Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: March 12, 2015

FILE NO.: WR 130436A

AMENDED DECISION ISSUED ON: April 14, 2015

Assessed Person(s): 1510231 Ontario Limited

Appellant(s): 1510231 Ontario Limited

Respondent(s): City of London

Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 23

Property Location(s): 1203 Hamilton Road

Municipality(ies): City of London

Roll Number(s): 3936-040-630-22800-0000

Appeal Number(s): 1893976, 1984724, 2995927, 2994440, and 3027194

Taxation Year(s): 2007, 2008, 2013, and 2014

Hearing Event No.: 562826

Legislative Authority: Sections 32 and 40 of the Assessment Act, R.S.O. 1990, c. A.31, as amended

ARB Case Name: WR 130436A

Heard: November 4 - 6, 2014 in London, Ontario

APPEARANCES:

Parties

Counsel⁺/Representative

City of London

Gary Irwin, Philip Bedell, Brian Riggs and Geoff Belch⁺

MPAC

Louis Biscaro and Melissa VanBerkum⁺

Appellant

Anthony Graat, Ben Lansink and Scott Turton⁺

DECISION OF THE BOARD DELIVERED BY RICK LIMOGES

Amended pursuant to Rule 130 of the Assessment Review Board’s Rules of Practice and Procedure, effective April 2, 2013

INTRODUCTION

1These appeals came before the Assessment Review Board (“Board”) on November 4^th to 6^th , 2014 in the City of London. Written Reasons were required following the hearing where the closing arguments (factum) and authorities were submitted in writing at a later date and the decision was thus reserved.

ISSUE

2The MPAC returned a value of $2,528,000 for the subject property for the 2007 and 2008 taxation years (January 1, 2005 valuation day) and $3,277,000 for 2013 and 2014 taxation years (January 1, 2012 valuation day). There was no appeal filed for the January 1, 2008 valuation day for 2009 through 2012 taxation years. The parties agree that deductions should be made to account for the impact on the property value resulting from the failing gabion wall but disagree on the method of calculation and the amount of the deduction. There is outstanding litigation and cross claims involving the issues related to responsibility and apportionment of costs for the gabion wall collapse which have not been resolved to date.

DECISION

3The current value of the subject property for the 2007 and 2008 taxation years is reduced from the $2,528,000 returned value to $1,919,000. The current value of the subject property for the 2013 and 2014 taxation years is reduced from the $3,277,000 returned value to $ 2,465,000 with no further adjustment required to make it equitable with similar properties in the vicinity. No further correction for errors in the assessment rolls is appropriate. The property remains in the Multi-Residential Property Class (“MT”).

Amended pursuant to Rule 130 of the Assessment Review Board’s Rules of Practice and Procedure, effective April 2, 2013

REASONS FOR DECISION

Property Description and Background Information

4The subject property is a 28 unit, four building townhouse development built along the edge of Pottersburg Creek in the City of London. The subject property owners and related companies have been involved in legal proceedings with the City and others over responsibility for the collapse of a gabion wall that was built a decade earlier along the Pottersburg Creek, adjacent to the subject and neighbouring properties. The wall was a condition of the original site plan agreement in or around 1989 for the subject and neighbouring properties then owned entirely by 'Trenlon', a company connected to the appellant company. In 1998, with the neighbouring condo development owned by multiple individual owners, the wall, which also supports a force main sanitary sewer and service road, was found to be failing. In 2003, with the subject property now transferred to the appellant company, the City made the repair or replacement of the gabion wall a condition for occupancy, through an amendment to the site plan agreement and issuance of conditional building permits, which it has not enforced since the 2004 completion and 2006 illicit occupancy by tenants.

Case for the City of London

5Upon the consensus of the parties, the City leads their evidence following opening statements from each party. Exhibit 1 is a topographical map of the local area also supported by an aerial photograph. Exhibit 2 is a copy of the Divisional Court decision from 2006 upholding the City's right to make changes to the site plan and attach conditions to a building permit, overturning an earlier Court decision, submitted as background information only. Exhibit 3(a) is the Resume of Philip Bedell, and 3(b) Acknowledgement of Expert's Duty is signed by Mr. Bedell and following review of qualifications and experience and no objection or questions from other parties, Mr. Bedell is qualified by the Board as an expert witness and geotechnical specialist in dealing with engineering matters pertaining to soil, rock and ground water including engineering, analysis and assessment to determine impact on structures, slope stability, retaining walls, failures, and repair options. Exhibit 3(c) is Mr. Bedell's report on 'Geotechnical Assessment Gabion Retaining Wall Failure Pottersburg Creek MN's 1199-1203 Hamilton Road London, Ontario'.

6Mr. Bedell was contracted by the City in 2005 to review the site and related documents and he also consulted another expert, John Parish to aid in the report and to deal with matters beyond his expertise. He referred to the gabion wall as a segmental gravity retaining structure with a horizontal deformation in 2005. The wall was moving towards the creek due to pressure from the weight of land pushing the baskets out of place. He testified that the wall was not a stable structure in 2005 and that creek movements and a fractured storm sewer have caused an increasing load on the wall which is being undermined by water. Catastrophic movement was noted at the time with curb collapse, impassable road, force main exposed and sewage smell evident. He concluded that this wall was insufficient and inappropriate for this purpose and therefore replacement or substantial rebuilding were the only options as the wall should not be repaired.

7In 2011, Mr. Bedell noticed new gravel and an extension of the storm sewer as a temporary repair to prevent sewage from spilling into the stream with an additional bulge now evident. Some wires in the gabion baskets are broken which means that the wall is doomed and there is further damage downstream. At present the wall continues to deteriorate as ice damage continues to break up the baskets and if not dealt with, the stability of the slope will affect nearby structures. Mr. Bedell concludes that the most viable option is to move the creek and reconstruct the slope which will involve several property owners as the creek is owned by them.

8During cross-examination he admitted that based on photographic evidence from 1998, the subject townhouses were built after the initial failure and that in the case of a catastrophic failure involving the force main, the neighbouring condo would have no option but to pump and truck their sewage with Ministry of the Environment likely to lay charges. He also concluded that it is “essential” that the works be carried out with all affected property owners participating and not done piecemeal on individual properties.

9Exhibit 6 is the resume of Mr. Gary Irwin, Chief Surveyor, Geomatics City of London, who is qualified by the Board without objection as an expert in land survey issues. Mr. Irwin highlights the location of the gabion wall and boundaries of the subject property on Exhibit 1. He testified that the total length of the gabion wall is 90 metres with 50 metres (55%) located on the subject property, 11 metres on the road allowance (12%) and 29 metres (32%) on the adjacent condo property.

10Exhibit 4 is the Acknowledgment of Expert's Duty signed by Mr. Brian Riggs, P. Eng., whose extensive experience and credentials were reviewed in Exhibit 4(b) and he is qualified by the Board as an expert witness without objection. His specialty is heavy civil construction engineering, marine structures, erosion control and cost estimates. He was retained originally by the appellant and then by the City to prepare Exhibit 4(a) ‘Schedule B Municipal Class Environmental Assessment for Pottersburg Creek Slope Stability South of Hamilton Road Bridge, City of London Ontario’. The report outlines alternatives for correction of the gabion wall problem with conclusions and recommendations on page 45. Option 2, ‘Buyout of residential properties’ and Option 4, ‘Channel realignment’ are each identified as acceptable alternatives. Option 2 requires the purchase of 3 units of the subject property and 2 units of the neighbouring condo at $100,000 each. The total cost is estimated at $1,374,300. Option 4 has an associated cost estimate of $1,140,580. Under cross-examination, Mr. Riggs noted that the cost of steel in 2006 would have been about 20% less since these costs have increased over this timeframe. The Ministry issued a public notice Exhibit 13, a Notice of Completion for the above Environmental Assessment report on August 8, 2013 with no objections filed in the time allowed for appeal.

Amended pursuant to Rule 130 of the Assessment Review Board’s Rules of Practice and Procedure, effective April 2, 2013

11Exhibit 4(b) is Mr. Riggs report 'Pottersburg Creek Bank Protection Works Cost Allocation' prepared October 10, 2014. Using Option 4 as the least expensive acceptable alternative at $1,140,580, Mr. Riggs determined that the appropriate cost allocation accounts for not just the length of retaining wall on each property but where the work is to be carried out and where the benefit is derived. Based on his expertise in these matters and his breakdown of the costs in his report, he concludes that the proper cost allocation is $812,154 to the subject property, $171,392 for the neighbouring condo and the remaining $159,127 for the City. Under cross-examination Mr. Riggs admitted that the parties have not agreed to any of the options and nor have they agreed to his cost allocation formula and neither has the City decided to proceed with the work unilaterally. He agreed that disagreements between property owners, if a single party does not carry out the work would likely increase costs in such matters.

12In his factum, Geoff Belch stated that the appellant acquired a vacant property in 2003 on which part of the failed gabion wall stood. The wall was known to be failing and has continued to deteriorate since 1998. In full knowledge of this condition, the appellants constructed 28 townhouses on the property in 2004, which have since been occupied and have been generating an income which was used by MPAC to calculate their returned values. The City required the appellant to repair or replace the gabion wall on its land in accordance with sound engineering principles, whereas the expert testimony from their witness, Mr. Bedell, confirmed that this work must be completed simultaneously with related works on neighbouring properties and the court documents reveal that litigation among the neighbours and contractors, outstanding since 2004, must decide the responsibility and cost sharing for such work. Mr. Belch also concluded that without intervention a repair will not likely occur until the litigation is resolved.

13The City also cited case law to establish that if the appellant wished to rely upon an argument based upon ‘cost to cure’ they have the onus to provide evidence to substantiate the impact of the defect on current value and that the cost should be related to bringing the subject property up to the condition of a comparable property. Other cited case law points to the difficulty of speculating on ‘cost to cure’ or impact on market value, without detailed and specific estimates for each item. No arguments to challenge the case law or the cost to cure as substantiated by the City have been advanced.

Case for the Appellant

14Based on consensus, the appellants next proceeded with their case. Scott Turton called Anthony Graat as his first witness. Mr. Graat confirmed that the various companies are owned by him and his family and he is President of the appellant corporation as well as of the related companies that had the gabion wall built (Trenlon) and Ayerswood which was also involved in litigation with the City. He testified that the City wanted him to rebuild the wall ten years after it was installed and that he proceeded to build on the subject property based on conditional building permits. He confirmed that the City has not issued occupancy permits and that the units continue to be illegally occupied to this day. Under cross-examination he confirmed that this last fact resulted in the finance company holding back 10% of the mortgage in trust which was never released. Graat admitted that the property is now encumbered by a mortgage held by related companies (making them a secured creditor) that far exceeds the value of the property (approximately $30 million) and testified that traditional mortgage financing would not be available to the property in view of the outstanding issues.

15Mr. Graat also confirmed that the wall failure is partly on his property, that it was originally built by a related company and that he believes the City is responsible for rebuilding the wall. He agreed that the City was suing Trenlon as builder of the wall and not the appellant, that the neighbour was suing the appellant, the appellant was suing a related company and the contractor that built the wall, with the City not a party in these suits. He also admitted that he applied to convert the subject property to a condo, which was not approved due to the lack of an occupancy permit. Mr. Graat further confirmed that he is not attempting to sell since there would be no point in view of the outstanding situation as there is no value to a purchaser.

16Mr. Turton next calls Ben Lansink to testify as an expert witness with Exhibit 9(a) his resume, is submitted into evidence. During questioning from Mr. Belch, Mr. Lansink admitted that he had no expertise in construction cost, cost to cure the gabion wall, litigation risk, building, engineering or other designations. His expertise is in real estate appraisal for which the Board qualified him without objection. During examination in chief, Mr. Lansink confirmed that in Exhibit 9, his appraisal report, he valued the subject property retrospectively as of January 1, 2005 at $2,620,000 and as of January 1, 2012 at $2,843,991 exclusive of the gabion wall issue in both cases. He arrived at his 2012 estimate by applying an inflationary factor of 8.55% to his retrospective 2005 valuation.

This inflationary factor was said to be taken from the increase in the average prices of residential dwelling units as reported by the Canadian Real Estate Association (“CREA”) between 2008 and 2012. Mr. Lansink’s evidence on page 3 of the covering report of October 2014 is that in the years 2005 to 2008 the marginal increase in values was not material in view of the complexities of the subject situation. The 2007 Annual Multiple Listings Services (“MLS^®”) Statistical Survey on page 82 of his report shows the year over year percentage change for London and St. Thomas at 6.5% in each of 2005 and 2006. The similar report was not included for other years. He provided no evidence to demonstrate that the market for the subject multi-unit dwellings for the period 2005 to 2012 was comparable to that of residential properties for 2008 to 2012 used to account for his 8.55% inflation.

17Mr. Lansink’s direct comparison approach to value the property included comparisons to two condominium properties which are taxed at the residential rate as opposed to the higher multi-residential rate applied to the subject property. In his income approach to value, Mr. Lansink derived a capitalization rate of 7% to arrive at his estimate of value. It is the view of MPAC that inferior properties were used in his comparison to arrive at this rate and that his concept of entrepreneurial profit should be included in the capitalization rate which ought to include both the market value and returns expected. He also included the same two condo developments and two multi-residential units to derive his capitalization rate.

18Mr. Lansink next made deductions to the subject market values arrived at for his estimate of risk, entrepreneurial profit and cost to cure. In 2005 he estimated litigation and liability risk at $524,000 (20%), construction cost risk at $393,000 (15%), entrepreneurial profit at $655,000 (25%) and the cost to cure at $862,500 leaving a residual value of $186,000 and in 2012 he deducted the same amounts to arrive at his $275,000 estimate of value 'as is'. Mr. Belch objected to this evidence on behalf of the City since construction cost and cost to cure the collapsed wall are not within Mr. Lansink's area of expertise. Mr. Turton responded that Mr. Lansink was qualified as an expert in real estate appraisal which includes the diminution of market value based on negative factors such as contamination, location beside an airport and so on. The Board decided to hear the evidence and to decide upon the weight to apply to conflicting testimony or elements of evidence. Mr. Lansink was instructed to testify within his area of expertise and to explain where he relied upon other experts or where his estimates were obtained.

19Mr. Lansink testified that the report was written in 2009 and ‘cost to cure’ estimates were taken from engineers who told him the damage was ongoing and increasing. Mr. Lansink later admitted that his range of costs came from a discussion with Mark Bristol, the appellant’s accountant and was based on estimates Mr. Bristol overheard during the litigation. He admitted that his opinion was based on hearsay but judged it to be reasonable, based on his experience. He stated that the market drives the diminution of value and when there is no buyer, there is no value. He judged that there is some residual value only because a purchaser might decide to risk a smaller amount based on the rental income over a couple of years, therefore his 'as is' value makes sense. Responding to a request for clarification from the Board, he testified that his valuation was consistent with the definition of 'current value' in the act and that his understanding of 'unencumbered' related to the existence of a mortgage or financing.

20Mr. Lansink went on to explain that any potential purchaser would factor in an expectation of additional profit for taking on such a headache, which he calls entrepreneurial profit. He testified that there must be an entrepreneurial profit added to the cost to cure otherwise no purchaser would step forward. He noted that his value in 2005 is similar to MPAC's however his estimate is about $400,000 less as of 2012. Mr. Lansink produced a spreadsheet as Exhibit 12 to contrast elements of MPAC's evidence with his own. He then states that MPAC's values do not allow for any profit motive and thus overstate the market value.

21The City’s position is that the concept of entrepreneurial profit or risk is inconsistent with the definition of current value as it relates to actions, alterations or improvements made after the purchase in order to later increase the property’s value. MPAC’s position is that all manner of risk and profit are included in the capitalization rate or Gross Income Multiplier (“GIM”) used to arrive at a market value, the higher the GIM and the lower the capitalization rate, the better the property, with these rates developed from market transactions. As the risk of an investment increases, the capitalization rate also increases because an investor demands a higher rate of return to compensate for the higher risk as supported by: Norman v. Ontario Property Assessment Corp., Region No. 5 (2000) O.A.R.B.D. 872, para. 5. Melissa VanBerkum points out that there is no reference to an appraisal source that supports the reference to entrepreneurial profit in Mr. Lansink’s report and that he should have accounted for the perceived higher risk by using a higher capitalization rate. Ms. VanBerkum submits that the $655,000 allowed by Mr. Lansink for entrepreneurial profit represents an unrealistic and unsupported expectation of an exorbitant additional profit on top of the net operating income of $183,471 per year.

22Mr. Lansink included a 20% deduction for litigation and liability risk that he justified since tenants are living in premises that do not have occupancy permits and therefore might be evicted by the City, resulting in more lawsuits and also in view of the ongoing civil litigation between related parties over the failed gabion wall. Mr. Belch suggests in his closing that Mr. Lansink is not an expert in quantifying litigation risk, that the City has not evicted anyone and offers four case citations, supporting his opinions: 1) that ongoing litigation does not necessarily reduce the value of land, rather the fact that the property is tenanted and the costly efforts to litigate in support of the property are indications that the value of the land is not nominal, 2) that the cost impact must be quantifiable by measurable evidence, 3) that a reasonable approach to valuation should not include ‘arbitrary speculative and unproven assumptions” and 4) that there is no evidence from which the Board could conclude that such litigations have a negative impact on value. The City also submits that such a deduction may result in a windfall should the appellant be successful in the litigation and that the main action relates to other companies and not the appellant, thereby not impacting a potential purchaser.

23Under cross examination Mr. Lansink maintained that he was not qualified to decide who should pay, where the work was needed or what needed to be done and that his opinion was based on what a purchaser would see and how that purchaser would react in the given markets. He admitted to using condo properties in his comparisons as he felt the only difference related to their tax rates as they were otherwise indistinguishable. He responded that a purchaser would have to assume the worst case scenario of being liable for the entire cost since recourse to the neighbours is not assured and the City has not agreed to any sharing arrangement. He admitted that the problem would disappear if the wall was repaired consistent with the Environmental Assessment and the litigation was dropped, aside from any potential stigma that has not been accounted for. He reiterated that upon seeing this property he noted a unique problem that told him 'there is no value here' because there are too many unknowns and they may not even get permission to fix the problem, thereby admitting that he may have prejudged the values justified in his report. He responded that a knowledgeable buyer would look at the litigation risk, factor in entrepreneurial profit and capital expenditures and discount the offer to an amount that made it worth his while.

24In closing, Mr. Turton proposed that the ability to cure the problem, the timing of when it can be done, how it will be done, who will do it, who will pay for it and how much it will cost are all unknown. In his view, this property cannot sell upon condition that the owner would have the power to remedy since the owner does not have the unilateral ability to repair the wall which is located on various properties and the subject of litigation since 2004. He concludes that an appropriate resolution is to significantly discount the current value for the multiple risks to be assumed by a purchaser and requests that Mr. Lansink’s values be approved.

Case for MPAC

25Ms. VanBerkum introduced Louis Biscaro, Senior Valuation Analyst for MPAC as an expert witness in valuation and classification of multi-residential properties along with his resume marked as Exhibit 14. Based on questions from Mr. Turton, Mr. Biscaro confirmed that he had no expertise in engineering, environmental remediation or legal training and no private sector experience. The Board qualified Mr. Biscaro as an expert per the request, without objection. Mr. Biscaro referred to Exhibit 10 (1203 Hamilton Road 3936-040-630-22800-0000 2005 CVA 2007 and 2008 Tax Years) Exhibit 10(a) (2005 CVA Analysis) and Exhibit 11 (Valuation Report – January 1, 2012 valuation).

26Mr. Biscaro testified that he used the income approach to value the subject property as well as all similar properties in the vicinity. He looked at the rental stream and also made adjustments to standardize to net rents in order to make comparisons valid and to determine the typical actual rents (TAR). He also developed a GIM for each category and classification of such properties. The subject is a row house category in good condition. His formula was (TAR x # of units x GIM = Market Value) and for 2005 his value at $2,528,000 was similar to Mr. Lansink's. Biscaro noted that in his calculations he only uses multi-residential properties with a relatively similar number of units and excludes condos which are not similar by definition or tax classification since condos are in the residential classification, not multi-residential and each condo unit is valued individually using a sales comparison approach to value rather than an income approach. Mr. Biscaro noted that there are several issues that affect the subject property but not all of them impact the current value.

27On page 5 of Exhibit 10, Biscaro listed the issues in question and testified that the gabion wall collapse would affect value by the cost to cure. At the time of writing this report there was no way of accurately determining the cost to cure or even the method to be used. He listed a total of eight issues and for each of the other seven he determined that there was no impact on current value or that they could not be quantified. He relied upon the definition of current value and noted that he interpreted 'unencumbered' to mean no restrictions on the property, in effect, value as if free and clear of such issues. Biscaro also testified that a purchaser would adjust the value for the cost to cure the issues on the property however the rents must be valued whether legal or not. If tenants are evicted the loss of income would be valued in future years, it is MPAC's convention to look at the actual use, not whether or not such use is legal.

28Ms. VanBerkum addressed the issue of cost to cure in her factum, she states that both MPAC and the Board have historically made adjustments to properties’ current value on the basis of a proven cost to cure and evidence to support the adjustments. The City’s position is that MPAC’s returned values for the years in question are correct before any deductions are applied. Mr. Belch also maintains that the only appropriate deduction is the appellant’s share of the cost to cure estimated at about $800,000 for the 2012 valuation date and 25% less in 2005 dollars for a cost to cure of $600,000 since the City has never requested them to cover anything more than their share, with no additional deductions for litigation, liability risk or entrepreneurial profit.

29To support their argument that the defect as well as the cost to cure must be unique to the property and known on the valuation date, the City relies upon Gale v. Municipal Property Assessment Corporation, Region No. 3 [2014] O.A.R.B.D. No. 293 at para 14, (“Gale”),

A willing buyer expects a certain level of repair from a property that it intends to purchase. Where there are obvious and unexpected immediate repairs required, such as a failing septic system, a buyer would reduce any offer to purchase by the cost of that repair. This is known as the ‘cost to cure’ adjustment and operates as a reduction from the market value of the property. ‘Cost to cure’ should only be applied where the repairs are immediate and unusual.

30During examination in chief, Mr. Biscaro responded that he would recommend that the CVA be reduced by the apportioned estimated cost to cure using 2013 values since they have no time adjustment available. With regard to the concept of entrepreneurial profit tendered by Mr. Lansink, he responded that he was not aware of the concept however that an expectation of profit or return on investment is already reflected in the capitalization rate.

31In her factum, Ms. VanBerkum refers to the definition of ‘current value’ in the Assessment Act (“Act”) and relates the phrase which includes ‘fee simple as if unencumbered’ to previous Board and Divisional Court decisions:

• Municipal Property Assessment Corporation v. BCE Place Ltd., (2009), 2009 CanLII 92126 (ON SCDC), 98 O.R. (3d) 581, p. 597, 599.

• Carsons’ Camp Limited v. Municipal Property Assessment Corporation, 2008 ONCA 17, 2008, 88 O.R. (3d) 741 at 746-747.

• Valentini v. Reidco Wellington (1983) Ltd. (1989), 1989 CanLII 4058 (ON HCJ), 69 O.R. (2d) 346, (1989) O.J. No. 1164, p. 4, paras. 7-10.

32She reasons that an encumbrance is something such as a lease that is within the control of a property owner and that such an encumbrance should be ignored in the valuation. A restriction registered on title resulting from the exercise of a government’s power is not an encumbrance and affects the current value to the extent that it will bind future owners. Ms. VanBerkum concludes that the obligation to maintain the gabion wall, as required by the site plan and the outstanding failure of the wall, affect the transactional value of the lands and also qualify for an adjustment to current value. The appellant submits that an ‘encumbrance’ has been defined as an obligation that creates a right to, or interest in, the land subsisting in a third person to the diminution of the value of land, citing Outaouais Synergest Inc. v. Lang Michener LLP, 2013 ONCA 526 at para 57-60. The appellant concludes that the definition of current value does not exclude the impact of illegal occupancy, which MPAC has ignored since the City has taken no action to enforce the occupancy and also maintain that if the income stops it will reflect on value from that time forward. The Board finds no useful evidence to quantify the impact of such illegal occupancy.

33Ms. VanBerkum reasons that the best evidence of value excluding the gabion wall issue is the current values calculated by Mr. Biscaro in Exhibits 10 and 11 and the best evidence of the total cost to cure is that of Mr. Bedell and Mr. Riggs in Exhibits 3 and 4. She concludes that the subject property’s 2005 CVA with the suggested channel realignment approach should be $1,767,846 ($2,528,000 - $812,154) and that the 2012 CVA should be $2,464,846 ($3,277,000 - $812,154).

The Legislation

34The Board’s jurisdiction to make corrections to an assessment is found in the Act.

35Section 19. (1) of the Act provides that the assessment of a property must be based upon its current value:

19. (1) Assessment based on current value. – The assessment of land shall be based on its current value.

36Section 1 of the Act:

“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.

37Section 19.2(1) of the Act provides:

19.2(1) Valuation days – Subject to subsection (5)¹, the day as of which land is valued for a taxation year is determined as follows:

1. For the 2006, 2007 and 2008 taxation years, land is valued as of January 1, 2005.

2. For the period consisting of the four taxation years from 2009 to 2012, land is valued as of January 1, 2008.

3. For each subsequent period consisting of four consecutive taxation years, land is valued as of January 1 of the year preceding the first of those four taxation years.

38Section 32 of the Act states:

32. (1) Correction of errors, etc., in assessment roll

Despite the delivery of any notice provided for under this Act, the assessment corporation at any time before the time fixed for the return of the assessment roll may correct any defect, error, omission or misstatement in any assessment and alter the roll accordingly.

39Section 44.(3) of the Act 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.

40Section 45 of the Act states:

45. Powers and functions of the Assessment Review Board. – Upon an appeal with respect to an assessment, the Assessment Review Board may review the assessment and, for the purposes of the review, has all the powers and functions of the assessment corporation in making an assessment, determination or decision under this Act, and any assessment, determination or decision made on review by the Assessment Review Board shall be deemed to be an assessment, determination or decision of the assessment corporation and has the same force and effect.

Deliberations of the Board

41It is clear from the testimony and evidence at this hearing that:

1. a gabion wall constructed by the previous owner in accordance with the site plan agreement was initially accepted by the City in or around 1989, with clear evidence that the wall is insufficient for the intended purpose since at least 1998,

2. a catastrophic failure of the wall is predictable and possibly imminent with environmental damage, Ministry of Environment intervention along with forced and more expensive remediation all likely following in short order,

3. the failed wall and affected creek is located on properties now owned by the appellant, a neighbouring condominium development and the municipality,

4. civil litigation has been ongoing for over a decade to determine the responsibility and cost sharing for rebuilding and maintaining the wall,

5. repair or rebuilding of the wall has not and will not take place unless or until the civil litigation is settled and/or the parties agree to cooperate in a manner that has not occurred to date, alternatively when a single party carries out the work and seeks recovery of costs from the others.

6. the appellant with full knowledge of the above facts, at considerable cost, constructed 28 dwelling units on the subject property pursuant to conditional building permits requiring the needed repair work and subsequently rented the units without permitted occupancy.

Determination of Current Value

42The Board must have regard to the legislation, in particular, s. 19.(1) of the Act, which provides that the assessment of a property must be based on its current value. Current value is also defined for us in the Act as noted above.

43The Board's first task is to find the correct current value as of January 1, 2005 and January 1, 2012.

44The Board finds that the best evidence of current value, exclusive of the gabion wall issue, has been provided by MPAC and the Board is satisfied that MPAC has used a similar approach and methodology to value the subject property as well as all similar properties in the vicinity. MPAC valued the subject property for each valuation day using the income approach to value and that GIMs, typical actual rents, vacancy and expense rates were derived from the market activity of similar properties in the vicinity in those timeframes. The unadjusted values returned using MPAC’s methodology were $2,528,000 as of January 1, 2005 and $3,277,000 as of January 1, 2012.

45The evidence provided by the appellant is not considered as reliable in view of the inclusion of condominium properties as comparables which are not comparable by definition, tax rate or classification. The Lansink appraisal also used those same comparables to derive a capitalization rate used to calculate the market value using an income approach. Mr. Lansink’s findings were similar to MPAC’s for the 2005 valuation day and he then adjusted the 2005 value using the increase in values of residential properties in the area between 2008 and 2012. The subject property is in the Multi Residential classification, which is a different market from single residential properties and no adjustment was made for market changes from the 2005 valuation day to the 2008 valuation day.

46The parties all agree that an adjustment to the values is required in order to account for the impact of the failed gabion wall located on the subject and adjacent properties. The appellant with full knowledge of the gabion wall issue and civil litigation surrounding the responsibility for repairs chose to construct the 28 townhouse units based upon conditional building permits. It is not reasonable to assume that this same property owner perceives nominal value in his substantial investment based on the same information that was known at the time of his original investment decision.

47Mr. Lansink admitted that he had no expertise in construction cost, cost to cure the gabion wall, litigation risk, building, engineering or other designations. His expertise is in real estate appraisal and yet he provided estimates for cost to cure including litigation and liability risk, construction cost risk, entrepreneurial profit, reconstruction cost, engineering, design and geotechnical fees. Several of such estimates were said to be derived from figures and discussions that arose from court proceedings and shared through an employee of the appellant.

48The Board also heard very credible expert testimony supported by uncontroverted evidence of the alternatives available for remediation of the gabion wall issue.

49It remains clear that although no agreement is in place to carry out the works on the affected properties and that there appears to be no will to negotiate or carry out the works, the best evidence of the cost to cure the deficiency is provided by Mr. Bedell and Mr. Riggs in Exhibits 3(c) Geotechnical Assessment Gabion Wall Failure Pottersburg Creek and Exhibit 4(a) Schedule B Municipal Class Environmental Assessment for Pottersburg Creek Slope Stability South of Hamilton Road Bridge City of London, Ontario and Exhibit 4(b) Pottersburg Creek Bank Protection Works Cost Allocation. The most likely acceptable alternative according to the expert testimony is option 4 which includes a relocation of a portion of the creek and reconstruction of the affected portions of the wall at a total cost of $1,140,580. The recommended cost allocated to the subject property is $812,154 as of 2012 and reduced by 25% to $609,115 based on the expert opinion of Mr. Riggs for the cost of the work in 2005.

50The resultant CVA as of January 1, 2005 is $2,528,000 less 609,000 (rounded) returns $1,919,000. The resultant CVA as of January 1, 2012 is $3,277,000 less $812,000 (rounded) for $2,465,000. The Board has received no evidence to suggest that the subject property’s assessment is unfair when compared to that of similar properties in the vicinity for the 2012 valuation day. Thus no further reduction of the subject property’s current value for years following 2009 is warranted based on s. 44.(3)(b).

51The 2013 s. 32 complaint number 2995927, regarding correction of errors in the assessment roll, relates to the same issues dealt with in the s. 40 complaints and no separate evidence or arguments were presented with regard to this complaint which the Board finds should be dismissed.

CONCLUSION

52The current value of the subject property for the 2007 and 2008 taxation years is reduced from the $2,528,000 returned value to $1,919,000. The current value of the subject property for the 2013 and 2014 taxation years is reduced from the $3,277,000 returned value to $ 2,465,000 with no further adjustment required to make it equitable with similar properties in the vicinity. No further correction for errors in the assessment rolls is appropriate. The property remains in the Multi-Residential Property Class (“MT”).

Footnotes

1. 1Subsection 5 permits the Minister to prescribe a different valuation day. A different day has not been prescribed.