Mark Huzevka v. Municipal Property Assessment Corporation Region 26, 2016 CanLII 19391

Assessment Review Board

ISSUE DATE: April 6, 2016 FILE NO.: WR 139093

Assessed Person(s): Innovative Engineering Management Appellant(s): Mark Huzevka Respondent(s): Municipal Property Assessment Corporation ("MPAC") Region 26, City of Sarnia

Property Location(s): 2109 London Line Municipality(ies): City of Sarnia Roll Number(s): 3829-100-004-07700-0000 Appeal Number(s): 3110028 and 3159191 (deemed 2016 appeal) Taxation Year(s): 2015 and 2016 (deemed appeal) Hearing Event No.: 610930

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

Heard: February 23, 2016 in Sarnia, Ontario

APPEARANCES:

Parties	Representative
Innovative Engineering Management	Mark Huzevka
MPAC	J. Sokol-Kennedy
City of Sarnia	No one appeared

DECISION OF THE BOARD DELIVERED BY MARILYN SHARMA

ISSUE

1The Appellant believes that MPAC has over-assessed his property by not properly taking into account the higher vacancy rate that persists as well as expenses.

DECISION

2The Assessment Review Board ("Board") finds that the current value of the subject property, as of the valuation day January 1, 2012 is $371,419.

3Further, the Board finds no further reduction is required under s. 44.(3)(b) of the Assessment Act ("Act").

4At the start of the hearing the Assessor indicated that MPAC made an offer to reduce the assessment of the subject property to $297,000. The Appellant refused the offer, however, the Assessor indicated that the offer still remains in effect. The Board accepts MPAC's recommendation and reduces the assessment from $416,000 to $297,000 for the taxation year 2015.

5Accordingly, the assessment of the subject property as at the valuation day, January 1, 2012 is reduced from $416,000 to $297,000 for the 2015 taxation year.

DESCRIPTION

6The subject property consists of two single-storey buildings which were formerly used as Municipal offices and a police station but is now used as general offices.

7The buildings were constructed in 1956 and 1959 with additions in 1976, 1987 and 1988.

8The buildings are situated on a site comprising 2.29 acres and having a road frontage of 342.44 feet on London Line which is a major thoroughfare in the eastern outskirts of Sarnia.

9The buildings have been occupied by engineering firms over the years along with a few smaller tenants.

10The Appellant stated that the former police station building located at the east end of the lot is comprised of typical office space but attracts a lower rent compared to the main building due to its location and exterior aesthetic appeal.

11The main building consists of typical office space though it is divided into several additions.

12There is abundant parking capacity on the west and south side of the property.

13The current value assessment for the subject property is $416,000 as per the Board's record.

14The Assessor indicated that MPAC offered to reduce the assessment for the taxation years 2015 and 2016 to $297,000; however the Appellant has refused this offer and elected to appear before the Board.

The Legislation

15Section 19.(1) of the Act states:

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

16Section 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.

17Section 19.2(1) states:

Valuation days

19.2 (1) 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.

Exception

(5) Subsection (1) does not apply in respect of the valuation of land for a taxation year after 2004 if the Minister prescribes a different day as of which land is valued for that year.

18Section 40.(17) 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.

19Section 40.(19) states:

40.(19) Board to make determination. – After hearing the evidence and the submissions of the parties, the Board shall determine the matter.

20Section 40.(26)(b) 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,

(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.

21Section 44.(3) 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.

Current Value

22Under the Act, the Board is required to do two things in determining the amount for which the assessment should be made:

(1) Section 44.(3)(a) requires the Board to determine the current value of the land.

(2) Section 44.(3)(b) of the Act requires that the Board 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.

The Board's Analysis

MPAC's evidence

23The Assessor informed the Board of the following:

i. In 2013 the value of the subject property was reduced to $470,000 through the Request for Reconsideration process.

ii. In November 2014 at a Board Hearing the vacancy rate for the subject property was adjusted to 25%.

iii. As a result of the adjustment of the vacancy rate, the assessed value of the property was reduced from $470,000 to $340,000.

24The Assessor further stated that MPAC has taken into account that vacancy continues to be problematic and as a result she has applied MPAC's highest allowable vacancy allowance (30% of Gross Potential Income ("GPI")) together with MPAC's highest allowable expense allowance of 15%.

25The Assessor informed the Board that when the higher vacancy rate and higher expense allowances were applied to the subject property, it resulted in a revised assessed value of $297,000 for the 2015 and 2016 taxation years which she believes to be reasonable.

26The Assessor provided eight suggested comparable properties as shown in Table 1:

Table 1

MPAC's Suggested Comparable Properties

Addresses	Fair Market Rent per sq. ft.	CAP Rate (%)	Zoning
2109 London Line (subject property)	$3.25 - $4.50	10.5	Local Commercial
251 Exmouth Street	$7.50	10.0	Office Commercial
265 Exmouth Street	$7.50	10.0	Office Commercial
1433 London Road	$8.50	10.0	Commercial Centre
301 Front Street, North	$7.50	10.0	Downtown
117 Front Street, North	$7.00	10.0	Downtown
373 Vidal Street, South	$3.00 - $4.25	10.0	Heavy Industrial
509 Vidal Street, South	$3.50 - $4.50	10.0	Heavy Industrial
900 Vidal Street, South	$3.00	10.5	Heavy Industrial

27The Assessor stated that in order to arrive at Fair Market Rents ("FMRs"), MPAC utilizes both the actual rents of the subject property as well as rents of comparable properties in the neighborhood.

28The Assessor further stated that a comparison of the existing lease rates ranging from $3 to $8.50 per square foot for the comparable properties suggests that the rate of $3.25 and $4.50 per square foot for the subject property is correct.

29The Assessor added that MPAC has, in this case, deducted the highest percentages allowable for vacancy and non-recoverable operating expenses at 30% and 15% respectively.

30The Assessor pointed out that in her view the current value of $297,000 for the taxation years 2015 and 2016 is reasonable since it was arrived at by using the highest allowances of 30% and 15% for vacancy and expenses and a GPI (using FMRs of $3.25 and $4.50 for the subject property) combined with a Capitalization Rate of 10.5. She added that the FMRs used are at the lower end of the scale of values.

Appellant's Evidence

31The Appellant stated that he has for over two years listed the property for rent at $2 and $1.50 per square foot However, the property remains vacant.

32The Appellant presented three scenarios to demonstrate that the assessed value arrived at by MPAC is too high. In Scenario I, the Appellant used a value of $2.74 per square foot which he claims is the actual rent in 2012 and arrived at an assessed value of $198,517.18. In Scenarios (II) and (III), the Appellant used a net rent per square foot of $1.50 and $1.25 which he claims are the most realistic rents that could be obtained in the current market and these result in assessed values of $108,595.14 and $90,495.95 respectively.

33The Appellant provided several photographs of the comparable properties submitted by MPAC in an attempt to show that they were not comparable to the subject property.

34The Appellant also provided an invoice and a photograph of a signboard at the property showing that the property is available for rent.

Analysis of MPAC's Evidence

35The Board accepts four of the eight suggested comparable properties because, like the subject property, they are all classified as commercial properties; and rejects the three that are classified as heavy industrial.

36The Board has reviewed the evidence submitted by MPAC and finds that MPAC has given full consideration to the Appellant's situation in regards to the allowances for vacancy and expenses. In fact, the Board accepts the Assessor's testimony that MPAC has applied the maximum amounts allowable for such allowances.

Analysis of Appellant's Evidence

37The Appellant did not provide any suggested comparable properties for the consideration of the Board.

38The main submission of the Appellant is the "Sensitivity Analysis" which he submitted showing three scenarios he developed to arrive at the current value of the subject property. The Board considered the information in the "Sensitivity Analysis". However, it rejects the outcome arrived at by the Appellant since the analysis is based on speculation and not facts.

39The Board is satisfied that the Income Approach to value is the appropriate methodology to determine the current value of the subject property. The Board finds that the results of the Appellant's calculations in the Sensitivity Analysis he prepared is based on speculation and is inconsistent with the income approach to valuation. The Board is of the view that the Appellant has failed to recognize that the Income Approach involves capitalizing the net operating income that a property is capable of generating and not its actual rental income.

Board's Analysis - Determination of Current Value

40Under the Act, the Board is required to determine the current value of the land.

41The Board agrees that the best method to determine the current value of the subject property is based on the Income Approach to Value. The Board holds the position that the fact that a property remains vacant in whole or in part for an extended period of time does not diminish the value of the property. The Board notes that the property retains its intrinsic value regardless whether it is rented or not and the Income Approach to value reinforces this concept because the property's net operating income is premised on the income that the property is capable of generating and not on its actual income.

42The Board has reviewed the FMR of the four suggested comparable properties that have been accepted by the Board as comparable to the subject property and notes that the FMRs range from $7.50 to $8.50 per square foot.

43The Board also notes that MPAC has utilized a FMR for the subject property of $3.25 and $4.50 per square foot which is substantially lower than those of the comparable properties. The Board agrees with the Assessor that the lower rents of the subject property takes into account the various issues raised by the Appellant.

44In arriving at the FMR of the subject property the Board averages the lowest value of the range of the FMR of the four comparable properties ($7.50) and the lowest value of the range for the subject property ($3.25). This results in an average FMR of $5.38 per square foot.

45When the average FMR of $5.38 per square foot is utilized together with the application of the highest allowances for vacancy rate and expenses and a capitalization rate of 10.5%; it results in a current value of $371,419.

46The Board finds that the current value of the subject property is $371,419 (rounded).

Equity with Similar Lands in the Vicinity

47As mentioned above, s. 44.(3)(b) of the Act requires that the Board 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.

48Neither party presented evidence or arguments in regards to the value of similar lands in the area. The Board therefore finds no further adjustment is required under s. 44.(3)(b) of the Act.

CONCLUSION

49The Board finds that the current value of the subject property, as of the valuation day January 1, 2012 is $371,419.

50Further, the Board finds no further reduction is required under s. 44.(3)(b) of the Act.

51At the start of the hearing the Assessor indicated that MPAC made an offer to reduce the assessment of the subject property to $297,000. The Appellant refused the offer however the Assessor indicated that the offer still remains in effect. The Board accepts MPAC's recommendation and reduces the assessment from $416,000 to $297,000 for the taxation year 2015.

52Accordingly, the assessment of the subject property as at the valuation day, January 1, 2012 is reduced from $416,000 to $297,000 for the 2015 taxation year.

2016 DEEMED APPEAL

53An appeal for the 2015 taxation year is presently before the Board. Section 40.(26) of the Assessment Act 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 2015 appeal before March 31, 2016. For that reason, this decision also applies to the 2016 taxation year.

54Section 40.(26) of the Act directs:

Deemed appeals, 2009 and subsequent years

(26) 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.