One Sunday each month OnPoint Legal Research provides Slaw with an extended summary of, and counsel’s commentary on, an important case from the British Columbia, Alberta, or Ontario court of appeal.
Victory Motors (Abbotsford) Ltd. v. Assessor of Area No. 15 – Fraser Valley, 2017 BCCA 295
AREAS OF LAW: Property assessment; Contamination; Value to owner; Market value
~ In assessing the value of a property, when there is no commercial market for it but it has value to its owner, that owner can serve as a proxy for a competitive market. ~
The Respondent, Victory Motors (Abbotsford) Ltd., owns property on a main commercial corridor in Abbotsford. The property has historically been operated as a gas station, and has underground tanks where gasoline was stored. Over time, the property became vacant and fell into disrepair. In 2007, the neighbouring business was unable to sell its property because an environmental assessment disclosed the presence of contamination which had migrated from the property. The owner of Victory Motors, Ms. Webber, listed it for sale for approximately $1.2 million, but she was unable to sell it. She declined the neighbour’s offer to buy it for $1. In June 2012, the owner of the neighbouring property used a numbered company to buy Ms. Webber’s shares in the Respondent. The numbered company paid Ms. Webber $42,363.24 to cover outstanding taxes and fees. Although the contamination has been verified, the property is not listed on BC’s Contaminated Sites Registry, nor has any remediation been ordered. The new owner renovated the existing building into multi-tenant commercial use, being careful not to undertake any work that would require remediation. He spent between $700,000 and $800,000 on the renovations. Two tenants were secured and a third being considered by 2013. For 2013, the Appellant, the Assessor of Area No. 15 – Fraser Valley, assessed the property at $975,000. The Respondent objected, and the Property Assessment Review Panel reduced the amount to $500,000. The Respondent appealed this to the Property Assessment Appeal Board. The Appellant Assessor called an appraiser as a witness, and tendered the appraiser’s report as an exhibit. The report was prepared in accordance with the standards of the Appraisal Institute of Canada, and adopted that organization’s definition of market value. The appraiser considered the highest and best use of the property to be its current use as a one-storey renovated building, and not as a two-storey mixed use redevelopment that would require remediation. The appraiser set out several approaches to determining market value, and concluded that the “income approach” was the best one to apply. Using this approach, the property was valued at $1,080,000. The Respondent took the position that the property had no value, because of the contamination, or that it was only worth the $42,363.24 that had been paid to Ms. Webber. The Board accepted the appraiser’s evidence and restored the original $975,000 assessment. This decision was referred to the BC Supreme Court. The chambers judge found that the income approach failed to produce an assessment that could reasonably be expected to reflect market value, and was therefore not in the range of acceptable outcomes. The appeal from the Board’s decision was allowed and the matter remitted to the Board for reconsideration.
The appeal was allowed. The Court of Appeal noted that the chambers judge’s decision attracted a standard of review of correctness, while the reasonableness standard applied to the Board’s decision. The central issue was whether the Board erred in principle in attributing a market value to a contaminated property of value to its current owner, but for which no competitive market exists. The chambers judge found that the Board erred by falling into the “trap” revealed in the Court of Appeal’s decision in Southam Inc. v. British Columbia. However, after the chambers judge rendered his decision, a five-judge division of the Court of Appeal held that Southam was wrongly decided: Assessor of Area #01 – Capital v. Nav Canada, 2016 BCCA 71. When there is no market for a property that has value to its owner, that owner can serve as a proxy for a competitive market. The property clearly had value to the owner in this case, or it would not have invested hundreds of thousands of dollars in it. Furthermore, it was open to the Board to reject the price paid to Ms. Webber as being indicative of the maximum value of the property. The Board’s decisions were reasonable.
Comments provided by R. Bruce Hallsor, Q.C. and Colin G. Simkus, Counsel for the Appellant
The Court of Appeal’s recent decision in Victory Motors provides important clarification to not only the assessment of contaminated properties for property tax purposes, but also to the consideration of objective value versus subjective value in assessment more broadly. Furthermore, the Court of Appeal’s decision makes salient determinations with regard to the amount of deference owed to the Property Assessment Appeal Board (the “Board”) on judicial review, and the Board’s exclusive jurisdiction over factual findings.
Most importantly, the Victory Motors decision affirms that valuations of contaminated properties must be free from speculation. In short, when assessing a contaminated property, neither the Assessor nor the Board can give consideration to potential contamination-related liabilities, unless the liabilities ‘run with the land’, and there is evidence demonstrating a reasonable possibility (i.e. greater than 50% chance) that the costs associated with those liabilities will actually be incurred. Here, the contamination was present, but the possibility of remediation-costs being incurred was speculative.
By contrast, the value that the income-generating subject property produced for the owner was not speculative nor subjective. The Court of Appeal reached this conclusion after considering its recent five-justice panel decision in Nav Canada (2016 BCCA 71). In Nav Canada, the Court of Appeal reversed its previous decision in Southam (2004 BCCA 245) and instead concluded that, for the purposes of assessing a property that has no market (such as certain contaminated properties), the current owner can be considered to be ‘a proxy for a competitive market’.
As such, the properly-adjusted capitalized value of the income-stream that the owner enjoyed from the property could support an objective assessed value of the property. In other words, even where no other purchaser is readily identifiable and the contamination impedes the conversion of the property to a higher and better use, an income generating contaminated property can still be valued based on a properly-adjusted estimate of the income that the current owner generates from that contaminated property.
It should be noted that the B.C. Supreme Court decision in Victory Motors was decided prior to the Court of Appeal’s reversal of Southam in Nav Canada. As such, the lower court decision understandably followed and applied Southam. Therefore, the Court of Appeal decision in Victory Motors properly ensured that the case law pertaining to the assessment of contaminated property was brought into conformity with Nav Canada.
The Victory Motors decision is also relevant with regard to the applicable standard of review to be applied by the reviewing court when judicially reviewing the Board’s decision. The B.C. Supreme Court had declined to conclusively select as between the correctness and reasonableness standards; however, again, the Court of Appeal had the benefit of a decision that was released subsequent to the lower court’s decision.
In Edmonton East (2016 SCC 47), the Supreme Court of Canada confirmed that an assessment appeal tribunal, like the Board, is entitled to deference when interpreting and applying its home statute – in this case, the Assessment Act. In Victory Motors, the Court of Appeal crucially confirmed that the Edmonton East decision is definitive of the standard of review applicable to the Board in such instances, and properly applied a deferential review of the Board’s decision.
Finally, the Court of Appeal was also deferential to the Board’s exclusive jurisdiction over findings of fact. The Board had concluded that the 2012 share-sale of the subject property for $1 plus tax arrears and an indemnity was not reflective of market value, but the $1 sale of the property by a disinterested widow in her 90s by a business who was suing her was not necessarily reflective of market value because the sale may have been tainted by duress and the disinterested widow’s personal circumstances.
The B.C. Supreme Court had questions whether the widow had actually suffered ‘duress’ in the contract law sense, and faulted the Board’s factual determined. However, the Court of Appeal properly noted that the question is not whether the widow was entitled to a contractual remedy, but whether the $1 sale should be treated as an indicia of market value. The Court of Appeal found that there was evidence that allowed the Board to conclude that the sale was not a reliable indicia, and accordingly, the Board’s factual determination is non-justiciable by the reviewing courts. In doing so, the Court of Appeal correctly reinforced the proper role of the reviewing court in a stated case proceeding.