Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: October 19, 2015 FILE NO.: WR 135038

Assessed Person(s): 885336 Ontario Inc. Appellant(s): 885336 Ontario Inc. and John Jongsma Respondent(s): Municipal Property Assessment Corporation ("MPAC") Region 26 Respondent(s): City of Sarnia Property Location(s): 595 Murphy Road Municipality(ies): City of Sarnia Roll Number(s): 3829-300-026-00600-0000 Appeal Number(s): 2969477, 3048127 and 3092058 Taxation Year(s): 2013, 2014 and 2015 Hearing Event No.: 591839

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

Heard: September 11, 2015 in Chatham, Ontario

APPEARANCES:

Parties	Counsel+/Representative
John Jongsma	Self-represented
MPAC	John Taraborrelli
City of Sarnia	No one appeared

DECISION OF THE BOARD DELIVERED BY MARILYN SHARMA

INTRODUCTION

1The subject property is located at 595 Murphy Road in Sarnia at the western edge of the main commercial artery of London Road across from a major supermarket chain. It was developed in 2002 for the tenant SportChek who occupied the premises until April 2013.

2The subject property has a site area of 56,392 square feet and a building rentable area of 18,945 square feet.

3The building was constructed in 2002.

4The current zoning for the property is "C-3" commercial.

5The sole occupant of the building is SportChek.

6The assessment of the subject property for the taxation year 2013 was $3,169,000 for the taxation year 2014 was $2,311,000 and for the taxation year 2015 was $2,648,000.

7The Appellant is contesting the assessment as being too high.

ISSUE

8The issue before the Assessment Review Board ("Board") is to determine whether the subject property is assessed too high in relation to similar properties in the area.

DECISION

9The Board finds that the current value of the subject property is $2,648,000.

10The Board has made reference to similar lands in the vicinity and finds that no reduction is required for equity under s. 44.(3)(b) of the Assessment Act ("Act").

11Accordingly, as of the valuation date of January 1, 2012:

• The assessment of the subject property for the 2013 taxation year is reduced from $3,169,000 to $2,648,000.
• Based on MPAC's change in its methodology for the determination of current value in 2014, the assessment reached by such change is confirmed in the amount of $2,311,000 for the 2014 taxation year.
• The assessment for the 2015 taxation year is confirmed in the amount of $2,648,000.

REASONS FOR DECISION

The Legislation

12For the 2009, 2010, 2011 and 2012 taxation years, in determining the value at which land shall be assessed, the Board must have regard to the following provisions of the Act:

13Section 1 of the Act defines "current value" as:

"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.

14Section 19.(1) of the Act states:

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

15Section 19.2(1)2 of the Act states:

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:

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

16Section 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.

17Section 40.(17) of the Act 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.

18Section 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.

19Section 40.(26)(b) of the Act states:

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.

Analysis

20Under the Act the Board is required to do three things:

(1) Find the current value of the property;

(2) Make reference to the value at which similar lands in the vicinity are assessed; and

(3) Adjust the assessment of the subject property if the adjustment would result in a reduction in the assessment.

Current Value

21The best measure of current value is an arm's length and market tested sale of the subject property on the valuation date of January 1, 2012, or close to it. If no such transaction took place, a further measure of current value is 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. The onus for establishing the correctness of the current value lies with MPAC.

MPAC's Evidence

22The Assessor informed the Board that the assessment for the subject property was determined based on MPAC's use of different methodologies for the taxation years 2013, 2014 and 2015 as follows:

• For the taxation year 2013 the current value was determined based on the income approach to value resulting in an assessed value of $3,169,000;
• For the taxation year 2014 the current value was determined based on the cost approach to value resulting in an assessed value of $2,311,000; and
• For the taxation year 2015 the current value was determined based on the income approach to value resulting in an assessed value of $2,648,000.

23MPAC provided six suggested comparable properties as shown in Table 1 below:

Table 1 MPAC's Suggested Comparable Properties

Address	Building Rentable Area (sq. ft.)	Vacancy Rate (% of GPI)	Expense Allowance (% of GPI)	Cap. Rate	Fair Market Rent Per sq. ft.
595 Murphy Road (Subject Property)	18,945	8	4	9.0	14.24
1378 Exmouth Street	20,042	8	4	8.0	15.06
1699 London Line	19,656	8	4	8.0	10.05
1208 Michigan Avenue	18,330	8	4	8.0	15.69
1500 London Road	23,000	8	4	10.0	7.47
1307 Michigan Avenue	20,000	8	4	10.0	11.96
1370 Quinn Drive	32,500	n/a	n/a	8.0	12.11

24The Assessor explained that the methodology used by MPAC to determine the current value of properties such as the subject property was by calculating the Net Operating Income ("NOI") and dividing it by the capitalization rate to arriving at the current value of the property.

25The Assessor informed the Board that in determining the NOI of the subject property, MPAC reviewed the actual contract rents provided by the property owners of the six suggested comparable properties as well as that of the subject property. The Assessor stated that based on his analysis of the contract rents mentioned above, the market rents range from $10.75 to $16.75 per square foot. The Assessor further pointed out that the actual rent for the subject property of $19.50 per square foot is higher than the actual rent of the properties in the vicinity of the subject property as shown in the analysis conducted in Exhibit 1.

26The Assessor stated that the capitalization rate for the six suggested comparable properties submitted by MPAC as shown in Table 1 range from 8% to 10%; and that the capitalization rate for the subject property at 9% is higher than four of the six of the suggested comparable properties. The Assessor indicated that this shows that this is within the range of capitalization rates used by MPAC to calculate the 2012 current values of properties such as the subject property.

27The Assessor explained that the Gross Potential Income ("GPI") is calculated based on the Fair Market Rent ("FMR") for comparable properties in the neighbourhood taking into account factors such as location, type of business, surrounding business environment, potential market etc. The Assessor stressed that the FMR is calculated on the premise of what the property is able to generate and not the actual rent obtained. Further he pointed out that the FMR used by MPAC for the subject property is $14.24 per square foot which is lower than the actual rent of $19.50 per square foot.

28The Assessor stated that MPAC makes provision for vacancy and expenses of properties such as the subject's by using a standard allowance of 8% of GPI for vacancy and 4% of NOI for expenses.

29The Assessor referred to Exhibit 1 to explain how the variables discussed above are then plugged into the formula for calculating the current value of the subject property. The summary is shown below:

Gross Potential Income: ($14.24 x 18,945 sq. ft.): $269,854 Less Vacancy Allowance @ 8% of GPI: 21,588 Less Expense Allowance @ 4% of NOI: 9,931

Net Operating Income (NOI) $238,335

The current value is calculated by dividing the NOI of $238,335 by the capitalization rate of 9% resulting in a current value of $2,648,000.

Appellant's Evidence

30The Appellant provided the Board with six suggested comparable properties in Exhibit 3. The Assessor pointed out that the information submitted by the Appellant in this exhibit was previously provided to him by MPAC during the reconsideration process. The Assessor informed the Board that the information contained therein is outdated and is not to reliable.

31The Appellant informed the Board that his property has been fully vacant over the period 2014 to the present and this should be considered as having a negative impact on the value of his property. He informed the Board that he believes that a capitalization rate of 10% is more applicable to his property rather than the 9% used by MPAC.

32The Appellant stated that based on the suggested comparable properties he submitted in Exhibit 3, he is of the opinion that the $2,648,000 arrived at by MPAC is too high. He has determined that based on his own calculation using a FMR of $11 per square foot instead of $14.24 used by MPAC, a vacancy allowance of 8% same as that used by MPAC, an expense allowance of 6% instead of 4% used by MPAC and a capitalization rate of 10% instead of 9% used by MPAC would result in a current value of $1,800,000.

Analysis of Evidence

33The Board accepts that the Income Approach to the determination of current value utilized by MPAC is the appropriate methodology in this instance.

34The Board notes that in the application of the Income Approach to value one of the key variables is the GPI which is based on the rent that the property is able to generate and not the actual rent. The Board is satisfied that the FMR estimated by MPAC at $14.24 per square foot is reasonable given that the actual contract rent is $19.50 per square foot.

35The Board accepts that the vacancy and expense allowances recognized by MPAC for properties such as the subject property are standard allowance factors that are uniformly applied. In this case, the vacancy allowance is 8% and the expense allowance is 4% of NOI.

36The Board deliberated on the Appellant's claim that a capitalization rate of 10% should be applied to his property. The Appellant provided no evidence to support a 10% capitalization rate. The Board accepts MPAC's explanation that the subject property does not have the same attributes required to justify the capitalization rate of 10% which is applied to the suggested comparable properties at 1500 London Road and 1307 Michigan Avenue. The assessor also pointed to the fact that the 9% applied to the subject property is within the range of capitalization rates used by MPAC to calculate the 2012 current values and that capitalization rates for suggested comparable properties most comparable to the subject property have capitalization rates of 8%. The Board therefore accepts that the capitalization rate of 9% is reasonable.

37The Board considered the Appellant's argument that his property has been vacant since 2014 and since he was not receiving any income, MPAC should take this into consideration. The Board is not persuaded by the Appellant's argument for two reasons:

i. The vacancy allowance applied by MPAC in their calculations is uniformly applied to properties such as the subject and similar properties in the general neighbourhood. In this instance, the vacancy provision used by MPAC is 8% of GPI and the Board considers this allowance as being reasonable.

ii. The Board was not provided with expert analysis and evaluation to support the Appellant's claim that because the property was vacant its current value has been negatively affected. The Board therefore places no weight on the Appellant's argument.

Determination of Current Value

38The Board finds that the best method to determine the current value of the subject property is based on the Income Approach to value.

39The Board finds that based on the above approach the current value calculated is $2,648,000 using the following:

• FMR of $14.24 per square foot;
• Vacancy Allowance of 8% of GPI;
• Expense allowance of 4% of NOI;
• Capitalization Rate of 9%; and
• GPI of $269,854.

40The Board finds that the current value of the subject property as of January 1, 2012 is $2,648,000.

Equity with Similar Lands in the Vicinity

41The Board is required under s. 44.(3) sub-paragraph (b) of the Act, 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.

42Neither party submitted any evidence or argument on equity. The Board therefore makes no adjustment for equity under s. 44.(3) sub-paragraph (b) of the Act.

CONCLUSION

43The Board finds that the current value of the subject property is $2,648,000.

44The Board has made reference to similar lands in the vicinity and finds that no reduction is required for equity under s. 44.(3)(b) of the Act.

45Accordingly, as of the valuation date of January 1, 2012:

• The assessment of the subject property for the 2013 taxation year is reduced from $3,169,000 to $2,648,000.
• Based on MPAC's change in its methodology for the determination of current value in 2014, the assessment reached by such change is confirmed in the amount of $2,311,000 for the 2014 taxation year.
• The assessment for the 2015 taxation year is confirmed in the amount of $2,648,000.

Footnotes

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