NHD Properties Limited v. Municipal Property Assessment Corporation, 2017 CanLII 27410

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: May 3, 2017

FILE NO.: WR 143742

Assessed Person(s): NHD Properties Limited

Appellant(s): NHD Properties Limited, Chohan Vinod

Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 15

Respondent(s): City of Mississauga

Property Location(s): 2025 2087 Dundas Street East

Municipality(ies): City of Mississauga

Roll Number(s): 2105-030-068-15100-0000

Appeal Number(s): 2984828, 3031230, 3085874 and 3153625

Taxation Year(s): 2013, 2014, 2015 and 2016

Hearing Event No.: 623031

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

Heard: August 15, 2016 in Mississauga, Ontario

APPEARANCES:

Parties

Representative

NHD Properties Limited, Chohan Vinod

Bill Donato

MPAC

Jonathan Langille

City of Mississauga

Sean Doyle

DECISION OF THE BOARD DELIVERED BY WARREN MORRIS

INTRODUCTION

[1] These appeals relate to the assessed value of a commercial plaza consisting of five free-standing buildings (two retail buildings and three office buildings containing tenanted units) with a total leasable area of 112,259 square feet (“sq. ft.”), on a lot of 6.61 acres located at Dundas Street East, west of Hurontario Street in the City of Mississauga (the “subject property”). MPAC returned an assessed value of $14,556,000 for the subject property which was apportioned into two property classes as follows:

• $9,686,000 - Commercial (Full) CT

• $4,870,000 - Shopping Centre (Full) ST

[2] MPAC used an income approach to support the assessed value. This entailed estimating the gross market income for the subject property, subtracting estimated operating expenses required to maintain the income stream, and then dividing by a capitalization rate derived from the sales of similar properties in the area. In order to determine a gross fair market rent for the property, MPAC grouped the units within the plaza into four categories: i) ground floor office, ii) standard retail, iii) premium retail, and iv) restaurant.

[3] Although the representative for the property owner, Bill Donato, agreed with MPAC’s general methodology (the income approach and the four categories of units), Mr. Donato did not agree with the figures used by MPAC to estimate income, expenses and capitalization rate. Mr. Donato believes the assessment is too high. Mr. Donato does not contest the apportionment between the two commercial classes as the designation does not impact tax rates.

[4] Prior to the commencement of the hearing, MPAC brought a motion for an order to bar Mr. Donato from acting as both an advocate and expert witness in the hearing of the appeals. The Assessment Review Board (the “Board”) heard submissions on the motion from both MPAC and the responding party, Mr. Donato. Following MPAC’s reply submissions, the Board recessed to consider the motion. The Board returned and delivered the motion decision orally, and then continued with the hearing of the appeals.

[5] At the completion of the hearing of the appeals, the Board reserved its decision.

MOTION HEARING

[6] MPAC, represented by paralegal Jonathan Langille, submitted a Notice of Motion seeking an order for the Board to bar the representative for the Appellant, Bill Donato, from acting as both an advocate and expert witness at the hearing of the appeals. Accompanying the motion was an Affidavit in support of the motion sworn by Christeen Mattat on August 9, 2016. Mr. Langille cited the Board’s Rules of Practice and Procedure (“Rules”) 11(2), which states:

(2) In the Standard Stream, no representative may be both advocate and witness, unless the Board orders otherwise, and the representative is not a lawyer appearing as counsel. If a representative (except a lawyer appearing as counsel) is applying to be both a witness and an advocate notice in writing must be given to the other parties no later than the time at which witness statements are exchanged.

[7] Mr. Langille stated that he was informed on August 4, 2016, by email that Mr. Donato, a paralegal licensed with the Law Society of Upper Canada, was acting on behalf of the Sobara Group of Companies (owner and operator of NHD Properties Limited) in regards to these appeals, and would also be providing expert evidence. A copy of the email exchange was included as Exhibit B to Ms. Mattat’s affidavit. Ms. Mattat’s affidavit also included a copy of the Appellant’s Statement of Issues, which was clearly prepared by Bill Donato “…Paralegal (No. P03329), Representative for NHD Properties Limited…”. Mr. Langille also provided a copy of Rule 4 of the Law Society of Upper Canada’s Paralegal Rules of Conduct which at Rule 4.01 describes the paralegal as advocate and their duty to clients, tribunals and others. Rule 4.04 states:

A paralegal who appears as advocate shall not testify or submit his or her own affidavit evidence before the tribunal unless

(a) permitted to do so by law, the tribunal, the rules of court or the rules of the tribunal, or

(b) the matter is merely formal or uncontroverted.

[8] Finally, Mr. Langille submitted the motion decision of Board Member Scott McAnsh, titled Municipal Property Assessment Corp., Region 21 v. Research in Motion, [2015] O.A.R.B.D. No. 171, issued June 23, 2015 (DM 132187), which upheld MPAC’s request to prohibit the Appellant’s representative from acting as witness in reliance on Rule 11(2) of the Board’s Rules. In closing, Mr. Langille submitted that Mr. Donato’s duties as an advocate conflict with his duties as an expert witness and therefore Mr. Donato should not be permitted to tender his own evidence.

[9] Mr. Donato’s submissions centered on his claim that Rule 11(2) of the Board’s Rules do not apply to the current situation because i) he was not providing legal services to the Appellant, ii) the Appellant was not his client, iii) he was not representing the Appellant and iv) the corporate Appellant was self-represented. Mr. Donato explained that he was an employee of the corporate Appellant with the job title Manager, Realty Taxation and as such, his employer was not his client. Further, he had no retainer agreement with his employer to provide legal services, and thus the Appellant could not possibly be his client. Mr. Donato noted that Rule 11(2) of the Board’s Rules does not categorically prohibit representatives acting in a dual capacity (i.e. advocate and witness) but rather, allows the Board to make an appropriate order on a case by case basis. Further, Mr. Donato noted that Rule 11(1) of the Board’s Rules permits a representative to act in a dual capacity in the Direct Stream, and therefore acting in dual capacity could not possibly be as prejudicial as MPAC intimates.

Decision on Motion

10The Board allows the motion in part by refusing to allow the representative for the Appellant (responding party to this motion) to be qualified to give evidence as an expert witness. However, the Board is prepared to exercise its power under Rule 11(2) to order that the Appellant’s representative be both witness and advocate at the hearing of the appeals.

11The Board takes issue with a number of assertions made by Mr. Donato during his motion argument. Firstly, the Appellant is not representing itself. Mr. Donato is not one and the same as the Appellant corporation. A corporation is an inanimate entity and therefore it is not physically possible for the corporation to appear in a hearing room. As such, a corporation necessarily requires an agent or other representative to appear on its behalf. Secondly, merely because Mr. Donato is an employee of the Appellant corporation without a formal legal retainer agreement does not mean that the corporation cannot be Mr. Donato’s client. Mr. Donato is a licensed paralegal and clearly created and presented legal documents in preparation for this hearing. In-house legal personnel routinely refer to their employer as their client. Given how Mr. Donato signed off on the Statement of Issues, it is disingenuous for Mr. Donato to claim that he is not representing his employer in the capacity as a paralegal. For these reasons, I do not accept Mr. Donato’s argument that Rule 11 does not apply for reason that the Appellant is self-represented, and not a client of the representative.

12The Board considered MPAC’s submissions regarding the conflicting roles of advocate and expert witness and agreed that the roles conflict. The Board considered the relative prejudice to each of the parties and particularly relies on Rule 2 of the Board’s Rules which states:

These Rules shall be liberally interpreted to ensure the just, most expeditious and least expensive determination of every proceeding on its merits. In applying these Rules, the Board shall make orders and give directions that are proportionate to the importance and complexity of the issues.

13Had the Board granted MPAC’s motion relief in full, the Appellant would not have been able to present any evidence and would have been highly prejudiced. There would be no opportunity to determine the matter of these appeals on their merits. Alternatively, the Board could have adjourned the hearing of the appeals to permit the Appellant the opportunity to either retain counsel, or prepare a separate witness. Or the Board may have adjourned to allow the Appellant to make a more formal application to the Board for an order to act as both advocate and witness as set out in Rule 11(2). Any of these options would have cost the parties both more time and money for having to make at least one more appearance before the Board and present further argument. Both parties were prepared to have the appeals heard immediately which was just, expeditious and the least expensive way to proceed.

14The Board finds that the Appellants representative is in breach of section 11(2) of the Board’s Rules. However, the Board has exercised its discretion to allow the Appellant’s representative to act as both witness and advocate in this case in order to achieve the most just, expeditious and least expensive hearing of the appeals.

THE APPEALS

Issue

15The issues are to determine the current value of the subject property, and to ensure that the current value is equitable relative to the assessed values of similar properties in the vicinity.

Decision

16The Board finds that the current value of the subject property is $12,504,000.

17Further the Board finds that there is no evidence before it leading to the conclusion that the current value, as determined above, requires an adjustment in accordance with s. 44.(3)(b) of the Assessment Act (“Act”).

18Accordingly, the assessment of the subject property for the 2013, 2014, 2015 and 2016 taxation years is $12,504,000. The apportionment to classification is as follows:

• $5,707,000 in the commercial class (CT)

• $6,797,000 in the shopping centre class (ST)

REASONS FOR DECISION

The Legislation

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

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

20Section 1 of the Act defines “current value” as:

“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.

21Section 19.2(1)3 of the Act states:

Valuation days

19.2 (1) Subject to subsection (5), the day as of which land is valued for a taxation year is determined as follows:

1. For the 2006, 2007 and 2008 taxation years, land is valued as of January 1, 2005.

2. For the period consisting of the four taxation years from 2009 to 2012, land is valued as of January 1, 2008.

3. For each subsequent period consisting of four consecutive taxation years, land is valued as of January 1 of the year preceding the first of those four taxation years.

Exception

(5) Subsection (1) does not apply in respect of the valuation of land for a taxation year after 2004 if the Minister prescribes a different day as of which land is valued for that year.

22Section 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.

Current Value

23The thrust of the Act is to rely on current value as the basis for assessed value. 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.” The best evidence of current value is the sale of the subject property on or close to the valuation day of January 1, 2012. In this case, no such sale occurred, and no sales of comparable properties were presented into evidence.

24Both parties use an income approach to value the subject property. This consists of a multi-step process that can be summarized in the following steps:

1. Estimating the total income that the subject property is capable of generating

2. Arriving at net operating income (“NOI”) by,

a. deducting appropriate amounts for vacancies and bad debts;

b. deducting the estimated total operating expenses required to maintain the income stream;

3. Selecting an appropriate capitalization rate based on market sales relative to NOI of similar properties in the vicinity;

4. Determining estimated value by dividing the property’s NOI by the appropriate capitalization rate (“CR”).

Current Value (CV) = NOI ÷ CR

25The parties disagree on the fair market rents (step 1), as well as the appropriate vacancies/bad debts (step 2a), expenses (step 2b) and capitalization rate (step 3). The evidence is summarized in the following chart:

MPAC

APPELLANT

FMR ($/sq. ft.) ground floor office x sq. ft.

= Total Annual FMR¹

$10.80 x 12,247 =$132,267

$10.00 x 46,087 = $460,870

FMR ($/sq. ft.) standard retail x sq. ft.

= Total Annual FMR²

$6.30 x 16,160 =$101,808

$6.30 x 45,894 =$289,132

FMR ($/sq. ft.) premium retail x sq. ft.

= Total Annual FMR³

$12.50 x 63,954 = $799,425

$12.50 x 16,938 = $211,725

FMR ($/sq. ft.) restaurant (office) x sq. ft.

= Total Annual FMR⁴

$22.45 x 2,627 = $58,976

$19.00 x 3,340 = $63,460

Subtotal – Gross rental income

$1,092,476

Retail: $500,857; Office: $524,330

(Total - $1,025,187)

Vacancies / bad debt rates

3%

3% for retail; 9% for office

Expense rates

2%

2% for retail; 5% for office

Net Operating Income

$1,037,852

Retail: $475,814; Office: $450,923

(Total - $926,737)

Capitalization Rate

7%

7% for retail; 8.5% for office

Subtotals

Retail: $6,797,342;

Office: $5,304,985

Value (NOI ÷ capitalization rate)

$14,826,468

$12,102,327

Position at hearing

$14,556,000 (as returned)

($9,686,000 CT + $4,870,000 ST)

$12,102,000

($2,695,000 CT + $9,407,000 ST)

26There are four specific areas of disagreement. The Board will address the following questions to derive the current value of the subject property:

i) What is the leasable area (square footage) of the subject property and its constituent elements?

ii) What is the fair market rent for the ground floor office?

iii) What is the fair market rent for the restaurant portion? and

iv) Should the higher vacancy, expense and capitalization rates (9%, 5% and 8.5% respectively for office, as opposed to 3%, 2% and 7% respectively for retail) be applied to the office portion of the property?

Leasable Area

27In regard to gross leasable area for the subject property’s constituent components, the parties presented conflicting evidence. The sum total of the square footage used by MPAC for the four constituent components (office, standard retail, premium retail, and restaurant) of the subject property does not add up to MPAC’s own evidence for the total square footage of the subject property. For this reason, the Board will rely on the Appellant’s square footage figures above.

Ground Floor – Fair Market Rent

28The MPAC figure of $10.80 per square foot (“psf.”) was based on the average actual rent under nine office leases at the subject property. In arriving at $10.00 psf. as fair market rent, the Appellant included four of MPAC’s nine leases and added five other leases that were not included in MPAC’s calculation. The Appellant rejected five of the leases used by MPAC claiming that the leases were negotiated more than one year outside of the valuation date. There were four leases that both MPAC and the Appellant agreed were representative leases. Those four leases averaged $10.80 psf. in rent. Although it is generally best to use as many leases as possible in order to arrive at a fair market rent, in this case, the four agreed upon leases have the same average rent as the nine leases presented by MPAC. For this reason, the Board is satisfied that $10.80 psf. is the most reasonable fair market rent for the ground floor office space.

Restaurant – Fair Market Rent

29MPAC testified that the actual rent for the restaurant portion of the subject property was $22.45 psf., which was a reduction from the $22.70 psf. that was on the original returned assessment. MPAC claimed to have received its information from a Tenant Information Program (“TIP”) sheet produced in 2014. Mr. Donato’s testimony was that the actual rent payable under the lease 2013 extension was $19.00 psf. and that the actual lease in 2013 is better evidence than a 2014 TIP sheet, which may have included a rent escalation. While Mr. Donato’s oral testimony was persuasive, the Board prefers to rely on the documentary evidence presented by Mr. Donato. Submitted into evidence and appearing at TAB 2B of Exhibit 6, was an actual lease extension for the restaurant dated May 12, 2008. The lease extension shows that for the period of January 1, 2011 to December 31, 2011, the net rent for the restaurant was $63,901 per annum, or $19.13 psf, and for the period January 1, 2012 to December 31, 2013 the net rent was $68,817 per annum, or $20.60 psf. Given that these two amounts represent the actual net rent payable for the one year period before and after the valuation date of January 1, 2012, the Board finds that the most reasonable fair market rent for the restaurant to be $66,359 per annum, or $19.87 psf, an average of the year’s rent on either side of the valuation date.

Vacancy, Expense and Capitalization Rate

30The most significant issue to be determined is whether retail figures for vacancies, expenses and capitalization rate should be applied to the entire property, as opposed to apportioning different rates to parts of the property with a different character. MPAC did not oppose Mr. Donato’s evidence that office properties are normally assessed by MPAC using vacancy, expense and capitalization rates of 9%, 5%, and 8.5%. Nor did MPAC dispute that the subject property was previously assessed as of January 1, 2008 by apportioning the subject property into retail and office components and applying different vacancy, expense and capitalization rates for each component. MPACs testimony was that its policy had changed and that from 2012 onward, MPAC uses the predominant character of a property to determine whether it applies retail versus office rates. In order to maintain consistency and thereby equity, MPAC contends that the entire property should have retail rates applied to it since a majority of the property, and thereby its predominant character, is retail.

31The Board rejects MPAC’s approach in regards to the subject property. The Board understands the use of MPAC’s new policy approach in order to avoid the potential ambiguity of determining the use of various parts of a property. However, the subject property is different. There are separate buildings that were clearly built for different purposes (office versus retail) and have always had different types of tenants (office versus retail) which represent different markets with different vacancy, expense and capitalization rates. Further, the portion of the building that is office is hardly insignificant, representing approximately 40% of the subject property. To simply categorize the office (and restaurant) space as retail would be unreasonable. For these reasons, the Board finds that retail rates for vacancies, expenses and capitalization rate shall only be applied to the retail building areas of the property, whereas office rates will be applied to the office and restaurant portions.

Summary of Calculations

32The formula for determining current value (CV) is to determine NOI by subtracting vacancies and expenses from FMR, and then applying a capitalization rate (CR). Since I am using different rates for office, I will have to calculate separately for retail and office and add those amounts together at the end (step G below):

A. FMR^office = FMR¹ + FMR⁴

= ($10.80 x 46,087) + $66,359

= $564,098

B. FMR^retail = FMR³+ FMR⁴

= ($6.30 x 45,894) + ($12.50 x 16,938)

= $500,857

C. NOI^office = FMR^office – (vacancies and expense)^office

= $564,098 – ($564,098 x 0.09) – ($564,098 x 0.05)

= $564,098 - $50,768 - $28,205

= $485,125

D. NOI^retail = FMR^retail – (vacancies and expense)^retail

= $500,857 - ($500,857 x 0.03) – ($500,857 x 0.02)

= $500,857 - $15,025 - $10,017

= $475,815

E. CV^office = NOI^office ÷ CR^office

= $485,125 ÷ 0.085

= $5,707,353

F. CV^retail = NOI^retail ÷ CR^retail

= $475,815 ÷ 0.07

= $6,797,357

G. CV^total = CV^office + CV^retail

= $5,707,353 + $6,797,357

= $12,504,710

= $12,504,000 (rounded)

Equity

33The Act requires the Board to address the issue of equity by having reference to the assessment of similar lands in the vicinity of the subject property. The Appellant has the burden of proving that the current value assessment is not equitable relative to similar lands in the vicinity of the subject property. The Appellant did not supply evidence indicating that the property had not been equitably assessed compared to similar lands in the vicinity.

34The Board finds that there is no evidence before it leading to the conclusion that the current value of the subject property requires an adjustment in accordance with s. 44.(3)(b) of the Act.

CONCLUSION

35The Board finds that the assessment of the subject property for the taxation years 2013, 2014, 2015 and 2016 is $12,504,000, with:

• $5,707,000 in the commercial class (CT)

• $6,797,000 in the shopping centre class (ST)