First Nations land claims have become increasingly common in recent years. These claims involve determining the economic compensation for the loss of use of a given parcel of land. Loss of use value of the land refers to the value that would have been obtained by a First Nations if the possession of the subject land had been retained.
One of the more frequently used approaches for loss of use calculations on First Nations Lands, is called the Proxy Model. This methodology is a variant of the land rental approach to valuation. Proxy means replacement or substitute. This method estimates the compensations for past use (ie. loss of use) based on an annual proxy rental rate. The proxy rental rate can be thought of as a substitute or replacement rate for the annual return (or yield) based on the land value. Where this approach differs from the traditional land rental approach to valuation, is in the frequency of established land value input dates and allowances for vacancy or lack thereof (ie. The proxy model assumes that every acres of land is considered “rented” for every year) The proxy model utilizes historic land values and inflation metrics in order to estimate the annual rent for each and every year over the period of the claim. The end result is a present value calculation which, in theory, reflects the economic compensation for the loss of use of a given parcel of land.
In essence, the proxy model methodology acts as a tool that is designed to simplify the incredibly complex, and often very subjective, compensation for loss of use. By design, the proxy model is intended to act as a generic calculator or financial model and the straight forward mathematical calculations are both its greatest strength and greatest weakness.
Given the nature of Specific Claims, in most instances hypothetical or potential uses must be considered as reasonable expectations of what could have occurred historically. The proxy model can be a very useful tool as it will largely help avoid the often subjective debates regarding the potential historic uses and values of the land. Most importantly, maintaining a sense of the overall significance or impact of the proxy model is essential, which ultimately focuses on the global settlement offer versus one specific function or firm position.
As Specific Claims are complex, it is advisable to seek the expertise of an experienced professional in First Nations relationships. At Kent-Macpherson, we have a deep understanding and respect for First Nations history and diverse aboriginal culture. Our long standing client connection with many First Nations communities and governments gives us insight into the significance of those opportunities that increase the well being of the First Nations community in a sustainable and environmentally sound way.