CASUAL LEGAL: Municipal Tax Assessments and Environmentally Contaminated Property

A recent Alberta Court of Appeal case considered a tax assessment of industrial property that failed to take into account the environmental contamination of the property. The Appellant complained about a 2015 tax assessment, arguing the contamination lowered the market value of the property, which should have been reflected in the assessment. The municipality then lowered the assessed value. The Appellant argued the value had not been sufficiently lowered and the municipality had not taken the proper approach to valuing the land.

The question before the Review Board was the proper approach to tax assessment accounting for environmental contamination. The Appellant argued the full cost of remediating the property should be deducted from the value, but the municipality argued it should only be reduced by the loss of use of the part of the property that was contaminated. Neither party provided any evidence about the sales of comparable contaminated properties, because nothing was available. The parties agreed on the extent of the contamination, the estimated cost to remediate, and the value of the land if it had not been contaminated.

The Review Board accepted the municipality’s approach for four reasons:

1. The Appellant’s argument that a seller of the property would discount the “without contamination” market value by the total costs of remediation was unreasonable because a) there was no order to remediate the contamination; b) a reasonable seller would not discount the property value by so much, when the contaminated area was only a 1/3 of the value of the improvement; and c) there was no evidence remediation had started or was scheduled.
2. The Appellant’s argument failed to consider that two-thirds of the area of the property was not contaminated and was in fact leased out and generating income.
3. Fully deducting the costs of remediation undervalues contaminated land that is still in use. Most often, the value of the remaining use will more accurately reflect the market value of the property.
4. The municipality’s approach was more appropriate because it accounted for the continuing use of the property. It assessed the market value of the continuing use by reducing the “without contamination” assessment by the percentage of the land that was unusable.

The Court of Appeal upheld the Board decision, but cautioned the decision “should not be taken as establishing that it is always reasonable to assess the market value of contaminated property by reducing its “without contamination” market value by the proportion of the area of the property that is contaminated. In another case, with different evidence and argument, that might not be a reasonable approach.”

To access AMSC’s Casual Legal Helpline, AUMA members can call toll-free to 1-800-661-7673 or email casuallegal [at] amsc.ca (casuallegal[at]amsc[dot]ca) and reach the municipal legal experts at Reynolds Mirth Richards and Farmer LLP. For more information on the Casual Legal Service, please contact riskcontrol [at] auma.ca (riskcontrol[at]auma[dot]ca), or call 310-AUMA (2862) to speak to AUMA’s Risk Management staff. Any Regular or Associate member of the AUMA can access the Casual Legal Service.

DISCLAIMER: This article is meant to provide information only and is not intended to provide legal advice. You should seek the advice of legal counsel to address your specific set of circumstances. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this article to be outdated.