LAH Holdings Inc. v. Municipal Property Assessment Corporation, 2020 CanLII 26212

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

Issue Date: March 30, 2020 File No.: ID 163892

Assessed Person(s): LAH Holdings Inc. Appellant(s): LAH Holdings Inc. Respondent(s): Municipal Property Assessment Corporation Respondent(s): The Municipality of Chatham-Kent

Property Location(s): 701 Richmond Street Municipality(ies): The Municipality of Chatham-Kent Roll Number(s): 3650-420-022-20300-0000 Appeal Number(s): 3320456 and 3367031 Taxation Year(s): 2018 and 2019 Hearing Event No.: 728975

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

Appearances

Parties	Representative
LAH Holdings Inc.	Loreta Norcini
Municipal Property Assessment Corporation	William Somerville
Municipality of Chatham-Kent	No one appeared

Heard: February 4, 2020, telephone conference call

Adjudicator(s): Jean-Paul Pilon, Member

INTERIM DECISION

OVERVIEW

1LAH Holdings Inc. (the “Appellant”) owns a purpose-built gluten free and allergen free flour and grain control facility located at 701 Richmond Street in the Municipality of Chatham-Kent (the “Subject Property”).

2The owner of the corporate Appellant, Loreta Norcini, appealed the assessment of the Subject Property for the 2018 taxation year and, pursuant to section 40(26) of the Assessment Act, R.S.O. 1990, c. A.31 (the “Act”), there was a further deemed appeal for the 2019 taxation year before the Assessment Review Board (the “Board”) at the hearing.

3The expert witnesses who testified at the hearing were Janice Goetheyn for Municipal Property Assessment Corporation (“MPAC”) and Robert Cushing for the Appellant. The Municipality of Chatham-Kent was a party to the appeals pursuant to section 40(11) of the Act but did not participate in the appeals.

Issues for the Hearing

4There were two issues to be determined at the hearing: first, the correct current value of the Subject Property, and second, whether and to what extent there should be an equitable reduction of the current value of the Subject Property pursuant to section 44(3)(b) of the Act. Pursuant to section 19.2(1)4 of the Act, the land was to be valued as of January 1, 2016 (the “Valuation Date”).

INTERIM RESULT

5At the completion of the hearing, the Board reserved its decision. For the reasons that follow, the Board finds that for the 2018 and 2019 taxation years, the current value of the Subject Property as of the Valuation Date is $637,500 and that there should be no equitable adjustment.

6The question of classification was not addressed at the hearing, where MPAC assessed portions of the Subject Property in commercial and industrial property classes. As a result, this decision is an interim decision, to provide the parties with an opportunity to resolve the issues of classification and apportionment on their own within 30 days of the date of this decision. The Board expects the parties to make a serious and timely effort to resolve these remaining issues. In the event the parties cannot agree, the hearing will be reconvened to hear brief submissions on those questions alone.

ANALYSIS

Issue 1 – Current Value

7The first issue to be determined is the correct current value of the Subject Property as of the Valuation Date. To this end, MPAC relied on its valuation report prepared in anticipation of the hearing. That report included analyses that applied both the direct comparison approach and the cost approach for determining value. However, at the hearing, MPAC’s witness focused entirely on the direct comparison approach.

Direct Comparison Approach

MPAC’s Comparable Properties

8MPAC’s witness referred to three industrial properties in the same municipality as the Subject Property that had been the subject of four sales transactions.

9MPAC’s first property, 370 Colborne Street, sold on May 1, 2015 for $425,000. However, it had a site area of 1.96 acres of land where the Subject Property’s site area was 7.17 acres. Similarly, the total floor area of the buildings on MPAC’s first property was 4,240 square feet, where the Subject Property’s floor area was 15,298 square feet. The equivalent price based on floor area alone was $100.24 per square foot.

10MPAC’s second property, 277 William Street South, was the subject of two separate sale transactions. The first of these took place on March 16, 2015, when the property sold for $750,000. The second transaction took place on June 30, 2017, when it sold for $900,000.

11This property had 18,120 square feet of interior space, which, in the first transaction, meant that it sold for $41.39 per square foot. It was not contested, however, the second transaction was a power of sale transaction. As a result, this transaction was not considered in the Board’s analysis, because in Joubarne v. Municipal Property Assessment Corporation, Region 03, 2019 CanLII 22897 (ON ARB) at para. 48, the Board determined that properties purchased under power of sale should not be used as comparable properties.

12MPAC’s third property was 675 Irwin Street, which sold on September 29, 2016 for $375,000. Like MPAC’s first property, however, the site area was substantially smaller than that of the Subject Property (7.17 acres) at 1.31 acres, as was the floor area at 8,200 square feet, where the Subject Property had 15,298 square feet. The equivalent cost of floor space for this property was $45.73 per square foot.

13All of the sale prices in MPAC’s report were adjusted for the passage of time but those adjustments were not explained, nor supported at the hearing.

14MPAC’s position at the hearing was that the first and third properties were inferior to the Subject Property in age, construction and size, where the second property was more similar in square footage.

15MPAC’s representative took the position that the current value of the Subject Property should not be less than $900,000, the sale price of the second property by way of power of sale. There was no explanation for MPAC’s reduced current value assessment at the hearing of $1,196,000.

16The Board rejects MPAC’s first property because it is not comparable to the Subject Property. On the one hand, it was similar to MPAC’s third property because it included substantially less land than the Subject Property. However, the focus of comparison at the hearing was using the square footage of interior space to determine value, and MPAC’s first property also had substantially less floor space than MPAC’s other two properties and those properties referred to by the Appellant as described below. MPAC’s first property was also clearly an outlier, having a value per square foot substantially higher than any of the others, possibly a function of its smaller floor space.

17Beyond that first property, the Board accepts that the first transaction involving MPAC’s second property and MPAC’s third property are suitable for comparison using the direct comparison approach.

Adjusting Purchase Prices for the Passage of Time

18The Appellant’s witness testified that the industrial real estate market in the geographic area of the Subject Property is and was depressed. He further testified that listed properties tend to stay on the market there for years before they sell for much less than what was asked.

19In addition, he testified that the selling price per square foot of industrial property in that area did not increase over time. He reached this conclusion referring to a list of 40 industrial properties that sold in Chatham-Kent between 2010 and 2015, which had been provided to the Appellant by MPAC in its obsolescence analysis and was not referred to at the hearing.

20The Board accepts this analysis, where there was no evidence presented at the hearing to refute it.

Appellant’s Comparable Properties

21The Appellant’s witness chose four other properties for comparison from that obsolescence analysis list of 40 properties for use in the direct comparison approach.

22Properties excluded from that list by the Appellant’s witness were too different from the Subject Property in age and usage, or where transactions took place too long before or after the Valuation Date. The Board then excluded two of those four properties because they had different uses, an industrial mall and retail, as suggested through the cross-examination of the Appellant’s witness.

23Remaining were two properties that were appropriate using the direct comparison methodology. The first, 8 Graham Street, was a warehouse property with floor space of 10,800 square feet. This property was relatively comparable to the Subject Property (especially given the small choice of properties available for comparison) to the 15,298 square feet of floor space at the Subject Property. This property sold for $250,000 on October 1, 2013, at $23.15 per square foot of floor space.

24The second of these remaining properties was 830 Richmond Street, which sold on September 7, 2018 for $1,175,000. It had 38,000 square feet of floor space, substantially more than that of the Subject Property, but on a per square foot basis it was not particularly different than the price of the other three properties. This sold at $30.92 per square foot.

Findings on Issue 1 – Current Value

25There were many differences between the Subject Property and the four industrial properties isolated for comparison in the above analysis. The nature of the Subject Property, the economic circumstances of the area in which it is located and the lack of sale transactions in that area resulted in the limited choice of properties available for this purpose.

26The Board finds, however, that these four properties are most comparable to the Subject Property, providing the best evidence of value before the Board. Moreover, this selection provided balance to the analysis, where two properties cited by each side had more floorspace than the Subject Property, 277 William Street South from MPAC and 830 Richmond Street from the Appellant, and two properties from each party had less, 675 Irwin Street from MPAC and 8 Graham Street from the Appellant.

27The Board therefore finds that the unadjusted mean sale prices of these four properties, $637,500, or $35.30 per square foot, is the best evidence of the current value of the Subject Property.

Income Approach

28The Appellant’s witness also prepared an analysis using the income approach which was reviewed at the hearing. It was undertaken using reliable rental data and a 9% capitalization rate derived from London and Windsor, which he testified were more prosperous than the municipality in which the Subject Property is located.

29Using that methodology, the Appellant’s witness arrived at a conclusion very similar to the one above, finding the current value of the Subject Property to be $625,000. It is noted that he found that this was at the “very high end,” where, using the direct comparison approach, he determined the Subject Property to have a lower current value of $415,000 or $25.00 per square foot.

30The Board finds that the Appellant’s income approach analysis simply confirms the accuracy of the Board’s determination using the direct comparison approach.

Issue 2 - Equity

31Section 44(3)(b) of the Act requires the Board to “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.”

32To that end, MPAC chose 30 properties from a vast range of industrial uses in sales transactions from January 1, 2015 to September 19, 2019 within 25 kilometers of the Subject Property. After adjusting sales prices for the passage of time, MPAC determined that the median assessment to sale ratio (“ASR”) was 0.951, which fell within its acceptable range of 0.95 to 1.05, therefore requiring no adjustment in equity.

33The Appellant’s witness noticed two immediate anomalies in MPAC’s analysis, where one property at the lowest ASR range was counted twice, and where one, with an ASR or 1.78, was an obvious outlier. The Board removed the duplicated property and the outlier from its analysis.

34The Appellant’s witness also noted other issues: that the properties used in MPAC’s analysis were not sufficiently similar to the Subject Property, that there was an abnormal distribution of properties that had transacted after the Valuation Date up to 2019, and that MPAC used the median ASR and not the mean. He also repeated that MPAC’s time adjustment calculations were flawed.

35The Board agrees to an extent, while noting that there were no other properties before the Board for comparison. There was also no evidence indicating which properties were used for which industrial uses.

36The Board rejects MPAC’s time adjustments for the same reason as in the valuation analysis, because the Appellant’s evidence accepted by the Board indicated no significant movement of sale prices over time. In addition, with many more properties to choose from than were available in the direct comparison analysis, the Board was able to narrow the transactions considered to within a one-year period before and after the Valuation Date to ensure a better level of accuracy. That left nine properties for the equity analysis, more than sufficient to determine whether any adjustment was warranted.

37These nine properties had ASRs ranging from 0.797 to 1.511 and sold between February 17, 2015 and November 30, 2016. The median ASR was 0.967 and a mean of 1.049, neither of which would warrant any equitable assessment downward. Even after removing the clearest outlier, the earliest of this set with a sale occurring on February 17, 2015 and an ASR of 1.511, the median was 0.958 and the mean 0.992, very close to one.

Findings on Issue 2 - Equity

38As a result, the Board is not satisfied that there should be any adjustment to make the assessment equitable.

CONCLUSION

39The correct current value of the Subject Property is $637,500.

40No equitable reduction of the current value of the Subject Property pursuant to section 44(3)(b) of the Act is required.

ORDER

41The parties shall have 30 days from the date of this decision to determine the apportionment and classification of the current value of the Subject Property and to submit Minutes of Settlement on these questions alone. If no Minutes of Settlement are received within this time, the hearing shall be reconvened for that purpose alone. I am seized of this matter.