C & D Direct Care Inc. v. Municipal Property Assessment Corporation, 2017 CanLII 27456

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE:

May 03, 2017

FILE NO.:

WR 145592

Assessed Person(s):

C & D Direct Care Inc.

Appellant(s):

C & D Direct Care Inc.

Respondent(s):

Municipal Property Assessment Corporation (“MPAC”) Region 31

Respondent(s):

City of Elliot Lake

Property Location(s):

36 Prince Edward Walk

Municipality(ies):

City of Elliot Lake

Roll Number(s):

5741-000-005-01700-0000

Appeal Number(s):

3137171 and 3160565

Taxation Year(s):

2015 and 2016

Hearing Event No.:

662571

Legislative Authority:

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

Heard:

February 10, 2017 in Toronto, Ontario

APPEARANCES:

Parties

Representative

C & D Direct Care Inc.

Darryl Freitag

MPAC

Lana Hicks

City of Elliot Lake

No one appeared

DECISION OF THE BOARD DELIVERED BY SUBUOLA AWOLERI

INTRODUCTION

1The subject property is a single storey retail store that specializes in pharmaceuticals, built in 1958, with an effective year built of 1990. It has a total gross floor area of 5,894 square feet (“sq. ft.”) of which approximately 2,112 sq. ft. is used as an office and 3,782 sq. ft. is pharmacy and retail store.

2In the 2013 and 2014 taxation years the subject property was valued at $147,000. In 2013, permits valued at $361,000 were taken out with the City of Elliot Lake that resulted in corresponding renovations of the subject property. This propelled a revision of the returned January 1, 2012 current value assessment (“CVA”) for the 2015 and 2016 taxation years at $456,000 and qualified for a change in the subject property’s classification from the Commercial Tax Class (“CT”) to the New Construction Tax Class (“XT”) for the 2015 and 2016 taxation years due to the increase in assessment which was greater than 50% in accordance to s. 5 of Regulation 282/98 and s. 15 of Regulation 400/98.

3The CVA for the subject property was determined using the Cost Approach to value.

ISSUE

4During the hearing, the parties agreed that the classification of the subject property is not in dispute. Darryl Freitag, the owner of the subject property, also confirmed to the Assessment Review Board (“Board”) that the land value is not in dispute, only the net value of the building as provided by MPAC. Charlene Freitag, a joint owner of the subject property believes a direct comparison approach is the correct method of valuation.

5Lana Hicks, the assessor from MPAC, provided the Board with a revised and recommended CVA for the subject property as $421,000 based on a revision of MPAC’s Automated Cost System (“ACS”) which was used to value major building components of the subject property and where errors found the cost calculation was corrected. Furthermore, MPAC removed some of the components that were initially valued as the Appellant disagreed with the inclusion of some of these components in its valuation, such as the glass curtain wall and the sprinkler system.

6Mr. Freitag, believes that the assessment as retuned and the recommended CVA are too high, and submits that the subject property’s assessment should be about $250,000 for several reasons including his comparison of the subject property with other renovated buildings with the same property code of 410 - retail one storey as the subject property.

7In addition to determining what the current value of the subject property is, the Board must determine if the assessment of the subject property is equitable with that of similar properties in the vicinity.

DECISION

8The Board reduces the subject property’s returned assessment from $456,000 to $421,000 for the 2015 and 2016 taxation years and determines 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

9Section 19.(1) of the Assessment Act (“Act”) states:

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

10Section 19.2(1) of the Act provides:

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. 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.

11Section 44.(3)(a) of the 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 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

13Ms. Hicks testified that the cost approach to value is used by MPAC to value one storey retail buildings under 10,000 sq. ft. that are generally owner occupied and do not generate an income.

14In Appendix “A”, Exhibit 1, of MPAC’s Valuation Report, Ms. Hicks provides a summary of MPAC’s ACS, detailing how MPAC arrived at the building value for the subject property. In this Report, the total building replacement cost new was $857,784. MPAC deducted life table depreciation of $291,646 and 35% of economic obsolescence of $198,148, which provided a total building net value of $367,990. This was added to the total land value of $53,619 and provided the subject property’s CVA as $421,000 (rounded).

15Ms. Hicks further presented sales of four retail one storey buildings, under 10,000 sq. ft. as comparable sales to demonstrate the accuracy of MPAC’s method of valuation. The total gross floor area of these sales ranges from 1,511 to 12,036 sq. ft., with sale date from May 30, 2008 to July 5, 2010. The sales prices range from $70,000 to $175,000. The sales price per sq. ft. range from $14.54 to $46.33. Ms. Hicks submits that these four sales are inferior to the subject property, stating that the subject property is in a prime location for a retail store, it benefits from foot traffic and parking directly in front of the store. Furthermore, she submits that three of the sales comparables have not had the extent or quality of interior and exterior renovations as the subject property. Therefore, taking into account the differences between the subject property and the sales comparables in terms of location, size and condition the recommended CVA of $421,000 is appropriate.

16Ms. Hicks advised the Board that the 2013 building permit value of $361,000 submitted to the City of Elliot Lake, provides a value of $61.25 per sq. ft. while the recommended CVA provides a value of $71.42 per sq. ft., which is just $10 more than what the Appellant put into the building when renovating. During cross-examination, she emphasized that in her experience, the amount of money reported to the City on building permits are usually more than the amount spent, which Mr. Freitag disagreed with stating that although the amount stated was $361,000, he actually spent less than this amount and he had to terminate the services of the contractor and employed a local contractor. However, Mr. Freitag did not present any receipts or invoices at the hearing to prove the actual construction costs.

17Mr. Freitag presented no sales to the Board neither did he present evidence to rebut MPAC’s ACS valuation of the subject property. However, he disputes the ACS valuation of the subject property’s building components as being inaccurate. He submits that almost $200,000 was used for renovations that were unseen such as electrical and repairs of the roof and that the structure remains the same as a 1958 building and this should not raise the value of the building. He states that although the subject property is aesthetically more appealing, the original structural components and heating systems are the same. He also submits that the City of Elliot Lake has a depressed economic and realty market, and it will be virtually impossible to sell the subject property for the assessed value.

18Mr. Freitag presented the Board with six assessments of properties with the same property code as the subject property. He submits that the first property is most comparable with the subject property, as it is located within the same downtown area of Elliot Lake, has the same year built and is completely renovated. It has a second floor which was renovated less than two years ago and has an approximate square footage of 17,000 sq. ft. He submits that this property was assessed at $268,000 as of January 1, 2012 and that based on this, the equivalent value for the subject property in 2012 should be $187,600. He testified that he arrived at this amount based on the calculation of the lot size of the assessed property which is 0.2 acres, while the subject property is 0.14 acres and he does not know the square footage of the assessed property. During cross-examination, Mr. Freitag was uncertain if this property has air conditioning, whether the owners had renovated the windows. The parties were in disagreement about the finishing of the ceiling of this property.

19All the assessed properties as presented by Mr. Freitag have assessments that range from $63,000 to $276,000 as of January 1, 2012. MPAC also questioned the Appellant’s calculations based on the acreage, submitting that these calculations are inaccurate, as the Appellant has not provided square footage for the assessed buildings.

20Mr. Freitag further submits that one of the properties was purchased for $70,000 and that even after renovation it sold for less in May 2014 for $69,000 to further buttress his argument that despite the renovation to the subject property he will not be able sell it for the value MPAC has assessed it.

21Ms. Freitag also quoted an article from Global Mail, dated August 5, 2013, which provides that invisible improvements that nobody will notice does not raise the value of the property. She submits that this is what occurred at the subject property. She further reiterates that the structures are still original from 1958, that MPAC used the building permit and the cost approach to raise the value of the building.

Board’s Analysis and Decision

22The Board accepts and agrees with the MPAC’s valuation method and conclusion as to the value of the building and the recommended CVA for the subject property.

23There is no dispute regarding the value of the land, the Appellant disagrees with the value of the building components. Mr. Freitag would rather have MPAC utilize the direct comparison approach to value the subject property. MPAC utilizes a system of valuing similar properties alike, and as testified by Ms. Hicks, for one storey retail buildings under 10,000 sq. ft., which are generally owner occupied and do not generate an income, MPAC values these buildings using the cost approach to value. Furthermore, both parties could not provide sales of similar properties in or around the valuation date of January 1, 2012 due to lack of sales of these properties in Elliot Lake. The Board determines that in the absence of credible evidence supporting the sales comparison approach the cost approach to value is the preferred valuation methodology.

24Regarding the sales of comparable properties presented by MPAC, Ms. Hicks submits that the Board can look to sales from 2008 for assessment of properties on the valuation date of January 1, 2012. The Board looks to the sale of the subject property on or near the valuation date of January 1, 2012. When no such sale occurs, the Board looks to the recent sale of other similar properties in the vicinity to determine current value. The Board would look at sales of comparable properties within the shoulder years of January 1, 2012, which could go as far as 18 months on either side of the valuation date. The caution being that the further the sale is from the valuation date, the less likely it reflects the value on the valuation date of January 1, 2012. Sales of properties going far back as 2008, to establish the CVA for the subject property as of January 1, 2012 is far removed from this valuation date, especially when MPAC has not provided time adjusted sales amount for these sales. Moreover, if MPAC is using sales as far back as 2008, the Appellant testified that he purchased the subject property in 2008 for $200,000. This could also have been used by MPAC. For this reason, the Board does not rely on the sales presented by MPAC.

25In Appendix “A”, Exhibit 1 of MPAC’s Valuation Report, Ms. Hicks provides the structure assembly value list for the subject property. During the hearing, Ms. Hicks went through each of these components and Mr. Freitag confirmed that the structures used to value the property is accurate. However, he disputes the value ascribed to the components stating that the structures are original structures and should be valued as a 1958 building. Ms. Hicks testified that renovation to the subject property extends the life of the building and the subject property does not look like a 1958 building. The Board notes that the pictures presented by both parties of the subject property shows that interior and exterior renovations have been carried out on the subject property. Ms. Hicks further explained that MPAC’s ACS takes into consideration the age of the building and the depreciation has also been accounted for in ACS.

26The 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.

27Ms. Hicks took into consideration the depreciated life of the subject property which was valued as $291,646 by ACS and a further $198,148 as economic obsolescence and deducted it from the total building replacement cost new of $857,784. The Appellant did not provide evidence to rebut this save from the fact that other similar building are not assessed the same as the subject property and it will be impossible to sell the subject property at the assessed value.

28Based on the evidence presented at the hearing, the Board reduces the subject property’s returned assessment from $456,000 to $421,000.

Equity Analysis

29Section 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. 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. The ASR is determined by dividing the assessment as returned by the time-adjusted sale price.

30Ms. Hicks presented an equity analysis of 30 sales of commercial/industrial properties in the subject property’s vicinity between January 2008 and December 2012 in Appendix “C” of Exhibit 1. These sales had ASR’s ranging from 0.67 to 1.93 with a median ASR of 1.01.

31Mr. Freitag’s equity argument is based on the assessment of six properties in the same vicinity as the subject property. For establishing equity, properties need not be as similar as they need to for valuation purposes; however, they need to be of the same general nature, character or function. The six properties presented by Mr. Freitag are mostly 410 retail one storey building, two are two storey buildings. However, it will be difficult for the Board to establish equity based on the assessment of six properties alone, as the purpose of s. 44.(3)(b) of the Act is to ensure that the Municipal tax burden is shared fairly and equally among similarly situated taxpayers. There is no way the Board can determine this based on just six properties.

32The evidence does not lead the Board to the conclusion that the assessment of the property should be reduced below its current value to make it equitable with the assessments of similar lands in the vicinity.

CONCLUSION

33Based on all of the evidence, the Board determines the current value to be $421,000 and finds this value to be fair and equitable. Consequently, the Board reduces the subject property’s returned assessment from $456,000 to $421,000 for the 2015 and 2016 taxation years and finds this value to be fair and equitable.