Milosek v. Municipal Property Assessment Corporation, 2018 CanLII 102247

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: October 24, 2018

FILE NO.: WR 155992

Assessed Person(s): Christopher Milosek

Appellant(s): Christopher Milosek and Lisa Blue

Respondent(s): Municipal Property Assessment Corporation (“MPAC”), Region 03

Respondent(s): City of Ottawa

Property Location(s): 1 Mission Inn Grove

Municipality(ies): City of Ottawa

Roll Number(s): 0614-120-825-06085-0000

Appeal Number(s): 3290574

Taxation Year(s): 2018

Hearing Event No.: 704765

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

Heard: September 28, 2018 in Ottawa, Ontario

APPEARANCES:

Parties	Counsel+/Representative
Christopher Milosek Lisa Blue	Glenn Lucas
MPAC	Jonathan Lapp
City of Ottawa	No one appeared

DECISION OF THE BOARD DELIVERED BY SCOTT McANSH

1Christopher Milosek and Lisa Blue (the “Taxpayers”) have appealed the 2018 assessment of the property located at 1 Mission Inn Grove, in the City of Ottawa. MPAC assessed the property at $1,252,000 for the 2018 taxation year, but argues that the proper assessment is $1,203,000. The Taxpayers argue that there are a number of factors that negatively impact the value of the property, including a large easement and an extreme nuisance caused by errant golf balls. They say that the property should be assessed at $590,000.

2The home on the property was built in 2016. It is a large, 3,953 square foot, bungalow with a finished basement. The property is adjacent to a fairway on the Cedarhill Golf and Country Club. The golf club has a registered easement over the property, along the fairway, that is about 1/3 of the total area of the lot. The easement is necessary to ensure that there is enough land for the golf course. The Taxpayers noticed that a large number of golf balls were ending up on the property while the home was being constructed. They expressed their concern to golf club and eventually constructed nets along the edge of the property, at the Taxpayer’s expense, to minimize the number of golf balls hitting the property. The golf club also changed the layout of the tee box to mitigate the impact on the property. There is still an average of 10 golf balls per week that end up on the property.

3There are six main issues that I must decide in this appeal which are: (1) the likely sale price of the property if it were not negatively impacted; (2) the appropriateness of an assessment based “market adjustment”; (3) the appropriateness and quantum of a “cost to cure” adjustment; (4) the appropriate adjustment for the nuisance of golf balls coming onto the property; (5) if an adjustment to the current value is required in order to make the assessment equitable; and (6) the proper way to address the impact of the easement on the property.

4For the reasons that follow, I find that the property likely would have sold for $1,400,000 if it were not negatively impacted. I find that an assessment based market adjustment is not an appropriate way to determine the current value of a property. I find that a cost to cure adjustment of $50,000 is appropriate to apply here. I find that the remaining nuisance is minor, and that most purchasers would expect that impact when buying this lot, so I do not find that an adjustment is necessary for the golf ball nuisance. I find that there is insufficient evidence to support an adjustment for equity. Finally, I find that the easement has a value of $158,000, which must be removed from the assessment of this property and added to the assessment of the benefiting parcel. I therefore find that the correct and equitable assessment of the property for the 2018 taxation year is $1,192,000 and I reduce the 2018 assessment of the property form $1,252,000 to $1,192,000.

Legislation

5The Assessment Act, R.S.O. 1990. c. A. 31 (“Act”) requires that I determine two things in this appeal. First, clause 44(3)(a) requires that I determine the current value, or what the property would have sold for in an arm’s length transaction on January 1, 2016. Once the current value has been determined, clause 44(3)(b) of the Act requires that I “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” but only if that adjustment would result in a reduction of the assessment.

Value

6The current value of this property must be determined indirectly. This is because no other property has the same direct impact of the golf course, which impacts its value. Determining current value therefore requires a multistep process. I must first determine what the property would sell for as built. This is necessary because there can be no direct market comparisons because there are no similarly impacted properties. Once that base value is determined, I must determine how much less a person would pay as a result of the nuisances that impact the property.

Base Value

7The likely sale value of residential property is most often determined by looking at what similar properties actually sold for close to the valuation day. This is known as the direct sales comparison approach to value. MPAC presented 13 sales to establish current value. They submitted at the hearing that two of those sales were entered in error and should not be considered. The 11 sales relied on by MPAC are summarized as:

	Address	Home size (sq. ft.)	Year Built	Floors	Abuts Golf	Sale Date	Sale Price
	1 Mission Inn Gr	3,953	2016	1	Yes
1	9 Southern Hills	3,098	1982	1.75	Yes	Dec. 2015	$915,000
2	4 Doral Pk.	3,006	1984	2	No	Dec. 2016	$880,000
3	41 Cedarhill Dr.	2,737	1982	2	No	May 2016	$800,000
4	7 Countryside Gn	3,511	1981	2	Yes	July 2015	$860,000
5	5 Southern Hills	3,893	1981	2	Yes	July 2016	$830,500
6	4 Midinah Gate	3,548	1981	1.75	No	Mar. 2013	$845,000
7	3 Countryside Gn	3,436	1983	1	No	Dec. 2015	$785,000
8	3 Cedarhill Dr.	5,640	1985	2	No	Mar. 2015	$873,000
9	46 Spring Cress	4,315	1984	2	No	June 2016	$1,200,000
10	5 Foxglove Pl.	3,093	2005	1	No	Aug. 2016	$960,000
11	30 Spring Cress	5,112	1991	2	No	July 2016	$945,000

8As can be seen, all of these are much older homes, many have multiple storeys, and most are smaller than the property. That is, all of these sales are of properties that are inferior to the property before me. The only safe conclusion that I can draw from those sales is that the property likely would have sold for more than $1,200,000 on January 1, 2016.

9MPAC argues that its opinion of value of $1,203,000 is supported by Sale 10, which sold for $960,000. It says that the property before me is superior to Sale 10 in many ways, including its size and age. MPAC does not indicate how it determined that this property was worth $243,000 more than Sale 10.

10The Taxpayers did not present sales evidence or a base value. They, instead, made a number of adjustments to the returned assessment.

11MPAC presented an alternative way to value the property through the cost of construction. It argues that this is valid for this property because it was so recently constructed. The Taxpayers did not object to that approach. MPAC set out three different values per square foot as a construction cost for the property. First, they suggested that $189 per square foot was reasonable because that would lead to the result they are suggesting. Such results based calculations should be avoided. MPAC also opined that its opinion was that model home construction in Ottawa averages $240 per square foot. Finally, MPAC put forward $200 per square foot as a “low point” option. The Taxpayers did not challenge any of those figures. I accept MPAC’s opinion of the market average of $240 per square foot as the best evidence of the cost of construction. Applied to the 3,953 square feet at the property has leads to a construction value of $948,720.

12The cost theory of value requires that the value of land be added to the value of the improvements on the land. The lot was purchased in 2012 for $455,000. MPAC suggested that its value on January 1, 2016 would likely have been $474,000 and the Taxpayers did not object to that value for the land. Adding that land value to the cost of construction leads to a base value of $1,422,720. I would round that to $1,400,000. I find that to be the most likely base value of the property.

Market Adjustment

13Both MPAC and the Taxpayers argue that a market adjustment is required to the value of the assessment returned. MPAC says that it reduced the value indicated by its computer model by 12% to account for that value failing to reflect current value. Its evidence is that it had already applied that reduction to the $1,252,000 returned. The Taxpayers say that assessments of similar properties in the vicinity are, on average, 18% higher than the sale value of those properties. They argue that an 18% reduction of the returned assessment is the likely value of the property. I do not accept that a market adjustment is an appropriate way to determine the likely sale value of the property.

14The theory of a market adjustment starts with the premise that MPAC applies a current value assessment to all property. If it can be shown that those assessments differ from market value in a consistent way, then the value of a particular property can be determined by reducing its assessment by the average error in assessments. There are a number of concerns with that approach.

15First, the approach relies on the average of other assessments to determine a particular value. Averages necessarily remove individual variations in assessments. Using an average to determine a specific value will, therefore, be at best an approximation. It is not uncommon for there to be a wide variation in the assessment ratios. For instance, the Taxpayers’ 12 sales have assessment to sales ratio ranging from 0.89 to 1.345, with a median value of 1.186 and a mean value of 1.153. It is difficult to say from that dataset where the true error in MPAC’s assessment lies.

16Secondly, it is not sound to determine the correct assessment by starting with a presumption that MPAC is assessing consistently. An appeal is a claim that MPAC has erred in returning this particular assessment. Looking to the assessment, and other assessments, to determine the correct assessment is circular and not a logical way to approach the problem of current value.

17Finally, this method relies on sales to achieve its metric. It is far preferable to use those sales to directly determine value. As noted above, a range can be determined from those sales. That is a much more transparent and evidence based way to approach the valuation problem.

18I find that an assessment based market adjustment is not an appropriate way to determine the current value of property.

Cost to Cure

19The Taxpayers argue that a cost to cure adjustment should be made to the base value. A cost to cure adjustment is an adjustment of the likely sale value to reflect the fact that there is a defect with the property that most buyers would insist be repaired before a sale. It is appropriate for deficiencies that are not in comparable sales because it is the expense that must be incurred to bring the property into the same market.

20The Taxpayers say that they had to install tall nets along one edge of the property in order to mitigate the danger posed by errant golf balls from the golf course. They did so partly upon the advice of a lawyer that they would be exposed to liability if they did not take some measure such as this. They say this is something that any buyer would insist upon before purchasing the property. MPAC does not agree that a cost to cure is appropriate, saying that an adjustment should be done for the nuisance generally, not as a deficiency.

21I find that the golf course nuisance, and the responding mitigation measure, is fairly captured in the value of the property through a cost to cure adjustment. Most potential purchasers would insist that there be some protection from the fairway, and the cost of the netting that was installed would be demanded as a reduction in value, if it were not already constructed. The netting is required to make the property comparable to others in the area. I must determine the reasonable cost of installing the netting.

22The Taxpayers entered a number of receipts for work done related to the netting. They were forthright; however, that some of those expenses would have been incurred even if the netting had not been installed. The receipts they provided are:

a. Threaded Rod - $4,277.04; b. Concrete - $645.00; c. Concrete - $1,275.83; d. Concrete - $1,559.35; e. Stone - $45.50; f. Fill - $9,805.58; g. Grading - $19,623.13; h. Net Pole Anchoring - $333.92; i. Net Pole Anchoring - $1,130.00; j. Net System - $10,667.20; k. Trees - $5,496.32; and l. Trees - $10,444.59;

23The specific nature of each expense was not explained by the Taxpayers. It seems clear that threaded rod, anchoring, and the system itself were essential to mitigating the deficiency in the property. Those items total $16,408.16. The evidence was also clear that a berm under the netting was required to achieve a suitable height. I therefore find that the fill and grading expenses were likely necessary to mitigate the impact of the golf balls. Those items total $29,428.71, bringing the cost to cure total to $45,836.87. It is not clear how the stone and concrete expenses are tied to the netting and I therefore do not include those in the cost to cure total. I also find that the trees and landscaping, while part of the project, were not strictly required to cure the deficiency. I therefore do not include the cost of the trees in the cost to cure value. The Taxpayers’ evidence was that planning approval was required for this project, due to opposition from the neighbours. That is an added cost that is unquantified, but I find that it justifies rounding the proven expenses of $45,836.87 up to $50,000. I find a reasonable cost to cure adjustment to be $50,000.

Nuisance Adjustment

24The parties both submit that an adjustment to value is required to compensate for the golf balls that land on this fairway side property. MPAC says that a 6% adjustment to value compensates for both the cost of mitigation measures and any remaining nuisance. On the $1,400,000 that I have found is the base value, MPAC is recommending an $84,000 adjustment. The Taxpayers argue that there should be a 25% reduction, after accounting for the cost to cure, due to the nuisance. That would be 25% of $1,350,000, which is $337,500. I do not accept that a further reduction is reasonable here.

25MPAC did not provide a clear rationale for its 6% figure. It simply indicated that such a reduction was required. I have found that the cost to cure is $50,000, which is approximately 3.6% of the base value I have determined. MPAC did not explain why the value should be 2.4% higher. I do not find that value to be sufficiently explained.

26The Taxpayers say that 25% is appropriate. Their witness, Glenn Lucas, opined that 25% “felt right” based on his experience. He was transparent that there was nothing quantitative about that figure, but that transparency does not change the fact that the number has no foundation in objective data.

27I do not see how a further adjustment is required. This property is adjacent to a fairway on a golf course. All purchasers of the property should reasonably know that purchasing such a property comes with some risk of errant golf balls. There are unique impacts to this property, but the cost to cure adjustment was to account for those deficiencies. The evidence at the hearing was that the measures taken have greatly reduced the nuisance. While there are still a number of golf balls that land on the property, it is not clear that this is more than any property abutting a fairway would reasonably expect.

Equity

28Clause 44(3)(b) of the Act requires that I look at the assessments of similar properties in the vicinity to see if it would be fair and equitable to assess this property at its current value. Neither party argued that an adjustment for equity is required. Equity adjustments are required where there is evidence that other property is assessed at something significantly less than 100% of its value. As noted above, the evidence here is that MPAC is likely assessing property in the vicinity at something significantly more than its current value. It would, therefore, be unfair to assess this property at its current value. A fair assessment would also be higher than the current value. But clause 44(3)(b) only permits an adjustment “if such an adjustment would result in a reduction of the assessment of the land.”

29I find that no adjustment is permitted to make the assessment of this land equitable with that of similar properties in the vicinity.

Easements

30As noted above, there is a large easement across the property that benefits the adjacent golf course. Easements are addressed in subsection 9(1) of the Act, which states that “where an easement is appurtenant to any land, it shall be assessed in connection with and as part of the land at the added value it gives to the land as the dominant tenement, and the assessment of the land that, as the servient tenement, is subject to the easement shall be reduced accordingly.” That is a requirement to value easements as separate entities and remove that value from the assessment of the impacted land and add it to the benefiting land. The equitable assessment here is $1,350,000. The easement must come off of that value.

31MPAC did not address the easement in that way. It, instead, created a fictional lot size for the property in its model, which excluded the land subject to the easement. That is not in compliance with the Act.

32The Taxpayers suggested that the value of the easement could be calculated by taking 1/3 of the value of the land. This is because the area of the easement makes up 1/3 of the total area of the lot. It is also because the Taxpayers have virtually no use of the land subject to the easement. The benefit is entirely for the golf course, which uses it for fairway. I agree that is a reasonable way to calculate the value of the easement. The value of the land, as indicated above, is $474,000, which would indicate a value of the easement of $158,000. That amount must be removed from the assessment.

Conclusion

33I find that this property likely would have sold for $1,350,000 on January 1, 2016. I also find that it would be fair to assess the property at that value. The value of the easement over the land must be removed from the assessment. After that adjustment, the appropriate assessment is $1,192,000. I therefore reduce the assessment for the 2018 taxation year from $1,252,000 to $1,192,000.