1188004 Ontario Inc. v. Municipal Property Assessment Corporation, Region 31, 2020 CanLII 87158

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE: November 03, 2020

FILE NO.: WR 165594

Assessed Person(s): 1188004 Ontario Inc.

Appellant(s): 1188004 Ontario Inc.

Respondent(s): Municipal Property Assessment Corporation, Region 31

Respondent(s): City of Sault Ste. Marie

Property Location(s): 1205 1235 Peoples Road

Municipality(ies): City of Sault Ste. Marie

Roll Number(s): 5761-050-047-00400-0000

Appeal Number(s): 3392255, 3233471, 3392256, 3314790, 3392257, 3368012 and 3411236

Taxation Year(s): 2017, 2018, 2019 and 2020

Hearing Event No.: 733469

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

APPEARANCES:

Parties	Counsel*/Representative
1188004 Ontario Inc.	Daniel Attard*
Municipal Property Assessment Corporation	Justin Johnstone
City of Sault Ste. Marie	Robert Heil

HEARD: July 14, 2020 by telephone conference call

ADJUDICATOR(S): Jean-Paul Pilon, Member

DECISION

OVERVIEW

11188004 Ontario Inc. (the “Appellant”) is the owner of a property at 1205 1235 Peoples Road in Sault Ste. Marie (the “Subject Property”) which has been assessed in the commercial and industrial tax classes. The Appellant appealed its assessments for the 2017, 2018 and 2019 taxation years, and the Assessment Review Board (the “Board”) deemed a further appeal for the 2020 taxation year pursuant to section 40(26) of the Assessment Act, R.S.O. 1990, c. A.31 (the “Act”). Also, before the Board were deemed appeals of omitted assessments made pursuant to section 33 of the Act for the 2017, 2018 and 2019 taxation years.

2The City of Sault Ste. Marie (the “Municipality”) participated in the hearing of the appeals but did not present any evidence of its own.

3The Municipal Property Assessment Corporation (“MPAC”) assessed the value of the Subject Property at $4,078,000 for the 2017 to 2019 taxation years, and its omitted assessments for the 2017 to 2019 taxation years were returned at $184,000. MPAC returned an assessment for the entirety of the Subject Property at $4,131,000 for the 2020 taxation year.

4At the hearing, MPAC’s position was that the assessments for the 2017 to 2019 taxation years should be reduced to $3,724,000, $670,100 of which would be in the commercial (XT) tax class and $3,053,900 in the industrial (JT) tax class. The Municipality supported MPAC’s assessments.

5The Appellant took the position that all of the assessments should be reduced to a level between $2,005,000 to $2,653,000, depending on variables that are addressed later in this decision.

Issues for the Hearing

6There were two primary issues at the hearing: first, determining the correct current value of the Subject Property; and, second, whether there should be an equitable reduction in the current value of the Subject Property.

7Within the first issue were questions as to which valuation methodology should be used to determine current value and which proposed comparable properties should be considered. Similarly, with respect the second issue, equity, was a question of which properties should be considered in the equity analysis.

Result

8The Board finds that the correct current value of the Subject Property is $2,380,332 or $2,381,000 rounded for the 2017, 2018, 2019 and 2020 taxation years, with $429,000 of that value in the commercial tax class and $1,952,000 in the industrial tax class. The omitted assessments for the 2017, 2018 and 2019 taxation years are reduced to zero for the reasons below.

9The Board also finds that no equitable reduction of the current value of the Subject Property is required pursuant to section 44(3)(b) of the Act.

ANALYSIS

Description of Subject Property

10The Subject Property is primarily an industrial property with a commercial component located in Sault Ste. Marie. The actual site area of the Subject Property is 5.92 acres. It includes eleven structures which vary in height from eight feet to 32 feet, in floor area from 740 square feet (sq. ft.) to 31,072 sq. ft., and the buildings were built between 1963 and 2014. The total floor area of the buildings on the Subject Property is 66,194 sq. ft.

Omitted Assessments

11As noted earlier, the Appellant appealed its assessments for the 2017, 2018, 2019 taxation years, and a further appeal was deemed for the 2020 taxation year. In addition, the Appellant was deemed to have appealed omitted assessments made pursuant to section 33 of the Act for the 2017, 2018 and 2019 taxation years of $184,000.

12MPAC’s witness at the hearing, Tim Wishman, did not prepare the reports before the Board at the hearing and did not inspect the Subject Property. He testified only very briefly that these additional assessments pursuant to section 33 of the Act were made to address the existence of 5,000 sq. ft of floor space of which MPAC had been previously unaware. It was also clear, however, that his evidence at the hearing on the correct current value of the Subject Property included those areas that the omitted assessments were intended to cover.

13As a result, the Board finds that the omitted assessments are not now relevant because MPAC’s evidence of the current value of the Subject Property at the hearing included those areas covered by the omitted assessments. This is not the same situation as was described by the Divisional Court in Municipal Property Assessment Corporation v. Zarichansky, 2020 ONSC 1124, where it was determined at para. 41 that the Board had attempted to “dodge this responsibility (to determine correct current value) based on a finding that MPAC has not met its burden of proof.” It was clear at the outset in this case that MPAC had included that additional floor space in the totality of its evidence it presented to meet its statutory burden of proof pursuant to section 40(17) of the Act on the correctness of the current value of the land. To add any additional value to the current value of the Subject Property for those omitted assessments would, in effect, be to double count the areas in question.

Issue 1- Correct Current Value

Valuation Methodology

14MPAC’s valuation report prepared in anticipation of the hearing indicated that MPAC was using the cost approach to the exclusion of the income and direct comparison approaches to valuation. Mr. Wishman testified this was because of the nature of the Subject Property and because there were insufficient sales to complete an analysis using the direct comparison approach. To that end, the valuation report contained a detailed costing analysis and a land analysis (the latter of which is referred to in more detail below).

15Physical depreciation was a component of the cost analysis and that calculation was not contested at the hearing. However, the Appellant did contest an adjustment made after a site inspection of 9% described as “local market adjustment” where there was no explanation as to how it was derived. In addition, MPAC’s witness provided very little explanation in his testimony as to how MPAC arrived at a revised current value assessment of $3,724,000 using the cost approach. There was no explanation at the hearing as to the function of any of the buildings on the Subject Property. Nor was there any explanation as to why the analysis contained no provision for any functional obsolescence, other than 5% adjustment to the value of a building added after the inspection, despite the advanced age of some of the other buildings on the Subject Property.

16Despite its preference for the cost approach in this instance, MPAC also provided an analysis of proposed comparable properties that were industrial, which included a calculation of the unadjusted sales prices per sq. ft. of floor area. In response, the Appellant provided its own analysis of proposed comparable properties by floor area in three scenarios: without adjustments, with adjustments for structures and land, and third, with adjustments for structures, land and time, all of which are addressed in more detail below. This was essentially a direct comparison approach to determining current value, and the Board found there were sufficient proposed comparable properties relied upon by the parties for the direct comparison approach to be used, at least as far as floor space was concerned.

17In short, MPAC’s analysis using the cost approach left many questions that were not addressed in its evidence at the hearing. On the other hand, both parties presented more complete and logical submissions at the hearing using the direct comparison approach. It is also noted that in a recent decision, Land v. Municipal Property Assessment Corporation, Region 32, 2020 CanLII 24879 (ON ARB), the Board wrote at para. 19 that “the cost approach is normally the approach of last resort when attempting to establish the market value of a property.”

18As a result, and, given the choice of the parties to present direct comparison analyses at the hearing, the direct comparison approach is the approach used by the Board below in determining the correct current value of the Subject Property.

Comparable Properties

Floor Space

19The parties focused on sale price per sq. ft. of floor space for comparison in this part of their analyses.

20To this end, MPAC listed eight proposed comparable properties which, without any adjustments, ranged in sale prices from $17.42 per sq. ft. to $90.93 per sq. ft. of floor space.

21The Subject Property has floor space of 66,194 sq. ft. and only three of MPAC’s proposed comparable properties had floor space exceeding 17,046 sq. ft. Because of this substantial difference, these three proposed comparable properties were used by the Board in its analysis to the exclusion of the other five. In addition, these three of MPAC’s proposed comparable properties were also referred to by the Appellant in its evidence.

22The first of these was 1667 Trunk Road, with a sales price of $23.64 per sq. ft. and a total floor area of 42,303 sq. ft. compared to the Subject Property’s 66,194 sq. ft. This property sold on November 7, 2012 but MPAC did not attempt to adjust this or any of the other purchase prices for the passage of time.

23The second of these was 465 Second Line East, with a sales price of $54.11 per sq. ft. and a total floor area of 24,950 sq. ft. This property sold on December 18, 2015, very close to the valuation date of January 1, 2016.

24The third of these was 550 Second Line East, with a sales price of $17.42 per sq. ft. and a total floor area of 43,049 sq. ft. This property sold on June 17, 2013.

25For its part, the Appellant submitted evidence on three other proposed comparable properties.

26The Appellant’s first proposed comparable property, 218 Bruce Street, was not considered by the Board because it was acknowledged by the Appellant’s witness that it might have had unusual financing that could have impacted the sales price. The Appellant’s other two proposed comparable properties were, however, considered by the Board in its analysis.

27The second of these was 59 Industrial Park Crescent, with a sales price of $28.43 per sq. ft. and with a very similar floor area to the Subject Property of 58,046 sq. ft. This property sold in December 2014.

28The third of these was 24 Second Line W., with a sales price of $45.54 per sq. ft. and a floor area of 30,740 sq. ft. This property sold in December 2016.

29The average cost per sq. ft. of floor space from all five proposed comparable properties was $33.83. Multiplying this number by the square footage of the Subject Property of 66,194 yielded a value of $2,239,343.

30As noted above, MPAC did not attempt to make any adjustments to the sales prices of its proposed comparable properties. The Appellant, on the other hand, did make this attempt separately and aggregately, first, for structures and land, and second, for structures, land and time.

Passage of Time

31Adjusting for the passage of time might have been appropriate since some of the proposed comparable properties sold well before the valuation date. However, the problem with all of these proposed adjustments was that there was no evidence before the Board to support any them. As a result, these adjustments, all of which would have been to the Appellants’ detriment in the valuation exercise, were also disregarded.

Land

32There was, however, evidence before the Board to support another adjustment to the value of land included with each. Applying this adjustment would remedy the deficiency in the direct comparison analysis above where only interior floor space was considered. It was also appropriate because the Subject Property included significantly more land than all of the other proposed comparable properties used in the analysis. This evidence was available because MPAC’s cost approach analysis included a separate direct comparison approach to the value of land alone.

33MPAC relied on eight proposed comparable properties in its land analysis composed entirely of vacant land, and only two of those were relatively comparable to the Subject Property in the quantity of land involved.

34The first of these was 871 McNab which sold on March 31, 2014 for $33,092 per acre. The second of these was 79 Industrial Park Crescent which sold on August 14, 2015 for $78,804 per acre.

35The mean of these two amounts is the best evidence of the value of land alone at $55,948 per acre land.

36The average site area of all five comparable properties in which only floor space was considered was 3.40 acres where the Subject Property was 5.92 acres. The best evidence of the value of the excess land on the Subject Property was $55,948 per acre multiplied by the difference of 2.52 acres which results in $140,989.

37To account for the difference in land size, where the Subject Property was determined to be 2.52 acres smaller than the mean size of the five comparable properties, $140,989 was added on to the previously determined value of the floor space of $2,239,343.

38The total, $2,380,332, is the best evidence of the value of the Subject Property.

Findings on Issue 1

39The correct current value of the Subject Property is $2,380,332 or $2,381,000 rounded, which includes those parts of the Subject Property addressed by the omitted assessments.

Issue 2 - Equity

40Section 44(3)(b) of the Act provides that “the Board shall…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 assessment would result in a reduction to the assessment of the land.”

41The Appellant argued that there should be an equitable adjustment and MPAC and the Municipality took the position that there should be none.

42There were two equity reports before the Board at the hearing.

43MPAC’s study included thirty properties that had sold from 2012 to 2016 within 450 kilometers of the Subject Property. MPAC determined a level of assessment (the sales price divided by the 2016 assessment) of 1.009 which suggested no adjustment in equity was required.

44The Appellant’s study included ten properties that sold in roughly the same period but in Sault Ste. Marie (determined by assessment roll numbers starting with 5761). The result from this study was a level of assessment of 0.78 which, in the Appellant’s submission, would require an adjustment downward.

Vicinity

45The Appellant and the Municipality argued that MPAC’s search area was too large and the Board agreed. While the Act does not define the term “vicinity”, MPAC’s search area was too broad where there were a sufficient number of properties for consideration significantly closer to the Subject Property.

46It was not possible to determine from MPAC’s evidence which of its 30 properties were in or close to Sault Ste. Marie other than through the first four numbers of the roll number, 5761. Fourteen of MPAC’s 30 properties had 5761 roll numbers and were therefore considered in the Board’s analysis. Added to those were the Appellant’s ten properties that also had 5761 roll numbers.

Time adjustments

47The next problem as pointed out by the Municipality’s representative was that the sale prices for the properties used by the Appellant had been adjusted for the passage of time, where MPAC’s had not been. As with the other adjustments addressed earlier, this one applied by the Appellant at 6% per year was not supported by any evidence before the Board. MPAC’s witness did mention in his testimony that he thought there had been inflation in sales price over time, but his evidence did not include any quantification of that inflation if, in fact, there was any.

48As a result, the Board reversed those adjustments at a rate of .5% per month which was necessary so the Appellant’s properties could be considered alongside MPAC’s properties in Sault Ste. Marie that had not been adjusted. The result was that if a sale took place in January 2016, there would have been no adjustment because the valuation date was January 1, 2016. The earliest sale in the Appellant’s sample took place in May 2012 which required an adjustment of -22%. The most recent of these was March 2016 which required an adjustment of +1%.

49Having to rely on sales of that age is not the Board’s preference. However, had the Board taken its customary approach in excluding sales outside of a one-year period of the valuation date, it would have left too few properties to determine whether assessments in the vicinity were equitable. In addition, as MPAC’s representative pointed out in this citation, “the greater the sample of comparable properties utilized in an equity study the greater the accuracy of the study (1799120 Ontario Limited v. Municipal Property Assessment Corporation, Region 19, 2016 CanLII 89336 (ON ARB) at para. 53).”

Findings on Issue 2

50The result of the analysis was a median assessment to sale ratio of 0.978 and a mean of 0.986 showing that no adjustment in equity is warranted.

Classification

51Finally, on the question of classification, the parties agreed at the hearing that the correct current value as determined by the Board should be distributed between the commercial (XT) and industrial (JT) tax classes in the same proportion as in the original assessment: 18% in the commercial tax class and 82% in the industrial tax class.

52The correct current value of the Subject Property was determined above to be $2,380,332, or $2,381,000 rounded. This meant that $429,000 of the current value was in the commercial tax class and the remainder, $1,952,000 was in the industrial tax class.

CONCLUSION

53The Board finds that the correct current value of the Subject Property is $2,381,000 for the 2017, 2018, 2019 and 2020 taxation years without any adjustment for equity.

ORDER

54The Board orders that the assessment of 1205 1235 Peoples Road be reduced to $2,381,000, with $429,000 of that value in the commercial tax class and $1,952,000 in the industrial tax class in the 2017, 2018, 2019 and 2020 taxation years. The omitted assessments for the 2017, 2018 and 2019 taxation years are reduced to zero.