It's one of the key questions about the former Land Development Agency's rural land purchases the ACT's Auditor-General was unable to get to the bottom of.
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Why did the former Land Development Agency agree to subdivide the Fairvale rural property it was originally intent on buying in 2015, to allow the seller's valuer to buy what was likely the most valuable part of the land?
In the lengthy audit report, auditors were not able to get a clear answer to it - and it seems unlikely an answer will be forthcoming in the near future.
The Knight Frank valuations director, Steve Flannery, who with his wife Cia now own the subdivided land via a company they called Duperphosphate Pty Ltd, has declined to comment on the purchase or the broader issues raised in the audit.
In July 2015, the then-owners of Fairvale engaged Mr Flannery to value their property, in preparation for a sale, but, with the LDA also seeking to acquire the property, the audit shows Mr Flannery [cited as a Director of Knight Frank Valuations Canberra in the report] made an offer to the owners.
The offer was, essentially, that they subdivide the land, selling 150.7ha of the property, which fronts on to Cotter Road, to Mr Flannery; and selling the remainder, a 470.8ha dog-leg shaped block, to the government.
The audit report shows Mr Flannery told auditors he had a private, personal conversation with the vendor about "what might be able to happen" on August 3, 2015.
"I said to [the vendor] … 'You need – you and [your spouse] need to be comfortable.' And [the vendor] said, 'Well, you and [your spouse] need to be comfortable also if we’re going to pursue this'," the report reads.
"And I said, 'I’m not sure that [Landmark Harcourts - the vendor's agent] will understand that the
ACT Government is acquiring properties and would know anyone in the ACT Government to –
to assist'.
"So I said, 'I’m happy to act on your behalf in this instance in this process.' And so that’s how it sort of came to pass."
Asked why he would offer to do that, Mr Flannery told auditors it was because he could not afford the whole property, but the government "may be interested", "They may not. I don't know".
"I said, 'Look, there’ll have to be a three‐way view.' And then [the vendor] said, 'Look, if
you ring them – I’m happy for you to ring them.' So I rang." the audit reads.
In the seven months prior to the conversation, the audit also shows the firm Mr Flannery worked for, Knight Frank, completed at least three rural valuations for the agency, of Huntly, Milapuru and Lands End, and ultimately completed 75 per cent of the valuations for the agency on the nine purchases audited.
The audit highlighted several risks of using a limited number of valuers, including that "as valuation is not an exact science, two or more valuations are more likely to highlight and counterbalance outlier values", and the risks posed by "the concentration of privileged and commercially sensitive material in the hands of
one company", among others.
"While acknowledging this is a challenging issue in the ACT options for securing valuation services from several valuers needs to be examined," the audit reads.
Despite Mr Flannery's evidence, the vendor told auditors they responded to the proposal with words to the effect that, "I don't think that is possible, but if you wish to pursue the option of purchasing a part of the property with the government, that is up to you".
"In response to the draft proposed report Fairvale’s vendor also advised that [Mr Flannery] was not acting on the vendor’s behalf, and that [he] was not the vendor’s agent," the audit report reads.
In response to a draft audit report, Mr Flannery on May 9 this year told auditors he met the former agency chief, David Dawes on August 7, 2015 to discuss the proposal and his interest in buying part of the property, though there is some dispute of the specific date of the meeting.
"[Mr Dawes] said that he would engage Colliers Chief as he had him chasing a number of rural leases and said that it would work if it was agreed 'off market' and if all parties agreed," he told auditors.
"[Mr Dawes] said it could well be a 'win for all parties' as the LDA did not want the property with the improvements."
On August 10, 2015 Landmark Harcourts, as the vendor's agent, and Colliers' ACT state chief executive Paul Powderly agreed a provisional price for the agency to buy the entire block for $5.45 million, not subdivided.
But, the audit report shows, that contrary to the terms exchanged between the agency and the vendor, "at some point between 7 August and 24 August 2015 it is apparent that the vendor agreed to sell Fairvale in two parts".
On August 24, the agency sought advice from the ACT Government Solicitor on how to complete the part-purchase of the property, and the advice showed the agency had no objection to Mr Flannery and his spouse buying the other part.
But an extract of the advice released in the audit showed while the agency had the capacity to buy the whole block, with a view to sell the remainder, "it is concerned that the Planning and Development Act 2007
may restrict its ability to sell the Remainder by direct sale to the third party".
While the agency sought no official valuation of the property, it sought Mr Powderly's advice on Mr Flannery's valuation, which confirmed the figure at $4.95 million plus $500,000 for the homestead and improvements.
The audit office found neither Mr Flannery's valuation nor Mr Powderly's advice found any difference in the 'per hectare' values of either part of the land.
But auditors did find the block Mr Flannery bought was more developable than the agency's land, on the basis 93 per cent was zoned NUZ2 Rural, while the block the government bought was only 68 per cent rural, the remainder being NUZ4 River Corridor land.
The audit found the land Mr Flannery bought also appeared, by February 2017, to be "potentially strategically important as an urban front area; having significant frontage to the Cotter Road, and the site of a local centre according to the former [agency’s] Draft Stromlo District Master Plan".
"This site, compared with the one purchased by the former Land Development Agency, has far less of
the NUZ4 River Corridor zoned land which may impede development yield," the audit reads.
When asked about his reaction to Mr Flannery's proposal by the auditors, Mr Dawes said he "probably rejected it out of hand to start with".
"But then again you start thinking about different bits and pieces, and you then look at logical sequences as well," he told auditors.
"You know, as long as there was the right formula approach. I was looking at it more for a long‐
term for future land development."
Mr Powderly, in an interview with The Canberra Times, said he was "as surprised as anybody" when told of the decision to subdivide the block, but that "my job is not to question, my job is just to do my job".
On November 24, 2015, the vendor surrendered the lease on the whole property and was re-granted a subdivision of 151ha, with the former agency paying $3.1 million to the seller for the other 320ha.
On February 9, 2016, the vendor sold the 151ha subdivision [new Block 517] to Mr Flannery and his spouse, having exchanged contracts on November 11, 2015.
The audit office also found that despite suggestions a "significant portion" of the new subdivided block would be retained as an asset protection buffer around the Fairvale homestead, there are no recorded or registered heritage places or objects registered on the block.
"Furthermore, it was also asserted that Block 517 has drainage issues but there is no documentary evidence that this was examined by the former Land Development Agency," the audit reads.
The audit office found there was no evidence the agency identified and assessed risks related to not pursuing the entire block, and despite knowing of Mr Flannery's roles as a valuer and a prospective buyer, "the former agency directly supported the subdivision for no apparent reasons or need".
"There is no contemporaneous documentation to justify why the purchase of the whole block was not pursued, this presents a probity risk," the audit reads.
The audit recommended the Suburban Land Agency train and guide its staff on "identifying and managing probity", at induction and annual thereafter.