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April 18, 1997, E.C.B. No. 21/94/137 (61 L.C.R. 45)

 

Between: Ronald Baines, Ronald Dowbysh, Blaine Froats, and Hans Heringa
Claimants
And: Her Majesty The Queen in Right of the Province of British Columbia
as represented by the Minister of Transportation and Highways
Respondent
Before: Susan E. Ross, Presiding Member
Art Guthrie, Board Member
Sharon I. Walls, Board Member
Appearances: Robert S. Cosburn, for the Claimants
Sarah I. Macdonald, for the Respondent

 

1. INTRODUCTION

The claimants, Ronald Baines, Ronald Dowbysh, Blaine Froats, and Hans Heringa, are owners of a property at 4022 Jingle Pot Road in north Nanaimo. Baines and Froats are both realtors who also act as developers. Heringa is a civil engineer who installs roads and services for subdivisions as well as being a developer. Dowbysh is a corporate executive. The four claimants purchased the vacant property in December 1991. At the time of acquisition the property was 3.72 hectares (9.19 acres) and was zoned single family residential.

The British Columbia Ministry of Transportation and Highways ("MoTH") expropriated approximately two thirds of the property, 2.57 hectares, in May 1994 for the new Nanaimo Parkway, part of the Nanaimo bypass for the Island Highway. The remaining parcel of 1.15 hectares is a long narrow strip bordering the Parkway that widens out at the south end furthest from Jingle Pot Road. This remainder has no access from the Highway or from Jingle Pot Road.

The claimants seek compensation pursuant to the Expropriation Act, S.B.C. 1987, c. 23 (the "Act"), for the expropriation of part of the property. The unusual feature in this case is that the property is underlain with coal mine workings. Different levels of remediation of old mine workings are necessary depending on both the degree of the mine workings and the type of development planned for the property. We must decide what a potential purchaser would have known about the amount of remediation, and how this information would have affected the market value of the property.

 

2. BACKGROUND

2.1 The Property

The property is located in north Nanaimo, approximately one kilometre to the west of the Island Highway. Prior to the expropriation the property was an irregularly shaped rectangle, approximately 95 metres by 350 metres, with about 56 metres frontage on Jingle Pot Road and an estimated area of 3.72 hectares. It sloped gently downwards from the frontage on Jingle Pot Road to Diver Creek which bisected the property about 90 metres from the south-east boundary.

Nanaimo has experienced significant growth in recent years, especially north of its centre. The area surrounding the property is residential to the north and east, light industrial to the northwest and mixed vacant, rural residential and mobile home to the south and west. The Official Community Plan (OCP) for Nanaimo designated the area in which the property is situated as Urban Residential, which includes single family, multiple family and mobile home park development. At the time of the expropriation the property was zoned RS-1 (Single Family Residential) with a minimum lot area of 600 square metres.

Nanaimo was a coal mining centre until about 1950 when the last of the mines were closed. There are extensive old coal mine workings underlying much of Nanaimo and The Ministry of Mines and Petroleum Resources Mine Maps indicate that the property is located within the Wellington Mines working area. The City has registered a covenant on the title of the property pursuant to s. 215 of the Municipal Act, R.S.B.C. 1979, c. 290 which requires any owner applying for a building permit to provide a report from a geotechnical engineer indicating that the property is safe for the proposed building, subject to any conditions in the report.

2.2 Chronology of Dealings with the Property

In 1982, a previous owner commissioned a geotechnical report by W.D. Pelly of Island Geotechnical Services Ltd., dated May 7, 1982, to determine the "location and condition of ... abandoned coal mine workings". Although there were plans that show some mine openings and vertical shafts, it was difficult to pinpoint the actual location of these old structures on the surface of the property. The report stated that there are also some unmarked mine openings, presumably from a different period than the ones marked on the plans. Four trenches were dug in the northwest corner of the property to target a known sloping mine entrance and a vertical shaft. The test trenches did not locate any openings, although they did indicate that the mine working was only 5.5 metres (18 feet) below the surface in that region. The report contended that while this area was likely the shallowest, much of the mine workings under the property would have been at a depth of less than 15 metres (50 feet). According to a previous owner, the surface of the property had at one time been uneven, with a number of depressions, probably resulting from collapsed mine openings. The surface was subsequently levelled. Although many of the openings have likely collapsed in the years since the mine workings were abandoned, the report concluded at page 4 " ... given the considerable number of mine openings ... it is unlikely that all possible surface subsidence has occurred." Several possible types of potential subsidence are specified in the report, but at page 5 the report explained that "[i]f ... further subsidence were to occur ... it is unlikely that the damage would be serious ... [or] rapid". To deal with these risks, Pelly recommended flexible piping for underground services and construction of foundations that could be relevelled. Further investigations were also recommended to determine whether other stabilization procedures might be required. The report concurred with the owner's proposed plans for modular or prefabricated homes for the site. Prefabricated homes are significantly easier and cheaper to relevel than single family residences set on perimeter foundations.

Nanaimo gave preliminary subdivision approval for a 29 lot subdivision of modular homes in November 1983. Design stage approval followed in June 1984, but the property was not in fact developed.

In August 1987, the s. 215 covenant in favour of Nanaimo, requiring a geotechnical report prior to any development, was registered on the title of the property.

In 1989, a new owner, a corporation, proposed a subdivision for 23 single family residences west of the creek. Another geotechnical report by W.D. Pelly, then of Hardy BBT Limited, was commissioned. This report, dated June 9, 1989, did not involve any new investigative field work, and relied on information contained in Mr. Pelly's earlier report. It reiterated that the status of mine openings over much of the property was unknown because of incomplete or missing plans. There was an unknown risk of future subsidence ranging from a few inches over small areas to substantial subsidence (greater than one foot) over large areas, although there was less risk of the latter. The report recommended special measures for the foundations of buildings: either pilings extended to solid rock below the mine workings or heavily reinforced perimeter foundations, designed so that relevelling could occur. Even with these precautions there would be some risk of damage to both the specially constructed foundations or the building if there were subsidence. The report pointed out that modular housing on steel beam chasses would have an advantage over wood frame buildings on pilings or reinforced concrete foundations, because the foundations for modular homes would be easier and cheaper to relevel. Again, the report recommended flexible piping for underground services. It went on to predict that the roads and underground services on the property would require more repair than normal.

Preliminary approval for the proposed subdivision of single family residences was given in March 1989, subject to 22 conditions. As part of the approval process, the subdivision application went to MoTH which requested by letter dated February 19, 1990 that approval be withheld. When the owner applied for an extension of the preliminary approval in March 1990, Nanaimo advised the owner that, pursuant to MoTH's request, the preliminary approval would not be extended until the "Inner Route" alignment had been determined. In July 1990, MoTH wrote Nanaimo again and reported that the subdivision proposal did conflict with the proposed Inner Route.

After the death of one of its principals, the corporate owner that had attempted subdivision in 1989 became anxious to sell the property. It entered into a listing agreement with Coast Realty Group on October 22, 1991. The data input form prepared by Coast Realty on October 31, 1991 stated under a column labelled "Remarks" that "soil study available from listing realtor, great hobby farm, etc". Sunrise Village Properties Ltd. entered into an interim agreement to purchase the property for $76,000 on November 8, 1991. Sunrise Village Properties Ltd. was the corporate vehicle for three of the individual claimants plus a fourth person who did not wish to participate in the purchase. The fourth claimant, Baines, bought this person out and final registration in the Land Titles Office was submitted on December 23, 1991, in the names of the four individual claimants. Two of the claimants, Baines and Froats, were realtors with the listing company, Coast Realty. A few days before the interim agreement was signed, on November 6, 1991, Baines signed a disclosure statement that he owned an interest in a prospective purchaser of the property, Sunrise Village Properties Ltd., and that he would earn $1,800 real estate commission from this sale. Froats also stood to make a $1,800 commission. Baines, with different partners, had recently purchased the 18 acre property immediately to the north of the subject property. The interim agreement was prepared by Froats, on behalf of Coast Realty, and signed by Heringa, on behalf of Sunrise Village Properties Ltd. The interim agreement stated that the purchaser acknowledged receipt of Pelly's 1989 geotechnical report about underlying mine workings, and acknowledged that the Island Highway by-pass would be constructed beside the property and might encroach on it.

Shortly after entering into the interim agreement on November 18, 1991, Heringa requested Chatwin Engineering Ltd. to submit a new subdivision application similar to the previous subdivision proposal for modular houses which had been approved in 1983. Heringa testified that, at the time, he knew about the 1983 preliminary approval for the modular subdivision, but does not think that he knew about the 1989 application for development. The claimants' application was submitted to Nanaimo in January 1992. In February 1992, Heringa requested that Chatwin Engineering also prepare a schematic layout for a mobile home park for the property in preparation for a rezoning application.

In April 1992, MoTH responded to the subdivision proposal with a letter to Nanaimo, indicated to be copied to Heringa, saying that the property would be "seriously impacted by the Inner Route" of the Island Highway. The letter referred to an attached plan which evidently indicated that the road would go through the middle of the property. Nanaimo forwarded MoTH's letter to Heringa on May 4, 1992. On May 11, 1992, Chatwin Engineering asked Heringa for confirmation of his instructions for the proposed mobile home park plan since what he had requested would not be sufficient for a rezoning application. On June 8, 1992, Heringa wrote Nanaimo with respect to the proposed rezoning application asking for clarification of what "seriously impacted by the Inner Route" meant, and complaining that MoTH would not disclose the plans to him. On both June 9 and June 24, 1992, MoTH wrote Heringa and advised him unequivocally that the property would be almost totally required and that no applications for rezoning or development could proceed.

The claimants subsequently obtained two further engineering reports. Geoff A. Evans of Evans Professional Engineering Services Ltd. wrote a report dated January 4, 1994, on the soil conditions on the property. Eight test holes were dug to a maximum depth of seven metres. The report concluded that, with respect to the soil conditions only, compaction of the soil would be necessary for road and utility corridors. Either compacted granular pads or compaction of native soils would be necessary for the foundations, depending on the type of foundation. It also contained a disclaimer that it in no way addressed the subsurface mine workings.

Gwyneth Cathyl-Bickford of Westwater Mining Ltd. prepared a geological report for the claimants dated December 31, 1993. This report did not involve any field investigations, but Cathyl-Bickford evidently reviewed records of various boreholes and trenches, as well as mining reports in the B.C. Archives. The report commented on the lack of precision about the present status of the underground mine workings due to missing and incomplete mine plans and relatively sparse field explorations. It contained a disclaimer that it should not be construed as a substitute for a geotechnical assessment of the property. At page 1 and 2 the report concluded:

By analogy with more thoroughly-explored mine workings elsewhere in the Nanaimo Coalfield it is probable that subsurface voids are locally present in the old workings. ... Noxious or flammable gas ... may be present in remnant voids within the old workings.

The report recommended further trenching and drilling to locate subsurface voids, air shafts and mine portals, following which procedures for filling or capping these voids could be developed.

The vesting notice was filed in the Land Title Office on May 31, 1994 and the sum of $149,700 was paid to the claimants as an advance payment pursuant to s. 19 of the Act. This advance payment was based on an appraisal report from Interwest Property Services Ltd. dated April 13, 1994 and a geotechnical report written by D.H. MacKinnon of HBT AGRA Limited dated December 31, 1993. MoTH did not rely on either of these reports at the hearing, although copies were attached as part of the Form 8 advance payment documentation.

MacKinnon's December 1993 geotechnical report for MoTH was based on existing documents and an earlier report by HBT AGRA on the Nanaimo Parkway dated September 1993. It identified two adits or old entrances to a mine in the vicinity of the north part of the property and at least two vertical shafts. The report divided the property into three zones for development potential, north-west and north-east zones of 0.6 and 0.75 hectares respectively and a larger southern zone of 2.4 hectares. If further investigations of the north-west and north-east zones by 80 to 90 boreholes were favourable, the report concluded that residential development may be feasible in these zones without expensive remediation of the ground. In the larger southern zone, the report predicted that there was a greater risk of voids and therefore a greater risk of expensive remediation work of drilling and grouting to stabilize the ground prior to any development. A supplementary report dated February 22, 1994, estimated remediation costs for residential lots and roads of between $600,000 and $900,000 for a potential 13 lots on the north-west and north-east zones, and between $2,000,000 and $3,000,000 for a potential 19 lots on the southern zone.

MoTH denied access from the Parkway to the remainder of the property in December 1995. The claimants applied again in February 1996 for access at three locations for two single family residences to be constructed on the remainder. This application was also denied by MoTH.

On June 7, 1996 MoTH made a further advance payment of $430,654.93 based on the appraisal report of Cunningham & Rivard Appraisals (Nanaimo) Ltd. and associated engineering reports. This sum was made up of a further sum of $373,300 for market value of the land taken and $57,354.93 as interest on this sum for the period since the first advance. The total of the two advance payments for the market value alone was $523,000. With interest, the total payment came to $580,354.93.

The geological report which was served with the Cunningham & Rivard appraisal report was prepared by R.A. Patrick of EBA Engineering Consultants Ltd. and dated May 1996. It had the advantage of reviewing a number of engineering reports by HBT AGRA and others with respect to the construction of the Nanaimo Parkway across the property, together with a number of engineering reports for nearby properties, prepared either for development or for expropriation. The report documented the extent of subsurface voids actually encountered on the property and created five different hazard zones to reflect the degree of risk of subsidence. Approximately 90% of the site had been undermined and about two thirds of the property was categorized as being in the two highest hazard zones. The report also contained a map showing the hazard zones for seven adjacent properties based on various geotechnical reports on those properties, although there was a qualification that this comparison should be treated as preliminary. There are difficulties in comparing hazard zones defined by the different authors of the geotechnical reports. The report went on to specify two different remediation proposals for development of the property: as a residential subdivision and as a mobile home park. Newcastle Engineering Ltd. used the remediation work specified in the EBA report for the two types of development, together with the actual unit costs incurred by MoTH in building the Parkway, to prepare two separate estimates for the construction costs of roads, services and remediation work. The costs for development as single family residential, including development cost charges imposed by Nanaimo, were approximately three times the costs for a rental mobile home park.

 

3. ISSUES

The primary issue in this case is the effect that the old subsurface coal mine workings would have had on the market value of the property on the date of expropriation, May 31, 1994. The extent and character of the mine workings that underlie a property determine the specific remediation work required for various types of development. Thus, the highest and best use to which the land can be developed is affected by the degree of mine workings. However, it is what a prudent and willing purchaser would have known or estimated about the mine workings and their expected effects on the development potential of the property that is important in determining the price a purchaser would have agreed to pay on May 31, 1994.

A secondary issue is what consideration, if any, should be given to the acquisition prices paid by MoTH for neighbouring properties.

 

4. HIGHEST AND BEST USE OF THE PROPERTY BEFORE EXPROPRIATION

Both David Cavazzi, the appraiser for the claimants, and K. Allan Brown, the appraiser for MoTH, agreed that the highest and best use of the property before expropriation was residential. However, Cavazzi went on to conclude that the most probable form of residential development was subdivision for single family or modular style (pre-fabricated) homes, whereas Brown stated that in his opinion the highest and best use was as a rental mobile home park.

Cavazzi's conclusion about single family or modular development was based on several factors. The subject property was zoned for single family residential use and the OCP designated the property as urban residential. At the expropriation date, there was a strong demand for residential development land in the area and the topography and servicing factors were favourable for development. Finally, Cavazzi interpreted the engineering reports to indicate that this property was no different from many others in Nanaimo in having underground mine workings. He went on to assume that remediation for single family residential development could be handled at a reasonable cost.

Brown commissioned Newcastle Engineering Ltd. to provide estimates of the development costs if the property was developed as a mobile home park or a single family subdivision. The estimate for construction costs for a 54 pad rental mobile home park was $582,000, rounded, or $10,778 per pad. The estimate for construction costs for the 40 lot single family subdivision totalled $1,244,000, rounded, with additional development cost charges imposed by Nanaimo of $327,000, rounded, or a total cost of about $39,275 per lot. Focussing on the estimated costs of the remediation work for subsurface mine workings only, the costs for a mobile home park were less than 15% of the approximately $500,000 costs for single family residential development. This worked out to about $1,300 in remediation costs per mobile home pad compared to $12,500 costs per subdivided lot.

On the basis of these construction estimates, Brown concluded that the development of a single family residential subdivision on the property was uneconomic. He also noted that Nanaimo was reluctant to take responsibility for new road dedications on this property because of higher maintenance cost projections. In his opinion there was a relatively strong demand for mobile home pad sites. He concluded that the highest and best use of the property was as a mobile home park, principally because of the lower cost for the remediation of the geotechnical conditions for this type of development, together with the inherent uncertainties.

In his testimony Heringa explained that the claimants purchased the property for development either as a subdivision or as a mobile home park. A rental mobile home park would have had further potential as a holding property. He stated that development as a mobile home park was an attractive option for two other reasons, although he indicated that the other partners did not necessarily agree with his preference. First of all, there was a demand for mobile home park pads in the Nanaimo region. Second, Nanaimo could not impose development cost charges with respect to the development of a mobile home park. At the time of purchasing the property the development cost charges were $5,462 per subdivided lot and by the time of expropriation they had risen to $8,805 per lot. Although rezoning would be necessary for a mobile home park, Heringa testified that Robin Taylor, Nanaimo's Deputy Subdivision Approving Officer, had been supportive of an application for rezoning, subject to final decision by council. As indicated above, in February 1992, Heringa requested that Chatwin Engineering prepare a schematic layout for a mobile home park in preparation for a rezoning application for mobile homes. He continued to press Nanaimo about proceeding with this rezoning application despite the indications from MoTH that the new highway would cut through the site.

For us, the difficulty with this property is that there was insufficient information to provide a reliable indication of the location and extent of various subsurface voids until after the expropriation occurred when HBT AGRA carried out more borehole tests in connection with the actual construction of the Nanaimo Parkway. It was only with these data that an accurate estimate of the type and cost of remediation work could be done for different types of development. At the relevant time, May 31, 1994, a potential purchaser would not have had such detailed information, but would certainly have known that subsurface mine workings were under the property, and that there was a risk of further subsidence. The early geological reports available to purchasers also identified that the property contained several vertical shafts and entrances to the mine. These reports recommended that any plans for development should take the risk of subsidence into account. Foundations should be such that they were easy to relevel and utilities and services should be constructed with flexible piping. Further, the 1989 Hardy BBT report, which was provided to the claimants at the time of purchase, stated that because of the mine workings roads and underground services on this property would need greater maintenance and repair than normal. Nanaimo staff had indicated that Nanaimo would be reluctant to assume ownership of roads and services that posed a higher risk for repair. Approving development of a rental mobile home park rather than a single family subdivision would have had the advantage that the roads and services in a rental mobile home park would be owned and maintained by the owner of the park rather than the city. Alternatively, Nanaimo would have required greater remediation of the land on which the roads and services were constructed.

It is clear from the geological reports which were available to a potential purchaser that there was a significant risk in purchasing this property. The 1987 s. 215 covenant required an owner applying for a building permit to provide a report from a geotechnical engineer stating that the property was safe for the proposed building, subject to any mandatory remedial work. While no one in May 1994 knew exactly what remedial work would be necessary in order to comply with the covenant for different types of development, a prudent purchaser would have realized that the presence of several shafts and entrances on the property would require significant remediation costs before a geotechnical engineer would certify the safety of a building or a road to be built above these structures. A purchaser who made reasonable enquiries would also have appreciated that development as a single family subdivision with public roads and services and individual perimeter foundations would entail significantly more remediation work and thus much greater expense than development as a rental mobile home park.

Thus, on the basis of the geological reports that were in existence at the time of the expropriation, the presence of the s. 215 covenant on the property, Heringa's own evidence, and the information and analysis in the appraisal and engineering reports (but excluding the actual figures for the relative costs of remediation), we are in agreement with Brown, the appraiser for MoTH, that the highest and best use of the property on May 31, 1994 was residential, but as a mobile home park, rather than as a subdivision.

 

5. MARKET VALUE OF THE PROPERTY AT THE EXPROPRIATION DATE

Both appraisers relied on the direct comparison approach to value the property on the date of expropriation, May 31, 1994.

5.1 Claimants' Position

5.1.1 Direct Comparison Approach

Cavazzi considered eight comparable sales of acreage properties in his market data approach. He set out time-adjusted values for each comparable in a chart and then provided additional percentage adjustments to be applied for location, availability of services, zoning and presence of underground coal mine workings. He stated that, after applying all of these adjustments, the range of sale prices was between $99,775 and $197,640 per hectare, with the four best indicators having a range between $148,258 and $182,851 per hectare. His final value estimate was $163,085 per hectare, or $607,000, rounded, for the whole 3.72 hectare property.

We will examine Cavazzi's four best comparables in some detail. The first comparable is a vacant parcel of 5.8 hectares directly adjacent to the subject property to the north. It is zoned for low density, multi-family development, and was sold in October 1994 for $1,300,000 or $224,138 per hectare. This comparable has a similar location and topography to the subject property. The sale price was adjusted for time and a deduction of 15% was applied for the better zoning, resulting in an adjusted value of $176,900, rounded, per hectare.

Cavazzi comparable number 2 is the sale of a vacant 1.83 hectare parcel slightly over 1 kilometre to the north-west of the subject property. This comparable sale was in May 1993 and the time adjusted price was $176,100 per hectare. The neighbourhood is similar to the subject, and no allowance for location was made, although Cavazzi noted that the presence of the Brannen Lake Correctional Institute across the road made the location somewhat less desirable. Services were not available at the time of the sale, although they have been extended since for other developments in the area. An upward adjustment of 7.5% to the sale price was used to adjust for the lack of services. A deduction of 20% was also applied for the lack of underlying coal mines. Cavazzi did not specifically set out the final adjusted price for this comparable: we calculate it to be $154,075, rounded, per hectare.

Cavazzi comparable number 5 is the sale in May 1993 of a 2.3 hectare parcel adjacent to comparable number 2. There was a 15 year old residence on the property and $75,000 of the sale price was apparently allocated to this residence, which was rented for approximately one year after the sale. However, the property was purchased for subdivision and when development eventually occurred the residence was torn down. If the $75,000 allocated to the residence was deducted the time adjusted price was $169,251 per hectare, but if the $75,000 was included the time adjusted unit price was $208,307. This comparable is similar to the subject in terms of size and location. In the same manner as comparable 2, an adjustment of 7.5% to the sale price was used to adjust for the lack of services and a deduction of 20% was applied for the lack of subsurface coal mines. Again, Cavazzi did not give the final adjusted price for this comparable, but we calculate it to be $148,095, rounded, per hectare, after the allocation for the residence was excluded.

Cavazzi comparable number 6 is the sale of a vacant 1.21 hectare parcel that was later consolidated with a smaller parcel and subdivided into a 22 lot subdivision. The sale was in June 1993 and the time adjusted price was $192,100 per hectare. Although the final adjusted price for this comparable is not provided, Cavazzi stated that there was a positive adjustment of 6% for the inferior location of the comparable in south Nanaimo and a negative adjustment of 20% for the lack of mining, resulting in an adjusted sale price of $165,210, rounded, per hectare.

On the basis of these comparables Cavazzi estimated the market value of the property at $163,085 per hectare or $607,000, rounded, for the 3.72 hectares.

5.1.2 MoTH Acquisition Prices

Cavazzi also estimated the value of the property using the acquisition prices or settlement prices paid by MoTH for neighbouring properties. He conceded in his testimony that the settlement prices paid by MoTH were not prices paid in an open and competitive market and therefore were not indicators of market value as defined in s. 31 of the Act. On the other hand, he stated that MoTH was such a big factor in the market at that time that it could not be ignored.

Cavazzi considered five properties that were in the immediate vicinity of the property and were acquired by MoTH between March 1994 and October 1994. MoTH paid between $123,548 and $222,387 per hectare including in some cases other elements of compensation. Cavazzi was provided with various documents on a number of MoTH acquisitions but, unfortunately, the documents were not identical for each property and he testified that he experienced some difficulties in comparing the acquisitions. Cavazzi said that he considered the same factors affecting value as he did in relation to his market value comparables. His report commented on some differences between the subject and these properties with respect to the enumerated factors. He did not provide any details of the percentage adjustment for any of the factors for a particular property nor the final adjusted acquisition price for any property. However, he said that the subject was superior to four of the other five properties acquired by MoTH with respect to several of the adjustment factors such as size, location, availability of services, zoning and the presence of sub-surface coal mine workings. Although there were no details other than general comments about various factors, he gave an estimated adjusted value from this data of between $196,936 to $222,881 per hectare, with a final estimate of value of $210,000 per hectare or $781,000, rounded, for the whole property.

5.2 MoTH's Position

5.2.1 Direct Comparison Approach

Brown relied on three comparable sales of properties zoned for mobile home parks in his direct comparison approach of vacant land sales. These sales ranged from $115,146 to $163,366 per hectare. He adjusted these sale prices for time, size, location, topography (which includes remediation costs), and zoning. A downward adjustment of 5% was applied to all three comparables because they all had zoning for a mobile home park. Other adjustments were specific for each property. After his adjustments, the adjusted sale prices resulted in a tight range of between $140,503 and $141,584 per hectare. His best comparable gave a value of $140,630 per hectare both before and after adjustment and Brown used this value for his value estimate by this approach of $523,000, rounded, for the 3.72 hectares.

Brown's comparable number 1 is a partially developed mobile home park (19 pads developed out of the proposed 227 pads), only a few blocks from the subject. A portion of this property is also affected by underground mine workings, requiring remediation before development. Since the location, time of sale, and presence of some underground mine workings are similar to the subject, Brown concluded that it was the best comparable, although he had to apply an adjustment for its much larger size (13.5 hectares) and relatively large remedial costs. Because his adjustments cancelled each other out, the sale price of $140,630 per hectare remained the same after adjustment.

Brown's comparable number 2 is a vacant parcel with zoning for mobile homes that sold in October 1992 for $115,146 per hectare. It has subsequently been developed into a 105 unit mobile home park. He adjusted this sale price for time, size, and remediation work because the land requires fill before development, resulting in an adjusted sale price of $141,584. His time adjustment for 18 months was 6%.

Brown's comparable number 3 is also a sale of vacant land zoned for a mobile home park. The sale occurred in June 1993 at a price of $163,366 per hectare. A 32 unit mobile home park was proposed but the land has not yet been developed. After adjustments for time, location, size, and topography, the adjusted sale price was $140,503 per hectare. His time adjustment for 10 months was 3%.

5.2.2 Land Residual Analyses

Brown also used two other approaches to estimate a value for the property: a land residual analysis using the direct comparison of sales of fully developed and operating mobile home parks and a land residual analysis using an income approach to developed mobile home parks. He compared data from nine sales of mobile home parks in the Mid Island region in the previous five years and derived figures that he used to estimate the land residual value for the property in the two different approaches.

For the land residual estimate using the direct comparison approach Brown estimated a gross annual income for the property of $168,480 and used this figure with a gross income multiplier of 7.45 to estimate the value of the property as a fully developed and operating mobile home park at $1,255,176. From this estimated value he subtracted the construction costs and financing costs to obtain a land residual for a fully operating park. He then applied a deferral rate for a 10 month rezoning and construction period as well as an additional deferral rate for half of an estimated 27 month absorption period. This resulted in an estimated land residual value for the property using the direct comparison approach of $526,000, rounded.

For the land residual estimate using the income approach Brown estimated a gross annual income of $168,480 from which he subtracted operating expenses to obtain an estimate of net annual income of $123,200. He capitalized this figure at a yield rate of 9.85% to give an estimate of value of a fully developed mobile home park on the property of $1,250,700, rounded. The development and financing costs were subtracted and the two deferral periods were considered to provide an estimated land residual value for the property using the income approach of $522,000, rounded.

Brown concluded that the market value approach was the most compelling of the three different methods he had used to estimate the value of the property and therefore found the estimated value for the 3.72 hectares to be $523,000.

5.3 Discussion

Because the two appraisers allocated different highest and best uses for the property, none of the comparables in the direct comparison approach overlap. Although we have concluded that at the time of the expropriation the highest and best use was as a mobile home park, we have considered not only comparable sales of vacant parcels that are already zoned for mobile home parks but also some of Cavazzi's comparable sales of vacant land, taking into account the prospects of remediation and the attendant risks inherent in a single family lot development.

5.3.1 Direct Comparison Approach

Turning to Cavazzi's direct comparison approach, we consider Cavazzi comparables 1, 2, and 5 as the best indicators of market value for single family lot development. After reviewing Cavazzi's adjustments, we made one change to the adjustment for sub-surface mine workings for comparable 1. Cavazzi applied a flat deduction of 20% to comparable properties that had no underground mines on the basis that they posed less risk for development than the subject property. Because comparable 1 had known coal workings under part of the property, Cavazzi did not apply any adjustment for mine workings. However, the EBA Engineering Consultants report dated May 1996 prepared on behalf of MoTH indicated that the level and extent of the hazard zones for comparable 1 were significantly less than those for the subject property. This comparison was based on a previous geotechnical report prepared by EBA Consultants on comparable 1 in April 1993, which report was available to the purchasers of comparable 1. In the circumstances, we have applied a 10% adjustment to comparable 1 to reflect that the subject property faced greater risk for residential development than comparable 1. This yields an adjusted value of $156,060 per hectare for comparable 1. For comparables 2 and 5, Cavazzi's percentage adjustments for these two properties provided adjusted unit values of $154,075 and $148,095 respectively.

Brown's adjustments to the selling prices of his three comparables were clearly set out and yield values of $140,630, $141,584, and $140,502, per hectare, respectively. However, we have some concern over his time adjustments. His reasoning was not explained and his time adjustments, which appear to be between 0.3 and 0.4% per month, were significantly below those used by Cavazzi, although there was some evidence that mobile home park prices did not escalate as quickly as single family lot prices. Doing the best that we can, we estimate a time adjustment of 1% per month compounded which results in recalculated adjusted values of $143,450, $159,770, and $150,680, per hectare, respectively. We agree with Brown that comparable 1 is the best indicator of value, although we also have given some weight to comparable 3.

Neither appraiser used the sale of the property to the claimants in December 1991 for $76,000. Cavazzi set out a rate of appreciation of 6.8% per month between May 1992 and June 1993 and 1.5% per month from mid 1993 to May 31, 1994. He was more uncertain about the rate of appreciation prior to May 1992 but estimated it at 1.0% per month. Using Cavazzi's rates of appreciation, we calculate the time adjusted value as of May 31, 1994, on the basis of the December 1991 purchase price of the property, as approximately $210,500, or $56,586 per hectare.

5.3.2 MoTH Settlements

One of the issues to consider is whether the prices paid by MoTH for neighbouring properties are relevant evidence in determining the market value of the property. The claimants submit that the prices paid by an authority to purchase land or in settlement of an expropriation claim are evidence of market value and should be used by the board in determining the value of this property. They say that cases such as Copley v. Alberta (1989), 42 L.C.R. 161 and Richland Farms Ltd. v. British Columbia (Ministry of Transportation and Highways) (1989), 42 L.C.R. 64 establish the rule that an owner is to be paid the same amount for land taken by an authority, other things being equal, as owners of similar properties acquired for the same project. This rule, in the claimants' submission, discourages authorities from singling out particular properties for special treatment, either positive or negative.

MoTH submits that these settlement prices should not be considered when determining the value of the property because they are not included within the definition of "market value". Section 31 of the Act provides that:

The market value of an estate ... 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.

The board has admitted evidence of sales to expropriating authorities in the past when the evidence about the circumstances surrounding the sale suggests that the price was a true indication of market value. The weight to be given to such sales is dependent on the evidence as to how reflective it is of an open and competitive market. See Richland Farms above; Neill v. British Columbia (Ministry of Transportation and Highways) (1991), 45 L.C.R. 177; Devick v. MoTH (1994), 52 L.C.R. 212; and Kliman v. School District No 63 (Saanich) (1994), 54 L.C.R. 242. In Neill, this board responded to a submission that the pattern of voluntary agreements made by the authority with neighbouring landowners set a floor in the determination of market value of the subject lands by stating at p. 194:

We are quite unable to find any statutory support for this proposition. We are required to estimate the market value of the subject property, and acquisitions freely entered into by the respondent are simply transactions that we are entitled to look at in making our determination.

The Act requires us to consider the market value for a property and a settlement or a group of settlements are only relevant if they are indicative of market value.

The question, therefore, is how reflective of an open and competitive market were MoTH's acquisition prices for these neighbouring properties. The five properties considered by Cavazzi were acquired by MoTH as follows: comparable property 10, 12, and 13 by negotiation, comparable property 11 by s. 3 agreement, and comparable property 9 by expropriation. Both 12 and 13 were properties acquired from the City of Nanaimo. Cavazzi obtained documents from MoTH on each of these properties and talked to the owners or their agents as well as a representative from MoTH. None of these vendors was called to testify and a representative from MoTH was called primarily to explain the purpose of the different types of MoTH documents that were prepared for each acquisition. Cavazzi reported that there were appraisals done by both the owner and MoTH on comparable property 9 only, while on comparable property 10 and 13 there appear to have been no appraisals. On comparable property 11 he reported just one appraisal prepared for the owner, while on comparable property 12 there was just one appraisal for MoTH. Most of these appraisals were not entered as exhibits. Cavazzi also reviewed whatever engineering reports there were on these properties. We know nothing further as to how the acquisitions occurred or how the price was agreed in each case. In most cases we have no evidence as to highest and best use. The forms prepared by MoTH for internal use showed allocations of the acquisition price for injurious affection and improvements as well as for land for three properties. There was one letter that indicated the owner agreed to this allocation but, generally, there was little evidence that these allocations had been specifically negotiated and agreed between the two parties.

In Richland Farms, the board discussed the factors to be considered in deciding the weight to be attributed to evidence of settlements of neighbouring property owners with the expropriating authority. At p. 70 this board quoted from Shell Canada Ltd. v. Calgary (1985), 33 L.C.R. 235:

... there must be evidence that both parties to the transaction accepted and agreed to such a division [between land value and items of damage] in reaching a final settlement.

In this case, there is insufficient evidence to establish either the factors affecting the acquisition price or the indications of an open and competitive market. Furthermore, as stated above, Cavazzi conceded in his testimony that the settlement prices paid by MoTH were not prices paid in an open and competitive market and therefore were not indicators of market value as defined in s. 31.

In any event, we do not accept Cavazzi's adjusted acquisition prices for these properties of between $196,936 to $222,881 per hectare. First of all, Cavazzi used the total acquisition price and did not deduct the amounts that had been allocated for injurious affection or improvements for comparable properties 9, 12, and 13. As stated above, we are not satisfied that there was agreement on allocations of the acquisition price for these three properties, but neither do we necessarily accept that the total acquisition price should be applied to land. Cavazzi also did not provide any details as to how the adjustments were applied for zoning, size, shape, topography, availability of services, or information on underground mining conditions. These properties were all in the same general location as the subject and they were all acquired in 1994. The acquisition prices, including the allocations for injurious affection and improvements ranged from $123,548 to $222,387. Cavazzi reviewed the various adjustment considerations such as size, shape and topography in a general way and then asserted, without any figures or calculations, that the range of adjusted acquisition prices was between $196,936 to $222,881 with a final estimate of value based on these properties of $210,000 per hectare.

With the limited evidence before us, we are unable to find these acquisitions by MoTH of real assistance in determining market value.

5.3.3 Other Approaches

Both Brown and Cavazzi agreed that the best method to obtain an estimate of market value for the subject property was by direct comparison of the sale prices of other parcels of vacant land. As a result, we have not considered in any detail Brown's estimates for the value of land extracted from the direct comparison of the sale of mobile home parks or from the income approach for mobile home parks.

5.4 Conclusion

The amended values from the selected comparables of Cavazzi and Brown range from $143,450 to $159,770 per hectare. Cavazzi's comparables are based on a highest and best use as single family residential and there has been no adjustment for that factor. After consideration of these amended values, with particular reliance on Brown comparable 1 at $143,450 per hectare, we conclude the market value of the subject property at the date of expropriation was $145,000 per hectare.

 

6. HIGHEST AND BEST USE OF THE REMAINING PROPERTY AFTER EXPROPRIATION

Both appraisers agreed that after the expropriation the loss of access to the remainder from the Highway or Jingle Pot Road meant that it had only very limited use as a linear park or as an extension of whatever use was on a property immediately adjacent to the remainder.

During the hearing Heringa gave evidence that there was a potential for entry to the remainder from a property to the south east which was in the process of being developed. He was negotiating for access through this neighbouring property and if he was successful there might be some development on the remainder. However, this remains a mere prospect.

Both appraisers conceded that the isolation of the remainder after expropriation with little prospect for access meant that the remainder had no market value.

 

7. CONCLUSION

Section 39 (3) of the Act provides:

Where part of the land is expropriated, the market value of the land expropriated may be established by determining the market value of the area of all the land before the date of expropriation and subtracting from it the market value of the land remaining after the expropriation occurs ...

Because the remainder has no value, the market value of the land expropriated is the market value of the whole property at the time of expropriation, being 3.72 hectares at $145,000 per hectare, or $539,400. Effectively the property is valued as if it was wholly taken.

 

8. INTEREST

The claimants seek interest pursuant to ss. 45 and 46 of the Act.

8.1 Section 45

The claimants are entitled to interest pursuant to s. 45 (1) on that portion of $539,400 that is in excess of the advance payments paid by MoTH from time to time under s. 19, commencing from when the owners gave up possession of the property, which in this case is the date that the Vesting Notice was filed, May 31, 1994.

The claimants sought additional interest pursuant to s. 45 (4) if we awarded more than $588,000. We have awarded less than that sum and therefore make no order under s. 45 (4).

8.2 Section 46

Section 46 of the Act provides:

46. Where, in the opinion of the board, an unreasonable delay in proceedings under this Act has been caused by an owner or the expropriating authority, the board may penalize ...

(b) the expropriating authority, by increasing, by not more than double, the interest it is required to pay.

The claimants state that the initial advance payment of $149,700 made by MoTH in May 1994 was inordinately low and that MoTH delayed making an appropriate advance payment to the claimants for over two years until June 7, 1996 when it advanced a further $373,300 for a total advance payment of $523,000 for the expropriated property. MoTH relies on an appraisal report prepared by Mario Pavlakovic of Interwest Property Services dated April 13, 1994 and the HBT Agra Geotechnical report contained therein to support its original payment of $149,700. The further advance payment on June 7, 1996, was served with a second appraisal report from Brown dated May 1, 1996 together with the EBA Engineering report and the Newcastle Engineering report. Additional monies were paid at that time as interest on the second payment bringing the total payment to $580,355.

The claimants submit that MoTH delayed in making a proper advance payment in 1994 and that as a result they are entitled to penalty interest under s. 46 for causing an unreasonable delay in the proceedings. Section 19 sets out the requirements for advance payments including the time period within which payment must be made and what must be in the appraisal report accompanying the payment. There was no suggestion that these requirements were not met. However, the claimants' position is that when they examined the acquisition prices MoTH paid for neighbouring properties (the MoTH settlements), it appeared that MoTH considered different factors for different properties. MoTH used expensive remediation costs in the HBT Agra Geotechnical report to justify a low initial advance payment on the claimants' property while appearing to ignore these costs when it negotiated payments for some of the surrounding properties that were also affected by underground mine workings. By treating the claimants differently from the owners of other properties it acquired, MoTH unreasonably delayed in making a proper advance payment to the claimants.

MoTH's argument is that in this case advance payments had been made in a timely fashion as stipulated in the Act. Both the initial payment and the later payment were reflective of the market value as evidenced by the reports from its experts at the relevant time. Section 46 is only operative where there is unreasonable delay in proceedings under this Act. Any dispute about the amount of the advance payments is a matter to be dealt with under s. 45 (4) rather than s. 46.

It is true that the initial advance payment made to the claimants was significantly lower than the acquisition prices paid to owners of neighbouring properties. However, there was an appraisal report that supported this price. As stated above, there was also quite limited evidence on the MoTH settlements for nearby properties and how the price for each was determined. In these circumstances, the evidence of MoTH's initial advance payments to the claimants versus the acquisition prices it paid for neighbouring properties is insufficient to establish MoTH's delay in making a larger advance payment to the claimants was unreasonable within the meaning of s. 46. As a result, we do not have to decide whether this type of situation could amount to an unreasonable delay in the proceedings under s. 46 or, as argued by MoTH, would have to be dealt with under s. 45 (4).

In addition, MoTH pointed to an August 31, 1995 letter that was written by Heringa, on behalf of the claimants, to a representative of MoTH. It stated that the claimants were seeking certain tax rulings and that on the advice of their accountants, they requested postponement of "completion" of the expropriation to January 2, 1996, at the earliest. Since the vesting notice had been filed some 15 months earlier, it appears that this request must refer to further payment being postponed. This letter indicates that the claimants acquiesced on the issue of delay in making appropriate payment for at least four months between August 1995 and January 1996.

In the circumstances we do not agree that MoTH caused unreasonable delay in these proceedings and therefore make no order under s. 46.

 

9. COSTS

The compensation awarded in this case is less than 115% of the advance payment and therefore our award of costs is to be done under s. 44 (5). Counsel for MoTH indicated that she wished to make submissions on costs once the board had provided reasons for decision. MoTH will have 15 days from the issuance of these reasons to advise the registrar if it wishes to schedule a hearing or written submissions on the issue of costs. The issue of costs is therefore adjourned at this time.

 

THEREFORE IT IS ORDERED THAT

The respondent shall pay to the claimants:

(1) Compensation pursuant to the Act for the market value of the property at the date of the expropriation in the amount of $539,400.

(2) Interest on the sum of $539,400 pursuant to s. 45 (2) of the Act from May 31, 1994 until paid, with adjustments to take into account monies paid by the respondent either to, or on behalf of the claimants.

Interest shall be calculated at the following rates:

(a) Five and one-half per cent (5.5%) from May 31, 1994 to June 30, 1994;

(b) Eight per cent (8.0%) from July 1, 1994 until December 31, 1994;

(c) Eight per cent (8.0%) from January 1, 1995 to June 30, 1995;

(d) Eight and three quarters per cent (8.75%) from July 1, 1995 to December 31, 1995;

(e) Seven and one-half per cent (7.5%) from January 1, 1996 to June 30, 1996;

(f) Six and one-half per cent (6.5%) from July 1, 1996 to December 31, 1996;

(g) Four and three quarters (4.75%) from January 1, 1997 to June 30, 1997.

 

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