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 property.