Township of Johnson v. Municipal Property Assessment Corporation, 2020 CanLII 7822

Assessment Review Board

Commission de révision de l'évaluation foncière

ISSUE DATE: January 31, 2020

FILE NO.: WR 162549

Assessed Person(s): Norman Hoover Weber, Lucinda M. Weber

Appellant(s): Township of Johnson

Respondent(s): Municipal Property Assessment Corporation ("MPAC") Region 31

Respondent(s): Norman Hoover Weber, Lucinda M. Weber

Property Location(s): 452 Fisher Road

Municipality(ies): Township of Johnson

Roll Number(s): 5716-000-006-06804-0000

Appeal Number(s): 3343574, 3373373, 3373374, 3373375 and 3373376

Taxation Year(s): 2018 and 2019

Hearing Event No.: 725632

Legislative Authority: Sections 33 and 40 of the Assessment Act, R.S.O. 1990, c. A.31, as amended

Heard: October 17, 2019 in Desbarats, Ontario

APPEARANCES:

Parties

Representative

Norman Hoover Weber, Lucinda M. Weber

No one appeared

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 452 Fisher Road (the "subject property"). The reason for the appeal was that, in the Township's view, the assessment was too low and does not adequately reflect the correct assessment when the ongoing industrial activity on the property is considered.

2The subject property is a farm property used for farm purposes. The Township alleges that industrial activity was also being carried out on the property in 2018 and that the value returned by MPAC did not consider this use. The Township further alleges that, had MPAC considered the Industrial use of the property in 2018, it would have returned a higher assessment. The Township believes the correct current value after the appropriate amendments to the subject property should be $608,000, apportioned as follows:

• In the Residential property class: $71,200;
• In the Farm property class: $314,700; and
• In the Industrial property class: $222,100.

3In response to the Township's appeal of the 2019 returned assessment, MPAC amended its valuation by applying two omitted assessments with an effective date of August 31, 2018 and two omitted assessments with an effective date of January 1, 2019.

4The purpose of these omitted assessments was to recognize changes to the Residential portion of the property since its last inspection and to add the Industrial property class to portions of the property in 2018 and 2019. The effect of the omitted assessments was to add $24,100 to the Residential apportionment from August 31, 2018 onward and to add $104,900 to a new Industrial property class, also from August 31, 2018 onward. MPAC believes the resulting current value of the subject property is $476,000, apportioned as follows:

• In the Residential property class: $70,300;
• In the Farm property class: $300,800; and
• In the Industrial property class: $104,900.

5The value returned on the roll, prior to the Township's appeals was $347,000, apportioned as follows:

• In the Residential property class: $46,200; and
• In the Farm property class: $300,800.

The Issues

6The Assessment Review Board (the "Board") must decide several things in these appeals:

• Firstly, the Board must determine the correct property classes applicable to the subject property;
• Secondly, the Board must determine the current value of the property for the 2018 and 2019 taxation years;
• Thirdly, the Board must determine the apportionment of value among the classifications represented at the subject property;
• 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; and
• Lastly, in response to the Township's assertions, the Board must make a determination as to whether or not MPAC has met its onus of burden of proof with respect to current value as required by s. 40(17) of the Assessment Act (the "Act").

Where the Parties Agree

7There is no dispute among the Parties as to the 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 (nominally applied as one acre) supports that industrial use. They also agree that the remaining part of the property should be apportioned between the Residential and Farm property classes.

8There is no dispute among the Parties with respect to the effective dates set out by MPAC for the Industrial use in its omitted assessments.

DECISION

9The Board finds the current value of the subject property is $347,000. 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. In making this decision, the Board finds as follows:

• Appeal #3373373: omitted assessment in the Residential property class, effective date August 31, 2018 is reduced from $24,100 to $0;
• Appeal #3373375: omitted assessment in the Industrial property class, effective date August 31, 2018 is reduced from $104,900 to $1,000;
• Appeal #3373374: omitted assessment in the Residential property class, effective date January 1, 2019 is reduced from $24,100 to $0;
• Appeal #3373376: omitted assessment in the Industrial property class, effective date January 1, 2019 is reduced from $104,900 to $1,000; and
• Appeal #3343574: current value, effective date January 1, 2019 is confirmed at $347,000, with apportionment amended as follows: In the Residential property class: $46,200; in the Farm property class: $299,800; in the Industrial property class: $1,000.

10Accordingly, the assessment of the subject property as of August 31, 2018, reflective of the omitted assessment applied by MPAC to include the Industrial use, is $347,000, apportioned as follows:

• In the Residential property class: $46,200
• In the Farm property class: $299,800
• In the Industrial property class: $1,000

11The assessment of the subject property for the 2019 taxation year is $347,000, apportioned as follows:

• In the Residential property class: $46,200
• In the Farm property class: $299,800
• In the Industrial property class: $1,000.

WHAT IS THE CORRECT PROPERTY CLASSIFICATION

12All of the Parties agreed that industrial use has taken place since May 1, 2018, when the first omitted assessment recognizing industrial activity was applied to the property by MPAC. 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 prior to August 31, 2018.

What is the Current Value of the Subject Property?

MPAC's Evidence

13MPAC initiated its evidence by presenting a recommendation that amended the apportionments of the total value determined from its application of the omitted assessments of $476,000. The recommended apportionment was as follows:

• In the Residential property class: from $70,300 to $70,600;
• In the Farm property class: unchanged at $300,800; and
• In the Industrial property class: from $104,900 to $104,600.

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 cost of the land. Once the cost approach calculations were made, and the various omitted and supplementary assessments were added to the values determined, MPAC also undertook a direct comparison approach analysis.

15This second analysis was 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 $235,674 and $581,073.

The Cost Approach

16MPAC applied a total land value to the property of $145,000 (rounded), and apportioned this amount as follows:

• In the Residential property class: $1,367
• In the Farm property class: $143,256
• In the Industrial property class: $233.

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 Limited 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 existing buildings reflect that type of use.

18MPAC presented its findings as follows:

• Total land value: $144,856
• Total building value (Cost New): $682,592
• Total depreciation and obsolescence applied to buildings: $351,419
• Net building value: $331,173
• Total value of the subject property: $476,000 (rounded).

The Direct Comparison Approach

19MPAC then compared this value with the time adjusted sale values of the six farm sales in its direct comparison sample. The Assessor concluded that the value determined by MPAC lies within the time adjusted sale range represented by the sample of six properties and is therefore reasonable.

Appellant's Evidence

20The Township believed 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 2018 and 2019 taxation years;
• 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;
• 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 approaches; 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 approximately 50% external, economic obsolescence applied once the building's replacement cost is established. The Township further submitted that this 50% reduction in value should not be applied to industrial buildings.

23The Township does not take issue with the value ostensibly applied to the subject building used for industrial purposes by MPAC, but does take issue with the total depreciation and obsolescence applied. It submits that the value of the building should be determined through the Hanscomb, 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 depreciated value of the building applied by MPAC. The reasoning was that, since a 50% obsolescence was applied by MPAC because they used 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 building value attributed by MPAC. The Township submits the value of the building used for industrial purposes should be $209,254.

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 $222,145.

BOARD'S ANALYSIS

27The 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.

28In 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.

29MPAC'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

30The Board has no documentary evidence with which to make a finding on the land value.

31MPAC reported a total land value of $144,856, but there was no source of this value in evidence.

32By contrast, the Township applied a land value that it derived from a comparison of the assessments of four, one-acre residential lots. This method resulted in a value of $13,600.

33There was no submission or documentary evidence to suggest industrial land and residential land carry the same value in Johnson Township. This comparison is not suitable to determine the land value of the property used for industrial purposes.

The Value of the Building

34The Township in cross-examination. The Township views the subject building to be of industrial use and therefore submits that Hanscomb should be used because it is used for industrial buildings. It disagrees with MPAC's use of the Agricultural Cost Guide for the industrial building.

35The chief difference between Hanscomb 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 Hanscomb. This is the specific value under dispute between MPAC and the Township.

36The Board has no documentary evidence to establish the value of the individual buildings on the property, including the specific building in dispute. 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.

37In 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 changes to these values arising from the various omitted and supplementary assessments applied by MPAC.

38Despite the multiple disparities between the six properties in its Direct Comparison analysis and the subject property, MPAC concluded that the value of the subject property should reasonably fall between the value of its six comparable properties. No specific reason was given for this conclusion, except that the current value determined, of $476,000, through the cost approach, falls within the range of time adjusted sale values in the direct comparison sample.

39The Township relied entirely on MPAC's finding of value for the building under scrutiny. 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.

40In any case, neither the Township, nor MPAC advanced any documentary evidence to show the basis of the value of the land, in the Industrial property class or 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.

DID MPAC MEET ITS ONUS UNDER s. 40(17) OF THE ACT?

41The 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."

42The 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.

43The Board finds that MPAC did not discharge its burden of proof in this case. 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?

44In 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 when a provable value has not been determined by MPAC, the remedy is to consider the evidence of the other Parties.

45In 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 value is also unreliable.

46Patry 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."

47The Board finds that there is insufficient evidence to prove 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 2018, prior to any amendments brought by MPAC under s. 33 of the Act. This value is $347,000.

Apportionment

48Despite a lack of evidence with respect to value, the submissions of the parties are clear in that an industrial use was underway, starting on or before August 31, 2018.

49Section 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." Subsection 7(2) includes "Industrial" as one of the classes prescribed by the Minister.

50These two sections of the Act, taken together, indicate that where a specific property class exists, is must be recognized so that it can be assessed under the appropriate classification.

51The Board would fail in its deliberations if there is no value attributed to the Industrial class land. Accordingly, the Board attributes a nominal, $1,000 value to the Industrial property class, commencing on August 31, 2018.

52Additionally, 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

53The Board finds the current value of the subject property is $347,000. 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. In making this decision, the Board finds as follows:

• Appeal #3373373: omitted assessment in the Residential property class, effective date August 31, 2018 is reduced from $24,100 to $0;
• Appeal #3373375: omitted assessment in the Industrial property class, effective date August 31, 2018 is reduced from $104,900 to $1,000;
• Appeal #3373374: omitted assessment in the Residential property class, effective date January 1, 2019 is reduced from $24,100 to $0;
• Appeal #3373376: omitted assessment in the Industrial property class, effective date January 1, 2019 is reduced from $104,900 to $1,000; and
• Appeal #3343574: current value, effective date January 1, 2019 is confirmed at $347,000, with apportionment amended as follows: In the Residential property class: $46,200; in the Farm property class: $299,800; in the Industrial property class: $1,000.

54Accordingly, the assessment of the subject property as of August 31, 2018, reflective of the omitted assessment applied by MPAC to include the Industrial use, is $347,000, apportioned as follows:

• In the Residential property class: $46,200
• In the Farm property class: $299,800
• In the Industrial property class: $1,000.

55The assessment of the subject property for the 2019 taxation year is $347,000, apportioned as follows:

• In the Residential property class: $46,200
• In the Farm property class: $299,800
• 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