Tribunals Ontario
Tribunaux décisionnels Ontario
Assessment Review Board
Commission de révision de l’évaluation foncière
ISSUE DATE: June 29, 2023
Assessed Person(s): 5026895 Ontario Inc.
Appellant(s): 5026895 Ontario Inc.
Respondent(s): Municipal Property Assessment Corporation Region 30
Respondent(s): City of Greater Sudbury
Property Location(s): 158 Elgin Street
Municipality(ies): City of Greater Sudbury
Roll Number(s): 5307-070-003-03600-0000
Appeal Number(s): 3455569, 3490642 and 3514178
Taxation Year(s): 2021, 2022 and 2023
Hearing Event No.: 780568
Legislative Authority: Section 40 of the Assessment Act, R.S.O. 1990, c. A.31
APPEARANCES:
| Parties | Representative |
|---|---|
| 5026895 Ontario Inc. | Jonas Perov |
| Municipal Property Assessment Corporation | Jon White |
| City of Greater Sudbury | Kyla Bell |
HEARD: June 21, 2023 by telephone conference call
ADJUDICATOR(S): Christopher Voutsinas, Vice-Chair
DECISION
OVERVIEW
15026895 Ontario Inc. (“Appellant”) is the owner of 158 Elgin Street in the City of Greater Sudbury (“Subject Property”). The Appellant appealed its assessment for the 2021 taxation year, and further appeals were deemed for the 2022 and 2023 taxation years pursuant to s. 40(26) of the Assessment Act, R.S.O. 1990, c. A.31 (“Act”). The Appellant takes the position that the assessed value of $746,000 is incorrect and too high.
2The Municipal Property Assessment Corporation (“MPAC”) and the City of Greater Sudbury oppose the appeals.
3MPAC takes the position that the correct current value of the Subject Property for the 2021, 2022, and 2023 taxation years is $819,000.
Description of the Subject Property
4The Subject Property is a two-storey, multi-tenanted, Class-C, commercial building (with leasable basement) comprising of approximately 9,000 - 10,000 square feet of gross leasable area (figure in dispute) situated on a lot area of 4,194 square feet. The building was constructed in 1970.
5The Subject Property sold on June 1, 2020 for $350,000.
Areas of Agreement
6The parties agree that an equity reduction pursuant to s. 44(3)(b) of of the Act is not necessary. The Board has reviewed the equity analysis in evidence and accepts the parties’ agreement on the matter.
7The parties agree on the classification of the Subject Property in the Commercial property class.
8The parties agree that an 8.5% capitalization rate is the correct rate to use in the income approach for valuation purposes.
Issue for the Hearing
9At issue in this proceeding is:
What is the correct current value of the Subject Property?
Valuation methodology including the property sales used for valuation comparison purposes, and the determination of fair market rents used in the income approach for valuation purposes.
Validity and use of the June 1, 2020 sale for valuation purposes.
Result
10The Assessment Review Board (“Board”) finds that the correct current value of the Subject Property for the 2021, 2022, and 2023 taxation years is $597,830.
11The Board finds that with reference to similar lands in the vicinity, per s. 44(3)(b) of the Act, that no equity reduction is required for the 2021, 2022, and 2023 taxation years.
PRELIMINARY MATTERS
12At the hearing, MPAC requested, pursuant to s. 53 of the Act, that the Board authorize the release of certain redacted rent information listed in the chart included in Appendix A titled “Market Analysis Grid – Income Approach” of MPAC’s expert report.
13The Appellant objected to this request stating that it was late in the process to be making this request.
14The Board heard the parties’ arguments and authorized the release of the redacted rent information consistent with s. 53 of the Act and specifically s. 53(2)(b).
ANALYSIS
15The Subject Property sold on June 1, 2020, for $350,000 and the Appellant takes the position that this sale reflects the best evidence of the current value of the Subject Property. MPAC takes the position that the referenced sale of the Subject Property does not meet the requirements of the Act. Specifically, that the sale is not an open market sale, is not a sale of an unencumbered asset, and reflects the motivation of an atypical seller. Instead, MPAC uses both the income approach and the direct comparison approach to determine the Subject Property’s current value.
Issue 1 - What is the correct current value of the Subject Property?
16Section 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 2021 - 2023 taxation years in question, the statutory valuation date is January 1, 2016.
17MPAC takes the position that the correct current value of the Subject Property for the 2021 - 2023 taxation years is $819,000. The Appellant takes the position that the correct current value of the Subject Property is less than $466,515 or $350,000.
MPAC’s Analysis
18At the hearing, MPAC reviewed the valuation report prepared by its expert, Amy Van Wyngaarden, dated January 18, 2023. The valuation report is entered in the record as Exhibit 1.
19First, MPAC derived a value of the Subject Property using the income approach. In order to do so, MPAC established the net operating income of the Subject Property using market-based assumptions including fair market rents. To establish the fair market rents, MPAC searched its database for net rents obtained at properties similar to the Subject Property with leases commencing in the shoulder years of the January 1, 2016, statutory valuation date (i.e., 2015 and 2016) and in properties located in the same vicinity as the Subject Property.
20Using nine market-based leases (shown in Appendix J of its expert report), MPAC determined a median rent per square foot of $11.37, which it rounded to $11.40, for the main and second floor spaces. Only one lease was found for the basement space at $5.80, which was applied. Further, MPAC applied a market vacancy and collection loss allowance of 7% and a non-recoverable expense allowance of 5%. The resulting net operating income of $85,708.69 was divided by the agreed 8.5% capitalization rate to obtain the current value of the Subject Property.
21As a result of the above analysis, MPAC calculated a current value of $1,008,000 (rounded) for the Subject Property as of January 1, 2016.
22Second, MPAC derived a value of the Subject Property using the direct comparison approach. MPAC searched its database for office building sales in the downtown area of similar construction, location, size, and age, as the Subject Property. MPAC found three property sales for valuation comparison purposes as shown in Appendix L of its expert report. Of the three property sales, MPAC determined that property sale #1 and property sale #3, are most representative of the Subject Property. Property sale #2 is the oldest property and furthest away from the Subject Property. Property sale #1 has a time-adjusted sale price per square foot of $54.70 and Property sale #3 has a time-adjusted sale price per square foot of $70.40. MPAC calculated the mean time-adjusted sale price per square foot of these two properties and applied that to the gross leasable area of the Subject Property (10,060 square feet per MPAC) resulting in a current value of the Subject Property of $630,000.
23MPAC then calculated the median of the two approaches, i.e., the median of $1,008,000, and $630,000, or $819,000. It is MPAC’s position that $819,000 represents the correct current value of the Subject Property.
24MPAC acknowledges that while the range of values derived using the two valuation approaches is “larger than usual”, the values were based on “real market data.”
25MPAC takes the position that the Appellant’s use of the June 2020 sale of the Subject Property is not valid for valuation comparison purposes. MPAC asserts that the June 2020 sale date is too far removed from the statutory valuation date of January 1, 2016, to be of use. Further, MPAC asserts that the sale transaction does not meet the requirements of the Act. Specifically, that the sale is not an open market sale and not representative of an “unencumbered” property sale as the Subject Property was sold subject to the assumption of a third-party mortgage and a sale-lease-back of the second floor by the seller.
26The Appellant noted that property sale #1 and property sale #3 are located closer to the downtown core than the Subject Property and that the Subject Property is located across from a railway. The Appellant asserted that the two property sales used by MPAC for valuation comparison purposes were “better than” the Subject Property.
The Appellant’s Analysis
27The Appellant did not have an expert report in evidence, but had several documents including the property sale listing, agreement of purchase and sale, lease offers, and signed leases in evidence.
28The Appellant takes the position that the June 1, 2020, sale of the Subject Property at $350,000, represents the best evidence of the correct current value of the Subject Property as of the January 1, 2016, valuation date.
29The Appellant asserts that the June 2020 sale is a valid property sale for valuation purposes and that it complies with the requirements of the Act. The Appellant’s position is based on the fact that the Subject Property was listed for sale with a real estate brokerage firm for a period exceeding six months, and that the buyer is arm’s length to the seller. The Appellant also points to the Sales Questionnaire in MPAC’s expert report, Appendix E, under Financing details, where the buyer indicates that financing did not influence the purchase price.
30The Appellant did not time-adjust the June 1, 2020, sale price to January 1, 2016, and provided no support for not doing so.
31Further, the Appellant takes the position that all three property sales shown by MPAC for valuation comparison purposes in its expert report, should be used in the valuation analysis rather than only the two properties selected by MPAC as being the “most similar”. Property sale #2 (which was not used by MPAC) has the lowest time-adjusted sale price per square foot at $29.62. The Appellant asserts that property sale #2 is most similar to the Subject Property in terms of gross leasable area (10,093 square feet vs. 10,060 square feet for the Subject Property) and location (further from the downtown core like the Subject Property). The Appellant also points to the sale date of January 22, 2016, as being closest to the statutory valuation date.
32The Appellant calculates the mean time-adjusted sale price per square foot of all three of MPAC’s sale properties as $51.60 and when this is applied to the gross leasable area of the Subject Property (9,041 square feet per the Appellant), the resulting value is $466,515.
33The Appellant takes the position that this figure represents the top boundary of the correct current value of the Subject Property and that any current value determination should be less than that figure.
Gross Leasable Area
34The parties had conflicting positions and evidence in connection with the gross leasable area of the Subject Property. MPAC asserts that the gross leasable area of the Subject Property is 10,060 square feet per its records and bases its valuation analysis on that figure. The Appellant asserts that the gross leasable area of the Subject Property is 9,041 square feet.
35At the hearing, the parties attempted to reconcile the gross leasable area of the Subject Property by adding the gross leasable areas stated in the various space leases in evidence for the Subject Property. This amounted to a third possible figure for gross leasable area of 8,926 square feet - different from the respective gross leasable areas asserted by each of MPAC and the Appellant. The parties did not agree on a figure. It is unclear whether this figure accounted for all the leasable space in the Subject Property, nor if the gross leasable areas stated in the leases were accurate and correct (e.g., including common areas).
36Given that both parties acknowledge that their gross leasable areas may be incorrect and having provided no determinative evidence on the matter, the Board takes the average of MPAC’s and the Appellant’s respective gross leasable areas of 10,060 square feet and 9,041 square feet - resulting in 9,550 square feet as the gross leasable area of the Subject Property.
Time-Adjustment
37Both parties agreed that the market experienced a general upward trend during the overall period in question i.e., 2016 to 2023. MPAC calculated time-adjustment factors that it applied in its analysis to account for this upward trend adjusting its figures to the statutory valuation date of January 1, 2016. The Appellant did not time adjust its figures.
38The Appellant questioned the validity of the methodology used by MPAC and asserted that a “paired sales” analysis was the correct methodology to use. It presented no evidence to support this assertion.
39While the Board acknowledges that there may be more than one way to calculate time-adjustment factors, and having reviewed MPAC’s analysis, the Board accepts MPAC’s time-adjustment analysis as reasonable.
Third Party Appraisals
40During the hearing, both MPAC and the Appellant referred to two third-party appraisals of the Subject Property. One of the appraisals prepared by Charles Bell Real Estate Appraisals, dated February 2020, has an opinion of value of $800,000. The other appraisal prepared by Boreal Appraisal Services, dated September 2020, has an opinion of value of $660,000. The parties acknowledge that the former was prepared for estate planning purposes, and the latter for financing purposes.
41Neither of the two third-party appraisals were prepared for taxation/assessment valuation purposes and both provide opinions of value that are far removed from the statutory valuation date of 2016. The Board finds these appraisals of little relevance and use in the current matter of these appeals.
The Board’s Analysis
42MPAC bases its analysis on traditional appraisal theory and practice using two accepted valuation methodologies - the income approach and the direct comparison approach. However, the Board determines that the results of the two approaches vary significantly and are generally inconsistent. The income approach results in a value of $1,008,000 which the Board accepts indicates that the current value of the Subject Property is equal to, in or around, that figure. The direct comparison approach results in a value of $630,000 which the Board accepts indicates that the current value is equal to, in or around, that figure. This is a large range. In order to reconcile these two very different outcomes, MPAC averages the figures resulting in a third and different figure, i.e., $819,000. In these circumstances, the figure of $819,000 is not supported by either valuation methodology and may not be representative of the correct current value of the Subject Property.
43While the Subject Property sold in June 2020 for $350,000, it was listed with a brokerage firm and marketed with a list or asking price of $689,900. It did not sell at that price and sold for significantly less.
44The Board has considered the evidence and arguments of the parties in connection with the $350,000, June 2020, sale of the Subject Property and determines that this sale is not a valid sale of valuation comparison purposes and is inconsistent with the requirements of the Act. First, the sale is far removed from the statutory valuation date - 53 months later. The Board has long accepted that the farther removed from the valuation date, the less reliable and useful the property sale for valuation comparison purposes. Second, the sale price is not time-adjusted by the Appellant to the statutory valuation date - notwithstanding acknowledged changes (upward trend) in the market by both parties. Factually, this is a 2020 sale price, not a 2016 sale price. Market forces and dynamics in 2020 may not be reflective of those in 2016. Third, while the Subject Property was listed on the open market for sale, the sale transaction is structured with the assumption of an existing mortgage, the sale leaseback of a significant portion of the space by the seller, and any other actual leases or vacancies in place at that time - this does not reflect “the amount of money the fee simple, if unencumbered, would realize” - as required by the Act. The Board takes reference to McWilliams Brothers Holdings Inc. v. Municipal Property Assessment Corp., Region No. 7, [2006] O.A.R.B.D. No. 566. As a result, the Board does not accept the value of $350,000 as being representative of the correct current value of the Subject Property.
45While the Appellant includes in its evidence references to several Board decisions, including Canadian Tire Corp. Ltd. v. Municipal Property Assessment Corp., Region No. 9, [2021] O.A.R.B.D. No. 139, Claireville Holdings Ltd. v. Municipal Property Assessment Corp., Region No. 9, [2021] O.A.R.B.D. No. 15, and General Motors of Canada Ltd. v. Municipal Property Assessment Corp., Region No. 27, [2017] O.A.R.B.D. No. 13, the Board distinguishes these from the current matter in that they generally refer to the roll return date, the highest and best uses of a property including its development potential, or annual assessment - none of which is the case here. The statutory valuation date for the taxation years in question is January 1, 2016, and the Subject Property’s highest and best use is not in dispute.
46The Board has reviewed the three property sales listed by MPAC for value comparison purpose using the direct comparison approach. The three property sales have time-adjusted sale prices per square foot of $54.79, $29.62, and $70.40, respectively. Property sale #2, at $29.62, is the oldest of the three properties and the furthest away from the Subject Property.
47The Board does not accept MPAC’s value using the income approach of $1,008,000 as being representative of the correct current value of the Subject Property as it is a significant outlier on the upside. Similarly, the Board does not accept the time-adjusted sale price per square foot of property sale #2 of $29.62 as being representative of the correct current value of the Subject Property as it is a significant outlier on the downside.
48As a result, and based on the evidence before it, the Board accepts MPAC’s property sale #1 and property sale #2 under the direct comparison approach as representative of the current value of the Subject Property. Applying the mean time-adjusted price per square foot of these two property sales of $62.60 to the Board determined gross leasable area of the Subject Property of 9,550 square feet results in a value of $597,830.
Findings on Issue 1
49Based on the above analysis and evidence received, the Board finds that the Subject Property’s correct current value for the 2021, 2022 and 2023 taxation years is $597,830.
ORDER
50The Board orders the assessment of the Subject Property for the 2021, 2022, and 2023 taxation years be reduced from $746,000 to $597,830.
"Christopher Voutsinas"
CHRISTOPHER VOUTSINAS VICE-CHAIR Assessment Review Board Website: www.tribunalsontario.ca/arb