INTRODUCTION
The process adopted by the City of Victoria to protect the interior of an old building at 913 Government Street, Victoria, British Columbia, culminated in the recent arbitral award in Rogers' Chocolates Ltd. v. City of Victoria.Footnote 1 While the city was right to protect the interior, its process highlights many concerns arising out of the use of a coercive regulatory approach to the conservation of heritage property. Since many old buildings are privately owned and municipalities govern much of the population of British Columbia, the award sets a precedent concerning the effects of an involuntary designation of heritage propertyFootnote 2 which is of particular significance. This case study focuses on the relationship between cooperative resolution of conflicts between the rights of the public to protect heritage buildings and the rights of private property owners to the use of their property without interference, on the one hand, and the long-term utility and conservation of historic buildings and the sustainability of local government heritage programs, on the other. Analysis includes discussion on (a) the facts leading up to the award, (b) key issues arising out of an involuntary designation, (c) flexible conservation mechanisms and incentives available to local governments, (d) approaches to conservation of heritage buildings in other jurisdictions, (e) opportunities for improvement in the local government heritage conservation program, and (f) concluding remarks.
BACKGROUND
The Rogers building was built in 1903 and is owned by Rogers' Chocolates Ltd. (“Rogers”). Rogers sells chocolates, and has done so since 1917, in its store located at the front of the building. In 1975, the exterior of the building was designated heritage property, and in 1981, Rogers received a Hallmark Society award for “continued preservation and maintenance of [the store's] historic interior.”Footnote 3 More recently, in 1991, the Historic Sites and Monuments Board of Canada commemorated the Rogers building as a National Heritage Site.Footnote 4 National recognition was based in part on the existence of the historic Queen Anne–style interior of the store in its “original state” including, in particular, the following heritage elements: oak, cherry, and walnut paneling; mosaic tile flooring; antique light fixtures; wood and glass display cases, mirrors, and leaded glass; cast iron; and marble finishings.Footnote 5
In the past, Rogers has added space at the back of its buildingFootnote 6 and replaced the store's cabinetry and floor.Footnote 7 In 2007, in order to alleviate customer overcrowding, Roger's planned a renovation of the interior of the store to increase retail space from 520 square feet to approximately 1000 square feet.Footnote 8 This renovation would involve moving the rear wall of the store back about 20 feet and “structural and safety upgrades”Footnote 9 at a total cost of $250,000.
Although Rogers obtained a building permit for the proposed renovation in December of 2007, it voluntarily stopped the renovation work in order to discuss with the City of Victoria its planned work and the city's concern to save the store's heritage elements.Footnote 10 After months of discussion,Footnote 11 the parties were unable to agree on an acceptable renovation plan.Footnote 12 Accordingly, in September 2008, Rogers notified the city that the renovation would recommence. In response, the city issued a temporary protection order pursuant to the Local Government ActFootnote 13 to stop the work and allow the city time to enact a heritage designation bylaw pertaining to the store's interior.
A public hearing on the proposed bylaw was held on 12 February 2009. Rogers and its counsel received notice of the hearing that morning. At the hearing, counsel for Rogers advised the city that Rogers would “do what it can” on the renovation to preserve the heritage elements and also made it clear that Rogers would seek compensation on any heritage designation. Although the city had apparently received estimates of the amount of compensation potentially payable on the proposed designation, and despite citizen requests for information on the cost to taxpayers of a designation, the city refused to divulge any information except the method of determining such compensation.Footnote 14 On the date of the hearing and against the objection of Rogers, the city passed (one vote against) Bylaw 580 pursuant to section 967 of the Local Government Act designating the interior of the store and its heritage elements as protected heritage property. In the absence of a heritage alteration permit, the planned renovation could not proceed.Footnote 15
In November 2009, the city unilaterally presented two concessions. First, the city amended the designation to permit a revised renovation plan.Footnote 16 This plan, which Rogers had earlier rejected as “totally inadequate,”Footnote 17 permitted (a) a doorway between the store and the space behind it (passing through an existing wooden cabinet and necessitating removal of a wooden counter) and (b) windows (replacing wooden paneling) behind upper cabinets across the store's rear wall. Second, the city, by bylaw, granted Rogers a partial property tax exemptionFootnote 18 valued at $73,925.Footnote 19
On 8 January 2010, the British Columbia Property Assessment Appeal Board determined the market value of the Rogers building for the 2009 assessment roll. The board concluded that reduction in the market value arising from the possibility of the future heritage designation and any resulting compensation payable to Rogers must be considered in setting the assessed value.Footnote 20
The amount of compensation payable as a result of the heritage designation was decided by arbitration pursuant to the Commercial Arbitration Act.Footnote 21 Under the arbitration award, the city is required to pay Rogers (a) approximately $598,000 for the reduction in market value of its building resulting from the designation; (b) interest dating back to the date of Bylaw 580; (c) 85% of Rogers' legal costs; (d) taxes on its lawyers' fees; and (e) lawyers' disbursements, experts' fees, appraisal costs, arbitration costs, and other disbursements.Footnote 22 Although the partial tax exemption was effective to reduce the amount otherwise payable on account of the diminution in market value by only $20,000, the revised renovation proposal significantly reduced this amount.Footnote 23 The compensation payable under the award plus the tax exemption creates a liability to taxpayers totaling roughly $750,000.Footnote 24 With few exceptions, the arbitration award cannot be appealed.Footnote 25
THE INVOLUNTARY DESIGNATION
The City of Victoria, as a creature of statute, is limited to exercising those powers that the British Columbia legislature has delegated to it. The legislature has delegated significant power in relation to conservation of local heritage buildings to local governments. Most of these powers are contained in Part 27 of the Local Government Act. Under Part 27, the city is authorized to, inter alia, (a) withhold approvals for alteration of protected heritage property, property subject to temporary heritage protection, and property in a community heritage register;Footnote 26 (b) temporarily withhold a building permit and give temporary protection for a building for up to 60 days in order to make a decision concerning designation;Footnote 27 (c) designate property in whole or in part, including “affixed interior building features and fixtures identified in the bylaw” if the local government considers the property has heritage value or heritage character, or that designation is necessary or desirable for conservation of a protected heritage property;Footnote 28 and (d) regulate, through the issuance of heritage alteration permits, structural changes to designated property and any action that would “damage” an interior fixture or feature identified in a designation bylaw.Footnote 29
Once the city learned of the Rogers' proposed renovation, it appears to have focused exclusively on the listed powers as a means to achieve its aim of protecting the interior of the Rogers store in its present state.Footnote 30 From the perspectives of stewardship of the Rogers building and the general public interest, this heavy-handed regulatory stance has some shortcomings.
Alterations to Heritage Buildings and Adaptive Reuse
Coercive intervention may have been unnecessary in the particular context of the present case. The city had knowledge that Rogers has maintained its building's heritage elements over nearly a century. This is so notwithstanding its earlier renovations to the building. Considering the anticipated cost of the proposed renovation, it is unlikely that it would not have involved some reproduction of the existing character of the store in the new space. Rogers had also acknowledged the significance of the store's heritage elements and had provided verbal assurances that it would strive to maintain them.
The proposed renovation might also have been consistent with the national “Standards and Guidelines for the Conservation of Historic Places in Canada”Footnote 31 adopted by the city in its Official Community Plan. On its web site, the city states that such Standards and Guidelines are “used as the basis for staff advice to property owners, developers and council on applications that involve changes to protected heritage property.”Footnote 32 The national Standards and Guidelines recommend against “removing” (not “moving”) walls and making “radical” changes to character-defining elements during interior renovations. The focus must be on preserving the proportion of spaces, as well as other features and finishes so as not to create “a new appearance.” Additional historic cabinetry and other heritage elements constructed in the enlarged space might well have been expected to maintain the historic spatial configuration. As Rogers explained, the end result of the planned renovation would have been “a bigger version of what [customers] see now.”Footnote 33 In contrast, if the aim is to maintain a compact spatial arrangement, the expansive windowing proposed by the city would seem to defeat this objective. Moreover, it is arguable that the Rogers' renovation wall movement would be less intrusive to heritage elements than the disposal of paneling and destruction of some cabinetry required to effect the city's revised renovation plan.
The city also failed to consider the need to achieve an appropriate balance between heritage conservation and utility. A functional and economically viable building will be better cared for and more likely to be enjoyed by the community. As noted above, Part 27 of the Local Government Act contemplates and expressly authorizes a local government to permit limited alterations to designated buildings. Provincially established Heritage Conservation Principles are available to the city. These are intended to assist in the determination of appropriate alterations to, and restoration and maintenance of, BC heritage buildings.Footnote 34 According to such principles, minimal intervention must be balanced against maximum utility of the building.Footnote 35
Each of the “Standards and Guidelines for the Conservation of Historic Places in Canada,” Heritage BC,Footnote 36 and the Supreme Court of Canada also recognize that a reasonable compromise might need to be achieved between the conservation of heritage property and changes required to adapt buildings to fit contemporary living standards or to meet other requirements of society.Footnote 37 The national Standards and Guidelines refer to upgrades and the requirements of safety and other regulations. Similarly, Heritage BC accepts that “reasonable and necessary” changes in the interests of utility and safety are acceptable so long as “essential” heritage qualities are protected.Footnote 38 More pointedly, the Supreme Court has cautioned that the Heritage Conservation Act,Footnote 39 which is the provincial counterpart to Part 27 of the Local Government Act, “is not framed in absolute preservationist terms. While it is desirable to preserve elements of the past, humanity is required to live in the present.”Footnote 40 In analyzing the competing claims of First Nations to preserve culturally modified trees and the claims of the forestry industry to log the forest, the Supreme Court described the effect of the Heritage Conservation Act as “the striking of a balance between the need and desire to preserve aboriginal heritage with the need and desire to promote the exploitation of British Columbia's natural resources.”Footnote 41
Ismail Serageldin emphasizes the significance of the utility and, particularly, the “adaptive reuse” of historic buildings and underscores the potential adverse effects of inflexible preservation standards. As he explains, cultural heritage, which includes historic buildings, is a “global public good” that not only deserves but also requires public and private financial support. Creative and efficient reuse of historic buildings is a catalyst for investment. Conversely, a prohibition against renovation of, or strict renovation limits applicable to, historic buildings prevents their adaptive reuse and, instead, allows deterioration. Over time, this renders old buildings unsafe or unsuitable for contemporary use. As this occurs, the population and activity in the location of useless historic structures dwindles. In turn, this discourages investment in cultural heritage initiatives. Since the preservation of historic buildings in urban areas is often incorporated in wider programs for cultural heritage conservation and economic and social revitalization of historic cities or areas, a failure to consider adaptive reuse of old buildings impedes both conservation and development plans.Footnote 42
Adoption and application of inflexible preservation policies for historic buildings also represents a missed opportunity to initiate or contribute to the development of a “tourist-historic city.”Footnote 43 The tourist-historic city concept, developed by Gregory Ashworth and John Tunbridge, incorporates the principle of adaptive reuse and is based on the idea that tourism can be used as an income source to cover the costs of preserving, restoring, and enhancing cultural heritage and meeting other contemporary socioeconomic needs, while cultural heritage can be utilized to promote tourism.Footnote 44 It shifts the focus of conservation from individual building preservation to historic area conservation and reuse. The tourist-historic city is a particular area located at a city's historic core. It links the historic core with the closely associated (and typically overlapping) central business district of the city. It also introduces historic district conservation into urban planning. Within the tourist-historic city, heritage buildings and other attractions and artefacts are rehabilitated and adapted for contemporary use and connected (via various transportation systems) with each other and with support facilities and new attractions (such as hotels, restaurants, specialty shops, and theatres). This packaging creates a cultural heritage product that improves the tourist experience, with concomitant enhancement of the reputation of the city as a desirable tourist destination and increased tourism revenue.Footnote 45 Equally important, tourist-historic city planning and development achieves heritage district conservation and modernizes and revitalizes the local community experience. If it is acknowledged that cultural heritage conservation depends on and is limited by available funding, failure to consider the proposed renovation of the Rogers store in conjunction with the development of a tourist-historic city is a significant oversight which reflects a very limited view of the potential which heritage holds for contribution to society.
The Special Character of Heritage Building Conservation
It is apparent that the City of Victoria also failed to fully consider the special character of historic buildings and the need for long-term conservation measures. Under the Local Government Act, “conservation” includes “any activity undertaken to protect, preserve or enhance” the heritage value of heritage property.Footnote 46 Since buildings, unlike living things, depreciate and are not replenished, preservation is at least as important as protection. If the goal of saving old buildings is to ensure that such heritage is available for the enjoyment of all humanity both now and in the future, conservation must not only involve taking control of heritage property but also extend to making arrangements to conserve it. Hence, a designation without plans for maintenance is inadequate. Moreover, routine maintenance is not enough to accomplish preservation.
The fate of Walnut Hall in Ontario demonstrates that a cyclical maintenance plan should be established to protect each heritage building for the future.Footnote 47 Such a management strategy might include maintenance, reconstruction, stabilization, rehabilitation, and repair of material and structural deterioration.Footnote 48 Without a permanent conservation strategy in place that requires regular intervention, a historic building is at risk of eventual abandonment and demolition. Though Walnut Hall was “protected” by heritage recognition and designation since as early as 1983, it sat vacant and boarded up for over two decades before it was eventually demolished, as it began to collapse, in 2007.Footnote 49
Recognizing the potential for neglect of old structures, the UNESCO Convention Concerning the Protection of the World Cultural and Natural Heritage obligates signing countries to safeguard world heritage properties and, further, to manage them adequately so as to “mak[e] them part of the lifeblood of the community.”Footnote 50 By contrast, for designated buildings in the city, “normal maintenance and repairs (e.g., painting, gutters, maintenance of stairs) can be carried out at the owner's sole discretion.”Footnote 51 Although it is authorized by bylaw to establish minimum standards for the maintenance of designated buildings,Footnote 52 the City of Victoria provides no notice on its heritage web site of such standards. In view of the total cost of the heritage designation respecting the Rogers store, failure to concurrently establish specific minimum maintenance standards and a plan for comprehensive long-term care of the Rogers building appears to be a serious managerial deficiency.
Cost Efficiency
The City of Victoria will pay roughly $750,000 for its right to “freeze” the Rogers store in its present state. Subject to compliance with the freeze, Rogers will pocket the money with no strings attached. Despite the total cost to the city, there is no resultant motivation for Rogers to continue the retail chocolate business in its store, nothing to prevent a future City Council permitting the planned Rogers renovation, and no obligation (or even right) to perform upgrades to the Rogers store or building. Moreover, related negative publicityFootnote 53 might be expected to undermine community support required for heritage conservation.
Since conservation is costly, the best conservation policy will both maximize benefits to society and minimize costs to the owner, the government, and the public.Footnote 54 It is to the citizens of the province that public officials owe their primary duty.Footnote 55 To protect the public interest, the choice of mechanism used for protection of heritage property must involve consideration of the cost efficiency of such choice. This is not only prudent but crucial in times of economic difficulties.Footnote 56 It is also consistent with the Local Government Act and Community CharterFootnote 57 emphasis on the corporate model of accountability.Footnote 58 An involuntary designation alone, in the face of the looming possibility of a significant compensation award, might be said to be rational and cost efficient only if it is necessary and it accomplishes the aim of heritage conservation. As discussed above, there is a good argument that the designation of the Rogers store interior satisfied neither test.
As academics caution, regulation “tends to drown out rational considerations of cost”Footnote 59 and produce “highly arbitrary and inefficient results” because regulation focuses on “rights” of the owner and the public.Footnote 60 Cost efficiency is achieved through “political opposition” or “an open public balancing of costs and benefits.”Footnote 61 In the present case, the potential for significant resultant costs to the city on the designation was shrouded in secrecy so that no check on the measure of funding allocated to prevention of the proposed restoration was achieved.Footnote 62 Confidential arbitration proceedings further ensured that opposition was muted and delayed.
Inequities
Pursuant to the Community Charter, subject to some limitations, the City of Victoria is a corporationFootnote 63 and has the power and capacity of a natural person.Footnote 64 This includes the common law right to enter contracts that are intra vires its authority.Footnote 65 The Community Charter expressly authorizes the city to provide limited financial assistance for the purpose of heritage conservation. Among other things, the city is authorized to (a) provide a grant, benefit, advantage, or other form of assistance to a business for any activities that the City Council considers necessary or desirable with respect to the conservation of heritage property;Footnote 66 (b) exempt a protected heritage property from payment of municipal property taxes; and (c) enter a property tax exemption agreement with the owner which may specify the terms and conditions on which the exemption is provided.Footnote 67
Considering the foregoing authority, the citizens of Victoria might reasonably object to the provision of the unconditional partial tax exemption to Rogers. First, the city's failure to obtain an exemption agreement represents a lost opportunity to secure Rogers' commitment regarding stewardship of its store. Second, the tax exemption was granted to Rogers nine months after the designation of its store. This suggests that it was not used as an incentive for conservation “activity” as required by statute. Rather, it appears to have been a last minute attempt, in the corporate and political interests of the local government, to reduce compensation payable as a result of its designation. Third, while the tax exemption granted to Rogers is authorized by statute, it falls outside the city's published eligibility requirements for its Tax Incentive Program for Downtown Heritage Buildings. This program provides tax exemptions only for commercial buildings that convert upper stories to residential uses.Footnote 68 The policy focus appears to be on establishing a link between development to increase the tax base and social engineering, on the one hand, and conservation initiatives, on the other. Fairness dictates that this policy restriction ought to apply uniformly to all City of Victoria properties.
It is also arguable that the city has acted unfairly towards the citizens of Victoria by imposing an involuntary designation and, thereby, triggering the compensation provision. Doubtless, the arbitration award in favor of Rogers will significantly negatively impact the amount of funding available for other heritage projects.Footnote 69 This may privilege heritage that represents a certain history of the city or creates a particular image of its past at the expense of protection for other heritage property of significance to diverse cultural and socioethnic groups in the City of Victoria. Furthermore, due to the Rogers store overcrowding, prevention of the proposed renovation might well also unfairly deprive numerous citizens who will pay for the heritage designation, as well as many tourists, of the right to enjoy the store's heritage elements.
The City of Victoria has also established a precedent that raises issues concerning the funding of designations across the province. The precedent might be expected to have a disproportionately greater negative impact on the heritage programs of smaller and developing communities compared to those of large urban municipalities. Owners of valuable heritage sites, who might otherwise have been happy to reach a reasonable resolution to safeguard their special buildings, now might be motivated to request alterations to them or to resist designations in the hopes of securing a resulting cash award. As a result, some municipalities might be forced to adopt an extremely conservative approach to the conservation of heritage buildings and lose valuable heritage sites.
Finally, the city's process appears to be unfair to Rogers. Rogers' compensation for the loss in market value of its store attributable to the heritage designation was reduced by a revised renovation plan. This plan was adopted by the city, by bylaw, notwithstanding that it was unacceptable to Rogers. More significant, the revised renovation would result in damage to certain heritage elements of the store. This practical effect of the revised renovation and the timing of the relevant bylaw give the appearance that the purpose of the revised renovation plan, like the tax exemption in favor of Rogers, had little to do with conservation of the Rogers store.
Legislative Policy and Protection of the Rights of Private Property Owners
The present legislative scheme indirectly promotes cooperation between the local government and private owners in the conservation of heritage buildings due to the statutory protection afforded to private owners.Footnote 70 Compared to a straightforward application for compensation, the remaining constraints on a local government's discretion to designate are relatively ineffective to protect private property rights. In the result, prudence dictates that, in the exercise of its discretion to designate, the City of Victoria must be mindful of the practical reality that it is unlikely that an owner will choose to challenge the city's decision.
The city's decision may be reviewed by the courts. Private property owners also have access to review of local government decisions (except with respect to compensation issues) by an ombudsman.Footnote 71 However, there are no regulations prescribing criteria to be applied to determine whether a property has the required heritage value or character for a designation. In British Columbia, unlike in many other jurisdictions, there is no right of appeal to an independent body for a broad review of the decision to designate.Footnote 72 The boundaries set by section 967(1) of the Local Government Act are wide and the courts are required to accord a great deal of deference to intra vires local government decisions. On a judicial review, the city's decision will be upheld unless it is unreasonable, provided the city has acted in good faith within its statutory authority and has considered the public interest.Footnote 73 It is only in very limited circumstances, therefore, that a designation decision will not stand.
Local government decisions must be made in accordance with the principles of natural justice. In general, this requires that the decision is reached fairly.Footnote 74 The common law requires disclosure of all relevant material considered by council in reaching its designation decision.Footnote 75 If the City of Victoria had received and considered estimates of the potential compensation award in reaching its decision to designate, but kept this information secret at the public hearing,Footnote 76 the public hearing was probably not valid.
The specific authority to designate heritage properties is also constrained by the procedural and other requirements of Part 27.Footnote 77 Under this part, a designation must involve consultation with the owner and the public. The solicitor for Rogers complained that he received notice of the public hearing on the morning of the hearing. While this alone is probably not fatal to the validity of the City of Victoria's Bylaw 580,Footnote 78 it does suggest that the bylaw might also have been enacted in contravention of the newspaper publicity requirements of section 968(4) of the Local Government Act. Although it is possible that Bylaw 580 might be struck down by a court as a result of procedural irregularitiesFootnote 79 or breach of natural justice, this would necessitate costly court proceedings. Moreover, even if successful, this effort might produce a hollow victory. Since there was only one vote against adoption of Bylaw 580, the City of Victoria could revisit the matter using procedures mandated by statute and might still achieve the heritage designation of the Rogers store interior.
Arbitration
As the Rogers case demonstrates, parity in the procedure and forum for determination of the compensation payable on a partial “taking” of private property for public purposes and on a designation of heritage status is lacking. Pursuant to section 33(1) of the Community Charter, in general, on any expropriation, or “taking,” by an expropriating authority without the consent of the owner, compensation is payable.Footnote 80 At common law, there is no “taking” if, as in the present case, the government receives no beneficial interest in the land, but instead, “nothing more than some assurance the land will be used in accordance with its vision” and the owner remains entitled to conduct its usual business.Footnote 81 However, the common law has been changed by statute in certain cases (e.g., on a zoning-related “taking”).Footnote 82 Under the Local Government Act, in the case of a heritage designation, whether or not a “taking” occurs, limited compensation is payable.Footnote 83 The amount of compensation payable to the owner on a designation and on a “partial taking”Footnote 84 is calculated in substantially the same manner (the reduction in value of the designated or partially “taken” property, respectively). However, the measure of compensation on a partial “taking” is determined in the Supreme Court of British Columbia and there is a right of appeal to the Court of Appeal. In contrast, the compensation award on a designation is decided through confidential arbitration proceedingsFootnote 85 before a single arbitrator, and there is, generally speaking, no appeal of the decision.
In the case of a designation with the consent of the owner, the parties may, in conjunction with collaborative conservation arrangements, agree that compensation is payable to the owner and will be determined by arbitration. However, on an involuntary designation, determination of the compensation award by arbitration under the Commercial Arbitration Act is inappropriate.Footnote 86 While determination of the dispute by arbitration is authorized by the Local Government Act, the dispute does not arise out of a contractual or any other type of commercial relationshipFootnote 87 between the parties.Footnote 88 Neither claimant nor defendant relies on the existence of a contractual obligation as a necessary element to create the claim or to defeat it.Footnote 89 Instead, the dispute arises out of a local government's designation decision that results in interference with the property rights of the owner. The parties to the arbitration are not evenly matched. Moreover, the arbitration is of interest to the public as it deals with the award of public money. In all of the circumstances, it is in the public interest and the interest of private property owners that the Local Government Act be amended to provide that the determination of compensation on a designation will be decided by public proceedings in the BC Supreme Court with the usual rights of appeal.
COOPERATIVE CONSERVATION OF HERITAGE BUILDINGS
The course adopted by the City of Victoria suggests that it failed to consider the full scope of available conservation strategies. As one academicFootnote 90 has pointed out, coercive intervention is unnecessary where the interests of the private owner and the public interests in heritage conservation overlap. Using “game theory,” the researcher elaborates that where, as in this case, the parties are not in complete opposition to each other in interests and the subject building remains functional, intervention may still be unnecessary. A mutuality of interests might well be achieved by agreement if the process is founded on cooperation and appropriate incentives are provided to the owner in exchange for reasonable restrictions and obligations to promote conservation.
Voluntary cooperative conservation offers numerous advantages over hard regulation. It will (a) prolong the life of heritage buildings, (b) contribute to increasing global support of heritage conservation, (c) encourage private funding, (d) reduce the need for local government supervision of designated properties, and (e) minimize interference with private rights. Therefore, in almost all cases, designation might be viewed as but a preliminary measure in an overall conservation plan. This plan will also involve consensus, restrictions, obligations, and cost-sharing.
An Alternative Conservation Plan for the Rogers' Store
The City of Victoria might have arranged an agreement with Rogers to preserve each of the heritage elements, the ambience, and the compact spatial configuration of the Rogers store and, at the same time, effected an extension of the life of such store as long as possible. Compared to the total cost of the Rogers' arbitration award, this would have involved little cost to the city. It was open to the city, acting reasonably, to agree to permit the proposed renovation subject to the following or other appropriate conditions:
(a) construction in the store's new space, with minimization of effects on existing heritage elements, of additional cabinetry, flooring, mirroring, and other features and finishings, which match the existing heritage elements in constituent materials and also reproduce the ambience and compact configuration of the store's existing space; and
(b) performance of upgrades to the service systems of the Rogers building, as reasonably necessary, and ongoing compliance with a specified comprehensive maintenance, restoration, and repair program requiring regular intervention designed to prolong the normal life of the building.
One of several conservation tools available to the city might have been used to incorporate one or both of these conditions. In conjunction with incentives, one of these options would have assisted in achieving the dual aims of conserving the Rogers building and store and meeting the needs of Rogers.
Flexible Mechanisms to Conserve Heritage Buildings
The city might have avoided an involuntary designation by simply obtaining from Rogers a binding undertaking to comply with specified renovation conditions or restrictions and relying on the common law principle of promissory estoppel. If the city had allowed Rogers to proceed with its planned renovation in reliance on that undertaking, Rogers would have been estopped at law from denying the application of the conditions or restrictions contained in its commitment.Footnote 91 Once an agreement acceptable to the city to prevent or mitigate circumstances that detract from the Rogers store's heritage value or character was reached, renovation approval could no longer be withheld.Footnote 92
It was also open to the city to obtain a restrictive covenant. A local government is authorized to acquire interests in land for municipal purposes.Footnote 93 Section 219 of the Land Title ActFootnote 94 authorizes the city to obtain a restrictive covenant for conservation purposes. The Community Charter expressly authorizes the city to provide financial assistance and municipal property tax exemptions for the conservation of property that is subject to a restrictive covenant.Footnote 95
A restrictive covenant is a voluntary agreement between a landowner and a local government that controls the use of, and thereby protects, heritage property. Section 219 overcomes most of the common law limitations on easements and restrictive covenants.Footnote 96 Hence, the covenant may be positive or negative. Of note, a restrictive covenant is sometimes referred to as a “conservation easement.” This is the terminology commonly used to describe any binding agreement between an owner and a government entity or authorized independent third party that is authorized by statute and that places restrictions on future land use for conservation purposes.
Based on the authority provided by section 219 of the Land Title Act and the Community Charter, a restrictive covenant may include the agreement of the parties as to which activities are prohibited (e.g., specified renovation restrictions); which actions are required to be performed (e.g., a specified upkeep program and the placement of insurance); which security, if any, is required to be provided to secure performance of the owner's obligations under the covenant (e.g., a letter of credit or indemnity by the owner); and which rights or benefits are granted to the owner as consideration or motivation for agreeing to restrictions and obligations in relation to the owner's land (e.g., a tax exemption or a grant, or both). The restrictive covenant, however, may not vary local government siting, use, or density regulations. On registration of the restrictive covenant at the Land Title Office against the subject land, it attaches to the land and binds subsequent owners.Footnote 97 Under contract law, the benefits and burdens under the covenant may be assigned.Footnote 98 Finally, since the restrictive covenant is authorized by statute, it is part of a statutory scheme and, therefore, part of “applicable law.” Accordingly, any building permit issued in respect of land subject to a restrictive covenant must be in compliance with such covenant.Footnote 99
Since a restrictive covenant may be terminated by written agreement of the parties, by unilateral action of the covenantee,Footnote 100 or, for limited reasons, by order of the court on application of a party interested in the land,Footnote 101 it may be necessary to arrange for the covenant to be granted to an independent third party (e.g., a land trust or other authorized nongovernment heritage organization).Footnote 102 This would protect the covenant against any termination or amendment by future city councils. It would also place the responsibility of monitoring and enforcing the covenantFootnote 103 on the third party rather than the city.
A restrictive covenant would provide the city with a potent tool to realize both its desired control of the Rogers store and the long-term aims of conservation. It would also achieve a sharing of costs and responsibilities. Rogers would retain economic use of its building and responsibility for its stewardship. The city would incur the cost of incentives and the city or a third party would incur the obligation and cost of monitoring and enforcing the covenant.
Pursuant to section 966 of the Local Government Act, the City of Victoria is also authorized, by bylaw, to enter into a heritage revitalization agreement (HRA) with the owner of heritage property.Footnote 104 The city's authority to provide financial assistance and municipal property tax exemptions for conservation purposes extends to property that is the subject of an HRA.Footnote 105
Like a restrictive covenant, an HRA is a voluntary agreement between the local government and the owner. Also like a restrictive covenant, an HRA may, but need not be, used in conjunction with a heritage designation, is registered at the Land Title Office,Footnote 106 and binds subsequent owners of the land against which it is registered.Footnote 107 In contrast to a restrictive covenant, the terms of an HRA supersede local government zoning bylaws and may vary regulations respecting density, siting, and land use. To control the use of this power, a public hearing is required if the HRA varies use or density regulations. In addition, an HRA may vary or supplement a heritage designation bylaw and a heritage alteration permit. An HRA may only be amended by bylaw with the consent of the owner.Footnote 108
An HRA is especially useful in heritage conservation projects that are complicated by zoning, subdivision, nonconforming use, allowable density, and siting issues, or any of them. Nonetheless, this option is an alternative means by which the City of Victoria might have achieved conservation of the store by agreement with Rogers. Under this option, too, the city and Rogers might have documented negotiated restrictions on use and alterations; obligations concerning continuing maintenance, repair, restoration, rehabilitation, the provision of access for monitoring and public access, or both; and any rights, advantages, and benefits accruing to Rogers. The local government could not, however, require an HRA as a condition of issuing the building permit for the Rogers renovation.Footnote 109
As discussed above, the City of Victoria is also authorized to grant a property tax exemption in respect of designated property, or property subject to a restrictive covenant or an HRA, and to enter into a tax exemption agreement with the property owner. On a breach of any condition of such exemption agreement, the tax exemption would cease to apply.Footnote 110 Negotiated terms and conditions of the exemption agreement may include, but are not limited to, requirements that (a) the exempted property be subject to a restrictive covenant; and (b) the property owner must pay to the local government an amount determined in accordance with the exemption agreement (e.g., the local government can negotiate a recapture of the amount of taxes previously exempted) if any condition of the exemption agreement is breached or the restrictive covenant is discharged.
If eligibility for the property tax exemption were not restricted by the City of Victoria's own Tax Incentive Program for Downtown Heritage Buildings, the city might have been able to negotiate Rogers' agreement to the heritage designation and specified renovation restrictions and upkeep program as a trade-off for the partial tax exemption alone.
Incentives
Since there will be a cost to a heritage building owner arising out of restrictions or obligations, or both (e.g., the stipulated renovation restrictions and upgrade program, or both) placed on the owner to achieve heritage objectives, and since the cost of heritage conservation must not lie solely with the owner, the City of Victoria will doubtless be required to offer incentives. In fairness to other taxpayers, incentives should be offered prior to any heritage designation, in an attempt to avoid an involuntary designation, and should be tied to any obligations for which they are a trade-off.
The City of Victoria's Building Incentive Program administered by the Victoria Civic Heritage Trust is available to provide monetary grants to owners of designated buildings to assist with “rehabilitation” costs such as structural improvements and upgrading required by building codes. This program might have been used to offset costs associated with the upgrades included in the Rogers proposed renovation. Eligibility for the only other city grant program available to assist with restoration and repair costs is limited to heritage-designated homes. Expanded eligibility requirements for city grants would strengthen the negotiating power of the local government to obtain the desired voluntary conservation commitments from owners of heritage properties.
Under the Community Charter,Footnote 111 full or partial tax exemptions may be granted not only with respect to heritage-designated property but also for property that is the subject of an HRA or a restrictive covenant. Flexible eligibility requirements are necessary to achieve maximum utility of this conservation tool. The City of Victoria sought from Rogers neither an HRA, a restrictive covenant, nor a tax exemption agreement stipulating the terms and conditions of the granted tax exemption. However, since the city has tied its particular exemption program to residential development, it was not open to the city to use this mechanism as an incentive for Roger's consent to the heritage designation, specified renovations restrictions, and a specified upkeep program, or any of them.
A transfer of development credits may be used as an incentive in conjunction with a restrictive covenant or an HRA. Under this scheme, either the covenant or the HRA could include the City of Victoria's agreement to transfer development rights attached to the heritage building to be conserved either to another property owned by the heritage building owner or, at the direction of such owner, to a property owned by a third party. In the latter case, the credits (the transferred rights) could be marketed and sold by the owner to the third party. In return, the owner would agree to restrict development on or alterations to the heritage property. In either case, the location of the receiving property must be limited to areas in which zoning and other bylaws permit the exercise of the credits.Footnote 112
While this scheme is usually used in connection with a proposed development, as opposed to a renovation, a variation of the scheme might have been created to provide some benefit to Rogers. This option involves little cost to the local government and produces a very fair result. A transfer of benefits from the owner to the public is not enjoyed freely by the public at the expense of the owner. If the receiving property is close to the heritage building's location, this is also a fair solution to third parties.Footnote 113
Zoning relaxation and other development concessions (e.g., permission for new uses) may also be used to encourage investment in heritage conservation. In the present case, there was no suggestion that the planned renovation required any changes to applicable zoning laws or related concessions.
Other forms of support might also be considered. The timely rescue of an abandoned designated heritage building and, indeed, proactive measures to prevent eventual abandonment of a currently functional heritage building may be achieved by the grant of permission for, or even the encouragement of, selective alterationsFootnote 114 to the building. These will be at the owner's cost and limited to alterations necessary to achieve the renewed or continued economic viability of the building. Resultant potential economic gain, without more, might well provide sufficient motivation to secure the owner's concurrent commitment to undertake ongoing extensive conservation work. In conjunction with this work, the local government might provide free technical assistance.
HERITAGE CONSERVATION IN OTHER JURISDICTIONS
Heritage conservation schemes in jurisdictions outside British Columbia use a variety of methods to achieve the first step in a conservation plan. This is the recognition of the special status of a particular heritage building through a listing or designation. In no case, among those schemes investigated, is the decision to list or designate left exclusively to the discretion of an elected local government council. Contrasting processes include quasi-judicial decision making with recognition of the constitutionally protected property rights of individuals, a right to appeal the listing or designation to an independent body, and a requirement to obtain the consent of the owner of the heritage building prior to the listing or designation.
Similar to the scheme set up by the British Columbia Local Government Act and Community Charter, in every outside jurisdiction investigated, the heritage conservation scheme goes beyond “protection.” It also incorporates measures to provide for the long-term conservation of heritage buildings. Without exception, the schemes are founded on recognition that the success of the scheme depends on cooperation and a sharing of costs between the public and private sectors. Most jurisdictions rely to a great extent on the use of conservation easements or covenants in conjunction with generous financial benefits to owners who are committed to the long-term care of heritage buildings. In most cases, the incentives provided to owners as a trade-off for their obligations are more generous than the incentives available to owners in the City of Victoria.
Ontario
The most significant difference between the Ontario and British Columbia systems is that no compensation is payable to the owner on a designation of a heritage building in Ontario.Footnote 115 However, the owner has the right to appeal a designation to the Ontario Conservation Review Board. This independent tribunal conducts a formal hearing on a quasi-judicial basis and makes recommendations to the municipal council. Council need not accept the report of the review board.Footnote 116
While a program focused on designation with compensation is not financially sustainable, designation at no cost to the general public is inconsistent with the legislative policy embodied in the BC provincial Heritage Conservation Act and Part 27 of the Local Government Act. Critics argue that designation without compensation is equivalent to expropriation without compensation, unfairly interferes with the property rights of private owners, and creates economic problems for various groups, such as schools and churches, which are anxious to sell buildings no longer required for their purposes.Footnote 117 Academics underscore two dangers in the Ontario system. First, if a government is not required to pay for the reduction in land value resulting from a regulatory decision, the government might tend to “overinvest” in conservation or favor public use over private use. Second, the political pressure exerted by owners and other interested groups to constrain government conservation regulation likely will be ineffective to challenge majority support for a “regulatory product” that benefits the public at no cost to it.Footnote 118
From the perspective of the conservation of the building, the systems in British Columbia and Ontario are similar. In Ontario, as in British Columbia, designation establishes municipal control over alterationsFootnote 119 and obligates designated property owners to meet established minimum standards for maintenance and repairs.Footnote 120 It does not ensure the necessary stewardship of buildings. This can be achieved in Ontario, as in British Columbia, through the use of covenants or easementsFootnote 121 and financial incentives.Footnote 122
Australia
The Australian system incorporates a regulatory approach to heritage property management aimed at achieving “a willing commitment of the owner to long-term protection and the best possible expenditure of public funds.”Footnote 123 It embraces broad participation in the listing decision and promotes heritage building vitality. Depending on the state, an independent body or the minister makes the decisions as to which properties are protected by a declaration of heritage status.Footnote 124 The listing decision in New South Wales, for example, is based on seven specific criteria and advice received from a heritage council consisting of fifteen members representing a broad set of skills and various interested groups.Footnote 125 In turn, the heritage council is advised by a series of expert panels.Footnote 126 Anyone interested in a particular listing may make written submissions and, if an owner objects, the minster may refer the matter to a Ministerial Review Panel to provide independent advice. “The important thing is to … debate [the] issues so that the decisions of official bodies reflect the majority view.”Footnote 127
Changes to listed heritage buildings may be approved. The aim with respect to desired changes is “to achieve a sensible balance between retaining the heritage significance of special places and enabling them to continue to be of use to the owners and the community.”Footnote 128 Both the Australian government and each state government are authorized to negotiate and enter voluntary conservation agreements with owners for the protection of heritage property in return for incentives. Incentives may include a signing bonus, funding for maintenance costs, access to technical assistance, and tax benefits.
United States
The first step in the United States heritage conservation system is distinct as a result of the Fifth Amendment of the U.S. Constitution, which limits the authority of the government to regulate the property rights of private owners. However, the jurisprudence of the United States has determined that conservation statutes protecting heritage buildings are constitutional notwithstanding the Fifth Amendment. Some U.S. states require the consent of the owner to regulate properties, while others authorize designation of property with particular heritage significance without consent. In order to establish that a constitutionally prohibited “taking” has occurred under preservation legislation, the owner must demonstrate that it is no longer possible to “earn a reasonable return on the property”Footnote 129 or that the effect of the taking is to enrich the government itself rather than to substantially advance the public good.Footnote 130 If there are specific and prescribed criteria for designation couched in mandatory language, the courts have held that the decision of council to designate represents a quasi-judicial decision. Therefore, on judicial review, the applicable ordinance will be upheld only if the court determines that one or more of the prescribed criteria provides a “substantial basis” for designation.Footnote 131
Notwithstanding the contrasting designation process, the critical aspect of U.S. heritage conservation is similar to that of BC. Voluntary heritage conservation agreements are used in every U.S. state to achieve conservation objectives. Of note, many state conservation easement statutes are modeled on the Uniform Conservation Easement Act,Footnote 132 which authorizes third-party nonholders to enforce the terms of an easement provided that the third party is qualified to hold an easement.Footnote 133 Hence, enforcement can be delegated to a third-party organization having the necessary resources to enforce effectively.
Commonly used incentives are transfers of development credits, property tax credits,Footnote 134 and income tax deductions. American incentives provide better support for local initiatives than the limited incentives available in Canada. Like a Canadian ecogift (under the Ecological Gifts Program), a gift of a conservation easement made in perpetuity to a qualified organization committed to protecting a “certified historic structure” and having the necessary resources to enforce applicable restrictions, qualifies as a charitable contribution under U.S. tax laws. Moreover, such a gift qualifies the donor, whether an individual or a corporation, for a federal tax deduction.Footnote 135 The amount of the deduction will be equal to the loss of property value attributable to the restrictions in the easement.Footnote 136 Permitted contribution levels are higher than levels permitted for other charitable gifts of property, and the carry-forward period is longer (15 years). In addition, state nonrefundable tax credits with up to a 20-year carry-forward period are available, and some states permit the sale of a limited amount of income tax conservation credits to another taxpayer for use in payment of the buyer's own taxes.Footnote 137
Japan
Conservation of “important cultural properties,” which includes heritage buildings, in Japan is achieved exclusively by consensus with the owners of heritage buildings. Under the Law for the Protection of Cultural Properties,Footnote 138 which applies to properties owned by governments, corporations, and individuals, protection may occur through (a) a designation by a local government following a comprehensive nomination process or (b) an emergency registration as “tangible cultural property.”Footnote 139 On registration of a property, a local public body may be appointed as custodian to preserve the property, at the custodian's cost. Once a building is designated, the registration is annulled.
The required consent of the building owner depends on motivational financial incentives. Protected properties in Japan are subject to very high maintenance standards, and an annual opening to the public and owners must adhere to strict and onerous reporting requirements (notice of damage, destruction, or alterations, and status reports). The Commissioner of the Agency for Cultural Affairs may oppose and provide advice on alterations. In view of these maintenance and reporting requirements and the Japanese emphases on new construction and large-scale public works projects, the incentives to motivate owners to consent to designation of their heritage buildings are significant. These include low-interest loans, national subsidies for technical assistance in preservation, and a reduction of up to 50% of both local taxes payable on the building and land-value taxes. Corporate owners also receive a plaque and a subsidy equal to 50% of the cost of conservation plans prepared by a conservation architect.Footnote 140
OPPORTUNITIES FOR IMPROVEMENT
An experienced community heritage commission, which brings to its advisory tasks a broad knowledge of all aspects of heritage management, is a key component of a local government's heritage program. Although the benefits of promoting public understanding and awareness of the value of conserving heritage buildings are widely recognized, this is only one area in which education is useful. Education of public officials is also crucial. Local governments must be knowledgeable about the availability, advantages, and disadvantages of all of the tools available to them for the conservation of heritage property. The City of Victoria has appointed a Heritage Advisory Committee to act as its heritage commission.Footnote 141 The Local Government Act authorizes expanded terms of reference for this Advisory Committee.Footnote 142 Maximizing use of the Advisory Committee's expertise on matters such as the selection and implementation of available heritage conservation mechanisms will assist council in achieving permanent conservation measures to safeguard each historic building and a sustainable heritage program.
The decision to designate has significant implications for each of the heritage building, the heritage program, the public, and the owner. Of necessity, therefore, it must be subject to checks and balance and made only after a comprehensive review of all relevant facts and circumstances in context. A local government temporary protection order issued under section 962 of the Local Government Act to give temporary protection to potential heritage property for a period up to 60 days makes this sort of review possible.
The necessary review might be achieved through four measures. Firstly, full and open discussion and debate at the public hearing preceding a designation will encourage community participation. Objections, opposing views, and tough questions have an important role in ensuring that all issues relevant to the subject decision receive appropriate consideration. Secondly, a statutory mandate requiring council to consider a comprehensive report on the historic building and the long-term plan for its conservation prepared by the community heritage commission, as a precondition for designation, would establish a minimum standard of review and increase the likelihood that other conservation mechanisms and the overall conservation plan are considered. Alternatively, or in addition, a designation might be subject to complete review and reconsideration by an independent tribunal. Finally, court proceedings to determine the amount of compensation payable on a designation would introduce a further check. Practical constraints are provided by public scrutiny of a local government's actions in proceedings conducted in open court and the availability of judicial decisions for public review.
A heritage gift program analogous to the Ecological Gifts ProgramFootnote 143 would also significantly advance local government heritage programs. Under the ecogift program, income tax benefits are used as an incentive to promote ecological conservation. A donation, or ecogift, of “ecologically sensitive” land or an interest in land (including a conservation easement or covenant) to a government or an approved Canadian registered charity,Footnote 144 which restricts land use in perpetuity, qualifies the donor for special income tax benefits. National ecosensitivity criteria include “sites that contribute to the maintenance of … Canada's environmental heritage.” These criteria, however, do not include heritage buildings.Footnote 145
The tax treatment of ecogifts includes tax credits or deductions. An individual donor is entitled to a nonrefundable tax credit in an amount equal to the excess of the value of the ecogiftFootnote 146 over the value of any significant consideration or advantageFootnote 147 received by the donor in return for the gift.Footnote 148 This tax credit may be used to reduce both federal and provincial taxes payable and may be carried forward for up to five years. Corporate donors may deduct the amount of the ecogift directly from taxable income. Special tax benefits include elimination of tax on the capital gain realized on the disposition of the gifted propertyFootnote 149 and elimination of the monetary upper limitFootnote 150 on ecogift donations in a year that are eligible for the deduction or credit.Footnote 151
Currently, there are no income tax incentives for businesses to donate an interest in land for heritage purposes, such as a conservation easement, if the interest is inventory property. The tax credit or deduction available on a charitable donation for heritage purposes of an interest in land that is capital property is largely offset by the inclusion in income of the capital gain realized on the disposition of such interest.
A donated heritage conservation easement would contribute both directly and indirectly to conservation. It would protect heritage buildings and benefit the community. Like the donee of an ecogift, the donee of a heritage gift would be responsible for maintaining the heritage building in perpetuity. A heritage gift program with special income tax treatment for donors would result in increased government (both federal and provincial) spending (tax revenues not received) on the conservation of heritage buildings. Increased federal and provincial government support for local government heritage conservation programs is necessary in order to enable local governments to fulfill their responsibility to protect local heritage buildings. Special income tax treatment of charitable donations for heritage purposes would also encourage citizen participation in heritage projects by pointing up public recognition and support for heritage conservation initiatives. Additionally, a heritage gift program would reduce the need for regulation and increase private participation in the decision as to which buildings are conserved.Footnote 152
Provincial financial assistance is particularly appropriate in light of the provincial delegation to local governments of responsibility to protect local heritage structures. Increased provincial funding will help to offset any reduction in the local tax base arising out of adjustments in the assessed values of heritage properties and the reduction in tax arising out of the provision of property tax exemptions associated with heritage conservation legislation. It will also assist local governments in providing adequate grant incentives for the conservation of heritage buildings.
CONCLUDING REMARKS
Local governments have wide powers to regulate heritage property. Nevertheless, regulation must be approached with restraint. In the absence of the cooperation of the owner of the heritage property, designation is a potentially extremely costly achievement of limited value in the overall conservation scheme. Local government preplanning and reliance on available expert guidance and advice at each stage of the heritage conservation process and full participation of local people in debate at public hearings will reduce incidences of unfairness and cost inefficiency and optimize use of the full range of conservation tools.
Our best hope to achieve long-term and broad-based enjoyment of heritage buildings rests on early good faith negotiation between the local government and private owners to establish cooperative and enduring building-specific conservation strategies. This collaboration will not only ensure effective stewardship of heritage buildings but also promote a sustainable local government heritage conservation program. A formal voluntary agreement between the local government and the owner of a heritage building will also facilitate an appropriate linkage between the provision of financial assistance and the implementation of the comprehensive conservation program.
Plans for protection of heritage buildings are frequently intertwined with proposals for alterations. A cooperative conservation plan might still be possible if resolution of the conflict involves consideration of not only the potential for interference with heritage value and character but also the future utility and economic viability of the building. Alterations which enhance public enjoyment and use of heritage buildings and prevent abandonment might be considered a necessary and prudent alternative to “freezing” a building in its present state if, at the same time, they minimize and mitigate intervention with heritage significance in accordance with the “Standards and Guidelines for the Conservation of Historic Places in Canada” and the BC. Heritage Conservation Principles.
Cooperative conservation plans also depend on the availability of adequate local government incentives to compensate owners for restrictions placed on their property and the burden of ongoing building conservation obligations. Increased federal and provincial government spending on heritage building conservation including, in particular, special income tax treatment for donations of land or interests in land for heritage conservation purposes, will provide the critically necessary foundation for a strong local government heritage conservation program.
