October 2, 1998, E.C.B. No. 54/91/162 (65 L.C.R. 139)

Between:	Seaside Acres Ltd. Claimant
And:	Centra Gas British Columbia Inc. (Formerly Pacific Coast Energy Corporation) Respondent
Before:	Julian K. Greenwood, Panel Chair Suzanne K. Wiltshire, Board Member Art Guthrie, Board Member
Appearances:	William A. Scott, For the Claimant Robert J. McDonell, For the Respondent

REASONS FOR DECISION

1. INTRODUCTION

On September 19, 1990, the respondent took a statutory right of way ("SRW") over the claimant's property, for the purpose of a buried natural gas pipeline. The SRW was in total about 2,600 feet (790 m.) long, and for most of its length 40 feet (12.2 m) wide. It comprised 2.47 acres (just under 1 ha.).

The claimant's property was a vacant land parcel of some 55 acres, rising up the side of a fairly steep hill on the south side of Ladysmith, Vancouver Island. It was described as a "hooked" parcel, divided into two parts by a B.C. Hydro transmission line right of way, owned in fee by B.C. Hydro. A 46.05 acre portion of the property lay to the southwest (uphill side) of this Hydro strip. It was approximately triangular in shape, with the Hydro strip forming the long side of the triangle. It rose fairly steeply from the Hydro strip to the top of the hill, and was "flattest" in the area of the Hydro strip. The respondent's SRW was taken from the edge of this 46.05 acre portion, alongside the Hydro strip. The zoning on this portion of the property, both at the time of taking and at the time of hearing 8 years later, was an "urban rural residential" zone permitting single family lots of a minimum size of 7,190 square feet or 668 square metres.

The balance of the claimant's property, on the northeast (downhill side) of the Hydro strip, was unaffected. That part of the property was subsequently developed as a residential subdivision backing onto the Hydro transmission lines and adjoining other residential developments. Views from these developed lots to the east and north-east could be spectacular, looking over the Strait of Juan de Fuca, Texada Island, and beyond.

The Hydro right of way formed a barrier which had, up to the time in question, effectively prevented further development of the 46.05 acre portion "behind" the transmission lines. Nevertheless the claimant put to the board a theory of value which presumed the property would be further developed with single-family residential lots. A claim that it should be valued as a multi-family site was abandoned at the hearing. Only a 15 acre area alongside the Hydro right of way was said to be economic for development in the near term, because the rest of the property was so steep. The respondent's SRW lay in that developable area. The claim was that the SRW reduced the number of lots which could be developed, and hence caused a loss in value.

The respondent, by contrast, argued that its SRW had no significant effect on the development potential of the 46.05 acre portion. It submitted firstly that the property was not ripe for development in any event, given the very high development costs for this site and modest market of 1990-91. Even if one did attempt a development analysis, the SRW would lie over "back yards" in any future subdivision, and would not seriously impair the ability to build on lots, nor would it affect the number of lots which could be reasonably obtained. Much of the hearing time was occupied with discussions of the development potential of the property.

Because the respondent doubted that development of the 46.05 acre portion was realistic in the early 1990's, it argued that the property could be more realistically valued by comparison with sales of other acreage parcels with a low development potential.

The difference of opinion presented to the board was striking. The respondent said the market value of the SRW taken was nominal -- $1,000, and that there was no reduction in market value to the remainder. Since the claimant had already received an advance payment of $4,590, nothing more could be owing. The claimant, on the other hand, said that the real loss was to the remainder of its land. It argued it had lost development potential worth about $183,000. In addition, the claimant sought extra costs of access, which it said would be incurred in building special crossings over the respondent's right of way. It also sought compensation for "executive time" spent dealing with the expropriation; and of course it sought interest and costs. A claim for special economic advantage, although discussed in the materials, was not pursued at the hearing.

2. CLAIMANT'S EVIDENCE

The evidence presented to the board to support the claims was regrettably weak in places. No evidence at all was presented to support the claims for executive time and for crossing costs, with the result that the board has had to reject those claims.

The claims for market value of the land taken, and for reduction in market value to the remainder, were supported first by the evidence of Mr. Hugh Ney, one of the principals of the claimant. Mr. Ney had a background in engineering and development, but was not presented as an expert witness. He testified first as to the history of the property. It had been in his family (through holding companies) for many years. In 1988 the owner was under some financial pressure, and was persuaded by its banker to reduce its debt. In response to this pressure, Mr. Ney found some other investors, and with their help arranged for the present claimant to purchase the entire 55 acre parcel for $42,000. Mr. Ney was a principal of the companies on both sides of the transaction. Given these circumstances, the claimant argued that the 1988 sale should not be considered an arms' length market sale, and should be ignored in a valuation of the property.

Mr. Ney also testified as to the development of the property. The 9 acres below the Hydro transmission lines were developed in two stages in the 1990's. Mr. Ney had been responsible for development layouts. A preliminary layout approval ("PLA") supporting the 9 acre development had been received in June 1991 (a year after the taking). The plan underlying this PLA included a conceptual layout for a large number of lots (well over 100) for both single-family and multi-family residences on the rear 46.05 acres; however there was no suggestion in the evidence that these rear lots were to be developed at the time, or that the sketched layout was anything more than a concept. Much would have to be done, including possible rezoning, engineering and cost feasibility studies, and the obtaining of regulatory approvals for the detailed designs. The only work actually proceeded with was the development of the lower 9 acres below the Hydro lines.

Nevertheless, Mr. Ney testified that the claimant's longer term plans included continuing development up the hill, as circumstances permitted. Thus, to support the claimant's contention that development behind the Hydro lines was impaired by the respondent's pipeline and SRW, he submitted various conceptual plans for such further development. Again, Mr. Ney had been responsible for the key development layouts presented to the board. He had worked with an engineer (Rodney Smith) to determine the boundaries of practical development by reference to the topography, and had sketched conceptual layouts for single family lots and roads within that boundary. He had retained a B.C. Land Surveyor (Thomas Hoyt) to draw the lots, but Mr. Hoyt did little more than apply the concepts supplied to him by Mr. Ney, ensuring that the zoning requirements for minimum dimensions and areas were satisfied.

The result of this work was presented to the board as two plans -- one for 77 lots which assumed that the SRW was not a factor (a "before" layout), and another for 71 lots which took into account the presence of the SRW and a gas pipeline (an "after" layout). Thus, the claimant argued that the gas pipeline SRW had the effect of removing 6 potential development lots.

The engineer Rodney Smith also testified. He had estimated some of the costs of development of these two hypothetical subdivisions. Unfortunately it became clear that his work did not include all the development costs. Potentially substantial amounts for off-site development, survey, legal and management costs, taxes, the costs of providing double services (something he considered a necessary consequence of the steep topography), and the cost of land preparation, were omitted entirely.

Mr. Smith's additional contribution was to explain to the board in a general way why the gas pipeline SRW might reduce the development yield. Since the development would be on a hillside, with a road running across the hill parallel with the Hydro and gas rights of way, there would be housing both below and above the development road. Water and sewer services to the houses below the road would, in Mr. Smith's view, most likely be run through the back yards of those downhill lots, while services to the uphill lots would run in the road allowance. The alternative of placing all services in the road allowance would require a very deep trench if it were to be able to handle runoff from the lower lots.

Mr. Smith observed that backyard servicing to the lower lots would have been placed alongside the Hydro property, except that the gas SRW was now occupying that area. The result, he argued, was that the hypothetical development would have to be shifted uphill by the width of the gas SRW (mostly 12 metres). He also assumed that fill to cover these utility lines and to flatten the lower lots could not be placed on the gas SRW. These factors reduced the land practically available for development, and hence the number of lots which could be created.

In making these comments Mr. Smith conceded he was speaking generically, and that his comments did not relate specifically to the two plans put forward by Mr. Ney. Mr. Smith had not been asked to provide his engineering expertise to prove the feasibility of Mr. Ney's layouts and their likelihood of compliance with all local requirements. Also, it appeared from his evidence that there were various ways of servicing lots, and the exact choice would depend on a number of factors which had not been determined for the subject property.

Mr. Hans Heringa, another principal of the claimant and a contractor and developer by occupation, provided his own "ballpark" estimates, done in the fall of 1991, of what a development of the entire 46.05 acres might have cost assuming yet other layouts. Like Mr. Ney, Mr. Heringa did not testify as an expert, nor were the 129 lot or 140 lot plans on which he had based his costing ever shown to have been feasible from an engineering viewpoint. In view of the evidence in the hearing as to the very steep topography prevailing over much of the site, the board concluded that Mr. Heringa's development assumptions were never more than speculative.

Overall, the claimant's evidence for loss in market value to the remainder was weak. As mentioned above, it was based on the difference between anticipated developments of the land behind the Hydro strip "before" and "after" the SRW. However the board could not place much faith in the layouts suggested by Mr. Ney. Proposed development plans which are not proven through proper experts to be both feasible and optimal are of little use to the board. Without such support they are just speculations as to what might be possible. In this case there was no professional planning opinion presented by the claimant to support Mr. Ney's plans. Mr. Smith and Mr. Hoyt may together have had the necessary expertise, but they were not asked to be responsible for the layouts chosen. Their assignments were limited to other matters.

The board also observed that all of the claimant's various predictions as to the development prospects and costs were made after the SRW was an accomplished fact and the expropriation claim was under way. There was some evidence that the development plans may have been chosen more to advance the compensation claim than to support actual development in the near future. This factor, together with the apparent multiplicity of different conceptual layouts, none of which had been studied in detail, made the board somewhat cautious about accepting the claimant's development predictions.

In addition, the cost information presented by the claimants was either incomplete or was not related to Mr. Ney's plans except in a general way. Thus, the foundation evidence for a claim of loss in market value to the remainder was lacking.

Unfortunately, this evidence was then fed to the claimant's appraiser, Mr. Vic Sweett, who adopted it without change. Mr. Sweett presented an appraisal report which assumed the number of development lots would decline, because of the SRW, from 77 to 71, and that the costs of development would be simply those estimated by Mr. Smith. He did not do any independent verification of these base assumptions. In general his report lacked the kind of objective, skilled and independent testing of the evidence which one hopes to receive from an expert witness. These are the factors which make opinion evidence useful; without such objectivity, so-called "expert" evidence can become mere advocacy. Mr. Sweett calculated a "value of compensation due" of about $183,000 based largely on the claimant's assumptions; but the board could not give his valuation any weight, when its inherent frailties were understood.

Although Mr. Sweett also developed some market value evidence based on acreage parcels, his use of this evidence seemed somewhat cavalier. For example, having given the opinion that only 15 acres of the "back" portion of the property were currently developable, he nevertheless proposed that the remaining (undevelopable) acreage be valued at $7,500 per acre, a figure which was drawn from properties with access and some current development potential. The more appropriate data from his own report indicated a value of $3,000 per acre or less, as he conceded in cross-examination.

3. RESPONDENT'S EVIDENCE

The first witness for the respondent was James Fraser, a pipeline technician, who advised the board that in practice the respondent did not prevent surface owners from placing fill over its pipeline rights of way. This evidence removed an important assumption inherent in some of Mr. Smith's testimony that because one could not place fill over the SRW any practical development would have to be shifted uphill by the full width of the SRW. Claimant's counsel conceded that Mr. Fraser's evidence eliminated that particular argument.

The respondent's value evidence rested primarily on an appraisal report by Brian K. Davies of Interwest Property Services (1991) Ltd. Like the claimant, Mr. Davies concentrated on the "rear" 46.05 acres and valued this as if it were a separate parcel, to see whether the SRW had affected that value. He presented both a market comparison approach based on acreage parcels and also a subdivision development approach. However he concluded that subdivision was not economic in 1990/91, and hence that any value had to be found from the market evidence.

Mr. Davies' development approach was in turn based on the evidence of two other witnesses, both of whom were qualified before the board as experts in their areas.

Mr. Slade Dyer, a qualified planner, presented his view of the most likely development. He showed that except for some 15 acres nearest the Hydro lines, the balance of the property was too steep for practical development. (It is interesting that although the claimant did not concede this point, the actual development layouts presented by the claimant for this hearing occupied much the same 15 acres.) Mr. Dyer then presented his layouts of the 15 acre "developable" portion nearest the Hydro lines. He thought that one could create either 62 fee simple lots, or 69 bare land strata lots, and that the number of lots would be the same whether or not the SRW was considered. In other words he did not see the SRW as having any effect on the development potential of the property. It would lie within "back yards" of the affected lots. Although it would theoretically affect the amount of available building land on those lots, they were in general large enough that no lot would be rendered unusable.

Donald Bowins, a civil engineer, provided the board with his opinion as to the costs of development of Mr. Dyer's 62 or 69 lot layouts. He concluded almost $1.5 million for the 69 lot strata subdivision, and about $1.9 million for the fee simple layout. Although these figures were necessarily preliminary (no detailed engineering study having been done by any party), the same criticism was equally applicable to the claimant's cost figures. On balance it appeared to the board that Mr. Bowins' cost estimates were more thoroughly considered and more inclusive, and should be given greater weight.

The appraiser Mr. Davies then applied these cost estimates in looking at the viability of either of these two subdivisions. It was his view, based on market data, that lots would have been worth $26,000 each at the relevant time, whether fee simple lots or strata lots. (The board noted that this was similar to Mr. Sweett's estimate of $27,000 per lot). Mr. Davies anticipated a development time frame of about 11 years, consisting of a four-year holding period, one year for initial construction and rezoning, and about 6 years to sell the resulting lots at a rate of about 10 per year. With this background he prepared discounted cash flow spreadsheets from which he concluded that the net present value of development, seen from the beginning of the marketing period, was negative in each of the scenarios. In short, it was his view that the property was simply not "ripe" for development, and would not become so until lot values had risen considerably.

That being his opinion, Mr. Davies valued the land using comparative data from the sales of large acreages in the area. His data, after adjustments for time to the relevant date of September 1990, showed values from other properties ranging from about $1,600 per acre to about $7,500 per acre. Generally the higher values were achieved by properties with more imminent development prospects. The particular sale that resulted in almost $7,500 per acre was a 14.5 acre parcel immediately south of the subject, on the downhill "developable" side of the Hydro lines. Mr. Davies therefore saw this as the best comparable to the equivalent portion of the subject - namely the 9 acre developable (and now developed) portion below the Hydro strip, which was unaffected by the SRW.

Mr. Davies also included in his comparisons the 1988 sale of the subject parcel at $42,000. Even after adjustment for time this comparison gave the lowest acreage rate of all his comparisons at $1,116 per acre. He argued that this could be considered an "arms' length" sale and hence a valid indicator. It essentially showed that very little money was paid for the property up the hill behind the Hydro transmission lines; all the value was in the 9 acres below.

Mr. Davies' final use of the data was unusual. He chose not to use the $7,500 figure, and instead selected a mid-range $5,500 per acre which he applied to the lower 9 acres. He then took his time-adjusted figure from the 1988 sale of the subject, and subtracted the value he had arrived at for the developable 9 acres, to conclude that the entire 46.05 acres behind the Hydro lines was worth only the residual of $12,000. This approach therefore relied crucially on the actual sale of the subject in 1988.

Finally, Mr. Davies came to value the SRW itself. He surmised that the entire value of the back 46.05 acres in fact lay in the lower 15 acres which the planner had seen as the only practical area for development. The right of way itself was 2.47 acres, or about 1/6 of that area. By simple proportion, he concluded $2,000 for the fee simple value of the land in the SRW.

Finally, Mr. Davies suggested that since all that was taken was a right-of-way, the actual value of what was lost should be no greater than half of the fee simple value. He assigned a nominal value of $1,000 to the market value of the interest in land taken, and found no loss of value to the remainder.

4. DISCUSSION

The substantial issue before the board was whether there was a loss in value to the remainder of the land, after the partial taking of the SRW. The actual value of the interest in land taken was comparatively small. The parties diverged widely, however, on whether the taking affected the development potential of the remainder of the property.

The claimant attempted to show a substantial loss by a "before and after" approach, comparing the development possibilities with and without the SRW and gas pipeline in place. This would give a combined number for the market value of the land taken and the loss in market value to the remainder. However, the board has not been persuaded that in this case the taking of the SRW and the placing of a gas pipeline alongside the Hydro property would make any difference to the development potential of the remainder of the property. The board also concluded (see below) that the development approach was not appropriate in this case. Therefore the board concludes there was no effect on the market value of the remainder.

The board agrees with the respondent that the prospects for development of any part of this property behind (uphill from) the B.C. Hydro property were speculative and remote in late 1990. The most reliable evidence from both parties has convinced the board that the time was not right. Lot values would have had to rise considerably from the then prevailing levels of some $26,000 or $27,000 before development would be feasible on that difficult terrain. In addition there was the unknown cost of obtaining access across the Hydro property. Two entrances were needed before development would happen. Although witnesses assumed Hydro would grant access, the price was simply unknown. Orally, B.C. Hydro personnel had suggested various negotiating positions from which Mr. Bowins, for example, had concluded that the cost might be as high as $75,000.

Boards have held in the past that the development approach is to be avoided if development was too remote a prospect or if there were too many unknowns. An example is Eddy v. Minister of Transportation and Communications [1974] 7 L.C.R. 120 (Ont. L.C.B.). The board agrees that this is sensible advice, and therefore prefers to arrive at a value for the interest in land taken from the market comparison data.

However in the present case the market data itself is difficult to use, because the subject property is unlike any of the other comparables, having the combined difficulties (for most of its area) of very steep topography and no enforceable access. The only "comparable" which has the same difficulties is the 1988 sale of the subject itself, but that sale has problems of its own. Not only was it somewhat old requiring a two-year time adjustment, but the particular circumstances of the sale raise doubts. The fact that there was some financial pressure and that at least one party appeared on both "sides" of the transaction, suggest to the board that the transaction is an unreliable guide to the value of the subject land in September 1990.

The board is in the position of having to do the best that it can with the market data available from both parties. Although most of Mr. Sweett's comparables were smaller multi-family properties, three are of interest. Sales number 10, 11 and 14 are larger parcels. All three have views, none of them appear to have access problems, and it would appear that sales 11 and 14 could expect higher densities of development once sewer access was available. These comparables suggest values of between $3,000 and $5,000 per acre after adjustments.

Mr. Davies' comparables are of limited use since he did not complete a full direct comparison approach by making all the usual adjustments for size, development potential, and the like. Indeed he testified that he found none of his comparables had the topographical or access problems of the subject; in that sense they were not comparable. However he observed that some had similarly important restrictions on development through restrictive zoning or location in the Agircultural Land Reserve.

If one looks primarily to development density potential as a basis for choosing from among Mr. Davies' comparables, then the two best seem to be numbers 4 (700 sq.m. lots) and 9 (600 sq.m. lots). These lead to time adjusted values around $4,300 per acre and $5,700 per acre respectively.

The board has decided that given all the uncertainties a reasonable value to apply to the area of the SRW is $4,000 per acre. When this is multiplied by the 2.47 acres it indicates a fee simple value of $9,880. The board agrees with the respondent that the claimant has not in fact lost the full use of the area, and adopts the respondent's suggestion that the actual loss be valued at about 50% of the fee simple value. A strict 50% would be $4,940, but the board notes that the advance payment of $4,590 is close to this figure, and within the range of reasonable estimation of value. The board thus finds that the value of the interest in land taken was $4,590, which is equal to the advance payment. No loss in value to the remainder of the property has been proved.

There being no evidence of the other items of loss claimed, including executive time and the cost of building access across the SRW, these claims must also fail.

5. DECISION

The board finds that the market value of the land taken is $4,590, and that there is no loss in value to the remainder. Claims for disturbance damages or personal or business loss fail for lack of evidence. Since the claimant received an advance payment of $4,590 at the time of the taking, the advance payment was correct, and therefore all claims for further compensation are dismissed.

The claimant will have its actual reasonable legal, appraisal and other costs as determined by the Chair under the Expropriation Act. The board recognizes its discretion to award only partial costs in these circumstances, but has chosen not to exercise it.