Sarchuk
J.T.C.C.:—Marcus
Orzech
died
on
December
25,
1987.
At
the
time
of
his
death
he
was
the
owner
of
property
known
as
67
Richmond
Street
East,
Toronto,
Ontario
(the
property).
A
terminal
tax
return
was
filed
by
the
executor
of
the
estate.
In
this
return
the
fair
market
value
of
the
property
was
asserted
to
be
$95,000
on
December
31,
1971
and
$250,000
on
December
25,
1987.
The
Minister
of
National
Revenue
(the
Minister)
assessed
the
appellant
so
as
to
increase
the
taxable
capital
gain
from
the
deemed
disposition
of
the
property
by
the
amount
of
$246,500.
This
assessment
proceeded
on
the
basis
that
the
fair
market
value
of
the
property
was
$72,000
on
December
31,
1971
and
$720,000
on
December
25,
1987.
At
trial
counsel
for
the
appellant
and
for
the
respondent
advised
the
Court
that
each
party,
subsequent
to
the
assessment,
engaged
an
appraiser
to
provide
an
opinion
as
to
the
fair
market
value.
In
each
case
the
appraised
values
differ
from
the
amounts
pleaded.
More
precisely
the
appellant
now
asserts
a
value
as
at
December
25,
1987
of
$450,000.
The
respondent
counters
with
a
valuation
of
$677,000,
and
his
counsel
concedes
that
this
appraisal
will
necessitate
an
adjustment
by
way
of
reassessment
regardless
of
the
outcome
of
this
appeal.
Evidence
was
adduced
on
behalf
of
the
appellant
from
Gary
Orzech,
executor
of
the
estate
and
from
Ben
Grieco,
an
accredited
appraiser.
F.M.
Beharry,
also
an
accredited
appraiser,
testified
for
the
respondent.
The
property
The
property
is
located
on
the
south
side
of
Richmond
Street
East,
some
100
feet
east
of
Church
Street.
This
location
is
on
the
periphery
of
the
downtown
core
of
the
City
of
Toronto
defined
as
being
bounded
by
Front
Street
to
the
south,
Bloor
Street
to
the
north,
Church
Street
to
the
east
and
University
Avenue
to
the
west.
Richmond
Street
is
a
major
roadway
running
east
(one-way)
from
the
Don
Valley
Parkway
to
just
west
of
Bathurst
Street.
Other
arterial
roadways
such
as
Yonge,
Church,
Jarvis,
Adelaide
and
Bay
are
nearby.
Traffic
on
Richmond
Street
ranges
from
light
to
heavy
flow
depending
on
the
time
of
day.
The
immediate
vicinity
is
considered
to
be
fully
serviced
and
consists
of
a
mélange
of
property
types
including
municipal
buildings,
office
buildings,
multi-
pie
residential
buildings
and
parking
lots.
The
property
site
is
irregular
in
shape
with
a
frontage
of
approximately
20.73
feet
and
an
overall
depth
of
approximately
89.46
feet.
The
site
area
was
calculated
as
approximately
1,645
square
feet.
The
property
is
subject
to
a
right-of-way
for
a
laneway
over
its
most
westerly
boundary
in
favour
of
the
property
to
the
west.
The
right-of-way
has
a
frontage
of
4.73
feet
and
a
depth
45
feet.
In
turn
the
property
has
a
similar
right-of-way
over
the
property
to
the
west.
The
official
plan
for
the
City
of
Toronto
designates
the
area
as
medium
density,
mixed
commercial
and
residential.
The
property
itself
is
zoned
CRLTU350.
The
permitted
uses
range
from
basic
single
family
dwellings
to
lodging
houses,
nursing
homes,
retail
and
service
shops,
restaurants,
offices,
workshops
and
studios,
automobile
related
uses
and
warehousing
and
storage.
This
zoning
provides
for
a
site
coverage
of
two
times
the
site
area
for
exclusive
commercial
usage
and
four
times
the
site
area
for
mixed
commercial
and
residential
use.
The
property
is
improved
with
a
detached
two-storey
commercial
building
constructed
of
brick
and
block.
The
gross
area
of
the
building
is
approximately
2,870
square
feet.
The
age
of
the
original
section
is
estimated
to
be
80
years
while
a
two-storey
rear
addition
appears
to
be
approximately
40
years
old.
The
first
floor
has
a
leasable
area
of
approximately
1,000
square
feet
and
is
improved
with
a
restaurant,
which
consists
of
a
dining/bar
area,
a
kitchen
and
two
three-piece
bathrooms.
According
to
Grieco
at
the
time
of
his
inspection
in
1992
the
ground
floor
was
in
good
condition
but
lacked
storage
space
since
the
building
has
no
basement.
The
second
floor
has
1,100
square
feet
of
leasable
office
space
consisting
of
two
large
offices,
one
small
office,
a
general
business
area
and
two
small
washrooms.
Grieco
found
the
second
floor
to
be
in
very
poor
condition
with
evidence
of
water
damage.
In
his
opinion
the
improvements
reflected
a
high
level
of
physical
deterioration
and
functional
obsolescence
and
required
extensive
renovations.
As
at
the
date
of
disposition
the
second
floor
office
space
was
leased
to
a
drapery
business.
It
closed
shop
some
six
months
later
and
the
premises
have
been
vacant
at
all
times
since
then.
Orzech
conceded
that
the
second
floor
was
in
need
of
renovation
but
disagreed
with
Grieco
as
to
the
level
of
deterioration.
He
testified
that
he
was
not
aware
of
any
water
damage
in
the
premises
in
1992
(the
date
of
the
Grieco
inspection).
Orzech
added
that
he
had
no
intention
of
making
any
substantial
renovations,
pleading
poverty.
Fair
market
value—December
31,
1971
The
only
evidence
adduced
on
behalf
of
the
appellant
was
that
of
Orzech.
He
is
an
accountant
by
occupation
and
has
looked
after
the
property
since
1980
when
his
father
moved
to
Israel.
He
was
responsible
for
filing
the
tax
return
in
which
the
V-day
value
was
declared
to
be
$95,000.
This
valuation
was
obtained
from
a
letter
written
by
a
real
estate
salesman
dated
December
15,
1971
which
Orzech
found
in
his
father's
files
(Exhibit
A-1).
Orzech
said
he
had
no
reason
to
question
that
value
and
thus
acted
upon
it.
The
letter
was
not
tendered
as
an
opinion
of
value,
and
no
further
evidence
was
adduced,
Grieco
having
confined
his
appraisal
to
a
fair
market
evaluation
as
at
December
25,
1987.
I
have
concluded
that
the
V-day
value
asserted
on
behalf
of
the
appellant
is
not
supportable.
It
is
imperative
that
the
facts
upon
which
such
an
assertion
is
based
must
be
found
to
exist.
The
only
evidence
produced
was
the
letter.
It
would
not
be
appropriate
to
give
any
weight
to
it
or
to
Orzech’s
belief
in
its
validity
unless
it
can
be
shown
that
the
person
writing
the
letter
possessed
sufficient
expertise
in
the
subject
area
to
express
an
opinion.
As
the
author
was
not
called
to
testify
it
was
not
possible
for
the
respondent
to
challenge
his
qualifications
or
conclusion.
What
I
am
left
with
is
the
Minister’s
assumption
supported
by
the
evidence
of
his
appraiser,
Beharry.
In
general
I
find
his
selection
of
comparables
and
method
of
assessing
value
of
the
property
reasonable.
Utilizing
both
the
direct
comparison
and
the
cost
approach
he
concluded
that
its
fair
market
value
was
$72,000
as
at
December
31,
1971.
I
see
no
basis
upon
which
to
reject
this
conclusion.
Fair
market
value—December
25,
1987:
Appellant's
position
It
was
Grieco's
conclusion
that
the
highest
and
best
use
of
the
property
was
its
existing
use.
In
his
report
he
stated:
The
subject
property
has
a
small
site
area
and
is
situated
in
a
low
profile
area.
In
addition,
adjoining
properties
consists
[sic]
of
municipal
properties
and
historical
buildings.
Consequently,
redevelopment
of
the
site
or
assembly
with
other
lands
is
a
complicated
procedure
requiring
extra
time
and
risk.
Currently,
the
subject
is
used
as
a
commercial
building
with
restaurant
and
office
space.
The
existing
use
is
considered
the
highest
and
best
use
due
to
the
difficulties
in
redeveloping
the
neighbourhood.
The
subject
property
is
a
small
building
suited
for
an
owner/user.
An
investor
would
discount
its
market
value
for
the
extra
complications.
Three
approaches
were
considered
by
Grieco,
the
direct
comparison
approach,
the
cost
approach
and
the
income
approach.
He
concluded
that
since
it
is
"a
small
investment
property
suited
for
an
owner/user"
the
direct
comparison
approach
provided
the
best
indication
of
value.
He
rejected
the
cost
approach
as
inappropriate
due
to
the
difficulty
in
obtaining
comparable
land
sales
and
quantifying
depreciation
and
considered
that
the
income
approach
was
not
a
good
indicator
since
the
property
was
small
with
a
low
level
of
income.
Based
on
the
direct
comparison
approach
he
determined
that
the
market
value
of
the
subject
property
as
of
December
25,
1987
was
$450,000.
Respondent's
position
Beharry
determined
that
the
highest
and
best
use
of
the
property
“is
a
holding
use
for
redevelopment
with
an
adjoining
lot’.
He
noted
that
in
its
retail
and
commercial
use
the
property's
improvement
conforms
to
the
zoning
regulations.
He
also
noted
that
the
zoning
permits
a
mixture
of
residential,
commercial
and
retail
uses
with
a
“mix
constant
of
four
times
the
area
of
the
lot".
In
his
view,
as
at
December
25,
1987
the
lot
appeared
to
have
been
under-utilized.
In
reaching
his
conclusion
as
to
highest
and
best
use
he
took
into
account
the
limited
width
of
the
site
and
other
relevant
factors
including
the
unpredictability
of
the
demand/supply
element
with
respect
to
commercial
or
retail
space
in
that
neighbourhood.
Beharry
utilized
two
methods,
the
cost
approach
and
the
direct
comparison
approach.
From
his
report
and
testimony
it
is
clear
that
the
greatest
emphasis
was
placed
on
the
direct
comparison
method.
His
estimate
of
value
as
at
December
25,
1987
was
$677,000.
Conclusions
(a)
Highest
&
best
use
Because
any
use
contemplated
must
be
one
that
is
reasonably
feasible
in
an
economic
sense,
it
is
imperative
that
appraisers
focus
on
the
market
conditions
as
they
existed
at
the
relevant
time.
It
is
that
demand
which
is
relevant.
For
the
appraisal
to
be
appropriate,
it
must
consider
the
existing
and
reasonably
foreseeable
future.
Both
Beharry
and
Grieco
violated
this
general
rule
albeit
to
different
degrees.
In
his
appraisal
report
(and
testimony)
Grieco
made
a
number
of
references
to
market
conditions
and
to
the
decline
in
property
values
in
the
years
1989
to
1992.
Typical
of
these
references
is
the
following
comment
found
in
his
report:
The
1991
real
estate
market
continues
to
be
slow
at
best.
Although
interest
rates
are
at
low
levels,
the
market
has
generally
not
improved
due
to
recession,
high
unemployment
rate
and
the
lack
of
business
and
consumer
confidence.
In
the
short
run,
the
real
estate
market
is
not
expected
to
fully
recover
and
economic
turn
around
will
be
a
slow
process.
Other
facts
were
also
considered
by
him
which
upon
closer
examination
were
shown
to
have
occurred
after
1987.
By
way
of
example:
in
his
report
he
referred
to
the
adjacent
building
as
"boarded
up"
which
gave
“the
general
vicinity
an
economically
depressed
image”.
In
fact
in
1987
the
building
was
in
commercial
use
and
remained
so
until
1989.
Grieco's
testimony
as
a
whole
left
me
with
the
impression
that
his
conclusions
were
coloured,
perhaps
inadvertently,
by
subsequent
events.
There
is
no
evidence
to
suggest
that
a
recession
was
foreseeable
in
December
1987.
To
the
contrary
at
that
time
an
owner
of
property
in
this
area
would
have
had
every
reason
to
believe
in
the
continued
expansion
of
the
real
estate
market.
Given
the
highly
volatile
real
estate
market
in
1987
(Grieco
stated
that
generally
the
annual
increase
in
property
values
from
1986
to
the
end
of
1988
was
between
25
per
cent
and
50
per
cent
and
that
the
real
estate
market
became
active
to
the
point
that
demand
outstripped
supply)
it
cannot
seriously
be
argued
that
the
absence
of
redevelopment
in
the
immediate
area
in
the
years
subsequent
to
1987
was
predictable.
I
am
satisfied
that
the
use
to
which
the
property
could
be
put
was
greater
than
its
current
use,
even
taking
into
account
its
physical
limitations.
Grieco
did
not
categorically
reject
future
development
but
limited
its
application
to
the
property
on
the
basis
that:
The
subject
is
a
small
parcel
and
would
not
be
a
good
starting
point
for
land
assembly.
Instead,
the
subject
would
most
likely
be
acquired
after
development
proposals
were
started
on
the
larger
adjoining
properties.
This
is
not
substantially
different
than
Beharry's
conclusion
that
the
best
use
of
the
property
was
a
holding
use
for
redevelopment
with
an
adjoining
lot.
If
they
differ
it
appears
to
be
because
Grieco,
while
not
entirely
rejecting
the
potential
of
the
property,
considered
that
redevelopment
in
the
general
area
would
be
a
slow
and
complicated
process.
Beharry
also
made
reference
to
changed
conditions
in
the
early
1990s
but
his
conclusion
appears
to
have
been
influenced
by
that
fact
to
a
lesser
degree
than
that
of
Grieco.
In
my
view
Beharry's
opinion
that
the
highest
and
best
use
of
the
subject
land
was
as
a
holding
property
for
future
albeit
limited
development
lends
itself
better
to
an
evaluation
of
the
property's
fair
market
value.
(b)
Value
Both
appraisers
relied
principally
on
the
direct
comparison
method,
a
technique
commonly
used
by
appraisers
in
property
valuation.
Since
rarely
are
two
properties
identical,
this
approach
relies
upon
acts
of
comparison
which
are
only
valid
if
truly
comparable
in
terms
of
time,
location
and
physical
characteristics.
Thus,
it
is
a
most
appropriate
method
where
there
is
evidence
of
a
fair
turnover
of
properties
within
those
parameters.
In
circumstances
where
either
no
sound
comparative
data
is
available
or
where
the
comparables
utilized
are
less
than
convincing,
estimates
of
market
value
are
very
dependent
on
the
experience,
astuteness
and
common
sense
of
the
appraiser.
In
this
case
the
two
reports
filed
and
the
evidence
of
both
appraisers
indicate
a
dearth
of
truly
comparable
properties.
The
result
is
that
adjustments
were
required
and
were
applied
to
the
comparables
used
by
each
appraiser
to
enable
them
to
arrive
at
their
notional
valuation.
Both
appraisers
were
vigorously
challenged
in
cross-examination
and
neither
left
the
witness
stand
unscathed.
I
do
not
propose
to
canvass
their
testamentary
shortcomings
in
detail,
but
a
specific
comment
regarding
adjustments
is
warranted.
The
process
is
understandably
quite
subjective,
therefore
care
must
be
taken
not
to
load
the
adjustments
in
favour
of
one's
client.
Grieco
and
to
a
lesser
extent
Beharry
left
me
with
the
impression
that
an
appropriate
degree
of
care
was
not
exercised.
Grieco
used
five
comparables,
111-115
Church,
67
Lombard,
191
Church,
216
Carleton
and
197
Church.
From
an
analysis
of
these
comparables
he
determined
square
foot
unit
rates
ranging
from
a
high
of
$223.75
(57
Lombard)
to
a
low
of
$175
(216
Carleton)
and
concluded
that
a
unit
rate
at
the
lower
end
of
the
scale
was
more
reflective
of
the
market
value
of
the
property.
After
making
his
"adjustments"
he
selected
a
unit
rate
of
$156
per
square
foot
"as
being
reasonable".
The
property
has
a
gross
building
area
of
2,878
square
feet
which
at
the
unit
rate
selected
produced
a
market
value
of
$448,968
(rounded
to
$450,000).
I
note
that
the
low
end
of
his
range
could
only
be
established
by
the
inclusion
of
216
Carleton,
located
beyond
the
downtown
core
just
west
of
Parliament
Street.
Grieco
maintained
that
although
it
was
some
distance
from
the
property
the
values
on
Carleton
were
“about
the
same
as
Richmond
Street".
Beharry’s
evidence
was
that
this
property
was
not
comparable
in
any
sense
of
the
word.
I
accept
Beharry’s
position
on
this
point.
My
conclusion
is
that
Grieco's
opinion
as
to
the
value
of
the
property
is
disproportionately
low.
His
adjustments
were
quite
properly
challenged.
For
example,
he
found
that
additional
downward
adjustments
were
necessary
for
the
“superior
condition"
of
111-115
Church.
In
his
analysis
of
the
various
comparables
he
referred
to
this
property
as
a
two-storey
retail/office
building,
completely
renovated.
The
property
actually
consisted
of
a
small
two-storey
building
at
111
Church
and
a
larger
two-storey
building
at
113-115
Church.
Renovations
to
convert
them
from
retail,
office
and
dwelling
units
to
retail
and
office
space
were
not
completed
until
1988.
Grieco,
however,
“assumed”
that
what
he
saw
reflected
the
building’s
condition
in
1987.
It
is
inevitable
that
this
assumption,
which
was
wrong,
affected
his
adjustments.
As
well,
for
the
purposes
of
the
trial
Grieco
prepared
an
"adjustment
analysis".
This
document
(Exhibit
A-11)
and
his
explanation
of
the
methodology
used
confirmed
my
view
that
his
adjustments
were
“required
result
driven".
Beharry
utilized
as
comparables
two
of
the
same
properties,
111-115
Church
and
67
Lombard.
His
third
comparable
was
127
Queen.
He
also
considered
using
both
191
and
197
Church
but
upon
investigation
discovered
conflicting
information
regarding
these
two
properties.
Discrepancies
existed
between
the
information
provided
by
the
appellant
and
building
sketches
and
films
compiled
by
Revenue
Canada
for
V-day
purposes.
The
latter
suggested
that
the
building
area
for
each
of
the
properties
was
3,014
square
feet,
less
than
that
asserted
by
the
appellant.
Beharry
obtained
all
information
available
from
the
city
archives
with
respect
to
these
two
properties
but
was
unable
to
reconcile
the
discrepancies.
He
then
searched
microfiche
records
and
building
plans
for
191
Church
at
the
Metropolitan
Toronto
offices
but
found
it
was
not
possible
to
calculate
the
size
of
the
property
from
the
material
available.
With
respect
to
197
Church
he
learned
that
a
building
permit
had
been
issued
in
July
1991
for
$100,000
for
an
addition
and
external
renovations.
This
further
complicated
his
efforts
to
determine
the
actual
size
of
the
buildings
as
at
the
relevant
date.
In
order
to
attempt
to
reconstruct
what
had
occurred
he
personally
measured
the
property
but
still
could
not
reconcile
the
discrepancies.
Since
he
had
no
way
of
substantiating
the
actual
building
sizes
as
at
the
relevant
date
he
believed
it
would
be
inappropriate
to
use
these
properties
as
comparables.
Based
on
his
three
comparables
Beharry
concluded
that
the
unadjusted
range
per
square
foot
of
building
was
$191
(111-115
Church)
to
$257
(127
Queen).
In
his
opinion
a
reasonable
and
acceptable
adjusted
medium
was
approximately
$235
per
square
foot
of
building.
This
in
turn
translated
into
a
market
value
of
$720,000
(rounded).
On
balance
Beharry
was
somewhat
more
discriminating
in
his
approach
to
selecting
comparables.
That
is
not
to
say
that
I
am
entirely
satisfied
with
them
or
by
Beharry’s
method
of
making
adjustments.
In
particular
I
refer
to
the
third
comparable,
127
Queen,
which
is
subject,
albeit
to
a
lesser
extent,
to
the
same
criticisms
levied
with
respect
to
Grieco’s
use
of
216
Carleton.
I
am
satisfied
that
development
within
the
foreseeable
future
could
be
reasonably
expected
in
1987.
Having
considered
the
evidence
of
both
appraisers
in
the
final
analysis
Beharry's
experience,
his
familiarity
and
knowledge
of
the
area,
and
his
selection
of
comparables
generally
commend
themselves
to
me.
However
I
also
find
that
the
physical
nature
of
the
property
affects
its
potential
for
development
and
this
factor,
while
considered
by
Beharry,
was
not
adequately
reflected
in
his
final
opinion
as
to
value.
On
the
evidence
as
a
whole
I
have
concluded
that
the
fair
market
value
of
the
property
as
at
December
25,
1987
was
$590,000.
In
forming
my
opinion
I
am,
inter
alia,
disregarding
the
Carleton
Street
comparable
utilized
by
Grieco
and
giving
substantially
less
weight
to
the
Queen
Street
comparable
used
by
Beharry.
In
reaching
this
conclusion
I
am
mindful
of
comments
made
in
Walsh
J.
in
Bibby
Estate
v.
The
Queen,
[1983]
C.T.C.
121,
83
D.T.C.
5148
at
page
131
(D.T.C.
5157):
While
it
has
frequently
been
held
that
a
Court
should
not,
after
considering
all
the
expert
and
other
evidence
merely
adopt
a
figure
somewhere
between
the
figure
sought
by
the
contending
parties,
it
has
also
been
held
that
the
Court
may,
when
it
does
not
find
the
evidence
of
any
expert
completely
satisfying
or
conclusive,
nor
any
comparable
especially
apt,
form
its
own
opinion
of
valuation,
provided
this
is
always
based
on
the
careful
consideration
of
all
the
conflicting
evidence.
The
figure
so
arrived
at
need
not
be
that
suggested
by
any
expert
or
contended
for
by
the
parties.
The
appeal
is
allowed
and
the
matter
is
referred
back
to
the
Minister
for
reassessment
on
the
basis
that
the
fair
market
value
as
at
December
31,
1971
was
$72,000
and
as
at
December
25,
1987
was
$590,000.
A
motion
for
costs
made
by
the
respondent
at
the
conclusion
of
the
trial
was
adjourned
since
I
was
of
the
view
that
issue
should
await
the
determination
of
the
appeal.
Counsel
have
the
right
to
speak
to
the
matter
and
may
apply
to
have
a
date
set
for
that
purpose.
Appeal
allowed.
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