuer General from performing these functions, it is important that they be clearly provided for. This will give certainty to businesses engaging the services of the Valuer General and to the Valuer General in conducting the valuation.

In addition, the amendments will clearly enable the Valuer General to delegate the making of private valuations and to make valuations on the recommendation of a contract valuer. These valuations will be deemed to be valuations made by the Valuer General notwithstanding the wording in the private agreement. The bill ensures that the Valuer General will have no obligation to accept a request to perform a valuation provided for in a private agreement. It will remain a discretionary undertaking as there may be good reasons why the Valuer General cannot or is unable to make a specific valuation. I commend the bill to the House.

The Hon. ADAM SEARLE (Deputy Leader of the Opposition) [3.40 p.m.]: I lead for the Opposition in debate on the Valuation of Land Amendment Bill 2011. The Opposition supports the bill, the object of which is to amend the Valuation of Land Act to make it clear that the Valuer General can make a valuation of land for the purposes of a private agreement at the request of a party to that agreement, and to provide for those purposes a valuation carried out in accordance with the usual delegation of the Valuer General. Therefore, contract valuer arrangements are deemed to have been carried out by the Valuer General.

The bill also affirms the methodology used by the Valuer General in valuing heritage restricted land by ensuring that the cost of construction improvements are not taken into account in determining the land value of that land, and to make it clear that there is to be no adjustment of the land value of heritage restricted land except that which results from the specific assumptions required by the Act or such a valuation. The bill also amends the Heritage Act 1977 in relation to the valuation of land on the State Heritage Register, to the same effects as the amendments to which I referred earlier. The bill is largely technical in nature, but it is a good, sound modernisation of the law in this regard. For those reasons, the Opposition supports the bill.

The Hon. GREG PEARCE (Minister for Finance and Services, and Minister for the Illawarra) [3.42 p.m.], in reply: I thank members for their valuable contributions to the debate on the Valuation of Land Amendment Bill 2011, and I note their general support of the amendments. I note the comments of Dr John Kaye seeking clarification on a number of points. In relation to the issue of fairness, we believe that the heritage cost penalty will operate unfairly to heritage owners. As the member noted, the assumptions in section 14G of the Act already provide a fair means for heritage owners to receive a reduction in land tax and rates based on a reduced value for their land. The heritage cost penalty is not related to the heritage significance of the property. A modest wooden cottage with colonial significance would not receive much of a benefit under the heritage cost penalty. On the other hand, a less significant but more ornate or substantial building would. If the State was to provide a heritage bonus to landowners, this would not be the rational way to do so.

The current heritage discount that is applied is based on vacant land value and acknowledges the restriction of development imposed by the heritage status. The heritage cost penalty requires that greater consideration be taken of the building itself, which will create an inequity between heritage landowners. In relation to a review of heritage valuation matters more generally, it is acknowledged that the methodology is complex and may benefit from further consideration. The urgency of this amendment comes about because of a decision of the Land and Environment Court. Although the decision was made in April, the Valuer General has been pursuing an appeal. It is now clear that a decision will not be obtained this year, and certainty is required for the State Government and landowners alike. I commend the bill to the House. Again I thank members for allowing the bill to be dealt with urgently.

Question—That this bill be now read a second time—put and resolved in the affirmative.

Motion agreed to.

Bill read a second time.

Leave granted to proceed to the third reading of the bill forthwith.


Motion by the Hon. Greg Pearce agreed to:

That this bill be now read a third time.

Bill read a third time and transmitted to the Legislative Assembly with a message seeking its concurrence in the bill.