Britannia Yacht Club Inc. v. Municipal Property Assessment Corporation, 2016 CanLII 21211

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: April 14, 2016

FILE NO.: ID 135386

Assessed Person(s): National Capital Commission and Britannia Yacht Club Inc.

Appellant(s): Britannia Yacht Club Inc.

Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region No. 03

Respondent(s): City of Ottawa

Property Location(s): 2777 Cassels Street

Municipality(ies): City of Ottawa

Roll Number(s): 0614-095-101-12600-0000, 0614-095-101-12700-0000, 0614-095-101-12701-0000

Appeal Number(s): 2994963, 2994861, 2994858, 3003828, 3006402, 3004941, 3071871, 3071580, and 3072586

Taxation Year(s): 2013, 2014 and 2015

Hearing Event No. 590931

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

Heard: September 25, 2015 in Ottawa, Ontario

APPEARANCES:

Parties	Representative
Britannia Yacht Club Inc.	Glen Lucas
MPAC	Stephane Rozon
City of Ottawa	No one appeared

INTERIM DECISION OF THE BOARD DELIVERED BY SCOTT McANSH

INTRODUCTION

1Britannia Yacht Club Inc. (the “Club”) is the operator of a non-profit recreational boating club that has existed on the shores of the Ottawa River since 1887. It has changed in scope and function over time and now exists as a marine basin for the mooring of ships with a clubhouse, tennis courts and related facilities. The clubhouse is on a separate parcel of land than those before me. There are three parcels of land before me that make up the remainder of the yacht club. Roll number 0614-095-101-12600-0000 (“12600”) and roll number 0614-095-101-12700-0000 (“12700”) are owned by the National Capital Commission and leased to the Club, while roll number 0614-095-101-12701-0000 (“12701”) is owned by the Club.

2MPAC argues that the parcels should be assessed as they were returned. 12600 was returned with a value of $782,000, with $363,000 in the residential property class and $419,000 set for payment in lieu of taxes. 12700 was returned with a value of $601,000 and 12701 was valued at $809,000. MPAC supported those values with various adjustments to commercial land values.

3The Club argues that the assessed values should be substantially less and put forward two proposed valuation methods: (1) an income approach using the leases the Club holds with the National Capital Commission; and (2) using the assessment to sales ratios of other property with similar development limitations.

4For the reasons set out below I find that the rent paid to the National Capital Commission is the best evidence of current value and that no adjustment is required for equity. As such, I reduce the assessment of 12701 from $809,000 to $75,000, I reduce the assessment of 12700 from $601,000 to $70,000 and I reduce the assessment of 12700 from $782,000 to $165,000.

Law

5Section 44. (3)(a) of the Assessment Act (“Act”) requires that I “determine the current value of the land.” Current value is defined in section 1 as “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.” That is, I must determine what the subject property would have sold for in an arms-length transaction on the relevant valuation day, set pursuant to s. 19.3 of the Act as January 1, 2012 for the 2014 and 2015 taxation years.

6Once I have determined the current value, s. 44(3)(b) requires that I “have reference to the value at which similar lands in the vicinity are assessed and adjust the assessment of the land” if that adjustment would lower the assessment.

Current Value

7MPAC presented a valuation of the Yacht Club based on a commercial land rate for the west end of Ottawa. They then removed 90% of the value from the portions of the properties that are under water. Finally, MPAC applied a 50% reduction to that value to reflect previous agreements between MPAC and the Club. I note that the reduction applied to the largest parcel, 12600, was 75% rather than 50%, and this was never explained.

8I do not accept MPAC’s valuation method. Firstly, as I will expand upon below, MPAC did not give adequate weight to restrictions on the site and it is difficult to accept that the site is properly valued at the standard commercial land rate. Second, MPAC did not adequately explain how land that is under water can maintain 10% of its commercial value. Finally, and most importantly, the reductions for previous agreements is not a factor that I can appropriately rely upon in determining the current value of the site. Recall that current value is what the property would likely have sold for on January 1, 2012. Previous agreements on what that value was for other valuation days is not useful in determining the current value here. Market evidence is the best evidence of value and previous compromises between the Club and MPAC are not market evidence. Parties come to an agreement for settlement purposes for any number of reasons that may or may not have to do with market evidence, including avoiding the cost of a hearing or plain expediency. For those reasons I do not rely on MPAC’s valuation methodology.

9The Club put a great deal of emphasis on the unique nature of the properties. They noted that the land is entirely within the floodplain of the Ottawa River and that development of the site is therefore restricted through the policies of the Rideau Valley Conservation Authority and Ontario Regulation 174/06. They also point to the restrictive zoning the City has placed on the site, O1H, in which the only permitted uses are a “marine facility” and a “recreational and athletic facility limited to a boating club.” They argue that these restrictions greatly decrease the resale value of the site and effectively argue that the only value is the value to the owner. The parties agree that even with these limitations the parcel is “the fee simple… unencumbered,” as government limitations on use can never be encumbrances. Rather, those limitations define the scope of the fee simple.

10MPAC strongly disputed the Club’s assertion that property in a floodplain suffers a decrease in value. They presented the sales of six properties in the floodplain in the Britannia Beach area of Ottawa to show that they are selling for near their assessed value. They also disputed that the construction limitations introduced by the Rideau Valley Conservation Authority in 2006 had much impact. Those limitations only permit construction on the site of an existing building with adequate flood mitigation. MPAC presented four properties in the floodplain will homes constructed in 2006 or later. MPAC did not present evidence of whether or not there were existing structures on those sites.

11I find it surprising that MPAC would dispute that the legal limits imposed by the Rideau Valley Conservation Authority and the City have no impact on value. The prohibitions set out in Ontario Regulation 174/06 are severe. Permission to construct in prohibited areas can be granted by a Conservation Authority pursuant to a regulation passed pursuant to s. 28(3) of the Conservation Authorities Act, RSO 1990, c C.27. The Rideau Valley Conservation Authority has published policies on that topic entitled Policies Regarding Development Including the Construction / Reconstruction of Buildings and Structures, Placing of Fill and Alterations to Waterways Under Section 28 of the Conservation Authorities Act of Ontario. The limits on development in that policy are clear and detailed. The limited uses in the City’s zoning also create barriers to other uses. I have no doubt that new development on the properties is severely limited and I find that those limitations have an impact on it value.

12To support a value for such a restricted site, the Club put forward five suggested comparable properties with severe use restrictions. They argued that the properties could not be directly compared, due to the unique configuration of each site, and therefore suggested that the assessment to sale ratio be used to indicate a value. I cannot accept that as an adequate method for determining value. The great increases in assessment to sale ratio does show that MPAC tends to undervalue properties with restricted use, but it does not indicate a value for the properties before me. In order to use the assessment to sale ratio, I must accept the returned assessment as a fair starting point. There is no indication that the site was valued in a usual way or that the returned assessment is a fair starting point. Any adjustments to that returned assessed value would also be suspect.

13The Club also put forward a valuation based on the rent the Club pays for the two parcels of land it leases from the National Capital Commission, 12600 and 12700. The Club is currently in the holdover period of a lease entered into in May 1990. The Club pays $1,746.40 per month, inclusive of HST, as total rent for both parcels. Without HST that amounts to $1,561.42 per month, or an annual rent of $18,737.04. MPAC argued that such a dated lease is not a fair indication of value. However, the Club provided evidence that its negotiations with the National Capital Commission are ongoing and hover around a value of $7,000 per year. They do not view rent as high as they are currently paying as remotely likely in any future lease agreement.

14I accept the rent payed for exclusive use of the parcels is a good indication of value. The National Capital Commission is a sophisticated party and would not give away rent that it could validly collect. The question is how to turn an annual rent of $18,737.04 into a present value for the January 1, 2012 valuation day. The Club suggests that using a capitalization rate of 9% is reasonable. MPAC argues that the capitalization rate should be in the 6.5% to 8% range, as that is their standard. Neither party provided a rationale or evidence for the capitalization rate chosen.

15A capitalization rate is a reflection of the risk of an investment. A higher rate of return is expected on investments that carry more risk. The Club has been on the site for over 100 years and is thus a very secure source of income for any potential purchaser. However, there are very few parties that can use the land as the Club does and that is likely the only use that is feasible. That smaller pool of potential renters increases the risk of the property from an investment perspective and could support a higher capitalization rate. It is my view that the unique limitations on the site make it a risky investment and support a capitalization rate at the high end of the range. I accept a capitalization rate of 8% as reasonable in all the circumstances.

16Applying a capitalization rate of 8% to the annual rent of $18,737.04 yields a value of $234,213 for the parcels 12600 and 12700. The Club suggested apportioning that value between those two parcels based on their size and I accept that as reasonable. 12600 is 14.73 acres and 12700 is 6.34 acres for a total area of 21.07 acres. 12600 is 69.91% of that total area so ought to be assigned that percentage of the value, which is $163,738. I would round that value to $165,000. The remainder is the value of 12700. That value is $70,474, which I would round to $70,000.

17The Club further argued that a ratio based on size was a reasonable to apply to the parcel they own, 12701. I accept that as well given its similar condition. 12701 has an area 1.038 times that of 12700. Applying that ratio to the value of $70,474 arrives at a value of $73,152, which I would round to $75,000.

18I find that the best evidence of the current value of the parcels before me is the application of a capitalization rate of 8% to the rent payed to the National Capital Commission for exclusive use of two of the parcels before me. That evidence indicates the current value of 12600 is $165,000, the current value of 12700 is $70,000 and the current value of 12701 is $75,000.

Equity

19The Act requires that I look to the value at which similar property in the vicinity is assessed and make an adjustment if the current value is inequitable. Neither party presented evidence that could assist with that determination. As such, I have no basis on which to make an adjustment for equity.

CONCLUSION

20I find the current value of 12600 is $165,000, the current value of 12700 is $70,000 and the current value of 12701 is $75,000. I further find that no adjustment is required to make those values equitable with similar properties in the vicinity. I therefore reduce the assessment of 12701 from $809,000 to $75,000 in the residential property class. I reduce the assessment of 12700 from $601,000 to $70,000 in the residential property class. Finally, I reduce the assessment of 12600 from $782,000 to $165,000.

21I heard no evidence on how 12600 ought to be apportioned between the residential property class and the payment in lieu of taxes designation. I order MPAC to provide the Club with a proposed apportionment for 12600 within 60 days of the release of these reasons. The Club will then have 30 days to respond to that proposed apportionment. At the expiry of those time periods the parties will either submit their agreed apportionment to the Board, or contact the Board to set a time to make submissions to me on that issue.