A F & N Galipo Brothers and Maria Galipo v. Municipal Property Assessment Corporation, 2015 CanLII 95042

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

ISSUE DATE: October 20, 2015 FILE NO.: WR 134637A AMENDED ISSUE DATE: April 1, 2016

Assessed Person(s): A F & N Galipo Brothers Appellant(s): A F & N Galipo Brothers and Maria Galipo Respondent(s): Municipal Property Assessment Corporation ("MPAC"), Region 09 Respondent(s): City of Toronto Property Location(s): 710 College Street Municipality(ies): City of Toronto Roll Number(s): 1904-044-100-04650-0000 Appeal Number(s): 3050248, 3049441 and 3075664 Taxation Year(s): 2013, 2014 and 2015 Hearing Event No.: 588929

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

Heard: March 18 and August 26, 2015 in Toronto, Ontario

APPEARANCES:

Parties	Counsel+/Representative
A F & N Galipo Brothers & Maria Galipo	Self-represented
MPAC	S. Tjhia and D. Samuels
City of Toronto	No one appeared

DECISION OF THE BOARD DELIVERED BY MARILYN SHARMA AND MARK SPRAGGETT

Amended pursuant to Rule 130 of the Assessment Review Board’s Rules of Practice and Procedure, effective January 4, 2016

INTRODUCTION

1The subject property is located at 710 College Street in the City of Toronto.

2The property has a site area of approximately 4,785 square feet ("sq. ft.").

3The property has a total building area of 9,746 sq. ft. with a mix of Commercial (Sicilian Sidewalk Café) and 11 multi-residential units.

4The assessment of the subject property for the taxation years 2013 and 2014 and deemed 2015 is $3,477,000 broken down as follows:

• Taxation Year 2013:

  • Industrial: $1,154,000
  • Residential: $1,391,000
  • Commercial: $ 932,000

• Taxation Year 2014:

  • Residential: $1,391,000
  • Commercial: $ 932,000
  • New Multi-Residential: $1,154,000

• Taxation Year 2015:

  • Residential: $ 970,821
  • Commercial: $ 887,264
  • New Multi-Residential: $1,618,915

5MPAC made a recommendation to reduce the assessment from $3,477,000 to $2,967,000. During the hearing, MPAC agreed to accept a variation to the above current value by accepting the Gross Potential Income ("GPI") provided by the Appellant and using MPAC’s calculated Gross Income Multiplier ("GIM") of 12.50 to arrive at a revised current value of $2,891,250. However, the Appellant refused the offer from MPAC.

ISSUES

6The Appellant believes that the assessment is too high because:

(a) MPAC has used an inappropriate GIM to determine current value,

(b) MPAC also used an inappropriate GPI for the subject property; and

(c) MPAC has inappropriately applied the New Tax Class Premium to the entire structure when in fact she believes that it should only be applied to the new portion of the structure.

DECISION

7The Assessment Review Board ("Board") finds that the current value of the subject property is $3,116,379.

8The Board also finds that no adjustment is required for equity.

9The Board notes that during the hearing, MPAC agreed to use the Appellant’s estimate of GPI of $231,300 combined with MPAC’s calculated GIM of 12.50 thus resulting in a current value of the subject property at $2,891,250. The Board further notes that the Appellant has refused the Assessor’s offer; however, the offer remains in effect. The Board based on the Assessor’s offer therefore reduces the assessment from $3,477,000 to $2,891,250 for the 2013, 2014 and deemed 2015 taxation years broken down as follows:

• Taxation Year 2013:

  • Industrial: from $1,154,000 to $ 0
  • Residential: from $1,391,000 to $ 997,500
  • Commercial: from $ 932,000 to $ 540,000
  • New Multi-Residential $1,353,750
  • Total: from $3,477,000 to $2,891,250

• Taxation Year 2014:

  • Residential: from $1,391,000 to $ 997,500
  • Commercial: from $ 932,000 to $ 540,000
  • New Multi-Residential: from $1,154,000 to $ 1,353,750
  • Total: from $3,477,000 to $ 2,891,250

• Taxation Year 2015:

  • Residential: from $ 970,821 to $ 997,500
  • Commercial: from $ 887,264 to $ 540,000
  • New Multi-Residential from $1,618,915 to $ 1,353,750
  • Total: from $3,477,000 to $ 2,891,250

REASONS FOR DECISION

The Legislation

10For the 2013 taxation year, in determining the value at which land shall be assessed, the Board must have regard to the following provisions of the Assessment Act, R.S.O 1990, c.A.31, as amended ("Act"):

Amended pursuant to Rule 130 of the Assessment Review Board’s Rules of Practice and Procedure, effective January 4, 2016

11Section 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.

12Section 19.(1) of the Act states:

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

13Section 19.2(1)2 of the Act states:

19.2(1) Valuation days – Subject to subsection (5), the day as of which land is valued for a taxation year is determined as follows:

1. For the 2006, 2007 and 2008 taxation years, land is valued as of January 1, 2005.

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.

14Section 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.

15Section 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.

16Section 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.

Analysis

17Under 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

18The 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.

19The accepted methodology for the determination of the current value of properties such as the subject property is using the income approach to value in which the two key variables are the GIM and the GPI. Both parties have presented arguments regarding the applicability and appropriateness of the use of this method in establishing the current value of the subject property. Their respective arguments are discussed and analysed below.

Issue 1: Gross Income Multiplier

20In support of the assessment, MPAC provided six suggested comparable properties, however, the suggested comparable property located at 515 Rosewell Avenue was withdrawn by MPAC leaving a total of five (5) suggested comparable properties for consideration.

21The following are the details regarding MPAC’s suggested comparable properties:

Address	Site Area	No. of Units	Sale Amt. ($)	Sale Date	Time Adjusted Sale ($)	Potential Gross Income ($)	(Time adjusted) sale GIM
710 College Street (subject property)	9,746	11
136 Springhurst Avenue	7,177	8	2,125,000	25-07-2013	1,893,125	127,980	15.03
11 Boulton Avenue	5,327	13	1,520,000	29-06-2011	1,565,600	130,650	11.98
1330 Gerrard Street East	6,196	7	2,300,000	8-02-2008	2,840,500	178,033	15.95
47 Blake Street	14,400	11	1,375,000	1-11-2007	1,718,750	134,664	12.76
3885-3891 Bloor Street West	7,790	8	2,900,000	15-02-2011	3,045,000	213,312	14.27

22The Assessor stated that the suggested comparable properties submitted by MPAC are similar to the subject property because:

i. All are multi-residential properties; ii. All are in the same New Tax class; iii. The number of units are within a reasonable range suitable for comparative analysis; iv. The Potential Gross Income are similar having regard to the variation in number of units; (Income is a function of the number of units); v. All are located within a reasonable proximity to each other.

23The Appellant stated that the properties submitted by MPAC were not similar to the subject’s because three are townhouses, one is smaller and the other larger than the subject property.

24The Board accepts the reasons provided by the Assessor that the properties submitted by MPAC are similar to the subject property and suitable for consideration in determining the current value of the subject property.

25MPAC informed the Board that the best method for the determination of the current value of multi-residential properties is based on an established formula that is consistently applied to such properties throughout the Province; and that is:

Current Value Assessment (CVA) = Potential Gross Income (PGI) multiplied by the Gross Income Multiplier (GIM)

26The Board finds that only the two properties located at 11 Boulton Avenue and 3885-3891 Bloor Street West can be used for consideration because they both have valid sales. The sales GIM for the two properties are 11.98 and 14.27 respectively. The assessor stated that with the exception of one property, the subject property has the lowest GIM of MPAC’s five suggested comparable properties. This still holds true when the GIM of the subject property is compared to the two properties mentioned above with valid sales.

27The Board accepts the Assessor’s explanation that in MPAC’s determination of the current value of properties like the subject’s, the accepted methodology used to establish value is based on the formula previously described and which establishes the key parameters of GPI and the GIM.

28The Appellant stated that she did not believe that the GPI used in the formula by MPAC adequately takes into account the level of vacancy that she is experiencing based on the unique circumstances surrounding her property. The GPI estimated by MPAC is $237,348. The Appellant submitted that based on her evaluation, the GPI ought to be $231,300. The assessor agreed that in this circumstance he was willing to accept the Appellant’s GPI estimate of $231,000.

29The Board notes that the Sales GIM of 11.98 and 14.27 respectively for the two similar properties located at 11 Boulton Avenue and 3885-3891 Bloor Street West. The resulting average GIM is 13.125. The Assessor however, informed the Board that the predicted GIM calculated by MPAC is based on an established protocol used by Municipalities across Ontario and provides a distinct advantage to properties such as the subject’s because of it being taxed in the Residential Class instead of the higher Multi-residential class of properties. The Assessor then stated that the GIM for the subject property also takes into account the New Tax Class (NT) adjustment and is calculated to be 12.50 (rounded). The Appellant continue to express her dissatisfaction with the GIM calculated by MPAC of 12.50. The Board however does not see any merit in the arguments of the Appellant to support a GIM lower than 12.50. The Board notes that the calculated GIM is lower than all of the five suggested comparable properties submitted by MPAC except one.

Board’s Findings on the Gross Income Multiplier

30After careful consideration of the arguments by the Appellant and MPAC, the Board accepts MPAC’s application of the GIM methodology in the determination of the current value of properties specifically such as the subject’s as an appropriate methodology.

31The Board is satisfied with the Assessor’s explanation that the methodology employed by MPAC to estimate the GPI is one that is consistently applied to multi-residential properties like the subject’s and the resulting estimate of $237,348 is a reasonable potential rental income that the subject property is able to generate. However, in this particular case, the Board is advised that for the year under appeal, the Assessor is agreeable to acceding to the unique circumstances claimed by the Appellant to accept her estimate of potential income of $231,000.

32The Board finds that MPAC’s determination of the GIM applicable to subject property at 12.50 represents a fair and reasonable measure of the various factors and parameters that are included in such a determination.

Issue 2: Gross Potential Income

33The assessor informed the Board that the methodology used in the determination of the Current Value Assessment ("CVA") of the subject property is consistent with the approach used by MPAC for all (multi) residential properties across the province. The calculation of the CVA is based on the Potential Gross Income ("PGI") multiplied by the Gross Income Multiplier ("GIM"):

Where: PGI = Sum of all predicted fair market rents (Monthly) x 12

and,

GIM = The Base GIM x adjustments for variables such as building type, condition, size and location.

34The Appellant disagreed with MPAC’s estimate of Potential Gross Income because she believes that a recent violent incident at her property has affected the Potential Gross Income significantly. Further, she claims that this incident is unique to her property and would not have been taken into account in MPAC’s model.

35The Assessor referred to the calculation used by MPAC, and consistent with the methodology described above which shows that the estimated GPI of the subject property is $237,348. The Assessor stated that the Gross Income Approach is based on the income that properties are able to generate and not on the basis of the actual income generated and further stated that his position is consistent with the Board’s position as noted in its decision of Misic v. Municipal Property Assessment Corp., Region No. 27 [2012] O.A.R.B.D. No. 63 File No: WR 113937; and specifically cited the following:

"As stated above, the Gross Income Approach is the preferred approach in determining the value of multi-residential properties because multi-residential properties are transacted in the market based on the income that they are able to generate (emphasis added). In this approach the current value is arrived at by multiplying the gross potential income (GPI) from the property by its "gross income multiplier" (GIM). This GIM is derived using the sales amount of similar properties divided by the gross potential income of similar properties in the area."

36The Appellant however informed the Board that the GPI prior to the incident at the subject property was estimated at $231,000. The Appellant further stated that because of the incident that occurred at the subject property, she believes that the Potential Gross Income has been compromised to the extent of approximately $36,000 thereby resulting in a Potential Gross Income of $195,000.

37The Assessor notwithstanding the Board’s decision (referred to above) agreed to accept the estimated GPI of $231,000 reached by the Appellant prior to the incident that occurred at the subject property. The Appellant however refused the Assessor’s offer and continued to argue that the GPI previously estimated at $231,000 is no longer viable.

Board’s Findings on the Gross Potential Income

38The Board considered the arguments advanced by the Assessor pertaining to the widespread and consistent application of the formula and parameters used by MPAC to estimate the potential income properties such as the subject’s is able to generate. The Board accepts that MPAC’s application of the formula for estimating potential income, in this instance, is consistently used for multi-residential properties such as the subject property.

39The Board considered the argument advanced by the Appellant that a recent violent incident that occurred at the subject property has had a negative impact on income and believes that MPAC’s estimate is high and does not adequately factor its impact on gross potential income which in turn exaggerates the current value of the subject property. The Board is unable to assist the Appellant with her claim that the potential income should be lower than MPAC’s estimate because:

i. the Board’s position is consistent with its previous position held in its decision of Misic v. Municipal Property Assessment Corp., Region No. 27 [2012] O.A.R.B.D. No. 63 File No: WR 113937 which states in part that the potential is calculated based on what the property is able to generate and not on actual income and ii. the Board was not presented with expert evidence that evaluated the incident including making a determination of the consequences on potential income for the year under appeal

40The Assessor was willing to accept that there was merit in the Appellant’s claim due to the unusual nature of the incident and he agreed to accept the vacancy rate of 19% as well as the resulting GPI of $231,300 estimated by the Appellant.

41The Board accepts that the Gross Potential Income that should be used in the calculation of the CVA for the subject property is $231,300.

Issue 3 - Application of the New Tax Class Premium

42The Assessor explained MPAC’s methodology in determining the New Tax Class Premium and the rationale for its application to the entire subject property. The method is fully elaborated upon in MPAC’s Exhibit 1.

43The Assessor’s calculation in Exhibit 1 shows that the New Tax Class Premium applicable to the subject property is 18 per cent.

44The Assessor indicated that properties like the subject property enjoy a distinct tax advantage which contributes to increased marketability and increased value in the open market as follows:

(1) The subject property continues to be taxed at the lower residential tax rate even though it is now in the higher multi residential tax class due to the increase in the number of units.

(2) The subject property would continue to receive this benefit for thirty-five (35) years.

(3) These are more attractive to buyers and hence translate into added value in the market place.

45The Assessor further stated that the determination of the revision or re-evaluation of the current value of properties as a result of renovations, additions or reconstruction are established on the property in whole principally because such modifications affect the overall value of the property.

46The appellant argued that: "…… in relation to the 18% ROI, MPAC is incorrectly assuming that there is a distinct advantage of 18% on the entire property when in fact only the 200 Montrose Avenue portion of the property was affected by this tax issue." She also stated that because only part of the property was renovated only this new portion should be subjected to the new tax premium since the rest of the building did not undergo any changes.

47The Assessor argued that the Appellant’s suggestion that the NT Premium is only applicable to the new portion of the property (the 200 Montrose Avenue portion) is simply not a reasonable and explained that in accordance with the Act, where the Tax Class of the property has changed in order to qualify it to receive the benefit of the New Tax Class, the ensuing New Tax Class premium is applicable to the entire property because the benefit derived is applied to the whole property and not only to the portion added.

Board’s Findings on Application of the New Tax Premium

48The Board reviewed the evidence provided by MPAC in Exhibit 1, and the Board notes that MPAC has provided detailed information pertaining to its methodology for the determination of Fair Market Rents, Potential Gross Income, Gross Income Multiplier and Current Value Assessment including the various parameters that are factored in the calculations as well as an example of the calculations. The Board accepts the explanation provided by the assessor that the methodology submitted and explained in Exhibit 1 is a consistent practice used by MPAC for the determination of Current Value Assessment of properties such as the subject property.

49The Board considered the Appellant’s argument that the New Tax Premium should only be applied to the newly constructed units and does not agree with the Appellant that the new tax premium should be applied to the newly added units only. The Board agrees with the assessor that the premium is intended to capture the value added to the entire structure due to the tax incentive (taxed at the residential rather than the multi residential rate) as well as the value added by the new construction.

50The Board considered MPAC’s submission that there is value added to the subject property due to the new tax premium incentive. This added value extends to the entire building and not just to the additional six dwelling units. The Board agrees with the Assessor that a willing buyer faced with a decision to purchase one of two identical multi-residential buildings one with the New Tax incentive and the other without, will inevitably chose the one with the New Tax incentive due to the benefit of tax savings which extends for a 35 year period and which increases the overall value of the property.

51The Board accepts the argument presented by MPAC that the new tax premium adds value and increases marketability of the entire subject property in the open market and therefore the NT premium of 18% has been properly applied.

Determination of Current Value

52The Board finds that the best method to determine the current value of the subject property is based on the Income approach to value. The Board finds that the suggested comparable properties submitted by MPAC and located at 11 Boulton Avenue and 3885-3891 Bloor Street West with valid sales meet this criterion. The current value in this instance shall be determined using the established formula, previously described, i.e. CV = GPI x GIM.

Sales GIM

53The Board finds that the sales GIM resulting from the two similar properties submitted by MPAC is 13.13.

54The Board also finds that the appropriate GPI, that is, the potential income that the subject property is able to generate is $237,348.

55The Board therefore finds that the current value of the subject property is (13.13 multiplied by $237.348) $3,116,379.

MPAC’s calculated GIM

56The Board accepts MPAC’s calculated GIM using the Base GIM of 10.26 combined with the other legitimate factors including the NT adjustment to arrive at a GIM of 12.50.

57The Board notes that MPAC’s calculated GIM is lower than the sales GIM of 13.13.

58The Assessor agreed to accept the Appellant’s estimate of Gross Potential Income of $231,300 coupled with the MPAC’s calculated GIM resulting in a Current Value of $2,891,250.

Equity with Similar Lands in the Vicinity

59The 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.

60Neither party neither submitted any evidence nor requested any adjustment on the basis of equity.

CONCLUSION

61The Board finds that the current value of the subject property is $3,116,379.

62The Board also finds that no adjustment is required for equity.

63The Board notes that during the hearing, MPAC agreed to use the Appellant’s estimate of GPI of $231,300 combined with MPAC’s calculated GIM of 12.50 thus resulting in a current value of the subject property at $2,891,250. The Board further notes that the Appellant has refused the Assessor’s offer; however, the offer remains in effect. The Board based on the Assessor’s offer therefore reduces the assessment from $3,477,000 to $2,891,250 for the 2013, 2014 and 2015 taxation years broken down as follows:

• Taxation Year 2013:

  • Industrial: from $1,154,000 to $ 0
  • Residential: from $1,391,000 to $ 997,500
  • Commercial: from $ 932,000 to $ 540,000
  • New Multi-Residential $ 1,353,750
  • Total: from $3,477,000 to $2,891,250

• Taxation Year 2014:

  • Residential: from $1,391,000 to $ 997,500
  • Commercial: from $ 932,000 to $ 540,000
  • New Multi-Residential: from $1,154,000 to $ 1,353,750
  • Total: from $3,477,000 to $2,891,250

• Taxation Year 2015:

  • Residential: from $ 970,821 to $ 997,500
  • Commercial: from $ 887,264 to $ 540,000
  • New Multi-Residential: from $1,618,915 to $1,353,750
  • Total: from $3,477,000 to $2,891,250