Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: April 7, 2020 FILE NO.: RD 2020M01 Appeal Number(s): 3271996 Roll Number(s): 2105-120-004-17500-0000 Taxation Year(s): 2016 Hearing Event No.: 718370

Assessed Person(s): Panagiotis Michalakos Appellant(s): Panagiotis Michalakos Respondent(s): City of Mississuaga Property Location(s): 180 Queen Street South Municipality(ies): City of Mississauga

Legislative Authority: Rule 123 of the Assessment Review Board’s Rules of Practice and Procedure, as amended

Parties and Counsel City of Mississauga: John O’Kane Panagiotis Michalakos: Submissions not required

REQUEST FOR: A review of the Board’s Decision WR 161243 issued on August 19, 2019 HEARD: In writing ADJUDICATOR(S): Dirk VanderBent, Vice Chair

DECISION

OVERVIEW

1On July 2, 2019, the Corporation of the City of Mississauga (the “City”), filed a written Request for Review with the Assessment Review Board (the “Board”) respecting Panagiotis v Municipal Property Assessment Corporation, Region 15, 2019 CanLII 79905 (ON ARB), a decision issued on August 19, 2019 (the “Decision”) by the Hearing Member. The Decision relates to the property located at 180 Queen Street South, Mississauga (“the Subject Property”) which is the end unit in a complex of five mixed use units. Located on this property is a building that is occupied by a restaurant on the first floor and a two-bedroom residential unit on the second floor.

2On November 5, 2015 the Subject Property was substantially damaged by fire, rendering both floors totally unusable for the entire 2016 calendar year. Panagiotis Michalakos (the “Owner”) applied to the City under s. 357(1)(d) of the Municipal Act, 2001, S. O. 2001, c. 25 (the “Municipal Act”) requesting a cancellation, reduction or refund of the taxes paid on the property for the 2016 taxation year based on the damage caused by the fire. City Council reviewed the application and allowed a lower refund than the Owner requested. Pursuant to s. 357(7) of the Municipal Act, the Owner then filed an appeal of the Council’s decision with the Board.

3The Board conducted a hearing and issued the Decision which provides the Hearing Member’s disposition of the Owner’s appeal. In overview, the Owner argued that the damage caused by the fire reduced the value of the Subject Property by $500,000. This amount is an aggregate of expenses paid by the Owner’s property insurer for various business losses, including $256,831.77 for repairs to the building. To substantiate this amount, the Owner filed a Fire Proof of Loss Report which confirms the amounts paid by the insurer. The City argued that the reduction in value is only $30,000. In support of its position, the City called a property valuation specialist employed by the Municipal Property Assessment Corporation (“MPAC”) who testified that this amount reflects an estimated cost of repairing the building, the quantum being calculated using a computer application described as MPAC's Automated Cost System. After weighing the evidence, the Hearing Member found that the quantum of the reduction in the value of the Subject Property is $256,000, and he then calculated the tax refund payable based on this reduction in value.

4In its Request for Review, the City requests that the Board cancel the Decision and dismiss the Owner’s appeal. In support of this request, the City cites a number of grounds which, in overview, are that the Hearing Member:

1. misapprehended the assessed value of the property (both land and building), and, more particularly that the last revised assessment of the property under s. 41 of Assessment Act, R.S.O. 1990, c. A.31 (the “Assessment Act”) is binding on the parties;

2. misapprehended or ignored the provisions of s. 329(5.1) of the Municipal Act that directs the use a specific formula for calculating tax refunds under s. 357(1)(d);

3. misapprehended or ignored that, for the purposes of s. 357(1)(d), there is a direct legislative link between values returned under the Assessment Act and the calculation of tax refunds under the Municipal Act;

4. incorrectly used a notional assessment value for determining the calculation of the tax refund.

5. erroneously made a finding that there were "no comparable sales that can be brought forward that would be similar in nature to accurately establish land value" without any evidence to support that finding of fact.

6. miscalculated the tax refund by using incorrect tax rates that were not in evidence.

5The Board has reviewed the Request for Review and finds that the issues raised can be addressed without further submissions from the Owner.

RESULT

6For the following reasons, the Board concludes that the Request for Review should be dismissed.

RELEVANT LEGISLATION

7The Municipal Act:

Cancellation, reduction, refund of taxes

357.(1) Upon application to the treasurer of a local municipality made in accordance with this section, the local municipality may cancel, reduce or refund all or part of the taxes levied on land in the year in respect of which the application is made if,

(d) During the year or during the preceding year after the return of the assessment roll, a building on the land,

(ii) was damaged by fire, demolition or otherwise so as to render it substantially unusable for the purposes for which it was used immediately prior to the damage.

ANALYIS

Legal Test

8In considering whether to grant a Request for Review submitted pursuant to Rule 120, the test to be applied is whether the requester has established any of the grounds set out in Rule 121 of the Board’s Rules:

Grounds for Review

121. A request for review will not be granted unless the Board is satisfied that:

(a) the Board acted outside its jurisdiction or violated the rules of natural justice or procedural fairness;

(b) the Board made a significant error of law or fact such that the Board would likely have reached a different decision;

(c) the Board heard false or misleading evidence from a party or witness, which was discovered only after the hearing and would have affected the result;

(d) there is new evidence that could not have reasonably been obtained earlier and would have affected the result; or

(e) any of the situations in Rule 122 exist.

Additional Relevant Background information

9The Decision indicates that the assessed value of the Subject Property for the 2016 taxation year, pursuant to the provisions of the Assessment Act, is $707,000 ($597,439 for the land, and $109,561 for the building). In terms of classification, the assessment is $504,000 in the commercial class, and $203,000 in the residential class.

Legal Regime to be applied under s. 357(1) of the Municipal Act

10In order to address the City’s grounds in support of its Request for Review, the Board must identify the factors to be considered when making a determination under s. 357(1).

11Turning to first principles, the formula to determine municipal taxes payable is the property’s value (subdivided by property classes) multiplied by the applicable tax rates set by the municipality for each property class. Therefore, a reduction in taxes payable under s. 357 is based, in major part, on a reduction of the assessed value of the property. In its Request for Review, the City’s notes that, when considering an application under s. 357(1), a municipality cannot substitute a different value for the assessed value of the property (see Drewlo Holdings Inc. v. London (City), [2005] O.A.R.B.D. No. 333).

12Consequently, the Board must determine the reduction in the property’s assessed value, as it is this reduction in value that is used to arithmetically calculate the amount of the tax refund. The question, therefore, is: What direction does the Municipal Act provide, either in s. 357 elsewhere, on how to determine the amount of this reduction in value?

13The Decision confirms that, at the hearing, the City submitted that s. 357 does not specify “a mechanism for determining the refund value.” However, in its Request for Review, the City now points to s. 329(5.1) of the Municipal Act, asserting that it provides “a clear direction about how to calculate a refund under s. 357(1)(d)”.

14In order to understand this section, it must be considered in the context of the Municipal Act. Section 329 is included in Part IX of the Municipal Act entitled “LIMITATION ON TAXES FOR CERTAIN PROPERTY CLASSES.” The subtitle to s. 329 indicates that it applies to “Determination of maximum taxes.” Part IX includes an interpretation section which applies to this Part (s. 327). Section 327(5)(g) provides that Part IX does not apply to property classified in the residential property class. Therefore, s. 329(5.1) would not apply to the residential part of the Subject Property. In addition, the Board notes that s. 357 is not included in Part IX, it is included in Part X entitled “TAX COLLECTION”.

15Based on this context, it appears that s. 329.1(5.1) would have no bearing on the Board’s determination of the Owner’s appeal. In this regard, the Board notes that the City’s Request for Review makes no reference to Part IX or s. 327(5)(g), to explain how s. 329(5.1) could apply in this case.

16Even if one assumes that s. 329(5.1) does apply, it is, at best, unclear that this subsection provides any direction on how to calculate the quantum of the reduction in a property’s value. This section states:

Cancellation, reduction or refund of tax under s. 357

(5.1) If a municipality cancels, reduces or refunds taxes for a taxation year on an application made under clause 357 (1) (d) or under such other provision of this Act as the Minister of Finance may prescribe, the amount of the cancellation, reduction or refund is calculated using the formula,

B/C × D

in which,

“B” is the amount of the cancellation, reduction or refund of taxes for the year but for the application of this Part,

“C” is the amount of taxes for the year (without deducting the amount of the cancellation, reduction or refund of taxes) that would have been payable but for the application of this Part, and

“D” is the amount of taxes for the year that would be payable under this Part if no application were made.

The Board first observes that, in this formula, variable “B” requires a pre-determined value for the amount of the tax refund. Therefore, the formula itself does not determine the amount of the tax refund, which, in turn, means that it does determine the quantum of the reduction of the assessed value of the property. Therefore, the formula does not provide any direction on how the quantum of the reduction is to be determined.

17Based on the above analysis and findings, the Board does not accept the City’s submission that s. 329(5.1) provides any assistance on how to determine the quantum of a reduction in property value. In any event, given the above finding, the Board concludes that the fact the Decision does not consider s. 329(5.1) is not an error of law. In further support of this finding, the Board also notes that the Decision does not indicate that the application of s. 329(5.1) was argued before the Hearing Member.

18The purpose of s. 357 is clear. The amount of municipal taxes payable is determined, in major part, by the value of the property. If the value of the property is reduced due to any of the circumstances enumerated in this section, in this case damage by fire, then it follows that the amount of municipal taxes payable should be reduced to reflect the reduction in property value. The method used to determine the quantum of the reduction in value must reflect this purpose. Absent any legislative formula or direction, this determination is case specific, and the method used to determine the reduction must be supported by the evidence adduced.

19The Municipal Act does not mandate the use of any particular method to determine the reduction. Two methods may be considered appropriate, although there may be others. The first method is to conduct a formal assessment of the value of the property in its damaged state (“damaged value”). This damaged value is then deducted from the assessed value of the property to determine the reduction in value.

20The second method is described as the “cost to cure” approach. In this method, the reduction in the value of the property is presumed to be equal to the cost incurred to return the property to its original state and condition. Precisely how this cost is determined will depend on the individual circumstances of each case, but it must be consistent with the valuation method used to value the property. For example, in Canadian Property Holdings (Ontario) Inc. v Municipal Property Assessment Corporation, Region 15, 2017 CanLII 78332 (ON ARB), a commercial movie theatre on a property was demolished to construct a new building. The Board in that case, accepted that the quantum of the reduction in property value was equal to the reduction in the value of the space for the relevant time period (see paragraph 70). In Town Homes of Thornhill Village Inc. v. Markham (Town), [2009] O.A.R.B.D. No. 17, the Board, at paragraph 29 found:

… The assessment as returned for the 2004 taxation year was based on the income approach to value, meaning that there was no specific value attributed to land in the calculation of the assessment of the subject property. …it is fair to base the tax reduction on the assessed value of that part of the property which had been demolished and was no longer generating income.

Determining the reduction of value of the Subject Property

21The Board notes that the Hearing Member followed the correct procedure in determining first the quantum of the reduction in the value of the Subject Property due to the fire damage, and then deducting this amount from the assessed value of the Subject Property for the 2016 taxation year. Paragraph 34 of the Decision confirms that the Hearing Member applied the quantum of the reduction to the assessed value of the Subject Property. Therefore, the Board does not accept the City’s submissions that the Hearing Member (i) misapprehended the assessed value of the Subject Property; (ii) misapprehended or ignored that there is a direct legislative link between the assessed value of the Subject Property and the calculation of the tax refunds; or (iii) incorrectly used a notional assessment value for determining the calculation of the tax refund.

22As noted above, the cost approach is the valuation methodology used to determine the assessed value of the Subject Property for the 2016 taxation year. This method separately values the buildings on the land, and the land itself. The assessed value of the property is the sum of these two values. Determining the quantum of the reduction in value must be evaluated in the context of this valuation method.

23The Decision indicates that both the Owner and the City adopted a cost to cure approach, albeit adducing different evidence leading to very different proposed values for the quantum of the reduction of the Subject Property’s assessed value.

24The Owner’s position is that the quantum of the reduction should be $500,000. This amount includes the cost of repairs to the building, and other items such as emergency services and lost rental income. The Hearing Member correctly considered only the costs to repair the building, and any impact the fire damage to the building may have had on the value of the land, because the assessed value of the Subject Property was determined using the cost approach. Therefore, the Board, does not accept the City’s submission that the Hearing Member misapprehended or ignored that there is a direct legislative link between the assessed value of the Subject Property and the calculation of the quantum of the reduction in the assessed value of the Subject Property.

25The Owner’s evidence confirmed that the cost he incurred to repair the building is $256,831.77, which his property insurer approved and paid. The Hearing Member ultimately concluded that the quantum of the reduction in property value is $256,000. In its Request for Review, the City notes that this amount (i.e. $256,000) was not in evidence, and argues, therefore, that this is an error of fact. For two reasons, the Board does not accept this submission. First, in making his determination of the quantum of the reduction in value, based on the evidence adduced, the Hearing Member was not bound to adopt the precise figure put into evidence by the Owner. Secondly, it is relatively clear that, in making his decision, the Hearing Member simply rounded this amount. In this regard, the Board notes that the determination of the quantum of the reduction is not an exact science.

26In its Request for Review, the City further argues that the Owner provided no appraisal or assessment evidence to support his position on the quantum of the reduction in assessed value, and, therefore, the Hearing Member’s determination was not based on this type of evidence. The City argues that this is an error of fact. The Board does not accept this submission. The Board re-iterates that there is no prescribed methodology to determine the quantum of the reduction of the assessed value of the Subject Property, subject to the proviso that it be consistent with the valuation method used to determine the assessed value of the Subject Property. In this case, based on the cost approach valuation methodology, the primary issue is the cost to repair the building. The cost actually paid to repair the building, therefore, is both relevant and probative.

27The City further argues that the repair work “was an improvement or additive to the depreciated reproduction/replacement cost of the building and not the basis of a “reduction” in value.” The City argues that this is an error of fact. In addressing this submission, the Board notes that the assessed value of the Subject Property is divided into the two components, $597,439 for the land and $109,561 for the building. If only the damage to the building is considered, the maximum reduction in the Subject Property’s assessed value would be $109,561. As the Hearing Member found the reduction to be $256,000, this would support the City’s argument that the Hearing Member’s finding exceeds the assessed value of the Subject Property.

28However, when determining the reduction in property value, the Board must also consider the impact of the building damage on the value of the land. As the Board is a tribunal of specialized jurisdiction, the Board takes notice of the fact that improvements to land, such as the addition of a building, may increase the value of the land itself, as distinct from any increase in value attributed to the addition of the building alone. Therefore, the Board had to consider whether loss of the building due to the fire, would also have the effect of reducing the value of the land. Clearly, the Hearing Member considered this factor. At paragraph 33 of the Decision he stated that “It is difficult to establish a land value for a property which is part of a five-unit complex that has been damaged to the extent of the subject property.” Therefore, the Hearing Member’s finding clearly includes a reduction in the value of the land as well as a reduction in the value of the building. For this reason, the Board does not accept the City’s submission that the Hearing Member made an error of fact in making his finding.

29As noted above, the City states that the Owner did not lead any property value evidence or appraisal evidence or assessment evidence. The City’s implicit submission is that the Hearing Member should have preferred the City’s evidence to that of the Owner. For the following reasons, the Board does not accept this submission. As previously noted, the City’s evidence is an estimate of the cost to repair produced by MPAC's Automated Cost System, and the Owner’s evidence provides actual costs of repair. Faced with very conflicting evidence, it was the Hearing Member’s duty to adjudicate the dispute and make a finding. The Board has already found that there is sufficient evidence to support the Hearing Member’s finding. While the City may disagree, it is not the Board’s function, on a Request for Review to re-hear the appeal.

30The Board now turns to the City’s submission that the Hearing Member made two findings of fact, which the City asserts are not substantiated by any evidence.

31Following his statement that “it is difficult to establish a land value for a property which is part of a five-unit complex that has been damaged to the extent of the subject property”, the Hearing Member went on to observe that “There are no comparable sales that can be brought forward that would be similar in nature to accurately establish land value." The Board accepts that the Decision does not indicate any evidence to substantiate this observation. However, the Board notes that a Hearing Member, when interpreting the evidence and in making findings, may make extrapolations that are based on the evidence which are not extraneous to the evidence adduced or the issues in dispute. In this case, the Board finds that it is unnecessary to make a finding whether the Hearing Member made an unfounded observation, for the simple reason that the Decision indicates that no evidence was adduced to establish a land value for the Subject Property in its damaged state. Therefore, the Hearing Member’s observation is not essential to his decision. Furthermore, assuming he made an error, the Board finds that this is not a significant error of law or fact such that the Board would likely have reached a different decision.

32The second finding, at paragraph 32 of the Decision, relates to a speculation made by the Hearing Member as to why MPAC's assessment using the Automated Cost System, produced an estimate that is so much lower than the actual cost of repairs. The Hearing Member stated: “The difficulty may be the building is older and therefore has been substantially depreciated and for this reason the cost approach may be somewhat limited when dealing with a fire loss of this magnitude in an older building.” The Board accepts that the Decision does not indicate any evidence to support this conclusion. However, it is important to note that the Hearing Member had to decide whether he preferred an estimate of the cost of repairs over evidence of the actual cost of repairs. At paragraph 31, he expressly found that the evidence of the actual cost of repairs established the cost of the damages. In this context, it is, at best, unclear that the Hearing Member’s speculation as to why MPAC’s estimate was lower than the actual cost, is an essential finding to the Hearing Member’s decision. Assuming that it is, the Board finds that it is not a significant error of law or fact such that the Board would likely have reached a different decision.

33Regarding the remaining submission, the City asserts that the Hearing Member incorrectly calculated the amount of the tax refund (based on his finding that the reduction in value is $256,000). The City’s calculation produces a refund amount of $4,189.51, whereas the Hearing Member calculated the amount to be $4,242.26. The difference is minor, and, if there is an error, it appears to be a minor error of calculation. For this reason, the Board refers this submission to the Hearing Member as a request made under Rule 114 to correct a minor error.

CONCLUSION

34Based on the above analysis and findings, the Board concludes that the City has not established that the Hearing Member made a significant error of law or fact such that the Board would likely have reached a different decision. For this reason, the City’s Request for Review is dismissed.

ORDER

35The Request for Review is dismissed.