Ordinarily, owners of significantly contaminated sites can seek and obtain a reduction in the assessed value of their lands and therefore a reduction in property taxes on account of the presence of the contamination and the drag such contamination has on the value of the lands.
Following Seaspan ULC v. North Vancouver (District), the BC Court of Appeal has ruled that such a reduction in value is not warranted where the land in question is subject to a remediation order. This decision is worth consideration any time that an owner of a contaminated site is faced with a decision as to whether to undertake voluntary remediation or face the prospect of having a remediation order levied against it.
Seaspan ULC (“Seaspan”) is the owner of property determined to be contaminated under the BC Environmental Management Act. The site was, prior to 1965, used as a wood treatment facility under different ownership, and was, after 1965, used by Seapan as a ship yard. The site is contaminated with Creosote from the historic wood treating operations and Tributyltin from the Seaspan’s shipyard operations.
In the early 1990s, the Ministry of Environment (the “Ministry”) identified that the site was significantly contaminated and in 1995 endeavoured to have Seaspan and Domtar voluntarily remediate the site. Despite the Ministry delivering two draft remediation orders against Seaspan and Domtar, the parties did not commence voluntary remediation, and in 2010 the Ministry issued a remediation order against Domtar and Seaspan as “responsible persons” under the EMA, requiring them to remediate the site to the Ministry’s satisfaction, comply with reporting requirements, post security for the full costs of remediation and register a covenant on title to the lands. By the date of the appeal before the Court of Appeal, Seaspan had spent nearly $50 million on remediation efforts and estimated that the cost of the remaining remediation work was approximately $50 million more.
For the assessment years of 2013 through to 2019, Seaspan appealed the assessments of the value of the property arguing that the contamination present on the property adversely affected its value and therefore the anticipated cost of remediation should be deducted from the value of the property for assessment purposes.
On appeal to the Property Assessment Appeal Board, the Board agreed with Seaspan and reduced the assessed value of the Properties accordingly.
On appeal of the Board’s decision to the Supreme Court of British Columbia by stated case, the Supreme Court disagreed with the Board’s ruling, holding that the remediation order was an order that ran with the lands and that any potential buyer would acquire the land with the benefit of the fact that the remediation order made Seaspan and Domtar obligated to remediate the site. As a result, the Court concluded that there should be no reduction in the assessed value on account of the contamination because any potential hypothetical purchaser would not be obligated to incur any costs in addressing the contamination. Seaspan appealed to the Court of Appeal, who ultimately upheld the Supreme Court’s decision.
The issues canvassed by the Court of Appeal included whether and how the cost of remediation may affect the value of the property and whether and how the existence of a remediation order affected the value of the property for assessment purposes. Specifically, the Court considered whether the remediation order was a benefit that ran with the land, that had the effect of offsetting any decrease in value caused by the potential liability of a purchaser to remediate contamination. Or alternatively, whether the remediation order was a benefit only to the owner’s interest, but not to the land itself, and thus whether the value remained diminished by the contamination.
BC Court of Appeal Decision
Under the Assessment Act, property owners are taxed based on the “actual value” of their property. The actual value is defined as the “market value of the fee simple interest in lands and improvements”. Market value does not depend on the particular position of a specific owner or buyer. Rather, as the Court confirmed:
 The valuation of a fee simple interest in land involves assessing the value of the legal rights and obligations attached to the land by the state in a hypothetical open market transaction. What is valued in this hypothetical transaction is the entire bundle of legal rights and obligations a hypothetical seller would transfer to a hypothetical buyer. [Emphasis added.]
Typically, under the Assessment Act, where property is determined to be contaminated under the EMA, the cost of remediation is an appropriate consideration in the assessment of the property’s value. The Court articulated the basic formula for estimating the value of contaminated land (the “impaired value”) as follows:
 ... Impaired value = Unimpaired value – Cost Effect – Use Effect – Risk Effect.
 The unimpaired value of land is its value if it were not contaminated. The use effect is the impairment of the highest and best use of the land caused by the contamination. Cost effect is the extent of remediation costs for which a hypothetical purchaser may be liable. Risk effect is a deduction to account for the risk of a hypothetical purchaser being held liable for remediation. ...
In other words, to determine the impaired value of a contaminated property, the assessor must consider a hypothetical sale between a hypothetical willing vendor and a hypothetical willing purchaser, determine the likely sale price as if the land were uncontaminated and then determine what reduction of value is appropriate considering the three “Effects” listed above that may reduce its value, such as the cost of remediation. For example, the cost of remediation is deducted from the unimpaired value because it is assumed that the future owner of the property (the purchaser) will, by purchasing the property, become obligated to incur the costs of remediation or practically required to discount the sale price to the next purchaser on account of the estimated cost of remediation.
The Court then considered what impact the remediation order would have on the purchase price that a hypothetical purchaser would be willing to pay for the property. The Court held that the remediation order effectively ran with the land and enhanced the value of the land for any hypothetical purchaser because the entities named in the remediation order – and not a hypothetical purchaser – were fixed with responsibility for paying the remediation costs. As a result, any hypothetical sale price to a hypothetical buyer should not be reduced by the costs of remediation and therefore the cost of remediation was not a legitimate deduction from the unimpaired value for the purposes of determining the assessed value of the property.
As a result, Seaspan was not entitled to obtain a reduction in assessed value based on the costs that Seaspan was incurring in remediating the property.
The matter is now to be sent down to the PAAB where it may consider whether despite the remediation order there may have been any legitimate deductions based on the “Use Effect” and/or the “Risk Effect”.
Following this decision, owners of contaminated lands now have an additional consideration to take into account when deciding whether to embark on voluntary remediation or to force the Ministry’s hand to issue a remediation order.
Embarking on voluntary remediation may provide the owner of contaminated land with a modest benefit that may accrue prior to and during remediation from a reduced property assessment that reflects the estimated cost to remediate the property. That modest benefit is lost once a remediation order is issued.