Two large pastoral companies have lost their challenge against substantial rental increases on five properties in Western Australia’s Kimberley region.

S. Kidman and Co and Heytesbury Pastoral Company sought a review of pastoral lease increases applied by WA’s Valuer General for the five year period commencing from July 1, 2009.

Annual rental payments have increased by more than four times since the review, resulting in hikes of tens of thousands of dollars per year in additional rental costs for affected property owners.

Representatives for the companies contended that the methodology used by the Valuer General was flawed, failed to consider the economic state of the pastoral industry and resulted in excessive and unreasonable increases.

They argued that the concept of ‘market rent’ had no application because all pastoral leasehold land in WA is owned by one party – the Government of Western Australia. With only one lessor, the market was dysfunctional and incapable of striking a bargain between a willing lessor and a willing lessee, the applicants said.

They also called for the WA system to be modified to reflect the system of valuations employed by the Northern Territory, which is based on a percentage of Unimproved Capital Valuations and has resulted in lower annual rental increases for pastoralists in the territory.

However, the president of the State Administrative Tribunal, Justice John Chaney, concluded in his final judgement that the Valuer General had employed the proper approach, and that the figures it had applied were appropriate.

In terms of whether the Value General should assess the economic state of the pastoral industry, Justice Chaney said the act provided no guidance as to the criteria the Valuer General could use to assess what might be a “reasonable statutory charge”.

He said the absence of alternative lessors in the market did not dictate that ordinary valuation principles should not be applied. 

Justice Chaney noted the applicants did not challenge the calculation of the Unimproved Capital Value of land undertaken by the Valuer General, and said  the Valuer General had reduced its initial proposed rate of return from 3pc of UCV to 2pc.

This was in consideration of rentals applied in other states and from an assessment of rental increase impacts given by the Department of Regional Development and Lands.

This indicated that more than half of pastoral leases in the Southern Rangelands of WA were unviable as standalone enterprises, and that a 3pc increase would not be sustainable, but rents based on a rate of return of 2pc would be.

“Mr Olsen (for the Valuer General’s office) explained that he considered 2pc was as low as could be applied in assessing a reasonable rental return to a lessor,” Justice Chaney said in his decision. “He knew of no other market where land would provide such a low return.  “

Pastoralists and Graziers Association of WA president Rob Gillam told the West Australian newspaper following the decision that the result highlighted the need for legislative changes in rental assessments.

"We're not denying the need for there to be increases at times but they need to be within the range of business increases that people can accommodate," Mr Gillam said.