Decision and Order
IN THE MATTER OF AN APPEAL PURSUANT TO S. 50 OF THE ASSESSMENT ACT
CONCERNING:
AND
Assessor Of Area #01 - Capital
|
Appeal No.: |
|
|
|
|
|
Refer to as: |
Rogers' Chocolates Ltd v. Area 01 (2010 PAABBC 20091836) |
|
|
|
|
Date of Decision: |
January 8, 2010 |
|
|
|
|
Property: |
916 Gordon Street, City of Victoria |
|
|
|
|
Heard: |
|
|
|
|
|
Submissions: |
From the Appellant received October 22 & November 18, 2009 |
|
From the Respondent received November 10, 2009 |
|
|
|
|
|
Board Panel: |
Chris Hope, Panel Chair |
INTRODUCTION AND ISSUE
[1] The clip-clop of steel-shod horses' hooves and the cacophony of carriage wheels can still be heard in the area near Victoria's inner harbour, which has retained its historic turn-of-the-20th-century streetscape despite the pressures of progress and modernization.
[2] Among the buildings contributing to the historic continuity of the area is the Rogers' Chocolate building at 913 Government Street (the street address 916 Gordon Street refers to the rear of the building). The two-storey Queen Ann-style brick commercial building was built in 1903 and has been home to Rogers' Chocolates since 1917. The exterior of the building has been protected by heritage designation since 1975. In 1991 the building was designated as a National Historic Site of Canada. Both the façade and the interior of the building contributed to the latter designation.
[3] This appeal arises from steps taken by the City of Victoria in 2008 and 2009 to preserve the interior of the Rogers' Chocolates building and Rogers' conviction that those steps have reduced the market value of the land and improvements.
[4] There are two issues to decide.
[5] First, whether any diminishment in value arising from the steps taken to preserve the interior of the building should be considered for the 2009 assessment year.
[6] Second, whether any compensation payable to the owner due to heritage designation should be considered in assessing the market value of the property.
[7] The parties have agreed that the issue of the actual market value of the property should be decided at a later time. This is, therefore, an interim decision.
FACTS AND EVIDENCE
[8] 913 Government Street is a long, narrow building (approximately six times longer than it is wide). The retail space at the front of the building is limited to less than one-quarter of the length of the ground floor of the building. The remainder houses a stock area, office space, a boardroom, and a delivery area.
[9] In November 2007 Rogers' Chocolates planned to renovate the interior of the Property to expand the retail space. A building permit was issued in December 2007.
[10] Rogers' closed its store in order to start the renovation work but did not get far before Victoria raised concerns and requested that work be stopped. The possibility of a protection order (a temporary order available under the Local Government Act to allow a municipality time to enact a formal heritage protection bylaw) was raised, but Rogers' forestalled this by stopping the work and agreeing to give Victoria 48 hours' notice before re-commencing it.
[11] Rogers' reopened the chocolate store and remained open for business throughout the spring and summer of 2008. Rogers' and Victoria attempted to reach an agreement which would have allowed renovations to increase the retail space without compromising its heritage features, but were unable to do so. In late September 2008 Rogers' notified Victoria that work would re-commence in October 2008.
[12] In November 2008 Victoria issued a temporary protection order covering the retail space in the building and began preparing a heritage designation bylaw. In February 2009 the heritage designation bylaw was enacted. By operation of the bylaw, Rogers' is prevented from making any alterations to the retail area at the front of the building.
ANALYSIS AND FINDINGS
[13] The Assessment Act obliges the Assessor to determine the actual value of land and improvements and enter the actual value of the land and improvements in the assessment roll. "Actual value" means the market value of the fee simple interest in land and improvements.
[14] The Act requires that, for the purposes of determining actual value for the 2009 assessment roll, the valuation date is July 1, 2008. The actual value of the Property for the assessment roll must be determined as if the Property was in the physical condition that it was in on October 31, 2008 and as if the permitted use of the Property was the same as it was on October 31, 2008.
[15] The Act specifically allows the Assessor to give consideration to the following in determining the actual value of a property: present use; location; original cost; replacement cost; revenue or rental value; selling price of the land and improvements and comparable land and improvements; economic and functional obsolescence; and any other circumstances affecting the value of the land and improvements.
[16] The Act also obliges the Assessor to take into account any heritage designation that exists on a property as of October 31 following the valuation date.
[17] The Local Government Act provides that compensation is payable to the owner of a property if the market value of the property is reduced due to a heritage designation. The amount of compensation is determined by agreement or by binding arbitration.
Date of Diminishment in Value
[18] The first issue is whether any diminishment in value arising from the possibility of heritage designation for the interior of the building should be considered for the 2009 assessment year.
[19] Rogers' says that that the actual value of the Property was diminished as of July 1, 2008 because of the possibility of future heritage designation, and that the Assessor ought to have taken that possibility into account. Rogers' says that it must be allowed to attempt to establish a diminishment as of the valuation date because of the spectre of future heritage designation.
[20] The Assessor says that because the heritage designation was not actually made until long after the valuation date, "the full unencumbered fee simple interest must be valued." The Assessor's position appears to be that the possibility of future designation cannot be taken into account in assessing the Property's market value. The Assessor says that the heritage designation can only be taken into account for the 2010 assessment roll.
[21] I conclude that the Assessor ought to have taken into account the possibility of future heritage designation, and that in this appeal it is open to Rogers' Chocolates to attempt to establish by market evidence that the actual value of the Property was diminished as of July 1, 2008 because of that possibility.
[22] I do not accept that the actual value of a property cannot be affected by the prospect of heritage designation until such a designation is actually made by a local government. To accept that proposition would be to accept that the "hypothetical prudent purchaser" might act imprudently.
[23] Between January 2008 and February 2009 there was significant uncertainty about the future of the Property. Any potential purchaser would have had concerns about what was going to happen. Whether this "stigma" (as described by Rogers' in its submissions) would have had a negative effect on the Property's value is not certain, but it is certainly a possibility that cannot be discounted.
[24] An analogy can be drawn between the facts in this case and a situation in which a piece of land is known to have or thought likely to have soil contamination but has not yet been declared to be a contaminated site. It is incomprehensible that a prudent purchaser would ignore the possibility of future events which would affect the use of the property. A purchaser of property is buying a bundle of rights with respect to the property, and if certain rights are restricted or removed, or there is a real possibility of that happening in the future, the amount the purchaser of that bundle of rights will pay is likely to be reduced.
[25] The Assessor argues that the market might treat "the spectre of designation" as a positive factor, either because of the prospect of compensation or for other reasons. A potential purchaser might pay a premium to account for future compensation payable to the property owner or because the property may become more attractive or useful to the purchaser in some other way as a result of heritage designation.
[26] Although Rogers' and the Assessor do not agree on what the effect of the uncertainty as to the Property's future might have had on value as of July 1, 2008, it appears to be common ground (perhaps reluctantly on the Assessor's part) that there may have been an effect of some kind.
[27] The point really is that one cannot say for certain that the uncertainty surrounding the status of the Property on July 1, 2008 would not have resulted in a diminishment in the amount a potential purchaser would have been willing to pay. "Market value" must reflect everything the market takes into account, and the market is unlikely to ignore the possibility that the potential uses of a property may be severely restricted by a heritage designation.
[28] I make no decision as to whether there actually was any diminishment in the Property's actual value as of the valuation date. I conclude only that it is open to Rogers' to attempt to prove a diminishment through market or other evidence (and it is equally open to the Assessor to attempt to prove that the actual value would have been unchanged or even higher).
Compensation and Actual Value
[29] The second issue is whether any compensation payable to the owner due to heritage designation should be considered in assessing the market value of the Property.
[30] Rogers' says that the fact that compensation might be paid to the owner of the Property at some time in the future cannot be taken into account by the Assessor.
[31] The Assessor says that potential future compensation must be taken into account, because potential purchasers (the market) would have taken it into account.
[32] I conclude that the Assessor is entitled to take into account the possibility of future compensation. In this appeal the Assessor may attempt to establish by market evidence that the actual value of the Property as of July 1, 2008 would not be diminished by the possibility of a future heritage designation because of the possibility of future compensation.
[33] The possibility of compensation is a relevant factor in determining the actual value of the Property for the same reason that the possibility of future heritage designation is a relevant factor. However, it is not appropriate to simply add the amount (or an assessment of the likely amount) of compensation to the actual value as determined by market evidence. The actual value of the Property is not made up of the value of the fee plus the amount of compensation expected. Rather, the fact that both vendor and purchaser would be aware of the possibility of compensation is simply one of a number of relevant factors. The market is unlikely to ignore the possibility that the owner of a property may be entitled to compensation for the future acts of local government. On the other hand, the market would take into account the uncertainty as to the amount of compensation as well as the costs involved in obtaining the compensation.
CONCLUSION
[34] The determination of market value should take into account all relevant factors. As of the valuation date, the market would have taken into account both the possibility that the Property could be the subject of additional heritage designation and the possibility that compensation could be paid if a heritage designation were made.
[35] The Assessor should take into account the possibility of future heritage designation, and may also take into account the possibility of compensation arising from possible designation.
[36] For the purposes of this appeal, the parties may submit evidence showing that the market value of the Property as of July 1, 2008 could be affected both by the possibility of future heritage designation and by the possibility of compensation resulting from that designation.
ORDER
[37] The parties must produce to the Board, on or before February 12, 2010, either an agreement regarding the actual value of the Property as of July 1, 2008 or a declaration that adjudication is necessary to resolve the issue of actual value.