Eric Dunlop v. Minister of National Revenue, [1984] CTC 2837, 84 DTC 1768, [1984] CTC 2841

Kempo, TCJ:—

Part I — Issue

This appeal was heard on common evidence with the appeal of Joycelin Dunlop (83-1269) on September 11 and 12, 1984 at the City of Penticton, British Columbia.

The only issue for determination by the Court is the fair market value of approximately 177.5 acres of land in the Okanagan Mission District near Kelowna, BC as at Valuation Day, December 31, 1971. The appellant asserts the value thereof to be $545,000. The respondent’s position is that the value was no greater than $405,000. The property overlooks the Okanagan Lake and was located in an unzoned area within which the existing uses were generally that of rural residential and agricultural, the latter being orchards and vineyards. More particularly, approximately 35 per cent of the subject was comprised of gullies and steep mountainous land, 40 per cent was of gently sloping, uncleared and unplanted agricultural land and the balance of approximately 25 per cent was described as the “best of the best” agricultural land in the valley which was planted to orchard and vineyard. Water access was from the lake via a privately- owned pumping system passing up an easement in favour of the appellant. The material difference in valuation arises, in the main, in respect of the highest and best use of that agricultural portion of the property which was described as being gently sloping, uncleared and unplanted and as having an outstanding and unobstructed view of the Okanagan Lake.

Part II — Decision

The appeal is allowed and the matter is to be referred back to the respondent for reconsideration and reassessment on the basis that the fair market value of the subject property on Valuation Day, December 31, 1971 was $492,667.50. The said value is based on the aggregate of the following apportionment:

45 acres planted to orchard & vineyard,

which, on a rounded-out figure, is $2,775 per acre overall.

Part III — Reasons

11 LA I have accepted the evidence of the appellant, Mr Dunlop, as being the best and most reliable evidence as to acreage breakdown. While each of the two appraisers who gave evidence on behalf of their respective parties had examined contour maps etc and had walked over the property, it is the appellant who knows his land best, having lived there in excess of 35 years. He knew that he had 43 acres of orchard and vineyard land by the number of the then existing orchard trees and vine plants per acre. He knew he had 70 acres of uncleared, unplanted prime agricultural lakeview land as he not only used his best judgment thereof but he said he had measured it off by a tape. The balance of land, or 64.5 acres, would therefore be that of gullies and steep, rocky, forested mountainside. Included in the appellant’s parcel of land was his homesite of one acre, the acreage and value being excluded for the purposes of this appeal.

11 LB Dealing firstly with the 43 acres of planted orchard and vineyard, and in recognition of the evidence that it was the “best of the best’’ agricultural land in the valley, I have accepted the higher valuation figure arrived at therefor by the respondent’s appraiser, Mr John C Grey, that is, at $4,835 per acre.

111.C As to the land comprising of gullies and mountainside the values arrived at by Mr Grey and the appellant’s appraiser, Mr James Markle, were as follows:

The mountainous area was commonly perceived to have been basically unusable for at least 10 to 15 years. However a nearby parcel of 167.73 acres of land with similar topography to that of the subject was purchased in early 1970 by a well-known developer for $80,000 or $477 per acre (G3M8). If updated to V- Day, this would be $558 per acre. The divergence of expert opinion was in respect of adjustments to be made as to its comparability with the subject. It is notable that the overall value difference amounts to approximately $9,100 in the aggregate ($48,055-$38,950). It is further notable that $48,055 is said by Mr Grey to be the value of gully and mountainous land totalling 79.22 acres while, on the other hand, the $38,950 is for a total of 50.5 acres according to Mr Markle. I have already determined that approximately 64.5 acres of land would have been in this overall category. There is nothing of concrete assistance in the evidence to attempt any firm sub-allocation of land use therein excepting to note that there would be a greater amount of the less-valuable mountainous land in the 64.5 acres than that of the more valuable gully land. Accordingly, and albeit somewhat arbitrarily, I have determined that a reasonable value to be assigned to the 64.5 acres would be $725 per acre or $46,767.50.

111.D As stated earlier the most contentious area in this appeal was in respect of the highest and best use of the 70 acres of lake-view, uncleared, unplanted, gently sloping prime agricultural land which lies, in the main, between that of orchard/vineyard and that of the mountainous.

The final position of the respective experts was as follows:

Succinctly stated it was Mr Markle’s opinion that the highest and best use of this portion of the appellant’s property was to proceed with a residential subdivision. He then employed two separate methods of valuation:

value by comparative sales or market approach on the one hand and the

residual or subdivision approach to value on the other

and he ended up with similar conclusions as to value from each.

In contrast, Mr Grey, after careful analysis, came to the conclusion that its highest and best use was agricultural and that this would recognize its potential for being cleared and irrigated etc for orchard/vineyard use.

Both experts considered five sales of nearby properties (“M” designates Mr Markle and “G” designates Mr Grey):

As noted previously, this general area (Okanagan Mission) had not been restrictively zoned. Unzoned areas were permitted rural and residential use. Any subdivision development proposal was subject only to the approval of the provincial departments of highways and health. However, and without prior public announcement, a zoning by law came into effect on September 6, 1972. The by law was referred to effectually as putting a “freeze” on subdivision development. During March 1972 the purchaser of sale No 1 registered a plan of subdivision for 21 lots therefrom out of a preliminary subdivision plan of 185 lots. During the latter part of 1971 Lombardy Developments Ltd was in the process of a land assembly (sales Nos 3, 4 and 5 — supra). The purchaser of sales No 2 was said to have had subdivision intentions for his property as a future consideration.

All of the above is corroborative of a perception, reasonably held at or near Valuation Day, that the subject property would similarly have had potential for subdivision development. Because of these events and of the subject’s topography, access, water supply and view, its highest and best use as at December 31, 1971 should reasonably have included its subdivision potential notwithstanding that the same could not be viewed as being imminent.

Mr Markle went to great pains and into considerable detail to value this portion of land by the subdivision method. However, since his estimations were predicated on development plans extending over some eleven years there are simply too many variables and adjustments to be made for this approach to be reliable.

Returning to the aforementioned five market data sales the lands in Nos 3, 4 and 5 were clearly acquired on account of a land assembly for development. They however, individually or collectively, did not possess some of the more favourably qualities of the subject, ie: that of water availability, terrain and lake view. There were also valid adjustments to be made in respect of sale No 1; more particularly that pertaining to an imminence of its partial subdivision as at Valuation Day.

As to sale No 2 the evidence was that it was of a mixed topography not dissimilar to that of the subject and that the purchaser did not buy on any particular price for land-use allocation but rather employed a flat acreage rate. Apparently the vendor’s anxiety and need to sell resulted in a transaction under which, inter alia, only one per cent of the $490,000 purchase price was required as a down payment. The balance was carried by mortgage on very favourable terms and conditions as to interest and repayment. Mr Grey discounted the purchase price of $490,000 by 11 per cent on account of the favourable terms and, after subtracting $57,000 in respect of buildings and equipment, he came to a land value of $378,098 which would amount to approximately $2,950 per acre overall. He did not attempt to segregate this value qua any of its land-use allocation.

On analysis, and by way of summary, it is my opinion that Mr Grey has understated the Valuation Day value of the subject 70 acres due to his overall perspective as to the highest and best use thereof as being agricultural. By the same token Mr Markle, in my opinion, has overstated it because of his perspective as to its development potential. The gap is large: $3,750 per acre versus $1,400 per acre. The last three of the five sales, supra, indicate the nature and extent of development activity in respect of topographically inferior land. The first two sales are closer to the mark and I have therefore found that $3,400 per acre for the subject 70 acres would be representative of its fair market value on Valuation Day, December 31, 1971.

Accordingly, the appeal is allowed and the matter is to be referred back to the Minister for reconsideration and reassessment on the basis of value on Valuation Day as is stated in Part II of these reasons for judgment.

Appeal allowed.