Tribunals Ontario
Tribunaux décisionnels Ontario
Assessment Review Board
Commission de révision de l’évaluation foncière
ISSUE DATE:
October 19, 2022
FILE NO.:
WR 170092A
AMENDED DECISION ISSUED:
November 7, 2022
Assessed Person(s):
Skycharter Limited
Appellant(s):
Skycharter Limited
Respondent(s):
Municipal Property Assessment Corporation Region 15
Respondent(s):
City of Mississauga
Property Location(s):
2450 Derry Road East Unit 8A; 2450 Derry Road East Unit 8B
Municipality(ies):
City of Mississauga
Roll Number(s):
2105-050-113-14600-0000; 2105-050-113-14610-0000
Appeal Number(s):
See Schedule A
Taxation Year(s):
2013 - 2022
Hearing Event No.:
739568
Legislative Authority:
Section 40 of the Assessment Act, R.S.O. 1990, c. A.31
APPEARANCES:
Parties
Counsel/Representative*
Skycharter Limited
Claude Bumstead*
Municipal Property Assessment Corporation
Donald G. Mitchell
Corporation of the City of Mississauga
Brad Teichman
HEARD:
March 11, 2021 by video conference
ADJUDICATOR(S):
Dirk VanderBent, Vice-Chair
AMENDED DECISION
AMENDED DECISION
In accordance with Rule 99 of the Assessment Review Board’s Rules of Practice and Procedure, effective April 1 2021, 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 Amended Decision is issued to correct error(s) in the values at paragraph 49 of the Decision. The amendments have been underlined for ease of reference. There are no other changes in this Amended Decision.
OVERVIEW
1Skycharter Limited (“Skycharter”) leases land owned by the Crown (the “Subject Property”) at Lester B. Pearson International Airport (“Pearson Airport”). As a Crown tenant, Skycharter is assessed in respect of the properties as the owner by virtue of ss. 18 and 3(1)24 of the Assessment Act, S.O. 1990, c. A.31 (the “Act”), and has filed appeals pursuant to s. 40 of the Act for both the 2013 and 2017 taxation years. The Subject Property comprises two assessment roll numbers, described as Hangars 8A and 8B.
2As required by the Act, the Municipal Property Assessment Corporation (“MPAC”) assessed in its general reassessment the current value of the Subject Property (“General Reassessment Value”) for two assessment cycles.
3The valuation day for the general reassessment of current value for the 2013 taxation year appeal is January 1, 2012 (“2012 Valuation Day”). Pursuant to the deeming provision under s. 40(26) of the Act, Skycharter is deemed to have brought the same appeals to which the general reassessment applies, i.e. the 2014 to 2016 taxation years (the “2012 assessment cycle”).
4The valuation day for the general reassessment of current value for the 2017 taxation year appeal is January 1, 2016 (“2016 Valuation Day”). Pursuant to the deeming provision under s. 40(26) of the Act, Skycharter is deemed to have brought the same appeals to which the general reassessment applies, i.e. the 2018 to 2020 taxation years. Furthermore, s. 19.2(5) also authorizes the Minister of Finance to prescribe a valuation day that is different from the valuation day prescribed in s. 19.2(1). Pursuant to s. 48.6 of O. Reg. 282/98, the Minister of Finance has set January 1, 2016 as the valuation day for the 2021 to 2023 taxation years. In effect, therefore, the assessment cycle is extended to include seven taxation years from 2017 to 2023 (the “2016 assessment cycle”). Accordingly, there are deemed appeals for the 2018 to 2022 taxation years.
5Pursuant to s. 40 of the Act, MPAC and the Municipality (Corporation of the City of Mississauga) are parties to this appeal proceeding.
6The ground of Skycharter’s appeal is that the current value of the Subject Property is too high, and, therefore, is incorrect. As noted above, Skycharter’s property includes two aircraft hangars, described as Hangars 8A and 8B. MPAC valued the Subject Property using the “cost approach”. The use of this appraisal approach is not in dispute. In fact, the parties have agreed on all aspects of the cost valuation of the Subject Property except for the paved asphalt surfaces, described as “aprons”, on which airplanes taxi to enter the hangars. The floors in the hangars are made of concrete.
7In overview, the cost approach is a valuation methodology which separately values both ‘improvements’ on a property, i.e. buildings or other structures on the land, and the land value itself. The sum of these values represents the assessed value of the property. The value of an improvement (in this case the asphalt aircraft aprons) is determined by first calculating the cost to newly construct the existing improvement (described as “Replacement Cost New”) and then depreciating this value to reflect the depreciated condition of the improvement as it existed on the valuation day (described as ‘Replacement Cost New Less Depreciation’). The cost approach also allows for other types of adjustments to the property’s value, none of which are at issue in this case.
8Typically, depreciation is assessed based on the expected useful life of the improvement. For example, if the expected useful life of a building is 50 years, and the building is 25 years old, then the amount of the depreciation could be calculated as the current age expressed as a percentage of the total useful life, which in this example would be 50 percent. However, if there have been repairs to the building which serve to extend its useful life, then the building, although 25 years old, may be in the same condition as it was when it was only 10 years old. If so, the depreciation rate would be 20 percent (i.e. 10 years expressed as a percentage of the 50 year useful life).
9When determining Replacement Cost New for an improvement (in this case, the aprons and the hangars), an appraiser will utilize a computerized costing “manual” which calculates the cost of construction using market data respecting the financial cost of construction materials and services. The improvement’s individual construction components (described as ‘assemblies’) are the input data, and the costing application then generates the costs for each of these components to arrive at a total cost. MPAC has its own costing system (Automated Costing System (“ACS”, now known as ‘Source’). There are other available costing manuals, one of them named “RS Means”, which, in this case, MPAC used to value the aprons. MPAC's reasons for doing so are discussed below.
10In this hearing there are two disputes regarding the valuation of the hangars. The first dispute is the value of the aprons if they were to be newly constructed (i.e. their Replacement Cost New), and the second dispute is the rate of depreciation that should then be applied.
11In overview, based on the evidence adduced by MPAC's property appraisal expert, MPAC asserts that the construction of the asphalt paving for an aircraft apron is different from asphalt paving used for other industrial or commercial applications because asphalt aircraft aprons must be constructed to ensure that they provide adequate support for the weight of the airplanes, as well as a smooth skid resistant surface year-round. For this reason, as set out in more detail in MPAC’s evidence, MPAC has decided to use the RS Means costing manual, rather than ACS.
12Regarding depreciation, MPAC states that, in order to achieve the high degree of apron integrity required to support airplanes, the asphalt aircraft aprons are constantly maintained. Due to such maintenance, the aprons effectively do not wear out. For this reason, in valuing the aprons, MPAC allows for only one percent depreciation, which, in effect, recognizes the annual cost of maintaining them. This is a lower level of depreciation than MPAC typically allows for asphalt paving for other industrial or commercial sites.
13Skycharter disagrees with MPAC's approach. Based on the evidence adduced by its expert, Skycharter maintains that a specialized cost calculation to determine Replacement Cost New is not required. Skycharter argues that MPAC has not provided sufficient information regarding the construction of the asphalt paving on the Subject Property to justify the application of a specialized cost calculation. For this reason, Skycharter argues that the cost calculation should be based on MPAC's ACS manual, which indicates a much lower value for the aprons’ Replacement Cost New. Regarding depreciation, Skycharter notes that the concrete floor in the hangar has been depreciated at the same rate as has been applied to the rest of the components of the hangar buildings, based on a useful life expectancy of 50 years, with the result that MPAC's assessed square foot rate for the concrete floor is much lower than its assessed square foot rate for the asphalt aircraft aprons. For this reason, Skycharter argues that the depreciation rate for the aprons should be 50 percent, based on a flat rate of depreciation which MPAC typically applies to asphalt parking surfaces.
RESULT
14The Board accepts MPAC's calculation of Replacement Cost New, as well as the rate of depreciation applied by MPAC.
ISSUES FOR THE HEARING
15The issues to be addressed in this Decision are:
What is the correct Replacement Cost New?
What is the correct depreciation rate?
ANAYLIS AND FINDINGS
Issue 1: What is the correct Replacement Cost New?
Evidence
MPAC's Evidence
16Stephen Davis, (“MPAC's Expert”) testified that, through his work in connection with other sites at Pearson Airport, he obtained information from these sites to develop a more accurate rate per square foot for the asphalt aprons, which is less than the assessed values determined by MPAC in its general reassessment for both Valuation Days. He described how borehole samples of asphalt paving were taken from other sites at Pearson Airport (Air Canada and Skyservice) to identify the structural components of the asphalt paving. He stated that the specialized nature of the construction of the asphalt aprons, necessitated a separate valuation of each component. He explained that MPAC's ACS system applies combined rates for asphalt surfaces which did not reflect the specialized nature of the asphalt aircraft apron individual components. For this reason, ACS did not provide an accurate and detailed breakdown of the construction components evidenced by the borehole samples.
17Mr. Davis stated that the costing of the aprons was completed by staff in MPAC's cost services department, who advised him that the RS Means manual better reflected the components of the aprons’ construction. He explained that, due to specialized construction of the asphalt aircraft aprons, the costs of construction of these aprons, using the RS Means manual, identified a higher cost per square foot than ACS identifies for asphalt surfaces.
18In cross-examination, Mr. Davis confirmed that borehole samples were not taken from Skycharter’s aprons, so he could not confirm if MPAC's costing was reflective of the construction of the Subject Property’s aprons. He noted that MPAC had requested data respecting the Subject Property’s aprons which Skycharter did not provide. He stated that the request for this data was made by MPAC's counsel, further indicating that he was aware of the request because he had assisted in providing the information included it. He also confirmed that, in the same request, MPAC's counsel provided the analysis of the borehole samples from the other sites.
Skycharter’s Evidence
19Victor Guyader (“Skycharter’s Expert”) relied on the ACS cost rates (cost per square foot) for both asphalt parking and concrete parking (the latter being higher) to establish a cost range. He also referred to rates cited by another costing source, Altus Group cost guide, stating that it indicates that industrial site servicing, which includes asphalt roadways and sidewalks. He noted that the Altus Group cost range is slightly higher than the ACS costing manual range. When asked why he chose to rely on the ACS costing manual rate, he stated that it was a judgement call because it was an area outside his expertise. His report shows that both the ACS and Altus Group rates specify rates per square foot that are substantially lower than the rate derived using the RS Means manual.
20In his report, Mr. Guyader stated that the United States Federal Aviation Administration (“FAA”) defines an airport apron. In cross-examination he agreed that the FAA states:
An airport pavement is a complex engineering structure. Pavement analysis and design involves the interaction of four equally important components: the subgrade (naturally occurring soil, the paving materials (surface layer, base, and subbase), the characteristics of applied loads, and climate.)
21Mr. Guyader confirmed that he was not an expert in differentiating types of asphalt paving. He conceded that a weakness in his report is that he used the “asphalt breakout” available in ACS. He stated that the ACS assembly for asphalt paving is for the top layer, but he was uncertain what sublayers are included with that. He also stated that: (i) he had no knowledge of how Skycharter’s asphalt aprons were constructed; (ii) he did not request Skycharter to provide him with borehole studies; (iii) he did not review any documentation regarding composition of the asphalt paving (e.g. thickness, type of asphalt, additives, etc.); and (iv) he did not review any of Skycharter’s contracts for their apron installation, repair, or maintenance. He further acknowledged that his opinion was based on the assumption that each apron’s construction is similar to the asphalt paving in a parking lot, and, if this assumption is incorrect, his opinion would be incorrect.
Submissions on Issue 1
22While the Board has considered all of the parties’ submissions in detail, in this Decision, the Board summarizes only the most relevant submissions.
MPAC and Municipality Submissions
23In overview, MPAC and the Municipality rely on MPAC's Expert’s opinions regarding how Skycharter’s aprons should be valued. They emphasize that MPAC's expert has specific expertise in the valuation of aircraft asphalt paving, whereas Skycharter’s Expert has conceded that he does not. Therefore, they submit that the Board should accept MPAC's Expert evidence over that of Skycharter’s Expert.
24MPAC and the Municipality also emphasize that Skycharter’s Expert agreed that he did not do an independent valuation of any of the components of the Subject Property, including the aprons, and that, instead, he merely applied the ACS costing manual rate per square foot for regular asphalt parking lots and driveways. They also point out that Skycharter’s Expert agreed that if he were incorrect in his assumption that the aircraft aprons and regular parking lot asphalt are similarly constructed, then his opinion that the ACS costing manual rate should be applied is incorrect.
Skycharter’s Submissions
25Skycharter emphasizes that MPAC has burden of proof, and that MPAC's Expert conceded that the cost per square foot rate determined by MPAC was based on specific information obtained from other properties, which Skycharter submits may or may not be similar to the Subject Property. Skycharter submits, therefore, that MPAC has adduced no evidence to confirm its assumptions that the airport aprons are not built and maintained in the same manner as regular asphalt surfaces utilized by commercial and industrial properties.
26Skycharter asserts that MPAC's Expert has no experience or qualifications which would allow him to accurately determine the site preparation required, nor did he have site specific information. In contrast, Skycharter submits that its Expert stayed within his area of expertise by applying the ACS costing manual.
27Skycharter emphasizes that: (i) MPAC’s Replacement Cost New for asphalt aircraft aprons is $8.67 per square foot, whereas its Replacement Cost New for the concrete hangar floors is $6.03 per square foot (2012 values), with a similar difference in the 2016 values. Skycharter submits that it “just doesn’t add up” that the cost of a concrete floor would be lower than an asphalt aircraft apron.
Findings on Issue 1
28The Board begins its analysis by noting that the parties agree that the construction components of the asphalt aprons are determinative of which costing manual should be utilized to value the aprons. However, in this regard, neither provided detailed evidence respecting the construction components of the aircraft aprons. MPAC relies on its Expert’s hearsay evidence where he relied on the cost conclusions made by the staff in MPAC's cost services department. Skycharter’s Expert relies on the ACS costing manual rate per square foot, even though he has conceded that he had no expertise in differentiating types of asphalt, and that he did not conduct a review of the construction, maintenance, and condition of the Subject Property’s aprons.
29Based on evidence heard at the hearing, the Board also observes that better evidence would have been provided to the Board had the parties more diligently followed the Board’s Rules of Practice and Procedure for timely disclosure of all information relevant to the issues in dispute.
30Nonetheless, the Board finds that the evidence adduced is sufficient for the Board to make a determination of this issue. While Skycharter is correct that MPAC has adduced hearsay evidence respecting the findings of the cost services department, the Board may accept hearsay evidence. Before doing so, however, the Board must be satisfied that the evidence is reliable.
31The hearsay evidence is that MPAC conducted detailed borehole sample analyses of the construction components of other paved asphalt aprons at Pearson Airport. MPAC's expert conceded that he could not confirm that the borehole samples were reflective of the asphalt aircraft aprons on the Subject Property. He stated that MPAC had requested information from Skycharter respecting the aprons on the Subject Property, but none was provided. For this reason, MPAC relies on the borehole samples obtained from the other locations. In its submissions, Skycharter states that it was not asked to participate in MPAC's costing analysis. However, the Board observes that, if Skycharter had concerns regarding any aspect of the costing services department’s analysis, Skycharter could have demanded disclosure of this information, and provided its own evidence respecting the Subject Property. Skycharter chose not to do so.
32While MPAC’s analysis did not include borehole samples from the aprons on the Subject Property, it is not disputed that the functional requirements for the asphalt aircraft aprons on the Subject Property are the same as the other asphalt aprons at Pearson Airport. Therefore, absent any evidence adduced by Skycharter to the contrary, the Board finds it is reasonable to conclude that the Skycharter aprons would be constructed in a similar manner to the other aprons where the borehole samples were taken. The Board also notes that Skycharter did not otherwise dispute the accuracy of the calculations made by MPAC's costing services department.
33For the above reasons, the Board finds that the costing service analysis is both relevant and sufficiently reliable to be considered when determining the cost per square foot of the Subject Property’s aprons.
34Regarding the issue of whether the ACS costing manual should be used to value the aprons, it is not disputed that the ACS costing manual reflects asphalt surfaces used for parking at commercial and industrial properties. Skycharter submits that “one could suggest that the [ACS] rate is more than sufficient to account for assumed differences in site preparation and or thicker asphalt”. The Board does not accept that such an assumption can be made. Skycharter’s Expert conceded that he is not an expert in differentiating types of asphalt paving. The evidence is that MPAC conducted a detailed analysis of airport asphalt aprons and found that the construction components of these aprons were not addressed by the ACS costing manual components for asphalt paving.
35Regarding Skycharter’s submission that “it just doesn’t add up” that the Replacement Cost New of the asphalt aircraft apron would be higher than the Replacement Cost New of the concrete hangar floor, the Board observes that no evidence was adduced to indicate that the constituent components of the concrete hangar floor are the same or functionally similar to the components of the asphalt aircraft aprons, nor that the cost of the concrete floor components would be the same as the cost of the components of the specialized asphalt surface used for the aircraft aprons. Therefore, the Board does not accept Skycharter’s assertion that the Board should presume this to be the case.
36In summary, based on the above evidence and analysis, the Board finds that the preponderance of the evidence supports the analysis and conclusions made by MPAC's Expert. For this reason, the Board accepts his opinions and finds that the rates per square foot determined using the RS Means costing manual are the correct rates to be applied.
Issue 2: What is the correct depreciation rate?
Evidence
MPAC's Evidence
37MPAC's Expert stated his conclusion that aircraft aprons effectively do not depreciate, because:
These aprons need to be in 100% condition most of the time in order to support the weight of the aircraft and to ensure that the planes do not have to avoid potholes on the way to and from the hangar. Apron tenants are also required to avoid the risk of debris from failing asphalt damaging engines etc. of operational aircraft.
For this reason, MPAC applied a 1% depreciation allowance.
38Regarding the hangar buildings and offices, MPAC's Expert testified that MPAC applies a standard useful life expectancy of 50 years, i.e. they are depreciated based on age over a 50-year period. This includes the concrete floors of the hangars.
39Regarding asphalt parking surfaces for other commercial or industrial purposes, MPAC's Expert stated that MPAC applies a flat rate of 50 percent depreciation, i.e. the rate of depreciation is not based on an assumption of the useful life of the parking surfaces. As MPAC's expert explained, a newly built asphalt parking surface will be depreciated at the rate of 50 percent in the year it was built. Skycharter’s Expert’s report posits a reason for this approach:
However, given high rate of physical deterioration on paving items and the high frequency of resurfacing, it seems to be a matter of practicality that MPAC does not maintain reliable records on year built for specific paving services, and a standard physical deterioration allowance of 50% is typically applied by the assessor.
Skycharter’s Evidence
40In addition to the above quote from Skycharter’s Expert’s report, he testified that determining appropriate levels of depreciation is a challenge. He further stated that it is difficult to know when asphalt surfaces across Ontario are being redone as they are often redone in patches, which is a logistical nightmare to track. His view is that a 50 percent depreciation is reasonable. For this reason, he concludes that the 50 percent rate of depreciation should apply to the aircraft aprons. In further support of his opinion, Skycharter’s Expert observes that MPAC has depreciated the concrete floors in the hangars on the basis that they have a useful life expectancy of 50 years, whereas MPAC maintains that the asphalt aircraft aprons do not depreciate.
Submissions
41MPAC and the Municipality rely on the opinions of MPAC's Expert, and Skycharter relies on the opinions of its Expert.
42Skycharter questions how MPAC could reasonably suggest that the indoor concrete floors within the hangars would have a life expectancy of just 50 years, while no such consideration is given to the outdoor asphalt aprons, and that there is no basis for MPAC's Expert’s statement that asphalt aircraft aprons must be maintained to continually remain in peak condition. Skycharter submits that it is not reasonable for MPAC to apply no depreciation to the asphalt aircraft aprons, when MPAC does apply a 50 year depreciation rate to the concrete hangar floors, which support the same aircraft as the aprons.
Findings on Issue 2
43As described in the Overview above, the useful life of the asphalt aircraft aprons may be extended if they are repaired and maintained. MPAC's Expert has provided evidence that MPAC conducted a detailed review of the construction of asphalt aircraft aprons in two other locations at Pearson Airport, and their maintenance, concluding that the level of repair and maintenance of these aprons, which is necessary to meet the performances standards for use by aircraft, effectively results in no depreciation of these aprons. The Board finds that MPAC's assumptions are reasonable, i.e. that the construction and maintenance of Skycharter’s asphalt aircraft aprons, are similar to that of the other asphalt aircraft aprons at Pearson Airport which MPAC has evaluated. Therefore, the Board accepts MPAC's position that the depreciation rate should only be one percent, as this rate effectively accounts for the annual cost of the maintenance of the aprons. In arriving at this conclusion, the Board has considered Skycharter’s arguments, which are discussed below.
44Skycharter’s Expert’s opinion is based on the assumption that the asphalt aircraft aprons are similar in construction to other asphalt surfaces. For this reason, he concludes the flat rate 50 percent depreciation should apply to the aprons. Skycharter’s submits that MPAC has only made assumptions that the asphalt aircraft aprons are not built and maintained in the same manner as regular asphalt surfaces, arguing that MPAC has offered no relevant specific information to confirm these assumptions.
45In addressing this argument, the Board observes that it has already found that that there is no evidence to support a conclusion that the components of the asphalt aircraft aprons are similar to the concrete hangar floors. Similarly, the Board received no evidence respecting the constituent components of asphalt parking surfaces used in other commercial and industrial applications. Therefore, there is no evidence to suggest that asphalt aircraft aprons are similar to other asphalt parking surfaces. The Board further notes that Skycharter’s Expert conceded that he had no expertise in differentiating asphalt surfaces, whereas MPAC's Expert has been involved in studying the asphalt aircraft aprons at Pearson Airport. For these reasons, the Board does not accept Skycharter’s Expert’s opinion that the flat depreciation rate of 50 percent should apply.
46Turning to Skycharter’s argument that there is no basis to apply different depreciation rates to the asphalt aircraft aprons and the concrete hangar floors, the Board again notes that it received no evidence to indicate whether the useful life of the specialized asphalt surface (absent any regular maintenance), would be the same as the useful life of the concrete floor. Furthermore, it is not disputed that the concrete floor is a component of the hangar building, and that the floor is depreciated at the same rate as the rest of the hangar building. The Board observes that a depreciation rate may reflect both functional obsolescence as well as physical deterioration, which raises the question whether the concrete floor would have any residual functional value if the rest of the hangar building’s useful life has been exhausted. Furthermore, the Board received no evidence respecting: (i) Skycharter’s maintenance of the concrete floors; and (ii) the extent to which regular maintenance of the concrete floors would or would not extend their useful life. For these reasons, the Board finds that there is no evidence to support a presumption that the depreciation rates for the asphalt aprons should be the same as the depreciation rate applied to the concrete hangar floors.
47In making the above finding, the Board also notes that Skycharter’s submission posits that the depreciation rate for the concrete hangar floors is the correct depreciation rate, and, therefore, the depreciation rate applied to the asphalt aircraft aprons must be incorrect. However, the Board notes that it could equally be posited that the depreciation rate applied to the asphalt aircraft aprons is the correct rate, so it is the depreciation rate of the concrete hangar floors that is incorrect. For this reason, the Board finds this submission to be of no assistance when determining Issue 2.
CONCLUSION
48As the Board has accepted that MPAC correctly calculated the Replacement Cost New of the asphalt aircraft aprons situated on the Subject Property and has applied the correct rate of depreciation, the Board accepts MPAC's position respecting the correct current values of the two assessment roll numbers which comprise the Subject Property. As none of the parties assert that an equitable reduction of either of these current values is required pursuant to s. 44(3) of the Act, the Board finds that the assessed values of the Subject Property for the 2012 and 2016 assessment cycles are as set out in the Order below.
ORDER
49The Board orders that:
The Assessed Value of Hangar 8A (Assessment Roll No. 2105-050-113-14600-0000) is $5,785,000 for the 2013 to 2016 taxation years.
The Assessed Value of Hangar 8B (Assessment Roll No. 2105-050-113-14610-0000) is $3,906,000 for the 2013 to 2016 taxation years.
The Assessed value of Hangar 8A (Assessment Roll No. 2105-050-113-14600-0000) is $6,375,000 for the 2017 to 2022 taxation years.
The Assessed value of Hangar 8B (Assessment Roll No. 2105-050-113-14610-0000) is $4,124,000 for the 2017 to 2022 taxation years.
"Dirk VanderBent"
DIRK VANDERBENT
VICE-CHAIR
Assessment Review Board
Website: www.tribunalsontario.ca/arb
SCHEDULE A
SCHEDULE A - Continued