Canadian Property Holdings (Ontario) Inc v. Municipal Property Assessment Corporation, 2023 CanLII 21636

Tribunals Ontario Tribunaux décisionnels Ontario

Assessment Review Board Commission de révision de l’évaluation foncière

ISSUE DATE: March 14, 2023 FILE NO.: RD 22-010

Assessed Person(s): Canadian Property Holdings (Ontario) Inc, Calloway REIT (Westridge) Inc. Appellant(s): Canadian Property Holdings (Ontario) Inc and The Forzani Group Ltd. Respondent(s): Municipal Property Assessment Corporation Region 14 Respondent(s): City of Vaughan Property Location(s): See Schedule A attached Municipality(ies): City of Vaughan Roll Number(s): See Schedule A attached Appeal Number(s): See Schedule A attached Taxation Year(s): 2017, 2018, 2019, 2020 and 2021 Legislative Authority: Rules 101-103 of the Assessment Review Board’s Rules of Practice and Procedure

Parties | Counsel*/Representative Canadian Property Holdings (Ontario) Inc., Calloway Reit (Westridge) Inc. | Stephen Longo* and Alexander Pletsch* The Forzani Group Ltd. | Submissions not received Municipal Property Assessment Corporation | Carrie Carone and Alyssa Gee City of Vaughan | Jaroslaw Wowk

REQUEST FOR: A review of the Board’s Decision WR 174646 issued on March 29, 2022 HEARD: In writing ADJUDICATOR(S): Christopher Voutsinas, Vice-Chair

DECISION

OVERVIEW

1On April 28, 2022, the Requestor, Canadian Property Holdings (Ontario) Inc., filed a Request for Review with the Assessment Review Board (“Board”) respecting Canadian Property Holdings (Ontario) Inc v Municipal Property Assessment Corporation, Region 14, 2022 CanLII 25783, a decision issued on March 29, 2022 (“Decision”). The Decision bears the number WR 174646.

The Decision

2The Decision is in respect of appeals for the 2017 – 2021 taxation years pursuant to s. 40 of the Assessment Act, R.S.O. 1990, c. A.31 (“Act”) filed by the owner of the properties located at 110 200 Windflower Gate, 7850 Weston Road and 3900 Highway 7, in the City of Vaughan (collectively, “Subject Properties”), which together form part of the Westridge Shopping Centre.

3The Decision indicates the correct current value for each of the Subject Properties as follows:

• 110 200 Windflower Gate - $79,309,000 for the 2017 taxation year and $82,237,000 for the 2018 through 2021 taxation years.
• 7850 Weston Road - $49,024,000 for the 2017 through 2021 taxation years.
• 3900 Highway 7 – $31,905,000 for the 2017 through 2021 taxation years.

And, that an equity reduction pursuant to s. 44(3)(b) of the Act is not required.

Relevant Rules

4In considering whether to grant a Request for Review submitted pursuant to Rule 101 of the Board’s Rules of Practice and Procedure (the “Rules”), the test to be applied is whether the requester has established any of the grounds set out in Rule 102 which states:

Grounds for Review

102. A request for review will not be granted unless the Board is satisfied that:

a) the Board acted outside its jurisdiction or violated the rules of natural justice or procedural fairness; b) the Board made a significant error of law or fact such that the Board would likely have reached a different decision; c) the Board heard false or misleading evidence from a party or witness, which was discovered only after the hearing and would have affected the result; or d) there is new evidence that could not have reasonably been obtained earlier and have affected the result.

5The Board’s powers in considering a request for review are set out in Rule 103 which states:

Review Order

103. Upon considering a request for review, or on its own initiative, the Board may:

a) dismiss the request; or b) after providing all parties an opportunity to make submissions: (i) confirm, vary, or cancel the decision; or (ii) order a rehearing on all or part of the matter.

Issue For the Review

6In overview, the Requestor states that the Request for Review is made pursuant to Rule 102(b) on the basis that the Board made a significant error of law or fact such that the Board would likely have reached a different decision when it accepted MPAC’s cap rate analysis.

7The Requestor requests that the Board vary the Decision, altering the Hearing Member’s finding on capitalization rate (“cap rate”), and correspondingly revising the respective current value of each of the Subject Properties. In the alternative, the Requestor requests that the Board order the appeals to a new hearing on the cap rate issue alone.

8The Board requested submissions from the parties. The Requestor and MPAC provided submissions, the other parties did not.

9In their submissions, the Requestor asserts that MPAC’s cap rate analysis results in a “leased fee” rather than a “fee simple” cap rate. The Requester submits that “leased fee” current values for the Subject Properties are inconsistent with the definition of current value in the Act. MPAC submits that its cap rate analysis and resulting current values are consistent with the definition of current value.

10Appraisal theory generally describes value determined using the income approach as a property’s net operating income (“NOI”) divided by a cap rate representing the long-term expected return of the property purchaser/investor. The NOI may be determined using in-place rents, projected rents, or market rents (or some combination of the three) – depending on the intended use of the valuation.

11Section 19(1) of the Act provides that the assessment of land shall be based on its current value. Section 1 of the Act defines current value 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”. For the 2017 - 2021 taxation years in question, the valuation date is January 1, 2016.

12While the Act does not provide a valuation methodology, nor define “leased fee” or “fee simple” values, the following citations illustrate the accepted parameters in determining “current value” for this type of matter. Namely, the use of market rents rather than actual or in-place rents for arriving at current value.

13In BCE Place Limited et al v Municipal Property Assessment Corporation et al; Atikokan et al, Intervenors [Indexed as: Municipal Property Assessment Corp v BCE Place Ltd], 103 OR (3d) 520, 2010 ONCA 672, the Court determined at paragraph 23 that “The simple amendment instructs the assessor to ignore encumbrances, such as leases that are not at market rents. Where the income approach is taken, the assessor is…to use market rents rather than actual rents.”

14In Brown Shoe Company of Canada v. Municipal Property Assessment Corp., Region No. 2, 2002 Carswell Ont 8407 at paragraph 26, the decision states that “The Board also agrees that MPAC should use “value in exchange” and not “value in use”. “That is to say, the price that the property would most likely command in the open market under the willing buyer/willing seller concept”.

15In Conundrum Industrial P v. Municipal Property Assessment Corp., Region 15, 2016 CarswellOnt 17230, 91 O.M.B.R. 280 at paragraph 35, the Board states:

“The submission was that Mr. Wang's analysis was based on actual rental data rather than typical or market rents. Appraisal theory confirms that a leased fee cap rate based on actual or contract rent ought not to be applied against market FMRs and NOIs: Altius Centre v. Calgary (City) (2007), [2008] A.W.L.D. 4246 (Alta. Mun. Gov. Bd.) [2007 CarswellAlta 2188 (Alta. Mun. Gov. Bd.)]. I have reviewed the data that Mr. Wang based his study on and I am persuaded by Mr. Wang's testimony that he measured, checked and adjusted his income and expense figures against market benchmarks, so that his numbers accurately reflect real market rental activity during the period of his study. I also accept Mr. Wang's testimony, and Mr. Hovius's concession on cross-examination, on the entirely reasonable proposition that actual rents can also be market rents”.

While the foregoing confirms that current value should reflect real market activity (as of the statutory valuation date), it also concedes that actual rents can also be market rents.

16The issue to be addressed in this Request for Review is:

Does the Decision contain a significant error of law or fact in the determination of the cap rate used to calculate the current value of each of the Subject Properties? Specifically, are the rents used in deriving the cap rate used for valuation purposes reflective of market rental rates as of the statutory valuation date?

Result

17The Board finds that there are no valid grounds for the Request for Review as there is no significant error of law or fact in the Decision’s determination of the cap rate such that the Board would likely have reached a different decision.

ANALYSIS

18The Requestor asserts that MPAC’s analysis, adopted by the Board in the Decision, used actual or contractual rents without analyzing how these rents compare to market. As such, the Requestor argues that this results in a cap rate that does not reflect the value that the Subject Properties would achieve in the open market, contrary to the provisions of the Act. Specifically, that MPAC’s analysis results in a cap rate that is lower than it should otherwise be, thus resulting in a higher current value for the Subject Properties.

19MPAC disagrees with the Requestor’s assertion and submits that the Board Member “simply preferred MPAC’s expert evidence” over the Requestor’s evidence.

The Requestor’s Submissions

20The Requestor asserts that in MPAC’s cap rate study its experts used net operating incomes (“NOIs”) based on the review of each property’s operating statements and produced “leased fee” rather than “fee simple” values.

21The Requestor further asserts that “Notwithstanding the substantial evidence and submissions made to the Board Member on the “leased fee” versus “fee simple” cap rate issue, the Member appears to have failed to apprehend the legal issue in that she made absolutely no mention of it or the evidence on the issue in the Decision.” And that, “By adopting MPAC’s analysis to find a cap rate of 5.5%, the Board approved a “leased fee” cap rate and fundamentally misunderstood the interest it was required to value under the Act.”

22The Requestor takes the position that “...the only evidence before the Board of “fee simple” cap rates was that of Mr. Bradley’s evidence. Had the Board Member understood and acknowledged this distinction, it would have reached a different decision, in line with Mr. Bradley’s evidence, which concluded that a fee simple cap rate of 6.0% was correct.”

MPAC’s Submissions

23MPAC submits that at the hearing, the only issue was the “correct current value assessment” as of the statutory valuation day for each of the Subject Properties.

24MPAC’s evidence was that the NOI for each comparable property in its cap rate analysis was representative of their market potential as of the statutory valuation date.

25MPAC submits that “While the Requestor asserts that Mr. Ho admitted that his NOI was leased fee, on re-direct Mr. Ho clarified that the NOI used in his Cap Rate analysis was at market levels and representative of a fee simple value.”

26MPAC submits that after carefully reviewing the evidence before it, that the Board preferred MPAC’s evidence over the Requestor’s evidence, and that this does not amount to an error of law or fact.

Findings

27The Decision addresses the issue of determining the correct current value of the Subject Properties in accordance with the Act. At paragraph 18 of the Decision, the Hearing Member confirms that “…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.””

28At paragraph 65, the Hearing Member acknowledges discussion and agreement amongst the Parties that “…all income parameters and revenue levels to be determined by the Board need to be representative of a property’s market potential as of the valuation date of January 1, 2016.” The Hearing Member further acknowledges the parties’ discussion around “Leased Fee” versus “Fee Simple” valuations, and that “MPAC’s Representatives are of the opinion that every property is unique and actual evidence can sometimes be utilized to help determine how each unique property would transact as of the valuation date.”

29At paragraph 86, the Hearing Member acknowledges the Requestor’s and their expert’s arguments around “Fee Simple” versus “Lease Fee” rental income and the correct basis to determine current value under the Act.

30Furthermore, in consideration of the analysis and methodology used by each of the Requestor and MPAC to determine current value, the Hearing Member finds at paragraph 104, that MPAC’s evidence “…represents the best evidence because it is based on leases signed over the period of 2015 to 2017 taxation years at comparable properties located within the same vicinity as the Subject Property….”.

31On the contrary, at paragraphs 105 to 109, the Hearing Member rejects the Requestor’s fair market rents (“FMR”) on the basis that: (i) the Requestor’s analysis of fair market rents are determined based on the combined GLA of the Subject Properties as opposed to a determination based on the GLA of each individual Subject Property, resulting in economies of scale (“meaning that the larger the GLA, the lower the rent per sq. ft.”); (ii) the Requestor relies on rental data it obtained from reviewing and analyzing third party reports and studies of 500 plus lease transaction throughout the GTA (including municipalities in the regions of Halton, Peel, York, Durham, and the City of Toronto); (iii) the Requestor presents no specific properties for comparison to the Subject Properties, and relies on lease transactions that occurred mostly outside of the Subject Properties’ vicinity, impacted by different market influences; and (iv) the Requestor applied a negative 10% adjustment to the low range of market rents based on its opinion with no quantitative evidence to justify the adjustment.

32At paragraph 109, the Hearing Member states that “the Board relies on MPAC’s evidence of FMRs that are based on signed leases at comparable properties in the same vicinity and exposed to the same market influences as the Subject Property…”

33At paragraph 192, the Hearing Member states, “In reviewing the evidence presented in support of Cap Rate, the Board finds the best evidence are the four time-adjusted sales presented by MPAC (including two sales also presented by the Requestor) which sold in the 2015 and 2016 taxation years.”

34The Board finds that the Hearing Member appropriately acknowledged and considered the parties’ respective arguments in connection with the determination of fair market rents and cap rates used to determine the correct current value of the Subject Properties in accordance with the Act.

35As indicated in paragraph 29 above, the Hearing Member appropriately acknowledged and considered the Requestor’s arguments around leased fee versus fee simple values.

36Based on the totality of the evidence and weighing it accordingly, the Hearing Member preferred MPAC’s evidence over the Requestor’s. See paragraph 30 above.

37Contrary to the assertions made by the Requestor, the Board finds that the Hearing Member properly understood and addressed in the Decision the requirements of the Act and specifically, the issue of “leased fee” vs. “fee simple” and the use of market rents in the determination of current value.

38Further, the Board finds that Requestor has not established that the rents used by MPAC were not reflective of market potential as of the statutory valuation date i.e., that the rents and corresponding values were “leased fee” rather than “fee simple”. As such, the Requestor has not established the Decision contains a significant error.

39The Board finds that the Requestor is attempting to re-arguing the same points and matters raised at the hearing and already addressed and considered by the Hearing Member in the Decision. The Board finds no error in the Hearing Member’s decision and no reason to interfere with the Hearing Member’s discretion.

CONCLUSION

40The Board finds no valid grounds for the Request for Review. The Request for Review is dismissed.