Assessment Review Board

Commission de révision de l'évaluation foncière

ISSUE DATE: July 27, 2018

FILE NO.: WR 152892

Assessed Person(s): Jay Patry Enterprises Inc.

Appellant(s): Jay Patry Enterprises Inc.

Respondent(s): Municipal Property Assessment Corporation ("MPAC") Region 05

Respondent(s): The Corporation of the City of Kingston

Property Location(s): 810 Blackburn Mews and 539 Armstrong Road

Municipality(ies): City of Kingston

Roll Number(s): 1011-080-176-28700-0000 and 1011-080-180-00300-0000

Appeal Number(s): 2945469, 3018355, 3073238, 3145561, 3036164, 3035269, 3073036 and 3145703

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

Hearing Event No.: 693866

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

Heard: By written submission

APPEARANCES:

Parties	Counsel+/Representative
Jay Patry Enterprises Inc.	Roberto Aburto+ and Michelle Cicchino+
MPAC	Diane McKinnon
City of Kingston	No one appeared

DECISION OF THE BOARD DELIVERED BY JOSEPH JEBREEN AND SCOTT McANSH

OVERVIEW

1Jay Patry Enterprises Inc. ("Patry Enterprises") appeals the January 1, 2012 MPAC assessments for the 2013-2016 taxation years on two properties it owns in the City of Kingston.

2The first property at 539 Armstrong Road (the "Armstrong Property") is assessed by MPAC as vacant land in 2013 at $1,282,000 and as multi-residential for the 2014-2016 tax years at $16,936,000. MPAC supports those assessed values and does not recommend an adjustment for equity. Patry Enterprises submits that the current value of the Armstrong Property is $660,000 for the 2013 tax year and $14,250,000 for 2014-2016. It further argues that an equitable adjustment is required and that the current value should be reduced to $13,440,000.

3The second property at 810 Blackburn Mews (the "Blackburn Property") is assessed by MPAC as multi-residential for the 2013-2016 tax years at $6,906,000. Once again, MPAC supports that assessed value and does not recommend an adjustment for equity. Patry Enterprises submits that the current value of the Blackburn Property is $6,100,000 and that an equitable adjustment is required to reduce the current value to $5,218,000.

4On consent of the parties, this hearing was heard in writing by order of Vice-Chair McAnsh. MPAC and Patry Enterprises both entered expert reports and written submissions on those reports. We reviewed that evidence and then asked for further legal submissions on MPAC's statutory duty to prove the correctness of the current value.

5For the following reasons, we find that MPAC has failed to discharge its statutory burden to prove the correctness of the current value of both properties. We also find that a reasonable consequence for such a failure is to revert to the last uncontested assessment, unless the taxpayer has provided sufficient evidence to allow the Assessment Review Board (the "Board") to determine the current value of the property. Patry Enterprises has provided sufficient evidence for us to determine current value. We find that the current values of the properties are:

• $660,000 for the Armstrong Property for the 2013 taxation year;
• $14,760,000 for the Armstrong Property for the 2014, 2015, and 2016 taxation years; and
• $6,123,000 for the Blackburn Property for the 2013, 2014, 2015, and 2016 taxation years.

6Other than the 2013 taxation year for the Armstrong Property, we also find that an adjustment is required in order to make the assessments equitable with the assessments of similar land in the vicinity. We find that the equitable assessments are:

• $13,725,000 for the Armstrong Property for the 2014, 2015, and 2016 taxation years; and
• $5,694,000 for the Blackburn Property for the 2013, 2014, 2015, and 2016 taxation years.

THE PROPERTIES

7The Armstrong Property was classified as vacant land for the 2013 taxation year but since then a multi-residential building was erected on it. The lot size is approximately 2.9 acres and the building area is approximately 158,000 square feet. The wood-framed building is four storeys with 110 apartment units including 27 one-bedroom units, 64 two-bedroom units and 19 three-bedroom units. It is equipped with an elevator.

8The Blackburn Property has a three-storey wood-framed multi-residential building containing 65 apartment units including 10 one-bedroom units, 53 two-bedroom units and 2 three-bedroom units. It is also equipped with an elevator. The lot size is approximately 1.5 acres, the building area is approximately 73,500 square feet and the building was constructed in 2008.

9Neither of the properties contains a commercial component.

ISSUES

10There is no dispute regarding the classification of the properties or the highest and best use of the properties being multi-residential.

11The issues in dispute for both properties are the January 1, 2012 current values and whether an equitable adjustment is required.

12However, the main issue we see in the evidence presented to us is whether MPAC met its statutory burden to prove the correctness of the current value.

LAW AND ANALYSIS

13Clause 44(3)(a) of the Assessment Act, RSO 1900, c A.31 (the "Act") requires us to determine the current value of the land. Current value is defined in the Act 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."

14Once the current values have been determined, pursuant to clause 44(3)(b) of the Act we must "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.

15We first consider whether MPAC has met its statutory burden of proving "the correctness of the current value of the land" as per subsection 40(17) of the Act

Burden of Proof

16Due to the serious shortcomings in MPAC's evidence regarding current value, we asked the parties to make written submissions regarding subsection 40(17). Our request was as follows:

Subsection 40(17) of the Assessment Act states: "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."

The panel is considering if subsection 40(17) is engaged and the possible application of Tervita Corp. v. Canada (Commissioner of Competition), 2015 SCC 3, [2015] 1 S.C.R. 161 ("Tervita"), see in particular paragraphs 122-140.

The panel is asking for the parties to make written submissions specifically regarding Tervita and the following questions:

1. What does it mean for MPAC to have the burden of proof, as set out in section 40(17)?

2. What is the content of MPAC's burden?

3. Has MPAC met its burden in this case?

4. What are the possible consequences, if any, for MPAC failing to meet this burden?

5. What are the justifications including policy grounds for the possible consequences?

6. What consequence, if any, should be applied in this case?

These submissions must only answer the questions above on the basis of the evidence currently before the panel. The parties are encouraged to support their submissions with legal authorities, but are not permitted to submit further evidence or to make further submissions on the questions of current value or equity.

17We will address these questions below.

What does it mean in subsection 40(17) for MPAC to have the burden of proof?

18There are two recognized meanings of burden of proof: an evidential burden and a legal burden. The legal burden is a party's responsibility and obligation to prove a fact at issue on a balance of probabilities. If the party fails to prove the fact, the party has failed to discharge its burden of proof and the other party must succeed, see Sopinka, Lederman & Bryant, The Law of Evidence in Canada, 4^th ed (Markham: LexisNexis Canada, 2014) at 87 ("Sopinka").

19The evidentiary burden is the obligation to show that there is sufficient evidence to raise an issue as to whether or not a certain fact exists. If the party fails to show sufficient evidence to raise an issue, then on a motion for a non-suit, the party's case will be dismissed.

20Both parties agree that subsection 40(17) imposes both a legal and evidentiary burden on MPAC to prove, on a balance of probabilities, that its proposed current value is correct. We agree. Subsection 40(17) is a remedial provision and there is no reason to read it narrowly to include only one type of burden.

What is the content of MPAC's burden?

21MPAC's burden is around "current value" and not the assessment. That is, MPAC is not required to prove the correctness of its returned assessment. It is required to prove the correctness of "the amount of money the fee simple, if unencumbered, would realize if sold at arm's length from a willing seller to a willing buyer."

22Determining whether MPAC has satisfied its evidentiary burden requires us to consider whether the evidence it has tendered can support its opinion of the correct current value. The ultimate determination of current value by the Board requires a consideration of all of the evidence submitted by the parties. But before we weigh that evidence, we must look at MPAC's evidence and determine if it is capable of proving, on its own, the current value it is suggesting on a balance of probabilities. If the evidence cannot support that value then MPAC has not met its burden under subsection 40(17).

23It is insufficient for MPAC to simply provide evidence of some current value to discharge its burden. The evidence must show how the current value MPAC is proposing is arrived at and why that value is correct. Without this bare minimum, the Board cannot possibly determine if MPAC's proposed current value is correct.

24MPAC relies on previous Board decisions for its submission that if it meets its initial burden, then the burden shifts to the appellant. We do not agree that the Act supports a shifting burden of proof.

25MPAC submitted Pellarin v. Municipal Property Assessment Corp. Region No. 3, [2009] O.A.R.B.D. No 97 ("Pellarin") as authority for the burden around current value shifting. In Pellarin, at paragraph 33, the Board found that "if MPAC satisfies the Board that the assessment is reasonably correct then the onus shifts to the appellant to show that the current value is not correct." The standard of "reasonably correct" does not apply to a statutory burden. MPAC must prove that its proposed current value is more likely than not, not just reasonably correct.

26In Sopinka it states, at p. 71, that, except "for the operation of presumptions of law or rebuttable statutory provisions... burdens do not shift." Pellarin does not engage either exception to justify a shifting burden around current value. The Board in Ford Motor Co. of Canada v. Municipal Property Assessment Corp. Region No. 15, [2012] O.A.R.B.D. No 151, another case relied on by MPAC, finds that the burden shifts to the taxpayer and further finds that the burden "may notionally continue to shift" as the hearing unfolds. We disagree with that finding: the burden does not shift.

27The Legislature has placed the burden to prove the correctness of the current value on MPAC and there are no legal presumptions that would remove that burden. The Legislature did set out the situations in which MPAC does not bear the burden of proof in subsection 40(18). That subsection imposes a burden on the appellant when the appellant fails to provide a reasonable opportunity for an inspection or fails to comply with a request for information and documentation. The Legislature could have specified other situations in which MPAC no longer bears the burden of proof, but did not do so. MPAC summarized the issue well in its submissions: "The Legislature did not provide for a shift in the burden of proof. It is clear that the onus is only on MPAC to prove the correctness of the current value. If the Legislature intended to shift the onus it would have done so as it did in s. 40(18)." Although MPAC made this submission in regards to equity, we find it equally applicable to current value.

28There are good reasons for MPAC to hold the burden of proof in proving the correctness of the current value. MPAC has an obligation, pursuant to subsection 19(1), to return a correct current value assessment to the roll, so it is in the best position to provide evidence to support that value. It has the knowledge, information, and expertise in property valuation and should be able to adequately defend the current values it is proposing. The Act imposes that obligation on MPAC. There is no principled basis for shifting the burden to the Appellant.

Has MPAC Met Its Burden?

29MPAC has not met its burden here. We review the evidence below, but, in summary, it is not possible to arrive at MPAC's proposed current values relying solely on its evidence.

What are the consequences for MPAC failing to meet its burden?

30Having found that MPAC has not met its burden, we must determine the legal consequences of that failure. There is no guidance in the Act on what happens when MPAC fails to meet its burden. There must, however, be consequences for a failure to discharge a statutory burden.

31Subsection 40(17) was introduced to the Act in 2009 in response to the 2006 report of the Ombudsman of Ontario, Investigation into the Transparency of the Property Assessment Process and the Integrity and Efficiency of Decision-Making at the Municipal Property Assessment Corporation - Getting it Right, March 28 2006. That report found a number of systemic issues in property assessment in Ontario, including MPAC enjoying a power imbalance in the appeal system. The purpose of the burden recommendation was to increase transparency in appeals and address that power imbalance. Placing the burden of proof on MPAC requires it to prove that it has correctly assessed a property, letting a taxpayer know the case it needs to meet.

32It is essential that subsection 40(17) be interpreted in a way that achieves the goals of transparency and a "level playing field" in assessment appeals. That requires that there be a real consequence for MPAC failing to meet its burden. If MPAC can provide insufficient evidence to prove current value and still potentially have its assessment confirmed, then there is no incentive for MPAC to bring a sufficient case to the Board.

33The common law consequences for a failure to meet a legal burden are generally significant. The Supreme Court of Canada in Tervita describes the consequences of the Commissioner of Competition's failure to meet its common law burden to quantify quantifiable anti-competitive effects under s. 96 of the Competition Act as follows:

...the Commissioner's burden is to quantify all quantifiable anti-competitive effects. The failure to do so is a failure to meet this legal burden and, as a result, the quantifiable anti-competitive effects should be fixed at zero. Quite simply, where the burden is not met, there are no proven quantifiable anti-competitive effects.

34The parties do not believe that Tervita is applicable to MPAC's burden to prove the correctness of the current value. Tervita may not be directly applicable here, but it does show that burdens have meaningful consequences. That principle guides our determination of what consequences should flow from MPAC's failure to discharge its statutory burden.

35MPAC suggests three potential consequences for its failure to discharge its burden, two of which Patry Enterprises agrees with.

36MPAC submits, on its own, that if there is insufficient evidence in a hearing, the Board may ask the parties for additional evidence and submissions. We do not see that as an appropriate consequence. The Board's Rules of Practice and Procedure ("Rules") provide a process for framing the issues and disclosing evidence. Parties are expected to follow those Rules and come to the Board with their best case.

37Allowing MPAC to try again when it has failed to discharge its burden also makes subsection 40(17) effectively meaningless. A statutory burden is a requirement that a particular fact be proven. If the consequence of the party failing to do so is that it gets to continually try again, the burden has no real consequence, other than adding cost and delay for all parties. We do not find that seeking further evidence is a reasonable consequence for MPAC failing to meet its burden.

38MPAC and Patry Enterprises agree on two consequences. First, both say that, if MPAC fails to meet its burden, we can accept Patry Enterprises' position on current value. They also say that another consequence of MPAC failing to discharge its burden is that the Board may then make its own determination based on the best evidence before it. These are related propositions that flow from a potential conflict between MPAC bearing a burden in subsection 40(17), and this Board's obligation, pursuant to clause 44(3)(a), to determine the current value of the land.

39Clause 44(3)(a) requires that the totality of the evidence be reviewed to see if a current value can be drawn from that evidence. But subsection 40(17) must also be given meaning, and there will be situations in which both MPAC and the taxpayer bring insufficient evidence from which to draw a current value.

40We find that the appropriate procedure to follow in an appeal where current value is at issue is to first look at MPAC's evidence on its own and make a determination as to whether it can prove its suggested current value on a balance of probabilities. If MPAC meets its burden, the Board should review all of the evidence before it and determine the current value of the property. However, if MPAC has not met its burden, the taxpayer's evidence must be analyzed to see if it is capable of proving that a particular current value is more likely than not. If there is insufficient evidence in the record that is capable of proving current value, the Board should fix the assessment at the last uncontested assessed value. This framework provides meaning to both subsection 40(17) and clause 44(3)(a).

41Examining the taxpayer's evidence before turning to a fixed consequence is fair to taxpayers that have spent the time and effort to prepare for a hearing. It also fulfils this Board's statutory obligation to determine current value when it is able to. But there will be cases, such as Zarichansky v Municipal Property Assessment Corporation, WR 150192, also released today, where a taxpayer does not bring sufficient evidence on which to determine current value. Such cases should be rare. However, when the Board is presented with insufficient evidence to determine a current value, we find that it is not obligated to determine current value. There must be a default position to return to when the evidence does not lead to a current value.

42A nil value for the assessment would be a default consequence for failing to meet a burden in line with the Supreme Court of Canada's reasoning in Tervita. The Court was clear that "where the burden is not met, there are no proven quantifiable anti-competitive effects." Similarly here, if there is insufficient evidence on which to find a current value, there is no proven current value. Assessments are at current value, pursuant to subsection 19(1) of the Act, so if there is no proven current value there should be no assessment. However, subsection 3(1) of the Act states that "all real property in Ontario is liable to assessment and taxation," except for the properties set out in section 3. A nil assessment is not a taxable assessment. A nil assessment would also be unfair to other taxpayers, who must still pay taxes based on their assessed value. We find that, in circumstances where insufficient evidence is presented to make a current value determination, a fair consequence for MPAC failing to meet its statutory burden would be to reduce the assessment to the last uncontested assessment of the property.

43This outcome provides a tax base for the municipality, and maintains the integrity of the tax system, but it also has clear consequences for MPAC. The statutory burden is important and is clearly stated by the Legislature. Taxpayers are put at a disadvantage when MPAC does not provide evidence to support its opinion of current value because they have no evidence to challenge. While taxpayers can, and should, adduce their own evidence of current value, the Legislature explicitly placed the legal burden on MPAC. There must, therefore, be a predictable consequence when the burden is not met.

44The process set out above for assessing evidence is consistent with the Act and fair to parties that have prepared for a hearing. In this case we find that the evidence provided by MPAC does not meet its statutory burden. However, Patry Enterprises has provided sufficient evidence to support a current value for each property.

Current Value

45There are two properties before us: the Armstrong Property and the Blackburn Property. The Armstrong Property was classified as vacant land for the 2013 taxation year, so we must determine two current values for that property: one for the 2013 taxation year, and another for the 2014, 2015, and 2016 taxation years, when it was a multi-residential building. The Blackburn property was a multi-residential property for all four of the taxation years before us.

Armstrong Property – 2013 Taxation Year

46MPAC proposes a value of $1,282,000 for the Armstrong Property for the 2013 taxation year. It does not provide any evidence to support that value. It does not provide comparable sales of vacant land, or any other market evidence, to support its proposed value of the Armstrong Property for the 2013 taxation year. A complete lack of evidence clearly falls short of MPAC's duty to prove the correctness of the current value. MPAC has not met its burden for the Armstrong Property for the 2013 taxation year.

47Patry Enterprises argues that its purchase of the Armstrong Property on July 16, 2010 for $660,000 is the best evidence of the land value of the property. The best evidence of current value of a property is always an arm's length sale of that property on or close to the valuation day. Patry Enterprises' purchase was made less than 18 months before the January 1, 2012 valuation date. This is not only the best evidence of the value of the Armstrong Property for the 2013 taxation year, it is the only evidence of value before us. We find that the sale value of $660,000 is the best evidence of the current value of the Armstrong Property for the 2013 taxation year.

48MPAC submits that the sale is not good evidence of value because significant changes were made to the Armstrong Property after the sale. Specifically, MPAC notes that (i) at the time of sale, the property was improved with 5 homes that were subsequently demolished and (ii) a by-law was adopted on June 17, 2011 to change the zoning to Special Residential type 5.

49Patry Enterprises objects to MPAC raising that evidence in its supplementary submissions. We find that these submissions were appropriate in that they were answering the question of whether MPAC met its burden, which required some review of the evidence already in the record. MPAC did not submit new evidence, it made arguments about whether it had met its burden on the basis of the evidence currently before us.

50We accept in principle that changes in zoning can impact value. However, MPAC provides no evidence of what those impacts would be. It does not present the sales of similarly zoned lots, or any other evidence to prove those changes in value. We accept that the sale price is good evidence of value because it was clearly for the vacant lot, given the demolition of the existing structures, and there were costs in making the lot vacant. Those costs may set off the increase in value from the rezoning. We have no evidence to the contrary.

51MPAC also argues that Patry Enterprises cannot now challenge the correctness of the current value for the 2013 taxation year because it did not raise the issue in its statement of issues. MPAC only raised this concern in its response to our questions on the burden of proof. That submission was outside of the scope of the submissions sought and we will not consider it.

52In any event, we find that MPAC was aware that the value of the Armstrong Property for the 2013 taxation year was in dispute. There was an appeal filed for the 2013 taxation year, when the valuation was vacant land. The appeal was on the basis that the assessment was too high. Further, MPAC states in its evidence that it prepared its valuation report "for the 2013, 2014, 2015 and 2016 taxation year assessment appeal." Finally, the Appellant expressly raised the issue of the 2013 taxation year in its original submissions and MPAC did not raise an objection in its responding submissions. MPAC was not caught by surprise.

53We find that the current value of the Armstrong Property for the 2013 taxation year is $660,000.

Armstrong Property – 2014, 2015, and 2016 Taxation Years

54The Armstrong Property was improved with a multi-residential apartment building for the 2014, 2015, and 2016 taxation years. Both parties presented two approaches to value the Armstrong Property: an income approach and a direct sales comparison approach. For the reasons set out below, we prefer the income approach to value in this case. That approach calculates the present value of the expected income stream from the property.

55MPAC relies on the evidence of its assessor Diane McKinnon, who used a gross income multiplier ("GIM") to calculate the value of the property, as well as a comparison to the sales of similar properties in Kingston. For the reasons described below, neither method can support MPAC's suggested current value of $16,936,000 for the Armstrong Property for the 2014, 2015, and 2016 taxation years. The Board finds that MPAC has not, therefore, met is statutory burden.

56Patry Enterprises relies on an expert report by Stephen Rayner. That report applies the income approach to the Armstrong Property in a way that supports a current value finding. We find that the evidence is capable of supporting a current value of $14,760,000 for the Armstrong Property for the 2014, 2015, and 2016 taxation years.

MPAC Income Approach

57MPAC uses an income approach based on the GIM. That method calculates the value of property by multiplying the potential gross annual income the property could generate by a GIM. MPAC's evidence is that the potential gross annual income of the Armstrong Property is $1,792,000 and that it applied a GIM of 9.49. MPAC says that this supports its proposed current value of $16,936,000, but those numbers do not multiply to that amount. $1,792,000 multiplied by 9.49 is $17,006,080. There are a number of concerns we have with MPAC's income evidence and find that it does not meet MAPC's burden to prove the correctness of its proposed current value.

58MPAC submitted two tables regarding fair market rents. The first table appears in its evidence and suggests that the fair market rents for one bedroom, two bedroom and three bedroom units are $1,141, $1,349 and $1,504 respectively. However, in its written submissions, MPAC submits a table showing that fair market rents are $773, $992 and $1019 respectively. This discrepancy is not explained, and leads to different results. The Armstrong Property contains 27 one bedroom units, 64 two bedroom units, and 19 three bedroom units. Using MPAC's first set of rents leads to an annual rental income of $1,748,628, while the second set of rents leads to an annual rental income of $1,244,640. MPAC's submission suggests that the fair market rents in its evidence are too high, but there is no ultimate submission on which rents to prefer.

59That income, which is hard to discern, must be multiplied by a GIM in order to arrive at a value. MPAC shows comparable properties with an average GIM of "9.86%" but does not offer any evidence as to how it arrived at 9.49. MPAC did not provide opinion evidence to support its proposed GIM. There is no path for us to follow to a GIM of 9.49.

60MPAC also changed its proposed GIM in response to Patry Enterprises' submissions. It says that it made a calculation error in determining the mean GIM of the comparable properties and suggests that the mean GIM is appropriate. Its newly proposed GIM is 10.53, which when applied to its suggested potential gross annual income of $1,792,000 leads to a current value of $18,869,760. MPAC's income evidence is unclear and does not support its suggested current value.

61We also find MPAC's use of the GIM method to be unfounded. GIM calculations do not consider vacancy, bad debts and operating expenses. They are a less reliable metric of current value than the capitalization of net operating income.

62MPAC acknowledges that it has changed its methodology, and no longer relies on GIMs, as of the 2016 assessments, acknowledging that it is less accurate and used less often in the market, than a traditional income valuation. It says that it is acceptable here, however, because "the Board has accepted this methodology in the past." We see no merit in that argument. Doing something solely for the reason that is has been done before is insufficient, especially when it is known that there is a more reliable methodology available. We do not accept MPAC's GIM valuation.

63MPAC cannot prove the correctness of its proposed current value of $16,936,000 with its income valuation. We have not been provided a pathway to MPAC's current value, nor does the evidence show why that value is correct. To the contrary, MPAC's evidence shows that its proposed value is incorrect, or that its method of calculating it is significantly flawed. We find that MPAC has not met its burden of providing sufficient evidence that the current value, based on the income approach, is $16,936,000.

MPAC Direct Comparison Approach

64In addition to its income valuation, MPAC provides information on the sales of seven properties. Five of those were provided in Patry Enterprises' evidence, and the other two sold in April 2014 and September 2017, over two and five years removed from the January 1, 2012 valuation day. Those properties also contain a commercial component, making them difficult to compare to the Armstrong Property. We do not find the two unique sales presented by MPAC to be comparable properties to the Armstrong Property.

65MPAC then had five sales that it says are comparable properties to the Armstrong Property. It does not provide any explanation of how those sales support its proposed current value of $16,936,000. There is no path we can follow from the sales to MPAC's proposed value. We find that MPAC has not met its burden of providing sufficient evidence that the current value of $16,936,000, based on the direct comparison approach, is correct.

Patry Enterprises' Income Approach

66Patry Enterprises' expert witness, Mr. Rayner, has been designated an accredited appraiser by the Appraisal Institute of Canada and has over 40 years of experience in appraising properties. We accept that Mr. Rayner is qualified to provide opinion appraisal evidence relating to real property.

67Mr. Rayner estimates the potential gross annual income to be $1,636,360. These are the actual rents at the Armstrong Property, averaging $1,241.18 per month over 110 units. We calculate the resulting potential income at $1,638,360 rather than $1,636,360, but Mr. Rayner uses the correct total of $1,638,360 in his subsequent calculations.

68The Court of Appeal in Cardinal Plaza Ltd. et al. and Regional Assessment Commissioner, Region No. 19 et al, (1984) 1984 CanLII 1841 (ON CA), 49 O.R. (2d) 161 ("Cardinal Plaza"), held that an equitable assessment of multi-residential properties based on the income approach must use market rents, as opposed to actual rents, see paragraph 7. There are situations, however, where other buildings in the market may not provide a fair estimate of the potential rents in a particular building. This can be the case when there are special aspects to the building that are likely to result in rents that are either above or below market.

69We find that it is appropriate to use actual rents in this case because the building is much newer than other buildings in the Kingston market. It is, therefore, likely that the Armstrong Property will command rents above the market rate. We accept Mr. Rayner's use of actual rents for potential gross annual income.

70MPAC argues that the rents used by Patry Enterprises are not appropriate because they do not include utilities. We do not see that as an error because the landlord does not profit from utility payments. If Mr. Rayner had used apartment utilities as an operating expense we would have concerns, but he did not do so.

71Mr. Rayner deducts a vacancy and bad debt allowance estimated at 3% to arrive at an effective gross annual income of $1,589,210. Although there is no justification provided in support of the 3% estimate, MPAC takes no objection to this estimate and so we accept it.

72Mr. Rayner then deducts operating expenses in the amount of $334,782 to come up with a net operating income of $1,254,428. MPAC does not challenge any of the operating expenses except that property taxes are not included. Although this expense should be included in operating expenses, Mr. Rayner states that the property taxes were excluded "to preclude a self-fulfilling prophecy relative to taxes." Mr. Rayner does however include property taxes as a factor in the capitalization rate, by adding 1.46% to the capitalization rate, which is the 2012 tax rate for new multi-family projects. We accept this as an appropriate way of including property taxes in the analysis.

73MPAC submits that Mr. Rayner's method of accounting for property taxes is not logical but does not say how or why it is illogical. In any event, MPAC does not provide the calculations of operating expenses if the actual property taxes were included in the operating expenses instead of in the capitalization rate. Using MPAC's own proposed returned assessment of $16,936,000 and a tax rate of 1.46% (which is not disputed by MPAC), the property taxes would amount to approximately $247,000, which would increase the total operating expenses to $581,782 and reduce net operating income to $1,007,428. When capitalized at Mr. Rayner's 7% capitalization rate, the total value is $14,391,828, which is $367,000 less than Mr. Rayner's value of $14,758,329 if property taxes are accounted for through the capitalization rate. That difference is not significant and shows that adding the mill rate to the capitalization rate is a reasonable way to account for property taxes.

74Mr. Rayner capitalizes his net operating income of $1,254,428 at 7.0% plus the tax rate of 1.46%, which he rounds to 8.5%, to arrive at a value by the income approach of $14,760,000. Mr. Rayner justifies a capitalization rate of 7% based on the sales and income of five comparable properties that have capitalization rates ranging from 3.96% to 7.07%. Mr. Rayner opines that the property at 181 Hillendale, with a capitalization rate of 7.07%, is most comparable because it was rented at market levels whereas the other four properties were all below market rental rates. Mr. Rayner explains that below market rental rates drive a lower capitalization rate due to the upside potential of rents. Finally, Mr. Rayner concludes that 7% is a reasonable capitalization rate for the Armstrong Property. He supports his conclusion by opining that the Armstrong Property would command a capitalization rate at the upper end of the range of the five comparable sales because it rents at the upper end of the market and has virtually no upside potential in rents other than prescribed annual increases.

75MPAC submits that the capitalization rate is 6%, which it calculates by taking an average of the capitalization rates of the same five comparable properties. MPAC provides no reasons for relying on the mean. It does not attempt to explain why an average is preferable or justified when considering the characteristics of the comparable sales.

76The more similar two properties are, the more likely they are to share a similar capitalization rate. Mr. Rayner offers clear and transparent reasons to justify his use of a 7% capitalization rate. MPAC does not do so, only calculating the mean of the five sales.

77We prefer Mr. Rayner's explanation, and accept a capitalization rate of 7% for the Armstrong Property. Applying that to the net operating income of $1,254,428, and adding the 1.46% municipal tax rate, leads to a rounded value of $14,760,000. We accept that as the best evidence of the current value of the Armstrong Property for the 2013, 2014, 2015, and 2016 taxation years.

Party Enterprises' Direct Comparison Approach

78Mr. Rayner submitted the sales of six properties to support current value. MPAC also purported to rely on five of these sales, as noted above. The six properties put forward by Mr. Rayner are:

	Sale 1	Sale 2	Sale 3	Sale 4	Sale 5	Sale 6
Date sold	2013/01/18	2012/10/18	2011/08/18	2011/02/01	2013/03/19	2014/08/21
Address	67 Notch Hill Rd.	181 Hillendale Ave.	47-67 Village Dr.	358 Queen Mary Rd.	239 Regent St.	440-460 Elliot Ave.
Lot area	0.99 acres	0.73 acres	6.82 acres	1.95 acres	0.28 acres	2.09 acres
Building size	24,705 sq ft	21,642 sq ft	254,980 sq ft	86,394 sq ft	12,220 sq ft	91,040 sq ft
Density	57.36%	67.78%	85.62%	101.46%	93.29%	54.52%
Sale price	$2,565,000	$2,510,000	$19,510,471	$8,999,991	$1,380,000	$4,850,000
Sale price per sq. ft.	$103.82	$115.97	$76.51	$104.17	$121.05	$97.24
Sale price per unit	$98,653	$80,967	$89,910	$111,111	$92,000	$82,203
Capitalization rate	5.78%	7.07%	5.78%	n/a	3.96%	5.48%

79Mr. Rayner finds that all six properties are inferior and therefore require upward adjustments of the sale price per unit. The six sales range in value from $80,967 per unit to $111,111 per unit. Mr. Rayner opines that the subject property would command a higher per unit value than all of the sales, and so a value higher than $111,111 per unit. We agree with that conclusion.

80Sale 4 is the property that sold at a value of $111,111 per unit. Sale 4 is a condominium property and is of a masonry construction, two factors which would make it superior to the Armstrong Property. However, overall, Sale 4 is inferior because the Armstrong Property is newer with large units and equipped with an elevator.

81Mr. Rayner concludes that the per unit value of the Armstrong Property would be 15% more than the $111,111 per unit sale price of Sale 4. Mr. Rayner does not indicate why another percentage is not applicable.

82Mr. Rayner calculates that a 15% increase would mean that a sale price of $125,000 per unit is warranted for the Armstrong Property. Mr. Rayner further states in his report that multiplying $125,000 by 110 units produces a value of $13,750,000 for the Armstrong Property using the direct comparison approach. However, there is an error in Mr. Rayner's calculation. A 15% increase over $111,111 equals $127,778 per unit, not $125,000. Applying that value to the 110 units in the Armstrong Property leads to a value of $14,056,000. We find that to be a reasonable estimate of current value, but prefer Mr. Rayner's income approach assessment.

Conclusions

83We find MPAC's evidence to be unreliable. We are left with the impression that MPAC's evidence was prepared to simply support a final value of $16,936,000 without conducting a proper valuation exercise. There is no proper analysis provided using the direct comparison or income approaches.

84Mr. Rayner finds the value indicated by the income approach is $14,760,000 and the value determined by the direct comparison approach is $13,750,000. He reasons that a final January 1, 2012 current value of $14,250,000 is appropriate, taking the approximate midpoint of the two values. Mr. Rayner proposes that both the income and direct comparison approaches have their strengths and weaknesses and that he sees no reason to accord one greater weight than the other.

85We find that the income approach is a better indicator of value in this case. The capitalization rate was obtained using the upper range of the comparable sales. Mr. Rayner finds that one of the comparable sales for capitalization rates is most comparable because it rents at the upper end of the market and has virtually no upside potential in rents. In contrast, the comparable sales used in the direct comparison approach are all inferior. Although Mr. Rayner opines that a 15% increase seems reasonable, there is no further support for this increase as opposed to a 20%, 25%, or other increase. That makes the direct comparison approach assessment less reliable.

86The income approach yields a value of $14,760,000 and we find that to be the best evidence of the current value of the Armstrong Property for the 2014, 2015, and 2016 taxation years.

Blackburn Property

87MPAC returned an assessment of $6,906,000 for the Blackburn Property for the 2013, 2014, 2015, and 2016 taxation years. It defends that as the current value of the property in this hearing. As with the Armstrong Property, MPAC relies on both a GIM-based income approach to value and the direct comparison approach to value. For the reasons outlined below, we find that MPAC's analysis is unclear, incomplete, and falls short of its burden to prove the correctness of the current value.

MPAC Income Approach

88MPAC relies on market rents for its potential gross annual income, which it calculates to be $950,986. While it lists the rents used for each market size, and provides a chart of the range of rents in the region, it does not explain how it got from one to the other. For instance, MPAC shows that, for two bedroom units in the region, the median rent is $809, with the minimum being $302 and the maximum being $2,358. It then says that the market rent for a two bedroom unit is $931. That is obviously within the large range of market rents, but we were not told why that was the right amount of market rent.

89MPAC proposes a GIM of 9.93 for the Blackburn Property, which it adjusted to 10.53 in its submissions, after concerns were raised by Patry Enterprises. That is the mean of the GIMs of five properties. MPAC does not explain how comparable those sales are, or why the mean is the preferred metric.

90Applying a GIM of 9.93 to an income stream of $950,986 leads to a value of $9,443,000. Applying a GIM of 10.53 to that income results in a value of $10,014,000. MPAC also provided a capitalization rate calculation that leads to a value of $11,003,000. MPAC's suggested current value is $6,906,000. None of those calculations comes close to supporting MPAC's suggested value. We find that MPAC has not met is obligation to prove the correctness of its suggested current value using the income approach to value.

MPAC Direct Comparison Approach

91MPAC says that it is presenting a direct sales comparison assessment, but it did not do so. MPAC provided information about two properties that had sold, but did not explain how those sales support its suggested current value of $6,906,000.

92The first sale, 335 Barrie Street, sold for $2,500,000, while the other, 655 Princess Street, sold for $50,000,000. MPAC did not explain how those sales show that the Blackburn Property would likely sell for $6,906,000. We are unable to make that inference. We therefore find that MPAC has not met its burden of adducing sufficient evidence to prove the correctness of the current value using the direct comparison approach to value.

Patry Enterprises' Income Approach

93Mr. Rayner provides an estimate of value using the income approach that we find is a good indication of current value.

94Mr. Rayner uses market rents for the Blackburn Property. He provides the rents at a number of other properties in Kingston and selects rents in that range. We find that the rent selected for one bedroom units of $750 is not well supported. One bedroom rents in Mr. Rayner's table are approximately $705, $810, and $966. A rent of $750 for the Blackburn Property, which is a newer building, seems low. We would expect rents of approximately $850. The two bedroom rent of $925 is in the range of the other buildings, as is the three bedroom rent of $1,100. Mr. Rayner calculates a potential annual rental income of $704,700. With our modification of the one bedroom rent, we calculate the annual rental income to be $716,700.

95Mr. Rayner deducts 3% for vacancy and bad debt, which is not challenged. That leaves an effective income of $695,199. He then deducts operating expenses of $174,750, which appear well justified. Removing that from the effective income leaves a net income of $520,449.

96Mr. Rayner proposes an 8% capitalization rate for the Blackburn Property based on it being at the higher end of the rental market, leaving little room for potential purchasers to increase rents. However, in calculating the value, Mr. Rayner uses a 7% capitalization rate. We find that 7% is well supported by the evidence and accept that as the appropriate capitalization for the Blackburn Property. As with the Armstrong Property, Mr. Rayner adds the 1.46% municipal tax rate to the capitalization rate to account for that expense. Applying the total of 8.5% to the net income of $520,449 leads to a value of approximately $6,123,000. We accept that as good evidence of the value of the Blackburn Property.

Patry Enterprises' Direct Sales Comparison Approach

97Mr. Rayner presents the sales of six properties in Kingston as evidence of value. Those sales are the same as he presented for the Armstrong Property. For ease of reference, they are:

	Sale 1	Sale 2	Sale 3	Sale 4	Sale 5	Sale 6
Date sold	2013/01/18	2012/10/18	2011/08/18	2011/02/01	2013/03/19	2014/08/21
Address	67 Notch Hill Rd.	181 Hillendale Ave	47-67 Village Dr.	358 Queen Mary Rd.	239 Regent St.	440-460 Elliot Ave.
Lot area	0.99 acres	0.73 acres	6.82 acres	1.95 acres	0.28 acres	2.09 acres
Building size	24,705 sq ft	21,642 sq ft	254,980 sq ft	86,394 sq ft	12,220 sq ft	91,040 sq ft
Density	57.36%	67.78%	85.62%	101.46%	93.29%	54.52%
Sale price	$2,565,000	$2,510,000	$19,510,471	$8,999,991	$1,380,000	$4,850,000
Sale price per sq. ft.	$103.82	$115.97	$76.51	$104.17	$121.05	$97.24
Sale price per unit	$98,653	$80,967	$89,910	$111,111	$92,000	$82,203
Capitalization rate	5.78%	7.07%	5.78%	n/a	3.96%	5.48%

98Mr. Rayner's opinion for the Blackburn Property is that these sales indicate a per unit value of $95,000. His opinion is inconsistent with specific conclusions he makes, including that an upward adjustment per unit is required for Sale 1. We do not put much value in Mr. Rayner's conclusion on the comparability of these properties given that inconsistency. Overall, his narrative report appears to support a per unit value of approximately $105,000 per unit, more than sale 1, and slightly less than sale 4, which is now a condominium.

99There are 65 units in the Blackburn Property. Applying a sale value of $95,000 per unit results in a total value of $6,175,000, while using a value of $105,000 per unit results in a total value of $6,825,000. Overall, we find it difficult to accurately compare the Blackburn Property to the six properties presented by Mr. Rayner.

Conclusions

100MPAC did not provide sufficient evidence to support its suggested current value. We also do not find Patry Enterprises' direct comparison evidence compelling. However, Patry Enterprises' income valuation is good evidence of current value and indicates a likely current value of $6,123,000. We find that to be the current value of the Blackburn Property for the 2013, 2014, 2015, and 2016 taxation years.

Current Value Conclusion

101MPAC has not provided evidence on which we can determine a current value for these properties. However, Patry Enterprises has presented evidence that satisfies us that the current values of the properties are:

• $660,000 for the Armstrong Property for the 2013 taxation year;
• $14,760,000 for the Armstrong Property for the 2014, 2015, and 2016 taxation years; and
• $6,123,000 for the Blackburn Property for the 2013, 2014, 2015, and 2016 taxation years.

Equity

102Once we have determined the current value of the properties we are required, pursuant to clause 44(3)(b) of the Act, to "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 the adjustment lowers the assessment.

103Patry Enterprises argues that when MPAC fails to discharge its burden, it should then bear the burden of proving that the assessment is equitable. It relies on the decision of this Board in Tenenbaum v. Municipal Property Assessment Corp Region No. 17, [2010] O.A.R.B.D. No. 28. It is our view that the case is wrongly decided and should not be applied. The Act is silent on who has the burden of proof in an equity assessment, so the common law rules of burden would apply. The common law adage is that "he who alleges must prove." That means that the person who is claiming that it would be unfair or inequitable to assess a property at its current value, must prove that claim. There is nothing in that principle that means that MPAC will never have the burden of proof in equity, but it would only hold that burden if it is the party alleging an inequity.

104In this appeal, MPAC is not alleging that it would be inequitable to assess the properties at their current values. The burden of proving that it would be inequitable to assess these properties at their current values rests squarely with Patry Enterprises.

105Patry Enterprises puts forward two ways in which it purports to prove that it would be inequitable to assess the properties at their current values. First, it argues that the assessments of similar properties in the vicinity are, on average, assessed at only 80% of their current values. It therefore argues that it would be fair to also assess these properties at 80% of their current values. Patry Enterprises' second argument is that the GIM applied to similar properties is lower than the GIM applied to its properties. It argues that it would be equitable to calculate its assessments using a similar GIM.

106We find that an equity assessment cannot be properly conducted with components of value, such as GIM. We also find that the level of assessment of similar properties in the vicinity shows that, on average, similar property is assessed at 92.99% of its current value. It would, therefore, be equitable to also assess these properties at 92.99% of their current values. However, that evidence relates to multi-residential assessments. There is no evidence that it would be unfair or inequitable to assess the Armstrong Property at its current value for the 2013 taxation year, when it was classified as vacant land.

Components of Value

107Patry Enterprises presented the assessment information of ten other apartment buildings in Kingston that it says are similar properties in the vicinity. It notes that the assessments were calculated using GIMs that were lower than the GIM applied to its properties. The other properties have GIMs ranging from 6.26 to 7.88, while MPAC proposed a GIM of 9.93 for the Armstrong Property and a GIM of 9.45 for the Blackburn Property. Patry Enterprises argues that it would be equitable to calculate a value for each property using a GIM of 7.5.

108An adjustment of the component parts of current value, such as GIM, is not an equitable adjustment. This Board held in 700 Mohawk Road East Inc v Municipal Property Assessment Corporation, 2016 CanLII 57995 (ON ARB), at paragraph 22, that "equity does not require that those component parts be equalized for all similar properties." We agree that there is no reason to believe that making one or two components of a value calculation the same will lead to equitable assessments. The other components of the calculation will be different, and making one component, such as GIM, the same across a number of properties could lead to more unfairness.

109It would also be highly inconsistent for us to use a GIM method to value these properties for equitable purposes when we have found that Patry Enterprises' net income approach is the best evidence of current value. The Divisional Court recently found that this Board had erred in "having rejected this evidence because it was based on the models that the Board found did not apply to this property, the Board then went ahead and determined the assessed values, on an equitable basis, by using those same models," Municipal Property Assessment Corp. v. Loblaw Properties Ltd., 2017 ONSC 1299, [2017] O.J. No 1010 ("Loblaw") at paragraph 32. We have rejected a current value assessment calculated using a GIM. It would be an error to then calculate the assessment using GIM. We reject Patry Enterprises' argument that equalizing GIM will lead to an equitable assessment.

Level of Assessment

110The best evidence that there is an inequity is a statistically reliable level of assessment study. This flows from the directions of the Ontario Court of Appeal in Re Empire Realty Co. Ltd. and Assessment Commissioner for Metropolitan Toronto et al., 1968 CanLII 183 (ON CA), [1968] 2 OR 388, that an assessment is "unequitable... if all similar lands in the vicinity were assessed at some percentage of actual value substantially less than one hundred." There is unfairness in taxation if this property is assessed at current value while all similar property is assessed lower than its market value. The difficulty in proving an inequity is that it is very hard to show the market value of all similar property in the vicinity. The usual practice is to use the sale values of properties that sold near the valuation date and compare those sale values to the assessments. The resulting assessment to sale ratio ("ASR") shows how close that assessment is to current value.

111A sample of sold properties is necessarily a subset of all similar property in the vicinity. The party presenting a level of assessment study is asking the Board to draw an inference about the state of all property form a subset of that property. That is a statistical exercise and there are accepted practices in drawing safe inferences from statistical data.

112First, means are the strongest and most reliable metric of central tendency in a data set. Means are also the only metric from which reliable error tolerances can be calculated. Those error ranges are important in determining if the true level of assessment of all similar property in the vicinity is below one hundred percent. We find that a 95% confidence interval is a reasonable error tolerance around a sample mean. Neither party provided those statistical metrics so we have calculated them ourselves when required.

113However, before applying statistical measures to a data set, we must determine what the appropriate data set is. Clause 44(3)(b) requires that we have reference to "similar lands in the vicinity." The Divisional Court held, in Loblaw at paragraph 25, that the Act requires "that all points of comparison must be considered."

114MPAC entered the sales and assessment information of 48 multi-residential properties in Kingston that sold between January 2009 and November 2013. It compared the sale prices to the January 1, 2012 assessment of those properties. MPAC argues that the properties are all similar because they are multi-residential buildings in the same city. Patry Enterprises argues that only a small number of those properties are truly similar. Its main argument is that properties that sold for less than $1,000,000 are not appealing to the same purchasers and cannot, therefore, be considered similar property. It also argues that sales that took place too far from the valuation day are not a reliable guide to current value on the valuation day.

115We do not agree that the value of a property is an important metric in determining similarity. Properties can be similar in many ways and still differ in scale. We find that is the case here. All of the properties provided by MPAC are multi-residential apartment complexes in the City of Kingston. Given the statistical nature of a level of assessment study, larger sample sizes are preferred. The only properties that we find are different in kind are the four that have a commercial component: 722-766 John Counter Blvd, 67/47 Village Dr, 368 Rideau St, and 311 Queen St. All of the other 44 properties are similar in their use and general location. They appeal to the same users in the same market. We find that they are similar properties in the vicinity.

116We agree with Patry Enterprises that sales that are too far removed from the valuation day are not good guides to the current value on the valuation day. We find that sales that took place more than 18 months form the valuation day should not form part of the level of assessment study. There are 20 properties in the sample provided by MPAC that sold within 18 months of the valuation day.

117We calculate the mean ASR of that sample of similar properties to be 92.99% and to have a 95% confidence interval of 4.45%. That means that we can be 95% sure that the true mean level of assessment of similar properties in the vicinity is between 88.54% and 97.44%. We can therefore be fairly certain that similar property in the vicinity is assessed below 100%. An equity adjustment is therefore required.

118Given that similar property in Kingston is assessed, on average, at 92.99% of its current value, it would also be equitable to assess these properties at 92.99% of their current values.

119That equitable adjustment is based on the evidence of the assessments of multi-residential properties in Kingston. There is no evidence that it would be unfair to assess the vacant Armstrong Property at its current value, as required by subsection 19(1). We will not, therefore, apply the 92.99% equity adjustment applied to the Armstrong Property for the 2013 taxation year.

CONCLUSION

120We find that MPAC has not met its statutory burden to prove the correctness of the current value of either the Armstrong Property or the Blackburn Property. Patry Enterprises has provided sufficient evidence to prove that the current value of the properties are:

• $660,000 for the Armstrong Property for the 2013 taxation year;
• $14,760,000 for the Armstrong Property for the 2014, 2015, and 2016 taxation years; and
• $6,123,000 for the Blackburn Property for the 2013, 2014, 2015, and 2016 taxation years.

121Other than the 2013 taxation year for the Armstrong Property, we also find that similar property in the vicinity is assessed, on average, at 92.99% of its current value. It would therefore also be fair to assess these properties at 92.99% of their current values. We find that the equitable assessment of these properties are:

• $13,725,000 for the Armstrong Property for the 2014, 2015, and 2016 taxation years; and
• $5,694,000 for the Blackburn Property for the 2013, 2014, 2015, and 2016 taxation years.

122We therefore reduce the assessments as follows:

• the Armstrong Property is reduced from $1,282,000 to $660,000 for the 2013 taxation year;
• the Armstrong Property is reduced from $16,936,000 to $13,725,000 for the 2014, 2015, and 2016 taxation years; and
• the Blackburn Property is reduced from $6,906,000 to $5,694,000 for the 2013, 2014, 2015, and 2016.