In the recent decision of the British Columbia Supreme Court in Victory Motors (Abbotsford) Ltd. v. British Columbia (Assessor of Area No. 15 – Fraser Valley), the court considered how one properly assesses, for taxation purposes, the value of a brownfield property.
The property in question was located in Abbotsford (the "Property"). Historically it had been operated as a retail gas station and automobile dealership. This use led to significant contamination of the soil under the Property, which spread to neighbouring properties, including a commercial property across the street. A sale of that commercial property fell through, after the owners ("Jansen") were unable to obtain a satisfactory environmental assessment as a result of the contamination. Jansen subsequently commenced a lawsuit against the current and former owners of the Property and the oil and gas companies who had operated the gas station on the Property.
The owner of the Property tried to sell it for $1,200,000, but found no takers. The property fell into disrepair and property taxes went into arrears. Eventually Jansen, concerned that not enough was being done to assist in allocating responsibility to the oil companies in the lawsuit, arranged to acquire the property through a share purchase agreement. The purchase price was $42,363.24.
Jansen then renovated the existing single-storey structure on the property, being careful not to undertake any work that would involve excavation or require a building permit from the City of Abbotsford. As a result, no environmental assessment or other environmental work was required. These renovations, costing $750,000, allowed Jansen to lease out two commercial units on the property, with the potential to lease a third. The Property was not on any list of contaminated sites, nor had the Province issued any remediation orders.
Following the renovations, the Property was assessed for tax purposes at a value of $975,000. A review panel subsequently reduced this to $500,000. Jansen appealed to the Property Assessment Appeal Board of British Columbia. Jansen argued the value of the Property should be closer to what he paid for it and any assessment should take into account the likely remediation costs of $1,500,000-2,000,000.
The Property Assessment Appeal Board found the market value of the property to be $1,080,000, and reinstated the original assessed value of $975,000. The basis for the Board's decision was provided by an appraisal report. The appraiser assessed the value of the property based on "the highest value that could be achieved without the need to undertake remediation", which he found to be the property's then current use as a one-storey multi-tenanted building. Redevelopment into the conventional highest and best use, as a multi-story structure, was discounted as it would bring with it the risk that the owner would be required to remediate the environmental contamination.
The matter was then taken to the British Columbia Supreme Court, which was asked to rule on several stated questions and review the ruling of the Property Assessment Appeal Board.
The court overturned the decision of the Board and sent the matter back to the Board for reconsideration. The court held that the Board had assessed the value in a manner that gave no meaningful recognition to the property's brownfield status, particularly in light of the provisions of the Environmental Management Act related to the remediation of contaminated sites, which any buyer would have in mind as a potential economic risk. Further, the Board ignored the fact that the current owner acquired the property under circumstances which made the potential economic risk uniquely acceptable to that owner. The Board accepted a highest and best use which was of value only to the current owner, and for which there was no evidence of any market. The Court concluded that this was an error and the Board should have considered the evidence of the amount for which the Property sold to Jansen.
This decision demonstrates that the value of a brownfield property cannot be assessed in a vacuum without consideration of what the market will be for such a property, and the economic risks facing any potential buyer of a brownfield property, which will impact the purchase price.
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