THURLOW, J.:—This is an appeal by the administratrix of the estate of Ambrose D. O’Brien, deceased, from an assessment of succession duties made on or about January 18, 1955, in respect of successions to property of the said deceased. The deceased died on July 13, 1953, leaving among other assets a lot of land in Etobicoke Township, near the city of Toronto, on which was a service station and lunchroom, and the only issue raised in this appeal is the value of that property for the purposes of the Dominion Succession Duty Act, R.S.C. 1952, c. 89.
The combined effect of Sections 2(a), 2(e) and 5 of the Act is that the value to be ascertained is the fair market value of the property as at the date of the death of the deceased.
The property is situated west of Toronto on the south side of the Queen Elizabeth Way about a quarter of a mile to the west- ward of its intersection with Highway No. 27. Both are heavily travelled highways, and the surrounding area has been developing rapidly in recent years. The property is exceptionally well located for a service station. It is the nearest station to Toronto on the south side of the Queen Elizabeth Way, the nearest service station to the eastward being some four and a half miles away. The nearest service station to the westward on the south side of the Queen Elizabeth Way is two miles distant. Moreover, for some years there have been regulations in force restricting the opening of additional service stations on the Queen Elizabeth Way.
The lot of land used in connection with the service station has an irregular shape. Its frontage on the Queen Elizabeth Way is 423 feet. The eastern portion of this frontage has a depth of 49 feet and is used as a parking area. The remaining portion of the property is triangular in shape. It is 190 feet deep at the eastern side, and on the southern side it runs along a service road for a distance of 315 feet to join the Queen Elizabeth Way. The service station and lunchroom building is located on the triangular portion of the lot. The building consists of the lunchroom and office built in or about 1938 and a two-bay garage erected in or about 1951. The building is said to have been in a run-down condition in July, 1953. Various parts of the building were in need of repair and, in particular the washrooms required to be renovated with new fixtures and new walls. The driveways and aprons around the pumps were rough and pitted with deep holes. Nevertheless, in 1951, 409,988 gallons of gasoline were sold at this station ; in 1952, 427,370 gallons were sold; and from January 1, 1955, to July 13 of the same year 245,950 gallons were sold.
It is this property, as it was on July 18, 1953, of which the Court must find the fair market value.
In a succession duty return filed by the appellant on or about September 28, 1953, the property was valued at $15,000. The respondent increased this valuation to $150,000 and this appeal ensued. Pursuant to an order of this Court, pleadings were filed, and in the statement of claim filed by the appellant it is alleged that on July 13, 1953, the fair market value of the property was not in excess of $43,000. In the defence filed by the respondent, it is alleged that the value was $150,000.
In my opinion, the onus of proving that the value of the property was less than the amount at which the respondent assessed it rests on the appellant. However, it was not contended at the hearing of the appeal that the value was $150,000. The evidence as a whole does not support a valuation of that amount, and the respondent’s submission was that the value was $112,600. In these circumstances, the matter of onus can have little, if any, bearing on the result.
Following the death of her husband, the appellant operated the service station for about a year, during which she made some repairs and alterations, and she also made arrangements with a different oil company to supply gasoline for the station. As part of such arrangements, the oil company renovated the washrooms, paved and otherwise improved the grounds and approaches, installed new service station equipment, and made some superficial changes to the building. Shortly after the changes were made, the oil company which previously had been supplying the station made, through an agent, an unsolicited offer of $150,000 for the property. The appellant refused this offer. She says she did so because she wanted to keep the station for her sons. The terms of the offer are not in evidence, and while I think it was a firm offer I am puzzled by some of the circumstances in which it was made, including the company’s desire for secrecy when it knew that the appellant could not sell the property without first giving the company the opportunity to buy it at the price offered. The offer was made at a time when the offering company must have known that new supply arrangements had recently been made with the other company, and counsel for the appellant submitted that it was not a bona fide offer at all, but this was not established. Figures were given in evidence, indicating a considerable increase in gallonage of gasoline sold in the two and a half years following the death of Ambrose O’Brien, but it is quite impossible to ascertain to what extent such increases resulted from factors such as development of the neighbourhood, increase in traffic, and changes in the station and in its operation following his death. Consequently, no conclusions as to the value of the property can be based on these figures.
The only transfer of this property after the station was opened was that made to Ambrose D. O’Brien by his father in October, 1949. The consideration expressed in the deed was "‘the giving back of a mortgage for $15,000, other good and valuable consideration and the sum of one dollar’’. Whether $15,000 was anywhere near the value of the property in 1949 or not, I am satisfied that it has no near relation to the value of the property in July, 1953. In the meantime, the two-bay garage had been erected, the neighbourhood had been developing rapidly, traffic had been on the increase, and the gallonage of gasoline sold at the station had been soaring. This transaction accordingly affords no assistance in determining the value in July, 1953. Nor does the assessment for real property taxes, which in 1954 was $20,975, advance the solution.
In December, 1954, Mr. James Laffey and in November, 1956, Mr. R. A. Davis, both of whom are well qualified and experienced appraisers, investigated and estimated the value of the property as of July 13, 1953. The former valued it at $43,000, the latter at $122,500. Mr. Davis included in his valuation $11,500 for equipment, the greater part of which did not form part of the realty. Both of these men gave evidence at the trial of the appeal.
It is common ground that, as a service station, the property is being put to its best possible use, that an oil company is the type of purchaser most likely to pay the highest price for the property, and that in estimating how much an oil company would be likely to pay to acquire the property the potential sale of gasoline is a consideration of the utmost importance.
Mr. Laffey stated that he had approached the problem from three points of view, viz. first, that of an estimate based on the replacement cost of the property less depreciation, second, a method called the comparative approach, an estimate based on a comparison of the prices at which other similar properties had recently been sold, and third, a method called the income approach, an estimate of value based on anticipated net rental to be derived from the property. In the first of these approaches he calculated the replacement cost of the building and deducted accumulated depreciation, which gave him a net figure of $18,000 as the value of the building. He then accumulated data as to the prices paid for unimproved land purchased as sites for service stations shortly before and after July, 1953, some of which sites were on the Queen Elizabeth Way, and found that the cost per acre of such service station sites ranged from $1,500 to $15,650. For the site in question, which is 1.3 acres, he then estimated a value of $25,000, and by adding to it $18,000 as the value of the building he arrived at his estimate of $43,000 for the property. In the second method, Mr. Laffey made inquiries as to the sales of what he considered roughly comparable service stations and the prices paid for them and, by making comparisons, reached a figure of $45,000 for the property. In his third approach, the witness averaged the gallonage of gasoline sold at the station in the preceding two and a half years to reach a figure of 431,000 gallons per year. He then estimated that an oil company owning the station would let it to a lessee at a rental equal to 114 cents per gallon and thus obtain from it a gross revenue of $5,400. From this he deducted $1,500 for taxes and maintenance to leave a balance of $3,900, of which he capitalized $1,500 at six per cent to give $25,000 as the value of the land and the remaining $2,400 at 12 per cent, made up of seven per cent for annual return and five per cent for depreciation, to give a figure of $20,000 as the value of the building. Of the three approaches, he preferred the first and adopted $43,000 as his estimate of the value of the property. He disregarded entirely the offer of $150,000 previously mentioned as being capricious, and as he thought it inconceivable that anyone would seriously offer that amount for the property when it was possible to acquire a better site and build a better building for $50,000 to $60,000.
A number of criticisms of Mr. Laffey’s estimate were advanced in argument, chief among which were that prices paid for unimproved land intended as sites for service stations give no indication of the value of a site of proven value as a gasoline outlet, that the sales used for comparison in his second approach did not afford a true comparison, and that in the third approach he calculated the rental on an average of past sales rather than on an estimate of potential sales and at too low a rate and did not take into account prospective rental from the lunchroom.
Mr. Davis also approached the problem by the same three methods but considered that there was no satisfactory market data available on which to base an opinion by comparisons either as to the value of the land in the case of the cost approach or as to the value of the property as a whole in the comparative approach. He proceeded to estimate the value of the building and aprons alone by a cost approach and to estimate the value of the property as a whole by two income approaches and then to estimate it as well by reference to the offer of $150,000 made as above mentioned about a year after the material date. Of these methods, he preferred the first income approach as offering the best indication of value and as being open to less chance of error than the other approaches. By it, he reached the figure of $122,500 previously mentioned. Of the other two methods, one resulted in a lower and the other in a higher valuation.
Mr. Davis’s estimate of the depreciated value of the building and aprons was $17,300, and to reach this figure he deducted depreciation at the rate of 214 per cent per annum from the times of construction of the several portions of the building and aprons.
In making his calculation by the first income approach, Mr. Davis assumed that an oil company considering the purchase of the property would estimate on the basis of sales of not less than 500,000 gallons per annum at a rental equivalent to 112 cents per gallon, and that it would expect to let the lunchroom at $1,800 per annum. It could thus expect a gross annual revenue of $9,300. From this, he deducted $1,300 for estimated taxes and maintenance, $1,186 in respect of return of capital and interest on the investment in service station equipment, and $1,384 in respect of annual depreciation and interest calculated on the depreciated value of the building and aprons as previously estimated by him on the cost approach basis. This left annual net income of $2,570 attributable to the land alone, which, capitalized at 5.5 per cent, gave the value of $98,700 for the land. To this, he added $17,300 for the value of the building and aprons for a total of $116,000 but deducted $5,000 on the ground that a prudent purchaser would want to pave the grounds immediately. As part of his estimate he also adopted a value of $11,501 placed by another appraiser on certain equipment of the service station and lunchroom, and this, with the $111,000 in respect of the land and building, makes up the $122,500 which he estimated as the value of the property. Most of the items of equipment making up the $11,501 were not part of the realty, and it was not contended that the whole of this sum should be included in the value of the property. Counsel for the respondent submitted that $1,600 of this amount should be included, which with the $111,000 estimated as above mentioned makes up the $112,600 which he contended was the value of the property.
Counsel for the appellant criticizes Mr. Davis’s opinion as being based on many variables. In particular, he attacks the use of 11 instead of 114 cents per gallon to determine the anticipated rental. It may be noted that on Mr. Davis’s method of calculation the difference of one-quarter cent would account for $1,250 in annual rental and $22,700 (in rounded figures) in the total value of the property. He also challenges the inclusion of $1,800 per year as lunchroom rental and the capitalization of the net income attributable to the land at the rate of 5.5 per cent.
In my opinion, the true value of the property on July 13, 1953, lies somewhere between the estimates of these two appraisers. While I think the alternative course of buying an unproved site and setting up a new station at lower cost might well be a consideration operating as a control on the amount that might be offered for a proven outlet, I do not think that the cost of new sites affords a satisfactory basis for comparison. Nor do I think that the sales cited by Mr. Laffey are comparable with the hypothetical transaction which must be envisaged in putting a value on the property in question. In some of the cases cited, there was no evidence as to what gasoline sales could be anticipated at the respective properties, and in others, while the price may have been bolstered by a return lease to the vendor, the sale was no more than a part of the vendor ‘s method of financing its acquisition of new outlets for its products. These properties were not for sale without restriction, and accordingly the transactions cited afford no real basis for comparison. Moreover, in my view Mr. Laffey’s income approach, based as it is on average gallonage of gasoline sold rather than on such sales plus an estimate of what the figure could reasonably be expected to reach in the very near future, is unrealistic in view of the fact that the gallonage had been increasing steadily before Ambrose O’Brien died. These considerations lead me to conclude that Mr. Laffey’s estimate is too low.
Mr. Davis’s estimate is predicated on the supposition that an oil company would be eager to acquire the station in view of its high gallonage of gasoline sales. This assumption is, I think, fully warranted, and I think he is also warranted in his assumption that an oil company would base its estimate of what it would pay for the station on expected potential sales of not less than 500,000 gallons of gasoline per year. Whether or not it would also calculate the price it would pay on an expected rental equivalent to 112 cents a gallon is a question of greater difficulty, but on the whole I think this assumption as well was warranted. There is evidence that the relation of rental to gasoline sales varies according to the proportion sales of gasoline bear to sales of other products, and that for a station of this kind, where eighty-five to ninety per cent of sales are sales of gasoline, 114 cents would have been a maximum rental in July, 1953. However, in its eagerness to acquire the outlet I think an oil company might well consider that a revenue equivalent to 112 cents per gallon could be obtained from the station. On the other hand, I am far from satisfied that any oil company, in contemplating the purchase of this property and calculating what it would pay to get the property on the basis of its proven and potential gallonage, would increase the amount so arrived at by any substantial sum in respect of anticipated revenue from an unproved lunchroom. While the lunchroom was apparently making sales to the extent of about $1,000 per week up to July 13, 1953, the profit shown is so small that it would have been practically eliminated if the lunchroom had been obliged to provide a rental of $1,800 a year. Mr. Potten, one of the witnesses, who is in the employ of an oil company, made it clear that his company was not interested in the lunchroom portion of the property, and I see no reason on the evidence to assume that an oil company would pay in respect of the lunchroom, by way of an increase upon what it would pay for the property if the lunchroom were not there at all, anything more than such additional value as might be attributed to the lunchroom portion of the building alone, with nothing additional for the site. I doubt that an oil company would predict revenue from the lunchroom in excess of what would carry the expenses and depreciation of that portion of the building, and I do not think that an oil company would invest its capital in the lunchroom on the basis of an anticipated return of 5.5 per cent per annum on its investment plus 212 per cent depreciation calculated on the depreciated value of that portion of the building. What an oil company might endeavour to get as a rental for the lunchroom after acquiring the property is, of course, another matter entirely. Consequently, in my opinion the estimate made by Mr. Davis is too high.
At the argument, counsel for the respondent very fairly submitted that the real significance as evidence in this case of the offer of $150,000 is to demonstrate the unreasonableness of a valuation of $43,000 for what was approximately the same property only one year earlier. With respect, I think this is the correct significance to attach to the evidence of the offer and that it does show that the value of the property was not merely more, but substantially more, than $43,000.
On the other hand, save in respect of the inclusion of what I think is too high a revenue in respect of the lunchroom and the projection of such revenue into an additional value to the land, I think the estimates and calculations on which Mr. Davis’s opinion is based are well founded. The depreciated value of the portion of the building used as a lunchroom, office, and storeroom was estimated by Mr. Davis at $8,200. How much of this is attributable to office and storeroom and how much to lunchroom does not appear, but in my opinion a reasonable rental for the whole of it would not exceed $1,000 a year, of which some portion would be attributable to the office and storeroom and would be included in the 112 cents per gallon rental. If $750 of this were ascribed to the lunchroom, the difference between that amount and the figure of $1,800 used by Mr. Davis would be $1,050 and would account for $19,090 of his estimate of the value of the land.
Taking Mr. Davis’ valuation of $111,000 as a starting point and applying the considerations mentioned, I think a reduction of $19,100 is justified in the circumstances and that the value of the property without the fixtures on July 13, 1953, was $91,900. and, with the fixtures included, should be set at $93,500.
The appeal will be allowed and the assessment reduced accordingly. While the appellant has not succeeded in establishing the value alleged in the statement of claim, the appeal was necessary and has been successful to a substantial extent in bringing about a reduction of the assessment made by the respondent. The appellant is, therefore, entitled to her costs of appeal.
Judgment accordingly.