Community Shopping Developments Ltd. v. The Queen, 83 DTC 5071, [1983] CTC 60 (FCTD)

Mahoney, J:—The plaintiff acquired a block of 59.3 acres of land on the southerly extremity of the City of Edmonton on November 27, 1961, at a price of $4,000 per acre. Certain of the land was expropriated after acquisition. On February 1, 1974, the plaintiff sold the remaining 56.22 acres for $45,357 per acre. Purchase and sale were both arm’s length transactions. The only issue for determination by the Court is the fair market value of the land on Valuation Day, December 31, 1971. After deducting certain development costs and disposition expenses, the plaintiff, in reporting the gain on the sale simply prorated the gain on a straight line for the 120 months it had owned the property prior to December 31, 1971, and the 25 months thereafter to arrive at a Valuation Day value of $37,756 per acre.

The subject property is a quadrilateral about /4 mile east to west and / mile north to south in its dimensions with the west boundary somewhat longer than the east and the north slightly longer than the south. Its west boundary abuts 106 Street and its north boundary the Whitemud Freeway. Vacant land abuts on the east and the southbound lanes of the Calgary Trail front that vacant land a couple of hundred feet further east. The south boundary abuts private property along most of its length with 105 Street stubbing onto it. An oil pipeline crosses the property east to west. About % of the property lies south of the pipeline. The evidence is that this easement and pipeline would not detract from the value of the land; it is a large enough parcel that they could be taken into account in a subdivision layout without loss of overall value. The zoning was, at all material times, a special agricultural holding status that would have readily permitted rezoning for the use contemplated by the City’s outline plan for land use in the area which was the use agreed by the experts to have been its highest and best use. All utility services were available at the boundary and the surrounding area was in the process of development which was expected to, and in fact has since, left the subject along with the land abutting to the east an island of vacant land in a sea of development. The fact that the plaintiff and the purchaser have held the property is so far futile efforts to rezone it for a regional shopping centre rather than the use contemplated by the City’s outline plan is irrelevant. The northerly portion of the subject was lowlying and wet requiring stripping and disposal of organic material and a considerable amount of fill. The evidence is that this was not a factor affecting the value of the property in view of the fact that a considerable quantity of fill was available free from nearby developments and the cost of stripping and disposing of the Organic material and levelling the fill was insignificant in the context of the property’s value.

Three witnesses testified. Brian Jerry, an officer and shareholder of the plaintiff, who owns 5% of its shares and whose father owns 90%, is an experienced real estate developer. He went through the arithmetic exercise which the plaintiff would go through if it wished to value the particular parcel. He concluded that the value attributable to the land as at December 31, 1971, was $2,409,000 or $42,849.52 per acre. His evidence was, in my view, admissible, not as expert evidence if for no other reason than that the requirements of the Rules respecting expert evidence had not been complied with, but simply because anyone is entitled to state the value he places, or placed, on his own property at a given time, for what that opinion is worth. I attach no great weight to this evidence.

Each party called an expert witness. They agreed that the highest and best use for the land was its subdivision for a mix of single family and medium density housing and complementary commercial development and each adopted, as the preferred approach to valuation, a relation of the property to properties subject of comparable transactions.

The expert called by the plaintiff considered five sales of nearby properties:

No. 1, across 106 Street from the subject, 2.28 acres, sold in November, 1972, for $87,719 per acre.

No. 2, 0.25 miles west, 5.66 acres, sold in February, 1971, for $61,837 per acre.

No. 3, 0.25 miles south, 4.92 acres, sold in April, 1971, for $65,860 per acre.

No. 4, 0.08 miles southeast, 4.93 acres, sold in November, 1971, for $68,965 per acre.

No. 5, 0.80 miles north, 5.86 acres, sold in February, 1971, for $59,727 per acre.

Those properties had all been zoned for commercial or multi-family residential use. The expert concluded that, at the time, there was no difference in the value of land available for commercial and medium density residential development. On the basis of the above transactions, after appropriate but unquantified adjustments, the plaintiff’s expert concluded that such of the land as would be so used was woth $65,000 per acre.

By another exercise, which I do not propose to analyse in detail because the defendant’s expert came to a very similar result, the plaintiff's expert concluded that the land used for single family dwellings was worth $13,000 per acre. He than assumed that half the land, less a required 10% dedication to public use, would be used for medium density residential and commercial use and the remaining half for single family residential. He further thought the possibility of the entire parcel being permitted to be developed commercially was sufficiently strong that a prospective purchaser would be willing to pay a 15% to 20% premium. His calculation, in summary, follows:

He rounded his estimate to $2,200,000, which, in his opinion, was the fair market value of the property December 31, 1971.

The defendant’s expert was of the opinion that the property had a fair market value December 31, 1971, of $12,000 per acre. I do not propose to deal further with his report because I am at a complete loss, and nothing in his testimony helped me, to reconcile that opinion with the opinion he expressed in Ex P-3, a Valuation Day appraisal for a taxpayer, that 10.93 acres located between 108A and 106A Streets on the north side of the Whitemud Freeway, little more than a stone’s throw from the subject, was worth $1,860,000 or $170,000 per acre. It, too, was based on an analysis of “comparable sales”. That land was zoned R-5 and so it was entirely available for medium density residential development and no doubt, therefore, worth something, probably considerably, more per acre than the subject. Given the expert’s premise that the highest and best use of the subject would entail some, albeit in his case undefined, amount of medium density housing and accepting that it might not have been as dense as that permitted by an R-5 zoning, and that smaller parcels tend to sell for more per unit of measurement than larger, but otherwise comparable, ones, I simply cannot accept a 1300% differential in the unit value of two such proximate vacant parcels as of the same date. It is incredible and, in the absence of explanation, renders this expert’s opinion completely unreliable.

I do not accept the opinion of the plaintiff’s expert either. Its bases are too uncertain as it relates to the medium density and commercial valuation of $65,000 per acre. The so-called comparable transactions all involved much smaller parcels zoned and ready for their end use, not requiring the intervention of a developer to bring them to that stage. They were not really comparable. The 50:50 split between medium density residential and commercial on the one hand and single family residential on the other is entirely arbitrary. The adjustments said to have been made were not explained in a way to permit the Court to assess their validity and, thus, the validity of the conclusion reached. In effect, I am asked to do what I cannot: to accept the expert’s conclusion on faith in his expertise alone.

The increment in value of the subject from its date of acquisition to its date of disposition probably occurred at an uneven rate. Nevertheless, the increment occurred and there is no evidence that, prior to valuation day, it occurred at a different overall rate than after. Certainly, by valuation day, the property was as ripe for subdivision and development for its highest and best use, which was compatable with Edmonton’s outline plan, as it was when sold. Considering the length of time it was held and the absence of special circumstances affecting the property or its marketability, the method adopted by the plaintiff in its tax return seems to me to be not only fair and reasonable but considerably more reliable as a basis for a correct determination of fair market value at a given date than the rented opinions of practitioners of the artifices of land valuation.

The assessment will be referred back for reassessment on the basis that the fair market value of the subject property on December 31, 1971, was $37,756 per acre, or $2,122,643. There are other matters raised by the pleadings which were settled by the parties but must be dealt with in the judgment. The plaintiff may submit a draft judgment, preferably approved as to form by the defendant. Judgment shall not issue until settled by the Court. The plaintiff is entitled to its taxed costs on the basis of this having been a Class III action throughout.