Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: September 2, 2016

FILE NO.: WR 140342

Assessed Person(s): 700 Mohawk Road East Inc.

Appellant(s): 700 Mohawk Road East Inc.

Respondent(s): City of Hamilton

Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 19

Property Location(s): 700 Mohawk Road East

Municipality(ies): City of Hamilton

Roll Number(s): 2518-070-641-00010-0000

Appeal Number(s): 3136527 and 3136528

Taxation Year(s): 2013 and 2014

Hearing Event No. 620729

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

Heard: April 21, 2016 in Hamilton, Ontario

APPEARANCES:

Parties	Counsel⁺/Representative
700 Mohawk Road East Inc.	Harold Barnett
MPAC	Don Mitchell
City of Hamilton	No one appeared

DECISION OF THE BOARD DELIVERED BY DIRK VANDERBENT AND JOSEPH WYGER

INTRODUCTION

1700 Mohawk Road East Inc. (“the Appellant”), appealed the 2013 and 2014 taxation year assessments of a 43 unit apartment building located at 700 Mohawk Road in Hamilton (“the subject property”) pursuant to s. 40 of the Assessment Act, R.S.O. 1990, c. A. 31 (“Act”). These appeals were heard on May 13, 2014 and a decision was issued by the Board on September 4, 2014 (see Board File No: WR 125429) (“the Original Decision”).

2A request to review that decision was made by MPAC on the grounds that the Board made an error of law or fact with respect to the application of the equity provision in s. 44(3)(b) of the Act, on the basis of using a Gross Income Multiplier (“GIM”), instead of having reference to the value at which similar lands in the vicinity are assessed. The Associate Chair granted a re-hearing solely related to the equity issue, and further confirmed that the finding in the Original Decision respecting current value will stand and cannot be re-argued.

3The current value of $2,947,000, determined by the Members in the Original Decision, is not in issue. In every appeal the Board is required to have reference to the values at which similar lands in the vicinity are assessed, to see if that correct current value is inequitable. The issue before the Board is to determine the best evidence for making that reference: the GIMs employed to arrive at the current values of the subject property and similar properties, or an equity study featuring the assessment to sale ratios (“ASR”) of other apartment buildings.

DECISION

4The Appellant has failed to demonstrate that having a different GIM than other apartment buildings in Hamilton has resulted in a current value that is not equitable. The ASR evidence is the best evidence in this case. That evidence confirms that the correct current value, as determined by the Members in the decision under review, is equitable relative to the assessed values of similar lands in the vicinity.

REASONS FOR DECISION

MPAC’s Position

5MPAC’s assessor, Jennifer Bouchard, stated that in its mass appraisal analysis there are three market areas in the vicinity of the subject property: market area #4037, in which the subject property is located, and market areas #4036 and #4038, both of which are geographically adjacent to #4037 and to each other. MPAC maintains that, due to their location, current values of multi-residential properties located in market areas #4037 and #4038 are higher than those located in market area #4036. This is reflected in MPAC's calculations as a higher GIM applied to buildings in those market areas by reason of a higher GIM applicable in those areas.

6Donald G. Mitchell advanced the position that the GIM is used only to achieve current value, and it is not appropriate for calculating an equity adjustment. He maintained that inequity can only be determined by reference to whether similar lands are assessed at their current values. Only if similar lands are assessed at a level below their current values can the Board make a finding of inequity, and an equity study employing ASR, is the best evidence to make that determination.

7The assessor also provided an equity study that compared assessed values with the sale prices of 14 multi-residential properties in the area. Both the median and the average ASR of these properties was 1.0, signifying that MPAC’s assessment model for properties like the subject reflects market values. Ms. Bouchard testified, and Mr. Mitchell argued that since similar properties were assessed at their correct current values, equity was achieved for the subject apartment building.

The Appellant’s Position

8The representative of the Appellant, Harold Barnett, argued that the subject property is, in fact, similar to multi-residential properties in market area #4036. He referred to three comparable properties located in market area #4036, all of which are assessed at a lower current value than the subject property. Mr. Barnett asserted that each of these three comparable properties are of the same general nature, character and function, and that each of these properties are geographically located in such close proximity to the subject property that anyone would say that it is inequitable to suggest that the subject property should be assessed at a higher current value than these comparable properties.

9Mr. Barnett countered Mr. Mitchell’s stance on equity, pointing out that the Act does not say how equity can be determined, and evidence other than an equity study is permissible where such evidence is sufficiently compelling. He submitted that his evidence of a lower GIM being used for other apartment buildings in a nearby neighbourhood, that he says is the same market, is inequitable to the Appellant. Mr. Barnett made comparisons between his building and those other multi-residential properties and insisted there was no good reason for them to be assigned a GIM of 7.6 while his property was assigned a multiplier of 8.09. He requested a reduction in the assessment of 5.9%.

Legislation

10Section 19. (1) of the Act states:

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

11Section 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.

Analysis

Evidence

12Evidence respecting MPAC’s mass appraisal method was adduced by Mr. Barnett, who submitted a document authored by MPAC entitled “Multi-residential – 2012 Base Year - Market Parameters – St. Catherines, Hamilton, Brantford – Assessment Standards and Mass Appraisal Department – March 2013” (“MPAC’s Mass Appraisal”). It is unnecessary for the Board to provide a detailed description of this method, other than to confirm that it is based on a statistical regression analysis based on market sales. MPAC’s Mass Appraisal examines the relationship between property sale prices and the incomes of the properties, based on 669 sales across Southwestern Ontario over a five year period. The product of this analysis identifies the GIM which is essentially the sale price of a property divided by the gross income. A typical feature of such statistical analysis is that it identifies a “base” GIM (in this case reflecting a typical walk-up in an average location, where the base GIM is calculated as 7.78). In determining the correct GIM for a particular property, the “base” GIM is then adjusted to reflect the following factors: type of building, condition of building, size of the building (number of residential units), age of the building, and location.

13MPAC’s market analysis resulted in the following GIMs for market areas #4306 and #4037:

LOCATION	HIGHRISE (120 UNITS)	WALK-UP (16 UNITS)	TOWNHOUSE (10 UNITS)
NB4036	7.65	7.58	9.08
NB4037	8.14	8.06	9.65

14Mr. Barnett also adduced an email he received from MPAC dated November 13, 2015, albeit not in respect of the subject property, which analyzes the median GIM for market areas #4306, #4307, and #4308 (the “November 2015 Analysis”). . This analysis examines the median GIM predicted by MPAC’s Mass Appraisal versus the median GIM based on property sales from 2010, 2011 and 2012 for these three market areas. The information provided in this analysis is shown in the following table:

LOCATION	MEDIAN GIM BASED ON APPRAISAL METHOD	MEDIAN GIM BASED ON MARKET SALES
#4036	7.75	7.55
#4037/#4308	8.4	8.34

15The purpose of a mass appraisal analysis is to arrive at a model, which is essentially a mathematical equation that will accurately predict the current value for all properties on the valuation date, irrespective of whether they have been the subject of an actual sale occurring on or close to the valuation date. The question, therefore, is how accurate is the model? To assist in this determination, MPAC conducted an analysis of properties in the area which had been the subject of a sale, comparing the assessed value of each of these properties (i.e. the value predicted by the model) to actual sale price. This comparison is mathematically expressed as a ratio, which is commonly referred to as an ASR. If the assessed value is the same as the sale value, then the ASR is equal to one. If the assessed value is less than the sale price, the ASR will be less than one. Conversely, if the assessed value is higher than the sale price, the ASR will be more than one. Typically, a median or average ASR in the range from 0.95 to 1.05 from a representative sample of similar properties is considered to indicate that assessed values accurately reflect the level of sales.

16MPAC’s ASR analysis is based on sales of 14 properties: 12 are located in market area #4036, one property is located in market area #4037 (the same as the subject property), and the remaining property is located in market area #4308. The ASRs for the 14 properties range from a low of 0.83 to a high of 1.14, with the median ASR being 1.00, and the mean ASR being 1.01. The use of a mathematical average or median can be misleading if the data values being analyzed are unevenly scattered across a range of values. For this reason, in non-mathematical terms, it is necessary to determine how many of the fourteen individual ASRs are clustered close to the median or average value. This is mathematically calculated, and is described as the co-efficient of dispersion (“COD”). A low value for the COD means a lower dispersion, or scattering of the data, which indicates that most of the data are clustered close to the average ASR. In this case, the COD is 5.4, which indicates that the ASR for each of the sale properties is relatively closely clustered around the average ASR value. The import of a low COD is that it indicates that the average ASR fairly represents all the ASRs as a group.

17In MPAC’s ASR analysis, the ASR for the property located in market area #4037 is 1.02 and the ASR for the property located in market area #4038 is 1.01. In MPAC’s November 2015 Analysis, the applied GIMs for these two properties are 8.01 and 8.04, respectively.

18Mr. Barnett relies on three multi-residential properties, all located within market area #4036, within an approximate range of one to two km of the subject property. He asserts that these comparison properties are similar to the subject property. Using MPAC’s assessment data for each of these properties, including MPAC’s determination of the GIMs (7.61, 7.66, and 7.61), the Appellant calculates the median GIM for these three properties as 7.61.

19The evidence includes a description of how each of these comparison properties are either the same, in terms of their general nature, character or function of their physical attributes, or in fact, are superior in some ways to the subject property.

20Mr. Barnett notes the difference between a GIM of 7.61, and the GIM of 8.09 used for the subject property, is 5.90%, leading to his request for a reduction by the same percentage.

Equity

21Mr. Barnett is correct that the Board is empowered to consider making an equity adjustment on evidence other than equity studies featuring ASRs, where that evidence demonstrates that the correct current value is inequitable. Ms. Bouchard conceded this point on cross-examination. While a convincing equity study is the best evidence for that purpose, s. 44.(3)(b) does not restrict the Board to referencing only similar lands that have recently sold, or only to an ASR analysis. In this case, MPAC has provided a convincing equity study of fourteen properties with ASRs in a relatively tight range, or low COD.

22Mr. Barnett’s evidence and argument relating to differing GIMs is not better evidence for the purpose of considering whether an equity adjustment is warranted. The simple fact that properties are valued using different GIMs does not, in and of itself, demonstrate inequity. The onus is on MPAC to demonstrate that a particular GIM results in a correct current value. Any challenge to the correct current value, including any components that went into it, must be made when arguing the correctness of the current value. The current value has been established by the Board, and is not under review at this hearing, thus the component parts leading to that current value including the GIM are necessarily correct. Equity does not require that those component parts be equalized for all similar properties.

Equity Case-Law

23Mr. Barnett provided a lengthy and thoughtful review of the Board’s authority to make equity adjustments. He did not disagree that an ASR equity study is a means to prove or disprove inequity. He correctly wrote however that “the words of the Act do not require such evidence.” He notes that the Board has on many occasions properly found inequity in the absence of an equity study “where the appellant’s evidence was sufficiently compelling.”

24Mr. Barnett quoted from the leading case of Re Empire Realty Co. Ltd. and Assessment Commissioner for Metropolitan Toronto et al., 1968 CanLII 183 (ON CA), [1968] 2 OR 388 (CA). The Court states that the assessor’s work must “demonstrate to the ratepayer, objectively, that equity has been accomplished.” The problem with insisting that only ASRs can be used to determine equity is that the average ratepayer does not do an equity study looking at the ratios of sale prices and assessments of properties that sold nearby. The Board accepts Mr. Barnett’s submission that “clearly taxpayers do not have the resources or specialized knowledge to gather, prepare and analyze an equity study.” The average ratepayer compares his/her assessment to all of the assessments of similar properties in his/her neighbourhood. This is what is meant by having “reference to the value at which similar lands in the vicinity are assessed”.

25The Board takes the view that the “value at which similar lands in the vicinity are assessed” is simply the assessed value assigned to those lands by the assessing authority. We continue to have difficulty understanding MPAC’s view that the “value at which similar lands are assessed” means the current value, but only a current value that can be corroborated by a sale. Mr. Mitchell’s contention is that one can only determine inequity where similar properties are not assessed at their current values, which can only be proven by equating current values to actual sales. This eliminates a reference to the returned assessed values, at which a great majority of similar properties are assessed, because they have not sold.

26MPAC interprets the phrase “the value at which similar lands in the vicinity are assessed” as a mathematical abstraction that requires two elements: first, the current value as defined only by the sale of the property; and second the returned assessment of that property. All the Act says is “the value at which similar lands in the vicinity are assessed.” The Board is not prepared to read in such a ratio calculation as a requirement for having reference to the value at which similar lands are assessed. This issue has now been decided by the Divisional Court in Municipal Property Assessment Corp. v. Schumacher, 2016 ONSC 3239 at para. 18: “Section 44(3)(b) does not specify any particular methodology.”

27Mr. Barnett referred to some Board cases in support of his position:

1063341 Ontario Ltd. v. Municipal Property Assessment Corp., Region No. 09, [2007] OARBD No. 78 (WR 52281)

28This was a case in which Mr. Barnett points out that the Board used the assessment of an unsold comparable property for determining the assessment, and “was not dissuaded by the fact that the best comparable had not been market tested.” The Board notes that the Member in that case was not persuaded by MPAC’s superior comparable properties valued using a higher GIM, and essentially reduced the current value using the lower GIM of a more similar inferior property. The key point to consider here is that the Member corrected the current value of the subject property to give it equivalency to the best comparable, and not as an adjustment for equity. This is in keeping with the Board’s view that calculations and adjustments to components of value such as the GIM ought to be restricted to the current value determination, but does not assist the Appellant.

805395 Ontario Ltd. v Municipal Property Assessment Corp., Region No. 22, [2013] CarswellOnt 15319

29This was a case Mr. Barnett characterized as a Member using the GIM and per unit values of comparators that had not sold to achieve equity. In the decision, under Deliberations of the Board, the Member devoted two sentences to the current value determination, accepting “MPAC’s evidence with respect to current value”, which included GIMs and assessed values per unit. The Member then embarked on an eight paragraph consideration of equity and concluded with an equity adjustment that employed a lower value per unit and lower GIM.

30This panel of the Board does not agree with several elements of this decision. The first is with using valuation methods, such as value per unit or GIM, in a consideration of what is equitable under s. 44(3) of the Act. Equity is not a valuation methodology. All of these calculations ought to be employed in the current value determination. The second is to do an equity adjustment without first making a finding that the correct current value is inequitable. The third is to conclude that calculating an average of the values per unit of similar properties either demonstrates or cures an inequity in the correct current value of the subject property. This panel does not consider this decision as being a good example of how to make a finding of inequity in the absence of sales evidence.

2002556 Ontario Inc. v Municipal Property Assessment Corp., Region No. 13, [2014] CarswellOnt. 2659 (“2002556”)

31This was a decision that Mr. Barnett presented in support of his contention that an equity analysis need not be restricted to properties that have been recently sold. He quoted the example from that decision of identical homes or condos being assessed at a significantly lower level than the identical subject property for no evident reason, not requiring any sales or ASRs to discern inequity. In that case, the appellant sought an equity adjustment based on a comparison of the fair market rent (‘FMR”) commanded by similar buildings. The Member agreed with the appellant in that case that s. 44(3)(b) does not restrict the equity reference to the relatively small subset of properties that sold near any given base year. However, the Board declined their invitation to consider an equity adjustment based on any single component of the income approach, such as an FMR. The Board correctly used the FMRs in evidence to calculate a correct current value for the property in question, and not for the purposes of equity.

32The conclusion in that case has application to Mr. Barnett’s submissions. The Member stated: “If one accepts that FMR must be equitable, then the same should apply to the capitalization rate, vacancy expense and expense ratio. I do not consider it an appropriate use of the required reference to assessments, to extend it to measure the equity of components that go into the income approach and insist they all be the same.”

33The Board extends that thinking to the GIM as well. Market valuation elements such as multipliers, FMRs, and all the other component parts of any particular valuation methodology ought to be restricted to the current value determination. It was not the intention of the legislature, nor is it in keeping with the concept of equity, for the Board to embark on a separate valuation exercise under the heading of equity. In a market value system, the correct current value is the primary goal. To reduce that correct value to an incorrect value requires a clear finding that the correct value offends the principles of equity.

The Original Decision – WR 125429

34The first decision that was cancelled in part was presented to the Board, and it was clear that Mr. Barnett made the same argument at that hearing: that the market within which his property is located is not the same as the market containing buildings with higher GIMs. In that case, the Board said that the locational differences highlighted by Mr. Barnett were not significant and that “the Board finds the best evidence of current value is Ms. Bouchard’s eight sales and that the median GIM of 8.08 indicates that the subject property’s GIM of 8.09 is likely correct.” The Board determined the current value to be the assessment as returned of $2,947,000 and this panel is directed to accept that conclusion.

35The panel then proceeded under the heading “Equity Analysis” to disparage the same equity study that this panel finds quite convincing. That panel refers to time-adjusted ASRs of 1.00 and 1.01 and states that: “It is reasonable to conclude that the January 1, 2012 assessments reflect the sale values rather than indicating MPAC is assessing similar properties in the vicinity correctly.” This panel of the Board takes the view that assessments of similar properties that reflect sale values do in fact suggest that those similar properties, and others by inference, are being assessed correctly.

36The Board in the initial hearing went on to consider some comparable properties with lower GIMs and applied that lower GIM without making a finding that the correct current value, which it had just determined, was actually inequitable. They quote from 2002556 that “other methods of determining equity must be sufficiently persuasive to permit a finding of inequity”, but they do not make such a finding of inequity. The panel also referenced the sales of two properties and determined that they support the lower GIM of 7.61. But this only shows that those two properties are assessed at their correct current values. The subject property is not inequitably assessed if it is assessed using the GIM that is correct for it. The Board accepts Mr. Mitchell’s submission that the GIMs do not have to be the same for all similar properties, they just have to be correct. There is equity if each property is correctly assessed.

37The Board’s equity analysis in the Original Decision was sent for re-hearing because an analysis of the appropriate GIM to employ, including the sales behind them, have no place in an equity analysis. Those issues ought to be restricted to the current value calculation. Further, the fact that the current values of other properties are determined using a different GIM does not mean that the correct current value of the subject property is inequitable. The Board accepts Mr. Mitchell submission that for these properties to be considered similar to the subject property, it must be demonstrated that the properties with lower GIMs are assessed lower than they should be, below their correct current values. Mr. Barnett has not shown this to be the case, as the ASRs suggest otherwise. We infer that assessments calculated using GIMs that are corroborated by later sales support the GIM that was utilized. The convincing equity study, showing MPAC’s assessment model reflecting the market in different neighbourhoods, supports the correctness of the different GIMs used in those different neighbourhoods. To equalize market-based GIMs across different neighbourhoods, in the face of that evidence, could have the counter-productive effect of creating inequity between properties that ought to have different GIMs.

CONCLUSION

38The GIM leading to current value is a valuation concept. Section 44(3) of the Act, applies the judicial concept of equity, in the sense that it seeks to remedy a wrong, or to assuage the unfair result of the application of the provisions of the Act. The strict written law in the Act requires land be assessed at its current value. If that current value can be shown to be inequitable when compared to the assessed values of similar properties in the vicinity, the Board is empowered to remedy that inequity by reducing the assessment to a value that is less than its current value. Equity does not require a separate valuation using different current value components. A clear finding of inequity must be made on a reference to the overall assessed values of similar properties in the vicinity. In this case, those overall assessments may have been determined using different GIMs, but that, in and of itself, does not demonstrate inequity. The Board concludes that no inequity has been demonstrated and no equity adjustment is warranted. The assessment is confirmed at $2,947,000.