Nelson v. Municipal Property Assessment Corporation, 2018 CanLII 123949

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE:

December 17, 2018

FILE NO.:

WR 157144

Assessed Person(s):

Carolyn Eliza Nelson; Nevin Carter Nelson; Franziska Maria Nelson

Appellant(s):

Nevin Nelson; Franziska Nelson

Respondent(s):

Municipal Property Assessment Corporation (“MPAC”) Region 32

Respondent(s):

Township of Docker in the District of Kenora,

Property Location(s):

3000 Nelson Granite Road and Nelson Granite Road

Municipality(ies):

Township of Docker in the District of Kenora

Roll Number(s):

6088-690-000-01510-0000 and 6088-690-000-01512-000

Appeal Number(s):

3284356 and 3284357

Taxation Year(s):

2018

Hearing Event Nos.:

707285 and 707286

Legislative Authority:

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

Heard:

November 14, 2018 by teleconference call

APPEARANCES:

Parties

Representative

Carolyn Eliza Nelson, Nevin Carter Nelson and Franziska Maria Nelson

Craig Spence

MPAC

Carlene Steiner

Minister of Finance

No one appeared

DECISION OF THE BOARD DELIVERED BY JEAN-PAUL PILON

INTRODUCTION

1This decision addresses the 2018 taxation year appeals for two neighbouring properties that were severed in 2017. Carolyn Eliza Nelson (the “Appellant”) is the owner of one of the properties, known municipally as 3000 Nelson Granite Road in the District of Kenora and referred to in this decision as the “First Subject Property”. Franziska Maria Nelson and Nevin Carter Nelson (the “Appellants”) are the owners of the other property, currently known municipally as only Nelson Granite Road and referred to in this decision as the “Second Subject Property”. Collectively, they are referred to in this decision as the “Subject Properties.”

2The Subject Properties are associated with a nearby granite quarry operation owned by the same family as the Appellants, and the Appellants were represented at the hearing by the quarry accountant Craig Spence.

3Pursuant to the provisions of the Assessment Act, R.S.O. 1990, c. A. 31 (the “Act”), the assessment of land shall be based on its current value. The Act also provides that, for the 2017 to 2020 taxation years, MPAC is required to assess this value as of the valuation date, January 1, 2016 (“current value”).

4MPAC assessed the current value of the First Subject Property at $422,000 and the Second Subject Property at $412,000 for the 2018 taxation year.

5The Appellants’ representative took the position that MPAC’s assessment of current value for both properties is too high and that the correct current value of both Subject Properties should be zero.

6Pursuant to subsection 40(11) of the Act, the Minister of Finance was a party to the proceeding because the Subject Properties are located in non-municipal territory. However, the Minister of Finance did not advise the Assessment Review Board (the “Board”) of their position on the issues raised in these appeals, and no one appeared at the hearing on the Minister of Finance’s behalf.

7Subsection 44(3)(b) of the Act directs the Board to reduce the current value of the Subject Property if similar lands in the vicinity have been assessed at a lower value (“equitable reduction”). The purpose of this provision is to fairly distribute the municipal tax burden according to the value possessed by each ratepayer. MPAC took the position that an equitable reduction is not required. The Appellants’ representative did not assert that an equitable reduction is required. Therefore, in this proceeding, this ground for appeal is not in issue.

8At the completion of the hearing, the Board reserved its decision. For the reasons that follow, the Board finds that for the 2018 taxation year, the current value of the First Subject Property is $282,000 and the current value of the Second Subject Property is $305,000 as of the January 1, 2016 valuation date. The Board finds there should be no equitable adjustment. The Board also finds that the assessments of the Subject Properties should be reduced to zero where their current values can be added to the assessment of the associated quarry operation.

Relevant Legislation and Rules

9The Act states that:

1. “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.

9.(1) Assessment of easements -- 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.

9.(3) Restrictive covenant -- A restrictive covenant running with the land shall be deemed to be an easement within the meaning of this section.

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

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

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.

33 (1) Change re land omitted from tax roll -- The following rules apply if land liable to assessment has been in whole or in part omitted from the tax roll for the current year or for all or part of either or both of the last two preceding years, and no taxes have been levied for the assessment omitted:

1. The assessment corporation shall make any assessment necessary to correct the omission.

2. If the land is located in a municipality, the clerk of the municipality shall alter the tax roll upon receiving notice of the change, and the municipality shall levy and collect the taxes that would have been payable if the assessment had not been omitted.

3. If the land is located in non-municipal territory, the Minister shall alter the tax roll upon receiving notice of the change, and shall collect the taxes that would have been payable if the assessment had not been omitted.

40.(17) For 2009 and subsequent taxation years, where value is a ground of appeal, the burden of proof as to the correctness of the current value of the land rests with the assessment corporation.

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.

ISSUE

10The issue to be determined in these appeals is the correct current value of the First Subject Property and the Second Subject Property for the 2018 taxation year.

Discussion, Analysis and Findings

MPAC’s Evidence

Both Subject Properties

11MPAC’s representative at the hearing of both appeals was Carlene Steiner, who relied on MPAC’s valuation and equity reports for each Subject Property, as well as a consent agreement (the “Agreement”) made May 9, 2017 between the Minister of Municipal Affairs (the “Minister”) and the Appellants, named as “Owners”.

12The Subject Properties were a single parcel of land, and the Agreement set out the terms by which the Minister consented to their severance. The Agreement provided that both Subject Properties “shall only be used for a residential dwelling solely related to the sustainable management of a granite quarries (sic)” registered under a mining lease, which included a quarry and processing plant near the Subject Properties. The parties further agreed that the Subject Properties “shall not be used for a permanent residential dwelling use that is not related the sustainable management of a granite quarries (sic)” operating under the same mining lease. It said the Agreement should be registered on title to both Subject Properties as a restrictive covenant which would run for a term of 99 years. MPAC’s representative testified that but for the Agreement made pursuant to the Planning Act, R.S.O. 1990, c. P. 3, the year-round use of the Subject Properties would not have been permitted.

13MPAC’s representative testified that no proposed comparable properties could be located similar to the Subject Properties that added value to a mining lease. Instead, MPAC relied on the following residential proposed comparable properties on water, since the Subject Properties are also on water.

Subject Property #1

Subject Property #2

Property #1

Property #2

Property #3

Property #4

Property #5

Property #6

Address

3000 Nelson Granite Rd.

Nelson Granite Rd

Barnes Lake

Barnes Lake

114 Riviera Road

Cedar Lake

132 Outlet Bay Rd.

369 Pronger Lake Rd.

Current Value Assessment

$422,000

$412,000

$370,000

$487,000

$288,000

$420,000

$266,000

$265,000

Sale Date

NA

NA

11/21/ 2003

04/27/2012

08/21/201

08/07/ 2015

02/15/ 2013

12/20/ 2016

Sale Amount

NA

NA

$255,000

$305,000

$265,000

$199,000

$199,900

$263,000

Site Area (acres)

1.63

1.14

0.87

1.05

1.02

0.68

1.07

6.1

Effective Year Built

1994

1994

1986

1988

1984

1996

1985

1994

Quality of Construction

6.5

6.5

6

6

5

6.5

5.5

6.5

Building Area (sq. ft.)

1,547

1,715

1,100

1,832

1,481

1.,378

1,363

1,656

14MPAC’s representative further testified that MPAC’s study of sale prices in the same neighbourhood as the Subject Properties indicated property prices had increased by only 1.8% over the period March, 2012 to June, 2018. This was illustrated by a graph in MPAC’s valuation report showing a trend line that was more or less horizontal over the applicable time period.

First Subject Property

15Ms. Steiner testified that the First Subject Property has a total building area of 1,547 square feet and a construction quality of 6.5. It was built in 1994 and sits on a 1.63 acre lot. MPAC’s representative further testified that MPAC became aware a cabin had been built when it inspected in September, 2014, but that it was not considered in this assessment.

16MPAC’s representative testified that the fourth proposed comparable property above is the most comparable property to the First Subject Property, and argued that its superior and inferior aspects offset each other.

17MPAC’s representative was asked several times at the hearing to explain how the evidence relied upon, specifically the fourth proposed comparable property that had a sale price of $199,000 in July, 2015, supported a current value assessment of the First Subject Property of $422,000.

18The first explanation, which was difficult to follow, was that the Appellants had, in fact, been offered an assessment of $372,000, as a 12% adjustment had not been applied to the $422,000 current value assessment because the First Subject Property is on a smaller lake. The data supporting that adjustment was not before the Board. In addition, that did not answer the question as to how the current value assessment was arrived at in the first place.

19The further explanation was essentially that the current value assessment of $420,000 of the fourth proposed comparable property needed to be reduced by the same 12%, along with a further adjustment of 22% because of another comparable sale the details of which were also not before the Board at the hearing. Those reductions amounted to 34%, which were offset by a need for further adjustment upwards as a result of the assessment to sale ratio (“ASR”) of the fourth proposed comparable property of 1.3102 because it had been assessed higher than its last sale price at $420,000 to make this assessment equitable with that one.

20MPAC’s representative then offered an alternative explanation based on the sale price of the fourth proposed comparable property, where the sale price of that property, $199,000, would be grossed up for various features the First Subject Property had that the fourth proposed comparable property did not. These were: $33,000 for an additional garage on the First Subject Property, an additional bedroom valued at $5,000 and that the difference in age would be offset by the difference in square footage. The remaining difference in value remained unexplained.

21MPAC’s representative testified that the land alone in the First Subject Property, 1.14 acres, had a value $95,323 in MPAC’s evidence, where the value of the land in the fourth proposed comparable property, 0.68 acres, was $33,000. No evidence to support those valuations was provided at the hearing.

Second Subject Property

22MPAC’s representative testified that the Second Subject Property is also residential with a total building area of 1,715 square feet and a construction quality of 6.5. It was built in 1994 and sits on a 1.14 acre lot.

23MPAC returned a current value assessment of $412,000 on the Second Subject Property which its representative testified closely resembled the fourth proposed comparable property. It also relied on the same list of proposed comparable properties as the First Subject Property.

24MPAC’s representative testified that there had been an offer to the Appellants to reduce the assessment of the Second Subject Property to $362,000. She further testified that there were differences between the Second Subject Property and the fourth proposed comparable property, where the latter has less land, was newer, had one fewer bathroom and has less square footage. MPAC’s representative then went on to explain the gap in numbers using more or less the same explanation as in the First Subject Property, which ended at the ASR adjustment and an itemization of differences that did not account for the different current value assessments.

MPAC’s Submission

25Relying on its evidence, MPAC submitted that the correct current value for the 2018 taxation year for the First Subject Property is the value returned of $422,000 and for the Second Subject Property $412,000.

Appellants’ Evidence

26The Appellants’ representative testified that he did not disagree with MPAC’s evidence of value. Instead, he relied entirely on the Agreement which he filed but which was also referred to by MPAC in its evidence. The Appellants’ representative testified that the last un-appealed assessment he knew of was in 2016 where the Subject Properties together were assessed at $536,000.

Appellants’ Submission

27The Appellant’s representative argued that since the Subject Properties are tied to the quarry operation, can only be accessed through quarry lands, and cannot be sold separately, that they should therefore be determined to have no value. Despite his primary submission, he further argued that the MPAC’s fourth proposed comparable property should have been discounted by an unknown amount to take into account the proximity of the Subject Properties to a quarry.

Findings on Current Value

28Subsection 19(1) of the Act provides that the “assessment of land shall be based on its current value.” Subsection 1(1) of the Act defines current value as “the amount of money the fee simple, if unencumbered (Board’s emphasis), would realize if sold at arm’s length by a willing seller to a willing buyer.”

29The Agreement requires the registration of restrictive covenants on the Subject Properties and restrictive covenants are encumbrances on title. Therefore, for the purpose of determining current value, the restrictive covenants play no role in the determination of current value.

First Subject Property

30MPAC’s testimony as to how it arrived at a current value of $420,000 for the Subject Property was entirely unconvincing because, in the first place, it was largely derived from evidence not provided at the hearing. It was also circular because it was adjusted based on MPAC’s own assessment of value of the fourth proposed comparable property.

31The correct current value of the First Subject Property can, however, be determined by looking beyond the fourth proposed comparable property. This can be done by bracketing three of the proposed comparable properties in MPAC’s evidence, one which is inferior, one which is superior and one that is, on balance, relatively comparable to the First Subject Property.

32MPAC’s third proposed comparable property is inferior to the First Subject Property because the site area is smaller, the building is ten years older, and is of inferior quality. It sold for $265,000 on August 21, 2017, more than one year after the valuation date, but the uncontested evidence before the Board was that there was very little price movement in the neighbourhood over more than six years.

33MPAC’s sixth proposed comparable property is superior to the First Subject Property because it is has significantly more land. In other respects, the sixth proposed comparable property is similar in that its building was built in the same year and is of similar quality. It sold for $263,000 on December 20, 2016.

34MPAC’s separate valuation of land was unsupported by evidence and, leaving aside the smaller difference in land area, MPAC’s fourth proposed comparable property is relatively comparable to the First Subject Property. This is because it was built within two years of the First Subject Property, its building is of similar quality, it has only one less bathroom and has a building that is only slightly smaller. It sold for $320,000 on July 8, 2015.

35With the third and sixth proposed comparable properties having similar values despite the latter’s superiority, the logical means of arriving at the correct current value is to take the mean of these three unadjusted values, $265,000, $263,000 and $320,000, to arrive at a current value assessment of $282,000 rounded for the First Subject Property.

Second Subject Property

36MPAC’s analysis for the Second Subject Property was as confusing and inconclusive as its analysis of the First Subject Property. In this case, MPAC’s second proposed comparable property is most similar, despite a difference of 0.58 acres in land area and a sale date of April 27, 2012. This property was built only six years prior to the Second Subject Property, is only slightly lower in quality of construction (6 to 6.5) and has one fewer bathroom and bedroom, while having nearly 300 sq.ft., more interior space. The sale price was $305,000 and, on balance, this is the best evidence of the correct value of the Second Subject Property.

Assessment of Easements

37As noted above, subsection 9(3) of the Act provides that “a restrictive covenant running with the land shall be deemed to be an easement within the meaning of this section.” Subsection 9(1) of the Act also provides 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 assortment of the land that, as the servient tenement, is subject to the easement shall be reduced accordingly.”

38The evidence at the hearing was that the Subject Properties exist entirely to the benefit of the quarry to which they are attached, and that they are inseparable from that operation both physically and as a result of the Agreement. As a result, the entire value of the Subject Properties is for the benefit of the quarry. The restrictive covenants add all of the value of the Subject Properties, as servient tenements, to the benefit of the quarry, the dominant tenement. The assessment of that added value cannot be added to the quarry here because it is not before the Board. MPAC has tools, under the Act, that can address that issue.

DECISION

39The correct current value of the First Subject Property is $282,000.

40The correct current value of the Second Subject Property is $305,000.

42The assessed value of both Subject Properties must be reduced to account for the easement in accordance with subsection 9(1) of the Act. The assessment of both Subject Properties is fixed at zero.