Millford Development Limited v. Municipal Property Assessment Corporation, 2019 CanLII 52942

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: June 6, 2019 FILE NO.: WR 160343

Assessed Person(s): Millford Development Limited Appellant(s): Millford Development Limited Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 28 Respondent(s): City of North Bay

Property Location(s): 19 Packard Crescent Municipality(ies): City of North Bay Roll Number(s): 4844-050-078-07722-0000 Appeal Number(s): 3325462 and 3367652 Taxation Year(s): 2018 and 2019 Hearing Event No.: 713965

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

Heard: May 6, 2019 in North Bay, Ontario

APPEARANCES:

Parties	Representative
Millford Development Limited	Paul Orsi, Mike Guillemette and Andrew Winkworth
MPAC	Louise St. Jean, Justin Johnstone
City of North Bay	No one appeared

DECISION OF THE BOARD DELIVERED BY DAN WEAGANT

INTRODUCTION

1The subject property, located at 19 Packard Crescent, has an assessment of $228,000 for the 2018 and 2019 taxation years. Millford Developments Limited (“Millford”) believed this assessment was too high and filed an appeal. Millford believes the assessment should be between $152,000 and $160,000.

2MPAC conducted an inspection of the property in May 2018. Based on the inspection and further adjustments made to the valuation of the property in response to the appeal, MPAC revised its estimated current value to $203,000. MPAC submitted this as a recommended value for the Assessment Review Board (the “Board”) to consider.

3The Board must decide three things in these appeals. Firstly, the Board must determine the current value of the subject property. Determining current value in this case also requires a decision on the appropriate methodology. Once the decision on current value is made, the Board must then determine if the current value found needs to be reduced for the purpose of equitable assessment.

DECISION

4The Board finds the current value of the subject property is $203,000. The Board also finds that there is no evidence to support a reduction in this amount in order to make it equitable with the assessments of similar lands in the vicinity.

5Accordingly, the assessment of 19 Packard Crescent, for the 2018 and 2019 taxation years is reduced from $228,000 to $203,000, in the Residential property class.

LEGISLATION

6In making its determination of these appeals, the Board must consider the relevant sections of the Assessment Act (the “Act”).

7Section 1 of the Act states:

“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.

8Section 19.(1) of the Act states:

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

9Section 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.

MPAC’s Case

What is the Current Value of the Subject Property?

10MPAC submitted a valuation report that considered the sales of six properties in North Bay that it deemed to be comparable with the subject property. These six properties are located between 0.03 and 0.47 kilometres from the subject property. They are all single family dwellings with two storeys or a side split design. They sold between May 2016 and July 2017 for prices ranging from $225,000 to $289,000. The valuation method used by MPAC was the Direct Comparison Approach.

11MPAC compared the subject property to each of the six comparable properties and determined that each of the six were superior in value when compared to the subject property. The lowest sale price among the six comparable properties (23 Packard Crescent) was $225,000. That sale took place on June 30, 2016 or six months after the January 1, 2016 valuation day applicable to the two years under appeal.

12Louise St. Jean, the Assessor representing MPAC, testified that she considered 23 Packard Crescent to be the best comparable among the six sales she selected. She explained that 23 Packard Crescent was built in the same year as the subject property and has the same size lot, the same number of bedrooms and the same number of bathrooms. The subject property and 23 Packard Crescent are essentially the same house, built at the same time in the same neighbourhood.

1323 Packard Crescent does differ from the subject property in four respects, according to MPAC. Firstly, the subject property has not undergone any renovations since it was built in 1987, whereas 23 Packard Crescent was renovated, resulting in an effective year built of 1991. Secondly, the subject property has electric baseboard heat whereas 23 Packard Crescent has a forced air gas heating system. Thirdly, the subject property has 281 square feet of finished basement, whereas 23 Packard Crescent has 400 square feet of finished basement area. Lastly, MPAC assessed the subject property as a two storey property with ‘no split’, whereas 23 Packard Crescent was considered as a split level.

14The net impact of these differences according to MPAC’s valuation report is $22,000; meaning that by direct comparison between the best comparable property as determined by MPAC at 23 Packard Crescent and the subject property, the subject property would have a value of $203,000.

When reference is made to the assessments of similar properties in the vicinity, is a reduction in the current value determined necessary for the assessment of the subject property to be equitable?

15MPAC submitted an equity analysis that compared the time adjusted sale values of 30 single family dwellings in the vicinity of the subject property with their corresponding 2016 current value assessments. Comparisons of such assessments and time adjusted sale values are a common means of determining if similar properties in the vicinity are equitable assessed. The comparison of these assessments to time adjusted sale values is called the Assessment to Sale Ratio (“ASR”). The range of ASRs in MPAC’s sample was 0.860 to 1.146, with a median of 1.000.

16According to MPAC, no adjustment to the current value determined is required because the median ASR falls at 1.00 which indicates that similar properties in the vicinity are being assessed at their current value, based on sales.

Appellant’s Case

Qualification of an Expert Witness

17Prior to initiating his case, Andrew Winkworth sought to have Mike Guillemette qualified as an expert witness. He led Mr. Guillemette through a fulsome description of the appraiser’s experience, credentials and qualifications in property appraisal, government experience and other experience related to real property and its value in the marketplace.

18Justin Johnstone objected to Mr. Guillemette’s qualification as an expert for two reasons. Firstly, he cited the lack of documentation, chiefly the absence of Mr. Guillemette’s resume or “Expert’s Acknowledgement of Duty” form in the Appellant’s disclosure.

19Secondly, Mr. Johnstone cross-examined Mr. Guillemette with respect to his compensation for the work required to provide his opinion of current value in the present case. In making his submission on the Appellant’s request to qualify Mr. Guillemette as an expert, Mr. Johnstone characterized the business relationship as ill defined. He submitted that compensation for expert opinion must be clear in terms of method and approach and submitted that Mr. Guillemette’s relationship with Millford Development Limited was not at all clear from Mr. Guillemette’s answers.

20Mr. Winkworth submitted that the Expert’s Duty form had been sent to the Board by email attachment.

21The qualification of a witness as an expert witness by the Board has the effect of distinguishing that witness’s testimony from the testimony of witnesses that are not qualified the same way. For that reason, the Board is deliberative in its approach to qualification when requested.

22Mr. Winkworth submitted that he sent the ‘Expert’s Duty’ form to the Board by email attachment. Mr. Johnstone submitted that no form had been received by MPAC. The Expert’s Duty form is an important step in the qualification of witnesses as experts because it is a public affirmation that the witness understands that his or her duty is to the Board as a witness with specific qualifications and expertise in a specific subject area. It is not a recognition of experience or years of service. It is rather a declaration that the testimony of the witness will first speak to the truth or findings of a specific issue to the benefit of the Board, before the benefit of anyone else, including the person or corporation paying the expert.

23The benefit to the Party that qualifies a witness as an expert in this context is that the testimony given by an expert is given more weight than equivalent testimony given by a non-expert. There is an advantage to the party whose witness is considered by the Board to be an expert.

24The Appellant in this case is Millford. The Board heard from Mr. Guillemette that he was employed by Millford, “Weston Developments” and “Golden Acres” interchangeably. The report was prepared by Mr. Guillemette, representing a company called True Value Experts Inc. (“TVE”). The Board interpreted this to mean that the report was produced by TVE under Mr. Guillemette’s signature. Mr. Guillemette did not testify that he was compensated by TVE, but indicated that his compensation for the filing of appeals, the production of the report and his testimony at hearing would be compensated for at the time of his year-end performance review with the owner or owners of Millford, or another incorporated entity related to Millford.

25Mr. Johnstone submitted that this relationship as described by Mr. Guillemette clearly showed that he would be paid at some unspecified time in the future for his work and that the compensation was reliant on performance. Mr. Johnstone equated ‘performance’ in this context to actually mean results favourable to the appellant or one of its related companies.

26In order to qualify Mr. Guillemette the Board must be convinced that, as an expert, he has taken the necessary steps to do so and that the requirements of the expert’s acknowledgment can be met.

27It is clear from the submissions that the Appellant did not undertake the necessary steps for disclosure as it omitted sending the acknowledgement form to MPAC.

28MPAC took the position that Mr. Guillemette’s employment arrangement was ill-defined, so his duty to the Board prevailing over any duty to his employer could not be met, on a balance of probabilities.

29Disclosure requirements are meant to maintain a level playing field at the hearing and throughout its process. By omitting disclosure of the expert’s duty form and Mr. Guillemette’s qualifications to MPAC, the Appellant effectively diminished MPAC’s ability to cross examine him during consideration of the Appellant’s request to qualify. This was prejudicial to MPAC.

30Mr. Guillemette’s pecuniary arrangement with the Appellant leaves the Board with questions as to his ability to render full submissions and expert evidence that meets the requirements of the expert’s duty when his compensation for the work lies within the performance review with the same appellant. For these reasons, the request to qualify Mr. Guillemette as an expert witness was denied.

Current Value

31Millford relied on two approaches to determining the current value of the subject property. The first approach was the Relative Comparison approach. Mr. Guillemette described this approach as akin to the Direct Comparison Approach, but where characteristics of the properties being compared are considered as a whole and not necessarily on a differing valuation per characteristic.

32In is comparison, Mr. Guillmette agreed with MPAC to the extent that the best comparable property to the subject property was 23 Packard Crescent. He submitted that all of the six properties considered in his analysis were of superior to the subject property in terms of value, and that 23 Packard Crescent was the most comparable because it had the lowest sale value and that it was very similar to the subject property in terms of age and characteristics.

33Mr. Guillemette distinguished the subject property form 23 Packard Crescent owing to the differences in condition. He summarized the elements of the subject property that would need upgrades as follows:

• New windows, doors, shingles and siding;
• New forced air furnace heating system;
• New flooring, trim and painting throughout;
• Updates to the kitchen, bathroom and landscaping.

34He testified that he spoke with the owner of Millford, who is an experienced contractor and builder in the North Bay area, and extracted an estimated cost of the elements needed to bring the subject property up to the standard of 23 Packard Crescent at $50,000 to $70,000. Mr. Guillemette selected the amount of $65,000 within this range and reduced the sale price of 23 Packard Crescent accordingly to arrive at a comparative value of the subject property of $160,000.

35Mr. Guillemette did not enter any documentary evidence as to the value of the elements he submitted needed upgrading but relied on the conversation he had with the owner as to the value of those works.

36Millford’s second approach to value is what Mr. Guillemette referred to as the Gross Rent Multiplier (“GRM”) method of determining value as part of the Income Approach. Mr. Guillemette applied the monthly rent charged by Millford to the tenant as of January 1 2016, multiplied that rent by 12 for an annual revenue, then applied a GRM to that rental income to derive what he believed to be a market value based on the subject property’s rental income.

37He presented the calculation as follows:

• Monthly rent - $1200 x 12 months = $14,400 annual rental income.
• $14,400 x GRM of 10.54 = $151,776 or $152,000, rounded.

38The GRM was derived from 10 sales of single family dwellings that occurred from 2007 through 2018, including annual rental income of between $15,000 and $22,000.

39By applying his findings of the relative comparison approach and the gross rent approach, Mr. Guillemette preferred the average of these two values and submitted that a reasonable current value of the subject property was $156,000.

Board’s Analysis

What is the best method of determining the current value of the subject property?

40The Parties advanced three separate methods of determining current value. MPAC applied the Direct Comparison approach. Millford applied the Relative Comparison Approach and the Income Approach to value.

41Mr. Johnstone submitted that for the Board to consider the Income Approach to value in this case, certain evidence that was not presented would have to have been provided. These include:

• Rent rolls for the subject property and other properties in the subject ‘rent pool’;
• Confirmation of a market or fair market rent;
• An accounting of operating and capital expenses for the subject property and those properties in rental pool; and
• Expanded sale data for the properties used in the Appellant’s table of sales used to determine the GRM applied.

42Millford defended the GRM approach by citing passages from a recognized volume on assessment and appraisal theory and practice. There was a correlation between the GRM and the GIM in this description and Mr. Guillemette used the two terms interchangeably.

43Mr. Johnstone cited Cardinal Plaza Ltd. et al. and Regional Assessment Commissioner, Region No. 19 et al., 1984 CanLII 1841 (ON CA), 49 O.R. (2d) 161 (‘Cardinal’) whereby the Ontario Court of Appeal found that “…an equitable assessment of multi-residential properties based on the income approach must necessarily use economic rents rather than actual rents.”; adding: “The Court rejected the argument that the calculation should be based upon the actual rents then payable under existing leases.”

44The decision in Cardinal is clear. Without “market” or “fair market” rents in evidence, the Board disregards the Appellant’s GRM approach to value and finds that the direct comparison approach to value is the best approach in the present case.

What is the current value of the subject property?

45The best evidence of current value is a sale of the subject property that occurred on or near the applicable valuation day. In the absence of such a sale, the next best approach to determining current value is the comparison of the subject property to other properties that have sold in proximity to the valuation day.

46In this case, the Board has six sales of other properties in evidence to consider. Both Parties chose the same six comparable properties.

47MPAC looked at each sale in evidence and by making adjustments to them in order to make a comparison to the subject. In doing so, it focused on comparable property 2, at 23 Packard Crescent. This comparable property had the lowest sale value of the six comparable properties. MPAC deemed property 23 Packard Crescent to be superior to the subject property after it made adjustments between the two. MPAC’s calculation of this comparison resulted in a current value for the subject property of $203,000, which it submitted was the best reflection of its current value.

48Millford also chose property 23 Packard Crescent as the best comparable property in the sample of six. Instead of making specific value adjustments to property 23 Packard Crescent, Millford applied what Mr. Guillemette referred to as a ‘relative’ comparison between property 23 Packard Crescent and the subject property. This method takes as many specific features as are in evidence between the subject property and a selected comparable property and makes a judgement as to the difference in value. Mr. Guillemette testified this comparison relies on the experience of the appraiser to arrive at a value of the subject property.

49In doing so, Millford’s case relied on a conversation between Mr. Guillemette and the owner where an estimate of a cost to cure on the subject property was applied. This cost to cure was described as the amount of money required to bring the subject property up to the value of the best comparable property at 23 Packard Crescent. Millford’s view was that it would take $65,000 to make the two properties being compared equivalent in value. By this approach, Mr. Guillemette reduced the sale value of 23 Packard Crescent ($225,000) in evidence by $65,000 to arrive at a current value of the subject property of $160,000.

50Millford’s relative comparison approach suffers from a lack of factual information. While Mr. Guillemette applied a $65,000 adjustment to account for deficiencies in condition, he did not provide any documentary evidence to support that amount. Nor did Millford call any witnesses to attest to that amount.

51MPAC used the same property at 23 Packard Crescent, but used a different method of adjusting its sale price to represent the current value of the subject property. The sale value of 23 Packard Crescent was reduced by $22,000 to account for differences between the two properties. This adjustment in value was based on market conditions determined from sales data collected by MPAC, and demonstrated in MPAC’s documentary evidence. The approach was not refuted by the Appellant.

52The Board finds that the current value of the subject property is $203,000.

Is a reduction in the current value necessary to achieve equitable assessment when reference is made to the assessments of similar properties in the vicinity?

53The concept of reducing the current value determined to make the subject property’s assessment equitable with that of similar properties in the vicinity requires the Board to change a correct assessment finding to one that is incorrect to make it fair and equitable. Adjustments for this purpose cannot therefore be made without compelling evidence to do so.

54The Appellant did not make a specific submission on the question of equity of assessment.

55MPAC’s equity analysis indicates that, when the assessments of 30 similar properties in the vicinity of the subject property are compared with their time adjusted sale values, the result shows that properties are generally assessed at their current value. MPAC relies on a median ASR to decide if the current value of a property should be reduced to arrive at an assessment that is equitable.

56MPAC’s results indicate that it is highly likely that similar single-family dwelling properties in the vicinity are generally assessed at their current values. Accordingly, the Board finds that the current value determined of $203,000 does not require any reduction for it to be equitable with the assessments of similar properties in the vicinity.

CONCLUSION

57The Board finds the current value of the subject property is $203,000. The Board also finds that there is no evidence to support a reduction in this amount in order to make it equitable with the assessments of similar lands in the vicinity.

58Accordingly, the assessment of 19 Packard Crescent for the 2018 and 2019 taxation years is reduced from $228,000 to $203,000, in the Residential property class.