Compensation appears to be a stumbling block for completing involuntary designations, as this could expose local governments to potential unexpected and unwanted expenses (and possible arbitration). Many property owners also have a fear of designation, as they perceive this process could negatively affect market value.
However, the evidence suggests a heritage property will not decline in value, and many local governments use waivers to avoid unpleasant surprises.
As mentioned elsewhere in this guide, the relationship of property valuation and designation and register listing has been explored in a number of studies. While the comparisons are challenging, the evidence indicates heritage-designated properties are more likely to increase in commercial value.
Perhaps the most compelling research comes from Robert Shipley, who wrote in Heritage Designation and Property Values: Is there an Effect?:
“Almost 3,000 properties in 24 communities were investigated, in what is believed to be the largest study of its kind ever undertaken in North America. It was found that heritage designation could not be shown to have a negative impact. In fact, there appears to be a distinct and generally robust market in designated heritage properties. They generally perform well in the market with 74% doing average or better than average. The rate of sale among designated properties is as good or better than the ambient market trends and the values of heritage properties tend to be resistant to down-turns in the general market.” (source)
It should be noted that many local governments put into place a waiver that removes the potential obligation of compensation. The District of West Vancouver used the following wording in a heritage designation bylaw (source):
“…the owner has waived any entitlement to compensation to which the owner would be entitled to by section 613 of the Local Government Act should the designation effected by this bylaw reduce the market value of the Property.”
The City of New Westminster addressed the waiver by publishing a general guidance:
“… a property owner volunteers his or her property for heritage designation, the City requests that the owner waive all compensation claims by submitting a signed “Compensation Waiver” form.”
The Islands Trust took a slightly different approach:
“Trust Council will consider approval of a local heritage designation bylaw only if a budget item for compensation specific to that property has been identified or if the owner of the property has agreed through legal instrument that compensation will not be sought.” (source)
Following are the clauses taken from the Local Government Act that pertain to compensation for loss of market value, plus commentary in the righthand column.
613 Compensation for heritage designation
If a designation by a heritage designation bylaw causes, or will cause at the time of designation, a reduction in the market value of the designated property, the local government must compensate an owner of the designated property who makes an application under subsection (2),
a) in an amount or in a form the local government and the owner agree on, or
b) failing an agreement, in an amount or in a form determined by binding arbitration under subsection (4).
The local government is obligated to compensate a property owner for the loss of market value. It does not suggest how the decline in value will be determined or proven to be caused by the designation.
Note, monetary compensation is not specified; it is understood other forms of compensation are possible.
The local government and owner can agree on an amount of compensation, or they can go to arbitration.
Although the LGA does not suggest the use of a waiver, it is understood this is a legitimate option, as noted above. Heritage Conservation: A Community Guide (published in 1994 shortly after the adoption of the current LGA) states, “If a property owner waives the right to compensation, the local government prepares a waiver form and has it signed by the property owner and local government officials.” (source)
The owner of a designated property may apply to the local government for compensation for the reduction in the market value of the designated property.
The owner has permission to make an application for compensation.
An application under subsection (2)
a) must be made, in order for the owner to be entitled to compensation under this section, no later than one year after the heritage designation bylaw is adopted, and
b) may be made before the heritage designation bylaw is adopted.
An application for compensation can be made before the designation is adopted or up to one year after the adoption of designation.
If the local government and an owner are unable to agree
a) that the owner is entitled to compensation, or
b) on the amount or form of compensation,
c) then either the local government or the owner may require the matter to be determined by binding arbitration under the Arbitration Act.
An arbitration under this section must be by a single arbitrator unless the local government and the owner agree to the appointment of an arbitration panel.
The arbitrator or arbitration panel, in determining whether the owner is entitled to compensation and the amount or form of compensation, must consider
a) financial and other support available for conservation of the designated property, and
b) any other benefits that are available because of the designation of the property.
Arbitration is an option if an agreement between the local government and the owner is not possible.
A brief description of the arbitration process is provided.
Compensation must not be paid, and an arbitration must not continue, if the local government defeats or decides not to proceed with the heritage designation bylaw.
If the designation process is not completed, compensation will not be made to the property owner.
Nothing in this section authorizes the local government to give any financial or other benefits to an owner except that which is commensurate with the reduction in the market value of the designated property caused by that designation.
Loss of market value is the only reason a local government could be required to compensate a property owner.
This section does not apply with respect to property that, immediately before the adoption of the heritage designation bylaw, is already designated under a heritage designation bylaw or under section 9 of the Heritage Conservation Act.
Compensation (in this situation) does not apply if the property is previously designated under the Heritage Conservation Act.