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Soil contamination ignored in gas station valuation
November 30, 2001

Soil contamination is a common problem on gas station sites. Public concern about the effects of contamination has risen sharply during the past decade. Many regulations are now in place across Canada to require clean-up of contaminated soil. This in turn has spawned a new industry as numerous firms have been formed to provide soil remediation services. A recent compensation decision has explored some of the market value issues arising from soil contamination.

In Pay Less Gas Co. (1972) Ltd. v. British Columbia (Minister of Transportation and Highways), [2001] EXLAW 331, the B.C. Expropriation Compensation Board made a compensation award in a case that dates back more than ten years. In 1990, Pay Less operated a chain of gas stations on Vancouver Island. One of those stations was located in Mill Bay. The property was expropriated by the provincial Ministry of Transportation and Highways in that year to make room for a highway improvement project.

A significant issue considered by the Board related to the impact of soil contamination on the market value portion of the award. The Authority provided market value evidence through its appraiser, Carl Nilsen, of Nilsen Realty Research. Mr. Nilsen did not take soil contamination into account in reaching his opinion of value. However, he qualified his opinion by stating in his report that he had not been provided with a soil study. Further, he stated that if there was contamination it could alter his opinion of value.

The Authority also provided evidence to try and establish that the Pay Less Gas site was contaminated and that the Authority had incurred considerable costs in cleaning it up after the taking. However, the Authority did not provide any appraisal opinion evidence to explain how soil contamination had affected market value of the Pay Less property. It is not apparent from the Board's reasons why Mr. Nilsen was not provided with this evidence. Neither is it apparent why the Authority did not offer any other appraisal opinions on this point.

During submissions, the Authority's counsel, Alan Hincks, argued that in 1990 it was common knowledge that purchasers of gas station sites would take into account the problems of contamination and the potential costs of remediation when deciding on the prices that they were prepared to pay. However, the Authority did not suggest that market value should be adjusted for costs of remediation on a "one-to-one" basis.

Not surprisingly, the Claimant objected to the evidence of contamination. It pointed out that the Authority had not raised the issue in its pleadings and that it had not called any experts to offer opinion evidence to establish that the site was contaminated or what the effect might have been on market value. However, in rebuttal the Claimant called Colin Dunwoody, a geological engineer with the firm of Morrow Environmental Consultants Inc. Mr. Dunwoody reviewed the soil tests conducted for the Authority and stated that they were inconclusive as to the presence of contamination. The Claimant also did not provide any appraisal evidence on this issue.

Faced with this evidence the Board concluded that even though there was some evidence of contamination, the extent of contamination was far from clear. However, more importantly, there was no evidence of its impact on market value. The Board accordingly declined to consider contamination in the market value award.

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