Turner Drake Blog

Residential fires are soaring, causing millions of dollars in damages, and claiming the lives of many. While this headline may sound shocking, this has become a catastrophic reality for many apartment owners across Canada and worldwide. It’s quite clear how the ongoing pandemic has changed our daily lives in a socio-physical sense - most notably the way in which we interact with others, and how we navigate the shopping malls and hallways in our apartment or condo buildings. What many have not considered however, is the increased risk of fire-related emergencies resulting from higher daytime occupancy levels in multi-unit residential buildings.

National Fire Prevention Week runs from October 4th to 10th. This might not be something you typically note in your calendar, however, if you are an apartment owner or manager, you should! If you have yet to equip your building and tenants with clear evacuation plans, or reviewed your latest fire-insurance policy, these items should be top of mind.

It goes without saying that the COVID-19 pandemic has directly and abruptly affected both short-term cash flow and long-term economic prospects for real estate owners in the Atlantic region. Commercial and investment property has been particularly hard-hit, with hospitality and retail property profoundly (and in many cases, irreversibly) impacted. 

Not surprisingly, my colleagues and I field multiple inquires a week respecting the potential for property tax relief.  Unfortunately, we find ourselves delivering the unwelcome news that there’s very little immediate aid available; in some cases, not for years to come. A little background will help to explain why this is so.

Property taxes are the product of a property’s assessed value (a point in time estimate of market value which is calculated as of a legislated date: in assessment parlance, the “base date”), and the applicable tax rate.  In most Atlantic Canadian jurisdictions, assessment and taxation are separate functions.  Assessed values are calculated by assessing authorities (the Property Valuation Services Corporation in NS; Service New Brunswick in NB; the Department of Finance in PEI; the Municipal Assessment Agency and the City of St. John’s in NL); mil rates are set (and taxes collected) by the municipalities.

In providing relief, Atlantic Canada’s assessing authorities and its municipalities are stymied by legislative authority that varies from jurisdiction to jurisdiction.  The ability for the pandemic to be reflected in assessed values (which, in all four provinces, are to market value) depends to large degree on the base date:

On the taxation side, we have prepared a reference guide detailing the myriad of programs available in various Atlantic Canadian cities, towns and municipalities[1].  It is available on our websites at https://www.turnerdrake.net and https://www.turnerdrake.com/products/propertytax.asp. The vast majority have been limited to extension of tax deadlines and reductions in interest rates applied to arrears.

There is little that can be done with respect to the tax rate applied to your property[1]; your tax management strategy should therefore focus on your assessed value.  What will be the impact of the pandemic on values?  In my opinion, few property types will escape unscathed, and for many, recovery will be protracted. While I don’t have a crystal ball, we do have a rear view: experience in the aftermath of historic cataclysmic events- e.g. the recessions of the early 1990s and 2007-2009; 911; and SARS, for example- will all provide guidance in establishing the penalties on the value of ICI real estate.

Property taxes can be an enigma under conventional circumstances. COVID-19 has created a property tax quagmire. My colleagues and I would be happy to provide advice on a property-specific basis.

Have you ever gazed over a decrepit old building, or vacant parcel of land, thinking to yourself “This would be the perfect place for…”

Taking this vision and transforming it into reality is the premise behind an as-if-complete valuation. This form of valuation provides a current or prospective (future) value opinion of a development prior to it being constructed. In addition to undeveloped properties, real estate owners and developers can also utilise this form of valuation to determine the contributory value of renovations to an existing property.  

Owners and developers typically require this form of valuation as an input for mortgage financing and proceed in one of two ways: The property can be valued as though it were complete as of the effective date of the report or alternatively; it can be valued as at an assumed date of completion. Regardless the path, the values presented rely heavily on the standard described in the report, and the proposed timeframe of the development.

Working together with architects, engineers, lenders, designers and planners is an integral part of orchestrating the materials required for this form of valuation. Building plans and renderings paint the backdrop while finish schedules, cost estimates and operating projections provide focus to the finer economic details required for these projects. 

Financing details are based on the lender’s relationship with the developer together with their experience completing similar developments, financial position, cost of the project and overall loan-to-value ratio. Once the as-if-complete value of the property is determined the bank will typically schedule formal draws for the various milestones of the development. For example; the first milestone may cover the cost of excavation and site work, foundations, framing and roofing. This is where experience, organisation and timing are key to the financial and fiscal success of the project.

Often developers run into issues during initial milestones, where projected budgets are exceeded and the initial draw does not cover the costs allocated to such milestones. This can occur as a result of unforeseen circumstances, an unexperienced contractor or builder, fluctuating material costs etc.  If the developer does not have access to an outside source of funds to complete this work and proceed to the next milestone, lenders will sometimes issue a “swing-line” or short-term, interest-only line of credit to see them through to the completion of the milestone at hand. Progressing through the first and second milestones of a project are often the most difficult as they can be the most capital intensive. Paying close attention to cash flows and budget are paramount to ensuring the financing terms are met and the project is completed as scheduled.

While construction pushes forward and developers achieve various milestones, it is typically the responsibility of the valuation consultant to confirm the work completed falls in-line with the details described in the report. Various meetings and site visits are completed throughout the project, and progress reports filed to the lender as per the scheduled incremental milestones leading up to, and including, the completion of the project.

New developments and renovations are susceptible to a number of different variables that could easily alter a project cost or timeline. Such variables can heighten the risk of a project; therefore, including proper contingencies and mapping out the development in fine detail will aid in minimising risk and provide additional comfort to lenders considering your project. 

The ongoing pandemic has had a tremendous effect on the world and although primarily negative in nature, many clients have taken this additional time to dream big and “put the wheels in motion.” Formerly neglected ideas are re-surfacing and with the help of this form of valuation we are playing a key role in bringing these ideas to fruition. 

Patrick Mitchell is a consultant in our Valuation Division and has extensive experience in the valuation of projects that are in early stages of development, or have yet to break ground. Patrick’s passion for design and architecture has strengthened his relationships with local architects, builders and developers. For more information about our range of Valuation® services, or more details concerning as-if-complete valuations, feel free to contact Patrick at (902) 429-1811 or pmitchell@turnerdrake.com

In truth, very few people get the chance to suffer the trauma of an expropriation.  You have to be in the wrong place at the right time. But if and when your opportunity does come, your best hope is to emerge financially “whole”, albeit a little battle scarred, confident that the lawmakers have your back through their expropriation legislation.

Expropriation legislation has its roots in the Dickensian days of the English railway boom of the 19^th century, a time of rapid industrialization that needed legislative “devices” to hurry things along. Reforms followed until eventually the individual was adequately protected against the state. In Canada, legislative reform came along in much more modern times, but by the 1970’s most provinces had a pretty decent code of expropriation compensation in place.  And Nova Scotia was among the best of the best.  Its 1973 Expropriation Act fully embraced the commendable philosophy that because expropriated owners were being deprived of their property against their will, they should not be treated as typical litigants. Instead they were entitled to be satisfied – at the authority’s expense – that they were indeed being treated fairly. The playing field was level: all was good.

Alas, things have changed since then. Numerous subtle and not-so-subtle changes have been introduced over the past 25 years that have tilted the playing field.  And always in the same direction. Perhaps the biggest changes, in the Nova Scotia Expropriation Act at least, have been with regard to the expropriating authority’s legal obligation to reimburse a claimant’s fees. The original safety net was contained, in plain and simple language, in section 35 of the original Nova Scotia Expropriation Act.  It entitled an expropriated land owner to be reimbursed for “the cost of one appraisal and the legal and other costs reasonably incurred…in asserting a claim for compensation”. Checks and balances protected the public purse from frivolous abuse, but the basic intent was that, win, lose or draw, an owner – rich or poor - was entitled to be heard at the authority’s expense. 

The first change came in 1996. Section 35 was abruptly repealed and in its place stood a re-enacted section 52. Things became considerably more dicey for the property owner with respect to the reimbursement of costs, which were now only assured if the owner proceeded to a hearing and won outright.  The owner was now in much the same position, for cost purposes, as a typical litigant who chooses to engage in combat.  Of course, there is nothing preventing an amicable settlement without resorting to a hearing – and the vast majority of expropriations are settled that way – but the safety net of section 35 was removed.

2019 saw more changes when the Nova Scotia government introduced a Tariff of Costs to control the amount of appraisal, legal and other experts’ costs that an expropriating authority must legally reimburse. Henceforth the amounts that combative property owners can recover are prescribed by law.  With respect to appraisal fees, the allowable amounts depend on the complexity of the case (measured against a rather loosely defined benchmark called “ordinary difficulty”).  In some cases the Tariff will be sufficient. In other cases it will fall short.  The same with the reimbursement of legal fees.  Claimants may very well have to reach into their own pockets to pursue their case from now on, as would a typical litigant. If you think that sounds a tad unfair, you are right.  After all, no one chooses to be expropriated. And from my experience it is always more time consuming, and therefore more costly, to represent a claimant than it is to represent an expropriating authority. For property owners, this is a once-in-a-lifetime event.  The rules have to be explained; facts sorted from fiction; expectations managed. Expropriating authorities, on the other hand, can draw on their in-house resources and often have a wealth of experience.  The conversations are different.

And it’s not just the issue of cost reimbursement that has been tilted. Another amendment in 1996 denied compensation for loss of access along provincial highways when alternative access is being provided by new service or access roads. An odd, and as far as we know unique, twist to the Nova Scotia compensation code. More recently, a 2019 amendment introduced a new definition of Disturbance to the Nova Scotia Expropriation Act, a particular head of claim that arises when a claimant has to relocate.  The old words had withstood the test of time, undefined but “undisturbed” for a generation. In Nova Scotia it is now very narrowly – and again, as far as we know, uniquely - defined and will inevitably defeat claims that have previously been upheld.  Indeed that’s the whole point.

Changes to the Expropriation Act in Nova Scotia have usually been introduced as knee jerk reactions following adverse decisions by the courts, introduced as helpful “clarifications” to help them get it right next time. Challenging an expropriation and pursuing a claim through the courts has never been for the faint-hearted.  But these days you might need a war chest with no guarantee that you will emerge financially “whole”. 

Lee Weatherby is the Vice President of our Counselling Division. If you'd like more information about our counselling services, feel free to contact Lee at (902) 429-1811 or lweatherby@turnerdrake.com

COVID-19, despite months of rumblings that it might be on its way, arrived rather abruptly on our doorstep.  Collectively, we shifted from theoretical preparations “in case” and “if” the virus impacted us directly, to many people working from home, a transition that happened within days in some cases.  Ready or not, here it came. 

Now, just (“just”!) a couple of months later, the next transition is upon us, as the economy reopens and we figure out, industry by industry and company by company, what the new normal will look like.  It’s a question on the minds of many, and one my department has spent a fair bit of energy contemplating from our makeshift at-home workstations (check out this CBC article for a peek at mine…kids and various home schooling accoutrements banished for the deception of professional appearances).  The short answer is that it is too soon to tell, though there are rumours and rumblings that work-from-home will continue for some people and/or companies (demand for that may come from either end of the equation).

The longer answer is that major recessions usually result in a sea change in how office space is utilised.  After the 1990 recession, which coincided to a certain degree with the advent of cell phones and the internet, there was a rise in “telecommuting”, some people working from home, and “hot desking” where different people used the same desk at different times of the day.  Cubicles rose in prominence over individual offices (as evidenced by every 90s movie that takes place in an office).  Post-2008 recession, the movement was to open concept offices, with bullpen style areas where everyone has a laptop and a cell phone and shares common space and/or works from home part of the time.  Each of these shifts, from individual offices to cubicles to bullpens, equates to fewer square feet of office space per employee…which in turn equates to lower costs for companies, for whom office space is often the single largest expense after HR. 

The logical next step in the continuum is an increase in employees working from home, with an overall reduction in the amount of office space leased.  This could be driven by employees who find they like shedding their commute and are productive at home (and expect to be more so when schools and daycares reopen).  It could also be mandated by employers who find that cutting workplace expenses - from rents to coffee supplies - can come without significant detriment to their business model. 

There are some companies for whom this is a viable option, but for others, it is not practical.  Will confidential meetings between lawyers and clients take place in lawyers’ basement playrooms, or out in public at coffee shops?  Unlikely.  Further, many industries rely on the sharing of ideas to innovate and problem solve.  The benefit of casual conversations and impromptu collaborative meetings is worth the expense of working together in one location.  So there will remain demand for professional office space from certain sectors for a variety of sound reasons.   

Worth noting, too, is the consideration that the pre-COVID bullpen office set up has significant drawbacks until (unless) a vaccine becomes available: shared space is not practical from a public health perspective, and may redirect those who can’t realistically work from home long term, to shift back to individual offices that ameliorate physical distancing.  That is: more square feet of space per employee.    

And then the final elephant in the room is the total elimination of demand for office space from companies which do not survive the economic fallout of the pandemic.  It is too soon to measure how extensive this will be, but there certainly will be casualties of a recession that may well be deep and prolonged. 

So, coming full circle to the short answer: even with lots of companies opting to return to offices, a decline in overall demand for office space is certainly expected, probably over the next couple of years.  Because leases are typically signed on 3-5 year terms (or longer), a “shadow” vacancy of leased-but-vacant space could surface first (i.e. space for sublease), though if the original lessees can’t pay, the space is effectively just vacant regardless of any contractual debt on it (distinguished from, for example, a healthy company who chooses to move to a new office building when they still have a year left on their lease).  With increasing vacancy, landlords will opt first for rental incentives to entice tenants to their space, and there will be downward pressure on net rental rates.  Our June Market Survey is underway now…stay tuned in the coming months for the early indicators of impacts on the market.  

No one wants to own a “dirty” property; it is important to both Buyer and Seller that they understand how a sale can be impacted by the discovery of contamination. From the Seller’s standpoint, they may need to remediate the property prior to selling. Remediation is costly and time consuming – it can take a year or longer to test the soil and groundwater, adequately address the contamination, and ensure that the site is fully remediated. The Seller will incur carrying costs, such as property taxes, during the remediation.

There will be other problems too, in addition to the time delay. The Buyer’s lender will rarely finance a dirty property and will almost always require a Phase 1 environmental assessment to confirm that it is not contaminated. In most cases it will be the Buyer who commissions the Phase 1 report. This consists of historical research of site… do past uses point to possible contamination from chemicals or hydrocarbons?...  was the property previously used to house a gas station?... were manufacturing or service uses such as dry cleaning, sand blasting (lead paint), etc. conducted on the property?... The term “mad as a hatter” originates in the fact that hat manufacturing utilised mercury as part of the process, with unfortunate consequences for the participants. The Phase 1 audit will also investigate existing and surrounding property uses that may have contaminated the site; for example a bus depot whose leaking underground storage tanks have resulted in contamination of the ground water and its concomitant migration into surrounding “downstream” properties. It will also consider the building materials used on site…. are the plaster, or ceiling tiles, likely to contain asbestos; the fluorescent lights, PCBs; the paint, lead; what other horrors lurk in the building structure? If anything suspicious comes out of this research, the Phase 1 report will recommend a more invasive Phase 2 investigation requiring drilling or removal of building material for laboratory investigation.

A Phase 1 report can cost anywhere between $1,200 and $3,000 for most small to medium sized properties. Since a Phase 2 environmental assessment comprises soil and ground water testing, more intrusive testing and the use of heavy equipment, this study can easily cost over $20,000. Should the Phase 2 study identify contaminants, the level of contamination and the intended use of the property by the Buyer, will determine the degree of remediation required. If contaminants exceed the maximum allowable level, the Department of Environment has to be notified and they will issue an order to remediate the property within a specified timeline.

Remediation can be time consuming. Once the contaminated soil has been removed from the property, an environmental consultant will set up “test events” whereby the soil will be re-tested to confirm that the remediated property falls within the specified guidelines. These test events usually occur once every three months over a year long time period. However, if the groundwater below the property is not static, the test events may register that it is “clean” during one test and then show contamination at the next test event, as the groundwater migrates back and forth.  

The intended use of property also determines the overall impact of the contamination and the level of required remediation. For example, a former gas station site  to be sold for apartment development requires a higher level of remediation than a site to be utilised for industrial purposes…. properties intended for residential use are held to a higher environmental standard than properties to be occupied for commercial uses. 

Since the Seller is in the chain of title they may be held liable for contamination after the property has been sold… even though they may not be the source of the contamination! This is why mortgagees, such as banks, will rarely foreclose contaminated property… and why governments would be wise to avoid expropriating pulp mills (Government of Newfoundland take note!). It is therefore to the Seller’s advantage to establish the present extent of contamination (if any) to safeguard themselves for the future. If a property is sold and is subsequently discovered to be contaminated, the Seller will need to establish that it was “clean” when they sold it, otherwise they could be held liable for the contamination even if they did not cause it.

A Buyer is similarly advised: If they purchase a property without undertaking the proper environmental assessment to confirm that the property is “clean”, they are at risk; they could be held liable for the contamination, even though they did not cause it, and be ordered to remediate the site at significant cost. Unless the Buyer is a risk seeker they should invest in hiring an environmental consultant as part of their overall property purchase due diligence.

The moral of this story? Don’t be penny wise and pound foolish! It matters not whether you are a Buyer or Seller: a few thousand dollars spent on an environmental audit can save you hundreds of thousands in potential remediation costs. 

Ashley Urquhart is the Senior Manager of our Brokerage Division.  She has a vast network of contacts and would be happy to assist you with all your leasing needs. If you would like more information, please feel free to contact Ashley at (902) 429-1811 or aurquhart@turnerdrake.com.

As summer edges near, warm days pull our minds and hearts outdoors - reminding us of the natural areas that make Nova Scotia a beautiful place to live.  From the maple-dappled shores of the St. Marys River to the sweeping rocky coastlines of Yarmouth’s Tusket Islands Nova Scotia has an abundance of natural beauty spanning countless ecosystems.  These natural spaces from a web of protected and semi-protected landscapes across the province ranging from provincial nature reserves to prime agricultural lands protected in perpetuity from development beyond a plough’s furrow.

Canada’s legal concept of ‘owning’ land, though heavily based in a euro-centric view culturally, does provide tools to assist in the protection of our natural environment.  Most of the time when someone purchases a property what they are actually paying for is a registered legal interest in the property which allows them to use it unencumbered by others (the “Fee Simple” Interest). However, there are many ways to split up this interest and each comes with a value reflecting what the interest holder can and cannot do on the property.  For example, by placing a restrictive covenant on lands, or placing ownership with a land trust, it is possible to prevent the spoilage of natural places.

Valuing a partial interest in land is a critical step in protecting wild areas through the use of Land Trusts, which are not-for-profit organisations dedicated to the protection and stewardship of special places including rare species habitat, areas of historic cultural significance, and precious agricultural land.  Sometimes these Land Trusts acquire property outright through donation or purchase, and other times an interest is granted to the Land Trust as a Conservation Easement which details what is – and is not – permissible activity on the land.  In this way, these Land Trusts have steadily grown a network of protected places over the course of many decades.

For many landowners, the decision to donate land is driven by a love of nature or a desire for a lasting legacy.  As an added incentive there can be tax breaks associated with these ecological gifts – the value of which must be determined by a professional appraiser.  In this way Turner Drake has played a quiet (but important) role in the protection of an abundance of properties which ultimately contribute to Nova Scotia’s roster of important wild places.  We are fortunate that through this process, we have walked across places few Nova Scotians have seen or heard of, but which nonetheless provide safe haven for many plants and animals.

The season for outdoor exploration is here and given current restrictions in urban-based gatherings Nova Scotians have a unique opportunity to explore their surroundings and connect with their natural environment in a meaningful way.

Just how important is proper fire safety planning?  In addition to potential loss of life and property damage, lack of proper Fire Safety Plans can land you with a hefty fine…or even potential jail time!

Section 2.8 of the National Fire Code of Canada states that any building required by the National Building Code to have a fire alarm must also have an approved Fire Safety Plan. Halifax Regional Municipality By-law F100 also states that, “Every person who contravenes or fails to comply with these regulations or fails to carry out an order made under these regulations, is guilty of an offence and is liable on summary conviction, to a fine of not more than $5000, or in default of payment of the fine, to imprisonment for a term not exceeding six months”.

Concerned? Turner Drake’s Lasercad® Division can prepare two types of Fire Plans to help manage your properties’ fire safety concerns: Fire Emergency Plans and Fire Exit Plans.

Pictured below are examples of both types of plans prepared for a local client. Fire Emergency Plans provide a detailed layout of each floor in a building, showing the location of all demising walls, doors, windows, plumbing fixtures, etc. In addition to providing a detailed layout of the space, Fire Emergency Plans indicate the precise location of all implements relevant to fire safety. The lower ground floor of a Halifax Heritage Building pictured below illustrates the exact location of all fire safety devices on the floor, such as Fire Extinguishers, Smoke Detectors, Exit Signs, Pull Stations, etc.

Fire Exit Plans are prepared to show the general layout of a floor’s common area accessible to the general public, and indicate key features necessary to ensure a safe evacuation in the event of a fire. Pictured below is a Fire Exit plan prepared for the ground floor of the same building.  The plan clearly indicates the location of the Fire Exit Plan, marked “You Are Here”.  Additionally, it shows readers the location of all Pull Stations in the event these must be activated to trigger the building’s fire alarm. Most importantly, Fire Exit Plans guide readers to safety via proper evacuation routes while also highlighting all emergency exits, and applicable Muster Points for the assembly of building occupants at a safe distance from the building.

If your building exceeds 3 storeys and does not currently have Fire Emergency or Fire Exit Plans please give us a call. Our Lasercad® team would be happy to discuss how we can help improve your building’s Fire Safety while also answering any questions you may have regarding local safety requirements.