Janice Geurts and Martinus Geurts v. Municipal Property Assessment Corporation, 2019 CanLII 9712

Assessment Review Board / Commission de révision de l'évaluation foncière

ISSUE DATE: February 6, 2019

FILE NO.: WR 155543

Assessed Person(s): Janice Geurts and Martinus Geurts

Appellant(s): Janice Geurts and Martinus Geurts

Respondent(s): Municipal Property Assessment Corporation ("MPAC") Region 29

Respondent(s): Township of Lorrain

Property Location(s): Con 7, PT Lots 11, 12

Municipality(ies): Township of Lorrain

Roll Number(s): 5490-020-000-22900-0000

Appeal Number(s): 3269365 and 3314362

Taxation Year(s): 2017 and 2018

Hearing Event No.: 702668

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

Heard: August 21, 2018 in Englehart, Ontario

APPEARANCES:

Parties

Representative

Janice Geurts and Martinus Geurts

Self-represented

MPAC

Glen Shalton

Township of Lorrain

No one appeared

DECISION OF THE BOARD DELIVERED BY LESLIE FLEMMING

Background

1Martinus Guerts and Janice Guerts (the "Appellants") appeal the 2017 and 2018 assessed values of their property located at Con 7, Pt. Lots 11, 12 in the Township of Lorrain (the "Subject Property"). The Subject Property consists of 157 acres and a house, along with an insulated barn, and an uninsulated barn used to store equipment. There is a newer uninsulated barn on the property as well, but it does not form part of the current assessment. This property abuts Lake Temiskaming, although it is not considered a home on water.

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 2017 to 2020 taxation years, MPAC is required to assess this value as of the valuation date, January 1, 2016.

3MPAC has assessed the value of the Subject Property, as of January 1, 2016, at $321,000 apportioned as follows:

• Residential Property Class - $232,300
• Farm Property Class - $88,700

4Consequently, the Assessment Review Board ("Board") must determine the value of the Subject Property on January 1, 2016, for the 2017 to 2018 taxation years ("current value"). Classification is not an issue.

5The Appellants have filed appeals 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 $212,000. The Appellants base their conclusions of value on neighbouring properties and on the fact that the productive portion of the land is only about 40 acres in size. At this hearing, MPAC takes the position that its assessed value is correct.

6Pursuant to s. 40(11) of the Act, the Township of Lorrain is a party to this proceeding. However, the Township 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.

LEGISLATION

7The Act contains specific requirements that must be met when valuing farmland, set out in s. 19(5). There are two main requirements. Clause (a) states that "consideration shall be given to the current value of the lands and buildings for farm purposes only." Clause (b) states that "consideration shall not be given to the sales of lands and buildings to person whose principal occupation is other than farming." The significance of this clause is that land sold for development potential or recreational potential cannot be assessed as "farmland." Other, non-farming, uses for the land or buildings cannot be considered. Only the sales of farmland to farmers intent on farming the land can be considered.

8Section 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 the municipal tax burden according to the value of the property possessed by each taxpayer. MPAC takes the position that an equitable reduction is not required. The Appellants did not assert that an equitable reduction is required. Therefore, in this proceeding, this ground for appeal is not in issue.

9At the completion of the hearing, the Board reserved its decision. For the reasons that follow, the Board finds that the current value for the 2017 to 2018 tax years is $415,000. However, where the assessment was reduced by MPAC in error, as outlined by MPAC, and where no one applied under the Board's Rules of Practice and Procedure ("Rules") to increase the assessed value of the Subject Property, the Board confirms the assessment in the amount of $321,000.

Discussion, Analysis and Findings

Current Value

MPAC'S Evidence

10Glen Shalton represented and testified for MPAC. He is a Property Valuation Analyst who inspected the Subject Property in January, 2013, and again in February, 2018. Mr. Shalton filed his "Valuation Report" and "Equity Analysis Report" dated March 1, 2018. He began his evidence by pointing out that the data relied on in the assessment included a discount that was applied in error. MPAC reduced the property value by 28%, which is a discount applicable to recreational properties but not to farm properties. Mr. Shalton advised that the discount will remain in place for the 2017 and 2018 taxation years, and that the error will be corrected in the next taxation year. Similarly, a new Type 3 uninsulated barn of 2,040 square feet ("sq. ft."), constructed in 2016, does not form part of this assessment. That will be corrected once the Board has given a decision in the current case.

11The Subject Property includes a home built in 2004, a Type IV uninsulated barn of 2,160 sq. ft. in size, plus a Type III uninsulated barn of 1,479 sq. ft. and the newer uninsulated barn which is not yet assessed. The home is 1,649 sq. ft. The basement is the same size as the house, with 1,310 sq. ft. finished. There is an attached garage of 732 sq. ft.

12Mr. Shalton explained the method by which he derived "time-adjusted sales prices" for use in the direct comparison study. He based his time adjustments on the results of a sales ratio trend analysis occurring over 111 property sales in 74 months. The overall trend in property values over that period of time, according to MPAC, was an increase of 24.45 per cent. The Appellants did not object to the sales ratio trend analysis results.

13Mr. Shalton used two different methods of assessing the current value of the Subject Property: the cost approach and the direct sales comparison approach. To carry out the comparison approach, he selected property sales of lands in the neighbourhood which are all described as "Farm with Residence With or Without Secondary Structures, with Farm Outbuildings" and which have some or all features similar to those of the Subject Property. The proposed five farm property sales occurred within 70 kilometers ("km") of the Subject Property; Mr. Shalton apologized for the fact that the properties were not as similar as he may have wished, and indicated that there were no other properties like the Subject Property. The proposed comparable sales have acreages ranging from 160 to 381 acres, and farm land classes ranging from Class 2 through Class 6.

14Mr. Shalton's report specifies the land classes for each proposed comparable sale. These numbers relate to the quality of the lands and soils and potential production. Class 1 lands are the most productive, while Class 6 lands may be too rocky, steep or otherwise unsuitable for crops, and perhaps unsuitable as pasturelands.

15The Subject Property has lands in Classes 3, 5, and 6, while proposed Sale 5 has 112 acres in Class 2 and the remaining 214 acres in Class 3 farmland. In the following chart, some of the relevant information about each proposed comparable property is set out. While not entirely comparable to the Subject Property, the time-adjusted sale prices at which these properties were transacted were used by MPAC to check the current value of the Subject Property established by the cost method. Note that each property has a single family residential structure, plus a number of barns and outbuildings (sheds, garages, steel grain bins and uninsulated barns) treated as farm outbuildings. The salient details of the five proposed comparable farm sales are outlined in the following table. In properties without street addresses, the last six digits of the roll number is used as an identifier.

SUMMARY OF MPAC'S COMPARABLE SALES

USING TIME-ADJUSTED SALE PRICES

Subject Property

Jack Pine Road (1)

012000

(2)

Airport Road (3)

003500

(4)

036700

(5)

Assessment

$321,000

$299,000

$170,000

$299,000

$352,000

$294,000

Sale Date

05/2013

09/2015

07/2012

01/2012

09/2012

TA Sale Price

$313,966

$162,154

$433,328

$515,309

$452,725

Eff.Year Res. Built

2004

2006

1976

1966

1969

1924

House Size (sq. ft.)

1,649

892

1,551

997

1,182

1,139

Quality (House)

6

5

4

5

6

4.5

No. of Outbuildings

2

3

2

10

7

7

No. of Acres

Total (Actual)

157

160.93

128.01

159.5

381.83

326.5

Class 2 Land

0

0

0

0

0

112.5

Class 3 Land

55

18

0

135

381.83

214

Class 4 Land

0

20

25

24.5

0

0

Class 5 Land

60

66

103.01

0

0

0

Class 6 Land

42

56.93

0

0

0

0

16In respect of the single family dwellings on each of the proposed comparable sales, none is assessed by MPAC as being as valuable as the home on the Subject Property. Comparable 4 is the highest valued home in the selection of sales, and the house has been assessed at $115,900.

17Mr. Shalton then gave evidence on the results of his cost analysis of the Subject Property. He submitted that he used the updated Ontario Valuation Manual (1980) for costing the residence, and another MPAC costing guide for farm buildings. Lastly, the value of the land is determined using comparison property sales. He had determined that his approach accurately adjusted for external obsolescence. He also concluded that functional obsolescence was not a factor in the Subject Property. Mr. Shalton's analysis using the cost method was that the total cost of the improvements (new) was $409,122, and that the adjustment for depreciation was $56,157, which gives a Total Cost Less Depreciation of $352,964. To that, Mr. Shalton added the land value in the amount of $93,604, and arrived at a current value of $446,568. MPAC's evidence did not include a further breakdown of the cost analysis beyond a value for improvements and a value for lands.

MPAC's Submissions

18Relying on its evidence, MPAC submits that the correct current value for the taxation years 2017 to 2018 is $446,568, rounded to $446,000.

Appellants' Evidence

19Martinus Guerts represented the Appellants and presented all the evidence on behalf of the Appellants.

20Mr. Guerts provided a written submission, along with attachments. He argued that the more appropriate method of assessing the current value of the Subject farm would be to go by the income approach. In support of this, he filed income statements illustrating that the main crop on this farm is hay, which returned a gross income of $9,346 in 2015 and $7,762 in 2016. He testified that only 40 acres of the land is workable, with the balance of the land being too steep or too rocky to work.

21Mr. Guerts introduced several property sales in the vicinity which took place in 2008 and 2007. He argued that these properties are more similar to his property than the examples used by MPAC. Using these sales as proposed comparable sales, he calculated that the value of his land would be $212,000. He took the sales of neighbouring properties, divided the sales value by the number of acres and worked out a per-acre rate. When applied to his own acreage, he derived what he argued were comparable values. There were three examples:

(a) One property comprising 341 acres sold for $474,000, or $1,390 per acre. If he multiplies his 157 acres by this amount, the value of his property is $218,234.

(b) A second property in the neighbourhood sold for $490,000. This property comprises a 735 acre farm plus two residences and other buildings too. Using the per-acre value of that property ($666.67), his own property would be valued at $104,667.

(c) A third property, located in the Lorrain Valley, consists of 480 acres, of which 91 acres are workable. It sold for $200,000 in 2007. Using the per acre value of this property, Mr. Guerts calculated that his own parcel would be worth $65,416.66.

(d) Mr. Guerts also proposed calculating the value of the Subject Property on the basis of value per foot of water frontage, but noted that he couldn't use this method because his property was being assessed as farmland.

22In order to support his assertion that the land is poor quality farmland, Mr. Guerts introduced satellite images of the land, plus photographs of the house and a pole barn built with 70-year old hydro poles. While the house is relatively new having been built in 2004, and while it is accessible all year by road, Mr. Guerts submitted that it is isolated and that he constantly has to remove snow to keep the road open in the winter as it blows in frequently.

Appellants' Submissions

23Relying on his evidence, the Appellants submit that the correct current value for taxation years 2017 and 2018 is $212,000.

Findings on Current Value

24The Appellants' main argument is that the Subject Property is not directly comparable with other similar lands in the vicinity due to the poor quality of its farmland. They dispute the amount of workable land included in MPAC's assessment of the Subject Property, and submit that only 40 acres is suitable for growing hay. The balance of the land is not productive they argue. As a result, the Appellants submit that their land is overvalued when compared to sales of neigbouring lands in the area, and they gave three examples.

25The difficulty with the Appellants' calculations of value when compared to neighbourhood sales is that the lands they chose sold quite a few years before valuation day: January 1, 2016. The sales took place in the last assessment cycle or the one prior to that. Therefore, while the Appellants argue that MPAC is comparing "apples and oranges", their comparable sales evidence has the same problem. MPAC also contested one of their choices on the ground that it is seasonal recreational land and not farmland, at least in the current cycle. This is the large property comprising 735 acres and two residential structures.

26MPAC argued that the cost analysis method of assessing farmland is to be preferred over other assessment methods. As noted above, adding the value of the land to the cost of the improvements minus depreciation, MPAC submitted that the current value was $446,568 as of January 1, 2016.

27This evidence respecting the cost analysis was not fully supported by the comparable property sales proposed by MPAC. MPAC stands by the principle that the model is not under appeal, but when the resulting evidence is not adequately explained, it raises questions in the taxpayers' minds as well as the Board's.

28The value produced by MPAC's model can only be effectively tested by comparing the Subject Property to other similar properties, which MPAC did. In my analysis of these sales, I find that they indicate that the Taxpayers' property likely would have sold for approximately $380,000 in January, 2016. The soil classifications in the above table reflect the number of acres that can support cash crop production. Classes 1, 2, and 3 are superior soils to Classes 4, 5 and 6. Classes 1, 2, and 3 are suitable for cash crops, while 4 and 5 are more suitable for grazing. Class 6 can include soils which are not really useful for any kind of production. The low ratio of good soil to poor soil will cause a reduction in potential value, as can be seen in two of the comparable sales proposed by MPAC.

29Proposed Sale 1 sold in 2013 for $280,000, which was time-adjusted to $313,966 if sold in 2016. This property is probably the closest in description to the Subject Property. It is only 3 acres larger, one residential construction quality class lower, and has similar quality farmlands. However, its residence is approximately half the size of the Subject Property's, and it has more acres in the Class 5 and 6 land classes than the Subject Property. Like the Subject Property, this farm has zero acres in soil Classes 1 and 2, but 66 acres in Class 5 and 57 acres in Class 6. This farm on Jack Pine Road has only three outbuildings, very much like the Subject Property. It sold for the time-adjusted price of $313,966. I find that the Subject Property would have sold for more than that based on its larger size and better quality of the residence, along with the 55 acres in Class 3 lands.

30Sale 2 sold in 2015 for $162,154 (time adjusted). It is the only proposed sale by either party occurring in relative proximity to the valuation day. It has a comparably-sized residence, but one that is almost 30 years older than the Subject Property's and ranked by MPAC as a construction quality 4. Except for 25 acres in Class 4 land, this property has the balance of its lands in Class 5, making it less valuable overall than the Subject Property. It has approximately 30 acres less land than the Subject Property. I find that the Subject Property would be more valuable than this property in January, 2016.

31Sale 3 is the next most similar property in acreage. While it sold in 2012, which is quite far removed from the valuation day for the current cycle, it is a similar-sized property. It sold for a time-adjusted price of $433,348. While the Subject Property has a larger, more valuable home, Sale 3 has 135 acres in Class 3 land, in comparison to the Subject Property's 55 acres. The remaining land in Sale 3 is in class 4, while the Subject Property has 60 acres in Class 5 and 42 acres in Class 6. I find that the Subject Property would potentially sell for somewhat less than the time-adjusted price of this property because it has less land in the more productive soil classifications and more land in Class 5 and 6 which are not as productive.

32Sales 4 and 5 sold for $515,309 and $452,725 respectively. Both of these proposed comparable properties have over 300 acres in Class 2 or Class 3 lands. They each have seven outbuildings. While the homes are older and smaller than the Subject Property's home, I find that the Subject Property would be less valuable than each of these properties because of the its smaller acreage (less than half the size of Sales 4 and 5) and less productive soil types.

33The comparable sales evidence discloses that the value of the subject property would be valued between a low of $313,000 and a high of $433,348. I find that the correct current value would be an average of these two, which is $373,647, or $374,000 rounded.

34While the Appellant argued that the income approach should also be used, the income from the land is less than $10,000 per annum. Without a cap rate, this information is unhelpful.

35Accepting MPAC's apportionment ratio, based roughly on 23% land to 77% improvements, the current value is apportioned as follows:

• Farm land - $86,000
• Residential land - $288,000

36In this case the improvements exceed the value of the land due to the fact that approximately two-thirds of the land falls into Classes 5 and 6 – or relatively poor land for crop production. The residence and barns offer the most value in this farm property.

DECISION

37The correct current value of the Subject Property is $374,000, for the 2017 and 2018 taxation years, apportioned as follows:

• Residential Property Class - $288,000
• Farm Property Class - $86,000

38The assessment was returned in the amount of $321,000 for the 2017 and 2018 taxation years. No party made application pursuant to the Board's Rules to increase the assessment. Therefore the assessment is confirmed in the amount of $321,000, for both years, apportioned as follows:

• Residential Property Class - $232,300
• Farm Property Class - $88,700