City of Toronto v. Arcadia Group and The Municipal Property Assessment Corporation, 2007 CanLII 89858

Assessment Review Board

Commission de révision de l’évaluation foncière

File No: WR 58396

Region Number: 09

Municipality: City of Toronto

Roll Numbers: See “Schedule A and B” attached

Hearing Number: 129542

Complaint Numbers: See “Schedule A and B” attached

In the matter of section 356(1)(b) of the Municipal Act, S.O. 2001, c. 25, as amended, and in the matter complaints with respect to taxation years 1998 and 1999 on premises known municipally as see “Schedule A and B” attached.

BETWEEN: City of Toronto Complainant

Arcadia Group and

The Municipal Property Assessment Corporation

Region No. 09

Assessed Person/

Respondent

APPEARING: A. MacKay - Counsel for the Complainant

T. Racioppo - for the Municipal Property Assessment

Corporation

T. D. Tran - for the Owners

Y. Bee

K. V. Vi

L. Le

D. K. Song

C. H. Nguyen

P. Yuen

T. K. La

C. Ferreira

D. Hoang

K. Uddin

D. Mayzel - Counsel for J. Camara (owner)

Y. Gavris - Representative for B. Medevev (owner)

DECISION OF THE ASSESSMENT REVIEW BOARD delivered by:

J. Wyger

This complaint came before the Assessment Review Board on April 3, 2007 in the City of Toronto.

The City of Toronto (City) seeks to apportion the unpaid 1998 and 1999 commercial taxes of a property developer/owner, among the 18 residential property owners currently on title in the subject development, plus two vacant lots. The City’s position is that it has a legal obligation to collect unpaid taxes by whatever means are available. The property owners strenuously object to paying the back taxes of the corporate developer, suggesting the City should have done more to pursue the debt from the developer.

DECISION

The apportionment of unpaid taxes pursuant to subsection 356(1)(b)(ii) of the Municipal Act (Act) is set out in “Schedule A” attached.

REASONS FOR DECISION

The Facts:

Arcadia Dupont Development Inc. (Arcadia) re-developed 12 parcels of commercial use land into 20 separate parcels with 18 town homes on Dupont Street in 1998. The title to the two vacant parcels remains in the name of Arcadia, while title to the 18 town home parcels have been transferred to 18 homeowners. The 12 original roll numbers are referred to as the “parent” roll numbers, while the 20 new parcels are referred to as the “child” roll numbers. The child roll numbers were assessed commencing in the 2000 taxation year. The assessed owner of the parent roll numbers, Arcadia, left unpaid taxes for 1998 and 1999 in the total amount of $91,378.62. The City’s collection efforts against Arcadia have been unsuccessful.

Subsection 356(1)(b) permits the City to apportion unpaid taxes for the year the application is made and the two preceding years. No application was made within the appropriate time to apportion the 1998/1999 taxes. In November 2003, Ontario Regulation 399/03 was enacted, extending the City’s ability to apportion unpaid taxes for all years. The City filed the application pursuant to Regulation 399/03 and subsection 356(1) to apportion the unpaid taxes from 1998/1999 to the 20 child roll numbers, so those taxes would become a debt of the current homeowners. On February 16, 2005, City Council enacted a by-law pursuant to subsection 356(8), authorizing the Assessment Review Board (ARB) to exercise the powers and functions of the council under subsection 356(1)(b) with respect to applications made under that section. On March 2, 2005, the application was made to the Board and the matter is now before the Board for determination.

The Legislation:

Section 356 of the Act:

Division into parcels

(1) Upon application by the treasurer of a local municipality or to the treasurer by an owner of land, the local municipality may,

(a) divide, for the purposes of this section, land which is assessed in one block into two or more parcels if each parcel is one that can be legally conveyed under the Planning Act;

(b) apportion the unpaid taxes on the land for the year in which the application is made and the two preceding years among the parcels,

(i) in proportion to their relative value at the time the assessment roll for the year in which the application is made was returned, or

(ii) if council is of the opinion that an apportionment under subclause (i) is not appropriate due to special circumstances, any other manner; and

(c) direct what proportion of any part payment of taxes on the land is to be applied to each of the parcels. 2001, c. 25, s. 356 (1).

Ontario Regulation 399/03, Sections 1 and 2:

Application

The powers under this Regulation may only be exercised before January 1, 2005. O. Reg 399/03, s.1.

Unpaid Taxes

Despite clause 356(1)(b) and subsection 356(3) of the Act, unpaid taxes for all years may be apportioned under clause 356(1)(b). O. Reg. 399/02, s.2.

The City’s Position:

Mr. Angus Mackay, counsel for the City, made a clear and compelling case that the City is legally entitled to collect these unpaid taxes from the Dupont Street homeowners. He took the Board through the relevant provisions of the Act, dealing with the obligation to pay tax, that taxes lay with the land, and,

…may be recovered as a debt due to the municipality from the taxpayer originally assessed for them and from any subsequent owner of the assessed land or any part of it…

pursuant to subsection 349(1). His submissions demonstrate that all the proper steps were taken to bring this matter before the Board, and that the Board had full authority to make the decision on the apportionment.

Mr. Mackay presented the City’s preferred position, that the Board should apportion taxes among the child roll numbers “in proportion to their relative value at the time” the roll was returned for tax years 1998 and 1999, pursuant to subsection 356(1)(b)(i). Mr. MacKay also made reference to the other manner of apportioning set out in subsection 356(1)(b)(ii), which permits council, and by extension the ARB, to apportion in “in any other manner” if it “is of the opinion that an apportionment under subclause (i) is not appropriate due to special circumstances”.

The Municipal Property Assessment Corporation (MPAC) provided a statement of relative values under subsection 356(2), which statement is deemed by the subsection to be “conclusive”. The City used this statement to calculate the taxes that it requests the Board apportion to the child roll numbers. The assessment and tax numbers provided by the City were not challenged, and the Board accepts their mathematical correctness.

The Homeowners Position:

The homeowners were mostly unrepresented, and each made brief submissions to the Board. Mr. David Mayzel, counsel for one of the owners, and Mr. Yuri Gavris, a realtor representing another, made more thorough submissions and engaged in some cross-examination of City witnesses. The homeowners objected to paying tax on the properties that were payable during a period that they did not own or reside on the lands. In particular, people who did not buy from Arcadia, but purchased resales between 2003 and 2005 were shocked they were being told to pay the original builder’s unpaid commercial taxes from 1998 and 1999. Variously, all the homeowners indicated that their real estate lawyers either: did not mention tax arrears; did not think there was any liability for tax arrears; or were unable to collect from Arcadia on the standard undertaking to re-adjust taxes following the closing of their real estate purchase. Many of the homeowners indicated that they did not have title insurance, or did not know if they had insurance. Overwhelmingly, their argument was that the City did not try to collect from Arcadia and should have done so before “coming after them”.

Mr. Gavris argued that the homeowners were working-class people, living in an area that is not affluent; that these people could not afford the $4,000 to $5,000 tax hit; that it was unlikely that all the purchaser’s real estate lawyers were negligent; that the City was negligent in not pursuing Arcadia. He submitted that the whole issue of parent/child tax rolls and apportionment was confusing to everyone, and that vaguely worded tax certificates are not enough warning of such potential liability. His position was that procedural fairness required the City to clearly state to potential purchasers of new homes that tax liability of this magnitude may flow to them.

Analysis:

The Board reviewed the few tax certificates in evidence. Under the heading “Important Notes” are several caveats that the certificate is subject to supplementary taxes, legislative amendments, phase-in/capping recalculations and to apportionments made under section 356. One tax certificate dated June 30, 2003 for 1530 Dupont Street is addressed to a solicitor. Under Outstanding Taxes, the certificate lists all the parent roll numbers under “Related Roll Number” and shows the unpaid taxes from 1998/1999 totaling just over $150,000 with interest. While there is no clear statement that these unpaid taxes are directly owing on the child roll number, the amounts listed should be sufficient to ring the alarm bells of any competent real estate lawyer. The reporting letter of another lawyer with a similar tax certificate, assures the purchaser good title, making no reference to any tax lien affecting the property. The Board finds it unlikely that so many solicitors could blithely ignore such a potential liability. A probable explanation for why these lawyers and others may have determined that these taxes did not bind the child roll numbers, is that by 2001, the City was statute-barred from apportioning them. In 2003, subsection 356(1) would not have permitted the City to go back to apportion 1998/1999 unpaid taxes to the Dupont Street homeowners, such that a real estate lawyer could have confidently assured a purchaser that liability for the unpaid taxes could no longer be enforced against the child roll numbers.

Regulation 399/03 gave municipalities a one-year window of time within which to go back five years to correct errors, using various sections of the Act. Included is the change to subsection 356(1)(b) allowing apportionment of unpaid taxes for all years. The practical effect of this for the Dupont Street homeowners, their lawyers and title insurers is that for the period of time from January 2001 up to December 2004 when the City made its application under Regulation 399/03, the properties were free and clear from the City’s statutory right to apportion Arcadia’s unpaid taxes. With the enacting of the Regulation, this potential liability is renewed retroactively, placing the tax burden on owners who knew nothing about it. The Board is uncertain whether the Ministry intended this result, or whether it was simply an unforeseen consequence.

It was submitted that the homeowners have remedies against their own solicitors or title insurers. The Board is not so sure. Regulation 399/03 re-opens a potential liability that was extinguished. For example, the lawyer acting on the purchase of 1530 Dupont Street in the summer of 2003, who counted on the expiration of the time limit in subsection 356(1), cannot be expected to have foreseen the coming of Regulation 399/03 five months later, or the City availing itself of the Regulation another 12 months after that.

Mr. Stephen Fransiskini gave evidence for the City, on its collection efforts against Arcadia. He described the situation of the Dupont Street homeowners as “unique”. He explained that the usual overdue notices would have gone out to Arcadia, but that after the child roll numbers were created, the usual collection method leading to a tax arrears certificate was unavailable against the “phantom” parent roll numbers. The only remedy was to resort to litigation. He characterized the collection effort as “aggressive” with a corporate search for the principals, followed by demand letters to all of them. These demand letters were not sent during 1998 and 1999 because the parent roll numbers still existed. He explained that with the then recent amalgamation of the City of Toronto, policies and procedures were still taking shape, and conceded that the City’s collection process is much better now. He did not know why a civil claim was not filed against Arcadia or its’ principles. Mr. Mackay submits that it is not necessary for the City to exhaust all other avenues against Arcadia before pursuing the Regulation 399/section 356 option. The Board agrees, but understands the homeowner’s view of the collection effort as being not overly zealous, since the mailing of few demand letters might be characterized as some degree less than “aggressive”.

By adoption of Report No 7 in July of 2003, City Council recognized the difficulties associated with the apportionment of taxes after amalgamation.

The City,

…did not have processes in place to protect taxpayers purchasing new properties ... from being impacted with the taxes and interest charges that should otherwise have been the responsibility of the developer.

The Report goes on to recommend the write-off of interest and penalty charges only, by way of a grant program on such accounts, a reduction that is being applied to the tax accounts of the Dupont Street homeowners. The Report also details steps to safeguard future tax revenues and to avoid recurrence of difficulties experienced. In summary, the recommendation would require the payment in full by the developer, of all tax arrears and current taxes as a standard condition of the particular instrument that creates the new lots. The Board views these recommendations adopted by Council as an admission that the process in place during the Arcadia development of Dupont Street several years earlier, were inadequate “to protect taxpayers purchasing new properties.”

Mr. Mayzel made submissions on behalf of his client, and advised that his client’s title insurer was prepared to pay out under its policy, if there was an apportionment to the child roll number. He challenged the vigor with which the City pursued the principals of Arcadia. He argued that the “growing pains” the City went through causing its own actions or inaction, should result in the City “eating” the loss rather than the homeowners. He submitted it was unfair to foist the burden of these taxes on the homeowners after the passage of so many years. He contended that there was sufficient grounds for the Board to make a finding under subsection 356(1)(b)(ii) that the proposed apportionment was “not appropriate due to special circumstances.”

If there is to be any relief for the homeowners from Arcadia’s unpaid taxes, it can only come from subsection 356(1)(b)(ii), which provides that the local municipality may,

(b) apportion the unpaid taxes

(i) in proportion to their relative values...or,

(ii) if council is of the opinion that an apportionment under subclause (i) is not appropriate due to special circumstances, any other manner.

The reference in subparagraph (ii) to council’s “opinion” of what is or is not “appropriate”, would seem to convey to the council and by extension the ARB, a broad discretion to make an alternative apportionment to the one calculated under subparagraph (i). There are three elements or steps to the operation of subsection 356(1)(b)(ii):

The Board must find that “special circumstances” existed;
If so found, the special circumstances cause the Board to form the “opinion” that the proposed apportionment is “not appropriate”; and
If the Board forms that opinion, the Board may apportion the unpaid taxes in “any other manner”.

The Board has considered the facts and finds there exists a number of circumstances that could be categorized as “special”:

The one-time amalgamation of the City of Toronto, with resultant and understandable “growing pains”, meant an absence of adequate processes in place to prevent a developer like Arcadia from completing its development, then absconding while leaving unpaid taxes. That situation, having since been addressed, would have been unique and special to that period of time.
The amalgamation also resulted in some delay or problems in establishing collection procedures, such that the City’s litigation department decided not to pursue a civil remedy against Arcadia. In the area of debt enforcement, the usual course would be to go beyond merely sending demand letters, and filing a claim for the over $150,000 owing in taxes and interest. The Board reasonably infers that the decision not to pursue this usual course was a result of “special circumstances”.
The City collection officer testified that the situation involving the Dupont Street homeowners was “unique”. The Board finds this characterization of the matter as a unique situation to be practically synonymous with “special circumstances”.
Regulation 399/03 exposed innocent homeowners to a liability from which they had been free from prior to its enactment. The Board finds such a retroactive imposition and transference of another party’s debt, onto unsuspecting third parties, to constitute a rare and perhaps unintended consequence, and certainly “special” in the context of the law of debtor/creditor.

The next step is for council to be of the “opinion” that the proposed apportionment is “not appropriate” due to those special circumstances. It is clear the section is intended to give council and by extension the ARB, a discretion predicated upon a value judgment on what is “not appropriate”. The Board is not in the habit of forming “opinions”, but will interpret this to mean a finding or conclusion based on an analysis of what is meant by “not appropriate”.

The Board will examine and apply the ordinary meaning of the word “appropriate”. In the context of some particular thing or action being “appropriate” are synonyms such as “fitting”, “suitable”, “apt”, “correct”, “proper”, and “right”. Another definition expands the meaning to include “suitable for the circumstances”. The Board finds that concepts such as what is correct or proper or right implies an objective or generally held view of what is right or proper or appropriate. In the field of assessment and taxation, these judgments necessarily import the concepts of fairness and equity. No doubt, the tax collector believes it is appropriate for it to exercise its narrow legal right to collect Arcadia’s debt from the Dupont Street homeowners. But by its definition, the test is whether the reasonable, fair-thinking person would find such a result appropriate or proper or right in the abstract.

Conclusion:

The equities between the three parties are thus: the corporate property developer, absconding with its profit, which includes the unpaid taxes; a large municipal corporation getting a second chance to collect from someone else; and 18, innocent, working-class, townhouse owners. The heart of the issue is whether a reasonable, fair-minded person would think it is “appropriate” that the legal responsibility for paying the commercial taxes of an absconding corporate developer, be now imposed on innocent homeowners, some nine years after the debt first arose. The Board has no difficulty concluding that from the perspective of the “reasonable person”, it not right, correct, proper, fair, equitable, just or suitable for the circumstances, to make the Dupont Street homeowners responsible for paying off that indebtedness, considering the circumstances. In accordance with subsection 356(1)(b)(ii), the Board is of the opinion that an apportionment under subclause (i) is not appropriate due to the special circumstances of this case. The Board emphasizes that because this decision is specifically based on particular circumstances, it should not be considered a precedent for any other apportionment applications.

Having found the proposed apportionment to be not appropriate, the Board has full discretion to apportion the unpaid taxes in “any other manner”. The evidence showed that Arcadia retained ownership of two of the new parcels designated as Parts 19 and 20 on Plan 66R-18036. The child roll numbers for these are 1904-013-620-00950-0000 and 1904-013-620-02450-0000. The Board concludes that it is appropriate to apportion the entire amount of the unpaid taxes back onto the property developer, by dividing the unpaid taxes and apportioning them evenly between those two roll numbers. The Board hereby apportions zero unpaid taxes to the other 18 child roll numbers for both 1998 and 1999. The City will have its renewed remedies for the full amount of taxes owing, plus interest and penalties if it wishes, against those two legal parcels. The Board considers this the most just and appropriate result.

“J. Wyger”

J. Wyger

Member

/th

DECISION RELEASED ON: May 18, 2007

SCHEDULE A

Apportionment:

Roll Number:

1998 1999

1904-013-620-00950-0000 $9,293.28 $36,396.02

1904-013-620-02450-0000 $9,293.29 $36,396.03

1904-013-620-01020-0000 $0 $0

1904-013-620-01040-0000 $0 $0

1904-013-620-01060-0000 $0 $0

1904-013-620-01080-0000 $0 $0

1904-013-620-01120-0000 $0 $0

1904-013-620-01140-0000 $0 $0

1904-013-620-01160-0000 $0 $0

1904-013-620-01180-0000 $0 $0

1904-013-620-01220-0000 $0 $0

1904-013-620-01240-0000 $0 $0

1904-013-620-01260-0000 $0 $0

1904-013-620-01280-0000 $0 $0

1904-013-620-01320-0000 $0 $0

1904-013-620-01340-0000 $0 $0

1904-013-620-01360-0000 $0 $0

1904-013-620-01380-0000 $0 $0

1904-013-620-01420-0000 $0 $0

1904-013-620-01440-0000 $0 $0

SCHEDULE B

1904-013-620-02200-0000

1538 Dupont Street

1998

1783670

1904-013-620-02200-0000

1538 Dupont Street