Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: March 08, 2019 FILE NO.: WR 155896

Assessed Person(s): 2324784 Ontario Limited Appellant(s): 2324784 Ontario Limited; Dagmar Teubner Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 07 Respondent(s): City of Kawartha Lakes

Property Location(s): 20 Kenrei Road Municipality(ies): City Kawartha Lakes Roll Number(s): 1651-006-002-14000-0000 Appeal Number(s): 3269540 and 3203074 Taxation Year(s): 2017 and 2018 Hearing Event No. 703587

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

Heard: September 5, 2018 by telephone conference

APPEARANCES:

Parties	Representative
2324784 Ontario Limited	Dagmar Teubner
MPAC	Rebecca Bolton
City of Kawartha Lakes	No one appeared

DECISION OF THE BOARD DELIVERED BY LESLIE FLEMMING

Background

12324784 Ontario Limited is the owner of 20 Kenrei Road in Kawartha Lakes, (the “Subject Property”), which is a farm property with a non-farm residence owned by a non-farmer. This parcel consists of 111.32 acres with a house built in 1900 described as being in “fair” condition. There is also a shed built at the same time measuring 259 square feet (“sq. ft.”) in size, and a barn built in 1978 and measuring 1,500 sq. ft. The assessment was returned in the amount of $804,000 in $2017 and $618,000 in 2018.

2Pursuant to the provisions of the Assessment Act (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 day, January 1, 2016.

3MPAC has assessed the value of the Subject Property, as of January 1, 2016, at $804,000 in 2017, and $618,000 in 2018, apportioned as follows:

2017	2018
Residential Property Class - $97,000	Residential Property Class - $99,900
Farm Property Class $706,800	Farm Property Class - $521,100

4At issue is the correct current value of the property as of January 1, 2016, the valuation day (“current value”). The Assessment Review Board (the “Board”) must determine the value of the Subject Property for the 2017 and 2018 taxation years.

Of particular importance to this appeal is the fact that 2324784 Ontario Limited purchased the land in March, 2015, for $425,000. MPAC deems the sale not to be a sale between a “willing seller” and a “willing buyer” for the reason that it was an Estate sale. They characterize an Estate sale as a “forced sale”. If MPAC is correct, then the price paid for the purchase may not be a good indicator of the value of the lands. The Appellants, on the other hand, submit that the sale was a normal sale between a willing buyer and seller, who are unrelated, following several months of being advertised in the open market. For that reason, this sale should not be treated any differently than any other farm sale occurring March, 2015.

5The Appellants have filed appeals for taxation years 2017 to 2018 with the Board, pursuant to s. 40 of the Act. It is their position that MPAC’s assessment of current value is too high and that the correct current value is $425,000. At this hearing, MPAC takes the position that its assessed value is correct.

6Pursuant to s. 40(11) of the Act, the City of Kawartha Lakes is a party to this proceeding. However, the City of Kawartha Lakes did not advise the Board of its position on the issues raised in these appeals, and no one appeared at the hearing on its behalf

7Section 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 of the municipal tax burden according to the value of the property possessed by each ratepayer. MPAC 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 the 2017 to 2018 tax years is $456,000 apportioned as follows:

• Residential class: $97,000
• Farm Property Class: $359,000

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.

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

Valuation days

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

4. For the period consisting of the four taxation years from 2017 to 2020, land is valued as of January 1, 2016.

19(5) Farm lands and buildings - For the purposes of determining the current value of farm lands used only for farm purposes by the owner or used only for farm purposes by a tenant of the owner and buildings thereon used solely for farm purposes, including the residence of the owner or tenant and of the owner’s or tenant’s employees and their families on the farm lands,

(a) consideration shall be given to the current value of the lands and buildings for farm purposes only;

(b) consideration shall not be given to sales of lands and buildings to persons whose principal occupation is other than farming; and

(c) the Minister may, by regulation, define “farm lands” and “farm purposes”.

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 on this appeal is the correct current value of the Subject Property for the taxation years 2017 to 2018.

Discussion, Analysis and Findings

MPAC’S Evidence

11Rebecca Bolton, a Property Valuation Specialist, represented MPAC. She prepared the documentary exhibits filed, including the Valuation Report and the Equity Analysis Report, dated March 2, 2018. Ms. Bolton testified on behalf of MPAC.

12Ms. Bolton began by stating why MPAC treated the purchase of the Subject Property by the Appellants as a “forced sale” and therefore not an open market transaction. The property went into an Estate as of November, 2014, and was put up for sale soon afterwards. The Appellants purchased the lands the following March for $425,000.

13Ms. Bolton describes the Subject Property as being comprised of 111.32 acres, and having a house built in 1900, originally of construction quality 5.5, but now somewhat run down, resulting in MPAC’s determination that the condition at the time of sale was only “fair”. The home is 1 and ¾ storeys tall and 2,000 sq. ft. in size, with an unfinished basement of 626 sq. ft. As noted in the opening paragraph, the other improvements include a shed built in 1900 and a 1,500 sq. ft. barn built in 1978.

14Ms. Bolton described the process she used to evaluate the land and buildings. MPAC deemed the soil quality as Class 2 (50.32 acres) and Class 3 (60 acres). MPAC values farmlands such as these by using the cost method with respect to the value of the structures, and confirmed the requirements of s. 19(5) of the Act, as set out above in paragraph 9. Ms. Bolton indicated that the home was not made available for inspection as it is occupied by tenants. She based her assessment on comparative sales of similar properties sold between February, 2014 and September, 2016. The comparable sales she proposed included farmland without any buildings or structures, as well as farmland with residences and other buildings. In the Tables below, the farms are contrasted.

15Ms. Bolton also explained the change in prices over time, and testified that she had carried out an analysis of price changes over time in order to adjust values of sold properties to make them current with January 1, 2016. By analyzing 348 sales of farmlands in the vicinity of the Subject Property, and determining fluctuations in sales prices over time, Ms. Bolton advised that she could make appropriate calculations to bring prices into line with the valuation day. The Appellants did not object to the price changes over time per se, but preferred using price changes found in the 2015 Farm Credit Canada (“FCC”) Farmland Values Report.

16MPAC determines a farm’s value based on the value of the land without improvements (a value which is estimated using the comparable direct sales method) and then adds to that value the value of improvements based on a costs analysis. Following the identification of replacement cost new of the improvements, MPAC then calculates depreciation, functional obsolescence, and external obsolescence if applicable, and ends with a total value.

17Ms. Bolton analysed six farm property sales to come up with a land value, which she says is $505,000. The six sales included properties between 100 acres and 79.74 acres in size. Four of the six sales were farm properties without buildings or structures. Table A below sets out the six land sales, identifying the dates of the sales, sizes of the holdings, time adjusted sales amounts, and a breakdown of soil types.

TABLE A: MPAC’S PROPOSED COMPARABLE FARMS

ROLL # 1651-	NO. OF ACRES	SALE DATE	TIME-ADJUSTED SALE PRICE	CL 1	CL 2	CL 3	CL 4	CL 5	CL 6
Subject Property	111.32	Mar, 2015	$455,000	0	50.32	60	0	0	0
100-402-1100	97.92	May, 2015	$426,038	0	0	77.92	0	0	20
110-020-14400	97.04	Apr, 2014	$636,295	0	84.04	0	0	0	13
006-004-10800	99.38	Feb, 2014	$520,419	0	68	0	0	2	29.3
006-005-09610	79.74	Aug, 2014	$427.277	0	54.74	18	0	0	7
110-020-00715	100	June, 2014	$618,196	0	82	0	0	18	0
210-010-06200	87.42	Sep, 2016	$402,144	0	15	67	4.4	0	1

18Based on these six sales, Ms. Bolton estimated the value of the Subject Property’s farmland to be $505,000. She then explained the cost approach and its application to the improvements in place on the property. Ms. Bolton explained that the value of the land plus buildings was determined to be $804,000 for January 1, 2016. However, after receiving the Request for Reconsideration, she reduced the value by using land values for the “705” neighbourhood (Fenelon Township neighbourhood) instead of the “702” neighbourhood (Ops Township). The property is located on the border between these neighbourhoods, and the agricultural land tables distinguish between them. The Table Below sets out the differences.

Table of Land Class Values Neighbourhoods 702 & 705

Neighbourhood	Class 1	Class 2	Class 3	Class 4	Class 5	Class 6
702 (Ops Twp.)	$9,925	$7,150	$5,550	$3,000	$2,225	$1,250
705 (Fenelon Twp.)	$7,250	$5.225	$4,050	$2,175	$1,625	$925

19Following reconsideration using Ops Township values, MPAC reduced the value of the land to $505,110. The improvements had been costed out at $94,485 (residence) and $18,569 (farm buildings) for a total of $113,054, which was added to the land value for a total value of $618,164. See Table B below.

20MPAC selected five farm sales occurring between August, 2013, and July, 2016, which Ms. Bolton used along with the cost method to confirm the value of the farm buildings and Subject Property residence. While MPAC’s Appendix E set out details of the sales, the structure sizes and construction quality, the nature and quality of the farm outbuildings, and, lastly, the types of soil and acreages of farmland in each soil type, the use MPAC made of this evidence was mainly to establish the estimate of value of the house and barn. Therefore, the chart is reproduced below only in minimal form:

TABLE B MPAC’S PROPOSED COMPARABLE FARM SALES – BUILDINGS & RESIDENCES (See Notes Below)

	Subject Property	1624 Elm Tree Rd.	140 Hall’s Rd	1251 Peniel Rd.	508 Taylor’s Rd.	582 Skyline Rd.
Sale Date	03/09/2015	05/28/2014	08/22/2013	10/11/2013	07/08/2016	01/30/2015
TA Sale Price	$455,892	$836,327	$646,408	$647,368	$879,234	$653,615
Site Area (Acres)	111.32	93.3	95.77	97.52	100	98
Residence Total Area (sq. ft.)	2,000	3,404	2,228	2,646	2,488	1,729
Storeys	1 ¾	2	1 ¾	1 ¾	1 ¾	1 ¼
Structure Condition	Fair	Average	Average	Fair	Average	Average
Secondary Structures	Shed	Att. Garage; outdoor pool	Detached garage	Attached garage
Farm Structure 1 details	Type II Barn	Open top silo;	3 Type III uninsulated barns	Type I Barn	3 Type III uninsulated Barns
Farm Structure 2 Details	Type III uninsulated barn	Type 1 Barn	3 Type III uninsulated barns	Type 1 Barn	3 Type III uninsulated barns
Farms Structure 3 Details	Type I barn	Type IV uninsulated barn
Additional Farm Structures?	2 Type III uninsulated barns;
Farm Class Largest Acreage	60 acres Class 3	55 Acres Class 2	46.77 Acres Class 4	63.52 Acres Class 3	96.5 Acres Class 2	61 acres Class 6
Farm Class 2nd largest acreage	50.32 Acres Class 2	22 Acres Class 5	23 Acres Class 5	33 Acres Class 2	3.5 acres Class 5	22 Acres Class 2

Notes:

1. All residences ranked 5.5 or 6.0 “Quality of Construction” by MPAC.
2. All residences were built between 1850 and 1910.
3. All residences have basements, with Property #5 having 432 sq. ft. finished basement.

21Ms. Bolton compared the assessment of the Subject Property to the five other farm sales occurring between August, 2013, and July, 2016 as set out in Table B. She did this in order to check the accuracy of the piece-by-piece assessment of the property. The homes varied significantly in size. The farmlands differed significantly in value. None of the proposed comparable properties had land in the Class 1 soil type, but after that there were several with soil classifications much better than the Subject Property’s. In addition, some of these proposed comparable properties had more farm outbuildings than the Subject Property, although the farm buildings were generally older buildings pre-dating1978. These farms sold for time-adjusted prices between $646,408 and $879,234. All five proposed comparable sales had from three to five farm structures, while the Subject Property has only one (Type II barn built in 1978). All had older homes, however, which were built between 1850 and 1910. MPAC relies on these proposed comparable sales to support the current value of $618,000 for the Subject Property.

MPAC’s Submissions

22Relying on its evidence, MPAC submits that the correct current value for the taxation years 2017 to 2018 is $618,000, apportioned as follows:

• Residential - $96,911
• Farm Property - $521,253

Appellant’s Evidence

23Dagmar Teubner represented the Appellants and gave all the evidence. She filed documentary evidence in support of the appeal, which will be referred to by document in the following paragraphs.

24Ms. Teubner testified that the Subject Property was purchased by 2324784 Ontario Limited for the purpose of cash cropping. She filed a copy of the MPAC “Farm Sales Questionnaire” dated June 16, 2017, a document which notes that the Subject Property was primarily used for beef farming and that it was farmed by a tenant some two years after the purchase. Ms. Teubner gave evidence explaining what happened between the purchase in March, 2015, and two years later, to change the intended use of the property.

25She testified that the corporation had intended to work the land, but that it quickly became apparent that there were problems with the soil. In the first year, the tenant farmer was not able to produce a crop. In addition, the well had to be re-drilled. When a well-drilling company was approached, they advised many wells in the vicinity were dry and that the bedrock in this location was particularly close to the surface.

26What the Appellants discovered over the first two years was that the soil was quite dry, but when there was rain, it failed to drain. Ms. Teubner testified that the solution to this problem would be to install drainage tiles. The Appellants contracted with Walker Wright Drainage Inc. to investigate the installation of tile drainage on the Subject Property. This company reported back that the bedrock was too close to the surface. This resulted in insufficient drainage in a period of rain, and insufficient moisture in the ground during dry periods. The tenant farmer advised the Appellants that the only use for the soil would be pastureland for cattle. As far as soil classification went, Ms. Teubner testified, this was equivalent to Class 6 soil, not Class 2 and 3 as assessed by MPAC. Ms. Teubner provided copies of the well-drilling report and a report from Walker Wright Drainage dated March 29, 2018, confirming that the soil depth ranged from 12 inches to 24 inches on top of the rock. The latter report states: “This is too shallow to allow for property tile drainage to work. This property is very wet and does not allow for cash crops to grow with the wetness of the soil without tile drainage.”

27Ms. Teubner advised as well that the house was rented to tenants. At this point, and as of the valuation day, it continued in “fair” condition and had not been improved since the purchase.

28Ms. Teubner submitted that the purchase of the Subject Property was an arm’s length transaction. The Subject Property was sold by a realtor, and had been listed for sale for $5,000 more than was paid for it. The purchase was a business decision; the property was to form part of the Appellants’ portfolio of properties used for cash cropping. The price that was paid was fair market value, although once the Appellants tried to grow crops unsuccessfully for two years in a row, they realized that the property had not been a good investment. Because of the high bedrock levels and the low soil levels, the property is not at all suitable for cash crops but only for pastureland.

29Ms. Teubner concluded by submitting that the correct value for the Subject Property as of the valuation day would be $447,600, which is the amount paid for the Subject Property plus the increase in value derived from statistics published by FCC. This increase is based on 9 and 2/3 months on the average increase in Ontario farmland of 6.6% as set out in the 2015 farmland FCC 2015 Farmland Values Report, a copy of which was provided by the Appellant. This particular report does not provide regional fluctuations. Ms. Teubner submits that, if it gave a regional breakdown as is done in the 2016 Farmland Values Report, a much lower increase would be attributed to the North Central region where the Subject Property is located.

Appellants’ Submissions

30Relying on their evidence, the Appellants submit that the current value for the 2017 to 2018 taxation years should be reduced to $447,600, apportioned as follows:

• Residential classification: $96,900;
• Farm Classification: $350,700.

31In the alternative, the Appellants submit that if the true value were applied to the Class 6 soils on the Subject property, the value of the farm property would need to be reduced to $110,046. When added to the residential class portion of $96,900, the total value of the land should really be $207,000. Ms. Teubner notes that 2324784 Ontario Limited would not have paid $425,000 for the Subject Property had it known the true soil classification.

ANALYSIS AND FINDINGS

30The very best gauge of “current value” is the amount paid by a willing buyer to a willing seller in an arm’s length transaction. In this case, 2324784 Ontario Limited purchased the Subject Property only nine months before the “valuation day”. The Appellants submit that, perhaps knowing the rather poor drainage on the land and the poverty of the soil as a result, it may not have paid what it did for the land. However, at the time of the purchase, 2324784 Ontario Limited was a willing buyer. That should then be the value of the Subject Property, subject to any adjustments resulting from the passage of time between March, 2015, and January 1, 2016.

32MPAC made a different submission, arguing that the sale by an Estate could not usually be deemed to be a sale by a “willing seller”. Furthermore, MPAC argued that the value of the property was less than the values of similar farms sold during the months before and after the sale, as set out in the various comparable farm properties proposed by MPAC.

33In this case, no evidence was led by MPAC to support the argument that the vendor was not a “willing seller”. Even though the sale was made by an Estate, the evidence showed that it was advertised, listed with a realtor, and listed with MLS, a service which makes real property currently for sale available to people all over the country. MPAC took the position that the property was sold at a lower price because it was an Estate sale. It attempted to prove this by showing that the amount paid was an amount below market value. MPAC used a total of 11 sales in an effort to show that the amount paid by 2324784 Ontario Limited only 10 months prior to the valuation day was much lower than the true current value as of January 1, 2016. MPAC argues that the current value is almost $200,000 more than the amount paid.

34MPAC used both comparative sales analyses and a cost approach analysis to value the farm land along with the improvements on it. While MPAC selected more comparable properties in its land value analysis, it refused to regard the soils on the Subject Property as anything less than Class 2 and 3 soils.

35The Appellant disagreed. While the soil may have initially appeared to be Class 2 or 3 soils, their experience cultivating the land for cash crops showed that the bedrock was too close to the surface to permit either natural drainage or remedial tiling, and evidence supporting this conclusion was filed by the Appellant. Cash crops are not able to be grown. Having concluded that the soil is useful only for grazing cattle, the Appellant takes the position that the class of soil is inaccurate because it fails to consider the effect of the bedrock on its utility. Therefore, the Appellants argue that the current value of the Subject Property is $425,000, time-adjusted, and not $618,000 as is being suggested by MPAC.

36The Board agrees with the Appellants. The sale of the Subject Property within ten months of the valuation day is the best evidence of its value. There is no requirement that the Board consider the other evidence presented of similar properties in the vicinity.

37Both parties submitted evidence on time-adjustment formulae. MPAC derived its formula from the Assessor’s calculation of the sales ratio trend analysis involving 348 sales of vacant and/or improved farmland in the vicinity in Ontario over 41 months between August, 2013, and December, 2016. The Appellants used a single statistic for 2015 from the 2015 Farmland Values Report, published by FCC. While the latter Federal report publishes monthly changes in overall farm property sales values by province, the Board finds that the MPAC study is a locally-based approach to changing values over time. Consequently, the Board in this case will use the evidence provided by MPAC, which shows that the change in value for farm properties sold in March, 2015, to January 1, 2016, is 1.073. When I apply that to the purchase price of $425,000, the value as of January 1, 2016, is $456,025, or $456,000 rounded.

38On the issue the apportionment, the parties were in agreement as to the value of the house. No evidence was led by the Appellants to refute the initial apportionment presented by MPAC. Evidence showed that the house had not been improved since the purchase in 2015, and while it was rented to tenants, the Appellants had no real plans for the home at the time of the hearing, nor did the Appellants call any evidence to refute the value for the home suggested by MPAC.

39Lastly, the Board is required to consider the evidence on the issue of equity as required by s. 44(3)(b) of the Act. In this case, while MPAC presented evidence while the Appellants presented no evidence and made no submissions relating to equity.

40MPAC presented an equity report using 30 selected rural and farm properties. Using all 30 properties, the mean assessment to sale ratio is 1.023, and the median is 1.023 as well. These measures fall within MPAC’s target range of 0.95 to 1.05. The coefficient of dispersion was 17.4, which is also within acceptable range according to MPAC standards which require not more than 20. The results do not require the Board to make an adjustment pursuant to s. 44(3)(b) of the Act.

DECISION

41The correct current value of the Subject Property is $456,000 for the 2017 to 2018 taxation years. The Board reduces the assessment of the Subject Property from $804,000 for 2017 to $456,000, with $97,000 in the Residential property class; and $359,000 in the Farm property class.

42The Board reduces the assessment of the Subject Property from $618,000 for the 2018 taxation year to $456,000, with $97,000 in the Residential property class; and $359,000 in the Farm property class.

43An equitable reduction of the current value of the Subject Property, pursuant to s. 44.(3)(b) of the Act, is not required.