The waste management industry has been consolidating over recent years and coupled with more stringent legislation is rapidly changing. Expertise is required to keep pace with the changes but also to have an appreciation as to how this market will unfold in the future, with the introduction of AWTs, increased recycling, improved education, higher costs and tighter regulations.

Landfill sites are valued by assessing the void space of the site and then applying a royalty to assess the income for the life of the operation. In reality the process is not as simple as it sounds. There are significant complications involved within landfill valuations. It is recognised that landfill sites are highly regulated and often involve extensive environmental impact assessment reports, stringent planning consents, EPA licences and other environmental legislation. It is essential to have a strong understanding of all of the issues involved at landfills and how these issues impact on the valuation.

It is also appreciated that older landfills with less stringent regulations and less environmental capital costs can often undercut a modern fully lined landfill pricing structure and in effect become more valuable than its modern equivalent. Unfortunately there are no government incentives to equalise this scenario and quite often the poorly managed landfills can be more successful than their modern rivals. To fully reflect this scenario, higher risks need to be adopted due to the potential for future legislation to correct this anomaly.

Other difficulties involved with landfill valuations involve the increase in both AWTs and increased recycling, whereby input levels at the landfill are often trending downwards. Again the reality of this scenario is that as volumes decrease, the void space life is increased and unit costs increase and this in turn should reflect in an increased royalty. Difficulties occur as there is often little or no market evidence to support increases in royalties and a great amount of reliance is placed on the valuer to use their expertise and apply the equivalent royalty rate.

It also needs to be appreciated that many Local Government Authorities (LGAs) that operate landfills quite often do not allow neighbouring LGAs to use their facility. However it is usual to carry out a valuation based upon the potential of a hypothetical purchaser rather than the actual operator. If a restricted market policy were changed then it would obviously have a positive impact on any valuation and this factor needs to be given careful consideration.

Valuations of waste recycling operations, waste transfer stations, AWTs, landfill gas installations and other fixed waste management assets are often based on the land value plus plant, machinery and equipment. However it needs to be recognised that the planning consent for these specialist operations are often of significant value and generally adds a premium to the land value.

The Royal Institution of Chartered Surveyors provides a basis for landfill valuations within their Red Book (Valuation Manual). However many organisations within Australia do not currently apply the RICS Red Book principles to valuation and often these guidelines cannot be utilised.

The Australian Property Institute do not have any guidelines on landfill valuations.

There has been some conflicting case law on the subject throughout Australia, and much confusion between the application of Business Valuations for landfills (often the Hypothetical Tenants interest), and Asset Values of landfills (the Hypothetical Landlords interest), which are invariably very different. However the Business value always has to be higher than the Asset Values, in order that the pricing structure of the business is sufficient to support the expected returns of the assets over the life of the landfill, but also to ensure that there are sufficient finance / costs to enable the landfill to be properly restored, and / or capped and restored, which was an issue that appeared to be overlooked in previous case law on the subject. But also there are additional ongoing liabilities involved with landfills for landfill gas and leachate management and after care of the restored lands long after the landfill has closed, and these costs also have to be factored into the valuation, and quite often appear to be completely ignored. There is also confusion about the difference between a headline royalty rate for void space, which in essence is the purchase price divided by the total void space, and this royalty is very different to the "real royalty" derived from analyses of market transactions, which takes account of the life of the landfill and expected input levels, and can provide a starkly different outcome.