REASONS FOR DECISION

1.  Application

[1] The claimants, Keith Maddocks and Maddocks Farms Ltd. have applied pursuant to the provisions of the Expropriation Act, R.S.B.C. 1996, Chapter 125 (the "Act"), for an order of the Expropriation Compensation Board fixing the compensation to be paid to them as a result of an expropriation on May 7, 1997. The respondent, the City of Surrey, expropriated a Statutory Right of Way on the subject lands (the "Lands") for drainage purposes.

[2] The claimants own and operate a vegetable farm on the Lands located south of Highway # 10, just west of the urban core of the Cloverdale area of Surrey. Keith Maddocks is the owner of the Lands which comprise three contiguous legal parcels, and is a co-owner, along with his wife Evonne and son Reg, of Maddocks Farms Ltd. which carries on the farming operation.

The Lands are legally described as:

1)	Parcel Identifier: 011-641-851 North half of the North West Quarter Section 6 Township 8, except: Firstly: Part on Plan 22160; Secondly: Parcel "A" (Reference Plan 1337); Thirdly: Parcel "One" (see E26880) New Westminster District (the "North Half")
2)	Parcel Identifier: 013-249-061 Parcel "A" (Reference Plan 1337) North Half of the North West Quarter Section 6 Township 8 New Westminster District  ("Parcel A")
3)	Parcel Identifier: 011-642-025 Parcel "C" (Plan with fee Deposited 14248F) District Lot 363 Group 2 except: Firstly: Part on Plan 22160; Secondly: Parcel "One" (Reference Plan 6369) New Westminster District ("Parcel C")

[3] The taking is a partial taking and consists of a perpetual statutory right of way (the "SRW") along the north and west boundaries of the Lands varying in depth from 32.57 metres (106.86 feet) to approximately 30.6 metres (100.3 feet) and comprising a total area of 4.7 hectares (11.61 acres). The taking on the north side of the Lands parallels the BC Hydro railway tracks (railway operated by Southern Railway of BC) which run along the south side of Highway # 10. On the west side, the taking runs adjacent to 168th Street. Another railway line, the BC Rail tracks, serving DeltaPort at Roberts Bank, is located on the south side of the Lands. Thus, the Lands are bounded by railway tracks running along both the northern and southern property lines. The property directly east of the Lands is zoned for light industrial use and is partially improved with industrial buildings.

[4] Two of the three parcels comprising the Lands are zoned for agricultural use with the third having a split zoning, light industrial on the northern portion and the remainder agricultural. All of the Lands are situate in the floodplain of the Nicomekl River and, with the exception of the industrial zoned portion, are located in the Agricultural Land Reserve (ALR).

[5] The largest of the three parcels, the North Half, with an address at 5490 – 168th Street, is an L-shaped property of 25.9 hectares (64.1 acres) fronting both 168th Street and Highway # 10. The taking from the North Half comprises a 521.8 metre (1,712 feet) strip along the northern boundary and a 281.4 metre (923 feet) strip along 168th Street on the west side of the property. The total taking from this parcel is 2.7 hectares (6.67 acres).

[6] The smallest property, Parcel A, with an address of 5574 – 168th Street is 2.02 hectares (5 acres) in size and is situated at the southeast corner of 168th Street and Highway # 10 bordering the largest parcel on the east and south. The taking from Parcel A is an L-shaped section along the north and west boundaries for a total area of 0.939 hectares (2.32 acres).

[7] Parcel C at 17236 - 56th Avenue, the split zoned parcel, is the most easterly property. The taking from Parcel C is from the industrial zoned area across the northern boundary for a length of 329.4 metres (1,080.6 feet) and total area of 1.06 hectares (2.62 acres).

[8] Prior to the taking, the Lands were encumbered by an earlier statutory right of way for sewer purposes running along the northern boundary. This right of way, covering a total area of 0.50 hectares (1.231 acres) is now situate within the new right of way. Neither of the appraisal experts discounted the value of the land encumbered by the existing right of way as the works were sub-surface and did not affect the farming operation. In the industrial zoned portion, these works were situated within the area that would be required for building setbacks upon development. Both the claimant and the respondent agreed that the market value of the current taking is equal to 100% of the fee value as the works involve a large drainage canal leaving the claimants with no practical use of the right of way.

[9] On May 6, 1997, the respondent made an advance payment to Keith Maddocks in the amount of $386,950 in respect of his interest in the Lands. This was subsequently increased to $600,200 on November 5, 1999. On May 6, 1997, the respondent made an advance payment to Maddocks Farms Ltd. in the amount of $156,582 in respect of business loss. The respondent now claims an overpayment of $123,926 for the cost of the improvements made as part of the works as well as an overpayment of $85,392 based upon a revised income analysis for Maddocks Farms Ltd.

[10] The claimant, Keith Maddocks, seeks compensation for the market value of the land taken and the reduction in value to the remainder for a total of $1,869,490. Maddocks Farms Ltd. seeks compensation for the loss of future farm earnings in the amount of $144,771 and seeks $102,778 for accelerated depreciation of machinery and improvements due to the loss of efficiency of the farm. Claims for a loss of earnings in 1996, disturbance damages for relocation of the manure storage and lost income due to access interference, flooding and disruption of the irrigation system during construction of the works, although initially claimed, were not pursued at the hearing.

2.  Background

[11] The Maddocks family acquired the Lands in 1954 and have operated a vegetable farm on the property since that time. Maddocks Farms Ltd. ("MFL") had carried on the farming operation on the Lands for many years although it appears that the lease arrangement was only formalized in 1995. At the time of the taking MFL was leasing the farm from Keith Maddocks on an ongoing basis with two year terms which were automatically renewed unless cancelled by either party. The respondent questioned whether MFL was an "owner" as defined in the Act.

[12] The majority of the farm is planted with the crop rows running north to south and, prior to the taking, a portion of the BC Hydro railway lands was used by the Maddocks. These lands were used for headlands, being the area required for vehicle turns at the end of each crop row. This maximized the planted area on the farm. Drainage and irrigation was handled by an open ditch system.

[13] The Lands were fully dyked and reportedly had a good drainage system that enabled the Maddocks to plant earlier and harvest later than many of their neighbours. Mr. Maddocks provided a sketch indicating that the ditch system flowed along the BC Hydro railway lands on the south side of the tracks, but north of the subject property line. It then drained south through a ditch which flowed through the middle of the Lands along the western boundary of Parcel C. From there it continued west along the southern boundary of the North Half to a pump house which was located in the southwest corner of the Lands. A small ditch also ran along the western side of the property adjacent to 168th Street.

[14] Evidence showed that Highway # 10 had experienced flooding problems after heavy rainstorms due to increased upland development producing a faster runoff of water. The raised railway tracks between the subject and the highway provided a barrier that protected the Lands from this flooding. In dealing with the increasing flooding/drainage problem, the City of Surrey undertook the South West Cloverdale Canal Works, Phase 2 of which involved the taking from the subject.

[15] Early in 1996 the Maddocks were advised that the works would be proceeding in July of 1996 and the SRW boundaries were flagged on March 13, 1996. Mr. Maddocks did not plant crops in the SRW area in 1996. Although initially compensation was sought for the alleged resulting loss of profits for the season, it was not pursued at the hearing.

[16] The works involved the construction of a drainage canal on the Lands, replacing the former ditches on the north and west sides. Evidence showed that the old ditches were approximately half of the width of the new canal. The new canal was within the boundary of the Lands. It was brought to the board's attention that the previous ditch on the north side had been outside the Lands. The City eliminated two access points to the Lands from Highway # 10 but constructed culverts to provide two new accesses off 168th Street. The pump station was moved further east into the subject property but remains at the southwest corner just outside of the SRW. A manure storage area, formerly located at the northwest corner of the property, was eliminated and although the City was to relocate it, this has not yet been done for reasons which were not made clear to the board.

[17] The project was delayed until 1997 with the construction of the works occurring in the fall and winter of 1997 into 1998. The matter was set for hearing on November 15, 1999 but adjourned at the City's request. A new hearing date of March 6, 2000 was subsequently agreed. On February 29, 2000 the City amended its replies to the claims. In the 30 day period prior to the hearing, the respondent City filed several reports or report amendments in support of its claims of overpayment. These reports dealt with the City's assertion of special benefits and recalculated the previous estimate of business losses. The issue of access was raised in the reports filed within the 30 day period. This had not previously been identified as a concern by the respondent. The claimant was allowed to file an amended Form A just prior to the start of the hearing and additional reports during the course of the hearing.

3.  Preliminary Issues

3.1 MFL as Owner

[18] Section 1 of the Act defines an "owner" as:

(a)	a person who has an estate, interest, right or title in or to the land including a person who holds a subsisting judgment or builder's lien,
(b)	[not relevant]…,or
(c)	a person who is in legal possession or occupation of land, other than a person who leases residential premises under an agreement that has a term of less than one year;

[19] MFL says it is an "owner" under the Act pursuant to its interest in the Lands as a tenant under a lease between it and Keith Maddocks.

[20] The evidence was that the farming operations had been carried on by MFL on the Lands for many years. That this was with the consent of Keith Maddocks is obvious, since MFL was privately held by Keith Maddocks, his wife and his son. In 1995 arrangements were formalized with the execution of a written agreement on December 19, 1995 (the "Lease") providing for the lease to MFL of the lands which had been traditionally farmed by MFL and the farm buildings and facilities thereon. The Lease provided for an initial two year term from January 1, 1995 with automatic renewals for further successive two year terms with either party having a right of termination. MFL agreed to pay as rent a percentage of the property taxes on the Lands and an amount equal to capital cost allowance on the farm buildings and facilities. As well, MFL agreed to pay insurance and to pay all maintenance, repairs and improvements to the farm lands, farm buildings and facilities.

[21] While the respondent initially raised the question of the validity of the Lease, it tendered no evidence in this regard. The respondent's argument was that the Lease should be disregarded because it claimed that Danny Grant, the claimant's expert, indicated that the Lease was not of a commercial valid nature.

[22] In a supplementary report prepared for the claimant, Danny Grant of Interwest Property Services (1991) Ltd., states "…the lease and sub-lease are not considered to have any commercial validity. In other words the agreed rental arrangements do not reflect market rents."

[23] We note that Grant's comments were not in relation to the validity of the Lease but rather, given the non-arm's length nature of the Lease, directed to the appropriate amount to be reflected as a deduction for market rent in arriving at MFL's business loss as a result of the taking. As such, we do not find this affords a basis for us to disregard the Lease.

[24] We find the Lease provisions satisfy the certainty requirements necessary for it to be a valid lease. Registration under the Land Title Act is not required since the term of the Lease does not exceed three years. There is also actual occupation under the Lease. The Lease is in writing and therefore satisfies the requirements of the Law and Equity Act. These requirements have been previously discussed by the board in El & El Investments Ltd. v. School District No 36 (Surrey) 56 L.C.R. 112.

[25] We therefore conclude that the Lease is valid and enforceable and constitutes an interest in the Lands and that MFL was in legal possession and occupation under a lease agreement having a term of more than one year. Accordingly, we find that MFL is an "owner" under the provisions of subsections (a) and (c) of the definition in the Act.

3.2 Access

[26] Parcel A and the North Half have road frontage on 168th Street. All three parcels have effective frontage on Highway # 10 with only the BC Hydro railway land separating the properties from the road. Prior to the taking, the Lands were served by three access points off Highway # 10 on the north side of the property with no constructed access to 168th Street. Surrey disputed that the existing accesses were legal.

[27] Access # 1 was located just east of the eastern property line of Parcel A. Access # 2 served the central portion of the North Half. Access # 3 on the eastern edge of the Lands is the current main driveway to the Maddocks home and provides access to Parcel C. Accesses # 1 and # 2 were eliminated by the construction of the new canal. Access # 3 was unaffected by the taking.

[28] The respondent constructed two culverts to provide access off 168th Street to replace the two access points eliminated on the north side of the Lands. The respondent claims that the new accesses constitute a special benefit and seeks to be reimbursed for the full cost of construction of the two culverts in the amount of $96,350.

[29] The claimant produced a February 19, 1969 agreement with BC Hydro (the predecessor in interest to BC Rail) relating to a taking from the south side of the subject for a railway to Roberts Bank. At that time, BC Hydro undertook to provide a new railway crossing for "farm purposes" on the north side of the Lands some 800 feet east of 168th Street ("Access # 1") and to upgrade the existing eastern most crossing on the north side, 3,600 feet east of 168th Street ("Access # 3"), to driveway standards to replace the accesses that were being eliminated on the south side. The agreement refers to another existing crossing at 2,000 feet east of 168th Street ("Access # 2") and states that it may remain.

[30] Trevor Ward from Ward Consulting Group produced a report for the respondent regarding access issues. Ward provided an unsigned copy of a document dated August 14, 1969 that he described as an access permit for a farm crossing from the Department of Highways. Ward indicated that Highway # 10 has been a controlled access highway since 1955 and thus a permit is needed for access. The access permit document supplied by Ward provided for BC Hydro to be granted permission for "the installation, maintenance and use of one 16' private access…". A condition of this permit was that any other accesses "not covered by a valid permit" were to be removed.

[31] The sketch that accompanied the permit shows the new access (Access # 1) and an existing access (Access # 2) and was entitled "Maddock Private Farm Crossing". Ward's interpretation is that Access # 2 should have been removed since it could not have been covered by a valid permit as he was unable to find one. We find that the lack of production of a permit for Access # 2 is inconclusive. The sketch clearly shows "Existing Access" which could be interpreted as meaning an existing legal access and the permit makes no specific reference to a requirement to close this access.

[32] Notwithstanding the volume of material presented at the hearing regarding the access issue, the documentation is still less than clear and was apparently difficult to find. Grant provided extensive historical documentation detailing the subdivisions, acquisitions, statutes and agreements affecting the Lands in attempting to clarify who has the right to access over the BC Hydro lands and onto Highway #10.

[33] Ward reported that he made three requests for documentation from the Ministry of Transportation and Highways and yet he was only provided with an unsigned copy of a single permit document. With a time span of over 30 years involved, the inability to find documents is not convincing proof that they never existed. Though no permit was found, there is no evidence to show that the closure of Access # 2 was ever ordered and at the time of the taking the access was still in use. Additionally, as the document that Ward bases his opinion on is an unsigned version, we have no proof that it is the final executed agreement. However, the agreement between the claimant and BC Hydro made in February 1969 identified all three accesses with a clear indication that all three would be used. As that document provides the clearest evidence before us, and we have not been provided with conclusive evidence to the contrary, we find that Access # 2 was legal.

[34] The respondent argued that the Maddocks did not have the right to use even Access # 1 as the access permit was issued to BC Hydro and not the Maddocks. It appears clear to the board that the intention of the permit was to provide access for the Maddocks and we therefore reject this argument.

[35] We were provided with evidence that Access # 3 was covered by a valid permit that was issued in 1975. It is unclear if there was a prior permit. The respondent disputed that the Maddocks were entitled to use this access as the permit was issued for the neighbour's use. Access # 3 is the access for the main driveway into the subject lands. In February of 1975, BC Hydro, the owner of the lands separating the Maddocks farm from Highway # 10, was granted a highway access permit for a location in the vicinity of the Maddocks driveway. While the Maddocks are apparently not named in the access permit, Mr. Slade Dyer, in his Highway Access Review report which was prepared for the claimant but submitted by the respondent, concludes that the Maddocks had the indirect right to use this access as they held the right to cross the BC Hydro railway in that location. Dyer also states that the Ministry of Transportation and Highways will not deny access to a controlled access highway when no alternate access is available.

[36] Although Ward concluded in his report that the lands had no legal access to Highway # 10 at the time of the taking, he did concede in his testimony that where no other access is available, the Ministry of Transportation and Highways is obligated to provide access to a property. Parcel C has no other road access. We find on the evidence, and the testimony of Ward, that Parcel C had, or was entitled to have, legal access at the time of the taking.

[37] We therefore conclude that the subject lands had three legal accesses at the time of the taking.

3.3 Fringe ALR Location

[38] The lands adjacent to the east, and beyond Highway # 10 to the north, are excluded from the Agricultural Land Reserve (ALR). The industrial zoned portion of Parcel C was removed from the ALR in 1985 upon application by the City of Surrey.

[39] Dan Schroeter, of Dan Schroeter Consulting Inc., was called by the respondent as an expert on the likelihood of ALR exclusion or approval for non-farm use. Schroeter testified that there was an extremely low probability that the agriculturally zoned portion of the subject property could have been removed from the ALR or approved for a non-farm use at the time of the taking. He further testified that he could see no change in the likelihood of exclusion (or non-farm use) after the taking.

[40] Danny Grant states in his appraisal report prepared for the claimant: "For agricultural properties located on the urban fringe and on the boundary of the Agricultural Land Reserve, (ALR) the land values reflect long term holding values that are considerably in excess of what can be justified by agricultural production." Grant believes that the market would view the main portion of the subject property as a prospect for release or an approved non-farm use within the next 20 years.

[41] Dale Hooker of Hooker Carmichael Property Consultants Ltd., appraiser for the respondent, indicates in his report that fringe ALR properties will generally command a premium over similar properties located in the heart of the floodplain, or "heartland". While he recognizes this market response, Hooker concludes in his report that "exclusion from the ALR is not a reasonable probability as of the date of the taking".

[42] We accept the experts' views. We agree that there was little likelihood that the agriculturally zoned portion of the Lands could have been removed from the ALR or approved for a non farm use at or shortly after the taking. However, consistent with the opinions expressed by both appraisers, we find that the subject location on the "fringe" of the ALR enhances the market value of the land due to the speculative element present in the purchase of such properties.

4.  Highest and Best Use

4.1 North Half - Large agricultural component.

[43] There was little dispute between the appraisers as to the highest and best use of this central site area of 64.1 acres.

[44] Grant maintained that an opportunity existed to produce fruits, vegetables and nursery goods for direct marketing, possibly subdividing the North Half and the adjoining 5 acre Parcel A into two blocks for "…ideally sized and located blueberry farms with home sites direct marketing and very good future development prospects". He projected a 20 year horizon when considering a continuation of the farming operation.

[45] Hooker was of the opinion that the highest and best use was a "…continuation of the existing agricultural and associated uses". In forming that opinion, he dealt with the Agricultural Land Reserve, and the evidence from the planning and agrology experts, concluding that it was improbable that the Agricultural Land Commission would approve non-farm uses.

[46] Neither appraiser was saying that the highest and best use is limited in perpetuity to agriculture or those other uses permitted in the ALR. Indeed it is the perceived prospect of the land being released from these controls that accounts in large part for the various levels of value to be found in agricultural land in the Lower Mainland.

[47] The board finds that the highest and best use of this large component is for agricultural purposes into the foreseeable future and adopts the 20 years projected by Grant. Although Grant suggested that the property would be suitable for reconfiguration by replotting into different parcel sizes, consideration of any such potential would require the laying of a foundation more certain in its composition than a mere suggestion.

4.2 Parcel A and Agricultural portion - Parcel C - Small agricultural components.

[48] Both of these two agricultural components are within the Agricultural Land Reserve.

[49] For the 5 acre Parcel A, Grant suggested residential use associated with a farm market sales operation, and went on to propose that farming would likely continue for at least five more years.

[50] While Hooker believed that this potential might exist, he thought that servicing difficulties would result in Parcel A likely remaining as a part of the farm.

[51] The board was confronted with a mass of evidence purporting to both support and counter the suggestion that the 5 acres could be developed as a homesite alongside direct marketing of farm products.

[52] Zoning evidence showed that farm produce sales are permitted only as an accessory use to a single family dwelling and the principal agricultural and horticultural use of the lot.

[53] Evidence showed that the Agricultural Land Commission did not permit the sale of farm products other than those produced on the property, although this policy was apparently relaxed somewhat in 1995.

[54] Servicing evidence showed that the property was suitable for on-site sewage disposal, both before and after the taking. Permission to farm within 50 feet of any disposal field, however, would be required from the Boundary Health Unit. Connection to a nearby sewer trunk line was shown to be unlikely, according to the uncontradicted evidence of Hooker.

[55] The evidence showed no direct access prior to the taking; although indirect access was available. After the taking, Surrey had constructed a new crossing from 168th Street.

[56] What is quite apparent in all of this is the existing nature of the farm operation before the taking. Despite - or because of - the astute business acumen of Mr. Keith Maddocks, Parcel A had always been used as part of the overall farming business, and there was an apparent absence of any move to promote the use of Parcel A as a home-site/direct marketing opportunity.

[57] When concluding a value for the parcel, the board, in the selection of comparables can consider the extent to which any potential in that regard existed. We will analyse the comparables with a view to the value of the subject being based on an agricultural highest and best use as a small discrete parcel.

[58] Parcel C at the east end of the lands is a roughly square block of 29.95 acres zoned agricultural for the southerly 20.84 acres and industrial for the northerly 9.11 acres. Although the appraisers had shown slight variance in their allocation of the zoned areas of this parcel, the board will adopt the above figures relied upon by Hooker and acknowledged correct by the claimants.

[59] Grant formed the opinion that before the taking the agricultural portion of Parcel C would remain in agricultural use into the near future. He suggests in his report that this block could be subdivided firstly to free it from the industrial parcel adjoining to the north, and secondly into two parcels of some 10 acres each under the "home-site severance" policy guidelines enunciated by the Provincial Agricultural Land Commission in their March 1996 Handbook. These guidelines impose limitations, including the requirement for an applicant to show a legitimate intention to sell the remainder of the property, and the condition that the homesite so created is not sold for a period of five years. Grant does not pursue this line in his valuation, instead applying downward adjustments for size to each of his smaller comparables.

[60] Hooker agreed generally with the farm use, and went further by discussing the negative prospects of this component being removed from the ALR

[61] None of the agricultural component of Parcel C has been taken for the drainage project. The board concludes that it will remain in agricultural use into the foreseeable future.

4.3 Industrial Portion - Parcel C

[62] The appraisers generally agreed that the Highest and Best Use of the industrial zoned lands was future industrial development. Grant concludes in his report that the Highest and Best Use of the industrial lands "will be for continued farming for a further period of 5 to 10 years or an average of 7.5 years." Hooker views the Highest and Best Use as "a holding property for future industrial redevelopment pending servicing and resolution of access constraints."

[63] Both of the appraisers completed a Development Cost Approach but neither relied upon this method for the final estimate of value. As the land is low-lying, substantial fill is required for development. Grant, in his development method, took the optimistic viewpoint that the lands could be filled at no cost by allowing contractors to dispose of excess excavated materials, if done over a five year period. Yet, he still arrived at a present value lower than that estimated by the Direct Comparison Approach. As the Development Cost Approach values estimated by both appraisers were lower than the values estimated by direct comparison, it is concluded that subdivision was not the Highest and Best Use of these lands at the time of taking.

[64] The Highest and Best Use of the industrial portion of the subject property is considered to be holding for future industrial development with continued farming use in the interim.

5.  Market Value of Interest Taken

[65] As previously discussed, the partial taking was by way of a Statutory Right of Way; however, both appraisers agreed that the effect of the taking was equivalent to a full taking as no practical utility remains to the claimants. The board finds accordingly, and concludes that no reduction on this account should be made to the compensation awarded.

5.1 North Half - Large agricultural component

[66] Dealing first with the agricultural land, the large agricultural land component of 64.1 acres before the taking was valued by Grant for the claimants using the direct comparison approach at $30,000 per acre, whereas Hooker for the respondent found a rate of $22,000 per acre.

[67] To reflect his view of the urban fringe character of the subject, together with consequent development pressures, Grant applied a 50% premium to a base value of about $20,000 per acre, representing an average location. His $30,000 per acre rate is also dependent upon the potential for a replot, as he puts it, into two economically sized parcels which he maintains represents the highest and best use. In this respect the board notes that his adjustments for size for two of the three comparables featured in his analysis are actually calculated as if the subject was one parcel of 64.14 acres. Moreover, costs of exploiting any notional replot are not in evidence.

5.1.1 Comparable Sales

[68] Grant relied upon nineteen comparable properties ranging in size from 25 acres to 125.79 acres. Of these, ten required adjustments of up to $300,000 to account for improvements to the land, adjustments that were apparently largely derived from the assessed value of the improvements but that were otherwise unsupported. Ten did not benefit from a location on or near the fringe of the Agricultural Land Reserve. The fringe of the ALR is considered to be a significant benefit by both appraisers in terms of eventual development potential. Only five of the nineteen comparables were of land alone, at the ALR fringe. These five, before adjustment, ranged from $17,008 to $45,753 per acre.

[69] Hooker for the respondent, relied upon fifteen comparables, ten of which are common to the Grant report. Seven of the fifteen required adjustments for improvements of up to $450,000, again apparently largely based on the assessed values. Seven did not benefit from being at the ALR fringe. Only three were sales of land alone, at the fringe. These three, before adjustment, ranged from $22,108 to $23,437 per acre.

[70] For purposes of its analyses and for ease of reference, the board has allocated to each of the agricultural comparables a key number which it refers to where these comparables feature in the analyses.

[71] The sales evidence used by the appraisers required adjustments to account for differences in time and circumstance when related to the subject lands.

5.1.2 Time adjustments

[72] Grant developed a chart of paired sales portraying thirteen examples from Richmond, Delta and Surrey between 1990 and 1996. From these paired sales he calculated that the market for agricultural land was appreciating at compound rates of increase from 0.23% to 2.04% per month. He therefore applied a compound rate of 1% per month to his comparable sales to mid- 1996, making no adjustment thereafter.

[73] Hooker developed a chart of eight paired sales, all from Surrey, through the period 1991 to 1998. He also concluded that the market was generally rising into 1996, and found increases of from 0% to 2.38%. Excluding sales he said were to investors prompted by speculation, he narrowed the range to between 0.37% and 1.25% compounded monthly, from which he also concluded that a compound rate of 1% per month up to July 1996 was appropriate. Again, he made no adjustment thereafter.

[74] The board will therefore adjust the comparable sales evidence by 1% per month compounded, counting the month when the sale occurred but not the month of July 1996 and beyond, when the market was seen to stabilize.

5.1.3 Building adjustments

[75] Many of the land comparables included significant improvements. The appraisers relied for the most part on assessments to derive residual land values. No detailed inspection of the improvements was made by either appraiser to assist them in their analyses, and no inquiries were made of the parties to the transaction in question. While Grant did report figures provided by the listing agent in a couple of instances, the board is left with little indication of the perception that the market may have had of the contributory value of the improvements, and must look to the unimproved sales as the more reliable indicators.

5.1.4 Size adjustments

[76] Adjustments for size made by Grant in his consideration of the 64 acre agricultural component are, according to his report, limited to plus or minus 10%, modified if there is possible independent use of multiple parcels. He applies rates of from –10% for a 39.21 acre comparable (Key # 13, being a property at 5057 180th Street) to +6% for an 84 acre comparable (Key # 2, at 17676 32nd Avenue), which he shows as 79.42 acres but which in fact was sold as an 84 acre parcel according to the listing. No support is provided for any of these adjustments.

[77] Hooker comments in his report that smaller parcels tend to sell for higher prices per acre, all other factors being equal, and goes on to show several examples as supporting his adjustments. However, his first analysis – of heartland sites – is weakened by his testimony at the hearing that size is a greater consideration in these cases than where the parcel is on the fringe of the agricultural land reserve, as is the subject. His second paired set draws a comparison between a rectangular 48 acre parcel mostly in the flood plain (Key # 9 at 7072 152nd Street) and an irregular 84 acre parcel, corrected for a non-agricultural component but mostly non-flood plain, with a corner bisected by a creek (Key # 2). Given these disparities, his conclusion of a 24% premium could be high. His third paired set compares two non-fringe parcels where he found a 42% premium for a 15 acre parcel (Key # 21 at 17456 48th Avenue) against a 39 acre parcel (Key # 37 at 14630 48th Avenue). Again, since these are heartland sites, his conclusion could be high.

[78] In the result, he applies rates of -50% for parcels of around 15 acres (Key # 20, 21, 22 at 7054 176th Street, 17456 48th Avenue and 5688 168th Street, respectively), up to +10% for a parcel of 126 acres (Key #1 at 7302 152nd Street). Treatment of this latter comparable would appear to overstate the proper adjustment as it actually comprises ten legal lots, three of which front a developed road.

[79] This is not to be critical of the appraiser for undertaking such an analysis in an attempt to support adjustments for size, even though his conclusions may be suspect in this case. The variety of factors requiring adjustment simply makes direct comparison between parcel sizes a difficult exercise.

[80] What is clear to the board is that some adjustments should necessarily be made to reflect the different size parcels that go to make up the large agricultural portion of the Lands when considering the comparison evidence. In relation to the North Half, and adopting a narrower range similar to Grant's, an upward adjustment of 5% will be made to comparables that are 80 acres and larger, with a downward adjustment of 5% for parcels of less than 50 acres, increased to 10% for the one smaller comparable that in fact comprises two parcels (Key # 13).

5.1.5 Physical adjustments

[81] Grant, for the claimant, makes upward adjustments for all but six of his 19 comparables used to estimate the value of the 64 acre component. Rates range from 0% to 20% but, apart from some reference to drainage costs and tillage, his adjustment factors are unexplained. He does observe that the subject is one of the best drained farms in the area, and this appears to be the main foundation for his adjustments. On the other hand, he notes that the prices paid represent a substantial premium over values that could be justified for ordinary agricultural uses, and that physical differences in properties that may impact productivity and the range of crops grown are not likely to affect the value of the subject property.

[82] Hooker, for the respondent, makes few adjustments for physical characteristics because, as he says, all of his comparables are generally level, floodplain acreages with limited or no services available. While soil classifications and agricultural capability may vary somewhat from parcel to parcel, he says this has only a nominal influence on the price paid, unless agriculture is the only use.

[83] The board accepts the premise adopted by both appraisers that applying adjustments made to reflect differences in agricultural capability is not necessarily the correct approach when dealing with fringe ALR properties having a speculative element.

[84] Drainage, or the lack of it, requires some separate consideration, principally due to the market perception of land subject to flooding, whatever its use. Before the scheme the farm was protected by railway embankments to the north and south, by a dyke built by the claimant to the west, and by higher land to the east. A system of ditches and pumps kept the land dry, or relatively dry when compared with other land in the area. Some distinction should therefore be made between poorly drained land and the subject parcel. An upward adjustment of 5% will be made where that distinction is clearly apparent from the evidence, and the actual percentage where the appraisers are in agreement.

5.1.6 Location adjustments

[85] For the North Half, the large central farm area, Grant applies upward adjustments ranging from +5% to +30% to all of his comparables except two (Key # 15 & Key # 19 at 2534 184 Street and 7617 184th Street, respectively). The first of the two, he maintains, is a good example of the speculative value paid for properties with more immediate prospects of non-ALR uses, and he therefore makes no adjustment to this sale. Yet in his opinion the highest and best use of the large central farm component of the subject property is the existing use as a farm, with some prospect for change in the future. The second example has 45% of the site excluded from the ALR, and he adjusts downwards on this account by 25%. To most of the comparables he terms as "non-fringe", that is, to those not located at or near the outer edge of the Agricultural Land Reserve, he employs a location adjustment of +20% to +30%.

[86] Hooker undertakes a similar analysis, but he develops different conclusions as to rates although he does agree with the central premise that fringe properties command a premium. In the result, he uses a location adjustment of +35% to most of the non-fringe comparables.

[87] The board is satisfied that some upward adjustment should be made to reflect urban proximity and the perceived benefits of a location on the fringe of the Agricultural Land Reserve. The proper adjustment will depend on the relative position of each comparable.

5.1.7 Conclusions

[88] The board, having considered the date of sale, location, physical attributes and extent of improvements of each of the comparables, concludes that most weight should be given to Key # 1, being the first comparable in both the claimant's and respondent's reports, and to Key # 9, being the claimant's No. 9 and the respondent's No. 2. Both Key #  1 and Key # 9 are on the fringe of the Agricultural Land Reserve. No time adjustments are necessary. The former is 125.79 acres and should be adjusted upwards for size by 5%, the latter is 48 acres, and accordingly should be adjusted downwards by 5%. Both appraisers allowed a positive 10% correction for physical attributes for Key # 1, which the board accepts. For Key # 9, the claimant adjusted upwards by 10%, yet the impact of a creek on development potential is less severe than with Key # 1, and the drainage appears superior. No adjustment for physical factors will be made to this comparable. As for location, Key # 1 was adjusted upwards 20% by the claimant, with no adjustment by the respondent. The 20% adjustment is explained as allowing for the absence of urban development and no rail access. In fact this comparable is on the ALR fringe, across from residential development, and is generally reasonably similar. No adjustment for location will be made. Key # 9 is adjusted upwards 25% by the claimant, with no adjustment by the respondent. A 25% correction for a parcel on the ALR fringe close to Key # 1 is too high based on the evidence; the board allows an upward correction of 5%.

[89] In the result Key # 1 at $23,053 per acre is adjusted upwards by 5% for size and 10% for physical characteristics to an adjusted rate of $26,511 per acre. Key # 9 at $23,437 per acre is adjusted downwards by 5% for it's smaller size in relation to the subject. This is offset by an upward adjustment of 5% for location. Within the expressed range of $23,437 to $26,511 per acre, the board is satisfied that a rate at middle ground of $25,000 is proper for the en-bloc large agricultural component. Applying this rate to the area taken results in compensation of 6.67 acres @ $25,000, or $166,750.

5.2 Parcel A and agricultural portion - Parcel C - Small agricultural components

5.2.1 Parcel A

[90] Parcel A at the northwest corner of the Lands is a rectangular block of 5 acres zoned agricultural.

[91] The southerly component of Parcel C is 20.84 acres also rectangular and zoned agricultural.

[92] As these two blocks of land are sufficiently dissimilar in size, they were valued separately by both appraisers.

[93] Parcel A was valued by Grant at $60,000 per acre for a total of $300,000 before the taking. His conclusion relied in the main on two comparables: Key # 29 at 15635 56th Avenue, and Key # 31 at 15794 56th Avenue, both nearby the subject.

[94] Hooker for the respondent valued Parcel A at $40,000 per acre for a total of $200,000. Two of his indicators are to be found in Grant's data set, being Key # 31, together with Key # 32 located at 5469 160th Street.

[95] Grant's seven comparables for this parcel ranged from $29,459 to $106,474 per acre and from $47,850 to $77,859 per acre after adjustments. They varied in size from 4.95 acres to 5.93 acres with dates of sale from March 1993 to February 1997.

[96] In his view, the best indicators were Key # 29 at $68,547 per acre and Key # 31 at $48,645 per acre. Key # 29 represents the earliest of the sales, with an unadjusted price paid of $39,138 per acre in March 1993. His time adjustment of +46% brought this rate up to $57,123 per acre, and further positive corrections of 10% for drainage/physical and 10% for location/ALR etc. increased the time adjusted rate to $68,547. In our view less reliance can be placed on this sale given the date of the transaction together with the magnitude of adjustments. Key # 31 sold in February 1997 requiring no adjustment for time. Grant made the same positive corrections as before, resulting in a rate of $48,645 per acre. He made no apparent correction for the negative impact of the railway on a site with some residential potential.

[97] Hooker's five comparables for this component sold for $23,404 to $40,538 per acre for sites of 5 to 8.23 acres. Only one required an increase for time. His adjusted values ranged from $35,251 to $43,560 per acre, and he concluded with a rate of $40,000 per acre.

[98] His treatment of Key # 31 on 56th Avenue, with similar potential as the subject and common to the Grant report, resulted in off-setting adjustments of –10% for railway influence and +10% for the quick sale. He made no apparent correction for the absence of corner influence.

[99] The board prefers Hooker's more recent data set, but would allow the positive presence of the corner to offset any negative influence caused by the railway. Giving full weight to the nearby sale common to both appraisers, and adjusting the price paid of $40,538 per acre upwards by 10% to reflect the quick sale, results in a rounded rate of $45,000 per acre for this 5 acre component. Applying this rate to the area taken results in compensation of 2.32 acres @ $45,000, or $104,400.

5.2.2. Agricultural portion - Parcel C

[100] The southerly agricultural component of Parcel C was valued by Grant at $35,000 per acre for a total of $712,250 before the taking. His conclusion was based largely on Key # 19, a property at 7617 184th Street, Key # 20 at 7054 176th Street, and Key # 23 at 3230 176th Street.

[101] Hooker valued this component of Parcel C at $31,000 per acre on a generalized consideration of the evidence, acknowledging that smaller parcels tend to sell for greater unit values, and that the ALR excluded land to the north and east may increase speculation of a future exclusion. He did not point to any particular comparable in coming to his conclusion.

[102] Grant's set of seven comparables ranged from $19,479 to $39,483 per acre, and – following various adjustments – from $30,596 to $54,462 per acre. Site areas ranged from 11.02 acres to 14.95 acres with dates of sale from January 1993 to February 1998. His one additional comparable selected from the larger grouping – Key #19 – is not helpful as it represents a residual rate after deducting for improvements, and some 45% of the site area is excluded from the ALR.

[103] Key # 20 required adjustment for improvements, and in the absence of some confirmation from the parties to the transaction, is afforded less weight. Key # 23, improved with a rundown house, he adjusts to $34,425 per acre.

[104] Across 56th Avenue from Parcel C is the remnant of an old farm that now partly adjoins upland residential development. This 14.73 acre parcel – Key # 22 – sold in February 1995 for $325,000. It is used by both appraisers, is unimproved, bears the same zoning, is on the fringe of the ALR and is mostly in the floodplain. We consider this to be a particularly helpful indicator that nonetheless requires some adjustment. Evidence indicated that the price was in fact negotiated in April 1994, requiring an up-date for time. At the board's 1% per month compounded, the rate of $22,064 per acre becomes $28,864 per acre. We accept Grant's adjustment for size of – 5%, but consider his 30% adjustment for location to be too high as this is also a fringe ALR location. As the subject adjoins existing industry, a factor that provides some greater expectation of release from the ALR, we allow 10% for location. Given the close proximity of this property and the similar floodplain location, we reject Grant's 10% adjustment for drainage and physical characteristics. These adjustments result in a per acre rate of $30,307.

[105] In the result, the board concludes from Keys # 22 and # 23 a rounded rate of $32,000 per acre for this component, or a total of $666,880. None of this parcel was taken.

5.3 Industrial portion - Parcel C

[106] The industrial portion of the Lands was indicated to be 9.11 acres by Hooker and 9.6 acres by Grant. Counsel for the claimant conceded at the hearing that they believed Hooker's estimate of size to be more accurate. We will use the 9.11 acre estimate. The size of the taking from this portion is 2.62 acres, leaving a remainder of 6.49 acres.

[107] While the board agrees with Hooker that access issues need to be resolved, we conclude the property has de facto access which would legally be able to serve the industrial portion of the property although upgrading would be needed to develop the land.

5.3.1 Watercourse Setbacks

[108] The claimant argued that the new canal would trigger the requirement for a 30 metre fisheries setback upon development of the subject lands. The respondent replied that the former drainage ditch would also have been subjected to the same requirement. The claimant responded that due to the larger size of the new canal and the fact that it virtually always contains water, stringent setback requirements are more likely. They argued that the smaller ditch, which was frequently pumped dry, was more likely to be exempted from fisheries requirements, if not entirely, then to some degree.

[109] Mr. Jay Wollenberg of Coriolis Consulting Corp., an expert on land use planning called by the respondent, provided an extract from the City's "Fisheries Watercourse Classification" map. The map shows that the former drainage ditch (as well as internal drainage ditches) was classed as A (O): "Inhabited by salmonids primarily during the overwintering period or potentially inhabited during the overwintering period with access enhancement". Wollenberg concludes that the watercourse setback implications in the after scenario are the same as they were before the taking. This conclusion was initially supported in one of the claimant's own expert reports, prepared by Don Bowins, P.Eng, and submitted at the hearing. Bowins, in his report dated February 2, 2000, states, "...it is my opinion that upon subdivision of this property that Fisheries would request a 30 m setback from the top of the bank of either the existing ditch along the Southern Railway of British Columbia or from the newly constructed drianage (sic) canal. " He also states that in his experience any man made ditch is considered to be a watercourse and many are active spawning grounds or operate as a food source for fish.

[110] In a letter dated March 2, 2000 Bowins appears to reverse his opinion. In this letter he says that he has been informed that the ditch drains into the local farm drainage system which is pumped out. He says "This then implies that the ditch was for local drainage only and that no setback from this ditch may be required akin to the lack of setback as applied to the industrial Land Use Contract for the property immediately east of Maddock's Farm."

[111] We note that the developed land immediately east of Maddocks', fronting 56th Avenue, does not form part of the land in the Land Use Contract and no evidence was brought forward to indicate when this property was developed and what setback requirements were imposed. There is also no other evidence to suggest that a local drainage ditch would not be considered a fisheries watercourse, particularly in view of the classification indicated on the Fisheries Watercourse Classification map. Bowins previously stated that man made ditches were considered to be watercourses.

[112] We find that there has been no change in the probable setback requirements which would be imposed upon development of the property. The evidence indicates that the fisheries setback would apply equally to the previous ditch or the new canal. However, the previous ditch was situated north of the property line and would therefore have had less of an impact on the site. The impact of the probable setback requirement on the reduced parcel is considered further in the analysis of the claim for reduction in value to the remaining lands.

5.3.2 Comparable Sales

[113] The claimants appraiser, Grant, analyzed seven sales for comparison with the industrial portion of the subject lands. Hooker, appraiser for the respondent, analyzed five sales, three of which were common to Grant's comparables.

[114] In addition to his comparable sales evidence, Grant provided a copy of an offer made on the industrial portion of the subject property. This offer, dated May 15, 1996, was for 12.12 acres less 0.23 acres to be allocated for a road allowance. The offered price was $1,783,500 or $150,000 per acre of the net site area. The offer was based on the assumption of "acceptable industrial zoning for heavy machinery manufacturing". The excerpt of the Light Impact Industrial Zone, included in the addendum to Grant's report, does not indicate that this would be an acceptable use on the subject property. Additionally, the size of the industrial zoned area is less than anticipated by this potential purchaser. Grant appears to have attached little weight to this offer. On the evidence the board agrees.

[115] Grant's comparable sales data spanned a time period from April 1995 to January 1997. The properties range in size from 4.1 acres to 17.12 acres with per acre values ranging from $81,645 to $160,000. Hooker's sales covered the same size range but covered the time period December 1995 to April 1997. His per acre values ranged from $87,325 to $153,173.

[116] The appraisers concluded that a time adjustment was warranted but differed as to rates. Grant used a monthly compound rate of 0.5%, Hooker adopted a simple rate of 1% per month. The appraisers relied on a combination of paired sales and resales in support of their time adjustments.

[117] Grant provided 10 resales and four paired sales in support of his time adjustment. The sales covered a time period from March 1992 to December 1996 and indicated compound rates ranging from -0.22% to 1.58% per month. Grant concludes a time adjustment of 0.5% per month, compounded, is appropriate for 1995 and 1996 with no adjustment for 1997, although in his report he makes adjustments that include January 1997.

[118] Hooker used one pair of sales and seven resales in support of his conclusion. Hooker's data spanned the period of February 1990 to December 1997 and indicated rates of appreciation from 0.75% to 2.27% although this latter figure appears to be in error. Corrected and restated as compound rates, the range becomes 0.587% to 1.45%. Hooker concludes his adjustment is applicable up to the time of the taking in 1997.

[119] After adjusting for time, Grant's per acre rates range from $91,113 to $169,023, while Hooker's range from $103,044 to $159,300.

[120] Grant did not make any specific adjustments other than for time, but instead discussed the differing characteristics of the properties in relation to the subject. Hooker, on the other hand, made adjustments under the headings: location, access, size, zoning and other. The three sales which were common to both appraisers are the closest to the subject in location and appear to be the most comparable.

[121] 15118 - 56th Avenue, is very similar to the subject in size at 9.14 acres. This property sold for $1,400,000 or $153,173 per acre in October 1996 (Hooker used a sale date of January 1997). The property was zoned RA, One Acre Residential, and improved for residential use but was designated for industrial use on Surrey's Official Community Plan. Improvements were assessed at $98,300 although neither appraiser considered an adjustment necessary. The property is not in the floodplain and exposure is superior with direct frontage on Highway # 10. Both appraisers applied modest time adjustments. Hooker also applied negative adjustments for location (-10%) and access (-20%) and a positive adjustment for zoning (+10%). Grant concluded that locational factors were offsetting as the comparable has better exposure but no rail access. He indicated that a downward adjustment would be appropriate "primarily for fill" but did not quantify this.

[122] 17852 - 55th Avenue, a 4.1 acre parcel, was also analyzed by both appraisers. Selling in January 1997 for $575,000 ($140,244 per acre), this property was zoned light industrial and located in the floodplain. The appraisers considered this property to be inferior in location with Grant considering any adjustment to be offset due to the smaller size of the parcel. Hooker applied a positive adjustment for location (+10%) and negative adjustments for access (-10%) and size (-10%). The appraisers both applied small time adjustments.

[123] The largest comparable relied upon by the appraisers was 5355 152nd Street at 17.12 acres in size. This property sold in December 1995 for $1,495,000 or $87,325 per acre. The property required a significant amount of site work prior to development. Zoning was IA, Agro-Industrial and the property was purchased by BC Hot House Foods Inc. Grant considers this property to be inferior in location with an upward adjustment required, in addition to time, for the larger size of this site. Hooker adjusts this comparable for location (+10%), access (-20%), size (+25%) and zoning (+5%) as well as time.

[124] The other six comparables utilized by the appraisers provide some guidance to the board but we find that the above three comparables provide the best market evidence.

5.3.3 Conclusion

[125] The data supplied by the appraisers in support of their time adjustments indicate a variety of rates. The sales utilized for time adjustments span a wide time period from 1990 to 1998 and cover a wide range of properties with sale prices ranging from $130,000 to $2,600,000. We consider one of Grant's resales to be a good indicator as it is one of the closest in size to the subject and occurred in the relevant time period. This property indicates a compounded monthly increase of 0.61% for a 15.71 acre property (July 1994 to September 1996). One of Hooker's resales covers a more relevant time period with the first sale in December 1995 and the resale in September 1997. This comparable indicates an increase of 1.43% per month or 1.29% compounded. However, the property is much smaller than the subject at about one half of an acre in size. While the data are less than ideal, we conclude that a time adjustment of 0.75% per month compounded is reasonable. In accordance with Hooker's reasoning and his supporting market evidence, the board will apply a time adjustment up to the time of the taking.

[126] It would have assisted the board if Grant had quantified, in some manner, the other adjustments he considered necessary for the comparables. Based on the evidence provided, the board considers the following adjustments appropriate:

[127] 15118 - 56th Avenue – using Grant's sale date, a time adjustment of 0.75% for 7 months will be applied. We agree with Hooker's adjustment of -10% for the non-floodplain location but find that an access adjustment of -5% is appropriate for the subject's lack of constructed road frontages that this comparable enjoys. We consider Hooker's –20% adjustment for access is excessive since it appears he has not considered that the cost of improving the subject access would not only be deferred in time but may be shared with adjoining owners. No upward adjustment for zoning is considered necessary as this property has a good quality dwelling which would provide living quarters or rental income during the time that would be required to rezone.

[128] 17852 - 55th Avenue – a time adjustment of 0.75% for 4 months will be used. Consistent with Hooker's opinion, a location adjustment of +10% will be applied due to the lack of highway exposure and -10% for the smaller size. However, while Hooker used a –10% adjustment for access, we find that no adjustment is necessary for access since this property only has access from a dead end road that is likely to require upgrading prior to development. We agree with the experts that location and size adjustments are offsetting.

[129] 5355 152nd Street – a time adjustment of 0.75% for 18 months will be applied. Both appraisers agreed that there should be upward adjustments for location and size, we see no reason to disagree with Hooker's opinion for these adjustments at +10% and +25%, respectively. We also agree with Hooker's adjustment of +5% for the more restrictive zoning. While we agree with most of Hooker's adjustments, we find that his access adjustment at –20% is too high. A - 5% adjustment will be used to account for this comparables superior access to constructed roads.

[130] These adjustments yield the following results:

Address	Time adjusted value (per acre)	Final adjusted value (per acre)
15118 56th Avenue	$161,398	$137,188
17852 55th Avenue	$144,499	$144,499
5355 152nd Street	$ 99,153	$133,857

[131] Grant concluded a per acre value of $150,000, Hooker utilized $130,000. We find that the comparable on 56th Avenue provides good evidence of market value as it is the closest in size to the subject and similar in location. The comparable on 55th Avenue, at the high end of the adjusted range was, according to testimony from Hooker, bought by an owner of adjacent land. Motivation may have been a factor in this transaction. We find a rate of $137,000 per acre to be reasonable, and applying this rate to the area taken of 2.62 acres results in compensation for this component of $358,940.

5.4 Offers on Subject Property

[132] Applying the acreage rates found by the board to the various components that make up the overall farm before the taking results in a total value of:

North Half	64.10 acres @ $25,000/acre	=	$1,602,500
Parcel A	5.00 acres @ $45,000/acre	=	$ 225,000
Agricultural portion - Parcel C	20.84 acres @ $32,000/acre	=	$ 666,880
Industrial portion - Parcel C	9.11 acres @ $137,000/acre	=	$1,248,070
			$3,742,450

[133] Evidence was presented of a listing of the subject from June 1995 to January 1997 at an asking price of $4,950,000. This price represents $50,101 per acre on average for the advertised 98.8 acres. An offer was received in May 1996 for the northern 12.12 acres of Parcel C at $150,000 per acre, subject to approval for subdivision and zoning that would permit machinery manufacturing. The offer was not accepted. Then, in September 1996, an offer was received for 69.14 acres of the subject agricultural land, less up to 2 acres for retention of Mr. Maddocks buildings which straddle the property line, at $21,597 per acre from a real estate broker who operated a farm across 168th Street. Under re-examination, the offeror maintained that he would have increased this offer of $1,450,000 to close to $2,000,000. When first questioned, he claimed to have no knowledge of the scheme proposed by the City that is the subject of this hearing, yet his offer refers to an approach made by Surrey to buy from the vendor a total of 10 to 12 acres for a water canal.

[134] We note that the list price of the entire property included the buildings of course and also the business. We do not place a great deal of weight on the offer on the industrial portion as the offeror appears to have been under a misapprehension as to both the size of the area as well as the allowable uses. The offer made on the agricultural land appears to be a valid offer and may be considered to represent the minimum amount that the land is worth. Whether the potential purchaser would have carried through with the suggested increased offer is moot. The only certainty from the exchange is that there was an offer at $21,597 per acre, which includes the more valuable corner parcel of 5 acres. Deducting this component from the offer at the rate determined by the board of $45,000 per acre leaves the large farm rate at around $19,700 per acre. The same exercise employing the purported increased offer of $2,000,000 puts the rate at $28,500. The board conclusion at $25,000 per acre falls within these limits.

5.5 Summary

[135] In accordance with amended section 40(1)(a) of the Act, we find the market value of the expropriated lands to be:

North Half	$166,750
Parcel A	$104,400
Agricultural portion - Parcel C	No land taken
Industrial portion - Parcel C	$358,940

6.  Reduction in Value to the Remaining Lands/Special Benefits

6.1 North Half - Large agricultural component

[136] The taking for the drainage ditch extends along the northerly property line of this parcel, separated from Highway # 10 by railway tracks and overhead BC Hydro transmission lines.

[137] In Grant's opinion, the value of the remainder of this large parcel has been diminished by 20% due to the taking. He attributes this to several factors. These include a further separation from Highway # 10 limiting exposure, a perception of increased access and servicing costs, greater risk of flooding and a new environmental sensitivity. These major drainage works, he says, create a buffer separating permanent farmland from urban development, and effectively moving the Lands from the first tier or row adjoining the highway to a second tier for release from the Agricultural Land Reserve.

[138] But this factor alone is difficult to quantify, according to Grant, who says in his report:

Depending on the distance involved in each case and the location of other influencing factors, the second row properties may show little adjustment from 'heart of the ALR farmland', or it may be close to the values displayed by first row properties.

[139] At the same time, he concedes that the location has the features of a holding property with long term potential for a higher use.

[140] He distinguishes between plain farmland in Surrey at $10,000 to $12,000 per acre, and properties perceived by investors as being the most likely for future ALR release at $25,000 to $30,000. He goes to the top of this range in the before scenario, deducting 20% in the after scenario. The loss is then quantified by Grant as $6,000 per acre for the entire 57.46 acres remaining, or a total of $344,760.

[141] Hooker for the respondent says the taking results in no severance, no loss in utility or potential for ALR exclusion, and no loss in market value.

[142] It is a well entrenched valuation principle that future prospects should be taken into account, but only to the extent of the present worth of those prospects. None of Grant's reasons for a loss in value, with the possible exception of flooding and environmental sensitivity, go to the impact upon the present use as a farm. Any possible impact on long term potential would require some analysis of that potential in order to determine whether the reasons claimed for loss in value can be quantified.

[143] The board is not convinced that there has been no impact. Nor should it be 20% of the upper limit of value, applied to the whole of the remainder. There is no certain way in this case of either allocating a loss piece-meal, or reducing to present worth some unidentified future loss. We rely upon the rationale expressed in Drew v Her Majesty the Queen, [1961] S.C.R. 614 at pp. 632-33:

In fixing the amount of an award there are often factors, other than the market value of the property expropriated, which must be taken into account but which are not easily calculated. In such cases the tribunal of fact may decide that compensation for such factors can best be appraised in the form of a percentage of the market value.

[144] Due to the topography of the lands, a substantial but indefinite area may be affected in the event of flooding. For this and the other reasons, a 5% reduction overall for 57.4 acres at $25,000 per acre in our view represents fair compensation of $71,750, which the board is satisfied is reasonable within the limits outlined above.

6.2 Small agricultural components

6.2.1 Parcel A

[145] While Hooker finds no loss to Parcel A, Grant reasons that after the taking this parcel would be construed as part of the larger farm. His valuation of $60,000 per acre before the taking is modified to $24,000 per acre, being the rate he adopts for the large farm after the taking. The loss claimed is therefore calculated as 2.68 acres at $36,000 per acre, or $96,480. Substituting the board's findings, the loss on this premise would be the difference between acreage rates of $45,000 before and $23,750 after, or a loss for the 2.68 acres of $56,950.

[146] Grant's reasons for finding that Parcel A after the taking could no longer support residential use associated with a farm market sales operation appear to centre on sewage disposal. He states in his report:

Unless there is provision made for the provision (sic) of a sewer hook-up, the remainder of this parcel after the taking and project is considered to be as a part of the larger farm.

[147] A Mr. Tony Mikes, P.Eng., of ABM Engineering Services, was called by the respondent as an expert in waste water disposal and treatment. His testimony, which the board accepts, concluded that the property was suitable for a sewage disposal system both before and after the taking. The difficulty for the owner is the possibility – raised by Mikes – that the Boundary Health Unit may restrict farming for 50 feet around the disposal field. Nonetheless, Surrey zoning permits the sale of farm products grown on the lot in question provided approval is obtained from the Agricultural Land Commission.

[148] As it is no longer possible to gain access from Highway # 10, Grant says the parcel is rendered "…somewhat less attractive for direct marketing". The respondent's reply is that no public access was provided from Highway # 10 before the taking, and that creating access from 168th Street has improved the situation after the taking.

[149] In weighing these conflicting positions, the board is of the view that the highest and best use has not changed, that suitable access was available both before and after the taking, and that, according to the appraisal evidence, the acreage rate had not necessarily been diminished. In the result, no loss is found by the board.

6.2.2 Agricultural portion - Parcel C

[150] In Grant's opinion, the value of the agricultural component of this parcel will be reduced by 20% on three counts: first, the adjoining industrial parcel will be less economic to develop after the taking: second, it is no longer accessible to the rail line, and third, a change in use will be deferred further into the future.

[151] Hooker, on the other hand, again concludes that the taking has not resulted in any measurable loss in market value to the remaining unencumbered land within the ALR.

[152] Both of the appraisers valued the industrial portion of Parcel C as if it were a stand-alone parcel. We should therefore treat the agricultural component in the same way. There was nothing before us to suggest that a change in use of the agricultural portion will necessarily be deferred further into the future as claimed, or that the agricultural value will be reduced simply because the adjacent industrial parcel may be less economic to develop. We are not persuaded that this agricultural component of Parcel C has sustained any measurable loss on account of the taking.

6.3 Industrial portion - Parcel C

[153] The industrial parcel is approximately 1,080 feet along the north side with a depth of 367 feet. In the before situation, the drainage ditch was located to the north of the property line, evidence indicated approximately 8 or 9 metres away (26 to 30 feet).

[154] Bowins and Wollenberg agreed that around 13 lots could be subdivided in the before situation with the lots fronting a road to be constructed east to west through the middle of the site with a cul-de-sac at the end. This scenario is based on the assumption that no watercourse setback is required. Bowins shows 11 lots prior to the expropriation when calculating a 30 metre (98.4 feet) setback from the former ditch at 7.8 metres (25.6 feet) to the north of the property line. [155] After the expropriation, the property does not have sufficient useable depth for lots on both sides of the road. Wollenberg concludes that 9 lots can be obtained after expropriation without any consideration given to the impact of a watercourse setback. Bowins shows 6 lots in the after situation when considering the impact of the watercourse setback which would leave a useable depth of only 126.6 feet after allowing for the road.

[156] Bowins estimated that the former ditch was located 7.8 metres to the north of the property based on the "As Built" drawings. Other evidence indicated that the ditch was 8 to 9 metres away or approximately 30 feet. We will accept Bowins more precise estimate of 7.8 metres (25.6 feet).

[157] After the taking, the property has a relatively narrow depth that limits the future development options. While none of the experts have shown that subdivision is the Highest and Best Use of the property, it would have been more likely to be a viable use in the before condition. Even if the property was to be developed as a single parcel, a useable depth of 294.3 feet before the taking (assuming watercourse setback from ditch), with a width of 1,080 feet is more likely to be attractive than a site that will now have a useable depth of 192.6 feet (based on Bowins' estimate that the new top of bank is 30 feet in from the southerly boundary of the taking).

[158] The construction of the drainage canal eliminated the potential for the subject parcel to connect to the sewer main with a gravity connection. A pump system will now be required. If the property is subdivided, either each lot would require a pump or a pump station could be used to service the development.

[159] Bowins estimates that a pump station would cost approximately $90,000. He also adds a 10% contingency and 15% for consulting fees to his estimate of servicing costs. While he shows a reduction in Hydro and telephone expense in the after scenario of total subdivision costs, he concludes an overall increase in servicing costs in the range of $107,000. As the increased servicing costs would be spread over fewer lots, the likelihood of subdividing this component of the Lands diminishes further.

[160] Grant, in his report, estimates that the property has the potential for subdivision into 16 lots in the before situation and 10 lots after. In his opinion, there will be no increase in the costs of servicing and filling the land and the only cost impact will be that the same length of road services fewer lots. He calculates an additional $13,650 per lot for 10 lots or $136,500 as the impact of this factor.

[161] Grant indicates that another negative factor affecting the property after the taking is the removal of proximity to the rail line which now makes the possibility of rail access impractical. He states that although sites with rail access do not appear to sell for significant premiums, it is an attractive amenity that assists with the absorption rate. Grant also feels that separation of the lands from Highway # 10 by an open ditch will impact the marketability of the property. He quantifies these negative factors by estimating that 10 lots will eventually be developed with an average selling price of $200,000 and a carrying cost at 10% per annum. He feels that the absorption of the future lots will be extended by 6 months and calculates that the increased holding period has a present cost impact of $46,000.

[162] Grant totals his two figures of $136,500 and $46,000 to arrive at an amount of $182,500 as the reduction in value to the remainder. He says that his calculations are not a development approach but a reflection of the view of the most likely prospective purchaser, i.e. a developer of industrial sites.

[163] Hooker concludes in his report that the only factor that causes a reduction in value to the remainder is the need for a sewer pump. As the highest and best use of the property is not subdivision, he believes that only a single pump will be required. He estimates this cost to be $20,000 based upon a report prepared by Greg Sewell of Coastland Engineering and Surveying Ltd. Hooker concludes that $20,000 is the reduction in value to the remainder parcel.

[164] The impact on the value of the remainder is not clear to the board from the evidence regarding development costs. The number of lots that may be developed is uncertain. Moreover, evidence was given that the property could ultimately be developed for a single user or be subdivided into up to six parcels as per Bowin's estimate.

[165] As subdivision has not been shown to be the highest and best use we find that it is not appropriate to measure the impact to the remainder as if it were. Both appraisers have based their estimates of the reduction in value to the remainder on their estimates of costs that will be incurred to develop the property. Cost is not necessarily the measure of market value. According to The Appraisal of Real Estate, 1992 Canadian Edition, at p. 307:

When value estimates derived with the cost approach are not supported by market data, they must be regarded with caution.

[166] Neither appraiser has provided market evidence to support their estimate of the reduction in value to the remaining lands. We will therefore consider the market data previously discussed.

[167] We agree with Grant that the remainder parcel is negatively impacted by the narrower configuration particularly in the event of subdivision. We also agree with Grant's opinion that the more distinct separation from the Highway by the larger canal is a disadvantage in terms of commercial exposure.

[168] It is also apparent from the evidence of the other experts that the watercourse will now have a more significant impact on future development of the site and the elimination of the ability to connect to sewer with a gravity connection will result in an additional expense to develop.

[169] We previously concluded a value of $137,000 per acre on the 9.11 acre parcel before the taking. The remainder parcel is 6.49 acres. Revisiting the three comparables that we previously relied upon, the following adjustments are now considered appropriate:

• 15118 - 56th Avenue – no change to the time adjustment of 0.75% for 7 months. An upward adjustment of 5% is now warranted to account for the smaller size of the subject. The location adjustment of -10% for the non-floodplain location and a further -5% for the subject's lack of constructed road frontages remain unchanged. Previously, in considering the two comparables below, we had found a 10% adjustment was necessary to reflect an absence of highway exposure. While this comparable required no location adjustment before the taking, after the taking the subject has more limited exposure and we consider a -5% adjustment is reasonable. As for the narrower configuration and the impact of the watercourse on the developability of the site, we accept the evidence of Grant and the other experts as to their negative impact and consider a further –10% to be appropriate. As before, no upward adjustment for zoning is considered necessary.
• 17852 - 55th Avenue – no change to the time adjustment of 0.75% for 4 months. The location adjustment made previously for the lack of highway exposure is now reduced to 5% and the site size adjustment is also reduced to -5%. An additional adjustment of –10% is warranted for the narrower configuration and the impact of the watercourse.
• 5355 152nd Street – same time adjustment of 0.75% for 18 months. Again, the highway exposure adjustment is reduced to 5%. The -5% for superior access to constructed roads remains unchanged as well as the adjustment of +5% for the more restrictive zoning. The appropriate size adjustment is now considered to be +30%. An adjustment of –10% for the narrower configuration and the impact of the watercourse is also made.

[170] These adjustments yield the following results:

Address	Time adjusted value (per acre)	Final adjusted value (per acre)
15118 56th Avenue	$161,398	$121,049
17852 55th Avenue	$144,499	$130,049
5355 152nd Street	$ 99,153	$123,941

[171] The comparable on 55th Avenue, as before, sets the high end of the range and may be affected by motivation on the part of the purchaser. The comparable on 56th is still considered to be a good indicator of market value for the subject. We conclude that the market value of the remainder parcel is towards the lower end of the range at $123,000 per acre or 6.49 acres x $123,000 = $798,270.

[172] The market value before the taking was estimated at $1,248,000 for the 9.11 acre parcel. With the indicated after value at $798,270, the impact of the taking results in a total loss in market value of $449,730. The value of the land taken was $358,920 and therefore the amount attributable to the reduction in value to the remainder is ($449,730 - $358,920) $90,810.

[173] Counsel for the claimant advanced his own estimate of the reduction in value to the remainder. In his opinion, the remainder parcel is only worth 50% of Grant's estimate of $150,000 per acre for the property before the taking, or $75,000 per acre, for a reduction in value of $523,500 (based on a 9.6 acre parcel size and a 6.98 acre remainder). This submission is without any proper evidentiary foundation and we therefore give it no consideration.

[174] The cost based estimates of loss ranged from $20,000 to $182,500, neither of which appears to be supported by the market data. We consider the market based approach to be a more reliable indicator of market value and conclude a loss in value to the remainder of $90,810.

6.4 Special Benefit

[175] The City asserts that the claimants have benefited as a result of work done on or for access to the Lands. The City calculates that it should be reimbursed $123,926 which is the total of the cost to construct the two accesses on 168th Street ($96,350) plus $6,000 to upgrade the farm pump station and $13,469 to provide farm gates and field drainage culverts.

[176] Section 44 of the Act, as amended, is applicable and it states:

(1)

If part of the land of an owner is expropriated, and the expropriation or the construction or use of the works by the expropriating authority are of special benefit to that owner or to his or her remaining land beyond any general benefit to any other owner benefited by the expropriation or the construction or use, there must be deducted from the amount of compensation payable to that owner the estimated value of the benefit.

(1.1)

If part of the land of an owner is expropriated, and the expropriation or the construction or use of the works for which the expropriated land was acquired are of any benefit to that owner, the estimated value of the benefit must be deducted from the amount of compensation otherwise payable to that owner, under section 40 (1)(b)(i), for the reduction in the market value of the remaining land, whether or not any other owner is benefited by the expropriation of the expropriated land or by the construction or use of the works.

[177] We note that the section contemplates that the compensation payable to an owner must be reduced by the value of the benefit. Value, as discussed earlier, is not necessarily equivalent to cost.

[178] As referenced by the claimants' counsel, the board in L'Abri B.C. Limited et al v School District No. 34 (Abbotsford) (1994), 52 L.C.R. 161, 180, said:

The board is of the opinion that the Act limits any set-off to compensation to those instances where the construction or use of the works by the expropriating authority increase the value of remaining land to the expropriated owner.

[179] Although L'Abri was decided when only special benefits were to be deducted, in our opinion this reasoning continues to apply in this case since here we are considering special benefits. The board in that case went on to find that the onus was on the respondent to establish that a benefit had resulted.

[180] In this case, we reject the claim by the City for the reasons below.

6.4.1 Access

[181] We previously found that the farm had legal access to Highway # 10. There were three physical access points prior to the taking. Access # 1 and Access # 2 were eliminated by the construction of the canal. Although the respondent's traffic expert felt that Access # 2 should have been closed under a 1969 agreement, we found that the evidence did not support that contention. We find that the two accesses constructed by the City were replacements for the two eliminated. The respondent argued that Parcel A had previously been without access and was now enhanced by having access to 168th Street. Access # 1 was located just east of Parcel A's eastern property line. However Parcel A had physical access over the adjoining North Half which was under common ownership, and the claimant argued that if Parcel A was to be sold as an individual parcel, an access easement could have been registered over the North Half.

[182] The City also argued that the quality of construction of the accesses was superior to the previous ones. The new canal crossings were necessarily larger and of a different design than the previous crossings of the smaller drainage ditch. We are not convinced that these differences in culvert design are of any benefit to the claimants. We are also in agreement with the claimant's argument that an access easement could have been arranged if necessary.

[183] The accesses on 168th Street could be considered superior as there is no need for access permits and thus no ambiguity and no restrictions on use or risk of revocation. However, we refer again to the concept of value and note that no evidence was presented to us that would indicate any enhancement to the value of the property as a result of these accesses.

[184] We therefore conclude that the new accesses do not constitute a benefit to the claimants.

6.4.2 Farm Pump Station

[185] The farm pump station was in the area of the taking and had to be moved for construction of the works. Mr. Suduwage Gunadasa, project engineer for the works, was called by the respondent to testify at the hearing. Gunadasa testified that the old farm pump station was working fine but when it was moved it had to be upgraded to meet current standards. He indicated that a new sump pump was constructed, the old pumps were re-installed and the electrical works were improved. As the new pump station does not perform better than the old one, we do not see that the new station is a benefit to the claimants.

6.4.3 Farm Gates and Field Drainage Culverts

[186] At the time of the construction of the works, the City installed farm gates and some field drainage culverts on the subject property. Gunadasa testified that 3 farm gates and 5 drainage culverts were installed on the property. The drainage culverts were installed on the north side of the subject property although evidence showed that the natural drainage was to the south. Under cross examination Gunadasa agreed that Mr. Maddocks had requested that the installation of the drainage culverts be curtailed and the ones that had been installed be capped. This was done and the culverts are not in use.

[187] Two farm gates were installed on 168th Street and one by the "Mound Farm" to the south. Grant testified that there were no farm gates on 168th Street when he inspected the property. He did not know why they were missing.

[188] The City did not quantify a claim for a benefit specifically attributable to the farm gates. It was not made clear at the hearing why the gates would be beneficial to the claimants and why they were no longer there. The City failed to prove that there was an increase in value to the property because of three farm gates. We also fail to see how a claim can be made with regard to unused drainage culverts. Mr. Maddocks is an experienced farmer who had a well drained field. If he saw no benefit to having the culverts, it is unlikely that anyone else would either. We find that there is no substance to the respondent's assertion that farm gates and drainage culverts were a benefit to the claimants.

6.5 Summary

[189] In accordance with amended section 40(1)(b)(i) of the Act, we find the reduction in market value of the remaining lands to be:

North Half		$71,750
Parcel A		Nil
Agricultural portion - Parcel C		Nil
Industrial portion - Parcel C		$90,810

7.  Disturbance Damages

7.1 Loss of Future Farm Income

[190] Glenn Lathrop of Arc Appraisals Ltd. was retained by the City of Surrey in 1996 to provide an estimate of the business loss for MFL caused by the taking. Lathrop provided some preliminary figures in April and June of 1996 and produced a complete report in September of 1996. In his report, Lathrop calculates the total deeded farm area as 98.99 acres including the area of the taking at 12.05 acres. Of this total, he says that 93 acres were actually cropped. He also estimates that approximately 3.13 additional acres were lost to croppable area as MFL had used an equivalent area of the BC Hydro railway lands as headlands prior to the taking and this area was now severed from the remaining lands. He therefore estimates that a total of 15.18 acres of croppable area was lost as a result of the taking.

[191] As he calculates that, prior to the taking, approximately 96.13 acres were croppable, Lathrop initially calculates that 15.8% of the total croppable area was lost due to the taking.

[192] In estimating the lost revenue, Lathrop relies upon the financial statements, supplied by the Maddocks, for the fiscal year ended January 31, 1995. Gross revenues were shown at $1,001,783 and, after deducting the cost of sales and making an adjustment for inventory, he then deducts the reported overhead and administrative expenses. He makes no deduction for other items such as depreciation, management salary or interest. It appears that Lathrop deducts the opening value of the inventory and ignores the closing value of the inventory in calculating cost of sales, although that is not what he says he does. We do not understand his adjustment and it does not correspond with our understanding that the difference between opening and closing inventories is a valid component of the cost of sales. Lathrop's adjustment appears to be incorrect resulting in a misstatement of the cost of sales.

[193] To calculate the annual income loss, Lathrop multiplies his estimated pre-tax, annual net operating income of $340,694 by his initial 15.8% ratio of area lost to cropping, and concludes an annual income loss of $53,830. We note that his loss estimate would have been $52,945 upon correct treatment of the inventory in the cost of sales.

[194] To determine the appropriate loss period, Lathrop turns to case law and relies upon Attorney - General of Quebec v. Roquebrune (1988), 38 L.C.R. 208, 222 (Quebec Provincial Court, Expropriation Division) for his conclusion that the estimated annual income loss should be multiplied by 3 (years) for compensation payable of $161,490.

[195] We consider Lathrop's reliance upon Roquebrune to be inappropriate. Roquebrune follows Plouffe v. City of Ottawa (1973), 4 L.C.R. 37 (Ontario Land Compensation Board) and deals with a different issue; namely, the compensation payable following a complete taking where a business which has no goodwill closes and is not able to relocate. We do not consider either Roquebrune or Plouffe to be applicable to the circumstances here where the claim is for ongoing farm losses as a result of a partial taking. Lathrop, in usurping the task of the board to determine the applicable law, has misdirected himself as to the methodology to be used in this instance. We note further that it appears he considered the three year period in Roquebrune to be sufficient for the Maddocks to obtain suitable additional lands nearby to farm and thus offset the ongoing income losses. This appears to be another rationale behind limiting the compensation to three years loss. However, Lathrop acknowledged under cross - examination that he was unaware of any available replacement lands and agreed that if none were found after three years he would have to reconsider. This matter of acquiring lands to offset lands lost is addressed later in this decision.

[196] Lathrop also analyzes other possible heads of claim. He considers that the manure storage area will need to be moved but concludes that there will be no increase in the area lost to cropping and therefore no adjustment need be made. In reviewing potential additional marginal operating costs, Lathrop concludes "It is not likely that any of the field equipment will be rendered substantially obsolete by a taking of under 16% of the total crop area and in any event, the acquisition of offset lands, by purchase or lease, to compensate for the loss of cropping would negate even the small additional marginal cost of machinery maintenance spread over a smaller land area."

[197] Under the heading "Impact of Taking on Future Farm Product Marketing (Quota)", Lathrop considers the quotas held by MFL. Although vegetable quotas can be built up and thus obtained without actually buying quota, Lathrop indicates that they still can have value to a purchaser. He states that the subject farm has quotas that represent a substantial market share of specific commodities, and, if the subject were to be offered for sale, a potential purchaser would place a high degree of importance on the existence of the quota.

[198] While Lathrop believes that the subject quotas hold value, he is of the opinion that the loss in value would not be proportional to the area of cropland lost although he does not explain why. He states that quantifying the loss is difficult and subjective as the quota value is usually negotiated at the time of purchase and is frequently not declared. He declined to estimate a loss in value for the quotas and recommended that first the availability of offset lands be investigated.

[199] In February of 1997, Lathrop amended his report due to a revision in the area of the taking. He reports that the area of the taking has been reduced to 46,958 square metres or 11.6 acres and, based upon this change, revises his compensation estimate downwards to $156,582. The advance payment was made to MFL on the basis of this estimate.

[200] On February 7, 2000, one month before the hearing, Lathrop sent a letter to the City of Surrey revising his compensation estimate down to $123,297. This change was based on telephone conversations with BC Hydro, the owners of the railway lands to the north of the subject, and Southern Railway of BC, the occupiers of the railway. Lathrop states that he has confirmed that MFL does not have, and has never had, formal permission to utilize the Hydro right of way lands for cropping. At the time of Lathrop's initial research, Mr. Maddocks had informed him that he had permission to use the BC Hydro railway lands for headlands.

[201] As Lathrop had included the area of the railway lands used as headlands in his calculation of area lost to cropping, he now concluded that, without formal permission, the use of these lands was presumably non-compensable and a revision of the compensation estimate was necessary. He recalculates his estimate by applying the reduced ratio of lost croppable area (12.47%) to a net operating income which he reduced to reflect the fact that part of the income was actually earned by using some of the BC Hydro railway lands.

[202] On February 29, 2000, less than one week before the hearing, Lathrop again revised his estimate of compensation for MFL. After reviewing a letter from Danny Grant to Ralph May, counsel for the claimant, Lathrop realized that the farm income reported by MFL included income earned from an additional 85 acres that were farmed by the Maddocks. Grant had concluded that the 85 acres had a productive value of approximately 80% of the subject lands and therefore considered that they would represent the utility of about 68 acres. Accordingly, Lathrop revised his estimate of the actual cropped area to 161 acres which reduced the ratio of the area of taking (11.61 acres) to 7.2% of the total. He then reduced his estimate of compensation payable to $71,190 based on an annual income loss of $23,730 multiplied by three.

[203] The letter to which Lathrop refers in his last revision was written by Grant in reply to Lathrop's previous reports.

[204] Grant disputes Lathrop's methodology and offers his own analysis. Grant testified that it was not possible to prepare a before and after profitability analysis as the Maddocks implemented some changes to the operation over the relevant time period and shortly after the taking sublet the farm to Maddocks Produce Inc. (MPI), a company owned by Reg Maddocks.

[205] For his income analysis, Grant reviews the financial statements of MFL for the fiscal years ended January 31, 1993, 1994 and 1995 and takes an average of the annual net income before other items, to arrive at an annual net income estimate of $305,000 for the combined farming operation.

[206] He estimates that on the agriculturally zoned portion of the home farm (excluding the 5 acre Parcel A) there were 84.49 acres with about 4.5 acres taken up by driveways, the homesite and the area around the buildings, leaving about 80 acres in crop. To this 80 acres he adds 1.18 acres in recognition of the BC Hydro railway lands utilized for headlands, plus 68 acres for the adjoining farmed area. He concludes this constitutes the long term farming area, being approximately 149 acres. The shorter term farming area (industrial portion of Parcel C, 5 acre Parcel A and adjacent BC Hydro railway lands utilized for headlands) he estimates at 15.88 acres for a total farmed area of about 164.9 acres. He indicates a net income per acre of $1,605 before depreciation; however, it would appear that his calculation should have yielded a figure of $1,850 per acre ($305,000/164.9 acres).

[207] Although the landowner and the farmer are related parties Grant recognizes that ignoring a return on the land will over compensate MFL. To account for this, he estimates that a farm rental rate would be approximately $200 per acre and he deducts this amount from the per acre net income. Grant expresses the opinion that due to the physical barriers around the property, there are no additional lands that could reasonably be accessed for additional farming in order to mitigate farm losses.

[208] Grant estimates that moving the manure storage area will result in an additional loss of croppable area since new guidelines require a 15 metre (49.2 feet) setback from watercourses. He believes that the northwest corner of the property is the best location for the manure storage and estimates that while the previous amount of land lost was 100' x 100', it will now be 150' x 150' for an additional 12,500 square feet (rounded to 0.25 acres) of non-croppable area.

[209] In analyzing the impact of the taking on the loss in farming income, Grant differentiates between the long term farming area and the short term farming area. He estimates the loss in croppable area on the long term farming area to be 8.11 acres, based upon his calculation of the area of the taking (6.68 acres) plus the headland area that was located on the BC Hydro railway lands (1.18 acres) plus the increase in area for the manure storage (0.25 acres). We note, parenthetically, that the taking in this long term farming area is actually 6.67 acres.

[210] Grant also presented an alternate calculation for the long term farming area based upon the possible change in highest and best use for the remainder portion of the small agricultural parcel, Parcel A. We have concluded that there was no change in the highest and best use of Parcel A.

[211] For the short term farming area, Grant calculated a lost area of 6.22 acres based on the area of the taking from the small parcel, Parcel A (2.32 acres) plus the taking from the industrial portion of Parcel C (2.62 acres) plus the headland portion on the adjacent BC Hydro railway lands (1.28 acres).

[212] Grant estimates that the long term farming operation would have continued for 20 years and the short term farming for 7 years. Using these time periods, he then calculates the present value of the income loss on the basis of a discount rate of 4%. This rate, in Grant's opinion, is a reasonable reflection of the owner's earning alternatives.

[213] Neither expert deducted depreciation from the operating income. As Grant pointed out, a 5% reduction in croppable area would not be able to be matched by a 5% reduction in fixed assets. We conclude that although depreciation is a valid reflection of the cost to use the fixed assets in the production of the income, a reduction in the croppable area of the farm would not necessarily result in an equivalent, or in fact any, reduction in the cost of the farm equipment.

[214] The experts also did not deduct management salary as an expense. We agree with this treatment as the labour component of the farm business appears to be represented on the financial statements by wages and salaries expensed. The management salary taken varied widely from year to year ($5,279 in 1992, $200,000 in 1993) and does not in our view reflect payment for services. We consider it to be essentially the profit component for the farm.

[215] Although there are several errors in his reports and they were difficult to follow, we prefer Grant's approach to calculating the loss of future earnings as he has attempted to estimate the actual impact of the taking on the claimants. As Lathrop's conclusion is based upon his own interpretation of case law and his assumption of available offset lands, his report provides limited assistance to the board.

[216] While there are conceivably some expenses other than depreciation that will not vary with the reduction in croppable area, no evidence has been presented from which we can deduce this. We will therefore rely on the simplified methods that were adopted by both experts.

[217] Although we agree with Grant's methodology, we are unclear as to the reasons for his choice of a three year average for his estimate of net income and why he did not include fiscal 1996, the last year prior to the impact of the taking. However, we certainly consider it inappropriate to base an income (or loss) projection on the basis of one year's earnings as Lathrop has done, particularly when the year in question, as he testified at the hearing, was a better than average year.

[218] We were provided with the financial information for MFL for the fiscal years 1989 through 1998. A review of the statements shows that income from 1989 through 1991 was increasing but 1992 income dropped significantly. It is notable that in 1993 a substantial amount was reported under "Farm Income Assurance and Government Programs". Although we cannot be certain, it is not inconceivable that this amount relates to the poor performance in 1992. If that is the case, the reported 1993 income would be overstated in relation to the actual farm earnings for that year.

[219] Regardless of the question of the applicability of the income assurance to the 1993 year, the variance between the years clearly shows that farming is not a risk free endeavour. As Grant has used a very low risk discount rate, it appears to the board that the three year average used for his calculation is not truly representative of the stabilized income and does not account for the vagaries of the market and the risks inherent in farming. We believe that an average of the income for the five years prior to the impact of the scheme (fiscal years 1992 to 1996 inclusive) is a more appropriate period for a better reflection of the stabilized income.

[220] Grant's estimate of notional rent was not disputed by the respondent and we accept his estimate. We agree that it must be deducted to avoid double compensation.

[221] In calculating the amount of croppable area in the long term farming portion, we accept Grant's estimate of 80 acres for the main parcel plus 68 acres (effective) of adjoining land. We question his estimate of area lost due to additional setbacks which would be imposed upon the manure storage area if located near the drainage canal. The former manure storage area has not been replaced and we are not certain even if it were, that it would necessarily need to be located in the corner adjacent the watercourse. We conclude that this calculation of additional loss in farmable area is too speculative and will not necessarily be incurred.

[222] Grant includes a total of 2.46 acres of the BC Hydro railway lands area as part of the area lost to farming although in one of his reports he indicated that based upon aerial and ground photos, his best estimate of the BC Hydro area used was 1.45 acres, "less than half the 3.13 acres indicated in the ARC revision…".

[223] The City argued that the claimants were not authorized to use the BC Hydro railway lands and says that case law prohibits such a claim. They referred to a previous board decision, Cokato Dairy & Stock Farms Limited v. Fernie (City) (1994), 54 L.C.R. 199. We note that the claimant in Cokato offered no evidence of a permit or other right to occupy and cultivate the road allowance in question in that case. We also note the claim in relation to the road allowance in Cokato was in respect of crops actually grown on the road allowance. This is not the case for MFL.

[224] We have no reason to doubt Mr. Maddocks testimony that approval to use the BC Hydro railway lands as headlands had been received and that the area was used for this purpose for many years. The relationship was obviously of mutual benefit as the area was kept clear for access by railway employees. Lathrop testified that BC Hydro did indicate a willingness to enter into an agreement for continued use as headlands, subject to indemnification for liability. We have no reason to believe that MFL would not have been able to continue to use this area as headlands were it not severed from the remainder of the farmed area by the works.

[225] Section 1 of the Act defines an owner as a person who is in legal possession or occupation of land. We conclude that there was permission to occupy and use the BC Hydro railway lands for headlands before the taking and that MFL occupied the BC Hydro railway lands for that purpose with the acquiescence of BC Hydro before the taking. We therefore conclude that MFL can be considered an "owner" in relation to this land under the Act.

[226] But we do not believe the question of entitlement to compensation in this instance rests solely on whether or not MFL was an "owner" in relation to the BC Hydro railway lands. More important is the question of what was the impact of the taking in relation to the need for headlands and what is the nature of the loss in respect of which compensation is sought as a result.

[227] Before the taking, MFL had been able to plant crops right up to the northern boundary of the Lands because it was able both legally and physically to use the BC Hydro railway lands for headlands. The effect of the taking was that the railway lands became physically separated from the Lands and thus the area required for headlands had to be relocated on the remainder of the Lands resulting in a loss of an equivalent amount of croppable area. Thus, the loss being sought is in fact in respect of the further reduction in croppable area on the Lands flowing from the need to now provide for headlands within the boundaries of the Lands.

[228] We accept Grant's more precise estimate of 1.45 acres as representing the applicable headlands area based upon his review of the aerial photographs of the site. From the information that he provided, we calculate that the lost headlands portion of the BC Hydro railway lands which had to be relocated on the Lands was 0.59 acres from the long term farming area and 0.86 acres from the short term farming portion. We conclude it is appropriate to include this additional loss of croppable area in determining the financial impact on MFL.

[229] Therefore, we calculate the total acreage within the long term farming area to be: 80 acre homesite parcel, plus additional 68 acres adjoining, plus 0.59 acres on the Hydro land, for a total of 148.59 acres. The short term farming area is calculated at 9.11 acres of industrial land, plus the 5 acre parcel, plus 0.86 acres on the Hydro land for a total of 14.97 acres. Combining these figures yields a total area in farm production of 163.56 acres.

[230] The area lost to farming is calculated at 7.26 acres from the long term area (6.67 acre taking plus 0.59 acre used as headlands) and 5.8 acres from the short term area (2.32 acre taking from 5 acre Parcel A, 2.62 acre taking from the industrial portion of Parcel C and 0.86 acre headland area). We will calculate the losses based upon these areas.

7.2 Discount Period/Rate

[231] The respondent argued that MFL could not claim for a business loss beyond 1998 since MPI had been farming the Lands since that time. The evidence was that MPI was formed in connection with arranging an intergenerational transition of the business; however, MFL remained as the tenant under the Lease and remained financially involved. It was Keith Maddocks evidence that the arrangement with MPI had proved unsatisfactory in a financial sense and was shortly to come to an end. We see this as a continuation of the family farming operation albeit indirectly through MPI for a short period. We do not accept Surrey's argument that the short-term arrangement with MPI limits the period over which to calculate the loss resulting from the reduction in croppable area. At the time of the taking MFL carried on the farming operation and had reasonable prospects of continuing to do so for the foreseeable future.

[232] The MFL Lease is automatically renewed for two year terms unless either party gives notice of termination at least 10 days before the end of the term. The claimant referenced Lauzon v City of Windsor (1974) 7 L.C.R. 11 which concerned a lease between a husband and a wife. The Ontario Land Compensation Board found, in that case, that although the lease provided for termination by either party with one year's notice, there were "reasonable prospects of renewal". We similarly find, in the case of MFL, that although the Lease can be cancelled, the prospect of continuing renewal was likely and MFL was not at risk of losing the right to lease the lands it farms.

[233] In analyzing the appropriate period to be applied to the estimated annual income loss, we have also considered whether it was reasonable for MFL to acquire replacement lands to mitigate the farm losses. We heard evidence of the practical barriers to farming additional lands in conjunction with the main farm. The Maddocks farm has obstacles to farm vehicle movement on three sides of the property. On the north side the speed, volume and patterns of traffic along Highway # 10 restrict the use of the road for farm vehicle movement. On the east side, the property has no road frontage. We heard evidence that the BC Rail tracks, on the south side of the property, frequently had long coal trains waiting on the tracks, sometimes for days at a time. This restricted the ability of farm vehicles to cross the tracks from the Maddocks main farm onto their additional lands or to the adjacent Mound Farm to the south which had been available for lease. This leaves 168th Street as the only practical means of accessing additional lands for farming; however, the coal trains reportedly blocked that road, as well, on occasion. Even if additional lands were available for lease, they could not be farmed with the same efficiency as the lands which were removed from the main farming operation.

[234] We are therefore satisfied that it was not practical for MFL to acquire replacement lands. Hence the loss in income would continue until such time as farming was no longer the highest and best use of the land. We accept Grant's estimates of 20 years and 7 years for the long term (7.26 acres) and short term (5.8 acres) farming areas, respectively, as the appropriate periods and will award MFL the present value of its anticipated loss over these periods.

[235] Grant has calculated his estimate of the income loss on the basis of a 4% discount rate, which, in his opinion, is a reasonable reflection of the owner's earning alternatives based upon inflation free bonds. Grant's evidence in this regard was not challenged by the respondent. He found support for his rate, he testified, in the board's previous decision, Cokato, where, he incorrectly stated, the board used a rate of 3.5%.

[236] The evidence with respect to an appropriate discount rate was less than satisfactory. Grant testified that he had determined that it was possible to acquire an inflation protected bond at 4% as at the time of the taking. No evidence was adduced by the respondent with respect to what would constitute an appropriate discount rate.

[237] In Cokato, evidence was presented indicating a variety of discount rates ranging from the claimant's 3.5%, which was based on the Law and Equity Act, to a high of 6.12% by the respondent's expert who described it as an aggressive rate. The respondent's expert recommended 5.32% as an appropriate rate, based on the mid point between the 10 year (1984 to 1993) average real rate of return of 6.12% and the 35 year average real rate of return of 4.51% on long term Government of Canada bonds. The respondent's expert in that case also noted that averaging the rate of return over a longer period evened out economic cycles. The losses in Cokato were projected to continue for 50 years. The board in that case, after reviewing the evidence, settled on 5%.

[238] Having reviewed the rates and methodology referenced in Cokato, we note the evidence relied upon by the board in coming to the 5% rate selected in Cokato was evidence respecting average real rates of return of long term bonds over a period of years. We contrast this with Grant's evidence that in selecting a discount rate of 4% he looked to the specific rate of return at the date of the taking i.e. a single point in time.

[239] We consider, in view of Grant's misapprehension as to the discount rate determined for use in Cokato, and his failure to review and consider average rates of return over longer periods, that his proposed discount rate of 4% is too low.

[240] We also note, from our discussion above of the evidence respecting MFL's average income, that farming does not appear to be a risk-free operation.

[241] In the absence of more specific evidence as to rates of return since Cokato, we conclude the 5% discount rate adopted in that case to be appropriate here.

[242] Using the five year average income, before other items, for the fiscal years 1992 - 1996 indicates an average annual income of $217,259 for 163.56 acres. The per acre income is then $1,328.31. We deduct the notional rent of $200 per acre from this figure which indicates a net operating income of $1,128.31 per acre before taxes and other items.

[243] The annual income loss is thus calculated:

Long term: 7.26 acres x $1,128.31 per acre = $8,191.53 per annum
Short term: 5.8 acres x $1,128.31 per acre = $6,544.20 per annum

[244] The present value of the loss in income is then calculated as follows:

$8,191.53 per annum x 20 years, discounted at 5% per annum	$102,085
$6,544.20 per annum x 7 years, discounted at 5% per annum	$  37,867
Total present value of income loss	$139,952

7.3 Accelerated Depreciation

[245] In addition to a loss of income, Grant says that the subject farm now suffers from accelerated depreciation of the improvements and equipment due to a loss in the economies of scale. His basis for this theory is the assumption that the subject farm, as an established business, has an asset level that is close to the optimum balance. He provides a list of the machinery and equipment inventory with an estimate of value which he states is based on a combination of book cost, less depreciation and replacement cost. The board notes, however, that, without exception, every item listed that could be verified on the financial statements provided, was listed at actual cost with no depreciation deducted. Grant's list totals $1,447,405. The respondent noted at the hearing that the book value of the machinery and equipment, for the year ended January 31, 1996, totaled $313,905. As it is difficult to believe that no depreciation has occurred, it would appear that Grant's list vastly overstates the value of the fixed assets.

[246] Grant estimates the value of the farm buildings and site improvements based on depreciated costs obtained from the Marshall Swift valuation manual. He calculates the total for these fixed improvements at $398,211 which when added to his estimate of equipment and machinery produces a total of $1,845,616.

[247] He calculates that the area lost to long term farming represents approximately 5.09% of the actively farmed area. He takes 5.09% of the total asset value and calculates accelerated depreciation in the amount of $94,080. As he estimates that an additional 4.4% of the actively farmed area will be lost from the short term farming area, he calculates $81,252 for this area, however, he considers that only 35% of this amount is applicable as the area would likely only be farmed for 7 years after the taking. He therefore uses $28,438 as the accelerated depreciation for the short term farm area. His estimate of accelerated depreciation then totals $122,518 ($94,080 plus $28,438).

[248] There appear to be some errors in Grant's calculations and based on our previous conclusions as to the areas lost to farming the percentages would be different; however, this becomes moot in view of our conclusion.

[249] Since Grant has not included depreciation as an expense in his income analysis, he is effectively advocating double compensation for the loss of efficiencies to the business by claiming "accelerated depreciation" on the assets. We are of the view that excluding depreciation in the analysis of business loss appropriately reflects the loss of efficiency of these fixed assets and we find no basis upon which to award compensation for accelerated depreciation.

7.4 Loss of Quota

[250] The respondent's expert believed that there would be some loss in the value of the quota, particularly if offset lands were not available. The claimant has not advanced a claim under this heading nor proven such a loss. Accordingly, we make no award.

7.5 Summary

[251] In accordance with sections 39 and 40(1)(b)(ii) of the Act, we find MFL is entitled to compensation for business losses in the amount of $139,952.

8.  The Award

[258] Section 46(1)(a) of the Act provides that the expropriating authority must pay interest on any amount awarded in excess of any amount paid by the expropriating authority under section 20(1) or (12) or otherwise, to be calculated annually, on the market value portion of compensation, from the date that the owner gave up possession. Therefore, the claimant is entitled to interest under section 46(1)(a) on the amount awarded of $792,650, with adjustments to take into account the advance payments of $386,950 on May 6, 1997 and $213,250 on November 5, 1999, which brought the total advance payments for this claimant to $600,200. Under section 46(2), interest is payable at an annual rate that is equal to the prime lending rate of the banker to the government.

[259] As the amount of the advance payments is less than 90% of the compensation awarded, under section 46 (4), the claimant is entitled to additional interest, at an annual rate of 5%, on the amount of the difference, calculated from the dates that each payment was made to the date of this decision.

8.3.2 Maddocks Farms Ltd.

[260] As this claimant has been awarded compensation in an amount less than the advance payment, no interest applies.

8.4 Certification

[261] Since the advance payment to MFL of $156,582 (excluding interest) is more than the compensation awarded, pursuant to section 30(2) of the Act we certify $16,630 as a debt due by Maddocks Farms Ltd. to the City of Surrey.

8.5 Costs/Tariff

[262] The compensation awarded to Keith Maddocks is greater than 115% of the amount paid in advance by the respondent and therefore, pursuant to section 45(4), the claimant is entitled to his costs. Those costs are the actual reasonable legal, appraisal and other costs incurred by the claimant for the purpose of asserting its claim for compensation or damages, pursuant to sections 45(3) and 45(7)(a), up to and including June 27, 1999. Thereafter, while other costs may continue to fall under section 45(7)(a), legal and appraisal costs are governed by the Tariff of Costs Regulation, B.C. Reg. 189/99 (the "Tariff"), as provided for under section 45(7)(b) of the Act.

[263] Under section 3(3) of the Tariff, the board may, when it makes an adjudication of compensation following a hearing, fix the scale, from Scale 1 to 3 in section 4(1), under which the costs will be assessed. Counsel for the claimants submitted that costs should be awarded on Scale 3. The respondent did not address the issue of costs.

[264] Due to the number and complexity of the issues involved in Keith Maddocks' claim, we consider Scale 3 to be appropriate for legal costs.

[265] We also consider Scale 3 to be appropriate for appraisal costs due to the number of legal parcels and valuation issues involved.

[266] Counsel for the claimants submitted that the extra work done by Grant in regard to Surrey's claims of special benefits and no legal access to Highway #10 was not appraisal work and should not fall under the tariff. While access and benefit issues may be appraisal matters, in this case the work undertaken by Grant in this regard was not in connection with his appraisal report which had already been completed. Rather this work was undertaken at request of counsel to assist in preparation for what in essence was a response to the respondents counter claims for overpayment. Grant's time spent in this regard appears to the panel to fall outside his appraisal assignment but we leave the issue for further consideration by the chair at any review of the bill of costs that might be necessary.

[267] For the claim of Maddocks Farms Ltd., the amount awarded is 89% of the advance payment and as such we have discretion in awarding costs. As Surrey was asserting that up to the entire amount of the advance payment was an overpayment, we find that it was necessary and reasonable for the claimant to incur costs to maintain its claim through to a compensation hearing.

[268] We find that the claim for Maddocks Farms Ltd. represents a matter of ordinary difficulty and importance and thus we find costs on Scale 2 are suitable for legal costs. The Maddocks Farms Ltd. claim, being a claim for business loss, does not give rise to appraisal costs. With respect to costs for business valuation, although the question of other costs is yet to be finally determined since the introduction of the Tariff, it would appear to us that they remain to be assessed under sections 45(3) and 45(7)(a).

THEREFORE IT IS ORDERED THAT

The City of Surrey pay to Keith Maddocks: