Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: February 22, 2019

FILE NO.: WR 143542

Assessed Person(s): Mor-Pac Limited, Premier Tech Brighton Ltd.

Appellant(s): The Nu-Gro Ltd., C/O Premier Tech Brighton Ltd.

Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 06

Respondent(s): Town of Brighton

Property Location(s): 10 Loyalist Drive

Municipality(ies): Town of Brighton

Roll Number(s): 1408-108-060-29321-0000

Appeal Number(s): 3051136, 3073386 (deemed) and 3145900 (deemed)

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

Hearing Event No.: 638784

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

Heard: October 25, 2016 in Brighton, Ontario

APPEARANCES:

Parties

Counsel⁺/Representative

The Nu-Gro Ltd. c/o Premier Tech Brighton Ltd. Jean-Francois Lavoie, Jake Degroot

MPAC Robert Zamozniak, Terri Lyn Wright

Town of Brighton No one appeared

DECISION OF THE BOARD DELIVERED BY MARK SPRAGGETT

REASONS

Background

1Premier Tech Brighton Ltd. is the owner of 10 Loyalist Drive, an industrial property located in the Town of Brighton (the “Subject Property”).

2Pursuant 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 2013 to 2016 taxation years, MPAC is required to assess this value as of the valuation date, January 1, 2012.

3For the 2013-2016 assessment cycle, MPAC has assessed the current value of the Subject Property, as of January 1, 2012, at $1,280,000.

4Premier Tech Brighton Ltd. (“Appellant”), has filed appeals for the 2014, 2015 and 2016 taxation years with the Assessment Review Board (the “Board”), pursuant to s. 40 of the Act. It is the Appellant's view that MPAC’s assessment is too high and that the correct current value as of the January 1, 2012 valuation date is $425,000.

5Pursuant to s. 40(11) of the Act, the Municipality, in this case, the Town of Brighton, is a party to this proceeding. However, the Municipality did not advise the Board of its position on the issues raised in these appeals and no one appeared at the hearing on the Municipality’s behalf.

6Section 44.(3)(b) of the Act, directs the Board to reduce the Current Value Assessment 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 of the property possessed by each ratepayer.

7MPAC takes the position that an equitable reduction is not required. The Appellant 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 2014, 2015 and 2016 tax years, the correct current value is $1,280,000.

Relevant Legislation

9Section 1 of the Act states:

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.

10Section 19.(1) of the Act states:

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

11Section 19.2(1) of the Act states:

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.

12Section 40.(17) of the Act states:

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.

13Section 44.(3) of the Act states:

44.(3) Same, 2009 and subsequent years. – For 2009 and subsequent taxation years, in determining the value at which any land shall be assessed, the Board shall,

(a) determine the current value of the land; and

(b) have reference to the value at which similar lands in the vicinity are assessed and adjust the assessment of the land to make it equitable with that of similar lands in the vicinity if such an adjustment would result in a reduction of the assessment of the land.

ISSUE

14The issue to be determined in this appeal is: what is the correct current value of the Subject Property for the taxation years 2014, 2015 and 2016?

Description of the Subject Property

15The Subject Property's primary manufacturing activity is processing and producing fertilizers for horticultural and agricultural applications and packaging for both consumer and commercial markets. Production facilities are a composite of the original main building dating from 1987, and phased-in additions/improvements over time, from 1987 through to 2006. The Subject Property's site area is 3.79 acres of industrial zoned land, of which only 1.30 acres is factored into the 2012. MPAC assessment of current assessment as described in MPAC's valuation report. Its total building area is 36,838 square feet (“sq. ft.”). The current owner purchased the property and business assets in June 2015, paying $425,000 for the real estate portion, namely the land and buildings.

Discussion, Analysis and Findings

MPAC’S Evidence

16MPAC is represented by Robert Zamozniak. Terri Lyn Wright, a Property Valuation Analyst with MPAC, testified on behalf of MPAC.

17MPAC’s assessment of $1,280,000 is based on a modified version of the Cost Approach to determining value. This approach evaluates the improvements to the various building structures on the property, in this instance by relying on MPAC’s automated costing system (“ACS”).

18Ms. Wright prepared and submitted a Property Valuation Report ("Valuation Report"), of the Subject Property. The Valuation Report provided an analysis of current value utilizing the Direct Comparison Approach.

19Ms. Wright stated in her Valuation Report that the Subject Property sold on June 1, 2015 for $425,000. However, she stated that she does not consider the sale valid for valuation purposes as the property was not listed on the open market. She further noted that the purchaser at the time was a ‘primary client’ of the vendor, and, therefore, she considers this sale to be a non-arm’s length transaction.

20Ms. Wright identified two properties within the vicinity of the Subject Property, that she considers to be comparable properties, both of which have sold. The first property is 40 Sharp Road, which sold in June of 2014 for $1,011,000. The second property is 14 Loyalist Drive, which sold in October of 2011 for $130,000.

21Ms. Wright testified that, of the two properties, 40 Sharp Road, used as a manufacturing facility, is the most similar to the Subject Property in terms of lot size and age, selling almost a year earlier than the Subject Property. She testified that the sale price of $1,011,000 is more reflective of the market. Ms. Wright presented the second suggested comparable property, 14 Loyalist Drive, as being similar to the Subject Property in terms of location only, and inferior in all other respects, namely site area, building area and age of buildings according to MPAC. Ms. Wright stated that 40 Sharp Road is the best property as a comparable to the Subject Property.

22In addition to the two suggested comparable properties, Ms. Wright researched other similar industrial properties throughout the region. Thirteen properties were located with a wide variation in industrial uses and land configuration. Given this wide variation, she determined the best approach to draw any comparisons to the Subject Property, is by applying a common measure of dollar per square foot (“$/sq. ft.”). Based on this measure, four properties were considered comparable in terms of lot size, suggesting the Subject Property’s value estimate is $34.75/sq. ft. This value contrasted significantly to that of the Appellant's suggested valuation of $425,000 which represented a value estimate of $11.54/sq. ft.

23Ms. Wright’s analysis, relies on the most recent property sale within proximity to the Subject Property, 40 Sharp Drive, and the derived sale price per square foot for the Subject Property of $34.75. Ms. Wright testified that applying this price per square foot value to the Subject Property's building area of 36,838 sq. ft., she concludes that the correct current value of the Subject Property is $1,280,120 for the respective taxation years as of the January 1, 2012 valuation date. Ms. Wright concludes, therefore, that MPAC’s assessment is correct at $1,280,000.

24Ms. Wright testified that the 100% apportionment of the property in the industrial class is accurate for a property engaged in manufacturing and production.

MPAC’s Submissions

25MPAC argues that the sale of the Subject Property in 2015, was neither an open market sale nor an arm's length transaction, and, consequently, the sale price of $425,000 is not representative of a valid sale for the purposes of determining current value.

26MPAC points out that the representative for the current Owner, Premier Tech Brighton Ltd., stated that the sale of the Subject Property was not listed on the open market, believing that the former owner probably solicited other prospective buyers without the need to list the property for sale on the open market.

27MPAC points out that 40 Sharp Drive, a similar property to the Subject Property, and with significant contamination issues, sold for much more, $1,011,000.

28MPAC disagrees with the Appellant's position that the variety of buildings on the Subject Property should be apportioned between industrial and commercial use. MPAC argues that a number of other factors come into play in matters determining use, notably ceiling heights, larger square footage and structural improvements.

29MPAC disputes the Appellant’s claim that the Subject Property is contaminated, arguing there is no evidence before the Board supporting the Appellant’s claim, other than an unsigned draft document of an environmental assessment study.

30MPAC disagrees with the findings of a 2014 draft version of a Phase 1 Environmental Assessment Study, (“EAS”), prepared for Premier Tech Home & Garden, at the time a tenant of the Subject Property, prior to becoming the owner referred to as Premier Tech Brighton Ltd. MPAC argues that it is a draft document, and it is not clear if it is factually accurate, as there is no indication that this draft is the final version, nor have the authors of the EAS signed this document.

31MPAC disagrees with the Appellant's assertions that the property value is low because of the issue of contamination.

Appellant's Evidence

32Jean Francois Lavoie represented the Appellant, Premier Tech Brighton Ltd. Jake Degroot was affirmed as witness, testifying on behalf of the Appellant.

33Mr. Lavoie submitted a copy of a Purchase Agreement dated May 15, 2015 between the owners and the buyer Premier Tech Brighton Ltd. & Premier Tech Home & Garden Inc. This document was signed by all parties. The portion of the sale that included the land and building(s) was valued at $425,000 ($100,000 for the land and $325,000 for the building).

34Mr. Lavoie also submitted a study from the Ministry of the Environment and Climate Change (“MOECC”) dated March 4, 2016 ("Report"). The study conducted a hydrogeological investigation of a nearby industrial property, 93 Prince Edward Street, to gauge groundwater flow conditions and the extent of solvent contaminants impacting on neighbouring properties such as the Subject Property. The Report’s conclusions are based on 2015 data obtained from monitoring wells situated on a number of neighbouring industrial lands including the Subject Property.

35Mr. Lavoie also submitted a draft copy of a Phase 1 EAS of the Subject Property, that was commissioned sometime in 2014.

36Mr. Lavoie expressed his view that the EAS conclusion that the Subject Property is in an area of potential environmental concern (“APEC”), contributed to the negotiated final selling price between the seller and buyer sometime in 2015.

37Mr. Lavoie further stated that the EAS recommended a Phase 2 Environmental Site Assessment (“ESA”) to be conducted on the Subject Property, to determine the nature of the APEC and whether contamination exists, resulting from a highly contaminated industrial property nearby, 93 Prince Edward Street. He indicated that, to the best of his knowledge no follow up Phase 2 ESA has been completed.

38Mr. Lavoie expressed his view that the 100% industrial classification for the Subject Property is too onerous, in terms of the resulting tax implications, suggesting there ought to be a better apportionment between commercial and industrial use for the buildings on the Subject Property.

Appellant's Submissions

39The Appellant disputes MPAC's submission that the sale of the Subject Property is not an open market, arm’s length transaction. The Appellant asserts that the Subject Property sold for a price that reflected an open market sale, submitting a “Letter of Intent”, dated November 27, 2014, to corroborate that the sale was an arm’s length process.

40The Appellant agrees that 40 Sharp Road, one of MPAC's suggested comparables, is most suited as a comparable to the Subject Property. However the Appellant maintains that it is more suited as a commercial property and not as an industrial property. Therefore, the Appellant disputes MPAC's full apportionment of the Subject Property to the Industrial class.

Findings

41The Board considers the best test of current value is an arm’s length and market tested sale of the Subject Property on the legislated valuation day, January 1, 2012 or close to it. If no such transaction took place, the next best measure of current value is the arm’s length and market tested sales of comparable properties in the same vicinity and market place, on or close to the valuation day. This measure acts as a benchmark and a gauge of the accuracy for the assessed value of the Subject Property.

42To estimate the value for the Subject Property from a comparable property(s), there must be sufficient elements of similarity, in terms of physical factors such as total building area, land area, land frontage, age of construction, physical condition etc.; and in terms of neighbourhood characteristics such as location, access to amenities, type and nature of structures etc. This will enable a direct comparison to be made between the comparable property and the Subject Property.

43The Appellant submitted a Purchase Agreement (“Agreement”) dated June 1, 2015, detailing the breakdown of the assets being sold. Under this Agreement the lands and buildings were valued at $425,000. The Appellant maintains that the Agreement is an indicator of an arm's length and open market sale transaction. The Board finds that there is no evidence in this Agreement that demonstrates that there was any negotiation process representing an arm’s length transaction. Therefore, the Board is not persuaded that the Purchase Agreement represents an arm’s length sales process. The Appellant argues that the previous owner, a large corporation, would surely have solicited other prospective buyers. However, the Board notes that no evidence was provided from the Appellant to corroborate his view.

44The Board finds that the recent sale of 40 Sharp Drive for $1,011,000 considered by both parties is the most comparable to the Subject Property, representative of an open market sale. Considering the significant disparity in sale prices between this property and the Subject Property, the Board is not persuaded by the Appellant’s testimony that the sale of the Subject Property in 2015 was an arm’s length market sale.

45The Appellant argued that the final purchase price for the Subject Property’s real estate component of $425,000, took into account that the property is in an APEC for possible contamination from certain neighbouring properties. The Appellant alleges that the potential for site contamination negatively impacted the value of the property’s real estate component when the Subject Property was sold in May 2015. For the following reasons, the Board does not accept this submission.

46The Board has reviewed the documentary evidence submitted to the Board by the Appellant. Regarding the study from the MOECC, the Board finds that the study clearly states that chlorinated solvent contamination of groundwater (emanating from a neighbouring property known as 93 Prince Edward Street), was not impacting on the Subject Property. The Board further notes that the authors of this study were not in attendance at the hearing for the Board to respond to questions in order to further clarify the meaning of this report.

47Regarding the Phase I ESA that was performed on the Subject Property in 2014, the Board notes that it is not disputed that this is only a draft report which has not been finalized with formal signatures from the person who conducted the ESA. The Board further notes that none of the authors of the draft were present at the hearing to respond to questions. For these reasons the Board can ascribe little weight to this evidence, in making its determination of the correct current value.

48The Board has reviewed the ESA draft and recognizes that the Phase 1 Study is a non-quantitative investigation of the Subject Property's land uses, land topography, geology and a review of historical records, which further describes any potential or actual contamination issues based on human activity on or nearby the Subject Property. The Board notes that the results of the ESA found no contamination of the Subject Property lands. Instead, it only raises concerns related to a neighbouring property as an APEC. It’s conclusion clearly states that no contamination existed on the Subject Property lands at the time the environmental assessment was executed.

49The Board notes that the ESA draft recommended that a follow up Phase 2 EAS be conducted, to make a determination of any contamination. The Board notes that the Appellant has provided no evidence to indicate that a Phase 2 ESA was conducted. The Appellant testified it did not know whether a Phase 2 ESA was performed.

50The Board finds that there is no persuasive evidence before the Board, that supports the existence of contamination or the potential of contamination on the lands of the Subject Property. While the Appellant may have negotiated a purchase price on the basis that contamination was a concern, the Board finds there is no evidence of contamination. Furthermore, the Board notes that an APEC is not the same as an actual contamination and without a Phase 2 Study, there is no evidence to support a conclusion that the Subject Property is in fact contaminated. In this instance, based on the draft Phase 1 Study, the Board is not persuaded that the issue of contamination or the potential of contamination can be considered when determining the correct current value of the Subject Property.

51The Board finds that although the best comparable property, 40 Sharp Road, has a significant level of contamination, no evidence was provided to explain the higher sale price it received in the open market, particularly for a property heavily contaminated compared to the Subject Property. The Board is persuaded by MPAC’s view that the high sale price for 40 Sharp Road already factored the issue of contamination into the sale price and therefore is a better indicator of market behaviour to such properties including the Subject Property. The Board rejects the Appellants’ argument that the lower sale price for the Subject Property reflects the impact of contamination.

52The Appellant argued that the 100% industrial classification created an onerous tax burden and that some of the Subject Property's buildings ought to be classified as commercial. This same line of thinking was also used by the Appellant for 40 Sharp Road, in asserting that it is more suited as a commercial property than an industrial property. The Board finds that the Appellant provided no evidence to support the position that the Subject Property and 40 Sharp Road ought to have a different classification apportionment between commercial and industrial use. For these reasons, the Board accepts that the property’s current classification is correct.

53The Board finds the sale price negotiated by the Appellant when it purchased the Subject Property in 2015 is considerably under market in comparison to similar properties. The Board finds MPAC's evidence, notably 40 Sharp Road and MPAC’s analysis of 13 similar properties in the vicinity, is the best evidence from which the Board can make a determination of current value. The Board further accepts the analysis of MPAC's specialist, and finds, therefore, that the correct current value of the subject property, as at the valuation day January 1, 2012, is $1,280,000 for the taxation years 2014, 2015 and 2016.

DECISION

54The current value of the Subject Property is $1,280,000 for the 2014 to 2016 taxation years.