Ontario Land Tribunal Considers Methodology for Valuation of Vacant Partial Takings

The Ontario Land Tribunal’s recent decision in 745809 Ontario Limited v Tecumseh (Town), 2026 CanLII 9714 (ON LT) (“Tecumseh”) provides three key lessons on land valuation in expropriation claims. 

First, Tecumseh is a reminder that the overall Highest and Best Use opinion must be provided by the appropriate expert. 

Second, the high burden remains on the Claimant to demonstrate financial feasibility if the contemplated pre-expropriation Highest and Best Use is redevelopment. 

Third, and perhaps most interestingly, the Tribunal in Tecumseh accepted a valuation approach to vacant partial takings on an improved property using comparative sales of improved lands. This approach may be useful when determining value of a partial taking of land where the vacant portion expropriated plays an integral role in the Highest and Best Use of the property as improved. 

Background

In Tecumseh, the Claimant, 745908 Ontario Limited, brought a claim for compensation pursuant to the Expropriations Act, R.S.O. 1990, c. E.26 arising from the expropriation of parts of their property by the Respondent, the Corporation of the Town of Tecumseh (para 1). The Claimant’s property (the “Subject Property”) is in the Town of Tecumseh (para 1).

The Respondent’s expropriation involved a partial taking in fee simple of 420.89 square metres of the Subject Property as well as an acquisition of 113.22 square metres for an easement (paras 2 and 3). This expropriation was for the purpose of road and service upgrades (para 1). 

At the effective date of April 21, 2022, the Subject Property was improved by a one-storey commercial building and contained approximately 21 surface parking spaces. (paras 2 and 4). Under a long-term lease agreement, the Subject Property was used by Alimentation Couche-Tard Inc. to operate a convenience store, and this use had continued since the expropriation (para 4). Importantly, the Subject Property was formerly used as a retail gasoline operation, which was decommissioned many years before the property was expropriated (para 5). There was also a railway corridor owned by Canadian National Railway running immediately north of the Subject Property, which hosted both freight trains and Via Rail passenger trains (paras 5 and 64).

In addition to interests and costs, the Claimant sought the following compensation (para 6):

• $455,529 for the market value of the land expropriated in fee simple;
• $121,740 for the market value of the expropriated easement;
• $413,000 for damages for injurious affection; and
• $41,667 for disturbance damages.

Meanwhile, it was the Respondent’s position that the market value of the fee simple taking was $148,000 and should be reduced by 50% due to an implied dedication as well as a right-of-way in favour of a neighbouring property (para 33). The Respondent valued the easement at $19,800 and argued for applying a further downward adjustment of 50% to the easement over Part 2 due to the right-of-way, which would be a reduction of $638.54 (para 33). The Respondent also took the position that the Claimant had not proved injurious affection and disturbance damages (para 34).

Takeaway #1: The Appropriate Expert Must Opine on Overall Highest and Best Use 

In considering the parties’ approach to the determination of Highest and Best Use, the Tribunal commented that appraisers or economists are the appropriate experts to provide an opinion as to the overall Highest and Best Use (para 39). All of the expert witnesses in the proceeding agreed that the overall Highest and Best Use opinion is provided by an appraiser or an economist and not a land use planner expert (para 40). 

Even though all of the expert witnesses agreed on this and each of the parties’ appraisers provided opinions as to Highest and Best Use that were considered by the Tribunal, it appears that the Tribunal provided this clarifying commentary in part because the Respondent’s Land Use Planner Expert’s report was titled, “Highest and Best Use Analysis” (paras 40-41). The Tribunal commented that despite this title, the Respondent’s Land Use Planner Expert properly pointed out that the report was not a property valuation appraisal, but rather “a land use opinion of the highest and best use of the Subject Property” (para 40). This decision serves as a reminder to experts and counsel that while planning evidence is often relied upon in assessing the legal permissibility and physical possibility tests of Highest and Best Use, the overall conclusion is an economic one that must be within the expertise of the individual providing the conclusion (paras 39-40). 

Takeaway #2: Claimants Must Prove Financial Feasibility 

One of the most instructive takeaways from this decision is the guidance it provides on the evidence a Claimant needs to demonstrate financial feasibility if the contemplated pre-expropriation Highest and Best Use is for redevelopment.

The Tribunal cited the well-known test for Highest and Best Use, being that the following four criteria must be satisfied and considered sequentially in determining the reasonably probable use of land (para 38):

1. legal permissibility;
2. physical possibility;
3. financial feasibility; and
4. maximum profitability.

The opinion of the Claimant’s Appraisal Expert, was that the pre-expropriation Highest and Best Use of the Subject Property was for the development of a three-storey mixed-use building with a commercial floor area, apartment dwelling units on the upper two floors, and 29 parking spaces (para 40). Meanwhile, the opinion of the Respondent’s Appraisal and Valuation Expert was that the Subject Property’s Highest and Best Use was the continuation of its existing commercial/retail use (para 41).

The Tribunal assessed each criterion and when assessing financial feasibility, provided important guidance. The Tribunal emphasized that it must be persuaded that the proposed use of the Subject Property is likely to produce a positive financial benefit (para 72). The Claimant’s evidence was found to be insufficient for the following three reasons:

1. Construction and Environmental Remediation: The Claimant’s Appraisal Expert provided in two reports general construction cost estimates for the three-storey mixed-use building ($285 and $300 per square foot) without analysis or justification (para 75). In addition, these general construction cost estimates did not consider the potential additional costs that would be incurred in relation to attenuation measures in accordance with applicable guidelines for noise, vibration and safety because of the railway corridor running immediately north of the Subject Property (para 75). These estimates also did not consider the potential environmental remediation costs because of the Subject Property’s past use as a retail gasoline operation (para 75).
    
2. Interplay with Physical Possibility: The Claimant did not provide any evidence on other likely costs surrounding the redevelopment (para 76). In addition, the Tribunal stated that some of the constraints it found under the physical possibility criterion such as the redevelopment requiring a smaller footprint would have both positive and negative impacts on financial viability (para 76). It appears that these financial impacts were not explored by the Claimant.
    
3. Return on Investment: The Claimant did not provide any evidence on “the reasonable or acceptable return on investment to justify incurring redevelopment costs” (para 77).

The Tribunal then provided the following list detailing the items that the Claimant “[g]lobally” failed to provide evidence on to demonstrate that the redevelopment was financially feasible:

1. The costs for preparing municipal applications (for example the ZBA, the site plan approval, the building permit), as well as required reports (for example environmental studies, traffic studies, the Development Viability Assessment, noise studies and vibration studies);
2. The cost of peer reviews required by the Town for consultants retained by the Town;
3. The cost of preparing architectural and engineering designs;
4. Market assessment for rental accommodation and the rental revenue likely to be garnered, for both residential and commercial rentals prior to the Effective Date;
5. The cost of preparing a rental market report, including an assessment of supply and demand;
6. The costs of demolishing the existing building;
7. The costs of constructing the three-storey multi-use building, including amenities and parking, with justifications;
8. The likely added costs of construction to address noise and vibration from train traffic in proximity;
9. The potential added costs of constructing a safety earthen berm and fencing;
10. Contingency costs, financing costs, accounting costs; and,
11. Pro forma calculations estimating potential profit.

[Footnotes omitted. See para 78.]

The Tribunal also noted other missing financial feasibility evidence for this redevelopment such as the costs associated with the Claimant being released from its contractual obligations in relation to its lease with its commercial tenant operating the convenience store on the Subject Property (paras 81-82).

The Claimant submitted that financial feasibility evidence would be cost prohibitive and that land development costs go beyond the expertise of an appraiser (para 80). The Tribunal rejected this submission and emphasized that for Highest and Best Use, it is the Claimant’s burden to establish the four-part test to determine the reasonable probable use (para 80). The Tribunal stated that “[i]f one expert witness is unable the attest to the costs of redeveloping a proposed highest and best use scenario, as well as the other elements in support of financial feasibility, a claimant must still proffer appropriate evidence, including another expert witness” (para 80).  

Tecumseh appears to suggest that if a Claimant is advancing a claim based on a redevelopment scenario, then the Claimant must be prepared to undertake the evidentiary burden of demonstrating the redevelopment’s financial feasibility. It is the Claimant’s burden to prove the financial feasibility of the redevelopment, and it is unlikely that the Tribunal will accept evidence as to general construction cost rates without underlying analysis or justification from appropriate experts. 

Overall, the Tribunal found that the Claimant had failed to demonstrate the financial viability of the redevelopment of the Subject Property (para 85). The Tribunal accepted the Respondent’s position that the Highest and Best Use was continuation of the existing commercial/retail use (para 89).

Takeaway #3: guidance on when valuation based on improved lands is more appropriate than vacant or minimally improved lands

In determining the market value of the partial taking in fee simple, the Claimant’s Appraisal Expert considered comparable sales of improved lands while the Respondent’s Appraisal and Valuation Expert used comparable sales of lands that were mostly vacant or minimally improved (paras 91 and 95). This expropriated portion of the Subject Property was not improved (paras 95 and 98).

In considering the competing appraisal analyses, the Tribunal commented that “[a]ttributing value to partial takings of land is challenging as there is no true market for such parcels” (para 93).

The Tribunal found that the Respondent’s Appraisal and Valuation Expert’s approach went against common sense and his own evidence that the Highest and Best Use of the Subject Property is a continuation of the existing commercial/retail use (para 98). The Tribunal found the lands taken had an integral role in the functioning of the Subject Property, which is a convenience store accommodating many vehicles, and these lands were “not independent parcels” (para 98). The Tribunal then concluded that the methodology of the Claimant’s Appraisal Expert based on comparative sales of improved lands was more appropriate (para 99). 

Tecumseh suggests that when partial takings of land cannot be valued as “independent parcels” and the vacant land contributes to the value of the improved property as a whole, it may be more appropriate to use comparative sales of improved lands rather than vacant or minimally improved lands. 

Conclusion 

The Tribunal determined that the claimant was entitled to the following compensation (para 134):

• $332,515 for the market value of the land expropriated in fee simple;
• $44,435 for the market value of the expropriated easement;
• $15,000 damages for injurious affection; and
• $0 for disturbance damages.

The Tribunal in its decision was careful to remind the reader that Tribunal decisions do not create binding precedent (para 124). That said, Tecumseh is insightful and instructive. This decision serves as a reminder that the overall opinion of Highest and Best Use must be provided by an appropriate expert, which is not a land use planner. It is instructive on the nature of the evidence that the Claimant needs to demonstrate financial feasibility if the contemplated pre-expropriation Highest and Best Use is a redevelopment. Lastly, it demonstrates that the use of comparative sales of improved lands may be more appropriate for valuation of a partial fee simple taking that is integral to the highest and best use of the property, even if it is not improved with a building.

It remains to be seen whether the appraisal approaches encouraged by Tecumseh are followed by subsequent Tribunal decisions and how Claimants and Respondents use the lessons from Tecumseh to assist in determining compensation.