Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: November 25, 2015 FILE NO.: WR 134586

Assessed Person(s): 1494096 Ontario Inc. Appellant(s): Gurjit S. Grewal Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 15 Respondent(s): City of Mississauga

Property Location(s): 1092 Dundas Street West Municipality(ies): City of Mississauga Roll Number(s): 2105-060-141-28301-0000 Appeal Number(s): 2950615, 3033967 and 3083239 Taxation Year(s): 2013, 2014 and 2015 Hearing Event No. 593735

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

Heard: August 18, 2015 in Mississauga, Ontario

APPEARANCES:

Parties	Counsel+/Representative
Gurjit S. Grewal	Self-represented
MPAC	Biagio Galle
City of Mississauga	No one appeared

DECISION OF THE BOARD DELIVERED BY DAN WEAGANT

INTRODUCTION

1The subject property is a retail plaza comprised of three separate buildings on the corner of Dundas Street West and Glengarry Road. It is in the Commercial Tax Class and comprises a total building area of 16,410 square feet (“sq. ft.”). The buildings were originally constructed in 1985. The buildings are situated on a lot of 1.19 acres. There is no dispute among the parties with respect to the tax class.

2MPAC has returned a value of $3,978,000. The Appellant believes the current value should be $1,886,000. The parties agree to the method of valuation. Both applied the income approach to value, whereby the income produced, based on Fair Market Rent (“FMR”) is used to make the determination. The dispute between the parties lies in what constitutes the FMR.

3The Board must determine the current value of the subject property as of the valuation date stipulated in the Act, of January 1, 2012. More specifically the Board must decide what FMR is to be used in this determination. The Board must also determine if the current value determined should be reduced, when reference is made to the assessments of similar properties in the vicinity.

DECISION

4The Board finds that the current value of the subject property at 1092 Dundas Street West is $3,645,000. The Board also finds that there is no evidence before it to suggest that a reduction to the assessment of the subject property is required to make it equitable with that of similar properties in the vicinity.

5Accordingly, the assessment for the subject property is reduced from $ 3,978,000 to $3,645,000 for the 2013, 2014 and 2015 taxation years.

LEGISLATION

6In making its determination on these appeals, the Board must consider s. 1, s. 19.(1), s. 19.2(1) and s. 44.(3) of the Assessment Act (“Act”) R.S.O. 1990, c. A.31.

7Section 1 of the Act states:

“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.

8Section 19.(1) of the Act states:

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

9Section 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.

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.

10Section 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.

MPAC’S EVIDENCE

11Mr. Galle submitted his report on the valuation study undertaken for the subject property. In developing his opinion of current value, he took rents from leases and ten rental data request forms from properties in the area with similar neighbourhood shopping centre uses. From these rents, Mr. Galle created a “weighted mean” FMR for the four occupancy codes that exist at the subject property. He explained the weighted mean approach as being a method of combining rents in the same occupancy code and weighing their statistical impact on the result by applying the size of the units being leased. Tables A through D, below summarize the findings of Mr. Galle.

TABLE A – Occupancy Code 510

Site Area	Total GLA of Centre	Year Built	Lease commencement	Lease Expiry	Leased Area	Base rent	Rent / Square Foot
11.04	35,007	1982	1/1/2012	12/31/2012	1,372	27,440	$20.00
3.32	35,007	1982	1/1/2012	12/31/2012	1,992	41,832	$21.00
1.20	13,702	1993	2/1/2011	1.31/2016	998	17,880	$20.00
0.67	8,543	1990	2/1/2012	1/31/2017	730	14,235	$19.50

Weighted Mean: $20.00

TABLE B – Occupancy Code 210

Site Area	Total GLA of Centre	Year Built	Lease Commencement	Lease Expiry	Leased Area	Base Rent	Rent / Square Foot
1.75	15,163	1986	7/1/2011	6/30/2016	1,310	31,440	$24.00
2.33	22,931	1985	9/1/2010	8/31/2015	2,292	50,424	$22.00

Weighted Mean: $22.73

TABLE C – Occupancy Code 530

Site Area	Total GLA of Centre	Year Built	Lease Commencement	Lease Expiry	Leased Area	Base Rent	Rent / Square Foot
0.00	9,206	1980	4/1/2012	3/31/2017	2,100	39,000	$18.57
3.91	43,556	1967	10/1/2012	7/31/2017	2,700	40,500	$15.00

Weighted Mean: $16.56

TABLE D – Occupancy Code 531

Site Area	Total GLA of Centre	Year Built	Lease Commencement	Lease Expiry	Leased Area	Base Rent	Rent / Square Foot
2.53	10,851	2006	4/14/2011	4/14/2021	1,600	32,000	$20.00
3.32	35,007	1982	1/1/2012	12/31/2012	1,124	22,480	$20.00

Weighted Mean: $20.00

12Mr. Galle then applied the weighted mean for each occupancy code to the unit sizes in those respective codes present at the subject property to arrive at a total FMR income. The result of this calculation is a total of $321,092. He testified that by applying a total reduction of 5% to account for vacancy costs and expenses, the net operating income of the subject property is $305,037. When he applies the applicable 7% capitalization rate used in Mississauga for these types of properties, Mr. Galle determined a current value of $4,357,000. Mr. Galle concluded that the 2012 current value assessment (“CVA”) as returned, at $3,978,000 is therefore reasonable and correct.

APPELLANT’S EVIDENCE

13Mr. Grewal takes no issue with the approach used by MPAC. In fact he agrees that the most appropriate way of determining the current value of the subject property, including the adjustment percentages used by MPAC, is the income approach to value. However, Mr. Grewal does not agree with MPAC’s determination of the FMR used for its calculations. He submitted that the most appropriate FMR to use in this case is the actual rental income generated by the subject property. Mr. Grewal’s Exhibit 3 itemized the income generated by the property for the 2011, 2012 and 2013 taxation years, calculated by each specific unit. His calculation results in an average annual rental income of $138,953. When he applied the same percentages as MPAC for expenses, vacancy and capitalization to this total, Mr. Grewal calculated a total of $1,886,000 as the current value of the subject property.

14To support his case, Mr. Grewal cited ARB WR 108115, Donview Management Ltd. v. Municipal Property Assessment Corp. Region No. 14, [2011] O. A. R. B. D. No. 254. (“Donview”). In Donview the Board accepted the lease on the subject property as the most appropriate FMR for the purposes of determining current value through the income approach. He submitted that the Donview case gives direction to this panel to use actual rents to determine the FMRs and the current value of the subject property.

15Mr.Grewal called three witnesses to support his opinion that the FMR applied by MPAC is too high. Karim Saleh is the owner of the subject property. He purchased the property in 2009 for $2,000,000, through a real estate agent on the open market. The transfer included a vendor take back mortgage. Mr. Saleh described the property as under-producing with respect to rental income. He testified that he has been unable to increase rents since he purchased the property and has been forced to enter into verbal month to month agreements with the majority of his tenants, with the alternative being the units becoming vacant. Mr. Saleh currently has two vacant units that he has been unable to lease for some time and he would rather have some rental income on the remaining units than risk additional vacancies.

16Mr. Saleh blames the lack of financial success of the property on the arrangement of the commercial buildings on the site and the location of residential buildings on the two adjacent properties fronting on Dundas and Glengarry. The neighboring buildings greatly reduce the visibility of the plaza from both streets. Mr. Saleh contends that the site signage is not very visible from either public road and suggested that potential customers drive past the property before they realize there is commercial activity there. He described the commercial buildings as being “in the back of the property” and as a result are really not equivalent with respect to visibility as other similar commercial shopping centre properties.

17Sam Khosraviani is the longest surviving tenant on the property. He entered into a lease in 2003 with the previous owner and that lease has been extended to 2020 by agreement with Mr. Saleh at a rate of $8.00 per square foot. Mr. Khosraviani testified that he has ‘begged’ Mr. Saleh for reduced rent owing to the lack of business he is experiencing. He testified further that the access and visibility of the subject property is not good for retail purposes which require adequate signage and ease of access to be profitable.

18Mohammed Hussan occupies unit # 6 in the plaza and like Mr. Khosraviani, has experienced financial success well below his expectations. He currently operates his business under a month to month rental agreement with Mr. Saleh for $8.00 per square foot. Mr. Hussan echoed Mr. Khosraviani and Mr. Saleh by suggesting the plaza’s location and relationship with neighboring buildings have a detrimental effect on the success of the businesses operating there.

19Mr. Grewal submitted Exhibit 4, a summary of rents applicable to the property. The rents presented are divided by rental unit and suggest rents of between $7.00 and $10.00 per square foot, all of which apply as of the applicable valuation date. According to Mr. Grewal, the variances in rents are determined by the specific use in each unit and their respective sizes.

20To further support his evidence of the rental income from the subject property, Mr. Grewal submitted Exhibit 6, comprising four leases and an ‘Assignment of Lease’ agreement. The four leases have terms that include the January 1, 2012 valuation day and include rents that range from $9.00 to $10.00 per square foot. The Assignment of Lease document has no data with respect to rental rates applicable on the valuation date.

ANALYSIS

21In making its determination, the Board must consider the evidence before it at the hearing. Both parties took the same approach to determine the current value of the subject property. The difference in their respective approaches is the FMR used to determine net rental income.

22MPAC submitted that the correct source of FMR is a compilation of rents for similar uses derived from leases that apply to those similar properties, that are effective at or near the valuation date. In his testimony, Mr. Galle provided rents from similar properties that are subject to lease agreements. These properties are located between two and nine kilometers from the subject property. Mr. Galle selected the specific comparable properties based on their similarity to the subject property with respect to use, character, location, size and age.

23The Board finds that Mr. Galle’s approach is reasonable and subject to adjustments, represents the best evidence of the FMR to be applied to the subject property.

24Mr. Grewal relied on the rent roll for the subject property (Exhibit 4) as an indicator its FMR, indicating that through witness testimony, he has demonstrated that the subject property is quite different from the properties used by MPAC. He further submits that because the subject property varies from the properties used by MPAC to determine FMR, the best indicator of FMR is the actual rent produced from the subject property, because it is so unique.

25To support his position, Mr. Grewal cited Donview, where the Board found that the actual rents generated from the subject property constituted the best indicator of FMR. In Donview, the Board found that since the applicable lease was demonstrably agreed to through negotiation among the parties, it constituted a ‘Fair Market Lease.’ In addition the Board found that there were no comparable leases in the broader market place that had sufficient similarity to the subject property.

26This case differs from Donview in two respects. Firstly, there are no leases in evidence for 9 of the 14 units existing on the subject property. Of the remaining five units, rental information was included in lease documents for only four. Secondly, there is no evidence before the Board that the four leases in evidence that include rental rates were negotiated in the context of the open market. MPAC did not consider these four leases in its determination of FMR for the subject property. Its evidence is silent as to why.

27Mr. Grewal submits that the existing leases on the subject property are a strong enough indication of FMR and should be applied to the entire 14 units to determine FMR.

28In determining the best evidence of FMR, the Board must consider the source of the rental data used by the parties in their respective calculation. In addition, the Board must consider the meaning of FMR. In Donview, the Board cited Cardinal Plaza Ltd. et al. v. Regional Assessment Commissioner, Region No. 19 et al 1984 CanLII 1841 (ON CA), 49 O. R. (2d) 161 (Ontario Court of Appeal) which stated:

We are of the view that the Divisional Court and the Ontario Municipal Board did not err in law in holding that the proper determinant of market value pursuant to s.18 of the Assessment Act RSO 1980 c.31, using the income approach was “economic rent” rather than the actual rent received by the appellants.

And further;

We are all of the view that an equitable assessment of multi-residential properties based on the income approach must necessarily use economic rents rather than actual rents. As stated by this Court through Evans J.A. in Stevens Building v City of Sudbury, May 22, 1973, unreported:

in adopting the income approach to valuation, the income of the property must be calculated on the basis of the current market rents for comparable properties at the time that the assessment is made.

29In the Donview Case, the Board found that the lease in place at the subject property constituted a market rent and found that the rental rates therein were Fair Market Rents as a result.

30The Board finds that Mr. Grewal has not demonstrated that the four leases indicate FMR for the entire property under appeal. However, the Board does find that the four leases in evidence can reasonably be used as part of the FMR calculation for the subject property, to the extent they apply to those specific units. Each of the four leases apply to units in the 510 occupancy code. Accordingly, the Board finds that the FMRs for the 210, 530, and 531 occupancy codes are as determined by Mr. Galle. For the 510 occupancy code, the Board finds that it is reasonable to include the four leases in Mr. Grewal’s evidence, and the FMR determined by MPAC is amended as follows:

TABLE E – Adjusted 510 Occupancy Code FMR

Lease	Area (Square feet)	Weight by Percentage of total area	Rent / Square Foot	Weighted Value
MPAC 1	1,372	14.2	$20.00	2.84
MPAC 2	1,992	20.5	$21.00	4.30
MPAC 3	998	10.3	$20.00	2.06
MPAC 4	730	7.5	$19.50	1.46
Subject Property (SP) unit 1	900	9.3	$10.00	.93
SP Unit 2	1,000	10.3	$10.00	1.03
SP Unit 11	1,200	12.4	$9.50	1.18
SP Unit 12	1,500	15.5	$9.00	1.40
Total	9,692	100.00

Weighted Mean: $15.20

31From this adjustment, the Board finds that the FMR for the four occupancy codes represented at the subject property are as follows:

Code 210 - $22.73 x 1,000 square feet = $22,730 Code 510 - $15.20 x 11,150 square feet = $169,480 Code 530 - $16.56 x 2,560 square feet = $42,394 Code 531 - $20.00 x 1,700 square feet = $34,000

32The Board finds that this total rental income of $268,604 is reduced by 5% to allow for vacancy and expense cost, as agreed to by the parties. The resultant $255,174 is then adjusted by applying the agreed-to capitalization rate of 7% to arrive at a total current value of $3,645,342 ($3,645,000 rounded).

DECISION

33The Board finds that the current value of the subject property at 1092 Dundas Street West is $3,645,000. The Board also finds that there is no evidence before it to suggest that a reduction in the assessment of the subject property is required to make it equitable with that of similar properties in the vicinity.

34Accordingly, the assessment for the subject property is reduced, from $3,978,000 to $3,645,000 for the 2013, 2014 and 2015 taxation years.

Footnotes

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