Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: May 26, 2016 FILE NO.: WR 139149

Assessed Person(s): United Church of Canada Appellant(s): City of Sarnia Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 26 Respondent(s): City of Sarnia

Property Location(s): 1094 London Road Municipality(ies): City of Sarnia Roll Number(s): 3829-300-021-19800-0000 Appeal Number(s): 3124028 and 3159167 (deemed 2016 appeal) Taxation Year(s): 2015 and 2016 (deemed appeal) Hearing Event No.: 610930

Legislative Authority: Sections 32 and 40 of the Assessment Act, R.S.O. 1990, c. A.31, as amended

Heard: February 23, 2016 in Sarnia, Ontario

APPEARANCES:

Parties	Representative
City of Sarnia (Appellant)	Gaetano Tudino
United Church of Canada	No one appeared
MPAC	John Taraborrelli

DECISION OF THE BOARD DELIVERED BY MARILYN SHARMA

INTRODUCTION

1The subject property is situated at 1094 London Road in Sarnia and is owned by the United Church of Canada (“UCC”).

2The business affairs of this property are vested with the Trustees of High Park United Church (“the Trustees”).

3The Trustees, as landlords, leased the lands to Sarnia High Park Developments Ltd. under a ground lease commencing March 1, 1994 and ending February 28, 2033.

4Sarnia High Park Developments Ltd. is a Commercial Business entity engaged in the business of, among other things, constructing buildings (including office buildings), leasing and building-maintenance activities.

5Sarnia High Park Developments Ltd., consistent with its business mission, constructed a single tenanted office building on the property which it leased to the Ministry of the Environment and Climate Change (“MOECC”) – Sarnia District Office.

6The MOECC Sarnia District Office is a government entity. It leased the office building from Sarnia Developments Ltd. to provide services to the public.

7The subject property was in the Commercial Tax Class since it was built in 1994.

8Sarnia High Park Developments Ltd. has been and continues to be the only entity responsible for paying the property taxes for the subject property.

ISSUE

9The subject property has been in the Commercial Tax Class since it was built in 1994. In 2015, MPAC issued a Post Roll Amendment Notice (“PRAN”) changing the tax classification of the subject property from commercial to residential. The reason for the change is that MPAC believes that the property was incorrectly placed in the Commercial Class by virtue of the exemption provided to the church in s. 32.(1) (1.1) of the Assessment Act (“Act”). The City of Sarnia (“City”) objects to the change in classification and appealed to the Assessment Review Board (“Board”) seeking a reinstatement of the Commercial Tax Classification for this property.

DECISION

10The Board concludes that the evidence presented does not support the action taken by MPAC to change the Tax Classification of the subject property from the Commercial Class to the Residential Class and is inconsistent with the requirement of the Act.

11The Board finds that the correct Tax Classification of the subject property is Commercial.

12Accordingly, the Board reverses the classification of the subject property from the Residential to the Commercial Tax Class for the 2015 taxation year.

REASONS FOR DECISION

The Legislation

13Ontario Regulation 282/98 (“O. Reg. 282/98”) s. 3.(1)2 iii states:

Residential Property Class

3.(1)2 Land not used for residential purposes that is,

iii. land owned by a religious organization other than land occupied by a tenant and used for a commercial activity,

14O. Reg. 282/98 s. 5.(1)1 states:

Commercial Property Class

5.(1) The commercial property class consists of the following:

1. Land and vacant land that is not included in any other property class.

15Section 32 of the Act states:

Correction of errors, etc., in assessment roll -

32.(1) Despite the delivery of any notice provided for under this Act, the assessment corporation at any time before the time fixed for the return of the assessment roll may correct any defect, error, omission or misstatement in any assessment and alter the roll accordingly.

Same, factual error only

(1.1) Despite the delivery of any notice provided for under this Act, for 2009 and subsequent taxation years, the assessment corporation may, at any time during the taxation year, correct any error in the assessment or classification of a property that has resulted from incorrect factual information about the property, and not from a change in opinion as to current value, and the following rules apply:

1. If the land is located in a municipality, the clerk of the municipality shall alter the tax roll upon receiving notice of the correction, and the municipality shall,

i. refund or credit to the owner the amount of any overpayment of taxes and any interest paid by the owner on the amount of the overpayment, or

ii. levy and collect from the owner any additional taxes that have become payable as a result of the correction.

The Facts

16The UCC is the owner of the subject property.

17The Trustees, entered into a lease agreement with Sarnia High Park Developments Ltd. to lease the land for a term commencing on March 1, 1994 and ending on February 28, 2033.

18Sarnia High Park Developments Ltd. (the tenant of the church) is a Commercial Business entity that is engaged in the business of, among other things, constructing buildings (including office buildings), leasing and building maintenance activities.

19Sarnia High Park Developments Ltd. constructed a single tenant office building on the subject land in 1994 and from that time onwards the building was placed in the Commercial Tax Class on the property tax roll.

20Sarnia High Park Developments Ltd. is solely responsible for and continues paying the property taxes.

21The UCC is not responsible for paying any portion of the property taxes.

22Sarnia High Park Developments Ltd. leased the building to the MOECC, Sarnia District Office.

23In 2015, MPAC, on its own initiative and based on its interpretation of s. 3.(1)2 iii of O. Reg. 282/98, issued a PRAN changing the tax classification of the subject property from the Commercial Class to the Residential Class.

24The City did not agree with the change and filed an appeal with the Board objecting to MPAC’s action to change the property tax class from commercial to residential.

25Neither the UCC nor Sarnia High Park Developments Ltd. was present at the hearing.

MPAC’s Submission

26MPAC, in 2015 issued a PRAN changing the tax classification of the subject property from the Commercial Class to the Residential Class by invoking s. 32.(1) (1.1) of the Act.

27MPAC argues that:

i. The property is owned by the UCC and is leased to the MOECC – Sarnia District Office and in MPAC’s opinion the MOECC, Sarnia District Office is not carrying on a commercial operation.

ii. The correct tax class for the property is residential and MPAC relies on s. 3.(1)2.iii of O. Reg. 282/98 which states that the Residential Class applies which states:

Land not used for residential purposes that is: land owned by a religious organization other than land occupied by a tenant and used for a commercial activity.

iii. The land is owned by a religious organization (the UCC) and that the tenant, the MOECC, Sarnia District Office is not occupying the land for commercial activity but as a government office.

iv. MPAC’s Property Valuation Analyst stated that in his opinion the use of the property by the MOECC Sarnia District Office as a government office is not considered a commercial activity.

v. MPAC concludes that because of the above-mentioned, as well as having regard to and s. 3.(1)2.iii of O. Reg. 282/98, the property qualifies for inclusion in the residential tax classification.

City’s of Sarnia’s Submission

28The representative for the City, Gaetano Tudino argues that the correct property tax class for the subject property is commercial as per s. 5.(1)1 of O. Reg. 282/98.

29The City position is that the subject property should rightly remain in the Commercial Tax Class for the following reasons:

• The owner of the property, (the UCC) entered into a ‘ground lease’ arrangement with the developer Sarnia High Park Developments Ltd.
• The lease came into force on March 1, 1994 and ends on February 28, 2033 and identifies Sarnia High Park Developments Ltd. as the tenant of the land.
• One of the most significant aspects of a ‘ground lease’ is that it allows the development company to independently develop the land and maintain a clear separation from the ownership of the land and the improvements constructed on the land. In other words, Sarnia High Park Developments Ltd. could independently undertake development of the land and can, among other things, construct a building and make other improvements to the land, undertake business activity allowed by the lease, maintain the building and its facilities without the UCC having any role in the decision-making process of Sarnia High Park Developments Ltd., or management control or ownership of the structure and facilities constructed on the property by Sarnia High Park Developments Ltd.
• Sarnia High Park Developments Ltd. constructed an office building on the property, maintains the office building and leased the office building to the MOECC Sarnia District Office for use as government offices.
• The MOECC Sarnia District Office entered into a lease arrangement with Sarnia High Park Developments Ltd. and not with the UCC.
• The business undertakings of Sarnia High Park Developments Ltd. are entirely commercial.
• The intent of s. 3.(1)2.iii of the O. Reg. 282/98 is to provide religious organizations with a tax benefit for certain types of non-residential properties that can be included in the residential tax class if certain specific conditions are met.
• The City of Sarnia stated that: (a) It accepts that the property is owned by a religious organization; (b) However, the land is occupied by a tenant and used for commercial activity and therefore does not qualify to be classified as residential; (c) The land lease between the UCC and Sarnia High Park Developments Ltd. represents the only tenant arrangement with the church; (d) The development of the Office Building, the ownership of the building, the maintenance and control of the building are strictly under the control of Sarnia High Park Developments Ltd. independent of the lease arrangement with the UCC;
• The City argues that the exemption in O. Reg. 282/98 s. 3.(1)2.iii allowing a property to be in the residential class does not apply to the subject property since the exemption only applies to:

land owned by a religious organization other than land occupied by a tenant and used for commercial activity (emphasis added).

30The City argues that the above condition is not present with the subject property since it is occupied by a tenant and is used for commercial activity. The City believes that this disqualifies the subject property from receiving the benefit intended in Regulation 3(1)2.iii.

Board’s Analysis

31The Board is not persuaded by MPAC’s argument that the land in question is owned by a religious organization and used by a tenant for non-commercial activities which qualifies the property to be placed in the Residential Tax Class. The Board does not doubt that the land remains in the ownership of the UCC, however, the Board is of the view that the effective control and use of the land was transferred to the developer, Sarnia High Park Developments Ltd. via a long term ground lease and the said lease identifies Sarnia High Park Developments Ltd. as the tenant. Further, the evidence supports the fact that High Park Developments Ltd. is a commercial business entity and by virtue of the lease arrangement is the tenant.

32The Board is of the view that the only agreement with the religious organization, the UCC, is with Sarnia High Park Developments Ltd. and that the UCC stands separate and apart from the business relationship between Sarnia High Park Developments Ltd. and the MOECC, Sarnia District Office.

33The Assessor, John Taraborrelli contends that the MOECC Sarnia District Office is not occupying the building for commercial activity but as a government office and further argues that the services being provided by the MOECC is not commercial. The Board does not agree with Mr. Taraborrelli’s view that the activities at the MOECC, Sarnia District Office cannot be considered “commercial” since it was not dealing with the public at this office. The Assessor was not able to provide the Board with what he believes should be the appropriate class into which the government services being provided by the MOECC, Sarnia District Office should be placed.

34The Board considered the claim in Mr. Taraborrelli’s submission that “The subject property is owned by the United Church of Canada and is leased to the MOE Sarnia District Office…………..”. The Board agrees that the property is owned by the UCC; however, the evidence presented shows that the UCC does not have any business relationship with the MOECC, Sarnia District Office.

35The Board is of the view that the benefit prescribed in s. 3.(1)2.iii of the O. Reg. 282/98 is intended to benefit religious organizations only. There is no provision providing for the transferability of such a benefit to a third party via any means whatsoever and by placing this property in the residential class would be transferring the tax benefit afforded to the UCC to Sarnia Developments Ltd. which is not the intention of the legislation.

36The Board finds that Sarnia Developments Ltd. is a commercial entity, it occupies the subject lands as a tenant under a long term ground lease and such lands are being used for commercial activities such as office buildings.

37The Board also finds that the ground lease arrangement between the UCC and Sarnia Developments Ltd. effectively separates the ownership of the land from ownership of the building on the land and any improvements thereon. The Boards finds that this condition reinforces the Board’s position that the favorable tax benefit is only applicable to and retained by the religious organization – in this case, that is the UCC.

38In addition, the Board finds no justification to MPAC’s suggestion that government services are not considered as commercial activities.

39The Board accepts the arguments by the City that the services being provided by the MOECC, Sarnia District Office are commercial in nature and in fact.

CONCLUSION

40The Board concludes that the evidence presented does not support the action taken by MPAC to change the Tax Class of the subject property from the Commercial Class to the Residential Class and is inconsistent with the requirement of the Act.

41The Board finds that the correct Tax Classification of the subject property is Commercial.

42Accordingly, the Board reverses the classification of the subject property from the Residential to the Commercial Tax Class for the 2015 taxation year.

2016 DEEMED APPEAL

43An 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.

44Section 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.