Reiss Estate v. R., 98 D.T.C. 1455, [1998] 2 C.T.C. 3136

Garon T.C.J.:

1 This is an appeal from a reassessment in respect of the late Jan Reiss for the 1990 taxation year. By his reassessment, the Minister of National Revenue computed the taxable capital gain made by Mr. Jan Reiss on the deemed disposition of his 50% interest in a parcel of land situated in Dartmouth, Nova Scotia, on the basis that the fair market value of the land on December 31, 1971 “was no more than $131,000” and “no less than $1,700,000” on January 12, 1990, the day of Mr. Jan Reiss' death.

2 At the hearing of this appeal, the parties were agreed that the total area of the lands in respect of which the fair market values are to be established is 25.89 acres.

3 Taking into account the revised area of the subject lands, the Appellant has, at the hearing of this appeal, submitted that the fair market values of the latter property are on the dates indicated below as follows:

$ 375,000	-	December 31, 1971
$1,168,000	-	January 12, 1990.

4 For her part, the Respondent has on the same basis established the fair market values of the subject property as follows:

$ 129,500	-	December 31, 1971
$1,700,000	-	January 12, 1990.

• A) The subject lands with an additional portion which was expropriated sometime after December 31, 1971 had initially been acquired in 1956 by Dr. Anne Hammerling on her behalf and on behalf of her cousin, Mr. Jan Reiss, each holding a 50% interest in such property.

• B) At the time of his death, Mr. Reiss still owned a 50% interest in the above parcel of land. The remaining 50% continued to be owned by Dr. Anne Hammerling.

• C) Pursuant to subsection 70(5) of the Income Tax Act, Mr. Reiss was deemed to have disposed of his interest in the property immediately before his death at fair market value.

6 As is apparent from the above, the issue in this appeal has to do with the determination of the fair market values of the lands in question on December 31, 1971, referred to below as V-day, and on January 12, 1990, hereinafter described as the 1990 valuation.

7 Two appraisal reports were filed with the Court on behalf of the Appellant. The appraisal report valuing the land on December 31, 1971 was signed by Mr. Lee Weatherby of the firm Turner Drake & Partners Ltd. The second appraisal report estimating the value of the land as at January 12, 1990 was co-signed by Mr. Paul A. Hare and Mr. Lee Weatherby of the same firm Turner Drake & Partners Ltd.

8 Mr. Lee Weatherby testified as an expert witness on behalf of the Appellant.

9 For the Respondent, a single appraisal report in which an opinion is expressed as to the values of the subject lands as at December 31, 1971 and January 12, 1990 was tendered in evidence.

10 Mr. Bill Chappell of Revenue Canada deposed as an expert witness for the Respondent.

Appellant's evidence

11 I will first examine the evidence regarding the V-day value of the property in question.

12 Mr. Weatherby is an Associate, Royal Institution of Chartered Surveyors of the United Kingdom. He worked for four years in the United Kingdom as a valuation surveyor with the Board of Inland Revenue. He moved to Canada in 1981. In 1983, he became an accredited appraiser with the Appraisal Institute of Canada. In 1991, he was made a fellow of the Royal Institution of Chartered Surveyors.

13 In 1981, Mr. Weatherby joined Turner Drake & Partners Ltd., an appraisal firm which operates in the Atlantic provinces. This firm began its operations in 1976 and has grown to 13 employees. That firm has diversified its activities and now has a brokerage sales division and a leasing division. Nevertheless, its primary focus is on real estate appraising and consulting work.

14 When Mr. Weatherby joined in 1981 Turner Drake & Partners Ltd., he was a senior consultant; in 1983 he became vice-president of Turner Drake & Partners Ltd., one of three vice-presidents. At that time, he conducted “valuation and consulting assignments on a wide range of real estate, primarily commercial, industrial and investment real estate and land.” With that firm, Mr. Weatherby's responsibilities for the past ten or 12 years extended to supervising and assisting with the training of other employees.

15 Mr. Weatherby proceeded to give a general overview of the general area where the subject property is situated.

16 Mr. Weatherby proceeded to explain that the subject property is located in Dartmouth, Nova Scotia, which was the twin city of Halifax before amalgamation which occurred in 1996. Halifax lies on the west side of the Harbour and Dartmouth is on the east side of the same Harbour. Two bridges spanning the Harbour connect the two sides. The business centre is located on the southern end of the Halifax Peninsula.

17 The principal highway in Dartmouth is called the Circumferential Highway, also called Highway 111, and the subject property fronts it. Most of its traffic flows north and then west to carry commuter traffic into the City of Halifax. The Circumferential Highway was built to service the Burnside Industrial Park, the largest industrial park east of Montreal as well as to provide commuter traffic to Halifax.

18 Some development occurred in the 1950s and 1960s east of the Circumferential Highway between Main Street and Bottom Street. Penhorn Mall, which is 300,000 to 400,000 square feet in size is directly across from the subject property and was developed and opened for business in 1973 after a delay in construction. Penhorn Mall, along with the Micmac Mall, are the principal retail malls in Dartmouth. Micmac Mall is situated at a three to four minute drive by car from the subject property.

19 Generally, the housing is older in that part of Dartmouth with the exception of the Manor Park Subdivision which was developed in 1974. This subdivision is located immediately west of Penhorn Mall comprising 80 acres of single family residential housing. The bulk of development since 1971 has taken place east of the Circumferential Highway because there was a limited supply of lands within the Circumferential Highway boundary. More substantial development occurred in the Cole Harbour area, including Colby Village and Willowdale on the south side of Portland Street. Substantial residential development took place in Forest Hills and Sunset Acres; it lies on the north side of Portland Street and Cole Harbour Road. In 1972 and 1973, the Nantucket subdivision in the Ellenvale area was taking shape. More recent development has taken place to the right of Russell Lake, closer to the Circumferential Highway. Portland Estates, a residential single-family housing and small apartment building development, started in the early 1980s.

20 The major arteries connecting with the Circumferential Highway are Highway 118 which goes towards Halifax International Airport, also known as Lakeview Drive; it is a four-lane divided highway. Portland Street was widened to a four-lane road and is the principal arterial road bringing commuter traffic onto the Circumferential Highway to Burnside Industrial Park and then into Halifax.

21 The land near the subject property was mainly farmland or undeveloped land in 1970. There was no large intensity of commercial use in 1970.

22 The subject property is bordered by the Circumferential Highway as well as by Portland Street. There are two streets very close to it: Summit Heights Drive and Marilyn Drive. There is also the MacRae Avenue extension. Along with Portland Street, these streets may provide access to the site. Access is impossible from the Circumferential Highway as this is a controlled access highway.

Appellant's V-day report

23 The report, prepared by Mr. Weatherby, was issued on June 22, 1995 after his firm had received instructions on June 15, 1994 to prepare valuation of the above property at V-day.

24 In this report, the highest and best use of the property as at December 31, 1971 was determined by Mr. Weatherby to be for residential development with a minor commercial component to serve the site. This would be virtually the same as in 1990.

25 According to Mr. Weatherby, the differences with regard to the neighbourhood of the subject property in 1971 and 1990 are the following: Penhorn Mall was under construction in 1971 and was completed in 1973. Land assembly for the latter mall had occurred in 1965. The Manor Park development took place in 1974. Another development along Marilyn Drive took place in 1971 with semi-detached housing or duplexes. Reference should also be made to Nicole court, which covers a small area. Apart from these exceptions, there has not been a great deal of development on the west side of the Circumferential Highway during the intervening period.

26 On the east side of the Circumferential Highway, dramatic changes have occurred. All of the development east of the Forest Hills Drive and the south-east section of Cole Harbour Road took place in the early 1970s beginning in 1971 or 1972. There was also development activity in the Nantucket area. Also, there has been more recent activity, which is still ongoing, south of Portland Street, with the Portland Estates land assembly during the 1980s. Substantial urban growth in the eastern part of Dartmouth and over into Halifax County occurred subsequent to 1971.

27 With respect to housing, the major change was Manor Park subdivision which was developed in 1974 with primarily single family homes. This subdivision is now completely developed. There are also 104 condo units and low-rise construction.

28 The topography of the subject land was the same in 1990 as in 1971. There was no difference with respect to the water service but a sewer line was installed in 1975 at the time Portland Street was re-aligned as a consequence of a 1975 expropriation. In 1971, the closest sewer system would be about 3,000 feet away. But with the development of Manor Park, the sewer services were much closer: they were at a distance of 1,000 feet and gravity would allow it to flow there from the subject property with the exception of a small portion thereof. It was also determined that it would have been possible to connect the sewer services in 1971 in the direction of Penhorn Drive, but not under Portland Street nor under the Circumferential Highway. According to Mr. Weatherby, based on his discussion with an engineer, this would not have been a major impediment at the time. Alternatively, the developer could wait until natural urban growth brought services to the land.

29 There are no notable differences in access to the site in December 1971 and January 1990.

30 In 1971, zoning was the same, “R-1 - Single Family,” but the range of committed uses was slightly different. The main difference was that in 1971, “a local commercial area if approved by Council by by-law” could be included. This did not exist in 1990. Actually, the only subdivision that proceeded in this way under the by-law then in existence was the Nantucket subdivision.

31 Mr. Weatherby explained that the subject property was one of a small number of parcels of land in Dartmouth which could be developed within the development boundary that existed in 1971, as determined by the City. In 1971, a municipal development plan was adopted by the City of Dartmouth and it identified the subject lands as being one of the last large pieces of land available for development.

32 The Sales Comparison Approach was the only approach used by Mr. Weatherby for the 1971 valuation because of the limited amount of data. The selling prices were not indicated in the deeds nor were they recorded at the Registry offices. Therefore, Mr. Weatherby relied on information found in the database established by his firm.

33 The sales that were examined covered a period from 1965 to 1976. Mr. Weatherby used a rate of 6% as a time adjustment factor. The rate is based on two compensation awards, involving the expropriation of property in 1972 and 1975. According to Mr. Weatherby, each transaction was a “forced sale” but did not represent a “forced sale price” or a “distress price.” Comparable 1 and Comparable 8 in Mr. Weatherby's report refer to these two transactions. These two “sales”, according to Mr. Weatherby, indicate that prices were increasing at the rate of 6% per year. Comparable 8 is located on the east side of the Circumferential Highway and it involved 9.7 acres of land along the Circumferential Highway. Three years later, Comparable 1 involving roughly five acres was expropriated to accommodate access ramps on the other side of the Circumferential Highway. Mr. Weatherby considered that these two tracts of land had a per acre similar value. The rate of 6% was based on these two “sales” as there was insufficient information to monitor the rate of increase from open market sales. It is to be noted that the compensation awards in relation to the expropriations in 1972 and 1975 were determined by the same tribunal.

34 Mr. Weatherby examined ten transactions but considered that Comparable 3 established the lower limit at $10,567 per acre and that Comparable 4 was the upper limit at $19,421 per acre.

35 Mr. Weatherby indicated that Comparables 1 and 8 suggest that a value of $14,500 per acre is reasonable for the subject property at V-day.

36 With respect to lands referred to as Comparables 2a and 2b, Mr. Weatherby mentioned in his report that he gave no weight to the offers discussed at pages 14 and 15 of his relevant report.

37 Comparable 3 involves the Manor Park subdivision which is very close to the subject lands. It was sold for $1,000,000 in August 1974 which gives a time-adjusted price of $10,567 per acre. The area of the land covered by this transaction was equal to about 81 acres. It was almost entirely developed with single family homes. There is a small component at the entrance where there are 104 apartments and condominium units. It was “a fairly high priced” and high profile residential subdivision of single family homes. This development did not have the same opportunity for a commercial component as the subject lands. According to Mr. Weatherby, the subject lands would support a higher density of development than those lands and would sell at a higher price.

38 Comparable 4 is the 1965 land assembly for Penhorn Mall. The significance of this Comparable relates to its close proximity to the subject property and to the fact that it is situated near the Portland and Circumferential Highway intersection on the north-west corner. The overall price paid in 1965 was $532,800 for about 40 acres. This gives a benchmark of $19,421 per acre adjusted to December 31, 1971. It was rezoned R-1 to C-3 before the sale to allow the shopping centre to proceed. It was a commercial land sale. It sets an upper limit value for the subject property.

39 The rest of the other transactions analyzed by Mr. Weatherby in his report were, according to him, used only by way of background information.

40 From the above, Mr. Weatherby concluded that $14,500 per acre is a reasonable amount for the value of the subject property. Therefore, 25.89 acres at $14,500 per acre gives a value of $375,405, which Mr. Weatherby rounded off to $375,000. This price reflects the highest and best use of the property and no attempt was made to isolate any commercial component like it was done for the 1990 valuation. There would be insufficient data for anyone to do so, according to Mr. Weatherby.

1990 Valuation

41 I shall now refer to the evidence given by Mr. Weatherby concerning the valuation of the subject lands on January 12, 1990.

42 The report signed by Mr. Weatherby and Mr. Paul Hare, whom Mr. Weatherby was supervising at that time. The report was completed on January 10, 1992 after the receipt of instructions on November 27, 1991. The majority of the work was completed by Mr. Paul Hare but Mr. Weatherby reviewed the analysis and conclusions.

43 The topography of the subject lands was described by Mr. Weatherby. He indicated that the high part of the lands is along the western boundary. It then slopes down at a gradient of 11% to 13% down towards the Circumferential Highway. It also slopes down towards the Portland Street frontage with the high point sitting on the western boundary at one third or one half of the site. However, this would not impede on the development of the site because the maximum grade allowed is 11% according to the City of Dartmouth subdivision regulations. Moreover, excavation and earth removal would be relatively easy and inexpensive on this site. There was substantial tree cover. There have been no site improvements made but there was some rough grading of an entrance or access road into the very northern part of the site. However, it does not add any value to the site.

• 1. The sewer line would go under Portland Street and would tie the end of the sewer line to the subject property;

• 2. connection from the sewer line into the nearest service subdivision, which is Manor Park, would have to be made.

45 Also, 4.42 acres of the property would be incapable of being serviced because of gravity. This would require that a pumping station be built and maintained by the developer. All costs with respect to connections to the municipal sewer system would have to be borne by the developer or the land owner. The estimated cost of this project made by Project Consultants Limited was $140,000.

46 With respect to the access to the site via Portland Street, the entrance would have to be aligned with the existing entrance to Penhorn Mall on the north side of Portland Street.

47 The zoning of the property was R-1 in both 1971 and 1990, but the zoning provisions were not the same. The zoning by-law had been amended in the intervening period.

48 In 1989-1990, the City of Dartmouth was engaged in a planning review and the subject lands would have fallen into a new R-11 Residential Comprehensive Development District Zone which would have permitted alternative dwelling unit types and complementary commercial uses. This commercial use would be local or minor commercial use according to conversations Mr. Weatherby had with Mr. Glen L'Espérance, a City of Dartmouth development officer, at the time the report was made. Dartmouth City Council apparently had concerns with the R-11 zoning, especially with respect to the size of the commercial development. The maximum density of development on the site in terms of residential housing proposed was 25 units per acre. A revised use by-law was drafted but it was never adopted. Therefore, the subject property remained R-1.

49 With respect to the subject property, three rezoning applications had been made in the 1980s. The first application was made in November 1985 to rezone the entire property to “a mix-residential” to allow development of 623 single family, semi-detached town houses and apartment units. This application was withdrawn in June 1986. The second application was made in February 1988 by First City Trust to rezone ten acres to C-3, for general business use which would have allowed a wide range of commercial uses. It was defeated by City Council in September 1988. In November 1989, a third application was made by First City Trust to rezone the front ten acres but the application was put on hold pending the outcome of the Municipal Planning Strategy Review. The application simply lapsed.

50 Mr. L'Espérance, when met by a representative of Turner Drake & Partners Ltd., explained that the R-11 zoning of the subject property would allow a combination of single family homes on the border of the subject property with Summit Heights Road, semi-detached and/or townhouses along the border with Marilyn Drive and multi-unit residential housing along the border of the Circumferential Highway and some minor commercial development along Portland Street. Mr. L'Espérance further explained that this type of development would be supported by City staff.

51 A plan embodying the views of Mr. L'Espérance was prepared and this became an important part of the valuation of the property as at January 12, 1990. The plan is dated November 15, 1977 and is labelled “Medium Density Residential Proposal after Expropriation Concept.” This plan was made after the expropriation was carried out by the Provincial Department of Highways to create the access ramps between Portland Street and the Circumferential Highway.

52 In 1991, Mr. Paul Hare of the firm Turner Drake & Partners Ltd. created a conceptual layout for the lands in question after the expropriation had taken place. This layout was based on the information which Mr. L'Espérance had given him in 1991 when he prepared his valuation report as to where the different types of developments were to be located on the subject lands.

53 In his 1990 valuation report at page 12 and in the course of his testimony, Mr. Weatherby stated that the highest and best use as at January 12, 1990 was “a mix of residential uses with a minor commercial component along Portland Street frontage.”[FN1: <p>Transcript, April 10, 1997, page 168, line 17.</p>] This was “not as of right” development but there was a high probability that this rezoning would be successful. He stated that 18 months would be required to achieve this rezoning. It was pointed out by him that a period of six months is required for the rezoning of small properties with no problems and no appeals. The application for the subject property would have required not only an amendment to the Zoning By-law but also an amendment to the Municipal Planning Strategy. The latter step would have added at least four months. Delays in any application before City Council would have been created as Council was in the midst of its own planning review. This City Council would not be in a good position to deal with major rezoning applications that differ from what it was itself proposing. Mr. Weatherby believed that an 18-month time span was quite optimistic. In the course of his deposition, he even stated that with the benefit of hindsight the process was unlikely to be achieved within two years. The review process undertaken by the municipality was still incomplete in January 1992. He also stated that the application would risk defeat if there was much opposition from local residents; it would at least protract the process.

54 Mr. Weatherby then went on to discuss the methodology. He presumed that the application to rezone to allow a mix of higher density residential uses which is higher than single family and a minor commercial component along the Portland Street frontage would be possible. Accordingly, he considered that approximately two acres of this property would be used for commercial purposes and the remainder, about 24 acres, would be used for residential purposes. The time factor used by Mr. Weatherby with respect to the rezoning process was 1.5 years.

Comparative Sales Approach

55 The comparative sales approach requires research and analysis of sales of comparable parcels of land which can be used as benchmarks of value for the property in question. The subject lands were split into two components for this purpose, the residential component and the commercial component.

Comparative Sales Approach: residential portion

56 The most indicative or representative Comparables with respect to the residential portion of the subject property were Comparables 1 to 7. Details about Comparables #8 through to #13 constitute background information. The time adjustment factor used was 5% compounded annually as that was the estimate of the increase in land prices in 1990 in the Dartmouth region. This estimate was based on the Comparables kept in-house by Turner Drake & Partners Ltd., which estimate was founded on the sales of houses as reported by the Real Estate Board.

57 The information given by Mr. Weatherby in his report and in his testimony concerning transactions referred to by him as Comparables 1 to 5 inclusive are hereafter summarized:

58 Comparable 1 was sold at $39,555 per acre or $7,574 per lot as it was divided into 47 lots. No time adjustment was made to the sale as it took place in December 1989, only one month prior to the valuation date. It was a nine acre lot. It was serviced and was made into a single family residential subdivision. It is located further out of the City centre than the subject lands. More specifically, it is located in the Willowdale area outside the City of Dartmouth in Halifax County. It would definitely be a less central location. However, in terms of quality housing around it, it would be superior to the subject land.

59 Comparable 2 was sold for $1,000,000 which included a dwelling on it. A portion of the land, being one acre, including the dwelling, was later sold at $200,000. The adjusted price took into account the $200,000 sale and the cost of a pumping station for servicing the property. The adjusted price of this property was $905,000, that is $49,407 per acre. There was a certain amount of lake frontage to this property. It is located on Astral Drive in the Willowdale district and was developed with single family residential homes into 84 lots with 15 having lake frontage. These waterfront lots commanded a substantial premium.

60 Comparable 3 is closer to the subject lands and developed with a short cul-de-sac of duplex or semi-detached housing. It is much smaller than the subject property, only 2.9 acres. It was, nonetheless, included in Mr. Weatherby's list of Comparables because it is within 0.5 kilometre of the subject property westerly. It required a large amount of fill and the cost of that is unknown. The per acre price was $25,665. However, Mr. Weatherby qualified this figure as “misleading” as no monetary adjustment was made to take into account the cost of the required amount of fill. He states that this sale price sets a bottom line for our present purposes since the subject lands are worth substantially more.

61 Comparable 4 is located off Braemar Drive. It is north of the Circumferential Highway but just outside of the Circumferential Highway area. It is located on the east side of Braemar Drive and fairly close to the major intersection of the Circumferential Highway and Main Street. It was developed with 56 townhouses and four single family homes. The per acre adjusted price was $39,985. The property contained 6.23 acres. Mr. Weatherby explained that the smaller the size of a particular property, the higher the value per unit, all other things being equal.

62 Comparable 5 is situated close to the eastern limits of the City of Dartmouth off the Mount Edward Road. It was developed with 60 residential building lots. The adjusted selling price was $33,283 per acre. Access to the site was considered good. This property is slightly inferior to the subject because of its remoteness and distance from the centre of Dartmouth. It is less likely to be developed with higher intensity uses which generally are close to central areas.

63 Mr. Weatherby concluded with respect to the valuation of the land for the residential portion of the property in question on the basis of the five sales to which I have just made reference that the amount of $35,000 per acre represents the value of the residential portion of the subject lands for the purposes of the 1990 valuation report. Therefore, at $35,000 per acre, Mr. Weatherby attributed a value of $836,500 for this portion of the property, having an area of 23.9 acres.

Comparative Sales Approach: commercial portion

64 Mr. Weatherby's analysis begins on page 15 of his 1990 valuation report with regard to that portion of the property. This part of the report deals with Comparables 14 to 20. The nature of the information laid out in the Commercial Land Sales Schedule is essentially the same as in the Residential Land Sales Schedule, except that sale prices are shown on a per square foot basis. It covers sales from 1985 to December 1989.

65 Land prices during the latter period experienced rapid increases. Prior to 1985, Mr. Weatherby believed that prices moved at 6% per annum. Between January 1985 and December 1987, his estimate was that they moved at 35% per year. This is reflected in the rapid growth along Portland Street. Since 1987, commercial development was ongoing but prices were moving at a much more modest rate, estimated at 8%. No comparable sales along Portland Street occurred between 1987 and 1990 which led Mr. Weatherby to conclude that the recession took a hold in the late 1980s in the Dartmouth region. However, it was not until 1993 or 1994 that the downward shift actually occurred. Prices have still not recovered to date which would seem to indicate that the correction in prices was permanent.

66 Mr. Weatherby explained that when he made his report, the presumption was that land prices were still escalating between 1987 and 1990 but it was difficult to establish the validity of this presumption because there were no sales during this time to identify the trend. But in 1993 or 1994 the downward trend became evident. The absence of sales during the late 1980s and into the 1990s shows that the market was stagnant and that prices were probably declining.

67 Mr. Weatherby estimated that the holding cost in respect of the subject property for 1.5 years while the rezoning application was going through should be based on 13.75% rate of interest. This rate of interest was 1.5% above the Bank of Montreal prime lending rate as of January 17, 1990, the date closest to the valuation date in issue. This is the typical premium developers paid at the time to borrow money for land development projects. The value of the property should be discounted by a factor equal to 0.8243 to reflect the fact that the value of this property will not be realized for 18 months.

68 Mr. Weatherby also applied a probability factor to the commercial component to reflect the possibility that a rezoning may not be accepted by City Council. He estimated that there was a 90% probability of such rezoning being adopted. Mr. Weatherby explained that “the introduction of a ‘Probability Factor’ also introduces a Risk Aversion Factor since real estate investors and developers are always ‘risk averse’ and not ‘risk neutral’.” He went on to say that developers are risk averse and as such, they do not buy land without the condition that zoning will be approved. The additional 70% factor takes this element into account. Mr. Weatherby agreed that in the result he was applying 63% to the value of the property he would otherwise have arrived at, absent the probability factor and the risk aversion factor.

69 Mr. Weatherby then proceeded with an analysis of the sales and listings of comparable lands within the locality to establish the value of the commercial component of the subject property.

70 In arriving at a per square foot value of $11, Mr. Weatherby gave more weight to Comparables 18, 19 and 20, of the Commercial Land Sales Schedule at pages 24 and 25 of his report since they were more representative of the value of the commercial component of the subject property. The type of use that could be contemplated, according to what was learned from the development officer, would be for convenience stores, pizza outlets, hair dressing salons and the like. It was unlikely that there would be any success in having these lands rezoned for a highway commercial type of use such as fast food restaurants or gas stations.

71 Comparable 18 referred to in Mr. Weatherby's report was considered by him to be the upper limit of value benchmark. It is located very close to the subject lands on Portland Street, east of the subject property. It is a corner lot in a residential area and was bought for development of a pizza store with an apartment upstairs. It is just about 5,000 square feet. The adjusted price was set at $13.05 per square foot.

72 Comparable 19 is located on Wyse Road, an older inner city commercial street, close to the Harbour and east of the Circumferential Highway. This street was more or less 100% developed with primarily commercial uses. There is very little vacant commercial land available along that street. There would not be the same rate of rapid growth as on Portland Street. The adjusted selling price at $11.43 per square foot sets a benchmark value.

73 Comparable 20 is the bottom line value at $7.45 per square foot adjusted to date of valuation. Mr. Weatherby stated that the subject property would be sold for considerably more because Comparable 20 is in an industrial area with very little traffic flow and very little prospect for commercial development.

74 Now, with respect to Comparables 14, 15a and 15b, the adjusted prices all exceeded $20 per square foot. The adjusted price for Comparable 16 was almost $20 per square foot. Comparable 17 is a little over $15 per square foot, taking into account the time adjustment factor. Mr. Weatherby asserted that these sales are reflective of highway commercial and fairly intense commercial land uses. The sales of property described as Comparables 14, 15a, 15b and 16, involve properties located east of the Circumferential Highway. Mr. Weatherby attached far greater weight to other sales that took place elsewhere in the city that were more indicative of the commercial use that would take place on a portion of the subject lands. Mr. Weatherby noted in the case of Comparable 17 that it was not an actual sale but the Commercial Land Sales Schedule shows the price that was offered in April 1988 but that offer was not accepted.

75 On the basis of the above evidence, Mr. Weatherby concluded with respect to the value of the commercial component of the property that is, 1.99 acres, determined by comparative sales approach that the land value would be $529,316, after taking into account the three factors mentioned earlier, namely, the holding cost factor, the probability factor and the risk aversion factor. Mr. Weatherby also deducted from the amount of $529,316 an arbitrary amount of $10,000 to cover legal fees, architectural, surveying and engineering costs. He arrived at a final figure of $519,316 for the value of the commercial component of the property established by the comparative sales method.

1990 Total Valuation of the subject property - Comparative Sales Approach

76 Therefore, Mr. Weatherby concluded on the basis of the comparative sales approach that the residential portion of the property was valued at $836,500 and that the commercial portion was worth $519,316. This makes a total of $1,355,816. From the latter figure, he deducted the amount of $140,000 which represents the cost of bringing sewer services to the subject property. He arrived at a final figure, of $1,215,816, which was rounded to $1,216,000 for the entirety of the subject lands by resorting to the comparative sales approach. The detailed calculations of the value of both components of this property could be found at pages 16 and 17 of the Appellant's report in respect of the valuation as at January 12, 1990.

Development Approach

77 I will now refer to the evidence of Mr. Weatherby regarding the use of the development approach for the 1990 valuation of the subject property.

78 The development approach takes a look at the likely density and the different types of housing which may take place. In applying this approach, Mr. Weatherby relied upon the assumption that two acres of this property would be assigned to a commercial use.

79 Mr. Weatherby explained the application of this method of evaluation of the property in question at pages 26 and 27 of his report in these terms:

Development Approach

As of Right Development Value

The ‘as of right’ development value is based on the entire property being developed with only single family uses. The value is based on a density of 4 units/gross acre (See Density below) × 25.89 acres which equals 103.56 units. We have applied a price/unit of $6,000 based on an analysis of the comparables on the Residential Land Sales Schedule in the Comparative Sales Approach. The value represents what a potential purchaser would pay for raw acreage if there was a 0% probability of a rezoning to a higher intensity use. Our calculations are as follows:

Land Value

104 units × $6,000/unit

$624,000

Optimum Use Development Value

The land value can also be determined by analyzing its carrying capacity in terms of the type of development and assigning values, drawn from the market, to each unit type of development. We have detailed our calculations on the table on the following pages.

Density

The density is expressed in terms of Units/Gross Acre (i.e. including park area and roadways). It is drawn from an analysis of other developments and having regard to density requirements within the Dartmouth City Zoning By Law. For example, Manor Park subdivision, located across from the subject property on Portland Street, has 307 single family lots on 74.35 acres, a gross density of 4.13 units/acre. Walk-up apartment buildings typically have gross densities of 25 units/acre, and so on.

Demand

The demand is first expressed as a percentage of the maximum number of units which would be allowed on the site. As previously discussed, the ‘as of right’ development for the subject only permits single family uses. However we have assumed that the property will be rezoned to reflect a mix of residential uses with some minor commercial uses. The draft Land Use By Law has proposed the subject property be rezoned to R-11 Residential Comprehensive Development District Zone, which permits a mix of dwelling type uses as well as some commercial uses. The density and mix of development for the subject has been based upon discussions with Mr. Glen L'Esperance, City of Dartmouth, Planning and Development Department as well as discussions with local developers and having had regard to the existing demand for housing in Dartmouth and the existing mix of development in the neighbourhood of the subject property. The maximum permitted density under the R-11 zone is 25 units/acre which is presently under review. The ultimate density for the property is dependent upon what City Council will permit under a rezoning or contract development agreement. We have estimated from our analysis what in our opinion would be an acceptable mix and density for the subject property. We have based the mix of development on 2 acres of land along Portland Street being allowed for commercial use. This amount of land would be sufficient for minor commercial uses and at the same time be physically possible along the Portland Street frontage having regard to access to the site, configuration, topography, etc. Any larger area would interfere with the remaining residential development. We expect that the main access to the site would be from Portland Street (See Access to the Site section of the report). Following the commercial development, we have estimated that five ± 24 unit apartment buildings would be developed along the main collector road. These buildings would be located near the Circumferential Highway frontage. A greater number of units would over power the lower intensity development of the remainder of the property. We envisage single family homes along the border with Summit Height Road consistent with the existing neighbourhood. Access to this portion of the property would be limited from MacRae Avenue Extension. The remainder of the site along the border with Marilyn Drive and to the east, we have predicted will consist of a mix of semi-detached homes and townhouse developments. The actual mix of uses is shown in the following table as ‘# Units %’. The percentage demand is converted to the ‘# Units’ of each type of development based on multiplying each percentage by the maximum allowable units (based on 25 units/acre × 23.9 acres = 598 units). The ‘# Acres’ demand is derived by dividing ‘# Units’ by the Density (Units/acre).

Supply

Since the Demand, expressed as ‘# Acres’ exceeds Supply, i.e. Demand = 56.44 acres versus Supply 23.9 acres, we have reduced it proportionately. It has been expressed as ‘# Acres of Supply’. This has been converted to ‘# Units of Supply’ by multiplying ‘# Acres of Supply’ by the ‘Gross Density’. The total residential density equals 10.58 units/acre.

Price/Unit

Price/Unit is drawn from the market place and is derived by dividing the sale prices of comparable properties by the number of units erected on them after purchase. For example the 9 acres of Willowdale Lands (Comparable # 1) sold for an adjusted price of $39,555/acre. This represents $7,575/unit at the developed density of 5.2 lots per acre (See Land Sales Schedule). The commercial land value is the same as determined in the Comparative Sales Approach.

Total Price

TotalPrice is the total contribution to land value from each type of development. It is derived by multiplying the “Price/Unit” by the ‘# Units’.

The total property value is shown on the following table and is as follows:

Total Indicated Optimum Development Land Value

$1,865,238

Optimum Use Development Land Value
Less As of Right Development Value	$ 624,000
Incremental Value	$1,241,238
Holding Cost for 1.5 years @13.75%p.a.	× 0.8243
$1,023,152
Probability of Achieving Optimum Use @ 90%	× 0.90
$ 920,837
Risk Aversion Factor	× 0.70
$ 644,586
Plus As of Right Development Value	$ 624,000
$1,268,586
Less Professional Fees for Pursuing Re-Zoning (1)	$ 10,000
Less Cost of Sewer Run (2)	$ 140,000
Total Indicated Value
Rounded to

Correlation between the Comparative Sales Approach and the Development Approach

80 Mr. Weatherby explained that in the end, equal weight was placed on the development approach and the comparative sales approach. Therefore, he took the average of the two values, i.e. $1,168,000 which he characterized as his final estimate of value of the subject property.

81 The comparative sales approach, as Mr. Weatherby put it, is based on a more straightforward price per acre approach, with the exception of the commercial component which introduces a variance. The second approach is more complex and includes more variables and assumptions and as such is much more subjective. The first approach is more certain; the second method may involve errors in judgment and opinion on the part of the appraiser doing the work. He stated that the Courts shy away from the development approach for that very reason. However, he mentioned that this method is adopted by the Courts where the comparative sales approach is inadequate.

Respondent's evidence

82 I shall now review the evidence given by Mr. Bill Chappell, expert witness for the Respondent.

83 Mr. Bill Chappell is a Senior Real Estate Appraiser with Revenue Canada in the Real Estate Section which provides services to the audit, appeals, collection, special investigations sections.

84 Mr. Chappell holds a Bachelor's degree in Business Administration, majoring in accounting and economics in 1978 with Mount Saint Vincent University. During the next two years, he worked at the Bank of Montreal. He returned to Mount Saint Vincent where he obtained in 1982 a Bachelor's degree in education. The following year, he taught part-time and during the next two years, sold real estate. In 1985, he joined Turner Drake & Partners Ltd. as an appraiser. He worked with this firm for eight years doing all types of real estate valuations, ranging from single family dwellings to undeveloped land, commercial or industrial properties, apartment buildings. He estimated that he made between 250 and 400 valuations during the period. In 1993, he joined Revenue Canada where he did essentially the same work, i.e. establishing market values for a wide range of real estate properties. He has done between 75 and 125 valuations since he joined Revenue Canada. He is an accredited appraiser with the Appraisal Institute of Canada. He was qualified as an expert witness for the purposes of this appeal.

V-day

85 Mr. Chappell completed his report on November 15, 1993.

86 Like Mr. Weatherby, Mr. Chappell stated that at V-day most of the residential development in Dartmouth would have been east of the Circumferential Highway, north of Portland Street and south of Main Street. At the same time, the Nova Scotia Housing Commission was buying large parcels of land to provide affordable residential housing. Commercial development at that time was restricted in large part to lands in the downtown area, close to the Halifax Harbour, along Wyse Road and Window Road. There was also a lot of commercial development along the first kilometre of Main Street. Woodland Mall was in place; Portland Street was not a busy commercial centre at that point. The commercial development was only beginning then. For instance, Penhorn Mall was beginning to be developed and its construction was completed in 1973. But aside from that, there was only a small neighbourhood type of commercial development easterly along Portland Street from the area of Mirror Lake.

87 Mr. Chappell agreed with the site data which was provided by Mr. Weatherby in his testimony. He also did not have any additional comments to make in relation to the access to the site. With respect to sewer services, he noted that one option would have been to extend them westerly along the site of Portland Street and then hook them into Manor Park. He stated that this would be a possibly less expensive alternative which was not mentioned in Mr. Weatherby's Report. According to him, there could also be a sewer service going across the street and cutting through the Sears parking lot immediately north of the subject lands. This would not cause Portland Street to be blocked off as a sewer line exists from the subject property underneath Portland Street.

88 Mr. Chappell stated that at both V-day and in 1990, the subject property was zoned R-1 which is for single family residential development. Moreover, according to him, the same uses were permitted at both dates. He added that there could be other uses including “some institution uses,” in 1990.

89 Mr. Chappell then explained that the highest and best use of the subject property at V-day was for holding purposes until economic conditions warrant residential development. His concern was that the property had no access to sewer services. Also, if a new development such as Forest Hills subdivision would come on stream, that new development would take place there, i.e. east of Halifax and Dartmouth into Halifax County. The immediate development would take place elsewhere and that would not be near the subject property. He also emphasized that the development was taking place further out on Cole Harbour, east of the Circumferential Highway.

90 Mr. Chappell indicated that in order to value the subject property, he resorted to the sales comparison approach which uses sales information of comparable size and comparable lands. He did not use the development method as it would be particularly difficult to go back and see what was acceptable development and what were the demands for the different types of land. The comparative sales approach was used for the valuation of the subject property at the two relevant dates, on December 31, 1971 and January 12, 1990.

91 In arriving at a valuation, the first step was to “locate sales of bulk acreage on or around 1971” in order to arrive at a per unit value. Some sales data were found from August 1971 to October 1972. No adjustments were made for time since the furthest sale was 10 months from V-day. Mr. Chappell did not feel that it was unreasonable to use the values as they stood.

92 Mr. Chappell proceeded to refer to five transactions in his use of the sales comparison method.

93 Comparable 1 is located east of Circumferential Highway a distance of approximately two minutes by car and is larger than the subject property. Its sale price was paid in four instalments. To arrive at a value, Mr. Chappell discounted the payments to adjust for the fact that a substantial portion of the sale price was not payable cash with a rate of interest of 9.375% compounded semi-annually. He stated that Revenue Canada keeps discount rates of previous years and for the period in question, the proper rate was 9.375%. The four payments were of $100,000, $50,000, $50,000 and $247,600 which, after the time adjustment factor is applied, gives a total value of $375,348 and a per acre value of $5,231. He also explained that the development of the latter site was more imminent than the subject property because the anticipated development was going to happen in the eastern direction in Halifax County rather than in the City. Also, this property had water and sewer services. In cross-examination, he also stated that he did not recall whether interest was payable on the balance price. He also indicated that there is a fairly significant uphill slope to the lands.

94 Comparable 2 is located a short distance of Mr. Chappell's Comparable 1 and further east and north of the subject property. This property was also superior to the subject property as it had water and sewer services and also because it was located in an area where ongoing development was taking place. The V-day Land Sales Schedule indicates that it was a 12 acre parcel which was sold for $68,750 or $5,729 per acre.

95 Comparable 3 is approximately one kilometre east of the subject property. It was probably more suited to commercial development; it was zoned for a commercial use. It is located a short distance east of Highway 111 and fronts on Portland Street. The sale price equated to $4,095 per acre. He stated that this property was reasonably levelled, but agreed in cross-examination that in the very back it was filled in and that there was a 22 foot drop towards the lake. This land has since been developed, but not fully. Also, Mr. Chappell noted that the land in this area was marshy especially in the back end of the lands. Mr. Chappell, in his report, indicated “that the land was developed with a number of farm buildings and dwellings at the time of sale.” He added that “the vendor retained a life interest in the property and all but one building were demolished leaving one dwelling for the vendor who was in her 80s at the time of the sale.”

96 Comparable 4 is similar to his Comparable 3 and is located slightly further east; Comparable 3 is the Appellant's Comparable 5. Unlike Mr. Weatherby's report, Mr. Chappell in his report referred only to the 28.3 acre portion. He considered this sale to be at the top end of the value at $7,951 per acre and superior to the subject property which was located one kilometre west of this Comparable, because of “its location and commercial potential.” This is because traffic would flow easterly to the new developments. Also a new car dealership had been established in that area; there was more commercial or highway traffic at that place. Comparable 4 was subsequently developed commercially. In cross-examination, Mr. Chappell revised the selling price to $8,700 per acre in taking into account both portions of this property. However, by excluding the portion of the land where a building sat, the per acre amount would be $7,302.

97 Mr. Chappell then commented on Comparable 5 and indicated that it was improperly indicated on the map and is located just under the heading Willowdale on the map. In Mr. Chappell's opinion, this Comparable sets the bottom end of the value range for the subject property at $3,150 per acre because it was located outside the Dartmouth City limits and away from modern sewer services.

98 Mr. Chappell explained that Comparable 1 was, in his view, the best indicator of the value of the subject property and rounded his value to $5,000 per acre. It was the best indicator of value since it is located close to Portland Street as is the subject property, in an area where development was taking place, while the subject property was in an area where development was not taking place immediately. Since the subject property did not have immediate access to sewer and water services, he felt that the subject property was lower in value than Comparable 1.

99 With a per acre value of $5,000 and an area of 25.8936 acres, the value of the land should be $129,468, which was rounded to $129,500.

100 Commenting on Mr. Weatherby's report, which arrived at a per acre value of $14,500, Mr. Chappell stated that the time range used in that report extended from 1965 to 1976. He also pointed out that Mr. Weatherby's Comparables 1 and 8 were forced sales where the values placed on these two properties (which were expropriated in 1972 and 1975) were determined by the judge; these compensation awards may not be an indication of market value. Mr. Chappell added that it was not fair to utilize these figures to establish market value as they do not meet the criteria of the definition of “market value” that should govern the establishment of the fair market value of a property.

101 Also, concerning Comparable 8 in Mr. Weatherby's report, where the compensation award was in the amount of $144,000 for a 9.7 acre parcel of land, that is, $14,845 an acre, Mr. Chappell explained that this value was one of the main values used in Mr. Weatherby's report in determining the value of the subject property. In this connection, he noted that there was a difference in zoning as regards the subject property. Comparable 8 was zoned for general and commercial uses as of right while the subject lands were zoned R-1. He noted that general and commercial uses also allow industrial uses. Therefore, no rezoning application was necessary in the case of Comparable 8 for a commercial use. This factual consideration according to Mr. Chappell, makes Comparable 8 more valuable than the subject property. Moreover, in his decision, the judge stated that the highest and best use was for a commercial one. Mr. Chappell concluded that the subject property was inferior to Comparable 8 based on these observations.

102 Mr. Chappell also referred to Comparable 3 in Mr. Weatherby's report as a sale which took place approximately two and a half years after V-day. Mr. Chappell considered that it was not a bad comparable but that the 6% adjustment rate set by Mr. Weatherby was not reasonable.

103 Mr. Chappell also mentioned that Mr. Weatherby's Comparable 7 had a commercial twist to it as “the purchaser matched an offer from Shell Oil.” There must have been, according to him, some commercial value to that property.

104 All in all, Mr. Chappell was of the view that the most reliable Comparables in Mr. Weatherby's report Land Sales Schedule were 3, 5, 6 and 7. He stated that Mr. Weatherby's Comparables 1, 2, 4, 8 and 9 were less desirable because of their zoning which provided for a commercial use or because in two cases they were compensation awards or not arm's length sales.

105 Mr. Chappell also opined that the 6% time adjustment factor used by Mr. Weatherby is too low, as mentioned earlier. He would estimate that percentage at about 14%.

1990 Valuation

106 Mr. Chappell made a few general observations that have a bearing on the 1990 valuation of the subject property.

107 In 1990, a residential development occurred in the area of the subject property. The development which occurred and continues is located north of Bell Lake which is north of Portland Street, east of the Circumferential Highway. A smaller pocket of development also took place east of the subject property along Portland Street and Cole Harbour Road. With respect to Cole Harbour Road, development occurred along the north and south sides, a short distance east of the subject property, approximately three or four minute drive by car. Mr. Chappell points out that Comparable 3 in Mr. Weatherby's report was developed. This is known as Manor Park and was purchased in August 1974. Also, the commercial potential of Portland Street exploded in the 1980s. With the notable exception of the development of a “Super Store” there was hardly any development along the south side of Portland Street. All this development, according to Mr. Chappell, created great potential and pressure to develop these lands. The values of these commercial lands escalated very quickly until the end of the 1980s. Both the provincial and municipal governments undertook realignments of major traffic arteries in response to an increased traffic. This created a greater potential for the subject lands to be developed in 1990. However, he conceded that financing commercial development would be difficult to obtain after 1988 at which point supply exceeded demand. Vendors of property would have to reduce their price if they wish to sell.

108 As of right, the subject lands were still zoned R-1. However, it was proposed within the municipality that they could be rezoned as a “Residential Comprehensive Development District” which would include commercial uses as well as single family, two unit buildings, semi-detached homes and duplexes. Any changes would require approval from the Dartmouth City Council and Mr. Chappell concluded, based on his conversations with the appropriate City officials, that such rezoning would in all likelihood be approved. Therefore, the highest and best use would be for a commercial development along the Portland Street frontage and for a residential development in the back portion of the lands.

1990 Valuation - residential portion

109 I shall now turn to Mr. Chappell's evidence relating to the valuation of the residential portion of the subject property on January 12, 1990.

110 Mr. Chappell states that his Comparables 6 and 7 were the equivalent of Comparables 1 and 2 respectively in the Residential Land Sales Schedule in Mr. Weatherby's report. He stated that these had really driven the values upwards. For the residential portion he arrived at a value of $35,000 per acre for a total of $818,776. He mentioned that Comparable 7 is peculiar because there was a piece of land with a building on it, but that the cost of a pumping station was added in. With respect to Comparable 6, there were two different prices. Those lots which could be readily developed, i.e. serviced, commanded the higher $34,300 price. The others which needed sewer services only entailed the lower price of $28,930. The same principle could apply to lands of Comparable 7. A value of $47,932 attached to those acres which were ready to be developed and $42,365 for that portion that needed sewer services to be installed. Mr. Chappell also explained that there was no cost to bring in the services to the subject land; rather, there was the cost of distributing the services on the land. Because of the topography there was a factor for a pumping house for the subject lands.

111 Mr. Chappell believes that the subject lands are comparable to the $28,930 per acre portion of Comparable 6 and to the $42,365 per acre portion of Comparable 7. He took an average of both these figures and arrived at $35,648 which he rounded off to $35,000. However, had the subject lands been readily developable, the other higher values of Comparables 6 and 7 would have been used. With respect to his Comparable 6, another portion, precisely 10.5 acres, was sold one year later for $300,000 which equates to a price of $28,571 per acre.

112 He then indicated that Comparable 8 is a sale which took place five months after the date of valuation. It is a 82 acre parcel zoned R-1 and it was sold for about $52,000 per acre. It is located east of the subject property and part of Portland Estates Development. In his view, it is not a reliable Comparable.

113 Comparable 9 was not a very good Comparable as it is situated quite a distance west of the subject property. However, he included it in his report because it was a large piece of land with a commercial component at the front. This property would have a higher value that the subject property as it is near two heavily travelled traffic arteries. The sale price was $84,873 per acre.

114 Comparables 10a, 10b and 10c had a sale value overall of $24,000 an acre. The low value is explained by the fact that it is located on stony land and would be difficult to develop. Moreover, the elevations create a negative impact on the water supply. Hence it is at the absolute bottom of the overall range.

115 Comparable 11 in Mr. Chappell's report is not worth discussing; the price in the Acreage Land Sales Schedule (1990) represents the price mentioned in an option to purchase which was abandoned.

116 To conclude with the residential portion of the land, Mr. Chappell indicated that Comparables 6 and 7 are the best indicators of value for the subject property at the relevant time. As noted earlier, he arrived at a value of $35,000 for the residential portion of the subject property as at January 10, 1990.

1990 Valuation - commercial portion

117 With respect to the commercial portion of the subject property, Mr. Chappell explained why he arrived at 2.5 acres, while Mr. Weatherby estimated that the commercial portion would have an area of 1.99 acres. Mr. Chappell simply scaled off the commercial development depth of other commercial development along Portland Street and applied the depth feature to the subject land. This gave him a depth of 200 feet along the front line of the property. He then divided this into two portions which gave 1.4 acres and 1.1 acres for a total of 2.5 acres of commercial land. Mr. Chappell thought that the commercial development that he proposed would not be resisted by local people although this would bring about extra traffic. He also pointed out that the City officials did not indicate to him that a portion of 2.5 acres of the subject land for commercial development was unreasonable or excessive.

118 The implementation of this plan would however, require a rezoning of the property which was estimated to take between six and 12 months according to the conversations that Mr. Chappell had with one Cathy Spencer at the City of Dartmouth Planning Department. In his discussions with City planners, he learned that there was a better than 50-50 chance that the rezoning would go through. He arrived at a probability factor of 70%. After stating that 100% can never be attained in evaluating a probability, he used a figure between 50% and 90%. He also indicated that he did not use a risk aversion factor because he did not know how this factor was calculated. However, he stated that he used the risk aversion factor before when he was employed by Turner Drake & Partners Ltd. but he never understood how this factor was determined.

119 Mr. Chappell then went on to discuss Comparables. He stated that he used four different sales which correspond to Comparables 12 to 15 in his report. All these properties are located east of the subject property. He specified that properties referred to as Comparables 12 to 14 in the Respondent's Commercial Land Sales Schedule (1990) were located on the commercial strip on Portland Street which expanded rapidly in the 1980s and he considers them to be the upper limit of value for the subject property. Comparable 15 is located five minutes by car east of the subject property on Cole Harbour Road and should be considered as the inferior limit of value because it is so removed from the commercial strip of Portland Street. He added that Comparable 14 is superior to the subject lands. As such, the value of the subject property should fall between the superior and inferior limits of value of the latter two properties. He therefore concluded that its value should be $15 a square foot.

120 Mr. Chappell went on to explain that he discounted the value which has just been mentioned by 14.6% because the subject property was not serviced. This is the same percentage that he used in discounting the residential value. As a result, he arrived at a final value of $12.80 per square foot in respect of the commercial portion of the subject property.

121 Mr. Chappell then explained how he arrived at a final value for this portion of the property. To the 2.5 acres of land corresponds the figure of 108,899 square feet and at $12.80 per square foot, this means a value of $1,393,907. The detailed calculation of the value for the commercial portion of the subject property is shown at page 31 of Mr. Chappell's report; it reads as follows:

Commercial Land
Commercial Land Area (2.5 acres)	108,899 ft.2
(2)	Value per ft.2	$12.80/ft.2
Estimated Value	$1,393,907
Les resdidential value:
2.5 acres @ $35,000/acre	$87,500
Potential commercial increment	$1,306,407
(3)	Probability of re-zoning @ 70%	× 0.70
Value	$194,485
(4)	Holding costs (1 yr @ 13.5%)	× 0.8811
Value	$805,753
Plus: ‘As of right residential value’	$87,500
Total Indicated Value	$893,253

122 As mentioned in the above excerpt from his report, Mr. Chappell valued the commercial portion of the property at $893,253.

123 Finally, Mr. Chappell discussed the Appellant's report and the $11 per square foot value at which Mr. Weatherby had arrived before discounting the cost of sewer services. Mr. Chappell pointed out that the Appellant's Comparables 18, 19 and 20 were used by Mr. Weatherby as a basis for the $11 per square foot value. He thought that all of these properties were inferior to the subject property. With respect to Comparable 18, it is surrounded by modern residential housing of low to high density where Portland Street is only two lanes wide whereas the subject property is just opposite Penhorn Mall which generates a lot of commercial activities; Portland Street at that point is four lanes wide. He pointed out that Comparable 19, while still a pretty busy location, was not near the rapidly expanding commercial area. As to Comparable 20, he agreed with Mr. Weatherby that it was inferior to the subject property.

124 With respect to the residential component of the subject land, both Mr. Weatherby and Mr. Chappell arrived at a value of $35,000 per acre. However, in Mr. Weatherby's report, the cost of sewage services was not included in the value of the $35,000 per acre. On account of this factual element Mr. Weatherby reduced the value down to $29,000 approximately per acre by taking off $140,000 from the total value of both the residential and commercial components of the property.

125 Also, Mr. Chappell noted that he did not use the development approach because he did not consider that there were enough data to support such an approach. He also stated that he had a problem with the fact that Mr. Weatherby used four units per acre times 25.89 acres when in Mr. Weatherby's Comparables 1, 2 and 5 the density was 5.2, 4.42 and 5 units per acre respectively. The sale price per unit ranged from $6,657 to $11,000.

126 In the result, Mr. Chappell established the following values for the residential and commercial component of the subject property:

Residential	$ 818,776
Commercial	$ 893,253
Total	$1,712,029

Appellant's Submissions

127 For the Appellant, by way of general background, it was indicated that the subject property is situated near the Circumferential Highway and the main arterial routes in and around the Halifax Regional Municipality. He pointed out that Penhorn Mall, a large shopping centre, was being built in 1971 opposite the subject property. In subsequent years, most developments were along Portland Street in an easterly direction. He noted that in 1971, the development was imminent on the subject property because the property on the other side of Portland Street was developing. There was therefore good reasons to believe that in the short term, the subject property would be developed. He added, however, that although development appeared to be imminent in 1971, it still has not been developed, 26 years later, and the growing areas are two kilometres further east. On behalf of the Appellant, it was argued that the development no longer takes place in areas near the subject property and that it has moved further east. Counsel also pointed out that around 1971 some of the lands within the perimeter of the Circumferential Highway were not available for development. Since then, some of these parcels of land are ready for development; this fact lowers the value of the subject lands and all other parcels of land contained within the perimeter.

128 In support of the Appellant's position, it was also pointed out that the recession of the late 1980s affected the real estate market up until 1993. No important commercial transactions were happening at that time.

129 Me Barette, one of the Appellant's Counsel, referred to the three different rates of increases in the value of lands during the 80s and 90s, in the Dartmouth area. Mr. Weatherby determined that in the early 80s until December 1984 the rate of increase was 6% followed by a rate of 35% between January 1985 and December 1987 and afterwards and finally by a rate of 8%. The same Counsel contrasted Mr. Weatherby's rates with those of Mr. Chappell who applied an annual rate of 30% until 1987 and a zero increase subsequently.

130 After having discussed in broad outline the three general questions, to which reference has just been made, Me Barette proceeded first to analyze in more detail the evidence regarding the valuation of the subject property on December 31,1971.

V-day Valuation

131 With respect to the 1971 valuation, it was mentioned on behalf of the Appellant that the two experts' opinion diverged on several points.

132 Mr. Weatherby concluded that a residential development was possible in 1971 along with a minor commercial development which would serve the residences built on the subject property. This was, according to him, the highest and best use of the property. He justified this in large measure by the fact that in 1971 a large commercial development across the street was under construction. On the other hand, it was indicated that Mr. Chappell asserted that in 1971 the best and highest use of the property would be for holding purposes, pending residential development. For the Appellant, it was argued that Mr. Weatherby is right because of the high degree of development which was then taking place on neighbouring properties.

133 Although both experts used the sales comparison approach, they did not use the same rates to discount sales to take into account the time factor between the date of sale of a particular Comparable and the V-day, December 31, 1971. Mr. Weatherby used a rate of 6% which he based on two adjacent properties that had been expropriated at two different points in time, first the portion of the property that had been acquired together with the subject property by Mr. Jan Reiss and Dr. Anne Hammerling (referred to below as the property formerly owned by Mr. Reiss and Dr. Hammerling) and secondly the property located on the other side of the Circumferential Highway, hereinafter referred to as the Purdy property.

134 Mr. Weatherby gave his Comparables 1, 3, 4 and 8 greater weight for the V-day valuation. Comparable 1 is the portion of the property formerly owned by Mr Reiss and Dr. Hammerling and Comparable 8 is the Purdy property. Mr. Weatherby gave particular weight to these compensation awards because of the specialized nature of the expropriation tribunal which determined those values. It was emphasized that the Court in the case of Comparable 1 found that the front portion of the latter property, equal to 1.4 acres, could be used for commercial purposes.

135 Me Barette criticized Mr. Chappell's report wherein he utilized the latter's Comparable 1 which had a slope of 20%. This property was used for residential purposes and considerable costs were required to level off the property. As for Comparable 3 in Mr. Chappell's report, Mr. Weatherby stressed that almost 17 acres of a total 21 acres constituted marshland. In the case of Mr. Chappell's Comparable 5, it was submitted that this property was not a good Comparable on account of its location and the further fact that it had little frontage on the street. On behalf of the Appellant, it was also underlined that, according to Mr. Weatherby, the zoning by-law in effect at V-day would have allowed a developer to make an application that combined residential use with a minor commercial component.

Valuation as at January 12, 1990

136 For the Appellant, it was noted that both experts used the sales comparison approach. The first point of dispute between the two experts relates to the allocation of the property between a commercial use and a residential use. The second point of disagreement is the value per square foot for the commercial portion of the subject property.

137 The Respondent's expert was of the view that 2.5 acres of the property could be developed as a commercial component while the Appellant's expert stated that no more than two acres could be devoted to a commercial use. The Appellant's expert witness arrives at this figure given the peculiarities of the subject property and that the fact that MacRae Street could not be extended into the subject property, thus limiting the area capable of being developed commercially. In this connection, Mr. Weatherby envisioned a layout of a development for the subject property. It shows the extension of MacRae Street and, according to Counsel for the Appellant, it clearly demonstrates that the Respondent's expert witness was wrong about the size of the area of the subject lands which could be developed for commercial purposes. Mr. Weatherby also indicated in his testimony that the portion of the subject property that does not front Portland Street could not realistically be developed commercially and for this reason, Mr. Weatherby did not include this portion of the subject property in the commercial area.

138 There was also a discrepancy between the two experts as to the value per square foot to be used in respect of the commercial area. Mr. Weatherby arrived at a figure of $11 while Mr. Chappell comes up with a figure of $12.80. Mr. Weatherby arrived at that amount by using Comparables 18, 19 and 20. Of the three Comparables, only Comparable 18 was situated within the Circumferential Highway.

139 Reference was also made for the Appellant to another question on which the two experts were in disagreement. This question relates to the computation in respect of the subject property of the holding cost which accounts for the time needed to rezone it. The dispute in respect of this question has to do with two aspects, namely the length of the holding period and the interest rate that is to be used in the computation of the holding cost.

140 Mr. Weatherby used a holding period of 1.5 years while Mr. Chappell used one year only. Mr. Weatherby used an interest factor of 13.75% while Mr. Chappell used 13.5%. Both experts used the same bank prime rate but did not add on the same premium that a real estate developer would have to pay at the relevant time.

141 With respect to the development approach method used by Mr. Weatherby for valuing the subject property, stress was laid on the point that Mr. Chappell himself did not dispute, according to him, the validity of this method. Mr. Chappell explained that he did not refer to this method because he did not have sufficient data but he asserted that Turner & Drake Partners Ltd. might have been justified to use it if that firm had a sufficient database.

Respondent's submissions - V-day Valuation

142 Counsel for the Respondent, Me Legault, emphasized the point that, according to Mr. Chappell, the optimal use at that time was to hold the subject property for future residential development. Mr. Chappell justified this determination by stating that there was a greater tendency for development at the time in the easterly direction from the subject property where services were already available. In this regard, she pointed out that Mr. Weatherby agreed that there were two courses of action open to the developer: either to wait until the services were brought to the property or to incur the necessary costs for gaining access to the sewer network. In this connection, she pointed out that Mr. Weatherby did not take into account the cost of access to the sewer network for the V-day valuation while he insisted on reducing the 1990 valuation for the entire property by $140,000 for the same purpose. Moreover, she mentioned that the work would have been more substantial and costly in 1971 since the distance between the subject property and the municipal network was greater at that time as the sewer system underneath Portland Street was not in place.

143 With respect to zoning, Me Legault pointed out that the mixed zoning (residential with minor commercial development) was not as of right at V-day. It required approval by the Municipal Council who must pass the By-law. No discount or adjustment was made to reflect these costs as this has been done by both expert witnesses for the 1990 valuation report. Moreover, no rezoning probability factor, risk aversion factor or holding cost were taken into account in respect of the V-day value of the subject lands.

144 Respondent's Counsel also discussed the Comparables used by Mr. Weatherby. The sales that the latter considered extended over a ten-year period, from 1965 to 1976. She argued against the use of sales as Comparables which occurred a substantial time after the effective valuation date on the ground that the sale prices of properties occurring after the valuation date may have taken into account tendencies which did not exist at the time. The appraiser had the benefit of hindsight. In making these observations, she relied on the Uniform Standards of Professional Appraisal Practice. She also drew my attention to the decisions of this Court in Grove Crest Farms Ltd. v. R.,[FN2: <p>(1994), [1995] 1 C.T.C. 2615 (T.C.C.).</p>] and Gulliver's Travels Motor Hotel Ltd. v. Minister of National Revenue[FN3: <p>[1993] 1 C.T.C. 2236 (T.C.C.).</p>]

145 Counsel for the Respondent also indicated that the Appellant's expert witness determined the time adjustment factor by resorting to compensation awards involving two expropriations which occurred in 1972 and 1975 respectively. Mr. Chappell, in reviewing 20 sales and re-sales of single family homes between 1971 and 1974 estimated the increase rate at 20% per year on average. However, given inflation at an annual compounded rate of 8.3% during that time, Mr. Chappell determined that 14% was a better adjustment factor with respect to the increases in the prices of vacant lots. Me Legault also mentioned that while Mr. Weatherby used a “Residential Price Index” to determine the property adjustment factor in his 1990 valuation report he did not do so in his 1971 valuation report.

146 With respect to the list of Comparables used by Mr. Weatherby, Me Legault first indicated that his Comparables 1 and 8 did not constitute actual sales because they were forced sales. Hence, she concluded that they did not meet the definition of fair market value. She also stressed the point that Comparable 8 in Mr. Weatherby's report is distinguishable on other grounds mentioned by Mr. Chappell. She also indicated that Mr. Weatherby's Comparables 4 and 9 should not be considered as they were zoned for a commercial use which intrinsically gives them a higher value in relation to lands which were zoned R-1. Comparable 4 was subsequently developed with a large shopping centre, Penhorn Mall. Comparable 9 has a much smaller area than the subject, which results in a higher value per acre.

147 Counsel for the Respondent urged the Court that Mr. Weatherby's Comparables 3, 5, 6 and 7 were most indicative of the value of the subject property at V-day. These properties were all zoned for a residential use at that time. Comparable 3 would have a value of $8,703 per acre if Mr. Chappell's time adjustment factor was used. In addition, sewer services were immediately accessible to the property, which situation did not obtain in the case of the subject property. Comparable 5 was essentially a rural property but it was noted that a subsequent substantial development on Portland Street, east of the Circumferential Highway, allowed the owner to sell that property at a much higher price.

148 From this, Counsel for the Respondent concluded that the value of $14,500 per acre put by the Appellant's expert was much too high. In her opinion, Mr. Weatherby's Comparable 6 would be a good indicator of value if a time adjustment factor of 14% was used instead of 6%. She submitted with respect to Comparable 7 that it had a great commercial potential though it was developed residentially. Nonetheless, according to the Respondent, Comparable 7 probably had a higher value than the subject property.

149 In conclusion, the Comparables used by the Respondent's expert witness were more contemporaneous to V-day and had similar zoning as that of the subject property. They represent a better indicator of the market value at V-day, therefore a better indicator of the fair market value of the subject property at that time.

1990 Valuation

150 Me Legault noted that there were fewer factors on which the two expert witnesses diverged regarding the 1990 valuation of the property in issue.

151 She reminded the Court that Mr. Chappell used his Comparables 6 and #7 which were similar to the subject property especially in respect of zoning and costs to hook-up to the sewer network. He then averaged the two values $28,930 and $42,365 per acre. Comparables 6 and 7 in Mr. Chappell's report involve the same tracts of land as Mr. Weatherby's Comparables 1 and 2 in the latter's “Residential Land Sales Schedule.” She pointed out that Mr. Weatherby's Comparables 3, 4 and 5 were sales which took place several years before the effective date of the 1990 valuation and, as such, are less representative of the market on January 12, 1990.

152 With respect to the commercial portion of the land, Me Legault noted that Mr. Chappell established a value of $15 per square foot but discounted it to $12.80 to take into account the cost of hooking up to the sewer network. She contended that Mr. Weatherby, in arriving at a value of $11 per square foot, should not have discounted that value to take into consideration the cost of accessing the sewer network because his initial value of $11 per square foot already takes that cost into account. She further stressed that only one of Mr. Weatherby's Comparables has a value lesser than $11 pr square foot, the value established by Mr. Weatherby while the sale prices of Mr. Weatherby's other Comparables are much closer to the value established by Mr. Chappell. Nevertheless, Mr. Weatherby retained his Comparables 18, 19 and 20 as the better indicators of value. As for Comparable 18, she mentioned that it was a small commercial lot located near the subject property but it has a lesser value then the subject property because, as pointed out by Mr. Weatherby, there is less traffic on that portion of Portland Street where there are two lanes of traffic. Regarding Comparable 19, Counsel for the Respondent pointed out that it is closer to the downtown core and referred to Mr. Weatherby's testimony to the effect that it was not in this area of the City that the development was taking place. As for Comparable 20, it was located in an industrial area and both parties agreed that it had a lower value than the subject property. She criticized Mr. Weatherby's decision not to consider his Comparables 14, 15a and 15b because they were located east of the Circumferential Highway and thus of a greater value. According to her, these three properties were much more similar to the subject property than those considered by Mr. Weatherby to be better Comparables.

153 Counsel for the Respondent also took issue with the risk aversion factor which she characterized as having an obscure use which Mr. Weatherby has added to the probability of rezoning factor. In her view, the risk aversion factor only artificially reduces the value of the property. However, the combined effect of these two factors, the risk aversion factor and the probability of rezoning factor with their related percentages taken into account by Mr. Weatherby, amounts to a probability of 63%, while Mr. Chappell arrives at a probability of rezoning factor of 70%.

154 Me Legault also disputed the point made by Mr. Weatherby about a further discount by an amount of $10,000 for professional services. She noted that Mr. Weatherby did not discount the value at which he arrived for his 1971 valuation by a similar amount. Mr. Chappell's value of 70% takes into consideration all these costs and risks.

155 With respect to the holding cost, on behalf of the Respondent, it was submitted that Mr. Weatherby's figure of 18 months is excessive and is solely based on the fact that the City of Dartmouth was reviewing its development master plan. She contended that 12 months are sufficient based on zoning applications submitted to the City. City officials, according to her, were not inclined to accept a large commercial development, but that a development as the one submitted by Mr. Weatherby would most probably be approved.

156 With respect to the portion of the subject property which could be developed commercially, it was submitted that the plan proposed by Mr. Chappell, being based on other commercial developments which had a frontage on Portland Street, was more realistic than the one put forward by Mr. Weatherby.

Development Approach method

157 The Respondent submitted that the development approach method should be used with circumspection. In this connection, she relied on Mr. Chappell's testimony that he did not use this method as there were insufficient data at the time of valuation. She also stressed the point that Mr. Weatherby himself was of the view that this approach was more subjective than the sales comparison approach and necessitated the use of more assumptions. She concluded that the development approach is not as sound as the sales comparison method.

Analysis

158 I shall first consider the matter of the V-day value of the subject property.

159 At the hearing, it was common ground that the total area of the subject property was 25.89 acres. On that basis, the Appellant estimated the V-day value of that property at $375,000 while the Respondent established its value at $129,450.

160 In determining the value of the subject property as at December 31, 1971, I agree with the Appellant's expert witness and I find that a residential development along with a minor commercial component which would service the residential sector represent the best and highest use of the property. This conclusion is justified to a substantial extent by the fact that a large commercial development, the Penhorn Mall, opposite the subject lands was built in 1971, the necessary land assembly for this development having begun in 1968 and the construction of the residences on the latter site having been completed in 1973. In my view, the Respondent's expert witness was wrong in not attaching sufficient importance to this element of the overall situation.

161 On the other hand, I am not inclined to give much weight to the compensation awards relative to the property described as Comparable 1 and Comparable 8 in Mr. Weatherby's report. One of these properties was expropriated in May 1972 and the other in 1975. First of all, they were “forced sales.” Also, some of the physical characteristics of Comparable 8 in Mr. Weatherby's report are substantially different from those of the subject property.

162 I do not believe that the property referred to as Comparable 1 in the Respondent's report that has a slope of 20 or 21% along much of its westerly side is a good comparable. Mr. Chappell recognized that additional development costs would have to be incurred. The site in question was also much larger than the subject land.

163 After a perusal of the eight Comparables listed by Mr. Weatherby in the “Land Sales Schedule” of his report for the V-day value of the subject property and the five Comparables found in the “V-day Land Sales Schedule” of Mr. Chappell's report, I have concluded that the land value of the subject property on December 31, 1971 would be somewhere between Comparable 5 in Mr. Weatherby's report (which is Comparable 4 in Mr. Chappell's report), the adjusted price for the land, being roughly $8 per acre, and Comparable 3 in Mr. Weatherby's report (which property is not referred to in Mr. Chappell's “V-day Land Sales Schedule”) the adjusted value being $10,567, according to Mr Weatherby.

164 Having regard to all relevant factors, I have set the value of the subject property at V-day at $9,500 per acre. I have therefore arrived at a value of $245,955 for the entire subject property, that is, 25.89 acres. I have rounded this total to $246,000.

165 I shall now deal with the value of the subject property at the time of its deemed disposition on January 12, 1990, the day of the death of Mr. Jan Reiss.

166 First, I have not been persuaded by the Appellant's expert witness that this was a proper case for the use of the development approach. I agree with Mr. Chappell that there were insufficient data at the time of valuation. There are many subjective elements involved in making a determination of value in the present case based on the development approach. A number of adjustments would have to be made. It is well recognized that in making a valuation the greater the number of adjustments that are required, the less reliable the conclusions are.

167 On the evidence, I am satisfied that the sales comparison approach should be resorted to in the present case for valuing the property as at January 12, 1990.

168 As noted earlier, the two experts disagreed with respect to the allocation of the subject property between the commercial and the residential components.

169 The Respondent's expert witness believed that a 2.5 acres could be used for commercial development while the Appellant's expert witness estimated that approximately two acres will be developable for a commercial use. Based on a detailed analysis of the evidence, I am satisfied that in all likelihood, two acres could be developed for a commercial use. I have been persuaded by the detailed observations of Mr. Weatherby and I find his evidence in this regard more credible.

170 Under the sales comparison approach, both parties were basically in agreement that the value of the residential component of the subject property on January 12, 1990 should be established at $35,000 per acre. I say “basically in agreement” as I am not overlooking the point that the Appellant has deducted from the values attributed to both the residential and commercial component a sum of $140,000 to cover the cost of the completion of the municipal sewer line to the subject property. I am satisfied that the value of the residential component of the subject property, including all necessary costs, is $35,000 per acre, as at January 12, 1990. The total value of the residential portion of the property is therefore $836,500, that is 23.9 acres × $35,000.

171 The sales comparison method should now be considered for the valuation of the commercial portion of the property which, as I have just said, should be equal to two acres.

172 First of all, it was agreed by both parties that the rezoning of the above portion of the property was not available as of right and that a zoning permit was required to allow such use.

173 The Appellant's expert has estimated that it will take at least a year and a half before any approval could be granted by the municipality. The Respondent's expert estimated that the approval for the rezoning could be given within one year. I accept the Appellant's evidence and I have concluded that a period of 18 months was a realistic appreciation of the situation. The holding cost for a period of 18 months should therefore be estimated.

174 With respect to the rate of interest per annum to be used regarding the computation of the holding cost in respect of the subject property, I accept Mr. Weatherby's evidence that 13.75% was the rate of interest per annum paid in January 1990 by developers on borrowings for land development projects. The rate of 13.75% per annum should therefore be utilized in the required calculations.

175 With regard to the holding cost of the property, I accept Mr. Weatherby's factor 0.8243 mentioned at page 16 of his 1990 valuation report. This factor is to be applied to the value as at January 12, 1990 of the commercial component of the subject property.

176 A probability factor has to be applied to the value of the commercial land component to reflect the possibility that a rezoning of that portion may not be accepted by City Council. As indicated earlier, the Appellant's expert witness in this regard used two factors, the probability of rezoning factor and the risk aversion factor. The Appellant's expert witness in the result estimated that 63% takes into account all the risks involved in securing the approval of the rezoning. The Respondent's expert witness referred to a single factor, which he called the probability of rezoning factor and he established it at 70%.

177 I find that the probability of rezoning factor should be established at 70%. This percentage appears to me to be a fair estimate of all the risks involved in obtaining the rezoning of the relevant portion of the subject property.

178 I find that in the list of Comparables for the commercial component of the subject property, lands listed as Comparable 19 in Mr. Weatherby's report and Comparable 15 in Mr. Chappell's report are the best indicators of value. I have concluded that the commercial component of the property should be valued at $12 per square foot. Since I have determined that the total commercial portion of the property is 86,800 square feet, its total value at $12 per square foot is $1,041,600.

• Holding cost 0.8243 × $1,041.600=$858,590.88

Probability of rezoning factor $858,590.88 × 70%= $601,013.61, which I have rounded to $600,000.

180 Therefore, I have come to the conclusion that the value of the entire property on January 12, 1990, is:

Residential portion	$ 836,000
Commercial portion	$ 600,000
Total	$1,436,000

181 I have not considered as a separate item the cost to complete the sewer line to the subject property, calculated by Mr. Weatherby to be in the amount of $140,000 on the basis of an estimate made by Project Consultants Limited, since such cost was taken into account in my determination of the value of both the residential and commercial component of the subject lands.

182 I would therefore allow the appeal from the assessment in respect of the late Jan Reiss for the 1990 taxation year and refer the assessment back to the Minister of National Revenue for reconsideration and reassessment on the basis that the values of the subject property were as follows on the dates hereinafter mentioned:

December 31, 1971	$ 246,000
January 12, 1990	$1,436,000

183 Since success is divided, the parties should bear their own costs.