March 9, 2005, E.C.B. No. 18/01/255 and 23/01/255

TABLE OF CONTENTS

REASONS FOR DECISION

1.  INTRODUCTION

[1]  On March 9, 2000, the respondent, British Columbia Transit ("Transit"), expropriated a statutory right of way (the "SRW") over the front portion of a parcel of land at the south east corner of the Lougheed Highway and Bainbridge Avenue in the City of Burnaby. The expropriation was for the purpose of constructing a concrete column and elevated guideway which form part of the "Millennium Line", an extension of the elevated rapid transit facility in the Lower Mainland of British Columbia commonly known as "SkyTrain". The parcel is owned by the claimant, James Edmund Burnaby Holdom, and at the date of taking was leased to the claimant, Chevron Canada Limited, for use as a service station. Chevron owns the adjacent parcel of land to the east and was using it jointly with the leased site. No part of this adjacent parcel was expropriated but a second column supporting the guideway was constructed immediately in front of it. On November 26, 2001, approximately 17 1/2 months after the construction was completed, Chevron closed its service station. All of the improvements were removed and the site was remediated.

[2]  Holdom and Chevron have applied to the board for orders determining the amount of compensation to which they are entitled under the Expropriation Act, R.S.B.C. 1996, c. 125 (the "Act"). They assert that imposition of the SRW, construction of the columns and guideway, and subsequent operation of SkyTrain (collectively referred to as the "Project") destroyed the viability of the two parcels to continue to be used and redeveloped as a service station site and brought about the closure of the station. The Project, they say, changed the highest and best use of the joint site to a less valuable use. Holdom seeks compensation for land taken and reduction in value to the remainder of his parcel totalling $675,000. Chevron seeks compensation for losses to its interests in the two parcels resulting from the Project of $589,000. Both claimants also seek interest and costs. No claim has been made for personal or business loss.

[3]  Transit denies that the claimants have suffered losses of the magnitude claimed. At the time of the partial taking it made advance payments of $99,000 to Holdom and $52,700 to Chevron and now says the claimants collectively have been overcompensated. According to Transit, the Project did not change the highest and best use of the two parcels which even before the expropriation were not best suited for continued service station use. Transit says the impact of the Project on Holdom's parcel was far less severe than what the claimants have alleged, that it did not necessitate Chevron's abandonment of the site, and that there were equally likely alternative reasons besides the Project for closure of the service station. Transit also takes the position that there is no compensable loss whatever to Chevron's adjacent parcel from which no interest in land was taken.

[4]  By agreement the two claims were heard together but not formally consolidated. The claimants acknowledged that evidence led by one would be adopted by the other. The compensation hearing took place in Vancouver. At the outset of the hearing on March 29, 2004, the members of the panel, at the request of and in the company of counsel for the parties and others, took a view of the subject site, the surrounding neighbourhood and numerous properties utilized as comparables by the appraisal experts. We found this to be a useful orientation. We then heard evidence over a further 12 days between March 30, 2004 and April 16, 2004, and reconvened for final submissions on May 10 and 11, 2004.

[5]  Lay witnesses for the claimants were Randy H. Johnson, Chevron's manager for retail marketing, and the claimant James E.B. Holdom, owner in fee simple of one of the two parcels. Ken Ito and Barry D. Waitt, two planning officials with the City of Burnaby, were also called to testify by the claimants. The claimants' expert witnesses were John McClurg, an oil company consultant who prepared an opinion report on gas station marketing and development with reference to the subject site, and two qualified real estate appraisers, J. Richard Young of Grover, Elliott & Co. Ltd. and David C. Cavazzi of D.C. Cavazzi & Associates Inc. Young, who was retained by Holdom, prepared an appraisal report on the Holdom parcel only while Cavazzi, who was retained by Chevron, prepared an appraisal report on the joint site focusing on Chevron's interests.

[6]  The witnesses for Transit were Mario Pavlakovic, the manager of properties for Rapid Transit Project 2000 Ltd. ("RTP 2000"), the company responsible for acquiring property interests needed for the SkyTrain extension, Fred J. Mussett, a qualified real estate appraiser with Carmichael Wilson Property Consultants Ltd. who prepared successive appraisal reports on the subject site, and James S. McIlmoyle, a qualified expert on retail oil industry real estate who prepared an opinion report concerning the prospects for continuation of the subject service station before and after the taking.

2.  BACKGROUND

[7]  Based upon our review of the pleadings and statement of agreed facts, as well as the oral and documentary evidence adduced, we make a number of background findings and observations which follow.

2.1  The Claimants

2.1.1  James E.B. Holdom

[8]  The claimant James Holdom, member of a pioneer Burnaby family, was a real estate agent in the area for many years and is now retired. He is the registered owner of the parcel of land located at 7118 Lougheed Highway in Burnaby legally described as:

Parcel Identifier: 002-742-969
Parcel "B" (Explanatory Plan 14855) of Lot 1, Block 4, District Lot 59, Group 1, New Westminster District, Plan 3050

("Parcel B" or the "Holdom property")

[9]  Although the evidence as to date of purchase was not entirely consistent, it appears that Holdom acquired Parcel B in 1977. Most of the gas station improvements were located on Parcel B and a station was already operating there at the time under a long term lease. Holdom testified that he bought Parcel B as his "retirement pension" and the documentary evidence shows that he took careful note of matters affecting the well-being of his interest, including each subsequent lease renewal and any plans for rezoning and redevelopment. In 1991, when the lot adjacent to Parcel B to the east came up for sale, Holdom attempted to purchase it and thereby consolidate ownership of the two lots comprising the service station site. However, Chevron, which already occupied the adjacent lot under a lease, also held a right of first refusal to purchase and exercised its right at that point.

2.1.2  Chevron

[10]  At the date of expropriation the claimant Chevron was the lessee under a registered long term lease of Parcel B. The then current term of the lease expired in November 2002, but there were renewal options which could have extended it to 2022. As noted above Chevron also was and still remains the registered owner of the interior lot adjacent to Parcel B, located at 7128 Lougheed Highway, and legally described as:

Parcel Identifier: 003-373-126
Lot 89, District Lot 59, Group 1, New Westminster District, Plan 42646

(" Lot 89" or the "Chevron property").

Chevron purchased Lot 89 on May 1, 1991 for $175,000.

[11]  A gas station had been located at the south east corner of Lougheed and Bainbridge since 1949 and Chevron or its predecessor had continuously operated the station, utilizing both Parcel B and Lot 89, since at least 1973.

[12]  The subject site was part of Chevron's large network of retail stations servicing the Lower Mainland. Around the time of the taking Chevron occupied a dominant position in the local market for retail gasoline sales and, according to John McClurg, had the most efficient network. In 1999 Chevron operated 90 stations in the Lower Mainland where it held a 30.7% market share. In Burnaby, where the subject site was located, Chevron operated 11 stations and held a 33.4% market share. The other major oil companies in this market were Petro-Canada, Esso, Shell and to a lesser extent Mohawk. In the late 1990s a new player, Arco, entered the local market and for three or more years generated an aggressive and evidently costly gasoline price war. At about the same time "big box" retailers such as Costco, Real Canadian Superstore, Safeway and Overwaitea Food Group started to add retail gasoline to their marketing mix.

[13]  Witnesses described the long-term trend among oil companies including Chevron toward reducing the number of service stations, eliminating inefficient outlets, and creating larger and more diversified sites. McClurg noted that the number of service stations in the Greater Vancouver market area had been reduced by 100 outlets in the five year period prior to 2000 and that the Arco-generated price war and new competition from big box retailers had put additional pressure on the existing marketers to rid their networks of inefficient stations. Randy Johnson testified that Chevron had a "culling plan" in place at the time and it was part of his job as manager of retail marketing to decide the fate of stations in the Chevron network.

[14]  Although the subject service station at Lougheed and Bainbridge (which hereafter we will frequently refer to as "Bainbridge Chevron") was only a modest performer when judged by the volume of its gasoline sales, Johnson said he made the decision to renew the lease of Parcel B in late 1997 and seek to redevelop the station thereafter because of its strategic location within the Chevron network.

2.2  The Bainbridge Chevron Station

2.2.1  Location, Size and Improvements

[15]  Bainbridge Chevron was situated in the north east quadrant of the City of Burnaby, a populous inner suburb lying directly east of the City of Vancouver and west of the cities of New Westminster, Coquitlam and Port Moody. Although Burnaby had developed several major commercial and high density residential town centres, the immediate neighbourhood around Bainbridge Chevron at the time of the taking was an older mixed use area of residential, retail and light industrial development. Single family dwellings predominated immediately to the south and east while large multi-tenanted office and warehouse complexes were found further south along Bainbridge Avenue and to the west. Two older townhouse developments as well as a neighbourhood of single family dwellings were located nearby on the north side of the Lougheed Highway.

[16]  The properties bordering the intersection of the Lougheed Highway with Bainbridge Avenue comprise what the appraisers described as a "local commercial node". Directly across Bainbridge at the south west corner was a freestanding restaurant known as the "Fogg'n Suds", a retail strip centre that included a grocery store, and a large office and warehouse structure. Across Lougheed at the north east corner there was a retail plaza with a building occupied by a bank, professional offices, and another grocery store. At the north west corner of the intersection was an Esso service station with a small convenience kiosk.

[17]  As previously noted, the Bainbridge Chevron site itself comprised two separate lots. Parcel B directly adjacent the south east corner of Lougheed and Bainbridge was the larger lot and contained most of the service station improvements. It was essentially level and nearly rectangular with 36.68 metres or about 120 feet of frontage along Lougheed and 46.63 metres or about 153 feet of frontage on Bainbridge for an overall size variously estimated by the appraisers at either 17,842 square feet or 17,860 square feet. Lot 89 adjoining Parcel B on the east was also level and rectangular with 15.32 metres or about 50 feet of frontage along Lougheed that was set further back than in the case of Parcel B as a result of an earlier road dedication. The overall size of Lot 89 was estimated as being either 5,835 square feet or 5,850 square feet. The larger parcel comprising these two lots was slightly over half an acre in size. Chevron's appraiser calculated it at 23,677 square feet and Transit's appraiser at 23,710 square feet.

[18]  The improvements on Parcel B at the date of taking comprised a one storey concrete block building of between 1,842 square feet and 1,848 square feet and a two island gas bar with overhead canopy as well as yard paving, lighting and landscaping. The building which had been constructed in 1972 contained a sales office for gasoline, oil products and some confectionary items, a washroom and three unused auto service bays. The canopied gas bar had been recently upgraded to include new underground tanks and modernized fuel pumps. The smaller Lot 89 which was used mainly for vehicle circulation on the service station site and for egress onto the Lougheed Highway was improved only with paving, lighting and landscaping.

[19]  While Bainbridge Chevron was part of a local trade area with something of a neighbourhood customer base, its location on the south side of the busy Lougheed Highway also positioned it to be able to cater to the large commuter population travelling east through Burnaby. For Chevron a strategic consideration lay in the fact that the Bainbridge station was the oil company's only outlet and one of only two service stations of any brand located on the south side of Lougheed for the entire distance between Vancouver and Coquitlam. The Lougheed Highway is one of the two primary east-west arterials crossing Burnaby, the other being the Trans Canada Highway to the south. Secondary east-west arterials include Hastings Street to the north and Kingsway and Marine Way to the south. As will be noted further when we examine some of the properties chosen by the appraisers for direct sales comparison purposes, both Hastings Street and Kingsway are also major commercial corridors.

[20]  In the vicinity of Bainbridge Chevron the Lougheed Highway carried two lanes of traffic in each direction with left turning lanes at the signal controlled intersection with Bainbridge Avenue. A median separated the east from the west flowing lanes. The posted speed limit was 70 km per hour. The City of Burnaby classified Bainbridge Avenue, a 66 foot wide street with one traffic lane and one parking lane in each direction, as a major north-south collector but the traffic counts compiled around the time of the taking indicate that this local street carried a comparatively minor portion of vehicle traffic in the area.

[21]  During the hearing a great deal of evidence focused on questions of visibility and access insofar as they may have affected the commercial viability of Bainbridge Chevron before and after the partial taking and the Project. For traffic travelling eastward along the Lougheed Highway the Bainbridge Chevron site was positioned at the crest of a long upwardly sloping hill beginning at Sperling Avenue approximately 0.6 kilometres or 0.4 miles to the west. Transit introduced evidence that visibility was negatively impacted by the uphill grade change and a bend in the highway and that the service station was also partially obscured by the Fogg'n Suds restaurant and landscaping. The claimants countered with evidence to the contrary. From our review we are satisfied that at the time of the expropriation the easterly approach provided the station with good site line visibility or exposure to motorists for a considerable distance before they reached the signalized intersection at Bainbridge Avenue. There was direct ingress off the Lougheed Highway onto Parcel B just east of the intersection and egress back onto the arterial from Lot 89. There were also two access points to the station off Bainbridge Avenue. For traffic travelling westward at the time of the taking, the station was not nearly as visible or accessible. A short distance east of Bainbridge Chevron, the Lougheed Highway curved to the south. As a result westbound motorists could not glimpse the station until shortly before they were opposite it. Because of the centre median no left turn could be attempted across the two lanes of eastbound traffic into the station. Access instead required making a left turn from the dedicated turn lane at the signalized intersection. It seems unlikely that Bainbridge Chevron drew on any considerable volume of traffic flowing to the west.

2.2.2  Land Use Controls

[22]  The two lots from which Bainbridge Chevron operated had long been governed by separate zoning designations put in place by Burnaby. Parcel B on which most of the gas station improvements were situated was zoned C6 (Gasoline Service Station District). According to the zoning bylaw itself, this District "provides a rational pattern of service station outlets to adequately serve the requirements of the Municipality in harmony with surrounding development." The C6 designation was the most restrictive inasmuch as it permitted only a "conventional" gasoline service station which could not be operated as an entirely self-service outlet or in combination with a retail grocery store. Retail convenience sales were confined to a floor area not exceeding 27 square metres or about 290 square feet within the principal building. By contrast a C6a designation allowed for a wholly self-serve station while, more importantly in the present instance, a C6b designation permitted a retail grocery store of up to 186 square metres or about 2,000 square feet. The minimum size for a C6 designated lot was 1,110 square metres or about 11,950 square feet and for a C6b designated lot was 1,390 square metres or about 14,960 square feet. In each instance the front yard setback had to be no less than 6 metres or 19.7 feet. In the case of Parcel B the 6 metre setback applied to the frontage from both the Lougheed Highway and Bainbridge Avenue. It is common ground that the use being made of Parcel B at the date of taking was in conformity with the bylaw provisions.

[23]  Lot 89 served Bainbridge Chevron primarily by facilitating on-site vehicle circulation and egress onto the Lougheed Highway. The lot was zoned P8 (Parking District) in which permitted uses included parking areas, parking garages and accessory buildings. The use made of Lot 89 at the date of taking was also legally conforming.

[24]  Under the residential policy framework of the Burnaby Official Community Plan, the Bainbridge Chevron site fell within an area broadly classified as "single family suburban". Although there was some contradictory testimony on the matter by the two municipal planners, Ito and Waitt, we conclude from the evidence as a whole that no local area community plan, town centre plan or guide plan regulated the existing or potential land uses of the two subject lots at the date of expropriation.

[25]  However, Parcel B and Lot 89 had been tied together to a common use since 1973 by a restrictive covenant (the " Burnaby covenant") which the municipality required as a condition for permitting Chevron's predecessor, Standard Oil Company, to construct the service station. Under the registered Burnaby covenant Standard Oil agreed that, if Lot 89 could not be used for any reason whatsoever for the purpose of obtaining ingress and egress to and from Parcel B, then the oil company would "forthwith remove all buildings and associated structures" constructed on Parcel B. The Burnaby covenant specified that the restriction was to continue during the term of Standard Oil's registered leasehold interest as well as any renewal or extension of the oil company's lease and was to be binding on its successors and assigns. The Burnaby covenant continued in full effect at the date of expropriation.

2.2.3  Lease History

[26]  The original lease of Parcel B to Standard Oil was dated December 1, 1972 and ran for 20 years with an option for two five-year extensions which, when fully exercised, provided the oil company's successor, Chevron, with occupancy up to November 30, 2002. The lease was on a triple net basis with the lessee being responsible for all operating expenses including utilities, taxes, insurance and maintenance. It was a land lease only and expressly provided that all improvements constructed on the site were the personal property of the lessee and that the use of the lands was at the lessee's sole discretion. Even as early as 1972 the parties to the lease contemplated the possibility of expropriation or dedication of the northerly frontage of Parcel B along the Lougheed Highway for road widening or other public purposes. If the lessee was forced to surrender its interest in the northerly 25 feet in such circumstances, the lease provided that there was to be no reduction in the rent payable.

[27]  A succession of lease modifications and renewals dealing with Parcel B over the years indicate generally Chevron's interest in retaining long term tenure at the Bainbridge Chevron site. On August 26, 1985, Holdom and Chevron concluded a lease amending agreement which retroactively increased the rent from $400 to $1,000 per month, effective December 1, 1982, and added two more five-year renewal options thereby extending Chevron's potential occupancy to November 30, 2012. After exercising its option to renew the lease commencing December 1, 1992, Chevron agreed to increase the rent to $4,833 per month ($58,000 per year). Chevron at this time was giving consideration to rezoning Parcel B and redeveloping its service station. It offered assurances to Holdom that he would suffer no adverse rental consequences if, as expected, Burnaby required dedication of a front portion of Parcel B as a condition of rezoning. It sought Holdom's permission to exercise its next five year option early and at an increased monthly rent of $5,800 if the oil company succeeded in obtaining rezoning. Chevron also attempted without success in late 1992 to persuade Holdom to grant it a right of first refusal to purchase Parcel B.

[28]  Of particular relevance are the terms and conditions surrounding lease renewal and modification in late 1997 and early 1998, roughly two years prior to the expropriation. Chevron was slow to exercise its renewal option on this occasion and Holdom upon inquiry was told by Chevron that its decision would be connected with the oil company's long term plan for the property. By written notice to Holdom on November 10, 1997, Chevron did exercise its option to renew the lease for the second of the four five-year renewal periods then remaining, commencing on December 1, 1997 and ending on November 30, 2002. However, the evidence indicates that it was only in the weeks and months following exercise of the renewal option that the parties actually embarked on discussion of Chevron's long term plan for the service station. The plan again envisioned rezoning and redevelopment and took into account the likelihood of dedication. Chevron also sought once more unsuccessfully to obtain from Holdom a right of first refusal to purchase Parcel B.

[29]  The discussions between Holdom and Chevron culminated in a lease modification agreement dated May 8, 1998 under which rent for the then current five-year term was increased to $5,000 per month ($60,000 per annum) and two more five-year renewal options were added, extending Chevron's potential occupancy to November 30, 2022. Holdom expressly agreed to provide reasonable assistance to Chevron on any rezoning application and Chevron agreed in turn that any required dedication of land from Parcel B to effect rezoning would not alter the amount of rent payable. However, this non-abatement of rent clause did not now apply (as it had in the original 1972 lease) if land was expropriated from Parcel B and the lessor received compensation for the expropriation.

[30]  The 1998 lease modification also contained for the first time a provision that Chevron would pay compensation to Holdom if it caused a portion of Parcel B to be dedicated as a condition of rezoning and then subsequently either terminated the lease early through no fault of Holdom or decided not to exercise all of its lease renewal options. Premised on a 7 metre or roughly 25 foot frontage dedication, Chevron was required in such a case to make payments to Holdom on a sliding scale starting at $150,000 if, for example, the lease was not renewed at the conclusion of the then current term on November 30, 2002, and decreasing to $50,000 if it was not renewed at the conclusion of the term on November 30, 2017. Transit has characterized this clause as Chevron's "exit plan" from its Bainbridge station, indicative of the oil company's uncertain intentions toward continuing at the site. The claimants reject this interpretation and say it was more likely a quid pro quo upon which Holdom prudently insisted to protect his own financial stake in the property in exchange for assisting Chevron in its rezoning efforts.

2.2.4  Redevelopment Plans and Efforts

[31]  The evidence showed that Chevron's interest in redeveloping Bainbridge Chevron during the 1990s was indicative of a general trend among oil companies to undertake periodic renewal of those service stations they intended to keep within their networks. Their goal was to attract more customers, sell more gasoline, and create other profit centres. Randy Johnson and John McClurg for Chevron both described the transitions which had occurred in the industry from full-service gas stations with service bays to self-service stations with a variety of other profit generators such as convenience stores, quick service restaurants, doughnut shops and car washes. Both also testified that it had become virtually impossible in recent years for oil companies to create new service stations in communities close to the Vancouver core because of steeply rising land costs and reluctance on the part of local municipalities to zone sites for new gas station development. Consequently, they said, to effect changes in retail operations it was necessary for the most part to redevelop existing sites.

[32]  Redevelopment, we were told, might take one of several forms. It could mean simply applying a "new skin" to the exterior of the station in order to upgrade its image. It might entail rebuilding parts of the station within existing zoning. Finally, it could mean putting in place wholly new or expanded facilities once the site was appropriately rezoned. McClurg characterized this last option as a "true redevelopment".

[33]  Where redevelopment of service stations within the Lower Mainland involved rezoning, it had evidently proven highly difficult in recent years to obtain the necessary approvals. Witnesses for Chevron stressed that success in achieving redevelopment depended upon exercising great patience and perseverance. McClurg gave examples from the middle to late 1990s of service stations in Burnaby and Surrey where the rezoning and redevelopment approval process took between three and five years as well as a new-to-industry Chevron site in Surrey which took between eight and nine years from the date of inception to reach final approval. Despite the obstacles, however, Johnson testified that Chevron itself had a good track record in ultimately coming to agreement with civic jurisdictions on its development proposals. He cited examples from Surrey and Richmond, two municipalities he said were initially staunchly opposed to convenience stores in gas stations but were gradually won over to the concept.

[34]  The service station outlet which became Bainbridge Chevron had been constructed in 1973 with only a small retail sales office. Three service bays occupied most of the building space at a time when such bays were still in vogue. The evidence was that by the 1990s the service bay business as an adjunct to gas stations had ceased to be profitable and was dying. The service bays at Bainbridge Chevron were permanently closed in May 1996.

[35]  In the meantime Chevron by at least early 1992 was contemplating redevelopment of its Bainbridge site with a new self-service station and a "Town Pantry" convenience store — Chevron's trademark name for its larger retail convenience outlets. Rezoning of Parcel B from C6 to C6b would clearly have been necessary in order to achieve these changes. Chevron also anticipated that Burnaby would use the rezoning process to extract a dedication of land off the front of Parcel B in order to accommodate future widening of the Lougheed Highway. There had already been dedications off the front of the adjacent Lot 89 to the east and the parcel directly across Bainbridge Avenue to the west. However, although evidence was provided of the communications between Chevron and Holdom during 1992 on the subject of possible redevelopment, there was no evidence to suggest that even so much as an inquiry, much less a formal application, with respect to the matter was made to Burnaby in 1992 or at any time during the next five years.

[36]  Chevron's interest in pursuing redevelopment appears to have revived around the time that the oil company had to exercise another five-year option to renew the lease of Parcel B in late 1997. Its efforts to redevelop the station in some fashion continued through most of 1998. While the initial thrust was for rezoning and full redevelopment, Chevron finally had to settle, at least in the short term, for what was largely an environmental and image upgrade.

[37]  The person primarily involved on Chevron's behalf was Helmut Behlke, a professional engineer who worked as a market development representative under the supervision of Randy Johnson. Behlke was not called to testify at the compensation hearing. There is, however, considerable documentary evidence of his activities. The evidence indicates that he first contacted the Burnaby planner, Barry Waitt, in early November 1997 to inquire about the feasibility of rezoning. This inquiry occurred at the same time that Behlke was discussing lease renewal with Holdom. Waitt advised that, to obtain planning support for rezoning, Chevron would have to show there was need for yet another convenience store at the Lougheed and Bainbridge intersection where two small grocery stores and an Esso convenience kiosk already existed. In a memorandum to Johnson in mid-December, several weeks after Chevron formally exercised its option to renew, Behlke recommended that the lease be extended at an annual rental of $60,000 per year and be amended to include two additional five-year options to renew. His justification for having Chevron remain at the Bainbridge site was, as he put it, "to maintain a strategic location in the retail network of Greater Vancouver". At the same time he observed:

"The gasoline volume for the last 6 years has stagnated between 3.5MM and 3.9MM litres. In order for the volume to increase, a redevelopment is required; a 25-year period of control is desirable to amortize the costs. The $2,000 annual increase in rent is consideration to the landlord for the incremental two 5-year options."

[38]  Johnson approved Behlke's recommendations and Behlke in early January 1998 sent a letter to Waitt's attention at Burnaby in which he elaborated on Chevron's "wish to redevelop the property to a higher and better use, consisting of a store and gas bar combination." The letter spoke of a Town Pantry store of around 1,600 square feet but downplayed any concern that an expanded store might result in significantly higher traffic volume. It was accompanied by, among other things, a site plan which testimony at the hearing revealed was only one of many optional layouts Chevron had under consideration.

[39]  The response from Burnaby's planners was less than enthusiastic and indicated the presence of obstacles to the rezoning proposal. Behlke was told that the City would require a seven metre dedication along Lougheed and a five metre dedication along Bainbridge with the result that Parcel B on its own would not meet the minimum lot size required under C6b zoning. It might be necessary to consolidate Parcel B with Lot 89 or negotiate the amount of the dedication along Bainbridge. Behlke was also told by Waitt during a meeting in late January that the planning department could not support a proposed rezoning to C6b since there were already two convenience stores at the intersection and the Esso station at the northwest corner had earlier had its rezoning and redevelopment application declined for similar reasons. Neither could the planners support rezoning Bainbridge Chevron to C6a to permit a wholly self-service station since it was questionable whether there were sufficient full service gasoline outlets in the area. Curiously, however, at the same time Waitt provided information to Behlke about the rezoning process which appeared to suggest to him that full rezoning might be achieved within a period of eight months.

[40]  The parties have characterized the exchange between Chevron and Burnaby over redevelopment in highly contrasting terms. According to Transit's oil company expert, James McIlmoyle, the claimant oil company and the municipality were "deadlocked" while, according to Johnson, Chevron was "just opening the door to getting the process going" and Burnaby was simply showing "some reluctance" in the initial stage.

[41]  In any event the evidence indicates that Chevron took no further steps to pursue rezoning after receiving Burnaby's initial response. Instead, Behlke in May of 1998 filed with Burnaby an application for preliminary plan approval to rebuild Bainbridge Chevron with an expanded retail convenience sales area but under existing C6 zoning. This application foundered in succeeding months on a disagreement between Chevron and Burnaby over how the retail sales area was to be defined and measured so as not to exceed the 290 sq. ft. maximum permitted under the zoning bylaw. Chevron argued for a relaxed interpretation of the bylaw but Burnaby, while accepting some parts of Chevron's rationale, nevertheless calculated that the oil company's proposed retail sales activity area would have occupied some 710 square feet, far exceeding the maximum allowable.

[42]  In mid-September 1998 Behlke e-mailed Johnson and others at Chevron to say emphatically that "Burnaby Planning has rejected all of our redevelopment options for this site" and that the only feasible plan would be an image upgrade with in-bay conversion to a maximum of 290 square feet of retail space. Behlke expressed the view that this was the most efficient use of capital with the highest potential for increasing annual gasoline volumes at the Bainbridge station from 3.5 million litres to a desired level of 6.0 million litres.

[43]  Johnson again accepted Behlke's recommendation and, over a three week period in late November and early December 1998, Chevron undertook what the parties have agreed to describe as a "front-end gas bar upgrade" at the cost of $366,885. There were three components: first, an environmental upgrade involving the replacement of the underground steel fuel tanks with new double-walled fibreglass tanks and related piping; second, an upgrade to the pumping capacity through the installation of four new blender pumps with credit card readers; and third, an upgrade of the canopy, pump islands and signage to what Chevron styled its "Image 21" standard. Apart from the purchase of some new kiosk equipment, no money was spent on upgrading the small retail sales activity area within the existing building which had, of course, been the original thrust of the redevelopment plan. Gasoline volumes showed no immediate improvement as a result of the upgrade over the earlier levels described by Behlke, falling from about 3.3 million litres in 1997 to just under 3.0 million litres in 1998 (the service station was closed for about three weeks during the upgrade late that year) and rising again to just over 3.3 million litres in 1999. This, then, was the state of Bainbridge Chevron at the date of expropriation in early March 2000.

2.3  The Expropriation and the Project

[44]  The Millennium Line of SkyTrain extends a distance of 22 kilometres from the existing Columbia Station in New Westminster, north to the Lougheed Mall in east Burnaby, then west across Burnaby to the Vancouver Community College station in Vancouver. The route through Burnaby follows the Lougheed Highway corridor.

[45]  Mario Pavlakovic of RTP 2000 gave evidence that the decision to extend the light rapid transit system using SkyTrain technology was made public in June 1998. By the summer of 1999, he said, statutory rights of way had already been registered against some affected properties along the new Millennium Line route. The evidence shows that conversations between James Holdom, Chevron and RTP 2000 concerning the possible impact of the Project on the Bainbridge Chevron site were underway by at least the fall of 1999. Holdom's notes regarding these conversations indicate that he and Chevron were concerned from the outset about the impact SkyTrain construction would have on visibility and access. However, the first official notification that positioning of the columns and guideway was likely to intrude somewhat on operation of the subject service station came in a letter dated January 6, 2000 from RTP 2000 to Holdom with an accompanying plan and profile.

[46]  The partial taking by Transit from Parcel B occurred shortly thereafter. An expropriation notice in prescribed form dated February 15, 2000, which included the plan and terms of instrument of the SRW, was served on the claimants and was filed in the New Westminster Land Title Office on February 18, 2000. A certificate of approval of expropriation followed on February 24, 2000. Counsel for Transit prepared notices of advance payment dated March 6, 2000 with accompanying trust cheques of $99,000 to Holdom and $52,700 to Chevron and these were delivered to the claimants together with copies of an updated appraisal report. On March 9, 2000, the date of expropriation for valuation purposes, the vesting notice to complete the partial taking was filed in the Land Title Office.

[47]  The SRW as registered across Parcel B encumbers a wedge-shaped strip of land fronting on the Lougheed Highway that is 7.208 metres or 23.65 feet wide at Bainbridge Avenue, narrowing to 4.532 metres or 14.87 feet wide at the eastern boundary of the lot. The total area affected by the SRW plan is 219 square metres or 2,357 square feet. Approximately 48 square feet of the SRW within Parcel B is occupied by one of the two concrete columns. The second column which lies within the highway right of way in front of Lot 89 is located approximately 16.4 feet east of the common property line with Parcel B and about 18 feet north of the property line bordering the Lougheed Highway. There is an inspection hatch located on the underside of the guideway within the SRW area of Parcel B between the two columns. It appears from the as-built plan and profile that the underside of the guideway over Parcel B is approximately 6 metres to 6.75 metres or 20 feet to 22 feet above ground level. Nearly the whole of the SRW area (by our calculation about 93% of the total) lies within Burnaby's front yard setback requirement of 6 metres or 19.7 ft.

[48]  The parties and their appraisal experts have advanced widely disparate interpretations of the respective rights enjoyed by the transferor and transferee under the registered SRW agreement. The claimants maintain that the terms in favour of Transit are so broad and ambiguous as to leave them with little or no residual value in the area encumbered. Transit argues that, apart from the small area occupied by the guideway column plus an additional metre on all sides, the SRW confers on the taking authority only a limited aerial interest once the Project is constructed, leaving to the owners broad rights to the use of areas beneath and above the guideway. We do not subscribe entirely to either one of these interpretations. It will be necessary to examine closely the terms of the SRW instrument in conjunction with other factors later in these reasons in order to determine for compensation purposes what proportion of the land value within the SRW was effectively taken.

[49]  Construction of the SkyTrain columns and guideway on and in front of the Bainbridge Chevron site commenced on April 3, 2000 and was completed on June 12, 2000. Chevron says its service station remained open throughout this period but was negatively impacted by the construction work graphically depicted in some of the photographs entered in evidence. Gasoline volumes fell dramatically both during and for some time after the months of construction. They totalled only 2.25 million litres for the whole of 2000 compared with 3.3 million litres in 1999. However, Chevron has advanced no claim for any disturbance damage or business loss.

[50]  Chevron and Holdom have focused instead on the impact of the Project on visibility and access insofar as these are said to have affected the market value of their respective property interests. Much of the impact, they contend, flows from the peculiar alignment of the guideway and columns constructed as they are at the front of the Bainbridge Chevron site. David Cavazzi, Chevron's appraiser, provided the following useful description of this alignment:

"From North Road, approximately 4 miles east of the property, the rail line is located along the north side of Lougheed Highway. Approximately 0.8 miles east of the property, it then shifts to the center of the highway for some distance and then gradually shifts to the south side of Lougheed. The transition from the center to the south side of the highway is primarily effected on 3 massive concrete piers that straddle the eastbound traffic lanes. This transition is almost completed with the single column supporting the guide-rail in front of 7128 Lougheed [ Lot 89]. It then continues westward across the front of 7118 Lougheed [Parcel B], supported by a further column at the northwest corner, and continues westward along the south side of Lougheed Highway."

[51]  The parties are agreed that the alignment had at least some negative impact on the visibility of the Bainbridge Chevron site to eastbound motorists but they strongly disagree on the severity of this impact. Moreover, while the claimants say the positioning of the columns resulted in significantly restricted ingress and egress to and from the service station, Transit argues that access was essentially unaffected or affected in a minor way only by the Project.

2.4  Closure of the Service Station

[52]  Randy Johnson testified that, although he had decided in late 1997 and early 1998 to retain Bainbridge Chevron within the oil company's network pending redevelopment of the service station, he changed his mind in October 2000 after being shown photographs by Helmut Behlke depicting the SkyTrain columns and guideway in relation to the site. Johnson said his immediate reaction was that the site was "shot". Whereas its convenient access and good visibility had made Bainbridge Chevron a desirable location for impulse oriented customers, he testified, these favourable features were so badly compromised by the Project that he did not see a future for the site as any type of Chevron service station development. He also said that no factors other than the Project, including the lacklustre sales performance of Bainbridge Chevron or the failure to achieve full redevelopment prior to the time of expropriation, entered into his decision to close the station. Transit contests this evidence.

[53]  While the parties appear to agree that a decision to close the station was made in late October 2000, for whatever reason there was no clear communication of any such decision to interested parties outside Chevron until much later. In late February 2001, for example, in response to an inquiry by Burnaby as to whether the oil company intended to proceed with its dormant 1998 redevelopment application, Behlke implied that no final decision had been made with respect to the station's future except that the impact of the SkyTrain construction, he wrote, "has been strongly negative on an impulse-purchase business such as ours, and in all likelihood we will not be proceeding with a redevelopment of any kind." Mario Pavlakovic of RTP 2000 said he was told in the context of settlement discussions as late as September 2001 that the site's fate had not yet been decided. James Holdom's notes indicate that he was told by Behlke in early July 2001 that another service station at Lougheed and Willingdon impacted by SkyTrain was going to be closed but that he was advised only on November 8, 2001 that Bainbridge Chevron would cease to operate later that month.

[54]  Bainbridge Chevron permanently closed its doors on November 26, 2001, approximately one year before the then current term of the lease was due to expire, in order for Chevron to have time to dismantle the improvements, all of which it owned, and to remediate the site. The service station was demolished in February 2002 and soil remediation of the site to commercial standards was completed by October 1, 2002. Chevron continued to pay rent to Holdom to the end of the lease term on November 30, 2002 without abatement but, of course, did not exercise any of its further renewal options. At the time of the compensation hearing, both Parcel B and Lot 89 remained vacant and neither had been sold.

3.  COMPENSATION CLAIMS

3.1  The Holdom Claim

[55]  James Holdom claims compensation pursuant to sections 30, 31, 32, 40(1)(a) and 40(1)(b)(i) of the Act for the market value of his fee simple interest in the land taken from Parcel B as well as the reduction in market value to the remaining land totalling $675,000. He says he had an interest in land worth $895,000 before the partial taking and the Project and that his remaining interest after was only worth $220,000. Holdom alleges that the SkyTrain construction changed the highest and best use of his property from service station to a less valuable use, namely, residential. Additionally, Holdom claims legal costs, appraisal costs, out of pocket disbursements and interest.

[56]  Transit responds that the loss in market value to the Holdom property in the area of the SRW was $41,682 while the reduction in value to the remainder of Parcel B was $108,521 for a total loss rounded to $150,200. Although over time Transit increased its own estimation of the loss incurred, it has not made a further advance payment to Holdom beyond the initial payment of $99,000.

3.2  The Chevron Claim

[57]  Chevron claims compensation under sections 30, 31, 32, 40 and 41 of the Act for losses resulting from the partial taking and the Project of $589,000, comprising:

(1) the loss in market value of its leasehold interest in Parcel B of $443,000, which in turn comprises:

(a) the present value of rent savings to the end of November, 2002 of $48,000, based on the proposition that the contract rent of $5,000 per month or $60,000 per year under Chevron's lease with Holdom was considerably below market rent, and

(b) the depreciated value of the gas station improvements which Chevron owned of $395,000;

(2) injurious affection to its fee simple interest in Lot 89 of $146,000, either through:

(a) reduction in market value of the remainder of Lot 89 under section 40(1)(a) of the Act, based on the proposition that Parcel B and Lot 89 formed a "larger parcel" for service station use pursuant to section 40(6), or

(b) through injurious affection where no land has been taken under section 41 of the Act.

[58]  As previously noted, Chevron makes no claim for disturbance damages or business loss resulting from the expropriation or the Project. It does, however, claim for legal costs, appraisal costs, out of pocket disbursements and interest.

[59]  Although Transit made an advance payment to Chevron of $52,700 at the time of the expropriation, its final position appears to be that Chevron is entitled to little if any compensation as a result of the partial taking and the Project. Transit says that Chevron enjoyed no rent advantage under its lease of Parcel B and is entitled to compensation of, at most, $7,500 for the reduction in value of the improvements which it owned on Parcel B over the remainder of the lease term. Transit denies primarily as a matter of law that Chevron is entitled to compensation for any injurious affection to its fee simple interest in Lot 89.

3.3  Statutory Foundation of the Claims

[60]  The relevant sections of the Act referenced in the respective claims of Holdom and Chevron described above, other than those for interest and costs, are as follows:

Definition — s. 1

"owner" in relation to land means

(a) a person who has an estate, interest, right or title in or to the land …

(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;

Right to Compensation

30 (1) Every owner of land that is expropriated is entitled to compensation, to be determined in accordance with this Act.

Basic Formula

31 (1) The board must award as compensation to an owner the market value of the owner's estate or interest in the expropriated land …

Definition of Market Value

32 The market value of an estate or interest in land is the amount that would have been paid for it if it had been sold at the date of expropriation in the open market by a willing seller to a willing buyer.

Partial takings

40 (1) Subject to section 44, if part of the land of an owner is expropriated, he or she is entitled to compensation for

(a) the market value of the owner's estate or interest in the expropriated land, and

(b) the following if and to the extent they are directly attributable to the taking or result from the construction or use of the works for which the land is acquired:

(i) the reduction in the market value of the remaining land; …

(6) For the purposes of this section, expropriation of part of the land of an owner occurs only if

(a) he or she retains land contiguous to the expropriated land, or

(b) he or she owns land close to the land that was expropriated, the value of which was enhanced by unified ownership with the land expropriated.

Injurious affection if no land taken

41 (1) In this section, "injurious affection" means injurious affection caused by an expropriating authority in respect of a work or project for which the expropriating authority had the power to expropriate land.

(2) The repeal of the Expropriation Act, R.S.B.C. 1979, c. 117, and the amendments and repeals in sections 56 to 128 of the Expropriation Act, S.B.C. 1987, c. 23, are deemed not to change the law respecting injurious affection if no land of an owner is expropriated, and an owner whose land is not taken or acquired is, despite those amendments or repeals, entitled to compensation to the same extent, if any, that the owner would have been entitled to had those enactments not been amended or repealed.

(4) Without limiting any other provision of this section the BC Transportation Financing Authority has no greater liability to compensate an owner for injurious affection than does the Minister of Transportation and Highways.

4.  ISSUES

[61]  The main issues which have arisen for determination in this matter are as follows:

(1) The relevance of confidential information relating to the economic performance of Chevron's operations.

(2) Chevron's entitlement to compensation for any losses incurred in respect of Lot 89 from which no land or interest in land was expropriated.

(3) The highest and best use of the subject site at the date of expropriation and whether it changed as a result of the partial taking and the Project.

(4) The appropriate market valuation of the losses suffered by the claimants as a result of the partial taking and the Project. In particular:

(a) The preferred appraisal methodology to determine market value and the loss in market value.

(b) The market value of the fee simple interest in land taken from Parcel B by way of the SRW.

(c) The percentage of fee simple market value appropriate to reflect the rights acquired by Transit in the SRW area and, in turn, the residual value if any remaining to the claimants.

(d) The reduction in market value to the remaining land.

(e) The presence of any rent advantage to Chevron under its lease of Parcel B from Holdom.

(f) The compensable value to Chevron of leasehold improvements lost.

5.  CONFIDENTIAL BUSINESS INFORMATION

[62]  The claimants identified as an issue for the board's determination the relevance of confidential information relating to the economic performance of Chevron's operations. This was apparently in reference to Transit's criticism of Chevron's decision to frame its claim for compensation as a market value rather than business loss claim. Randy Johnson during his testimony candidly stated that he had made that decision in order to protect the confidentiality of Chevron's business records.

[63]  Nevertheless, in April 2003, following a contested interlocutory application, the board ordered Chevron to disclose to Transit under strict conditions certain business information including revenues and expenses related to the operation of Bainbridge Chevron and several other of its service stations in Burnaby. Some of this information and testimony related to it was received in confidence during the course of the hearing.

[64]  In final submissions Transit argued that Chevron's claim for compensation was miscast. It referred by analogy to the board's decision in Pay Less Gas Co. (1972) Ltd. v. British Columbia (Minister of Transportation and Highways) (2001), 74 L.C.R. 81. In that case an older service station referred to as Station 48 was relocated and rebuilt as Station 88 following expropriation. The board criticized the claimant oil company for ignoring the market value of the expropriated station and attempting instead to cast the land valuation portion of its claim as a disturbance damage claim founded on the concept of reinstatement value. The board concluded at p. 123:

The principle of equivalent reinstatement does not apply. Rather, what Pay Less is entitled to by way of compensation for the taking in the circumstances of this case is defined primarily by ss. 30, 31, 32, 34 and 40 of the Act. In order to determine compensation, the board must therefore first proceed to a market valuation of the subject lands which included Station 48, even though Pay Less has not specifically claimed the value of Station 48, and then determine the quantum of disturbance damages in relation to costs of relocation to Station 88 together with business losses at both the old and new locations which are directly attributable to the taking.

[65]  Transit invited the board to draw an adverse inference from Chevron's conduct in resisting the disclosure of business information which Transit says would have shown that the Bainbridge Chevron operation was not viable even before the expropriation.

[66]  Chevron submitted that it was entitled to bring its claim for compensation as a market value claim. As such, it argued, the confidential information relating to economic performance was irrelevant to highest and best use because it was subjective and would not have been available in the market place to any prospective purchasers or lessees of the Bainbridge Chevron site. Furthermore, Chevron said, the evidence was clear that none of the critical operational decisions concerning Bainbridge Chevron were based on any site-specific economic analysis.

[67]  Chevron referred to the board's decision in Nikka Developments Ltd. v. British Columbia (Minister of Transportation and Highways) (1994), 53 L.C.R. 120, the purpose of which was to determine the market rent for an expropriated service station property subleased by Shell Canada Products Ltd. In noting that profitability within the oil industry was "shrouded in secrecy", the board went on to observe at p. 138:

The hearing panel faced several requests for wide production of documents in Shell's possession bearing on the profitability of fuel sales and ancillary services at its stations. These requests met with strenuous and persistent objections from counsel for Shell. The panel, in declining to order production, ruled that it was not persuaded of a sufficient nexus between profitability and rent to make relevant the confidential information sought. The board in this decision affirms that ruling and, accordingly is unable to accede to the submissions of those claimants other than Shell that an adverse inference is to be drawn from such non-production.

[68]  Apart from the data concerning fuel sales volumes which are not confidential and are readily available to the market, we have not found the evidence on business performance to be relevant to our determination of Chevron's claim for compensation. We agree that the claimant oil company, as fee simple owner of Lot 89 and holder of a leasehold interest in Parcel B, was entitled to bring a claim for loss in market value of the land and improvements. It was not obliged to assert a claim for business loss. We draw no adverse inference from its decision not to do so. The situation here is not akin to that in Pay Less where the board found that the claimant had departed from the prescribed statutory formula for compensation and adopted an approach which in the circumstances had no sanction in law. Since Chevron's claim is for loss in market value, we agree with the claimant oil company that the factors relevant to a market based highest and best use analysis and particularly to the alleged loss of the joint site's utility as a service station development site were those actually available to the market.

6.  LOT 89 ENTITLEMENT

[69]  Transit's expropriation of the SRW over a portion of Parcel B automatically triggered a right to compensation for Holdom and Chevron as expropriated owners under section 40(1) of the Act. However, the SRW did not encumber any part of the adjacent Lot 89 and no portions of the SkyTrain columns or guideway came to be situated on Lot 89. Transit ultimately challenged Chevron's claim of entitlement to compensation for a reduction in the market value of Lot 89 resulting from the Project. Although at the compensation hearing the parties made their submissions on this issue only after dealing with the issues around highest and best use and market valuation, we prefer to dispose of the entitlement issue upfront. We consider this particularly desirable in order to determine from the outset whether Parcel B and Lot 89 should be treated for compensation purposes as comprising what the appraisers termed a "larger parcel".

[70]  The concept of the "larger parcel" has been defined by the Appraisal Institute of Canada using language that closely mirrors that in section 40(6). As cited by Fred Mussett in his most recent appraisal report for Transit, the "larger parcel" is said to be "the subject property when considered with contiguous or nearby property, the value of which is impacted by common ownership".

6.1  Chevron's Position

[71]  Even though no land was expropriated from Lot 89, Chevron submits that it is entitled to compensation for the loss in market value of that lot resulting from the Project because Lot 89 together with Parcel B formed a "larger parcel" or "joint site" for the operation of Bainbridge Chevron. Chevron says it was a defined "owner" of the larger parcel from which an interest in land was taken. According to Chevron, Lot 89 falls within the scope of section 40(6) of the Act, either as land which was "contiguous to the expropriated land" pursuant to section 40(6)(a) or as land "close to the land that was expropriated, the value of which was enhanced by unified ownership with the land expropriated" pursuant to section 40(6)(b).

[72]  As an alternative argument Chevron submits that it is entitled to compensation for loss in value to Lot 89 because, even though no land was expropriated from that lot, its exposure and access to the Lougheed Highway were significantly impaired by the placement of the vertical columns and overhead guideway. Chevron argues that section 41 of the Act, which maintains in force the common law rules governing compensation for injurious affection where no land has been taken, applies in these circumstances. It cites in support the case of Jesperson's Brake & Muffler Ltd. v. Chilliwack (District) (1992), 47 L.C.R. 172 (B.C.E.C.B.), aff'd in part (1994), 52 L.C.R. 95 (B.C.C.A.).

6.2  Transit's Position

[73]  Transit's position with respect to Lot 89 entitlement has evolved over time. In the early stages of this proceeding Transit and its appraisal expert appeared to acknowledge that Chevron was or would be entitled to compensation for Lot 89. Mussett in his first report for Transit dated June 15, 1999, nearly nine months before the expropriation, discussed the interrelation of Lot 89 and Parcel B in light of the language of section 40(6) of the Act as follows:

"The above Subsection 6 deals with the larger parcel theory concepts. The three traditional conditions required before damages could be considered on lands other than those parcels taken were unity of use, unity of ownership and contiguity. Unity of use would not be a requirement under this act. Contiguity is also not a requirement, only that the lands were "close'. Value enhancement of the impacted lands that is associated with the use of the lands taken which are under common ownership appears to be the only requirement. As there is value enhancement due to the common use of the two legal parcels as a service station site, both parcels are considered the "larger parcel"." [Emphasis added].

[74]  Mussett excised the foregoing discussion from the next version of his appraisal report dated January 24, 2000, which was prepared for the purpose of assisting Transit to make an advance payment to Chevron for any loss in market value resulting from the imminent partial taking from Parcel B. However, the advance payment of $52,700 which Transit made to Chevron on or about the date of taking was based directly on Mussett's analysis that included a calculation for loss in value to Lot 89 amounting to $29,250.

[75]  By the time of the compensation hearing Transit's position had clearly altered and the opinion of its appraiser was couched in more tentative language. Mussett's last report dated April 20, 2003, while continuing to view Parcel B and Lot 89 as comprising a "larger parcel", includes the qualifying words "if Chevron is entitled to compensation". Transit's counsel was at pains to point out that the appraisal "addressed the valuation issues only, and performed a valuation only, without deciding or assuming any legal entitlement to the assessed losses." Transit now submits that, whether or not there were losses incurred by Lot 89 as a result of the partial taking and the Project, Chevron has not demonstrated that either section 40 or section 41 applies to entitle it to compensation.

[76]  With respect to section 40 Transit points out, firstly, that there was of course no expropriation of any portion of land within the boundaries of Lot 89. Secondly, although Chevron prefers to treat the two lots as a "joint site", Transit says there is in fact no unity of title between Lot 89 and Parcel B. Two separate parties own them. Two registered legal instruments, the Burnaby covenant and the lease from Holdom to Chevron, tie their usage but not their ownership together. According to Transit, Lot 89 has no legal ties to Parcel B but "merely provides a market influence as to practical use that remains the same before and after the taking."

[77]  With respect to section 41, injurious affection where no land has been taken, Transit acknowledges that the SkyTrain column situated within the Lougheed Highway right of way in front of Lot 89 "creates some visibility concern" and restricts "in a very minor fashion" access to the site along the whole frontage. However, Transit argues, there is no restriction sufficient to amount at common law to actionable interference with Lot 89 and section 41 is accordingly inapplicable. Transit cites in support the board's decision in Petro Canada Inc. v. Vancouver (City) (1994), 54 L.C.R. 224.

6.3  Board's Analysis and Conclusion

[78]  No case authority or learned commentary was brought to our attention which interprets the meaning and scope of section 40(6) of the Act, or any equivalent in other expropriation statutes, so as to assist in determining the entitlement question before us. Absent such authority we have nevertheless concluded from our review of the circumstances of this case in light of the wording of section 40(6) that it is appropriate to compensate Chevron for any reduction in market value to Lot 89 resulting from the partial taking and the Project.

[79]  The fact is that Parcel B and Lot 89 are contiguous, i.e., physically touching one another. The two lots had also for many years been inextricably linked as a "joint site" or "larger parcel" for gas station use by the Burnaby covenant and were tied together by the long term lease between Holdom and Chevron. However, as Transit argues, mere usage as distinct from ownership may not be sufficient to satisfy the requirements of section 40(6).

[80]  Be that as it may, the courts have said that, in the context of entitlement to compensation under expropriation law, a broad and liberal interpretation should be applied. In the present instance we do not consider that an overly restrictive interpretation should be placed on the meaning of "common ownership" or "unified ownership" so as to require strict unity of title to the two parcels in question. In the present instance Chevron was the owner in fee simple of Lot 89 at the date of the partial taking from Parcel B. It also had for the purposes of the Act an acknowledged ownership interest as lessee under the long term lease of Parcel B. As well, it owned all of the service station improvements constructed on Parcel B. Therefore, we are persuaded by Chevron's submission that it should be considered a defined "owner" of both lots comprising the larger parcel. In our view Chevron as the owner of Lot 89 retained land that was contiguous to the expropriated land or, alternatively, nearby land that was enhanced by unified ownership with the land expropriated.

[81]  Because we have found in Chevron's favour under the partial taking provisions of section 40 of the Act, it is not strictly necessary for us to decide whether, in the alternative, Chevron might be entitled to compensation for Lot 89 under the injurious affection provision in section 41. However, in the event we are mistaken about the applicability of section 40(6), we have considered it desirable to examine this alternative possibility.

[82]  In The Queen v. Loiselle (1962), 35 D.L.R. (2d) 274 at p. 276, [1962] S.C.R. 624, the Supreme Court of Canada set out the four common law conditions required to give rise to a claim for compensation for injurious affection where no land is taken. They are:

(1) the damage must result from an act rendered lawful by statutory powers of the person performing such act;

(2) the damage must be such as would have been actionable under the common law, but for the statutory powers;

(3) the damage must be an injury to the land itself and not a personal injury or an injury to business or trade;

(4) the damage must be occasioned by the construction of the public work, not by its user.

[83]  We note that the focus of attention in the two injurious affection cases upon which the parties in this matter have respectively relied was upon whether the second of these four conditions — the so-called "actionable rule" — had been satisfied.

[84]  In Jesperson's, the case cited by Chevron, the owners carried on the business of an automotive repair shop on their land which enjoyed a corner location adjacent to and abutting a four lane major thoroughfare. The municipal authority constructed an overpass which elevated the road about 30 feet above grade level and cut off direct access by traffic to their land, leaving it with only indirect access involving a circuitous route of approximately three blocks. The owners alleged that the overpass severely diminished the visibility of their business premises, reduced the exposure of those premises to light, and eliminated direct access to and egress from frontage along the major roadway, resulting in a substantial reduction in the market value of their lands as a commercial property.

[85]  At the compensation hearing in Jesperson's, the owners did not pursue their claim for compensation for reduced exposure to light and diminished visibility, confining their arguments instead to restricted access. The central issue before the board was whether the degree of interference with access to the owners' land resulting from the construction of the overpass would have given a right of action at common law in the absence of a statutory power authorizing its construction. The board found that in the circumstances the owners would have had a valid claim in damages under the general law had any person, without statutory authority, constructed the overpass and extinguished direct access to the roadway. In this instance the municipality, which was empowered under the Municipal Act, R.S.B.C. 1979, c. 290 as amended to construct the overpass, was also expressly obliged by the same statute to pay compensation for damage to those lands injuriously affected by it. The board found that the construction of the overpass had reduced the value of the owners' land by about 40% and allowed the claim.

[86]  The British Columbia Court of Appeal affirmed the board's award for the diminution in market value of the business premises. The Court held that there had been a substantial interference with access to the owners' land involving substantial interference with the use or enjoyment of commercial property. In these circumstances the Court said that construction of the public work could be treated as a nuisance and the municipal authority was therefore liable for injurious affection damages pursuant to what is now section 41 of the Act.

[87]  In Petro Canada, the case cited by Transit, the claimants operated a gas station and car wash at the intersection of Cambie Street and Sixth Avenue near False Creek in the City of Vancouver. Cambie Street is one of Vancouver's main north-south thoroughfares which carries traffic by way of a bridge across False Creek to and from the heart of the downtown business district. In 1984 the City authorized construction of a new bridge and elevated bridge approaches pursuant to its statutory powers under the Vancouver Charter, S.B.C. 1953, c. 55 as amended. Access to the gas station was made somewhat more restrictive but, the board found, was not actually obstructed. Even after construction the claimants still had public access for the whole of their frontage on Cambie Street, on Sixth Avenue and on the lane on the north boundary of their property. Nevertheless, for the restricted access which did result they sought compensation for injurious affection where no land had been taken under section 41 amounting to over $625,000.

[88]  The issue before the board in Petro Canada was whether the degree of interference with access to the gas station property resulting from the construction of the new bridge, particularly the approaches on the south side of the bridge, gave the claimants a right of action at common law in the absence of a statutory power authorizing construction. From its review of recent cases in the Supreme Court of Canada as well as in the British Columbia Court of Appeal, including Jesperson's, the board concluded that the twin tests relied on in determining whether the actionable rule could be satisfied was whether the restriction on access was "severe" and whether the diminution in value of the subject property was "substantial" Although it noted that the claimants' claim for over $625,000 was substantial, the board was not satisfied that the restriction on access was severe. In dismissing the claim, it stated at p. 237:

On the basis of the evidence, and on our reading of the cases, the board cannot find that there has been substantial or significant interference with access to the claimants' lands sufficient to constitute a nuisance.

[89]  From our review of the circumstances of this matter in light of the law of injurious affection where no land has been taken, we conclude it is doubtful whether Chevron's case would satisfy all the requisite tests to be met under section 41 in order to be entitled to compensation for Lot 89.

[90]  As with the two cases cited above, there appears to be no dispute between the parties here with respect to the first, third and fourth conditions required to give rise to a claim for compensation for injurious affection where no land is taken. The dispute between Chevron and Transit has been on whether the second condition, the actionable rule, would apply. In our view, while Chevron's claim for compensation for Lot 89 amounting to $146,000 is substantial, the degree of impairment of egress onto the Lougheed Highway from Lot 89 as a result of the construction of the one guideway column in the highway right of way in front of the lot is not severe. It simply demands somewhat greater caution on the part of motorists leaving the lot to enter the highway. We doubt that the situation creates an actionable nuisance. The impairment of access is clearly not as severe as that in the Jesperson's case, where a claim for compensation for injurious affection without a taking succeeded, and it appears not even to have been as severe as that in the Petro Canada case, where the injurious affection claim was dismissed.

[91]  We recognize, of course, that in addition to asserting that there was an impairment of access, Chevron has also asserted impairment of visibility or exposure of Lot 89 from the Lougheed Highway. It is questionable whether loss of visibility is compensable at common law — an issue not explored by the parties in the course of the hearing. See, however, the discussion in Warlow v. British Columbia (Minister of Transportation and Highways) (1997), 60 L.C.R. 218 (B.C.E.C.B.) at pp. 230-231. In any case the particular location of Lot 89 casts in some doubt the degree of impairment which resulted. In our view the exposure to approaching eastbound motorists of Lot 89, an interior parcel situated beyond the crest of the hill, was less affected than in the case of the adjoining Parcel B. We are not satisfied on the state of the evidence that the impairment to Lot 89 was substantial or severe.

[92]  We also consider it questionable, but do not purport to decide, whether Chevron can sustain a claim for injurious affection under section 41 of the Act in light of the provision in section 41(4) that the B.C. Transportation Financing Authority has no greater liability to compensate an owner for injurious affection than does the Minister of Transportation and Highways. Previous decisions of the board have determined that the Minister has no liability to compensate owners whose properties, from which no land has been taken, are injuriously affected by an adjacent provincial highway project: see again Warlow at pp. 224-228. Although included in the statutory authorities with which we were provided, section 41(4) was not discussed by any of the parties in the course of the compensation hearing and its applicability to the present matter remains to our minds uncertain.

7.  HIGHEST AND BEST USE

[93]  It is well established that the determination of the highest and best use of a property at the moment of expropriation is the cornerstone of any attempt to estimate the market value of that property. See, for example, the discussion in Re Valley Improvement Co. Ltd. and Metropolitan Toronto & Region Conservation Authority (1965), 51 D.L.R. (2d) 481 at p. 491 (Ont. C.A.).

[94]  The real estate appraisers retained by the parties in this matter offered more than one definition of the concept. David Cavazzi, Chevron's appraiser, wrote that highest and best use

"can be defined as the most probable use of a property at a particular moment in time that will produce the highest net return, taking into consideration its potential utility."

[95]  Richard Young, the appraiser retained by James Holdom, and Fred Mussett, Transit's appraiser, both adopted what appears to us as the more comprehensive definition of highest and best use most recently approved by the Appraisal Institute of Canada:

"The reasonably probable and legal use of vacant land or an improved property that is physically possible, appropriately supported, financially feasible, and that results in the highest value."

There are four criteria embodied in this definition: legal permissibility, physical possibility, financial feasibility and maximum profitability.

[96]  The appraisers pointed out that, in cases where a site has existing improvements on it, the highest and best use may well be determined to be different from the existing use. This observation is germane to the present case since two of the three appraisers felt that the existing use of the improved Bainbridge Chevron site at the date of taking did not represent its highest and best use inasmuch as rezoning and redevelopment were necessary.

[97]  Where a property requires regulatory approvals in order to realize its full development potential, the decided cases make clear that highest and best use must be based upon something more than the mere possibility of approval. As Howland J.A. (as he then was) said in the context of rezoning in Farlinger Developments Ltd. v. East York (Borough) (1975), 8 L.C.R. 112 at pp. 123-4 (Ont. C.A.):

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

See also Runnymede Development Corporation Ltd. v. City of Oshawa (1982), 25 L.C.R. 105 at p. 119 (Ont. H.C.J.).

[98]  The main issues in this case are whether existing or redeveloped service station use was the highest and best use of the subject site before the taking and whether the highest and best use changed as a result of the taking and the Project. In large part this has been approached by the parties through an assessment of whether the decision to close Bainbridge Chevron and not renew the lease was directly attributable to the Project or whether the same decision would have been made irrespective of the Project for otherreasons. In other words the issue as it relates to closure of the station is mainly one of causation.

[99]  Although the estimation of highest and best use is primarily an appraisal function, in this instance direct evidence bearing on the question was also led from oil industry representatives and experts, notably Randy Johnson, John McClurg and James McIlmoyle, as well as from the municipal planners Ken Ito and Barry Waitt.

7.1  Before the Taking

7.1.1  Claimants' Case

[100]  The appraisers retained by the respective claimants approached their assignments differently.

[101]  Young, since he was retained by Holdom who possessed no interest in Lot 89, appraised only Parcel B. At the same time, however, he took into account the presence of the Burnaby covenant which required that Bainbridge Chevron be operated as a joint site. He felt that the site size, servicing, visual identity and topographical features generally suited the requirements of the development actually in place at the date of taking. Young therefore concluded that before the taking the highest and best use of Parcel B, as if vacant, was for development of a gas station in conformity with the existing C6 zoning designation and in conjunction with the use of the adjacent Lot 89 under its existing P8 (Parking District) zoning. He did not expressly consider the need for or prospect of rezoning and redevelopment.

[102]  Cavazzi, having been retained by Chevron which had ownership interests in both Parcel B and Lot 89, appraised those parcels together as a joint site (the "larger parcel" to which we earlier referred). Noting the presence of a service station operation on the joint site for more than thirty years at the date of taking, Cavazzi prefaced his conclusion by observing that service stations are essentially an impulse oriented business, similar to fast food restaurants, which depend upon high traffic volume, good visibility, ease of access and egress, preferably a corner location, acceptable topography and an acceptable shape. Also of relevance, he considered, is the extent of "network representation" in an area.

[103]  It was Cavazzi's opinion that the Bainbridge Chevron site at the date of taking met the foregoing criteria inasmuch as it was rectangular and level and had an advantageous location on the busy Lougheed Highway at a signalized intersection with ease of advance identification and easy and direct access to and from the highway. It was also one of only two service stations on the south side of the highway betweenVancouver and Coquitlam.

[104]  Chevron's appraiser concluded that the site's highest and best use in the before was for what he termed "impulse oriented commercial development" on the larger parcel, combining the two separate lots in a manner than could take advantage of these features. "Service station development," he added, "is consistent with this type of use."

[105]  While Cavazzi concluded that in the before situation the highest and best use of the larger parcel was "as developed" for service station use, he nevertheless foresaw a need for rezoning and redevelopment down the road. He considered it probable that Chevron would have exercised its next lease renewal option and continued to occupy Parcel B through November 2007. However, he also anticipated there would need to have been a redevelopment of the site or (he added at the hearing) a reasonable expectation that this could be done in order for any of the remaining lease renewal options to have been exercised. Cavazzi stated in his report:

"At a minimum this would probably include a full C-Store. Since any redevelopment would require approval of the City and meet Chevron's development criteria at that time, we consider there is no certainty of lease renewal beyond 2007."

[106]  In addition to eliciting Cavazzi's opinion on highest and best use from an appraisal perspective, the claimants adduced other evidence in support of their position that, absent the taking and the Project, the service station would have been retained by Chevron or acquired by another petroleum marketer and the site eventually redeveloped with a full-scale convenience store such as a Town Pantry.

[107]  Randy Johnson testified at the compensation hearing concerning his role as Chevron's principal decision maker in the Lower Mainland during the relevant period under consideration here. He has been with Chevron for 20 years and was the company's manager of retail marketing in British Columbia from 1995 until late 2003. He is now the general manager of Chevron's retail operations in the Philippines. Johnson testified as to the factors he said he typically took into account in deciding the future of service stations in Chevron's network, noting the importance of location, visibility, ingress and egress and branding or network considerations.

[108]  As we indicated earlier, Johnson also offered explanations for the operational decisions he made in the period preceding the taking from late 1997 through 1999 with respect to Bainbridge Chevron. It was Johnson who authorized, first, the renewal and extension of the lease, then the attempt to redevelop the station with an expanded convenience store, next, the front end upgrade and, finally, the retention of Bainbridge Chevron despite an accelerated program to "cull" stations from Chevron's network. He emphasized that these decisions were not based on any site-specific analysis of the station's economic performance even though volume and margin were, he said, the "big drivers" in the retail gasoline business. Instead, the decisions all seemed to come back to the station's unique and favourable location within the Chevron network.

[109]  There was, Johnson said, a continued need for representation eastbound on the Lougheed Highway which Bainbridge Chevron uniquely provided. Although the station was not a particularly strong performer in the local market during the late 1990s, there was also the prospect of getting what he termed "good volume uplifts" through a redevelopment or an upgrade at the site. Before embarking on such improvements, Chevron required a "high level of comfort" which came in the form of the long-term lease extension. Johnson acknowledged the reluctance of Burnaby's planning officials to embrace Chevron's redevelopment plans but, given the importance Chevron attached to the site, he also said the oil company was willing to take the long view, be patient, and work with civic authorities to overcome resistance and eventually obtain the necessary approvals. In the short term, he explained, Chevron chose the "path of least resistance". The company did not continue to pursue redevelopment and opted instead for a front end station upgrade. But for the expropriation and the Project, Johnson testified, Chevron was nevertheless planning to be at its Bainbridge location for 25 years and would have renewed its lease past 2002.

[110]  John McClurg was retained by both Holdom and Chevron to prepare an opinion report addressing, among other things, the question of whether prior to construction of the Project the Bainbridge Chevron site was viable for future rezoning and redevelopment for service station operation. McClurg possesses degrees in commerce and business administration, has an accredited real estate background, and was for many years a senior manager with Shell Canada Products Ltd. His report was dated October 31, 2003.

[111]  McClurg identified what he termed supply side and demand side factors the market viewed as critical in deciding whether to redevelop an existing service station. On the supply side were such factors as the competitive environment in the local trade area, i.e., the number and strength of competing gasoline outlets and convenience store sites as well as their pricing strategies, merchandising practices and hours of operation, operational issues such as bylaw restrictions or civic regulations, and the network fit. On the demand side were such factors as the number and composition of households and of employment activity in the local area, traffic flows, and the visibility and accessibility of the site. McClurg laid particular importance on visibility which, he said, preferably should extend to between 500 feet and 1,000 feet in both directions. He wrote:

"Visibility of any site is a very important success criteria. Consideration is given to the entire offering being visible, preferably for a period of time while travelling at the prevailing traffic speed in both directions. The oil company strives to identify in the consumer's mind that a particular brand of gasoline is offered by clearly exposing its signage, canopy and allied business in as bold a manner as possible thereby providing the customer with the greatest amount of time possible for a purchase decision to be made."

[112]  McClurg expressed the opinion that, with the exception of Esso and possibly Mohawk which already had representation on the south side of the Lougheed Highway, the market would have viewed the subject site prior to construction of the Project as having the necessary demand and supply attributes to warrant redevelopment and modernization. He said it had a particularly good network fit for Chevron which would have judged the station a "keeper" site for redevelopment.

[113]  According to McClurg, other major petroleum marketers would have made the same assumptions as had Chevron and treated the difficulties with the site, which included declining gasoline sales volumes and rezoning impediments, as obstacles that could be overcome. Fuel sales could be "rescued" with a contemporary redevelopment since it was possible, he said, to double or triple volumes at service stations when redeveloping from antiquated service bay designs to modern canopied sites with appealing convenience stores and alternative profit centres. "In my view," McClurg wrote, "to keep this Site in the network and ‘limp along' with inferior short-term economics in order to harvest superior long-term economics would have been the prudent decision to make." As previously noted, McClurg stressed the need for patience and perseverance on the part of oil companies seeking approvals from municipal authorities in the Lower Mainland and cited numerous examples where persistence ultimately paid off. In this instance he believed "the market would have concluded that an acceptable plan for redeveloping the Site could have been negotiated with Burnaby."

[114]  Two long-time Burnaby planning officials were called by the claimants to testify about the rezoning process in the municipality. They were also questioned about the exchanges which took place between Chevron and Burnaby in 1998 over rezoning and redevelopment of the Bainbridge Chevron site and whether, in particular, the parties were "deadlocked" on the issue as Transit suggested.

[115]  Ken Ito, the assistant director of Burnaby's planning and building department, indicated some measure of flexibility in the municipality's approach to rezoning applications. He noted, for example, that in addition to conventional rezoning based on established zones such as C4 or C6, there was a comprehensive development ("CD") rezoning process which allowed for greater leeway in meeting the requirements under particular zoning districts. He noted two other service station redevelopments in Burnaby where this approach had been taken. Ito characterized Chevron's letter to the municipality in January 1998 as a "very preliminary inquiry" and said he did not believe that he ever used the word "deadlock" to describe the state of affairs. He also was not prepared to say, as had Transit, that Burnaby viewed its earlier refusal to rezone the Esso station at the north west intersection of Lougheed and Bainbridge from C6a to C6b as a "very strong precedent" when dealing with Bainbridge Chevron. Ito indicated that it was a precedent simply in the sense that any prior planning decision is a precedent. Council, not the planning department, made the ultimate decisions in such matters.

[116]  Barry Waitt, a zoning planner with Burnaby for more than 15 years, was the municipal official with whom Helmut Behlke of Chevron had communicated on the subject of rezoning and redevelopment at Bainbridge Chevron. He testified that Burnaby had never received a rezoning application for the subject site and that no official written response had ever been made to the January 1998 letter inquiry. Waitt also could not recall meeting with or otherwise communicating with Behlke after the letter was received.

[117]  On the basis of the evidence adduced, the claimants contend that in the before situation they would have negotiated the successful resolution of any obstacles to rezoning and redevelopment, thus ensuring the long term viability of gas station use on the joint site as its highest and best use.

7.1.2  Transit's Case

[118]  Transit's real estate appraiser, Fred Mussett, prepared a total of four reports dealing with the subject site. In his earlier reports, including the one prepared in January 2000 for advance payment purposes, he provided a comparatively brief commentary on highest and best use. He thought the property had a good corner location and that the combined size of Parcel B and Lot 89 was sufficient for the existing use. He also, however, noted the general trend toward having retail components in service stations and made passing reference to Chevron's building permit application in 1998 to convert the vacant repair bays to a retail store. At this time Mussett concluded that the highest and best use of the Bainbridge Chevron site as if vacant was its "development with a self/full serve gas station with convenience outlet" and as improved was "a continuation of the existing service station use with upgrading of the existing structure."

[119]  By the time he completed his final appraisal report in April 2003 for the purposes of the compensation hearing, Mussett had changed his opinion regarding highest and best use before the taking. He now referred to the declining gasoline sales volumes at Bainbridge Chevron and detailed at some length the correspondence on file concerning Chevron's unsuccessful attempts to rezone and redevelop the site in order, as he put it, "to maintain a viable operation". In the preparation of this final appraisal he had access to a preliminary report prepared by James McIlmoyle of Jaymac Enterprises Ltd. for Transit in which the author set out numerous factors leading to his conclusion that "a move was necessary", that is to say, the subject service station needed to close. Mussett embraced McIlmoyle's analysis. He also examined statistics on changing traffic patterns in North Burnaby and held discussions concerning the likelihood of rezoning the subject site with both Waitt and Ito of the Burnaby planning department. Based on what he termed the "negative responses" of the planning department, observed changes in traffic patterns, and the conclusions in McIlmoyle's preliminary report, Mussett opined that continued service station use was improbable.

[120]  Mussett's new conclusion was that the before highest and best use was "closure of the subject station at the end of the lease renewal term ( November 30, 2002) and redevelopment with an alternate use." As to what the alternative use might be, he considered in turn single family development under R1 (Residential District), commercial use under C4 (Service Commercial District), and institutional or church use under P (Public and Institutional District) zoning but rejected these possibilities as either economically unfeasible or unlikely to receive Burnaby planning support or both. Mussett considered more probable the redevelopment of the subject site under C1 (Neighbourhood Commercial District) or C2 (Community Commercial District) type use. These designations, which permit commercial use such as an office building housing a local medical, dental or insurance business or a charitable or societal organization, he viewed as "relatively benign" and accordingly more likely to attract neighbourhood and planning support.

[121]  We have already noted that Mussett was strongly influenced in his final conclusions by the analysis undertaken for Transit by James McIlmoyle. Now an independent oil industry consultant, McIlmoyle holds bachelor's degrees in science and economics and, like John McClurg, had a long managerial career in real estate and development with Shell Canada. He was initially retained to determine the suitability of Bainbridge Chevron "remaining in the market place as an ongoing location as a ‘old style' service station or alternatively for a redeveloped convenience store/gas bar." He produced a preliminary report dated April 19, 2003 (the "Jaymac report"), which Mussett appended to his most recent appraisal, and a larger final report dated February 24, 2004 for the purposes of the impending compensation hearing.

[122]  The Jaymac report expressed opinions on a number of questions, including whether a move from Bainbridge Chevron was necessary or inevitable for the oil company irrespective of the taking and the Project, and if so, for how long Chevron would have remained at the site and what factors necessitated the move. The report concluded that "a move was necessary due to declining volume at [the] site combined with the complex site ownership and a deadlock on rezoning." Numerous other factors were also cited for the proposition that closure of the station was likely required. Because Chevron had invested over $365,000 in the service station in November 1998, the Jaymac report concluded that the oil company would have remained there until the end of the current renewal term on November 30, 2002 but would not have renewed the next five year option if it still faced "strong opposition to a rezoning" and fuel sales volume continued to decline.

[123]  McIlmoyle expressed even greater pessimism in his later report about the subject site's prospects for continued service station use. Although the Jaymac report had described the location of Bainbridge Chevron as level with good access and egress, McIlmoyle's later report said the site was smaller than desired and had "poor quality of visibility". Whereas the Jaymac report seemed tentative about the future trend of gas sales at the subject station, McIlmoyle's later report expressed certainty that sales volume would continue to decline without "total site redevelopment". The later report looked in somewhat greater depth at the suitability of the Bainbridge Chevron site for redevelopment, the layout options available, and municipal zoning and planning influences. Reference was made to several Burnaby planning files dealing with other service station redevelopment efforts. For McIlmoyle the impediments to redevelopment were numerous. They included the comparatively small size and "shoehorned" configuration of the site, the split ownership, trade area and traffic flow deficiencies, environmental contamination, the presence of other convenience stores at the intersection, Burnaby's requirements for consolidation and dedication, and the "very strong precedent" said to have been created by the municipality's earlier refusal to allow similar redevelopment of the Esso station across the street from Bainbridge Chevron.

[124]  In accord with the opinions of its experts, Transit contends that the highest and best use in the before situation was not for continued service station use beyond the end of the then current term of the lease but rather for redevelopment to an alternative commercial use under C1 or C2 zoning. In final written submissions, Transit's counsel set forth the taking authority's position as follows:

"What must be concluded is that the highest and best use is either non gas station, on the basis that redevelopment cannot be achieved, or the highest and best use is a redeveloped gas station, consequent on a rezoning. It is clear that the highest and best use is not the continuation of an economically inferior operation with an obsolete layout. If the latter is chosen, this is a conclusion that highest and best use is not the current use, and all of the necessary discounts and risk assessments become necessary."

7.1.3  Board's Analysis and Conclusion

[125]  From our review of the evidence we are satisfied that the joint site or larger parcel in the before situation possessed several physical characteristics that made it highly desirable for service station use. In that regard we agree with both of the claimants' appraisers in their assessment of the favourable topographical features, ease of advance identification to eastbound traffic, advantageous corner location at a signalized intersection and ease of direct access to and from the adjacent roadways. There was some evidence from Transit's oil industry expert to suggest that the size of the larger parcel was somewhat smaller than the optimum for modern service stations but in our view based on the totality of the evidence in this respectthe site was by no means soconstrained as to substantially impair its use as animproved service station.

[126]  We also agree with the claimants that the site, by virtue of its location on the south side of the busy Lougheed Highway, enjoyed an important position within the Chevron network and would have served the same function within the networks of most other major petroleum marketers in the region. The evidence showed that the westward flow of traffic on the Lougheed Highway was much heavier than the eastward flow to which Bainbridge Chevron catered but also that there were far fewer outlets to service the eastward flow. Thus the site in that regard was strategically positioned. Although, as Transit's experts pointed out, there had been some recent decline in traffic volume along the Lougheed Highway in favour of the use of other arterials, the decline seems to have been temporary in nature and largely the result of construction. To the extent that Bainbridge Chevron depended on the neighbourhood trade area for its customer base, we agree with the claimants that its location in a developed neighbourhood of mixed residential, commercial and light industrial uses was advantageous. We do not accept in light of the evidence that the trade area was "very limited" as McIlmoylefor Transit suggested. Overall, we are inclined to McClurg's view that Bainbridge Chevron satisfied both the demand side and supply side factors that he identified as being critical to a favourable decision on redevelopment.

[127]  Transit criticized Cavazzi for identifying the site's highest and best use in the before for what he called "impulse oriented commercial development", arguing that there was no such recognized category within appraisal terminology. Be that as it may, we find the term to be a useful conceptual distinction, albeit in this instance the existing zoning dictated that service station use was in fact the only impulse oriented commercial use available.

[128]  Despite its locational strengths we nevertheless recognize that Bainbridge Chevron in the years leading up to the taking was not a strong site operationally. As the claimants' own witnesses indicated, it was "limping along" with inferior economics. Its gasoline sales volumes had peaked at 4.0 million litres in 1992 and had gradually declined thereafter to a level averaging only around 3.3 million litres in the late 1990s. This downward trend occurred at a time when Chevron like other major petroleum marketers was continuing to reduce the number of its retail gasoline outlets while striving to achieve or maintain an average throughput at its existing stations in the order of 6.0 million litres or more. Unlike other more diverse outlets, Bainbridge Chevron even after a facelift had little in the way of ancillary sources of income and profit, having closed its service bays in 1996, and continued to operate only a modest convenience sales area which Randy Johnson described as comprising "some chocolate bars and maybe some Cokes, but that's about it." Helmut Behlke in his memo to Johnson in late 1997 succinctly summed up the necessary direction for the future, indicating that "a redevelopment is required".

[129]  In our view the highest and best use of the joint site in these circumstances must clearly be predicated upon rezoning and redevelopment. Indeed, although Young in his appraisal analysis did not deal with it, there was general agreement by the parties at the compensation hearing that rezoning and redevelopment in some fashion was necessary. A recapitulation of the parties' positions on this important aspect may be useful at this juncture.

[130]  Transit's position was that the long term economic viability of any gas station operating on the joint site depended on redevelopment with an alternative profit centre such as a convenience store. It asserted that for a variety of reasons municipal approval for the rezoning necessary to achieve such a redevelopment was not probable so that gas station use was no longer the highest and best use of the joint site at the date of taking. Instead, the conditions called for closure of the existing station at the end of the current lease term and redevelopment of the site to an alternative commercial use under different zoning.

[131]  The claimants in their joint final submissions agreed that redevelopment with an allied profit centre such as a convenience store was required to ensure the long term viability of a gas station on the site. However, they joined issue with Transit on the question of what the market would have known and believed about the prospects for redevelopment at the date of taking and how long the "market" would have continued to operate the existing service station at the Bainbridge Chevron site in anticipation of future redevelopment. The claimants defined the issue and their response to it in these terms:

"The essential question to be answered is: would a reasonable, prudent and informed member of that market have believed, at the date of the taking that approval for rezoning was probable in the long run? The claimants' position is that the market would have believed, as did Chevron, the leader of that market, that it was probable that approval for rezoning would be achieved in the long run and that, as of March 9, 2000, the market would have behaved like Chevron and would have renewed its lease with Holdom and continued operating the station until at least 2007 in anticipation of achieving that rezoning approval."

[132]  At first blush the evidence to our minds is somewhat tenuous to support a conclusion that all of the obstacles to rezoning in order to permit redevelopment of the service station facilities at Bainbridge Chevron could have been overcome. Certainly, there was little reason to find encouragement from Burnaby's initial responses to Chevron's plans or its earlier treatment of the proposed Esso redevelopment across the highway. However, on balance we have concluded for the reasons that follow that it was at least marginally probable that Chevron or another petroleum marketer acquiring the subject site would have been able to obtain the necessary approvals to permit redevelopment within some reasonable and supportable timeframe.

[133]  First, we accept the evidence that oil companies such as Chevron operating within the Lower Mainland must and commonly do take a longer term view of the redevelopment process insofar as it involves valued existing outlets within their networks. The evidence to which we earlier referred shows that frequently though not invariably they eventually succeed. Bainbridge Chevron was not a strong performer in the years preceding the taking. However, its strategic locational attributes and the recent investment already made to upgrade its facilities in our view would have encouraged its retention as an operating station for at least some period of time pending rezoning approval. Randy Johnson testified convincingly to this effect. There was some internal evidence from the files of Chevron's appraiser, David Cavazzi, to suggest that the oil company might have abandoned the site by the end of November 2002 in the absence of such approval, but on the whole the evidence leads us to conclude that renewal of the lease for one more five year term was likely at that point.

[134]  Second, we also accept that Burnaby's response to Chevron's rezoning inquiry in late 1997 and early 1998, while distinctly negative in tone and showing more than a little reluctance, was at the same time preliminary rather than conclusive. This was Randy Johnson's view. It was also the view of both Ken Ito and Barry Waitt. Ito's evidence indicated some flexibility in Burnaby's approach to service station redevelopment proposals and a reluctance to consider the decision on the Bainbridge Esso rezoning application in the mid-1990s as a strong precedent. The evidence concerning Chevron's unsuccessful application in May 1998 for preliminary approval to expand its convenience sales area showed that the municipality was prepared to be firm but not inflexible in interpreting its own bylaw requirements. We have not overlooked in this regard Helmut Behlke's emphatic statement in his memo to Johnson as early as September 1998 that Burnaby had "rejected" all of Chevron's redevelopment options and that the Bainbridge Esso station's failed application was "the model" to which Burnaby looked. Behlke was, after all, Chevron's principal negotiator in these matters. He was not, however, the oil company's decision maker and according to Johnson's evidence was relatively new to the service station redevelopment process. We believe his blanket assessment has to be treated cautiously. While municipal approval was far from certain, we are persuaded on the balance of probabilities that some accommodation on rezoning would eventually have been reached.

[135]  Third, we are not convinced that any of the specific obstacles to Burnaby's approval of rezoning which Transit cited — in particular, the number of convenience stores already at the Lougheed and Bainbridge intersection, the requirement for dedication, or the need for consolidation — should be construed from the evidence as incapable of successful resolution.

[136]  The convenience store issue was evidently raised only in one informal discussion between Behlke and Waitt. According to Behlke's internal memo, Waitt was reported to have said the planning department could not support a proposed rezoning to C6b since there were already two convenience stores at the Lougheed and Bainbridge intersection. Waitt in his testimony was unable to recall such a conversation. In our view the issue was far from decided against Chevron on the basis of one negative pronouncement. There was no evidence that Burnaby had a formal policy to control the number of convenience stores at a given intersection. On the evidence as we view it, there were strong grounds to argue that a new convenience store at Bainbridge Chevron would not impair the commercial viability of the two existing stores since neither was visible from the highway and therefore arguably neither catered to the same customer base as would a Town Pantry or the like.

[137]  The dedication issue had been alive throughout the term of Chevron's and its predecessor's tenure at the subject site since 1972. Dedications of land, we were reminded, are often a quid pro quo of the rezoning process. The possibility of dedication was addressed in the lease negotiations between Holdom and Chevron in 1992 and again in 1997 when rezoning and redevelopment were under consideration. It was also raised by one of Burnaby's planners in his preliminary discussion with Behlke. As we previously noted, Behlke was told that the City would require a seven metre dedication along Lougheed and a five metre dedication along Bainbridge as a condition of rezoning. However, while it was entirely foreseeable that Burnaby would have taken some land from the Bainbridge Chevron site as part of the rezoning process, we agree with the claimants that there was no certainty as to how much land would eventually have to be dedicated. The size of the dedications was subject to negotiation. In turn, there was no evidence to suggest that the anticipated dedication of land rendered redevelopment of the joint site unfeasible.

[138]  From the evidence it was clear that Burnaby might have required the consolidation of Parcel B and Lot 89 as a precondition to rezoning and redevelopment. Consolidation would almost certainly have been necessary if, as the result of a dedication of land, Parcel B on its own failed to meet the minimum lot size required under C6b zoning. This raises squarely the issue of split ownership and whether Chevron and Holdom could have negotiated a solution to the problem. The history of their dealings from 1991 onward did not demonstrate a willingness to do so. Holdom, the fee simple owner of Parcel B, was trumped by Chevron in his attempt to acquire Lot 89 in 1991 and Chevron's efforts during lease renewal negotiations in 1992 and 1997 to acquire from Holdom a right of first refusal to purchase Parcel B also failed. However, we find persuasive the claimants' submission that, if consolidation became the only means of achieving redevelopment of the joint site so that it could continue as a gas station, then the parties would have been highly motivated by their own self-interest to reach an agreement on site ownership. Indeed, Holdom's notes indicate that he had told Chevron in the past that he would be willing to buy Lot 89 if necessary to facilitate redevelopment and his testimony at the hearing was to the same effect. We view as probable in the context of rezoning efforts the resolution of the issues around split ownership and consolidation.

[139]  In light of the foregoing analysis, we have concluded that the highest and best use of the larger parcel or joint site in the before condition was as a redeveloped service station with convenience store under C6b zoning. It might have assisted our determination if Young in his appraisal report for Holdom had turned his attention to the need for redevelopment or if Cavazzi in his appraisal for Chevron had expressed an opinion on the probability of rezoning. Regrettably, neither occurred. In our view the achievement of the required rezoning was only marginally probable in light of the obstacles to be overcome. Approval was clearly not imminent in 1998 and, based on the experience in other cases involving service station redevelopment, the process to obtain it was likely to require several years. Accordingly, we consider there is a need in the valuation analysis that follows for significant discounts for risk and timing.

7.2  After the Taking

[140]  We note at the outset that none of the experts who examined either the highest and best use or the optimal utilization of the Bainbridge Chevron joint site concluded that continued service station use was viable in the after condition. However, the claimants attribute this entirely to the impact of the Project while Transit maintains the highest and best use simply remained the same in the after as in the before.

7.2.1  Claimants' Case

[141]  The claimants marshalled a great deal of evidence, expert and otherwise, in an effort to prove that the Project alone had been responsible for a change in the highest and best use of the subject site.

[142]  Randy Johnson's decision in late October 2000 to close the station after viewing photographs of the after condition was put forward by the claimants as evidence that its viability had been destroyed. Johnson testified about the importance Chevron attaches to maintaining customer loyalty in a highly competitive business by making it easy for customers to buy gas and how what he termed the "concrete architecture" or "concrete infrastructure of the SkyTrain" at Bainbridge Chevron made the site "customer unfriendly" and unsuitable as a retail service station site. It followed, Johnson said, that he was no longer interested in having Chevron expend time and energy and resources on rezoning and redevelopment at that location.

[143]  John McClurg shared Johnson's view that Bainbridge Chevron was now no longer a "keeper" site. He expressed in his report the opinion that the development of the guiderail over the site and the position of the supporting columns along the front of the site "permanently impaired the ability of the Site to be redeveloped into a successful service station operation by the major players in the market." Two of his critical "demand side" factors, visibility and accessibility, had been negatively impacted by the Project. Accessibility, he said, was hampered and visibility was severely hampered. McClurg also dwelt at some length during his testimony on the psychological barrier he said the columns and overhead structure presented to motorists, many of whom are "strugglers" when it comes to buying gas, and who generally look for "a typical service station shopping experience" rather than the "one off" situation created by the Project. According to McClurg, there were no similar examples of service stations under guiderails and behind columns in the marketplace.

[144]  The claimants' appraisers added their own negative assessments of the after situation. Richard Young wrote that the "visual identity of the overall property was impacted negatively by the support columns" while vehicle entry to and egress from the site was "impaired." Young also stated, incorrectly as it turned out, that a bus stop was subsequently created in front of the site, resulting in a further negative factor for access. David Cavazzi, dwelling in particular on visibility, wrote that the identity of the service station was "severely obscured" as a result of the Project. Motorists' peripheral vision was now, he said, impaired by the "picket-like" presence of the guiderail and columns while their forward vision was arrested by "massive concrete piers" that created a "tunnel effect".

[145]  The claimants' appraisers both expressed the opinion that loss of visibility and accessibility resulting from the Project was responsible for a change in highest and best use. However, they again diverged in the way they approached the issue and in the overall conclusion they reached.

[146]  As with the before scenario Young confined his analysis in the after to the Holdom property alone. He considered the size of Parcel B too small for industrial or institutional use. He discussed with Burnaby planners the possibility of redevelopment of Parcel B to an alternative commercial use and concluded that, because commercial outlets were already well established at the other three corners of the Lougheed and Bainbridge intersection, no additional commercial services were likely to find planning support. Support was far more likely, he believed, for single family residential development similar to that which already existed in the surrounding area. Young concluded:

"In the absence of assembly, highest and best use after the partial taking is considered to be for single family residential development under the R-1 zoning schedule."

[147]  Cavazzi continued in his after as in his before analysis to look at the highest and best use of the joint site comprising Parcel B and Lot 89. Like Young he too was advised by the Burnaby planning department that the planners might favour residential over alternative commercial development on the subject site. However, he rejected that advice, expressing the opinion that "the mere presence of nearby residential development does not dictate the logical alternative use of the subject". He considered that there were several factors militating against residential use, including an unattractive location "under the shadow of an elevated rail line" and with "exposure to a major traffic arterial", difficult and dangerous access, and a lack of residential market demand in the area. Instead, the joint site had enjoyed "a commercial use for more than 30 years, compatible with commercial uses on the other three corners". A change from service station to another commercial use, he said, did not create an additional commercial use "but simply a change in development style". To Cavazzi the most logical redevelopment would be to a "non-impulse oriented commercial use" such as local retail or service commercial which is not dependent on a high degree of visibility, access and egress. Even so, with the Project in place he thought the site would be difficult to market. Cavazzi wrote:

"In summary, we consider the highest and best use of the parcels in the ‘after' condition is a holding property for consolidation, rezoning and development for some form of non-impulse oriented commercial development."

7.2.2  Transit's Case

[148]  Transit questions whether Johnson's decision to close Bainbridge Chevron was really driven by his perception of the Project's negative impact rather than by other reasons. It submits that equally likely alternative causes for his decision were the lack of an acceptable arrangement between the two different owners to facilitate redevelopment, a lack of improvement in the station's fuel sales volumes following the 1998 front end upgrade, an expectation of continued depressed sales and margins as a result of the "Arco factor" and, perhaps most importantly, the "lack of an acceptable probability of obtaining rezoning".

[149]  Transit cites the board's decision in Sangha v. Surrey (City) (2003), 81 L.C.R. 93 for the proposition that in the face of possible alternative explanations the onus is on the claimants to prove that the Project was the cause of their loss. It says the claimants have failed to do so. In Sangha the owners alleged that the expropriating authority's road widening project had interfered with the visibility of and access to their lumber and building supply business resulting in a decline in sales and consequential business loss. The authority showed that the owners' decline in sales coincided with a significant decline in building activity in the region and suggested that this slump in building activity was a more likely cause of the owners' decline in sales than the project. The board stated at para. 63 of its decision:

[63]  The onus is on the claimants not only to estimate an alleged loss but to establish that it is directly attributable to the taking or resulting from the project. After reviewing all the evidence we have concluded that during the relevant time frame there was a significant decline in construction of single family residences throughout greater Vancouver that was sufficient to account for most, if not all, of the decline in Can-Am's sales and alleged business loss. We have rejected the claimants' contention that the only reason for lost sales was the project.

[150]  Transit further submits that if we find, contrary to the claimants' position, that the Project was only one contributing factor to the closure of Bainbridge Chevron, then we must assess and award only that portion of the loss in market value to land directly attributable to the Project. It cites in support the board's decision in Bayview Builders Supply (1972) Ltd. v. British Columbia (Minister of Transportation and Highways) (2001), 75 L.C.R. 95.

[151]  In the Bayview Builders case the owner operated a building supply business to which direct access had been impaired by the taking authority's highway project. The owner claimed for the costs of reconfiguring the site in order to remedy the loss in access. The board at first instance (reported at 59 L.C.R. 263) rejected the owner's claim on the ground that the project was not the sole cause of the necessity to reconfigure. The British Columbia Court of Appeal, in setting aside the board's award (reported at 66 L.C.R. 176), held that the Act did not require the loss in question to be caused solely by the taking in order to be compensable. It directed the board to reconsider the owner's reconfiguration claim. Upon rehearing the board found that there were pre-existing deficiencies at the site making reconfiguration ultimately necessary but that the highway project had also added to these deficiencies. It allocated the deficiencies that resulted from the project and those that were independent of the project in awarding damages on the basis of diminution in value of the property.

[152]  In challenging the claimants' position on causation, Transit also takes issue with the opinion evidence offered by McClurg as the claimants' expert on gas station marketing and development. It points out that, although his report itemized a total of 13 supply side and demand side factors said to be critical to any decision on redevelopment, McClurg identified only two aspects of one of those factors, namely, visibility and accessibility, as having changed in the after condition as a result of the Project but nevertheless maintained that those changes alone necessitated the decision to close Bainbridge Chevron. Transit says this conclusion lacks credibility. Transit further argues that most of the evidence offered by McClurg with respect to visibility, accessibility and customer perception is not in the nature of expert scientific or technical opinion evidence but instead is subjective observation on matters not requiring the assistance of an expert and ought to be discounted as such. Transit refers to the judgment in Kozak v. Funk, [1995] S.J. No. 569 (Q.B.) where numerous decisions are cited that examine the appropriate scope of expert evidence and place reasonable limits on its admissibility.

[153]  Because Transit holds to the view that closure of Bainbridge Chevron by November 2002 and redevelopment of the site to an alternative commercial use had already become necessary in the before situation, it characterizes the impact of the taking and the Project on highest and best use of the joint site in considerably less dramatic terms than do the claimants.

[154]  Transit does not deny that there was an adverse effect. James McIlmoyle, for example, said in his preliminary Jaymac report that he agreed with Chevron management's assessment that as a result of the Project "site line visibility [would] be a major long-term blow" to Bainbridge Chevron. He also acknowledged that access to the site would not be as open to eastbound traffic and that egress had become a "safety issue". However, these observations were clearly academic in light of McIlmoyle's primary conclusion that the closure of the station was inevitable irrespective of the SkyTrain Project. Without full site redevelopment, which he said Chevron management before the taking had already decided was improbable, McIlmoyle concluded in his later report that Bainbridge Chevron could not satisfy two of the highest and best use criteria, namely, financial feasibility and maximum profitability.

[155]  Fred Mussett in his final appraisal report for Transit drew directly on McIlmoyle's initial comments in describing the impact of the Project on visibility and access. He also concluded that in the after as in the before, the highest and best use of the subject site was interim use as an existing gas station to the end of the then current term of the lease followed by closure of the station and rezoning and redevelopment of the site. He conceded that the site was, however, somewhat affected in the after by visibility issues.

[156]  Mussett, like Cavazzi, was unconvinced that the site in the after condition was suitable to be redeveloped as a single family residential subdivision even though that use abounded in the immediate neighbourhood. He felt that such use would be negatively impacted by the presence of the guideway and columns, that the location next to a busy, signalized intersection would pose concerns, and that the development would not in any case be economically feasible because the Bainbridge Chevron site had only been remediated to commercial rather than residential standards. On the basis of his discussions with the planners, he ruled out the possibility of rezoning to C4 (Service Commercial District) which expressly provides for, among other things, "the accommodation of vehicular oriented commercial uses of low intensity". Mussett was satisfied from his discussions with the Burnaby planning department that any rezoning would mean a loss of direct access from the Lougheed Highway. Accordingly, as with the before condition, Mussett wrote:

"The After Highest and Best Use of the subject property would also be closure of the service station and development with a commercial development as permitted in the C1, Neighbourhood Commercial District or C2, Community Commercial District zones."

7.2.3 Board's Analysis and Conclusion

[157]  We earlier determined that the highest and best use of the joint site before the taking was for redeveloped service station use. After the taking, none of the parties considered that service station use was viable. We find no reason to disagree with that assessment and therefore necessarily conclude that there was a change in highest and best use.

[158]  The first question in connection with that change becomes one of causation. With reference to the Sangha decision Transit submitted, and we agree, that the onus was on the claimants to prove on a balance of probabilities that the Project caused a change in highest and best use as reflected in the decision to close Bainbridge Chevron. From our review of the evidence we are satisfied on the whole that this onus has been met.

[159]  Although Transit argued that there were several equally likely alternative causes besides the Project for Chevron's decision to discontinue service station operation at the subject site, we have already disposed of its suggestion that the decision could have been caused either by "the lack of an acceptable probability of obtaining rezoning" or by the lack of resolution of the split ownership issue. We earlier concluded that absent the taking it was at least marginally probable that Chevron or another petroleum marketer acquiring the subject site would eventually have been able to obtain rezoning and probable as well that in the context of rezoning efforts the issues around split ownership and lot consolidation would have been resolved.

[160]  The evidence concerning depressed volumes and margins engendered by what Transit referred to as the "Arco factor" was that the gasoline price war had commencedin 1997 but eased by 2000 as Arco began to withdraw from the local market. Accordingly, we are not persuaded that this could have been a likely alternative cause of Chevron's decision to depart.

[161]  It was certainly the case, as Transit noted, that gasoline sales volumes at Bainbridge Chevron did not rebound significantly following the station upgrade that took place in late 1998. Helmut Behlke had recommended the upgrade to Johnson on the basis that it had high potential for nearly doubling volumes but in fact in the months after the work was done the volumes remained flat. We do not doubt that the dimmed prospect for being able to increase sales volume in light of the Project would have been in Johnson's mind when he made his decision to close the service station but we are not persuaded that any initial disappointment with station performance following the upgrade was a likely alternative cause for the decision.

[162]  We have already observed that there were pre-existing problems with sales performance at Bainbridge Chevron prior to the taking which only full station redevelopment might have solved. However, given our conclusion respecting highest and best use and the prospect of redevelopment in the before condition, we do not see the result here as akin to that in Bayview Builders where the project was found to be only a contributing factor to the deficiencies at the site and an allocation became necessary in awarding compensation.

[163]  We accept up to a point Transit's criticism of the use of expert opinion on matters such as visibility and access which are arguably within the scope of reasonable judgment of most lay persons. We are not inclined to attach much greater weight to the views of the oil industry real estate and marketing experts in these matters than to those of a lay witness such as Johnson or to our own unaided observations of the photographic evidence. However, we also note that both sides adduced expert opinion evidence on visibility and access and that no objection was raised by Transit during the hearing to the admissibility of those portions of McClurg's report or those of the claimants' appraisal experts dealing with them.

[164]  It is true that the visibility and access of a service station site were only two aspects of one factor among many which McClurg identified as critical to a decision on acquisition or redevelopment. These were also essentially the only two attributes that he thought changed between the before and the after condition. However, accepting as we do that service stations cater to a significant degree to impulse oriented customers, the importance of these attributes should not be underestimated.

[165]  In our view the impairment of visibility, easy access and safe egress as a result of the Project, although described in somewhat stark terms in the evidence of the claimants, was sufficient to discourage expenditure of any further effort and money on redevelopment of the Bainbridge Chevron service station site, therefore to condemn the station to early closure, and to effect a change in highest and best use in the after condition.

[166]  The second question to be determined in connection with the change of highest and best use has to do with the use now most likely to be made of the subject site. As we previously noted, the appraisers were not fully in accord on this point. Young concluded single family residential use while both Cavazzi and Mussett opined alternative commercial use.

[167]  For many of the same reasons set out in the analyses of the other two appraisers, we do not find Young's opinion with respect to single family residential use convincing even though the immediate neighbourhood was already heavily residential and the prospect of such use for the subject site appears to have enjoyed some favour with the Burnaby planning department. From a locational perspective the site's proximity to the SkyTrain guideway and columns and to the busy Lougheed Highway made it unattractive and perhaps unsafe for family residential purposes. From an economic perspective it was significant that the site's contamination had not been remediated to residential standards and it also appears at least from Cavazzi's evidence that there was little market demand for residential development in the immediate area at the time. Once again Young was confining his analysis to Holdom's property only and his conclusion rested on the premise of no land assembly. We note that, although Young did not discuss this possibility within his highest and best use analysis, he nevertheless later valued Parcel B in the after condition on the alternative basis of its use for commercial purposes.

[168]  We are persuaded overall that rezoning and redevelopment to some form of alternative commercial use along the lines suggested by either Cavazzi or Mussett is most probable. It seems likely from the evidence that this new commercial use could no longer be dependent upon a high degree of visibility, access and egress. Indeed, we doubt whether the site after rezoning would continue to enjoy direct access from the Lougheed Highway. Accordingly, the indicated use would be for more destination oriented commercial customers or business and professional clients consistent with C1 or C2 zoning.

8.  VALUATION OF LOSS

[169]  Having determined highest and best use before and after the partial taking, our focus now shifts to an evaluation of the methodology and evidence upon which each of the three appraisers relied in forming their opinions of value and estimating the losses incurred.

8.1  Claimants' Case

8.1.1  The Young Appraisal

[170]  The Young appraisal differed from the reports of the other two appraisers giving evidence in this case in that it valued only the Holdom fee simple interest in Parcel B. It did not deal with Chevron's leasehold interest in Parcel B or the value of Chevron's Lot 89. It also utilized only the Direct Comparison Approach.

[171]  Young adopted the beforeand after method, and used four steps. The first step in his analysis was to value the Parcel B land before the taking. This process was undertaken in accordance with his highest and best use which, as earlier described, was "development in conformity with the present C-6 zoning designation and in conjunction with the adjacent P-8, Parking District site located at 7128 Lougheed Highway."

[172]  Young's analysis at this point involved the use of ten comparable sales and one listing in the before condition. Sales prices ranged from a low of $31.55 per square foot to a high of $74.60 per square foot. Three comparables were located on Lougheed Highway, six were along the commercial corridor of Hastings Street, and one each was located on Willingdon Avenue and on Kingsway. Upon reviewing these comparables, Young concluded a before value for Parcel B, as if vacant, to be $50 per square foot. He then applied the $50 per sq. ft. rate to the Parcel B area which he calculated to be 17,860 square feet and derived a before land value of $893,000 which he rounded to $895,000.

[173]  The second step in Young's analysis was to determine the value of the SRW taken. After reviewing the SRW agreement and considering the impact of its imposition on the front portion of Parcel B, he concluded that the effect of the SRW was "largely similar to a full acquisition". He estimated the value of the entire SRW at 95% of freehold value. Applying $50 per square foot x 2,357.4 square feet x 95%, he derived a value of $112,000.

[174]  The third step in Young's before and after valuation involved the use of nine comparable sales in the after condition. These comparables were considered within the context of his highest and best use after the Project which, as earlier indicated, he had concluded to be "single family residential development under the R-1 zoning schedule." The nine comparable residential sales provided a range of value from $146,000 to $250,000. After viewing these sales, he concluded a subject value in the after condition, predicated on single family residential use, of $220,000.

[175]  Young's fourth and final step was simply to determine the total reduction in market value by subtracting the after value of $220,000 from the before value of $895,000 to derive a total loss of $675,000. He noted that the loss of $675,000 "is inclusive of the value of the statutory right-of-way at $112,000."

[176]  As a secondary option in his fourth step, Young offered an alternative commercial value in the event that the subject site could be used for commercial purposes in the after condition. This was, of course, a highest and best use scenario which Young considered unlikely but which the board has determined to be more probable than residential highest and best use. Young analyzed two of the commercial comparables from his before condition land analysis to conclude an alternative commercial value of $28 per square foot in the after condition. One of the comparables was a sale and the other was a listing. He applied the $28 per sq. ft. rate to the Parcel B area of 17,860 square feet to derive an after land value of $500,000 rounded. This alternative scenario resulted in a reduced total loss of $395,000.

8.1.2  The Cavazzi Appraisal

[177]  The Cavazzi appraisal utilized a six step process to value Chevron's fee simple interest in Lot 89 and its leasehold interest in Parcel B. In doing so, it also incidentally valued Holdom's leased fee interest in Parcel B. The first three steps were concerned with the before condition, the fourth and fifth steps with the after condition, and the sixth step with an apportionment of the estimated value loss between the parties. Consistent with his approach to highest and best use and like the approach taken by Transit's appraiser, Cavazzi valued the subject site as a "larger parcel combining both land parcels".

[178]  Cavazzi's first step was to determine the land value of the larger parcel before the Project. This process was undertaken in accordance with what has already been described as his highest and best use in the before condition, namely, "for impulse oriented commercial development on the larger parcel combining the two separate lots in a manner that can take advantage of these features." "Service station development", he added, "is consistent with this use."

[179]  For this step Cavazzi utilized what he termed the Market Data Approach, otherwise known as the Direct Comparison Approach, under which he considered four comparable sales and one listing. One sale was located on Lougheed Highway, one sale and the listing were on Hastings Street, and there was one sale each on McBride Boulevard and Government Street. All comparables were located in Burnaby with the exception of the property on McBride Boulevard. All properties with the exception of the one on Government Street were current or former service station sites.

[180]  Sale prices ranged from a low of $46.53 per square foot to a high of $75.14 per square foot. The low sale was of an improved site and the land residual for this sale was estimated by Cavazzi at between $36.45 to $40.33 per square foot. After reviewing his comparable sales, he concluded a land value for the subject larger parcel of $50 per square foot — the same value concluded by Young. By applying $50 per square foot by 23,677 square feet, Cavazzi arrived at a rounded total of $1,184,000 for the subject larger parcel in the before condition. He then allocated this amount between the two claimants, proceeding on the assumption that the same unit rate should be applied to the two lots comprising the larger parcel. Holdom (Parcel B) owned 17,842 square feet valued at $892,000 and Chevron ( Lot 89) owned 5,835 square feet valued at $292,000.

[181]  Cavazzi's second step was to estimate the market value of the developed property before the Project. This proved to be a complicated exercise which utilized both the Cost and Income Approaches to Value.

[182]  In his appraisal report Cavazzi defined the Cost Approach in the following terms:

"The Cost Approach…involves the determination of the replacement cost of the improvements, less any depreciation plus the value of the land, as though vacant, which is determined by the Market Data Approach."

[183]  Having already dealt with the land component of the Cost Approach in his first step, Cavazzi next valued the subject improvements. In determining the replacement cost of the improvements, he used estimates provided by Chevron instead of an estimate based on a building cost manual. His rationale was that building manuals fail to keep up with industry trends in this area. By contrast, he said, Chevron and most other oil companies design their own improvements and contract the construction to a contractor under the supervision of an oil company engineer. The replacement costs for the existing improvements provided by Chevron were $283,000 for the building, $43,000 for the canopy, $129,000 for the yard improvements, $43,000 for the kiosk equipment, and $365,000 for the tanks, pumps and piping. The total replacement cost came to $863,000. While the other figures were simply estimates, the $365,000 cost for the tanks, pumps and piping represented Chevron's actual cost in rounded dollars to replace those items pursuant to the station upgrade which occurred in late 1998.

[184]  Cavazzi then addressed depreciation. He considered the building to be functionally obsolete and applied 80% depreciation. He applied a 57% depreciation rate to the canopy and the yard improvements. Since the kiosk equipment, tanks, pumps and piping were replaced in late 1998, he only applied a rate of 15% to these items. The total estimated depreciation was $385,000, leaving a depreciated improvement value of $477,500. Adding to this number the land value of $1,184,000, the total value of the developed property in the before condition by the Cost Approach was $1,661,500.

[185]  Turning next to the Income Approach to determine the market value of the larger parcel as improved, Cavazzi defined this approach in his report as follows:

"The Income Approach…involves the conversion of an anticipated or projected income stream from the property into a value estimate through a capitalization process."

[186]  The first task was to determine a market rent. Six rental comparables were selected and analyzed. Two were Chevron leases, two were Shell, one was an Arco and one a 7-11 lease. The leases spanned a period from early 1996 through 2001 and included both vacant and improved sites. In this process Cavazzi compared the contract rentals on each property with their estimated market value to derive a percentage return on value. The percentage returns on his comparables as set out in his report ranged from a low of 7.56% to a high of 10% to 12%. In his testimony Cavazzi advised that one lease actually had a return of about 20%. Upon review of this information, he found the two Chevron leases and one of the Shell leases to provide the best comparisons to the subject. On that basis he considered a lease rate of 9% of the market value of the land and the depreciated value of the improvements to be reasonable. Taking the total subject value by the Cost Approach of $1,661,500 and applying a return of 9%, he derived an estimated net market rent of $150,000 per year.

[187]  The second task under the Income Approach was to go through the process of selecting an appropriate capitalization rate. Five comparable sales were selected and analyzed. The sales were dispersed, one each being located in the Lower Mainland neighbouring communities of Maple Ridge, Abbotsford, Langley, Mission and Chilliwack. The sales took place between August and November of 2000. Four sales involved leases of the land and improvements while the remaining lease was for the land component only. The capitalization rates ranged from a low of 8.0% to a high of 9.7%. After analysis, Cavazzi selected a rate of 9.5% as being appropriate for the subject. Applying 9.5% to the previously derived market rental of $150,000, he concluded a market value by the Income Approach of $1,579,000.

[188]  After deriving before values by the Cost and Income Approaches, Cavazzi then selected what he considered the more reliable indicator of the two. In his report he opined that

"the Income Approach is the more realistic reflection of market value of the property. Participants within the real estate investment market give primary consideration to the income flow from a property and the rate of return (cap rate) in considering a purchase or sale."

Accordingly, his final estimate of the market value of the larger parcel as developed property before the Project was $1,579,000.

[189]  The third step in the Cavazzi appraisal was to apportion the lessor's and lessee's interest in Parcel B before the Project. This in turn involved several calculations. First, taking the market value for the larger parcel as developed of $1,579,000, he subtracted the $292,000 value of Lot 89 to derive a market value for Parcel B of $1,287,000.

[190]  Next, Cavazzi sought to allocate the "respective owner's interest between the leased fee and the leasehold estate". He examined the contract rent to determine if there was a rental advantage to either Holdom as lessor or Chevron as lessee. The existing lease term commenced December 1, 1997 and expired on November 30, 2002. Rental payments were $60,000 per year. Cavazzi estimated the market rent by applying the 9% return from his lease rate analysis in step two to his estimate of the market value of the leasehold land analysis from step one. A return of 9% on the leasehold land value for Parcel B of $892,000 resulted in an estimated market rent of $80,280 per year. Cavazzi therefore calculated that there was a rental advantage to the lessee of $20,280 per year or $1,690 per month.

[191]  Since the existing lease had a remaining term of 32 months, Cavazzi considered it appropriate to compute a net present value of an income of $1,690 per month over 32 months. The remaining term was actually closer to 33 months but Cavazzi said he used 32 months for ease of calculation. He elected to use 9.5% as an appropriate discount rate. This was the rate derived in his step two capitalization rate analysis and he felt that it reflected an appropriate market risk rate. The present value of an income stream of $1,690 per month for 32 months, discounted at 9.5%, yielded a rental advantage to Chevron as lessee of $47,985.

[192]  To this figure Cavazzi next added the value of the improvements. Although under his Cost Approach the value of the improvements had been pegged at $477,500, he had ultimately based his market value of the larger parcel in step two upon the Income Approach which was lower than that reached by the Cost Approach. Accordingly, he felt it appropriate to reduce the improvement value. From earlier in step three, Cavazzi determined that the market value of Parcel B as improved was $1,287,000. From this figure he deducted the land value for Parcel B of $892,000 to reach a contributory value for the improvements of $395,000.

[193]  Adding the rental advantage figure of $47,985 to the contributory value of the improvements of $395,000 resulted in a total of $442,985 as the market value of Chevron's interest in the leasehold.

[194]  To conclude his allocation under step three, Cavazzi deducted the market value of Chevron's leasehold interest of $442,985 from the total before value of Parcel B of $1,287,000, yielding a market value for Holdom's interest of $844,015. Thus, in percentage terms Chevron's interest was 34% while Holdom's was 66%.

[195]  Cavazzi's fourth step was to determine the market value of the larger parcel after the Project. Within this step he undertook four further tasks to determine loss in value. The first task was to estimate the loss in market value within the area expropriated. After considering the physical impact of the existing works, the terms of the SRW document, and decisions in several expropriation cases both in British Columbia and Alberta, Cavazzi concluded that within the SRW area there was a "virtual elimination of value to the owner of the property." He concluded that the loss in value for the entire SRW should be 100% of fee simple value. Applying $50 per square foot to the 2,357 sq. ft. area of the SRW yielded a loss in value of $118,750. Because he had concluded in step three that Chevron had a rental advantage of $47,985, and this amount represented 5.4% of the Parcel B land value of $892,000, Cavazzi then determined that Chevron should receive 5.4% of the loss in value resulting from the SRW, or $6,364.

[196]  The second task in step four was to determine the market value of the remaining property after the expropriation. This process was undertaken in accordance with Cavazzi's highest and best use in the after condition "as a holding property for consolidation, rezoning and development for some form of non-impulse oriented commercial development."

[197]  In his analysis Cavazzi looked solely at a sales listing at 5695 Lougheed Highway, one mile west of the subject. He stated in his report that

"property sales with similar circumstances to the subject would be helpful but we have no direct evidence in that regard. In the more than 3 years since the project commenced, we are unaware of any sale of commercial land along the corridor."

In the appraiser's opinion this lack of activity was due to several factors related to the Project, starting with uncertainty as to its exact location and continuing with difficulties during the construction phase. He considered that softening of the market in general was also a factor.

[198]  The property reviewed by Cavazzi was listed for sale in November 2001 with an asking price of $34.68 per square foot. We note that Young also considered this listing in his after value deliberations for an alternative commercial use. Cavazzi reported that an offer was made in 2002 at about $32 per square foot but the transaction did not complete. Comparing this listing to the subject, he concluded that the subject in the after condition was worth less than the listing and derived a land value for the subject of $25 per square foot. After deducting the SRW area, Cavazzi then applied the $25 per square foot to the remainder of the larger parcel of 21,320 square feet to arrive at an estimated market value of the land after the Project of $533,000.

[199]  Cavazzi's fifth step was to determine the estimated value loss from the Project. This amount was the difference between the before market value of the developed larger parcel of $1,579,000 and its market value in the after condition of $533,000, or $1,046,000.

[200]  The sixth and final step in the Cavazzi appraisal analysis was to apportion the loss in value between the two claimants. This is shown in the following table:

8.2  Transit's Case (The Mussett Appraisal)

[201]  Transit relied on the Mussett appraisal dated April 20, 2003, with an effective date of March 9, 2000. During the hearing three earlier appraisals of the subject parcels prepared by Mussett were also put into evidence by the claimants.

[202]  Since Transit relied at the hearing on the most recent Mussett appraisal, we will focus on that report for the purpose of setting out its case. In his April 20, 2003 report, Mussett adopted the before and after approach and used seven steps in the valuation process to determine Holdom's loss. He then addressed Chevron's leasehold interest. If Chevron was entitled to compensation in respect of Lot 89, Mussett considered that it could be measured in the same way as the Holdom damages.

[203]  Mussett's first step was to estimate the composition of the larger parcel. Similar to Cavazzi, he considered both Parcel B and Lot 89 to comprise the larger parcel. Mussett calculated its size as totalling 23,710 square feet, slightly larger than what Cavazzi had determined.

[204]  His second step was to estimate the before value of the larger parcel in accordance with what he viewed as the highest and best use before the taking and the Project. Unlike the two appraisers for the claimants, he opined that the before highest and best use was, as earlier described, "closure of the service station and development with a commercial development as permitted in the C1, Neighbourhood Commercial District, or C2, Community Commercial District zones."

[205]  Transit's appraiser utilized six comparable sales in the before condition. Sales prices ranged from a low of $27.66 per square foot to a high of $50.66 per square foot. Two comparables were located on Hastings Street, one on Lougheed Highway, one on Kingsway, one on Sperling Avenue, and one on 6 th Street. Upon reviewing these comparables, Mussett concluded a subject value of $35 per square foot. He then applied the rate of $35 per square foot to the larger parcel area of 23,710 square feet to derive a value of $830,000. From this total he apportioned values of $625,000 to Holdom for Parcel B and $205,000 to Chevron for Lot 89.

[206]  Mussett addressed the matter of contract versus market rent by applying a return of 9% on the Parcel B value of $625,000 to estimate a market rent of $56,520. Since this amount was less than the contract rent of $60,000, he concluded there was no lease advantage.

[207]  The third step in the Mussett appraisal was to estimate the fee value of the SRW area taken. He reviewed the effects of existing rights of way, settlements made by Transit, and agreements made by the Greater Vancouver Regional District ("GVRD") for easements within setback areas and also within buildable areas. He concluded the loss in value for the column area within the SRW on Parcel B amounting to 48 square feet was 100% while the loss for the remainder of the SRW area was 50%. Applying $35 per square foot x 48 square feet x 100%, he derived a value of $1,680 for the column portion. Applying $35 per square foot x 2,309 square feet x 50%, he derived $40,408 for the area under the guideway, with the total rounding to $42,000.

[208]  Mussett's fourth step was to estimate the before value of the larger parcel remainder. To do this, he simply deducted the $42,000 SRW value from the before value of the larger parcel of $830,000 to reach a value of $788,000.

[209]  The fifth step was to estimate the after value of the larger parcel remainder. Unlike either of the appraisers for the claimants, he concluded that the highest and best use of the subject larger parcel was the same in the after condition as in the before condition. However, Mussett concluded that there was a reduction in value to the remainder due to a reduction in exposure related to the columns and guideway. To determine the loss in value, he re-examined two sales and one listing from his before analysis and added two more sales. The listing was the same property at 5695 Lougheed Highway also considered in the after condition by Young and Cavazzi. The values ranged from a low of $23.73 per square foot to a high of $36.76 per square foot. After analysis he concluded a rate of $28 per square foot. Applying $28 per square foot to the larger parcel area of 23,710 square feet yielded a value of $663,880.

[210]  He then deducted the after value of the SRW using the same two components as in the before. First, the column area of 48 square feet x $28 per square foot x 100% equals $1,344. Second, the remainder of 2,309 square feet x $28 per square foot x 50% equals $32,326. The sum of these two figures equals $34,000 rounded. Deducting $34,000 from the $663,880 after value of the larger parcel left a rounded amount of $630,000 representing an after value of the remainder of the larger parcel.

[211]  As his sixth step Mussett estimated the damages to the remainder. Deducting the after value of the Holdom remainder of $446,000 from the before value of the remainder of $583,000 resulted in a difference of $117,000. This amount represented a reduction in value to the subject remainder of 20%. Step seven was simply a summary of the previous six steps.

[212]  Mussett then addressed Chevron's leasehold interest. He concluded the value of the partial taking to be $42,000 and the damages to the remainder to be $117,000 for a total of $159,000. However, he noted, Chevron continued to make lease payments from the date of the taking on March 9, 2000 to the end of the lease term on November 30, 2002. He applied a 9% rate of return to the $159,000 total to reach an annual loss in value of $14,310 or $1,193 per month. The lease ran for approximately 33 months after the date of taking. He applied an annual discount factor of 9% to determine the present value of the monthly payments of $1,193 for 33 months, totalling $35,000. He concluded that this amount should be deducted from Holdom and paid to Chevron.

[213]  The final area of the Mussett appraisal report dealt with leasehold improvements. Key to Mussett's valuation of this component was his conclusion that the highest and best use in both the before and after situations was probable closure of the service station by Chevron at the conclusion of the current lease term. The lease was to terminate on November 30, 2002, about 33 months after the date of the taking. In step six Mussett had concluded that there was 20% damage to the remainder of the leasehold property due to the Project. Accordingly, he now concluded that there was a 20% loss in value to the leasehold improvements for the 33 months remaining in the lease. As a discount factor he utilized 9%, the same rate he had employed in step two when dealing with the matter of contract versus market rent for the subject land.

[214]  Next, Mussett valued the subject improvements. In determining the replacement cost of the improvements he used Marshall Valuation Service estimates for the building and Chevron's replacement cost estimates for the remaining items. This approach differed from that of Cavazzi, who used the Chevron replacement cost estimates for all categories. We also note that Mussett included the kiosk equipment in the replacement cost of the building whereas Cavazzi treated the kiosk equipment separately. The kiosk equipment comprised a console, satellite system and a safe.

[215]  Mussett's replacement cost estimates were $182,048 for the building, $43,000 for the canopy, $129,000 for the yard improvements, and $365,248 for the tanks, pumps and piping. The total replacement cost came to $719,296. The cost figure for the tanks, pumps and piping represented Chevron's actual costs to replace these items pursuant to the station upgrade in late 1998.

[216]  In next addressing depreciation, Mussett considered the building to be functionally obsolete and applied 80% depreciation. He also applied 80% depreciation to the tanks, pumps and piping. While he recognized that these latter items had been upgraded in late 1998, he assumed that but for an environmental upgrade these items would not have been replaced prior to the closure of the service station at the end of the current lease term. Accordingly, he deemed these items to be in similar condition to the service station building. He applied a rate of 65% to the yard improvements and canopy. The total estimated depreciation was $549,640, leaving a depreciated improvement value of $170,000 rounded.

[217]  To estimate the compensation to Chevron, Mussett applied a 9% return to his $170,000 depreciated improvement value to conclude a yearly payment for the leasehold improvements of $15,300. Applying the 20% damage percentage to this yearly figure resulted in $3,060, or $255 per month. He calculated the present value of monthly payments of $255 for 33 months at a 9% discount rate to equal $7,500.

[218]  Mussett's summary and final estimate of the value of the partial interest taken and the loss in value to the remainder of the larger parcel is shown in the following table:

8.3  Board's Analysis and Conclusions

8.3.1  Appraisal Methodologies Considered

[219]  A review of the methodologies employed by the three appraisers to derive their estimates of loss reveals only one area of common ground. Other than the utilization of the before and after method and the Direct Comparison Approach to determine the land value for Parcel B, the methodologies of the three appraisers were distinctly different. Young on behalf of Holdom was concerned only with the loss in value to the vacant land component of Parcel B. Cavazzi on behalf of Chevron utilized both the Cost and Income Approaches to value the larger parcel but in the end relied on the Income Approach. Mussett, who on behalf of Transit had concluded that continued service station operation was unlikely in either the before or after conditions, chose to rely on the Cost Approach and not to utilize the Income Approach. We have found strengths and weaknesses with all three of the methodologies followed but have not found it possible to utilize any one of them comprehensively to arrive at our determinations in this matter. Rather, as our analysis of each of the valuation issues will show, it has proven necessary to be selective. Some preliminary observations follow.

[220]  Young's valuation opinions proved to be of very limited assistance due to the restricted scope of his retainer. Like the other two appraisers, Young recognized that Parcel B and Lot 89 operated in conjunction with each other in the before condition. However, since he provided evidence for Holdom only, he directed his attention both in the before and after conditions solely to the property controlled by Holdom, namely, the vacant land component of Parcel B. He did not address the value of the improvements on Parcel B which, of course, were owned by Chevron, the value of Chevron's leasehold interest in Parcel B, or the value of Chevron's fee simple ownership in Lot 89.

[221]  As a general comment, we found Cavazzi's appraisal to be well organized and clearly presented. We also found his oral evidence helpful in clarifying the complex methodology he employed. His explanations did not, however, allay some concerns particularly with respect to his application of the Income Approach. We consider it important to review Cavazzi's methodology in that regard here because of its central role in his estimation both of the market value of the larger parcel and the value of Chevron's leasehold interest in Parcel B.

[222]  According to Cavazzi the Income Approach "estimates the market value of the property in relation to its market rent and a capitalization rate to convert it to an indication of value." The usual steps taken in this approach are, first, to estimate the annual net income for a property, then to determine an appropriate capitalization rate, and finally, to apply that capitalization rate to the net income to derive an indication of the property's market value.

[223]  The prime difficulty with Cavazzi's methodology under the Income Approach lies in the rather convoluted way that he determined the annual net income for the larger parcel. Rather than using rental comparables directly from the market to estimate a market rent for the larger parcel, even though the contract rent information for the comparables was available, he first derived a market based rate of return from the comparables and applied it to the estimated market value under his Cost Approach to reach an imputed rent for the larger parcel. In other words, the Income Approach became inextricably tied to the Cost Approach. Accordingly, if we disagree with the land value component of his Cost Approach, we must also correspondingly disagree with the value he derived under the Income Approach.

[224]  The methodology used also leads to something of a logical fallacy which did not go unnoticed by Transit. Cavazzi derived a 9% rate of return for the larger parcel from his analysis of the rental comparables. Taking the total market value of $1,661,500 under the Cost Approach and applying a return of 9%, he derived an estimated net market rent of $150,000 per year. Cavazzi next selected what he considered an appropriate capitalization rate of 9.5% from his analysis of five other comparable sales in the region. Applying the selected capitalization rate to the estimated net market rent, he concluded a market value for the larger parcel by the Income Approach of $1,579,000. At this point a problem becomes apparent with the valuation exercise. By applying a 9% rate of return to the newly established market value of $1,579,000, a new estimated market rent of $142,000 is derived. By then applying the selected capitalization rate of 9.5% to that number, a new market value of $1,495,000 is concluded by the Income Approach. And so on. Transit criticized what it termed Cavazzi's "circular approach" in determining a value for the larger parcel by the Income Approach. While we consider that Transit has identified a valid concern with Cavazzi's approach, we would describe the approach as being in the nature of a downward spiral rather than circular.

[225]  Cavazzi's methodology is also suspect insofar as it resulted in estimated annual net income or market rent for the larger parcel of $150,000. This figure is clearly considerably higher than for any of the six rental comparables he used. They ranged from a low of $49,800 per year for a June 1997 lease to a high of $112,000 for a December 1998 lease. By way of explanation for this disparity during his evidence in chief, Cavazzi stated: "I acknowledge that my rent is higher than those rents, however the subject has a higher asset value because the land component is more valuable." It is unclear to us from our review of the comparable data whether this was actually the case. However, even accepting Cavazzi's explanation up to a point, we find his selection of $150,000 to be simply insupportable.

[226]  A final weakness we observe with Cavazzi's methodology centres on his lack of analysis of the existing contract rent. In cross examination Chevron's appraiser was asked if he had considered the contract rent. He replied that he had not. He replied further that the lease had been established as of December 1, 1997 while his analysis was for March 2000. The term of the existing lease had over 32 months remaining as of March 2000 and, in our view, should have been reviewed and discussed in some detail, especially in light of the fact that Cavazzi's determination was a market rent approximately 33% higher than the contract rent that had been negotiated between two experienced parties.

[227]  We also have several concerns with the approaches taken by Transit's appraiser to his valuation assignment, including the way Mussett applied the Cost Approach to determine the loss in value to Chevron's leasehold improvements, his total exclusion of the Income Approach in estimating the market value of the larger parcel, and his changes in opinion over the course of the multiple appraisals he conducted on the larger parcel. We will defer our discussion of Mussett's use of the Cost Approach until later in these reasons when we turn to examine the value of the leasehold improvements lost, focusing at this point on the other two concerns.

[228]  We observe some inconsistencies with Mussett's decision not to utilize the Income Approach. His explanation at the hearing was, as he put it, "because the taking is vacant land and because the highest and best use is for redevelopment." If this was so, presumably the same rationale would apply to the Cost Approach which, however, Mussett chose to use. Also, we note that in the first two of his four appraisals of the subject property he concluded a highest and best use as a service station and still chose not to employ the Income Approach. The wording in all four reports on the choice of approaches is almost identical. It appears that Mussett decided not to utilize the Income Approach at an early stage and kept to that decision. For an income-producing property such as the subject larger parcel, the application of this approach would seem to us to have been highly relevant and useful.

[229]  The foregoing comment leads us directly to our concerns around the multiple appraisals. Mussett's first appraisal of the subject property was prepared on June 15, 1999 with an effective date of May 27, 1999. The second appraisal was prepared on January 20, 2000 with an effective date of January 14, 2000. This appraisal was utilized for advance payment purposes. The third appraisal was dated May 29, 2001 with an effective date of March 9, 2000 (the date of taking). The appraisal actually relied upon by Transit at the compensation hearing was dated April 20, 2003 with again the effective date of March 9, 2000.

[230]  The claimants, who introduced them into evidence during the hearing, criticized Mussett's multiple appraisals as "each time employing different approaches and methods of analysis, using different comparables, applying those comparables differently, reaching different highest and best use conclusions, and estimating different per square foot values and magnitudes of loss, in his evolving opinions." In our view there is some force to these criticisms.

[231]  We note in summary form the evolution along the way of some of Mussett's key conclusions as follows:

[232]  From examining the above it is clear that Mussett's opinion of the amount of damage to the remainder doubled over time and the percentage of fee value which he attributed to the SRW excluding the concrete column increased by two thirds. Key to his valuation was the fact that his opinion on highest and best use in the before changed from a service station use in his 1999 and 2000 reports to closure of the station and redevelopment to an alternative commercial use in the 2001 and 2003 reports. There is no reference in each subsequent report of the changes in opinion which occurred from previous reports much less any explanation for the changes.

[233]  At the hearing Mussett explained the changes in the damage and SRW percentages by saying that the first two appraisals were completed before construction and that the full effect of the guideway, the columns and the Project in general became clearer after completion of the works. He said he changed his opinion on the highest and best use as he became aware of more information regarding Chevron's difficulties in redeveloping the subject site.

[234]  Although Transit suggested that Mussett's first reports were somewhat preliminary in contrast to the final product, we note that each appraisal appears to be presented as a self-contained, thorough and stand alone report in which the scope of the appraisal is said to encompass the necessary research and analysis to provide an estimate of market value. This is not to say that an appraiser is precluded from taking new information into account or changing his opinion over time but, at a certain point, a constantly shifting approach may raise questions of reliability.

[235]  We accept that Mussett was in a better position at the time he completed his 2001 and 2003 reports, after construction was completed, to assess the physical impact of the Project and, in the result, to increase his estimation of the damage it caused. We are less convinced that new information on Chevron's redevelopment difficulties reasonably account for the change in his 2001 estimate of highest and best use. Chevron's redevelopment initiatives concluded in 1998 before either of the first two appraisal reports were commissioned. Those reports both found continued service station use to be the highest and best use. In his 2003 board ready report, Mussett refers to new information obtained from the City of Burnaby and from Chevron. The report also includes McIlmoyle's initial report (the "Jaymac report") with its pessimistic observations on redevelopment potential. However, while this new information may have reinforced Mussett's changed opinion on highest and best use, it clearly was not responsible for the change.

[236]  In our opinion, the net effect of Mussett's changing approach over time to highest and best use and, in turn, to market value of the larger parcel in the before condition is to reduce the reliance we feel we can place overall on these and other aspects of his final report.

8.3.2  Fee Value of the Land Taken

[237]  We have already noted that the two appraisers for the claimants both derived a before value of $50 per square foot while Transit's appraiser settled on $35 per square foot. The difference between these two figures obviously stems from the fact that both Young and Cavazzi found the highest and best use in the before condition to be a continuation of service station use while Mussett ultimately envisioned a somewhat less valuable highest and best use founded on closure of the service station followed by alternative commercial redevelopment.

[238]  As previously discussed, we do not accept the highest and best use put forward by Mussett on behalf of Transit in the before condition. Accordingly, we find Mussett's evidence regarding the value of the larger parcel in the before condition to be of little assistance. We will, however, consider the information included in his report on comparable sales that were common with the other appraisers.

[239]  It is also somewhat curious that Young and Cavazzi arrive at the identical value per square foot in the before even though one postulates a highest and best use based on continuation of the service station under existing C6 zoning while the other envisages a redeveloped service station site under C6b zoning, arguably a more valuable use. A summary of the comparables selected is useful at this point.

[240]  To assist in deriving his before value, Cavazzi considered four sales and a listing that sold subject to re-zoning.

[241]  Cavazzi's first sale was a purchase by Chevron of an adjoining property to expand an existing site. The lot was located at 805 McBride Street in New Westminster at the corner of two main arteries. The lot size was smaller than the subject at 9,981 square feet and was proposed to be used as a fast food outlet. The site was zoned C1 and the sale price was $75.14 per square foot in December 1997. Cavazzi considered this sale superior to the subject.

[242]  Sale two was a former Esso service station site at 4490 Lougheed Highway in Burnaby. This C4 zoned site was 20,407 square feet in size and sold for $73.80 per square foot in December 1998. Cavazzi considered this site superior to the subject. Young also used this sale. He commented that this sale was purchased by adjacent owners, putting upward pressure on the purchase price.

[243]  Sale three was the April 1999 sale of a 15,240 sq. ft. former Shell service station site at 4203 Hastings Street in Burnaby. This C4 zoned site sold for $71.34 per square foot. This property was purchased by the City of Burnaby for municipal purposes. Cavazzi determined that the subject value should be lower than the value for this sale. Young also used this sale. He stated that the commercial location of this property was superior to the subject.

[244]  Sale four was the August 1999 sale of two sites totalling 64,469 square feet at 9898 Government Street. The sites were zoned C4 and P8. Improvements comprised a former automobile dealership building. The purchase was for the SkyTrain project and the building on site was demolished after purchase. Cavazzi concluded a residual land value from this sale of $36.45 per square foot to $40.33 per square foot.

[245]  Sale five was the listing and subsequent sale of a 36,415 sq. ft. site at 4823 Hastings Street in Burnaby. This was a former Petro Canada station and the October 1999 offer of $50.12 per square foot was subject to rezoning from C4 to C7 for a fast food restaurant. Young and Mussett also used this sale. While Young added no further comments, Mussett considered this to be a superior location to the subject.

[246]  Cavazzi concluded that the subject site was worth less than sales one, two and three but higher than sale four. He further stated that sale five was the most similar to the subject as to location. Accordingly, it was on this basis that he concluded a subject value of $50 per square foot.

[247]  Young's analysis involved the use of ten comparable sales and one listing. Upon review of these comparables we reject the listing and two of the comparable sales. The listing took place some 18 months after the date of the taking and was also impacted by the Project. One of the rejected sales was non-arms length and the other took place almost two years after the date of the taking.

[248]  Seven of Young's eight remaining sales involved properties zoned C4. Three of these sales are common to Cavazzi, leaving five additional sales to consider.

[249]  The first additional sale occurred in July 1996. This C4 zoned, 71,438 sq. ft. parcel at 4265 Lougheed Highway in Burnaby sold for a rate of $31.55 per square foot. Young considered this parcel superior to the subject Parcel B lot although it was much larger. He noted that there were subsequent price increases in this area.

[250]  The second additional sale was a 6,864 sq. ft., C4 zoned lot at 4705 Hastings Street in Burnaby. The March 1997 sale price was $50.99 per square foot. Young considered the subject parcel's corner location to be superior to the interior location of this lot.

[251]  The third additional sale was the April 1997 sale of a 24,156 sq. ft. lot at 2273 Willingdon Avenue in Burnaby. The sale price was $36.64 per square foot. This property was zoned M1 and was located in the Brentwood Town Centre. The site was purchased for a mixed use development. Young considered this site superior to the subject parcel for redevelopment potential.

[252]  The fourth additional sale was the December 1997 sale of a C4 zoned, 10,182 sq. ft. lot at 6611 Kingsway in Burnaby. This was a former Petro Canada service station site. The sale price was $41.25 per square foot. Young considered the subject superior to this site. Mussett also used this sale. He considered the subject to have an inferior location and zoning but superior access.

[253]  The final additional sale was the January 2000 sale of five lots totalling 19,800 square feet at 4716 Hastings Street in Burnaby. The lots were purchased by an adjacent owner. The zoning was C4 and the site was improved with a small building. The sale price was $50.51 per square foot. Mussett also used this sale and considered that the location and zoning were superior to the subject parcel.

[254]  Young did not single out any particular comparable sale or sales as being more useful than any other. He simply concluded that, in light of the evidence assembled and given the characteristics of the subject site, an appropriate before value of $50 per square foot was indicated.

[255]  We note that of the ten sales considered above, seven were zoned C4 (Service Commercial), two were zoned M1 (Mixed Use), and one was zoned C2 (Community Commercial). Transit has asserted that a property zoned C4, with a wider range of permitted uses, is worth more than a similar property zoned C6/P8 such as the subject. While Cavazzi recognized the wider range of available uses, he stated that he could not find evidence in the market "to attribute a value to zoning alone."

[256]  Of the 10 above-noted sales, we find the 4823 Hastings Street transaction to be the most relevant. Not coincidentally this sale was the only one used by all three appraisers. As previously mentioned, this was a former Petro Canada station. The October 1999 offer of $50.12 per square foot was subject to rezoning from C4 to C7 for a "McDonald's" fast food restaurant. This sale was "subject to" rezoning and as such involved little or no risk to the purchaser. This is significant since the sale did not complete until approximately 23 months after the date of the purchase offer. As well, the existing C4 zoning prior to re-zoning provided a much wider range of allowable uses.

[257]  While we accept in general terms the highest and best use concluded by Cavazzi and his selection of sale number 5 at 4823 Hasting Street as the most relevant in determining the before value of the subject land, we do not feel that he has adequately taken into account the elements of risk and time in relation to rezoning.

[258]  As mentioned earlier in our discussion of highest and best use, we consider it only marginally probable that the claimants would have been able to redevelop the subject larger parcel within some appropriate timeframe. This necessarily implies an adjustment for the risk that the rezoning necessary for redevelopment might not be achieved. We have already assessed the obstacles to redevelopment cited by McIlmoyle for Transit.

[259]  We also consider relevant the length of time involved in the redevelopment process. Several redevelopment examples to which we have already alluded were discussed during the hearing. Examples cited by McClurg included the Shell station at Kingsway and Grange that took 69 months, the Esso station at Kingsway and Willingdon (29 months), the Shell station at Canada Way and Willingdon (33 months), the Esso station at Imperial and Boundary (47 months), and the Esso station at Canada Way and Sperling that took 24 months.

[260]  The only comparable sales dealing with rezoning time were the Mussett sale of 1409 Sperling Avenue that took 22 months and 4823 Hastings Street, used by all three appraisers, that took 23 months. Neither of these two examples was redeveloped as a service station.

[261]  The afore-noted examples illustrate that the redevelopment process can take a considerable period of time (in the instances cited, from 22 to 69 months). As the failed rezoning application at Bainbridge Esso across the highway from the subject site demonstrates, there is also no guarantee of success.

[262]  After taking the above considerations into account, we consider it appropriate to apply a discount of 15% to Cavazzi's land value square foot rate of $50 to reflect the factors of risk and time. A 15% reduction equates to $42.50 per square foot, which we find represents the before land value of the larger parcel consisting of Parcel B and Lot 89. As we noted before, the appraisers' estimates of the size of the two parcels varied slightly. Young and Mussett both gave the size of Parcel B as being 17,860 square feet while Cavazzi used 17,842 square feet. In order to resolve this small discrepancy in the absence of any conclusive evidence, we will simply deem Parcel B to comprise 17,850 square feet when doing our value calculations. At $42.50 per square foot this equates to a before land value for Parcel B of $758,625. Mussett gave the size of Lot 89 as being 5,850 square feet while Cavazzi used 5,835 square feet. We will deem Lot 89 to be 5,840 square feet. At $42.50 per square foot this equates to a before land value for Lot 89 of $248,200.

8.3.3  Percentage of Fee Value Taken Under the SRW

[263]  It is common practice in right of way valuations to recognize that the fee simple owner retains some residual value in the property taken and, accordingly, to calculate the loss as some percentage of fee simple market value. A similar calculation applies to others holding lesser interests in the property. However, in the present instance the claimants take the position that the imposition of the SRW was tantamount or nearly tantamount to a fee simple taking while Transit argues that the claimants were left with considerable residual value in the SRW area.

[264]  As a starting point to our analysis we consider it desirable to distinguish between two components of the SRW. The first is the area occupied by the SkyTrain column. The second is the remainder of the SRW area. The numbers we have from various plans and reports concerning the area occupied by the column are somewhat difficult to reconcile. However, upon review of this evidence we accept as reasonable the conclusion of Transit's appraiser that at ground level (i.e., not including the underground footings) the concrete column occupies 48 square feet while the remainder of the SRW comprises 2,309 square feet for a total SRW area of 2,357 square feet.

[265]  Neither of the claimants' appraisers differentiated between these two components in estimating the percentage of market value expropriated by Transit or, conversely, the percentage of market value remaining to the claimants after the expropriation. Young on behalf of Holdom estimated that 95% of the fee simple value of the entire SRW area had been taken while Cavazzi for Chevron estimated the value taken at a full 100%. Transit's appraiser alone distinguished between the two components. Mussett estimated that 100% of the fee simple value of the column area had been taken but only 50% of the value of the remaining land within the SRW had been lost.

[266]  We see no need for further analysis regarding the percentage value for the area occupied by the column at ground level. There was simply no residual value left to the owner. Accordingly, we find 100% of fee simple market value to be appropriate for the 48 sq. ft. column area.

[267]  In order to determine the appropriate percentage of fee value taken that applies to the remainder of the SRW area, a closer examination of the evidence and relevant law is required. We begin by summarizing the opinion evidence offered by the respective appraisers.

[268]  Like many other aspects of his appraisal report for Holdom, Young's analysis of the percentage of fee value taken was comparatively brief. He fastened in particular on the language of the SRW document, noting that the interest granted was in perpetuity and that the agreement pertained to future as well as present facilities, structures, utilities and infrastructure. It even made provision for future commercial ventures not specifically related to the transit system. In addition, he said, the SRW and the transit development had "a substantial negative impact on identity, potential use and access." Accordingly, Young considered the effect of the SRW to be "largely similar to a full acquisition" and estimated the value of the entire SRW at 95% of freehold value.

[269]  Cavazzi in his analysis for Chevron of the loss in value in the SRW area went through a more detailed examination of the issue which included considering the physical location of the existing works, reviewing at some length the terms of the SRW document, and taking into account by way of comparison three expropriation compensation decisions on residual value — two in British Columbia and one in Alberta.

[270]  We have already noted that the Cavazzi report identified several physical impacts, notably obstruction of visibility, restricted access and restricted egress, which negatively impacted the highest and best use and market value of the larger parcel as a whole. These negative factors, in turn, figured in the appraiser's estimation of the loss in value in the SRW area itself. For Cavazzi the location of the SRW across the primary frontage of Parcel B, and the construction by Transit of physical improvements on, over and under the land within the SRW, resulted in significant impairment. A further detraction lay in the fact that a portion of the SRW extended beyond the 6 metre front yard setback area of Parcel B, thus potentially enlarging the area where building development could not take place.

[271]  Cavazzi devoted several pages of his appraisal report to interpreting the language of the SRW document which he considered significant in determining the impact to the property. His summary view was that

"…the terms and conditions of the SRW acquired by Transit extend atypical rights to it creating uncertainty as to allowable current and future uses, arbitrary use of the SRW by Transit, unknown potential expansion of the SRW at Transit's discretion, the potential for other improvements within the SRW and restricted rights available to the owner(s). All of these uncertainties raise the spectre of the potential for additional loss of exposure and/or access at some time in the future."

[272]  For Cavazzi the impact of the SRW was to create more than just a "charge" against the property. He wrote:

"In our opinion, it results in a significant diminishment of the owners' rights within the SRW leaving the owner with little, if any residual utility and value. We consider the rights taken, the construction to date and the potential for even broader utilization of the SRW by Transit are similar to the fee simple acquisition of land for a road right of way."

[273]  Because he said he was unaware of market evidence to indicate the loss in value within the SRW area, Cavazzi turned instead for comparison purposes to compensation decisions in three other cases, two of which had been decided by this board.

[274]  In Cokato Dairy & Stock Farm Ltd. v. Fernie (City) (1994), 54 L.C.R. 199 (B.C.E.C.B.), the claimant owned and operated a custom hay farm. The City of Fernie expropriated a six metre wide statutory right of way for an underground sewer line through the claimant's lands. Portions of the affected lands were used for hay crop and the balance was used as grazing land for horses. The board determined that the highest and best use of the land encumbered by the statutory right of way was essentially unimpaired and that the rights of the claimant remained virtually intact. Nevertheless, the board held that the market value of the interest taken by the statutory right of way was 50% of the fee simple value.

[275]  The companion case of Jones v. Fernie (City) (1994), 54 L.C.R. 285 (B.C.E.C.B.) concerned a very similar taking and the board's conclusion with respect to the percentage value taken was the same.

[276]  In Homeniuk v. City of Edmonton (1982), 26 L.C.R. 341 (Alta. L.C.B.) the claimant owned agricultural land. The City of Edmonton expropriated a strip easement area that crossed the subject land diagonally from south to north. The purpose of the easement was for the construction and maintenance of a 240 K.V. transmission power line including towers. The existing use of the subject lands was agricultural; however, the highest and best use was holding for future industrial development. A witness for the City testified that the use that the owners might make of the easement area was very limited and would be restricted to such things as temporary parking of vehicles, some landscaping, and perhaps the placement of signs provided they were less than 12 feet high and were properly grounded. The Alberta Board found that any residual value to the owners which might exist in the easement area was negligible and should be ignored. The Board determined that the loss in value for the taking of the easement land was equivalent to the market value of the fee simple interest.

[277]  It was Cavazzi's opinion that the impact to the subject property from the expropriation of the SRW, giving consideration to its physical location and the terms of the instrument, was greater than in the circumstances of either Cokato or Jones and had a parallel to those in Homeniuk. He concluded:

"There is significant visual impairment to the property and we consider any rights remaining to the owner are so restricted as to result in the virtual elimination of value to the owner of the property."

[278]  Accordingly, Cavazzi concluded that the loss in value to the area within the SRW was 100% of its fee simple market value. He also considered that Chevron by virtue of its leasehold advantage had an interest in the lost market value of the area expropriated.

[279]  There were several components to Mussett's analysis for Transit of the percentage of fee value taken within the SRW area. Like Cavazzi, he weighed the physical impact of the location of the SRW and of SkyTrain construction on visibility, access, and the ability to build on the site. Like Cavazzi, he also reviewed at some length the terms and conditions of the SRW document itself. Additionally, unlike either of the claimants' appraisers, Mussett offered evidence of marketplace transactions and negotiated settlements concerning lands encumbered by other rights of way or easements within the Lower Mainland. He did not, however, address previous compensation decisions dealing with residual value.

[280]  In considering the physical impact on the larger parcel including the SRW area itself, Mussett acknowledged that the concrete columns but not the guideway partially blocked the visibility of Chevron signage. Also, although he thought the guideway columns did not substantially impact ingress to the site from the Lougheed Highway, he acknowledged that egress back onto the highway required additional attention after the taking since the customer had to exit carefully from behind the eastern column. However, Mussett's impact assessment as it related to visibility and access was also conditioned by his opinion that the highest and best use of the subject property before the taking was rezoning and redevelopment from service station to an alternative use, that any such rezoning would require a dedication of the Lougheed Highway frontage, and that vehicle access to and from that frontage would likely not be permitted upon a rezoning. Accordingly, for Transit's appraiser the importance of visibility and ease of access was diminished.

[281]  Mussett quoted at length from the SRW document, setting out verbatim the principal rights of both Transit and the owner. While the claimants' appraisers had focused on provisions which appeared to give Transit the right to create additional facilities or expand the SRW area as it saw fit in the future, Mussett gave these provisions short shrift in his analysis. He wrote:

"The purpose of the SRW was to construct the existing improvements for the Millennium SkyTrain project and this section of the project has been completed. The effect of the taking is based on what has actually been constructed or the actual configuration of the improvements and the use of the improvements as part of the Millennium Skytrain project. The effect of the taking and impact is not based on possible future uses."

[282]  Transit's appraiser instead focused on rights which the owner appeared to retain in that large portion of the SRW located outside the area occupied by the column but beneath the guideway. In his report he stated:

"This land can be used for parking, landscaping, storage and access and the calculation of the floor area ratio and lot coverage. The existing use of the encumbered area is as a landscaped area and for driveway access. Consequently, there is some residual value to the owner."

[283]  Mussett went on to point out that under the terms of the SRW agreement the owner, subject to the approval of Transit, could also build under or over the guideway. However, he added, the majority of the SRW area lay within the front yard setback of 6 metres required under the Burnaby zoning bylaw where building was already not permitted.

[284]  For some evidence of impact in the marketplace, Mussett looked at sales of lots in Mayfair Industrial Park in the neighbouring municipality of Coquitlam which had been partially encumbered by statutory rights of way in favour of British Columbia Hydro. He reported that, in the examples he reviewed where the encumbered area of the parcels was close to 40% to 50% of the total parcel size and included the building envelope, "the encumbered portion of the industrial parcel [sold] for close to 50% of the per acre value of the unencumbered industrial lots."

[285]  Mussett also made use of data on negotiated settlements he had collected both from RTP 2000 and from municipal authorities such as the GVRD and the City of Surrey. He reported having been told by RTP 2000 staff that many settlements for statutory rights of way involving industrial properties along the Lougheed Highway for the Millennium SkyTrain Project ranged from 40% to 50% of the fee value of the land, that the terms of those statutory right of way agreements were similar to the subject SRW agreement, and that the lands encumbered in those settlements were also along the boundary of the impacted properties with most of the land lying within the setback area. The municipal settlements were for subsurface easements. The compensation reportedly paid where the rights of way lay within setback or encumbered areas ranged between 10% and 25% of fee simple value and, where they lay within buildable areas, between 40% and 70% of fee simple value.

[286]  Noting that in the present case the SRW was located within the front yard setback area and encumbered a relatively small portion of the site, Mussett concluded from his overall analysis that the loss for the area of the SRW outside the column was 50% of the unencumbered fee value.

[287]  Not surprisingly, each side defended their own appraiser's approach to the issue of percentage of fee value taken while criticizing that of the other side's expert. Transit drew attention to the fact that Mussett alone had considered impact on value by reference to the market and had progressively increased his estimation of percentage impact in the various reports he prepared based on evidence of settlements and on the observed construction. Transit took both Cavazzi and Young to task for making no reference to any market evidence and for embarking on what it termed "thinly disguised legal arguments" in reference to the SRW document and, in Cavazzi's case, to reported expropriation compensation decisions.

[288]  For their part, Holdom and Chevron argued that an appraiser is required as part of his mandate to review and assess the impact on highest and best use and value of all statutory instruments registered against a property. Since Cavazzi lacked cogent evidence from the market, or information concerning settlements that would be generally available in the market, the claimants said he was able instead by referring to reported compensation decisions to assess percentage impact in an objective manner. The claimants in turn criticized Mussett for failing to delve more deeply into whether the settlement figures on which he relied were a reflection of market considerations and whether the terms and conditions in the Hydro right of way documents were "on all fours" with the SRW document in issue in this case.

[289]  With reference to the foregoing we turn now to our determination of this issue based, first, on our interpretation of the terms and conditions of the SRW document, second, on our assessment of the physical impact of the works on the area encumbered by the SRW, and third, on our review of the law and evidence as to percentage of fee value taken or residual value to the owner in other right of way expropriations.

[290]  It will assist our discussion of the SRW document at this point to set out in full what we consider to be its more salient features. These include the definitions of the "SRW Area", the "Plan", "Transit Facilities" and "Transit System" in section 1 of the document, the "Statutory Rights of Way" acquired by Transit in section 2, the "Rights of the Owner" in section 3, the "General Limitation of Owner's Rights" in section 4, and certain provisions governing the "Alteration of SRW Area" in section 6 of the document. The provisions are as follows:

"1. DEFINED TERMS

1.1 The following terms shall have the meanings hereinafter specified and definitions given herein shall be applicable to the singular and plural form of the terms defined:

(c) "SRW Area" means the portion of the Lands [elsewhere defined as the whole of Parcel B] shown outlined in heavy black on the Plan.

(d) "Plan" means the plan filed at the LTO [New Westminster Land Title Office] under Statutory Right of Way Plan Number LMP44109.

(e) "Transit Facilities" means all the facilities, structures, utilities and infrastructure, whether constructed or planned or yet to be constructed or planned, occupying or intended to occupy the SRW Area:

(i) acquired, constructed or required for or comprised in any works undertaken by Transit;

(ii) acquired, constructed or required for ancillary uses or purposes related to the operation now or in the future of the Transit System as such need is defined and redefined from time to time now and in the future;

(iii) acquired, constructed or required for commercial opportunities and the better utilization of the Statutory Right of Way and for commercial ventures not specifically related to the Transit System and not inconsistent with the better use and operation of the Transit System; and

(iv) all renewals and replacements, parts, equipment, material and additions thereto and substitutions therefore;

and, without limiting the generality of the foregoing, anything that may from time to time be brought, acquired, built or otherwise constructed, erected or installed on the SRW Area by or on behalf of Transit constituting a part of the Transit System (…)

(f) "Transit System" means the totality of the facilities for the transportation of people, goods and information of which the SRW Area herein and the Transit Facilities thereon form a part.

2. STATUTORY RIGHTS OF WAY

2.1 Transit hereby acquires from the Owner, for itself, its successors, assigns, agents, contractors, tenants and sub-tenants, in perpetuity, the free and uninterrupted Statutory Rights of Way as follows:

(a) for the construction, reconstruction and addition to the Transit Facilities from time to time for Transit (…) to enter in the SRW Area with or without equipment, motorized or otherwise, and any material or supplies for the purposes of planning, designing, testing, construction, reconstruction, maintenance, repair, use, change, improve or remove and replace any of the Transit Facilities and in furtherance of these steps to alter the SRW Area in any way including removal or alteration of improvements of any sort and to disturb the SRW Area generally as it sees fit in accordance with and in furtherance of the construction of the Transit Facilities and Transit's purposes;

(b) for the operation and maintenance of the Transit Facilities as part of the Transit System for Transit (…) to enter in, on, under or over the SRW Area (…) for the purpose generally to do thereon all acts or things and matters necessary or incidental to the business, maintenance, operation or removal of the Transit Facilities and the Transit System;

(c) for the public utilization of the Transit Facilities as a part of the Transit System for Transit, its licencees and invitees and all passengers using the Transit Facilities and SRW Area to enter, go, pass and re-pass in the SRW Area and for ingress and egress to and from the Transit Facilities as well as to and from the public walkways, tunnels, streets, roadways and other points adjacent thereto, all for the purposes of travelling in and on the Transit System;

(d) for the better utilization of the SRW Area for commercial ventures for Transit (…) to enter in the SRW Area (…) for the purpose of installing and maintaining fiber optic systems, cabling communications, conduits, gas, power, water and waste lines attached to and forming part of the Transit Facilities.

3. RIGHTS OF THE OWNER

3.1 The Owner reserves and retains the limited rights at all times, subject to those of Transit in the SRW Area, to erect, install or construct buildings, improvements or structures under, on or over the Lands, provided that no part of the load thereof or therefrom shall bear directly or indirectly on the Transit Facilities so as to endanger, injure or interfere with the Transit Facilities as constructed or planned or such works as may be appurtenant thereto and the Owner covenants and agrees not to remove any necessary direct or indirect support thereof and that no buildings, improvements or structures shall be erected, constructed or placed in such a manner that either:

(a) the operation, maintenance, stability or safety of the Transit Facilities and works appurtenant thereto; or

(b) the safety of the passengers using the Transit System;

shall in any manner be endangered, injured or interfered with and to ensure this result no excavation or construction of any building, structures or improvements shall be commenced by the Owner under, on or over the SRW Area, whether or not there are Transit Facilities built, unless and until all plans and specifications for the development and in particular footings and supports thereof have first been submitted to and approved in writing by Transit, which approval shall not be unreasonably withheld.

3.2 The Owner shall have the right to install or permit the installation of any services or public or private utilities which may be required for purposes of the Owner in, on, along, across or under the SRW Area, provided that all plans and specifications relating to that portion of the said public or private utility in, on, along, across or under the SRW Area shall have first been submitted to and approved by Transit, which approval shall not be unreasonably withheld.

3.3 Upon completion of the Transit Facilities the SRW Area is limited to the volumetric area as defined by the three dimensional profile of the Transit Facilities as constructed with the airspace occupied by Transit vehicles and a one meter buffer area and, subject to the approval requirements of this section, the Owner may build under or over the Transit Facilities.

4. GENERAL LIMITATION OF OWNER'S RIGHTS

4.1 The Owner shall not do or permit to be done any act or thing on the Lands which shall interfere with the rights and purposes granted herein or interfere with the construction, operation or maintenance of the Transit Facilities or such works as may be appurtenant thereto or cause damage to the same.

6. ALTERATION OF SRW AREA

6.1 Transit may make minor adjustments in the boundaries of the SRW Area which are required by Transit at any time during or after the construction or installation of Transit Facilities on the Lands to encompass the whole of the Transit Facilities within the SRW Area. Upon written notice to the Owner Transit may execute and deliver to the Owner and register modifications of the Plan affecting any such minor adjustment or showing the SRW Area as a volumetric plan as set out in Section 3.3 hereof. The cost of the preparation and registration of replacement SRW Plans and of registrable modifications of this instrument shall be borne by Transit.

6.2 Transit shall pay compensation to the owner for any additional area of the Lands being made subject to the Statutory Rights of Way."

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

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

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

[294]  On its face section 3.3 may appear to impose a significant limitation on Transit's ultimate rights in the SRW Area. An argument could perhaps be mounted that the provision resembles those rights of way for which taking authorities expropriate a broader construction easement of a temporary nature and a narrower operational easement in perpetuity.

[295]  However, viewed in the context of the SRW agreement as a whole, the notion that Transit's rights ultimately become limited to a volumetric area seems highly problematic. To our minds it does not sit easily with other continuing rights said to be enjoyed by Transit within the SRW Area — an area which is defined by reference to the two dimensional Plan registered in the Land Title Office. Pursuant to section 2 of the SRW document Transit continues to possess broad rights to make future changes on its own account or to give or withhold permission for activities proposed by the owner in the SRW Area. It continues to have the free and uninterrupted right in perpetuity to enter in, on, under or over the SRW Area for the operation and maintenance of the Transit Facilities. Indeed, it would be difficult to envision how Transit could meet its future maintenance needs, for example to access the inspection hatch located beneath the guideway, without having an ongoing right of entry at ground level into the SRW Area.

[296]  Probably the most that can safely be said about any ameliorating effect of section 3.3 is that the volumetric profile once prepared and registered would likely assist an owner in identifying where within the SRW Area the owner might be able to build.

[297]  Transit has cited the decisions in 503857 B.C. Ltd. v. British Columbia Transit, [1999] B.C.J. No. 693 (S.C.) and Hillside Farms Ltd. v. British Columbia Hydro & Power Authority, [1977] 3 W.W.R. 749 (B.C.C.A.) for the proposition that the terms and conditions of the SRW document should be viewed as clear and unambiguous.

[298]  The 503857 B.C. Ltd. case concerned a parcel of land against which a statutory right of way in favour of Transit was registered in 1987 for construction of the first phase of the SkyTrain rapid transit system. Transit had not actually built any facilities on the parcel, which lay at the end of the transit line, when the property owner applied to the Supreme Court several years later for a declaration that it could erect a commercial building there without Transit's approval. The owner relied on clause 3 in the statutory right of way agreement which reserved to the grantor the right to construct buildings, improvements or structures on the land provided that no part of their load endangered or interfered with rapid transit facilities.

[299]  The Court dismissed the owner's application. Low J. observed that the right of way agreement was "couched in very broad terms" but also that it was "not ambiguous and no extrinsic evidence [was] needed to interpret it." It was clear from a reading of the agreement as a whole that its purpose was "to permit the respondent to build rapid transit facilities on the property at any time in the future and that the petitioner cannot use the property in such a way as to interfere with that right." The learned judge continued:

The petitioner's interpretation of clause 3 would amount to a right on its part to build on the property in such a way as to completely frustrate the very broad rights given to the respondent under the agreement. I conclude that the petitioner must have the respondent's approval of its construction plans before it can be built. Such approval cannot be unreasonably withheld. Whether refusal to approve is unreasonable or not would depend to a great extent on the respondent's overall plans for the system and its specific plans for use of the subject property, as well as the future timing of such use.

[300]  The Hillside Farms case concerned the interpretation of a power line right of way agreement to determine whether the respondent hydroelectric utility was liable to the property owner for breach of contract by way of excessive user for later increasing its power transmission capacity on or through the property.

[301]  The Court of Appeal upheld the trial judge's finding that the actual terms of the agreement were not being exceeded in any way and dismissed the owner's appeal. The Court said it was logical that as technology progressed the requirements of transmission lines would be modified. Therefore a general grant of right of way could not be limited to the original use as long as future uses were of the same general nature. The Court noted that the document

…contain[ed] provisions normally and usually to be found in right-of-way agreements where the owner of the lands is to have limited concurrent use of the right-of-way area compatible with the power line facilities and where the holder of the right-of-way has the right to install and maintain further facilities, all contemplated power line facilities not having been installed at the date of the grant of the right-of-way.

[302]  While the Court in Hillside Farms declined to find that the "broad and general terms" of the right-of-way agreement were unclear or ambiguous and that extrinsic evidence was needed, it nevertheless went beyond the four corners of the document. It examined evidence of the negotiations which led to finalization of the agreement and concluded that the negotiators "were striving to provide a power line right-of-way which would be appropriate and valid in perpetuity and would accommodate upward modifications of user."

[303]  Transit, although maintaining that the SRW agreement in this case is also clear and unambiguous, has further argued with reference to Hillside Farms that it would be necessary in the case of any ambiguity to inquire beyond the internal language of the SRW document and to place the agreement in its proper context (the "matrix of facts") in order to appreciate the expropriating authority's underlying intention. Evidently in that regard Transit adduced evidence during the hearing from Mario Pavlakovic of RTP 2000, who had been instrumental in negotiating or otherwise putting in place statutory right of way agreements along the Millennium Line. Pavlakovic testified that he knew of no instances where Transit had actually used or had even contemplated the use of the broad future rights it enjoyed within the SRW document for purposes going beyond the installation and maintenance of current facilities. He also cited examples of commercial properties where owners were making use of land situated within SkyTrain statutory rights of way for parking or other purposes.

[304]  The two foregoing cases demonstrate that courts will give effect to broadly framed right of way agreements and will not necessarily construe them as unclear or ambiguous. Even so, we conclude by comparison that Transit's rights, in particular its future rights as spelled out in the subject SRW agreement, are atypically broad and, insofar as the volumetric concept is concerned, somewhat ambiguous or inconsistent. We do not find particularly reassuring Pavlakovic's evidence that Transit thus far has evinced no intention to exercise its broad future rights. We are unable to concur in Mussett's approach which is simply to ignore the impact of provisions in favour of Transit that deal with possible future uses. We also note that the two cases upon which Transit relies are not concerned at all with the impact on value within the portions of land directly affected by the rights of way. The impact on value is, of course, the focus of our concern in the present matter. In that regard we are more inclined toward the position adopted by the claimants who have construed such terms and conditions in favour of Transit as posing for the market at the date of taking a significant degree of risk or uncertainty.

[305]  Turning next to a consideration of the physical impact of the works on value within the SRW Area, we have already observed earlier in these reasons that the guideway and columns resulted in obstruction of visibility and restriction on access to and egress from the Bainbridge Chevron site. We found the impact sufficiently great to have changed the highest and best use of the larger parcel from a redeveloped service station use in the before situation to one of less valuable alternative commercial use in the after situation. This, of course, was not the conclusion reached by Transit's appraiser. While recognizing that the Project had some adverse affects on visibility and access, Mussett nevertheless discounted their impact on value since his highest and best use both before and after the taking remained unchanged. He envisioned under both scenarios a redevelopment to a non-service station commercial use and he also expected under both a loss of direct access to the site off the Lougheed Highway. While departing from Mussett's conclusions, we do not fully embrace those reached by Chevron's appraiser. However, we do find ourselves in agreement with Cavazzi in a general sense when he observes that the location of the SRW across the primary frontage of Parcel B and the construction by Transit of the physical improvements resulted in significant impairment to the property. This would be reflected in a marked loss in value of the land within the SRW.

[306]  A second consideration regarding physical impact on value requires distinguishing between that portion of the SRW Area which lay within the setbacks affecting Parcel B and that portion of the SRW Area where building could occur under the applicable zoning regulations at the date of taking.

[307]  The parties and their appraisers were not very precise on this point. Cavazzi for the claimants stated only that part of the SRW was within the buildable area of Parcel B and part was within the setback area. Neither Cavazzi nor Young differentiated between the two when they concluded that the SRW taking was similar to a full acquisition with little or no remaining utility to the owner. Mussett for Transit did observe that most of the SRW Area was within the building setback required under the existing zoning. Therefore, even before the taking, in his view it could only be used in a physical sense for such limited purposes as access, signage, landscaping, parking and storage. It could also be used, he added, for the calculation of the floor area ratio and lot coverage when creating building improvements elsewhere on the property. After the taking, Mussett stated, except for the small area occupied by the column the owners continued to be able to make use of the building setback area within the SRW for precisely the same purposes. This continuity of permissible use figured in Mussett's estimate that only 50% of the value within the SRW area had been taken. Transit also submitted that the SRW ultimately created a volumetric aerial interest only and thus the impact on value within the SRW area was not as great as that which would have been felt from, for example, an underground sewer easement or an overhead power line right of way.

[308]  We have done our own calculations to determine what respective portions of the SRW Area were within and without the building setback. From the evidence presented we are satisfied that the building setback for Parcel B under the existing C6 zoning was 6 metres from both the Lougheed Highway and Bainbridge Avenue. The setbacks from each roadway need to be taken into account in the final calculation.

[309]  The SRW occupies a depth of 7.208 metres at the intersection of Lougheed and Bainbridge, then it narrows to a depth of only 4.532 metres at the eastern boundary of Parcel B. This suggests that 83.24% of the SRW lies within the setback area at the intersection, increasing to 100% at the eastern boundary. On this basis we calculate that an average of 91.62% of the SRW is within the area set back from the Lougheed Highway and 8.38% of the SRW is within the buildable portion of Parcel B.

[310]  However, the portion of the SRW outside the setback from Lougheed fronts on Bainbridge, thus the 6 metre setback from Bainbridge must also be considered. Since the depth of Parcel B from Bainbridge to the eastern lot boundary is 36.546 metres along the south boundary of the SRW plan, we find the effect of this setback is to increase the percentage of the SRW within the total setback area to approximately 93%, with the remaining 7% or so of the SRW lying within the buildable area of Parcel B.

[311]  The total area of the SRW is 2,357 square feet. Of this total we now calculate that about 93% or 2,192 square feet lies within the building setback under existing C6 zoning while only about 7% or 165 square feet is within the buildable area of Parcel B. We earlier determined that 48 square feet of the SRW Area at ground level is occupied by the concrete column supporting the guideway. It was clear from the evidence that the column was within the building setback area. Since we have already decided that the impact of the column area is 100% of fee simple value, we need to subtract the 48 square foot column area from that part of the SRW lying within the building setback area of 2,192 square feet. This calculation leaves a remaining SRW area in the building setback area, excluding the column, of 2,144 square feet. Once again, the area of the SRW within the buildable area of Parcel B was 165 square feet. In our estimation these two areas have been impacted in different ways and to different degrees and need to be assessed separately.

[312]  The impact of the SRW was less severe on the remaining 2,144 square feet within the building setback. Prior to the taking the use of this area was already heavily restricted by the zoning bylaw. In particular, it could not be used for the construction of a building. However, the area could have been utilized for access, parking, landscaping, and signage, as Mussett points out, and additionally for other purposes such as the provision of underground utility services. After the taking and the Project, we doubt whether underground utility services could have been installed in that portion of the setback area where the footings for the concrete column were located. Otherwise, the setback area could still potentially be utilized for the same purposes as in the before situation, albeit the use was now subject to Transit's broad rights as set out in section 2 of the SRW document. We also agree with Mussett's observation that the setback area after the taking could continue to be taken into account by the claimants or potential purchasers of the property in the calculation of the floor area ratio and lot coverage. For a commercial property this is recognized to be an important attribute. Accordingly, without at this point quantifying the result, we conclude that there was substantialremaining utility for that portion of the SRW within the building setback area.

[313]  We consider the impact of the SRW to have been somewhat more severe on the 165 square feet within the buildable area. Prior to the taking the use of this area for building purposes was restrained only by the usual building codes and municipal zoning restrictions. After the taking the remaining utility to the owner was primarily for non-building uses. We recognize that building was still technically possible in accordance with the terms of the SRW document. However, as Mussett in his report for Transit noted, construction would not be permitted without significant additional expenditure for safety purposes. Moreover, the process for obtaining Transit's approval appears to us rather cumbersome and its end result in any given case quite uncertain.

[314]  Before making our final determination on the appropriate percentage of fee value taken or of residual value to the owner, we also wish to comment on several reported cases dealing with this issue as well as the evidence adduced on sales and settlements in other right of way expropriations.

[315]  We begin by noting several cases in which, despite the fact that some residual use remained to the owner, it was determined that 100% of the fee value within the right of way had been taken. It will be recalled that the claimants, building on Cavazzi's analysis, likened the impact of the taking for a column and guideway in the present instance to that for an above-ground power line and towers in Homeniuk. There, although the owner had limited residual use of the property within the easement area after the taking, the Alberta Land Compensation Board found that the positive benefit of such use was more than offset by the negative impact of the easement on the land as a whole, that any residual value to the owner was effectively negligible and should be ignored, and that the loss in value was equivalent to 100% of the fee simple rights.

[316]  In Mayfair Resources Corp. v. Greater Vancouver Water District (1997), 61 L.C.R. 183, a decision of this board not cited by the parties, the authority expropriated a permanent water pipeline right of way through a property found to be developable for a mixture of urban residential and service/retail uses. Even though it appeared from the evidence that the owner would be able to use the surface of the right of way for landscape screening and buffering, outdoor living space, and possibly for road access and parking, the board found that the right of way taken was tantamount to a fee simple acquisition. At p. 219 the board stated:

However, no structures can be erected on the permanent right of way, resulting as the board has found in a net loss of townhouse units and commercial space. In the board's opinion, the market would recognize that loss in value without allowing for the limited use to which the permanent right of way might still be put.

[317]  The board in Mayfair Resources saw the situation before it as akin to that in the case of British Columbia Hydro and Power Authority v. Bossio Motors (1983), 30 L.C.R. 126 (B.C.Co.Ct.). There the authority expropriated a power line right of way over undeveloped land, the highest and best use of which was found to be for a residential subdivision. The learned judge in that case concluded at p. 134:

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

[318]  We view each of the foregoing cases as distinguishable from the present matter in the degree of severity of impact on land within the right of way area. There was a significant physical or locational difference between the easement area in Homeniuk and the SRW in this case. Here the SRW is situated very largely within the setback area adjacent the front boundary of the subject property. In Homeniuk the easement crossed the affected parcel diagonally, leaving substantial portions of the land on either side. This was an important impact on a property the highest and best use of which was found to be holding for future industrial development. In its decision the Alberta Board stated:

All of these factors are more acute where, as is the case here, the easement bisects the subject land rather than running adjacent to the boundary thereof.

[319]  In both Mayfair Resources and Bossio Motors the rights of way were across land that was developable for subdivision purposes and otherwise capable of being built upon. The board's finding of 100% loss in value in the Mayfair case was founded on its conclusion that the permanent right of way would result in an actual reduction in the number of townhouse units and in commercial space. No such calculation can flow from the present case in which the vast majority of the SRW area is already restricted by building setback requirements and there is at least the possibility of building on the small remaining portion not thus restricted.

[320]  We turn next to those other cases cited by the claimants and their appraisal expert where, although the impact of the right of way seemed comparatively slight, the percentage of fee value taken was found to be considerable. In the companion cases of Cokato and Jones, the board awarded 50% of the fee simple value for the area of farm land affected by a statutory right of way for an underground water line even though it found that in practical terms the use of that portion of the land within the statutory right of way for agricultural purposes in the foreseeable future was "essentially unimpaired".

[321]  We note, however, that the board in both of these decisions appears to have been greatly influenced in the percentage it awarded by the position taken in that regard by the expropriating authority. The board stated at p. 208 of the Cokato decision:

The claimant retains something of lesser value than he had but clearly his residual interests in that portion of the subject lands within the SRW have a value at least equal to 50% of the fee simple value as at the date of taking and arguably more.

Since the respondent has conceded that a 50% reduction of the agreed fee simple value will reflect the value of the claimant's residual interests in that portion of the subject lands within the SRW, the board is prepared to accept that reduction as appropriate in this instance.

[322]  It is our assessment upon review of the foregoing cases that the claimants in the present matter have considerably more residual interest in the land within the SRW on Parcel B than did the owners in the right of way portion of their lands in Homeniuk, Mayfair Resources or Bossio Motors but less than in Cokato or Jones.

[323]  As we earlier observed, only Transit's appraisal expert provided information on lot sales and settlements with regard to other properties encumbered by rights of way to assist in determining the appropriate percentage of fee value taken or residual value remaining to the owner in the present case. Mussett's data seemed promising inasmuch as it dealt with encumbered lands within both setback areas and building envelopes and included other properties along the Lougheed Highway encumbered by statutory right of way agreements for the Millennium SkyTrain Project.

[324]  However, while we would welcome the use of reliable market-based data, there are difficulties with the evidence which Mussett presented. His description of the sales of lots encumbered by B.C. Hydro statutory rights of way in the Mayfair Industrial Park in Coquitlam was confusing insofar as it did not make clear whether he was comparing individual lot sales or encumbered versus unencumbered portions of particular lots. The lots were in any event industrial lots the value of which, we are satisfied from the evidence in general, would tend to be less severely affected by utility rights of way along their front boundaries than highway-related commercial properties. Under cross-examination at the hearing Mussett acknowledged that he did not undertake any in-depth review of the Hydro right of way documents to satisfy himself that the terms were similar to the SRW document in this matter nor did he have the documents available for our review.

[325]  The data on other properties encumbered by statutory rights of way for the Millennium SkyTrain Project provide at best a very incomplete picture. Mussett acknowledged during the hearing that he simply relied on settlement figures provided by RTP 2000 on behalf of Transit in the range of between 40% and 50% of fee simple market value for five affected properties and that he did not review documentation that would have helped to assess whether these percentages were a reflection of market considerations as opposed to other trade-offs that might have occurred in the course of negotiations. Pavlakovic in his testimony indicated that there had been settlements or takings for the Millennium Line involving approximately 100 properties and about 260 separate interests and that the background documentation for all of these existed in Transit's files. We further observe that the five settlements utilized involved industrial rather than commercial property.

[326]  The information which Mussett provided on settlements paid by the GVRD, the City of Surrey and other government agencies concerned subsurface easements. The terms and conditions of the easements were not disclosed. The nature and use being made of the properties affected were also not discussed. We were simply advised that the settlements ranged from 10% to 25% of fee value in setback areas and from 40% to 70% of fee value in buildable areas. Given the paucity of information provided, it is difficult to make any meaningful comparison with the SRW in the present case.

[327]  In light of the difficulties encountered with the evidence as to lot sales and settlements utilized by Mussett on behalf of Transit, we find that we are unable to give this data much weight in our overall determination.

[328]  After giving due consideration to all of the evidence and the law pertaining to the issue of percentage of fee taken in the SRW area, we have concluded that it is appropriate to make a three-fold distinction.

[329]  First, we have already decided earlier in these reasons that the area occupied by the column has no residual value to the owner and have awarded 100% of fee value.

[330]  Second, in our view there is substantial remaining utility for that 2,144 sq. ft. portion of the SRW within the building setback. This utility relates both to ongoing physical use by the owner for purposes of the running of underground services, access, parking, landscape, storage and the like, albeit that such use is now subject to Transit's overarching rights in the same area, as well as the ability to continue including the setback area in the calculation of floor area ratio and lot coverage when undertaking construction of commercial improvements elsewhere on Parcel B. We do not therefore consider the imposition of the SRW in this area as anything like the equivalent of a fee simple taking which would warrant awarding 100% of fee value as Cavazzi's opinion suggests or 95% of fee value in accord with Young's conclusion. In our view Mussett's opinion at 50% of fee value is closer to the mark as it relates to the setback area although we would make an upward adjustment for impact based on our conclusion as to the change in highest and best use and our reading of the SRW document. We find on a reasonable assessment of the law and the evidence that the residual value to the owner in the building setback area was 35% of its fee simple market value at the date of taking with the percentage of the fee value taken consequently amounting to 65%.

[331]  Third, we have found a greatly reduced utility remaining to the owner within the 165 sq. ft. buildable area of the SRW. Although again we are unable to accept that the SRW taking within this area is tantamount or nearly tantamount to a fee simple taking as the claimants and their appraisers would have us conclude, in our view it comes closer to being so. We consider on our assessment of the law and the evidence that a reasonable calculation of residual value to the owner in the buildable area of the SRW is 15% of its fee simple market value at the date of taking. The damage or percentage of fee value taken thus amounts to 85%.

[332]  Applying the appropriate percentages of fee simple market value taken in the three identified areas to what we have already determined to be the before value of Parcel B at $42.50 per square foot produces the following result:

8.3.4  Reduction in Market Value to the Remainder

[333]  The evidence provided by the three appraisers on the after value of the remainder was weak. However, the difference in their opinions was comparatively small. Cavazzi for the claimant Chevron and Mussett for Transit agreed in general terms that the highest and best use of the joint site after the taking was commercial redevelopment according to C1 or C2 zoning regulations. Young for the claimant Holdom viewed the highest and best use as being single family residential; however, he did derive a secondary commercial value in case commercial use were determined by the board to be appropriate. Since we have decided that the after highest and best use is commercial redevelopment according to C1 or C2 zoning regulations, we will give no consideration to Young's after values predicated on single family residential use but will give consideration to his secondary commercial value.

[334]  Mussett for Transit derived an after value of $28 per square foot. The after values derived by the claimants' appraisers were $25 per square foot by Cavazzi and $28 per square foot by Young under his secondary commercial use. A brief summary of the comparables used by the three appraisers is useful at this point in demonstrating the evidentiary difficulties involved.

[335]  In his after analysis for Chevron, Cavazzi looked at a sales listing at 5695 Lougheed Highway, one mile west of the subject site. As we previously noted, this was the only comparable evidence he said he was able to locate. This C6 zoned, former service station property was listed after the taking in November 2001 with an asking price of $34.68 per square foot. Cavazzi reported that an offer was made in 2002 at about $32 per square foot but the transaction did not complete. Comparing this listing to Bainbridge Chevron, he concluded that the subject site in the after condition was worth approximately 25% less than the sales listing and, accordingly, derived a land value for Bainbridge Chevron of $25 per square foot.

[336]  In his after analysis for Holdom, Young used two commercial comparables. One was the same sales listing at 5695 Lougheed Highway employed by Cavazzi. The other was the March 2000 sale of a property located at 5698 Hastings Street. This latter property was smaller than the subject Parcel B at 12,210 square feet and was zoned C2 as of the date of sale. The sale price was given as $32.76 per square foot. Young testified during the hearing that this transaction was not an arms-length sale. Nevertheless, on the basis of comparing Parcel B to the listing at $34.68 per square foot and the non arms-length sale at $32.76 per square foot, he concluded that the subject site was worth $28 per square foot.

[337]  To estimate the market value of the land at Bainbridge Chevron after the taking, Mussett re-examined two comparable sales as well as the 5695 Lougheed Highway listing from his before analysis and added two more comparable sales.

[338]  The sales re-examined were of 1409 Sperling Avenue which sold for $36.76 per square foot in November 2000 and of 7893 6 th Street which sold for $27.66 per square foot in September 2000. Mussett testified that the price for the Sperling Avenue property was agreed upon in late 1998 and the price for the 6 th Street property in June or July 2000. The Sperling Avenue sale was subject to rezoning to CD for a two storey office building. The 6 th Street sale was complicated by its being part of a land assembly involving the acquisition of two additional lots. The assembly price was $36.13 per square foot.

[339]  While Mussett like the other two appraisers also used the listing of 5695 Lougheed Highway, we note that he indicated a smaller lot size for the parcel at 16,361 square feet while Young and Cavazzi both put the size at 17,013 square feet. This difference resulted in Mussett utilizing a rate of $36.06 per square foot for the list price while Young and Cavazzi used $34.68 per square foot.

[340]  The first additional sale used by Mussett was of a 32,872 sq. ft. parcel at 6907 Elwell Street in February 2002 for a proposed church. The sale price was $31.33 per square foot. His second additional sale was of a 30,336 sq. ft. lot at 4405 Norfolk Street in July 2000 for $23.73 per square foot. This site had an interior location on a cul-de-sac and was purchased by an adjacent casino for use as a parking lot.

[341]  Mussett viewed the subject site as being inferior both to the parcel at 1409 Sperling which had sold for $36.76 per square foot and the parcel at 5695 Lougheed which had been listed at $36.06 per square foot. The sales prices of the remaining comparable parcels ranged from a low of $23.73 per square foot to a high of $31.33 per square foot. After analysis Mussett concluded a mid-range rate of $28 per square foot for the Bainbridge Chevron site.

[342]  We consider the very limited comparable evidence offered by the claimants' appraisers to be flawed in a number of respects. Cavazzi for Chevron relied entirely on a sales listing alone that commenced 20 months after the taking and which was therefore of no real assistance in determining the market value of the larger parcel as of the effective date. Young for Holdom utilized the same listing, supplemented by an additional sale that he admitted did not take place at arms-length. Accordingly, we are unable to give weight to either Cavazzi's or Young's evidence in determining the after value of the subject site.

[343]  With only one real exception, Mussett's comparables are also not helpful. For the reasons already provided above, we place no weight on his sales listing at 5695 Lougheed Highway. Neither do we consider the sale of 6907 Elwell Street for future church development to be comparable. This was the sale of a special-purpose property that took place almost two years after the effective date. We also do not consider the 4405 Norfolk Street sale comparable. This was the sale of an interior lot located on a cul-de-sac for casino purposes. Mussett himself considered the subject site's after value to be far lower than the $36.76 per square foot paid for the parcel at 1409 Sperling Avenue. He pointed out that the sale price was subject to rezoning to CD (Comprehensive Development) with similar guidelines to C1 zoning.

[344]  This leaves for consideration Mussett's comparable sale of the parcel at 7983 6 th Street for $27.66 per square foot. Transit's appraiser testified that the sale agreement was reached in June or July of 2000. We find the sale of this 20,246 sq. ft. former Imperial Oil service station property to be the best evidence available for the subject larger parcel in the after condition.

[345]  Accordingly, we determine the land value of the larger parcel after the taking, not including the portion of Parcel B encumbered by the SRW, to be $28 per square foot. The remainder of Parcel B outside the SRW Area is deemed to be 15,493 square feet. At $28 per square foot this equates to an after value in rounded dollars of $433,800. We earlier determined that the before value of the larger parcel was $42.50 per square foot. Therefore, the reduction in market value of the remaining Parcel B land directly attributable to the partial taking and the Project calculates to $224,650 as follows:

Correspondingly, there is reduction of $84,825 in the market value of Lot 89 as follows:

8.3.5  Lost Rental Advantage

[346]  We next turn to consider whether the contract rent of $60,000 per year which Chevron was paying to Holdom for the use of Parcel B at the date of taking was less than the market rent for the subject parcel, as the oil company alleges. Chevron says it enjoyed a rental advantage or savings, otherwise known as profit rent, for the loss of which it should be compensated by Transit as a result of the taking.

[347]  Cavazzi for Chevron estimated the market rent for Parcel B at $80,280 per year, representing a rental savings or advantage for the lessee of $20,280 per year. Present valued from the date of taking over what Cavazzi said were the 32 monthly payments remaining under the current lease term, he estimated the overall rental advantage to Chevron which was lost through expropriation at $47,985.

[348]  Mussett for Transit disposed of the issue of rental advantage early in his valuation analysis. He calculated that the contract rent of $60,000 per annum equated to a land value of $37.33 per square foot while the before land value of Parcel B, he concluded, was only $35.00 per square foot. Since the contract rent was not less than the market rent, he concluded that Chevron's leasehold interest did not have a value.

[349]  We note that both appraisers looked at the question of rental advantage only over the period from the date of taking to the end of the current lease term some 32 or 33 months down the road. They did not consider whether there might have been any rental advantage to Chevron upon renewal. This approach is consistent with the operative principle in law that any lease renewal will be assumed to be at full market rent. See Nikka Developments at p. 132 (53 L.C.R.). See also MacKay v. Manitoba, [1998] M.J. No. 445 (Man. C.A.) at para. 24.

[350]  As noted in our earlier discussion on methodology, however, neither Cavazzi nor Mussett utilized an analysis of rental comparables in their appraisal evidence for this purpose. It would have been helpful to the board to have had this information but we must instead do our best with the evidence that was provided by the two appraisers.

[351]  Cavazzi imputed a rent for Parcel B based on a market-derived rate of return of 9% on his appraised value of the land and improvements. Mussett also applied a 9% return to his Parcel B appraised land value to determine the existing market rent, albeit in a very brief fashion. While the two appraisers agreed on a 9% rate of return, they disagreed over the land value. Cavazzi utilized a land value of $50 per square foot while Mussett utilized a land value of $35 per square foot.

[352]  We have determined a land value for the subject parcel in the before condition of $42.50 per square foot. Further, we agree that a 9% rate of return on the land value for Parcel B seems reasonable given the evidence presented. In these circumstances we conclude that the only appropriate method at our disposal to determine the issue of rental advantage is to apply the agreed rate of 9% to our concluded land value.

[353]  Applying the 9% rate of return employed by each appraiser to the Parcel B size which we have deemed to be 17,850 square feet yields a market rent as follows:

[354]  Deducting the contract rent of $60,000 from the market rent of $68,276 reveals that Chevron enjoyed a rental advantage under its lease arrangement with Holdom for Parcel B of $8,276 per year or $690 per month.

[355]  Cavazzi elected to use 9.5% as an appropriate discount rate. He felt that it reflected an appropriate market risk rate. Mussett did not, of course, employ a discount rate at all since in his opinion there was no rental advantage to Chevron. Cavazzi's choice of a 9.5% discount rate went unchallenged and we accept it. The present value of an income stream of $690 per month for 32 months, discounted at 9.5%, yields a rental advantage to Chevron as lessee of $19,590 for the loss of which Chevron is entitled to be compensated by Transit.

[356]  Before concluding our discussion of rent, there is one more matter to be addressed. We note that, while concluding that Chevron enjoyed no rental advantage, Mussett went on to point out later in his analysis that Chevron had continued to make full lease payments from the date of taking on March 9, 2000 to the end of the lease renewal term on November 30, 2002 even though the imposition of the SRW had resulted in a loss in market value to Parcel B which he said amounted to $159,000. Mussett ventured the opinion that Chevron was owed compensation by Holdom in the form of a lease payment adjustment for this loss in value. He present valued the loss over what he said were the 33 monthly payments remaining under the current lease term to derive an adjustment amount of $35,000 in round figures. In Mussett's view, the $35,000 adjustment would be deducted from the compensation otherwise owed to Holdom and added to that which Chevron (if entitled to compensation) would receive.

[357]  We are not persuaded that any such adjustment should be taken into account in our determination of compensation payable. It seems to us that Mussett's opinion goes outside the boundary of proper appraisal opinion and into the legal arena in suggesting that a compensation adjustment is, as he put it, "in order". We note that the lease in place between Holdom and Chevron at the date of taking provided for abatement of rent upon expropriation only where Holdom received compensation for the expropriation. In our view the interpretation and application of this lease provision is a matter for the two claimants rather than the board.

8.3.6  Value of Leasehold Improvements Lost

[358]  It will be recalled that Chevron owned all of the service station improvements at Bainbridge Chevron, most of which were situated on the leased Parcel B. The last valuation issue remaining to be determined is the compensable value to Chevron of the improvements lost as a result of the closure of the service station.

[359]  Relying on the analysis of its appraisal expert, David Cavazzi, Chevron claimed compensation of $395,000 for the depreciated value of those improvements. Transit took the position that the service station would have closed at the end of the then current lease term irrespective of the taking and the Project. Relying on the analysis of its appraisal expert, Fred Mussett, Transit therefore responded that Chevron was entitled to compensation of, at most, $7,500 representing the reduction in value of the improvements on Parcel B over the roughly 33 months remaining under the term of the lease at the date of taking.

[360]  Since we have found that the closure of Bainbridge Chevron was directly attributable to the partial taking and the Project, it follows that Transit is liable to pay compensation for the improvements on the broader basis asserted by Chevron. In coming to the appropriate figure, there are three aspects to be considered: the replacement cost of the improvements, their depreciated value, and their salvage value. Cavazzi and Mussett each provided estimates of the replacement cost and depreciated value of the improvements which we will consider in turn. Neither took into account any salvage value of the improvements and for this aspect we must look to other evidence received during the hearing.

[361]  There were some common elements in the appraisers' approaches to estimating the replacement cost of the improvements at Bainbridge Chevron but also some notable differences. Cavazzi made consistent use of estimates provided by Chevron for the cost of replacing the building, the canopy, the kiosk equipment and the yard improvements as well as Chevron's actual reported costs incurred in replacing the underground tanks and piping and the above ground fuel pumps in late 1998. Mussett also used Chevron's replacement cost estimates for the canopy and the yard improvements as well as its actual reported costs of the items replaced during the 1998 upgrade. However, he chose to base the cost to replace the service station building on data obtained from the well known costing source, Marshall Valuation Service, and to include the cost of the kiosk equipment in his figure for the replacement cost of the building.

[362]  A comparison of the replacement cost estimates derived by the two appraisers is as follows:

The comparison shows that Cavazzi's estimate of the costs to replace the service station building based on Chevron's figure was over $100,000 higher than that of Mussett based on Marshall Valuation Service data and that his estimate of replacement costs overall was nearly $144,000 higher.

[363]  Cavazzi addressed in his report the underlying rationale for preferring Chevron's number over that of a valuation service for the cost of replacing the building. He wrote:

"We consider their cost estimate is more representative than an estimate based on a building manual as we have found the building manuals fail to keep up with industry trends in this area. By contrast Chevron, and most other oil companies, design their own improvements and contract the construction to a contractor under the supervision of a Chevron engineer."

[364]  Mussett on the other hand evidently felt that the Marshall Valuation Service could safely be relied upon to estimate the building replacement cost. From the data available he chose figures based on what the valuation service classified as "an average Class C Service Station with Service Bay". He was content, however, to use Chevron's estimates for other items such as the canopy and the yard improvements since he said they were "specialized improvements" and the numbers which Chevron provided were "considered reasonable".

[365]  From our review of the replacement cost issue, we prefer the approach adopted by Cavazzi to that of Mussett. Cavazzi made consistent use of Chevron's estimated and reported actual costs and properly identified the kiosk equipment as a separate replacement cost component. Mussett's approach was incomplete and inconsistent. He offered no rationale for treating the kiosk equipment consisting of a console, satellite system and safe as though it were part of the building. He also did not explain why he accepted some of Chevron's cost estimates but rejected others. There was no evidence to suggest anything unreliable or unreasonable about the various replacement cost figures provided by Chevron including those in relation to the service station building. There was also no evidence to refute Cavazzi's observation that building manuals fail to keep pace with industry trends in costs in this area. We note that the board in an earlier decision involving an expropriated service station on Vancouver Island referred to appraisal evidence which acknowledged that the Marshall and Swift Cost Manual (as it was then known) was "by itself inadequate for Canadian service stations": Nikka Developments Ltd. at p. 144 (53 L.C.R.).

[366]  In the result we accept as reasonable for the purposes of our analysis the replacement costs as estimated by Cavazzi for each of the itemized leasehold improvements at Bainbridge Chevron totalling $863,000.

[367]  The disparity between the two appraisers widened enormously when they turned to consider the depreciated value of the same improvements. A numerical summary of their respective evidence in this regard, showing the rate of depreciation applied to the replacement cost of each item and in turn the depreciated value of each item of improvement at the date of taking, is as follows:

[368]  To some extent at least, both appraisers recognized the need to depreciate various improvements at different rates to reflect both their differing ages and, in some instances, their functional obsolescence relative to current industry standards. This approach is consistent with what the board has previously observed to be necessary. See the discussion in Nikka Developments at pp. 144-145. However, the appraisers' opinions varied widely on some of the rates to be applied to particular items of improvement.

[369]  The appraisers agreed on an 80% depreciation rate for the service station building. Cavazzi said that, although the building was in good condition, it was "near the end of its economic life and functionally obsolescent". Mussett agreed, noting that the Marshall Valuation Service put the life expectancy of an average service station at 20 years while the building at Bainbridge Chevron was already 27 years old at the date of taking. We accept that an 80% depreciation rate should be applied to the building.

[370]  Quantitatively the largest and most important distinction by far between the appraisers was in their application of a depreciation rate to the replacement cost of the underground fuel storage tanks and piping and the above ground fuel pumps. It is an agreed fact that the tanks, pumps and piping were replaced in late 1998 at a total actual expense of $366,885.

[371]  Cavazzi expressed the view that the foregoing items could be considered to have an effective age of only one year relative to their estimated economic life of 15 years. He therefore depreciated them by 15% resulting in a depreciated value in rounded terms of $310,250.

[372]  Mussett proceeded from the assumption that the 1998 upgrade had been driven by environmental considerations and that, but for those considerations, "the works would not have been completed prior to imminent closure of the station at the end of the lease period." Even though they were almost new, Mussett testified that he did not think "the market would recognize the full value of the tanks". He accordingly assumed that these improvements, like the service station building, were near the end of their economic life and applied to them a depreciation rate of 80% resulting in a depreciated value in rounded terms of $73,050.

[373]  We do not find Mussett's rationale on this point at all persuasive. In our view it is necessary to recognize the fact that there was a recent replacement of the tanks, pumps and piping. Neither at the time these replacements occurred nor at the date of taking some 16 months later could it be said that Chevron had decided to abandon future redevelopment and close its service station. While driven to some extent by environmental considerations, the true cost of the upgrade cannot be ignored on that basis. Documents from Chevron's files clearly indicate the extent and cost of the work and also show that a large part of the improvements involved in the 1998 upgrade was subsequently salvaged by Chevron after the service station was closed in 2001. Given the relatively new age of the improvements under this category, we consider Cavazzi's suggested rate of 15% to be reasonable.

[374]  There was a further important distinction in the appraisers' treatment of the kiosk equipment. Cavazzi indicated that, like the fuel-related facilities, the kiosk equipment had been replaced in late 1998 at a cost of around $43,000 and that it was therefore similarly appropriate to apply a 15% rate of depreciation. Mussett evidently included the kiosk equipment in the replacement cost of the service station building and thus in effect depreciated the equipment at the same rate of 80% he applied to the building. We have already rejected Mussett's approach in this regard. We consider that the kiosk equipment should be treated as a separate item of leasehold improvement and we accept as reasonable Cavazzi's depreciation rate of 15%. We also note, however, that some of the kiosk equipment was salvaged after closure of the station.

[375]  There was only a small difference in the depreciation rates which the appraisers applied to the canopy, which included electrical connections, lighting and foundation work, and to the yard improvements, which included lighting, signage, base curbing, drainage, landscaping, paving and driveways. Cavazzi said the canopy and yard improvements were in good condition with an estimated effective age of approximately 10 years relative to an estimated economic life of 15 years. He depreciated them by 57%. Mussett considered these improvements had an effective age of 15 years and a life expectancy of 20 years and, based again on the Marshall Valuation Service estimates, he depreciated them by 65%. Consistent with our determination of the depreciated value of the other leasehold improvements, we accept Cavazzi's figure as reasonable.

[376]  In the end result we have found the depreciated value of the leasehold improvements to correspond with Cavazzi's initial estimate rounded to $477,500. However, Cavazzi took one additional step. He utilized both the Cost and Income Approaches when determining the before value of the joint site. His total value by the Cost Approach was $1,661,500. His total value by the Income Approach was $1,579,000, a difference of $82,500. He chose as a more reliable indicator the lower figure obtained under the Income Approach. Since he felt that "market evidence supports the land value estimate of the property", he concluded in effect that the indicated downward adjustment of $82,500 should be made to the depreciated value of the improvements to reflect their "contributory value" to the site. According to Cavazzi's analysis, the contributory value of the improvements was therefore $395,000.

[377]  Since we did not embark on the kind of analysis employed by Cavazzi, utilizing the Cost and Income Approaches, we do not find it necessary to take the further step of deriving contributory value after having already determined the depreciated value of the leasehold improvements at $477,500. The only adjustment we find necessary is for the salvage value of the improvements which neither Cavazzi nor Mussett considered.

[378]  According to information provided by Chevron, some of the leasehold improvements at Bainbridge Chevron were removed at the time of the service station closure and were reused at other Chevron locations. Items salvaged included the satellite dish, TCR15 computer terminals/controllers, consoles, pumps, signage, cantilever units from the pumps, and the fuel storage tanks. Chevron advised that the depreciated book value of these items as of the date of removal on November 30, 2001 was $142,837.85, rounded to $143,000.

[379]  This salvage effort mitigated Chevron's loss and we view it as appropriate to deduct the depreciated book value remaining to Chevron from the depreciated value of the improvements.

[380]  In summary, the value of the leasehold improvements lost through the closure of Bainbridge Chevron is as follows:

9.  SUMMARY OF COMPENSATION AWARD

[381]  The following summarizes our determination of the claims for compensation, excluding interest and costs, made by the respective claimants.

10.  INTEREST

10.1  Statutory Framework

[382]  Section 46 of the Act provides:

46 (1) 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,

(a) on the market value portion of compensation, from the date the owner gave up possession, and

(b) on any other amount, from

(i) the date the loss or damages were incurred, or

(ii) any other date that the board considers reasonable.

(2) Interest is payable at an annual rate that is equal to the prime lending rate of the banker to the government.

(3) During the first 6 months of a year, interest must be calculated at the interest rate under subsection (2) as at January 1, and during the last 6 months, interest must be calculated at the interest rate under subsection (2) as at July 1.

(4) If the amount of the payment under section 20(1) or (12) or otherwise is less than 90% of the compensation awarded, excluding interest and business loss, the board must order the expropriating authority to pay additional interest, at an annual rate of 5%, on the amount of the difference, calculated from the date that the payment is made to the date of the determination of compensation.

[383]  Earlier decisions of the board have established that interest accruing under section 46(1) compounds annually while additional interest under section 46(4) is calculated as simple interest. See Richland Farms Ltd. v. British Columbia (Ministry of Transportation and Highways) (1991), 46 L.C.R. 66 (B.C.E.C.B.).

10.2  Interest Payable to Holdom

[384]  The claimant James Holdom has been awarded compensation totalling $291,879 for the loss in market value of his fee simple interest in Parcel B as a result of the SRW taking and the Project.

[385]  Transit filed its vesting notice in the land title office on March 9, 2000, which is the date of expropriation for the purpose of determining compensation. That is also the date upon which we consider Holdom gave up possession of the interest taken in Parcel B for the purpose of determining the running of interest under section 46(1)(a). Pursuant to section 20(1) and based upon the appraisal report of Fred Mussett, Transit made an advance payment to Holdom of $99,000 on or about the same date. Although Mussett subsequently prepared further reports for Transit in which he estimated that a higher amount was payable to Holdom as compensation, Transit did not increase the amount of its advance payment.

[386]  Pursuant to section 46(1)(a), we find that Holdom is entitled to interest calculated on the difference between the amount awarded of $291,879 and the amount paid in advance by Transit of $99,000, which is $192,879, from and including March 9, 2000 until paid.

[387]  Since the advance payment made to Holdom is less than 90% of the compensation awarded, Holdom is entitled to additional interest pursuant to section 46(4) at the annual rate of 5% on the sum of $192,879 from and including the date of the advance payment which for certainty we deem to be March 9, 2000 to and including the date of this compensation decision.

10.3  Interest Payable to Chevron

[388]  The claimant Chevron has been awarded compensation totalling $438,915 for the reduction in market value of its fee simple interest in Lot 89, and the loss in market value of its leasehold interest in Parcel B.

[389]  Pursuant to section 20(1) and based upon an appraisal report by Mussett, Transit made an advance payment to Chevron of $52,700 on or about the date of taking on March 9, 2000. It is a fact that Chevron continued to operate its service station at Bainbridge Chevron for some 17 ½ months beyond the date of taking. However, since all of the items of compensation awarded relate to market value, we conclude that interest runs on all items from the date of taking.

[390]  Accordingly, pursuant to section 46(1)(a), we find that Chevron is entitled to interest on the difference between the amount awarded of $438,915 and the amount paid in advance by Transit of $52,700, which is $386,215, from and including March 9, 2000 until paid.

[391]  Because the advance payment made to Chevron is less than 90% of the compensation awarded, Chevron is entitled to additional interest pursuant to section 46(4) at the annual rate of 5% on the sum of $386,215 from and including the date of the advance payment deemed to be March 9, 2000 and including the date of this compensation decision.

11.  COSTS

11.1  Statutory and Regulatory Framework

[392]  The relevant provisions of section 45 of the Act for the purpose of this decision are as follows:

45 (3) Subject to subsection (4) to (6), a person whose interest or estate in land is expropriated is entitled to be paid costs necessarily incurred by the person for the purpose of asserting his or her claim for compensation or damages.

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

(7)The costs payable under subsection (3), (4), (5) or (6) are

(a) the actual reasonable legal, appraisal and other costs, or

(b) if the Lieutenant Governor in Council prescribes a tariff of costs, the amounts prescribed in the tariff and not the costs referred to in paragraph (a).

[393]  Pursuant to section 45(7)(b) of the Act, the government brought into force the Tariff of Costs Regulation, B.C. Reg. 189/99 (the "Tariff") on June 28, 1999. The Tariff governs legal and real estate appraisal costs incurred since that date. Based on our understanding of the chronology of this case it seems clear that all legal and real estate appraisal costs incurred by Holdom and Chevron will fall under the Tariff.

[394]  Section 3 of the Tariff provides in part:

3 (3) If costs are payable under section 45 of the Act, 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.

(4) The board may order that legal costs be assessed on a different scale from real estate appraisal costs, and may order that one or more steps in the proceeding be assessed under a different scale from that fixed for other steps.

[395]  Under section 4(1) of the Tariff, when fixing the scale of costs, the board must have regard to the principles that Scale 1 is for matters of less than ordinary difficulty or importance, Scale 2 is for matters of ordinary difficulty or importance, and Scale 3 is for matters of more than ordinary difficulty or importance. Under section 4(2), when fixing the appropriate scale, the board may take into account, among other things, whether difficult issues of law, fact or construction or difficult appraisal issues are involved.

11.2  Holdom's Costs

[396]  The award of compensation to Holdom totalling $291,879 is greater than 115% of the $99,000 paid in advance by Transit and, accordingly, Transit must pay Holdom his costs pursuant to section 45(4) of the Act.

[397]  Holdom's claim was a reasonably straightforward one inasmuch as it concerned only the impact of the partial taking and the Project on his interest in the land portion alone of Parcel B. There were no legal issues of more than ordinary difficulty or importance and the scope of the appraisal assignment was quite restricted although it included important highest and best use considerations. Insofar as Holdom's costs fall to be determined under the Tariff, we conclude that they should be fixed at Scale 2.

11.3  Chevron's Costs

[398]  The award of compensation to Chevron totalling $438,915 obviously far exceeds 115% of the $52,700 paid in advance by Transit so that section 45(4) of the Act applies and Transit must pay Chevron its costs.

[399]  There were a number of complicating elements to Chevron's claim. The fact that it had a fee simple interest in Lot 89 from which no land was expropriated and a leasehold interest in Parcel B partially encumbered by the SRW broadened the scope of the legal issues and the appraisal assignment. The fact that Chevron operated a service station from a split-zoned C6/P8 site which closed some period of time after the partial taking raised legal issues around causation and valuation issues around changes in highest and best use which warranted adducing a considerable body of evidence. Insofar as Chevron's costs fall to be determined under the Tariff, we conclude that they should be fixed at Scale 3 for matters of more than ordinary difficulty or importance.

THEREFORE IT IS ORDERED THAT

A. JAMES EDWARD BURNABY HOLDOM

(1) Transit shall pay compensation to Holdom in the amount of $291,879 for the market value of his interest in the land taken by way of the SRW from Parcel B and the reduction in market value to the remaining Parcel B land pursuant to sections 31(1), 32 and 40(1) of the Act.

(2) Transit shall pay interest to Holdom pursuant to section 46(1) of the Act on the difference of $192,879 between the amount awarded and the amount paid in advance from and including March 9, 2000 until paid. Interest shall be paid in accordance with Appendix "A" to these reasons for decision.

(3) Transit shall pay additional interest to Holdom pursuant to section 46(4) of the Act on the amount of $192,879 from and including the deemed date that the advance payment was made on March 9, 2000 to and including the date of determination of compensation at the annual rate of 5%.

(4) Transit shall pay to Holdom his costs necessarily incurred for the purpose of asserting his claim for compensation pursuant to section 45(3) and (4) of the Act. The legal and real estate appraisal costs payable shall be those prescribed in the Tariff pursuant to section 45(7)(b) of the Act and are fixed at Scale 2. Other costs payable shall be the actual reasonable costs pursuant to section 45(7)(a) of the Act. The costs shall be in such amount as may be agreed upon, and failing such agreement in such amount as may, upon application, subsequently be determined and allowed.

B. CHEVRON CANADA LIMITED

(5) Transit shall pay compensation to Chevron in the amount of $84,825 for the reduction in market value of its fee simple interest in Lot 89 and in the further amount of $354,090 for the loss in market value of its leasehold interest in Parcel B pursuant to sections 31(1), 32 and 40(1) of the Act.

(6) Transit shall pay interest to Chevron pursuant to section 46(1) of the Act on the difference of $386,215 between the amount awarded and the amount paid in advance from and including March 9, 2000 until paid. Interest shall be paid in accordance with Appendix "A" to these reasons for decision.

(7) Transit shall pay additional interest to Chevron pursuant to section 46(4) of the Act on the amount of $386,215 from and including the deemed date that the advance payment was made on March 9, 2000 to and including the date of determination of compensation at the annual rate of 5%.

(8) Transit shall pay to Chevron its costs necessarily incurred for the purpose of asserting its claim for compensation pursuant to section 45(3) and (4) of the Act. The legal and real estate appraisal costs payable shall be those prescribed in the Tariff pursuant to section 45(7)(b) of the Act and are fixed at Scale 3. Other costs payable shall be the actual reasonable costs pursuant to section 45(7)(a) of the Act. The costs shall be in such amount as may be agreed upon, and failing such agreement in such amount as may, upon application, subsequently be determined and allowed.

EXPROPRIATION COMPENSATION BOARD

_______________________________

Robert W. Shorthouse

Chair

APPENDIX "A"

INTEREST RATES

Interest under section 46(1) of the Act shall be calculated and compounded annually in accordance with sections 46(2) and (3) as follows:

(i) Six and one-half per cent (6.25%) from March 9, 2000 to June 30, 2000;

(ii) Seven and one-half per cent (7.50%) from July 1, 2000 to December 31, 2000;

(iii) Seven and one-half per cent (7.50%) from January 1, 2001 to June 30, 2001;

(iv) Six and one-quarter per cent (6.25%) from July 1, 2001 to December 31, 2001;

(v) Four per cent (4.00%) from January 1, 2002 to June 30, 2002;

(vi) Four and one-quarter per cent (4.25%) from July 1, 2002 to December 31, 2002;

(vii) Four and one-half per cent (4.50%) from January 1, 2003 to June 30, 2003;

(viii) Five per cent (5.00%) from July 1, 2003 to December 31, 2003;

(ix) Four and one-half per cent (4.50%) from January 1, 2004 to June 30, 2004;

(x) Three and three-quarters per cent (3.75%) from July 1, 2004 to December 31, 2004;

(xi) Four and one-quarter per cent (4.25%) from January 1, 2005 to June 30, 2005.