October 29, 1998, E.C.B. Control No. 33/91/163 (65 L.C.R. 99)

REASONS FOR DECISION

1.  INTRODUCTION

This case arises from the acquisition of a 9 metre wide strip of land along the edge of a 650 hectare (1,600 acres) development property in Coquitlam called Westwood Plateau. The claimant, Double Alpha Holding Corp., owns the Westwood Plateau, having purchased it in 1989 from B.C. Enterprise Corporation for the purpose of developing it as a large residential community. Double Alpha is a trustee whose majority shareholder is the land development company, Wesbild Enterprises Ltd. It is Wesbild that has been developing the property in accordance with an existing Official Community Plan and Development Agreement. Double Alpha ultimately intends Westwood Plateau to comprise about 4,500 homes in a number of separate subdivisions, along with a golf course and other recreational and park areas.

In May 1990 the respondent, Centra Gas British Columbia Inc. (formerly Pacific Coast Energy Corporation), filed a notice of expropriation against title to a small portion of the Westwood Plateau. The notice indicated Centra's intention to expropriate a 9 metre wide 1.6 acre strip of land along the western boundary, along with two rights of way over other parts of the Westwood Plateau that are not at issue in this proceeding. On June 15, 1990, the parties entered into an agreement under s.3 of the Expropriation Act, S.B.C. 1987, c.23, now R.S.B.C. 1996, c.125 ("the Act") to transfer the land in question. Among other things, the agreement fixed May 25, 1990, as the date of expropriation for the purpose of determining compensation. In accordance with the terms of the s.3 agreement, Centra paid the sum of $342,000 to Double Alpha on June 26, 1990, as compensation for the transfer of the 9 metre strip. We will call this transfer in these reasons "the taking", for ease of reference.

At the compensation hearing, Double Alpha sought compensation as follows:

1.	under s.29 (now s.30) of the Act, for the market value of the land taken, based on its highest and best use at the date of expropriation;
2.	under s.39 (now s.40) of the Act, for the reduction in market value to the remaining land that is directly attributable to the taking;
3.	costs under s.44 (now s.45) of the Act; and
4.	interest under s.45 (now s.46) of the Act.

The current section numbers will be used in these reasons.

The compensation hearing began in Vancouver on October 15, 1996, and was adjourned on October 16, 1996, due to evidentiary problems. Double Alpha had sought to introduce the expert testimony of two witnesses without having provided formal notice or a summary of their evidence to Centra. The panel decided that notice was required, and rather than force Double Alpha to close its case without benefit of the evidence in question, adjourned the hearing to permit Double Alpha to obtain written reports and provide notice to Centra. We imposed the condition, pursuant to s.46 of the Act, that Double Alpha would be denied any interest that might accrue on an eventual award of compensation from the date of the adjournment to the date the hearing resumed. The hearing began again on December 16, 1996, and concluded on December 18, 1996.

The witnesses for Double Alpha were Paul Young, Director of Planning for Wesbild; Carl Nilsen, appraiser; Richard Skapski, consulting engineer; and Daniel Daszkowski, landscape architect and urban planner. Centra Gas adduced the evidence of Brian Davies, appraiser; Donald Bowins, engineer; and Slade Dyer, development consultant.

2.  BACKGROUND

When Double Alpha bought Westwood Plateau, it was subject to a Development Agreement made between the previous owner and the District of Coquitlam on August 23, 1988, which was registered against title. The Development Agreement provides for the development taking place in phases, and it divides the entire Westwood Plateau into eight large Development Blocks, identified as numbers 1 through 8. The Development Agreement also provides that the phasing and the boundaries of these Development Blocks may be amended subsequently, subject to Coquitlam's final approval.

After Double Alpha's purchase of the site, Wesbild began to work with Coquitlam to refine the Official Community Plan ("the OCP") for the first phase of development, "Stage One". The entire area of the Westwood Plateau is designated in the OCP for residential development and associated services. The plan is that Development Blocks will be rezoned as appropriate and the subdivision and installation of services will then be undertaken in accordance with that rezoning. Coquitlam adopted an Amended OCP on March 12, 1990. Zoning was finalized for Stage One development (for Development Blocks 2, 3 and part of 4) on April 9, 1990. By this time, Wesbild had already begun site preparation work and servicing for the first new subdivisions. These were registered between September and November 1990, and Wesbild's sales program for the lots in Stage One began at the end of November 1990.

Much of the evidence centered on Development Block 6A, a smaller defined portion of Development Block 6. Development Block 6A is an area of about 10.3 hectares (25.5 acres) defined by an access road on the south, the property line of Westwood Plateau on the north, Noons Creek on the east and the municipal boundary between Coquitlam and Port Moody on the west. The appraisers were in agreement that the most likely zoning that will be approved for this area is single family residential development. Development Block 6A was scheduled to be part of the Stage Two development.

The Stage Two development was to incorporate Development Blocks 5 and 6. Paul Young testified that Stage One involved approximately one-third of the overall site and of the number of dwelling units anticipated. Wesbild projected that Stage One would satisfy approximately 2 to 3 years of market demand. Mr. Young stated that in 1990 Wesbild was examining the range of alternatives for Stage Two, looking at such items as a possible golf course and appropriate densities. Apparently the golf course and related density problems raised troublesome issues for the development of Block 5, resulting in Wesbild's conclusion at the time that Blocks 6E and 6A would probably be the first portions of Stage Two to be slated for development. This was the situation at the time of the taking.

3.  THE ISSUES

The main issues to be determined here are:

1.	What area should be considered "the larger parcel", that is, the piece of land from which the 9 metre strip was taken? Should it be the entire Westwood Plateau, a large development block or a smaller development block?
2.	What was the highest and best use of the larger parcel at the date of the taking, and was that different from the then existing use?
3.	What is the appropriate approach to the valuation of the land taken and to the determination of the loss in value to the remaining land, if any?
4.	What was the value of the land taken at the date of the taking?
5.	What was the loss in value to the remaining land, if any, as a result of the taking?

4.  DISCUSSION

4.1  The Larger Parcel

Section 40 of the Act deals with partial takings. Subsection (1) reads as follows:

40.	(1)	Subject to section 44, where part of the land of an owner is expropriated, he or she is entitled to compensation for
		(a)	the reduction in market value to the remaining land, and
		(b)	reasonable personal and business losses that are directly attributable to the taking or that result from the construction or use of the works for which the land is acquired.

In section 40(6), the remaining land is identified as:

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

Since compensation under s.40 is based partly on the reduction in market value to "the remaining land", it must be clearly defined what constitutes the area of land before the taking, or what we are referring to here as the larger parcel. Obviously, where the requirements of s.40(6) are satisfied, the definition of the larger parcel will determine the identification of the remaining land.

In most cases that come before the board involving partial takings, there is no controversy as to what property constitutes the larger parcel. In this case, however, it is a matter of contention and serious import. There are three possibilities for consideration as the larger parcel. They are:

• the entire Westwood Plateau (650 hectares/1,600 acres)
• Block A (defined below -- 255 hectares/630 acres)
• Block 6A (10.34 hectares/25.56 acres).

Noting that the overall area of Westwood Plateau is huge, Double Alpha maintains that the larger parcel should be viewed as Development Block 6A. Carl Nilsen, Double Alpha's appraisal expert, states at p.13 of his report, after describing the land taken as "form[ing] part of a large, on-going development project":

We have considered it most appropriate to concentrate solely upon the 25.5 acres in our residual analysis...Thus, although the land taken does form part of the very much larger development block described earlier [the 255 hectare Block A, which is defined below], it is not considered necessary to undertake a valuation of the entire parcel as the value for the majority of the area will remain unchanged before and after the taking.

Nilsen refers to Development Block 6A as "a block of land that would form a logical development enclave."

Centra, on the other hand, maintains that the larger parcel should be viewed as being nothing smaller than a 255 hectare parcel (which represents just under 40% of the total area of the Westwood Plateau as a whole), of which Development Block 6A constitutes a small portion. This parcel is referred to in Centra's materials as Block A, Sec. 15, which is a shortened version of a Land Title description. For ease of reference, we will refer to it simply as Block A. (The various development blocks were defined with a view to the development process, and not with any specific reference to Block A or the other major Land Title block that makes up the Westwood Plateau.) Block A, Centra argues, is a very large parcel of land not impacted by the taking of the 9 metre strip. It says that, given the scale of the development, any lots that might be said to have been "lost" as the result of the taking could be "shifted" to other portions of Block A beyond Parcel 6A. It also argues that even for Block 6A alone, the density achievable is roughly equivalent both before and after the taking. On this basis, Centra maintains that there is no reduction in value to the remainder -- that is, to Block A minus the 9 metre strip.

Centra's counsel took this position in his closing argument, but had earlier put forward in evidence the expert testimony of Brian Davies, who prepared two appraisal reports regarding the taking -- one on April 19, 1990, (upon which the advance payment was based) and the second on September 13, 1996 (prepared in anticipation of this hearing). The second of these reports was entered into evidence by Centra, and the first by Double Alpha. In both reports Davies finds a loss in value to the remainder, using essentially the area of Development Block 6A. Ultimately, Centra chose not to rely on either of these reports in terms of loss in value, but offered no other expert appraisal evidence in their place. In addition, as the Development Agreement was not entered as evidence, the potential for density transfer claimed by Centra in its submission could not be adequately explored.

If, as Centra maintains, the larger parcel goes beyond the boundaries of Development Block 6A, then it could logically be said to extend to the four corners of Westwood Plateau. For the valuer, this would require consideration of over 650 hectares (1,600 acres) in order to estimate the loss arising from the taking of the 9 metre strip, the area of which is only about 0.65 hectares (1.6 acres).

If, on the other hand, the larger parcel is confined by the boundaries of Development Block 6A, which are Noons Creek, the access road and the municipal boundary, then the valuer is faced with the task of accounting for costs associated with extending roads and services through Westwood Plateau to Development Block 6A, on the basis that a purchaser of the smaller Development Block 6A would certainly be required to reimburse the owner of the larger Westwood Plateau for having brought such services to it.

Neither party provided us with any case law on the issue of the identification of the larger parcel. We have, nonetheless, found some assistance in the reasons of the former Ontario Land Compensation Board in Roman Catholic Episcopal Corp. for the Diocese of Toronto v. Metropolitan Toronto and Region Conservation Authority (1978), 15 L.C.R. 133. In considering the issue of valuing the "injurious affection to the lands remaining" after a partial taking, the Board stated at p.149:

In our opinion on the before-and-after approach...it is not always necessary to determine the market value of all of the owner's lands both before and after the taking. On the contrary...where on the before-and-after approach some lands, for example, on which buildings are located, are not affected by the expropriation, they may, and in this case, should be, excluded from the determination of market value, both before and after.

We agree...that "the whole of the owner's lands"...has an implicit meaning of "the whole of the owner's lands necessary to be taken into account in determining the market value of, and injurious affection to, the lands affected by the expropriation".

We find this logic compelling, and equally applicable to our legislation.

In addition, the board has already, in Mayfair Resources Corp. v. Greater Vancouver Water District (1997), 61 L.C.R. 183 (B.C.E.C.B.), examined this type of problem and decided to use a smaller portion of the owner's entire landholding as the larger parcel for the purpose of applying s.40 of the Act.

We conclude that it is neither necessary nor desirable to view the larger parcel here as being the whole of the Westwood Plateau or the whole of Block A. In our view, it would make more sense to define the larger parcel as Development Block 6A. This is because of the natural boundaries caused by the roads, the creek and the municipal border and the fact that it is a discrete parcel intended for development separate from the other areas of Block A and Westwood Plateau as a whole. In addition, there was no evidence led that persuaded us that costs outside of Development Block 6A would have varied because of the taking. Finally, the only expert valuation evidence before us was done on the basis that Development Block 6A should be viewed as the larger parcel from which the 9 metre strip was taken.

4.2  Highest and Best Use

Nilsen, on behalf of Double Alpha, considers the highest and best use of Development Block 6A to be "residential single family development in accordance with the RS-1 zoning". He considers that the highest and best use of this area "will be unchanged in a general sense by the taking," but states that "the acquisition does have implications for the development capability of the area."

Davies, for Centra, considers the issue of highest and best use in both his appraisal reports. In his 1990 report, in which he defines Block A as the "subject property", he concludes that its highest and best use "is for residential development." With regard to the smaller Development Block 6A, Davies is of the view that its highest and best use "is a holding property for development in approximately three years." In his 1996 report he considers the highest and best use of the same two parcels. The highest and best use of Block A, he says, is "for future residential development." Development Block 6A he views this time as having a highest and best use as "a holding property for development in approximately five years."

As far as the probable period of time between the taking and the eventual development of the subject is concerned, we have concluded that three years is appropriate. We note that Davies' first report, prepared about one month before the valuation date, fixes three years as the likely time period, as does Nilsen's report, prepared one year and four months after the valuation date. The only support for a five year period is found in Davies' second report, prepared over six years after the valuation date. In that report, Davies refers, with reference to Development Block 6A, to two other nearby development blocks and indicates that one underwent subdivision in late 1993, with lots marketed throughout 1994 and into 1995, while the other was subdivided and developed in 1992. He reasons at p.28 that

... the 25.56 acres directly impacted by the taking would have followed these two areas on the development time table since the impacted lands are located at the most westerly extreme of the subject property and would therefore be the last block to be serviced. As of the effective date, a five year time frame was the soonest pre-development holding period that was suggested by the information available at that time.

Under cross-examination, Davies explained that in his 1990 report he picked the three year time frame by choosing the mid-point of a possible range of time periods indicated by the information available at that time. In his 1996 report, however, he relied on events as they had unfolded, which indicated to him the far end of the range. He attested to his belief that the use of such information not available at the date of valuation is appropriate.

We disagree with Davies on this use of hindsight. The determination of highest and best use as at a particular date is an exercise in placing oneself in the shoes of a notional potential purchaser of the property on that particular date. Such a person would have no access to actual data from years in the future, and so would have to undertake the type of reasoned analysis undertaken by Davies in 1990 and by Nilsen in 1991. Both these experts thought at that time that a three year pre-development period was appropriate. We are persuaded that, with the information available then, this was the probable conclusion as to development timing likely to be drawn by a potential purchaser and thus to be factored into the determination of the market value.

We conclude, therefore, that the highest and best use here was for development within three years. We conclude as well that this was no different from the actual use of the property at the time of the taking, as Double Alpha was holding the land for development and counting on just such a time frame when the expropriation occurred.

4.3  Appropriate Valuation Method

Nilsen does not attempt the direct comparison approach. At p.13 of his report he states:

In view of the fact that this land forms part of a large, on-going development project for which there are no direct market comparables, the most appropriate method of valuation is considered to be the residual method [referred to in these reasons as the subdivision development approach].

He then outlines a before and after analysis using the subdivision development approach, but only on Development Block 6A, a portion of the "large, on-going development project." His conclusion as to the appropriate amount of compensation is found by deducting his estimate of the value of the land after the taking from his estimate of the value of the land before the taking. In the before and after subdivision development approach, the compensation figure is inclusive of both the value of the land taken and the loss in value to the remainder.

In support of the appropriateness of the subdivision development approach, counsel for Double Alpha referred us to three reported decisions: Municipality of Metropolitan Toronto v. Loblaw Groceterias Co. Ltd. (1971) 1 L.C.R. 118, a Supreme Court of Canada decision; Ferancik v. Langley (Township) (1996), 60 L.C.R. 123, a decision of this board; and Genstar Corp. v. Greater Vancouver Regional District (1989), 43 L.C.R. 122, a decision by a panel of three private British Columbia arbitrators. The Toronto case and the board's Ferancik decision are both examples of the adoption of the subdivision development approach, although neither is particularly helpful in articulating the reasons for its choice. The Genstar decision refers to the approach as involving "a heavy measure of speculation -- albeit informed speculation" and comments that "its conclusions can be greatly affected by any number of variables encountered in the process." It also refers to the appropriateness of the approach in cases where there is an "absence of suitable, comparable sales data." Double Alpha argues that in the circumstances of this case the subdivision development approach should be accepted, and that Nilsen's report and supporting evidence should be accepted over Davies'.

Davies selectively employs both the direct comparison and the subdivision development approaches in his two reports. In his first report he relies exclusively on the direct comparison approach and finds a loss in value to the remainder by applying a lot yield formula. In his second report, he employs the direct comparison approach only to arrive at a before taking value for Development Block 6A. He does not attempt to estimate an after taking value using the same approach, nor does he use the direct comparison approach to arrive at his final loss estimate. What he does is determine a slightly different before taking value through the use of the subdivision development approach, while nonetheless stating his preference for the higher direct comparison before figure. Although he maintains that "the Direct Comparison Approach is considered the best method due to the larger number of assumptions that have to be made with the Development Approach," Davies' ultimate conclusion as to the total compensation payable is the difference between his before and after subdivision development approach values.

Thus, the two appraisal reports that were put forward in evidence by the parties for whom they were prepared (that is, the Nilsen report and the second Davies report) both calculate a loss estimate based solely on the subdivision development approach. Curiously, Centra's counsel, Mr. McDonell, in his closing argument, urged us not to apply the subdivision development approach. He stated that it was

...inappropriate in the circumstances of this case because the development was far from imminent at the time of the taking; the various different designs are speculative; and the development costs for Block A are not before the Board.

He urged the panel to award Double Alpha compensation for the area of the land taken on an appropriate value per acre using the direct comparison approach and to deny the claim for loss in value to the remainder. In support of his opposition to the use of the subdivision development approach in this case he cited three case authorities: Maritime Electric Company Limited v. Thorne and Thorne (1978), 14 Nfld. & P.E.I.R. and 33 A.P.R. 364, a decision of the Prince Edward Island Court of Appeal; Servold v. City of Camrose (1982), 25 L.C.R. 342, a decision of the Land Compensation Board of Alberta; and Christiansen v. City of Calgary (1987), 37 L.C.R. 320, also a decision of the Alberta Land Compensation Board. In the Maritime Electric case the court rejected the use of the subdivision development approach because the evidence showed that the proposed subdivision had not been approved, and might never be granted approval. They considered the subdivision to be "an uncertain possibility" that would not warrant damages for injurious affection under the Prince Edward Island Electric Power and Telephone Act. The Alberta Board in the Servold decision refers to case law that sets out "the difficulties, speculation and uncertainty inherent in the development approach and the unreliability of that approach as a method of determining value." In the particular facts of the Servold case, the Board also found "further difficulties as the density, type and timing of development [were] uncertain." Finally, they were satisfied that two comparable sales existed that were capable of adjustment and application on a direct comparison basis. In Christiansen, the Alberta Board declined to accept the subdivision development approach because the evidence about the proposed subdivision itself did not provide a basis for determining the exact number or configuration of lots, and the evidence regarding the costs of servicing "varied substantially and of course are inextricably connected with the yield of lots achieved."

Professor Todd, in The Law of Expropriation and Compensation in Canada, 2nd ed. (Toronto: Carswell, 1992), discusses the subdivision development approach. He says at p.219:

Courts and tribunals are usually reluctant to rely on the land development (subdivision) approach for two reasons. First, unless a proposed subdivision has actually been officially approved there is always some degree of uncertainty as to whether, and under what conditions, the subdivision would ever have materialized...

Second, it is recognized that the approach is "volatile" in the sense that a comparatively minor change, for example in the costing of services, can produce a figure in the end result which will significantly affect the residual value.

He goes on to indicate that courts and tribunals frequently reject this approach on the basis of the availability of reliable comparable sales data, the conclusion that the subject property was not ripe for development at the date of expropriation, or a determination that the various factors such as servicing, engineering and other development costs were not based on solid, factual evidence.

The Appraisal Institute's The Appraisal of Real Estate, Canadian Edition, (1992) states at p. 297 that

... bona fide sales data provide a better indication of value than a subdivision development prospectus. The reliability of the approach is determined by the accuracy of the lot yield, absorption rate, sale prices, servicing costs and soft cost estimates.

Most of the case law on the appropriateness of the subdivision development approach deals with the issue of the remoteness in time of the development, as well as the availability of reliable data with which to perform a direct comparison valuation. In Lincoln Village Ltd. v. City of Waterloo (1977), 12 L.C.R. 232 at p.243, the Ontario Land Compensation Board stated that "...where the state of development of the lands is such that all the necessary computations can be accurately forecast, the development cost approach may be appropriate, provided that suitable comparable sales are not available." In Oakfield Estate Ltd. v. Halifax (County) (1992), 47 L.C.R. 100 at 105, the Nova Scotia Expropriations Compensation Board declined to accept valuation conclusions based on the subdivision development approach because there was "uncertainty as to the date of commencement, the number of lots, the costs of development, price and marketability."

This board, in McKinnon v. School District No. 36 (Surrey) (1994), 54 L.C.R. 23, referred to Professor Todd's text, and quoted him as stating that "it is appropriate to use the method where there is a paucity of comparable sales...or where the appraisers for both sides find insufficient comparable sales on which to base an opinion on the market approach and both accept that development was imminent as of the date of expropriation." The board was not persuaded in that case that the "required degree of imminence was prevalent", and thus declined to apply the subdivision development approach.

This board has also recently considered the use of the subdivision development approach in the Mayfair Resources decision cited above. The board included in its reasons a quotation from the appraisal report of Mr. Douglas Mendel, which in our view is sufficiently instructive to warrant reproduction in part here as well:

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

In the case of this development, we have determined that the probable delay period for completion of the subdivision and sale of the lots would be 3 years. At the time of the taking, the appropriate zoning was not in place, the OCP had not been amended as required, and no subdivision application had yet been made. Only the main trunk services were in place (that is, sanitary and storm sewers and water), and the evidence shows that a pumping station and reservoir would have had to be constructed because of water pressure problems created by the topography. The evidence about the probable number of lots was conflicting, and was based on plans that were prepared for this hearing and not for the development itself. In addition, the two appraisers were separated by the considerable sum of $1,874,688 in their estimates of the development costs.

As for the availability of suitable comparable sales, since neither of the proffered appraisal reports estimated the loss on a direct comparison basis, we are not in a position to conclude whether or not such comparables were available. When pressed under cross-examination, Nilsen said that there were no sales of property of similar size and location and immediacy of development, so the comparative approach was not available. Davies, meanwhile, found eight sales of acreage from which he concluded that the value of Parcel 6A was $115,000 per acre, or $2,940,000, before the taking. He prepared no after taking valuation by direct comparison, and instead relied for his conclusions on the subdivision development approach.

We accept that any prospective purchaser of Development Block 6A in May of 1990 would have viewed it as being appropriate for development within a three year period. We are also of the view, however, that the many variables that must be capable of accurate estimation in order to permit a reliable subdivision development valuation are not so in this case. The difficult situation in which we find ourselves here is that if we do not accept the subdivision development approach as put forward by both expert appraisers, we will not have any appraisal evidence before us other than Davies' estimate in his 1990 appraisal report, based on a value per raw lot and a lost lot total based only on the percentage of the area of the strip taken against the area of the larger parcel.

Although the preferred method of valuation here may have been the direct comparison method, if adequate comparable data were available, what we have instead are two expert reports using the subdivision development approach and extensive planning and engineering evidence in support of those reports. We do not believe that we would be adequately addressing the valuation evidence if we looked only to the direct comparison analysis of Davies in 1990, which was not even entered into evidence by the party for whom it was prepared. Doing the best that we can in these circumstances, we shall proceed to determine this claim based primarily on a review of the subdivision development valuations. In addition, by way of comparison, we will consider the 1990 Davies direct comparison valuation.

5.  CALCULATION OF COMPENSATION

5.1  Area of Land Taken

Both parties' appraisal experts calculate that the area taken constitutes 1.59 acres (0.6421 hectares). Nilsen calculates the larger parcel before the taking to have been 25.1 acres, and after the taking to have been 23.51 acres, for a difference of 1.59 acres. Davies, while using different figures, arrives at the same conclusion. He subtracts 23.97 acres in the after taking scenario from 25.56 acres in the original scenario. We therefore accept that the area taken was, in fact, 1.59 acres.

5.2  Number of Lots Lost

We have the benefit of two before and after plans to assist in the determination of the number of lots lost. Double Alpha's plans were prepared internally by Paul Young of Wesbild and refined by Daniel Daszkowski of CIVITAS Urban Design & Planning Inc., in consultation with Richard Skapski, a consulting engineer with InterCAD Services Ltd. Centra Gas' plans were prepared by Slade Dyer, development consultant, in consultation with Donald Bowins, engineer. Both sets of plans were prepared after the taking, as Double Alpha's development preparation for Development Block 6A had not proceeded to the point of designing the subdivision at the time of the taking.

We prefer the Dyer plans for a number of reasons. First, they were prepared by an objective outsider to the project, in contrast with Double Alpha's plans, which were largely prepared internally. In addition, we find that the Dyer plans are consistent with other Westwood approved plans in terms of lot widths at the building set-back line, and that the after plan places the main road in what the evidence disclosed was the best location (the west side) for maximum efficiency.

Finally, the Dyer plans achieve virtually the same density after the taking as before, thereby mitigating the loss to the remainder:

	Civitas	Dyer
Before Plan	25.1 acres	25.56 acres
	104 lots	107 lots
	4.14 units per acre	4.19 units per acre
After Plan	23.51 acres	23.97 acres
	95 lots	100 lots
	4.04 units per acre	4.17 units per acre

Dyer's plans on behalf of Centra generate more lots and a greater yield, because in Civitas' plans on behalf of Double Alpha the area is less and road widths are 17 metres rather than the allowed 16.5 metres under the subdivision bylaw, or 14 metres if single loaded (i.e. houses on only one side). Moreover, by placing the road on the west side, full advantage could be taken of the required 6 metre set back from the top of the creek bank as required in 1990 by including this set back in the lot areas.

Dyer's conclusion, which we accept, is that 7 lots were lost as a result of the taking.

5.3  Summary of Appraisal Evidence

The two subdivision development valuations before us differ primarily in three respects: the number of lots both before and after, the value of the raw lots, and the development costs. We have summarized the calculations of both appraisals in comparison charts, as follows:

BEFORE TAKING APPRAISALS	Nilsen	Davies #2
# of lots	104	107
$ per lot	$108,000	$105,000
Total gross revenue	$11,232,000	$11,235,000
Developer's profit	20% gross $2,246,400	20% gross $2,247,000
Sales commission	4% gross $449,280	2% gross $224,700
Development costs	$2,574,000	$4,431,852
Financing on development costs	15% for 1.5 ms $46,312	15.75% for 3 ms $165,052
Property taxes		$43,886
Discount/deferral to sales	15% for 7.5 ms $526,525
Discount/deferral to development	10% for 3 years $1,341,981	7.35% for 5 years $1,230,821
Market Value	$4,047,502 Rounded to $4,050,000	$2,891,689 Rounded to $2,890,000

AFTER TAKING APPRAISALS	Nilsen	Davies #2
# of lots	95	100
$ per lot	$108,000	$105,000
Total gross revenue	$10,260,000	$10,500,000
Developer's profit	20% gross $2,052,000	20% gross $2,100,000
Sales commission	4% gross $410,400	2% gross $210,000
Development costs	$2,489,000	$4,363,688
Financing on development costs	15% for 1.5 ms $44,887	15.75% for 3 ms $162,514
Property taxes		$41,156
Discount/deferral to sales	15% for 7.5 ms $468,470
Discount/deferral to development	10% for 3 years $1,194,106	7.35% for 5 years $1,081,580
Market Value	$3,601,227 Rounded to $3,600,000	$2,541,061 Rounded to $2,540,000

Nilsen's resulting figure for the overall compensable loss is $450,000, and Davies' is $350,000 -- a difference of $100,000. Both of these conclusions exceed Davies' 1990 valuation of $317,289.

One can readily see from these charts that, although both appraisers made very different assumptions about the number of lots that the area could generate both before and after the taking, and although they assigned different values per lot, their figures for total gross revenue before the taking are almost identical because of the way their different figures work together. Nilsen, however, assumed a 9 lot loss while Davies concluded that only 7 lots would be lost as a result of the taking.

Both appraisers based their assumptions on the number of lots available on plans generated by others. Nilsen relied on Paul Young's plans (as refined by Civitas), while Davies relied on the plans prepared by Slade Dyer. Similarly, the particulars of the development costs put forward by both appraisers were supplied by the engineers who assisted with the plans, both of whom filed their own reports and gave evidence in this hearing. As can be seen from the chart, there is a sizable difference of $1,857,852 in the two estimates of development costs. The actual differences between the two before and after figures is smaller than this, however -- about $1 million -- which is largely explained by the fact that Nilsen, who used the lower development cost figure, also factored in a larger sales commission and a further discount period between the development and the ultimate sales.

It may be noted that both estimates based on the subdivision development approach are higher than Davies' 1990 valuation based on the direct comparison approach. In that report, Davies estimates a value by direct comparison of $45,327 per raw lot, noting that up to seven lots would be lost. The loss in value he then calculates to be $317,289.

On a before and after test, he values 26.2 acres by direct comparison at $185,000 per acre or $4,850,000 rounded before the taking. Assuming a 107 lot potential, this is $45,327 per raw lot. After the taking, he simply reduces the number of potential lots to 100, applies the same lot value, and finds a value of $4,532,700. By this method, the loss is $317,300. Without the rounding to $4,850,000 from $4,847,000, the raw lot value is $45,299 and the resultant loss $317,093.

In his second report, he estimates a before value at $2,940,000 by direct comparison, and at $2,890,000 by a development approach. With his after value at $2,540,000 he estimates the value of the part taken together with the loss in value to the remaining land at $350,000. Under cross-examination, he defended this different conclusion from his first report as being the result of applying a deferment of five years rather than three years, and more definitive adjustments.

5.4  Market Value Before the Taking

5.4.1  Lot Value

Using thirteen comparable sales that took place in May and June of 1990, Nilsen arrives at a before taking value per serviced lot of $108,000. Since, in his view, the market had shown movement prior to the taking, he chooses to focus on sales that occurred around the time of the taking in order to avoid having to make time adjustments. Nilsen's comparables range between $94,000 and $155,000, with the majority falling between $115,000 and $127,000. Most of the comparables, however, were better located in that they were in more established areas or had better views. Nilsen therefore concludes that the lots would sell for between $105,000 and $110,000, and on that basis settles on an average lot value of $108,000.

Davies' seventeen comparables were sold during a broader time range -- March to December 1990. They sold for an average lot value of between $99,000 and $112,000, after certain adjustments. Davies concludes that his comparable 11 was the most similar to the subject, and its value was slightly less than $105,000 after applying a time adjustment. Based on this range and this most similar comparable, Davies concludes that an average price of $105,000 was appropriate for the subject lots.

We prefer Davies' analysis on this point, as he has identified both a range of prices and a best comparable that fits within that range. We therefore accept his before taking figure of $105,000 per lot.

5.4.2  Developer's Profit

Both appraisers have identified an expected developer's profit of 20% for a subdivision such as this. The gross income from a subdivision of 107 lots with a value of $105,000 each would be $11,235,000. Twenty per cent of that figure comes to $2,247,000, which we accept as a reasonable amount to have been expected by a developer of the subject lands.

In a standard scenario, sales commissions would have to be paid out of the remainder. The two appraisers differ as to the applicable rate to be applied. Nilsen estimates that a 4% commission would be applicable, whereas Davies uses only a 2% commission. Since Nilsen admitted under cross-examination that his 4% figure was "a little high," we are prepared to apply a 3% sales commission to the gross profit. This would result in a total deduction of $2,584,050 ($2,247,000 + 337,050) from the gross income figure of $11,235,000, for an adjusted income of $8,650,950.

5.4.3  Development Costs

Nilsen uses, for the pre-taking cost of servicing the lots, the figure of $23,750 per lot provided by Richard Skapski, P.Eng., of InterCAD Services Ltd. In preparing his cost estimates, Skapski deals with two basic cost components: an all-inclusive cost per linear metre of road, complete with typical underground services; and an all-inclusive cost per linear metre of rear-yard services, required where gravity sanitary and storm sewer service cannot be provided directly to the fronting road because of the steepness of the land. Skapski concludes that the cost per linear metre for the road servicing would be $1900 and $400 for the rear lot servicing. He uses these figures to arrive at the cost of $23,750 per lot which Nilsen adopts in his appraisal. Nilsen also factors in the additional amount of $1,000 per lot for "miscellaneous costs." His total estimate of pre-taking development costs is $2,574,000.

Nilsen testified that he included only on-site costs, since in his view no off-site costs would apply on the basis that Development Block 6A would be developed as part of the whole Westwood Plateau. This would mean that the infrastructure costs would not change as a result of the taking. Under cross-examination, Nilsen answered questions about a notional purchaser of Block 6A. He admitted that such an individual would have to expect that the cost of such items as creek crossings and services being provided to the perimeter of Block 6A would be factored into the cost of buying that segment of property. He indicated, however, that he did not factor these assumptions into his report because his conclusions were based on a notional purchaser of Block A as a whole rather than of Block 6A in particular.

Davies, on the other hand, applies both on-site and off-site costs to his analysis. He adopts the figures provided by Don Bowins, P.Eng., of D.K. Bowins & Associates, which in turn were prepared using the layout plans provided by Slade Dyer & Associates. The on-site figure includes the expense of roads, drainage, sanitary sewer, water, streetlights, other utilities and legal surveys. "Double Servicing" of storm and sanitary utilities is assumed, in light of the steep topography of the site. Cost figures for work "adjacent to the site" are also used by Bowins. He does this on the basis that "even though the extension of services to this site were done under a previous phase of the development they are for the benefit of this site and therefore should be considered as part of the servicing costs of this parcel." These costs include the crossing of Noons Creek at two locations and the extension of all the other utilities. Finally, Bowins calculates the cost of off-site services, including water, sanitary and storm sewer, and roads, which are listed in the Development Agreement and are indirectly required to service the Westwood Plateau. He also includes an equivalent amount to the Development Cost Charges that the City of Coquitlam charges developers, at the 1990 rate of $955 per lot. This was done despite the fact that the evidence showed that Coquitlam did not charge Wesbild any Development Cost Charges for any part of the Westwood Plateau. Davies' total pre-taking development cost estimate is $4,431,852, which exceeds Nilsen's estimate by over $1.8 million. As noted earlier, the primary reason for this large difference is Nilsen's omission of off-site costs.

We prefer the approach taken by Davies and Bowins. In our view, the direct and indirect off-site costs of developing Development Block 6A cannot be ignored. A prospective purchaser of this block would reasonably expect to have to compensate the former owner for providing creek crossings and for bringing all necessary services to the perimeter. In addition, we have already stated that we prefer the Slade Dyer plans to Paul Young's plans, and since these costs were estimated with the Dyer plans in mind, we also prefer them for that reason.

We therefore accept Davies' figure of $3,215,300 for on-site construction costs, $57,000 for legal survey costs, $640,060 for direct off-site costs and $217,844 for indirect off-site costs. This gives an overall total for development costs of $4,130,204. We do not, however, accept the need to include an amount for Development Cost Charges, as the uncontradicted evidence of Paul Young was that the municipality had granted an exemption in this case.

5.4.4 Financing on Development Costs

To the development cost figure must be added an amount for interest for the duration of the development period. Nilsen estimates that a subdivision of this size would take about three months to service, and to reflect the fact that not all the financing costs would be incurred over the whole period, he uses a one and a half month period in his calculations. He applies an interest rate of 15%, which he states was appropriate at the time of the valuation.

Davies' opinion is that there would be a six month period of construction that would have to be financed. His calculations apply a 15.75% rate for a three month period, the latter presumably upon the same logic as that applied by Nilsen. As for the interest rate itself, Davies' report indicates that the prime bank rate at the valuation date was 14.75% and that, typically, financing is provided to reliable land developers at 1% or 2% above prime. Within this range, he employs a rate of 15.75%, although in his earlier report he employs a deferment rate of 12%.

We accept Nilsen's rate of 15% which was estimated closer to the valuation date. We prefer Davies' choice of financing period at one half of six months, however, which allows for both on-site and off-site servicing. We therefore will apply a 15% financing rate to the development costs over a three month period, which amounts to $154,883.

5.4.5  Parks Allowance

According to Paul Young's testimony, park dedications -- specified in the Development Agreement -- are to be taken from individual enclaves. We have therefore concluded that a 5% parks allowance should be applied. In this case, it amounts to $204,106 before the taking.

5.4.6  Holding Costs

Nilsen estimates that the servicing and sale of the subdivision would take about twelve months -- three months to service the first phase and nine months to sell all the lots. On the basis that the profit from the earlier sales would mitigate to some extent the holding costs in the later stages, he applies a 15% discount rate over a deferral period of seven and a half months. This results, using his figures, in a further deduction of $526,525 from the net revenue. Confidence in this technique is diminished by both the reference to the suggestion that profits will help to mitigate the holding costs -- without specifying by how much -- and also by the allowance of interest over one-half of a fifteen month period, whereas his report indicates three months to service and none months to sell, for a total twelve month period. Davies, on the other hand, merely internalizes this element in calculating the developer's profit, a simplified approach that was not challenged and that the board will adopt.

5.4.7  Residual Land Value

In order to calculate the before taking land value upon the commencement of development, one must subtract the on-site and off-site costs, as well as the interest and park allowance, and a further amount for property transfer tax. This results in a figure of $4,082,115. (The property transfer tax is in the amount of $79,642, calculated on the basis of 1% of the first $200,000 and 2% on the remainder of the $4,082,115.) This sum would apply if the development were able to proceed at once, but the land is not ripe for immediate development.

5.4.8  Development Timing and Discount Rate

Both appraisers apply a final discount rate to their raw land values in order to arrive at a present value for the property as at the valuation date. Nilsen estimates that the development of the lands would begin three years after the date of valuation, and so applies his discount rate over a three year period. He chooses a discount rate of 10%, which he explains is based on the 15% current rate used for financing at the time, less an allowance of around 5% per annum for anticipated increases in lot values.

Davies uses a deferral period of five years, as outlined in more detail in the section of these reasons dealing with highest and best use. He states that the pertinent financing rate would be prime plus 1%, which would have amounted at the time to 15.75%. From this percentage figure he deducts 8.4% to account for anticipated appreciation of lot values over the five year period. This calculation results in the 7.35% effective rate which he applies.

We have already concluded that the appropriate deferral period is three rather than five years, in part because Davies arrives at his five year conclusion by applying historical facts to his analysis that were unavailable to anyone looking at the situation at the valuation date. In determining the appropriate discount rate Davies takes the same flawed approach. He examines what actually happened to lot prices historically after the valuation date, and uses this information to arrive at the 8.4% which he deducts for appreciation of lot values. He states in his report that "the actual lot value changes calculate to approximately 8.4% per annum..." We disagree with this approach for the same reasons we disagreed with it in Davies' opinion regarding the deferral period, and prefer Mr. Nilsen's deferral period and discount rate which were arrived at without the benefit of hindsight.

Before applying this discount, an allowance must be made for property taxes during the holding period, plus six months construction and one year marketing. Davies makes such an allowance, whereas Nilsen does not. At $381.44 per acre according to Davies, property taxes over 4.5 years of $9,750 per acre at 15% represents an allowance of $30,345. The net value before discount is therefore $4,051,771.

5.4.9  Present Value Before Taking

Applying the 10% discount rate over a three year period to the $4,051,771 net value results in a present value before the taking, as at the valuation date, of $3,042,879.

5.5  Market Value After the Taking

The after taking values flow from the before taking determinations, since all of the assumptions remain the same. Merely the mathematical calculations differ, as the result of the loss of the seven lots. The following chart shows both the before and after figures, as well as our determination of the loss figure based on these calculations. We have arrived at a before taking value of $3,042,879, and an after taking value of $2,673,873, which results in a loss of $368,906.

BOARD CONCLUSIONS	Before	After
# of lots	107	100
Times: $ per lot	$105,000	$105,000
Equals: total gross revenue	$11,235,000	$10,500,000
Less: developer's profit (20% gross)	$2,247,000	$2,100,000
Less: sales commission (3% gross)	$337,050	$315,050
Equals: remaining revenue	$8,650,950	$8,085,000
Less: development costs	$4,130,204	$4,093,269
Less: financing on development costs (3 months @ 15%)	$154,883	$154,496
Less: park allowance @ 5%	$204,106	$179,450
Less: property transfer tax	$79,642	$69,780
Equals: residual land value upon commencement of development	$4,082,115	$3,589,005
Less: property taxes during holding period (15% for 4.5 years)	$30,345	$28,455
Equals: net value	$4,051,771	$3,560,550
Less: discount/deferral (10% -- x .751)	$1,008,892	$886,577
Market Value	$3,042,879	$2,673,973
Loss = Before less After: $368,906

6.  INTEREST

Interest flows on the board's award of $368,906 under s.46(1) of the Act from May 25, 1990. The advance payment of $342,000 constitutes about 92.7% of the board's award of compensation, so additional interest under s.46(4) may not be awarded. In accordance with our earlier ruling regarding interest, set out in the first part of these reasons, no interest will run on the compensation award between October 16 and December 16, 1996.

7.  COSTS

The compensation award is approximately 108% of the advance payment. Under s.45(5) of the Act, if the compensation awarded is 115% or less of the amount of the advance payment, the board may award the owner all or part of their costs. In this case, in light of the substantial amounts being contested and the relative complexity of the issues put forth, we award Double Alpha its actual reasonable legal, appraisal and other costs necessarily incurred for the purpose of asserting its claim for compensation.

THEREFORE IT IS ORDERED THAT

Centra shall pay to Double Alpha: