Musqueam Indian Band v. Glass

Musqueam Indian Band v. Glass
Collection
Supreme Court Judgments
Date
2000-11-09
Neutral citation
2000 SCC 52
Report
[2000] 2 SCR 633
Case number
27154
Judges
McLachlin, Beverley; L'Heureux-Dubé, Claire; Gonthier, Charles Doherty; Iacobucci, Frank; Major, John C.; Bastarache, Michel; Binnie, William Ian Corneil; Arbour, Louise; LeBel, Louis
On appeal from
Federal Court of Appeal
Subjects
Aboriginal law
Notes
SCC Case Information: 27154
Decision Content
Musqueam Indian Band v. Glass, [2000] 2 S.C.R. 633
Mary Glass, Hin F. Ko, Mabel W. Ko, Roy Westwick,
Gwyneth M. Westwick, Kerry‑Lynne Ferris,
Stephen W. Findlay, Norah C. Findlay,
Jerry Janes, Diana Janes, Gregory Pappas,
Tasie Pappas, Solon S. Wang, Peter M. Lee,
Herbert M. Lewis, Alexander Kalinowski,
Katarina Kalinowski, John W. Whitefoot,
Sheila M. Whitefoot, Lisbet MacKay, Pierre Dow,
Mona McKinnon, Wong L. Lee, Manloong Lee,
John M. Glaiserman, Juan L. G. Cam, Elizabeth C. Cam,
Evelyn M. Murray, William T. Ziemba, James R.
Thompson, Ann B. Thompson, Yum C. Lau, Irene Lau,
James Y. P. King, Tjin K. Tan, Eiji Murakami,
Miyako Murakami, Thomas W. F. Fung, Amy M. L. Chan,
Gertrude Henneken, Hans T. Henneken, Howard G. Isman,
Marjorie E. Isman, Stanley Evans, Dorothey Evans,
Khi Yoeng Tjin, Wen Tien Tai, Kui‑Hsiang Huang,
Phyllis Weinstein, Patricia Lai, Wilfred E. Patton,
Jean M. Patton, Attilio Girardi, Mary Girardi, Irma E. Boulter,
George S. Boulter, John G. Cragg, Olga B. Cragg,
Howard E. Cadinha, Arlene B. Cadinha, Maria C. Ormond,
Douglas R. Eyrl, Judith F. Eyrl, Cheung K. Choi,
Chan P. K. Choi, Celia Kaan, Cecil S. C. Kaan,
Ramon Y. Kan, Helena Kan, Leslie Bara, Ottilia Bara,
Alfred K. Lee, Esther K. Lee, Diana W. C. Sung,
Donald C. Graham, Winnifred A. Graham,
Ronald J. MacKee, Alexander H. Wong, Stella L. Wong,
Edward B. Huyck, Dorothy A. Huyck, Frederick S. Edy,
Ellen V. Edy, Victor H. Hildebrand, John E. Egan,
Chi K. Ching, Siu Y. Chan, Lavender Chu, Frederick Chu,
George E. Rush, Anne L. Rush, Herta J. Neumann,
Cornelius Neumann, James A. Forsythe,
Diane R. Forsythe, Peter J. Funk, Elizabeth Funk,
Elfriede Machek, Adelheid Machek, Lillian P. Toews,
Hui C. Keung, Patricia H. K. S. Wah, Vadilal J. Modi,
Mira V. Modi, Charles H. Shnier, Elaine C. Shnier,
Agnes P. C. Shen, Carol M. Lau, Dennis Lau,
Marjorie McClelland, Arthur Nee, Laura T. Nee,
Donald W. Scheideman, Kathryn M. Scheideman,
William N. King, Allan J. Hunter, Grace K. Hunter,
Grace Ng, Irving Glassner, Noreen G. Glassner,
Priscilla Fratkin, Nancy B. Berner, Gregory Hryhorchuk,
Darcy L. Hryhorchuk, Astley E. Smith, Betty Ann Smith
and Lily R. Eng Appellants/
Respondents on cross‑appeal
v.
Musqueam Indian Band, Chief Joseph Ralph Becker,
Ernie Campbell, Wayne Sparrow, Leona M. Sparrow,
Nolan Charles, Mary Charles, Johnna Crawford,
Gail Y. Sparrow, Myrtle McKay and Larry Grant Respondents/
Appellants on cross‑appeal
and
Her Majesty The Queen Respondent
Indexed as: Musqueam Indian Band v. Glass
Neutral citation: 2000 SCC 52.
File No.: 27154.
2000: June 12; 2000: November 9.
Present: McLachlin C.J. and L’Heureux‑Dubé, Gonthier, Iacobucci, Major, Bastarache, Binnie, Arbour and LeBel JJ.
on appeal from the federal court of appeal
Indians – Reserve land – Leases – Interpretation – Meaning of phrase “current land value” used in leases for reserve land – Whether costs of servicing leased land to be deducted from “current land value”.
In 1960, the Musqueam Indian Band surrendered approximately 40 acres of reserve land to the Crown for the purposes of leasing. In 1965, the Crown entered into an agreement with a company unrelated to the Band. The company serviced and subdivided the land and the Crown provided the company with an individual lease for each lot. Each lease had a term of 99 years. In 1966 the company assigned the leases to individuals, who built houses on the lots. The rent for the first 30 years was specified in the leases. It was subject to review after the first 30 years, and every 20 years thereafter. The leases provided that the rent payable upon review would be fair rent for the land and indicated that an annual clear total rental representing 6 percent of the “current land value” should be regarded as “fair rent”. When the rent first came up for review in 1995, the parties were unable to agree as to the meaning of “current land value” and whether the costs of servicing the lots should be deducted from the value of the land. The Band applied to the Federal Court, Trial Division for a determination of the fair rent payable upon review. The court held that the estate and tenure to be valued was a 99‑year leasehold on reserve land and that “current land value” should be calculated as representing the hypothetical fee simple value of the land discounted by 50 percent to take into account the long‑term leasehold interest and Indian reserve features. The court further held that the costs of servicing the lots should be deducted from the current land value. The Federal Court of Appeal reversed this decision and held that the current land value represented the fee simple value of the land without the 50 percent reduction on account of the Indian reserve features. The leaseholders were granted leave to appeal on the issue of the proper meaning of the phrase “current land value”. The Band was granted leave to cross‑appeal on the question of the deductibility of servicing costs.
Held (McLachlin C.J. and L’Heureux‑Dubé, Iacobucci and Arbour JJ. dissenting on the appeal): The appeal should be allowed. The cross‑appeal should be dismissed.
Per Gonthier, Major, Binnie and LeBel JJ.: In the absence of any contrary indications in the leases, the expression “current land value” in the rent review clause refers to the fee simple or freehold value as opposed to leasehold value of land located on the reserve. Although there is no such thing as freehold title on reserve, this hypothetical value can be assessed and can serve its function in the rent review calculation. The meanings of “land” and of “value” are well established in law. Unless the agreement states otherwise “land” refers to a right to receive a good title in fee simple. In real estate law, “value” generally means the fair market value of the land, which is based on what a seller and a buyer would pay for it on the open market. Market value generally is the exchange value of the land, rather than its use value to the lessee. Land is valued without regard to the tenant’s interest in it, for the tenant’s decision not to use the land for its highest use does not reduce the land’s exchange value.
Valuing the Musqueam land at its freehold value is consistent with an interpretation of the leases that sees the rent review clause as an attempt to generate an annual fair market return on a capital asset. It does not follow that the freehold value of land outside the reserve should be used to determine the rent. The capital asset here is reserve land surrendered for leasing, not land surrendered for sale. Contrary to some other leases of reserve land, the Musqueam leases do not specify that off‑reserve land values should be used in the rent review formula. The hypothetical used to establish market value in the absence of an actual market should reflect the land as it is in its actual circumstances and should not change the nature of the land appraised. Since it has chosen not to surrender the land for sale, the Band holds reserve land and must accept the realities of the market for this capital asset.
The value of a hypothetical interest in fee simple ownership on the reserve must reflect the legal restrictions on land use, as opposed to restrictions found in the lease, and market conditions. Like municipal zoning, restrictions on land use imposed by a band can either increase or decrease land value depending on how the market responds to them. Since the legal environment on a reserve must be taken into account when appraising land value, fee simple off‑reserve value cannot simply be transposed to the Musqueam lands. The hypothetical value of fee simple title on reserve land may be determined by adapting the off‑reserve value to take into account the actual features of the land and of the market. The trial judge’s finding of fact that the fee simple value of comparable lands off the reserve was $600,000 on average and his determination that the Musqueam lands were worth 50 percent less than the comparable off‑reserve properties should be accepted.
In determining the “current land value”, the leases require that one assume that the lands are “unimproved lands in the same state as they were on the date of this agreement”. On the basis of the plain meaning of the word “unimproved” and of its use in the leases, it is evident that “unimproved lands” means “unserviced” lands, not just lands without buildings. The costs of servicing the land should therefore be deducted from the value of the lots.
Per Bastarache J.: The phrase “current land value” should be interpreted as referring to the value of leasehold reserve land. This construction reflects the best description of what the land in fact is and is consistent with the parties’ intentions. The location of the land and its status as reserve land has an important impact on its value and can either decrease or increase land value depending on how the market responds. The land to be valued in this case is land held under a long‑term lease and should not be treated as land held in fee simple. A market value appraisal is a valuation of specified rights in the subject property, not the physical real estate. In the case of reserve lands, the highest form of individual property possible is not a fee simple but a long‑term lease. The total value of the land consists therefore of the value of the lease and of the reversion. This does not pose a problem in this case because a long‑term lease, in its first years, is equivalent in value to a fee simple.
The value of the land must reflect the legal restrictions on the land including the legal regime that affects the use of the land and the rights and privileges of the holders of the land. The power of the Band to modify unilaterally such restrictions by converting the lands to fee simple lands does not mean that while restrictions exist they can be ignored. It would be improper to hypothesize that such restrictions do not exist. Consequently, the valued land retains its character as land reserved for Indians and this status is relevant for the purposes of rent review.
To construe “current land value” as referring to the value of the land as leased reserve land is consistent with the intention of the parties to the agreement. The parties intended that “current land value” be interpreted and guided by what the land in fact is, namely a leasehold interest in reserve land. This interpretation reflects an intention that the value of the lease follow the contemporary market for long‑term leases of Indian reserve land. Comparisons with non‑reserve values should only be used where clear language to that effect is adopted by the parties.
Per McLachlin C.J. and L’Heureux‑Dubé, Iacobucci and Arbour JJ. (dissenting on the appeal): The expression “current land value” in the leases means the price a willing buyer would pay for fee simple title to the land. This construction is consistent with the plain meaning of the language used in the leases and common industry practice. It is also consistent with the widely accepted rationale for a rent review provision like the one at issue here and reflects the fact that the lessor could sell the land at its current land value and reinvest the proceeds at market rates of interest, if the land were not subject to a long‑term lease. Calculating fair market value requires determining the “highest and best use” for the land that is legally permissible, disregarding any restrictions imposed by the lease itself. The only impediment to the Band’s selling its land is the leases themselves, whose restrictions should be disregarded. This removes the justification for discounting the value of the land. The fact that the Band has chosen not to sell its land cannot bear on the land’s value. It follows that the “exchange value” of the land means what it could be sold for, not 50 percent of that amount. While in principle, fair market value must reflect legal restrictions on the land, the fact that land is part of a reserve is not a legal restriction within the ambit of this principle, which applies only to restrictions over which a landowner has little or no control.
The proposed 50 percent reduction for reserve related factors depends on the valuation of an interest that could simply never exist. Reserve land can be converted to fee simple only by surrender to the Crown. Once reserve land is surrendered to the Crown, it loses all the characteristics of reserve land. Because there is no such thing as a fee simple interest in reserve land, there is simply nothing to which the subject property can be compared. If “current land value” means fee simple, and fee simple is inconsistent with reserve status, then it must be wrong to devalue fee simple for factors related to reserve status.
The rent should be set at 6 percent of the current land value, and no discount should be applied merely because the subject land is on an Indian reserve. Gonthier J.’s reasons concerning the deductibility of servicing costs were agreed with in principle. However, insofar as servicing costs are a function of current land value, the value discussed in these reasons should be used rather than the lower value arrived at by the trial judge.
Cases Cited
By Gonthier J.
Referred to: Leighton v. Canada (1987), 13 F.T.R. 198; Ball v. Gutschenritter, [1925] S.C.R. 68; Revenue Properties Co. v. Victoria University (1993), 101 D.L.R. (4th) 172; Re Farlinger Developments Ltd. and Borough of East York (1975), 61 D.L.R. (3d) 193; Sun Life Assurance Co. of Canada v. City of Montreal, [1950] S.C.R. 220; Bullock’s, Inc. v. Security‑First National Bank of Los Angeles, 325 P.2d 185 (1958); Gulf Oil Canada Ltd. v. National Harbours Board, F.C.T.D., No. T‑1478‑71, September 15, 1972; Burrard Dry Dock Co. v. Canada, [1974] F.C.J. No. 417 (QL); No. 100 Sail View Ventures Ltd. v. Janwest Equities Ltd. (1993), 84 B.C.L.R. (2d) 273, leave to appeal refused [1994] 2 S.C.R. viii; British Gas Corp. v. Universities Superannuation Scheme Ltd., [1986] 1 W.L.R. 398; Rodgers v. Canada (1993), 74 F.T.R. 164; Devil’s Gap Cottages (1982) Ltd. v. Canada, [1991] F.C.J. No. 1142 (QL); The Queen v. Guerin, [1983] 2 F.C. 656; Re Planet Parking Ltd. and Assessment Commissioner of Metropolitan Toronto, [1970] 3 O.R. 657.
By Bastarache J.
Referred to: Revenue Properties Co. v. Victoria University (1993), 101 D.L.R. (4th) 172; Devil’s Gap Cottages (1982) Ltd. v. Canada, [1991] F.C.J. No. 1142 (QL); Rodgers v. Canada (1993), 74 F.T.R. 164.
By McLachlin C.J. (dissenting on the appeal)
Ball v. Gutschenritter, [1925] S.C.R. 68; Revenue Properties Co. v. Victoria University (1993), 101 D.L.R. (4th) 172; Blueberry River Indian Band v. Canada (Department of Indian Affairs and Northern Development), [1995] 4 S.C.R. 344; St. Mary’s Indian Band v. Cranbrook (City), [1997] 2 S.C.R. 657; Golden Acres Ltd. v. Canada (1988), 22 F.T.R. 123; Rodgers v. Canada (1993), 74 F.T.R. 164; Devil’s Gap Cottages (1982) Ltd. v. Canada, [1991] F.C.J. No. 1142 (QL); Steel Brothers Canada Ltd. v. Canada (1986), 1 F.T.R. 22.
Statutes and Regulations Cited
Assessment Act, R.S.B.C. 1996, c. 20, s. 19.
Expropriation Act, R.S.B.C. 1996, c. 125, s. 32.
Indian Act, R.S.C., 1985, c. I ‑5, ss. 37 [rep. & sub. c. 17 (4th Supp.), s. 2 ], 38 [idem], 39 [am. idem, s. 3 ], 83 [am. idem, s. 10 ].
Property Transfer Tax Act, R.S.B.C. 1996, c. 378, s. 1 [am. 1997, c. 45, s. 52; am. 1999, c. 47, s. 50].
Authors Cited
Appraisal Institute of Canada. The Appraisal of Real Estate, Canadian ed. Winnipeg: The Institute, 1999.
Friedman, Milton R. Friedman on Leases, vol. 2. New York: Practising Law Institute, 1974.
Megarry, Robert Edgar, and William Wade. The Law of Real Property, 6th ed. By Charles Harpum. London: Sweet & Maxwell, 2000.
APPEAL and CROSS‑APPEAL from a judgment of the Federal Court of Appeal, [1999] 2 F.C. 138, 235 N.R. 164, [1998] F.C.J. No. 1893 (QL), allowing in part the appellants’ appeal from a judgment of Federal Court, Trial Division (1997), 137 F.T.R. 1, [1997] F.C.J. No. 1339 (QL). Appeal allowed, McLachlin C.J. and L’Heureux‑Dubé, Iacobucci and Arbour JJ. dissenting. Cross‑appeal dismissed.
Jack Giles, Q.C., Kerry‑Lynne D. Findlay, Q.C., and Ludmila B. Herbst, for the appellants/respondents on the cross‑appeal.
Darrell W. Roberts, Q.C., Wendy A. Baker, Lewis Harvey and Leona M. Sparrow, for the respondents/appellants on the cross‑appeal.
Mitchell R. Taylor and Keith J. Phillips, for the respondent Her Majesty the Queen.
The reasons of McLachlin C.J. and L’Heureux-Dubé, Iacobucci and Arbour JJ. were delivered by
1 The Chief Justice (dissenting on the appeal) — This case requires us to interpret a lease. The parties entered into the contract voluntarily and with counsel. Thus our only task is to interpret their agreement. Two issues of interpretation arise – the meaning of “current land value” and the deductibility of servicing costs. I agree in principle with Justice Gonthier on the second issue but respectfully disagree on the first. In my view, “current land value” means the actual value of similar land held in fee simple, and should not be reduced by 50 percent because the Musqueam Indian Band (“Band”) continues to hold the land as a reserve.
I. Background
2 In 1960, the Band surrendered approximately 40 acres of reserve land to the Crown for the purposes of leasing. On June 8, 1965, the Crown entered into an agreement (“Master Agreement”) with the Musqueam Development Company Limited (“Company”) under which the Company was to service and subdivide the land, and the Crown was then to provide the Company with an individual lease for each lot. Each lease was to have a term of 99 years, running from the date of the Master Agreement. The Company fulfilled its obligations under the Master Agreement, the Crown provided the leases, and in 1966 the Company assigned those leases to individuals, who built houses on the lots. Those individuals, or their assignees, are the appellants here.
3 Under the individual lease agreements, the lessees agreed to pay rent to the Crown in right of the Band, and in 1980 the Crown transferred management authority to the Band so that the Band now receives the rent directly. The rent for the first 30 years was specified in the leases, and increased from approximately $300 per year to approximately $400 per year over that period. The rent was subject to review after the first 30 years, and every 20 years thereafter. Thus the rent came up for review in 1995.
4 The rent review clause, identical in each of the individual leases, is the subject of this dispute. It provides:
2(2) The rent for each year of the three succeeding twenty (20) year periods and for the final nine (9) year period of the term hereof, shall be a fair rent for the land negotiated immediately before the commencement of each such period. In conducting such negotiations the parties shall assume that, at the time of such negotiations, the lands are
(a)unimproved lands in the same state as they were on the date of this agreement;
(b) lands to which there is public access;
(c) lands in a subdivided area, and
d) land which is zoned for single-family residential use,
. . .
2(4) An annual clear total rental which represents six percent (6%) of the current
land value, calculated at the time of renegotiation, and on the basis set out in subparagraph (2) hereof, shall be regarded as a “fair rent” for the purposes thereof.
5 The lessees contend that “current land value”, as used in clause 2(4), means the value of the land as it is currently held — that is, as reserve land. The Band, by contrast, argues that “current land value” refers to the value of fee simple title to similar land, absent factors associated with its reserve status.
II. Judgments Below
A. Federal Court, Trial Division (1997), 137 F.T.R. 1
6 The trial court, per Rothstein J., noted first that Indian title in reserve lands is generally inalienable. A band may not sell or otherwise encumber reserve lands except by surrendering the land to the Crown. Surrender allows the land to be held in fee simple, but irrevocably strips the land of its character as land reserved for Indians. Rothstein J. reasoned that, because the land leased here had not been surrendered to the Crown for sale, it should not be valued as if it could be held in fee simple. He reasoned, rather, that “for rent renegotiation purposes, the estate and tenure [to be valued] is a 99-year leasehold” (para. 38) on reserve land.
7 Proceeding from this premise, the trial court’s assessment of “current land value” took into account “evidence of factors that might negatively affect the value of a long-term leasehold interest in land on an Indian Reserve” (para. 43), such as uncertainty related to property taxation, publicized unrest, and limitations on non-natives’ entitlement to stand for election to the reserve’s governing body. Rothstein J. noted that the fact that the interest to be valued was a leasehold rather than a freehold did not significantly affect the valuation; it is widely accepted that the value of a 99-year lease approximates the value of a freehold interest in the same property. That the leasehold to be valued was on Indian land, however, did have a significant effect on the valuation, reducing the value of the interest by approximately 50 percent.
B. Federal Court of Appeal, [1999] 2 F.C. 138
8 The Federal Court of Appeal, per Sexton J.A., disagreed as to the property interest to be valued. In Sexton J.A.’s view, the trial court erred in reading “current land value” to mean the value of a leasehold on reserve land, rather than the value of a freehold interest in the land. Sexton J.A. reasoned at para. 21 that “[t]he long-standing practice . . . is to value the land at its fee simple value”, and that if the parties had intended otherwise, they would have stated so specifically. Sexton J.A. noted that the rent review clause employed in the leases here was not atypical: linking rent to the value of the underlying land “ensure[s] that the rent represents the true return negotiated by the parties on the market value of the land. It reflects the fact that the lessor could sell the land at its current land value and reinvest the proceeds at market rates of interest, if not subject to a long-term lease” (para. 20). The court concluded that the interest to be valued was freehold title, not a leasehold interest in land on the reserve. Accordingly, it held that the trial court erred in imposing a 50 percent reduction to account for the “Indian reserve feature” of the land (para. 75).
III. Analysis
9 In construing a lease, our first consideration is the language of the lease itself. Here that language is clear. In a real estate document, “land” usually means “a right to receive a good title in fee simple”. See, e.g., Ball v. Gutschenritter, [1925] S.C.R. 68, at p. 71. “Value” means the “fair market value” of the land or, equivalently, the “exchange value” of the land: what a willing buyer would pay for the land in the open market. See, e.g., Revenue Properties Co. v. Victoria University (1993), 101 D.L.R. (4th) 172 (Ont. Div. Ct.), at p. 180. In British Columbia, the Property Transfer Tax Act, R.S.B.C. 1996, c. 378, s. 1, the Assessment Act, R.S.B.C. 1996, c. 20, s. 19, and the Expropriation Act, R.S.B.C. 1996, c. 125, s. 32, all use substantially the same definition. Nothing in the leases at issue here suggests that either “land” or “value” should be assigned any definition other than the generally accepted one. Thus “current land value” means the price a willing buyer would pay for fee simple title to the land.
10 This construction of the disputed clause, which simply gives effect to the plain meaning of its words, is entirely consistent with the widely accepted rationale for a rent review provision like the one at issue here. Rents that are linked to the underlying value of the land ensure that the lessor gets a fair return on the asset. See Friedman on Leases (1974), vol. 2, at p. 567. As Sexton J.A. noted, linking rent to the value of the land “reflects the fact that the lessor could sell the land at its current land value and reinvest the proceeds at market rates of interest, if not subject to a long-term lease” (para. 20). The linking of rent and underlying land value can be advantageous to the lessee as well: if market rates of return exceed the percentage specified in the lease – here, 6 percent – the lessee nonetheless pays a rent equal to only 6 percent of the land value, even though the lessor could get a higher rate of return by selling the land and investing the proceeds. Further, linking rent to underlying land value ensures that the lessee’s rent rises no more quickly than real estate prices, and indeed that the rent would fall if real estate prices were to fall. Leases that link rent and land value thus provide certainty that is often valuable to both the lessor and the lessee. Where, as here, the lease runs for a long term, a rent review clause that links rent to land value is especially useful, because predicting the course of the real estate market over such a long period is practically impossible.
11 The advantages of linking rent to underlying land value are well illustrated by the circumstances of this case. In 1966, neither the Band nor the lessees could have known what course real estate prices would take over the next 30 years, let alone the next 99. If the parties had fixed the rent for each lot at a particular dollar amount per year (presumably escalating every year at some fixed rate), the lessees would have run the risk that their rent would escalate more quickly than land prices, and the Band would have run the risk that real estate prices would escalate more quickly than the rent. Having linked rent to the value of the land, however, the parties are now assured that their 30-year-old leases will reflect the contemporary market. The Band is assured that it will receive an income comparable to the income it would receive if it was unencumbered by the existing leases. And the lessees are assured they will pay no more than they would if they entered into a new lease with any other landowner today.
12 My colleague Gonthier J. agrees that the plain meaning of “current land value” is freehold value, and that the purpose of the rent review clause here was to ensure a fair return to the lessor and a fair rent to the lessee. However, he nonetheless affirms the trial court’s valuation of the leased lands at 50 percent of freehold value. With respect, I cannot agree.
13 First, although my colleague agrees that “current land value” requires the assessment of the “exchange value” of the land, his result does not in fact assess the land on the basis of its potential sale. As he states, calculating fair market value requires determining the “highest and best use” for the land that is legally permissible, disregarding any restrictions imposed by the lease itself. One way the Band could legally use the land is to sell it for fair market value. See the Indian Act, R.S.C., 1985, c. I-5, ss. 37 -38 ; see also Blueberry River Indian Band v. Canada (Department of Indian Affairs and Northern Development), [1995] 4 S.C.R. 344; St. Mary’s Indian Band v. Cranbrook (City), [1997] 2 S.C.R. 657. The only impediment to the Band’s selling its land is the leases themselves, whose restrictions my colleague Gonthier J. concedes should be disregarded. This removes the justification for discounting the value of the land. The fact that the Band has chosen not to sell its land cannot bear on the land’s value. It follows that the “exchange value” of the land means what it could be sold for, not 50 percent of that amount.
14 The rationale for placing weight on the fact that the Band has chosen not to sell the land is said to be that fair market value “must reflect the legal restrictions on the land” (Gonthier J., at para. 46). However, the fact that land is part of a reserve is not a legal restriction within the ambit of this principle. This principle is properly applied to such restrictions as zoning laws, building codes, historical district or other non-zoning land-use controls, and environmental regulations. See Revenue Properties, supra; see also Appraisal Institute of Canada, The Appraisal of Real Estate (Canadian ed. 1999), at p. 270. Adjusting fair market value to account for such restrictions makes sense, because usually a landowner has little or no control over them, and clearly a buyer is not going to pay the going rate for commercial land if the land is zoned only for residential use. By contrast, nothing stops the Band from surrendering the land to the Crown and selling the land just like any other freehold is sold, except the leases themselves, whose restrictions must be disregarded in determining “current land value”. The reserve character of the land is therefore not a legal restriction. As for the argument that determining fair market value by valuing freehold title to the land is circular, the inquiry is essentially: what else could be done with the land? That is the same question that is asked in any appraisal, and it is not circular. See Appraisal Institute of Canada, supra, at p. 269, which states that appraising land requires consideration of “all potential uses”.
15 Second, although my colleague Gonthier J. agrees that the rent review clause here was meant to assure the Band a market rate of return on its land, the reduction of land value for reserve related factors precludes this result. Rather, it assures that the Band will never get a market return on its land, by effectively reading “current land value” to mean 50 percent of current land value. As a result, the Band will get a 6 percent return on half the value of its asset, or, equivalently, a 3 percent return. As Sexton J.A. noted, at para. 25, “it is extremely doubtful that the Band would enter a long-term lease if the effect of its doing so would be to devalue the worth of its own asset, thereby lowering the return it receives on the asset”.
16 Third, the proposed 50 percent reduction for reserve related factors depends on the valuation of an interest that could simply never exist. As the trial court noted, reserve land can be converted to fee simple only by surrender to the Crown. Once reserve land is surrendered to the Crown, it loses all the characteristics of reserve land. Thus there can be no such thing as fee simple title to reserve land. Given that no such interest can ever exist, it is difficult to see how it could be valued in any principled way. As it is, appraisal is a notoriously unscientific endeavour. See, e.g., Golden Acres Ltd. v. Canada (1988), 22 F.T.R. 123, at para. 15: “Whatever kind of alleged art it may be, the practice of the alleged profession of appraising is nothing like that which can be dignified as a science.” In part, this is because any appraisal involves asking a hypothetical question — namely, what would the landowner receive for the land on the open market? That question, however, can be answered in a relatively principled way, by, for example, looking to the price of similar property.
17 The combined fee simple/reserve factor approach, by contrast, is not susceptible of principled analysis. Because there is no such thing as a fee simple interest in reserve land, there is simply nothing to which the subject property can be compared. The comparison is not with real properties, but with something that cannot exist – a parcel of land that is both fee simple and reserve land. I cannot accept that this is what the parties intended when they referred to “current land value”. If “current land value” means fee simple, and fee simple is inconsistent with reserve status – propositions with which my colleague Gonthier J. agrees – then it must be wrong to devalue fee simple for factors related to reserve status, such as speculation about unrest, limitations on non-natives’ standing to be elected to the governing body, and uncertainty about property taxation. (This does not preclude consideration of the fact that the fee simple is located near reserve land, should this prove relevant to assessing the value of the fee simple.)
18 As my colleague notes, some leases for aboriginal land specifically provide that the subject property is to be valued by reference to comparable property located outside the reserve. See, e.g., Rodgers v. Canada (1993), 74 F.T.R. 164, at para. 6 (lease called for valuation by reference to “vacant land . . . situate[d] outside of the Reserve”); Devil’s Gap Cottages (1982) Ltd. v. Canada, [1991] F.C.J. No. 1142 (QL) (T.D.) (lease called for valuation by reference to “vacant land outside the Reserve”). It does not follow, however, that when the lease does not include an express indication that off-reserve property is the touchstone, the parties intended otherwise. “Current land value” generally means fee simple value, and common industry practice is to value land by assessing what the land would be worth on the open market. Except where the parties expressly provide for a different method of valuation, it is plain meaning and common practice that should provide the default. See, e.g., Steel Brothers Canada Ltd. v. Canada (1986), 1 F.T.R. 22 (assessing fair market value of reserve land by reference to off-reserve property, where the lease was silent as to the intended valuation method).
19 In my view, the rent should be set at 6 percent of the current land value, and no discount should be applied merely because the subject land is on an Indian reserve. This construction accords with the leases’ plain meaning, common industry practice, and the clear purpose of the rent review clause.
20 As indicated above, I agree in principle with my colleague Gonthier J.’s reasoning as to servicing costs. Insofar as those costs are a function of “current land value”, however, I would use current land value as discussed herein, rather than the lower value arrived at by the trial judge.
IV. Conclusion
21 I would dismiss the appeal and the cross-appeal and affirm the judgment of the Federal Court of Appeal.
The judgment of Gonthier, Major, Binnie and LeBel JJ. was delivered by
Gonthier J. —
I. Introduction
22 The rent for the Musqueam lands in the City of Vancouver came up for review in 1995. The parties, the Musqueam Indian Band (“Band”) who owns the land and the leaseholders who live on it, failed to negotiate a new rent. They submitted their dispute to the courts for resolution.
II. Facts
23 The Band surrendered part of their reserve in trust to the Crown in 1960 for the purpose of leasing. The Crown entered into a Master Agreement with the Musqueam Development Company Limited (not related to the Band) in 1965. Under the Master Agreement, the company was to subdivide and service the land by setting up such amenities as roads, sewers and water supply. Once the land was divided into serviced lots, the Crown provided the company with leases for each lot. The company assigned the leases to individuals, who built houses on the lots. The leaseholders paid a lump sum to the company and agreed to pay rent to the Minister on behalf of the Band. Most of the leases are dated May 16, 1966 and run for a term of 99 years from the date of the Master Agreement (June 8, 1965).
24 In 1980, the Crown transferred management authority to the Band so that the Band now receives the rent directly. The rents for the first three 10-year periods are set in the leases at approximately $300-$400 per year. The rent first came up for review in June 1995, as it will again every 20 years thereafter. The leases stipulate that the annual rent is to be 6 percent of the “current land value”. Below is a typical rent review provision:
2(1) YIELDING AND PAYING therefor, yearly, and every year in advance during the said term to the Minister a rent as follows:
(a) for each year during the first ten years of the term, the sum of ($298.00);
(b) for each year during the second ten years of the term, the sum of ($343.75);
(c) for each year during the third ten years of the term, the sum of ($375.00);
2(2) The rent for each year of the three succeeding twenty (20) year periods and for the final nine (9) year period of the term hereof, shall be a fair rent for the land negotiated immediately before the commencement of each such period. In conducting such negotiations the parties shall assume that, at the time of such negotiations, the lands are
(a) unimproved lands in the same state as they were on the date of this agreement;
(b) lands to which there is public access;
(c) lands in a subdivided area, and
(d) land which is zoned for single-family residential use,
and the foregoing assumption shall also be made in the case of any determination of the rent pursuant to the provisions of subparagraph (3) hereof.
2(3) In the event the Minister and the Lessee or its assignees cannot reach agreement on the rents to be paid in any of the succeeding periods as provided in subparagraph (2) above, the question shall be determined under the authority of paragraph (g) of subsection (1) of Section 18 of the Exchequer Court Act .
2(4) An annual clear total rental which represents six percent (6%) of the current land value, calculated at the time of renegotiation, and on the basis set out in subparagraph (2) hereof, shall be regarded as a "fair rent" for the purposes thereof. [Emphasis added.]
The parties cannot agree on the meaning of “current land value” in clause 2(4), or on the interpretation of “unimproved lands” in clause 2(2)(a). Under clause 2(3), the Band applied to the Federal Court, Trial Division for a determination of these issues.
III. Judgments Below
A. Federal Court, Trial Division (1997), 137 F.T.R. 1
25 Rothstein J. found that “current land value” refers to “a 99‑year leasehold on the Musqueam Indian Reserve No. 2 unaffected by the terms of the current leases except for the prescribed assumptions in s. 2(2) of the current leases” (para. 40). He held that it is inappropriate to use the freehold value of the land because of the “unique” nature of Indian title. Indian title is inalienable. When legal title is vested in the Crown, it is encumbered by a fiduciary duty to the Indians. Neither the interest of the Crown (once Indian land is surrendered) nor that of the Indians in reserve land can be equated to a freehold estate in fee simple. The Musqueam land was only surrendered for leasing purposes. “Accordingly, it retains its character as land reserved for Indians with all of the benefits and limitations flowing from that character” (para. 36).
26 Because of the difficulties in appraising the value of land in the reserve, the trial judge accepted an indirect comparison with non-reserve land. He found that the fee simple value of off-reserve land was on average $600,000 (upon which expert appraisers for both sides agreed). He used this as a benchmark to determine the actual value of Musqueam Park land, by discounting it by 50 percent “having regard to the long-term leasehold interest and Indian reserve features” (para. 86). This works out to $300,000 per average lot.
27 The 50 percent discount figure was arrived at by comparing the value of pre-paid leaseholds in Salish Park (also on the Musqueam Reserve) with West Side properties in the City of Vancouver. The Salish lots sold for roughly 50 percent less than the comparable West Side properties. The trial judge agreed with the appraiser who believed that the difference reflected the fact that the Salish properties were on the Musqueam Reserve.
28 The trial judge reason