Stellarbridge Management Inc. v. The Queen

Stellarbridge Management Inc. v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2019-06-13
Neutral citation
2019 TCC 134
File numbers
2016-1473(IT)G
Judges and Taxing Officers
Dominique Lafleur
Subjects
Income Tax Act
Decision Content
Docket: 2016-1473(IT)G
BETWEEN:
STELLARBRIDGE MANAGEMENT INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on April 10, 11, 12 and 13 and November 5, 6, 7 and 8, 2018, at Toronto, Ontario
Before: The Honourable Justice Dominique Lafleur
Appearances:
Counsel for the Appellant:
David C. Nathanson, Q.C.
Adrienne Woodyard (April 10 to 13, 2018 only)
Ashley Boyes (November 5 to 8, 2018 only)
Counsel for the Respondent:
Dominique Gallant
Laura Rhodes
JUDGMENT
The appeal from the reassessment made under the Income Tax Act for the 2010 taxation year, the notice of which is dated January 10, 2014, is dismissed, with costs, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 13th day of June 2019.
“Dominique Lafleur”
Lafleur J.
Citation: 2019 TCC 134
Date: 20190613
Docket: 2016-1473(IT)G
BETWEEN:
STELLARBRIDGE MANAGEMENT INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lafleur J.
I. OVERVIEW
1. Appeal
[1] This appeal concerns the determination of the fair market value as at June 30, 2010, (the “Valuation Date”) of land inventory (the “Land”) held by Stellarbridge Management Inc. (“Stellarbridge” or the “Appellant”) and located in the town of Bradford West Gwillimbury, Ontario (“Bradford” or the “Town”). Stellarbridge bought the Land on November 26, 2006, for an amount of $7.3 million. In computing its income for the 2010 taxation year, Stellarbridge deducted, in accordance with subsection 10(1) of the Income Tax Act (R.S.C. 1985, c. 1 (5th Supp.), as amended) (the “Act”), an amount of $1.91 million (the “Deduction”) on account of the diminution of the fair market value of the Land in relation to its cost. Stellarbridge was of the view that the fair market value of the Land as at the Valuation Date was $5.39 million.
[2] The Minister of National Revenue (the “Minister”) reassessed Stellarbridge and disallowed the Deduction. By Notice of Confirmation dated March 11, 2016, the Minister confirmed the reassessment on the basis that the fair market value of the Land as at the Valuation Date was $8 million. In her Amended Reply, the Respondent takes the view that the fair market value of the Land as at the Valuation Date was not less than an amount of $7.3 million. According to the Respondent, because the fair market value of the Land as at the Valuation Date was not less than its cost, Stellarbridge was not entitled to the Deduction.
[3] At the hearing, the parties called five witnesses, namely Mr. Galliano Tiberini, president of Stellarbridge, Mr. Geoff McKnight, the town manager or chief administrative officer of Bradford, as well as three expert witnesses (Mr. Galluzzo, Mr. Carlson and Ms. Otway).
[4] In these reasons, all references to statutory provisions are to the Act, unless otherwise indicated.
II. BACKGROUND
1. Partial Agreed Statement of Facts
[5] The parties filed a Partial Agreed Statement of Facts, which reads as follows:
The Plaintiff and the Defendant by their respective Solicitors, agree to the following facts provided that such admissions are made for the prupose of these proceedings only.
The Appellant is incorporated under the laws of the Province of Ontario. Its head office is located at 111 Credistone Road, Concord, Ontario, L4K 1N3.
The Appellant’s business includes the business of acquiring, developing and selling land for residential housing.
Throughout its taxation year ended June 30, 2010 (the “2010 taxation year”), the Appellant held certain land inventory located in the Town of Bradford, West Gwillimbury, Ontario (the “Land”).
The Land was purchased by the Appellant on November 26, 2006, for a price of $7,300,000.
The size of the Land is approximately 120.29 acres.
The net developable land area of the Land is approximately 72.71 acres.
In computing its income for the 2010 taxation year the Appellant deducted the amount of $1.91 million (the “Deduction”) in relation to the Land.
The Minister of National Revenue (the “Minister”) initially assessed the Appellant for the 2010 taxation year by Notice dated January 17, 2011.
By Notice of Reassessment dated January 10, 2014, the Minister disallowed the Deduction in the 2010 taxation year in relation to the Land.
By Notice of Objection dated January 22, 2014, the Appellant objected to the Reassessment and by Notice of Confirmation dated March 11, 2016, the Minister confirmed the Reassessment.
2. Stellarbridge’s activities
[6] Mr. Tiberini and his family control a group of more than ninety corporations (including Stellarbridge) involved in the manufacture, supply and licensing of building systems, the production and sale of auto parts worldwide, the construction of infrastructure, the building of houses and industrial buildings, land development, and the management of various properties. The said corporations are major players in their respective industries.
[7] More specifically, Stellarbridge’s business includes the acquisition, development and sale of land for residential housing. For the past 5 to 10 years, Stellarbridge has been buying vacant lands and going through the planning process to bring the vacant lands to a state where the lands are serviced and home construction can begin. The land development is carried out by Stellarbridge, and then another corporation in the group builds the houses. The business of the group is vertically integrated and is carried on in southern Ontario. Mr. Tiberini has been involved in the land development business for the past 35-40 years. Through Stellarbridge and other corporations of the group, Mr. Tiberini has been personally involved in 50 to 60 land development projects.
3. The Land
[8] Mr. Tiberini testified that he took the decision to buy the Land in 2006. The purpose of the project was to develop the Land and build houses. At that time, Stellarbridge also owned a piece of land located just across from the Land, which has been bought in 2000 or thereabouts (“Bradford Capital”). Mr. Tiberini testified that the Bradford Capital project had not yet been completed at the date of the hearing, as house construction was still being carried out on that piece of land. In 2006, work on the Bradford Capital project had not yet begun.
[9] The purchase price of the Land was established in 2006. A group of Stellarbridge employees, including engineers, planners, lawyers and accountants, met to determine that purchase price. According to Mr. Tiberini, the determination of the purchase price took into account the value of the Land per developable acre, with the time it would take for development, as well as the costs involved (for example, the cost of fill), being factored in; that amount was then compared to the price at which a residential lot would be sold in 4 to 5 years and adjusted to ensure that the project would be profitable.
[10] Having considered their land inventory and on the basis of his knowledge of the industry, Mr. Tiberini estimated that, as at the Valuation Date, the Land had declined in value by at least “a quarter”. In a letter dated December 4, 2012 addressed to the Canada Revenue Agency, Mr. Tiberini stated the factors supporting the decline in fair market value of the Land (which included the site‑specific costs, as defined below) and justifying the claiming of the Deduction. Mr. Tiberini testified that the awareness of the factors giving rise to site‑specific costs and other facts explaining the decline in value of the Land came about during the preparation of the draft plan of subdivision. In this case, a draft plan of subdivision dated October 28, 2010, prepared by KLM Planning Partners Inc., which would likely be approved by the Town, was adduced in evidence. Mr. Galluzzo testified that the preparation of a draft plan of subdivision requires extensive studies and “back and forth” with the municipality which indicates that the date of October 28, 2010 is not an appropriate indicator of when the Appellant acquired awareness of the factors giving rise to the site‑specific costs. Hence, according to Mr. Galluzzo, the Appellant would have become aware of these issues before October 28, 2010 because of the length of time it takes to prepare a draft plan of subdivision.
[11] Mr. Tiberini was of the view that as at the Valuation Date the Land was worth approximately $5.4 million. However, no appraisal of the Land was conducted in June 2010.
4. Experts’ evidence
[12] According to Mr. John Galluzzo from Altus Group, whom I qualified as an expert for the purpose of the valuation of the Land as at the Valuation Date, the fair market value of the Land as at that date was $5,650,000 as detailed in his report (Exhibit A-9 as updated by Exhibit A-10) (the “Galluzzo Report”). According to Ms. Terri Otway from the Canada Revenue Agency, whom I also qualified as an expert for the purpose of the valuation of the Land as at the Valuation Date, the fair market value of the Land as at the Valuation Date was $13,833,000 as detailed in her report (Exhibit R-9) (the “Otway Report”). Each expert used a different method of valuation to arrive at his/her opinion. Mr. Galluzzo used the “subdivision development approach” (the “SDA”) and confirmed the result obtained under that method by comparing it with the result obtained with the “direct comparison approach” (the “DCA”). However, Ms. Otway relied solely on the DCA. She also compared properties on a gross acreage basis rather than on a net developable acreage basis.
[13] Unlike Mr. Galluzzo, Ms. Otway did not factor into the value of the Land the following costs (together, the “Site-specific Costs”): i) $250,000 representing the cost estimate for the construction of a second secured road access from Simcoe Road along Danube Lane to facilitate approval of the Draft Plan of Subdivision; ii) $300,000 representing the cost estimate for remediation with respect to the First Nations burial ground, affecting approximately 20 acres in the southeast quadrant of the Land; iii) $2,959,000 representing the cost estimate for land fill importation; and iv) $750,000 representing the estimated increased financing carrying costs for the Land because of the delay in servicing the Land. Mr. Galluzzo presented the Site-specific Costs as hypothetical conditions in his appraisal report, and took these Site-specific Costs into account in establishing the fair market value of the Land as at the Valuation Date.
[14] I qualified Mr. Orjan Carlson of Urban Ecosystems Limited (“UEL”) as an expert on the need for and the cost of importing, placing and compacting land fill on the Land. Mr. Carlson filed an expert report in which he estimated at $2,959,000 the cost of land fill importation for the Land as at the Valuation Date (the “UEL Report”).
III. ISSUE
[15] The sole issue in this appeal is whether the Appellant is entitled to the Deduction. In order to answer that question, I have to determine whether the fair market value of the Land as at the Valuation Date was less than its cost (namely $7.3 million) and, if so, the amount of the difference between the fair market value of the Land and the cost of the Land.
IV. THE LAW
[16] The applicable statutory provisions read as follows:
9(1) Income — Subject to this Part, a taxpayer’s income for a taxation year from a business or property is the taxpayer’s profit from that business or property for the year.
. . .
10(1) Valuation of inventory — For the purpose of computing a taxpayer’s income for a taxation year from a business that is not an adventure or concern in the nature of trade, property described in an inventory shall be valued at the end of the year at the cost at which the taxpayer acquired the property or its fair market value at the end of the year, whichever is lower, or in a prescribed manner.
9(1) Revenu — Sous réserve des autres dispositions de la présente partie, le revenu qu’un contribuable tire d’une entreprise ou d’un bien pour une année d’imposition est le bénéfice qu’il en tire pour cette année.
[…]
10(1) Évaluation des biens figurant à l’inventaire — Pour le calcul du revenu d’un contribuable pour une année d’imposition tiré d’une entreprise qui n’est pas un projet comportant un risque ou une affaire de caractère commercial, les biens figurant à l’inventaire sont évalués à la fin de l’année soit à leur coût d’acquisition pour le contribuable ou, si elle est inférieure, à leur juste valeur marchande à la fin de l’année, soit selon les modalités réglementaires.
[Emphasis added.]
V. PARTIES’ POSITIONS
1. The Appellant
[17] The Appellant is of the view that it has met its burden of proof in establishing the fair market value of the Land as at the Valuation Date as being $5,650,000. Since the fair market value of the Land as at the Valuation Date was lower than its cost, an amount of $1,650,000 should, in the computation of Stellarbridge’s income for the 2010 taxation year, be allowed as a deduction in accordance with subsection 10(1).
[18] Mr. Galluzzo’s valuation of the Land as detailed in the Galluzzo Report should be accepted by the Court as representing the fair market value of the Land as at the Valuation Date, taking into account the Site-specific Costs. The SDA is the proper valuation method. Furthermore, the UEL Report contains a reasonable and reliable estimate of the land fill importation costs as at the Valuation Date.
[19] According to the Appellant, I should disregard Ms. Otway’s valuation and the Otway report since Ms. Otway made material errors in her report; in particular, she used the wrong methodology. Furthermore, Ms. Otway made the following errors: she did not walk the Land, or ask to be given access to the Land, or request information from the Appellant; she considered irrelevant factors; she based her analysis on the Land’s gross acreage rather than the Land’s net developable acreage; and she did not consider the Site-specific Costs in her valuation.
2. The Respondent
[20] According to the Respondent, the fair market value of the Land as at the Valuation Date was not less than $7.3 million. Since the Land’s fair market value was not lower than its cost, the Deduction should be disallowed.
[21] Given the issues in respect of the admissibility of the Galluzzo Report under section 145 of the Tax Court of Canada Rules (General Procedure) (the “Rules”) and the reliability of the evidence adduced at the hearing, the Galluzzo Report should not be relied upon and on that basis, the Appellant did not meet its burden and the appeal should be dismissed.
[22] However, the Respondent was of the view that, if I were to conclude that the Galluzzo Report was admissible, the evidence adduced at the hearing by Mr. Galluzzo lacked independence and reliability. The methods used by Mr. Galluzzo to arrive at the valuation of the Land should not be considered by the Court as he made various adjustments without providing data: he decided to value the Land on the basis of net developable acreage and not on the basis of gross acreage; he did not ascribe any value to the environmentally protected land, which was wrong; and he took into account the Site-specific Costs without verifying whether these costs were also applicable to the comparable sales he relied upon in his analysis.
[23] Further, with respect to the Site-specific Costs, the Respondent was of the view that they should not be factored into the valuation of the Land since the Appellant did not establish that at the Valuation Date it had knowledge of these costs or of the factors giving rise to them. Mr. Tiberini’s testimony was not reliable in many respects. On the other hand, on these same issues, Mr. McKnight’s testimony should be accepted as he was a credible and reliable witness. The Respondent also questioned the result that Mr. Carlson arrived at in estimating the cost of land fill importation as at the Valuation Date.
[24] More importantly, according to the Respondent, the SDA, as used in the Galluzzo Report, should be disregarded by the Court since that method involved too many estimates and unsupported figures.
VI. ANALYSIS
[25] For the purpose of calculating a taxpayer’s income from a business under section 9, subsection 10(1) requires property in an inventory to be valued at the end of the year at the lower of the cost at which a taxpayer acquired the property or its fair market value. Section 9 and subsection 10(1) will entitle the Appellant to a deduction if the fair market value of the Land as at the Valuation Date is lower than its cost. The Appellant must demonstrate on a balance of probabilities that the fair market value of the Land as at the Valuation Date was less than $7.3 million (undisputed cost of the Land) in order for it to be entitled to a deduction in computing its income.
[26] I will first examine the relevant valuation principles to be applied in this appeal and determine whether the Site-specific Costs should have been factored into the valuation of the Land as at the Valuation Date. Then, I will consider whether all or part of the Galluzzo Report should be excluded for failure to comply with section 145 of the Rules. Finally, I will review the experts’ evidence and determine the fair market value of the Land as at the Valuation Date.
1. Applicable valuation principles and the Site-specific Costs
Valuation principles under the Act
[27] The Act does not define the expression “fair market value”. It was defined by Justice Cattanach of the Federal Court in Henderson Estate and Bank of New York v. M.N.R., 73 DTC 5471, [1973] CTC 636 [Henderson Estate], as follows (p. 5476 OTC):
. . . That common understanding I take to mean the highest price an asset might reasonably be expected to bring if sold by the owner in the normal method applicable to the asset in question in the ordinary course of business in a market not exposed to any undue stresses and composed of willing buyers and sellers dealing at arm’s length and under no compulsion to buy or sell. . . .
[28] That definition has since been consistently cited with approval by the Federal Court of Appeal and this Court (see A.G. of Canada v. Nash, 2005 FCA 386, 2005 DTC 5696; The Queen v. Gilbert, 2007 FCA 136, 2008 DTC 6295 [Gilbert]; Kruger Wayagamack Inc. v. The Queen, 2015 TCC 90, 2015 DTC 1112).
[29] The classic problem of the difficulties inherent in the determination of the fair market value of capital property was aptly stated in Gold Coast Selection Trust Limited v. Humphrey (Inspector of Taxes), [1948] AC 459, [1948] 2 All ER 379, a leading case decided by the House of Lords. Viscount Simon stated at page 473 A.C.:
. . . If the asset is difficult to value, but is none the less of a money value, the best valuation possible must be made. Valuation is an art, not an exact science. Mathematical certainty is not demanded, nor indeed is it possible. It is for the commissioners to express in the money value attributed by them to the asset their estimate, and this is a conclusion of fact to be drawn from the evidence before them.
[30] An inquiry into the fair market value of an asset focuses on the knowledge of willing and informed buyers at the appropriate time. This is clear from the classic definition of fair market value from Henderson Estate, referred to above, which was cited with approval by the Federal Court of Appeal in Gilbert, supra at paragraph 18:
. . . the highest price an asset might reasonably be expected to bring if sold by the owner in the normal method applicable to the asset in question in the ordinary course of business in a market not exposed to any undue stresses and composed of willing buyers and sellers dealing at arm’s length and under no compulsion to buy or sell. I would add that the foregoing understanding as I have expressed it in a general way includes what I conceive to be the essential element which is an open and unrestricted market in which the price is hammered out between willing and informed buyers and sellers on the anvil of supply and demand. . . .
[31] More recently, Justice Boyle of our Court acknowledged that the definition of fair market value in a tax case “contemplates willing and knowledgeable buyers” (McCuaig Balkwill v. The Queen, 2018 TCC 99, 2018 DTC 1084 (para. 14)).
[32] Also, as indicated by the Ontario Superior Court in Trask v. Groves Memorial Community Hospital, 2014 ONSC 26, when evaluating a property, “. . . it is not appropriate to have regard to facts and conditions which were not known or available to the public or reasonably ascertainable by the exercise of reasonable diligence as of the Reference Valuation Date” (para. 31).
[33] Finally, this Court is free to accept any expert opinion, or to make its own estimate of value on the basis of the evidence adduced at the hearing (Petro‑Canada v. The Queen, 2004 FCA 158, 2004 DTC 6329 at para. 48).
Site-specific Costs
[34] As indicated above, unlike Mr. Galluzzo, Ms. Otway did not factor into the value of the Land the Site-specific Costs.
[35] The Respondent seems to suggest that the Appellant’s knowledge of the factors giving rise to the Site-specific Costs on or around the date of acquisition of the Land means that the fair market value of the Land as at the Valuation Date was not less than the cost of the land. However, I am of the view that the Appellant’s knowledge, on the date of its acquisition of the Land, of the presence or the likelihood of the presence of the factors giving rise to the Site-specific Costs does not necessarily mean that the fair market value of the Land as at the Valuation Date was not less than its cost. As indicated by the case law, the inquiry into the fair market value of the Land should properly be focused on the price that a willing and informed buyer and seller would arrive at for the Land as at the Valuation Date, determined objectively and on the basis of information known as at the Valuation Date.
[36] Evidence of the Appellant’s knowledge is of assistance in determining what facts were known on the Valuation Date. Mr. Tiberini’s testimony is the primary source of evidence substantiating the Appellant’s awareness of the factors giving rise to the Site-specific Costs at the Valuation Date. Hence, if Mr. Tiberini was unaware of facts that would have an impact on the fair market value of the Land, it may be reasonable to infer that a willing and informed buyer would not have been aware of those facts. Conversely, if Mr. Tiberini was aware of facts that would have an impact on the fair market value of the Land, it may be reasonable to infer that a willing and informed buyer would have been aware of those facts and would have taken them into account in arriving at a price for the Land. Furthermore, other objective facts adduced in evidence at the hearing have to be considered in making the determination as to whether the factors giving rise to the Site-specific Costs were known as at the Valuation Date.
[37] For the reasons set out below, I am of the view that the costs for the remediation of the First Nations burial ground and the costs for the construction of the second access from Simcoe Road cannot be factored into the valuation of the Land as at the Valuation Date. However, for the reasons also stated below, I am of the view that the delay in servicing the Land was known at the Valuation Date and, subject to considerations relating to the methodology used by the appraiser, had to be factored into the valuation of the Land: an amount of $750,000 is reasonable in that respect. Furthermore, I am of the view that the land fill importation requirement was also known at the Valuation Date and had to be factored into the valuation of the Land: an amount of $1,965,600 is reasonable in that respect.
a) First Nations burial ground
[38] Mr. Tiberini testified that in the course of the second environmental study required by the Town several-century-old human remains were discovered on the southeast quadrant of the Land, and a First Nations settlement was found. First Nations bands and experts got involved and the Land was excavated by an archeological team; the process was very difficult. According to Mr. Tiberini, the First Nations burial ground was discovered in 2009 or 2010, before the draft plan of subdivision was prepared. As at the Valuation Date, Mr. Tiberini was not sure how many more studies would be required and what the costs associated with the remediation would be. The Appellant had not signed a contract with a remediation company as at the Valuation Date, but was aware of the extent of the excavation area (approximately 20 acres of the parcel).
[39] The Galluzzo Report made reference to a remediation cost estimate of $300,000 for the First Nations burial ground as a hypothetical condition considered in the valuation of the Land. Mr. Galluzzo reduced the fair market value of the Land by an amount of $300,000 to take into account such remediation costs. In his testimony, Mr. Galluzzo indicated that his client, Stellarbridge, had provided him with the estimate for the remediation costs. Mr. Galluzzo also testified that the actual costs incurred by Stellarbridge for the remediation were approximately $380,000. Again, Stellarbridge provided that information to Mr. Galluzzo.
[40] Mr. Galluzzo’s testimony as to the actual costs incurred by Stellarbridge for the remediation of the First Nations burial ground is inadmissible, as hearsay, in proof of the facts asserted (Wilband v. The Queen, [1967] S.C.R. 14). Furthermore, the evidence adduced at the hearing by Mr. Galluzzo on the issue of the cost estimate for the remediation as at the Valuation Date is also hearsay evidence and is not admissible for the truth of its contents. Mr. Galluzzo was however entitled to base his opinion on an assumption that the estimated remediation costs were $300,000 as at the Valuation Date, but I will not consider Mr. Galluzzo’s testimony on that issue. The information came from Stellarbridge, a party to the litigation, and no independent evidence to support these cost estimates was adduced at the hearing.
[41] As indicated by Justice Sopinka in R. v. Lavallee, [1990] 1 S.C.R. 852 [Lavallee] at page 900:
Where, however, the information upon which an expert forms his or her opinion comes from the mouth of a party to the litigation, or from any other source that is inherently suspect, a court ought to require independent proof of that information. . . .
[42] However, I do accept Mr. Tiberini’s testimony that the First Nations burial ground was discovered before the Valuation Date. The evidence also showed that the existence of the First Nations burial ground on the Land was public information. Accordingly, a willing and informed buyer would have known about the existence of the First Nations burial ground at the Valuation Date. The difficulty here is the lack of evidence regarding the cost estimates for the remediation of the First Nations burial ground. No documentation was adduced in evidence to support the amount of the remediation costs estimate. In his testimony, Mr. Galluzzo referred to the engineering consultant’s report from UEL containing the estimated development costs relating to the existing draft plan of subdivision (Galluzzo Report, Appendix A: the UEL cost estimate report), which indicated a budget of $300,000 for “Archeological Study (Phase II)”. However, at the hearing, Mr. Tiberini did not testify as to the amount of the remediation costs estimate or as to how that amount was arrived at.
[43] The Appellant did not adduce sufficient evidence to convince me, on a balance of probabilities, that an amount of $300,000 is a reasonable estimate for the remediation costs. Therefore, I am of the view that the costs associated with the First Nations burial ground cannot be taken into account in establishing the fair market value of the Land as at the Valuation Date.
b) Simcoe Road access
[44] Mr. Tiberini testified that the requirement to construct a second road access to the site from Simcoe Road was known during the negotiations to obtain approval of the draft plan of subdivision, which would have been before the Valuation Date. Since there was already an entrance to the site, which only needed to be enlarged to meet municipal standards, he thought that the Town would expropriate some land that belonged to a church to allow for the widening of the entrance. If the Town had proceeded by way of expropriation, construction for the road access would have been much less expensive. Mr. Tiberini testified that, because the Town refused to proceed with expropriation, Stellarbridge was left to negotiate with the church, which asked $1.8 million for the small strip of land needed for the widening of the entrance. According to Mr. Tiberini, that price was unreasonable and another plan had to be considered. The Appellant bought an additional piece of land of one acre on the south part of the site, with a house on it, to allow for the construction of the second entrance to the site from Simcoe Road in order to meet municipal standards.
[45] According to Mr. McKnight, the Appellant would have first known about the number of required access points from Simcoe Road through the secondary plan (or Green Valley Community Plan) development process, which started in the fall of 2005, but no later than when the secondary plan was approved and adopted by the town council in May of 2008. Mr. McKnight testified that the secondary plan process is a public process: a team of consultants is hired by the Town and they make recommendations to the Town. According to Mr. McKnight, Stellarbridge would certainly have participated in that process.
[46] Mr. McKnight’s testimony corroborated Mr. Tiberini’s testimony in that the necessity to construct a second road access was known on or before the Valuation Date. As previously discussed, however, whether or not Mr. Tiberini knew of the issue before or on the date of acquisition of the Land is not relevant to the determination of the fair market value of the Land as at the Valuation Date.
[47] According to Mr. Galluzzo, from the information provided to him by the Appellant, the estimated cost to build that second entrance to the site from Simcoe Road was $250,000. The Galluzzo Report made reference to a cost estimate of $250,000 for the construction of a second entrance to the site from Simcoe Road as a hypothetical condition considered in the valuation of the Land. Mr. Galluzzo reduced the fair market value of the Land by an amount of $250,000 to take into account this cost.
[48] As with his testimony referred to above in the section dealing with the First Nations burial ground, Mr. Galluzzo’s testimony concerning the estimated road access construction costs as at the Valuation Date is not admissible for the truth of its contents as it is hearsay evidence and cannot be considered by the Court. Again, that information came from Stellarbridge, a party to the litigation, and no independent evidence to support this construction cost estimate was adduced at the hearing. Mr. Tiberini did not testify on the costs involved in constructing that second entrance, nor did he provide the Court with documentation evidencing such costs. Furthermore, no evidence was adduced as to the factors taken into account in arriving at the estimated construction costs of $250,000.
[49] Given the evidence adduced at the hearing, I am of the view that, at the Valuation Date, a willing and informed buyer would have known about the obligation to construct a second entrance from Simcoe Road. As with the First Nations burial ground issue, the difficulty here is the lack of evidence as to the amount involved for the construction of the road access. At the hearing, Mr. Tiberini did not testify as to how he arrived at the estimated road access construction cost. No documentation supporting that estimate was submitted to the Court.
[50] The Appellant did not adduce sufficient evidence to convince me, on a balance of probabilities, that an amount of $250,000 is a reasonable estimate for the construction costs for the second road access to the site. I am of the view that the costs associated with the second road access cannot be taken into account in establishing the fair market value of the Land as at the Valuation Date.
c) Delay in servicing
[51] The secondary plan includes a document called the “Master Environmental Servicing Plan” (“MESP”), which is a background document prepared while the secondary plan was being developed. The MESP process would also have started in the fall of 2005. The MESP is largely an engineering exercise for the purpose of looking at how a new neighborhood can be serviced with respect to sanitary servicing, water supply and storm water runoff management, and it would have referred to the necessity for the Green Valley pumping station and for the construction of an associated system of force mains and pipes through the municipal road system to the waste management plant.
[52] Mr. McKnight testified that Bradford relied on a lot levy or a development charge to fund the construction of the infrastructure needed to meet the servicing demands for new developments. The lot levy or development charge is a per-unit fee collected from developers when they apply for building permits. In these circumstances, Bradford would borrow money to fund the infrastructure in advance. Mr. McKnight testified that, as an alternative method to fund infrastructure without the need to borrow money in advance, the Town would enter into an early payment agreement (an “EPA”) with the residential developers. The EPAs allowed Bradford to collect the development charges earlier, even before construction of the infrastructure itself. According to Mr. McKnight, EPAs are not unique to Bradford. The Town has used that approach over the last several years to fund a lot of the major projects situated on its territory, including the Land. When a developer participates in an EPA, it receives a water allocation and a wastewater allocation for the servicing of the lots to be developed. EPA 1 was executed in January 2007. Negotiations between the parties took 8 to 12 months. According to Mr. McKnight, the Town had contacted landowners that might be interested in participating early in 2006. EPA 2 was executed in 2010 (as it was authorized by the Town on September 7, 2010, all the parties would have signed prior to that date) as an amendment to EPA 1. EPA 1 and EPA 2 provide funding to Bradford for water, wastewater infrastructure (expansion of the wastewater treatment plant), construction of a large water main to connect with a neighboring municipality and the designing and construction of the Green Valley pumping station, together with the construction of an associated system of force mains and pipes through the municipal road system to the wastewater treatment plant.
[53] Mr. McKnight testified that the Town did not anticipate in 2010 that there would be a delay in the construction of the Green Valley pumping station. The Town expected the pumping station and major sewers to be operational in 2010. The Green Valley pumping station was intended to start operating in 2010, however, construction did not begin on it until around 2014; it was substantially completed by the end of 2015 and fully commissioned in 2016. According to Mr. McKnight, that caused a one- to two-year delay in development. Municipal servicing delays applied to all developers in Bradford between 2006 and 2010, and not only to Stellarbridge.
[54] Mr. Tiberini testified that he knew that there were some water shortage issues when Stellarbridge bought the Land in 2006. With the execution of EPA 1 and EPA 2, he thought that that problem would be solved, as Stellarbridge had prepaid the development charges to Bradford, which amounted to $4.2 million. However, the allocation of water received under EPA 1 and EPA 2 was not sufficient to service all the lots. Issues were also encountered with respect to the sanitary systems. Furthermore, Bradford did not proceed with the construction of the Green Valley pumping station and the associated system of force mains and pipes which was contemplated under EPA 1 and EPA 2.
[55] According to Mr. Tiberini, it became evident in 2010 that Bradford was in financial difficulty and could not afford the cost of putting in place the infrastructure for new subdivision developments (sanitary infrastructure, water and roads). The Town had to undertake this work in order for Stellarbridge to fully develop the Land. Mr. Tiberini testified that in 2010 he did not know when Stellarbridge would be able to service the lots on the Land since development required the construction of the Green Valley pumping station and the associated system of force mains and pipes through the municipal road system up to the waste treatment plant. Mr. Tiberini did not have a very accurate projection or timeline as to when servicing would be in place. According to Mr. Tiberini, in 2010 he thought this project could not be completed until 2015 at the earliest or as late as 2016. Furthermore, the water capacity of Bradford was insufficient to allow for the full development of the Land. In 2010, the earliest Mr. Tiberini foresaw servicing being in place was within 4 to 5 years. Mr. Tiberini stated that as recently as April 2018 the Land was still in the process of being serviced and is not fully developed yet, as the water allocation is insufficient.
[56] Bradford and the residential developers then entered into EPA 3. According to Mr. McKnight, EPA 3 was executed in March of 2014 after a two‑year negotiation period. Hence, the parties must have met in the spring of 2012. EPA 3 was quite different than EPA 1 and EPA 2. Stellarbridge’s contributions to be made under EPA 3 were substantial, totalling around $13 million. Mr. McKnight is of the view that, as at the Valuation Date, a developer would not have known the extent of the contributions to be made under EPA 3. However, Mr. Tiberini testified that he did not remember exactly when negotiations started in respect of EPA 3, but he did say that it was in 2009-2010 that Bradford requested the developers to enter into EPA 3. In his testimony, Mr. Tiberini stated that contributions to be made by Stellarbridge under EPA 3 should be taken into account in determining the fair market value of the Land as at the Valuation Date.
[57] On balance, I am of the view that as at the Valuation Date a willing and informed buyer would not have known about the existence of EPA 3 nor would such buyer have known the extent of the contributions to be made under EPA 3. Mr. Tiberini’s testimony as to the timing with respect to EPA 3 was not clear and is not plausible given that EPA 2 was executed in 2010. I am of the view that EPA 3 contributions ($13 million) cannot be taken into account in establishing the fair market value of the Land.
[58] However, the testimony of both Mr. Tiberini and Mr. McKnight clearly established that the construction of the Green Valley pumping station and the associated system of force mains and pipes through the municipal road system up to the wastewater treatment plant was essential before development could take place on the Land. On the Valuation Date, construction had not yet begun.
[59] As at the Valuation Date, a willing and informed buyer would have known that the Green Valley pumping station and the associated force mains and pipes had not been constructed, that the water allocation was insufficient and that a certain delay in development was to be expected. I find Mr. McKnight’s estimate of a one- to two-year delay in development to be an underestimation. Mr. Tiberini’s testimony is more plausible and credible in that respect.
[60] The evidence also showed that construction of the Gre