Assessment Review Board
Commission de révision de l’évaluation foncière
ISSUE DATE:
May 14, 2015
FILE NO.:
WR 126512
Assessed Person(s):
Kaprod Holdings Ltd.
Appellant(s):
Kaprod Holdings Ltd
Respondent(s):
Municipal Property Assessment Corporation (“MPAC”) Region 23
Respondent(s):
City of London
Property Location(s):
639 Sovereign Road
Municipality(ies):
City of London
Roll Number(s):
3936-040-586-29200-0000
Appeal Number(s):
2951951, 3026983 and 3090883 (deemed 2015)
Taxation Year(s):
2013, 2014 (and deemed 2015)
Hearing Event No.
560865
Legislative Authority:
Section 40 of the Assessment Act, R.S.O. 1990, c. A.31, as amended
ARB Case Name:
WR 126512
Heard:
June 23, 2014 in London, Ontario
APPEARANCES:
Parties
Counsel+/Representative
Kaprod Holdings Ltd.
P. Grosman
MPAC
L. Biscaro
City of London
No one appeared
DECISION OF THE BOARD DELIVERED BY DAN WEAGANT
ISSUE
1The subject property is an industrial plaza of approximately 40,360 square feet (sq. ft.) of building area with several separate occupancies. The single building is located on a lot of 2.04 acres in size.
2The returned value of the subject property is $1,497,000 for the 2013 taxation year. This value was apportioned as follows:
Commercial Tax Class - $927,000
Shopping Centre Tax Class - $570,000
3During their inspection of the property in preparation for this hearing, MPAC determined that the property is occupied by two uses, but that the apportionment and tax classification were incorrect. As a result MPAC has revised the assessment of the property, and recommend a value of $1,378,000, apportioned as follows:
Commercial Tax Class - $ 944,000
Industrial Tax Class - $ 434,000
4The Appellant believes that the recommended value is still too high and that the correct current value is approximately $1,089,000. In addition, the Appellant is of the opinion that the classification change recommended by MPAC is not in accordance with Rule 30 of the Assessment Review Board’s (“Board”) Rules of Practice and Procedure and should not be allowed.
5The Board must decide three things in this appeal. Firstly, from the evidence presented at the hearing, the Board must determine the current value of the subject property, as of the valuation date of January 1, 2012. Secondly, the Board must determine, if the assessment of the subject property should be reduced to make it equitable with that of similar properties in the vicinity. Lastly, the Board must determine if the amended classification recommended by MPAC is in accordance with Rule 30 of the Board’s Rules of Practice and Procedure.
DECISION
6The Board finds that the current value of the property at 639 Sovereign Road is $1,378,000 for the 2013 and 2014 taxation years. The Board also finds that there is no evidence to suggest that this current value should be reduced further for its assessment to be considered equitable with the assessments of similar properties in the vicinity. In addition, the Board finds that MPAC’s recommended amendment to classification is not in keeping with the Board’s Rule 30 in that MPAC failed to provide adequate notice of their intention to amend the classification.
7Accordingly, the assessment for the property at 639 Sovereign Road is reduced, from $1,497,000 to $1,378,000 for the 2013 taxation year, apportioned as follows:
Commercial Tax Class - $854,000
Shopping Centre Tax Class - $524,000.
This same result is deemed for the 2014 and 2015 taxation years.
The Legislation
8In considering these appeals, the Board must consider s. 1, s. 19.(1) and s. 40.(19), s. 44.(3) and 45 of the Assessment Act (“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.
10Section 19.(1) of the Act states:
19.(1) Assessment based on current value. – The assessment of land shall be based on its current value.
11Section 40.(19) of the Act states:
40.(19) Board to make determination- After hearing the evidence and the submissions of the parties, the Board shall determine the matter.
12Section 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.
13Section 45 of the Act states:
Powers and functions of Assessment Review Board – Upon an appeal with respect to an assessment, the Assessment Review Board may review the assessment and, for the purpose 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.
REASONS FOR DECISION
MPAC’s Evidence
14Lou Biscaro represents MPAC in this appeal. Mr. Biscaro testified that his valuation of the subject property is based on the income approach to value, which determines the fair market rents applicable to the property, makes deductions for vacancy and non-recoverable expenses and applies a standardized capitalization rate to the result. He testifies that this is the most common approach to valuation for a commercial property of this type. Mr. Biscaro testified that MPAC personnel inspected the property on June 3, 2014 for the purposes of completing the valuation for this hearing. According to Mr. Biscaro, Units 5 and 6 of the subject property were occupied by industrial tenants at the time of the inspection, leading to the amended classification that forms part of MPAC’s recommendation. The resultant split between Industrial and Commercial tenancy is 40% and 60% respectively according to Mr. Biscaro. Mr. Biscaro further explained that when determining the current value of a property like this one, with more than one classification, occupancies determine the classification.
15Owing to the change in classification, Mr. Biscaro testified that the percentage deductions from gross rental income for vacancy allowance and non-recoverable expenses also changed as follows:
Vacancy Allowance – From 12% to 10%
Allowance for expenses – From 6% to 5%
The applicable amortization rate for the property remained unchanged at 9.5%.
16In determining the fair market rent, Mr. Biscaro used the rent roll provided by the Appellant, entered as Exhibit #2. This rent roll indicates a rent for units 1 and 2 of $4.50 per square foot; for units 3 and 4 of $4.50 per square foot and for units 5 and 6, $3.00 per square foot. Using these inputs, Mr. Biscaro arrived at a total gross income of $154,080. By applying adjustments for vacancy and expenses the resultant net income is $130,932. When the 9.5% amortization rate is applied Mr. Biscaro’s resultant current value is $1,378,000 (rounded).
Appellant’s Evidence
17Paul Grosman, from ArGil Property Tax Services Paralegal Professional Corporation represents the Appellant in this appeal. In an opening statement to the Board, he advised that neither he nor his client has any dispute with the vacancy, expense or amortization percentages used. The Appellant’s concern is with two specific issues. Firstly, the Appellant believes that the rents shown in Exhibit #2 that apply to units 1 through 4 are incorrect, as they reflect rents that are payable for a period of the lease that begins two years after the valuation day. Secondly, Mr. Grosman’s opinion is that the Board’s Rule 30 should apply to the change in the classification recommended by MPAC.
18With respect to the rental income of the property and its calculation, Mr. Grosman believes that the rents shown in Exhibit #2 for units 1 through 4 should be disregarded, as the date of the lease to which these rents apply commence two years after the valuation day of January 1, 2012. Mr. Grosman testified that he was unaware of what the actual rents were for units 1 through 4 on January 1 2012 and further, he was unable to obtain this information or deliver it when asked by MPAC to do so.
19Mr. Grosman believes that the best indication of the actual rents for units 1 through 4 is the $3.00 per square foot figure applicable to units 5 and 6 in Exhibit #2. He argues that the rents payable for units 5 and 6 are for lease terms that include the valuation day and therefore are most reliable as an indication of rental income for all of the units in the subject building. In support of his findings, Mr. Grosman submitted Exhibit #3, being a summary of income, expenses and adjustments leading to his calculation of current value.
20Using $3.00 per square foot for the entire building, Mr. Grosman arrives at a gross income amount of $121,080. After adjustments for expenses and vacancy in agreement with the rates used by MPAC and the application of the amortization rate of 9.5%, the current value calculated by Mr. Grosman is $1,089,000 (rounded).
21With respect to the notice of change of classification, Mr. Grosman cites the Board’s Rules, specifically Rule 30 which states:
Special Notice by Party of Request for Higher Assessment and/or Higher Tax Rate Property Class
(1) If a party intends to request a change in property class to a class with a higher tax rate or an assessment that would result in a higher assessment than that fixed by the Municipal Property Assessment Corporation, it must give notice in writing of its intention to all other parties and the Board. This notice must include the amount of the assessment and the class requested. This notice must be given at least 50 days before the hearing of the matter, unless otherwise directed by the Board. If this notice of higher assessment is not served, the Board may refuse to consider the request.
(2) Where a municipality objects to a settlement under section 39.1 of the Assessment Act it is not required to give notice of higher assessment unless it is seeking an assessment higher than that originally returned by the Municipal Property Assessment Corporation or a class that produces a higher tax rate.
(3) Where a municipality has not had notice of an appeal in time to allow for 50 days’ notice and where it wishes to seek a higher assessment or class change, the Board shall abridge the time for service of the notice of higher assessment or class change. At the request of any of the other parties, the Board may adjourn the matter.
22While he acknowledges that the recommended current value resulting in part from the proposed change on classification by MPAC is lower, Mr. Grosman submitted that Rule 30 speaks to higher tax rates and higher assessments and not current value as a result, he argues that Rule 30 should apply and that the classification change sought by MPAC should not be allowed given that it is being suggested without the necessary 50 days’ notice stipulated in the Rule.
Analysis
23The parties are in agreement with respect to the method of valuation of the subject property; that being the income approach. The dispute arises only with respect to the per square foot rents applicable to the subject property.
24MPAC calculates the Annual Potential Gross Income by applying fair market rents, unless the Appellant can provide a three year record of actual rents. These actual rents were requested by Mr. Biscaro. In response, the Appellant provided only those rents applicable at the valuation date for units 5 and 6. The rents for units 1 through 4 are rents currently being charged to tenants, under lease agreements that commenced after the valuation date.
25MPAC used the rents that were produced by the Appellant, suggesting that the rents for units 1 through 4, while being rental rates for a period after the valuation day, represent the best evidence of the rents applied, given that the Appellant did not provide the rents for these units at or nearer to the valuation date.
26Mr. Grosman argues that the rents for units 5 and 6 should be used for the entire building for the purpose of calculating the value of the subject property by the Income Approach to value and that these rents are in fact the best evidence of the rents applicable to Units 1 through 4.
27The Board agrees with MPAC on this point. The Board heard that the uses within units 1 through 4 are different from those within units 5 and 6. Accordingly, the Board finds that it is reasonable that the rents for units 1 through 4 would differ from those for units 5 and 6. The Board finds that the best evidence of rents for units 1 through 4 are those used by MPAC in their valuation. The Board notes that MPAC should not be held to some higher standard of determining fair market rent simply because the Appellant failed to produce the rents when requested. The Appellant takes a significant element of responsibility when filing an appeal; this responsibility includes the production of data, in this case rental information that is important in the calculation of current value.
28With respect to the recommended classification change, Mr. Biscaro freely admitted that the 50 day notice period stipulated in Rule 30 was not adhered to, but his intention was to make right any irregularities arising from the information obtained through MPAC’s inspection. Mr. Grosman acknowledged Mr. Biscaro’s point but submitted that the Rule is in place to allow the other Party (in the case the Appellant) adequate time to respond to the impacts of the change in classification of the property. In this case, Mr. Grosman argues that adequate time was not given and as a result, he is at a disadvantage with respect to the preparation of any argument regarding classification.
29The Board agrees with Mr. Grosman. Without the time required by the Appellant to prepare their argument and submission on classification, the Board is not in a position to make a determination of this specific issue. Accordingly, the Board finds that the classification of the subject property remains as returned on the roll for the 2013 taxation year.
30In apportioning MPAC’s recommended value to the subject property, the Board applies the same percentage for each tax class as was applied in the original, returned value for the 2013 taxation year.
DECISION
31The Board finds that the current value of the property at 639 Sovereign Road is $1,378,000 for the 2013 and 2014 taxation years. The Board also finds that there is no evidence to suggest that this current value should be reduced further for its assessment to be considered equitable with the assessments of similar properties in the vicinity. In addition, the Board finds that MPAC’s recommended amendment to classification is not in keeping with the Board’s Rule 30 in that MPAC failed to provide adequate notice of their intention to amend the classification.
32Accordingly, the assessment for the property at 639 Sovereign Road is reduced, from $1,497,000 to $1,378,000 for the 2013 taxation year, apportioned as follows:
Commercial Tax Class - $854,000
Shopping Centre Tax Class - $524,000.
This same result is deemed for the 2014 and 2015 taxation years.
2014 AND 2015 DEEMED APPEAL
33An appeal for the 2013 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 2013 appeal before March 31, 2014. For that reason, this decision also applies to the 2014 and 2015 taxation years.
34Section 40.(26) of the Act directs:
40.(26) 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.
“Dan Weagant”
DAN WEAGANT
MEMBER
Assessment Review Board
A constituent tribunal of Environment and Land Tribunals Ontario
Website: www.elto.gov.on.ca Telephone: 416-212-6349 Toll Free: 1-866-448-2248```