Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: September 13, 2019

FILE NO.: WR 160494

Assessed Person(s): TMD Investments Limited

Appellant(s): TMD Investments Limited

Respondent(s): City of Brampton

Property Location(s): 77 Hale Road

Municipality(ies): City of Brampton

Roll Number(s): 2110-020-005-02039-0000

Appeal Number(s): 3268097

Taxation Year(s): 2016

Hearing Event No.: 712901

Legislative Authority: Section 364 of the Municipal Act, 2001, S.O. 2001, c. 25

Heard: May 16, 2019 by telephone conference call

APPEARANCES:

Parties

Representative

TMD Investments Limited

Henry Dlugosz

City of Brampton

Kumar Sapkota

DECISION OF THE BOARD DELIVERED BY JOSEPH JEBREEN

OVERVIEW

1TMD Investment Limited (the “Applicant”) is the owner of the property at 77 Hale Road in the City of Brampton (the “Property”). The Property is an industrial building with some office space. The Property was vacant for a portion of 2016 and the Applicant applied to the City of Brampton (the “City”) for a rebate of taxes pursuant to section 364 of the Municipal Act, 2001, S.O. 2001, c. 25 (the “Act”).

2That timely application was partially granted by the City. The Applicant applied for the period of time from March 1, 2016 to September 15, 2016 on the basis that the Property was not in use during that time period. The City issued a refund for the four months from March 1, 2016 to July 1, 2016 but denied the remaining period of time because the Applicant leased the Property effective July 1, 2016. The Applicant filed a complaint to the Assessment Review Board (the “Board”) seeking a refund of property taxes for the period July 1, 2016 to September 15, 2016.

3The Applicant does not dispute that the Property was leased from July 1, 2016 through September 15, 2016. It argues that the lease for that time period was rent free and solely for the purposes of preparing the space for use by the tenant. Although the industrial part of the Property was not in use until the tenant took possession on September 15, 2016, other parts of the Property were occupied by the tenant before that date. The Applicant argues that because the Property was not fully used, it was vacant during that period and it should, therefore, be entitled to a refund. The City says that once a property is leased, it is no longer eligible for the vacancy rebate program.

4For the reasons that follow, I find that the Property is not eligible for the vacancy rebate program. The Applicant’s complaint is denied.

Legislation

5Subsection 364(1) of the Act states that “every local municipality shall have a program to provide tax rebates to owners of property that has vacant portions if that property is in any of the commercial classes or industrial classes.” The City has such a program and, as permitted by clause 364(5), has imposed “evidentiary requirements that must be satisfied for the owner to be entitled to a rebate.”

6The property that is eligible for a rebate is set out in section 1 of “Tax Matters - Eligible Property” under section 364 of the Act, O. Reg. 325/01 (the “Regulation”). The only relevant provision for this complaint is clause 1(5)(b) of the Regulation, which states that “a building, structure or portion of a building is not prescribed to be an eligible property under section 364 of the Act for a period of time if … it is leased to a tenant who is in possession of the leasehold interest throughout the period of time.” The parties agree that the Property was leased from July 1, 2016 through September 15, 2016. This dispute turns on the meaning of “in possession of the leasehold interest.”

Background

7The Property is a 1.63 acre lot containing a building with 32,505 square feet of industrial space and 3,428 square feet of office space. The Property was vacant and unleased from March 1, 2016 until the end of June 2016. On June 29, 2016, the Applicant entered into a lease with Husain Holdings Incorporated (the “Tenant”) for a five year term effective July 1, 2016 and running to September 15, 2021. The parties to the lease agreed that the period of July 1, 2016 to September 15, 2016 would be net rent free “for moving, fixturing and office decorating.”

8The Applicant agreed, pursuant to the lease, to make some changes to the Property before September 15, 2016. This included the alteration of two garage door entrances to the Property, which required building permits from the City. One entrance was to be increased from 12 feet high to 14 feet high. Another opening was to be created, which would be 20 feet wide and 12 feet high. Those permits were taken out on August 30, 2016 and the work was completed by September 16, 2016.

9Throughout that period the Tenant was moving into the Property. By mid-August the Tenant had occupied the office space and was running its administrative functions from the Property. The Tenant could not fully use the industrial space until the Applicant had finished the work on the Property, but it began moving some items into the space in mid-August.

10The Applicant applied to the City for a tax rebate based on the vacancy at the Property on February 23, 2017. The City issued a refund of $6,659.61 on May 1, 2017. As noted above, this was not the full amount applied for by the Applicant. The City denied the claim for the period from July 1, 2016 to September 15, 2016 when the Property was leased. The Applicant filed a complaint with this Board that the refund was too low pursuant to subsection 364(14) of the Act.

Analysis

11The Applicant argues that the Property was vacant while leased because it needed to be renovated and repaired before the Tenant could use it. The City says that once the Property was leased, it was no longer eligible for the vacant unit rebate program.

12As noted above this complaint turns on the meaning of the phrase “in possession of the leasehold interest” in clause 1(5)(b) of the Regulation. I find that the leasehold interest is the legal right to the Property. The Legislature could have made the requirement that the tenant be in possession of the property, but it did not do so. Since the Tenant was in possession of the leasehold interest from July 1, 2016, then the Regulation is clear that the Property was not eligible for the rebate program.

13I note that the City argues that the vacancy refund provided to the Applicant was generous. The City submits that the vacancy period ends on the day before a lease is signed and so the rebate should have ended on June 28, 2016, not July 1, 2016. I do not agree with this submission. The requirement in clause 1(5)(b) of the Regulation that the tenant be in possession of the leasehold interest is likely aimed at leases with a delayed start date. A property could be leased but the lease rights do not start for some time, and in that case, the property would not be excluded from the program by clause 1(5)(b). The lease rights in this case did not start until July 1, 2016 and so the Applicant was entitled to receive a refund until June 30, 2016. Notwithstanding, the Tenant here was in possession of the leasehold interest of the Property on July 1, 2016 and so the Property was not eligible for the rebate program as of that date.

14The Applicant argues that the terms of the lease are important because the Tenant could not occupy the industrial portion of the Property until September 16, 2016 and the Tenant was provided a net-rent free period until that time. The terms of the lease are not a relevant consideration when determining eligibility for the vacant unit rebate program. The Applicant’s decision to lease the Property on a net-rent free basis was a business decision but that decision does not impact the fact that the Tenant held a legal leasehold interest in the Property during the net-rent free period. There may be good business reasons to provide a net-rent free period, but a leased property, where the tenant is in possession of the leasehold interest, is not eligible for the tax rebate program.

CONCLUSION

15The Property was leased during the claimed period of July 1, 2016 to September 15, 2016. Leased property, where the tenant is in possession of the leasehold interest, is excluded from the rebate program by clause 1(5)(b) of the Regulation. The Applicant’s complaint is denied.