October 20, 2005, E.C.B. No. 06/01/262

Reasons for Decision

1.  Introduction

[1]  The claimant, Shell Canada Limited, owns a 0.42 hectare property at the intersection of Lougheed Highway and North Road in Burnaby, British Columbia. Shell Canada Limited has owned this property since 1968. The other claimants, Shell Canada Products Limited and Shell Canada Products, have operated a service station on the property since that time. It is agreed that the claimants can be dealt with collectively in this decision and we will refer to them as "Shell".

[2]  The respondent, British Columbia Transit (Transit), took a statutory right of way (SRW) with a 0.088 hectare footprint from the subject property on February 29, 2000 for the construction of an elevated guideway forming part of the rapid transit facility known as "Skytrain" (the project). The parties entered into an agreement with respect to the granting of the SRW under section 3 of the Expropriation Act, R.S.B.C. 1997, c. 125 which permits the claimants to claim further compensation. An advance payment of $268,386 was paid on March 23, 2000 based on an appraisal by Mr. Lowe of Nilsen Realty Research Ltd.

[3]  Transit constructed the elevated guideway for Skytrain in the vicinity of the subject property in 2000 and early 2001. There are now four large concrete columns and the elevated guideway situated in the SRW along the Lougheed highway frontage on the subject property.

[4]  A few weeks before the scheduled hearing the parties settled a number of issues including the following:

[5]  The remaining issue was whether the remainder of the subject property was injuriously affected by the statutory right of way and, if so, what compensation was owing to the claimants for this item. Shell alleged that as a result of the four concrete columns and the elevated guideway along the Lougheed highway frontage the subject property had suffered significant injurious affection. They claim $630,000 for this loss. Transit denied that the property had suffered any injurious affection. It said that the Shell service station continued to have high sales volumes and that there was no evidence that it was less profitable. According to Transit these facts undermined any claim for injurious affection. The claim was heard in Vancouver from June 20 to 23, 2005. As part of the hearing the board attended at the subject property to take a view. Final written submissions were received on July 19, 2005.

[6]  Shell called three witnesses: Gordon Cleeton, the Area Manager of Real Estate and Development for Shell, John McClurg, an expert in real estate and service station development and David Cavazzi, a real estate appraiser.

[7]  Transit also called three witnesses: Mario Pavlakovic, the manager of properties with Rapid Transit Project 2000, James McIlmoyle, an expert in the gasoline and service station industry, and Fred Mussett, a real estate appraiser.

[8]  We note that the present case has many parallels with the case of Holdom v. British Columbia Transit (2005), 85 L.C.R. 198 (B.C.E.C.B.). Both properties were service stations located on Lougheed Highway in the City of Burnaby. Both involved the taking of a SRW along the Lougheed Highway frontage of the property in the spring of 2000. Both had one or more concrete columns and an elevated guideway constructed on the SRW. In addition, the expert witnesses in the two cases overlapped: Mr. Cavazzi and Mr. McClurg provided expert evidence for the claimant, Chevron, while Mr. Mussett and Mr. McIlmoyle provided evidence for Transit. We also note that Transit has obtained leave to appeal the board's decision in this Holdom case. See 2005 BCCA 326.

2.  BACKGROUND

2.1  Shell Station

[9]  The property is a triangular parcel on the north-west corner of Lougheed Highway and North Road. It is a right angled triangle with the Lougheed Highway frontage being the hypotenuse (the longest side). Before the taking the property was 0.42 hectares or 1.04 acres (45,417 square feet). Shell has developed the property as a self service station consisting of three pump islands covered by a canopy, a small convenience store/office and a free standing car wash along the northern boundary. The site was upgraded in the mid-1980's and 1990's including retail visual image or market branding of the canopy and existing buildings in 1996, along with pump upgrades to supply 12 multi-product, pay at the pump dispensers. In 2002 a new car wash machine was installed in a pre-existing building.

[10]  Both Lougheed Highway and North Road are four lane primary arterial roads with medians. There are two access/egress points on Lougheed Highway. The main driveway at the east side of the property near the intersection permits west bound traffic on Lougheed Highway to make a right turn into the property and also allows vehicles on the site to exit by making a right turn onto Lougheed Highway. There is another driveway at the far west side of the property that is an exit only for vehicles turning right onto Lougheed Highway. There is also a driveway on the North Road frontage that permits right turn in and right turn out of the site for southbound traffic on North Road. Northbound traffic on North Road that turns left or west onto Lougheed Highway can also access the site at the main easterly driveway.

2.2  Neighbourhood

[11]  The subject property is one block south of the Lougheed Mall, a large indoor retail mall. Next door to the north on North Road is a White Spot Restaurant. One block to the north on North Road is an Esso service station. Other nearby commercial development is strip mall retail and restaurant, along with some office use. As part of the project the Lougheed Station is now located immediately adjacent to the subject property on Lougheed Highway to the west. There is a bus loop connecting to this rapid transit station, which is on the north side of the station, north-west of the subject property.

2.3  Municipal Planning and Zoning Regulations

[12]  There was some dispute as to the evidence in the planning documents and relevant sections of various documents are described in some detail.

[13]  The property is zoned C4 Service Commercial under the city of Burnaby bylaws. This zoning allows various commercial uses including self serve service station, subject to the conditions of C6 zoning. The zoning has remained the same both before and after the project.

[14]  The earliest planning document in evidence was the 1985 Community Plan that had been provided to Mr. Cavazzi, Shell's appraiser, by Burnaby as an indication of plans for the area at that date. This 1985 document described the subject property as high density commercial.

[15]  However, there was a different designation in the 1987 Official Community Plan (OCP). In this OCP the subject property was designated Town Centre in the Land Use Framework map, multi-family apartment in the Residential Concept map and on the border of the area designated Town Centre on the Commercial Framework map. In the section entitled "Residential" the 1987 OCP stated that each of the four sectors of the municipality would have "a town centre focus and related higher density development". There would be a "series of proportionately scaled multi-family/commercial centres each having a designated residential role." It is clear that this OCP anticipated the extension of the Skytrain to the Lougheed Town Centre. The Land Use Framework map marks existing Skytrain stations and a future Skytrain station a short distance to the north of the subject property, between the subject property and the Lougheed Mall slightly east of where the Lougheed Station was eventually built.

[16]  In 1997 the Lougheed Town Centre Plan was published. Under the heading "The Vision" it described a transformation of the Lougheed Mall "from a car oriented suburban shopping centre to a more pedestrian and transit oriented centre with a fuller and better integrated range of uses". A proposed rapid transit line was shown on this plan though it was modified somewhat before construction. The Plan went on to propose an additional 3,700 residential units within the Town Centre as well as an additional 2 million square feet of commercial space. The subject property was marked "high density multi-family".

[17]  A new OCP was passed in 1998. It discussed the recent Town Centre planning reviews including the 1997 Lougheed Town Centre Plan and referred the reader to these Plans for more detailed guidelines for residential development. A chart indicates that the type of residential housing in town centres is multiple family at low, medium or high density but no single family or two family housing. On the commercial policy framework map, the subject property is on the edge of the area designated Town Centre.

2.4  SRW and the Project

[18]  Transit took both a temporary and a permanent SRW on February 29, 2000.

[19]  The temporary SRW occupied 334 square metres (3,595 square feet) during construction of the project, which went on for approximately one year. The parties have agreed on the compensation to be paid for this temporary SRW.

[20]  The permanent SRW occupies a strip on the ground running along virtually the entire Lougheed Highway frontage. This strip extends about 10 metres (or 33 feet) into the property over much of the frontage, narrowing to zero near the intersection with North Road. The total area affected by the SRW is 882 square metres (9,494 square feet) or 21% of the gross property area. About 70% of the SRW (609.7 square metres or 6,563 square feet) is within the 6 metre or 19.67 foot building setback area from Lougheed Highway. Approximately 30% (260.0 square metres or 2,799 square feet) of the SRW extends beyond the setback into the buildable area. The parties have agreed on the compensation to be paid for the permanent SRW.

[21]  The board in Holdom set out some of the provisions of the SRW in that case at para 290. Most of the provisions in the two SRW are largely identical. Section 2.1(b) of the SRW in both cases authorizes Transit to enter in, on, under or over the SRW Area for the operation and maintenance of Transit Facilities. Section 3.3 in both cases provides that upon completion of the Transit facilities the SRW Area is limited to the volumetric area as defined by a three dimensional profile of the Transit Facilities as constructed with the airspace occupied by Transit vehicles plus a one metre buffer area. No volumetric plans for the subject property had been filed in the Land Title Office at the date of this hearing. Sections 3.1 and 3.2 in both cases require the Owner to seek approval from Transit before constructing anything or installing any services in the SRW area. Section 6.1 in the present case has one difference compared to Holdom: it limits Transit's ability to make minor adjustments in the boundaries of the SRW Area to a maximum of 6% of the SRW Area, with the northern boundary not encroaching more than one metre further into the lot.

[22]  The Skytrain transit system runs north and south along North Road south of the subject property. At the intersection with Lougheed Highway the elevated guideway turns west to run along the north side of Lougheed Highway. Because the guideway crosses Lougheed Highway at this point the elevated guideway in front of the subject property is somewhat higher than the normal height of 6-6.75 metres (20-22 feet). As indicated above, the Lougheed Station is next to the subject property on the north side of Lougheed Highway. This Lougheed Station is larger than the standard station, in part because it was designed to accommodate a separate line to be constructed in the future to Coquitlam. There was some evidence that while there was considerable uncertainty about this Coquitlam line there was an expressed intent to construct this line by 2010. There was also a preliminary alignment that went from the Lougheed Station towards North Road swinging north of the subject property and passing through the White Spot restaurant property immediately north of the subject property. It is not clear that this alignment would have been ascertainable to a potential purchaser who made enquiries in February 2000 and of course it is not clear that this preliminary alignment is what will be built.

[23]  There are four substantial concrete columns supporting the elevated guideway located in the SRW on the subject property. All of these columns are along the front part of the SRW close to the Lougheed Highway. The two outer columns were just to the south-east of each of the two driveways onto Lougheed Highway. The easterly driveway was reconfigured as a result of the placement of the columns, so that it is now further from the intersection than it was before the project, as well as somewhat wider, with traffic both entering and leaving the site. The second most easterly column is near the corner of the outer pump island (the furthest from the convenience store). There was some discussion about the difficulty for a vehicle to go around the gas pumps when there was a vehicle parked to obtain gas at this outermost pump: the space between a vehicle in this space and the column might sometimes be too narrow to allow some vehicles to go around the pumps to access the car wash or one of the exits. The bases of the four columns occupy a total of 12.3 square metres or 132 square feet.

2.5  Factors Affecting Service Stations

[24]  Both Mr. McClurg and Mr. McIlmoyle provided expert evidence on service station development and the effect of the project on the subject property. These two experts also gave evidence in Holdom and we note the board's discussion of some of the general principles with respect to service station development beginning at para 31 in the Holdom decision. We heard evidence about the specialized nature of service station development in which such factors as traffic volumes, visibility, traffic speed, ease of access, and employment and retail trade patterns were important considerations along with proximity of competitors. The relative share of different service stations in the total sales of gasoline in the trade area around the subject property changed between 1995 and 2004 with some new entrants such as Great Canadian Superstore. Total sales of gasoline in the trade area had also increased in the same period. Service stations had to continually assess competitors' strengths and weaknesses in respect to the traffic flow factors listed above along with considering their competitors' range of products, pricing and ability to rebuild and/or redevelop their sites. As described in Holdom there is a general trend for oil companies to undertake periodic redevelopment of service stations to keep them competitive. These redevelopments might range from a rebranding of existing improvements with new retail visual imaging together with some upgrading (at a cost between $300,000 to $500,000) to complete rebuilding (at a cost between $1,200,000 to 1,800,000).

[25]  Mr. McClurg, for the claimant, emphasized the importance of visibility and accessibility for service stations with respect to passing motorists. In order to attract sufficient customers in a highly competitive market where many gas purchases are made on impulse, service stations need to be readily visible for a considerable distance so that drivers have time to make a decision and perhaps change lanes in order to access the station and make a purchase. In the after situation Mr. McClurg identified that placement of the concrete columns and the elevated guideway significantly impair the visibility of westbound traffic on Lougheed Highway and northbound traffic on North Road. Both of the access/egress points on Lougheed Highway are located between two of the concrete columns. This makes access and egress more difficult because visibility of the driveway or the traffic on Lougheed Highway is impaired by a concrete column. He also comments on how the location of one of the concrete columns, not far from the outer pump island, can restrict traffic flow on the site. When a larger vehicle is parked at the outer pump island or when a vehicle at this pump island is parked further forward and/or to the right, there is less room for vehicles trying to drive round the pump islands to access the car wash or one of the other exits. Mr. McClurg's report contained a photograph showing paint scrapes and scuff marks on this concrete column.

[26]  Mr. McIlmoyle, who gave evidence on behalf of Transit, denied these project factors. He said visibility of the Shell Station on the subject property was unaffected by the construction of the Skytrain project and that access from Lougheed Highway to the main access driveway was easier after the project because of the greater angle and slope of entry. He made various observations as to traffic flow on the site that minimized the impact of the location of the concrete column near the outer pump island. Mr. McIlmoyle surveyed performance at a number of competitors in the trade area and said that in his opinion a total redevelopment of the station in the amount of $1,500,000 was necessary if the station was to remain competitive.

3.  ISSUE

[27]  The primary issue in this case is whether the remainder of the subject property is injuriously affected by the SRW and the presence of the four concrete columns and the elevated guideway that form part of the Skytrain project.

4.  INJURIOUS AFFECTION

4.1  Highest and Best Use

4.1.1  Before the Taking

[28]  The parties are agreed that before the taking the highest and best use of the property was commercial, more specifically as the existing service station.

4.1.2  After the Taking

4.1.2.1  Claimants' Case

[29]  Shell says that after the taking the highest and best use of the subject property as though vacant is changed. Mr. Cavazzi, the appraiser for Shell, provided a number of different factors that affected the property in the after situation and contributed to this change in highest and best use. As a result of these negative factors Mr. Cavazzi says that the highest and best use of the subject property after the taking and the project is holding property for eventual development as multi-family residential, although he says the existing use as a service station will continue for as long as it is economically feasible. If the existing use as a service station ceased, Mr. Cavazzi considered it unlikely that any further commercial redevelopment of the site would occur. Redevelopment as multi-family would likely require consolidation with other parcels.

4.1.2.2  Respondent's Case

[30]  Mr. Mussett, the appraiser for Transit, says that the highest and best use after the taking is the same as before the taking; namely, commercial and continued use as the existing service station. The respondent says that notwithstanding the construction of the project, the subject property continues to enjoy an excellent location, and access from Lougheed Highway and North Road is much the same as before the project. There has been no change in the improvements on the property as a result of the project. Gasoline volume figures remain at the upper end of the range for service stations in the Greater Vancouver area.

[31]  Transit vigorously contested Shell's position on the change in highest and best use after the taking. It emphasized the continued satisfactory performance of the service station after the construction of the project. It also denied any recent change in the OCP. As far back as the 1987 OCP there was already reference to multi-family residential use for the subject property. Further, Transit minimized the role of the OCP in determining land use: it pointed to section 884(1) of the Local Government Act, R.S.B.C. 1996, c. 323, Rogers v. Saanich (District) (1983), 146 D.L.R. (3d) 475 (B.C.S.C.) and a recent decision Heritage Preservation Society of New Westminster v. City of New Westminster 2005 BCSC 816 as authority for the limited nature of the OCP.

4.1.2.3  Analysis of Highest and Best Use After the Taking

[32]  We note that in the circumstances of a partial taking and an appraisal of a property before and after the taking, section 40(1) of the act requires that in the after situation the remainder of the property is appraised "as if" the project for which the land was acquired wasalready constructed on it as of the date of taking.

[33]  Both appraisers agreed that the existing use of the subject property as a service station would likely carry on for some considerable time. Thus there is partial agreement on the highest and best use after the taking for now and the near future.

[34]  However, there is a difference of opinion on the long term highest and best use. First we agree with Shell that in determining the highest and best use, it is important to consider the land as if vacant. In Basics of Real Estate Appraising, 2 nd ed., Barber, A.M. ed., (Appraisal Institute of Canada, Winnipeg, 1992) at p. 249 the author says:

When valuing land, one must always consider its highest and best use as if vacant. If it is improved, it must be considered as if vacant and available for development to its best use: however, the highest and best use is affected by how much the present improvements contribute to the overall value.

Transit in emphasizing the performance of the service station is giving insufficient consideration to the subject property as though vacant land.

[35]  Second we must consider some of the factors listed by Mr. Cavazzi as a reason for the change in the highest and best use. Mr. Cavazzi provided several pairs of photographs showing the site from various vantage points both before and after the construction of the elevated guideway. We also had numerous photographs both before and after the project from Mr. McClurg and Mr. McIlmoyle. In addition the members of the board attended the site to take a view. Since these factors overlap with those that Mr. Cavazzi says reduce the market value of the remainder we will discuss them jointly below. Our conclusion on highest and best use follows at section 4.2.4.

4.2  Injurious Affection

4.2.1  Claimants' Case

4.2.1.1  Before the Taking

[36]  Mr. Cavazzi estimated the market value of the property before the taking by both the cost approach and the income approach. For the cost approach he estimated the land value using six comparable sales of land with similar commercial zoning. He concluded a land value of $60 per square foot, a figure that was eventually agreed between the parties. The total value of the land before the taking was thus agreed to be $2,725,000. Mr. Cavazzi went on to estimate the cost to replace the improvements at $1,380,561 but after depreciation this figure dropped to $424,586. His total market value using the cost approach was thus $3,150,000 (rounded).

[37]  For the income approach he used six comparable leases of service stations or land associated with a gas bar or service station in the lower mainland. From these he concluded a lease rate of return of 9%, which when applied to the market value obtained by the cost approach, gave an annual market rent of $283,500. Five comparable service station sales and one listing were used to conclude a capitalization rate of 9.5%. The projected market rent of $283,500 was capitalized at 9.5% to provide an estimate of market value of$2,984,000 using the income approach.

[38]  Relying primarily on this income approach Mr. Cavazzi concluded a value for the subject property before the taking of $3,000,000.

4.2.1.2  After the Taking

[39]  Although Mr. Cavazzi had concluded a different highest and best use after the taking as a holding property for eventual development as multi-family residential, the continuing service station use as long as it was economically feasible meant that Mr. Cavazzi continued to value the land in the after situation as a service station site. Mr. Cavazzi enumerated various aspects of the taking and construction of the project that had a negative impact on market value. Some of these factors were similar to those that led Mr. Cavazzi to conclude a different highest and best use after the project. He said that as a result of these various negative factors the market would discount the land value of the subject property as a service station after the taking by about 25%. This results in a market value of $45 per square foot for the remainder not included in the SRW (45,417 square feet – 9,494 square feet = 35,923 square feet), for a total land value of $1,617,000 rounded.

[40]  Mr. Cavazzi used the same depreciated value of the improvements as he had used before the taking. Thus the total market value of the remainder after the taking using the cost approach was $1,617,000 + $424,586 or $2,042,000 rounded.

[41]  Mr. Cavazzi then used a modified income approach to measure the market value of the remainder. Using the same lease rate of return as before the taking of 9%, he calculated the market rent for the remainder to be $183,780 year. In the before situation he capitalized the rent at 9.5% in perpetuity. However, in the after situation he projected continuing service station use for only five to ten years. As a result he made two estimations: the present value of the income stream from the rent for five or ten years at the discount rate of 9.5% together with the present value of the land deferred to the end of five or ten years respectively. These estimations yielded $1,800,000 rounded for the five year projection ($772,573 market rent discounted at 9.5% for 5 years + $1,027,163 present value of the land deferred to the end of 5 years) and $1,916,000 rounded for the ten year projection ($1,263,333 market rent discounted at 9.5% for the ten year projection + $652,482 present value of the land deferred to the end of 10 years).

[42]  He concluded that a prudent purchaser would pay more than the land value of $1,617,000 for the remainder but faced with the various uncertainties would conclude a market value for the remainder after the taking of $1,800,000.

[43]  Comparing the market value of the improved subject property before the taking to the market value of the remainder after, and then deducting his estimate of the market value for the SRW of $570,000 (based on 100% of the agreed fee simple land value), Mr. Cavazzi obtained a reduction in market value for the remainder of $630,000. As a result of the market value for the SRW being agreed at less than 100% of the fee simple land value that Mr. Cavazzi had originally estimated, he demonstrated that the revised calculations yielded a reduction in market value for the remainder at essentially the same figure of $628,000.

[44]  This can be summarized as follows:

4.2.2 Respondent's Case

[45]  Mr. Mussett concluded that there was no injurious affection to the remainder of the property as a result of the taking of the SRW and the construction of the project. The presence of the four columns and their effect on reduced availability of land on the SRW for parking and circulation were taken into account in valuing the SRW, an issue that has settled.

[46]  We also note that Mr. Mussett agreed with Mr. Cavazzi that the market value of the land before the taking was $60 per square foot. We have not found it necessary to detail any more of Mr. Mussett's methodology because it concerned issues that have settled.

[47]  In support of his conclusion that there was no injurious affection Mr. Mussett stated that overall visibility and access to the site remained much the same after the project. There was no reduction in visibility of the service station from the east, from the south and from the north, while visibility from the west had increased because some trees and other landscaping had been removed. Mr. McIlmoyle, the service station expert for the respondent, also denied that the visibility of the Shell station had worsened as a result of the project. While Mr. Mussett acknowledged that the column locations may have an impact on the operation of the Shell station, he characterized this as a business loss issue to be addressed by some other expert.

[48]  The respondent stated that Shell had failed to establish that there had been a loss in market value and cited several authorities on which it relied: Morton (Estate) v. British Columbia (Minister of Transportation and Highways) (1999), 67 L.C.R. 278 (B.C.E.C.B.), Glendale Trading Ltd. v. British Columbia (Minister of Transportation and Highways) (2000), 70 L.C.R. 235 (B.C.E.C.B.), Langley Estates Ltd. v. British Columbia (Ministry of Transportation and Highways) (1982), 26 L.C.R. 173 (Arbitrators, BC); aff'd (1985), 33 L.C.R. 307 (B.C.C.A.); Loblaws Ltd. v. Minister of Transportation and Communications (1982), 24 L.C.R. 328 (L.C.B. Ont) aff'd (1985), 34 L.C.R. 239 (Ont. Div. Ct.) and Maritime Electric Company Limited v. Thorne (1987), 14 Nfld. & P.E.I.R. 364, 33 A.P.R. 364 (P.E.I.C.A.).

4.2.3 Analysis

4.2.3.1Appraisal Approaches

[49]  In Holdom v. British Columbia Transit, Mr. Cavazzi was the appraiser for the claimant Chevron and Mr. Mussett was the appraiser for Transit. Mr. Cavazzi's approach to estimating the reduction in market value of the remainder or injurious affection for Chevron was similar to his approach in this case. Even most of the comparables were the same. In the course of its reasons the board in Holdom voiced some criticism of Mr. Cavazzi's use of the income approach at paras 223-225. In particular, the board took issue with Mr. Cavazzi deriving his market rent from estimating an appropriate rate of return from various comparable properties and then applying this rate of return to the market value from the cost approach, rather than looking directly at market rents. During the hearing Mr. Cavazzi responded to some of this criticism and Mr. Cleeton also provided some evidence as to the calculation of market rents of gas stations.

[50]  Nonetheless, we continue to share some of the concerns raised in Holdom about Mr. Cavazzi's income approach.His income approach is dependent on estimations of value derived from the cost approach and then utilizes two market derived rates based on market evidence that is not altogether persuasive, in particular with respect to the lease rate of return. In any event there is the problem identified in Holdom of these two rates being used in succession; a rate of return of 9.0% on the market value from the cost approach being used to impute an income for the subject property which is then capitalized at a different rate of 9.5% to estimate a new market value from the income approach. In Holdom, the board describes this as creating a logical fallacy. As a result of these difficulties, we prefer Mr. Cavazzi's cost approach. We note that in the after situation Mr. Cavazzi's primary assessment of the impact of the project is in his 25% reduction to the land value in the cost approach.

4.2.3.2 Market Value Before the Project

[51]  Before the taking both appraisers agreed that the land value of the subject property was $2,725,000. Only Mr. Cavazzi provided us with a market value of the improved property: he estimated a value of $3,150,000 (rounded) using the cost approach and $2,984,000 using the income approach, for a final conclusion of $3,000,000.

[52]  In this case we have an agreed price for the land component which is close to 90 percent of Mr. Cavazzi's valuation for the improved property using the cost approach. There was no challenge of Mr. Cavazzi's valuation of the depreciated improvements. As we have indicated, we prefer Mr. Cavazzi's cost approach and accept his market value for the subject property in the before situation using this approach at $3,150,000.

4.2.3.3 Market Value After the Project

[53]  After the taking Mr. Cavazzi estimates the market value for the remainder and then obtains a reduction in market value to the remainder of $630,000. Mr. Mussett denies that there is any reduction in value to the remainder and he does not estimate the market value of the improved property after the taking.

[54]  Mr. Cavazzi discussed a number of factors that he said had a negative impact on the market value of the remainder of the subject property. These factors overlap with those that he said impacted highest and best use and we combine our discussion of these factors.

• the permanent SRW along the Lougheed Highway frontage

[55]  After the taking the SRW occupies a significant portion of the subject property at more than 20% of the total land area. About 30% of the SRW or 2,799 square feet is located in the buildable area. The SRW encroaches over a corner of the existing canopy and tank farm (underground fuel storage tanks). We note para 6.1 of the SRW permits the boundary of the SRW to be expanded up to one metre further into the site.

• terms of the SRW

[56]  As indicated above the terms of the SRW that exist on the subject property after the taking and the project are largely identical to those in Holdom v. British Columbia Transit. The board in that case set out a number of the terms of the SRW and went on to make the following observations starting at para 291:

[291]  From our review we are struck by the broad rights evidently conferred on Transit in the SRW document. Particularly striking is the emphasis upon future development. We note that "Transit Facilities" are widely defined to encompass future construction of facilities, structures, utilities and infrastructure not yet even planned including commercial opportunities and ventures unrelated to the Transit System. The "Transit System" includes not only facilities for the transportation of people and goods but of information as well. The SRW document gives Transit the free and uninterrupted right in perpetuity to "disturb the SRW Area generally as it sees fit" in furtherance, it seems, not only of construction but of Transit's purposes generally. Upon written notice Transit at any time can make what the document describes as "minor adjustments" in the boundaries of the SRW Area, subject to the payment of compensation for any additional area taken. [In the present case para 6.1 specifies that the minor adjustments can increase the area of the SRW up to 6% with the northern boundary extending not more than one metre further into Lot 12.]

[292]  It is evident from the language of the document that a general limitation has been placed on the owner's rights, making them strictly subject to those of Transit in the SRW Area. However, within the strictures noted, we also observe that the owner has been left with certain limited rights of use. These extend even to construction of buildings, structures or improvements and to the installation of utility or other services under, on or over the SRW Area provided that plans and specifications are first submitted to and approved in writing by Transit. We attach some significance to the inclusion here of wording in which Transit agrees that its approvals will not be "unreasonably" withheld.

[293]  A seemingly unique feature of the SRW document is the provision in section 3.3 whereby, upon completion of the Transit Facilities, the SRW Area becomes "limited to the volumetric area" as defined in a three dimensional profile. The owner, subject to the usual approval requirements, is said to be able to build under or over the Transit Facilities at that point. Transit has cited this provision as grounds for asserting that it ultimately enjoys an aerial interest only and that the area beneath the guideway should be viewed as essentially unencumbered.

....

[295]  However, viewed in the context of the SRW agreement as a whole, the notion that Transit's rights ultimately become limited to a volumetric area seems highly problematic. To our minds it does not sit easily with other continuing rights said to be enjoyed by Transit within the SRW Area — an area which is defined by reference to the two dimensional Plan registered in the Land Title Office. Pursuant to section 2 of the SRW document Transit continues to possess broad rights to make future changes on its own account or to give or withhold permission for activities proposed by the owner in the SRW Area. It continues to have the free and uninterrupted right in perpetuity to enter in, on, under or over the SRW Area for the operation and maintenance of the Transit Facilities.

The board in Holdom went on to conclude at para 304

... we conclude ... that Transit's rights, in particular its future rights as spelled out in the subject SRW agreement, are atypically broad and, insofar as the volumetric concept is concerned, somewhat ambiguous or inconsistent.

[57]  We agree with this board's conclusions in Holdom with respect to the terms of the SRW. We also note in this case that Mr. Pavlakovic acknowledged that an Owner having to seek Transit approval for any construction within the SRW added another layer of bureaucracy for any development of the property. The terms of the SRW are one of the factors that would be considered by a prospective purchaser and have an impact on highest and best use as well as market value. We accept that the SRW imposes additional design and construction costs on redevelopment and may result in a reduction in buildable area.

• Columns and guideway on the property

[58]  The photographs taken before and after the taking and construction of the project clearly demonstrate the significant impact of the four concrete columns and the elevated guideway on the visibility of the commercial site. We accept that the Shell station is less visible than it was before the taking for both drivers heading west on Lougheed Highway and those heading north on North Road in the left turning lane about to turn west onto Lougheed Highway. We note Mr. McClurg's evidence that the elevated guideway, in particular, created visibility problems for drivers. In his report he comments "the size of the project in terms of its relative mass tends to dwarf the service station." Further, the elevated guideway is on the south side of the property and the photos demonstrate that at certain times of the year, the guideway casts a shadow over the canopy that bears retail visual imaging or market branding with Shell colours and Shell signage insignia. We agree that this shadow reduces visibility of the present market branding.

[59]  It is the case that for those drivers heading south on North Road and turning right into the site on the driveway on North Road, the project has no effect on visibility or access. With respect to drivers heading east on Lougheed Highway we agree that the removal of several trees in front of the subject property in connection with the project may improve visibility of the Shell station in the after situation. However, this is irrelevant as there is no possible route in which east bound traffic can access the subject property, short of making sufficient turns on various secondary roads in order to end up heading in the reverse direction.

[60]  With respect to access and egress to the subject property for those drivers heading west on Lougheed Highway, both driveways are now situated between two concrete columns. It is difficult for westbound drivers to see the more easterly access driveway in advance as it is immediately behind a concrete column. For drivers trying to exit the Shell station onto Lougheed Highway, the location of both driveways immediately to the west of a concrete column means that there is some reduced visibility of oncoming traffic on Lougheed Highway, especially for traffic exiting the more easterly two way driveway. (The column near the more westerly driveway is set back further from the boundary of the property). Mr. Mussett acknowledged that the location of the columns may impact the operation of the Shell service station.

[61]  There is also the effect of the project on traffic flow on site. On the basis of the evidence we received we accept that at certain times when vehicles are using the outer pump island there is some impediment to traffic flow on site resulting from the project.

[62]  We conclude that the physical aspects of the project have some negative impact on visibility, access and on site traffic flow. These limitations are to be considered in determining highest and best use and the market value of the remainder after the taking.

[63]  We do not accept the evidence of Mr. Mussett and Mr. McIlmoyle that visibility and access with respect to the Shell station were unaffected by the project. In particular, we reject Mr. Mussett's assertion that the location of some of the concrete columns on the subject property is not a real estate appraiser's concern, but rather is a business loss issue. Transit challenged the negative effect of reduced visibility and access by submitting that sales from the subject property, whether they were gas sales, car washes or convenience store items, remained relatively high after construction of the project was completed. However, Shell's business performance (on which we had little evidence) is largely irrelevant to the issue we must decide: the effect of the project in the determination of the highest and best use and the price that a well informed and prudent purchaser would pay for the subject property after the taking.

• uncertain location of the alignment of the Coquitlam line

[64]  As described above, the Lougheed Station, immediately to the west of the subject property, was designed to accommodate a second transit line heading towards Coquitlam. During the hearing we were provided with a preliminary alignment dated 2004 that exited Lougheed Station on the east side, swung north of the subject property, passed through the White Spot restaurant property immediately north of the subject property and then headed north on North Road. After the hearing Transit provided an earlier version of this alignment dated June 2001. There is still uncertainty with respect to this public transit line.

[65]  Transit submitted that it was not responsible for any uncertainty created by the proposed Coquitlam line because the proposed line had nothing to do with the project and in any event it was too remote.

[66]  We find that the Lougheed Station was constructed as part of the Skytrain project that is the subject of this case. It is clear that the station was constructed to accommodate another public transit line heading east towards the subject property. We accept that this proposed second transit line creates uncertainty for the subject property. Even if we assume that a potential purchaser in February 2000 would have been able to ascertain that the preliminary alignment would not take any further land from the subject property but swing to the north, we accept that such a purchaser would have concerns about the subject property being isolated between the current Skytrain line on the south side of the subject property and the proposed transit line on the north. This uncertainty arises from the project and is not too remote. It is a factor in the determination of highest and best use and the market value of the subject property after the taking.

• change in the OCP

[67]  While the 1987 OCP contemplates multi-family use for the subject property, as indicated above, it also contemplates a future Skytrain station near the subject property. There was evidence of Mr. Cavazzi's conversations with Burnaby planners that confirmed the relation between the designation of a Lougheed Town Centre with associated multi-family residential use and the proposed extension of the Rapid Transit System, (or a similar transit system). There was also evidence from Mr. Pavlakovic, the respondent's manager of properties, which confirmed the interrelation between Burnaby's Town Centre concept and the anticipated Skytrain station. We note that the 1985 Community Plan that predated the 1987 OCP designated the subject property as high density commercial, a designation that is in agreement with the long standing zoning of C4 service commercial.

[68]  Section 33(g) of the Act provides

33 In determining the market value of land, account must not be taken of

…

(g) any increase or decrease in value of the land that results from the enactment or amendment of a zoning bylaw, official community plan or analogous enactment made with a view to the development in respect of which the expropriation is made.

In our opinion the 1987 OCP in designating the subject property and surrounding area as multi-family residential use was made with a view to the development of the Skytrain. There is a nexus between this designation of multi-family residential use in the 1987 OCP and the Skytrain project. Under section 33(g) of the Act this designation as multi-family should be ignored in the valuation of the property in the before situation. See Vision Homes Ltd. v. Nanaimo (City) (1994), 54 L.C.R. 103 (B.C.E.C.B.); aff'd (1996), 59 L.C.R. 106 (B.C.C.A.). We accept that prior to this change to the OCP in 1987, the regulatory control that was in place for the subject property was commercial as reflected in the 1985 Community Plan and the C4 zoning. It is this designation as commercial that is considered in the highest and best use and the market value of the land before the project.

[69]  However, after the project, the multi-family residential designation for the subject property in the OCP must be considered along with the zoning for C4 commercial. We accept that there is a conflict between the OCP and the current zoning, a conflict that appears to date back to 1987. While this conflict has had no effect on the subject property to date, we agree that this conflict results in some uncertainty if any future owner of the property attempts redevelopment requiring rezoning.

[70]  There was some confusion at the hearing as to which OCP had first used multi-family for the subject property. Transit tried to use the mistake about what was designated in the 1987 OCP to deny that there was any change in the OCP. As we have indicated above we specifically reject this assertion. Further, Transit relied on section 884(1) of the Local Government Act (mistakenly cited as section 884(2)), as authority that the OCP does not control use. However we agree with the claimant that section 884(1) is not applicable in these circumstances. We note that section 884(2) provides that "all bylaws enacted ... after the adoption of [an official community plan] must be consistent with the relevant plan". This provision confirms the difficulties that any future owner of the property will have in attempting redevelopment requiring any rezoning or any other new bylaw. This particular difficulty of redevelopment did not exist before the project because as set out above we must assume that there was no conflict between the zoning and the OCP. In both of the cases cited by Transit, Rogers v. Saanich (District) and Heritage Preservation Society v. New Westminster, the court refused to quash or set aside a recently passed zoning and/or development bylaw on the grounds that it was in conflict with the more general OCP. However, these cases are of no assistance in considering what redevelopment proposals a particular municipal council is likely to approve when it considers an application for redevelopment for the subject property in relation to the existing zoning that is in conflict with a later OCP.

[71]  Regulatory controls are one of the factors to be considered in highest and best use and market value and we conclude that there has been a change in these controls for the subject property as a result of the taking and the project.

• Development uncertainty and capital spending

[72]  Both Mr. McClurg and Mr. McIlmoyle testified as to the benefits of periodic renewal and redevelopment of service stations. In Mr. McIlmoyle's opinion, the claimant needed to do a complete rebuild costing in the order of about $1,500,000 in order to stay fully competitive. The claimant states that it would not be undergoing major redevelopment, the costs of which would normally be amortised over 20 years, given all the uncertainties for the subject property described above.

4.2.4 Conclusion

[73]  First of all we must make a decision on highest and best use. When we consider the subject property as though vacant land, along with the consideration of the other factors described above, in particular the change in the regulatory bylaws and other developmental uncertainty arising from the project, we agree with Mr. Cavazzi's highest and best use after the taking as long term holding for multi-family residential. We also agree that the current improved use as an existing service station will continue for as long as it is economically feasible. In our opinion the long term future of the site as an existing service station is more limited as a result of the project than it was in the before situation. However, we find that the continuing use as a service station is likely to extend to the far end of the five to ten year range estimated by Mr. Cavazzi.

[74]  We do not accept Transit's unsupported submission that it was an error in appraisal theory to say that the highest and best use was holding for multi-family when the existing use would continue for five to ten years. We note that Mr. Lowe, in the appraisal of the subject property that Transit served on the claimants with the advance payment in March 2000, concluded that the highest and best use of the subject property was holding property pending assembly with adjacent parcels for redevelopment consistent with the OCP. It is true that he was asked to ignore the existing gas station use but as we have indicated, highest and best use as if the land was vacant must be considered by the appraiser.

[75]  Second we must decide on whether there is injurious affection. As we indicate above we accept that the visibility and access of the Shell service station have been somewhat reduced as a result of the project. We also agree that the SRW imposes additional design and construction costs on redevelopment. Further, there is greater development uncertainty as a result of the change in the OCP and the unbuilt Coquitlam line connecting to the Lougheed Station. The test is what would a purchaser pay for the subject property (excluding the SRW) after the taking and we find that there are several reasons why a prudent and well informed purchaser would pay less in comparison with the before. As a result we conclude that the remainder of the subject property has suffered injurious affection as a result of the taking and the project.

[76]  We have already said that we prefer Mr. Cavazzi's cost approach in this case. Mr. Cavazzi concluded a 25% reduction to the land value after the taking. While there was criticism of this percentage reduction on the basis that it was arbitrary, we appreciate the difficulties faced by an appraiser when there are no sales of other properties with concrete columns and elevated guideways to use as comparables. We note that two of the comparables identified by Mr. Cavazzi yielded land values of $36-$40 and $50 per square foot. While the subject property was superior to these two comparables in the before situation, the physical limitations and the various development uncertainties make it more comparable to these properties after the taking.

[77]  We note that the board in Holdom found that there was a 33% or one third reduction in market value to the remainder as a result of the project, although it is the case in Holdom that a service station use was no longer feasible after the taking.In the present case the SRW occupies 21% of the subject property compared to about 10% in Holdom, while encroachment of the SRW into the buildable area is more extensive at 2,799 square feet (6% of the total area before the taking) compared to only 165 square feet in Holdom (0.7% of the total area before the taking).

[78]  We would have preferred to have more evidence in this case. However, Mr. Cavazzi's conclusion of a 25% reduction in land value from $60 per square foot before the taking to $45 after has some support in the evidence we received. We have no evidence from Mr. Mussett that assists us. We accept Mr. Cavazzi's conclusion of a 25% reduction in the market value of the land after the taking. This provides a market value for the land remainder after the taking of $1,617,000 and for the improved remainder of $2,042,000. After deducting this $2,042,000 from the before value of $3,150,000 and then deducting Mr. Cavazzi's value for the SRW we conclude a reduction in market value to the remainder of the subject property of $538,000.

[79]  Transit's primary submission was that because the Shell service station had relatively good sales there was no reduction in market value of the remainder. However, as we have indicated, the statutory test set out in section 32 of the Act is based on what a knowledgeable purchaser would pay, and we have found several reasons why a knowledgeable purchaser would pay less than before, regardless of Shell's sales. The various cases cited by Transit have no application to this case. We specifically reject Transit's allegations of bias by the claimants' experts. We note that Mr. Lowe in his appraisal of the subject property acknowledged that there was injurious affection to the subject property as a result of several factors including reduced visibility, the existence of concrete columns and elevated guideway, and a possible reduction in development potential. (Mr. Lowe did not attempt to quantify the injurious affection.)

5. SUMMARY

[80]  We have awarded $538,000 for reduction in market value to the remainder. As indicated above the two parties settled three other claims shortly before the hearing and agreed on the compensation to be paid. Thus the total compensation to be paid is as follows:

6. INTEREST

6.1 Regular Interest

[81]  Shell is entitled to interest under section 46(1) of the Act on the compensation awarded that is in excess of the advance payment. In this case the two parties settled three of the four claims shortly before the hearing. The parties also agreed that interest was to be paid on these three settlement amounts that were in excess of the advance payment of $268,386. Since the advance payment has been set off against the settlement, interest under section 46(1) is payable on the entire compensation awarded of $538,000 from February 29, 2000 until paid.

6.2 Additional Interest

[82]  Under section 46(4) additional interest is payable if the advance payment under section 20(1) or (12) is less than 90% of the compensation awarded, excluding interest and business loss. Shell submitted that no part of the advance payment of $268,386 is for the reduction in market value of the remainder and therefore section 46(4) applies. As set out above, the settlement provided that the advance payment was to be applied to the three claims that were settled. We note that the advance payment of $268,386 is less than 50% of the compensation awarded of $538,000 in any event. We award Shell additional interest on the award of $538,000 at an annual rate of 5% calculated from March 23, 2000 until the date of this decision.

[83]  This board in Richland Farms Ltd. v. British Columbia (Ministry of Transportation and Highways) (1991), 46 L.C.R. 66 established that interest under section 46(1) compounds annually, while additional interest under section 46(4) provides for simple interest only.

7. COSTS

[84]  The claimants seek costs under section 45 of the Act and the Tariff of Costs Regulation, B.C. Reg. 189/99 (the Tariff). Subsections 45(4) and (5) provide:

(4) If the compensation awarded to an owner, other than for business losses, is greater than 115% of the amount paid by the expropriating authority under section 20(1) and (12) or otherwise, the authority must pay the owner his or her costs.

(5) If the compensation awarded to an owner is 115% or less of the amount paid by the expropriating authority under section 20(1) and (12) or otherwise, the board may award the owner all or part of his or her costs.

[85]  The claimant says that no portion of the advance payment of $268,386 was made for reduction of market value of the remainder under section 40(1)(b)(i) and therefore it is entitled to its costs under section 45(4). We also note that the award of $538,000 is 200% of the advance payment and that additional compensation in excess of the advance payment was agreed between the parties shortly before the hearing. Shell is entitled to its costs under section 45(4).

[86]  With respect to the relevant Scale, the claimant submits that this matter involved difficult appraisal and legal issues and as a result insofar as costs fall under the Tariff they should be at Scale 3. There was no comparable data for a Skytrain project and this was compounded by others considerations such as the change in the OCP. We agree that the appraisal issues were of more than ordinary difficulty and complexity. However, we think that the legal issues were more straightforward and we see no reason to depart from the presumption found in section 4(3) of the Tariff in favour of Scale 2. Insofar as Shell's costs fall to be determined under the Tariff, we conclude that the legal costs should be fixed at Scale 2 for matters of ordinary difficulty or importance and the appraisal costs should be fixed at Scale 3 for matters of more than ordinary difficulty or importance.

THEREFORE IT IS ORDERED THAT

1. The respondent shall pay compensation to the claimants in the amount of $538,000 for the reduction in market value of the remaining land pursuant to sections 31(1), 32 and 40(1) of the Act.

2. The respondent shall pay interest to the claimants pursuant to section 46(1) of the Act on $538,000 from February 29, 2000 until paid. Interest shall be paid in accordance with Appendix "A" to these reasons for decision.

3. The respondent shall pay additional interest to the claimants pursuant to section 46(4) of the Act on the amount of $538,000 from and including March 23, 2000, the date the payment of $ 268,386 was made, to the date of these reasons for decision at the annual rate of 5%.

4. The respondent shall pay to the claimants its costs necessarily incurred for the purpose of asserting its claim for compensation pursuant to section 45(3) and (4) of the Act. The legal and real estate appraisal costs payable that were incurred on or after June 28, 1999 shall be those prescribed in the Tariff pursuant to section 45(7)(b) of the Act. Legal costs under the Tariff are fixed at Scale 2, while appraisal costs are fixed at Scale 3. Other costs payable shall be the actual reasonable costs pursuant to section 45(7)(a) of the Act. The costs shall be in such amount as may be agreed upon, and failing such agreement in such amount as may, upon application, subsequently be determined and allowed.

APPENDIX A

Interest Rates

Interest shall be calculated and compounded annually at the following rates:

• Six and one-half per cent (6.5%) from January 1, 2000 to June 30, 2000
• Seven and one-half per cent (7.5%) from July 1, 2000 to December 31, 2000
• Seven and one-half per cent (7.5%) from January 1, 2001 to June 30, 2001
• Six and one-quarter per cent (6.25%) from July 1, 2001 to December 31, 2001
• Four per cent (4.00%) from January 1, 2002 to June 30, 2002
• Four and one-quarter per cent (4.25%) from July 1, 2002 to December 31, 2002
• Four and one half per cent (4.5%) from January 1, 2003 to June 30, 2003
• Five per cent (5.00%) from July 1, 2003 to December 31, 2003
• Four and one half per cent (4.5%) from January 1, 2004 to June 30, 2004
• Three and three-quarters per cent (3.75%) from July 1, 2004 to December 31, 2004
• Four and one quarter per cent (4.25%) from January 3, 2005 to June 30th, 2005
• Four and one quarter per cent (4.25%) from July 1, 2005 to December 31, 2005