Potomac Construction Ltd. v. Municipal Property Assessment Corporation, 2015 CanLII 22105

Assessment Review Board / Commission de révision de l’évaluation foncière

ISSUE DATE: April 23, 2015

FILE NO.: WR 130838

Assessed Person(s): Potomac Construction Ltd.

Appellant(s): Potomac Construction Ltd.

Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region No. 9

Respondent(s): City of Toronto

Property Location(s): 50 Main Street

Municipality(ies): Toronto

Roll Number(s): 1904-095-030-04301 0000

Appeal Number(s): 3047287 and 3077483 (deemed 2015)

Taxation Year(s): 2014 (and 2015 deemed)

Hearing Event No. 570139

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

Heard: February 6, 2015, in Toronto, Ontario

APPEARANCES:

Parties	Counsel+/Representative
Potomac Construction Ltd.	Daniel Attard+
MPAC	Osmondo Bocalbos
City of Toronto	No one appeared

DECISION OF THE BOARD DELIVERED BY J.L. WALKER AND S. AWOLERI

INTRODUCTION

1The subject property, 50 Main Street, is a multi-residential building built in 1967. It has 39 residential units. Since the return of the roll MPAC’s record of the unit mix has been corrected to reflect 10 one-bedroom, 19 two-bedroom, and 10 bachelor apartments. There are also 9 indoor and 15 outdoor parking spaces that were not included in the assessment. The assessment for the 2014 taxation year was returned at $4,788,000 in the multi-residential property (RU/MT) class. Osmondo Bocalbos, the assessor representing MPAC, states that although these corrections yield a lower current value of $4,609,000, he abides by the assessment as returned.

2Income approaches are used to value properties that return rent or income to the owner. The Gross Income Multiplier (“GIM”) is the approach used by MPAC for the mass appraisal of multi-residential properties. The GIM is the ratio of a building’s sale price divided by its Gross Potential Income (“GPI”). MPAC reviews sales of multi-residential properties to derive a median GIM for a given area in the municipality. The gross monthly rents for each suite type are multiplied by 12 months to yield the GPI. GPI is multiplied by the GIM to arrive at current value.

3While the parties agree that the correct GIM to be applied to the subject building is 10.1, they do not agree what rents should be used – the median of the actual rents from the 2012 rent roll or the Fair Market Rents (FMR). The latter, also referred to as “Economic Rent”, is what MPAC calculates the property can achieve in the open market at the valuation date, which in this case is 2012.

4Daniel Attard, counsel for the assessed person, submits that the actual rents are the best evidence of value, as the subject property was achieving lower rents then the FMR used by MPAC to value the property. For this reason, he submits that the assessment should be reduced from $4,788,000 to $4,128,000 (increasing his submission of $4,067,000 to include $61,000 in omitted income from parking).

5The Assessment Review Board (“Board”) must determine the current value of the subject property and whether that value is equitable with the assessment of similar lands in the vicinity.

DECISION

6The Board determined that the current value of the subject property is $4,234,000 (rounded) and that no further adjustment is required to make this value equitable with that of similar lands in the vicinity. The Board reduces the assessment of the subject property for the 2014 taxation year and for the deemed 2015 taxation year from $4,788,000 to $4,234,000.

REASONS FOR DECISION

Legislation

7Section 19.(1) of the Assessment Act, R.S.O. 1990, c. A 31, as amended (“Act”) provides that the assessment of land in Ontario is to be based on its current value, which is defined in s. 3 as “…the amount of money for the fee simple, of unencumbered, would realize if sold at arm’s length by a willing seller to a willing buyer.”

8For the taxation year in dispute, the subject property was valued as of January 1, 2012, pursuant to s. 19.2(1) of the Act. As it was not the subject of a sale, the Board examines sales of similar lands in the vicinity that transacted at or near this date. The Act does not provide a definition of “vicinity”. The Board considers that those lands located nearest to the subject to will provide the most meaningful comparison.

9Section 44. (3) of the Act requires that 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 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

10The burden of proof as to the correctness of the current value of the subject property rests with the Assessment corporation under s. 40.(17) of the Act.

11Section 40.(19) provides that after hearing the evidence and the submissions of the parties, the Board will determine the matter.

Analysis

Corrections to Property Description

12Mr. Bocalbos submits that the taxpayer should not have the benefit of negative adjustments to value that reflect confirmation of the physical attributes of the subject property. The parties agree (mathematically) that the correction of the suite mix (using MPAC’s FMR) and the inclusion of the parking reduce the value by $179,000, for a revised value of $4,609,000. Mr. Bocalbos submits that when the Board considers a range of values for a property, it has accepted international appraisal standards which suggest that a variation within positive or negative 5% is valid. For this reason, he did not change his recommended value from $4,788,000 to $4,609,000.

13The Board regards the appraisal standard referred to by Mr. Bocalbos as a guideline rather than a requirement of the Act. As such, it has not been consistently applied by different panels of the Board. This panel of the Board does not agree that it should be applied to the correction of factual errors regarding the subject property. The Board’s role is to make evidence-based adjustments to assessed values as necessary outside of MPAC’s mass appraisal model. It is agreed that the suite mix and parking details were not accurately reflected in MPAC’s data base. The Board accordingly relies on the revised assessed value of $4,609,000 in its deliberations as the returned assessment of $4,788,000 is based on factual errors.

Current Value

14Mr. Bocalbos submitted his response to statement of issue (Exhibit 1) and an equity analysis (Exhibit 2). He maintains that the best measure of current value for an income-producing property is the economic rent or the FMR. He states that the FMR for the subject property were based on new rents paid by new tenants at the subject property in and around the valuation date of January 1, 2012. These transactions were identified based on rent rolls for 2011 – 2013. It is the median of these new rents that serve as the basis of the FMR. The rent rolls for 2011 and 2013 were not provided by the assessor.

15Jill Bender, paralegal with Attard Property Tax Services appeared as a witness for the taxpayer. Ms. Bender stated that this approach is flawed for two reasons: that it relies upon rents which transacted on either side of the 2012 valuation date, and that the median was not derived from the rents in their entirety.

16The Board did not have evidence before it to substantiate Mr. Bolcabos’ calculated median FMR of $925 for one-bedrooms, and $1,138 for two-bedrooms based upon the data presented in his evidence (Exhibit 1, Table 2). The FMR are stated but are not supported by any data which demonstrates what should typically be paid in the market at the time of the assessment.

17Mr. Bocalbos presented three sales occurring within six months of the legislated valuation date to support the assessment’s correctness. He also suggested time adjustments to these sales based on 230 sales in the vicinity of the subject property (Exhibit 1, Table 1). He did not clarify whether these sales were of all types of residential properties or whether they were exclusively sales of multi-residential. Absent this clarification, and given the proximity of the sales to the valuation date June 2011, February 2012 and June 2012), the Board looked at the actual sales.

18One of the proposed comparables, 2402-2404 and 2406 Queen Street is two properties with separate roll numbers. The Board cannot rely on this sale, as it cannot discern how the 54 suites are distributed over the two roll numbers. The properties were built in 1932 and consist of one-bedroom units. 3000 Queen Street East has 30 one-bedroom units, was built in 1949 and sold for $3,778,400. 2440 Queen Street East has 24 units, with a mix of 12 one-bedroom, 10 two-bedroom units and 2 three-bedroom units. They were built in 1949 and 1964 respectively.

19The Board does not agree with Mr. Bocalbos that it is sufficient evidence of current value that the assessment of the subject property falls within a range of values of these properties, as there must be a relationship to where it falls on the range. He also did not provide sale values per suite for his comparable properties, or any other evidence which may have supported his FMR. The Board can only make its determination based on the evidence before it, and concludes that MPAC has not met its burden of proof under s. 40(17) of the Act.

20While the Board agrees that (substantiated) FMR supported by sales evidence is preferable, the best evidence before it is the actual rents as of January 1, 2012 (Exhibits 3), updated by the rent roll as of July 31, 2012 (Exhibit 4). The Board incorporated the changes in rents occurring July 31, 2012 for 24 of the 39 units into the rent roll as of January 1, 2012 to calculate the median rents. The Board considers that the rents as of July 31, 2012 may demonstrate (in part) how the property may perform in the marketplace. The Board calculated median actual rents of $869 for 10 one-bedrooms, $986 for 19 two-bedrooms, and $700 for 10 bachelor units. When the annualized rents are multiplied by the GIM of 10.1, the value is $4,173,000 (rounded). With the addition of income for parking ($61,000), the resulting value is $4,234,000 (rounded).

21Based on the best evidence before it, the Board concludes that the current value of the subject property is $4,234,000.

Equity

22The Act directs the Board to have reference to the value at which similar lands in the vicinity are assessed, reducing the assessment if required to achieve equity. A comparison of the assessment to sale ratio (“ASR”) permits the Board to compare assessed values as determined by MPAC with values achieved in the marketplace. An ASR higher than 1.00 is an indication that MPAC may be producing values greater than those demonstrated in the marketplace, with an ASR lower than 1.00 indicating that MPAC may be producing values less than those demonstrated in the marketplace.

23Mr. Bocalbos provided the Board with an ASR analysis of 30 multi-residential properties which transacted in Toronto at or near the valuation date. MPAC’s equity analysis provides a 0.96 median time adjusted ASR for 30 multi-residential properties, an indication that MPAC’s model is underestimating assessed values in the subject vicinity by about 4% when compared to values established in the marketplace.

24The Board does not consider that a further reduction to the current value of $4,234,000 is warranted, as the revised assessed value of the subject property of $4,609,000 has already been reduced by more than 4%.

CONCLUSION

25The Board reduces the returned assessment of the subject property from $4,788,000 to $4,234,000 for the 2014 taxation year.

2015 DEEMED APPEAL

26An appeal for the 2014 taxation year is presently before the Board. Section 40.(26) provides that the appellant is deemed to have made the same appeal for the subsequent taxation year if the appeal is not finally disposed of before March 31 of the subsequent taxation year. The Board has not disposed of the 2014 appeal before March 31, 2015. For that reason, this decision also applies to the 2015 taxation year.

27Section 40.(26) of the Act directs:

Deemed appeals, 2009 and subsequent years

For 2009 and subsequent taxation years, an appellant shall be deemed to have brought the same appeal in respect of a property,

(a) in relation to the assessments under sections 32, 33 and 34 for the year; and

(b) in relation to the assessment, including assessments under sections 32, 33 and 34, for a subsequent taxation year to which the same general reassessment applies, if the appeal is not finally disposed of before March 31 of the subsequent taxation year or, if an assessment has been made under section 32, 33 or 34, before the 90th day after the notice of assessment was mailed.