Assessment Review Board

Commission de révision de l’évaluation foncière

File No: WR 84866 Region Number: 9 Municipality: City of Toronto Roll Numbers: See Schedule “A” attached Hearing Number: 153185 Appeal Numbers: See Schedule “A” attached

In the matter of Section 40 of the Assessment Act, R.S.O. 1990, c. A.31, as amended, and in the matter of appeals with respect to taxation years 2001 through 2008 on premises known municipally as per Schedule “A” attached.

BETWEEN: See Schedule “A” attached

Assessed Persons/Appellants

• and -

The Municipal Property Assessment Corporation, Region No. 9 and the City of Toronto

Respondents

APPEARING: B. Nixon - Counsel for the Assessed Persons/Appellants R. Poole (Walker Poole Nixon) C. Gryski - Counsel for the Municipal Property Assessment Corporation M. VanBerkum No one appeared - for the Municipality

DECISION OF THE ASSESSMENT REVIEW BOARD delivered by: S.F. Mather

These appeals came before the Assessment Review Board on a four day hearing which took place on October 20, 21, 22 and 23, 2009 in the City of Toronto.

The appeals before the Board are for the taxation years 2001 through 2008 on 85 Harbour Street, 100 Edward Street and 70 Edward Street and 2002 through 2008 on 636 Bay Street.

The parties agree that there is no issue with respect to the current values of the properties for any of the taxation years under appeal and that the only issue before the Board is classification.

The parties agreed to only call evidence with respect to the classification of the properties for the 2001 and 2002 taxation years and further agreed that the classification decision of the Board on the 2001 and 2002 taxation years will apply to the 2003 through 2008 taxation years, subject to the parties’ rights to call further evidence if required with respect to the apportionment of the assessment between property classes for these taxation years depending upon the Board’s determination with respect to the classification.

The parties requested and the Board agreed to reserve its decision on these appeals pending the completion of a hearing scheduled for November 2, 2009 and adjourned on consent to Hearing Number 174162 on November 30, 2009 before the same Board Member. While the two hearings are for different properties, the parties requested that the Board apply the legal arguments and submissions with respect to the classification issues made at each hearing to all of the properties to ensure a consistent application of the Assessment Act (Act) and the Regulations made pursuant to it.

The second hearing took place on November 30, December 1, 2, and 3, 2009 and the Board reserved its decision. The decision for this hearing is WR 88115.

ISSUE

The classification of four surface parking lots in the City of Toronto is under appeal. For the 2001 and 2002 taxation years, the Municipal Property Assessment Corporation (MPAC) classified the four properties in the Parking Lots and Vacant Land Property Class (GT) as provided for in section 13 of Ontario Regulation 282/98 (O. Reg.) made under the Act. The Council of the City of Toronto, however, has not passed a by-law for any of the taxation years under appeal opting to have the Parking Lot and Vacant Land Property Class apply within the Municipality.

The parties agree that the Parking Lot and Vacant Land Property Class does not exist in Toronto for the taxation years under appeal. MPAC takes the position that the properties are properly classified wholly in the Commercial Property Class (CT). The appellants take the position that the surface portion of the lands used for surface parking and advertising signs are properly classified in the Commercial Property Class and that the “air rights” above the parking lot surfaces are properly classified in the Commercial Property Class, Vacant Land Subclass provided for in section 8 of the Act and section 20 of O. Reg. 282/98 or in the alternative, partly in the Commercial Property Class Excess Land Subclass (CU) as provided for in section 8 of the Act and section 21 of O. Reg. 282/98. The appellants’ position is that “air rights” exist as a separate portion of the land for the reason that they have value, are capable of legal description, are severable and assessable.

MPAC’s position is that the density potential or development potential defined by the City zoning by-laws and referred to as “air rights” by the appellants is not land but rather, a restriction attached to the land. MPAC’s position is that all of the land is being used for the purposes of surface parking and advertising signs and that the properties are properly classified wholly in the Commercial Property Class.

The Board must decide if the “air rights” are portions of the parcels of land within the meaning of the Act and O. Reg. 282/98 eligible for classification in either the Excess Land Subclass of the Commercial Property Class or, the Vacant Land Subclass of the Commercial Property Class.

DECISION

The Board confirms the assessed values for the properties as returned for all taxation years under appeal. The Board finds that the correct classification of the four properties is in the Commercial Property Class (CT) for all of the taxation years under appeal for the reason that the Board finds there are no portions of the parcels of land eligible to be considered for a subclass of real property within the Commercial Property Class.

REASONS FOR DECISION

Witnesses

Both parties called a witness, who was qualified by the Board to give expert evidence with respect to land use planning. Mr. R. Lehman, the President of Lehman & Associates with a Masters Degree in Environmental Studies, Urban and Regional Planning, provided the land use planning evidence on behalf of the appellants and Mr. M. Haynes, a senior planner with the City of Toronto, provided the land use planning evidence on behalf of the City.

Both parties also called a witness who was qualified by the Board to give expert evidence with respect to the valuation and classification of property for the purpose of assessment. Mr. T. Jech, a senior director of the Altus Group Tax Consulting Paralegal Professional Corporation, provided assessment evidence on behalf of the appellant and Mr. B. Brown, a Senior Valuation Analyst with MPAC, provided assessment evidence on behalf of MPAC.

Description of the Properties

100 Edward Street, 70 Edward Street and 636 Bay Street

These three properties are located in a high density, mixed-use commercial/residential neighbourhood, north of the downtown central business district near the intersection of Yonge Street and Dundas Street. The properties are adjacent to each other and are operated as one paved commercial parking lot.

For the taxation years under appeal, there are advertising signs/structures on the lots. Number 100 Edward also has a wood building of approximately 10 square feet utilized by a parking attendant.

The report of Mr. Jech (Exhibit #2) and the report of Mr. Brown (Exhibit # 4) contain the property descriptions, maps and pictures of the properties.

85 Harbour Street

Number 85 Harbour Street is located in a high density, mixed use commercial/residential neighbourhood, south of the central business district known as “Harbourfront”.

The property is used as a commercial parking lot with approximately 312 parking spaces. The site has street level advertising units and one elevated horizontal poster sign facing the York, Bay and Yonge Street, off ramp from the Gardiner Expressway.

The report of Mr. Jech (Exhibit #2) and Mr. Brown (Exhibit #3) contain a description of the properties.

The parties essentially agree on the descriptions of the properties except for uses of the properties, which is the subject of this appeal.

Zoning of the Properties

There is no dispute by the parties over the zoning of the properties. The relevance of zoning to the issue in these appeals is the maximum gross floor area (GFA) permitted under the Official Plan and applicable zoning by-laws.

Zoning By-law 438-86 is the comprehensive zoning by-law for the City of Toronto. Mr. Lehman’s report states that “in general terms, the zoning by-law establishes the permitted uses and the amount, location and form of buildings that can be constructed”

(Exhibit #1 page 4).

The by-law provides for a maximum amount of development in terms of height and density and the proportion of the development limited that may be used for commercial or residential purposes. The by-law also establishes a maximum height in metres.

Both 100 Edward and 85 Harbour have site specific zoning. For the purpose of these appeals, the appellants have used the requirements in By-law 438-86.

The appellants submit that the maximum GFA in the zoning by-law describes the air space that is not developed and eligible to be classified in a subclass of the Commercial Property Class.

70 Edward Street and 636 Bay Street

CR T. 7.8 C2.0 R 7.8.

The maximum density or Gross Floor Area (GFA) is 7.8 times the lot area. The maximum GFA for commercial uses at 2.0 times the lot area and the maximum GFA for residential uses is 7.8 times the lot area.

100 Edward Street

CR T 6.0 C. 2.0 R 6.0

The maximum density of GFA is six times the lot area. The maximum GFA for commercial uses is two times the lot area. The maximum GFA for residential uses is six times the lot area.

85 Harbour Street

CR T. 8.0 C2.3 R 5.7

The maximum GFA is eight times the lot area. The maximum GFA for commercial uses at 2.3 times the lot area and the maximum GFA for residential uses is 5.7 times the lot area.

Valuation of the Properties

All properties were valued by application of a rate per square foot of allowed density or GFA derived from sales of properties with density available for development. Sales of all sites, whether commercial, multi-residential or mixed use were considered and the same rate was applied to all of the density, whether commercial, multi-residential or mixed use.

Mr. Jech included a table in his report (Exhibit #2 at page 7) setting out the sites areas, floor space index from the zoning by-laws, gross floor areas (GFAs), agreed upon value per square foot of GFA. The Board notes that in Mr. Jech’s report, he erroneously captures this as value per square foot of floor space index.

The GFA is the result of multiplying the site area by the coverage as permitted by the zoning by-law.

The GFA is significant in these appeals as it is the appellants’ position that the GFA describes the “air rights” they are seeking to have apportioned to a subclass of the Commercial Property Class.

For the 2001 and 2002 taxation years, the assessments returned for the properties are set out in the table below. The apportionment sought by the appellants is also set out in the table.

Apportionment of Value being Sought (2001 and 2002)

Property	CT Surface Parking	CU or CX Unused Portions	Total Assessment
100 Edward Street	$545,355	$2,726,665	$3,272,000
70 Edward Street	$532,035	$3,617,965	$4,150,000
636 Bay Street	$566,820	$3,854,180	$4,421,000
85 Harbour Street	$2,813,700	$19,696,300	$22,510,000

Statutory Frame Work and Interpretation

The issue before the Board is one of statutory interpretation of the Act and Regulations. Both parties included in their briefs of authorities, the Supreme Court of Canada (SCC) decision in Quebec (Communaute Urbaine) v. Corp. Notre Dame de Bonsecours 1994 CanLII 58 (SCC), [1994] 3 S.C.R. 3. At page 20, the SCC summarized rules of statutory interpretation. The SCC found that:

…a legislative provision should be given strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent; this is called the teleological approach.

MPAC also submitted the case of Rizzo & Rizzo Shoes Ltd. (Re) 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, a later decision of the SCC which dealt with statutory interpretation. In this case, Justice Iacobucci referred to several textbooks on statutory interpretation and found that he preferred the approach of Elmer Driedger found in Construction of Statutes (2^nd ed. 1983), which recognizes that statutory interpretation cannot be found in the wording of the legislation alone. The decision quotes page 87 of the text:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament…

Following these decisions of the SCC, the Board’s interpretation of the Act and Regulations must have regard to the purpose, intent and scheme of the Act and Regulations.

The Act provides for the assessment and taxation of all real property in Ontario subject to certain exemptions from taxation.

Section 3 of the Act provides for the assessment and taxation of all real property in the Province of Ontario subject to certain exemptions from taxation.

Subsection 3.(1) states:

3.(1) Property assessable and taxable, exemptions. – All real property in Ontario is liable to assessment and taxation, subject to the following exemptions from taxation:

1. Crown lands. – Land owned by Canada or any Province…

Section 1 of the Act defines “land”:

“land”, “real property” and “real estate” include,

(a) land covered with water,

(b) all trees and underwood growing upon land,

(c) all mines, minerals, gas, oil, salt quarries and fossils in and under land

(d) all buildings, or any part of any building, and all structures, machinery and fixtures erected or placed upon, in, over, under, or affixed to land,

(e) all structures and fixtures erected or placed upon, in, over, under or affixed to a highway, lane or other public communication or water, but not the rolling stock of a transportation system;

The definition of land found in section 1 provides that the word “land” for the purposes of the Act has the same meaning as the words “real property” or “real estate” for the purposes of the Act.

It is useful in interpreting the statute to keep in mind that the words land/real property/real estate are used interchangeably in the Act.

In Ontario Property Assessment Corp. v. Praxair Canada Inc. et al. 44 O.M.B.R. 64 (Praxair) , the Divisional Court found at page 68 that:

The scheme of the Act contemplates “land” being assessed annually at its current value and classified as at October 31^st of the year proceeding the taxation year. S. 14. The tax roll containing the assessment information including value and classification is prepared before the end of December in such preceding year.

The assessment information on the tax roll is subject to complaint under s. 40 of the Act, the base to which the municipality’s mill rate for the tax year for that classification of property is applied to determine the realty taxes payable by the owner.

Section 7 of the Act requires the Minister of Finance to prescribe classes of real property and sets out the minimum classes that the Minister must prescribe. The Commercial Property Class is a required class. The classes are prescribed in O. Reg. 282/98, as amended, made under the Act. For the most part, the classification of a property is based upon use of a property.

Subsection 7.(1) states:

7.(1) Property Classes. – The Minister shall prescribe classes of real property for the purposes of this Act.

7.(2) Same. – The classes prescribed by the Minister shall include, but are not restricted to, the following:

1. The residential property class.

2. The multi-residential property class.

3. The commercial property class.

4. The industrial property class.

5. The pipe line property class.

6. The farm property class.

7. The managed forests property class.

7.(3) Discretion not affected. – Nothing in subsection (2) restricts the discretion of the Minister to define what is included in a class.

Section 8 of the Act requires the Minister to prescribe certain subclasses of real property for land located in municipalities. Subsection 8.(1)2 prescribes a subclass for vacant land for “the purpose of providing tax reductions”. Subsection 8.(1)3 prescribes a subclass for excess land within the Commercial Property Class.

Subsection 8.(1) states:

8.(1) Subclasses for tax reductions. – for the purposes of providing tax reductions, the Minister shall prescribe the following subclasses of real property for land located in municipalities:

2. A subclass for vacant land for each of the following classes of real property,

i. the commercial property class and such other classes of real property prescribed by the Minister for the purposes of this subparagraph,

ii. the industrial property class and such other classes of real property prescribed by the Minister for the purposes of this subparagraph.

3. A subclass for excess land for each of the following classes of real property,

i. the commercial property class and such other classes of real property prescribed by the Minister for the purposes of this subparagraph,

ii. the industrial property class and such other classes of real property prescribed by the Minister for the purposes of this subparagraph.

Subsection 8.(4) of the Act provides that subsection 14.(5) applies to portions of properties that are excess land as prescribed under the Regulations.

The appellants argue portions of the subject properties should be classified in a subclass as the reason that they are seeking a tax reduction on the land.

In order to prepare the assessment roll, MPAC is given the power to inspect land and to obtain information and documents.

Section 10 of the Act states:

10.(1) Right of access. – A person authorized by the assessment corporation, upon producing proper identification, shall at all reasonable times and upon reasonable request by given free access to all land and to all parts of every building, structure, machinery and fixture erected or placed upon, in, over, under or affixed to the land, for the purpose of making a proper assessment thereof.

10.(2) Information. – Every adult person present on land when any person referred to in subsection (1) visits the land in the performance of his or her duties shall upon request give to the person all the information in his or her knowledge that will assist the person to make a proper assessment of the land and every building, structure, machinery and fixture erected or placed upon, in, over, under or affixed to the land, and to obtain the information he or she requires with respect to any person whose name he or she is required to enter on the assessment roll or concerning whom he or she is required to obtain any information for the purpose of the enumeration required by section 15.

Section 11 of the Act states:

11.(1) Request for information. – For any purpose relating the assessment of land, the assessment corporation may, by letter sent by mail, served personally or delivered by courier, require a person who is or may be assessed in respect of the land to provide any information or produce any document relating the assessment of land within such reasonable time as is set out in the letter.

11.(2) Return of information. – A person who received a letter under subsection (1) shall, within the time set out in the letter, provide the assessment corporation all the information required that is within the person’s knowledge and produce all the documents required that are within the person’s possession or control.

Subsection 14.(1) sets out the contents of the assessment roll that MPAC is responsible to prepare. MPAC must include a description of each property sufficient to identify it, the number of acres or other measures showing the extent of the land, the current value of the land, the value of land liable to taxation, the value of land exempt from taxation and the classification of the land.

14.(1) Assessment roll contents. – The assessment corporation shall prepare an assessment roll for each municipality, for each locality and for non-municipal territory and the assessment roll shall contain the following information as well as the information required under subsections (1.1) and (1.2):

1. The name and surnames, in full, if they can be ascertained, of all persons who are liable to assessment in the municipality or in the non-municipal territory, as the case may be.

2. The amount assessable against each person who is liable to assessment, opposite the person's name.

3. A description of each property sufficient to identify it.

4. The number of acres, or other measures showing the extent of the land.

5. The current value of the land.

6. The value of the land liable to taxation.

7. The value of land exempt from taxation.

8. The classification of the land.

9. Such other information as may be prescribed by the Minister.

Subsection 14.(5) of the Act provides that portions of a property may be classified in different property classes or subclasses of real property and requires MPAC to determine the share of the value attributable to each class or subclass according to the proportion that each share constitutes of the total value and set out each proportion on the assessment roll.

14.(5) Portions classified in different property classes. – If portions of a property are classified in different classes of real property or subclasses of real property, the assessment corporation shall determine the share of the value attributable to each class or subclass, assess the property according to the proportion that each share constitutes of the total value and set out each proportion on the assessment roll.

The appellants are seeking that a portion of the properties be classified in either the vacant land subclass or the excess land subclass of the Commercial Property Class. The subclasses are prescribed in O. Reg. 282/98 as amended.

Parking Lots and Vacant Land Property Class

This classification did not exist in the City of Toronto for the taxation years under appeal. Subsection 13 of O. Reg. 282/98 provides:

13.(1) The parking lots and vacant land property class applies within a municipality, the council of which is required to pass a by-law establishing tax ratios under section 308 of the Municipal Act, 2001, only if the council of the municipality has passed a by-law opting to have the parking lots and vacant land property class apply within the municipality.

(2) The parking lots and vacant land property class consists of the following land that would otherwise be in the commercial property class:

1. A parcel of land used exclusively for the parking of vehicles.

2. Vacant land.

3. Land that is a railyard, owned and used exclusively by a railway company, upon which no building or structure other than railway tracks is located.

(3) The council of a municipality that passes a by-law opting to have the parking lots and vacant land property class apply may pass a by-law opting to have the class cease to apply but such a by-law does not apply with respect to a taxation year unless the by-law is passed on or before the last day for passing a by-law opting to have the property class apply for that taxation year.

(4) For 2004 and subsequent years, a “railyard” mentioned in paragraph 3 of subsection (2) includes the following land, but does not include buildings or structures on the land:

1. Land used for marshalling railway rolling stock.

2. Land used in the loading, unloading and temporary holding of railway rolling stock or freight carried on a railway vehicle.

Vacant Land Subclass

Subsection 20.(2)1. of O. Reg. 282/98 provides that the subclass for vacant land in the commercial property class consists of vacant land in the commercial property class.

20.(2) The subclass for vacant land for the commercial property class consists of the following land in the commercial property class:

1. Vacant land.

The definition of vacant land is found in section 1 of O. Reg. 282/98:

1.(1) The following land, if it is not being used, is vacant land for the purposes of this Regulation:

1. Land that has no buildings or structures on it.

2. Land upon which a building or structure is being built.

3. Land upon which a building or structure has been built if no part of the building or structure has yet been used.

4. Land upon which a building or structure has been built if the building or structure is substantially unusable.

Subsection 1.(1) requires that in order to be considered to be vacant land the land must not be used. All four properties are used as surface parking lots and for advertising and the parties agree that all of the surface area of the lots is in use.

Subsection 1.(3) of the Regulation provides that a “portion of a parcel of land” is vacant for the purposes of the Regulation and enumerates the circumstances where a portion of a parcel may be considered vacant. The appellants argue that the “air rights” are a portion of the parcel of land which is vacant.

1.(3) A portion of a parcel of land is vacant land for the purposes of this Regulation if,

(a) there is no building or structure on the portion of the parcel or there is a building or structure on the portion but no part of the building or structure has yet been used;

(b) there is a building or structure on the rest of the parcel; and

(c) the portion of the parcel is zoned for a kind of development that is different from the development on the rest of the parcel.

Excess Land Subclass

Section 21 provides that “a portion of a parcel of land” is included in the subclass for excess land if it meets certain requirements.

21.(1) A subclass for excess land is prescribed for each of the following classes of real property:

1. The commercial property class.

2. The industrial property class.

3. The office building property class.

4. The shopping centre property class.

5. The large industrial property class.

(2) The office building property class and the shopping centre property class are prescribed for the purposes of subparagraph 3 i of subsection 8(1) of the Act and the large industrial property class is prescribed for the purposes of subparagraph 3 ii of subsection 8(1) of the Act.

(3) A portion of a parcel of land is included in the subclass for excess lands for a class of real property if,

(a) if has not been developed in any way, other than to service the parcel of land;

(b) it is not being used other than for farming purposes; and

(c) it is in excess of the municipal requirement for any existing development elsewhere on the parcel.

(4) A portion of a parcel of land is included in the subclass for excess land for the commercial property class if,

(a) it is a rail yard owned and used exclusively by a railway company; and

(b) no building or structure is located on it, other than railway tracks.

(5) This section applies with respect to the 2001 and subsequent taxation years.

The appellant argues that if the “air rights’ are not a portion of land which is vacant they are excess land.

Determinations to be Made

1. The Board must first determine the meaning of “a portion of a parcel of land” as the “air rights” must be a portion of a parcel of land to be vacant land or eligible for the excess land sub-class.

2. The Board must determine if “air rights” – using the appellants’ terminology – are a “portion of a parcel of land”.

The Board must be satisfied that the “air rights” are a portion of a parcel of land before it can consider whether the “air rights” meet the criteria for a subclass.

1. What is “a portion of a parcel of land”?

The Board interprets the O. Reg. 282/98 to require a portion of a parcel of land to itself be land/real estate or real property.

In making this determination, the Board follows the decision of the Ontario Divisional Court in Praxair.

In the Praxair case, the 238 acres of the parcel were undeveloped and used for farming purposes. The current value was apportioned between the Commercial Property Class, the Industrial Property Class and the Industrial –Vacant Unit and Excess land subclass. The classification of the undeveloped portion of the property used for farming purposes was at issue.

At page 68, the Court stated:

The Act defines ”land”, “real property” and “real estate” in a generic sense to include land covered by water, natural growth, mines and minerals, buildings, structures and fixtures on or affixed to them or the land. The definition makes no distinction between blocks or parcel of land and portions thereof.

“Land” is not defined in the Regulation and so must be presumed to have the meaning in the Act and suffer from the same imprecision

The Court went on to find as found at page 70 that:

“Land” and “real property” mean portions of parcels rather than parcels. Classification must be determined with due regard to the function of the portion under consideration.

The Praxair decision was considered by the Ontario Superior Court of Justice in the case Municipal Property Assessment Corp. v. Carlro Holdings Ltd. [2002] Carswell Ont. 2645. The Court refused to challenge the authority of the Divisional Court Panel in Praxair on the proper construction and meaning of the terms “lands, “real property” and “property in context”.

The interpretation that “a portion of a parcel of land” must in itself be land, makes sense when the scheme of the Act is considered.

The Legislature created the vacant and excess land subclasses to provide lower tax rates. Vacant land is essentially land which is not being used and excess land is the extra land of a developed parcel of land that is not developed in any way other than for services, is not used in any way, other than for farming and is in excess of the municipal zoning requirements for the existing development on the lands.

The requirement in both sections 1.(3) and section 21 of the O. Reg. 282/98 that there be no buildings or structures on the portion of the parcel or if there is, that no part of the structure has yet been used, supports this interpretation as the definition of land in section one includes all buildings and structures.

2. Are “Air Rights” Land?

Terminology

The appellants use the term “air rights” to describe what they submit is a portion of a parcel of land.

The Board agrees with the submission of Mr. Gryski, counsel for MPAC, that one of the fundamental problems with this case is that the words have “shifting meaning”.

The term “air rights” is not found in the Act or O. Reg. 282/98. Mr. Brown, the MPAC assessor, testified that the term is not one he uses in his day-to-day work. Mr. Hynes, the City of Toronto planner’s evidence is that “air rights” is a term used in land use planning.

A definition of “air rights” found in “The Appraisal of Real Estate” Second Canadian Edition, was introduced into evidence during the testimony of Mr. Jech as Exhibit #21. The appraisal text’s definitions is:

Air Rights: The rights to an undisturbed use and control of designated air space above a specific land area within stated elevations. Such rights may be acquired to construct a building above the land or building or another or to protect the light and air of an existing or proposed structure on an adjoining lot.

Mr. Jech’s evidence is that:

Air rights reflect the right to use all or a portion of the air space above the surface of the land for development purposes. (Exhibit #2, page 14)

Air rights are the property rights associated with the use, control and regulation of air space over a parcel of real estate. (Exhibit #2, page 14)

The Appraisal of Real Estate at 5.18 introduced by Mr. Jech in his evidence uses the term “air rights” under the heading “Physical Interests”:

Vertical interests in real property may have to be considered separately by the appraiser…The most common vertical interest in real property are subsurface and air rights. A sub surface right is the right to the use and profits from the underground portion of a designated property. The term usually refers to the right to extract minerals from below the earth’s surface and to construct tunnels for railroads, motor vehicles, and public utilities. Air rights are the property rights associated with the use, control and regulation of air space over a parcel of real estate. Both of these fractional interests represent portions of a fee simple estate and each embodies the idea of land as a three dimensional entity…As the density of building in urban areas increases fewer sites are available for new construction and land values escalate. This trend has produced a growing interest in developing air rights.

Mr. Lehman’s expert report at page 6, Exhibit #1 states that:

Air rights reflect the right to use all or a portion of the air space above the surface of the land. The development potential within the air rights is defined by the regulations and permission of the zoning bylaw. These development rights are transferable and capable of separate ownership. The concept of air rights applies to the use and the density permission for development that are granted through zoning to the portion of the land located above grade. The rights to develop zoning vary from property to property according to the site-specific zoning…

Mr. Lehman’s evidence is that the term “air rights” may be used interchangeably with the term “development rights” or “density rights”.

Mr. Nixon, counsel for the appellants, included an excerpt from the text “The Principles of Property Law“ Third edition, by Bruce Ziff in the appellants’ Book of Authorities.

Mr. Ziff writes that the traditional starting point for ownership in land is the maxim: cujus est solum ejus est usque ad cleum et ad inferos which means “whoever owns the soil holds title all the way up to the heavens and down to the depths of the earth”.

Under the heading “air space”, Mr. Ziff writes:

Ownership of a tract of land also confers rights in the airspace above the surface; most land would be perfectly useless if this were not so. Furthermore rights to air space may be severed from the surface and alienated separately. This was the position at common law and forms the basis of the strata titles enjoyed under modern condominium law. The owner in an apartment building as with the tenant in an apartment building possesses a slice of the stratosphere. However, contrary to the maxim the property rights to a column of air do not reach forever upwards; far from it. Instead they are limited on a way that strikes a balance between the realistic needs of the landowners and those of the public for whom the air is common property. The owner of the surface holds an entitlement to the airspace up to a certain height above the ground – that which can be used or occupied.

MPAC submits that what the appellants refer to as “air rights” are actually the density restrictions imposed by the zoning by-law. MPAC submits the case of Cadillac Fairview Corp. v Canada [1996] T.C.J. No 209 to support this position. In this case, the appellant sought a zone change to permit it to build at a higher density than permitted in the applicable zoning by-law. One of the issues was whether the cost of obtaining zoning changes to permit a higher density was an eligible capital expenditure.

At paragraph 45, the tax court discussed what “density rights are”.

We may start from the proposition that in the absence of legislative or other legal restrictions a landowner is free to do what it wants on its land. It can farm it, build highrise apartments or office buildings or build the Tower of Babel. Its rights inhere in the ownership of the land. The exercise of those rights can however be restricted, regulated or prohibited by legislation. In this case the authority having the jurisdiction is the province and the province delegates the power to the municipal authorities.

At paragraph 48, the Court stated:

It is important to realize that zoning does not constitute a conferral of a right but rather a restriction of the otherwise unlimited right of a landowner to do what it wishes with its land. It is less accurate to describe a change in zoning to allow a further use of the land as the conferral of a right than to describe it as a lifting of or relaxation of a restriction on the otherwise unrestricted use of the property. It follows that the right to use property whether restricted by zoning or not, is a right that inheres in the ownership of the property.

The evidence of Michael Hynes, the City of Toronto planner, agrees with the finding of the Tax Court that zoning is a restriction on rights. Mr. Hynes’s evidence is that, zoning by-laws regulate land and without zoning, owner can do anything they want with the property.

Mr. Hynes’s evidence is that, he refers to the density rights of a property as “GFA” which stands for “Gross Floor Area”. His evidence is that, the zoning by-laws restrict the buildable area of a lot to a maximum GFA and may also restrict the GFA for different uses of the property.

The Board concludes that the appellants give the term “air rights” a double meaning:

1. The appellants use “air rights” to describe the undeveloped air space above the properties and argue that the undeveloped air space is “a portion of the parcel of land”. The “air space” is described by potential GFA in the zoning by-laws.

2. The appellants consider the right to use the undeveloped air space to be “air rights”. They use the term interchangeably with density rights or development rights. The restrictions on the rights to use the air space are determined by the potential GFA in the zoning by-laws.

The Board finds that neither the undeveloped air space above the subject properties or the rights to use the undeveloped air space are land within the meaning of the Act. Since they are not land, they cannot be a “portion of a parcel of land” eligible for a subclass.

The appellants use terminology and concepts from land use planning and appraisal theory to try and extend the definition of “land” under the Act to include the undeveloped air space over property as defined by the zoning by-laws.

The language used in the Act is not consistent. The only term defined in the Act is the definition of “land” which is set out in section 1. This definition is not exhaustive but provides some guidance as to what constitutes land for the purpose of the Act.

Subsection (d) of the definition of “land” specifies that land includes the buildings, structures, machinery or fixtures placed upon, in, over, under or affixed upon the land. This subsection requires that in deciding what is included in the assessment of a parcel of land, real property or real estate one needs to look at the subsurface, surface and above surface area of the land.

The definition of land for the purposes of the Act was considered by the Court of Appeal in Carson’s Camp v. Municipal Property Assessment Corp. 2008 ONCA 17, 88 O.R. (3d) 741 (Carson’s Camp). In the Carson’s Camp case, the Court of Appeal found that permanent trailers located on a campground property were included in the land and subject to assessment.

The Court of Appeal confirmed that the terms, land real property and real estate are used interchangeably in the Act and are broadly defined. The Court found at page 746 that “this broad definition has not changed since its introduction in 1904”. The Court cited at page 746, the decision of the SCC in Northern Broadcasting Co. v. Mountjoy (Improvement District) 1950 CanLII 9 (SCC), [1950] S.C.R. 502, which held that the “expanded definition of land in the Act meant that certain items not considered fixtures at common law could none the less be considered part of the land for the purpose of valuation so long as they are placed upon or affixed to the land with some degree of permanency”.

The appellants argue that the Carson’s Camp case, in recognizing the expanding definition of land, supports the finding that the “air rights” of the subject properties are “a portion of a parcel of land”.

The Board does not agree. In Carson’s Camp, supra, the Court of Appeal concluded (at page 7 Quicklaw) that “everything encompassed by the defined term “land” is to be included in assessing value.” The evidence for the properties under appeal is that the “air rights”/density/development rights of the property were included in determining the value of the land as is required by the Carson’s Camp case. The Court of Appeal did not find that a right taken into consideration in the valuation of a fee simple estate is land itself.

Ownership of land confers rights in the air space above the lands and in the subsurface below the land. The measures showing the extent of the land on the assessment roll are two dimensional and the rights to use the land are three dimensional.

As Professor Ziff states, most land would be perfectly useless if there were no rights to use the air space.

The Board finds the subject properties’ undeveloped air space is part of the land/real estate/real property. The use of the air space is restricted by the zoning by-law.

The Board recognizes, however, and the evidence is that:

1. There are circumstances where the undeveloped air space above a parcel of land is severed from the surface of the property and alienated separately;

2. There are circumstances where the rights to use air space above a property have been transferred; and

3. There are circumstances where the rights to use air space above a parcel have been leased.

3. Severance and Alienability of Air Space above a Parcel

Professor Ziff in the Principles of Property Law, Third Edition, states that the rights to sever air space above a parcel and to be alienated separately “was the position at common law and it forms the basis of strata titles enjoyed under modern condominium legislation. The owner of a condo unit, as with the tenant in an apartment building, possesses a slice of the stratosphere”.

The Board heard evidence with respect to properties where strata plans have been registered on title which sever the air space from the parcel below. The Planning Act, subsection 50.(2) allows land to be severed on the horizontal plane without the need for Municipal approval.

50.(2) Proviso. – For the purposes of this section, land shall be deemed and shall always have been deemed not to abut land that is being conveyed or otherwise dealt with if it abuts such land on a horizontal plane only.

The evidence is that strata plans create a parcel of land which is considered to be a separate parcel for the purpose of assessment and taxation.

Mr. Lehman testified with respect to a strata plan registered on title for the Toronto Film Studio property on Eastern Avenue North and Lakeshore Boulevard South. He introduced the Reference Plan 64R 17141 as Exhibit #11. His evidence is that the subsurface of the land was severed because of contaminated soil. The reference plan divides the property into parts.

Mr. Lehman also introduced the strata plans for the Ryerson University property located above the Canadian Tire Store at the corner of Yonge and Dundas Streets as Exhibit #12. The evidence is that, the strata plan for the property creates a parcel of land that is a separate parcel of land for the purpose of assessment and taxation.

The transfer documents for the severed air space or strata parcel include easements and rights-of-way to the surface and subsurface. These are required in order to access the air space and anchor any construction in the air space to the ground and subsurface. At Tab 7 of Exhibit #13 is a copy of a Reciprocal Agreement registered on the title to the Ryerson lands. The agreement recognizes the mutual inter-dependence of the owners of the retail premises, parking facility, and loading docks, Ontrea and Ryerson University, the owner of the three floors above the surface on the land.

It is clear that conveyance of a strata parcel involves more than a simple conveyance of air space.

Mr. Lehman’s evidence is that “you do not need a strata plan for the existence of a portion of land to be established because the zoning by-law creates the portion”. In Mr. Lehman’s view, the “air rights” are an interest in land and not land itself.

The evidence of Mr. Jech is that, no one in their right mind would buy the rights to air space which did not include the rights to access the airspace from the ground level and rights to anchor any building development in the air space to the subsurface of the lot.

While Mr. Jech testified with respect to strata plans in response to questions during cross-examination as to what was being in connection with the Ryerson University property, he stated that he was not an expert with respect to strata plans. No expert evidence was called with respect to strata plans.

The Board finds, based on the evidence that for the air space above a property to become a separate parcel of land, there must be a strata plan and the necessary agreements for easement and rights-of-way to allow the owner of the air space access to the property and the ability to anchor any constructions to the surface and subsurface of the lot.

The air spaces above the subject properties have not been severed and alienated separately by a strata plan. They are not capable of standing on their own as land.

Measurement of the Air Space

It does not make sense in considering the scheme of the Act that undeveloped air space without a strata plan is land/real property or real estate. Considering the requirements of subsection 14.(1) of the Act, the Board finds that MPAC is unable to describe the undeveloped air space or to indicate a measurement in terms of acreage or otherwise for the undeveloped air space, which it is required to do by the Act.

The appellants argue that the undeveloped air space is described and measured by the restrictions in the zoning by-law or the GFA. Mr. Jech testified, however, that “air rights” for the subject properties are not visible and cannot be identified at this point.

Mr. Brown’s evidence is that “you can see excess land”. This fits with the requirement in the Act that an assessor should be able to inspect the land.

The evidence of Mr. Hynes and Mr. Lehman is clear, however, that the GFA for these properties may be developed both below the surface of the lot and above the surface of the lot.

Mr. Hynes referred to the definition of “non-residential gross floor area” in By-law 438-86. The definition is clear that the GFA is the aggregate of the areas of each floor and the spaces occupied by the walls and stairs, above or below grade, of a non-residential building.

While the evidence of the appellants’ witnesses is that, almost all development takes place above the surface, the fact is that until a strata plan is put on an air space, it is impossible to describe or measure the air space for the purposes of assessment.

The evidence of MPAC is that, the properties are all subject to leases to parking lot operators, as well as leases and licensing agreements with respect to the advertising on the properties.

Mr. Brown included the leases and licensing agreements in his Reports (Exhibits #3 and #4). A review of the agreements indicates the parking lot operators are leasing the whole of the land/real property/real estate, in that there is nothing in the leases to suggest that the right to use the air space above the properties is restricted to a certain height in recognition of the excess land or vacant land parcel above.

Section 10 of the Act permits MPAC to inspect a property for the purpose of returning a proper assessment. It is absurd to think of MPAC inspecting undefined air space (remembering that some of the development may be below ground) for the purpose of determining current value.

Valuation of the Air Space

The scheme of the Act also requires that a parcel of land be valued. The appellants argue that the undeveloped air space should be valued at the same rate per square foot used in the calculation of the current value of the property.

The Board does not agree. The parties agreed that for the subject properties, the current value was best approximated by using the sale price per square foot of GFA that has been established through sales. The evidence of Mr. Jech is that, in determining current value, no distinction is made between the permitted GFA of commercial space and the permitted GFA of residential space.

There is no evidence to support the appellants’ argument that each square foot of GFA has the same current value and so the undeveloped air space can be valued on the basis of the calculation of the current value for assessment purposes.

Mr. Jech, the appellant’s expert assessment witness, testified that without easements and rights-of-ways to the surface and the subsurface of the property, the air space may not be developed as a separate parcel of land and would not have any value.

4. Severance and Alienability of “Air Rights”

The appellants argue not only that air spaces themselves are severable and transferable, but the “air rights” to the air spaces are severable and transferable. In this regard, the Board heard evidence with respect to the transfer of density/development rights between properties.

Mr. Lech’s evidence is that, transfer of density rights between properties is not uncommon and the Board was provided with evidence of a transfer of density right between the Scotia Plaza and Waterpark Place in the City of Toronto.

Mr. Lehman introduced as Exhibit #14, a copy of the staff report to City Council prepared in connection with the transfer. The report describes the necessary amendments to the Official Plan and Zoning By-laws to provide for transfer of commercial and residential density between the Scotia Plaza development land and the Waterpark Place lands.

The evidence of Mr. Hynes, the City planner, is that transfers of density rights are uncommon and that the City prefers to deal with the zoning of each property individually.

The Board finds there is no evidence to support the conclusion that transfers of density is a transfer of land/real property or real estate.

The evidence is that the transfers of density rights are dealt with by agreements between parties and not by transfers of land under the Land Titles Act or Registry Act.

The excerpt from the Appraisal of Real Estate, Second Canadian addition, introduced by Mr. Jech (Exhibit #17) as the appraisal “bible”, states that physical interests in real property can be achieved horizontally or vertically: “The most common methods of creating horizontal divisions of real property are through subdivision and assemblage”.

The text states that the most common vertical interests are the subsurface and air rights: “Air rights are the property rights associated with the use control and regulation of air space over a parcel of real estate…” (page 5.19)

Governments establish the rules that allow the sale of air rights – these interests do not automatically exist in a saleable form. Subject to public regulation air rights can be transferred in various ways as well. Often the air rights to one property are shifted to another within the same building zone under legal planning regulation. The transfer of air rights allows developers to adjust the density of land use without putting adverse pressure on owners, neighbours or districts. This practice underscores the importance of local zoning authorities, which regulate building heights, building functions, setbacks and other variables involved in the development of air rights.

Nothing in this quote from the Appraisal textbook supports the appellants’ contention that the transfer of density or development rights is a transfer of land as it is defined in the Act. The transfer of development rights requires municipal approval. The transfer of land/real estate/real property does not generally require municipal approval.

There is no doubt that the density rights to a property have a value and that this value must be considered in determining the current value of the properties. If the subject properties transferred some of their density rights to another parcel of land, the evidence is that the properties losing density would have a lower current value and the property receiving the rights would have a higher current value. The description of the properties for assessment purposes would not change for the air space above the land which has not been severed as an integral portion of the property.

The GFA of a property is not a description of land as contemplated by the Act. The City has the authority to amend official plans and zoning by-laws to increase or decrease GFA for a property. The evidence of Mr Hynes is that, in increasing or decreasing density, the City is not increasing or decreasing land, it is increasing or decreasing the rights to develop the land.

5. Lease of Air Rights

The appellants also argue that the fact that “air rights” can be leased supports the fact that they are a portion of land within the meaning of the Act.

The appellants rely on the decision of the SCC in Toronto Transit Commission v. City of Toronto et. al., which overturned the decision of the Court of Appeal [1969] 2 O.R. at 481 and approved the decision of the Ontario High Court of Justice [1968] 2.

In the TTC case, the Toronto Transit Commission granted by way of lease, certain rights to air space above its rights-of-way and yards. The SCC agreed with the OHCJ that the rights contained in the lease were properly assessable.

This case dealt with section 43 of the Assessment Act, 1960 c. A.23 as amended, which was the provision for public utilities or commissions to pay annual payments or rates in lieu of taxes. It was a question of whether the whole of the property remained exempt from taxation once the lease had been signed. The issue before the Court was not a classification issue. The Court did not decide that “air rights” were land. The issue was whether or not the tenant occupied the portion of the land described in the lease as the Act made provisions for the assessment of property of a commission “when occupied by a tenant or lessee”.

The method of taxation of the land changed if the TCC was no longer in sole occupation of the lands. The question for the courts to decide was whether a tenant who commenced paying rent under a lease was in possession of the part of the land being leased.

The leased portion of the land was described in the lease and the rights to the “airspace” were tied to rights to both the ground surface and the subsurface.

At page 638 of the OHCJ decision, the Court stated:

The purpose of the lease was to enable the lessee to develop the demised areas by building a business and shopping complex, principally in the air space. For this purpose, the lessee was entitled to build surface and subsurface supporting columns and foundations…

At page 69 of the SCC’s decision, the Court found “The leased premises were described in the documents in five parcels and the lease granted what was described there as ground rights, air rights and rights of way”.

In the Board’s view, this description confirms that the meaning of land within the Act includes the surface, subsurface and air space above the surface.

The term “air space “ as used in the TTC case is different from the appellants’ use of the term in these appeals. In the TTC, supra, the leased space was termed “air space” and was defined in the lease. The leased portion of the property termed “air space” was no longer exempt from taxation.

The case of Trizec Manitoba Ltd. v. City Assessor for the City of Winnipeg et al. 1986 CanLII 3925 (MB QB), 32 M.P.L.R. 15, 25 D.L.R. (4^th) 444 was also submitted by the appellants as a case which held that air rights are assessable. The scheme of assessment in Manitoba is different from Ontario in that land and buildings are to be separately assessed. The issue in Trizec, supra, was whether after the buildings were constructed by Trizec in the leased air space, Trizec was still liable for a portion of the land assessment.

The legislation being interpreted in Trizec, supra, and the facts in this situation are very different from the appeals before the Board. The Manitoba Court held that once a building was constructed in the leased space, the building becomes assessable as a building and the land including the air space remains assessable as land.

Conclusion

For the reasons provided above, the Board finds that neither the undeveloped air space above the property or the air rights/development rights/density rights in the City of Toronto zoning by-law are “land” within the meaning of the Act.

Having found they are not land, there is no basis for considering if the criteria for the vacant land subclass or excess land subclass have been met.

The decision of the Board is to confirm the assessments on all properties for all taxation years under appeal and that the correct classification of the four properties for all taxation years under appeal is in the Commercial Property Class (CT).

“S.F. Mather”

S.F. Mather Vice-Chair

/ci

DECISION RELEASED ON: June 11, 2010