Allen Kim

The plaintiffs, owners of a five-unit residential rental property, sought damages for property loss and lost rental income after their property was rendered uninhabitable due to adjacent condominium construction by the defendant Tega Homes Developments Inc. The trial focused solely on damages, with liability to be determined separately.

The court rejected the plaintiffs' claim for damages based on the cost of rebuilding, finding no genuine intention to rebuild and that such costs would be disproportionate to the property's market value.

Instead, damages were assessed based on the diminution in the property's value, along with an award for lost rental income.

The court also found that the plaintiffs had no duty to mitigate by purchasing a replacement property given their circumstances and the defendants' lack of initial compensation. interesting_citations_summary: > This decision provides a detailed application of the principles from *James Street Hardware and Furniture Co. v. Spizziri* regarding the measure of damages for torts affecting land, particularly the "reasonableness of the plaintiff's desire to reinstate the property" test.

The court distinguishes between properties with unique personal or business value, where reinstatement costs may be reasonable, and income-generating investment properties, where diminution in value is often the appropriate measure.

It emphasizes the plaintiff's burden to provide reliable evidence for damage calculation and discusses the duty to mitigate losses, noting that plaintiffs are not required to undertake speculative ventures or assume significant risk, especially when defendants have not provided initial compensation. final_judgement: > The court awarded the plaintiffs $847,390 for property damages based on diminution in value, including allowances for demolition and helical piles.

It also awarded $236,323.26 for lost rental income from June 1, 2011, to December 31, 2016, subject to adjustment for insurance reimbursements.

The plaintiffs' claim for damages based on the cost of rebuilding was rejected. winning_degree_applicant: 2 winning_degree_respondent: 2 judge_bias_applicant: 0 judge_bias_respondent: 0 year: 2016 decision_number: 5448 file_number: "12-53886" source: "https://www.canlii.org/en/on/onsc/doc/2016/2016onsc5448/2016onsc5448.html" cited_cases: legislation: - title: "Residential Tenancies Act, 2006, S.O. 2006, c. 17" url: "https://www.ontario.ca/laws/statute/06r17" case_law: - title: "James Street Hardware and Furniture Co. v. Spizziri (1987), 62 O.R. (2d) 385 (C.A.)" url: "https://www.canlii.org/en/on/onca/doc/1987/1987canlii4172/1987canlii4172.html" - title: "Harbutt's “Plasticine” Ltd. v. Wayne Tank & Pump Co. Ltd., [1970] 1 Q.B. 447" - title: "Safe Step Building Treatments Inc. v. 1382680 Ontario Inc., 2004 ONSC 35054" url: "https://www.canlii.org/en/on/onsc/doc/2004/2004canlii35054/2004canlii35054.html" - title: "Strata Corp. NW 1714 v. Winkler (1987), 20 B.C.L.R. (2d) 16 (B.C.C.A.)" url: "https://www.canlii.org/en/bc/bcca/doc/1987/1987canlii2509/1987canlii2509.html" - title: "Ruxley Electronics & Construction Ltd. v. Forsyth, [1996] 1 A.C. 344 (H.L.)" - title: "Birkbank Farms v. Superior Propane Inc., 2002 CarswellOnt 1145 (S.C.)" - title: "Robert McAlpine Ltd. v. Woodbine Place Inc., 2001 ONCA 23996" url: "https://www.canlii.org/en/on/onca/doc/2001/2001canlii23996/2001canlii23996.html" - title: "Nan v. Black Pine Manufacturing Ltd. (1991), 80 D.L.R. (4th) 153 (B.C.C.A.)" url: "https://www.canlii.org/en/bc/bcca/doc/1991/1991canlii1144/1991canlii1144.html" - title: "Hollebone v. Midhurst & Fernhurst Builders Ltd., [1968] 1 Lloyd’s Rep 38" - title: "Evans v. Balog, [1976] 1 N.S.W.L.R. 36 (C.A.)" - title: "Costello v. Calgary (City), 1997 ABCA 281, 152 D.L.R. (4th) 453" url: "https://www.canlii.org/en/ab/abca/doc/1997/1997abca281/1997abca281.html" keywords: - Damages - Property damage - Lost rental income - Diminution in value - Cost of replacement - Reasonableness - Mitigation - Real estate investment - Expert evidence - Construction areas_of_law: - Civil Litigation - Property Law - Torts --- # Court File and Parties **COURT FILE NO.:** 12-53886 **DATE:** 2016/08/30 **ONTARIO** **SUPERIOR COURT OF JUSTICE** **BETWEEN:** Carmen Scaffidi-Argentina, Michaelangelo Scaffidi-Argentina, Sheila Scaffidi-Argentina And Marissa Scaffidi-Argentina Plaintiffs – and – Tega Homes Developments Inc., Goodeve Manhire Inc., Goodeve Manhire Partners Inc., Paterson Group Inc. and The City of Ottawa Defendants **COUNSEL:** Ronald Price and Nadia Authier, for the Plaintiffs David Bertschi and Stéphanie Drisdelle, for the Defendant, Tega Homes Mark Frederick and Elizabeth Ackman, for the Defendants Goodeve Manhire Inc. and Goodeve Manhire Partners Inc. Kelly McMullan for Paterson Group Inc. **HEARD:** January 11-21, 2016 and by written closing submission February 25, 2016 # REASONS FOR JUDGMENT **sheard j.** [1] This action is brought by the owners of a five-unit residential rental property at 58 Florence Street, Ottawa, Ontario (“the Property”).

The Property was rendered uninhabitable following the construction of a multi-unit condominium complex on the abutting property built by Tega Homes Developments Inc. (“Tega”).

This trial was to determine damages only.

Liability issues are to be determined at a separate hearing in 2017. [2] The assessment of damages falls under two main categories: (a) property damage/loss; and (b) lost rental income. [3] The Court was asked to determine the methodology by which the damages are to be calculated and then to quantify the loss. # Overriding Principle of Assessment of Damages [4] The parties agree that a court’s task when assessing damages is to restore the plaintiffs to the position they were in prior to the loss.

The plaintiffs concede that the Court need not be “perfect” in its calculation or assessment of damages, but must strive to achieve fairness between the plaintiffs and the defendants. # Competing Methodologies [5] All parties referred to and rely upon the leading Ontario Court of Appeal decision of [James Street Hardware and Furniture Co. v. Spizziri (1987), 62 O.R. (2d) 385 (C.A.)](https://www.canlii.org/en/on/onca/doc/1987/1987canlii4172/1987canlii4172.html) (“*James Street*”). *James Street* provides a clear statement of two competing approaches to the measure of damages with respect to torts affecting land.

At p. 401, the Court refers to Harvey McGregor, *McGregor on Damages*, 14th ed. (UK: Sweet & Maxwell, 1980) (hereinafter referred to as “*McGregor*”): Dealing directly with the measure of damages with respect to torts affecting land, *McGregor on Damages* (at p. 761 et seq.) deals with the differing approaches to the measure of damages which were referred to by Widgery L.J. in *Harbutt's “Plasticine” Ltd. v. Wayne Tank & Pump Co. Ltd.*, [1970] 1 Q.B. 447, as (1) the amount of the diminution of the value of the land, on the one hand, and (2) the cost of replacement or repair, on the other.

McGregor reviews the cases, including *Harbutt's “Plasticine”*, and then says at p. 763: The difficulty in deciding between diminution in value and cost of reinstatement arises from the fact that the plaintiff may want his property in the same state as before the commission of the tort but the amount required to effect this may be substantially greater than the amount by which the value of the property has been diminished.

The test which appears to be the appropriate one is the reasonableness of the plaintiff's desire to reinstate the property; this will be judged in part by the advantages to him of reinstatement in relation to the extra cost to the defendant in having to pay damages for reinstatement rather than damages calculated by the diminution in value of the land. [6] The dilemma identified in the *McGregor* text is similar to that faced by this Court: is this a case in which it is reasonable for the plaintiffs to desire to reinstate the Property?

Is that desire reasonable even though the cost of rebuilding may be “substantially greater than the amount by which the property has been diminished”? [7] *James Street* offers further guidance on damages analysis.

In that case, the court decided that reinstatement of the damaged building was reasonable, but the principles would seem to have application to either methodology: Before considering the application of this approach [deduction for betterment] to the case before us, it would be well to reiterate what has been said in so many previous decisions on the assessment of damages and that is that each case turns on its own facts and that the process of assessing damages should be a practical one designed to do justice between the parties.

The process should not be unnecessarily complicated or rule-ridden.

The rules applied should be responsive to the particular facts of the case. (at p. 404) [Emphasis added.] [8] Although the case was in the context of the issue of betterment resulting from the reconstruction of the damaged building, the analysis is helpful to situations in which the property has not been rebuilt: The difficulty in considering this issue, of course, is that the appellant did not rebuild the building according to its pre-fire design, but instead used a different design.

If it had rebuilt according to its pre-fire design and, in doing so, necessarily incorporated the changes required by the new law, we think it would have been entitled to recover those additional costs subject, if relevant, to the application of the principles respecting betterment which we have earlier discussed.

If the appellant had not rebuilt at all, we are inclined to think that this additional “cost” would not have been recoverable.

Indeed, in these circumstances, the appropriate measure of damages might simply be the diminution in the value of the property rather than cost of replacement. (at p. 406) [Emphasis added] [9] In our case, the plaintiffs have not rebuilt.

As will be discussed below, the evidence led by the plaintiffs through their experts is based on the construction of a building that does not resemble the pre-damage design.

Further, the evidence is unclear as to what changes would be required to a new building to meet the current building standards or as to what additional costs are associated with meeting those new standards.

The upgrades and changes that might be required to meet those new standards depend, in part, upon the design of the new building, inside and out, including the parking area, and whether or not the plaintiffs can or intend to take advantage of existing permissions and grandfathered/legal but non-conforming uses. [10] For the reasons set out below, I have concluded that, in this case, the appropriate measure of damages is the diminution in the value of the Property rather than the cost of replacement.

The plaintiffs have not shown that they intend to rebuild and, in any event, it would not be reasonable for them to do so.

I conclude that determining damages on the basis of the diminution in value of the Property is the fairer and more practical approach and one which is designed to do justice between the parties.

My reasons for coming to that conclusion are set out below. # Assessment of the Reasonableness of Desire to Rebuild ## i) The plaintiffs have not shown any real intention to rebuild [11] In their written submissions, the plaintiffs ask the Court to consider Justice Lalonde’s analysis of “reasonableness” as set out in [Safe Step Building Treatments Inc. v. 1382680 Ontario Inc., 2004 ONSC 35054](https://www.canlii.org/en/on/onsc/doc/2004/2004canlii35054/2004canlii35054.html) (“*Safe Step*”). [12] *Safe Step* involves a claim for damages for breach of contract.

The defendant had installed a defective epoxy floor in the plaintiff’s gym.

The plaintiff sought damages equal to the cost of replacing the epoxy floor with a more expensive rubber floor.

The plaintiff was able to use the epoxy floor and the defendant argued that the plaintiff had no intention of replacing the floor.

The defendant also asserted that an award based on the costs of a new rubber floor would be a windfall to the plaintiff and argued that the proper measure of damages was the diminution in the value of the building by reason of the defective epoxy floor.

The court determined that repair and replacement was reasonable and awarded the plaintiff an amount equal to the cost to replace the flawed epoxy floor with a new epoxy floor. [13] *Safe Step* can be distinguished from this case: *Safe Step* involves a breach of contract, not a tort.

The floor was flawed, but usable, whereas here the building is irreparable.

Unlike this case, no evidence was led in *Safe Step* as to the diminution in value of the building.

A very important distinction is that, in *Safe Step*, there was clear evidence of the cost to replace the epoxy floor either with a new epoxy floor or with a rubber floor.

Here, we have no clear or reliable evidence of what it might cost to rebuild.

As will be seen below, there is a range of about $1 million between the estimates put forward by the parties’ experts. [14] Despite its differences, the analysis found in *Safe Step*, at para. 66, has application to this case: [C]ourts are reluctant to award a windfall to an injured party….

Clearly, where the injured party has already carried out some or all of the work, courts will be more likely to award the full cost of the performance.

However, where the injured party appears to have no “genuine interest” in carrying out the repairs or replacement or restoration, but simply intends to pocket the money as a windfall, courts will either reduce the award for cost of performance, or choose to award the diminution of value instead. (See [Strata Corp. NW 1714 v. Winkler (1987), 20 B.C.L.R. (2d) 16 (B.C.C.A.)](https://www.canlii.org/en/bc/bcca/doc/1987/1987canlii2509/1987canlii2509.html) [hereinafter *Strata*]; see also *Ruxley Electronics & Construction Ltd. v. Forsyth*, [1996] 1 A.C. 344 (H.L.). [15] The Property was rendered uninhabitable as at June 29, 2011.

The plaintiffs’ own insurers determined that the Property could not be repaired and, on that basis, paid the plaintiffs $367,000.00.

The plaintiffs also claimed and received the equivalent of one year’s net rental income from their own insurers ($69,449.00). [16] The plaintiffs have taken few steps toward rebuilding.

From the time it was condemned in June 2011, the building has sat unoccupied.

The plaintiffs have not actively pursued rebuilding.

They spent only a fraction of their insurance proceeds and at trial still had approximately $300,000 in the bank from insurance proceeds. [17] The plaintiffs obtained preliminary architectural drawings only from ARC Associates Inc. in 2012.

In addition, and, apparently for the purposes of trial only, the plaintiffs retained Enzo DiChiara (“DiChiara”) of Prestige Construction to provide them with an estimate of what it might cost to build a replacement residential rental property based on the ARC drawings. [18] DiChiara gave extensive evidence at trial and his report was filed as an exhibit.

He stated that he was unable to give a reliable estimate of the cost to construct the building contemplated by the ARC drawings because they were preliminary “concept” drawings only and lacked important details.

Also, there were no drawings from the various disciplines — mechanical, civil, HVAC, etc. — which are also required to prepare an estimate. [19] At trial, DiChiara stated that he would not commit to build the proposed building using his own estimate.

Even Carmen Scaffidi-Argentina (“Scaffidi-Argentina”), the principal witness for the plaintiffs, acknowledged that he would not accept the DiChiara/Prestige Construction quote without further investigation and inquiry. [20] On re-examination, Scaffidi-Argentina stated that the plaintiffs did not obtain completed architectural drawings because they did not want to spend the money on them until they were certain that they were going to rebuild. [21] In addition to being preliminary drawings only, the ARC drawings contemplate a six-unit residential rental building to replace the existing 5-unit building.

The ARC design does not physically resemble the existing building and exceeds its footprint by a depth of six feet. ## ii) Reasonableness of the cost of rebuilding [22] In *Safe Step*, the Court stated that “courts will generally decline to base an award of damages on the cost of performance, if the cost of rectifying defective construction work is ‘unreasonable’ when compared to the diminution on the value of the property, as a result of the breach” (at para. 68). [23] In this case, the building itself now has no value.

It cannot be occupied, the damages cannot be rectified, and the building must be demolished.

Based on the ARC drawings, the DiChiara/Prestige Construction estimated the cost to build the ARC-designed building to be $2,337,255.95 plus HST.

That figure includes a 10% contingency allowance, 5% administration fee, and a 10% management fee.

It did not include a budget for design fees ($120,780.00), Permit Fees ($70,812.50), Utility Fees ($61,600.00), or the underpinning of 54 Florence ($24,750.00) plus H.S.T. on the those amounts.

With those costs included, the total estimated cost increases to $2,955,174.25 ($2,615,198.45 plus H.S.T. (at 13%) = $339,975.80).

As will be discussed below, the valuation of that newly-built (six-unit) building was estimated to have a fair market value of perhaps $1.4 million, less than half the estimated cost of rebuilding. [24] DiChiara stated that to provide a reliable estimate, he needed completed architects’ drawings, as well as “100% complete” drawings and schematics from all the construction disciplines, such as electrical, engineering, mechanical, water/sewer, and structural details, etc. The ARC drawings also lacked such details as the finishes to be used; the interior designs for kitchens; the type of furnaces; the type of roof; the type and quality of the fixtures and lighting; whether or not a security alarm was to be wired with an audio/visual display at the front of the building; details on whether the kitchen and bathroom should have granite or laminate counters, tile or linoleum flooring; etc. [25] DiChiara stated that, where the ARC drawings were silent, he simply made his own decision based on what he thought a buyer or renter would expect from a newly-constructed building.

DiChiara acknowledged that he could not provide a class “A” estimate, which is one with firm and competitive pricing solicited from trades.

In his report, DiChiara states that he has provided a class “B” estimate.

However, at trial, DiChiara acknowledged that he was only able to provide a class “C” estimate: one that provides some assistance with subtrade pricing and allows them to develop an estimate using Prestige’s in-house quantities and based on assumptions decided by DiChiara. [26] In their written submissions (at para. 64), the plaintiffs make it clear that they are not looking to recover the amount that DiChiara estimated it would cost to rebuild.

Rather, they ask the Court to consider DiChiara’s cost estimate of $300 per square foot as the starting point for a reconstruction cost of $1,436,400.00.

To that, they seek to add the cost of the piles, estimated at $232,580.00 plus H.S.T., by DiChiara or at a compromised number of $190,794.29 plus H.S.T. (at para. 56).

To either number must be added an amount for the structural engineering costs for the design of the helical piles and reinforced foundation, and $16,100.00 plus H.S.T. to cover the additional cost of the non-combustible material needed for the west wall. [27] It is unclear from DiChiara’s trial evidence if his $300-per-square-foot estimate included an amount for Design Fees, Permit Fees, and Utility Fees, which were included in his report for a total of $277,942.50, but shown as additional costs to his original estimate of $2,337,255.95 plus H.S.T. (Even starting with the $1,436,400.00 figure, it is reasonable to conclude that the total cost to rebuild would be close to $1,900,000.00 or more.) [28] As an alternative position, at paragraph 71 of their written submissions, the plaintiffs set out the costs to rebuild based on the estimate prepared by SPECS, the defendant Tega’s expert, and adding costs not included in the SPECS estimate.

Before demolition, using the figure set out at paragraph 71, the cost to rebuild would be $1,453,972.23 plus H.S.T. [29] The plaintiffs’ further alternative positions on damages are alternatively set out in Schedule B to their written submissions.

There, they appear to further reduce their claim and seek damages under Options A or B. [30] Option A is based on the DiChiara/Prestige estimate of $300 per square foot ($1,436,400), less betterment of $155,000, plus helical piles of $60,500 and asbestos removal of $65,000.

Administration and management fees add an additional 15% for a total of $1,624,969.50 plus HST ($1,836,215.53). [31] On the issue of lost rent, the plaintiffs claim a net amount of $258,780.42.

This is based on rental income of $325,493.10 that would have been earned had the existing leases continued from July 1, 2012 to December 2016, increased as allowed by the [Residential Tenancies Act, 2006, S.O. 2006, c. 17](https://www.ontario.ca/laws/statute/06r17), less average operating expenses of $66,712.68. [32] The plaintiffs’ claim under Option A, including HST, totals $2,094,995.95. [33] Option B is based on the SPECS estimate of $938,556.12, less betterment of $155,000, plus the cost of the helical piles and asbestos removal ($125,500), plus 15% profit and overhead, for a total of $1,049,959.82 plus HST ($1,186,454.60).

Option B uses the same net amount for lost rent: $258,780.42. [34] The plaintiffs’ claim under Option B, including HST, totals $1,445,235.02. ## iii) The Onus is on the plaintiffs to lead evidence on the cost of rebuilding [35] The various estimates offered by the plaintiffs’ experts, and the vast ranges in the estimated cost to rebuild, undermine the reliability of any of the estimates.

It is impossible for the Court to determine with any accuracy what it would actually cost to rebuild.

The plaintiffs’ various proposals, including a hybrid or blend of estimates given by the plaintiff and defence experts, do not lead to a conclusion that any suggested figure is a reasonable or correct amount.

Rather, they lead to the conclusion that the plaintiffs acknowledge that the cost of rebuilding is entirely guesswork.

It is guesswork because the foundation for all the estimates is the incomplete “concept” drawings prepared by ARC architects. [36] In his evidence at trial, DiChiara offered his opinion that he could not build a five-unit property for less than $300 per square foot.

That is not contained in his expert report.

On cross-examination, DiChiara stated that his $300-per-square-foot figure came from his experience.

The defendants correctly object to the Court giving any reliance or weight to that portion of DiChiara’s testimony.

There are procedural requirements imposed on opinion evidence that were not met.

Moreover, other than for an assertion that the figure came from his “experience”, there was no other evidentiary basis upon which that evidence could be assessed.

For these reasons, I can place no weight on that portion of DiChiara’s evidence. ## iv) Insufficient evidence from which to determine the cost of rebuilding [37] The Court has an obligation to do the best it can to determine damages, even when the damages are, by their inherent nature, difficult to assess. [38] The plaintiffs rely upon *Birkbank Farms v. Superior Propane Inc.*, 2002 CarswellOnt 1145 (S.C.) (“*Birkbank*”).

That decision dealt with the assessment of damages.

Similar to this case, in *Birkbank*, the court had to determine the replacement cost of a building and equipment and business losses.

At paragraph 10, the court referred to the Ontario Court of Appeal decision in [Robert McAlpine Ltd. v. Woodbine Place Inc., 2001 ONCA 23996](https://www.canlii.org/en/on/onca/doc/2001/2001canlii23996/2001canlii23996.html): It is a well-established principle that where the damages are by their inherent nature difficult to assess, the Court must do the best it can under the circumstances.

Such is the case with the court estimates the damages for loss of expectation of life or for pain and suffering, it being impossible to measure the loss with mathematical accuracy.

That is not to say, however, that a litigant is relieved of his duty to prove the facts upon which the damages are estimated….

A distinction must be drawn between the cases where absence of evidence makes it impossible to assess damages, and cases where the assessment is difficult because of the nature of the damage proved….

The general rule is that the plaintiff must prove sufficient facts to enable the Court to calculate the loss with reasonable certainty.

To this must be added the qualification that, where the damages are, by their intrinsic nature, incapable of assessment with any degree of certainty, the plaintiff must prove the facts and the Court will approximate a sum, even though it may be little better than a guess. [Emphasis removed.] [39] In this case, the nature of the damages does not make them impossible to measure.

The cost of rebuilding could have been estimated with some certainty had the plaintiffs obtained more than preliminary architect drawings.

However, by not obtaining completed architect drawings or the drawings and schematics from the requisite disciplines, the plaintiffs have failed to discharge the burden upon them to prove the facts upon which the damages could be calculated. [40] I must conclude that I do not have evidence from which I could determine the cost of rebuilding.

Nonetheless, there are other reasons for rejecting this approach to the proper measure of damages. ## v) The Property is not unique nor does it hold special value to the plaintiffs [41] The cases in which courts have determined that the plaintiffs are entitled to demand that their property be rebuilt share a common feature: the property itself has a special and unique value to the plaintiff.

In those cases, the court found that it was reasonable for the plaintiffs to rebuild the factory, the place of business, the family home, or to defend the expropriation of a unique development property.

In each case, the property had special value to the plaintiff, the loss of which could not be compensated for by paying to them the diminution in the value of the property.

The same cannot be said here. [42] The facts in *James Street*, *Harbutt’s “Plasticine”*, *Birkbank*, and [Nan v. Black Pine Manufacturing Ltd. (1991), 80 D.L.R. (4th) 153 (B.C.C.A.)](https://www.canlii.org/en/bc/bcca/doc/1991/1991canlii1144/1991canlii1144.html) (“*Nan*”), all led their respective courts to conclude that it was reasonable for the plaintiffs to seek the repair of the property that was damaged.

In each of those cases, the property had unique value to the plaintiffs.

In the first three, the location was critical to the plaintiffs for the operation and success of their businesses.

In *Nan*, it was the plaintiff’s home. [43] In this case, what has been destroyed is an income property.

The evidence is that this type of property is not unique in Ottawa or to the plaintiffs, who own and have owned a number of similar residential rental properties.

There is no evidence that the Property holds any special importance to the plaintiffs, apart from its ability to generate income. [44] The building on the Property was over 100 years old in June 2011.

The plaintiffs converted it from a single family home into a multi-unit rental building.

Over the years, they added rental units to it, including an aluminum-sided addition at the back, and a basement unit that lacked a separately-defined bedroom.

It also had coin-operated laundry facilities in the basement of the building for the tenants.

From time to time, they also rented out some of the parking spaces at the back to non-tenants.

Their main goal was to maximize their profit from the Property. [45] The Property was part of the plaintiffs’ real estate investment inventory and its value to them was solely its ability to generate income.

This is not a case in which the plaintiffs have any particular attachment to a property or any reason personal to them or to their business operation that would make it reasonable to rebuild.

This is a case of four investors who bought and operated a variety of residential rental properties in different areas of Ottawa for the purpose of earning income.

They had no brand, workforce, nor farming operation that would cause a court to conclude that there was no other choice but to rebuild.

Quite the opposite: the relative abundance of old, residential rental properties in Ottawa suggests that this case is more like the “motor car of popular make” described by Widgery L.J. as cited in *James Street* (at p. 400) than one for which there is “no substitute” or “reasonable alternative” available. [46] *James Street* provides invaluable guidance on the analysis of reasonableness.

The court cited the decision of Lord Denning M.R. in *Harbutt's “Plasticine” Ltd. v. Wayne Tank & Pump Co. Ltd.*, [1970] 1 Q.B. 447, who relied upon *Hollebone v. Midhurst & Fernhurst Builders Ltd.*, [1968] 1 Lloyd’s Rep 38.

At p. 400: Widgery L.J. said at pp. 472-73: I must now turn to the issues raised as to the measure of damage.

The distinction between those cases in which the measure of damage is the cost of repair of the damaged article, and those in which it is the diminution in value of the article, is not clearly defined.

In my opinion each case depends on its own facts, it being remembered, first, that the purpose of the award of damages is to restore the plaintiff to his position before the loss occurred, and secondly, that the plaintiff must act reasonably to mitigate his loss.

If the article damaged as a motor car of popular make, the plaintiff cannot charge the defendant with the cost of repair when it is cheaper to buy similar car on the market.

On the other hand, if no substitute for the damaged article is available and no reasonable alternative can be provided, the plaintiff should be entitled to the cost of repair.

It was clear in the present case that it was reasonable for the plaintiffs to rebuild their factory, because there was no other way in which they could carry on their business and retain their labour force.

The plaintiffs rebuilt their factory to a substantially different design, and if this had involved expenditure beyond the cost of replacing the old, the difference might not have been recoverable, but there is no suggestion of this here. [Emphasis added.] [47] Scaffidi-Argentina gave evidence that leads to the conclusion that at all relevant times there has been a ready supply of comparable residential multi-unit buildings and that “the necessity of the case does not demand reinstatement” or the rebuilding at any cost.

Referring again to *James Street* (at p. 402), the court cited the following passage from *McGregor* with approval: On the other hand, where the necessity of the case does not demand reinstatement, plaintiffs may find themselves limited to claiming for the diminution of the value of the property in question. [48] Again, the facts here are different from those found in *James Street* or *Harbutt’s “Plasticine”* or *Evans v. Balog*, [1976] 1 N.S.W.L.R. 36 (C.A.) (“*Evans*”).

Here, “the necessity of the case does not demand reinstatement”. [49] *Evans* was cited with approval by the British Columbia Court of Appeal in *Nan*, at p. 160.

In *Evans*, the plaintiff was awarded the damages for the full cost of reinstatement of the 75-year-old home.

In its decision, the court stated: The question is whether it was reasonable for the plaintiffs to desire to reinstate their property.

In my opinion, there is only one answer.

It undoubtedly was.

They had, in effect, lost their family home.

That is the nature of their damage and not some diminution in value of their land. [Emphasis added.] [50] The case here is readily distinguishable from those cases in which the court determined that it was reasonable for the plaintiffs to desire to reinstate their property.

In this case, the plaintiffs can be properly compensated and made whole if provided with a damage award based on the diminution in value and from which they might purchase any number of comparable properties. ## vi) Evidence of comparable replacement properties [51] Scaffidi-Argentina acknowledged that both he and his brother and their wives owned a number of residential rental properties.

Both Scaffidi-Argentina and his brother are engineers.

For many years, they have supplemented their incomes by the purchase and management of residential rental properties.

The Property was one of those.

On and after June 2011, and up to the date of trial, the plaintiffs have continued to buy, renovate, and operate residential rental properties in Ottawa.

Scaffidi-Argentina perhaps has a more extensive inventory of properties than do his brother and his wife, as Scaffidi-Argentina has begun working with his son on the purchase, renovation, and rental of residential properties in Ottawa. [52] Scaffidi-Argentina was asked why he did not use the insurance money received by the plaintiffs to purchase a replacement building.

He answered that all four investors had to agree and that his brother and his wife did not wish to purchase a new property.

He also asserted that he was too old to take such a risk.

On cross-examination, he admitted that he did buy residential rental properties after June 2011, including two residential properties he purchased in Sandy Hill, which he and his son renovated to rent out. [53] The evidence of the defendants’ expert appraiser, Ronald Juteau (“Juteau”), was consistent with that of Scaffidi-Argentina, who gave evidence of his success in locating and purchasing residential rental properties in Ottawa after June 2011.

In Juteau’s January 2014 report, he identified five comparable properties for sale in downtown Ottawa at the time of the loss, ranging in price from $757,000 to $1,375,000.

Based on Juteau’s report and evidence and that of Scaffidi-Argentina, I accept that comparable replacement properties were readily available. ## vii) Do the plaintiffs intend to rebuild? [54] The defendants urge the Court to conclude both that the plaintiffs have no real intention to rebuild and, also, that they have failed to mitigate their losses: they had over $300,000 in insurance proceeds that they could and should have used either to take serious steps to rebuild or to use as a downpayment on the purchase of another residential rental property.

I will deal with mitigation below. [55] As at the date of this hearing, the plaintiffs still had $300,000 unspent of the insurance money they had received in 2012.

The defendants argue that, had the plaintiffs truly intended to rebuild, they would have done so many years ago and they had the insurance money to do so.

They say that the plaintiffs would have obtained proper architect and engineering, etc., drawings and would have pursued the requisite approvals from the City and completed the other usual prerequisites to rebuilding.

The defendants assert that the only reason the plaintiffs claim to want to rebuild is to inflate their damage claim, as the cost of rebuilding is greater than the diminution in the value of the Property. [56] The plaintiffs respond to those arguments by asserting that they relied on the promise of the defendant Tega set out in a letter of June 2011 to take “full responsibility to ensure that any damage to your property as a result of our construction activities along our shared property lines will be repaired at such time as the progress of our construction allows”. [57] While the plaintiffs may have relied on Tega’s alleged promise as set out in the June 2011 in the early days following the damage, it is not reasonable to believe, and I do not accept, that they continued to do so to the date of trial, particularly after they issued the statement of claim on August 28, 2012. [58] The plaintiffs also argue that, until the opening of this hearing, Tega refused to admit that the building could not be repaired.

Whether or not that was the position taken by Tega, the plaintiffs and their insurers recognized that the building could not be repaired.

Therefore, it is not reasonable to believe, and I do not accept, that the position taken by Tega was the reason or even a reason for the plaintiffs to take no steps to rebuild the Property. [59] It is not necessary to assess the merits of the plaintiffs’ decision not to have rebuilt.

The fact that they have done nothing with the Property in over five years detracts from any argument that they reasonably desire to rebuild. ## viii) Would damages based on the cost of rebuilding be a windfall? [60] As will be discussed below, the cost of reconstruction would grossly exceed the value of the newly-built building.

It would appear counter to any reasonable business model to expend possibly 50% more to erect a building of the type involved in this litigation than the building would ultimately be worth — as compared to a much larger commercial venture, in which it might be reasonable to spend more than the building’s fair market value in reasonable anticipation of recovering and exceeding those costs over the lifetime of the building.

The sole purpose of the Property was to generate income for the plaintiffs to supplement their retirement income. [61] In view of the evidence that there has been (and still is) a ready inventory of comparable residential rental income properties for purchase in Ottawa, it is difficult to accept that the plaintiffs would take the damages award based on an estimate of what it might cost to construct a new multi-unit residential building, less the depreciation or betterment as proposed by the plaintiffs, and apply that amount toward the much greater cost of rebuilding.

Apart from anything else, the plaintiffs have said that they do not want to be exposed to risk at their age and stage in life.

If the Court accepted the evidence put forward by the plaintiffs’ expert, the lesser amount they are now seeking as per their written submissions would be insufficient to rebuild a comparable property, let alone the property for which the plaintiffs obtained preliminary drawings from ARC. [62] As is seen in the cases where the court awarded damages based on the cost of rebuilding, they did so with confidence that there was no other option but to rebuild.

That methodology for determining damages was not chosen in the abstract: it was chosen because the plaintiffs actually had rebuilt, or were virtually certain to do so.

Based on the evidence before me, I am not satisfied that the plaintiffs would rebuild.

To award damages to them that are based on the cost of rebuilding without being satisfied on the evidence that the plaintiffs will actually rebuild could lead to the windfall that concerns the defendants. [63] In their own testimony, the plaintiffs have expressed hesitation at taking any financial risk.

Scaffidi-Argentina has also stated that the four investors no longer speak with one voice.

Unlike his brother, Scaffidi-Argentina has continued to buy and renovate residential rental properties.

He has a son who shares that business interest.

By contrast, Michael Scaffidi-Argentina’s evidence was that he has no interest in expanding his inventory of investment properties.

He has sold properties since 2011. [64] Based on the evidence before me, I conclude that the plaintiffs will go their separate ways following the trial and, if any of them decide to expand their inventory of investment properties, they will do so individually or within their own respective families.

Further, the evidence of Scaffidi-Argentina and Juteau lead to a conclusion that any damages recovered would be much more profitably and reliably invested in the purchase of a comparable property rather than in rebuilding, given the uncertainties of soil condition, building costs (hard and soft), City permissions, and all the other known and unknown risks inherent with construction. ## ix) Cost of rebuilding relative to its fair market value [65] As set out above, it is impossible for the Court to arrive at a fair or reliable estimate of what it might cost to rebuild.

However, were the Court to accept the position taken by the plaintiffs at paragraph 71 of their written submissions, the cost would be at least $1,453,972.23. [66] In the Plaintiffs’ damages calculations set out in Schedule B to the plaintiffs’ written submissions, they appear to abandon their claims for HST on the hard and soft construction costs, and to the Hydro or gas upgrades, underpinning the adjacent structure and the stormwater management costs, all of which are excluded from Options A and B. [67] The plaintiffs called Oliver Tighe (“Tighe”) as an expert appraiser.

He is a member of the Appraisal Institute of Canada.

He provided his opinion as to the market value of the proposed new six-unit apartment, as at April 7, 2015.

Of course, it must be kept in mind that his appraisal is of a building that has not been built. [68] The photo used in Tighe’s appraisal is based on the ARC drawings.

It assumes a six-unit apartment building with unit finishes similar to other new style apartment developments in the City of Ottawa.

His assumptions included exterior cladding of stucco; wood decks with composition cover; new, good quality windows; common areas with good quality finishes; the entire of the units to include a mixture of wood, broadloom, and tile with a modern design and finish with “good quality fixtures and cabinetry”; and a paved parking area at the rear of the Property.

Based on those assumptions, Tighe gave the new six-unit apartment a fair market value of $1.4 million as at April 7, 2015.

Tighe estimated that a new 5-unit residential rental building would have a fair market value of $1.1 million as at April 7, 2015. [69] In arriving at his values, Tighe used the gross income less expenses approach to arrive at the net operating income or “NOI”.

He stated that income generating properties are valued using the NOI approach rather than the direct comparison approach of valuation. [70] Tighe’s valuation methodology was challenged on cross-examination.

He had used the capitalization rate that he determined to be appropriate.

On cross-examination, Tighe was unable to explain how he arrived at a “stabilized capitalization rate”.

He stated that he used what he believed or felt were reasonable levels, but acknowledged that it would be impossible to discern from his report how those reasonable levels were determined. [71] On cross-examination, Tighe agreed that he assumed that the interior finishes of the units were similar to those of a newer, high-end condominium.

He also stated that the properties that he used as comparable properties were all large condominium buildings and that he used these when he determined value using the income approach.

He stated that he did not take into account that the rental units he used as comparisons also included amenities such as a heated garage, exercise room, garden patio, rooftop deck, and Jacuzzi, which exist at 429 Kent Street, one of the comparable properties and, coincidently, the multi-unit condominium constructed by Tega.

None of his comparable units included a basement unit, although in the proposed six-unit building, there were bedrooms in the basement. [72] Tighe’s assumptions and comparables seem out of line with the type of building that was damaged and with a replacement property that would resemble the damaged building.

In fairness to Tighe, he was asked to provide an opinion of a building that is not built and for which there exist sparse details.

It is difficult therefore to accept his conclusions as evidence of the actual income that this yet-to-be-constructed, five-unit rental property might generate and upon which its fair market value could be reliably determined.

For all of those reasons, I find Tighe’s opinion of value to be so speculative that is it is of little assistance. [73] However, even if I did accept his opinion of the value of the building to be built, and the evidence of DiChiara as to what it might cost to build such building, it would lead to the conclusion that it might cost between $2.5 million and $2.9 million to construct this six-unit building, which might then have a fair market value of perhaps $1.4 million. [74] In their written submissions, the plaintiffs were fair in acknowledging that the Court was not provided with a perfect estimate [of the cost of reconstructions] by either of the parties.

The estimate from Enzo DiChiara was for a six unit building based on a different design (hereinafter the “Prestige Estimate”) and the estimate by [the defendants’ expert], Anthony Campellone (hereinafter the “SPECS Estimate”) did not include a number of items and was generated by a software program which was unable to account for site-specific issues or Building Code requirements.

Notwithstanding this, the plaintiffs submit that the Prestige Estimate and the SPECS Estimate are of great assistance to the Court as they provide a reliable basis upon which the Court can determine the reasonable costs of reconstruction.” (Plaintiffs’ written submissions, at para. 45) [75] With respect, I have determined otherwise.

I have concluded that, the plaintiffs have not provided reliable evidence upon which any of the experts could provide a reliable estimate of the reasonable costs of reconstruction.

By consequence, there is no reliable basis upon which this Court can determine those reasonable costs. [76] The plaintiffs obtained preliminary “concept” architect drawings for a building that was different in design from the damaged building on the Property, both in number of units and in footprint.

The lack of details in the ARC drawings and the absence of drawings from the other disciplines cannot be made up for by using rough estimates or discounts without risking unfairness to either the plaintiffs or the defendants. [77] In the absence here of evidence that the plaintiffs have no choice but to rebuild, to award damages based on the cost of rebuilding would not be reasonable or fair to the defendants.

For similar reasons, I do not accept that the plaintiffs have a reasonable or, likely, any desire to rebuild. [78] I have concluded that the proper methodology to determine the plaintiffs’ loss is the diminution of the Property as a result of the damages sustained to it. # Damages Based on Diminution in Value [79] The only evidence before me as to the appraised value of the property came from the defendants’ expert, Juteau.

He concluded that the Property had a market value of $945,000.

In their written submissions (at para. 80), the plaintiffs accept that the market value of $945,000 is reasonable.

Juteau valued the lot at $360,000 on the assumption that it was a vacant lot, with no environmental issues, and capable of supporting the construction of a new building.

Accepting that evidence, the building would have a market value of $585,000. [80] In their written submissions, the plaintiffs urge the Court to find that the value of the lot was reduced to zero given the costs that would have to be incurred by the plaintiffs prior to selling the lot and the reductions that a potential purchaser would insist upon.

Those reductions include the cost to remove the hazardous materials ($65,000); the demolition, including permit ($47,500); the cost to install piles, reinforced foundation, and associated and related work, including underpinning the adjacent house ($190,794.29); the engineering fees for the design and inspection of the piles and foundation ($24,000); and HST ($42,548.25).

The plaintiffs therefore calculate the value of the lot at –$9,842.55 (a negative value). [81] The plaintiffs also assert that in order to sell the lot they would have to obtain a Phase I environmental assessment of the property and, potentially, a Phase II environmental assessment.

Finally, there would be brokerage fees for the listing and sale of the property. [82] There is some agreement between the parties on the issues but less agreement on the associated price tags. # Hazardous Materials Removal and Demolition Costs [83] The $65,000 estimate for the cost to remove hazardous materials comes from Elite Environmental Group Inc., who submitted that estimate to the defendants’ expert, Stephane Vignola of Premiere Construction.

I accept this evidence as the best evidence of what it would cost to remove and dispose of all the hazardous materials that are identified in the Pinchin Environmental Assessment Report, including asbestos containing textured plaster, red vinyl sheet flooring, and exterior caulking located throughout the building. [84] The estimate for the removal and disposal of the hazardous materials in the defendants’ expert SPECS report is $13,284.72.

When examined on this question, the expert stated that he provided this estimate based on there being asbestos only in the interior ceilings of the property.

I conclude that the Elite estimate is a more reliable and complete estimate. [85] In its report, SPECS estimated the cost of demolishing and removing the foundation to be $79,188.72.

Its overall budget to demolish and remove the hazardous materials, including HST, was $104,493.

The other defence expert, Premiere Construction, budgeted only $18,100 for the supply of equipment and labour to demolish and haul away the “remaining building and foundation walls and concrete slab”.

Premiere used the Elite estimate in calculating the cost of demolition and removal of hazardous materials.

In their written submissions, the defendants state that the Premier estimate totaled $99,553. [86] In their written submissions, the plaintiffs used the $65,000 Elite budget and the Prestige estimate of $46,000 for their calculation of what it would cost to demolish the property for a total cost of $112,500, plus HST, for a total cost of $127,125. [87] Based on all the evidence, I conclude that the estimates given by Prestige may be on the high side.

That conclusion is somewhat reinforced by the position taken by the plaintiffs on the amount of the cost of rebuilding in their written submissions.

As I must fix an amount and have only estimates with which to work, I have determined to use the average of all three estimates to determine a reasonable budget or estimate for the cost of removal of hazardous materials and demolition of the building.

Therefore, I have concluded that the proper amount to be attributed to this heading is $110,390.00, which is inclusive of 13% HST. # Helical piles [88] Both the plaintiffs and the defendants led evidence as to the cost of helical piles.

There were frailties in the evidence called by each party.

Those are steel piles that are either driven or screwed into the soil to a depth sufficient to provide an anchor for the concrete foundation platform.

My understanding is that a new building would sit upon the concrete foundation that is anchored to the helical piles. [89] In the estimate provided by DiChiara/Prestige Construction, the total cost of the piles, pile caps, and the reinforced foundation slab was $232,580.00, plus the engineering cost for the design of the pile and reinforced foundation.

My notes of that evidence suggest those costs to be $8,500.00, for a total cost of $241,000.00.

That estimate includes a budget of $24,000 to underpin 54 Florence Street, which abuts the Property. [90] The defendants’ expert, Hugh Shepherd of Heneault and Gosselin Inc., estimated the cost of the helical piles at $56,895, inclusive of HST.

That estimate did not include excavation, surveying, or the rest of the footings and backfill. [91] The plaintiffs assert that there are other costs that flow from building on helical piles that include the design and survey costs, the costs to form and pour the pile caps, and the costs to form and pour the reinforced foundation.

The defendants SPECS’ estimate did not include an amount for the deeper excavation required because of the piles, or an amount for a reinforced foundation. [92] The DiChiara/Prestige Construction estimate was a blend of figures obtained by way of third party quotation and those suggested by DiChiara.

In their written submissions, the plaintiffs propose an estimate that is a blend of the DiChiara and SPECS estimates for an overall figure of $190,794.29 (plaintiffs’ submissions, at p. 50).

That amount would represent the additional cost that would have to be incurred to build on the Property by reason of the soil damage that it suffered. [93] As an alternative to a separate damage award, the plaintiffs ask the Court to value the land at $0.

The plaintiffs explain that conclusion at paragraph 10 of their Reply Submissions.

If the Court accepted the plaintiffs’ calculations, after deducting the cost of the piles and associated remediation, including a budget of $24,000 to underpin the neighbouring property, from the $360,000.00 value of the land, it has a (negative) value of –$9,842.55. [94] The difficulty with the plaintiffs’ reasoning is that it is based on an assumption that the lot will be built upon, and that the building to be constructed will be similar to the design in the ARC drawings.

As I have already concluded that the plaintiffs have no reasonable or real intention of rebuilding, I must consider whether the remediation costs are reasonable. [95] Stated differently, if I were to accept the plaintiffs’ argument, after the building is torn down, the land will have no value at all because of what must be spent on it to make it a “buildable” lot. [96] The defendants dispute that there is any, or any reliable, evidence about the condition of the lot.

They noted that no soil expert had been called, although both parties called expert evidence on the costs of the piles.

Again, the Court is faced with gaps in the evidence and disputes over the assumptions that underlie the conclusions reached by the experts. [97] I conclude that it is reasonable to accept, and I do accept, that some remediation to the land will be required to support the construction of a new building.

I do not fully accept the evidence of DiChiara as to the costs that will be incurred for that remediation.

In part, he was basing his estimate on a larger building than the damaged building and in part he was using different piles than those described by Hugh Shepherd.

I accept the evidence of Hugh Shepherd that fewer piles are required than proposed in the Prestige Estimate.

He stated, and I accept, that the piles he proposes carry a heavier load and are installed by a different method and that the associated costs will be lower. [98] The Goodeve Manhire defendants dispute the need for any piles.

In their written submissions, they point to the evidence of the plaintiffs’ engineering expert, Allen Kim (“Kim”), and assert that his evidence was that the property could support a 2- to 2½-storey residence as the soil need only have a 75 kPa (load-bearing capacity) and the soil had a load bearing capacity of 150 kPa. [99] The evidence of Kim was that soil upon which to build a comparable house would need a minimum of 75 kPa assuming “virgin, undisturbed soil, not subject to lateral movement”.

His evidence was that the soil on the Property did not fit that description.

Page 1 of the Executive Summary of (Kim’s) Rochon Report states: “The soil underneath the dwelling has been disturbed and the dwelling construction will require new engineered pier foundations that extend below the level of disturbed soil.” Kim confirmed that he recommended the geotechnical report provided by exp Services dated October 11, 2011 (the “exp Report”).

The following excerpts, at pp.

EX-i and 2, from the exp Report speak to the arguments raised by the Goodeve Manhire defendants: Based on the results of the investigation, the factored geotechnical resistance at Ultimate Limit State of the silty clay at the founding level was computed as 210 kPa.

The Serviceability Limit State bearing pressure of the silty clay at the founding level was computed as 140 kPa.

The site under consideration is a two story single family residence with a basement.

The site on the west side of the residence is currently under construction with a high rise development.

This has resulted in an approximately 7.6 m deep excavation adjacent to and on the west side of the subject residence.

This excavation is located approximately 1 m away from the west wall of the residence.

Although the face of the excavation is supported by steel sheet piling, the subject residence has experienced large settlements and extensive cracking to the extent that the residence was deemed unsafe and evacuated by the City of Ottawa.

The purpose of the geotechnical investigation was to: (a) Establish the geotechnical and groundwater conditions at the site; and (b) Assess the Serviceability Limit State and Ultimate Limit State bearing pressure of the soil at the founding level of the residence.

It is noted that comments regarding the causes of settlements and cracking of the residence were not required at this time.

The comments and recommendations given in this report are based on the assumption that the above-described design concept will proceed into construction.

If changes are made either in the design phase or during construction, this office must be retained to review these modifications. [100] On cross-examination, Kim denied relying on the exp Report for his conclusions.

He agreed that a conventional two-story — and even a 2½-story house — would likely need a minimum of 75 kPa.

However, he qualified that answer by saying that said measure of kPa assumes undisturbed soil not subject to lateral movement.

He explained that he did not rely on the exp Report because its scope was to provide bearing capacity values for the design of a new foundation, but that it did not examine the causes of soil settlement, specifically soil loss, soil movement, or the settlement of the house. [101] At page 1 of Kim’s report he states that the extent of the damage observed as a result of the settlement, soil loss, and lateral soil movement requires the demolition and reconstruction of the dwelling.

And, “the practical ability to correct the vertical orientation (lean) of the dwelling will not be feasible due to the possibility of soil movement during the retrofit”.

At page 2 of his report, he noted that the settlement of the west foundation wall of the dwelling ceased subsequent to the temporary shoring installation within the dwelling and subsequent to the concrete reinforcement work at the base of the sheet pile shoring wall within the construction excavation.

The stabilization of the dwelling was confirmed on July 26, 2011, at page 6 of his report, within which he identifies soil loss and a sinkhole on the west exterior grade, 800 mm away from the west foundation wall. [102] At page 7 of his report, under the heading “Feasibility of Repair”, he concludes: The soil underneath the dwelling has been disturbed due to soil loss and lateral movement and is not suitable for construction purposes unless extensive remedial work is conducted within the soil. [103] The Tega defendants acknowledge the need for helical piles.

They have limited the amount of those piles to the cost of the installation of the piles.

Based on the other evidence, including the evidence of Tony Campellone for SPECS, constructing a building on piles has other associated costs. [104] The evidence of Kim was that the number and size of the piles is affected by the size of the building to be constructed.

Kim’s estimate of cost is based upon the ARC drawings, which is for a six-unit building with a larger footprint than the existing building.

For that reason, I conclude that the plaintiffs assessment of their loss under that heading is somewhat inflated.

However, I accept that it is in excess of the $56,000 asserted by the defendants. [105] Based on the evidence and after giving consideration to the parties’ written submissions, I conclude a fair and realistic allowance for the piles and associated costs to be $152,000. # Disposition: Calculation of Damages based on Diminution in Value [106] For the reasons set out above, I have determined the plaintiffs’ damages based on the diminution in value of the Property to be $847,390, calculated as follows: (1) Diminution to the value of the Building $585,000.00 (2) Allowance for demolition costs $110,390.00 (3) Allowance for piles and related costs $152,000.00 **Total: $847,390.00** # Lost Rent: Mitigation [107] The defendants submit that the plaintiffs should have taken the amount they received from their own insurer for property loss and used it toward the purchase of another comparable residential rental property.

The defendants concede that the plaintiffs did not receive enough in insurance proceeds to buy a replacement property and would have needed to take out a mortgage to buy a replacement property.

The evidence was that, as at June 2011, there was no mortgage on the Property. [108] Based on the opinion of Juteau, in 2011, a comparable property could have been purchased for between $757,000 and $1,375,000.

Allowing the plaintiffs some holdback to cover the carrying costs of the Property, it is reasonable to assume that they might have had $300,000 left over from the $367,000.00 they received from their insurer to put toward the purchase of a replacement investment property. [109] Adopting the defendants’ analysis, the plaintiffs would have been required to take on a mortgage of no less than $457,000.00 ($757,000 less $300,000), and possibly as high as $1,075,000, to pay for the replacement property.

However, that analysis does not take into account the other expenses associated with the purchase of residential rental building, such as legal fees, a contingency for repairs, or capital costs that may be required before there is time to build up any profit on the rental income.

It also assumes that the plaintiffs will actually come out ahead — that the cost of buying and borrowing and the slight downturn in the rental market as stated by Juteau in his evidence will still leave them with a net profit.

Finally, that analysis assumes that the plaintiffs must continue to act as an economic unit.

For the reasons set out above, based in large part upon the evidence of the plaintiffs, I have concluded that it is far from certain they would continue to act as an economic unit.

In the defendants’ scenario, all four of the plaintiffs have to commit to a mortgage, and perhaps a large mortgage. [110] In part, my conclusions about the reasonable and real intentions of the plaintiffs were based on the evidence of the plaintiffs that, at their ages and stages in life, they were unwilling to take on the risk of a new investment property on which they had a significant mortgage.

It should be recognized that my conclusions on that issue have led to an assessment of damages based on the diminution of value rather than the cost to rebuild.

That was not the approach asked for by the plaintiffs, who sought a higher amount based on the cost to rebuild.

My findings and conclusions also bear upon the reasonableness of any expectation that the plaintiffs borrow money to take on the purchase of a new property with its inherent costs and uncertainties.

To do otherwise would be neither consistent nor fair. [111] Therefore, my conclusions as to the intentions of the plaintiffs not to rebuild, based on their stated aversion to taking on risk at their age and stage in life, may have worked to the benefit of the defendants on the issue of damages to the building, but work to the benefit of the plaintiffs on the issue of mitigation. [112] In their response to the defendants’ arguments on mitigation, the plaintiffs refer to the decision of [Costello v. Calgary (City), 1997 ABCA 281, 152 D.L.R. (4th) 453](https://www.canlii.org/en/ab/abca/doc/1997/1997abca281/1997abca281.html).

That was an expropriation case.

The court determined that the plaintiffs had no duty to mitigate their losses by trying to find a replacement property because they were acting reasonably in resisting the expropriation of their property.

The plaintiffs had acquired the land in 1958 and it had special value to them as the site of a 40-unit motel that they sought to build. [113] The city sought to buy the plaintiffs’ property for $74,000 or to expropriate it for $91,700.

The city did not pay any amount to the plaintiffs.

On the appeal, the city suggested that the plaintiffs should have spent $375,000 in mitigation of their losses.

In rejecting that submission the court stated, at para. 78, the following: [T]he Costellos were not required to spend an unreasonable amount of money in mitigation.

Finally, and most importantly, they were not required to embark upon a speculative venture or to assume a significant risk in an attempt to stem the flow of losses.

And, it hardly needs to be added, it would have been extremely speculative for the Costellos to have spent $375,000 when there was a very real possibility that they ultimately would recover from the City less than a third of that amount. [114] That passage bears a striking similarity to the arguments put forward by the defendants. [115] The defendants’ arguments that the plaintiffs should have bought a replacement property might have been more persuasive had they made any payment to the plaintiffs to compensate them for their loss.

They did not.

The plaintiffs were left with a property that had been condemned and could not be occupied; a building on the property that had to be torn down at a cost that the defendants agree is approximately $100,000; and the land upon which the building was situated having suffered damages that (some of) the defendants acknowledge would have cost no less than $56,000 to remediate. [116] Had the plaintiffs demolished the building and rehabilitated their land, the money they received from their own insurer proceeds would have been more than spent, leaving them nothing with which to invest in another investment property.

Even assuming the plaintiffs had chosen only to demolish the condemned building on the Property, they would have spent at least one third of their insurance money.

Unless they then were then able to sell the then vacant lot, they would have had the ongoing liability of property taxes and minimal liability insurance on the Property.

I have found that the value of the vacant lot was significantly diminished by the imbedded remediation costs. [117] I conclude that it would be not be reasonable to impose an obligation upon the plaintiffs to have taken most or even all of their insurance money in order to jointly purchase a replacement rental investment property, which would have left them with the Property being condemned, uninhabitable, and earning no income, but subject to the liabilities necessarily associated with such a property. [118] I conclude that the plaintiffs are entitled to claim and recover their lost rental income to December 2016. # Lost income [119] The parties are not far apart on the quantification of the lost rental income.

The plaintiffs’ claim for lost rental income begins on July 1, 2012, as they were reimbursed for that loss by their own insurers.

The defendants assert that they will be responsible to repay the plaintiffs insurers for amounts paid for one year in lost rent from July 1, 2011 to June 1, 2012. [120] The plaintiffs have included some, but not all, of the statements from their own insurer setting out the amount they were paid for lost rent (at Exhibit 4, Tabs 117–18).

It appears that the insurer paid a monthly amount of $5,787.48.

If I am correct that that amount was paid for 12 months, then it would appear that the plaintiffs received the gross sum of $69,449.76.

That amount is far in excess of the rents that had been collected prior to that date and I hesitate to use that as the starting point.

In their written submissions, the plaintiffs provided a Schedule C that purports to set out the rents that would have been received on and after July 1, 2012 based upon 100% occupancy and increasing the rents on each unit by the full amount permitted by law. [121] The plaintiffs state that it would be unfair to apply the actual expenses incurred between July 1, 2012 to December 31, 2016, as they do not accurately represent the expenses that would have been incurred had the building and been operational.

Instead, they propose alternate methods of calculating expenses: either using the average of expenses incurred in the three years prior to the loss (2008–2010), or applying a 30% expense ratio to the gross income.

In their written submissions, the plaintiffs conclude that using the average expenses the net rental income from July 1, 2012 to December 31, 2016 would be $258,780.42.

Alternatively, using a 30% expense rate to the gross income, the final let income figure would be $227,845.17.

It must be remembered, that these calculations do not include the first year of lost rent. [122] In their submissions (at para. 182), the Tega defendants start with the 2010 gross actual rents and increase those annually by the maximum rent increase and deduct an operating ask operating expense ratio of 30.6%.

These defendants stop their calculation in 2015.

In order to compare their calculation to that used by the plaintiffs, I use 50% of the net income amount they have shown for 2011 ($40,622.47 × 50% = $20,311.23), and I have added an additional $43,964.60 for January to December 2016.

That arithmetic results in lost net income from June 1, 2011 to December 31, 2016 of $236,323.26. [123] In their submissions, the Goodeve Manhire defendants use the net monthly income of $5,787.48 reimbursed by State Farm, but state that the plaintiffs should have mitigated and that, therefore, the plaintiffs are entitled only to an additional two months of rent for August and September 2012. [124] Consistent with virtually all the damages that are claimed by the plaintiffs, the evidence is somewhat speculative and based on assumptions.

However, the evidence of the plaintiffs was that they did have vacancies from time to time, and that when they had a good tenant that they liked, they did not increase the rent at all, or by an amount less than the maximum legal amount. [125] For the purposes of determining the lost rent to which the plaintiffs are entitled, I choose the calculations put forward by the defendant Tega and award the plaintiffs rent from June 1, 2011 to December 31, 2016 in the amount of $236,323.26, which figure must be adjusted by the amount the plaintiffs received from their insurer for lost rental income. # Costs [126] In the expectation that the parties will not be able to agree on costs, the parties are to submit written costs submissions, not to exceed three pages in writing, together with bills of costs, copies of time dockets, and copies of any and all offers that may be relevant.

Those costs submissions are to be delivered 30 days from the date of the release of these reasons. **L. Sheard, J.** **Released:** August 30, 2016