2315012 Ontario Inc. v. Municipal Property Assessment Corporation, 2020 CanLII 3219

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE:

January 08, 2020

FILE NO.:

WR 161842A

AMENDED DECISION ISSUED ON:

January 16, 2020

Assessed Person(s):

2315012 Ontario Inc.

Appellant(s):

2315012 Ontario Inc.

Respondent(s):

Municipal Property Assessment Corporation (“MPAC”) Region 02

Respondent(s):

Town of Carleton Place

Property Location(s):

59 MacArthur Avenue

Municipality(ies):

Town of Carleton Place

Roll Number(s):

0928-030-065-22400-0000

Appeal Number(s):

3335160 and 3345305

Taxation Year(s):

2018 and 2019

Hearing Event No.:

721466

Legislative Authority:

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

Heard:

July 22, 2019 by telephone conference call

APPEARANCES:

Parties

Representative

2315012 Ontario Inc.

George Cameron

MPAC

Lincoln Pearce

Town of Carleton Place

No one appeared

AMENDED DECISION OF THE BOARD DELIVERED BY PIERRE R. LAVIGNE

AMENDED DECISION

In accordance with Rule 114 of the Assessment Review Board’s Rules of Practice and Procedure, as amended May 2019, related to the correction of minor errors and in accordance with Rule 21.1 of the Statutory Powers and Procedure Act regarding the correction of errors, this order is issued to correct typographical errors in the order regarding the incorrect spelling of Pearce. The amendments have been underlined for ease of reference. There are no other changes in this decision.

INTRODUCTION

12315012 Ontario Inc, (“the Appellant”) appealed the 2018 tax year assessment of 59 MacArthur Avenue (the “subject property”), located in the Town of Carleton Place (County of Lanark). This appeal was pursuant to s. 40(1)(a)(i) of the Assessment Act, R.S.O. 1990, c. A.31 (“Act”) on the ground that the current value of its property is incorrectly assessed at too high a value.

2The subject property is described by MPAC as a historically significant mansion built in 1850 situated on a 11,558 square foot (“sq. ft.”) lot. The structure is a two-storey single-family residence of 5,508 sq. ft. with a construction quality of 7.5 having five bedrooms, four bathrooms of which two are ensuite. There is a 2,614 sq. ft. two-storey garage attached to the main house be means of an enclosed room-passage way. The second-storey of the garage is unfinished.

3The subject property is located in the heart of the Town of Carleton Place. It abuts a commercial plaza to the east and a large vacant lot to the west which is also owned by the Appellant and was purchased at the same time (September 2017) under separate deed. The zoning on the subject property allows for a broad range of residential, multi-residential and commercial uses.

4As the Appellant’s 2018 tax year appeal was not disposed of by March 31 of the subsequent year, s. 40(26) of the Act deems the assessment for the 2019 tax year to have also been appealed.

5MPAC has assessed the subject property for the 2018 tax year at $999,000 and $700,000 for the 2019 tax year.

6At this hearing MPAC submitted that the current value of the subject property for both the 2018 and 2019 tax years is $700,000. The Appellant submitted that the correct current value for the 2018 tax year is a maximum of $600,000 based on its September 2017 purchase price. The Appellant accepts the 2019 tax year value of $700,000 as correct, as he states repairs had been completed which brought up the value of the property.

7Pursuant to s. 40(11) of the Act, the Town of Carleton Place is a party to this proceeding. It did not advise the Board of its position and no one appeared at the hearing on its behalf.

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 ratepayer.

9At the completion of the hearing, the Board reserved its decision pending receipt of written submissions on the issue of the reverse onus provisions of s. 40(18) of the Act as there was evidence that the Assessor had been refused a reasonable opportunity to inspect the subject property.

10For the reasons that follow, the Board finds that the current value for the 2018 tax years is $612,000 and for the 2019 tax year is $700,000. Pursuant to s. 44(3)(b) of the Act, no equitable reduction is required.

11The Board reduces the assessment for the 2018 taxation year from $999,000 to $620,000 and confirms the assessment for the 2019 taxation year of $700,000.

REASONS FOR DECISION

Relevant Legislation

12Section 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.

13Section 19(1) of the Act states:

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

14Section 19.2(1) of the Act states:

19.2(1) Valuation days – Subject to subsection (5), the day as of which land is valued for a taxation year is determined as follows:

4. For the period consisting of the four taxation years from 2017 to 2020, land is valued as of January 1, 2016.

15Section 36(1) provides that:

36(1) Except as provided in section 32, 33 or 34, assessments of land under this Act shall be made annually at any time between January 1 and the second Tuesday following December 1. 2006, c. 33, Sched. A, s. 25.

16Section 40(17) and (18) of the Act state:

40(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.

(18) Despite subsection (17), the burden of proof as to the correctness of the current value of the land rests with the appellant where he or she fails or refuses,

(a) to give the assessment corporation reasonable opportunity to inspect the property under section 10; or

(b) to comply with a request for information and documentation under section 11. 2008, c. 7, Sched. A, s. 11.

17Section 40(26) of the Act states:

40(26) For 2009 and subsequent taxation years, an appellant shall be deemed to have brought the same appeal in respect of a property,

(a) in relation to the assessments under sections 32, 33 and 34 for the year; and

(b) in relation to the assessment, including assessments under sections 32, 33 and 34, for a subsequent taxation year to which the same general reassessment applies, if the appeal is not finally disposed of before March 31 of the subsequent taxation year or, if an assessment has been made under section 32, 33 or 34, before the 90th day after the notice of assessment was mailed. 2008, c. 7, Sched. A.

18Section 44(3) of the Act states:

44(3) 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 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.

19Rule 40 of the Rules of Practice and Procedure (“Rules”) of the Assessment Review Board states:

Special Notices

A party to a summary proceeding must give notice to the Board, and all other parties to a summary proceeding, within 30 days of the day set in Rule 33 as the start of a proceeding, that the party intends to raise with the Board:

(a) a change in property classification that would result in higher taxation;

(b) a higher assessment than that returned by the MPAC;

(c) an application to invoke section 40(18) of the Assessment Act; or

(d) the doctrine of issue estoppel

ISSUES

20The first issue is whether the s. 40(18) reversal of the burden of proof is applicable.

21The second issue is the current value of the subject property for the 2018 and 2019 tax years on the legislated valuation day of January 1, 2016.

22The third issue is whether an equitable reduction is required and if so by what amount.

DISCUSSION AND ANALYSIS FOR REVERSAL OF BURDEN OF PROOF

23In its submissions following the hearing MPAC advised the Board that no Special Notice required by Rule 40(c) of the Board’s Rules had been given and that, as these were summary proceedings, s. 40(18) was not applicable. It did however submit that even if it had the burden of proof, the refusal to permit inspection gave rise to an adverse inference with respect to the reliability of the Appellant’s evidence.

24The reversal of onus in s. 40(18) is a statutory provision which governs the conduct of hearings of the Board. However, where the Board, by its Rules, has required that notice be given, it would be unfair to the Appellant for the Board to apply s. 40(18). The absence of the Special Notice in this matter is sufficient to dispose of this issue. The burden of proof of the correct current value of the subject property remains on MPAC pursuant to s. 40(17).

25The Board finds that while there was an initial refusal to allow inspection on May 28, 2018, the assessor was satisfied with the owner’s description of the interior details. When evidence came to the assessor’s attention that appeared to contradict the owner’s description of the interior, the assessor requested a full inspection of the interior which was performed on May 3, 2019. In these circumstances, the Board finds that the initial refusal to allow inspection was remedied. The assessor did in fact ultimately inspect the interior of the subject property and no adverse inference is justified on these facts.

DISCUSSION AND ANALYSIS FOR CURRENT VALUE

MPAC’s Case

26MPAC’s witness Lincoln Pearce, a Property Valuation Analyst with MPAC, gave the following evidence of the listings and sales history of the subject property.

27On March 12, 2012 the subject property, together with an abutting vacant lot, sold for $825,000 after having been listed for several years.

28On May 26, 2017 the subject property, with the abutting vacant lot, was listed for sale for $999,000. Mr. Pearce states the listing described the property as follows:

Historic stone home has undergone major renovations: 5 bedrooms, 4 bathrooms with 2 ensuites. Approximately 5,500 sq. ft. finished and additional potential 2,000 sq. ft. unfinished (3rd floor main house +800 sq. ft. and 1,200 addition). Notable upgrades include stone repointing, upgraded insulation, new boiler 2010, commercial grade kitchen, hardwood and radiant flooring throughout, fabulous ensuite bath and complete addition to the back of the home.

29The “complete addition” appears to refer to the 2,614 sq. ft. two-storey garage with 1,200 sq. ft. of unfinished space on the second floor. Mr. Pearce testified that he was unable to find any construction or renovation permits taken out for any of this work.

30On August 8, 2017 the Appellant signed an Agreement of Purchase and Sale for the subject property and the abutting vacant lot for a combined price of $725,000. This agreement was conditional on a satisfactory home inspection of the subject property.

31Following a home inspection of August 24, 2017, the sale of the subject property closed on September 29, 2017 for $600,000 together with the abutting lot for an estimated $50,000.

32Mr. Pearce testified that on May 28, 2018 he visited the site and spoke with the owner, presumably a principal of the corporate Appellant, but was not allowed access to the interior. He states the owner advised that the property had been listed for four years and had sat vacant for over ten years prior to the owner’s purchase, and that there was significant interior damage due to neglect. Mr. Pearce states that he took the owner at his word and this is why he offered a reduction in assessment to $700,000. The Appellant refused this offer of reduction and this appeal proceeded to hearing.

33In March of 2019, in the course of preparing his valuation report for this hearing, Mr. Pearce became aware of a video of the interior of the subject property. This video was in a link to the May 26, 2017 on-line listing of the subject property for $999,000.

34The photos extracted by Mr. Pearce from the video show a home, empty of furnishings, in what appears to be move in condition with many renovations. Mr. Pearce noted the only damage apparent from the photos was some water staining along a door of an upper floor room. Mr. Pearce felt he had been misled by the owner’s statements as to the state of the interior and that the property was in good state of repairs.

35Mr. Pearce then established the value of the subject property by reference to the sales of comparable properties.

36His evidence was that the property was unusual considering its age and size. As there were no sales of comparable properties in the Town of Carleton Place, a broader search was required. He identified six sales of suggested comparable properties. The first four were in the Town of Almonte, 10 to 12 kilometres away from the subject property. Sale 5 was in Perth, 27 kilometres away and Sale 6 was in Merrickville, 34 kilometres away.

37Because the sales of the proposed comparable properties occurred between 2013 and 2018, Mr. Pearce prepared a Time Adjustment Analysis based on the evolution of sale prices of 222 vacant and/or improved properties from the subject property’s neighbourhood between February 2012 to March 2019. He determined the increase in value over that period to be 27.3%. He derived from this Analysis factors to adjust sale prices to a common January 1, 2016 valuation date.

38Sale 1 is a two-storey, 3,871 sq. ft. home built in 1900 with six bedrooms, two full baths. It has an attached garage of 367 sq. ft. It sold in July 2013 for $615,000, time adjusted to $656,000.

39Sale 2 is a three-storey, 5,271 sq. ft. home also built in 1900, with five bedrooms and five bathrooms. It has an attached garage of 977 sq. ft. It sold in November 2018 for $690,000 time adjusted to $642,928.

40Sale 3 is a two-storey 3,924 sq. ft. home built in 1880 with six bedrooms, three bathrooms. It has a detached garage of 457 sq. ft. It sold in January 2013 for $535,000, time adjusted to $594,385.

41Sale 4 is a two-storey 3,512 sq. ft. home built in 1900 with five bedrooms, two- and-one-half bathrooms. It has a detached garage of 765 sq. ft. It sold in January 2016 for $699,900, time adjusted to $699,158.

42Sale 5 is a two-storey 4,465 sq. ft. home built in 1870 with four bedrooms, two-and-one-half bathrooms which sold in July 2018 for $715,000, time adjusted to $671,543.

43Sale 6 is a two-and-three-quarter-storey 4,374 sq. ft. home built in 1865 with six bedrooms, four- and-one-half bathrooms which sold in May 2018 for $700,000, time adjusted to $660,086.

44Mr. Pearce agreed on cross-examination that all the above proposed comparable properties were well maintained.

45Mr. Pearce’s opinion of value based on the sales of the proposed comparable properties is that the subject property had a January 1, 2016 value of $700,000. No adjustment to this value was made for the cost to cure any items needing immediate repair.

MPAC’s Equity Evidence

46Mr. Pearce also prepared an equity analysis for the purposes of s. 44(3) of the Act. For his analysis he identified residential properties, including duplexes and residential properties with three self-contained units which sold between January 1, 2012 and March 21, 2019.

47The equity analysis shows a Level of Appraisal of 0.97. The Level of Appraisal is the overall or typical ratio of Assessment to Sale Prices at which a group of properties, which sold in the time period, have been assessed. It is the median of the of the ranked Assessment to Sale Ratios (“ASR”) of all the properties in the study. MPAC’s position is that the median is a measure of central tendency and that the median or midpoint is a fair way of determining overall equity as it excludes outlying ASRs.

48His analysis further indicates that the International Association of Assessing Officers (“IAAO”) standards considers a Level of Appraisal of between 0.90 and 1.10 to be fair. For the purposes of s. 44 equity, MPAC takes the position that equity is achieved if the median ASR falls between 0.95 and 1.05. Mr. Pearce concluded that in light of his finding of a Level of Appraisal of 0.97 there was no need for an equity adjustment.

The Appellant’s Case

49The Appellant relies upon its September 29, 2017 purchase price of the subject property for $600,000 as evidence of the current value. It argues that after the initial negotiated price of $725,000 for the subject property and the abutting lot, the transfer of the subject property at the price of $600,000 is the best evidence of the correct current value of the property adjusted for the cost to cure deferred maintenance and repairs.

50The Appellant’s representative did not lead any evidence of comparable sales or any equity evidence. No witness from the corporate Appellant testified as to the state of the property when it was purchased. The owner’s representative who was on site on May 28, 2018 and had the conversation with the Assessor did not testify. The home inspector did not testify in person, though his report of August 24, 2017 was filed in evidence.

51The inspector’s report states that:

Cost Estimates provided in the Inspection Report are minimum only and they are intended to be guideline figures. They are based on the most cost-effective solution to address the problem and will not include betterment. The inspector is not responsible for the cost of replacement or repair. It is recommended that the client obtain at least three cost estimates from qualified specialists before finalizing budgets for any work.

52The report contains estimates of cost to repair the following identified deficiencies: Flat roof near end of life expectancy: $5,000, Porches, Steps, Patios and Balconies: $35,000 - $45,000. Other deficiencies were identified in the home inspector’s report but no cost estimate for repairs were provided.

53The cost of other items of repair was substantiated by the following invoices for work done:

• January 30, 2019 - Supply and install new flat roof on annex and sunroom, plus eaves troughing, including 15% management fee and HST: $13,001.50

• March 7, 2019 - Repair drywall as required, Prep and Paint Walls and Ceiling on Upper Floor, including HST: $5,028.50

• March 28, 2019 - New Roof: $32,543.80

• April 2, 2019 - Repair and paint trim: $3,955.00

Analysis

54The 2018 assessment appears to have been based on the May 26, 2017 listing for $999,000. However, this asking price was not supported by sales of comparable properties.

55Though there were no sales of comparable structures in the Town of Carleton Place, the sales in Town of Almonte are of comparable structures in a comparable location. Sales 1 to 4 are 11 kilometres from the subject property. Both the Towns of Carleton Place and Almonte are in similar commuting distances west of the City of Ottawa, the major employment centre. Both are 50 kilometres to the centre of the City of Ottawa at City Hall. Sale 5 is 27 kilometres from the subject and 85 kilometres to the City of Ottawa. Sale 6 is 34 kilometres from the subject and 75 kilometres to the City of Ottawa.

56The Board agrees with the appellant that Sales 5 and 6 are not comparable as they are in locations too dissimilar to the subject property Accordingly, the Board will only consider sales 1 to 4 of Mr. Pearce’s report.

57The average time adjusted price per square foot of Sales 1 to 4 is $160. Applying this value to the square footage of the subject property would produce an indication of value of $884,000. Sale 2 has a square footage of 5,271. This is the closest to the subject property’s square footage. Using its square foot value of $122 to account for economies of scale would produce an indication of value of $672,000.

58There are however two noteworthy features that distinguish the subject property and would require the value of the comparables be adjusted upward to make them comparable to the subject property.

59The first of these distinguishing features is the zoning. Mr. Pearce testified that the subject property benefits from greater development potential than the comparable sales. It is near the centre of the Town of Carleton Place in a “Transitional zone” between the core of the town and residential areas. The permitted uses allow a broad range of residential, multi-residential and commercial uses. This feature of the property was highlighted in the listing of May 17, 2017. This development potential adds value to the subject property increasing it above the value solely derived from the square foot value of Sale 2.

60The second feature is the size and potential of the unfinished space. The photographs in evidence show a second-storey to the garage of 1,200 sq. ft. of unfinished open space with windows. The May 27, 2017 sales listing highlighted this as a selling feature: “additional potential 2,000 unfinished (3rd floor main house +800 sq. ft. and 1200 addition)”. Even discounting by half the square foot value of $122 derived from Sale 2, the 1,200 sq. ft. of unfinished space above the garage addition could add roughly $70,000 to the unadjusted value. None of the comparable properties has similar built space ready for finishing.

61Mr. Pearce’s opinion of value of $700,000 before consideration of cost to cure deferred maintenance is therefore amply supported by Sales 1 to 4, considering that no adjustment to the comparables was made account for these two valuable features.

62Mr. Pearce’s opinion of value of $700,000 is also supported by the Appellant. It does not object to this value being attributed to the 2019 deemed appeal, as its representatives stated the necessary repairs have been completed.

63The main dispute at the hearing was whether any adjustment to the value of the subject property, determined by the sales of comparable properties, should be made to account for matters of required repairs specific to the subject property.

64The Appellant objected to the admission of the photos extracted from the video as evidence of a good state of repairs. It relied upon the home inspection report of August 24, 2017 with its own photos to show deterioration in need of necessary disrepair. The photos taken from the video and the photos in the home inspector’s report are admissible in evidence, any objection will go to the weight given to this evidence.

65The Appellant and his representatives were aware of this contradiction before the hearing. The matter could have been clarified had the owner or the home inspector been called to testify. As a result, the only evidence we have of the condition of the interior is the screen shots from the video and in the home inspector`s report

66Deferred maintenance refers to those matters in need of necessary repair for use of the subject property or to make it marketable for sale. The cost of repairing deferred maintenance, referred to as the “cost to cure” is an allowable adjustment to the indication of value derived from comparable sales without deferred maintenance. The cost to cure must be supported by reasonable and objective evidence. The questions to be determined in this matter is what deferred maintenance has been proven and what cost to cure has been supported by reasonable evidence.

67The Board finds that the evidence presented by the Appellant warrants an adjustment for deferred maintenance. Mr. Pearce did observe from the video photos damage from roof leakage in one of the rooms. The home inspector’s report was an actual physical inspection with photographs which substantiated damage in need of immediate repair. In addition, there are invoices for work done to repair the damage.

68At the latter inspection of May 3, 2019, the assessor and the owner agreed that necessary repairs to the porches and balconies had been made. The home inspector’s report had estimated the cost of these repairs at $35,000 to $45,000. In the absence of the actual contractor estimates or invoices an adjustment of $35,000 should be made.

69The Appellant entered into evidence a January 30, 2019 invoice of $13,001.50. This included the repairs estimated at $5,000 by the home inspector for the flat roof repair. It also included installation of eavestroughs for $1,461.93. The home inspector’s report described the installation of eaves troughing as discretionary. As this expense cannot be considered an item of necessary repair no adjustment is warranted. An adjustment of $11,539.57 is proven from this invoice.

70The March 28, 2019 cost of the new roof for $32,543.80 is also proven, as are the drywall and trim repairs and repainting for $8,983.50. The damage to the property from the roof leakage was evident in the video. The inspector’s report establishes the roofing system was in need of replacement. These expenses of necessary repair are an allowable adjustment.

71The total amount of proven cost to cure deferred maintenance is $88,066.87, rounded to $88,000. This adjustment is to be deducted from the $700,000 value without regard to cost to cure deferred maintenance. The correct current value of the subject property for the 2018 tax year is therefore $612,000.

72With respect to any equity adjustment, the Appellant presented no evidence that properties in the vicinity are underassessed. The Appellant’s observation that the 2018 assessment of the subject property was the second highest in the Equity Study is not evidence of a general underassessment of other properties in the vicinity. No equity adjustment is required.

CONCLUSION

73The Board reduces the assessment for the subject property for the 2018 taxation year from $999,000 to $612,000 and confirms the assessment for the 2019 taxation year of $700,000.