Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: January 6, 2020 FILE NO.: WR 162548

Assessed Person(s): Amos Weber and Betsy Hoover Weber Appellant(s): Township of Johnson Respondent(s): Municipal Property Assessment Corporation (“MPAC”) Region 31 Respondent(s): Amos Weber and Betsy Hoover Weber

Property Location(s): 844 Fischer Road Municipality(ies): Township of Johnson Roll Number(s): 5716-000-006-00700-0000 Appeal Number(s): 3343891 Taxation Year(s): 2019 Hearing Event No.: 725631

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

Heard: October 17, 2019 in Desbarats, Ontario

APPEARANCES:

Parties	Representative
Amos Weber and Betsy Hoover Weber	Abram Weber
MPAC	Pierre Lefebvre
Township of Johnson	Herman Klingenberg

DECISION OF THE BOARD DELIVERED BY DAN WEAGANT

INTRODUCTION

1For the 2019 taxation year, the Township of Johnson (the “Township”) appealed the current value assessment applied by MPAC to the subject property at 844 Fischer Road. The reason for the appeal was that, in the Township’s view, the assessment was too low and did not adequately reflect the correct assessment when the ongoing industrial activity on the property is considered.

2The subject property is identified as a farm property used for farm purposes. The Township alleges that industrial activity was also being carried and that the value returned by MPAC did not consider this use. The Township believes the correct current value after the appropriate amendments to the subject property should be $540,000, apportioned as follows:

• In the Residential property class: $336,200;
• In the farm property class: $130,300; and
• In the Industrial property class: $73,500.

3MPAC returned a value of $503,000 for the 2019 taxation year, apportioned as follows:

• In the Residential property class: $341,200; and
• In the Farm property class: $161,800.

4The assessed persons (the “Assessed”), represented by Abram Weber, son of the Assessed acknowledged that an industrial use existed at the subject property in 2019. He did not take a position on the correctness of the current value returned by MPAC.

The Issues

5The Assessment Review Board (the “Board”) must decide several things in these appeals:

• Firstly, the Board must determine the current value of the property for the 2019 taxation year;
• Secondly, the Board must determine the correct property classes applicable to the subject property;
• Thirdly, the Board must determine the apportionment of value among the classifications represented at the subject property; and
• Lastly, once the current value is determined, the Board must then determine if the current value needs to be reduced for the purpose of equitable assessment.

Where the Parties Agree

6There is no dispute among the Parties regarding the industrial use of the property. They agree that one of the buildings on the property is used for industrial purposes, and that a portion of the land supports that industrial use.

DECISION

7The Board finds the current value of the subject property is $503,000. The Board also finds that there is no evidence to support a reduction in this value for it to be considered equitable when reference is made to the assessments of similar properties in the vicinity.

8Accordingly, the assessment of the subject property for the 2019 taxation year is confirmed at $503,000, apportioned as follows:

• In the Residential property class: $341,200
• In the Farm property class: $160,800
• In the Industrial property class: $1,000

LEGISLATION

9In making its determination of these appeals, the Board must consider the relevant sections of the Assessment Act, R.S.O. 1990, c. A.31 (the “Act”).

10Section 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.

11Section 19.(1) of the Act states:

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

12Section 40(17) of the Act states:

Appeal to Assessment Review Board

Burden of proof

(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. 2008, c. 7, Sched. A, s. 11.

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 assesses 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.

What is the Current Value of the Subject Property?

MPAC’s Evidence

14MPAC submitted a valuation report that included two methods of determining the current value of the subject property. The primary means of making this determination was a cost approach analysis where MPAC took the value of the improvements and buildings and added those values to the value of the land. Once the cost approach calculations were made, MPAC also undertook a direct comparison approach analysis.

15This second analysis was a secondary measure carried out to test the results of the cost approach analysis. MPAC’s cost approach result was compared to the time adjusted sale values of six farm properties that sold in the Algoma District from April 2012 to November 2015. These six farms sold for between $225,000 and $575,000, with time adjusted sale values of between $235,674 and $581,073.

The Cost Approach

16MPAC applied a total land value to the property of $64,825, and apportioned this amount as follows:

• In the Residential property class: $1,425
• In the Farm property class: $63,400

17To arrive at a value for the buildings on the property, MPAC applied the MPAC Agricultural Cost Guide and the Residential Cost Manual. These costs guides were selected over the ‘Hanscomb cost guide’ (‘Hanscomb’) because, in the view of the Assessor, the buildings on the property are either residential or farm buildings. Hanscomb is used for commercial and industrial buildings and although it was acknowledged by MPAC that one of the buildings on the property was being used for industrial purposes, the Assessor selected the Agricultural Cost Guide because the chief activity on the property is agriculture and the buildings reflect that type of use.

18For the 2019 taxation year MPAC’s findings were as follows:

• Total land value: $64,825
• Total building value (Cost New): $636,435
• Net building value after depreciation and obsolescence: $439,017
• Total value of the subject property: $503,000 (rounded)

19MPAC then compared this value with the time adjusted sale values of the six farm sales in its direct comparison sample. The Assessor testified that conclusion was that the range represented by the time adjusted sale values of six properties shows the subject property’s returned value of $503,000 is at the high end of the range. He further submitted that the subject property has more building space and more farm land than any of his proposed comparable properties, indicating that the value returned is reasonable.

Appellant’s Evidence

20The Township believes that MPAC has failed to meet its onus of burden of proof as it relates to the value of the property under appeal. To support this claim, the Township cited the following:

• MPAC erred in its method and approach to value for the building used for the industrial use;
• MPAC erred in its method and approach to value on the land portion of the property used for industrial use;
• MPAC failed to show how the comparable sales in its valuation report support the values returned for the 2019 taxation year;
• MPAC’s equity report shows that assessments in the Township at a percentage of current value that lie outside of MPAC’s own acceptable range; and
• MPAC’s equity report shows that the resulting Coefficient of Dispersion is above the acceptable levels set by the International Association of Assessing Officers.

21In making its own determination of current value for the subject property, the Township took two separate steps; one to determine the value of the building used for industrial purposes and a second to determine the value of the land used for industrial purposes.

Building Value

22The Township submitted that industrial buildings and farm buildings are valued differently by MPAC. Citing MPAC’s ‘Agricultural Cost Guide’ the Township believes that farm buildings have an approximate 50% external, economic obsolescence applied once the building is valued otherwise. The Township further submitted that this 50% reduction in value is not applied to industrial buildings.

23The Township does not take issue with the value applied to the subject building used for industrial purposes by MPAC but does take issue with the application of external obsolescence. Essentially, the Township agrees with MPAC’s valuation, but not the total depreciation and obsolescence applied. It submits that the value of the building should be determined through the ‘Hanscombe’ cost guide, which is the standard used for industrial properties and not MPAC’s Agricultural Cost Guide.

24To correct MPAC’s findings, the Township applied a straight line 100% increase to the value of the building applied by MPAC. The reasoning was that, since a 50% obsolescence was applied by MPAC using the Agricultural Cost Guide, when that 50% reduction in value is removed, the effect is that the appropriate, industrial value should be two times the final farm value found by MPAC. The Township submits the value of the industrial building should be $60,000 (rounded).

Land Value

25To arrive at the value of land attributable to the industrial class, the Township undertook a land value study where it compared the assessments of four, one-acre residential properties that exist in the Township. By averaging the assessed value of these four, one-acre parcels, the Township arrived at a value of $13,600 for one acre of land. The Township submitted that, if the parcels were in fact industrial, their values would have been higher, making the average value determined reasonable in the circumstances.

26The sum of the building and land values, in the industrial class, in the Township’s submissions is $72,952.

The Assessed Person’s Testimony

27The Assessed testified that a portion of the property was used in 2019, as a wood working shop and that the shop was partially used for farm purposes, including the repair of farm equipment. He also testified that the house and buildings on the property had neither plumbing nor electrical services.

BOARD’S ANALYSIS

28The best evidence of current value is a sale of the subject property that occurred on or near the applicable valuation day. When such a sale does not exist, there are three established approaches to determining the current value of a property:

• The Direct Comparison approach;
• The Cost approach; and
• The Income approach.

29In this case, MPAC opted to disregard the income approach. This approach determines the value of future returns of a property and is normally used where rental income from multiple tenants is the basis of valuation.

30MPAC’s primary approach used was the cost approach, whereby the value of land is added to the value of buildings and improvements. In addition to the cost approach, MPAC also undertook a valuation analysis using the direct comparison approach as a secondary means of ‘testing’ the value derived from the cost approach.

The Value of the Land

31The Board has no documentary evidence with which to make a finding on the land value. MPAC reported a total land value, apportioned to the Residential and Farm property classes, but there was no source of this value in evidence. The Township focussed on the assessment value attributed to a single acre of Residential land. This method resulted in a value of $13,600; a rounded average value of four, one-acre residential properties in the Township. There was no submission or evidence to suggest industrial land and residential land carry the same value in the Township. This comparison is not suitable to determine the land value of the property used for industrial purposes.

Building Value

32The decision by MPAC to use the Agricultural Cost Guide to evaluate the building used for industrial purposes attracted a lot of attention from the Township in cross-examination. The Township views the subject building to be of industrial use and therefore submits the Hanscombe cost guide should be used because it is used for industrial buildings.

33The chief difference between Hanscombe and MPAC’s Agricultural Cost Guide is not so much in the valuation, but in the approach to depreciation and the application of external obsolescence. The Parties agreed about this difference which essentially applies an external obsolescence deduction for all farm buildings to reflect the general external obsolescence in the farming business. This external obsolescence for the building under scrutiny would be approximately 50%, if it was valued using the Agricultural Cost Guide, and 0% if it was valued using the Hanscomb cost guide. This is the specific value under dispute between MPAC and the Township.

34The Board has no documentary evidence to establish the value of the buildings on the property. MPAC submitted a cost study that simply identified the total building value on the property including those for residential, farm and industrial uses and showed a bulk deduction of that total value for depreciation and obsolescence combined without explaining, even after vigorous cross examination by the Township, how these deductions were determined.

35In MPAC’s assessment summary, this net value is attributed to each of the buildings assessed at the property. This is not helpful to the Board in making a decision because there is no evidence of the source of the values attributed to the buildings.

36Despite the multiple disparities between the six properties in MPAC’s Direct Comparison analysis and the subject property, MPAC concluded that the value of the subject property as determined should be considered reasonable because its value fell at the high end of the range established by the proposed comparable properties in the sample. However, this comparison did not include any analysis of the differences between the subject property and the six proposed comparable properties. The Board finds that MPAC’s comparable property study is of no value in determining its current value.

37The Township relied entirely on MPAC’s finding of value for the building used for industrial purposes. To arrive at its value of the building, the Township simply doubled the value attributed by MPAC to reflect the removal of the approximate 50% deduction applied by MPAC for external obsolescence. This approach takes a flawed valuation and makes it doubly flawed.

38In summary, neither the Township, nor MPAC advanced any documentary evidence to show the basis of value of any of the buildings on the property. Without knowing how the buildings were valued and why, the Board has no evidence to make a finding on their values.

The Industrial Use

39All of the Parties agreed that industrial use takes place at the property and has taken place since January 1, 2019. Accordingly, the Board finds that a portion of the subject property is in the Industrial property class, in addition to the Residential and farm property classes that applied as of January 1, 2019.

Did MPAC meet its onus under [s. 40(17)](https://www.canlii.org/en/on/laws/stat/rso-1990-c-a31/latest/rso-1990-c-a31.html) of the [Act](https://www.canlii.org/en/on/laws/stat/rso-1990-c-a31/latest/rso-1990-c-a31.html)?

40The Township sought to impugn MPAC’s evidence in cross-examination, focusing particularly on MPAC’s failure to prove the assessment as required by s. 40(17) of the Act, which states “…the burden of proof as to the correctness of the current value of the land rests with the assessment corporation.”

41The Township submitted that MPAC’s evidence did not show a clear path to the values attributed to the subject property, adding that the values derived from the cost approach lacked all the fundamental detail to prove the gross amount of the land and buildings, and the net amount of those values once the depreciation and obsolescence was deducted. The Township added that no reliable value can be determined without the details of what the depreciation and obsolescence were deducted for specifically and therefore those elements were not subject to cross-examination.

42The Board finds that MPAC did not discharge its burden of proof in this case. As indicated above in the Board’s analysis, there is no means of determining how the value was derived by MPAC. The result was that no meaningful examination of the data and findings could be made at hearing. This finding raises a question as to how these appeals are to be determined by the Board.

How does Patry apply?

43In Jay Patry Enterprises Inc. v Municipal Property Assessment Corporation, Region 5, 2019 CanLII 39629 (ON ARB), 2018 CanLII 70338 (ON ARB), (“Patry”), the Board laid out the appropriate framework when it has determined that MPAC has not discharged its burden of proof of value. The panel in that case determined that a provable value having not been determined by MPAC, the remedy is to consider the evidence of the other Parties.

44In this case the only other documentary evidence is that of the Township. This raises a similar problem on two fronts:

• As the Board found above, the land value approach advanced by the Township does not prove the value of industrial land in the Township; and
• The Township relies entirely on the evidence of MPAC to arrive at a value of the industrial building. Since MPAC’s value is found by the Board to be unreliable, any derivation from MPAC’s values is also unreliable.

45Patry considers such a circumstance: “…If there is insufficient evidence in the record that is capable of proving current value, the Board should fix the assessment at the last uncontested assessed value.”

46The Board finds that there is insufficient evidence that is capable of proving current value. Accordingly, the assessment of the subject property is fixed at the last uncontested assessed value. The last uncontested assessed value is the returned value for 2019, of $503,000.

Apportionment

47Despite a lack of evidence with respect to value, the submissions of all three parties are clear in that an industrial use was underway, starting on or before May 1, 2018.

48Section 3 of the Act stipulates that “All real property in Ontario is liable to assessment and taxation….”. Section 7 of the Act states: “The Minister shall prescribe classes of real property for the purposes of this Act.” Section 7.(2) includes “Industrial” as one of the classes prescribed by the Minister.

49These two sections, taken together, indicate that where a specific property class exists, is must be recognized so that it can be assessed under the appropriate classification.

50In this case, the Board does not have sufficient evidence as to the apportioned value of the Industrial property class lands. The Board would fail in its deliberations if there is no value attributed to the Industrial class. Accordingly, the Board attributes a nominal, $1,000 value to the Industrial property class for the 2019 taxation year. Additionally, the Board finds that the value of the land in the Industrial property class results in a corresponding reduction in the value of the land in the Farm property class; the most reasonable other classification from which to draw this value.

DECISION

51The Board finds the current value of the subject property is $503,000. The Board also finds that there is no evidence to support a reduction in this value for it to be considered equitable when reference is made to the assessments of similar properties in the vicinity.

52Accordingly, the assessment of the subject property for the 2019 taxation year is confirmed at $503,000, apportioned as follows:

• In the Residential property class: $341,200
• In the Farm property class: $160,800
• In the Industrial property class: $1,000.

“Dan Weagant”

DAN WEAGANT MEMBER Assessment Review Board

A constituent tribunal of Tribunals Ontario - Environment and Land Division Website: www.elto.gov.on.ca Telephone: 416-212-6349 Toll Free: 1-866-448-2248