Armstrong Inc. and Sharon Chayko v. Municipal Property Assessment Corporation, 2015 CanLII 66514

Assessment Review Board Commission de révision de l’évaluation foncière

ISSUE DATE: October 15, 2015 FILE NO.: WR 134286

Assessed Person(s): 67695 Ontario Limited Appellant(s): Armstrong Inc. and Sharon Chayko Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 17 Respondent(s): Town of Huntsville Property Location(s): 134 Main Street West Municipality(ies): Town of Huntsville Roll Number(s): 4442-010-018-01000-0000 Appeal Number(s): 3002230 and 3088188 Taxation Year(s): 2014 and 2015 Hearing Event No. 595632

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

Heard: August 19, 2015 in Huntsville, Ontario

APPEARANCES:

Parties	Counsel+/Representative
Armstrong Inc. and Sharon Chayko	Allan Holmes
MPAC	Brittany Kee
Town of Huntsville	No one appeared

DECISION OF THE BOARD DELIVERED BY LESLIE FLEMMING

INTRODUCTION

1The subject property is a commercial building located on the outskirts of Huntsville’s downtown core. The current tenant, the Appellant in this matter, uses the building as an automobile dealership, providing sales and servicing of automobiles on the premises. The assessment was returned at $1,013,000, an increase of $80,000 from the 2008 assessment of $933,000. The property has 214 feet of frontage on the north side of Main Street West and 194.5 feet of depth. The property slopes toward the rear of the lot, so that the structure is one storey at the front and two storeys at the rear. Automotive bays exist on both levels.

2The Appellant appeals the assessment, alleging that it is too high for the following reasons:

(a) The Appellant argues that MPAC has failed to take into consideration items of functional obsolescence, such as the age and poor condition of parts of the structure, including the load-bearing supports for the main level auto bays;

(b) The Appellant also argues that MPAC has failed to consider economic obsolescence arising from the location of the dealership on what was once the main artery into Huntsville, but which has, over time, given way to commercial development that has occurred on the other two main arterial east-west roads leading from Highway 11 into town.

3The Appellant submits that there should be a 25% reduction in the current value (a reduction of $146,289) in respect of depreciation of the property, and a further reduction of $104,041 in respect of the “traffic reduction and incline”, resulting in a current value of $783,670.

ISSUE

4The Board must first determine the current value of the subject property as of the valuation day, January 1, 2012.

5Having determined the current value, the Board is required 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.

DECISION

6The Assessment Review Board (“Board”) confirms the current value of the subject property in the amount of $1,013,000.

7The Board finds that there is no evidence before it supporting the conclusion that the value of the subject property requires an adjustment in accordance with s. 44.(3)(b) of the Assessment Act (“Act”) in order to make it equitable with the assessed values of similar properties in the vicinity.

8Accordingly, the assessment of the subject property as at January 1, 2012, for the 2014 and 2015 taxation years is confirmed in the amount of $1,013,000.

REASONS FOR THE DECISION

9Section 44.(3)(a) of the Act requires the Board to first “determine the current value of the land.” The definition of “current value” is contained in s. 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.

10Section 19.(1) states that:

Assessment based on current value. – The assessment of land shall be based on its current value.

11The best measure of current value is an arm’s length and market-tested sale of the subject property on or close to the valuation day - January 1, 2012. If no such transaction took place, a further measure of current value can be derived from the arm’s length and market-tested sales of comparable properties in the same vicinity and market. This measure acts as a benchmark and gauge of the correctness of the assessed value of the subject property.

Preliminary Issue

12Both parties wished to enter photographs of the property that had not been disclosed prior to hearing. After examining the respective evidence, both parties agreed to admit the photographs without recourse to a recess or an adjournment.

Evidence for MPAC

13MPAC was represented by Brittany Kee. Ms. Kee called Jerome Rose, a Property Valuation Specialist, to give evidence for the assessor. Ms. Kee filed Exhibit 1, which was a Valuation Report prepared by Jerome Rose. Mr. Rose was not qualified as an expert witness, but he gave his credentials as a specialist in valuing commercial and industrial properties for MPAC, his employer for many years. Mr. Rose had carried out an inspection of the property in March, 2013, and submitted that most of the photographs contained in Exhibit 1 had been obtained in March, 2013. The property is classified as commercial, a fact which is not in dispute.

14In determining value, MPAC employed the Market Modified Cost Approach, which was supported by the evidence of two sales of similar properties in Huntsville. The method is explained in some detail in Exhibit 1. Mr. Rose confirmed that it is a component-based system where the components are valued “in place”. The replacement cost for the structure is estimated based on current market conditions, and then reduced to reflect the value of the accrued depreciation of the improvements. The net building value is added to the land value and the result is the estimate of value of the property.

15In this case, the subject property has one structure with a total gross floor area of 15,608 square feet (“sq. ft.”), situated on a site area of 41,623 sq. ft. The steel frame building was constructed in 1949, and a 2,120 sq. ft. addition was added in 2005. The building replacement cost new (“RCN”) is valued at $997,342, but after factoring in depreciation of $338,341, the Replacement Cost new Less Depreciation (“RCNLD”) was given a value of $659,001. The value of the land is $354,000. No functional obsolescence was factored into the subject property; nor was there an adjustment for economic obsolescence.

16Mr. Rose introduced four other exhibits as follows:

• Exhibit 2: a photograph of the rear of the building;
• Exhibit 3: a photograph of a hoist on the main level;
• Exhibit 4: a photograph of a stairway between the two levels;
• Exhibit 5: A map of the centre of the Town of Huntsville showing the location of the subject property in relation to the downtown core.

17Mr. Rose testified that the two comparable sales contained in the Valuation Report supported the assessed value of the subject property. The comparable sales are both automobile/automotive supply dealerships located in Huntsville. Property 1 is an automobile dealership located at 1 Bickley Country Drive, and Property 2 is a Specialty Automotive Shop situated at 197 Main Street West. Both properties sold within seven months of the valuation day, January 1, 2012. MPAC applies data respecting price changes over time in order to value the comparable properties as of the valuation day. The price changes over time are, in this case, based on 330 sales of commercial properties in the vicinity of the subject property (which included properties throughout the District of Muskoka, District of Parry Sound and Simcoe County). The sales took place from January, 2010 through September, 2012. Based on an analysis of these sales, prices rose an average of 4.26% over the period. Mr. Rose was able to calculate Time Adjustment Factors (“TAF”) for each property sale based on this data, giving an estimate of value of his comparable sales as of the valuation day. The Appellant did not object to the evidence provided on this point.

18The two comparable properties selected by Mr. Rose represent a superior property to the subject and an inferior property. Details of the two properties in comparison with the subject are contained in Table A below:

Table A – Comparative Sales

Property	Subject	Property 1	Property 2
Roll Number	4442-010-018-01000	4442-020-001-06105	4442-020-003-04400
Munic. Address	134 Main Street West	1 Bickley Country Drive	197 Main Street West
Description	Automobile Dealership	Automobile Dealership	Specialty Automotive Shop
Assessed Value	$1,013,000	$1,277,000	$428,000
Sale Price (Time Adjusted)		$1,310,000	$421,600
Sale Date		2011 - June	2012 - July
Effective Frontage (ft.)	214	150.7
Site Area (sq. ft.)	41,623	182,020	51,427
Structure Total Area (sq. ft.)	15,608	12,840	6.468
Year Built	1949 and 2005	1986, 1990 and 1993	1949 and 1968
MPAC deemed comparability to subject		Superior	Inferior
Sale per sq. ft.	$64,90	$102,06	$65,18

19Mr. Holmes cross-examined Mr. Rose with particular emphasis on the issue of functional obsolescence and whether the depreciation reflected in the assessment adequately reflected the deterioration of the steel frame, including the floor or the main level (ceiling of the lower level). Mr. Rose asserted that the building required cosmetic work such as painting, but that there was no structural damage which would be reflected in a reduction for functional obsolescence. The depreciation allowed was adequate to reflect the actual physical depreciation of the building. Mr. Rose concluded that his analysis of value adequately addressed the land value and building value appropriate to the location (somewhat outside the downtown core and not in a “power centre”) and appropriate to the level of depreciation.

Evidence for the Appellant

20Mr. Holmes gave evidence on behalf of the Appellant. He filed Exhibit 6, which contained a two-page summary of his arguments plus 13 photographs of the property, including interior and exterior views. One photograph (Tab P-7) was subsequently removed when it was established that it may not be a photograph from the subject property.

21Mr. Holmes testified that the Appellant had signed a five-year lease with the owners of the property, but that a number of issues had arisen in connection with the condition of the building and its location on a slope. These problems are summarized as follows:

• The rust and corrosion of the steel beams and corrugated steel ceiling separating the main level from the lower level causes a problem for the Appellant in that falling metal and rust may damage the automobiles in the bays below;
• The deterioration of the building means that larger vehicles such as a tow truck cannot be parked on the main level due to weight restrictions. Mr. Holmes did not confirm the weights that were acceptable for the main level, although Exhibit 3 (MPAC) shows a sport utility vehicle being serviced on the main floor. He also testified that the Appellant rents space from 197 Main Street in order to do detailing work for the customers “because they are afraid to use the upper level.”
• The location of the building on a grade causes problems for customers and staff alike. Mr. Holmes testified that it is difficult to maintain this sloped driveway and parking lot during the winter.
• Because of the steepness of the grade, a portion of the side parking lot is not usable for parking, making it functionally obsolescent.
• The decrease in all traffic entering and exiting Huntsville via Muskoka Road 3 (Main Street West) has caused a reduction in business for all commercial operations located in this part of the city. There are public traffic counts available to show that traffic has dwindled on Main Street over the years. This is an example of economic obsolescence and should be reflected in the valuation of the property.
• The stairway between the two levels would appear not to be built to Code.
• Using the income approach to value the building would be a better choice. Mr. Holmes did not provide any evidence respecting the different outcome that might result from using the income approach, if any.

22Mr. Holmes’ photographs depicted the slope of the land from the front to the rear of the building, along with interior photographs of the stairway, rust on the corrugated steel ceiling, surface rust on the automobile hoists, and wear on the exterior rear wall. Mr. Holmes did not introduce any evidence of comparable properties using either the income or cost approach. While he included recommendations that the assessment be reduced by 25% for functional obsolescence and a slightly lesser amount of economic obsolescence, Mr. Holmes gave no particulars as to how these amounts had been calculated.

Analysis

23The Board is required to make findings of fact based on the evidence provided by the parties during the hearing. It is not within the Board’s jurisdiction to carry out independent research in order to determine, for example, what the traffic flow statistics might be for a particular roadway or what the particular requirements of stairway construction are under the Building Code, Ontario Regulation 332/12. The Board relies on the parties to deliver the facts relevant to current value. The Board then weighs the evidence and determines which evidence is probative and which is less so. In this case, Mr. Rose selected the cost method of valuation, which makes sense in a commercial property with a single tenant. He provided the information confirming how the assessment was calculated, and then, by also providing two comparable property sales in the vicinity, supported the assessment of the subject property. One of the comparable properties was superior and one inferior. Mr. Rose compared the differences between the sizes and construction of the two comparable properties and the subject property, and in this fashion was able to meet the test of reasonableness in the assessment of the subject property.

24Mr. Holmes provided an argument to the assessment but failed to support it with facts. In the absence of a detailed explanation of the value he believes is lost in his examples of functional obsolescence and economic obsolescence, Mr. Holmes’ evidence was of a speculative nature at best and of little assistance to the Board. Reports from a builder or contractor may have assisted in identifying structural depreciation in contrast to cosmetic depreciation, while the evidence presented on this issue by the Appellant merely raises the possibility that one or both forms of deterioration exists without providing specifics.

25Further, in failing to provide evidence of how an assessment based on the income method may have given a different result, and failing to use comparable property sales to support that approach, Mr. Holmes was unable to prove, on a balance of probabilities, that his approach to valuation in this case was superior to MPAC’s.

26Lastly, Ms. Kee provided a copy of a decision of this Board: Armstrong Inc. v. Municipal Property Assessment Corp., Region No. 17 [2013] O.A.R.B.D. No. 194 WR 119736, released on September 23, 2013. This decision deals with a similar property owned by the Appellant in this matter. In that case, Mr. Holmes had argued functional obsolescence, but failed to support his analysis on this issue with facts. The Board there preferred the evidence of Mr. Rose who had been qualified as an expert witness. In that case, as in this one, Mr. Holmes’ failure to support his testimony with factual evidence allowed Mr. Rose’s testimony to stand essentially unchallenged.

Equity

27Once the Board has determined the current value of the land, it is required by s. 44.(3)(b) of the Act to:

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.

28Mr. Rose on behalf of MPAC made representations with respect to equity, and enclosed his equity analysis in Exhibit 1. Basing his study on 30 sales occurring in the Huntsville area, Mr. Rose determined that the median assessment to time-adjusted sales ratio was 0.99. He testified that the co-efficient of dispersion was 11.1%, indicating that the median ratio is representative of most ratios in the sales sample.

29Mr. Holmes on behalf of the Appellant presented no evidence on the issue of equity.

30In the absence of other compelling evidence, the Board finds that, having reference to the value at which similar lands in the vicinity are assessed, the current value of the subject property does not need to be reduced in order to make it equitable with the assessments of similar lands in the vicinity.

CONCLUSION

31The Board confirms the current value of the subject property in the amount of $1,013,000.

32The Board finds that there is no evidence before it supporting the conclusion that the value of the subject property requires an adjustment in accordance with s. 44.(3)(b) of the Act in order to make it equitable with the assessed values of similar properties in the vicinity.

33Accordingly, the assessment of the subject property as at January 1, 2012, for the 2014 and 2015 taxation years is confirmed in the amount of $1,013,000.