Assessment Review Board
Commission de révision de l’évaluation foncière
Region Number: 04
Municipality: Township of Greater Madawaska
Roll Numbers: See Schedule “A” attached
Hearing Numbers: 532566 and 535441
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 2009, 2010, 2011 and 2012 on premises known municipally as See Schedule “A” attached.
BETWEEN: Calabogie Peaks ULC
Assessed Person/
Appellant
- and -
The Municipal Property Assessment Corporation, Region No. 04 and the Township of Greater Madawaska
Respondents
APPEARING: P. Murphy - for the Assessed Person/Appellant
G. Main
F. Shea - Counsel for the Municipal Property (Conway Davis Gryski) Assessment Corporation
M. Palmer - for the Municipal Property Assessment Corporation
No one appeared - for the Municipality
DECISION OF THE ASSESSMENT REVIEW BOARD delivered by:
R. Tchegus and T. LaRegina
1These appeals came before the Assessment Review Board (“Board”) on October 24, 25 and 26, 2012 in the Town of Arnprior and on December 5, 2012 in the City of Ottawa.
INTRODUCTION
2Calabogie Peaks Resort and Conference Centre (“Resort”) is a four-season vacation resort situated about an hour’s drive west of Ottawa in the Ottawa River Valley. It offers golfing, skiing, timeshares, meeting rooms and hotel facilities. The Resort also has a beachfront on Calabogie Lake. When originally assessed for the taxation years in dispute, the Resort comprised 14 separately assessed parcels of land that, as a result of the Resort’s appeals, have now been reduced to 11 separately assessed parcels. The issue of the current values of the three following roll numbers is before the Board.
3Roll Number 4706-006-010-31500 is an 80.32 acre parcel of land which is developed with the 25 guest room Dickson Manor Hotel (“Hotel”) constructed in 2003-2004, the timeshare residences called “the Pines” constructed in 1985, the lower part of two ski lifts, a ski lodge constructed in 1971 with an addition completed in 1985, as well as various maintenance and other associated buildings. This roll contains commercial and residential class components as part of its assessment. The Pines contains four (4) one-bedroom units, four (4) two-bedroom units and two (2) three-bedroom units for a total of 10 residential units. “The Cedars” is another timeshare residence that was formerly assessed as part of roll number 4706-006-010-31500, but has subsequently been separately assessed also as a result of the Resort’s appeals.
4During the hearing, the parties submitted minutes of settlement affecting roll number 4706-006-010-31500 amending the legal description for this roll number as follows:
BLY CON 2, PT LOT 19, 20 AND 20 [sic] RP 49R12937 PT PART 1 AND RP 49R12895 PT PART 21
5Roll number 4706-006-010-31525 is a 3.21 acres parcel of land upon which the timeshare residences called “the Oaks” were constructed in 1987. This parcel is in the residential property class with the building having eight (8) two-bedroom units.
6Roll number 4706-006-010-33800 is a 103.32 acres parcel of land containing the upper portion or top west of the two ski lifts with the remainder being raw land. This parcel is in the residential property class.
7MPAC valued the properties by using three different methods. The Hotel was valued by MPAC on a pro forma income approach to value, the timeshares were valued by the direct sales comparison approach to value and the ski hill, ski lodge and related improvements were valued by the cost approach to value.
8After the Resort appealed the assessed values, MPAC completed an assessment analysis for each of the four roll numbers then under appeal, which resulted in it recommending various amendments to the assessments. MPAC’s revised assessments are summarized in the following chart:
| Roll Number | RTC/RTQ | Original 2008 CVA | 2009/10 Tax Years Revised CVA | 2011 Tax Year Revised CVA | 2012 Tax Year Revised CVA | Comment |
|---|---|---|---|---|---|---|
| 4706-006-101-31500 | CT RT RT RT RT CT |
$1,375,000 1,501,000 1,364,000 768,000 0 314,000 |
$772,000 1,210,000 0 764,000 0 449,000 |
$772,000 1,201,000 0 764,000 100,000 449,000 |
$772,000 1,201,000 0 764,000 100,000 449,000 |
Revised Hotel Valuation Revised Pines Valuation Cedars removed from roll2 Ski valuation – RT portions Carpet lift and mtnc. bldg. Mtnc. Bldg. additions YB2010 Ski valuation - CT portion Lodge and retail |
| Total CT value Total RT value Total value |
CT RT |
$1,689,000 3,633,000 $5,322,000 |
$1,221,000 1,974,000 $3,195,000 |
$1,221,000 2,074,000 $3,295,000 |
$1,221,000 2,074,000 $3,295,000 |
|
| 4706-006-010-31525 | RT | $1,461,000 | $1,048,000 | $1,048,000 | $1,048,000 | Revised Oaks valuation |
| 4706-006-010-33800 | RT | $970,000 | $402,000 | $402,000 | $402,000 | Remaining ski valuation |
| 4706-006-010-67250 | RT CT |
$393,600 13,400 $407,000 |
$322,500 8,500 $331,000 |
$322,500 8,500 $331,000 |
$334,500 8,500 $343,000 |
Revised golf course parcel |
| Total (all 4 rolls) | $8,160,000 | $4,976,0003 | $5,076,0004 | $5,088,0005 |
9Paul Murphy appeared on behalf of the Appellant. He is the sole shareholder of the company that owns the Resort and has been managing it as president since 2008. He submitted that MPAC’s values are hypothetical and the product of reverse engineering. Instead, he valued the Resort on a discounted cash flow and sum of the parts valuations. Notwithstanding MPAC’s downward revisions to the values of the three parcels under appeal, Mr. Murphy arrives at much lower values for all of the Resort’s properties. Using a consolidated valuation, Mr. Murphy determines the current value of the entire Resort to be $4,236,478. Using a sum of the parts valuation, he determines the current value to be $2,798,000. Mr. Murphy submits that the current value for the entire resort is properly between $3,200,000 and $4,200,000 and that the midrange value of $3,700,000 is the appropriate assessment for the Resort.
10Mr. Murphy also submitted that while the Cedars has been removed from roll number 4706-006-010-31500, he understands that MPAC will simply be assigning a new roll number for it that will have the same current value of $1,364,000. As the Resort appealed that value, Mr. Murphy indicated that he was prepared to argue the current value of the Cedars as part of this hearing.
11With respect to roll number 4706-006-010-33800 being the 103.32 acres parcel of land containing the upper portion or top west of the two ski lifts, at the beginning of the hearing Mr. Murphy pointed out that the value of the ski lifts had been apportioned between three parcels, two of which are under appeal to the Board and one of which is not. He alluded to a possible jurisdictional issue affecting this property, but nothing further was ever said on the matter.
12Finally, as Mr. Murphy believes that he and his staff have had to invest significant time and effort in curing MPAC’s mistakes in the assessment of the Resort, he indicated that he would be bringing a motion for costs against MPAC.
ISSUE
13What is the correct and equitable assessment for the four subject parcels for the 2009, 2010, 2011 and 2012 taxation years?
DECISION
14The Board is required by the Assessment Act (“Act”) to do two things:
- Section 44.(3)(a) requires the Board to determine the current value of the land. The Board finds that the correct current values of the subject properties as of the legislated valuation day, January 1, 2008 are as follows:
Roll number 4706-006-010-31500
| Tax Year | Residential Assessment as Returned | Commercial Assessment as Returned | Total Assessment As Returned | Residential Assessment as determined by Board | Commercial Assessment as determined by the Board | Total Assessment as determined by the Board |
|---|---|---|---|---|---|---|
| 2009 | $3,633,000 | $1,689,000 | $5,322,000 | $1,944,000 | $1,209,000 | $3,153,000 |
| 2010 | $3,633,000 | $1,689,000 | $5,322,000 | $1,944,000 | $1,209,000 | $3,153,000 |
| 2011 | $3,633,000 | $1,689,000 | $5,322,000 | $2,044,000 | $1,209,000 | $3,253,000 |
| 2012 | $3,633,000 | $1,689,000 | $5,322,000 | $2,044,000 | $1,209,000 | $3,253,000 |
Roll number 4706-006-010-31525
| Tax Year | Residential Assessment as Returned | Commercial Assessment as Returned | Total Assessment As Returned | Residential Assessment as determined by Board | Commercial Assessment as determined by the Board | Total Assessment as determined by the Board |
|---|---|---|---|---|---|---|
| 2009 | $1,461,000 | $1,461,000 | $1,022,000 | $1,022,000 | ||
| 2010 | $1,461,000 | $1,461,000 | $1,022,000 | $1,022,000 | ||
| 2011 | $1,461,000 | $1,461,000 | $1,022,000 | $1,022,000 | ||
| 2012 | $1,461,000 | $1,461,000 | $1,022,000 | $1,022,000 |
Roll number 4706-006-010-33800
| Tax Year | Residential Assessment as Returned | Commercial Assessment as Returned | Total Assessment As Returned | Residential Assessment as determined by Board | Commercial Assessment as determined by the Board | Total Assessment as determined by the Board |
|---|---|---|---|---|---|---|
| 2009 | $970,000 | $970,000 | $402,000 | $402,000 | ||
| 2010 | $970,000 | $970,000 | $402,000 | $402,000 | ||
| 2011 | $970,000 | $970,000 | $402,000 | $402,000 | ||
| 2012 | $970,000 | $970,000 | $402,000 | $402,000 |
- Section 44.(3)(b) requires the Board to have reference to the value at which similar lands in the vicinity are assessed and adjust the assessment of the land to make it equitable with that of similar lands in the vicinity if such an adjustment would result in a reduction of the assessment of the land. The Board finds that the current values as determined above are equitable and that no further adjustments to the current values are necessary.
15The Board declines to order costs as requested by the Appellant.
REASONS FOR DECISION
Position of MPAC
16The evidence of the MPAC was presented by Michael Palmer, a Senior Valuation Specialist with MPAC and whom the Board accepted as “an expert in the valuation of real property of the nature of the subject properties.” The Appellant neither opposed this request nor objected to the Board’s finding.
17Exhibits 2 and 3 filed by Mr. Palmer are his Assessment Analysis and Addendum to Report, respectively. He began by providing the Board with an overview of the Resort, the various assessment roll numbers that had originally been assigned to it and the amendments that had been made by MPAC as summarized in the chart above in paragraph 8.
18Mr. Palmer provided further particulars of the Hotel, which was constructed in 2003 at a cost of $4,855,158 and first occupied, according to Mr. Murphy, in 2004. The building is a three-storey steel frame structure with a decorative stone and siding exterior. Serving the guests staying in the 25 rooms, it has a well-appointed lobby with ceramic flooring, wood panelling and vaulted ceilings. The Hotel has elevator service and the guest room distribution includes standard rooms, junior suites and one-bedroom suites. The rooms at the rear of the Hotel also have exterior balconies.
19The ground floor of the Hotel contains “Canthooks” - a licensed restaurant and bar open for breakfast, lunch and dinner, as well as a 1,200 square foot meeting room and an indoor pool with access to an outdoor whirlpool.
20Mr. Palmer testified that he used the income approach to determine the value of the Hotel, which is a methodology that converts anticipated benefits (income) to be derived from the ownership of property into a value estimate. Anticipated future income and/or reversions are discounted to a present worth figure through the capitalization approach. Mr. Palmer’s Assessment Analysis provides:
Generally, the income approach to value involves the following steps:
Estimate the property's potential gross income less a vacancy and bad debt allowance.
Estimate the total annual operating expenses necessary to maintain the flow of gross income.
Calculate the net operating income by deducting the total annual operating expenses from effective gross income (potential gross income less vacancy and bad debt allowance equals effective gross income).
Select the appropriate capitalization rate and method of capitalization.
Using the proper technique, convert the net operating income into an indication of the value of the property.
21Hotel properties are income-producing properties that in ordinary circumstances are bought and sold on the basis of their stabilized income. Mr. Palmer testified that the income capitalization approach is an appropriate method of valuation for hotels because it should reflect the actions of informed buyers and sellers of income-producing properties and generally produces supportable value estimates. While hotel investment contains four elements, being 1) land, 2) improvements, 3) personal property and 4) business, the definition of "real property" as defined by the Act excludes personal property. Chattels and business value are considered personal property (tangible and intangible) and therefore the income approach must ensure that the business values, as well as personal property values, are excluded from market value for assessment purposes.
22Mr. Palmer testified that the exclusion of business value is achieved by deducting a management fee to reflect competent management. This method is supported by the large number of hotels operated by management agents with their fees shown as normal operating expenses in the hotel's financial statements. Personal property is excluded by making allowance in the process to extract the value of personal movable and non-assessable property. Typically, two calculations are necessary to remove the personal property value from the income stream, being a “return of” and “return on” personal property. The first relates to the fact that tangible personal property or chattels have a limited life and must be replaced on an ongoing basis. The frequent replacement of chattels is accounted for by establishing an expense deduction fund known as "renewals". For the second, when a net income stream is capitalized, the market value of the personal property is typically estimated and deducted from the valuation. Business value deduction and the return on personal property for hotels are currently dictated by regulation. Section 45.3 of Ontario Regulation 282/98 (“O. Reg. 282/98”) provides:
Current Value of Hotels
45.3 For the purposes of subsection 19(2.1) of the Act, where the current value of land used as a hotel is determined using the pro forma income capitalization approach to valuation, the following rules apply for 2003 and subsequent years:
Unless the assessment corporation can demonstrate that the use of a different percentage is appropriate in the circumstances for a particular hotel, the amount deductible for a year as management fees in determining the amount of the undistributed operating expenses of a hotel for a year shall not exceed 5 per cent of the total revenue of the hotel for the year.
Unless the assessment corporation can demonstrate that the use of a different percentage is appropriate in the circumstances for a particular hotel, the amount deductible for a year in respect of personal property in determining the current value of a hotel for a year shall not exceed 15 per cent of the capitalized net income of the hotel, including personal property.
23Mr. Palmer testified that to convert typical hotel operating statements into an indicated estimate of value, a pro forma valuation must be employed. The pro forma is a stabilized income and expense statement reconstructed from an analysis of actual results of operation of the subject property, comparable properties and industry standards. The purpose of the pro forma is to estimate the stabilized net income of a hotel property, excluding from that consideration, any abnormal relation of supply and demand and any transitory or non-recurring conditions that may result in unusual revenues or expenses to the property. The pro forma valuation assumes the competent operation of the hotel facility which does not reflect a specific operator; thus neither penalizing the very successful operator nor rewarding the unsuccessful operator.
24With respect to the subject Hotel, Mr. Palmer stated that net income has been stabilized to 2008 and he prepared a pro forma statement of operations for the Hotel in accordance with the Uniform System of Accounts for Hotels. His revised pro forma is as follows:
Revised Pro Forma Valuation
Dixon Manor – 2008 Pro forma Income
| Roll No. 470600601031500 | |||
| No. of Rooms | 25 | ||
| Occupancy | 45.00% | ||
| Average Rate | $130.00 | ||
| REVPAR6 | $58.50 | ||
| Revenue | Per Room | ||
| Guest Rooms | 533,813 | 46.3% | 21,353 |
| Food | 500,000 | 43.3% | 20,000 |
| Beverage | 100,000 | 8.7% | 4,000 |
| Telephone | 20,000 | 1.7% | 800 |
| Other Operated Dept.’s | |||
| Meeting Rooms | |||
| Total Revenue | 1,153,813 | 100% | 46,153 |
| Department Expenses | |||
| Guest Rooms | 122,777 | 23.0% | 4,911 |
| Food & Beverage | 510,000 | 85.0% | 20,400 |
| Telephone | 10,000 | 50% | 400 |
| Other Operated Dept.’s | |||
| Meeting Rooms | |||
| Total Department Expenses | 642,777 | 55.7% | 25,711 |
| Total Operating Departments Income | 511,036 | 44.3% | 20,411 |
| Undistributed Operating Expenses | |||
| Administration & General | 103,843 | 9.0% | 4,154 |
| Management Fees | 57,691 | 5.0% | 2,308 |
| Marketing | 46,153 | 4.0% | 1,846 |
| Franchise Fees | |||
| Energy Costs | 80,767 | 7.0% | 3,231 |
| Property Operation & Maintenance | 34,614 | 3.0% | 1,385 |
| Total Undistributed Expenses | 323,068 | 28.0% | 12,923 |
| Income Before Fixed Charges | 187,968 | 16.3% | 7,519 |
| Fixed Charges | |||
| Insurance | 12,500 | 1.1% | 500 |
| Property Taxes | |||
| Renewals | 46,153 | 4.0% | 1,846 |
| Total Fixed Charges | 58,653 | 5.1% | 2,346 |
| Net Income After Fixed Charges | 129,316 | 11.2% | 5,173 |
| Capitalization Rate | |||
| Basic Rate | 11.50% | ||
| Effective Tax Rate | 2.73% | ||
| Overall Rate | 14.23% | ||
| Indicated Value | 908,754 | 36,350 Per room | |
| Personal Property (15%) | 136,313 | 5,453 Per room | |
| Net Value to Land and Buildings | 772,000 | 30,880 Per room |
25Mr. Palmer’s revised current value of the Hotel based upon the foregoing is $772,000.
26To test that value, Mr. Palmer compared it to sales evidence provided by the sales of Calabogie Motor Inn and the Pinetree Motel in Eganville. His Assessment Analysis contains the following chart:
| Subject | Sale 1 | Sale 2 | |
|---|---|---|---|
| Property Name | Calabogie Peaks | Calabogie Motor Inn | Pinetree Inn |
| Location | Calabogie | Calabogie | Eganville |
| Hotel Type | Full Service | Limited Service Motel | Limited Service Motel |
| Year Built | 2003 | Reno 2005 | 1957 1960 1970 |
| Number of Guest Rooms | 25 | 11 | 18 |
| Sales Date | April 2010 | February 2008 | |
| Sale Amount | $425,000 | $562,000 | |
| Chattels Declared (% of Sale) | $12,000 2.8% | $2,000 0.4% | |
| Sale Price Per Room | $36,3507 | $38,636 | $31,222 |
| Location | Rural | Similar | Similar |
| Condition | Good | Similar | Inferior |
| Structure Quality | Good | Similar | Inferior |
| Amenities | Good | Inferior | Inferior |
| Overall Comparability | Inferior | Inferior |
and the following analysis:
The two sales indicate a range of $31,222 to $38,636 per room. The Calabogie Motor Inn is very similar in terms of location however the sale is outside of the 2008 Base year time period. Dixon Manor is superior to both of the sold properties in terms of the quality and amenities provided.
Based on the characteristics of the subject property relative to the sales, the value per room of Dixon Manor at $36,350 indicated by the income approach is a reasonable indication of value.
27While he did not rely upon the cost approach to value, Mr. Palmer did provide evidence indicating that as of September 17, 2003, $4,855,158 had been spent on the construction of the Hotel and, being “time stamped”, that cost may have actually increased.
28Based upon Mr. Palmer's review of the Hotel, it is his opinion that a revised value of $772,000 represents a proper estimate of current value for the Hotel portion of roll number 4706-006-010-31500 as at the legislated valuation day, January 1, 2008.
29Mr. Palmer then turned to the three timeshare complexes which are part of the Resort. The Pines [which is on the same parcel of land as the Hotel and a portion of the ski hill (Roll number 4706-006-010-31500)] was constructed in 1985. It is physically located between the Hotel and the Cedars. The Pines contains four (4) one-bedroom units, four (4) two-bedroom units and two (2) three-bedroom units for a total of 10 units. The Oaks was constructed in 1987 and is on a 3.21 acres hillside parcel of land being roll number 4706-006-010-31525. It has eight (8) two-bedroom units. The Cedars has six (6) two-bedroom units and two (2) three-bedroom units for a total of eight units. It was constructed in 2003 at a cost of $2,302,522.
30Mr. Palmer advised that timeshares are generally viewed as a form of vacation ownership in which an individual purchases a week or a package of weeks for annual or biannual use. For property classification purposes, he noted s. 3.(1)1 vi) of O. Reg. 282/98, which provides:
3.(1) The residential property class consists of the following:
- Land used for residential purposes that is,
vi. land with self-contained units, organized as what is commonly known as a timeshare, that,
A. is owned by persons, each of whom has an undivided interest in the land and a right to occupy a unit on a periodic basis for at least one week at a time, or
B. is leased by persons, for terms of at least 20 years, each of whom has a right to occupy a unit on a periodic basis for at least one week at a time.
31MPAC values timeshares based upon the sales of the timeshare interests. The number of bedrooms in a unit as well as the time of the year for which possession of the unit is purchased typically affects value. Weeks are divided into categories from the highest to the lowest demand periods. One maintenance week is typically accounted for in a timeshare, however Mr. Palmer’s analysis provides for two maintenance weeks per year.
32Mr. Palmer testified that resale information for timeshares is much more difficult to obtain than ordinary land sales as there are no regional or central ownership registries. Property owners provide all of MPAC’s information. To complete his analysis, he used resale information from the Pines and the Oaks as well as from Calabogie Lodge, another timeshare complex in the vicinity of the subject property. He also used sales information from the Cedars, but he discounted the Cedars sales by 50% to account for additional marketing costs incurred. The sales were further adjusted on the basis of weeks of high versus low demand based on information provided by the Cedars sales. Finally, 10% was deducted on account of non-assessable chattels and renewals. Mr. Palmer calculated average values of $94,000 for a one-bedroom unit timeshare, $131,000 for a two-bedroom-unit timeshare and $155,000 for a three-bedroom unit timeshare. This corresponds to total values of $1,210,000 for the Pines and $1,048,000 for the Oaks.
33Mr. Palmer then compared these values to the current values of two other timeshare complexes. Calabogie Highlands was constructed in 1996 and has eight (8) two-bedroom units that are adjacent to a golf course. The current value assessment for Calabogie Highlands as of January 1, 2008 is $1,552,000. After deducting $16,800 for excess land, the current value corresponds to $191,000 per two-bedroom unit or $3,763.00 per week. Calabogie Lodge was built in 1984 and has average current values per week of $1,877 for a one-bedroom unit, $2,883 for a two-bedroom unit and $3,378 for a three-bedroom unit. It has 17 one-bedroom units, 24 two-bedroom units and 2 three-bedroom units. The average current values are $95,713 for a one-bedroom unit, $147,014 for a two-bedroom unit and $172,283 for a three-bedroom unit. As the subject property has been assessed for average current values of $94,000 for a one-bedroom unit, $131,000 for a two-bedroom unit and $155,000 for a three-bedroom unit, Mr. Palmer is satisfied that the Pines and the Oaks timeshares have been assessed both reasonably and equitably.
34Roll numbers 4706-006-010-31500 (under appeal), 4796-006-010-33800 (under appeal) and 4706-006-010-33802 (not under appeal) comprise what is referred to as the ski hill. The ski hill has an elevation of 1,285 feet with 780 feet of vertical drop and 29 ski trails. The two Doppelmayr quad ski lifts are referred to as “Solar” and “Lakeview”.
35The main ski-lodge is located on roll number 4706-006-010-31500 as is the Hotel, the Pines and some other ancillary buildings and structures. The lodge has a total floor area of 9,819 square feet plus 4,617 square feet of basement space. Lift ticket and other sales are conducted from the building, which also has a kitchen, dining room and rest area on the main floor and a licensed bar and outdoor deck area on the upper floor. The building also contains an equipment and locker area. The ski hill also contains a number of ancillary buildings for maintenance, the ski lifts, ski patrol and staff quarters.
36Mr. Palmer testified that the ski hill was valued using the cost approach. MPAC has developed an Automated Cost System (“ACS”) for the application of the approach, which values major building components that have been constructed and are “in place” such as foundations, floor structures, frames and spans, exterior base walls and additives, roof finishes, partitions, interior finishes, built-ins, electrical, plumbing, HVAC and fire protection. The replacement cost “new” of these components are added together and then the estimated loss in value due to depreciation, design and plan deficiencies and/or external factors is subtracted to provide a Replacement Cost New Less Depreciation (“RCNLD”). MPAC’s building value data for roll number 4706-006-010-31500, excluding the Hotel and the Pines, is:
| ACS Entry | Description | Level | Floor Area | Floor Area - B | Year Built | RCNLD Net Value | RCNLD –B Net value | Net Rate PSF. | Net Rate PSF. - B |
|---|---|---|---|---|---|---|---|---|---|
| 1 | Ski-Lodge | Bsmt | 4617 | 1971 | 81162 | $17.58 | |||
| 2 | Ski-Lodge | 1 | 4617 | 1971 | 147403 | $31.93 | |||
| 3 | Ski-Lodge | 1 | 2025 | 1985 | 94255 | $46.55 | |||
| 4 | Ski-Lodge | 1 | 3177 | 1971 | 110834 | $34.89 | |||
| Subtotal: | 9819 | 4617 | 352492 | 81182 | $35.90 | $17.58 | |||
| 5 | Admin Office | 1 | 790 | 1985 | 42607 | $53.93 | |||
| 6 | Ski School | 1 | 1454 | 1985 | 41973 | $28.87 | |||
| 7 | Storage Shed | 1 | 197 | 1985 | 8598 | $43.64 | |||
| 8 | Elec./Storage Bldg | 1 | 590 | 1988 | 26662 | $62.14 | |||
| 9 | Elect./Storage Bldg | 1 | 874 | 1988 | 34072 | $38.98 | |||
| 10 | Service Garage | Bsmt | 3259 | 1989 | 90451 | $27.25 | |||
| 11 | Workshop/Maint. | 3079 | 1989 | 133255 | $43.28 | ||||
| 12 | Office | 1440 | 1996 | 23595 | $16.39 | ||||
| 13 | Ski Store | 1536 | 1971 | 14942 | $9.73 | ||||
| 14 | Ski Patrol | 1536 | 1971 | 14942 | $9.73 | ||||
| 15 | Storage Bldg | 2835 | 2010 | 67997 | $23.98 | ||||
| 16 | Repair Garage | 696 | 2010 | 32516 | $46.72 | ||||
| Total (All Structures) | 24846 | 7876 | 803651 | 171613 | $32.35 | $21.79 | |||
| Total Structure Value | 975264 |
37The same analysis is completed for yard work such as wells, septic systems and roads. MPAC’s valuation data for yard work pertaining to the ski hill on roll number 4706-006-010-31500 is:
| Description | RCNLD Net Value |
|---|---|
| Well & Septic | 23,200 |
| Quad Ski Lift – 33% of “Solar” | 87,673 |
| Quad Ski Lift – 40% of “Lview” | 121,408 |
| Carpet Lift | 11,004 |
| Site Clearing | 40,000 |
| Total | 283,285 |
38To complete the valuation, an estimated land value is added to the building and yard work values. Mr. Palmer calculated a neighbourhood base rate per acre of $723.00 from the sales of two vacant parcels of land in the vicinity occurring in July and October 2007. He also deducted five acres of land as being appurtenant to the Hotel and the Pines and arrived at a land value of $54,587. Adding that to the building and yard work values of $975,264 and $283,285, respectively provides a total value of $1,313,0008 for that portion of the ski hill located on roll number 4706-006-010-31500.
39In addition to the foregoing, that portion of the ski hill being part of roll number 4706-006-010-33800, being the 103.32 acre parcel of land containing the upper portion or top west of the two ski lifts with the remainder being raw land, is under appeal. This parcel is in the residential property class. MPAC applied 67% of the RCNLD Net Value for the Solar quad ski lift ($178,000), 40% of the RCND of Lakeview quad ski lift ($121,408), $25,000 for site clearing plus $78,315 for land value9 to arrive at a total value of $402,000.
40While the current value of roll number 4706-006-010-33802 is not before the Board, Mr. Palmer testified that a yard work value of $164,484 and a land value of $67,044 had been assessed to it for a total value of $231,000.
41Mr. Murphy’s thorough cross-examination of Mr. Palmer only confirmed the disagreement between the two witnesses' approaches to determining value. Despite Mr. Murphy’s continued attempts, Mr. Palmer did not agree that MPAC had been negligent in its assessment of these properties.
42Mr. Palmer clarified that the operations of the Hochelaga Inn in Kingston, Barons Motor Inn in Carleton Place and the Comfort Inn 1000 Islands in Gananoque were analysed by him in the preparation of the pro forma for the Hotel. Hochelaga Inn was originally built in the year 1880 and has 23 guest rooms. Barons Motor Inn was built in 1977 and has 27 guest rooms. The Gananoque Comfort Inn was built in 1951 and has 29 guest rooms. Mr. Palmer agreed that these hotels had, in addition to location, many differences from the Hotel on the subject property. Only one had an indoor pool and hot tub, which affects energy costs. One had a restaurant, but it was much smaller than that in the subject restaurant and only catered to the hotel’s guests. None had meeting room capability. Mr. Palmer testified that this sample set was used to assist him in allocating operating expenses and undistributed operating expenses required due to the consolidation of the Resort’s financial statements.
43Mr. Palmer also agreed that the energy and other utility costs experienced by the Hotel may be higher than indicated in his pro forma analysis. He conceded that the Resort must use propane as there are no service lines for less expensive natural gas. The Resort's remote location also results in exorbitantly high internet and television fees. It has no garbage pick-up or any other municipal services. Mr. Palmer reiterated that much of the difficulty that he encountered was to parcel out the utility and other costs appearing on the Resort's consolidated statements.
44With respect to MPAC's timeshare analysis, Mr. Palmer conceded in cross-examination that his sales analysis had included the federal goods and services tax (“GST”), which it should not have. In 2008, the GST was at the rate of 5% and therefore, Mr. Palmer acknowledged that his timeshare values were overstated by 2.5%.
45In redirect, Mr. Palmer testified that in his entire 25 years of experience, he had never encountered the requirement to deduct the costs of a hypothetical severance from the valuation of real property.
The Position of the Appellant
46At the beginning of the Appellant’s evidence, the Appellant’s representative, Mr. Murphy, requested that the Board accept him as an expert witness in valuation. Mr. Murphy has a Bachelors of Arts degree from the University of Western Ontario, a Bachelors of Law degree from the University of Ottawa and a Masters of Law degree from Columbia University in New York City.
47Mr. Murphy reviewed his considerable experience in investment banking for the Board, specifically in relation to mergers and acquisitions. He described working his way up to a partnership in the investment-banking firm Salomon Brothers between 1984 and 1995, which eventually became part Citigroup. With Citigroup, he became proficient in mergers and acquisitions concerning utility and energy companies. He left Citigroup and operated his own boutique firm in New York City for five years during which period he did nothing but merger and acquisition valuations. He returned to Citigroup valuing energy and natural gas pipelines and utilities until he left in 2008 and took over management of the Resort. He has given expert testimony before the United States Federal Court and before the National Energy Board of Canada. Not only has he been involved in transactions taking place across North America, but he has also been involved in transactions in Latin America and Europe.
48Mr. Murphy testified that he is an expert in the valuation of companies, many of which have significant real estate holdings, but he possesses no real estate appraisal or valuation qualifications.
49The Board did not accept Mr. Murphy as an expert valuator, but accepted him as an experienced witness. He has no background in real property appraisal, and most importantly, as owner of the company owning the Resort, he is simply unable to provide the unbiased evidence required of an expert witness. He cannot fulfill his duty to the Board in providing impartial expert testimony. As an experienced witness, Mr. Murphy was advised that his evidence would be accepted by the Board and weighed on its merits.10
50Mr. Murphy advised that the Resort has launched these appeals as a result of MPAC failing to consider five critical factors.
The properties were haemorrhaging cash.
The Resort discontinued timeshare sales in 2008 because they were destroying the value of the Resort.
The timeshare resale market disappeared in 2007–2008.
The Resort cannot break up its property and sell individual parcels.
The separation of the Resort’s property services required:
extensive planning approvals
large capital investment.
51He provided a financial summary for the Resort indicating that it generated financial losses for the 2005, 2006 and 2007 taxation years in the amounts of $2,650,418, $1,632,845 and $1,271,164, respectively. The financial losses experienced by the Resort are, Mr. Murphy says, the elephant in the room.
52Until the construction of the Cedars and the Hotel in 2003 and 2004, the Resort was a country boutique timeshare business. In addition to the ski hill, the Resort had the two timeshare buildings. Mr. Murphy reminisced how easy it was to run the business and how low costs were. The business went from a nice small family run enterprise operating just above the break-even basis to an out of control monster bleeding horrific losses that almost bankrupted his family.
53His family applied for and received debt relief by way of postponement of its debt payments. The time was used to market the Resort for sale, but the horrific losses killed all potential interest. Only a few parties, determined to break up and sell the Resort property on a piecemeal basis, showed any interest. His family had the option of walking away from the Resort or to make it financially viable. Describing himself as a stubborn Irishman, Mr. Murphy decided upon the latter option and resolved to make it happen. He studied the business of the Resort from the bottom up and personally worked at every employment position in it.
54Mr. Murphy views MPAC’s valuations as being highly theoretical and interesting, but he has never seen property valued in that manner. He is shocked that Mr. Palmer did not seek any peer review of his analyses and is amazed at the amount of personal judgment that he used without any professional consultation. In Mr. Murphy’s opinion, this approach would not be acceptable in the investment-banking field. MPAC had a difficult problem, he suggests, in that it was attempting to value an insolvent company at $8,600,000. At bare minimum, Mr. Murphy would have expected senior MPAC management to review the issue, but instead it retained a Toronto lawyer and developed a gracefully engineered valuation to “defend the fort called MPAC.”
55With respect to roll number 4706-006-010-31500, the Oaks is essentially the only structure not on the parcel. Mr. Murphy advised that the Cedars was severed from the parcel for mortgage financing purposes. He disagrees with Mr. Palmer’s evidence that the Resort’s financial figures could not be used for valuation because of the consolidation of the financial statements. Instead, MPAC used three different valuation methods on the parcel, which he submits to be a flawed analysis because no bona fide purchaser would value the property in that way. While MPAC’s evidence is directed to producing the highest and best value for the property, Mr. Murphy submits that MPAC’s analysis does not accord with empirical reality.
56Mr. Murphy emphasized the weeks and weeks of the Resort’s administrative time devoted to having MPAC correct the Resort’s assessment. Although he was successful in having the overall assessment of the Resort reduced by approximately 20%, he still believes that the assessment is much too high.
57The Financial Summary for the Resort that was provided to the Board showed financial losses in the amount of $2,650,418, $1,632,845 and $1,271,164 for the taxation years 2005, 2006 and 2007, respectively. Mr. Murphy submits that any valuation analysis would be wrong not to take into consideration the fact that the properties were hemorrhaging cash flow. He questions how Mr. Palmer can base his valuation on a stabilized income basis, when the Resort is losing well over $1 million a year.
58Mr. Murphy states that MPAC did not consider that the Resort’s timeshare sales destroyed value and were therefore discontinued in 2008. He submitted a Vacation Ownership Sales Profit/Loss Analysis indicating financial losses of $7,067, $2,750 and $13,977 per sale during the respective time periods of May 1, 2006 to April 30, 2007, May 1, 2007 to December 31, 2007 and January 1, 2008 to December 31, 2008. He explained the difference between surrenders, defaults and ownership changes. Surrenders are when timeshare owners release their timeshare for one dollar to the Resort in exchange for the Resort’s release of the owner's personal covenant to pay maintenance fees. Defaults occur when the Resort forecloses on a timeshare owner’s week because of nonpayment of maintenance fees. In such instance, the timeshare owner remains liable on his/her personal covenant for the maintenance fees. Ownership changes are transfers of a timeshare for estates, succession planning and/or resale. Mr. Murphy submitted the following chart to support his proposition that the timeshare resale market disappeared in the years 2007 and 2008.
2006 2007 2008 2009
Surrenders 7 19 10 12
Defaults 56 2 25 34
Ownership Changes 8 11
59The resort has a $200 ownership change fee, which applies on the death of an owner, the gifting of the timeshare to children or other heirs and private sales. Mr. Murphy testified that the Resort does not know the actual consideration paid in a private sale of the timeshare. What he does know is that more and more people are simply walking away from their timeshares. In 2010 there were 52.5 defaults/surrenders, in 2011 there were 59 and as of the original hearing date in 2012 there were 40 but the yearly maintenance fees had just been prepared and were in the process of being delivered to the timeshare members.
60The number of members is also dropping. In 2009 there were 941 one-week members, in 2010 there were 887, in 2011 there were 828 and in 2012 there were 788. Mr. Murphy submits that the market for timeshares is simply evaporating and MPAC did not take this into account in its analysis.
61The Resort’s timeshare sales are a distortion of the actual value because each timeshare sale was, in effect, destroying value. However, the Resort was prepared to take a loss on the sales so that cash could be extracted from the business. Mr. Murphy reminded the Board that the business was being run by a father and his five children and that MPAC did not take this into account in its analysis. The Resort "gave away" all kinds of additional benefits simply to get people to buy the timeshares. As such, he submits that the Resort’s sales were not open market transactions and, as it turned out, were not sustainable.
62He also explained how the majority of timeshares are purchased on credit, which again was not taken into account by MPAC in its analysis. With respect to the Resort, Textron Financial, one of North America's largest timeshare funders, held all of the receivables arising from the Resort’s sales. The receivables were all backed up with the personal guarantee of the Resort. Mr. Murphy advised that there are still five outstanding notes to be paid.
63Mr. Murphy believes that Calabogie Lodge sells up to 36 units per year because it has a very active re-sale practice. Its marketing campaign is just as strong as a new timeshare developer’s campaign would be. Since MPAC discounted the Cedars sales by 50% to account for the increased marketing, Mr. Murphy submits that the sales of the Calabogie Lodge timeshares should also be reduced accordingly. If that were done, he believes that the resulting values would be much more reasonable and sensible. It is his further submission that MPAC is not aware of the Calabogie Lodge marketing efforts because MPAC’s questionnaire does not ask the appropriate questions.
64He submits that MPAC continues to be under the mistaken assumption that the Resort buildings can be separately conveyed. MPAC uses this assumption so that it can assess the highest and best use as independent parcels of land to obtain the maximum values. The fallacy in this assumption is that it fails to account for the severance costs that would be incurred in developing the Resort lands for individual sale. Mr. Murphy refers to this as a "sleight-of-hand". He submits that if MPAC assumes the highest and best use of the property to be as a resort occupying the whole, it must live with that assumption which would prohibit evaluating the property by way of three different valuation methods. For MPAC’s analysis to have any validity, the valuation must take into account the separation of the Resort’s property that would be required. Such an exercise would entail extensive planning approvals for a plan of subdivision or plan of condominium, would have a timeline in excess of three years and, even if possible, would require capital investment of approximately $1 million.
65Mr. Murphy submits that MPAC failed to request information from the Resort needed to properly complete is valuation. It therefore lacks the required information to properly value the Resort. He submits that MPAC’s valuation of the resort is based on numbers that have no traceable root, record or foundation. MPAC has used "desktop comps” that have no relevance to the Resort. Its valuation has no basis in fact, is based on incorrect assumptions, is based on the wrong comparables, does not recognize actual market conditions and does not account for the Resort's unique property attributes. He submits that there are no precedents or comparables for the Resort in Ontario and that valuing the Resort’s property requires a lot of careful work, research and thought, which MPAC simply did not do.
66MPAC should have firstly examined the property and requested and reviewed all of its title and financial data. It needs to understand all of the easements, restrictions, covenants and encumbrances affecting the property. The Resort is in a unique setting with no comparables, thus requiring MPAC to inquire about the property, business, numbers and trends. It needs to understand the drivers, dynamics and use of the land and to meet with the management. If these steps had been taken in 2008, Mr. Murphy submits that this hearing would not have taken place.
67Mr. Murphy submits that the Resort is a unique property for a number of reasons. It is a four season resort with lodging and skiing. It has a history of rapid expansion coupled with large financial losses. The 25 room "boutique" Hotel is too small to be financially feasible. The Resort is the only seller of timeshares in Eastern Ontario taking place in a resort setting and, according to Mr. Murphy, losing money while doing so. The Resort contains multiple businesses co-located on one property and co-using/sharing Resort owned utility services. It is reliant upon private utility systems with no municipal infrastructure. Its business is highly weather sensitive. It is located in an extremely undeveloped region of Ontario, perhaps one of Ontario's poorest economic regions. It definitely has no access to the lucrative Greater Toronto Area or the Golden Horseshoe markets. There are no other local or regional businesses with which to join in co-destination marketing. The Resort has no comparables.
68Mr. Murphy explained how the Resort was "rescued" and "repurchased" in 2008. He purchased the property to rescue it from insolvency and to implement a new management team, a new strategy and large strategic investments. He termed his recovery program "Project Turn" and expected years to elapse before it was complete. There was no alternative, he said, but for bankruptcy as there were no buyers or investors for the property.
69The Project Turn included $3.4 million of strategic investment to "save the business". Mr. Murphy was pleased to advise that the Resort was approaching sustainability in 2012 and is hopeful that it will become sustainable in either this year or next. The new business strategy that he has implemented includes:
Separate business units for
Skiing
Lodging and Food and Beverage
Building operations and maintenance
Simplify the business, financial chart of accounts and reporting
Downsize and implement efficiencies
Consolidate business systems and applications
Rapid introduction of electronic commerce
Outsource IT and communications
Increased team training and skills development
Increase hotel occupancy and skier visits
Create new sources of revenue
Partner with Municipality and Ministry of Tourism to
Develop regional business
Raise Calabogie’s profile to become the next "Muskoka".
70Mr. Murphy related the introduction of events such as the Calabogie Blues and Ribfest funded partly through a Celebration Ontario grant, Snow Cross and Ride the Valley, all of which are unique for a hotel and being done in an effort to develop new businesses to help fill its rooms. Mr. Murphy is disappointed that MPAC did not take any of these matters into consideration.
71It is Mr. Murphy's opinion that the true and fair value of the Resort’s property in 2008 is between $3.2 million to $4.2 million based upon a consolidated property discounted cash flow valuation and a "sum of the parts" valuation. Mr. Murphy’s consolidated valuation of $4,236,470 was calculated as follows:
Calabogie Peaks UCL
Discounted Cash Flow Valuation Actual
| 2008 | 2009 | 2010 | 2011 | 2012 (E)11 | 2013 (E) | |
|---|---|---|---|---|---|---|
| Revenue | ||||||
| Skiing | 1,855,454 | 1,565,050 | 1,800,704 | 1,467,200 | 1,687,078 | |
| Food & Beverage | 1,182,861 | 910,265 | 872,417 | 1,016,877 | 936,868 | |
| Rental & Retail | 451,398 | 345,082 | 342,729 | 272,766 | 141,579 | |
| Recreation | 140,420 | 38,404 | 56,076 | 50,536 | 0 | |
| Property Management | 711,224 | 691,993 | 752,715 | 858,072 | 1,047,847 | |
| Vacation Ownership | 720,180 | 696,366 | 704,715 | 568,059 | 364,284 | |
| Recognize Deferred Revenue | 11,747 | 11,160 | 10,602 | 10,072 | 0 | |
| 5,073,284 | 4,258,320 | 4,539,492 | 4,243,582 | 4,177,656 | ||
| Cost of Sales | 3,348,011 | 2,341,685 | 2,216,637 | 2,336,342 | 2,641,336 | |
| Operating Expenses | 1,073,325 | 818,852 | 951,666 | 984,861 | 639,767 | |
| General & Administration | 1,265,546 | 994,230 | 916,427 | 711,413 | 463,243 | |
| Amortization | 671,922 | 690,047 | 747,222 | 845,112 | 867,747 | |
| Interest | 259,730 | 147,214 | 163,958 | 143,681 | 94,239 | |
| 6,618,534 | 4,992,028 | 4,995,910 | 5,021,409 | 4,706,332 | ||
| Loss Before Income Taxes | (1,545,250) | (733,708) | (456,418) | (777,827) | (528,676) | |
| Add Back | ||||||
| Amortization of property & equipment | 671,924 | 690,047 | 747,222 | 846,112 | 867,747 | |
| Amortization of deferred items | 33,931 | 19,920 | (10,602) | (10,072) | ||
| Interest expense | 259,730 | 147,214 | 163,958 | 143,681 | 94,239 | |
| Earnings Before Interest, Taxes, Depreciation and Amortization | (579,665) | 123,473 | 444,160 | 200,894 | 433,310 | 1,500,000 |
| Capital Expenditures | 156,318 | 1,321,216 | 1,180,782 | 1,111,471 | 450,000 | |
| Cash Flow | (735,983) | (1,197,743) | (736,622) | (910,577) | (16,690) | 1,500,000 |
| Discount Rate | NPV Cash Flows12 | Exit Multiple (x) 5 | Exit Multiple (x) 5.5 | Exit Multiple (x) 6 | ||
| 15% | ($1,461,004) | ($1,492,478) | ($1,495,625) | ($1,498,772) | ||
| 20% | ($1,441,849) | ($1,463,725) | ($1,465,913) | ($1,468,100) | ||
| 25% | ($1,411,164) | ($1,426,017) | ($1,427,502) | ($1,428,987) | ||
| NPV of Capital Expenditures @ 15% | $2,770,558 | |||||
| DCF valuation13 | $1,465,913 | $4,236,470 |
72Mr. Murphy’s valuation of the Resort by the “sum of the parts” valuation is:
Ski $1,946,000 Same as MPAC
Timeshares
Pines 354,000
Oaks 292,000
Cedars 302,000
Hotel 260,000
Golf 343,000 Same as MPAC
Vacant Land 168,000 Same as MPAC
Cottages 123,000 Same as MPAC
Cost to achieve
Separation (1,000,000) Not considered by MPAC
Total Resort Value $2,798,000
73Mr. Murphy noted that there are really only three differences between his valuation and that of MPAC. MPAC has valued the timeshares at over $3 million whereas his value is $916,000 for all three. MPAC has valued the Hotel at $772,000 as opposed to his value of $260,000. Lastly, MPAC’s valuation did not take into account the $1 million that it would cost to sever the parcels.
74Mr. Murphy prepared another discounted cash flow model, but only dealing with the Hotel. The Hotel was separated from the Resort and numbers were projected solely for it. The results, indicating what the market would be willing to pay for the Hotel is:
| Discount Rate | NPV Cash Flows | Exit Multiple (x) 5 | Exit Multiple (x) 5.5 | Exit Multiple (x) 6 |
|---|---|---|---|---|
| 15% | $148,832 | $249,471 | $259,534 | $269,598 |
| 20% | $127,672 | $197,622 | $204,617 | $211,613 |
| 25% | $110,639 | $158,131 | $162,880 | $167,629 |
75Mr. Murphy submits that the Hotel is worth $260,000 based upon its cash flow. His analysis contains many assumptions that unlike MPAC’s, are based on reality and not theory. For instance, Mr. Murphy used a 45% occupancy rate in his analysis and at the time of the hearing, the Hotel was operating at 49% occupancy. The expenses that he calculated are based upon a labour budget that is detailed to every employee.
76Mr. Murphy submits that his value is less than MPAC’s because a rural hotel has a very different structure than an urban one. MPAC should have spent more time analysing the Resort’s financial figures as they are not comparable to those of the other hotels. He says that the Hotel does not suffer from a revenue issue, but rather it suffers from a cost issue.
77Mr. Murphy prepared a Sum of the Parts Valuation for his Timeshare Valuation, the revised version of which provided as follows:
| Timeshare | Roll No. | Bedrooms | Week Value | No. Units | Unit Weeks | Total |
|---|---|---|---|---|---|---|
| Pines | 31500 | 1 | $625 | 4 | 200 | $125,000 |
| 2 | $730 | 4 | 200 | $146,000 | ||
| 3 | $830 | 2 | 100 | $83,000 | ||
| Total Pines | $354,000 | |||||
| Oaks | 31525 | 2 | $730 | 8 | 400 | $292,000 |
| Pines and Oaks Total | $646,000 |
78MPAC erred, he says, by comparing data from the three-bedroom Cedars units, which are based upon floating weeks, to units based on fixed weeks. It is the proverbial apples and oranges comparison. MPAC’s evidence further errs he says as it develops its total value of the timeshares based upon 5.5 weeks of Oaks’ sales and 3 weeks of Pines’ sales. It is ludicrous, Mr. Murphy submits, to base the total value of two timeshares (and probably three), on the basis of 8.5 weeks of sales, time adjusted or otherwise. He added that the maintenance fees for the units increased by 35% in 2008 giving people a greater incentive to simply walk away from their timeshare. Mr. Murphy believes that 35% appears to be the “breaking point” at which an owner will walk away.
79Mr. Murphy has a number of reasons to explain why the Resort’s timeshare values are less than others. The Resort does not have a point system that gives owners greater flexibility and the opportunity to experience other timeshares. The Resort’s timeshares contain numerous inducements such as the right to accelerated weeks, free exchanges and the right to a bonus week. The Resort’s timeshares prohibit registering anything on the title to the Resort, which is a lesser valued form of ownership. MPAC did not take these factors into account.
80The properties that MPAC has valued independently could not be sold separately in 2008. To separate the Resort’s Ski Hotel and timeshare components into multiple parcels would, Mr. Murphy submits, require a plan of subdivision or condominium. This would entail Provincial, County and Township regulatory review and approval, the review of over 20 difference agencies, three to five years to complete and $1 million in cost – all with no guarantee or certainty of outcome. He suggests that no reasonable buyer of the property would assume such a risk and time delay.
81Mr. Murphy prepared an 11-page memorandum outlining the requirements to obtain severance approval to create at least three parcels of land. Ironically, even with a property separation, the new properties would be required to share certain existing utilities as well as constructing new ones to share. The heating ventilation and air conditioning (“HVAC”) for the Cedars is currently located in the Hotel. Water from the Cedars serves the Pines and the Hotel. Waste water is treated on the golf course. Mr. Murphy’s specific costs calculations to separate the businesses amount to $1,024,593 and would take three to four years.
82Mr. Murphy summarized his evidence by submitting that the two customary valuation methods, being the consolidated property approach and the sum of the parts approach, provide respective values of $4.2 million and $3.2 million. He believes that a wide range is not unusual for a unique multiuse property. In his “experienced” opinion, the correct valuation is the midpoint of the range being $3.7 million. At the end of his summation, Mr. Murphy increased his value to $3.788 million.
83In cross-examination it became apparent that Mr. Murphy had double counted the insurance expense in his Hotel valuation, the affect of which was to increase his value for the Hotel from $260,000 to $380,448.
Submissions of MPAC
84Francis Shea, counsel for MPAC, referred the Board to 10 decisions.
85In Municipal Property Assessment Corp. v. BCE Place Ltd., [2010] O.J.No. 4357; 2010 ONCA 672; 103 O.R. (3d) 520 (C.A.), colloquially known as “the Bank Towers”, all of the parties agreed that the proper method of assessing the Bank Towers was the income approach, but they differed with respect to the interpretation and therefore determination of "current value". The Board originally agreed to a theory put forward by the taxpayer’s counsel and held that the phrase "fee simple, if unencumbered" required that the Bank Towers be valued as if they were vacant at the date of assessment. The Purchaser was to be allowed a notional two-year period to lease the buildings. The Court of Appeal determined that the legislation:
[23]…instructs the assessor to ignore encumbrances, such as leases that are not at market rents. Where the income approach is taken, the assessor is, as held by Lacourciere J.A., to use market rents rather than actual rents. I do not agree that this minor amendment was intended to accomplish the much more radical task of instructing the assessor to assume that an income-producing property was vacant as of the date of assessment.
86Mr. Shea submits that this decision addresses Mr. Murphy’s claim that the $1,024,593 of costs that would be incurred to sever the parcels so that they could be separately conveyed must be deducted from the value of the property. Mr. Shea likens Mr. Murphy’s claim to the “theory” of requiring the Bank Towers being valued as if vacant, and submits that the Act does not direct the assessors to entertain such radical theories.
87In Scollard Developments Inc. v. Ontario (Regional Assessment Commissioner, Region No. 9) [1992] O.J. No. 1296 (Gen Div.),(“Scollard Developments Inc.”) the issue was whether the Board had the jurisdiction to alter the assessment following a change from residential rental units to condominiums during the 1991 taxation year. Certain condominiums had sold during 1991 and became owner occupied. An owner occupied condominium was assessed at approximately $3,800 plus $475 for parking as compared to the $11,300 assessment of the previous year when tenant occupied. The Court agreed with the assessor and found:
While the Act provides in the above way for appeals of an assessment, the grounds as set out in s. 40 deal only with the correctness of the assessment as of the date it is made, subsequent changes in the nature of the ownership of the property are not relevant to that assessment although they obviously form the basis for the assessment for the following taxation year. The question before the Assessment Review Board is not whether the assessment is too high or too low at the time that it has the matter before it, but rather, whether the assessment was too high or too low at the time the assessment was made. The operative date before the Assessment Review Board is therefore the date of the return of the roll.
Accordingly in my view, the assessment of real property is determined by the situation and facts as they were at the time of the return of the roll.
88Mr. Shea submits that in this instance, the valuation day is January 1, 2008 and it is the situation and the facts as of that day that are relevant and not future expectations. Mr. Murphy’s valuation is, Mr. Shea submits, based upon the latter.
89In support of MPAC’s income approach to valuing the Hotel, Mr. Shea referred to the Board’s decision in Centre City Capital Ltd. v. Municipal Assessment Corp. Region No. 15 [2012] O.A.R.B.D. No. 7, (“Centre City Capital Ltd.”) Member (and now Vice Chair) Andrews stated:
4The parties agree that the balance of the subject property, comprising the hotel and the banquet and restaurant facilities, is correctly classified in the commercial property class and that it be valued using the income approach to value.
5In a hotel valuation using the income approach to value, a pro forma stabilized statement of income and expenses is constructed from various sources including an analysis of actual results from the operations of the subject property; a review of the operations of similar properties in the vicinity of the subject property; and industry standards. The net operating income so derived is then valued using an appropriate capitalization or discount rates.
16Although the parties have agreed to use the income approach to value the commercial component of the subject property, the task is still to attempt to mirror the actions of a hypothetical willing seller and willing buyer whom it is presumed would rely on a stabilized pro forma of income and expenses to arrive at a value.
90Mr. Shea submitted the unreported 1983 assessment decision of the Ontario Municipal Board (“OMB”) in Re Villacentres Management et al. and Regional Assessment Commissioner, Region Number 9 (21 May 1983) (“Re Villacentres Management”) dealing with the Hotel Plaza II located at 2 Bloor Street East in the City of Toronto. Vice Chair P.M. Brooks dealt with a 256-guest room hotel that was located above a Hudson Bay complex. The hotel also occupied some ground floor and basement area of the property. The Board accepted the Assessment Commissioner valuing the property by determining net income on the basis of financial statements from which 1980 “pro formas” were prepared. Mr. Shea submitted that, contrary to Mr. Murphy’s position, it is not necessary to sever the Hotel from the remainder of the property in order to determine its current value.
91He also provided two timeshare decisions, Horseshoe Valley Ltd. v. Regional Assessment Commissioner, Region No. 16 [1995] O.M.B.D. No. 814 (“Horseshoe Valley Ltd.”) and Calabogie Land Co. v. Municipal Property Assessment Corp., Region No. 4 [2006] O.A.R.B.D. No. 7 (“Calabogie”). In the first decision, the approach taken to value the timeshares by the OMB was as follows:
| Potential Sales Per Unit | $230,800 |
| Less Maintenance Weeks | ($6,000) |
| Gross Sales Per Unit (50 weeks) | $277,800 |
| Less Chattels | ($30,000) |
| Net Sales Per Unit | $247,500 |
| 1994 Net Sales for 40 units (50 weeks) | $9,900,000.00 |
| Reversionary Value $ (item applicable to land and not building) | $20,276 |
| Total Project Value | $9,920,276.00 |
| Value Per Unit | $248,007.00 |
| $9,920,276÷40 units rounded to | $248,000.00 |
| Indicated Timeshare value | $9,920,000.00 |
The parties agree for the purpose of this appeal that the direct comparison approach is the preferred method in Ontario for valuation of Timeshare Properties. It is also recognized that appraisal methodology for timeshare properties should include adjustments for non-real estate items.
As the Timeshare Property is in a sell out position, resales are often viewed as the “acid test” of value and are the preferred basis for determining value.
92Mr. Shea noted the reference in the first decision to the assessor allowing marketing costs for the timeshare to be deducted but only until the property is sold out.
93The same valuation approach used by Mr. Palmer was used in Calabogie, supra.
15Tab 1 shows the value for the subject property was arrived at. Mr. Beyaert [the assessor] testified that based on sales of peak weeks, medium weeks and low weeks for the years 2002, 2003 and 2004, he calculated an average value for the year of each type of unit. He then applied these values to the number of units in each category to arrive at the assessment for the time share units. The value for the commercial portion was then added to arrive at the total current value of $7,019,000.
16Tab 2 of this exhibit demonstrates that the three other timeshares in Calabogie have been assessed with a similar approach to the subject property. Mr. Beyaert testified that comparable 1 at Calabogie Highlands and comparable 3 at Calabogie are both limited leases similar to the subject property. Comparable 2 at Calabogie Oaks does not have limited leases. MPAC currently makes no distinction on the type of sales arrangements. Using the same methodology as applied to the subject property, which includes a 10% time adjustment for 2001 sales to 2003, this information gives good support to subsection 44(2) of the Act that similar properties in the vicinity have been assessed with the same methodology.
94Mr. Shea submits that whatever parcel of land can be sold separately must also be separately assessed. In Russ Howard Const Ltd v. Ontario (Reg Assessment Commr. Reg 21) [1987] O.J. No. 235; 21 O.A.C. 311, (“Russ Howard”) the Court of Appeal said:
The meaning of the terms “real property” and, more particularly, “property” in the regulation cannot be properly determined in the context of the regulation alone. It must be determined in the general context of the scheme of the Assessment Act. In this regard we refer in particular to s.13(1) paras. 1, 2, 3, 5 and 6, s. 13(2), s. 13(3), s. 18(1) and (2) and s. 63(3) of the Act. In light of the scheme of the assessment process reflected in these provisions the “property assessed” in s. 5 of the regulation means an entire parcel, or property, of an owner and not some part or parts of it which are arbitrarily created on the basis of the numbering of buildings which are situated upon it.
95In Regional Assessment Commissioner, Region 3 v. Torino Investments Co. Ltd.(1984) 17 O.M.B.R. 113, (“Torino”) the Ontario Municipal Board determined:
The ratepayer argued that because Lots 5, 7 and 8 are abutting lots and are all used in the same business, they should be assessed as one parcel under one roll number.
The board is not of this opinion as these parcels are separate lots on a registered plan of subdivision and even though they are all used in the same business at this time, they can, at any time, be sold separately at the whim of the owners or the vagaries of the market place.
96In this instance, there are three properties under appeal before the Board because each of those parcels can be separately conveyed and/or mortgaged.
97Lastly, Mr. Shea referred to the Ontario Divisional Court decision in Municipal Property Assessment Corp. v. Cisco Systems Co. [2008] O.J. No. 295 (“Cisco”) (Ont. Div. Ct.) in which he submits that the Divisional Court distinguished Torino, supra. In Cisco, supra, the Divisional Court was dealing with a classification issue and stated:
[17]. We have before us a decision of the Board in Regional Assessment Commissioner, Region 3 v. Torino Investments Co. Ltd. This case involved contiguous lots under one ownership. This was a valuation case.
98As this is also a valuation case, because the three parcels under appeal are all capable of separate ownership, Mr. Shea submits that they must also be assessed separately.
99With respect to the timeshares, Mr. Shea submits that MPAC has done its very best to match or mirror the market place in the way in which the industry is conducted. With respect to the Pines and to account for the difference in values between the various weeks, Mr. Palmer developed 16 different values. The expression that Mr. Palmer used was, “you have to work with what you get”. That is what, Mr. Shea submits, MPAC has done. Actual sales of timeshares were used to develop an estimation of values. To prove whether the estimations are correct, those values were compared to the actual sales prices of the other two timeshare developments in Calabogie. Mr. Palmer's analysis gave him comfort in knowing that his estimations of value were reasonable.
100Mr. Shea submits that a similar exercise was completed for the Hotel. Mr. Palmer’s pro forma analysis provides a value of $36,350 per room. Inferior hotels sold for $31,222 and $38,636 per room, respectively. Mr. Murphy is proposing a room value of less than one half the lowest amount or $15,200, notwithstanding the actual sales evidence.
101Mr. Murphy, Mr. Shea submits, is an intelligent businessman, but he is not a real property appraiser. Regardless, his evidence must meet the same tests and standards. It is Mr. Murphy's request for a further 35% reduction in value that is not founded, Mr. Shea submits, in the real world.
102The evidence as to where the timeshare market is going is irrelevant as the valuation date for all of these appeals is January 1, 2008. MPAC's revised current values are reasonable and proper and Mr. Shea requests the Board to adopt them.
Submissions of the Appellant
103Although Mr. Murphy admitted under cross-examination that he was not proficient on the law of real property assessment, Mr. Murphy responded to the 10 decisions referred to by Mr. Shea.
104He submits The Bank Towers, supra, supports the Resort’s position and not MPAC’s. To achieve MPAC’s individual values, which were developed individually on the Hotel, the timeshares and the ski hill/lodge through the pro forma income approach, direct sales comparison and cost approached to value, respectively, each of those improvements would need to be capable of separate ownership. That cannot be achieved without severance and development approval, so, Mr. Murphy submits, it is MPAC’s valuation methodology that incorporates unsupportable assumptions.
105He submitted that Scollard Developments Inc., supra, merely confirms that one cannot use the benefit of hind sight.
106Mr. Murphy distinguished the facts in Centre City Capital Ltd., supra, from those in this Hearing. He emphasized part paragraph [5] and paragraph [28] reading:
5In a hotel valuation using the income approach to value, a pro forma stabilized statement of income and expenses is constructed from various sources including an analysis of actual results from the operations of the subject property; a review of the operations of similar properties in the vicinity of the subject property; and industry standards. The net operating income so derived is then valued using an appropriate capitalization or discount rates.
28The Board notes that for the five hotel properties for which 2003 and 2005 pro forma results were provided only one of the properties had an expense percentage below 23% for the two valuation base years (Exhibits 23, 25, 26, 27 and 28).
107MPAC did not provide pro forma results for its Hotel comparisons but rather simply provided comparable sales data. Mr. Murphy submits that those efforts are insufficient and a full analysis of those hotel’s financial operational statements is required. Further, the Resort did exactly what paragraph [16] of Centre City Capital Ltd., supra, dictates. MPAC failed to look at any numbers other than 2008 only because, Mr. Murphy submits, those numbers did not support MPAC’s proposed value.
108Mr. Murphy concedes that Re Villacentres Management, supra, suggests that MPAC is able to value a property within a larger property, but believes that is a condominium case. Regardless, he notes that again the assessor had access to the financial statements of eight similar properties from which pro forma statements could be prepared. MPAC did not do so in this instance.
109Mr. Murphy does not agree that the valuation approach used by the assessor in Horseshoe Valley Ltd., supra, is the only manner by which a timeshare can or should be valued. In fact, as the timeshares are embedded in a larger business in this instance, on a larger parcel of land, he suggested MPAC’s methodology may simply be inappropriate. He also noted that page six of the decision refers to real property, chattels and intangibles, the latter of which was never discussed by MPAC. He also expressed his opinion being that the marketing material in selling a new timeshare actually exceeds the 50% deduction provided for by MPAC in that regard.
110He noted that Calabogie, supra, is wrong when its states, “Comparable 2 at Calabogie Oaks does not have limited leases” as he says that it does.
111Mr. Murphy agrees with Russ Howard, supra, as it confirms that one must look at the entire parcel of land and not just artificially created part or parts of it as MPAC has done with the Resort. He believes that Torino, supra and Cisco, supra, simply extend the same principal. He has valued the entire Resort and not just artificially created parts of it.
112Mr. Murphy ended his summations with respect to the appeals by reiterating that MPAC’s methods of valuation in this instance do not mirror reality. He challenges MPAC’s arbitrary deduction of 50% of the value of the sales for new timeshares as the Resort suffered over $450,000 in losses over three years trying to sell timeshares. The sales that MPAC did use are not real viable sales as they were embedded with all types of giveaways. MPAC simply ignored that fact.
113MPAC did not account for the fact that every timeshare sale has a commission associated with it, being another lowering of the value. He says that Calabogie Lodge has a sales force to assist with its sales, but MPAC does not adjust for that in its value analysis. MPAC, he says, simply ignores what is really going on.
Relevant Legislation
114For the 2009 through 2012 taxation years inclusive, in determining the value at which land shall be assessed, the Board must have regard to the following provisions of the Act:
115Section 19.(1) of the Act states:
19.(1) Assessment based on current value. - The assessment of land shall be based on its current value.
116Section 1 of the Act states:
“current value” means, in relation to land, the amount of money the fee simple, if unencumbered, would realize if sold at arm’s length by a willing seller to a willing buyer.
117Section 19.2(1) 2 states:
19.2 (1) Valuation days. – Subject to subsection (5)14, the day as of which land is valued for a taxation year is determined as follows:
- For the period consisting of the four taxation years from 2009 to 2012, land is valued as of January 1, 2008.
118Section 44.(3) states:
44.(3) Same, 2009 and subsequent years. – For 2009 and subsequent taxation years, in determining the value at which any land shall be assessed, the Board shall,
(a) determine the current value of the land; and
(b) have reference to the value at which similar lands in the vicinity are assessed and adjust the assessment of the land to make it equitable with that of similar lands in the vicinity if such an adjustment would result in a reduction of the assessment of the land.
119Section 40.(17) states:
40.(17) Burden of proof. – For 2009 and subsequent taxation years, where value is a ground of appeal, the burden of proof as to the correctness of the current value of the land rests with the assessment corporation.
120Section 40.(19) states:
40.(19) Board to make determination. – After hearing evidence and the submissions of the parties, the Board shall determine the matter.
121Effective July 2, 2012, the following Rules were added to the Rules of Practice of the Assessment Review Board:
COSTS
144a. Application, Scope of Costs Awards and Procedure for Request for Costs
Rules 144a to i come into effect on July 2, 2012 and apply prospectively to all hearing events and conduct on or after that date. The authority to award costs applies to all proceedings before the Board. The Board will not entertain requests for review of costs orders.
Where a party believes that another party in the proceeding before the Board has acted unreasonably, frivolously, vexatiously, or in bad faith, that party may make a request to the Board for costs at the end of a hearing event. If the request for costs is not made before or when the Board renders its decision at the end of the hearing event, the party seeking costs must file the request, with notice to all other parties to the proceeding, no later than 30 days after the written decision or written reasons of the Board are issued.
144b. Costs Awards on Board’s Own Initiative
The Board may also exercise its authority to award costs under these Rules from one party to another or others on its own initiative, after permitting the party against whom costs are proposed to make submissions.
144c. Party Requesting Costs
The party seeking a costs award must demonstrate to the Board’s satisfaction that any requested costs are:
(a) directly and necessarily incurred in relation to the proceeding before the Board;
(b) reasonable in the circumstances;
(c) properly documented and verified; and
(d) consistent with the principles and criteria outlined in these Rules.
144d. What to file with a costs request
When filing a costs request with the Board, the party seeking a costs award shall provide:
(a) an explanation of how the requirements in Rule 144c (a), (b), and (d) have been met;
(b) a summary statement with a calculation of the amount of costs requested, including particulars of fees and disbursements for lawyers and consultants, supported by time dockets, invoices, receipts and a detailed description of activities; where invoices or receipts are not obtainable for good reasons, the Board may accept a written record of individual disbursements and associated dates.
144e. Responses to a costs request or Board’s costs proposal
Where a party makes a costs request, any objection and associated argument by the party against whom costs are sought must be filed with the Board and given to the other parties within 14 days after the filing of the costs request or within such time as directed by the Board. The party seeking the costs then has five days or within such time frame as directed by the Board to file a reply.
Where the Board, on its own initiative, proposes to make a costs award, the party against whom costs are proposed must file any objection and associated argument and give them to the other parties within the time directed by the Board.
144f. When and how a costs request or Board’s costs proposal will be decided
The Board may decide the issues of costs based on the written material or the Board may require brief oral submissions. In its costs decision, the Board may order to whom and by whom the costs are to be paid and fix the amount of the costs.
144g. Considerations by the Board
The Board in determining whether a party has acted unreasonably, frivolously, vexatiously, or in bad faith shall consider all of the circumstances, including, without limiting the generality of the foregoing:
(a) a party failing to attend a hearing before the Board or to send a representative when properly given notice, without contacting the Board and other parties to the hearing;
(b) a party failing to comply in a timely manner with a procedural order, case or appeal(s) management plan or direction of the Board where the result therefrom is undue prejudice or delay to another party or parties in the proceedings before the Board;
(c) a party failing to comply in a timely manner with the disclosure or discovery requirements set out in the Board’s Rules of Practice or order or direction of the Board, including, without limiting the generality of the foregoing, the disclosure requirements respecting documents, particulars, or constitutional issues, provisions of responses to undertakings given on discovery including document disclosure; or
(d) a party knowingly presenting false or misleading evidence.
144h. When Costs may be Awarded
Where the Board finds that a party has acted unreasonably, frivolously, vexatiously, or in bad faith, the Board may order that party to pay the costs of another party or parties to the proceedings subject to Rule 144i. respecting the amount of costs that may be ordered by the Board.
144i. Amount of Costs Awards
Where the Board determines that an order for costs may be made under Rules 144a. to 144h,
(1) the Board when determining the appropriate award of costs shall consider all the circumstances, including without limiting the generality of the foregoing, factors such as the seriousness of the misconduct, the amount of costs incurred by the party requesting costs, the conduct of the party requesting costs and offers to settle; and
(2) the amount of costs shall not exceed the sum of $1500.00 per day or up to $750.00 for each half day or less.
The Board’s Analysis – Burden of Proof
122The burden ascribed in s. 40.(17) is for MPAC to satisfy the Board that the assessment is reasonably correct. If it does so, then the onus shifts to the Appellant to provide evidence to show either that the current value is not correct or that the assessment is not equitable when compared with the assessments of similar lands in the vicinity. The Board reviewed MPAC’s evidence and finds that for the reasons provided below and subject to certain minor amendments, MPAC has satisfied the burden of proof referred to in s. 40.(17) of the Act. This transfers the onus to the Appellant to prove that the assessments as returned or recommended are incorrect or inequitable or both.
The Board’s Deliberations
(A) The Current Value of the Land
123The best evidence that the Board can receive of current value is an arm’s length and market-tested sale of the subject property at or near the valuation day, being January 1, 2008 for the 2009, 2010, 2011 and 2012 taxation years. If no such transaction has taken place, the Board looks to the sales of comparable properties in the vicinity to determine if the sales evidence suggests that a current value requires correction. If there have been no sales of similar properties, the Board, as was stated many times throughout this hearing, “works with what it gets” to determine the correctness of the assessment.
124Mr. Palmer is “an expert in the valuation of real property.” Mr. Murphy is not. Mr. Palmer applied accepted assessment/appraisal methodology in arriving at, what he believes to be, the correct current value of the parcels under appeal. Mr. Murphy did not. While Mr. Murphy’s valuation, analysis may be proper for a business valuation, that is not what is required by the Act. Ironically, a business valuation should be higher than an assessment pursuant to the Act as the latter is to specifically exclude chattels and business value.
125Over the four days of the hearing, the Board observed that Mr. Murphy is a highly intelligent man. It also determined that Mr. Murphy did not just own the Resort, but that he has “lived” the Resort. When he gave evidence, he exhibited a passion that, while admirable in some respects, clearly confirms his inability to analyze this matter from an objective, unbiased, impartial third party point of view.
126While it is not the norm, it is possible for a parcel to have a unique assessment roll assigned to it and to have more than one property classification assigned to it. Certain industries designate portions of their properties that sell the industrial product retail or wholesale thereby being a commercial use. On many typical urban “downtown” streets, the ground floor of a property is commercial, with residential or multi-residential uses forming the remainder of the building. For assessment purposes, the Board agrees with Mr. Shea in that assessment rolls should correspond to parcels of land capable of being separately conveyed or mortgaged. Until severed, that is what can or cannot be conveyed in the open market.
127The Board simply cannot accept that a three-star plus hotel constructed at a cost of at least $4,855,158 can have land and buildings value of $260,000 or $380,448 less than 10 years later. Mr. Murphy agreed with MPAC and accepted that the replacement cost new, less depreciation for the ski lodge was $433,674. Based upon the evidence provided to the Board, it is clear that the ski lodge is less than half the structure that the Hotel is. The Board therefore accepts Mr. Palmer’s valuation for the Hotel, except that it replaces the $80,767 in energy cost with the $82,767 actual 2008 cost noted on the Appellant’s consolidated valuation data for 2008. The Appellant inferred that the energy costs incurred by the Hotel are well in excess of those incurred in urban settings. This changes the “Net Income After Fixed Charges” on Mr. Palmer’s Revised Pro Forma Valuation from $129,316 to $127,292. The indicated value of $908,754 changes to $895,242.44 and deducting 15% for personal property brings the Net Value to Land and Buildings for the Hotel to be $760,956 or $760,000 rounded. The Board therefore reduces the current value of the Hotel to $760,000.
128With respect to the timeshares, while the Appellant appears to appreciate that the owner of the lands is liable for real property taxation, he does not appear to appreciate that the value of the timeshares is being based upon the timeshare members’ interests, and not that of the Resort/owner. But for O. Reg. 282/98, timeshare developments would either be taxed at the typically much higher mill rates of the commercial property class, like hotels or of the multi-residential property tax class if there were seven or more units. The Pines has 10 units and the Oaks and Cedars each have eight units. With respect and not wanting to delve into the industry practices, technically, after initial timeshare sales, the only remaining interest of the registered owner appears to be the management consideration and the reversionary interest, which is typically, as with the Resort, 49 years off into the future,
129Instead, the regulation requires that timeshares be assessed in the residential property class, similar to condominium units. Section 3.(1)1.(ii) of O. Reg. 292/98 provides:
3.(1) The residential property class consists of the following:
- Land used for residential purposes that is,
ii. a unit or proposed unit, as defined in the Condominium Act,
130If the units were condominium units as opposed to timeshares, which types of ownership are classified to be residential pursuant to the same section of the same regulation, the units should be of approximately the same values. The current values would be $94,000 for a one-bedroom condominium unit, $131,000 for a two-bedroom condominium unit and $155,000 for a three-bedroom condominium unit. Those values would, if anything, appear to the Board to be on the low side of value. This does not include the developer’s reversionary interest, which increases year by year with the expiration of the original timeshare terms. Based upon all of the additional benefits associated with the Resort’s sales to get people to buy the timeshares, the Board is satisfied that MPAC’s timeshare value analysis is quite reasonable.
131Under cross-examination, Mr. Palmer realized that his direct sales comparison approach to value included GST and, for that reason, his timeshare valuations should be reduced by 2.5%. That reduces the current value of the Pines to $1,179,750 (rounded to $1,180,000) and the Oaks to $1,021,800 ($1,022,000 rounded). The Board so orders.
132Although the current value for roll number 4706-006-010-33800 had been appealed and preliminary submissions were made by Mr. Murphy, nothing further ever transpired with respect to this parcel. Therefore, the Board confirms MPAC’s revised current value of $402,000 in the residential property class for all four of the taxation years.
133To clarify the affect of the foregoing, the current value of roll number 4706-006-010-31500 is reduced from $5,322,000 to $3,153,000 for the 2009 and 2010 taxation years with $1,209,000 applicable to the commercial class and $1,944,000 applicable to the residential property class. The current value of roll number 4706-006-010-31500 is reduced from $5,322,000 to $3,253,000 for the 2011 and 2012 taxation years with $1,209,000 applicable to the commercial class and $2,044,000 applicable to the residential property class. The current value for roll number 4706-006-010-31525 is reduced from $1,461,000 to $1,022,000 in the residential property class for the 2009 through 2012 taxation years, inclusive, and the current value of roll number 4706-006-010-33800 is reduced from $970,000 to $402,000 in the residential property class for the 2009 through 2012 taxation years, inclusive.
The Board’s Analysis – Section 44.(3)(b) – Equity
134The Board is satisfied that with the evidence provided it has a grasp of the value at which similar hotels and timeshares in the vicinity have been assessed. Having reference to the value at which similar lands in the vicinity are assessed, the Board finds there is no need to further reduce the assessments of the lands to make them equitable with that of similar lands.
Costs
135The Board has added a new rule to its Rules of Practice and Procedure that allows the Board to award costs under the Statutory Powers Procedure Act. These rules came into effect on July 2, 2012 and apply to all hearing events and conducted on or after that date.
136If a party believes another party involved in the Board matter acted unreasonably, frivolously, vexatiously, or in bad faith, the Board may be asked to order that the other party pay some or all of a party’s hearing costs. The Board may also decide, even when no party asks for it, to award costs, after allowing the party from whom costs may be awarded to make submissions.
137Before the Board can make an award as to costs, the party asking for costs must show that:
the costs are directly related to the matter before the Board
the costs being asked for are reasonable
the costs are documented
the costs can be verified (i.e. with receipts)
138At the end of the hearing, Mr. Murphy requested costs and made submissions. He said that no company should ever have been put through what he and his company have had to endure. The preparation for the hearing alone used up between one and two weeks of his and the company’s administrative staff’s time. In his opinion, the Resort is bailing MPAC out of a mistake.
139As the hearing date drew near, the Resort began to receive offers of settlement from MPAC, the last reducing the Resort’s original assessment by 20%. This should not be the responsibility of the taxpayer. He says that he was forced to play “chicken” with MPAC and should not be forced to negotiate. It is MPAC’s statutory to prepare a proper assessment. Therefore, Mr. Murphy wants to be compensated for his and his staff`s time spent on this matter since June of 2012.
140The party being asked to pay is also given a chance to respond. Mr. Shea submitted that nothing inappropriate has taken place in this matter and most definitely, nothing unreasonable, frivolous, vexatious, or in bad faith. This is, as Mr. Murphy has attested to, a complex property and MPAC has been acting reasonably and in good faith to whittling down the issues. Mr. Shea responded that he personally had to wait until this past summer for Mr. Murphy to provide him with his final value, and suggested that by Mr. Murphy’s logic; perhaps MPAC should be claiming some costs. He submits that offers to settle should be encouraged and not penalized. Regardless, there is no basis for costs in this matter. The Board agrees.
“R. Tchegus”
R. Tchegus Member
“T. LaRegina”
T. LaRegina Member
/ll
DECISION RELEASED ON: August 20, 2013
- Duty of Expert Witness It is the duty of every expert engaged by or on behalf of a party who is to provide opinion evidence at a proceeding under these Rules to acknowledge either prior to (by executing the acknowledgment form attached to the Rules) or at the proceeding, that they are to: (a) provide opinion evidence that is fair, objective and non-partisan; (b) provide opinion evidence that is related only to the matters that are within the expert’s area of expertise; and (c) provide such additional assistance as the Board may reasonably require to determine a matter in issue. These duties prevail over any obligation owed by the expert to the party by whom or on whose behalf he or she is engaged.
Footnotes
- The Minutes of Settlement were filed as Exhibit No. 15.
- The Board notes the appellant’s submission being that the $1,364,000 removed from Roll 4706-006-101-31500 is simply being assigned another roll resulting in a zero net effect on the Resort’s overall assessment.
- If one adds the $1,364,000 removed from Roll 4706-006-010-31500 and adds that value to the Resort’s overall value (as the Cedars will be given its own assessment roll), this total becomes $6,340,000.
- If one adds the $1,364,000 removed from Roll 4706-006-010-31500 and adds that value to the Resort’s overall value (as the Cedars will be given its own assessment roll), this total becomes $6,440,000.
- If one adds the $1,364,000 removed from Roll 4706-006-010-31500 and adds that value to the Resort’s overall value (as the Cedars will be given its own assessment roll), this total becomes $6,452,000.
- REVPAR means revenue per available room.
- As per pro forma
- $100,000 in value attributable to a storage building and repair garage constructed in 2010 was added to the overall value for the 2011 and 2012 taxation years.
- 108.32 acres at $723 per acre equals $78,315.
- While the rule did not become effective until April 2, 2013, the Board notes that Rule 49 of its current Rules of Practice and Procedure provides:
- (E) means estimated.
- NPV means “Net Present Value”.
- DCF means “Discounted Cash Flow”.
- Subsection 5 permits the Minister to prescribe a different valuation day. A different day has not been prescribed.