Elder Werner v. Minister of National Revenue, [1986] 1 CTC 2012, 85 DTC 763

Christie, A.C.J.T.C.:—The point raised in this case is the market value on December 31, 1971 ("V-Day”) of a 40-acre parcel of land in the County of Strathcona ("the property”) that is located immediately south of the boundary line of Edmonton as fixed by an annexation that occurred on January 1, 1971 ("the boundary”).

In September 1969 the Alberta Housing Corporation ("the Corporation”), an agent of the Crown in right of Alberta, began to quietly assemble a large bank of land. This had relationship to an intended expansion of the geographical limits of Edmonton and featured in a plan involving the city to accommodate within the boundary a population of some 120,000 in what is known as the Mill Woods Development Project which is in the southeast sector of Edmonton. The primary purpose in creating the land bank was to exercise control over escalation of cost for serviced residential lots and to provide sites for such things as hospitals, schools and parks. The creation of the bank was terminated by the Corporation in the first quarter of 1970. It acquired in excess of 5,000 acres in the southeast sector of Edmonton or contiguous thereto. About 4,420 acres are within the boundary and the balance of approximately 680 acres is outside. The banking of land by the Corporation was treated as secretive. This is not to suggest, however, that there was no leakage in this regard. There was and vendors were acting on that knowledge to their benefit. As Mr. Edward J. Shaske, who testified on behalf of the appellant, said: "When you get assemblies of lands by a government agency it is not very long before people find out that something is going on.” The Mill Woods area is immediately north of the property.

The property is 660 feet wide and 2,640 feet long. An 80-foot wide easement for power lines and pylons runs along the entire length of its west side. Its acreage is 4.8 which exceeds 10 per cent of the property. It was in existence on V-Day and still is.

The condition of the property on V-Day was essentially what it was at any time relevant to this appeal, namely, level, cleared land without buildings or other improvements. The soil is of high quality for agricultural purposes. It rates class (I) under Canada Land Inventory. As of V-Day it was committed to low density agricultural production and this continued.

The only witnesses called at the hearing were Shaske and Mr. Peter W. Lee. The latter testified on behalf of the respondent. Both are qualified to give expert opinion evidence regarding the market value of the property as of V-Day. Shaske’s estimate is $1,800 per acre or a total of $72,000. Lee's estimate is $1,100 per acre or a total of $44,000.

With respect to the highest and best use of the property as of V-Day, Shaske said in his appraisal report: "In conclusion, the highest and best use of the subject property, as at December 31st, 1971, was as a holding property, pending redevelopment. The agricultural use of the property was transitory in nature and was an underutilization of the site, given the prices which properties in the area were attaining at the time.” He added at the hearing that the redevelopment he envisaged was primarily single family residential housing. Shaske's conclusion regarding highest and best use is basically founded on the proximity of the property to the boundary and the expansion of economic development within the boundary. In his report Lee said: "After considering all the pertinent factors, the Highest and Best Use of the subject property as at the date of the appraisal (V-Day) is for agricultural

production/' Lee based his conclusion in this regard on the circumstances existing on V-Day by reason of the activities of the Corporation and the new limits of Edmonton established as of January 1, 1971. Although the Corporation had amassed a large land bank within the boundary more than this was annexed on January 1, 1971. About 8,000 acres located in the southeast sector were absorbed. He stated that studies made by the city indicated that the annexed area would provide commercial and industrial land and especially residential land for the next 15 to 20 years. This supply left the property with “very little potential for future urban development/'

Both resorted to the method which is variously described as the Direct Sales Comparison Approach to Value or Market Data Approach or Sales Comparison Approach to estimate the market value of the property.

In forming his opinion, Lee examined numerous sales from 1969 to 1973. He divided them into three groups. Group I consists of 11 sales to the Corporation in 1969 and 1970 in relation to the land assembly project. These sales were of parcels located north and east of the property. The first was in August 1969. It involved 447.04 acres at $638 per acre. Four sales in September 1969 involved these prices per acre: $1,000, $1,031, $1,100 and $1,150. In October three sales are listed at prices of $1,225, $1,300 and $1,800 per acre. In January, February and March 1970 one sale is recorded in each of these months at $2,600, $1,500 and $2,150 per acre respectively. The average price per acre in 1969 was $1,155 and in 1970 was $2,083. This escalation in price reflects the impact of the Corporation in the market. A particular illustration of that impact is that the same vendor sold land to the Corporation in September 1969 at $1,031 per acre and in the next month at $1,800 per acre. After selling at $1,031 he became aware of the activities of the Corporation. At this time he had the property which he sold for $1,800 per acre listed with a realtor at about $1,000 per acre. In the light of the knowledge referred to he cancelled the listing, even though the realtor had an offer from the Corporation to purchase at the asking price. He paid the seven per cent commission in settlement with the realtor and then sold the land to the Corporation at $1,800 per acre.

Because of the creation of the land bank and the extraordinary effect of the Corporation's activities on the market, Lee discarded the sales in Group I as unreliable comparables. In this regard he added that as of V-Day the two factors which largely contributed to the volatile market activity were gone, namely, the Corporation, a very special purchaser, had withdrawn from the market and the uncertainty of the new limits of Edmonton was settled. The new limits were announced in August 1970 and, as mentioned, were fixed effective January 1, 1971.

Group II consists of five sales after January 1, 1971. The properties involved are all within the boundary. The sale dates and the price per acre are: April 1971 — $3,348, May 1972 — $2,000, August 1972 — $2,978, November 1972 — $3,196 and December 1972 — $4,000. This is an average of $3,104 per acre, an increase of 49 per cent over the average price per acre of the 1970 sales referred to in Group I. Sales of this kind are also rejected by Mr. Lee as not being useful comparables. He points out that in the context under discussion, land within the city limits intended for urban development cannot be compared with land outside those limits. The former has by far the greater economic potential both by reason of services available that are necessary to development and priority of development. Lee again observed that the anticipated time for the development of Mill Woods was 15 to 20 years. He went on: “‘So if you're looking at the Mill Woods Development Plan as of December 31, 1971, the annexation of land furthest south or east of the existing boundary as of 1971, it would be quite remote because there is enough land supply for residential or industrial-commercial development for the next 15, 20 years.”

Group III consists of seven comparables located outside the boundary and, as the photographs in Lee's appraisal report show, the topography of these comparables is similar in nature to the property. Four are situated to the south of Edmonton's southern boundary, two are situated to the southeast of the boundary and one to the southwest of that boundary. The date of sale, acreage and price per acre of these comparables are:

(There was a house on this parcel valued at $5,000 reducing the estimated value of the land to $1,059 per acre)

(3) August 16/71	80	750
(4) April 21/71	51	700
(5) May 13/70	160	700
(6) Jan. 26/70	160	800
(7) April 14/70	40.12	1,496

It will be seen that these comparables involved sales before and after annexation. After allowing for adjustments regarding time, location, condition, motivation and size, particulars of which need not be recited here, Lee's adjusted values are: (1) $1,012, (2) $971, (3) $908, (4) $949, (5) $1,109, (6) $1,159 and (7) $1,293. His estimate of $1,100 per acre falls at the mid-point between the upper and lower figures of this range. With respect to the first four comparables, Lee noted: "These four sales all occurred after the annexation. Everybody knew where the boundary is at the time that these four sales took place, because after the dust had settled there was no, very little speculation going on outside the city.”

Shaske relied on 12 sales. The date of sale, acreage and price per acre of these indicators as set out in Shaske’s appraisal report are:

After allowing for adjustment regarding time, etc. Shaske’s final adjusted per acre price is (1) $1,650, (2) $1,896, (3) $1,760, (4) $1,690, (5) $1,760, (6) $1,752, (7) $1,792, (8) $1,760, (9) $1,827, (10) $1,800, (11) $1,688 and (12) $1,800. This range runs from $1,650 to $1,896 per acre and, as indicated at the outset, Shaske's estimate of the market value is $1,800.

Eight of these indicators (1, 2, 3, 5, 6, 7, 8 and 9) are outside the boundary. Four (2, 6, 7 and 8) are a considerable distance from the property.* [2] Indicator 5 is the same as Lee's comparable 6. Indicators, 4, 10, 11 and 12 are inside the boundary and north of the property. Indicators 1, 3, 4 and 10 were sales to the Corporation. As already noted, Lee, for the reasons indicated, rejected as unreliable comparables sales to the Corporation. Indicators 1 and 3 were such sales. He also rejected, with explanation, sales within the boundary. Indicators 11 and 12 were of this kind. Indicators 4, and 10 were both.

The indicator upon which Shaske placed the most reliance is #12. It is, relative to seven of the indicators, much closer to the property, being about one-half mile north of it and within the boundary. The date of sale is May 1972. It involved 160 acres at $2,000 per acre.

Although no mention is made of it in his report, Shaske testified regarding a Restricted Development Area (“R.D.A.''). It is an area of land approximately one-half mile in width which circumvents Edmonton. A portion of it lies immediately north of the property. It is a utility corridor for such things as hydro lines, cable towers and transportation routes. Except to the extent that it is committed to utilities, the R.D.A. is used for agricultural purposes. With some uncertainty, Shaske ventured that the R.D.A. was established at some unspecified date in 1975. It is difficult to appreciate the relevance of the R.D.A. to the issue to be determined. There is no evidence that its existence was even anticipated on V-Day or, if it was, that it was known to potential purchasers. Furthermore, the latest date of sale regarding all of the indicators and comparables relied on by Shaske and Lee was with respect to Lee's comparable #1. This date is March 30, 1973.

The significant evidence given in this appeal, which of course includes the appraisal reports, consisted of a conflict of opinions given by Shaske and Lee. Having regard to the whole of it, that given by Lee was, in my view, definitely preferable. Shaske's appraisal report and oral testimony were wanting in a number of respects. It is unnecessary to compile a catalogue in this regard. It is sufficient to give one or two illustrations of what I am speaking of. This is said at page 9 of Shaske's appraisal report:

In the past few years, new office and apartment buildings have been constructed in the general area of the subject site, in addition to public spending on several major projects within the general neighborhood. The combined effort has produced a solid commercial and apartment core within the neighborhood.

The immediate area surrounding the site is representative of the above and should continue to provide a workable mix of both people and capital, a general prerequisite to the success of any community.

With respect to the first paragraph, Shaske admitted that these conditions did not relate to V-Day, but to the date of the transmission of his appraisal report and that it had no application in estimating the market value of the property on V-Day. With respect to the second paragraph, this exchange took place between him and counsel for the respondent:

Q. Do you still stand by that statement?

A. No, that is not correct. The immediate area is not developed and that has reference to the properties some three to four miles north, but certainly the immediate area was not contained in there.

Q. So that statement is a wee bit misleading?

A. It is misleading in terms of the location of the subject property, yes.

In examination-in-chief Shaske said that the 80-foot power transmission easement running along the west side of the property would have no effect on its market value as a site for potential residential development. In cross- examination he was again asked about this and replied: “None whatsoever." In support of this Shaske referred to a survey he did for TransAlta Utilities Corp., the successor to Calgary Power. He said: "We spoke to the principal owners and in many cases the owners had suggested to us that they preferred that kind of an easement because it provided a green belt area; it provided a recreational area. These areas were generally fairly-well landscaped." It may well be that some homeowners would prefer to have a power line easement running across their property, but to my mind to set forth such a preference or even indifference by homeowners to an easement of that kind as a general proposition flies in the face of common sense. Lee said that while the easement would not affect the value of the property for agricultural purposes, it certainly would go to value for potential residential development. In order that there be no misunderstanding I emphasize that the foregoing is not intended as an assessment at large of the witnesses, but relates only to the evidence given in the case at bar.

In particular I am satisfied that Lee's opinion regarding the highest and best use of the property at the relevant date is the better. I also agree with his views regarding the selection of comparables and accept his $44,000 estimate of the market value of the property as at V-Day.

The appeal is dismissed.

Appeal dismissed.