Magna International Inc. v. Municipal Property Assessment Corporation, Region 15, 2016 CanLII 90737

Assessment Review Board Commission de révision de l’évaluation foncière

ISSUE DATE: December 21, 2016 FILE NO.: WR 142992

Assessed Person(s): 2074070 Ontario Inc. Trustee Appellant(s): Magna International Inc. Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 15 Respondent(s): City of Brampton

Property Location(s): 7655 Bramalea Road Municipality(ies): City of Brampton Roll Number(s): 2110-150-115-18150-0000 Appeal Number(s): 2956689, 3033327, 3082964 and 3154845 Taxation Year(s): 2013, 2014, 2015 and 2016 Hearing Event No.: 627882

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

Heard: September 19, 2016 in Brampton, Ontario

APPEARANCES:

Parties	Counsel⁺/Representative
Magna International Inc.	R. Brent King
MPAC	Robert Zamozniak
City of Brampton	Aida Karreman

Decision of the Board Delivered by Subuola Awoleri

Introduction

1The subject property is a purpose built automotive industrial facility with 27.12 acres, improved with a 259,707 square feet (“sq. ft.”) building, built in stages between 1968 and 2000, located in close proximity to highways 407 and 410. The subject property is landlocked with no direct access to any road. It benefits from an easement that runs through the abutting property at 7653 Bramalea Road.

2The returned assessment for the subject property for January 1, 2012 was $21,986,000, apportioned as:

Taxation Years	Large Industrial (excess land – “LU”)	Large Industrial (full – “LT”)
2013 - 2014	$6,307,512	$15,678,488
2015 - 2016	$3,432,338	$18,553,662

3The current value assessment (“CVA”) was determined using the cost approach to value.

Issues

4At the commencement of the hearing, the parties narrowed the issues before the Assessment Review Board (“Board”), which are:

• What is the value of the land?
• What portion of the subject property is excess land?
• What is the value of the structures and yardwork, specifically; the roof, sprinklers, electrical system and the heating, ventilation and air conditioning system (“HVAC”)?

5The parties agree that the cost approach to value is the appropriate evaluation methodology.

6In addition to determining these issues to arrive at the CVA for the subject property, the Board must determine if this assessment is equitable with that of similar properties in the vicinity.

7Todd Wilson, the assessor from MPAC, provided the Board with the revised CVA for the subject property as $18,950,000 apportioned as $15,160,000 – LT and $3,790,000 – LU.

8Chris Ratnasingham, an expert witness for Magna International Inc. (“Appellant”), submits that the subject property has been incorrectly assessed and the correct assessment should be $16,429,000 apportioned as $11,678,000 – LT and $4,752,000 – LU.

Decision

9The Board orders that the assessment be reduced from $21,986,000 to $18,451,387, for the 2013, 2014, 2015 and 2016 taxation years, apportioned as:

• $13,699,387 – LT
• $4,752,000 – LU

10The Board also finds that this assessment at current value is equitable with the assessments of similar lands in the vicinity; hence no further reduction is required to achieve equity.

Reasons for Decision

Legislation

11Section 44.(3)(a) of the Assessment Act (“Act”) requires the Board to “determine the current value of the land.” Current value is defined in s. 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, for the 2013, 2014, 2015 and 2016 taxation years, the Board must determine what the subject property would have sold for in an arm’s length transaction on the January 1, 2012 valuation day set by the Act.

12Section 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 land.”

Current Value - Evidence and Analysis

Land Value

13The Board accepts and agrees with the Appellant’s valuation method and conclusion as to the land value being $394,220 per acre.

14Mr. Wilson and Mr. Ratnasingham were both qualified as expert witnesses by the Board in assessing industrial buildings. The Board finds that they both provided independent evidence to assist the Board in reaching a determination in this appeal.

15Mr. Wilson provided a land value analysis in Appendix “D”, Exhibit 1 of his report. He presented six comparable sales. He testified that due to the unique nature of the subject property, there are lack of sales of large scale industrial properties within the vicinity in the 2012 CVA. Consequently, he had to expand the search to the Greater Toronto Area (“GTA”) and the six sales which he presented, he believes are the most comparable to the subject property. He further testified that the subject property is superior to the comparables due to its location in Brampton, and in addition to this, he states that the subject property is less than three kilometers to Pearson Airport and closer to Toronto, therefore it will attract a higher value. Mr. Wilson admitted under cross-examination that all the comparable sales are not landlocked. The six comparable sales have lot sizes ranging from 9.260 to 46.510 acres, with sale dates from December 7, 2011 to March 3, 2014 and sale prices from $4,646,000 to $34,250,000. Mr. Wilson applied the median of the time adjusted sale prices of these six sales which is $412,635 per acre against the lot size of the subject property to obtain the land value of the subject property as $11,190,661.

16Mr. Ratnasingham, submits that the subject property is landlocked with no direct access to any roads therefore making it less desirable in the market and it would make common sense that a landlocked parcel such as the subject property would sell for less than the value of a similar property with normal access. He testified that MPAC used Land Table 11 to value the subject property. He submits that all of MPAC’s comparable sales have access to the road, some are smaller than the subject property, and the sale most comparable to the subject property in terms of size at 20.290 acres is zoned as “prestige industrial” which indicates that the property has many uses which will attract a higher value than the subject property with limited use and no access. He further argues that some of the sales presented by MPAC are also distribution centers which are not comparable with the subject property. The subject property, Mr. Ratnasingham states, is an industrial lot and for the last two comparable sales, MPAC did not consider the demolition cost of these properties and they are not comparable to the subject property.

17Mr. Ratnasingham, submits that using MPAC’s comparable sales of properties with access, reveals that a property with no access should sell for a lower value. He submits that the next lower Land Table 12 should be used to value the subject property, in order to compensate for the landlocked nature of the subject property. Under cross-examination Mr. Ratnasingham, could not provide the Board with evidence that a landlocked property should have a lower land rate. Mr. Ratnasingham also added that three other properties owned by the taxpayer located less than four kilometers away from the subject property are assessed under Land Table 12, even though they are not landlocked. In Appendix “B”, Exhibit 5, of his report, he presented 15 assessments of properties, which were not sold, all within Brampton with the same property code as the subject property. He used the 2012 CVA of these properties to obtain the price per acre and used a chart to map out where the subject property should have been assessed and where MPAC assessed it at. According to Mr. Ratnasingham, using this chart, the subject property falls at the end of the trend line which is $394,220 per acre and provides a land value of $10,691,246 for the subject property.

18Neither party provided the Board with any evidence to quantify the value or rate to be applied to land locked parcels.

19The Board agrees with the Appellant that the six comparable sales presented by MPAC are different from the subject property in terms of lot size, zoning and location. The Board is cognizant of the fact that the subject property is unique and MPAC had to expand its search to obtain the sales it believes to be most comparable to the subject property. The Board accepts the expert evidence of Mr. Ratnasingham, that based on the balance of probability, it is more probable than not that if the sales of comparables with normal access utilized by MPAC in setting the land value of the subject property is $412,635 per acre, a parcel that is landlocked with poor access should sell for less as it would be less appealing in the market and should have a lower value than $412,635 per acre. The parties are not far apart in the amount per acre. Although the Board prefers sales of properties closer to the valuation date, in this case, the sales presented by MPAC cannot be said to be comparable to the subject property therefore, the best evidence in setting the land value of the subject property is the evidence presented by Mr. Ratnasingham. The subject property being landlocked with access by way of an easement would sell for less than the normal sales presented by MPAC. The Board sets the land value of the subject property as $394,220 per acre which provides a land value of $10,691,246.

Excess Land

20The Board accepts and agrees with the Appellant’s measurement and valuation of the excess land at the subject property.

21Mr. Wilson testified that he used an online digital measuring tool, ilookabout.com, to measure the excess land portion of the subject property as 8.36 acres, which provides an overall value of $3,790,000 in MPAC’s Automated Costing System (“ACS”). He further testified that the portions of land that the Appellant disagrees with MPAC as being excess land had been landscaped and that further upon inspection there are pathways along some of these portions of land that were intentionally built by the taxpayer.

22Mr. Ratnasingham, submits that MPAC had correctly assessed the excess portion of the subject property in 2013 and 2014 taxation years at 12.066 acres, but has incorrectly assessed it in 2015 and 2016 taxation years at 6.53 acres (presented at the hearing upon revision as 8.36 acres). He also testified that an online measuring tool was used and he obtained 11.52 acres, which is closer to MPAC’s initial assessment of 12.066 acres. To corroborate his argument, Mr. Ratnasingham presented Exhibit 6 which is the City’s Zoning by-law. Section 33.1.1. (h) provides:

“No storage shall be permitted unless in a rear or interior side yard and such storage shall be screened from view by a solid fence not less than 1.8 meters in height from a street, open space, and properties zoned in a Residential or Institutional category. No storage shall exceed the top of the solid fence”.

23Mr. Ratnasingham submits that it is typical for an auto plant to have outside storage for equipment, however, based on this by-law, there are no walls erected on these portions of the land in dispute, which reveals that they are not used as storage and therefore qualifies as excess land. Furthermore, he argues that the presence of a grass lawn with trees on some of these portions of the land does not mean they are landscaped and that the owner does not use these portions of land and therefore should qualify as excess land.

24In his summation, MPAC’s representative, Robert Zamozniak, provided the Board with one of its previous decisions cited as Torontario Properties Ltd., v. Municipal Property Assessment Corp., Region No. 9 [2005] O.A.R.B.D. No. 445 (Board File No. 41130) (“Torontario”), where Member Cowan decided that the excess portion of the subject property in question:

“…has been modified sufficiently to constitute development and hence use in some way”.

25Specifically he determined that:

“The lawn is grassed and obviously cared for. Logic leads the Board to conclude that this circumstance enhances the property’s street appeal. This leads to a further conclusion, on the balance of probability, that the rental use of the occupied portion is enhanced by the condition of the excess lands. In other words, the rents achieved for the office building would likely be less if the excess portion were unkept and in a natural condition”.

26R. Brent King, the representative for the Appellant, submits that in Torontario, the subject property under appeal is an income producing property and that the view of an office building is more important than that of an industrial property.

27The Board agrees with Mr. King. The subject property in Torontario, is an office building and as correctly determined by Member Cowan “the rents achieved for the office building would likely be less if the excess land portion were unkept and in a natural state.” This is different from the subject property in this appeal, which is an automotive industrial facility. It is less likely that the appearance would be an integral factor for a purchaser when compared to an office building. The fact that the owner keeps the grass cut does not equate to usage. As elicited in Mr. Ratnasingham’s evidence, there are no walls erected outside to presume usage as storage. MPAC has not been able to discharge their onus of proving use of these portions of land on the subject property, therefore, on the balance of probability, it is more probable that the owner is not utilizing these portions of the subject property and therefore it qualifies as excess land. The Board therefore determines that the excess portion of the subject property measures as 11.52 acres with the value as provided by Mr. Ratnasingham as $4,752,000 (rounded).

Value of Structure and Yardwork: Roof Cover, Sprinklers, Electrical system and HVAC

28The Board accepts MPAC’s method of depreciating and valuing the roof, sprinklers, electrical and HVAC systems, and its valuation of these components.

29Mr. Wilson testified that upon inspection of the subject property, the costing components were verified and updated in MPAC’s ACS. He provided a revised net value for the subject property’s structures and yard work components as $7,991,141, less $231,000, which is the cost to repair portions of the roof. Upon inspection, he also added to ACS approximately 7,200 sq. ft. of structure which was missed in the initial assessment. He provided the revised structure and yardwork value of the subject property as $7,760,141.

30Mr. Ratnasingham testified that MPAC had not accounted for deferred maintenance as part of functional obsolescence. He testified that “a willing buyer will not pay for the depreciated value of the existing structural components (as a result of deferred maintenance) if the cost of fixing the problem is greater than the value of what is there”. Mr. Ratnasingham identified the amount of $2,421,000 on ACS as the remaining depreciated deferred maintenance on the roof cover, sprinklers, HVAC and electrical system. In Appendices G to K of Exhibit 5 of his report, Mr. Ratnasingham provides third party quotes of the cost to fix the deferred maintenance by a new owner, and he obtained a total value of $7,874,000. He submits that “the cost to fix the deferred maintenance is higher than the value of the existing items, a willing buyer will not pay a seller, the depreciated deferred maintenance value of $2,421,000”, since the willing buyer will be paying more to fix the problem. Consequently, the willing buyer will not pay the depreciated deferred maintenance value of $2,421,000. In Appendix “N” of Exhibit 5, Mr. Ratnasingham provides an ACS which takes into account the deduction for the deferred maintenance and provides a total value of the building and yardwork as $5,738,596.

31The Board will now examine the structural components in dispute:

The Roof

32Upon inspection, Mr. Wilson testified that the owner had set up tarps inside the building to catch water that leaked through the roof. The owner had provided quotes to repair the roof. Mr. Wilson testified that he used only the quote to repair the roof and not a total replacement of the roof, since the roof still exists, the 2011 quote from the Appellant to repair the roof was $231,000, which MPAC utilized and imputed into ACS. He stated that the ACS value for the roof is approximately $1,000,000 deducting the cost to repair of about $231,000, provides a net value of the roof as approximately $700,000 and that in 2016 a brand new roof would cost approximately $2,108,288 and MPAC has already depreciated the roof by over 60%.

33Mr. King emphasized to the Board that the roof cover and not the entire roof was in dispute. Mr. Ratnasingham submits that the roof has no value to it, and that the value in use is different from the market value. The Appellant’s witness Rae Deris, a Facility Engineer, at Magna International Inc. since April 2015, who was not qualified as an expert witness by the Board, testified that the roof has deteriorated beyond repairs and that the damage to the roof cover has started to affect some of the structures in the building like the walls and the roof deck. Mr. Deris further testified that this issue has been ongoing for about 10 to 15 years.

The Sprinklers

34Mr. Wilson further testified that the depreciated state of the sprinklers was also taken into consideration in his assessment. He submits that a brand new sprinkler in 2016 will cost approximately $500,451; the subject property’s sprinklers were revised to $236,925 in ACS. Mr. Ratnasingham submits that the sprinkler in the subject property needs to be upgraded. Mr. Deris testified that the sprinklers were unworkable and; not functioning properly, however, by law, Magna is not allowed to completely shut down the sprinklers.

The HVAC

35According to Mr. Wilson, a brand new HVAC will cost $1,119,594, MPAC provided a value of $512,737 for the subject property’s HVAC. He further testified that upon inspection he recognized that majority of the HVAC units were not functioning and has factored this into the value thus providing the lowest rate. Mr. Ratnasingham in Appendix “I”, Exhibit 5 of his report provides a replacement quote of $1,450,000 for the HVAC. He however admitted under cross-examination that some of the HVAC units were working. Mr. Deris testified that 90% of the HVAC units were not functioning and thus were abandoned and that 42 to 46 were not in use out of 50 to 58 units and stated that they had obtained three quotes to replace the HVAC units. He emphasized that the HVAC units are in such a deplorable state that it reaches an almost unbearable temperature for the employees.

The Electrical System

36Mr. Wilson testified that a perfect electrical system in 2016 will cost $819,686 according to the ACS. MPAC assessed the electrical system at the subject property at $520,087. He further admitted that this system has depreciated over time as some of the buildings were built in 1968. Mr. Deris testified that the condition of the electrical system in the subject property is deteriorating and it is rendering the machinery useless and does not have the total capacity to empower the machinery. However, under cross-examination he admitted that Magna International Inc. still uses the facility.

37Mr. Deris states that overall, a percentage of the system in the subject property is not operational and that the reason why Magna International Inc. has allowed these elements to deteriorate to this stage was due to lack of funds and that at a point the plant was going to close, due to the ongoing issues in the building.

38The cost approach to value takes into recognition what it would cost to replace the subject property with an alternative that has the same use. Thus, the current value of the subject property will be the value of the subject land and the depreciated value of the buildings on it. The assessor considers the cost of constructing a new property and takes into recognition the depreciated value in the buildings and will adjust the depreciated value in the cost to replace to provide the current value of the property. Assessors usually consider the physical deterioration, functional obsolescence and economic obsolescence.

39Mr. Wilson provided the value of what it would cost to replace each of the structural components at issue between the parties and had further rightly considered the depreciated value of these components in ACS to provide the value of these structures. According to Mr. Wilson, the roof was depreciated by approximately 60%, the sprinklers by 53%, the HVAC by 54%, the electrical system by 37%. This reflects the cost approach to value. Conversely, Mr. Ratnasingham argues that MPAC did not account for deferred maintenance as part of functional obsolescence. He further submits that for all the four structural components at issue, a purchaser will not pay the depreciated value when the cost to fix the problem is greater, despite the fact that Mr. Deris testified that just a percentage of these structures were not operational and Magna International Inc. is still operating in the subject property despite the deteriorating state of the subject property. Obviously, the subject property is still in use.

40Mr. Ratnasingham’s argument creates the opportunity for the owner to benefit from deferred maintenance. This will be an incorrect application of the cost approach to value. According to Mr. Ratnasingham, the value of the deferred maintenance should be deducted from the cost to replace, in addition to the depreciation value which has already been deducted by MPAC. This would accrue as a double benefit to the taxpayer. Mr. Ratnasingham further argues that the depreciated value is value in use to the owner which is distinct from market value, that the purchaser will pay more to replace the structural components and therefore will not pay the depreciated value. These structural components at issue cannot be said to have zero value since they are all still in use by the owner albeit their poor state, and the subject property is still in use by the owner. MPAC has correctly utilized the cost approach to value to recognize the depreciate value of these structural components in ACS and applied it to obtain the value of these structures. The Board accepts the general principle that taxpayers ought not to benefit from their own neglect with respect to maintaining the property.

41The revised value of the building structure and yardwork, on the balance of probability is as provided by Mr. Wilson in Appendix “D”, Exhibit 1 of his report as $7,991,141 less the cost of repairing the roof as provided by the Appellant as $231,000, thus providing a revised value of $7,760,141; adding this to the subject property’s land value of $10,691,246, provides a current value for the subject property as $18,451,387, apportioned as:

• $13,699,387 – LT
• $4,752,000 – LU

Equity Analysis

42Section 44.(3)(b) mandates and directs that after determining current value, the Board shall have reference to the value at which similar lands in the vicinity are assessed to determine whether the subject current value is not equitable relative to those assessed values. The Assessment to Sale Ratio (“ASR”) is a tool often used to determine if a reduction in the assessment below current value is required to make an assessment equitable with the assessments of similar lands in the vicinity.

43There is no evidence before the Board that would support a finding that the current value is inequitable compared to the assessed values of similar lands in the vicinity.

Conclusion

44Based on all of the evidence, the Board determines the current value to be $18,451,387 and finds this value to be fair and equitable. Consequently, the Board reduces the subject property’s returned assessment from $21,986,000 to $18,451,387 for the 2013, 2014, 2015 and 2016 taxation years, apportioned as $13,699,387 - LT and $4,752,000 - LU.