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On the planet of property, it prevails to utilize reasonable market price (FMV) as a way of describing the value of realty or leas payable. However, perhaps not typically thought about is the concern that the term FMV can suggest various things to various individuals. For some, FMV might be the rate that somebody would be willing to pay for the land under its current usage. For others, FMV might be the price that somebody would want to spend for that exact same land under its highest and best use, such as for redevelopment functions. Alternatively, for specific special properties, FMV may have other significances, such as replacement value. For example, if land is to be offered to a neighbour as part of a land assembly and that neighbour may be ready to pay a premium to get the land, is that premium then part of the decision of the FMV and should that premium be determined with a risk premium or as of the date where the development worth is secured?

This all pleads the question-which technique is proper?

By default, an appraiser would aim to the Canadian Uniform Standards of Professional Appraisal Practice (CUSPAP). Under CUSPAP, FMV implies: "the most probable cost, since a specified date, in cash, or in terms comparable to cash, or in other precisely revealed terms, for which the specified residential or commercial property rights need to offer after sensible direct exposure in a competitive market under all conditions requisite to a reasonable sale, with the purchaser and the seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under excessive pressure."1

In other words, an appraisal of FMV should, as a starting point, be based upon the presumption of greatest and best use of the residential or . From this starting point, the appraisal would then take into consideration the time and threat that supports the entitlements process required to accomplish the highest and best use (including that it may not be accomplished). This is typically carried out in conjunction with an organizer who will evaluate the site in the context of provincial policy and regional official plans.

While the CUSPAP meaning seems clear enough, it is not the universal technique as was made clear in the current Ontario Court of Appeal (ONCA) case of 1785192 Ontario Inc. v. Ontario H Limited Partnership (1785192 Ontario).2

1785192 Ontario Inc. and 1043303 Ontario Ltd. (collectively described as the Landlord) were the landlord corporations of 2 commercial residential or commercial properties in Whitby, Ontario, which were rented to Ontario H Limited Partnership (the Tenant). The leases each contained an alternative for the Tenant to buy the residential or commercial properties from the Landlord and included a mechanism for setting the price at which the Landlord would be required to sell. The arrangement specified that the purchase rate would be a "purchase cost equal to the average of the evaluated reasonable market price of the Leased Premises as determined by 2 appraisers, one selected by the Landlord and one picked by the Tenant."

The Tenant ultimately exercised both alternatives to buy and the celebrations engaged appraisers as required. The Landlord acquired an appraisal from Colliers International Group Inc., valuing the residential or commercial properties at a collective $31,200,000 based upon a highest and best usage assumption, while the Tenant got an appraisal from Equitable Value Inc., valuing the residential or commercial properties at a cumulative $11,746,000 based upon a present zoning presumption. While the celebrations at first disputed each other's appraisals, the Landlord eventually accepted the Tenant's appraisal, setting the purchase price at the midpoint of the 2. However, the Tenant continued to challenge the Landlord's appraisal, electrical wiring only $11,746,000 to the Landlord's solicitor on closing, leading to the Landlord refusing to close on the basis that the purchase rate had not been paid.

At trial, the Tenant argued that the Landlord's appraisal was overpriced as it was postulated on speculative and inappropriate presumptions about how the residential or commercial property could be developed if rezoned. However, the application judge, counting on the CUSPAP standards, found that the leases set out a system that was suggested to consider that each celebration may look for an appraisal utilizing affordable assumptions that were most beneficial to that celebration. As such, each celebration was compliant with the FMV system set out in the leases and each party had a legitimate appraisal, meaning that the purchase price for the residential or commercial properties was the midpoint of the 2 appraisals and the Landlord had actually rightfully refused to close on the transaction. On appeal, the ONCA concurred with the application judge finding that what constitutes a valid appraisal is a concern of fact and absent a palpable and overriding error, there was no basis on which the ONCA might set that finding aside.

Takeaways

When dealing with a decision of FMV, property experts ought to be deliberate in their preparing. The meaning of FMV and the mechanism utilized for figuring out the FMV should be clear. If the objective is for FMV to reflect the "as is" usage of the residential or commercial property and the "where is" state of it, it ought to be prepared as such. If the intention is for FMV to show the highest and best use of the residential or commercial property, then the CUSPAP definition should be utilized, perhaps with any special adjustment applicable to the particular deal. In addition to a clear definition, it would be prudent for specialists to consist of a conflict resolution system to identify FMV so regarding develop a clean and effective procedure to attend to a circumstance where the FMV meaning fails to provide a clear response and appraisals are vastly different. Taking these actions would enable the celebrations to prevent a failed transaction and potentially costly litigation as held true in 1785192 Ontario.

1 Appraisal Institute of Canada, Canadian Uniform Standards of Professional Appraisal Practice (Ottawa: AIC, 2024) online: chrome-extension:// efaidnbmnnnibpcajpcglclefindmkaj/https:// www.aicanada.ca/wp-content/uploads/CUSPAP-2024.pdf

2 1785192 Ontario Inc. v. Ontario H Limited Partnership, 2024 ONCA 775.

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