June 13, 1997, E.C.B. No. 28/91/141 (61 L.C.R. 183)

 

Between: Mayfair Resources Corporation
Claimant
And: The Greater Vancouver Water District
Respondent
Before: Robert W. Shorthouse, Chair
Azim S. M. Jamal, AACI, FRICS, RI(BC), Board Member
Suzanne K. Wiltshire, Board Member
Appearances: Daniel R. Bennett
James H. Goulden, for the Claimant
Robert P. Sloman, for the Respondent

 

REASONS FOR DECISION

1. INTRODUCTION

The claimant, Mayfair Resources Corporation ("Mayfair"), is the registered owner of a roughly 39 acre tract of land, legally described as Lot 100 District Lots 223 and 224 Group I New Westminster District Plan 52220 (the "subject property"), in the District of Pitt Meadows which is situated in the Fraser Valley in south west British Columbia. Pitt Meadows is located about 50 km east of the City of Vancouver and is considered as being part of the Greater Vancouver metropolitan area. In 1989 the respondent, Greater Vancouver Water District (the "GVWD"), undertook a project to supply water to the municipalities of Surrey and Langley. This project entailed laying approximately 18 miles of pipeline through various municipalities including Pitt Meadows. The proposed pipeline route crossed the subject property and it therefore became necessary for the GVWD to acquire from Mayfair both a temporary statutory right of way for construction purposes (the "temporary right of way") and a permanent statutory right of way for the pipeline itself (the "permanent right of way") in order to facilitate completion of the project. Following some preliminary negotiations between the parties, the GVWD in June of 1990 expropriated the rights of way it required over a portion of the subject property. Mayfair seeks an order of the Expropriation Compensation Board (the "board") fixing the amount of compensation payable to it by the GVWD in respect of this expropriation.

The compensation payable involves a determination of two principal issues: first, the highest and best use of the subject property at the date of taking, and second, its market value based on that use. At the time of the taking, the subject property was vacant land, zoned for agricultural use, designated as park land in the Pitt Meadows Official Community Plan (the "OCP") and included in the Agricultural Land Reserve (the "ALR"). Nevertheless, Mayfair has alleged that it had a highest and best use as, and a real and immediate prospect of development for, residential uses or mixed residential and commercial uses. Mayfair says that the taking has reduced the development potential of the subject property. It makes no claim for personal or business losses but claims compensation for the land taken and for reduction in value to the remaining land in the amount of $124,285 in respect of the permanent right of way and an additional sum of $5,517 in respect of the temporary right of way. The GVWD rejects these claims. It alleges that the potential of the subject property for future non-agricultural development at the time of taking was long-term at best and that its highest and best use was as a speculative holding property. In June of 1990, the GVWD made an advance payment to Mayfair in the amount of only $4,000 pursuant to what was then section 19 of the Expropriation Act, S.B.C. 1987, c. 23, and is now section 20 of the Expropriation Act, R.S.B.C. 1996, c. 125 (the "Act"). It now alleges that the market value of the permanent right of way is some $10,000 and of the temporary right of way an additional $1,000. It denies there was any loss in value to the remaining land.

The compensation hearing took place in Vancouver, B.C. from September 11 through September 15, 1995. The witnesses called on behalf of Mayfair included Mr. Barry Moss, the principal of the company, and two qualified experts -- Mr. Oleg Verbenkov, a senior planner in development and land use planning with Aplin & Martin Consultants Ltd who testified concerning his report prepared in March 1993, and Mr. Clifford H. Parrish, a land appraiser with C.H. Parrish Appraisal Services Inc., who gave evidence based on his report completed in June 1995. Witnesses for the GVWD included two representatives of the Greater Vancouver Regional District (the umbrella regional authority under which the GVWD operates) -- Mr. David Hilliard, a senior land agent, and Mr. Jim Riches, a property negotiator. Additionally, two qualified land appraisers gave evidence on behalf of the GVWD -- Mr. Mario Pavlakovic, who prepared an appraisal report in May 1990 while a principal of Interwest Property Services Ltd., and Mr. Douglas L. Mendel of Grover, Elliott & Co. Ltd., who testified concerning his appraisal report which was finalized in July 1995.

 

2. BACKGROUND

Based upon its assessment of the oral and documentary evidence adduced, the board makes the following background findings in this matter.

2. The Claimant

Mayfair is an incorporated British Columbia company. Its principal, Mr. Barry Moss, has extensive experience in real estate related matters both in England and Canada. Among other endeavours, he has worked as a valuation surveyor in the north of England, an appraiser in Surrey, B.C., an assistant land agent in North Vancouver, an operations manager for the real estate arm of Canadian Pacific Limited ("CP"), and an economic development officer in the Dewdney-Alouette Regional District of which Pitt Meadows forms a part. Some years after emigrating to Canada in 1967, Mr. Moss began purchasing properties in and around Vancouver for restoration and investment purposes. In 1984 he returned to England and purchased a large Elizabethan manor house, Tickhill Castle in Yorkshire, where he currently resides. A student of medieval philosophy and architectural history, he has lectured on building construction and is presently writing two books including one on early Norman masonry.

Mr. Moss's personal involvements are relevant because they serve to shed light on, among other things, the pace with which he pursued development of the subject property and the degree to which he sought to influence its valuation following the expropriation. It was Mr. Moss personally who purchased the subject property in August 1983 for $225,000; for tax reasons he transferred title to Mayfair the following year for $250,000. Although the subject property remained vacant and unimproved at the time of the taking six years later, Mr. Moss testified that it was always his intention to develop it at some point. It was not outside constraints, he suggested, but rather his own preoccupations elsewhere which account for the lack of any serious attempt at development. Nevertheless, in pursuing his case for compensation, Mr. Moss actively communicated with Mr. Parrish, the appraiser retained on behalf of Mayfair, suggesting to him among other things that it would be appropriate to value the subject property using a subdivision development approach.

2.2 The Subject Property

The subject property is a roughly parallelogram shaped parcel comprising 38.86 acres (15.72 hectares) in the Highlands area of the District of Pitt Meadows. Its southern boundary adjoins the Canadian Pacific Railway Company right of way. The eastern boundary, which is also part of the municipal boundary separating Pitt Meadows from the District of Maple Ridge, lies in a bog known as Katzie Slough. To the west the subject property is bounded by a single-family residential subdivision known as "Somerset". Several of the expert reports describe the northern boundary as fronting on the Lougheed Highway, a heavily trafficked four-lane thoroughfare which connects the communities located on the north side of the Fraser River with Vancouver and its adjacent municipalities. In fact, the Lougheed Highway is separated from the subject property by a 50 foot (15.24 metre) wide strip of land held in fee simple by British Columbia Hydro and Power Authority ("the B.C. Hydro right of way"). In 1985, Mayfair also acquired three Provincial Crown parcels of land abutting the western boundary of the subject property. These comprised an additional 1.06 acres (0.43 hectares) so that Mayfair's site area effectively totals 39.92 acres (16.16 hectares).

From a development perspective, the subject property possessed certain advantages at the time of the partial taking. It was located in a community which, given its proximity and accessibility to Vancouver, had become a natural area of residential expansion. Through the 1980s, Pitt Meadows experienced growth at a proportionately faster rate than most of the surrounding communities with a pronounced shift to multi-family use of land. By 1990, there was very little land in the surrounding area to the south, east and west of the subject property which had not been developed. The necessary municipal services appear to have been available to accommodate comprehensive urban development of the subject property, even though some upgrading of capacity was likely required. Commercial development as contemplated along the northern boundary would have been facilitated by good visual exposure from the Lougheed Highway.

At the same time, other features clouded somewhat the prospect of development. One of these was topography. The whole of the subject property is level, low-lying land below the flood plain. Its elevation is approximately 4 feet below the grade of the Lougheed Highway to the north and 6 feet below that of the Somerset subdivision to the west. Prior to development, any building sites would require a considerable quantity of fill to achieve a minimum habitable grade level.

Another questionable feature was access. At the time of expropriation in June 1990, it was not clear precisely how this would be achieved. Although it seems highly probable that access to any residential development on the subject property could be obtained by way of roads which traverse the Somerset subdivision on the western boundary, it is less clear that the desired access off the Lougheed Highway to facilitate commercial development would be made available.

Complicating the question of access from the Lougheed Highway and the potential development of lands adjacent to it was the fact that the B.C. Hydro right of way which separated the subject property from the highway was held in fee simple. Mayfair began discussions with B.C. Hydro in 1989 about purchasing its strip of land and granting a simple right of way in return. Although B.C. Hydro was evidently amenable to such an arrangement, negotiations faltered over the question of price. They were still continuing as of late June 1995.

2.3 Land Use Controls

At the date of purchase by Mr. Moss in 1983, the subject property was designated "AG" Agricultural under the then applicable zoning bylaw of the District of Pitt Meadows. As such its use was limited to agricultural purposes together with a number of other low density uses. In order to develop the subject property with higher density urban uses, applications for rezoning and subdivision would require the District's approval. As noted earlier, the subject property was also situated in the ALR and, unless excluded upon application to the Agricultural Land Commission, was restricted essentially to agricultural uses, ecological and recreational reserves and parks. Additionally, the subject property was designated for use as park land in the OCP adopted by Pitt Meadows in 1980. As of June 1990, when the expropriation occurred, all of these controls over use of the subject property remained in place.

By the late 1980s, the agricultural and greenbelt restrictions on the subject property were something of an anomaly since it was the only parcel of land on the south side of the Lougheed Highway in the immediate area so affected. As early as 1983 and again in 1984 and possibly 1987, Mr. Moss held discussions with representatives of the Agricultural Land Commission who, although unable to provide a formal opinion in advance, evidently indicated to him that the Commission would not object to exclusion of the subject property from the ALR, noting that neighbouring properties had recently been released. Nevertheless, attempts by Mayfair to have the subject property removed through the usual channels in the mid-1980s were blocked by the District of Pitt Meadows.

The explanation for the continued restrictions seems to lie in the fact that Pitt Meadows wished to acquire the subject property for a park and, as Mr. Parrish expressed it in his appraisal report, at p. 20: "Presumably the proposed use and the zoning went together and as such it was for the benefit of the District to have the land in the ALR and to accordingly zone the subject site agricultural." Mayfair sought a conclusive determination as to whether Pitt Meadows intended to purchase the subject property for that purpose. Ultimately, in February 1990, the District indicated that it did not have the funds available for park creation and that, accordingly, the OCP would be changed to reflect a residential use.

Events subsequent to the time of the taking show that controls over use of the subject property were, in fact, being altered in such a way as to permit non-agricultural urban development. Central to the determinations which the board must make, however, is the question of whether a potential purchaser of the subject property at the time of expropriation could reasonably have foreseen that these changes would occur.

In the land use plan which formed part of the revised OCP adopted in December 1992, a corridor of land along the eastern boundary of the subject property in the area of the Katzie Slough continued to be designated as "park, greenbelt", the bulk of the land forming the central and southern portions of the subject property was designated as "residential (single-family, duplex)", and the northern portion bordering on the B.C. Hydro lands and the Lougheed Highway beyond was designated for "multi-family - low (townhouse)" use. It is the highest and best use and market valuation of this northern portion of the subject property, through which the GVWD expropriated its rights of way in June 1990, that forms the nub of the controversy in this matter.

The subject property was one of four recommended for exclusion from the ALR in the revised OCP of December 1992. In 1993 Mayfair made application to, and in February 1994 received formal approval from, the Agricultural Land Commission for exclusion of the subject property.

2.4 The Expropriation

The GVWD first formally advised Mayfair of its requirement for temporary and permanent rights of way across the subject property by letter dated February 2, 1990. It offered compensation totalling $1,746 based on a per acre market value of $10,000 which, in turn, was based on the then existing zoning restrictions and designation of the subject property in the OCP. Mayfair's response was, first, to question the need to have the pipeline cross the subject property at all and, second, to assert that its valuation should be based on the assumption that the subject property could be removed from the ALR, have the OCP amended and the zoning upgraded to residential and/or commercial use. Mayfair proposed compensation of $84,000 based on a per acre market value of $300,000 which the GVWD seriously considered but ultimately rejected. Negotiations between the parties continued over a period of approximately four months. They were somewhat protracted by the need to carry on communications overseas. However, no agreement as to compensation was ever formalized. By late May 1990, the GVWD had completed negotiations with all property owners in the vicinity except Mayfair to acquire the necessary rights of way and was acting under a commitment to supply water to Langley the following month in order to meet peak summer demand. To expedite matters, the GVWD therefore decided to resort to expropriation of its rights of way across the subject property.

On May 30, 1990, the GVWD filed an expropriation notice in the New Westminster Land Title Office and issued a certificate of approval of expropriation in prescribed form. It made an advance payment to Mayfair in the sum of $4,000 on June 4, 1990, the agreed date of valuation for the partial taking. By way of expropriation, the GVWD acquired the permanent right of way comprising a strip of land 20 feet (6.096 metres) in width running east-west across the northern boundary of the subject property and covering an area of 0.474 acres (0.1919 hectares) more or less. It further acquired the temporary right of way measuring 55 feet (16.764 metres) in width south of and adjoining the permanent right of way which covered an area of 1.33 acres (0.5378 hectares) more or less. The temporary right of way was required for a period of two months only, from June 1 to July 31, 1990.

Paragraph 2 of the terms of the right of way instrument restricted Mayfair's use of the right of way area as follows:

2. The Transferor shall not:
  (a) excavate or dig any well, hole, trench, ditch or excavation of any kind or nature;
  (b) erect, build, construct or place any building, structure, erection, pipe, pole, tower, road, pavement, foundation, improvement or thing of any kind or nature; or
  (c) place or remove any soil or other material of any kind or nature;
  on, in, under, through or over the Right-of-Way Area without the prior written consent of the Transferee, and the granting of such consent shall be at the sole discretion of the Chief Engineer of the Transferee.

 

3. HIGHEST AND BEST USE

It is the determination of the highest and best use of a property at the moment of expropriation which is the cornerstone of any attempt under the Act to estimate the market value of that property. Section 31 (1) provides that, where the market value of the expropriated land is based on a use other than its use at the date of expropriation, the compensation payable is the greater of:

(a) the market value of the land based on its use at the date of expropriation plus reasonable damages under section 34, or
(b) the market value of the land based on its highest and best use at the date of expropriation.

Where the property in question requires regulatory approvals in order to realize its development potential, the decided cases make clear that highest and best use must be based upon something more than the mere possibility of approval. As the Ontario Court of Appeal said, in the context of rezoning, in Farlinger Developments Ltd. v. Borough of East York (1975), 8 L.C.R. 112 at pp. 123-4:

There must be a probability or a reasonable expectation that such rezoning will take place. It is not enough that the lands have the capability of rezoning. In my opinion, probability connotes something higher than a 50% possibility.

In this instance the parties appear to be agreed at least on the general proposition that the highest and best use of the subject property on June 4, 1990, the date of expropriation, was other than its use as vacant, undeveloped, agriculturally-controlled land. They disagree, however, as to the prospect and imminence of development and, accordingly, as to the correct basis for valuing the subject property on that date.

 

3.1 Mayfair's Case

Mayfair advances the position that, as of the date of expropriation of the rights of way, the highest and best use of that portion of the subject property taken was partly townhouse and partly commercial, and that it would be valued as such by a knowledgeable purchaser. Citing Farlinger, Mayfair says it was probable that the subject property would be removed from the ALR, receive rezoning and the necessary amendments to the OCP, and be granted some form of access from the Lougheed Highway. Further, according to Mayfair, commercial access and development would be facilitated by its probable acquisition of fee simple title to the B.C. Hydro right of way. In Mayfair's submission, only a timing adjustment would be required to allow for the necessary steps to occur.

Mayfair's case on highest and best use rests largely on the evidence of Mr. Verbenkov, who was qualified at the hearing as an expert in the field of planning and land use. Mr. Verbenkov brought to his assignment a wide-ranging background in land use analysis, subdivision assessment and design, site planning, and project management. This included several years' municipal experience, first as a planner with the City of Surrey, and subsequently as consultant planner with the District of Pitt Meadows. While with Surrey in the 1980s, he gained experience in the operation of the ALR. In Mayfair's submission, Mr. Verbenkov was uniquely qualified in this case because of his role as consultant planner with Pitt Meadows in 1990 and 1991, the period of the expropriation. There his duties included preparing a new bylaw and agricultural land use study and attending public hearings and meetings on behalf of the District.

Mr. Verbenkov's report was prepared in March of 1993. It includes conceptual site plans for development of the subject property prepared for the purpose of this hearing. The report's stated mandate was to identify what was termed "the highest and best approvable use for this site", based on what the report says are sound planning principles, an understanding of local market conditions, and an assessment of political support for proposed land uses. Its conclusion, at p. 7, is that the approvable highest and best use for the subject property as a whole is "a mixture of urban residential and service/retail uses". With respect to the northern portion, the conceptual site plans show two development parcels fronting onto the Lougheed Highway, one for townhouses on the northwest and the other for service retail uses on the northeast.

In reaching his conclusions on highest and best use, Mr. Verbenkov examined the probability that each of the required approvals to permit development of the subject property would be obtained. He considered that its exclusion from the ALR was likely in light of site specific circumstances -- surrounded as it was by urban and transportation uses and isolated from other agricultural land -- and the fact that other properties immediately adjacent to it had already been excluded. He also made reference to a report prepared for Mr. Moss by Talisman Land Resources Consultants back in 1984 (the "Talisman Report") indicating the "marginal agricultural capability" of the subject property in its present state and severe restrictions on its future suitability for agricultural use because of anticipated or ongoing non-agricultural development of the surrounding lands.

On the question of rezoning, Mr. Verbenkov gave evidence that the subject property was a "transitional" site capable of supporting a mix of uses. He indicated that his discussions with engineering and development staff from the District of Pitt Meadows confirmed their support for development of the northern portion of the subject property as of 1990 which included a mix of residential and neighbourhood service commercial units but not large-scale commercial use of the site. In March of 1993, when his report was finalized, the site was already designated for higher density residential use in the revised OCP. Mr. Verbenkov suggested that, if development of the commercial site for neighbourhood commercial uses such as a gasoline station, a restaurant, convenience stores and the like proved not to be viable, additional townhouses could likely be built there instead.

Mr. Verbenkov recognized that the viability of commercial development on the northeast portion of the subject property would depend in part upon gaining access from the Lougheed Highway. As of the time of taking in 1990, Mayfair had not entered into negotiations with the Ministry of Transportation and Highways ("MoTH") to seek the necessary approvals. However, it was Mr. Verbenkov's conclusion, based upon his discussions with representatives of MoTH that, as of 1990, MoTH may have been prepared to permit limited highway entry for commercial uses in the form of right in and right out access.

A further consideration bearing on commercial use was the likelihood of Mayfair's being able to acquire fee simple title to the B.C. Hydro right of way. From his knowledge of other similar acquisitions, Mr. Verbenkov presumed that this would occur.

At the hearing, Mr. Verbenkov readily acknowledged that he had no appraisal training and that his study was one of land use only. However, Mayfair asserts that his expertise is precisely what is required in the circumstances. It refers again to the Farlinger decision at p. 122:

The determination of highest and best use, including as part and parcel thereof the probability of rezoning, is a matter on which the evidence of experts in the field of planning was required. On the other hand, once the highest and best use has been determined, the amount of compensation to be paid is one on which appraisal evidence is necessary.

In this instance the expert appraisal evidence on behalf of Mayfair was offered by Mr. Parrish. His experience as a real estate appraiser extends back to the 1960s in his native England and has continued in Canada from the time of his emigration here in 1967. He has practised his profession as either principal or partner in various Vancouver-based appraisal firms with an increasing concentration as an expert testifying in contested real estate matters. He holds the designations FRI and RI(BC). In 1988 Mr. Parrish relocated to the United States and since that time has divided his work roughly equally between appraisal assignments in British Columbia and the U.S. Pacific Northwest.

Mr. Parrish's report, completed in June 1995, has an effective valuation date of May 4, 1990, one month prior to the agreed date of expropriation. In the course of preparing it, he was provided with a copy of Mr. Verbenkov's study and instructed to consider it in reaching his own conclusions. Having reviewed it, Mr. Parrish said he agreed with its findings on highest and best use. He also testified that, in his opinion, three years would allow sufficient time for the subject property to be removed from the ALR and for the OCP and zoning changes to be made such that it could be developed.

Mayfair says the mere fact that numerous approvals were required should not, in itself, govern the board's determination of highest and best use. According to Mayfair, there is no credible evidence before the board to contradict Mr. Verbenkov's opinion that all of the necessary approvals would be granted or Mr. Parrish's estimate that they could likely be obtained within a period of three years.

Mayfair refers to the judgment of the Divisional Court of the Ontario High Court of Justice in Torvalley Development Ltd. v. Metropolitan Toronto & Region Conservation Authority (1989), 42 L.C.R. 101. The expropriated owner claimed compensation for its land before the Ontario Municipal Board based on proposed residential development. The fundamental issue was whether the development appplications, which required a wide variety of approvals ranging from amendment of the official community plan and zoning bylaws to resolution of various technical and design features, would have succeeded but for the expropriation. The Board decided that the highest and best use of the land at the valuation date was for residential development of the type proposed by the owner and that the market value should be determined accordingly. As summarized at p. 112 of the judgment:

The Board concluded that all technical matters of filling, compaction, servicing, street layout and access, noise and vibration problems, emergency railway crossing, and releasing the one-foot reserve were capable of solution, and that the site would have been approved for development in a residential mode in the normal course of events, probably in subdivision form, although probably at a somewhat lower density than was proposed.

Upon appeal, the Divisional Court held that the Board had not proceeded on an incorrect principle nor misapprehended material evidence. It declined to disturb the decision of the Board on the fundamental question determining the basis of valuation.

Mayfair also submits that the board in this instance, in assessing the reasonableness of Mr. Verbenkov's conclusions, may properly take into account certain events which occurred after the date of the taking, notably the revisions to designated land use for the subject property which were embodied in the 1992 OCP and the ultimate exclusion of the subject property from the ALR in 1994. It cites two decided cases in support of that proposition. In Pentum Mining and Development Ltd. v. Attorney General of Nova Scotia (1990), 44 L.C.R. 161, the Nova Scotia Supreme Court stated at p. 163:

... hindsight evidence is admissible to test the reasonableness of the basis for the assumptions and factors considered in the valuation made at the time of expropriation.

In Re Valley Improvement Co. Ltd. and Metropolitan Toronto & Region Conservation Authority (1965), 51 D.L.R. (2d) 481, where one issue on appeal was the admissibility of evidence of rezoning after the date of taking, the Ontario Court of Appeal observed at p. 493:

One important matter that the Board, in the instant case, had to decide was the probability or possibility that By-law 9454 might be amended to permit the use of the remainder of the claimant's lands left after the expropriation for either or both apartment developments and the construction of a motel. The best evidence of that probability or possibility would be the fact that such an amendment had actually been enacted.

3.2 The GVWD's Case

Although the GVWD acknowledges that the subject property had development potential beyond its existing use at the date of expropriation, it takes the position that any such higher and better use was tenuous and long term given the many obstacles to be overcome and other matters to be addressed. The GVWD enumerated these as follows: (1) removal of the property from the ALR; (2) amendment of the OCP to incorporate any non-agricultural use; (3) approval by the municipality of the necessary zoning; (4) approval from the Ministry for access from the Lougheed Highway; (5) source and extent of services required; (6) acquisition of the land held by B.C. Hydro; (7) extent of the environmental impact regarding development in close proximity to Katzie Slough; (8) soil qualities; (9) extent of the fill required; and (10) business risks inherent in the development of the subject property.

The GVWD's case for highest and best use rests primarily on the opinions of Mr. Pavlakovic and Mr. Mendel, the two appraisal experts it retained. Mr. Pavlakovic is a highly qualified and experienced appraiser who has frequently given expert evidence in expropriation cases before the board but who, at the time of his testimony in this matter, had left the practice of his profession to pursue other business interests. His report was prepared in late May of 1990 shortly before the taking and formed the basis of the advance payment made pursuant to section 20 of the Act. The GVWD suggests that Mr. Pavlakovic's evidence should be accorded substantial weight in light of the contemporaneous timing of his report.

It was Mr. Pavlakovic's opinion that the subject property appeared to have some long-term potential for future non-agricultural development. However, he stated at p. 16:

... taking into account the subject's zoning designation, ALR status, Official Community Plan designation and access limitation there is little potential for the property in the foreseeable future.

He estimated the highest and best use of the subject property to be a "speculative holding property" both before and after the taking.

Mr. Mendel brought to his appraisal assignment some 17 years' experience as a fee appraiser, including valuations of rights of way and easements, mostly in Alberta. Prior to that he had nine years' experience as a municipal assessor in Ontario and seven years in a management role with Marathon Realty Ltd., the real estate development arm of CP. Before relocating to British Columbia in 1994 and joining the appraisal firm of Grover, Elliott & Company Ltd., he served for a year on the Alberta Assessment Appeal Board.

Mr. Mendel's report was finalized in July of 1995 but has an effective date of June 4, 1990, the agreed date of expropriation. It takes into account the presence of comprehensive residential and commercial development in proximity to the subject property and foresees the long term development potential of the site as low density residential use on the majority of the area with the possibility of commercial development on the north portion. It also expresses the view that the form of development would no doubt include a significant proportion of townhouse sites in addition to single family lots, and recognizes that the District of Pitt Meadows would probably have supported highway access to any commercial component in order to alleviate excessive traffic along neighbouring municipal roads.

While Mr. Mendel appears to lay less emphasis than Mr. Pavlakovic on formal obstacles to approval, his opinion on highest and best use is strongly influenced by his perception of a decline in the real estate market around the time of the expropriation. It is his estimation that the timing of development would be long term given the state of the market in May 1990. At p. 11 of the report, Mr. Mendel concludes:

The highest and best use of the subject lands, in summary, is considered to have been that of a holding property with low to medium density residential development potential in the long term.

Like Mr. Pavlakovic, Mr. Mendel is of the view that the highest and best use of the subject property remains the same after as before the taking.

In support of its position that the highest and best use of the subject property was that of a holding property, the GVWD cites the following passages from Lincoln W. North, AACI, The Concept of Highest and Best Use (Winnipeg, Appraisal Institute of Canada, 1980), at p. 7:

The pursuit of an opinion of highest and best use often ignores the possibility that the highest and best use of a vacant site may simply be to leave it in this state of condition for a prescribed or indefinite period of time. In the analysis of rural lands, such a conclusion is often commonplace;

. . .

Hence, it may be concluded that the highest and best use of a property, be it vacant land or a vacant building, may simply be to leave it in a dormant state until such time as all the forces which come to bear on highest and best use dictate a definitive productive use. Such interim use, therefore, may be referred to as a holding use if nothing else, even though the length of the holding period is indeterminable at the date of the analysis.

The board has referred to these passages with approval in a previous decision: Devick v. British Columbia (Minister of Transportation and Highways) (1994), 52 L.C.R. 212 at p. 224.

The GVWD rejects Mayfair's use of evidence after the date of taking to support a case for highest and best use of the subject property as partly townhouse and partly commercial. It says Mayfair is relying upon subsequent developments such as the revision of the OCP in 1992, more than two years later, which were not discernible as of the date of expropriation. In the GVWD's submission, only those factors known or foreseeable as at the date of taking ought to be considered.

3.3 The Board's Analysis and Determination

From its review of the evidence, the board is satisfied on a balance of probabilities that the subject property at the date of expropriation was ripe for development subject to obtaining the necessary approvals. All of the experts, including those for the GVWD, were in agreement that non-agricultural development must eventually occur. Mr. Pavlakovic viewed as an "anomaly" the fact that the subject property remained in the ALR while others around it had been released. Mr. Mendel said he had no doubt that the historic agricultural use of the subject property was "redundant" by 1990. He also expressed the opinion that the market perception in 1990 was that the ALR restriction could be removed and accordingly had minimal effect on property value.

While there were clearly numerous matters to be addressed before development of the subject property could proceed, in the board's opinion the situation was not unlike that in the Torvalley Development Ltd. case discussed above. The board considers that, in 1990, the removal of the subject property from the ALR, the revisions to its designation in the OCP, and rezoning of the site by the District of Pitt Meadows were all reasonably foreseeable to a prudent and informed purchaser and that their occurrence was largely a question of timing. Neither Mr. Pavlakovic nor Mr. Mendel was prepared to hazard an estimate of the time required, but the board finds convincing Mr. Parrish's assertion that some of the necessary approvals could have been pursued concurrently and accepts as reasonable his estimation of three years to allow for development timing. In the board's view, the use of hindsight evidence of approved changes in land use subsequent to the date of expropriation is appropriate to confirm the reasonableness of assumptions likely to have been made in 1990.

It is true that actual development of the subject property has not proceeded in accordance with the time frame set out above, but the board recognizes this fact as a subjective element having to do with the personal preoccupations of the owner of Mayfair rather than as a reflection of any inherent difficulty which an owner would have faced in pursuing development.

The board is not persuaded on the evidence that market conditions in 1990 would have dictated development of the subject property only in the long term. Indeed, Mr. Mendel's observations in this respect appear inconclusive if not contradictory. While citing survey statistics from Canada Mortgage & Housing Corporation which show a decline in single detached housing starts in May 1990, Mr. Mendel also notes at pp. 9 and 10 of his report that "demand for housing was evident", "[m]ultiple family housing starts, fuelled by rental projects, were forecast to remain strong", and there remained a "strong demand for townhouse condominium housing by 1990". Even though he considered the timing of development to be long term given the state of the market, he went on to say at p. 11 that "this would not be a deterrent to potential buyers". Given Mayfair's conceptual plan to develop townhouses on the relevant portion of the subject property, it is difficult to conceive from this evidence how market conditions posed a strong impediment.

When considering the probability of development on the northern portion of the subject property, the board finds it necessary to distinguish between the residential and commercial components. The board concludes that there was a high probability of approval in the near term for development of townhouse units on the northwest portion of the site. It views as somewhat less probable the approval of neighbourhood commercial uses on the northeast portion. Although it seems likely that an arrangement could be made with B.C. Hydro to acquire its right of way strip, the question of access to commercial development off the Lougheed Highway appears more problematic. As noted earlier, Mayfair had not sought access approval from MoTH by the date of expropriation in 1990. During 1992, when negotiations were underway, the correspondence between Mayfair and MoTH provided to the board shows clearly MoTH's opposition at that time to access from the Lougheed Highway and its insistence that any access should be by way of the internal municipal road system. In this instance, the use of hindsight evidence is not helpful to Mayfair's position.

Nevertheless, the board is persuaded, particularly by the evidence of Mr. Verbenkov, that some limited form of access facilitating commercial development could probably be negotiated. It views the matter as one of greater risk that ought to be factored into the discount rate on valuation rather than as one which would preclude commercial use in the board's determination of highest and best use. As well, the board accepts as reasonable Mr. Verbenkov's further observation that, in the absence of a commercial component, higher density residential development of that portion of the subject lands was likely.

Taking into consideration all of the foregoing, the board determines that the highest and best use of the subject property, both before and after the taking, was for development of a mixture of urban residential and service/retail uses in the near term.

 

4. MARKET VALUATION

Having determined a highest and best use for the subject property which essentially accords with that advanced by Mayfair, the board must next proceed to a determination of value based upon that use. This necessarily involves consideration of a number of questions raised by the evidence adduced and arguments made at the hearing, including: (1) whether in assessing the impact of the taking, it is more appropriate in this case to value simply the northern portion of the subject property where the taking actually occurred rather than the whole; (2) if only the northern portion, whether the expropriation has resulted in a compensable loss to Mayfair of buildable residential units and commercial space; (3) whether the taking of the permanent right of way amounts to a fee simple taking of that portion of the subject property or whether Mayfair retains some residual value in it; (4) in determining compensation for the permanent right of way, other adjustments to be applied including the appropriate discount rate for the period of development delay; and (5) the appropriate method for calculating compensation for the temporary right of way. In disposing of these questions, it will also be necessary to consider the approaches to valuation adopted by the various experts and the market comparisons they used as well as other evidence of value which emerged from the hearing. A subsidiary issue is the independence of one of the experts, Mr. Parrish.

The GVWD's expropriation is a partial taking of the subject property. As such, section 40 of the Act necessarily comes into play. However, it is worth noting at this point that, while each of the parties arrives at its own estimated market value for the rights of way taken, neither finds directly a reduction in value to the remainder. Both appraisers for the GVWD conclude there is no such reduction in value, and Mayfair's appraiser treats the matter as follows, at p. 32 of his report:

Your appraiser has been asked to consider the matter of injurious affection. This topic usually refers to damage over and above the market value of the land. . . . There is no apparent such loss in value attached to the subject property as the land is unimproved and the potential of the site has been taken into consideration in the proposed highest and best use study prepared by Aplin & Martin. The potential injurious affection is therefore incorporated into this potential and the values shown within the land value calculation.

4.1 Mayfair's Case

Although the whole of the subject property comprises nearly 39 acres, Mayfair's valuation essentially treats as the larger parcel for the purposes of section 40 the northern portion comprising less than a quarter of the whole where the conceptual site plans prepared by Mr. Verbenkov shows partly townhouse and partly commercial development. Mayfair says the GVWD's taking of a six-metre permanent right of way encompassing nearly half an acre of its developable land impacts that development in terms of a net loss of buildable site area.

As Mr. Verbenkov configures it, the townhouse site consists of 5.14 acres which includes 0.74 acres of the B.C. Hydro right of way. The buildable portion of this site, he says, was 4.4 acres before the expropriation and is only 4.0 acres afterwards, a loss of 0.4 acres. He concludes that the townhouse site would obtain RM-1 zoning which allows a maximum density of 12 units per acre, although the actual number of units that can be accommodated on this site will vary depending on unit type, size and arrangement. Mr. Verbenkov bases his conceptual townhouse layout on what he considers a typical unit size of around 1,600 sq. ft. on one level that he says is appropriate for the Pitt Meadows market. Flowing from this analysis (52.8 units on 4.4 acres before the taking and 48 units on 4.0 acres after the taking), Mr. Parrish calculates a loss of 4.8 townhouse units.

The buildable portion of the commercial site in Mr. Verbenkov's conceptual plan consists of 4.1 acres prior to the taking and 4.0 acres afterwards, a net loss of 0.1 acres. Because he feels the approvable commercial component of the plan would be limited to about 20,000 sq. ft. of space, he concludes that space could still be accommodated after the taking but with constrictions in terms of building placement and circulation through the site. In Mr. Parrish's opinion, the market would take those constrictions into account and value the loss of 0.1 acres of buildable land as an equivalent loss of space.

The direct sales comparisons upon which Mayfair relies in valuing the expropriated land reflect its concentration on the developable portion of the subject property immediately adjacent to the taking. Accordingly, of the ten comparables utilized by Mr. Parrish in his report, five are sales of multi-family lots already zoned for that purpose and ranging between 0.79 acres and 5.44 acres in size. The remaining five are sales of commercial lots ranging between slightly less than half an acre to slightly more than one acre, four of which had commercial zoning at the time of sale. It is Mr. Parrish's conclusion based on his analysis that the comparable values after adjustment are reasonably consistent and support a value of $25,000 per unit for the townhouse section and $12.50 per sq. ft. for the commercial section of the subject property. Applying those values to what Mayfair submits was lost through the GVWD's permanent right of way taking results in an alleged loss, prior to adjusting for development delay, of $120,000 with respect to the townhouse units and $54,450 with respect to the commercial space.

Mayfair acknowledges that it is common practice in right of way valuations to recognize that the fee simple owner retains some residual value in the property taken and, accordingly, to calculate the loss as some percentage of the fee simple market value. However, in light of its evidence that the permanent right of way in this instance will result in an actual reduction in the number of townhouse units and in commercial space, Mayfair submits that the GVWD's expropriation amounts to and should be treated as a fee simple taking of its land, without any percentage deduction.

It cites the case of British Columbia Hydro and Power Authority v. Bossio Motors Ltd. (1987), 30 L.C.R. 126 (B.C. Co. Ct.). The authority expropriated a power line right of way over undeveloped land, the highest and best use of which was found to be for a residential subdivision. Provenzano Co. Ct. J. (as he then was) concluded at p. 134:

Hydro in this case has expropriated an interest in the land in the form of a right of way. In my opinion, that for all practical purposes is equivalent to the expropriation of the fee in the land. While Bossio or his successors in title may have limited use of the land, they cannot have exclusive possession nor build upon it. It is therefore proper in my opinion to value the interest taken as if the whole land has been taken.

Alternatively, if the board decides there is some residual value, Mayfair argues that the deduction to be applied should be much less than 50% of fee simple value.

There are, however, two adjustments which Mayfair recognizes ought to be made in calculating the compensable loss. The first is for the period of delay in development, pending approvals, which Mr. Parrish estimated and the board has accepted to be three years. In other compensation decisions cited by Mayfair, such delays and the risks associated with them have been dealt with by applying a discount factor: Calvary Temple First Pentecostal Church of Kamloops v. Kamloops (City) (1988), 40 L.C.R. 36 (B.C. Arbit.) at p. 74; Gapanow Construction Ltd. v. Calgary (City) (1993), 50 L.C.R. 275 (Alta. L.C.B.) at pp. 280-1. Mayfair urges the board to accept as reasonable Mr. Parrish's suggested discount rate of 9%. This has the effect of reducing the total loss in value of the townhouse and commercial components from $174,450 to $134,710.

The second adjustment is for the cost of fill to bring the building sites up to minimum habitable grade level. This requirement is considered in both Mr. Verbenkov's and Mr. Parrish's reports, on the strength of which Mayfair argues that the board should accept that an average one metre of fill will suffice. Using Mr. Verbenkov's suggested cost figures and deferring that cost for three years results in a further reduction from market value of $10,425. Mayfair therefore asserts that the market value of the permanent right of way following these adjustments should be fixed at $124,285.

Mayfair's additional claim for compensation with respect to the temporary right of way rests on a rental formula used by its appraiser. The formula posits a 10% rental return on the portion of the subject lands occupied for that purpose. Having derived a value of $124,285 for the roughly half acre taken for the permanent right of way, Mr. Parrish arrives at a value per acre for the affected land of $248,570. Since the temporary right of way covered an area which he estimated to be 1.329 acres and was in place for a period of two months, he calculates its value as being $5,517.

In the course of the hearing, Mayfair offered other evidence which it says tends to support a market value for the subject property at the date of expropriation in the same order of magnitude as that estimated by its appraiser. In 1985, Mayfair granted a sewer right of way over a 200 square metre portion of the subject property to the District of Pitt Meadows for the agreed price of $8,000. This, says Mayfair, equates to over $160,000 per acre some five years before the taking in this matter. In 1990, when the GVWD was attempting to negotiate its own water pipeline rights of way over the subject property, internal memoranda prepared by Mr. Hilliard and others calculated the cost to acquire the land required based on its potential for residential use at $200,000 per acre. In 1991, Mayfair also received and rejected offers from a large development company to purchase the whole of the subject property. The first offer, for $7.2 million, equates to a price per acre exceeding $180,000; the second offer, for $8.4 million, equates to more than $215,000 per acre.

4.2 The GVWD's Case

The GVWD's valuation of the rights of way proceeds on the initial premise that the subject property at the date of expropriation remained in raw acreage and lacked imminent development potential. The GVWD therefore asserts that, in determining the market value of the land taken and any loss to the remainder, it is necessary to consider the subject property as a whole and to value it as raw acreage. It finds support for that position in several older decisions of the higher courts: Jupiter Estates Ltd. v. Board of School Trustees of School District No. 61 (1965), 54 W.W.R. 655 (B.C.C.A.); Whittaker et al v. British Columbia Hydro and Power Authority (1973), 6 L.C.R. 289 (B.C.C.A.); and Board of Education for the Township of North York v. Village Developments Limited, [1956] S.C.R. 539. These cases were also cited to discredit what the GVWD maintains was an inappropriate approach to valuation by Mr. Parrish, namely his alleged use of an incomplete subdivision development approach.

Both of the appraisers retained by the GVWD selected direct sales comparisons which largely reflect the above-stated position. Mr. Pavlakovic in his report viewed the larger parcel for the purposes of his analysis under section 40 of the Act to be the roughly 39 acres comprising the whole of the subject property. His 23 comparables range in size from three to 47 acres, nineteen of which at the date of sale were situated in the ALR or subject to ALR restrictions and fifteen of which were also zoned agricultural. Mr. Mendel in his report considered 10 comparables of between approximately 12 and 86 acres in size, all but two of which were more than 20 acres and all of which were agriculturally-zoned parcels within the ALR. Eight of the 10 comparables used by Mr. Mendel were also considered in Mr. Pavlakovic's report.

From their analyses of the market evidence, the two appraisers reached conclusions on value of the subject property somewhat at variance with each other but nevertheless both distinctly lower than that opined by Mayfair's appraiser. Mr. Pavlakovic's study of his chosen comparables suggested to him a market value for the subject property of $25,000 per acre. Mr. Mendel, who ultimately relied for his conclusion of value on one chosen comparable -- the negotiated sale to the GVWD of a right of way through agriculturally-zoned lands owned by CP (the "CPR property") -- estimated the market value of the subject property to be $40,263 per acre.

In addition to the evidence of lower value provided by its own appraisers, the GVWD also finds support for their estimates in a transaction which took place between Mayfair and its principal, Mr. Moss. In 1987, Mayfair and Mr. Moss entered into an agreement whereby Mr. Moss obtained an option to repurchase the whole of the subject property for $1.0 million. The option was exercised and the transfer completed in 1994 at a declared market value of $1.0 million. This, says the GVWD, equates to a value of approximately $26,000 per acre. In the GVWD's submission, the fact that Mr. Moss exercised the option and completed the transaction without obtaining a reduction in the option price to account for the permanent right of way then in place is cogent evidence that the right of way taking had no impact on the value of the subject property.

The GVWD rejects Mayfair's proffered analysis of market value based on the net loss of buildable site area. First, it argues that Mr. Verbenkov's conceptual development plans should be discounted because they were prepared solely for the purpose of the compensation hearing and represent no plans ever submitted, or intended to be submitted, to any public body for approval. Other development plans, it suggests, are equally possible. In support of that position, the GVWD refers to a 1995 "project summary" for the subject property prepared for Mayfair by the real estate firm of Colliers Macaulay Nicolls Inc. and entered as an exhibit at the hearing, which shows the acreage allotted for proposed townhouse and commercial uses to be markedly different from those appearing in Mr. Verbenkov's report.

Second, according to the GVWD, Mr. Verbenkov's plan fabricates a scenario in which there is an artificial loss of units. It fails to take into account that, under RM-1 zoning, structures can only be placed on 35 per cent of a property's buildable area in any case. Therefore, given the small quantity of land actually affected by the permanent right of way, in the GVWD's submission the evidence shows that it would be a simple exercise to resite the townhouse units within the remaining building envelope.

Third, the GVWD contends there is uncontradicted evidence before the board that it is the zoning density requirements which alone drive the number of units or size of development which can be constructed. Because Mayfair retains the fee simple to the subject property and is entitled to take the permanent right of way area into account in its density calculations, the GVWD maintains that its expropriation had no impact whatever on the density supportable by the subject property and, accordingly, no loss in value arises.

Finally, the GVWD rejects the applicability of the sales comparables utilized by Mayfair's appraiser in reaching his estimation of market value. It says that none of the 10 direct comparison sales is remotely comparable to the subject property either in size, zoning or servicing.

Turning to the question of residual value, the GVWD submits that there must be a deduction from the calculation of value loss since the taking is not one of fee simple. It points out that the board has clearly sanctioned such a deduction in previous decisions involving a less than fee simple taking: Cokato Dairy & Stock Farms Ltd. v. City of Fernie (1994), 54 L.C.R. 199 at pp. 205-9, and Jones v. City of Fernie (1994), 54 L.C.R. 285 at pp. 291-4. The GVWD says it is clear from the evidence in this matter that Mayfair retains the use of the surface area of the permanent right of way for landscaping, berming, parking and other non-structure related uses. Moreover, it argues, the fee simple to that area remains available to Mayfair for density calculations to facilitate exactly the same size of development (whether townhouse or commercial) after the taking as before.

In support of its position on residual value, the GVWD presented evidence of the negotiations which occurred between the GVWD and CP on purchase and sale of the right of way over the CPR property. In the right of way instrument C.P. insisted on including specific language protecting its right to place asphalt paving for a road or vehicular parking lot, construct an earth filled berm to a maximum height of 15 feet, build fences and install decorative landscaping. In other respects the right of way instrument is very similar to that registered against the subject property. The GVWD and the railway company reached agreeement on compensation for the permanent statutory right of way based on 50% of the agreed market value of the affected land.

Both of the GVWD's appraisers reduced their valuation estimates to take into account the residual value they said remained with Mayfair. Mr. Pavlakovic concluded that a loss calculated on 30% of the fee simple valuation was appropriate, leading to his final market value estimate of the permanent right of way as being $3,500. Mr. Mendel suggested a residual value of 50%, resulting in his final estimation of market value as being $10,000. Furthermore, the GVWD cites the evidence of Mr. Riches of the Greater Vancouver Regional District. He testified that in his right of way negotiations with approximately 30 owners whose properties were affected by the GVWD's water pipeline project, the compensation agreed upon ranged from 10% to 50% of fee simple value with the majority of owners accepting 25% or less. In light of all the foregoing evidence, the GVWD submits that reduction in market value to that portion of the subject property taken as right of way was, at most, 50%.

The GVWD holds to the position that it is inappropriate to value the subject property, or any portion of it, as being suitable for imminent development. Therefore, for the GVWD, the issues of adjustment for development timing or for the cost of fill to bring the lands up to minimum habitable grade do not arise.

Like Mayfair's appraiser, both appraisers for the GVWD accept a rental formula for calculating the value of the temporary right of way. Both Mr. Pavlakovic and Mr. Mendel, like Mr. Parrish, adopt a 10% rental return for the two-month period of occupation as being appropriate. Accordingly, the only difference between the parties on this issue is over the market value to which the rental formula is to be applied. Mr. Pavlakovic's calculation, based on his estimated market value of $25,000 per acre, equates to $542. Mr. Mendel's, based on $99,489 per hectare ($40,263 per acre), equates to $892 and is rounded to $1,000.

4.3 The Board's Analysis and Determination

4.3.1 The GVWD's Appraisal Evidence Considered

The board accepts as probable that, within three years of the date of expropriation, the northern portion of the subject property as identified by Mayfair could have been developed for mixed townhouse and commercial use. That being so, the board is unable to agree with the GVWD's submission that the subject property, comprising nearly 39 acres, must be valued as a whole and as raw acreage. The cases referred to by the GVWD and cited above are relevant to the issue of when it is inappropriate to apply a subdivision development approach to valuation. However, in the board's view, they do not require land found developable in the near term but awaiting rezoning and other approvals to be valued en bloc as though it were simply unutilized agricultural acreage.

The board's conclusion diminishes substantially the utility of the direct sales comparisons relied upon by the appraisers for the GVWD. While Mr. Pavlakovic recognized the anomalous status of the subject property as an unused agricultural tract of land among other developed properties south of the Lougheed Highway, he essentially ignored that observation in estimating its value. His report is based on the assumption, which the board has found unconvincing, that the subject property had little likelihood of coming out of the ALR in 1990. Nearly all of Mr. Pavlakovic's 23 sales comparables were situated north of the Lougheed Highway in an area acknowledged to have ongoing primary agricultural capability. The great majority were situated in the ALR and zoned agricultural. There was no evidence to suggest any probable change in those land use controls in the near future.

In the board's view, Mr. Pavlakovic's market analysis is also weakened by other difficulties. For one, it relies on sales some of which extend back two to three years prior to the agreed date of valuation in this matter, the earliest having taken place in July of 1987, and it does so without making any time adjustments. For another, it utilizes comparables nearly all of which were improved with various types of buildings including residences and farm buildings, and attempts to extract the value of those improvements in order to arrive at a residual vacant land value. Under cross-examination, Mr. Pavlakovic acknowledged that he had established the value of those improvements largely by reviewing the British Columbia Assessment Authority's assessment roll, and he further admitted that such assessed values are ascertained on a mass appraisal basis, the reliability of which for any particular property may be doubted.

The board also has difficulty with Mr. Mendel's report which, in setting out its market valuation, similarly discounts the near term development potential of the subject property even though concluding that it would likely come out of the ALR and that rezoning posed no real impediment. In his evidence before the board, Mr. Mendel expressed the view that development in 1990 was not imminent which for him necessarily meant it was long term. With respect, the board disagrees. As noted earlier, the 10 sales comparables utilized by Mr. Mendel were large parcels of land in the ALR all but two of which were located in the agricultural area north of the Lougheed Highway. For the most part, they were active farms which appear to have had little chance of coming out of the ALR in the foreseeable future. With the exception of a portion of the CPR property, they all continued to be designated agricultural in the 1992 revised OCP.

Particular attention needs to be paid to the CPR property sale (comparable no. 6 in Mr. Mendel's report) because it formed the principal basis of his final conclusion of value and was the subject of considerable other evidence before the board at this hearing. The CPR property was situated some distance east of the subject property in Pitt Meadows adjoining the railway right of way to the south and the Lougheed Highway to the north. It comprised three lots consisting of 36.22 acres, 29.20 acres and 20.36 acres respectively for a total parcel size of 85.78 acres. Mr. Mendel's evidence was that CP purchased these lands in the 1960s for future railway requirements but has never utilized them for that purpose. In 1990 the land was zoned AG Agricultural, was within the ALR, and most of it was being leased to farmers. There was also one commercial lease in place and a portion of one of the lots was in an area later designated light industrial in the 1992 OCP. Mr. Mendel observed that the CPR property is similar to the subject property in that B.C. Hydro owns the right of way strip between it and the Lougheed Highway.

In April 1990 the GVWD negotiated with CP the purchase of a 1.548 acre permanent statutory right of way across the north six metres of the CPR property for its water pipeline plus a temporary statutory right of way for construction purposes over an additional 4.23 acres for a period of three months. The price paid was based on an agreed value of $25,000 per acre at 50% of fee simple value for the permanent statutory right of way and a 10% return on the agreed fee simple value for three months for the temporary statutory right of way. In all, the sale price amounted to $21,994.

From his discussions with representatives of CP, Mr. Mendel concluded the railway company had no plans at the time of sale for the development of the CPR property but others had expressed significant interest in commercial and residential development of the site. He conceded that the location of the CPR property, largely outside the rapidly developing Highlands area of Pitt Meadows where the subject property is situated, indicated that the timing of development was likely to be five years longer than in the case of the subject property, indicating an upward adjustment of value. This he fixed at $40,263. Otherwise, he saw this comparable as being similar in every respect to the subject property.

The GVWD refers to other decisions of the board for the proposition that evidence of sales to an expropriating authority is clearly admissible and can be given substantial weight: Kliman et al v. Board of School Trustees of District No. 63 (Saanich) (1994), 54 L.C.R. 242 at p. 262; Devick at pp. 226-7. Furthermore, it cites the testimony of both Mr. Mendel and Mr. Moss, the principal of Mayfair, both of whom were past employees of Marathon Realty Ltd., the real estate arm of CP, as evidencing that in their experience the railway company always demanded market price in its land transactions. In this instance, according to Mr. Mendel, the transaction involved an offer and counter offer before agreement was reached and had all the requisites of an open market sale by knowledgeable participants. Mr. Riches, the property negotiator utilized by the GVWD, also gave testimony of his dealings with the acquisition of the rights of way over the CPR property which, says the GVWD, indicates the truly market nature of the transaction.

Although the board is persuaded of the prudent and arms length nature of the sale by CP to the GVWD, it is unable to accept that the sale is truly comparable to that of the subject property. In the board's view, the fact that the CPR property was situated some distance away from the areas of residential expansion, was zoned agricultural and subject to ALR restriction, and was actually being utilized for farming operations, indicate that it had little chance of non-agricultural development for the foreseeable future. The board finds more plausible the evidence of Mr. Verbenkov, who had experience in appearing before the Agricultural Land Commission to make applications for removal of lands from the ALR. He testified that the CPR property was an unlikely candidate for removal from the ALR based on the criteria utilized by the Commission in assessing applications for removal. Hindsight evidence, in the form of a letter from the Agricultural Land Commission to the District of Pitt Meadows in 1992 opposing the designation of any of the CPR lands in the revised OCP as light industrial and requesting that they be redesignated as agricultural, supports the reasonableness of that opinion. It contrasts sharply with the Commission's evident willingness to support the exclusion of the subject property from the ALR.

4.3.2 Mayfair's Appraisal Evidence Considered

The board prefers the market analysis undertaken by Mr. Parrish which, in turn, incorporates the land use analysis and conceptual before and after development plans of Mr. Verbenkov. Before revisiting those analyses, the board finds it necessary to dispose of two criticisms levelled at Mr. Parrish and his report by the GVWD. The first is that Mr. Parrish improperly used an incomplete subdivision development approach in arriving at his opinion. The second is that he improperly allowed himself to be directed or influenced by his client in the preparation of his report and so failed to demonstrate the necessary degree of independence required of an expert.

The use of the subdivision development approach is helpfully summarized by Mr. Mendel at p. 12 of his report as follows:

The Subdivision Development Method can be a reliable appraisal technique when subdivision and development are imminent and represent the highest and best use of the land. The accuracy of the approach is dependent upon the availability of reliable market evidence of the value of the subdivided parcels. The approach assumes the subdivision of land into smaller parcels and the installation of roads, utilities and services. If the form of subdivision and achievable densities can be accurately forecast and costs can be predicted with some degree of accuracy the method can provide good results. The reliability of the Subdivision Development method is dependent on the accuracy of the lot yield absorption, absorption rate, predictability of lot prices, servicing costs and soft cost estimates. Where these elements can be determined with accuracy the method can be considered reliable for the purpose of estimating the value of raw land.

The GVWD contends that, in essence, Mr. Parrish began the subdivision development approach to arrive at his valuation of the subject property but failed to deduct the associated costs and uncertainties in arriving at a concluded development. It says the law maintains that, where the land to be valued is in raw acreage, the subdivision development approach is too speculative to support a tenable compensation amount. As well as the judgments of the Supreme Court of Canada and the British Columbia Court of Appeal cited earlier, the GVWD refers to recent decisions of the board which have concluded that the subdivision development approach is inappropriate where development of the property is less than imminent and sufficient comparable sales exist: McKinnon v. School District No. 36 (Surrey) (1994), 54 L.C.R. 23 at p. 36; Buchanan v. School District No. 36 (Surrey) (1994), 54 L.C.R. 43 at p. 51.

It is unnecessary to determine whether, in the circumstances of this case, the use of the subdivision development approach would have been inappropriate. As the board views it, the GVWD's criticism is simply off the mark because Mr. Parrish's valuation method was not the subdivision development approach, either incomplete or complete. Rather, the board finds that Mr. Parrish, like the appraisers retained by the GVWD, employed a direct sales comparison approach in order to value the subject property taken for right of way purposes. This is, in fact, what he said he was doing, at p. 15 of his report:

As vacant land the market approach is considered to be the only reliable approach and sales of similar land will be analyzed to conclude a market value.

Unlike the other appraisers, Mr. Parrish defined the land to be valued as being that which comprised the north side of the subject property affected by the taking. The board considers that focus to have been appropriate in the circumstances. In the board's opinion, he correctly selected for comparison similar smaller parcels sold in the vicinity of the subject property, some for multi-family townhouse use and others for commercial use. Although most of those parcels were already zoned for such use, Mr. Parrish dealt with that distinction by adjusting his valuation for the risk inherent in development timing. He largely overcame the problem of lot size differences, especially with respect to the residential townhouse portion, by utilizing a per buildable unit value rather than a square footage rate. Without at this point necessarily endorsing Mr. Parrish's value conclusions, the board nevertheless is of the view that his approach was reasonable and appropriate.

With respect to Mr. Parrish's alleged lack of independence, the GVWD submits that there was obvious and substantial input by Mayfair's principal, Mr. Moss, into the methodology used and conclusions reached in the appraisal report. It has placed in evidence copies of correspondence between Mr. Moss and Mr. Parrish as well as earlier drafts of the appraisal. In providing initial written instructions, Mr. Moss provided a copy of Mr. Verbenkov's report and expressed his support for it. He also recommended use of the "residual subdivision technique" as being in his opinion the most appropriate method of appraisal for the subject property. Later, Mr. Parrish provided a draft of his report to Mr. Moss which was returned heavily annotated. The GVWD also refers to the final report's discussion of highest and best use, wherein Mr. Parrish states at p. 22:

It is considered that your appraiser should accept the conclusions based on the figures and findings of Aplin & Martin Consultants Ltd., as per instructions. Having reviewed the Aplin & Martin Consultants Ltd. report, your appraiser agrees with the findings of highest and best use.

Counsel for the GVWD likened the situation in this case to that in Vancouver Community College v. Phillips Barratt (1988), 26 B.C.L.R. (2d) 296 (S.C.), wherein Finch J. (as he then was) pronounced upon an expert report which had been revised several times following "round table discussions" among the expert and those who had retained him. At pp. 305-6, the learned judge observed that the "suggestions went to the substance of [the expert's] opinions and the way in which they were expressed" and concluded that the expert's work product had "none of the objectivity or independence that the court looks for in reliable opinion evidence". In the GVWD's submission, Mr. Moss's input must similarly cast serious concern on the reliability of Mr. Parrish's evidence.

The board has considered all of the evidence before it on this question and finds, on balance, that the allegation lacks substance. It is true that Mr. Parrish has had a lengthy association with Mayfair's principal going back at least to 1984 when he previously appraised the subject property at Mr. Moss's request. The board also finds as a fact that Mr. Moss utilized his own considerable experience in the areas of property appraisal and development to try to influence Mr. Parrish's approach and opinions, including his opinion of highest and best use. However, a comparison of the suggestions made by Mr. Moss in his correspondence and annotations with the final appraisal produced by Mr. Parrish demonstrates that very few of those suggestions were actually incorporated. Although Mr. Parrish, as instructed, considered the Aplin & Martin Consultants Ltd. report, the board accepts his evidence that he agreed with Mr. Verbenkov's conclusions on highest and best use only after carefully reviewing that report and undertaking research and analysis of his own. The board is satisfied that both Mr. Parrish's choice of methodology and his value conclusions were neither dictated nor unduly influenced by his client.

Because the viability of Mr. Parrish's market appraisal depends upon the board's acceptance of a loss of buildable site area for townhouse and commercial development, it is necessary next to consider whether Mr. Verbenkov's conceptual site plans actually supports such a loss.

Mr. Verbenkov was the only person qualified at the hearing to give planning evidence and his conceptual plans were the only plans before the board for the purpose of valuation. The board accepts the plans as a reasonable configuration of what a developer could achieve on the site by way of townhouses and commercial space given the evidence of municipal zoning and other requirements, the political environment and the marketplace.

Under cross-examination Mr. Verbenkov was challenged to admit that, on the basis of his own conceptual plans, Mayfair would have been able to put in place the exact same development after as before the taking merely by reconfiguring and resiting the buildings. Mr. Verbenkov conceded that there was some flexibility in the plans, particularly as they relate to the commercial space, and that the total allowable density was unaffected by the right of way taking. However, on re-examination he explained that, while theoretically the density remains the same, practically speaking only a smaller number of units of marketable size could physically be repositioned on the reduced buildable area.

The board is persuaded by Mr. Verbenkov's explanation. He sufficiently demonstrated during the hearing, both verbally and diagramatically, that connecting the existing road network on the adjoining properties and creating transition buffers between varying uses was essential to an efficient and approvable layout of any future development. To maintain road alignments and achieve such a functional development, in light of the taking, would result in the loss of buildable residential units and a reduction in space for the commercial component. Accordingly, the board agrees with Mayfair's assertion of a loss of buildable site area, and accepts that loss to have been 4.8 townhouse units and 0.1 acres of commercial space.

In valuing the loss of townhouse units through the direct comparison approach, Mr. Parrish confronted the difficulty that, as of the agreed valuation date in June 1990, there was not an abundance of townhouse land within Pitt Meadows. The five multi-family sales he chose, four of which were already zoned and serviced for townhouse development, were therefore admittedly "more erratic" and "more widespread in their geographic locations". Only one comparable is actually located within Pitt Meadows; the other four are situated close to the community of Haney in the adjoining municipality of Maple Ridge to the east and therefore more distant from the Vancouver urban core. Mr. Parrish calculated the sale price per townhouse unit of the comparables as ranging from a low of $9,121 to a high of $25,000. It was his opinion that, generally speaking, the Pitt Meadows and Haney markets were similar although, he added, "it would be reasonable to assume that the further the commute to Vancouver the lower the value." Largely on this basis, he concluded that the market value of the subject property was at the high end of the range, supporting a price of $25,000 per townhouse unit.

Although the data available to support Mr. Parrish's conclusions are not ideal, the board considers that he adequately adjusted for locational differences, and accepts his estimate of unit value.

Three of the five sales reviewed by Mr. Parrish pertaining to commercial use were of lands located in Pitt Meadows and the remaining two were in Maple Ridge. Four of the properties were already zoned for commercial use and the fifth, although zoned agricultural at the date of sale, was designated commercial in the OCP. Sale prices ranged from a low of $7.23 per sq. ft. to a high of $14.53 per sq. ft. It was Mr. Parrish's observation that two of the comparable sales (numbers 2 and 5 in his report) bordering the Lougheed Highway were good indicators of value because they enjoyed similar exposure to that of the subject property. They sold in 1990 for $14.53 per sq. ft. and $10.91 per sq. ft. respectively. Sale number 3, which occurred in June 1989 at $10.84 per sq. ft., was shortly afterward developed for commercial uses similar to what Mayfair says is envisaged for the north portion of the subject property.

Having reviewed all of the evidence in relation to the commercial land sales utilized by Mr. Parrish, the board again accepts as reasonable his estimation of market value for the commercial portion of the site at $12.50 per sq. ft.

4.3.3 Other Evidence of Value Considered

In the board's view, the other evidence of value adduced by the GVWD and Mayfair in support of a lower or higher valuation, respectively, does not add a great deal to the overall analysis. Mr. Moss's repurchase of the subject property from Mayfair in 1994 under an option agreement at a price equating to around $26,000 per acre, whatever its underlying motivation, in no way measures up as an arms length market transaction for the purpose of determining value. Equally, the right of way negotiations involving Pitt Meadows and the GVWD respectively in 1985 and 1990 do not offer market evidence particularly probative of the valuation issues which the board must determine. Although background evidence is lacking, the rejected offers by an outside developer to purchase the subject property in 1991 for amounts that equate to roughly $180,000 and $215,000 per acre may perhaps be accorded some weight at least as an indicator that the market, shortly after the date of expropriation, recognized a value on the same order of magnitude as that estimated by Mayfair's appraiser.

4.3.4 Residual Value to Mayfair

The board is persuaded by Mayfair's contention that, in the circumstances of this case, the area of the subject property taken as permanent right of way by the GVWD is tantamount to a fee simple acquisition. The situation, as the board sees it, is akin to that in the Bossio Motors Ltd. case. Although Mayfair continues to hold fee simple title to the affected area, the utility of the portion taken is severely restricted. It appears from the terms of the right of way instrument and the evidence of Mr. Verbenkov that Mayfair would be able to use the surface of the permanent right of way for landscape screening and buffering, outdoor living space, and possibly for road access and parking. However, no structures can be erected on the permanent right of way, resulting as the board has found in a net loss of townhouse units and commercial space. In the board's opinion, the market would recognize that loss in value without allowing for the limited use to which the permanent right of way might still be put.

The restriction here cannot reasonably be likened to that in the Cokato Dairy & Stock Farms Ltd. and Jones cases cited by the GVWD. At issue in those companion decisions was the impact of a statutory sewer line right of way across land continuing to be used for agricultural purposes. At p. 208 of the Cokato Dairy & Stock Farms Ltd. decision, the board held that in practical terms the use of that portion of the land within the statutory right of way for agricultural purposes into the foreseeable future was "essentially unimpaired". There, the board was prepared to accept as appropriate a 50% reduction of agreed fee simple value to reflect the owner's residual interest in that instance. The same reduction was applied in the Jones decision.

Neither does the negotiated settlement of 50% residual value with respect to the CPR property offer a cogent indicator of what should be applied here. In the board's view, Mayfair does not enjoy the degree of protection for its residual use of the affected portion of the subject property afforded to CP through the additional terms it negotiated. Moreover, the board has already distinguished the CPR property as one likely to be put largely to agricultural use for the foreseeable future.

It is significant that both Mr. Pavlakovic and Mr. Mendel for the GVWD acknowledged under cross-examination that, if the board determined that the permanent right of way actually reduced the number of townhouse or commercial units that could be built and valued the loss on that basis, no percentage deduction for residual value need be applied. The board has so determined and, accordingly, declines to make the deduction.

4.3.5 The Discount Rate for Development Risk and Delay

Although the board has accepted as reasonable a three-year deferment for development timing, it does not entirely concur in Mayfair's use of a 9% discount rate in calculating the final loss. Mr. Parrish described the 9% figure as a "typical financing rate" which he considered reasonable to apply here. The GVWD did not question that rate in the course of the hearing nor, given its own theory of the case, offer any alternative. In these circumstances, the board is prepared to accept the 9% figure, but only as a base rate to which certain risk factors must be added.

Mayfair urges the board to treat the three-year deferment as though development approval were an absolute certainty. However, the board is of the view that the proposed rate would only be appropriate if, in June 1990, all the necessary workings were in motion for exclusion of the subject property from the ALR, amendment to the OCP, and rezoning and if, at that time, it was also clear that access to the subject property from the Lougheed Highway would be forthcoming. Although a prudent purchaser in 1990 would consider all of these changes as probably achievable, there remain some elements of risk which would be reflected in what that purchaser in the open market would be prepared to pay. In the board's opinion, it is reasonable in the circumstances to add an additional 1% to the base discount rate to take into account the general overall risk of obtaining development approval. The board has already found that there was a lesser degree of probability of approval for the commercial component of the development plan than for the townhouse component. Accordingly, the board is of the view that a further 1% should be added to the base discount rate, particularly in light of the uncertainty of obtaining access to the commercial space from the Lougheed Highway. In the result, the board considers that a discount rate of 11% is more appropriate.

4.3.6 The Adjustment for Fill

The evidence as to the amount of fill required to bring the building sites on the subject property up to minimum habitable grade level was not extensive. Mr. Parrish, evidently with some urging from Mr. Moss, was persuaded to accept Mr. Verbenkov's estimate that an average of one metre of fill would be sufficient. He also expressed to the board his view that the amount would be adequate if good site planning techniques and architectural practices were employed before and during construction. Doing the best that it can with the state of the evidence on this point, the board accepts Mayfair's calculation of the fill required and the cost to obtain it.

4.3.7 Valuation of the Temporary Right of Way

The board accepts as appropriate the rental formula used by both parties in this matter to calculate the market value of the temporary right of way. It therefore follows that the compensation to be awarded for the temporary right of way will be an amount based upon the board's determination of the per acre market value of the permanent right of way.

4.3.8 Summary Conclusions on Market Value

Based upon all of the foregoing discussion and analysis, the board has determined that the market value of the permanent right of way expropriated from Mayfair by the GVWD and comprising 0.474 acres is the sum of $117,684, and the market value of the temporary right of way comprising l.33 acres is the sum of $5,515. The following summarizes the board's calculations in this regard:

Permanent Right of Way
Townhouse portion:
(4.8 units @ $25,000 per unit)
$120,000
Commercial portion:
(4,356 sq. ft. @ $12.50 per sq. ft.)
     54,450
  Total: $174,450
Less: Cost of fill
(21,780 sq. ft. @ $0.62 per sq. ft.)
  (13,504)
Total Net Loss to Mayfair $160,946
Deferred for 3 Years at 11% x   0.7312
Market Value: $117,684
 
Temporary Right of Way
1.33 acres @ $248,278 per acre $330,210
@ 10% per annum rental return x      0.10
  $33,021
x   Time @ 2 months x    0.167
Market Value: $5,515

Accordingly, Mayfair is entitled to be compensated by the GVWD on account of the market value of the rights of way which were expropriated in the total sum of $123,199.

 

4. INTEREST

Pursuant to section 46 (1) (a) of the Act, Mayfair is entitled to be paid interest at the prescribed rate, compounded annually from June 4, 1990, on the amount awarded for market value in excess of the amount paid to it by the GVWD. Because the amount of the payment made under section 20(1) in the sum of $4,000 is less than 90% of the compensation awarded, additional interest pursuant to section 46 (4) is also payable at an annual rate of 5% on the amount of the difference calculated from the date that the payment was made up to the date of this decision.

 

5. COSTS

Pursuant to sections 45 (3) and (4), Mayfair is entitled to be paid the costs it necessarily incurred for the purpose of asserting its claim for compensation, and the costs payable pursuant to section 45 (7) will be its actual reasonable legal, appraisal and other costs.

 

THEREFORE IT IS ORDERED THAT the GVWD shall pay to Mayfair:

(1) $117,684 for the market value of the permanent right of way pursuant to sections 31 and 40 of the Act.
(2) $5,515 for the market value of the temporary right of way pursuant to sections 31 and 40 of the Act.
(3) Interest on the amounts in items (1) and (2) from and including June 4, 1990, until paid, after adjustment to take into account moneys paid by the GVWD to Mayfair. Pursuant to section 46 (2) of the Act, interest shall be calculated at the following rates:
  (a) Thirteen and one-quarter per centum (13.25%) from June 4, 1990 to June 30, 1990;
  (b) Fourteen and three-quarters per centum (14.75%) from July 1, 1990 to December 31, 1990;
  (c) Twelve and three-quarters per centum (12.75%) from January 1, 1991 to June 30, 1991;
  (d) Nine and three-quarters per centum (9.75%) from July 1, 1991 to December 31, 1991;
  (e) Eight per centum (8.00%) from January 1, 1992 to June 30, 1992;
  (f) Seven per centum (7.00%) from July 1, 1992 to December 31, 1992;
  (g) Seven and one-quarter per centum (7.25%) from January 1, 1993 to June 30, 1993;
  (h) Six per centum (6.00%) from July 1, 1993 to December 31, 1993;
  (i) Five and one-half per centum (5.50%) from January 1, 1994 to June 30, 1994;
  (j) Eight per centum (8.00%) from July 1, 1994 to December 31, 1994;
  (k) Eight per centum (8.00%) from January 1, 1995 to June 30, 1995;
  (l) Eight and three-quarters per centum (8.75%) from July 1, 1995 to December 31, 1995;
  (m) Seven and one-half per centum (7.50%) from January 1, 1996 to June 30, 1996;
  (n) Six and one-half per centum (6.50%) from July 1, 1996 to December 31, 1996;
  (o) Four and three-quarters per centum (4.75%) from January 1, 1997 to June 30, 1997.
(4) Additional interest on the amounts in items (1) and (2) from and including June 4, 1990, to the date of determination of compensation, after adjustment to take into account moneys paid by the GVWD to Mayfair, at the annual rate of 5% pursuant to section 46 (4) of the Act.
(5) The actual reasonable legal, appraisal and other costs of, and incidental to, the application and hearing before the board in such amount as may be agreed upon, and failing such agreement in such amount as may, upon application to the board, subsequently be determined and allowed by the chair.

 

 

Government of British Columbia