In Valuer-General Victoria v WSTI Properties 490 SKR Pty Ltd [2025] HCA 23, the High Court of Australia has overturned the Victorian Court of Appeal’s decision interpreting the definition of ‘improvements’ in the Valuation of Land Act 1960 (VLA).

The significance of this decision goes to the heart of how site value (formerly ‘unimproved land value’) is assessed. Site value is assessed annually and is used for land tax purposes in Victoria and in other states. Traditionally, the approach to assessing site value has been a highly strained exercise, especially for heritage-affected land and land in markets where there is limited or no reliable evidence of vacant land sales, such as built up commercial areas and central business districts. While the High Court considered Victorian legislation, the issue is not confined only to that state.

The two key issues arising from the decision

First, the High Court confirmed that, to determine whether buildings or works on land are ‘improvements’ under the VLA, the valuer must consider whether the putative improvements actually increase the value of the land at the time of the valuation – and not when the works were carried out. This aspect overturned the Court of Appeal’s interpretation of the definition of ‘improvements’ and confirmed long-standing legislative intent and purpose. 

Secondly, and perhaps more significantly, the High Court clarified the test for identifying improvements. In doing so it held that a building will not be an ‘improvement’ if it inhibits the highest and best use of the land ‘in the proper sense of that term’. This requires considering the value of the land with the putative improvements, having regard to the highest and best use of the land in that state, and comparing this to the value of the land assuming those same putative improvements did not exist. This inherently means considering the hypothetical highest and best use the land would have, absent those improvements – and thus whether the buildings and works inhibit that use. This is a not uncommon scenario for heritage-affected land.

The High Court held that a building will not be an ‘improvement’ if it inhibits the highest and best use of the land ‘in the relevant objective sense of physically possible, legally permissible and financially feasible in the eyes of the market at the time of the valuation...’. This is consistent with the position put forward by the Valuer-General in the hearings below. 

The High Court did not determine whether the subject land was improved, but remitted the matter back to the Court of Appeal to be determined in accordance with law.

What happened?

WSTI Properties 490 SKR Pty Ltd v Valuer-General Victoria (Land Valuation) (Red Dot) [2023] VCAT 734 originated in the Victorian Civil and Administrative Tribunal (Tribunal), in a proceeding for a review of the assessment of the site value of a heritage property, known as ‘Landene’ at 490 St Kilda Road, Melbourne (Landene). It was built in 1897 and is one the last remaining grand residences on St Kilda Road. It is located within the Commercial 1 Zone and comprises over 1000m² of land, the development potential of which is constrained by a site specific heritage overlay. 

Landene was purchased by WSTI Properties 490 SKR Pty Ltd (WSTI) in 2019 for $8.25M. VGV assessed the site value (or unimproved value) of the land at $6.2M as at 1 January 2021 and 1 January 2022. 

WSTI objected to the site value assessments returned by the Valuer-General Victoria (VGV) on the basis that, in both of those years, the returned value was too high. The objections were disallowed and WSTI sought review of those decisions. 

The issues in play

The key issue in dispute below was whether Landene was to be considered an ‘improvement’ within the meaning of the VLA. 

VGV contended that the building was not an improvement because the heritage overlay heavily constraining the development of the land was attracted solely by the existence of the building. Therefore, if the building did not exist, the heritage overlay would have no work to do and the site could be developed to the maximum allowed by the commercial zoning.

The Applicant, on the other hand, contended that Landene was an improvement because the heritage overlay constrained the highest and best use of the land in the real world, and it was inappropriate to consider any other use of the land (such as a commercial tower development) for valuation purposes where such an outcome could never be achieved. 

The Applicant succeeded in the Tribunal, with the Tribunal finding that Landene was an improvement on the basis that it contributes to (i.e. is valuable for) the highest and best use of the land. The Tribunal also made findings that the independent expert evidence tendered by VGV was ‘not relevant’, as it was not ‘tethered’ to the decision of the valuer on review and that VGV should have called evidence of the determining valuer for the Tribunal to consider.

VGV appealed the Tribunal’s findings as to:

• the legal definition of ‘improvements’ under the VLA; and
• the role of the VGV’s valuer experts in the Tribunal to the Court of Appeal.

Appeal to the Court of Appeal

The Court of Appeal granted leave to appeal, but the appeal was dismissed. The Court of Appeal agreed with VGV that whether something is an improvement does not require comparison to the potential highest and best use of the land, but rather to the ‘natural state’ of the land. However, curiously, the Court of Appeal split this test between two points in time:

1. First, it must be considered whether the work done or materials used increased the value of the land at the time that work was done or materials were used (in the case of Landene, 1897, and further works at other times since then); and
2. Second, the benefit of that work done must be unexhausted at the relevant date of valuation: if that work done or material used continues to facilitate the economic use of the land – regardless of the highest and best use – it will constitute an ‘improvement’.

The Court of Appeal did not decide on the role of VGV’s valuer expert as it was not determinative of the appeal.

The judgment

VGV sought special leave to appeal the Court of Appeal’s decision to the High Court of Australia, on the basis that the Court of Appeal erred in determining that the definition of improvements requires consideration of the buildings and works on land, and whether those buildings or works are ‘exhausted’ at two separate points in time. The High Court granted special leave to appeal in November 2024, and the matter was heard on 7 March 2025.

The High Court found that the Court of Appeal’s construction of the definition of improvements involved material error, and as such allowed VGV’s appeal and remitted the matter back to the Court of Appeal to be determined in accordance with law.

The High Court considered that the approach taken by both VCAT and the Court of Appeal required impermissible assumptions to be made: 

• VCAT’s approach required an assumption that the highest and best use following the removal of the improvements was the same as the highest and best of use as with those improvements there.
• The Court of Appeal’s approach simply wished away the need to consider whether the building added any value at the time of valuation – supplanting the question of ‘improvement’ with ‘continuing to benefit’. 

The High Court emphasised that, in the assessment of site value, ‘the highest and best use of land with and without any putative improvements is to be ascertained, not assumed.’

The High Court’s analysis focused on the statutory text – that an improvement ‘increases the value of the land’, taken in the context of assessing site value. This is supported by the High Court’s analysis of relevant jurisprudence and the background to the legislation, going as far back as 1909.

The High Court’s considerations lead to finding the following key principles for the assessment of site value in Victoria:

1. The first step in assessing site value is to identify whether any putative improvements are actually ‘improvements’ within the definition contained in the VLA;
2. The assumption that the improvements have not been made at the time of the valuation “to enable the necessary comparison which underlies the concept of the putative ‘improvements’ increasing the value of the land’;
3. To determine whether a putative ‘improvement’ ‘increases the value of the land’ is to consider whether the market value of the land is greater with the putative ‘improvement’ than without it. 

In finding the above, the High Court accepted VGV’s submission that the words ‘and the benefit thereof is unexhausted’ adds emphasis to the phrase ‘the works done or materials used increases the value of land’ – with these two clauses together comprising a compound phrase which requires an assessment of the immediate and unexhausted increase in value to the land at the date of the valuation.

In addition to the above, the High Court rejected the notion that VGV’s approach in the Tribunal involved the impermissible adoption of ‘two highest and best uses’, or impermissibly disregarding the effect of the heritage overlay on this site. On the contrary, the High Court found that the consideration of two highest and best uses may be necessary ‘if the land is subject to the substance of a legal constraint to which it would not be subject if it is assumed that the land does not have the putative “improvements” on it.’ The land must be considered in these two scenarios having regard to the impact of relevant legal constraints in the improved and notionally unimproved states. The High Court found that seeking to avoid this analysis by assuming that a constraint that attaches to the building carries over to the vacant scenario is simply impermissible.

Key takeaways

The meaning of ‘improvements’ for the purpose of site value in Victoria is now settled: buildings or works will ‘improve’ land if they increase the value of the land as compared to the value that the land would have if those improvements were not there on the relevant date of the valuation. If they don’t, they are not improvements. 

To ascertain whether buildings or works are ‘improvements’, a valuer is required to analyse the value of the land – and the highest and best the land might have – in both the improved and notionally unimproved scenarios to determine whether the buildings and works actually increase the value of the land on the date of the valuation.