Iberkona Holdings Ltd. v. Municipal Property Assessment Corporation Region 03, 2021 CanLII 22019

Tribunals Ontario

Tribunaux décisionnels Ontario

Assessment Review Board

Commission de révision de l’évaluation foncière

ISSUE DATE:

March 16, 2021

FILE NO.:

WR 168543

Assessed Person(s):

Iberkona Holdings Ltd.

Appellant(s):

Iberkona Holdings Ltd.

Respondent(s):

Municipal Property Assessment Corporation Region 03

Respondent(s):

City of Ottawa

Property Location(s):

66 Iber Road

Municipality(ies):

City of Ottawa

Roll Number(s):

0614-271-830-06069-0000

Appeal Number(s):

3322324, 3345423 and 3396586

Taxation Year(s):

2018, 2019 and 2020

Hearing Event No.:

738972

Legislative Authority:

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

APPEARANCES:

Parties

Counsel*/Representative

Iberkona Holdings Ltd.

Robert Butterworth*

Municipal Property Assessment Corporation

Makael Nur

City of Ottawa

No one appeared

HEARD:

February 8, 2021 by telephone conference call

ADJUDICATOR(S):

Jennifer Griffith, Member

DECISION

OVERVIEW

1Iberkona Holdings Ltd. (the “Appellant”) is the owner of the Subject Property located at 66 Iber Road, in the City of Ottawa (the “City”). The Subject Property is a Small Office Building (generally single tenant or owner occupied under 7,500 square feet (“sq. ft.”). The Subject Property is a commercial/industrial property, with a total floor area of 8,330 sq. ft. and a total site area of 3.51 acres.

2The Municipal Property Assessment Corporation (“MPAC”) has assessed the current value of the Subject Property at $2,548,000 for the 2018, 2019 and 2020 taxation years in the Commercial Tax Class (“CT”).

3The Appellant believes that the returned assessment is too high and that the correct current value should be $1,540,042 based on the time-adjusted sale price of the Subject Property. The Appellant also presented evidence that the Subject Property would be valued at $2,133,000 using the Cost Approach and $1,540,146 using the Income Approach. MPAC takes the position that the correct current value is $2,442,000 based on the Cost Approach to value.

4Pursuant to s. 40(11) of the Act, the City of Ottawa is a party to this proceeding. However, no one appeared at the hearing on its behalf.

5Section 44(3)(b) of the Assessment Act (“Act”) directs the Assessment Review Board (“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”). Both MPAC and the Appellant take the position that equity is not at issue. Therefore, the Board accepts the position that equity is not at issue.

Issues for the Hearing

6At issue in this proceeding is:

1. A determination of the correct current value of the Subject Property based on:

a. Sale of the Subject Property; \

b. Cost Approach; or

c. Income Approach.

Result

7The Board finds the correct current value of the Subject Property is $2,437,000 for the 2018, 2019 and 2020 taxation years, based on the Cost Approach.

8Pursuant to s. 44(3)(b) of the Act, the Board finds that equity is not at issue. Therefore, no equity reduction is required.

9Based on an agreement of the parties that one acre of the Subject Property is to be classified as Excess Land, the Board orders the apportionment breakdown to be as follows:

Commercial (Full) $1,937,000

Commercial (Excess Land) $500,000

ANALYSIS

Issue 1 - A determination of the correct current value of the Subject Property for the 2018, 2019 and 2020 taxation years

10In determining the correct current value, the Board references s. 19(1) of the Act, which states that the assessment of land shall be based on its current value, which is defined as 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”. The valuation date for the 2017 to 2020 taxation years is January 1, 2016.

11For the reasons discussed below, the Board finds the correct current value is $2,437,000 for the 2018, 2019 and 2020 taxation years.

12The Appellant provided evidence based on (a) the Appellant’s own purchase of the Subject Property in 2014; (b) the Cost Approach; and (c) the Income Approach. Reviewing the following evidence presented in support of current value, the Board finds that MPAC presents the best evidence based on the Cost Approach.

Issue 1a – Sale of the Subject Property

13The Appellant submits that the value of the Subject Property on the valuation date of January 1, 2016 should be determined by reference to the price that the Appellant paid to purchase the property on September 30, 2014, adjusted for the passage of time. MPAC submits that this was not an arm’s length sale, and therefore cannot be used to determine current value.

Appellant’s Evidence

14Counsel for the Appellant called Glenn Lucas as a witness (“Appellant’s Witness”). The Appellant’s Witness presents the Appellant’s Statement of Issues (“SOI”) package dated August 9, 2019 and he testifies to the information contained in the SOI.

15The Appellant’s Witness testifies that the Appellant has been the owner of the Subject Property since September 30, 2014 after purchasing it from Canada Post for $1,435,000. He testifies that prior to this sale in 2014, the Subject Property was offered for sale to the public for a reasonable period, although no details of the offer for sale to the public was presented.

16The Appellant’s Witness further testifies that the sale of the Subject Property was an open market sale, that was listed with CBRE Limited Real Estate Brokerage in 2013. He submits that both the buyer and the seller were represented by different agents with CBRE Limited Real Estate Brokerage.

17The Appellant’s Witness presents a copy of the “For Sale” listing by CBRE Limited Real Estate Brokerage. The listing provided information relating to the property description, zoning, legal description, type of offering (Bidding), dates for making sealed offers, site tours and other listing conditions.

18The Appellant’s Witness also presents a copy of an Agreement of Purchase and Sale, which showed the agreed sale price was $1,435,000. The Agreement was signed the buyer (Moana Realty Ltd) on April 30, 2013 and by the vendor (Canada Post Corporation) on May 8, 2013. The Agreement of Purchase and Sale contained many conditions (e.g. physical and environmental inspections, title examination etc.) that had to be done as agreed to in the document.

19Because the sale of the Subject Property occurred in September 2014 outside of the valuation date of January 1, 2016, the Appellant’s Witness undertook to establish a time adjustment factor for adjusting the sale price of the Subject Property to the valuation date of January 1, 2016.

20In determining the time-adjustment factor, the Appellant’s Witness used a “pair of sales” which occurred at 44 Iber Road. The first sale occurred in June 2011 for $2,525,000; and the second sale occurred in January 2015 for $3,067,000. Based on these two sales the Appellant’s Witness calculates that the sales occurred within 43 months of each other reflecting an increase in sale price of 21% or 0.488% per month.

21Using the 0.488% per month time adjustment factor, the Appellant’s Witness calculates that the sale of the Subject Property in September 2014 for $1,435,000 occurred 15 months prior to the valuation date of January 1, 2016. The Appellant’s Witness calculates that the sale of the Subject Property in 2014 should be time adjusted by 7.32% (0.488 per month x 15 months). Applying the time adjustment factor to the sale of the Subject Property increases it to a time adjusted value of $1,540,042 ($1,435,000 x 1.0732).

22Based on the sale of the Subject Property, the Appellant believes the current value should be $1,540,042. In support of this opinion, the Appellant provides the Board with two cases to assist it in its determination, the most relevant of which will be discussed below.

MPAC’s Evidence

23MPAC calls Stuart Battrick as a witness (“MPAC’s Witness”) and he presents a Valuation Report dated September 14, 2020 and testifies to the information contained in the report.

24MPAC’s Witness states that he conducted an external inspection of the Subject Property on February 3, 2020, during which time digital imagery (photographs) of the Subject Property was taken.

25MPAC’s Witness presents evidence that the Subject Property was sold on September 12, 2014 by Canada Post and was purchased by the assessed person at a sale price of $1,435,000.

26MPAC’s Witness testifies that a Request for Reconsideration (“RFR”) was filed for the Subject Property which prompted him to investigate the sale of the Subject Property as part of his review on RealTrack Inc. which collects, confirms and publishes real estate information. On RealTrack Inc. he confirmed that the listing brokerage was CBRE, however, the listing dates, sale price and financing information were not available. As part of his investigation, MPAC’s Witness confirms that he did not personally send out an MPAC Sales Questionnaire to the buyer to gather further information about the sale; and due to the limited information discovered about the sale he was unable to determine the motivation of the buyer and seller.

27During the investigation of the sale of the Subject Property, MPAC’s Witness testifies that he discovered that the previous assessor had investigated the sale in 2014 and notes of his findings were left on file.

28Based on his personal investigation of the sale of the Subject Property and the investigative notes left on file by the previous assessor, MPAC’s Witness concluded that the sale of the Subject Property in 2014 was not an arm’s length transaction, because it was offered for sale through a bidding process which means that all offers were confidential, there was no listing price, and offers had to be submitted within a specific time, which is not typical of an open market sales where the listing price is stated and offers can be made at any time while the listing is posted.

29In support of its argument that the time adjusted sale of the Subject Property is not reflective of an arm’s length transaction between a willing seller and a willing buyer, MPAC provides the Board with two cases to assist it in its determination, the most relevant of which will be discussed below.

Findings on the Sale of the Subject Property

30The Board finds that the sale of the Subject Property does not provide reliable evidence of its current value as of January 1, 2016 for the following reasons:

I. The sale occurred on September 30, 2014 which is too far removed from the valuation date of January 1, 2016 to provide any meaningful test of current value without adjusting for the passage of time. The Board finds that the sale price needs to be time-adjusted to the valuation date to demonstrate whether or not the time-adjusted sale price is reflective of the open market activity at or around the valuation date;

II. The Board rejects the time adjustment factor applied to the sale price of the Subject Property because the number of sales used (two sales at one comparable property) are insufficient sales data and the sales period (first sale in 2011 and the second sale in 2015) are too far removed from the valuation date of January 1, 2016 to provide a reliable time adjustment factor for adjusting the sale price of the Subject Property. The time adjustment factor provided is unreliable both because of the small sample size and the fact that sales in 2011 and 2015 may not accurately reflect changes in value that occurred between 2014 and the valuation date of January 1, 2016;

III. The Board agrees that the sale of the Subject Property in the open-market is generally accepted as the best evidence of current value. In certain circumstances, it is not automatically accepted and in situations where the sale of the Subject Property is considered a non-typical open market sale, the Board finds it would be necessary to test whether the sale price is reflective of other sales prices in the open market at or around the valuation date, between a willing buyer and a willing seller pursuant to s. 19(1) of the Act; and

IV. The Board finds that consideration must be given to all evidence presented by the parties and not only the sale of the Subject Property in determining the correct current value. It is clear that even the Appellant’s opinion of current value of $2,133,000, based on the Cost Approach is significantly greater than the time-adjusted sale price of $1,540,042 for the Subject Property. In fact, the Appellant’s evidence is that the value of the land alone is $1,451,083, which suggests that the 2014 sale of the Subject Property is not a reliable measure of its value.

31The Board’s finding that the sale of the Subject Property while generally accepted, it is not automatically accepted is supported by McWilliams Brothers Holdings Inc. v. Municipal Property Assessment Corp., Region No. 7 2006 CarswellOnt 8226, [2006] O.A.R.B.D. No. 566 which states in para. 10:

The Board takes the view that as a rule, while a recent free sale of the subject property is generally accepted as the best means of establishing market value, this does not mean that it will always and automatically be the case. The Board takes care to examine all of the circumstances surrounding each sale to ensure that all of the elements of the definition of current value are in place. The land must be “unencumbered” and sold at “arm’s length” between “willing” buyer and “willing” seller.

32The Board’s finding that other evidence presented by the parties and not only the sale of the Subject Property has to be taken into consideration in determining the correct current value is supported by City of Toronto (Revenue Services) v. Municipal Property Assessment Corporation, Region 09, 2017 CanLII 80039 (ON ARB) which states in para. 42:

The sale of the subject property in late 2011 provides better evidence for its current value than does the sale in 2014, but it is not the best or only evidence. Ordinarily a recent free sale of the subject property so close to the valuation day would be the best evidence for its current value. The circumstances behind such a sale needs to be examined to ensure that it represents the market and is not a bargain price or otherwise lower than it could or should be.

33Based on the above evidence the Board rejects the time-adjusted sale price of $1,540,042 of the Subject Property. The Board finds that a time-adjustment factor based on a pair of sales which occurred in 2011 and 2015 for one comparable property is unreliable because (a) the period over which the sales occurred is too far removed from the valuation date of January 1, 2016 to provide a true test of open market activity; and (b) the sample size of a pair of sale based on one comparable property is too small and that a larger sampling size closer to the valuation date would be more reliable.

34The Board also finds that the Appellant’s opinion value of $2,133,000 based on the Cost Approach is shown to be significantly higher than the time adjusted sale price of $1,540,042 for the Subject Property, which further calls into question the reliability of this sale.

Issue 1b – Cost Approach

35The Cost Approach is a valuation method whereby a property is valued based upon the cost to build a new or substitute property, less any depreciation evident in the existing property, then adding the value of the cost to build the new structure/s to land value to determine the value as of the valuation date of January 1, 2016.

36The parties agreed that the Improvements Value for the Subject Property is $682,762 which the Board accepts. Therefore, the issue outstanding in determining the current value based on the Cost Approach is the land value (site area).

37Both parties presented evidence of the land value. As explained below, the Board finds the best evidence to be four sales of vacant land presented by MPAC, because these sales are open-market sales which occurred within a reasonable time (2015 and 2016) to the value date of January 1, 2016.

38Based on the Cost Approach the Board finds the current value is $2,437,000 (rounded) ($682,762 Improvement Value + $1,755,000 Land Value).

MPAC’s Evidence

39In support of land value, MPAC’s Witness presents an analysis of the sales of five comparable properties (four properties are vacant lots identified as Property Code 105 and 106; and one property is a developed commercial property identified as Property Code 410) used to determine land value of the Subject Property.

Land Sales Analysis

5 COMPARABLE PROPERTIES

2016 CVA

SALE DATE

SALE PRICE

REPLACEMENT COST NEW LESS DEPRECIATION (RCNLD)

SALE RESIDUAL LAND VALUE

RESIDUAL LAND RATE (PER ACRE)

LOT SIZE (ACRE)

RETURNED LAND VALUE

RETURNED LAND VALUE (PER ACRE)

Bobounk Ridge

$4,357,000

2015

$4,076,190

$4,076,190

$464,788

8.77

$4,357,000

$496,807

37 Neil Avenue

$806,000

2016

$847,500

$847,500

$501,479

1.69

$806,000

$476,923

1145 Carp Road

$1,393,000

2015

$2,150,000

$540,267

$1,609,732

$1,210,325

1.33

$852,732

$641,152

Roger Neilson Way

$1,371,000

2015

$1,710,000

$1,710,000

$500,000

3.42

$1,371,000

$400,877

3065 Palladium Drive

$3,280,000

2016

$5,919,214

$5,919,214

$831,350

7.12

$3,280,000

$460,674

SUBJECT PROPERTY (66 Iber Road)

$2,548,000

$682,762

3.51

$1,865,237

$531,407

Average rate per acre $701,588

Median rate per acre $501,479

40Based on the above analysis, MPAC’s Witness submits that he relies on the median rate per acre of $501,479. When this rate is applied to the Subject Property it results in a land value of $1,760,192 ($501,479 x 3.51 acres).

41With the agreement by both parties that the value of the Improvements is $682,762 and having determined the value of the Land (site area) is $1,760,192 based on the above land sales analysis, MPAC’s Witness estimates the current value to be $2,442,994 based on the Cost Approach.

42During cross-examination, MPAC’s Witness was asked about the comment he made in his certification of the Valuation Report, which stated that “The analysis, opinions and conclusions of his report have been prepared and are in conformity with the Canadian Uniform Standards of Professional Appraisal Practice” (“CUSPA”).

43In response, MPAC’s Witness states that he is aware that CUSPA is the government body for professional standards for the Appraisal Institute of Canada (“AIC”). He confirms that he has no qualification with and is not a Member of AIC; and is not aware of CUSPA’s rules and standards.

44MPAC’s Witness explains that in preparing the Valuation Report he relied on MPAC’s policies, procedures, processes, controls and peer review by either the Manager and/or Supervisor. However, the MPAC’s Witness was unaware if his manager and supervisor had any qualification with AIC.

45Regarding the issues surrounding CUSPA and AIC the Board advised the parties that the appropriate weight will be given to all evidence before this Board in determining the correct current value of the Subject Property.

46Based on the evidence, MPAC argues that the best evidence in support of current value is the value of $2,442,000 (rounded) determined by the Cost Approach.

Appellant’s Evidence

47The Appellant’s Witness testifies that the best way to determine land value for the purpose of the Cost Approach is by analyzing sales of vacant land, because it removes any subjective adjustments and provides an objective conclusion of the value.

48In support of the land value, the Appellant’s Witness presents one sale at 109 Iber Road with a lot size of 1.5 acres that sold in February 2014 for $560,000 or ($373,333 per acre). The Appellant’s Witness states that an investigation of the sale on the RealTrack Inc. website indicated that the broker was CBRE, which supports his conclusion that this sale is between a willing buyer and a willing seller.

49Because the sale of the vacant lot occurred in February 2014, the Appellant’s Witness determines that the sale occurred 22 months prior to the valuation date of January 1, 2016. Using the same time adjustment factor of 0.488% per month that was used to adjust the sale price of the Subject Property, the Appellant’s Witness calculated that the adjustment factor to be applied to the sale price per acre of the vacant lot is 10.736% (0.488 x 22 months).

50Applying this time adjusted factor to increase the sale price per acre results in a time adjusted sale price of $413,414 per acre ($373,333 x 1.10736). When this time adjusted sale price per acre is applied to the Subject Property it results in a time adjusted land value of $1,451,083 ($413,414 x 3.51 acres).

51Based on the Cost Approach the Appellant’s Witness believes the current value is $2,133,000 rounded ($1,451,083 Land Value + $682,762 Improvements Value).

Findings on Cost Approach

52Reviewing the above evidence presented in support of current value, the Board relies on the factual evidence (e.g. Improvements Value and Land Sales etc.) and not on the opinion of the MPAC Witness. The Board finds that MPAC presents the best evidence based on the Cost Approach. As stated above, the parties agreed that the Improvements Value for the Subject Property is $682,762 which the Board accepts.

53In determining the value of the site area, the Board finds the best evidence to be the four sales of vacant land presented by MPAC, because they are open-market sales which occurred within a reasonable time (2015 and 2016) of the valuation date of January 1, 2016. Although the sale price of these four sales were not time adjusted to the valuation date, the Board accepts it and finds that it is not necessary to adjust for time because the sales occurred within one year on either side of the valuation date which the Board deems to be reasonable. These four sales are located at Bobounk Ridge, sold in 2015 for $4,076,000 (or $464,788 per acre) and with a lot size of 8.77 acres ; 37 Neil Avenue, sold in 2016 for $847,500 (or $501,479 per acre) and with a lot size of 1.69 acres; Roger Neilson Way, sold in 2015 for $1,710,000 (or $500,000 per acre) and with a lot size of 3.42 acres; and 3065 Palladium Drive, sold in 2016 for $5,919,214 (or $831,350 per acre) and with a lot size of 7.12 acres. The lot sizes of these four sales ranges from 1.69 acres to 8.77 acres; and the sale prices per acre ranges from $500,000 to $831,350.

54Based on the above analysis, the Board finds that the Subject Property with 3.51 acres will sell at the lower end of the range at $500,000 per acre. It is important to note that this sale price per acre happens to be the sale price of one of the vacant lot relied on at Roger Neilson Way with similar lot size of 3.42 acres to the Subject Property. Applying the $500,000 to the Subject Property results in a land value of $1,755,000 ($500,000 X 3.51 acres).

55The Board did not rely on MPAC’s suggested comparable property at 1145 Carp Road, sold in 2015 for $2,150,000 because this suggested comparable property is not a vacant lot and in fact, it is an improved site area. Instead, the Board relies on the four vacant lots which sold in the open market in 2015 and 2016 to determine the land value of the Subject Property.

56In reviewing the Appellant’s evidence, the Board rejects the Appellant’s Land Value of $1,451,083. The reason is that the land value is based on one sale at 109 Iber Road, sold in February 2014, which the Board finds is too far removed from the valuation date of January 1, 2016, to provide any meaningful test of current value without reliable time adjustment. Instead, the Board relied on four sales which occurred in 2015 and 2016 closer to the valuation date.

57Although the sale at 109 Iber Road was time adjusted to the valuation date of January 1, 2016, the Board rejects the Appellant’s time adjustment factor for the reasons set out above.

58Based on the Cost Approach the Board finds the current value is $2,437,000 rounded ($682,762 Improvement Value + $1,755,000 Land Value).

Issue 1c – Income Approach

59The Income Approach is a series of steps which reveals the revenues, vacancies, expenses and an appropriate capitalization method required to estimate the current value as of the valuation date. In this case, the valuation date is January 1, 2016.

60In support of the current value based on the Income Approach, the Appellant’s Witness states that he used the 2018 income of $1,218,812 collected from the Subject Property’s three tenants.

61The Appellant’s Witness then added to the income of $1,218,812 the value of two acres of excess land in the amount of $821,334 (based on $410,667 per acre) to arrive at a total value of $2,040,146.

62The Appellant’s Witness states that a further discount should be applied for the cost and time it took to obtain the tenants. The Appellant’s Witness estimates that it costs the owner approximately $500,000 between 2014 and 2018 to carry and maintain the Subject Property before it was fully leased.

63Based on the Income Approach, the Appellant’s Witness believes the current value of the Subject Property should be $1,540,146 (total value of $2,040,146 minus $500,000 adjustment) which the Appellant’s Witness claims is close to the time adjusted sale price of the Subject Property.

64MPAC provides no evidence on the Income Approach. MPAC submits that the Cost Approach is the appropriate approach for determining the correct current value, because the Subject Property was vacant at the valuation date of January 1, 2016.

65In reviewing the Appellant’s Income Approach to value, the Board rejects the Appellant’s finding of a value of $2,040,146 ($1,218,812 income value + $821,334 excess land value). The reasons being that the Appellant failed to provide evidentiary documents (e.g. leases) to show how it arrived at the income value of $1,218,812; and failed to provide evidentiary documents (e.g. sales details) to show how it arrived at the land value of $821,334. The Board also finds that the Appellant’s approach to determining the current value based on the Income Approach is unconventional and does not demonstrate traditional methodology using (e.g. income, vacancy and collection losses, expenses, net income and capitalization rate) for determining the current value.

66Regarding the issue of further adjusting the value of $2,040,146 determined by the Income Approach by $500,000, the Board finds that the Appellant presents no evidentiary documents (e.g. receipts, cancelled cheques, advertising agreement and/or for sale materials) to show how it arrive at the adjustment value of $500,000. Therefore, the Board rejects this adjustment.

CONCLUSION

67The Board finds that the correct current value is $2,437,000 for the 2018, 2019 and 2020 taxation years, based on the Cost Approach. The Board finds that the evidence provided on the sale of the Subject Property and the Income Approach are not reliable indicators of current value.

68Pursuant to s. 44(3)(b) of the Act, the Board finds that equity is not at issue. Therefore, no equity reduction is required.

ORDER

69The Board orders a decrease in the returned assessment from $2,548,000 to $2,437,000 for the 2018, 2019 and 2020 taxation years.

70The Board orders the apportionment breakdown is as follows:

Commercial (Full) $1,937,000

Commercial (Excess Land) $500,000