Grantchester Developments Limited v. Municipal Property Assessment Corporation, 2016 CanLII 29990

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: May 19, 2016 FILE NO.: WR 139544

Assessed Person(s): Grantchester Developments Limited Appellant(s): Grantchester Developments Limited and Scott Lecky Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 01 Respondent(s): City of Cornwall

Property Location(s): 691 Brookdale Avenue, Unit 1-7 Municipality(ies): City of Cornwall Roll Number(s): 0402-060-003-00900-0000 Appeal Number(s): 3001443, 3070265 and 3143640 (deemed 2016 appeal) Taxation Year(s): 2014, 2015 and 2016 (deemed appeal) Hearing Event No.: 622644

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

Heard: April 12, 2016 in Cornwall, Ontario

APPEARANCES:

Parties	Counsel+/Representative
Grantchester Developments Limited	Glen Lucas+
MPAC	Stephane Rozon+
City of Cornwall	Brad Maloney

DECISION OF THE BOARD DELIVERED BY JACQUES LAFLAMME

INTRODUCTION

1The subject property is classified as commercial (CT) and consists of a one storey commercial mix use plaza having 28,500 square feet of leasable area situated on an irregular shaped lot of 353,707 square feet or 8.12 acres. The land is zoned Community Commercial Shopping Centre (“CCSC”). The original building was built in 1988 with an addition in 1994. The entire concrete block building with front and side brick veneer, has a height of 14 feet. MPAC used the income approach to valuation to determine the current value of the subject property.

2MPAC submits that the January 1, 2012 current value for the subject property is $3,539,000. This value is used for the 2014 and 2015 tax years.

ISSUE

3The Assessment Review Board (“Board”) must determine the subject property’s current value for the 2014 and 2015 taxation years and, once that is done, adjust the subject property’s current value assessment to make it equitable with that of similar lands in the vicinity if such an adjustment would result in a reduction of the assessment.

DECISION

4The Board confirms the current value assessment of $3,539,000 for the 2014 and 2015 taxation years. The Board also finds that the current value assessment is equitable with the assessment of similar properties in the vicinity.

REASONS FOR DECISION

Position of MPAC

5The assessor, Diane McKinnon, appearing as witness for MPAC, indicated to the Board that the total assessment was made up of two components. The Income Approach was used for the leasable area of the building and the “Direct Sales Comparison” approach was used to value the excess land.

6Ms. McKinnon submitted one exhibit only. Exhibit 1 is MPAC’s valuation report. This report contains a property description, maps, property history, plot plans, a picture of the subject property, a listing of three built on sold properties which she deems to be comparable, an income analysis for the subject property as well as a valuation based on the Direct Comparison Approach.

7Stephane Rozon, an advocate with MPAC, summed up MPAC’s presentation by providing the Board with the following Authorities:

Cardinal Plaza Ltd. et al. v. Regional Assessment Commissioner, Region No. 19 et al. (1984), 1984 CanLII 1841 (ON CA), 49 O.R. (2d) 161, using economic rents rather than actual rents.

872039 Ontario Inc. v. Municipal Property Assessment Corp., Region No. 15 [2015] O.A.R.B.D. No. 274 WR 134986A before Member Skanes heard on September 23, 2015, held that Fair Market Rents (“FMR”) were to be used for valuation.

Position of Appellant

8Glen Lucas, an advocate from Property Tax Review Services introduced Scott Lecky as a witness. Mr. Lecky, one of the owners of the subject property, submitted Exhibit 2.

9Exhibit 2 is a report which contains a reworked statement of income and expenses for the years 2011, 2012 and 2013 for the subject property, an unaudited statement of Loss and Deficits for the years 2011, 2012 and 2013 and a separate current value calculation for the years 2011, 2012 and 2013. Also included is a listing of tenants and their respective rents dated January 2011 and April 2012.

10Mr. Lecky stated that he disagreed with the current value of the property for the following reasons.

11Although the property is located on the busiest arterial route in Cornwall, a good portion of the building faces south which reduces the visibility of commercial/retail tenants.

12Mr. Lecky does not consider this property as a “neighborhood shopping centre” and stated that it was a challenge to rent.

13He also stated that he did not consider his property comparable to the three comparable properties brought forward by MPAC because of the only “one way going north” road access to the property and the fact that the subject property faces the “International Bridge” linking Canada to the USA which in his opinion reduces the visibility of his property.

14He stated that there was a vacancy problem.

15Mr. Lucas then introduced Garth Allen, a Licenced Paralegal as a witness for the appellant. Mr. Allen submitted Exhibit 3. Exhibit 3 contains a listing of four commercial vacant land properties that were offered for sale in December 2013 on the City of Cornwall Promoting Development website. None are actual sales. Mr. Allen stated that he could not find any vacant land sales in the area, but that real estate listings would suggest a lower value than what MPAC had applied on the excess portion of the valuation. Mr. Allen stated in an email sent to Ms. McKinnon of MPAC on March 22, 2016: The attachment “City of Cornwall Low Land Costs” recognizes a somewhat depressed economic situation in Cornwall, and is a clear enticement for prospective commercial developers to locate in Cornwall. There was also a December 2013 rental listing from the subject property.

The Legislation

16The following provisions of the Assessment Act (“Act”) instruct the Board in appeals of this nature.

17Section 1 of the Act defines current value as follows:

“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.

18Section 19.(1) of the Act states:

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

19Section 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.

20Section 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.

21Section 44.(3)(a) and (b) 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.

The Board’s Analysis - Current Value

22Under the Act the Board is required to do three things:

1. Find the current value of the property.
2. Make reference to the value of which similar lands in the vicinity are assessed.
3. Adjust the assessment of the subject property if the adjustment will result in a reduction in the assessment.

23All parties agree that the “highest and best use” of the property is the existing use and for the continued use as a mix use building. All parties also agree with the property profile and description as stated by MPAC.

24There are two valuation components to this property. The first issue is to deal with the value of the building (leased premises) and the second component is the excess land.

25The Income Approach to valuation is used on this property as is the case for all similar type properties. All parties agree that this approach is the proper one and gives the best indication of current value. The Board agrees.

26A fair market rent (“FMR”) was applied to this property. The FMR is based on averaging rents of similar type properties in a given area. That is the method used by MPAC and upheld by the Court of Appeal in the Cardinal Plaza case. The appellants on the other hand argued that the actual rents should be used. The Board will use the FMR as applied by MPAC because the FMR method was upheld in the Ontario Court of Appeal.

27MPAC used a capitalization rate of 9.5%. Although Mr. Allen from Property Tax Review Services neither agreed nor disagreed with that rate, he used MPAC’s cap rate of 9.5% against the actual rents for his valuation. The Board therefore accepts the cap rate of 9.5%.

28A vacancy rate of 10% and an expense rate of 5% were used to value this property as is the case with all similar properties. No study was provided to the Board that would discredit the numbers used by MPAC. Mr. Lecky stated in his evidence that there was a 20% vacancy rate in 2011. When the Board asked for clarification as to where it would find such a figure in Exhibit 2, Mr. Lecky replied that it was a statement only and he did not show it anywhere in his evidence. Mr. Lecky also stated that for the taxation year 2014 he had 660 square feet of vacant space and in December 2015 had a further 1,415 of vacant space. This total 2,075 square feet of vacant space is out of a total 28,500 leasable area which represents 7.2%. This is not abnormal nor is it chronic considering the dates that the space became vacant.

29The Board heard in evidence during cross-examination of Ms. McKinnon that in order for MPAC to allow a greater vacancy allowance, the vacancy must be chronic which meant three to five years. The appellant has not demonstrated a chronic vacancy problem.

30MPAC submitted three sold properties that they considered comparable to the subject. Although Mr. Lecky and Mr. Lucas argued that the three properties were not comparable to the subject property because they had better visibility and were more on a retail strip, they supplied no comparables to the Board for consideration. The Board notes that all three MPAC comparables and the subject property are valued as “Neighbourhood Shopping Centres”, all have some mix use e.g. retail and office, all valued using the income approach with a capitalization rate of 9.5% and all four properties are on main arterial routes. The Board therefore considers MPAC’s comparables to be good comparables.

31The three comparables, none of which have excess land, are valued on average at $121.67 a square foot. They sold for on average at $117.76 a square foot. The subject property’s leasable area is valued at $99.24 per square foot not including the excess land. This equates to $2,828,411. The Board confirms the current value assessment of $2,828,411 for the leasable area.

32The Board now turns its attention to the excess land value. All parties agree to the area as calculated by MPAC for the excess land. MPAC stated that the value of the excess land ($711,000) was arrived at by sales, however, submitted no sales or studies.

33Mr. Allen from Property Tax Review Services submitted in Exhibit 3, a listing of four vacant land properties that are for sale as of December, 2013. The Board notes that these are listings and not sales, taken from a website “Promoting Development within Cornwall”. Although the Board finds these listings interesting, it assigns very little weight to listings.

34The Board is also aware of an email dated March 16, 2016 from Mr. Allen to Ms. McKinnon (found in Exhibit 1) where Mr. Allen is suggesting what current value he is willing to accept. His calculation is based on actual rents for the leasable areas and uses the excess land value as determined by MPAC. The Board has not been given any sales from either party from which to base a finding of current value for the excess land.

35The Board will confirm the current value assessment of $711,200 for the Commercial Excess Land.

36Based on the evidence, the Board confirms the total current value assessment of $3,539,000.

Equity

37The Board had reference to the assessments of similar properties in evidence to try to discern if the current value determined is fair and equitable relative to those assessed values. The Board requires evidence that many similar properties are assessed at a lower level than the subject property in order to warrant an equity adjustment under s. 44.(3)(b). MPAC presented to the Board three sold properties. The Board compared the current value assessments to the sales of the three sold properties, the median assessment to sales ratio was 0.96. This means that MPAC is slightly under assessing the neighbouring properties. There is no indication to indicate that this property does not benefit equally from this undervaluation.

38None of the parties addressed the equity analysis in their valuation reports.

39The Board therefore finds that the subject property’s current value assessment is equitable with the assessments for similar lands in the vicinity.

2016 DEEMED APPEAL

40An 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.

41Section 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.