Judgments

A-890-97

Musqueam Indian Band and Chief Joseph Ralph Becker, Ernie Campbell, Wayne Sparrow, Leona M. Sparrow, Nolan Charles, Mary Charles, Johnna Crawford, Gail Y. Sparrow, Myrtle McKay, Larry Grant and Her Majesty the Queen (Plaintiffs) (Appellants)

v.

Mary Glass, Hin F. Ko, Mabel W. Ko, Roy Westwick, Gwyneth M. Westwick, Kerry-Lynne Ferris, Stephen W. Findlay, Norah C. Findlay, Jerry Janes, Diana Janes, Gregory Pappas, Tasie Pappas, Solon S. Wang, Peter M. Lee, Herbert M. Lewis, Alexander Kalinowski, Katarina Kalinowski, John W. Whitefoot, Sheila M. Whitefoot, Lisbet MacKay, Pierre Dow, Mona McKinnon, Wong L. Lee, Man-Loong Lee, John M. Glaiserman, Juan L.G. Cam, Elizabeth C. Cam, Evelyn M. Murray, William T. Ziemba, James R. Thompson, Ann B. Thompson, Yum C. Lau, Irene Lau, James Y. P. King, Tjin K. Tan, Eiji Murakami, Miyako Murakami, Thomas W. F. Fung, Amy M. L. Chan, Gertrude Henneken, Hans T. Henneken, Howard G. Isman, Marjorie E. Isman, Stanley Evans, Dorothy Evans, Khi Yoeng Tjin, Wen-Tien Tai, Kui-Hsiang Huang, Phyllis Weinstein, Patricia Lai, Wilfred E. Patton, Jean M. Patton, Attilio Girardi, Mary Girardi, Irma E. Boulter, George S. Boulter, John G. Cragg, Olga B. Cragg, Howard E. Cadinha, Arlene B. Cadinha, Maria C. Ormond, Douglas R. Eyrl, Judith F. Eyrl, Cheung K. Choi, Chan P. K. Choi, Celia Kaan, Cecil S. C. Kaan, Ramon Y. Kaan, Helena Kan, Leslie Bara, Ottilia Bara, Alfred K. Lee, Esther K. Lee, Diana W. C. Sung, Donald C. Graham, Winnifred A. Graham, Ronald J. MacKee, Alexander H. Wong, Stella L. Wong, Edward B. Huyck, Dorothy A. Huyck, Frederick S. Edy, Ellen V. Edy, Victor H. Hildebrand, John E. Egan, Chi K. Ching, Siu Y. Chan, Lavender Chu, Frederick Chu, George E. Rush, Anne L. Rush, Herta J. Neumann, Cornelius Neumann, James A. Forsythe, Diane R. Forsythe, Peter J. Funk, Elizabeth Funk, Elfriede Machek, Adelheid Machek, Lillian P. Toews, Hui C. Keung, Patricia H. K. S. Wah, Vadilal J. Modi, Mira V. Modi, Charles H. Shnier, Elaine C. Shnier, Agnes P. C. Shen, Carol M. Lau, Dennis Lau, Marjorie McClelland, Arthur Nee, Laura T. Nee, Donald W. Scheideman, Kathryn M. Scheideman, William N. King, Allan J. Hunter, Grace K. Hunter, Grace NG, Irving Glassner, Noreen C. Glassner, Priscilla Fratkin, Nancy B. Berner, Gregory Hryhorchuk, Darcy L. Hryhorchuk, Astley E. Smith, Betty Ann Smith, Lily R. Eng. (Defendants) (Respondents)

Indexed as: Musqueam Indian Bandv. Glass (C.A.)

Court of Appeal, Desjardins, Robertson and Sexton JJ.A."Vancouver, November 3 and 4; Ottawa, December 21, 1998.

Native peoples — Lands — Lots located on Indian reserve, surrendered to Crown by Indian Band for leasing — Crown entering into Master Agreement with private developer to subdivide land, install services — Developer receiving leases for each subdivided lot, assigning them to individuals for residential use — Annual rent under lease to be 6% of —current land value— — Whether —current land value— meaning value of 99-year leasehold on Indian Reserve or fee simple value of land — Parties intending Band to be entitled to receive as rent 6% of fee simple value of land — Band's intention to receive fair, conservative return on value of capital investment — Case law on Aboriginal land valuation reviewed — —Current land value— meaning fee simple value of land — Indian reserve feature not diminishing market value of property — Trial Judge wrong in imposing 50% reduction on reserve land — Parties intending land to be valued in unserviced form — Costs of servicing, development to be deducted from fee simple value of lots to determine —current land value—.

This was an appeal from a Trial Division decision determining the annual fair rent for the 20-year period commencing June 8, 1995 for 75 large lots located on Musqueam Indian Reserve No. 2 in a most desirable location in Vancouver. The lots in question comprise an area of 40 acres which were surrendered to the Crown by the Musqueam Indian Band to be leased. On June 8, 1965, the Crown entered into a Master Agreement with a private developer whose mandate was to subdivide the land and install services. The developer received leases for each subdivided lot and assigned them to individuals for residential use. Under paragraph 2(4) of the typical lease, an annual clear total rental which represents 6% of the current land value shall be regarded as a "fair rent" for the purposes thereof. The Trial Judge accepted the respondents' position that "current land value" meant the value of a 99-year leasehold on the Musqueam Indian Reserve No. 2 rather than the fee simple value of the land. He found that there was no material difference between the value of a long-term lease and a fee simple, but concluded that the Musqueam lots would have a lower value than similar fee simple land on account of the "Indian reserve feature" of the land and of issues of taxation, servicing and uncertainty of the Aboriginal interest. Thus, he discounted by 50% the amount of $600,000 representing the fee simple value of the average lot. Finally, the Trial Judge found upon a proper construction of the rental provision of the lease agreement that the land was to be valued in its unserviced form. Two issues were raised on appeal: (1) whether the words "current land value" in the rent review clause of the leases should be interpreted as referring to the value of a fee simple estate in land or to the value of a 99-year leasehold interest of reserve land, and (2) whether the costs of servicing and development should be deducted from the fee simple value of the lots to determine "current land value".

Held, the appeal should be allowed in part.

(1) The Trial Judge erred in construing "current land value" to mean the value of a 99-year leasehold on the Musqueam Indian Reserve No. 2 rather than the value of the land as freehold. The reference to "current land value" means that the Band was entitled to receive, as rent, 6% of the fee simple value of the land. This was the intention of the parties, having regard to the whole of the contract and its entire context. It is common in long-term leases to use a percentage of land value to determine annual rent. The long standing practice in this approach is to value the land at its fee simple value. This meaning of "current land value" is consistent with the adoption of a formula based on the market value of the land to determine the rent and such formula was adopted to generate an annual fair rent in terms of a return on a capital asset. The purpose of using a rent review clause in a long-term lease is to guarantee a return of investment on a capital asset that could be sold. Once surrendered for sale, the Band's interest would no longer be a burden on the Crown's estate and any purchaser of the land would receive an unfettered estate in the land, in fee simple. The parties intended the "current land value" to mean the freehold value of the land, which is consistent with the fact that through surrender, the Band could have delivered a fee simple. In real estate appraisal practice, there is no authority for taking into account the identity of the owner in the determination of land value. Aboriginal land should not be treated differently from other land. The valuation of the market value of Aboriginal land should be made in the same manner as any other land. Discounting the value of Aboriginal land on the basis of their sui generis interest in their own land is irrelevant to the determination of rent calculated as a percentage return on a capital investment. If the parties intended to depart from the well-accepted practice of valuing land in long-term leases at its freehold or exchange value, they could, and should have specified it in the lease. The fact that these lands are reserve lands does not diminish the market value of the property in question. The Trial Judge's conclusion that the hypothetical fee simple value of the average lot is $600,000 was acceptable, but it was wrong to impose a 50% reduction based on the "Indian reserve feature" of the land.

(2) The issue of whether the cost of servicing the land should be deducted from the fee simple value of the lots was a matter of construction, hinging on the meaning of paragraph 2(2)(a) of the lease. Under that paragraph, the lands to be valued were "unimproved lands in the same state as they were on the date of this agreement". That raised another issue, whether "this agreement" referred to the Master Agreement, at the completion of which the lands were unserviced, or to the lease agreement itself, at the completion of which the lands were serviced. The parties clearly intended that the land was to be valued in its unserviced form. The costs of servicing must be deducted from the current value of the serviced lots and "this agreement" must mean the Master Agreement. The Trial Judge based his conclusion that paragraph 2(2)(a) of the lease refers to the Master Agreement on a number of persuasive reasons. The most convincing of them was that the Band provided unimproved, undeveloped land while the developer expended the funds and assumed the risk of development, including servicing costs. Therefore, the parties could not have intended that at rent review, the Band was to receive compensation in respect of servicing and development for which it did not pay and for which it was not responsible. It is a well accepted principle that in the absence of wording to the contrary, a landlord should not benefit from the improvements made by and at the expense of the tenant. The Band did not pay for the servicing and thus should not be compensated for it. The use of the word "unimproved" accords with the view that the costs of servicing are not to be included in the calculation of the "fair annual rent". All servicing costs must be deducted from the fee simple value of the bare lots to determine the "current land value".

statutes and regulations judicially considered

Federal Court Rules, 1998, SOR/98-106, rr. 369, 394.

Indian Act, R.S.C. 1952, c. 149, ss. 2, 39, 53.

cases judicially considered

applied:

Bullock's, Inc. v. Security-First Nat. Bank of Los Angeles, 325 P.2d 185 (Cal. Dist. Ct. App. 1958); Guerin et al. v. The Queen et al., [1984] 2 S.C.R. 335; (1984), 13 D.L.R. (4th) 321; [1984] 6 W.W.R. 481; 59 B.C.L.R. 301; [1985] 1 C.N.L.R. 120; 20 E.T.R. 6; 55 N.R. 161; 36 R.P.R. 1; Delgamuukw v. British Columbia, [1997] 3 S.C.R. 1010; (1997), 153 D.L.R. (4th) 193; 99 B.C.A.C. 161; [1998] 1 C.N.L.R. 14; 220 N.R. 161; Canada v. Cascade Inn Ltd., [1978] F.C.J. No. 201 (T.D.) (QL); Gulf Oil Canada Ltd. v. National Harbours Board, T-1478-71, Kerr J., reasons dated 14/9/72, F.C.T.D., not reported; Devil's Gap Cottages (1982) Ltd. v. Canada, [1991] F.C.J. No. 1142 (T.D.) (QL); Queen (The) in right of Canada and Lynnwood Marinaland Ltd., Re (1971), 20 D.L.R. (3d) 589 (B.C.C.A.).

not followed:

Golden Acres Ltd. v. Canada (1988), 22 F.T.R. 123 (F.C.T.D.); Rodgers et al. v. Canada (1993), 74 F.T.R. 164 (F.C.T.D.); Morin et al. v. Canada (1996), 114 F.T.R. 141 (F.C.T.D.).

distinguished:

Leighton et al. v. Canada (1987), 13 F.T.R. 198 (F.C.T.D.).

referred to:

Revenue Properties Co. v. Victoria University (1993), 101 D.L.R. (4th) 172; 62 O.A.C. 35 (Ont. Div. Ct.); Montreal Trust Co. v. Spendthrift Holdings Ltd., [1984] O.J. No. 296 (H.C.) (QL); Burrard Dry Dock Co. v. Canada, [1974] F.C.J. No. 417 (T.D.) (QL).

authors cited

Black's Law Dictionary, 6th ed. St. Paul, Minn.: West Publishing Co., 1990, "improved land", "improvement".

APPEAL from a Trial Division decision ((1997), 137 F.T.R. 1) determining the method of valuing Aboriginal reserve lands which are the subject of a long-term lease requiring the rent to be peridiocally reassessed at an annual rent of 6% of the "current land value". Appeal allowed in part.

appearances:

Darrell W. Roberts and Lisa Fong for appellants.

Timothy J. Maledy and Julie D. Fisher for respondents (other than James A. and Diane R. Forsythe).

solicitors of record:

Roberts & Griffin, Vancouver, for appellants.

Watson Goepel Maledy, Vancouver, for respondents (other than James A. and Diane R. Forsythe).

The following are the reasons for judgment rendered in English by

Sexton J.A.: The main issue in this appeal involves determining the correct method of valuing Aboriginal reserve lands which are the subject of a long-term lease that requires the rent to be periodically reassessed at an annual rent of 6% of the "current land value". Should the fact that the lands are reserve lands justify valuing them at one half of what they would be worth if they were not on a reserve? For the reasons which follow, I would interpret the lease as meaning that the lands should be valued as lands held in fee simple with no reduction for what has been termed the "Indian reserve factor".

Facts

This is an appeal from a decision of the Federal Court Trial Division, rendered on October 10, 1997 [(1997), 137 F.T.R. 1], which determined the annual fair rent for the 20-year period commencing June 8, 1995, for 75 lots located in Musqueam Park on Musqueam Indian Reserve No. 2 in southwest Vancouver. The lots in question, which are located near the University of British Columbia and a golf course, are large in size. They are described by the learned Trial Judge as being in "one of the most attractive and desirable locations in Vancouver".

In comprehensive reasons, the Trial Judge gave a thorough review of the facts of this case, which I do not intend to repeat here. Rather, I provide below, a short summary of the facts necessary to the resolution of the issues in this appeal.

The lots in question comprise an area of roughly 40 acres that were surrendered for the purpose of lease to Her Majesty the Queen on February 17, 1960, by the Musqueam Indian Band (the Band). This surrender was accepted on April 20, 1961, under which the Crown was authorized to lease the land in accordance with the Act and terms of surrender, pursuant to section 53 of the Indian Act, R.S.C. 1952, c. 149. On June 8, 1965, Her Majesty the Queen entered into a "Master Agreement" with a private developer (Musqueam Development Company Limited), of no relation to the Band, which obligated the developer to subdivide the land and to install services. The developer was to receive leases for each of the subdivided plots, once the land was developed. The developer filed the plan of subdivision on December 15, 1965, and services were provided to the lots in 1966. Thus, the developer received leases for each subdivided lot, which were in accordance with the "Draft Lease (Residential)" that was appended to the Master Agreement. The developer then assigned the leases for each subdivided plot to individuals for residential use.

An example of the typical rent review provision at issue is provided below:

2(1) YIELDING AND PAYING therefor, yearly, and every year in advance during the said term to the Minister a rent as follows:

a) for each year during the first ten years of the term, the sum of ($298.00);

b) for each year during the second ten years of the term, the sum of ($343.75);

c) for each year during the third ten years of the term ($375.00);

2(2) The rent for each year of the three succeeding twenty (20) year periods and for the final nine (9) year period of the term hereof, shall be a fair rent for the land negotiated immediately before the commencement of each such period. In conducting such negotiations the parties shall assume that, at the time of such negotiations, the lands are

a) unimproved lands in the same state as they were on the date of this agreement;

b) lands to which there is public access;

c) lands in a subdivided area, and

d) land which is zoned for single family residential use,

and the foregoing assumption shall also be made in the case of any determination of the rent pursuant to the provisions of subparagraph (3) hereof.

2(3) In the event the Minister and the Lessee or its assignees cannot reach agreement on the rents to be paid in any of the succeeding periods as provided in subparagraph (2) above, the question shall be determined under the authority of paragraph (g) of subsection (1) of Section 18 of the Exchequer Court Act.

2(4) An annual clear total rental which represents six percent (6%) of the current land value, calculated at the time of renegotiation, and on the basis set out in subparagraph (2) hereof, shall be regarded as a "fair rent" for the purposes thereof. [Emphasis added.]

It is common ground that section 2 of the typical lease is virtually identical to section 15 of the Master Agreement, which is provided below:

15(2) The rent for each year of the three succeeding twenty (20) year periods and for the final nine (9) year period of the term hereof, shall be a fair rent for the land comprised in each of such leases negotiated immediately before the commencement of each such period. In conducting such negotiations the parties shall assume that, at the time of such negotiations, the lands are

a) unimproved lands in the same state as they were on the date of this agreement;

b) lands to which there is public access;

c) lands in a subdivided area, and

d) land which is zoned for single family residential use,

and the foregoing assumption shall also be made in the case of any determination of the rent pursuant to the provisions of subparagraph (3) hereof.

15(3) In the event the Minister and the Lessee or its assignees cannot reach agreement on the rents to be paid in any of the Leases, for any of the succeeding periods as provided in subparagraph (2) above, the question shall be determined under the authority of paragraph (g) of subsection (1) of Section 18 of the Exchequer Court Act.

15(4) An annual clear total rental which represents six percent (6%) of the current land value, calculated at the time of renegotiation, and on the basis set out in subparagraph (2) hereof, shall be regarded as a "fair rent" for the purposes thereof.

The typical lease provides that the land is subject to a 99-year leasehold commencing on June 8, 1965. The rent for the first three 10-year periods is set in the lease. It should be noted that the amount of rent for this initial period is set at $298-$375 per year. The method used to arrive at this rent is not in evidence. For the 20-year period commencing June 8, 1995, and for the two 20-year periods thereafter, as well as for the final nine-year period, the lease specified that the annual rent was to be 6% of the "current land value".

At the heart of this dispute is the difference in the opinion of the parties over the meaning of "current land value". The lease specifies that the resolution of any differences between the parties in this regard are to be settled in court.

At trial, the parties presented very different assessments of the "current land value". The appellants presented two experts, Mr. Johnston and Mr. Grant, who used the method of direct comparison with similar off-reserve fee simple land to value the average lot at $712,500 and $607,000 respectively. The respondents' expert, Mr. Oikawa, taking into account the Aboriginal character of the land, used the land residual method and found the value of the average lot in its unserviced form was $134,000. With the appellants' appraisal roughly five times the amount of the respondents', it is obvious that the parties have very different ideas on the meaning of "current land value".

The Trial Judge [at page 15] accepted the respondents' position that "current land value" meant the value of a "99-year leasehold on the Musqueam Indian Reserve No. 2 unaffected by the terms of the current leases except for the prescribed assumptions in s. 2(2) of the current leases." Thus he rejected the appellants' view that "current land value" meant the fee simple value of the land.

To assess the "current land value" as he construed it, and in the absence of adequate data relating to transactions on the reserve, the Trial Judge found it necessary to refer to the value of fee simple land located outside of Musqueam Park to generate a starting figure for the determination of the value of the Musqueam lots. He first concluded that Mr. Grant had arrived at a fair valuation of the off-reserve value of the lots through the direct comparison method. Indeed, Mr. Oikawa conceded that Mr. Grant had fairly employed this method to determine the hypothetical fee simple value of the Musqueam lots.

The Trial Judge concluded that the evidence demonstrated that there was no material difference between the value of a long-term lease (valued at the commencement of the lease) and a fee simple. Thus the fact that the estate being valued was a 99-year leasehold rather than a freehold estate did not materially affect the "current land value". He concluded however, that the Musqueam lots would have a lower value than similar fee simple land, not on account of the leasehold feature, but on account of the "Indian reserve feature" of the land.

He found that the evidence demonstrated that Aboriginal land was worth less than fee simple land because of issues of taxation, servicing and uncertainty of the Aboriginal interest, due to the possibility of Aboriginal self-government and Aboriginal unrest in the area. He found that the appraisal evidence on the whole indicated that the leasehold of the Musqueam lots, because of its "Indian reserve feature", was worth between 40% to 70% of the fee simple value of similar off-reserve lots. The Trial Judge preferred Mr. Oikawa's evidence toward the lower end of the range and relied on Mr. Oikawa's estimates generated by the land residual method, which found that comparable reserve land in Salish Park was worth roughly $305,000 less than similar fee simple land. He considered this to be evidence that the discount on Aboriginal land should be approximately 50%.

Recognizing that the value of the land could not be determined precisely, the Trial Judge rounded Mr. Grant's figure of $607,000 for the fee simple value of the average lot to $600,000.¹ Based on Mr. Oikawa's evidence, he discounted this figure by 50% to account for the fact it was reserve land. Thus the Trial Judge found the value of the average Musqueam lot in its serviced state was $300,000.

Finally, the Trial Judge found upon a proper construction of the rental provision of the lease agreement that the land was to be valued in its unserviced form. Based on this finding, he had to reduce the average value of the serviced land by the cost of the servicing. The Trial Judge accepted Mr. Oikawa's uncontradicted evidence as to the cost of these services, after correcting the calculation to correspond with his higher valuation of the lots in their serviced form. Thus he deducted the cost of servicing from the fee simple values of the serviced lots to arrive at their final value in their unserviced form. As prescribed by the lease, 6% of this final result for the "current land value" represented the annual fair rent for the property.

Issues

The appeal raises the following two issues:

I. Are the words "current land value" in the rent review clause of the leases to be interpreted as referring to the value of a fee simple estate in land or to the value of a 99-year leasehold interest of reserve land?

II. Does the lease require that the costs of servicing and development be deducted from the fee simple value of the lots to determine "current land value"?

I. Are the words "current land value" in the rent review clause of the leases to be interpreted as referring to the value of a fee simple estate in land or to the value of a 99-year leasehold interest of reserve land?

The crux of this case is a question of construction, focusing specifically on the meaning of the words "current land value" used in subsection 2(4) of the lease agreements. Subsection 2(4) states:

2(4) An annual clear total rental which represents six percent (6%) of the current land value, calculated at the time of renegotiation, and on the basis set out in subparagraph (2) hereof, shall be regarded as a "fair rent" for the purposes thereof. [Emphasis added.]

The appellants have argued that the Trial Judge erred in construing "current land value" to mean the value of a 99-year leasehold on the Musqueam Indian Reserve No. 2 rather than the value of the land as freehold. With all due respect to the Trial Judge's careful consideration of this issue, I am of the view that the appellants' position must be sustained.

I agree with appellants' counsel when he contends that the reference to "current land value" means that the Band is entitled to receive as rent, 6% of the fee simple value of the land. In my view, having regard to the whole of the contract and its entire context, this was the intention of the parties. In coming to his conclusion, the learned Trial Judge focused on the interest vested in the leaseholder as opposed to valuing the land itself. In doing so, he departed from the plain meaning of the terms of the provision. If the parties intended to value the interest of the lessee, then in the rent review clause, rather than using the chosen words "current land value", they could have used the words "current leasehold value" or, similar to Leighton et al. v. Canada (1987), 13 F.T.R. 198 (F.T.C.D.), "the value of the land leased on the terms and conditions contained in this lease".

It should be noted at the outset that the evidence demonstrates that it is common in long-term leases to use a percentage of land value to determine annual rent. This approach is often employed by a lessor to ensure that the rent represents the true return negotiated by the parties on the market value of the land. It reflects the fact that the lessor could sell the land at its current land value and reinvest the proceeds at market rates of interest, if not subject to a long-term lease.

The long-standing practice in this approach is to value the land at its fee simple value. This was confirmed at trial by Mr. Johnston, the appellants' appraiser, who explained the purpose of using a percentage return in the following manner:

The underlying rationale is a return on the value of the investment, and I think in almost every case I've seen where that methodology is employed, the value referred to is the fee simple value of the land, and when it's not it's generally spelled out carefully what is involved.

The appellants' view of the meaning of "current land value" is consistent with the adoption of a formula based on the market value of the land to determine the rent. It seems clear that the reason this formula was adopted was to generate an annual fair rent, in terms of a return on a capital asset. The return on this investment is fixed at 6%, but the rent provision accounts for fluctuation in the value of the asset, reflecting the fact that the Band anticipated that its value would vary over time. The intention of the Band must have been to receive a fair but conservative return on the value of its capital investment in return for the security that comes with a long-term lease.

I find support in my view from the statement in Bullock's, Inc. v. Security-First Nat. Bank of Los Angeles, 325 P.2d 185 (Cal. Dist. Ct. App. 1958). The following passage at pages 188-189 of Bullock was cited in Revenue Properties Co. v. Victoria University (1993), 101 D.L.R. (4th) 172 (Ont. Div. Ct.) [at page 181] as applicable in rent review cases:

The lease calls for a determination of the value of the land, not the value of the use of the land for any particular purpose. The entire context shows that the parties had in mind the property's worth rather than its utility for a given purpose. The issue should not be confused by the fact that the actual annual rent figure is obtained by taking five per cent of the appraised value. It is obvious from the rental provisions that the parties were contracting for the lessors to receive as rent a fixed percentage return on the value of the land, such value to be redetermined every ten years. . . . From the method of calculation which the parties agreed upon it may reasonably be inferred that they were thinking in terms of interest rate on a capital investment. They fixed the net rate of return on the lessor's investment at five per cent, but they also provided for fluctuation in the value of such investment. They realized that this capital asset might fluctuate in value from time to time and therefore provided for periodic reevaluation in order that the lessors might continue to receive a five percent return on the value of their investment. When the parties referred to the "value" of the land in question they meant its monetary worth or marketable price"i.e. its market value .

What then can be said to be the intention of the parties? It is not debatable that the Band, if not involved in a long-term lease, could choose to surrender the land to the Crown for sale. The Crown would then be under a fiduciary duty to sell the land at the best price it could find. This value would surely be the fee simple value of the land.

Given this fact, it is extremely doubtful that the Band would enter a long-term lease if the effect of its doing so would be to devalue the worth of its own asset, thereby lowering the return it receives on the asset. Under this scenario, the Band would be foolish not to sell the land for its full value and reinvest the proceeds at the going rate.

The respondents propose a construction of the lease under which the Band would receive less compensation than if they simply sold the land and invested the money. To accept that this was within the contemplation of the parties is dubious at best and, in my view, strongly militates against adopting the respondents' construction of "current land value" as the value of a 99-year leasehold of reserve land.

The Trial Judge wrestled with this point. He found that "there is no suggestion in the leases that the `current land value' refers to anything other than the actual value of the land which forms the subject of the leases" (see page 11). This is similar to the view of Justice Reid in the case of Montreal Trust Co. v. Spendthrift Holdings Ltd. , [1984] O.J. No. 296 (H.C.) (QL) where it was found that it was the "bare land" that was to be valued. However, as has been seen, the Trial Judge departs from this view by valuing a 99-year leasehold interest in reserve land rather than the "bare land" itself.

Analysis of the findings of the Trial Judge

The learned Trial Judge came to his conclusion that the estate to be valued was a 99-year leasehold of reserve land largely based on his analysis of the unique nature of Aboriginal title. The Trial Judge correctly noted that section 2 of the Indian Act, R.S.C. 1952, c. 149 establishes that legal title to reserve land is vested in the Crown, for the use and benefit of a band. Thus the Crown's title in reserved land is not an unfettered estate but is encumbered by the burden of the Aboriginal interest. He recognized that under section 39 of the Act, a band can surrender its land to the Crown for sale. Finally, he noted that any surrender was subject to the consent of the Governor in Council.

Based on this analysis, he drew a distinction between fee simple land and Aboriginal land. Thus at page 14 he states:

These provisions of the Indian Act have the effect that neither the interest of the Crown nor that of the Indians in reserve land can be equated to a freehold estate in fee simple. There is only one way in which reserve land could be truly comparable to freehold land held in fee simple. That is by way of an absolute surrender to the Crown for the purposes of sale, pursuant to ss. 37 to 39 of the Indian Act. However, an absolute surrender extinguishes the Indians' interest in the land and causes the land to lose its character as land reserved for Indians. Upon absolute surrender, such land is no longer reserve land.

The learned Trial Judge correctly recognized that the Band could choose to sell its land by surrendering it for that purpose. Once surrendered, it is comparable to freehold land. However, his concern over the fact that under this scenario the land would lose its Aboriginal character is misplaced. The fact that reserve land surrendered for the purpose of sale loses its Aboriginal character is consistent with the fact that in the sale of any fee simple land, once the owner sells the land, the land is no longer affected by a previous ownership. The Trial Judge has simply recognized the principle that through surrender, Aboriginals are entitled to sell reserve land, like any owner of fee simple land. The fact that land surrendered for sale by Aboriginals no longer retains its Aboriginal character is consistent with principles of real estate law.

The Trial Judge relies on the inalienability and the sui generis nature of the Aboriginal interest in reserve land to distinguish it from freehold land. However, in my view, this is not relevant to the valuation of the current land value for purposes of rent review. It ignores the fact that together, through surrender, the Crown and the Band can deliver fee simple title in the land. Both, of course, are plaintiffs in this case.

Accordingly, I cannot agree with the emphasis the learned Trial Judge placed on his conclusion found at page 14 of his reasons:

In this case, the land was only surrendered for the limited purpose of leasing. Accordingly, it retains its character as land reserved for Indians with all the benefits and limitations flowing from that character . . . . The greatest estate in land which can be granted by the Crown on behalf of the Musqueam Band in accordance with its surrender to the Crown is a long-term leasehold interest.

It is evident that the learned Trial Judge concluded that the estate to be valued is a 99-year leasehold because that was the extent of the interest surrendered by the Aboriginals. In my view, his focus on the nature of the estate granted to the tenant ignores the fact that it was open to the Band to surrender the land for purposes of sale rather than lease.

It must be reinforced that the purpose of using a rent review clause in a long-term lease is to guarantee a return of investment on a capital asset that could be sold. Once the decision has been made to lease the asset, the fact that the asset is surrendered for the purpose of leasing rather than selling is irrelevant to the worth of that asset. After the lease terminates, the Band will still have the asset, which they can then sell or lease or use for their own purposes. While the asset was surrendered for the purposes of leasing, it could have been surrendered and sold and thus, the value of the asset for the purpose of determining the lease is not affected by the decision to lease. In my view, the fact that the land could be sold is fatal to the contention that it should be valued at anything other than its freehold value.

In this regard, it is my opinion that with respect, the learned Trial Judge improperly relied on the Supreme Court of Canada's decision in Guerin et al. v. The Queen et al., [1984] 2 S.C.R. 335 to support his view. As stated by the Trial Judge at page 12 of his reasons, Guerin recognizes the well-accepted principle that Aboriginal title is sui generis. However, the Trial Judge seems to take from this case that Aboriginal land should not be valued as fee simple land because of its inalienability. In adopting this position, he seems to overlook the second part of the passage he quoted from Chief Justice Dickson's reasons in Guerin, supra, at page 382, where the Chief Justice states:

. . . but it is also true . . . that the interest gives rise upon a surrender to a distinctive fiduciary obligation on the part of the Crown to deal with the land for the benefit of the surrendering Indians. . . . The nature of the Indians' interest is therefore best characterized by its general inalienability, coupled with the fact that the Crown is under an obligation to deal with the land on the Indians' behalf when the interest is surrendered.

In his judgment, the Trial Judge does not place sufficient emphasis on the ability of the Band to surrender its land for sale and on the nature of the land when surrendered. Once surrendered for sale, the Band's interest would no longer be a burden on the Crown's estate and thus any purchaser of the land would receive an unfettered estate in the land, in fee simple.

I find additional support for my view in the recent case of Delgamuukw v. British Columbia, [1997] 3 S.C.R. 1010. In Delgamuukw, supra, at page 1091, Chief Justice Lamer, speaking for a unanimous Court on the issue of Aboriginal title, reconfirmed the availability of surrender as a means of selling Aboriginal land. He stated:

Finally, what I have just said regarding the importance of the continuity of the relationship between an aboriginal community and its land, and the non-economic or inherent value of that land, should not be taken to detract from the possibility of surrender to the Crown in exchange for valuable consideration.

In my view the "exchange" referred to by the Chief Justice is the fee simple value of the land. This is consistent with the Crown's obligation to act as a fiduciary when dealing with Aboriginal land and also accords with the view taken in cases involving the lease of Crown lands, which identifies the exchange value of land as its fee simple value (see Canada v. Cascade Inn Ltd. , [1978] F.C.J. No. 201 (T.D.) (QL), discussed infra).

In sum, the above analysis demonstrates that the parties intended the "current land value" to mean the freehold value of the land. This is consistent with the fact that through surrender, the Band could have delivered a fee simple. The parties negotiated and settled for a return of 6% on the "current land value". To hold that the land's value is in any way diminished by the fact that the land is reserve land imports an element into the Aboriginal context which is irrelevant in the present context.

The valuation reflected above is consistent with the approach taken in non-Aboriginal land valuation cases. The proper approach to the valuation of market value for the purposes of rent review was set out by Justice Kerr in Gulf Oil Canada Ltd. v. National Harbours Board (14 September 1972), No. T-1478-71 (F.C.T.D.). At page 19, he found that in long-term leases:

The valuation of the property should be made, I think, so far as possible on the basis of this exchange value, the value actually or theoretically ascertained by the test of competition between a free and willing purchaser and like vendor.

This approach was subsequently applied in Canada v. Cascade Inn Ltd., supra, and Burrard Dry Dock Co. v. Canada, [1974] F.C.J. No. 417 (T.D.) (QL). In Cascade, at paragraph 37, Primrose D. J. confirmed the approach taken in the two earlier cases:

. . . the two cases in question set out the proper method by which to determine land rental"i.e., by ascertaining the true market value of the freehold interest in the land and by determining a reasonable and economic rental of such freehold.

Here it is evident that Primrose D.J. has identified the "exchange value" referred to in Gulf Oil , as the fee simple value of the land. It is the value "actually or theoretically ascertained by the test of competition between a free and willing purchaser and like vendor". As already noted, this is further support for the view that the reference to the exchange of land for valuable consideration in Delgamuukw , supra, is a reference to the fee simple value of the land.

Counsel for the respondents has attempted to distinguish these cases on the basis that the land in question is different in character from the instant case and, secondly, because the cases involved fee simple land held by the Crown and not Aboriginal lands. This latter point has already been discussed in full above, where I have noted that the burden of Aboriginal title on the land does not affect the land's value for purposes of rent review, in leases containing clauses such as in the subject leases. In regard to the first distinction, although Burrard and Gulf Oil did not involve the valuation of residential lots, the passage from Cascade reproduced above confirms that the approach outlined in these cases is to be universally applied. Moreover, the issues raised in these cases are certainly the same as the issues raised here, despite differences in the type of land being valued. All of these cases operated on the basic assumption that a landlord, who puts land out for long-term lease, is entitled to a return on the fee simple value of the land. No distinction can be made for the case of Aboriginal lands and I am of the opinion that the principle enunciated in these cases should govern.

The view that it should be the land itself that is valued, rather than the tenant's interest, is consistent with case law that suggests that in general a landlord's rent should not be affected by the value of the land to the tenant. For instance, if the tenant does not put the land to its highest and best use, the valuation of the land is not reduced to reflect the tenant's choice (see Revenue Properties Co. v. Victoria University, supra).

Further, in real estate appraisal practice, there is no authority for taking into account the identity of the owner in the determination of land value. This was confirmed by both the appellants' and respondents' experts.

This last point is a matter of common sense. In coming to an agreement over what a buyer will pay for a house, the identity of the vendor has no bearing on the price. The purchase price is the amount of money agreed on by both the buyer and the seller, which reflects the open market value of the property based on the characteristics of the property itself, including such factors as its physical condition and its location. It is difficult to conceive of a scenario in which a buyer would study the qualities of the owner in coming to a decision about the price.

Before concluding on the issue of the valuation of Aboriginal lands in long-term leases, I turn to the previous jurisprudence from the Trial Division of this Court.

Aboriginal Land Valuation Cases

The respondents have argued that the line of cases consisting of Leighton et al. v. Canada, supra; Golden Acres Ltd. v. Canada (1988), 22 F.T.R. 123 (F.C.T.D.); Devil's Gap Cottages (1982) Ltd. v. Canada, [1991] F.C.J. No. 1142 (T.D.) (QL); Rodgers et al. v. Canada (1993), 74 F.T.R. 164 (F.C.T.D.) and Morin et al. v. Canada (1996), 114 F.T.R. 141 (F.C.T.D.) establish that the uniqueness of Aboriginal title has resulted in it presenting a different market valuation reality as opposed to lands offered in a freehold market. It must be said at the outset that I do not find these cases particularly useful in that they essentially turn on the construction of the words employed in each lease in question. This was recognized by Strayer J. (as he then was) in Devil's Gap, where he found that previous case law was of limited use since the terms at issue in each case differed from the words at issue before him. Nevertheless, much was made of these cases in oral submissions and therefore I feel it is necessary to comment on these decisions. The first case decided in this vein, Leighton, is discussed below.

1. Leighton et al. v. Canada

The issue in this case was the rent to be paid for Aboriginal land located near Little Shuswap Lake in British Columbia. A typical lease provided that the yearly rent would be the amount which was (at page 200):

. . . in the opinion of the Minister a fair market rent for the land leased on the terms and conditions contained in this lease, and enjoying all the services, amenities then existing, but ignoring the value of any permanent improvements made on the land by the Tenant. [Emphasis added.]

The central issue in the case was whether the rents imposed by the Minister, which were arrived at by imposing a blanket increase of $720 to the rent of all the lots, was the "amount which is . . . in the opinion of the Minister a fair market rent for the land leased" (Leighton , at page 202). Muldoon J. emphatically rejected the Minister's position as he found the rents resulting from the blanket increase could not possibly represent the Minister's opinion of fair market rent.

The words used in the lease provision in Leighton are quite different than the words at issue here and it is easy to distinguish Leighton on that basis. The issue in Leighton hinged on whether the Minister had acted fairly in unilaterally setting the rent. Justice Muldoon's decision was based on the fact that the Minister did not consider what an appropriate increase was in rent for each individual lot and that imposing a blanket increase was unfair to the smaller properties, which were being hit with a disproportionately large increase in rent. To this extent, I am in agreement with his judgment. However, to the extent that his reasons support the view that Aboriginal land should be treated differently from other land, such reasons should not be accepted.

In sum, Leighton can be easily distinguished from the instant case on the wording of the rent review provision. Indeed, Muldoon J. placed much significance on the fact that the term "fair market rent" was qualified by the words "for the land leased on the terms and conditions contained in this lease". At page 202, he stated that the lease:

. . . does not provide for a fair, free and open market rent nor for rent based on any extraneous commercial market consideration. Far from expanding the expression of "fair market rent" to notions of any free, open or outside commercial markets, it confines the expression to such "rent for the land leased on the terms and conditions contained in this lease".

Thus, the intention of the parties was to set the fair rent at the rent for the value of the leased land as restricted and set by the terms of the lease. The case at bar has no similar wording and consequently, is distinguishable.

2. Golden Acres Ltd. v. Canada

The question in this case was the rent to be paid for reserve land in British Columbia. The lease determined rent in the following way (at pages 124-125):

The yearly rent for each subsequent five year period shall be set by Her Majesty in an amount which has been ascertained by applying a capitalization rate equivalent to the prime rate of the local chartered banks at Kelowna, against the value of the land. The land value shall for this purpose be the market value on the day 90 days before the commencement of the five year period as if held in freehold. [Emphasis added.]

Muldoon J., relying on his earlier decision in Leighton, determined at pages 127-128 that:

. . . the expression "as if in freehold" must be regarded as an artifice contrary to the reality . . . .

So, while the parties to the lease may have chosen or been importuned to write therein the words "as if in freehold" as an exercise of imagination, they did not indulge in the vapours of "an imaginary" market . . . . The lease's notion of "market value" . . . therefore, in both law and equity, must be construed as meaning the value of land in that very restricted "market" comprising comparable Indian lands, for that is the market reality.

Here it is clear that Muldoon J. has interpreted the words used to determine rent in the manner which he feels is fair, and has departed from the clear meaning of the provision. The provision states in crystal clear terms that the "land value" is its freehold value. This was noted by Cullen J. in Rodgers , supra, at page 175:

Thus, Muldoon J., did not literally apply one provision of that lease. With respect to my colleague, I do not believe that this is the proper course of action in this case. The parties have undertaken to express their intentions in the agreement, and although it is poorly drafted in technical legalese, those intentions should be followed, particularly, that the market outside of the reserve is to be used as the source of the data in determining the fair market rent.

I share the view of Cullen J. that Muldoon J.'s approach to the valuation of Aboriginal lands in Golden Acres ignores the clear words of the lease which precisely define the intention of the parties. Thus, I do not find the approach used in Golden Acres to be useful in the determination of our case.

3. Devil's Gap Cottages (1982) Ltd. v. Canada

This case involved the fair rental value for land that formed part of the Kenora Indian Reserve No. 38B which had been set apart for the use of the Rat Portage Indian Band. The lease provided that the rent was to be set at:

. . . the fair market rental value of the demised lands for the purpose herein permitted as at the date of such a review, but excepting thereout and therefrom the value of any permanent improvements erected by the Lessee on the demised land during the term.

Significantly, the lease dictated that fair market rent be determined as follows:

. . . the amount of yearly rental . . . required to be paid for a parcel of vacant land, similar in area and character, but situate outside of the Reserve, to be used for similar purposes as herein permitted and within a radius of not more than 15 miles from the demised premises; and if no comparable premises can be found within such radius then situate closest to the demised land. [Emphasis added.]

The lease also provides that if there are not a sufficient number of comparable rentals in the area, the alternative method of calculating rent is as follows:

. . . the said fair market value of the demised land shall be computed or determined at not less than ten percent (10%) of the market value of parcels of vacant land outside the Reserve as aforesaid, comparable in area and character to the demised land, which were sold or offered for sale during the preceeding [sic] three (3) or five (5) year period, without regard to the value of the improvements.

Since there were no comparable rentals in the area, resort had to be made to the second method of calculating the fair market value, which involved calculating 10% of the market value of "parcels of vacant land outside the Reserve". Strayer J. accepted that the fair value of the land was to be determined by reference to non-reserve land. He did not adopt the position of Muldoon J. in Golden Acres that in the face of a precise definition, Aboriginal land was to be valued in some other manner than other land is valued.

As pointed out by the Trial Judge in our case, the wording of the lease in Devil's Gap differs from the case at bar. However, the decision in Devil's Gap accords with my holding that Aboriginal land is to be valued in the same manner as any other land. It is consistent with the position of the Supreme Court of Canada in Delgamuukw, supra, that Aboriginals are able to surrender their land for valuable consideration. Although distinguishable on the words used in the lease, the result in Devil's Gap is consistent with the modern view on the nature of Aboriginal title.

I note in passing that Strayer J. remarked on the difficulties of valuing Aboriginal land when the preferential zoning treatment accorded to reserve land actually increased its value over comparable fee simple land. The difficulties he noted in determining the resolution of this issue should not confuse the result that Aboriginal land was valued at its freehold value.

4. Rodgers et al. v. Canada

This case involved the valuation of land in Beaucage Park, which is Aboriginal land situated in Nipissing Indian Reserve No. 10. The lease provided that the price to be paid was the "annual fair market rent" of the land. The central issue in this case was the determination of the "annual fair market rent" for the demised land.

The amount of rent was defined in the lease as follows (at page 167):

. . . `annual fair market rent' means the amount of yearly rental at the time of the fixing of rent by the Minister, required to be paid for a parcel of vacant land, similar in area and character, but situate outside of the Reserve, to be used for similar purposes as herein permitted within the vicinity of Sturgeon Falls, Ontario, but if an insufficient number of or no parcels of vacant land outside the Reserve as aforesaid, comparable in area and character to the demised land are found to be leased or to be offered for lease for similar purposes as herein permitted, then the annual fair market rent of the demised land shall be computed or determined at a rate of not less than ten (10) percent of the market value of parcels of vacant land outside the Reserve as aforesaid comparable in area and character to the demised lands. . . without regard to the value of the improvements. [Emphasis added.]

Cullen J. based his determination of the annual fair market rent upon the evidence of the defendant's appraiser. He rejected the evidence of the plaintiff's appraiser who had valued the land by reference to other reserve lands, since this method went clearly outside the prescription of the lease. The learned Trial Judge went on to consider which of three appraisals produced by the defendant's appraiser most accurately reflected the value of the land.

The first report was based on the alternative method of taking 10% of the market value of similar off-reserve land, but was rejected as it compared the subject land to land that was not sufficiently similar. The second report was also based on this alternative method, and Cullen J. found that the off-reserve land used in this report was sufficiently similar to the lands in question. However, this appraisal produced rents that represented a 300% increase over the amount for the last period. The Court rejected this report, despite its conformity with the terms of the provision, because the result it produced was "totally unreasonable". At page 173, Cullen J. stated that the unreasonable result was attributable to:

. . . comparing property for lease on the reserve with residential property for sale in areas off the reserve, and then applying a somewhat arbitrary factor of ten percent, in other words, valuing the subject lots as if they were sold in fee simple and then applying the ten percent factor.

It is evident that Cullen J. could not accept that Aboriginal lands could be valued as fee simple lands, even when this was the express intent of the parties. The problem of valuing the land in accordance with the lease was that "it was just too high" in that "an increase of 300 percent after the first term seems totally unreasonable." Cullen J. recognized that the "methodology conforms with that set out in the lease" but dismissed it because "it produces an unreasonable result". As a result of rejecting the method set out in the lease, Cullen J. accepted the third appraisal report which reduced the value of the reserve land by 40% from its fee simple value. Cullen J. described this 40% reduction as arbitrary but accepted it since the appraiser was an expert and the estimate of the correct deduction was within his expertise.

In my view the result arrived at by Cullen J. cannot be accepted as it departs from the express intention of the parties as exhibited in the terms of the rent provision. The lease required that the annual fair market rent was the amount of rent for a comparable off-reserve plot, that was "similar in area and character" to the reserve land. Cullen J. found that the term "character" used in the lease could not be interpreted "without including the type of holding of the land, as well at its physical characteristics and location." In my view this is a departure from the clear meaning of the words chosen by the parties. The lease provides that the rent is to be the same as the rent for off-reserve land that is similar in character. Thus the term "character" cannot include the "type of holding of the land" since off-reserve land cannot be held in the same manner as reserve land.

With respect, it is my view that where the parties have expressed their clear intention in the lease and where the methodology specified is adopted, the result of that appraisal should be accepted. The parties were free to contract in any manner in which they chose and consequently, deference must be given to their selection. In my view a result which honours the terms of the lease and has the side effect of increasing the rent by 300% is more reasonable than arbitrarily reducing the value of Aboriginal land from land of the same character by 40%.

The importance of focusing the analysis on the intention of the parties rather than the percentage increase cannot be overstated. In many cases involving Aboriginal land, reference to the percentage increase is very misleading. This is true in every case where the rent for the initial period was set below its fair price. In these cases, it would not be surprising that an increase in rent to its fair market value would seem unreasonable. Moreover, consistently undervaluing Aboriginal land below its market value to protect the interest of lessees creates a vicious circle devaluing reserve land, since reference to previously established values are continually made when the issue of Aboriginal land valuation arises.

It is obvious that Rodgers can be distinguished on the words used in the lease. In Rodgers, as in Golden Acres, the Court construed Aboriginal leases so as to undervalue Aboriginal land. I turn now to the most recent case to consider this issue.

5. Morin et al. v. Canada

This case involved a lease for land that was part of the Nipissing Indian Reserve No. 10 in Jocko Point Subdivision. The leases provided for rent review every five years. The rental provision read as follows:

. . . the rental . . . shall be based on the fair market value for the land at that time, without regard to the value of improvements placed thereon by the lessee but having due regard to the value of other demised lands in the area.

Applying the provisions of the lease, the Band obtained appraisals of the fair market value of the lots "without regard to the improvements but with regard to the value of other demised land in the area". The plaintiffs objected to the appraisal and sought a determination of how the true fair market rent for the leased lots should be established. The issue was whether regard should be had to reserve land to determine the "fair market value".

Gibson J. distinguished this case from Rodgers on the basis that in the typical lease in Rodgers there was a definition of "annual fair market rent" which stipulated that the valuation was to be done by reference to non-reserve land only. Since in this case there was no restriction to land outside of the reserve, Gibson J. found that the valuation should include reserve land and found that to ignore reserve lands in the valuation would [at page 146] "ignore the unique nature of Indian lands that has forcefully been identified by Mr. Justice Muldoon of this court in Leighton and Golden Acres." At pages 147-148, Gibson J. concluded:

While I cannot conclude on the basis of the evidence before me, the argument and the precedents cited, that any appraiser engaged in the appraisal of fair market value of the Jocko Point Subdivision lots should be bound to rely solely on the values established for the Beaucage Park lots, I conclude that neither can an appraiser properly ignore the fair market value determinations in respect of those lots. Reference to those determinations is clearly within the stipulation to have due regard to the value of other demised lands in the area of Jocko Point Subdivision, and to fail to do so would be to ignore the concerns by this court, with which I heartily concur, that ". . . Indian land simply cannot in reality attain the value of land in an authentically free and open market".

Thus it is seen that Morin is the last in a series of cases which are based on the premise that "Indian land simply cannot in reality attain the value of land in an authentically free and open market".

As discussed, this principle has already been rejected. What is at issue here is the interpretation of a clause in a contract and more specifically, the intention of the parties regarding the rent to be paid. In the absence of words to the contrary, the valuation of the market value of Aboriginal land should be made in the same manner as any other land. Discounting the value of Aboriginal land on the basis of their sui generis interest in their own land is irrelevant to the determination of rent calculated as a percentage return on a capital investment. If the parties intended to depart from the well-accepted practice of valuing land in long-term leases at its freehold or exchange value, they could, and should have specified this in the lease.

Since I have rejected the correctness of the principle underlying the decision in Morin, I find it has no application in the context of the case at bar.

Conclusion on the meaning of "current land value"

In the present case, the lease provides that for rent review purposes, the land is to be valued at its "current land value". I have concluded that properly construed, this term means the fee simple value of the land. This is consistent with the approach taken in Gulf Oil , supra, and in subsequent cases. The fact that these lands are reserve lands does not, in my view, diminish the market value of the property in question. To hold that the Aboriginal interest in this piece of land has made it worth less than its open market value is an untenable concept.

In accepting the appellants' position, I am cognizant that the respondents will be facing large increases in rent, and I sympathize with their concerns. However, as stated by the learned Trial Judge at page 5 of his judgment:

. . . whether the plaintiffs are to receive what they believe they are entitled to, or the defendants can afford to pay the annual rent, are not considerations for the Court. The fair rent is not a conclusion based on the Court's assessment of what is economically or socially desirable. It is a determination based on the interpretation of the relevant documents and the acceptance of relevant and credible evidence.

In the result, I accept the Trial Judge's conclusion that the hypothetical fee simple value of the average lot is $600,000. For the reasons outlined above, I find that this is the "current land value" referred to in subsection 2(4) of the lease and, consequently, I consider the 50% reduction imposed by the Trial Judge, which he based on the "Indian reserve feature" of the land, to be in error. I turn now to the question of the costs of servicing the land.

II. Does the lease require that the costs of servicing and development be deducted from the fee simple value of the lots to determine "current land value"?

Having determined the fee simple value of the lots in their serviced state, the final issue is whether the cost of servicing the land should be deducted in calculating the "fair rent for the land". The question is again one of construction, hinging on the meaning of paragraph 2(2)(a) of the lease. Below, subsection 2(2) of the lease is reproduced in full for ease of reference:

2(2) The rent for each year of the three succeeding twenty (20) year periods and for the final nine (9) year period of the term hereof, shall be a fair rent for the land negotiated immediately before the commencement of each such period. In conducting such negotiations the parties shall assume that, at the time of such negotiations, the lands are

a) unimproved lands in the same state as they were on the date of this agreement;

b) lands to which there is public access;

c) lands in a subdivided area, and

d) land which is zoned for single family residential use,

and the foregoing assumption shall also be made in the case of any determination of the rent pursuant to the provisions of subparagraph (3) hereof. [Emphasis added.]

Thus, from paragraph 2(2)(a) the lands to be valued are "unimproved lands in the same state as they were on the date of this agreement." The dispute arises over whether "this agreement" refers to the Master Agreement, at the completion of which the lands were unserviced, or whether it is a reference to the lease agreement itself, at the completion of which the lands were serviced.

As noted by the Trial Judge, it is clearly evident that this ambiguity has arisen as a consequence of the parties lifting section 15 of the Master Agreement and inserting it into the lease as section 2 without considering the modifications that were necessary to more precisely demonstrate their intent. However, despite the ambiguity created by the adoption of the wording of subsection 15(2) of the Master Agreement, I believe it is clear that what was intended by the parties was that the land was to be valued in its unserviced form.

I agree with the Trial Judge's conclusion that the costs of servicing must be deducted from the current value of the serviced lots. In my view, it can be readily seen from his thorough review of the arguments presented by the parties and from his reasons that "this agreement" must mean the Master Agreement.

The starting point for his position is the incorporation by reference of the Master Agreement in the preamble of the lease. The relevant portion of the preamble states:

AND WHEREAS the land described in the said Master Agreement has been subdivided, and serviced as set forth in the terms of the said Agreement, . . .

NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the rents, covenants, and agreements of the Lessee as set forth in the Master Agreement between the Minister and the Lessee, the Minister HEREBY DEMISES AND LEASES unto the Lessee that certain parcel of land situate, lying and being in the City of Vancouver.

It is clear that the Master Agreement is incorporated by the first sentence reproduced above. Indeed, it was always the intention of the parties that the lease agreements would correspond to the "Draft Lease (Residential)" that was appended as a schedule to the Master Agreement.

The Trial Judge based his conclusion that subparagraph 2(2)(a) refers to the Master Agreement on the following four reasons, which I find to be persuasive of his view.

First, the view that "this agreement" refers to the Master Agreement is consistent with the preamble of the lease which describes the land as being subdivided and serviced. If "this agreement" meant the lease agreement, there would be no need for paragraph 2(2)(c) since the preamble of the lease already identifies the land as being subdivided.

Second, if the parties intended "this agreement" to refer to the lease, they could have easily worded paragraph 2(2)(a) to read "unimproved subdivided and serviced lands" to reflect the state of the land which is identified in the preamble of the lease.

Third, the rent paid in the first 30 years was based on the unserviced value of the land and in the absence of an explanation, it is extremely doubtful that the intention of the parties was to include the cost of servicing in subsequent rent reviews.

I find the final reason provided by the Trial Judge [at page 27] particularly convincing:

Fourth, construing the date of "this agreement" as being the date of the Master Agreement accords with reality. The Band provided unimproved, undeveloped land. The developer expended the funds and assumed the risk of development, including servicing costs. I have difficulty thinking that the parties intended that at rent review, the Band was to receive compensation in respect of servicing and development for which it did not pay and for which it was not responsible.

At the outset, the Musqueam Development Co. Ltd. was obliged to provide for the servicing of the lots. After doing so, the developer assigned the lots to the individual lessees for consideration; it can only be assumed that the cost of servicing was passed on to the lessees. Counsel for the appellants argued that the Band had, in effect, paid for the servicing because the evidence of one of its witnesses was that the Band had taken a reduction in the price of the lands since they were not serviced. This, however, is not a tenable argument. The Band, if they receive rent based on the fee simple value of the bare land, will be receiving a rent based on the full value of their asset. This is the extent of their entitlement.

This is indeed the most logical view as it is extremely doubtful that the Band should be compensated for servicing provided at the developer's expense. It is a well accepted principle that in the absence of wording to the contrary, a landlord should not benefit from the improvements made by and at the expense of the tenant. This was delineated in Queen (The) in right of Canada and Lynnwood Marinaland Ltd., Re (1971), 20 D.L.R. (3d) 589 by the British Columbia Court of Appeal. At page 591, Davey C.J.B.C., stated this principle in the following way:

The rent payable during the term is for the property leased to the lessee, that is, the water lot. Under the lease the tenant acquired a leasehold estate upon which he was entitled to make these improvements. To make him pay an increased rent for improvements which he had made during the term of the lease would be to make him pay rent upon a value created by his authorized expenditures, and so diminish the worth of his leasehold estate. I think, if such a result was intended, it should have been expressed in clear language that is wanting.

Here the Band did not pay for the servicing and thus should not be compensated for it.

Finally, a consideration of paragraph 2(2)(a) as a whole provides more support for the view that the lands are to be valued in their unserviced state. I find the use of the word "unimproved" accords with the view that the costs of servicing are not to be included in the calculation of the "fair annual rent". Counsel for the appellants argued that services were not "improvements" within the meaning of that term but was unable to provide any authority for this view. In fact, there is authority to the contrary. For example, Black's Law Dictionary , 6th ed., (at page 757) defines "improved land" as "[r]eal estate whose value has been increased by landscaping and the addition of sewers, roads, utilities, and the like". Similarly, the term "improvement" generally refers "to buildings, but may also include any permanent structure or other development, such as a street, sidewalks, sewers, utilities, etc.". Thus, the position I have taken is consistent with the plain meaning of the phrase "unimproved lands".

For the reasons of the Trial Judge and my supplemental comments, I agree that all servicing costs must be deducted from the fee simple value of the bare lots to determine the "current land value". Thus the cost of servicing will be deducted from the figure of $600,000 to arrive at the final value for the average lot.

At trial, the respondents' expert claimed that the services amounted to $117,818 per lot. The Trial Judge accepted his method of calculation, some components of which were based on the "current land value" of the lots. Since I have increased the "current land value" from the figures determined by the Trial Judge, these servicing costs will increase. Counsel on the appeal indicated that they could agree on the amount of these costs.

Conclusion

In the result, the appeal should be granted in part. The "current land value" of the subject lots should be determined in the manner indicated by the Trial Judge, except that the full fee simple value of the bare lots will be used, rather than the figures reflecting the 50% deduction. The cost of servicing these lots should be deducted from these values in the amount agreed upon by the parties. The resulting figure should form the "current land value" of each lot. As prescribed by the lease, 6% of the "current land value" for each lot is the "annual fair rent" for the 20-year period commencing June 8, 1995. The costs of this appeal should be awarded to the appellants.

Within thirty (30) days from the date of these reasons and pursuant to rule 394 of the Federal Court Rules, 1998, [SOR/98-106] counsel for the appellants shall prepare for endorsement a draft judgment giving effect to these reasons (including costs) and seek approval as to form and content from counsel for the respondents and submit the same to the Court for signature. If the parties cannot agree as to the form and content of the judgment within the time specified, or if one or both parties consider it necessary to seek the Court's directions with respect to the preparation of the draft judgment in accordance with these reasons, and in particular the calculation of servicing costs to be deducted, either party may bring a motion for judgment in accordance with rule 369 of the Federal Court Rules, 1998.

Desjardins J.A.: I agree.

Robertson J.A.: I agree.

¹ This figure was not disputed by either party at the hearing of the appeal.