Determining the value of real property is a fundamental concern
to buyers, sellers and lenders. Governments that depend on the
taxation of real property to generate revenue are also interested
in the valuation of real property and, accordingly, have set up
extensive property assessment regimes to do so. Despite such
regimes, the British Columbia Court of Appeal recently held that,
with limited exceptions, assessment reports are not admissible in
court as evidence of the value of real property.
In British Columbia, the British Columbia Assessment Authority
(BC Assessment) is charged with determining the "actual
value" of real property for assessment purposes. The B.C.
Assessment Act defines "actual value" as
"the market value of the fee simple interest in land and
improvements." To determine actual value, BC Assessment is
permitted by statute to consider several factors, including use,
location, original and replacement cost, revenue or rental value,
selling price of the property or comparable properties,
obsolescence, and any other circumstances affecting the value of
the land and improvements. Certain exceptions apply for specialized
properties. Once the "actual value" of a property is
determined, BC Assessment enters it in the assessment roll, which
information is used to generate an assessment report.
B.C. COURT OF APPEAL DECISION
In a B.C. Court of Appeal decision released January 14, 2015, Dosanjh v. Liang (Dosanjh),
the court had to determine the amount of damages to be awarded to a
buyer of a residential real estate property after the seller failed
to complete the transaction. At law, an innocent buyer is generally
entitled to claim damages in the amount of the difference between
the contract purchase price for a property and the value of the
property on the date of the breach by the seller. One of the issues
in Dosanjh was whether the assessment report prepared by
BC Assessment was admissible as evidence of the value of the
property. The court decided unanimously that it was not.
In holding that the assessment report was inadmissible, the
court noted that the "difficulty with the property assessment
as evidence of property value is that the court had no basis on
which to evaluate its cogency. The court was not able to determine
how the assessor went about making the assessment, and had no basis
for determining what weight to give it." None of the reasoning
or factors considered by the assessor are available. On the facts
of this case, a particular concern of the court was the property
had recently been used for growing marijuana and it was not known
whether the assessment took this into account.
Previous cases in British Columbia have raised similar issues
with relying on notices of assessment. In Hall v. Mougan, the court noted that
"the notice of assessment contains no particulars of the
property assessed, so the facts are unknown to the reader without
other evidence. The assessment may be the opinion of an appraiser
or the computer-generated result of logarithms applied to
particular data. There is no evidence whether the assessment is
one, the other, or some combination of these extremes."
The court further stated that unless the parties agree, there is
"no scope for using assessments in place of expert opinion
evidence" to determine the value of real property in such
cases. The court acknowledged there may be a limited role for
property assessments in family law cases, but noted that in such
cases "the court is simply required to estimate the value of
property for the purpose of dividing a family asset" and
"may 'grasp at straws' in an attempt to reach a just
result." In transactional disputes, the court was firmly of
the view that assessment reports are inadmissible as evidence of
property value. The court returned the matter to trial court for a
determination of the amount of damages.
The decision in Dosanjh is a helpful reminder that
parties to real estate transactions ought to exercise caution if
relying on an assessment report as evidence of the value of real
property. One consequence of this decision is that it may affect a
practice of relying on assessment reports to justify property
values in certain transactions, such as where property is
transferred in a corporate reorganization and property transfer tax
is payable, or where insurance on the value of the property is
obtained. If a dispute regarding such tax or insurance amount
arises, it may be difficult to succeed if the assessments relied
upon cannot be used in evidence. Ultimately, the assessment report
is unlikely to be of any evidentiary value in a legal proceeding
and is, at best, an imperfect estimate of the market value of a
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