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DEFENDANTS REFUSED TO MAKE THE PARITY PAYMENT ALLEGING THAT THERE WAS AN ERROR IN THE VALUATION OF THE PROPERTY

Harmon International Holdings Pty Ltd v Pashon Electrical Pty Ltd [2021] NSWSC 230 (15 March 2021)

This case involves the plaintiff demanding the defendant to make the parity payment in accordance with their agreement in the Deed of Partition. The defendant refused to make such payment contending that there was an error made in the valuation of the property.

Facts:

The disputes in these proceedings arise out of a deed of partition and valuations relating to two properties in Petersham that Harmon International Pty Limited (Harmon), the first plaintiff, and Pashon Electrical Pty Limited (Pashon), the first defendant, own as tenants in common in equal shares.

The properties are located at Crystal Street, Petersham (Crystal Street property) and Parramatta Road, Petersham (Parramatta Road property).

On 10 March 2020, Harmon and its sole director, Ali Talanehzar (the second plaintiff), entered into a deed of partition with Pashon and Pashon’s sole director, Afshin Hassan Nezhad (the second defendant), pursuant to which Harmon was to take Pashon’s interest in the Parramatta Road property and Pashon was to take Harmon’s interest in the Crystal Street property (Deed of Partition). If there was a difference in the value of the properties, parity was to be achieved by an equalising payment equivalent to 50% of the difference in value (parity payment).

The Deed of Partition provided that the two properties were to be valued by Mr Anthony Marchese, a registered valuer, and for the parties to accept the values as determined by the valuations save for manifest error.

On 16 March 2020, Mr Marchese issued valuations of the Crystal Street and Parramatta Road properties in two reports. He valued the Crystal Street property at $1,330,000 and the Parramatta Road property at $1,150,000. According to the parity payment provision in the Deed of Partition, this would have required Pashon to pay to Harmon the amount of $90,000.

Harmon and Mr Talanehzar (the plaintiffs) called on Pashon and Mr Nezhad (the defendants) to make the parity payment and do the other things required under the Deed of Partition to give effect to the transfer of the properties. As a consequence, on 15 April 2020, the plaintiffs commenced these proceedings by summons and commercial list statement seeking orders giving effect to the Deed of Partition.

The defendants contend that they are not bound to give effect to the Deed of Partition as the valuations contain manifest error.

The defendants submit that it was manifestly wrong for Mr Marchese to use the sales of the Norton Street Leichhardt and Parramatta Road Camperdown properties (with sale prices of $1,072,500 and $1,250,000 respectively) for the “closest comparable range” to determine the market value of the Parramatta Road property. Mr Lunney’s (a certified practicing valuer) expert evidence is that, on any objective analysis, these properties could not be considered as the most comparable to the Parramatta Road property having regard to the differences in size, GLA (gross lettable area) and zoning.

The plaintiffs made a general submission that Mr Marchese’s choice of comparable sales was a matter of his own value judgment and is not impeachable.

Issue: Was there an error in the valuation of property?

Law:

Analysis:

The court accepts the force of the plaintiffs’ submission that the choice of comparable sales was a matter of fact and judgment for Mr Marchese. As Mr Lunney accepted in cross-examination, the determination of what properties should be selected as comparable to the subject property involves skill, judgment and experience on the part of a valuer.

However, the issue with the plaintiffs general submission is that it does not deal with the fact that Mr Marchese has used the sale price for a property (the Norton Street Leichhardt property) that his own report identifies as “inferior” and one which does not have mixed commercial and residential use. Consequently, instead of using the sale prices of the two mixed commercial and residential properties that his report identifies as being most comparable to assess the market value of the Parramatta Road property on the direct comparison method (namely the Cavendish Street Stanmore property with a sale price of $1,170,288 and the Parramatta Road Camperdown property at $1,250,000), he has erroneously used the sale price of an “inferior” property as the lower of the closest comparable range together with the sale price of only one comparable property.

While the sale price gap between the Norton Street and Cavendish Street properties may not be significant (around $100,000), as a matter of logic, using the higher priced Cavendish Street property as one of the two most comparable sales for the purpose of determining market value on the direct comparison method would lead to a different and slightly higher value for the overall valuation of the Parramatta Road property

Conclusion: Accordingly, the court accepts the defendants’ submission and Mr Lunney’s evidence that Mr Marchese made a manifest error in using sales for his direct comparison valuation of the Parramatta Road property that did not meet his own criteria.

 

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