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Friday, October 15, 2010

How much should it cost to rent land located underneath power lines?

In 1997, The Manitoba Hydro-Electric Board (“Manitoba Hydro”) leased land beneath Manitoba Hydro transmission lines to Chuck Arnason Golf and Sports Ltd. (“Arnason”). The rent was set at $6,000 per year, subject to a rent review every five years based on a formula in the lease.  In 2006, The Manitoba Housing and Renewal Corporation (“the MHRC”) announced it would expropriate Arnason’s lease, which it ultimately did in May 2009.  In early 2008, relying on an appraisal of the MHRC, Manitoba Hydro raised Arnason’s rent, for the third five‑year period, tenfold to approximately $60,000 per year. Arnason said this was wrong and sought a declaration from the Manitoba Court of Queen's Bench regarding the interpretation of the renewal formula in the lease.

The renewal formula was as follows:
3. Future rental rates shall be established by means of the following formula: The Lessor shall determine the current market value of the leased land (as vacant) using standard appraisal practices of the Appraisal Institute of Canada. … [emphasis added]
Arnason argued that the formula should be interpreted to be subject to Manitoba Hydro's continuing use and interest in the land for electrical distribution and transmission lines and communication lines.  Manitoba Hydro and the MHRC countered that "as vacant" meant there should be no consideration of the use of the land by Manitoba Hydro (which would devalue the land for the lessee and result in a lower level of rent). 

Following an in-depth analysis of the lease contract, the Court concluded that future rent was to be determined on the basis of the following assumptions:
(a) future rent is to be based on the current market value of the leased land;
(b) the current market value shall take into account, or be subject to, the leased land being a “secondary use of the land”, always subject to the primary use of the leased land being Manitoba Hydro’s continuing operations and use as more fully described in the lease’s preamble;

(c) the current market value shall consider the leased land zoned as agricultural, or such other zoning that may be applicable considering Manitoba Hydro’s continuing operations and use as more fully described in the lease’s preamble; and

(d) other than Manitoba Hydro’s continuing operations and use as more fully described in the lease’s preamble, the leased land is vacant of any improvements.
In other words, the Court agreed with Arnason that the "as vacant" value of the land must include consideration of Manitoba Hydro's ongoing use of the land.  "As vacant" meant vacant of any improvements over and above the Manitoba Hydro improvements. 

Read the decision at: Chuck Arnason Golf and Sports Ltd. v. The Manitoba Hydro-Electric Board et al.