CITATION: Exchange Corporation Canada Inc. v. The Corporation of the City of Mississauga et al, 2012 ONSC 6221
DIVISIONAL COURT FILE NOS.: 262/12; 286/12; 287/12; 289/12
DATE: 20121128
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
KITELEY, TOSCANO ROCCAMO and DUCHARME, J.J.
BETWEEN:
Exchange Corporation Canada Inc.
Applicant/Respondent in Appeal
– and –
The Corporation of the City of Mississauga, Municipal Property Assessment Corporation and Greater Toronto Airports Authority
Respondents/Appellants
David G. Fleet, for Exchange Corporation Canada Inc. as Respondent and as Appellant in the Cross-Appeal
Brad Teichman and Christopher Tanzola, for the Corporation of the City of Mississauga as Appellant and as Respondent in the Cross-Appeal
Mahmud Jamal, for the Greater Toronto Airports Authority as Appellant
Christian G. Schulze, Q.C., for the Municipal Property Assessment Corporation as Appellant and as Respondent in the Cross-Appeal
AND BETWEEN:
Exchange Corporation Canada Inc.
Applicant/Appellant in Cross-Appeal
– and –
The Corporation of the City of Mississauga,
Municipal Property Assessment Corporation and Greater Toronto Airports Authority
Respondents/Respondents in the Cross-Appeal
HEARD AT TORONTO: October 17 and 18, 2012
REASONS FOR DECISION
BY THE COURT
[1] On November 21, 2011, Justice D. Price granted the Application brought by Exchange Corporation Canada Inc. (Exchange)[^1] and issued a declaration[^2] that Exchange was not, within the meaning of sub-section 18(1) of the Assessment Act[^3] a tenant of land owned by the Crown or the deemed owner of the space which Exchange uses at Terminal 1 at the Pearson International Airport (airport). As a result of that declaration, Exchange was not liable to pay realty taxes.
[2] The Application Judge held at para 189 that, even if he had found the space occupied by Exchange to be taxable, the airport lands were not an “eligible property” within the meaning of sub-section 331(20) of the Municipal Act, 2001[^4]. If the premises had been found to be “eligible property”, they would have been subject to lower municipal taxes by being taxed at the average level of taxation of up to six comparable properties, in accordance with ss.331(1),(2),(6), and (9) of the Municipal Act. Pursuant to s. 46(4) of the Assessment Act, the Corporation of the City of Mississauga (the City), the Municipal Property Assessment Corporation (MPAC) and the Greater Toronto Airports Authority (GTAA) appealed the declaratory order. Exchange cross-appealed on the issue of whether the airport lands were an “eligible property” within the meaning of sub-section 331(20) of the Municipal Act. Only the City and MPAC responded to the cross-appeal.
[3] For the reasons that follow, we allow the appeal and dismiss the cross-appeal.
BACKGROUND
[4] The airport property is owned by the Federal Government and consists of approximately 5300 acres of land improved by terminal buildings, parking garages, runways, apron areas, roadways and some tenant-owned outbuildings such as hangars. By lease dated December 2, 1996 (the Ground Lease), the airport property was leased to the GTAA for a period of sixty years.
[5] The new Terminal 1 (New Terminal) was constructed on the airport property in the period from 1996 to 2004 and became operational in April of 2004. Terminal 2 was demolished commencing in the year 2007.
[6] Exchange and GTAA entered into a lease dated June 24, 2003 to lease various spaces in the New Terminal and in Terminal 2. As a result of several amendments, Exchange’s leased premises consisted of 1130 square feet located in the New Terminal. Exchange carries on the business of currency exchange and travel insurance which consists of selling at retail various types of travel, hospital and baggage insurance and other travel related services.
[7] The airport property is assessed on approximately 200 roll numbers. For each of the 2004 through 2008 taxation years, the value of space occupied by GTAA was assessed to the GTAA and was reflected on various roll numbers. In addition, all tenants of the GTAA who occupied space in the airport property and paid rent for that space were assessed based on the value of the space occupied by them. The value of the leased premises was not included in the value assessed to the GTAA.
[8] At the end of 2005, MPAC issued notices of omitted assessment to Exchange based on the value of the space occupied by Exchange. These notices issued pursuant to s. 33 of the Assessment Act indicated effective dates of April 6, 2004 and January 1, 2005 each in the assessed value of $12,425,000.
[9] Exchange has appealed the assessed value. That appeal is still before the Assessment Review Board under section 40 of the Assessment Act. The issue in the appeal before us is Exchange’s liability to pay realty taxes.
JUDGMENT UNDER APPEAL
[10] The context in which the Application was brought is as follows. Section 3(1)24 of the Assessment Act was first enacted in 1997 after the federal government implemented the National Airports Policy which called for the leasing of airports to individual Canadian airport authorities. The purpose of s. 3(1)24 is to continue the assessment regime as it applied to airports owned and operated by the federal government by adapting it to reflect the leasing to airport authorities. All real property in Ontario is subject to assessment and taxation, with the exception of certain lands enumerated in s. 3 of the Assessment Act. Land owned by the federal government is exempt. That exemption was continued with respect to land leased by a designated airport authority. That exemption is subject to conditions, namely that the designated airport authority make payments in lieu of taxes to the municipality (PILT); and the exemption does not apply to any portion of the land leased by a tenant, other than a designated airport authority.
[11] In its factum filed in the Application, Exchange took the position that it is a tenant of the GTAA, not a “tenant of land owned by the Crown” as required by s. 18 of the Assessment Act and accordingly the assessments and tax bills levied against it were null and void.
[12] The lengthy reasons for judgment include a detailed review of the factual context and the analysis by the Application Judge. In summary, on the tax liability issue, the Application Judge held that:
(a) The agreement between Exchange and the GTAA is not a lease but a licence (which he described as a “concession agreement”) because no interest was transferred by the GTAA to Exchange under the lease. Exchange is a licensee not a “tenant” within the meaning of s. 1 of the Assessment Act;
(b) Relying on the various restrictions contained in the lease, Exchange is not an “occupant” or “in possession of the leased premises” within the meaning of s. 1 of the Assessment Act and is not in possession of the leased premises;
(c) The GTAA is the tenant of the leased premises within the meaning of section 18(1) of the Assessment Act and should be assessed as owner of the premises which were the subject of the licence; and
(d) The leased premises do not constitute “a portion of the land leased by a tenant, other than a designated airport authority, to whom section 18 applies” within the meaning of section 3(1) paragraph 24(iv) of the Assessment Act and accordingly the leased premises are exempt from taxation under section 3(1) paragraph 24.
[13] On Exchange’s alternative submission as to whether their leased premises constitute “eligible property” within the meaning of section 331 of the Municipal Act, the Application Judge held that it did not, but he made no specific order with respect to that issue.
GROUNDS OF APPEAL/STANDARD OF REVIEW
[14] Counsel for the appellants make the submission that the Application Judge erred in the following respects:
(a) He erred in the test he selected for the determination of a lease at common law and therefore he erred in his finding that Exchange was a licensee not a tenant;
(b) Even if he was correct in the test he applied and in his finding that Exchange was a licensee, the Application Judge erred in finding that Exchange was not an occupant under s. 1 of the Assessment Act;
(c) He erred in the application of the test for the determination of exclusive possession;
(d) He erred in his findings as to the impact of the reservation of rights in the lease;
(e) He erred in applying the doctrine of paramount occupancy which is irrelevant in this matter. However, if it were relevant, the Application Judge erred in selecting the wrong test for the determination of that issue.
[15] Counsel for the appellants take the position that all of those are errors of law and therefore the standard of review is “correctness”.
[16] Counsel for Exchange takes the position that these are questions of fact or questions of mixed law and fact and therefore the standard of review is “palpable and overriding error”.
[17] In Housen v. Nikolaisen[^5] the Supreme Court of Canada established the framework within which the standard of review is to be determined. Questions of law are to be reviewed on a “correctness” standard; questions of fact are to be reviewed on a “palpable and overriding error” standard and as questions of mixed fact and law “lie along a spectrum”, the standard will depend on the circumstances. In The Plan Group v. Bell Canada[^6] the Ontario Court of Appeal observed that, in cases dealing with questions of mixed fact and law, that standard of review will depend on the extent to which the legal principle or the facts are the dominant considerations in the question under review. In Adams v. Canada (A.G.)[^7] the Divisional Court described the “palpable and overriding error” standard as applying to “findings of fact and findings of fact and law that are inextricable”.
[18] After the Application was launched, affidavits were exchanged and cross-examinations took place. There was no oral evidence at the hearing of the Application. There were no issues of credibility. There were no material facts in dispute. The Application Judge’s analysis of whether Exchange was a tenant was based solely on his interpretation of the documents. His finding that the lease was not a lease, that Exchange was not a tenant, that Exchange was a licensee, that Exchange was not an “occupant” and his conclusions on the issue of paramount occupancy are all questions of law. Accordingly, the standard of review is correctness.
[19] Counsel for GTAA also took the position that we should apply the most stringent standard of review because of the precedential nature of the decision. He submitted that there are 44 years left on the Ground Lease and there are many tenants with leases in the same terms as Exchange. Indeed, several other tenants have launched similar Applications. As Mr. Fleet pointed out, we do not have evidence on which we could find that the decision under appeal is precedential in nature. For example, we do not have evidence that the lease in question is the same for many other tenants. We accept that with 44 years left, this could be a matter of precedent but we do not accept that requires us to apply the highest standard of review.
ANALYSIS
A. Is Exchange a Tenant or Licensee?
[20] The relevant excerpts of the Assessment Act are as follows:
Definitions
s. 1(1) In this Act,
“tenant” includes an occupant and the person in possession other than the owner;
Property assessable and taxable, exemptions
s. 3(1) All real property in Ontario is liable to assessment and taxation, subject to the following exemptions from taxation:
Crown lands
- Land Owned by Canada or any Province
Airports
- Land owned or leased by a designated airport authority . . . subject to the following:
(i) The authority must be designated by the Minister for the purposes of this paragraph.
(ii) The authority must make payments in lieu of taxes to the municipality in which the land is located at the times and in the amounts determined in accordance with the regulations.
(iii) The authority must provide any relevant information requested by the Minister, the municipality or the assessment corporation as soon as is practicable.
(iv) The exemption does not apply to any portion of the land leased by a tenant, other than a designated airport authority, to whom section 18 applies.
(v) If the authority fails to comply with the requirements specified in subparagraph ii, the authority shall pay the taxes for municipal and school purposes that would be payable for the taxation year if the property was taxable and the tax roll for the municipality shall be amended accordingly.
This paragraph applies to the 2001 and subsequent taxation years.
s. 18(1) Despite paragraph 1 of subsection 3(1),
(a) the tenant of land owned by the Crown shall be assessed in respect of the land as though the tenant were the owner if rent or any valuable consideration is paid in respect of the land; and
(b) an owner of land in which the Crown has an interest shall be assessed in respect of the land as though a person other than the Crown held the Crown’s interest.
[21] The fundamental issue is whether Exchange is a “tenant” within the meaning of s. 1. As indicated above, counsel for the appellants asserted that five errors can be identified in the reasons for decision by the Application Judge. Before dealing with those errors, we refer to some of the applicable legal principles.
[22] As the Court of Appeal held in Re B.A. Oil Co. & Halpert[^8], to determine whether an agreement creates the relationship of landlord and tenant or merely that of licensor and licensee, the intention of the parties must be ascertained by a review of the document. Furthermore:
Wherever the relationship of landlord and tenant exists there is present the element of permission or consent on the part of the landlord, and subordination to the landlord’s title and rights on the part of the tenant. There must be a reversion in the landlord, the creation of an estate in the tenant, and a transfer of possession and control of the premises to the tenant. . . . It will be observed, therefore, that the transmission of an estate to the tenant is an essential characteristic of the relationship of landlord and tenant. No estate in the land passes to a licensee and this, on the authorities, is the principle distinguishing trait between the two relationships. An agreement which confers exclusive possession of the premises as against all the world, including the owner, is a lease, while if it merely confers a privilege to occupy under the owner, it is a licence. It is often difficult to determine whether a particular agreement is to be regarded as a lease or a licence. Broadly speaking, however, the general concept of a licence is that it is a mere permission to occupy the land of another for some particular purpose.[^9]
[23] An essential element of the relationship is that the landlord grants exclusive possession to the tenant in relation to the purpose for which occupation is intended.[^10] Furthermore, restrictions imposed on the tenant must be considered to determine whether they dilute or undermine the exclusivity of possession.[^11]
[24] In his reasons for decision, the Application Judge attached a schedule that included sections from the lease on the basis of which he concluded that Exchange did not have sufficient possession or control of the space it uses to be subject to realty tax on it. The Application Judge focused on the reservation of rights to the landlord including the following:
• The landlord may in its sole discretion on 30 days written notice, amend the commencement and termination date of the term to accommodate the re-development of the Airport [s.2.2 and Schedule A to the lease]
• The tenant requires written approval of the landlord for signs and other advertising material on the exterior of the leased premises or on the interior of the leased premises if visible from the outside of the leased premises [s.5.2(i)]
• The tenant is required to use all names, marks and insignia required by the landlord in advertising [s. 5.5(3)(a)]
• The tenant is required, at the request of the landlord, to discontinue any business conduct or practice in relation to the leased premises which, in the opinion of the landlord, may harm the landlord’s business or reputation [s. 5.5(3)(b) and s. 5.7(1)(a)(vi)]
• The tenant is required to occupy the whole of the premises and conduct its business to the satisfaction of the landlord and in accordance with the tenant’s proposal made by the tenant to the landlord and is required not to direct to another location business normally carried on in the leased premises [s. 5.7(1)(a)(v)]
• The use of the leased premises by the tenant is restricted to specified uses pertaining to the sale of insurance, foreign currency and related uses; other uses are only permitted with the consent of the landlord which may be unreasonably withheld [s. 5.7(2) and Schedule B to the lease]
• The landlord may in its sole discretion, impose limits on maximum prices that may be charged by the tenant for certain specified goods and services, impose other restrictions on pricing and prohibit the sale and stocking of certain merchandise [s. 5.7(3) and (4)]
• The tenant is required to operate its business in the leased premises during those hours necessary to adequately serve the public as determined by the landlord in its absolute discretion [s. 5.13]
• The landlord has access to the leased premises during normal business hours and in the presence of the tenant for inspection purposes and to make repairs and, for that purpose, may bring all required material onto the leased premises without the exercise of any such access constituting a re-entry by the landlord or a breach of any covenant for quiet enjoyment [s. 6.2(1)]
• The tenant can make alterations to the leased premises only with the landlord’s consent which cannot be unreasonably withheld. If such alterations might adversely affect the landlord or any other tenant, the landlord may unreasonably and arbitrarily withhold its consent [s.6.5(1) and (2)][^12]
• The Airport and the Terminal Building are subject to the landlord’s exclusive control and the landlord can do such things in the Terminal, the Airport or the leased premises as the landlord determines to be advisable in good business judgment [s. 6.14(1)]
• The landlord may for bona fide operational, development or re-development purposes, relocate all or part of the leased premises to another location in the Terminal Building on notice to the tenant; the landlord must pay for the relocation costs but is not responsible for any loss of good will resulting from such relocation [s. 6.18]
• The landlord may for bona fide operational, development or re-development purposes, terminate the lease on 60 days written notice to the tenant in which event the landlord must pay a termination fee equal to the undepreciated costs of the tenant’s leasehold improvements but the tenant has no claim for loss of business or profit [s. 6.18(3)]
• The tenant’s right to assign is subject to the landlord’s right to consent which must not be unreasonably withheld and which may include imposing additional conditions. [s.8.1]
• The tenant is required to consult with the landlord and obtain its consent before giving any press conference or making any announcement concerning the lease or any aspect of the landlord’s policies or practices [s. 15.1].
[25] In that schedule and in his analysis, the Application Judge made no mention of s. 2.1 in which the Landlord covenants that the Tenant:
may peaceably possess and enjoy the Leased Premises for the Term without interruption by the Landlord or any person claiming by, from or under the Landlord.
[26] Nor did the Application Judge make reference to s. 6.20 in which the Landlord covenanted:
That it enjoyed the benefit of a good and sufficient leasehold interest in the Lands, sufficient to permit the grant by the Landlord to the Tenant of the leasehold interest contemplated by this lease.
[27] There are many other clauses in the lease to which the Application Judge made no reference including the following:
• The tenant is required to pay rent [s.3.1]
• The tenant is required to pay taxes attributable to the leased premises, if separately assessed, or, if not separately assessed, as allocated by the landlord [s. 5.4(1)]
• The leased premises are specifically described [schedule A attached to Lease Summary]
• The tenant shall surrender the leased premises on expiration or termination of the lease [s. 2.3]
• The tenant shall have use of the common areas in common with all others entitled thereto [s. 2.5]
• The lease is binding on permitted successors and assigns [s. 13.1]
• The lease created the relationship of Landlord and Tenant [s. 13.8]
• The lease “is a completely carefree absolutely net lease to the Landlord, except as expressly herein set out” [s. 16.1]
[28] The evidence on behalf of Exchange included the following:
• Exchange is a tenant pursuant to the agreement and occupies the space and is a tenant of the space, pursuant to the agreement with the GTAA;[^13]
• Exchange agreed that the space it has permits it to carry on its business;[^14]
• Exchange did not contest the issue of its physical occupancy;[^15]
• Exchange agreed it is a sub-tenant of premises for which the tenant of the Crown is the GTAA; Exchange occupies the leased premises for the purpose of carrying on its business of retail foreign currency exchange and retailer of insurance.[^16]
[29] Counsel for the appellants referred extensively to Shopping Centre Leases[^17] for the proposition that the restrictions in the GTAA lease with Exchange are standard terms of most commercial leases. In view of the conclusion we have reached, we need not decide whether the references in that textbook should be relied upon to confirm that they are standard terms which do not undermine the passing of an estate in the land to the tenant.
[30] Having reviewed the relevant legal principles and considering the submissions of counsel, we are persuaded that:
(a) The Application Judge erred in focusing on the impact of the reservation of rights in the lease and in finding that the consequence of the reservation of rights was that an estate in the land did not pass;
(b) The Application Judge erred in failing to consider the habendum clause and the quiet enjoyment clause, both of which are important indicators of a lease;
(c) The Application Judge erred in failing to consider many of the other clauses in the lease that reinforced the habendum clause and the quiet enjoyment clause;
(d) The Application Judge applied the wrong test for the determination of exclusive possession and ought to have applied the test that possession was for the purpose contemplated by the lease;[^18]
(e) The Application Judge erred in failing to consider the evidence of Exchange on the issue of intention and occupation for the purpose it required;
(f) The Application Judge erred in finding that Exchange was a licensee and not a tenant at common law.
[31] There are several references to “concession”, namely in the Lease Summary attached to the lease where under the heading “Type of Lease” the following appears:
Foreign Exchange, Travel Insurance, US/Canada Currency ATM’s, Tax Rebate and Credit Card voucher Concession
Furthermore, in s. 3.7 the tenant was required to pay a “Concession Security Deposit”. In s. 4.1, the use of the Tenant’s premises was restricted to be solely for the purpose of “operating a financial services concession”.
[32] Those minor references do not undermine the principal thrust of the 85 page document (plus attachments). The provisions of the lease are unambiguous. The intention of the parties is clear. The interpretation of the document is a question of law. The Application Judge failed to correctly apply the law.
B. Is Exchange an Occupant and therefore a Tenant Under the Assessment Act?
[33] Counsel for the Appellants submit that even if Exchange was a licensee, as an occupant of the premises, it is a tenant under the Assessment Act since, as indicated above, the term “tenant” includes “an occupant and the person in possession”.
[34] The test for determining “occupation” under the Assessment Act is found in Mount Sinai Hospital v. Municipal Property Assessment Corp. as follows:
The parties agree on the legal test of occupation. Occupation does not depend upon legal title and need not be physical, continuous or exclusive. Occupation is a question of fact and depends on the regulation and control of the premises. The City of Toronto v. The Governors of the University of Toronto et al., 1946 56 (ON CA), [1946] O.R. 215 at 222 (CA).
The essential elements for rateable occupation are: 1) actual occupation; (2) exclusivity for the particular purposes of the possessor; 3) value or benefit to the possessor: and (4) permanence.
[35] These four elements are satisfied in this case: There is no question that Exchange enjoys actual occupation of the leased premises. Mr. Desai, for Exchange, also conceded that it has sufficient occupation for the purpose of carrying on its business. It is self-evident that operating its business in the leased premises is of value or benefit to Exchange. Finally, Exchange operated in the leased premises during the period 2004 to 2007 (which are the tax years under appeal) and Exchange’s occupation was permanent notwithstanding that its physical locations within the airport property may have been adjusted from time to time with the consent of both Exchange and the GTAA and including at the request of Exchange.
[36] The Application Judge did not consider the test in Mount Sinai Hospital v. Municipal Property Assessment Corp. and did not engage in the foregoing analysis. Rather he concluded that Exchange could not be a tenant under the Assessment Act given that (1) Exchange was a licensee and (2) the fact that the agreement did not constitute a demise of a right of exclusive possession for all purposes, and against the landlord as well as others, for a specified period.
[37] With respect to the first point, the Application Judge erred. It is settled law that a licensee may be a “tenant” under the Assessment Act if the licensee satisfies the non-exhaustive statutory definition of a “tenant”, which “includes an occupant and the person in possession other than the owner.” There is no need for a tenancy in the strict sense. Indeed, the Divisional Court has stated that “it is irrelevant whether the relationship is one of landlord/tenant or licensor/licensee.”[^19] Ontario courts have followed the leading English case on rateable occupation, Westminster Council v. Southern Railway Co., where the House of Lords held that “the crucial question must always be what in fact is the occupation in respect of which someone is alleged to be rateable, and it is immaterial whether the title to occupy is attributable to a lease, a licence, or an easement.”[^20] What matters is the existence of occupation, not the nature of the instrument per se. Thus, a licensee in occupation may be a tenant under the Assessment Act.
[38] The Application Judge also erred in concluding that for Exchange to have a taxable interest they would have to enjoy a right of exclusive possession for all purposes. This is not correct. The “exclusive possession” test for rateable occupation requires only that the occupant have “exclusive possession for the particular purposes of the possessor,” there is no need for exclusive possession for all purposes.[^21] Further, possession can be exclusive even if the landlord retains substantial rights of control over the premises and remains so “unless another person has a simultaneous right [...] in respect of the same subject-matter.”[^22]
[39] For all of these reasons we are persuaded that the Application Judge erred in failing to find that, as an “occupant” within the meaning of s. 1 of the Assessment Act, Exchange was also a tenant under the Act.
C. Does the principle of “paramount occupancy” apply?
[40] While the decision was under reserve, the Application Judge asked for submissions on the issue of “paramount occupancy”. Counsel provided written and oral submissions. The Application Judge concluded that the activities which the GTAA permits Exchange to conduct on the leased premises are integral to the operation of the Airport and that the occupancy of the GTAA was paramount to the occupancy of Exchange.[^23]
[41] The principle of paramount occupancy applies when two entities occupy or use the same land at the same time.[^24] Liability for assessment of taxes is dependent on which of the two entities has paramount occupancy. We agree with counsel for the appellants that the principle of paramount occupancy has no application. Exchange is the only entity that occupies and uses the leased premises. The GTAA is a Landlord; it does not use or occupy the leased premises.
[42] Alternatively, if the three prong test to ascertain paramountcy applies[^25], we agree with counsel for the Appellants that Exchange occupies the leased premises; while GTAA exercises control over the Airport Properties as a whole and can impose controls on Exchange, such controls do not compromise the ability of Exchange to carry out its business; and Exchange’s primary business is the operation of a foreign currency exchange while the GTAA’s primary business is the operation of the airport.
CROSS-APPEAL
OVERVIEW
[43] Exchange has cross-appealed the finding of the Application Judge that the premises it occupied at the airport do not constitute “eligible property” pursuant to s. 331 of the Municipal Act 2001[^26] in the event of a finding by this Court that Exchange is subject to taxation as a deemed owner of the subject property pursuant to s.18 (1) of the Assessment Act.
[44] If the premises fall within the definition of “eligible property” they would be subject to lower municipal taxes by being taxed at the average level of taxation of up to six comparable properties, in accordance with ss. 331 (1),(2),(6), and (9) of the Municipal Act.
STANDARD OF REVIEW
[45] The decision at issue involves a question of law turning on the interpretation and application of statutory provisions and regulations prescribed by the Municipal Act. The standard of correctness applies.
THE CENTRAL ISSUE
[46] The parties disagree about whether the premises occupied by Exchange meet the definition of “eligible property” under s. 331(20) of the Municipal Act, which provides as follows:
“comparable properties” means properties identified by the assessment corporation to be similar lands in the vicinity of the eligible property; (“biens comparables”)
“eligible property” means a property,
(a) to which subsection 329 (7) applies,
(b) that ceases to be exempt from taxation for 2001 or thereafter,
(c) that was subdivided or was subject to a severance,
(d) whose classification changes for 2001 or a later year, or
(e) that is prescribed by the Minister of Finance; (“bien admissible”)
“vicinity” has the same meaning as under s. 44 (2) of the Assessment Act, except that the vicinity shall not exceed the boundaries of the single-tier or upper-tier municipality, as the case may be, in which the eligible property is located.
POSITION OF THE APPELLANT
[47] The position of Exchange defies easy summary. This is in part due to the fact that Exchange failed to clearly identify which parts of the reasons reflect error, and which of the categories of property specified in the definition of “eligible property” in s. 331(20) applies to the premises occupied by Exchange.
ANALYSIS
[48] In the course of oral argument, Exchange initially advanced the argument that ss. 331(20)(a)(b) and (d) applied. However, it was later conceded that the record before the Application Judge contained no evidence of any change in the classification of the property. The Application Judge arrived at the same conclusion at para. 188 of his reasons, thereby correctly ruling out the application of s. 331(20)(d).
[49] The Application Judge addressed the application of s. 331(20)(b) at paras. 181 to 187 of his reasons, and rejected the argument advanced by Exchange that its space is “eligible property”, because it was exempt from taxation when occupied by the GTAA, but ceased to be exempt when found to be occupied by Exchange as a “tenant” within the meaning of the s. 18(1) of the Assessment Act. At paras. 159 to 162 of his reasons, the Application Judge considered the decision of Shaw J. in Curtis Properties (Bridgeland) Inc. v. Toronto (City)[^27] (2006), M.P.L.R. (4th) 140 (Ont. Sup. Ct.), where at paras. 4 to 5 he elaborated on the history and purpose of s. 331 of the Municipal Act, as follows:
[F]aced with disproportionate increases and decreases in relative assessed values for properties in the commercial, industrial and multi-residential property classes, resulting from the 1998 assessment reform, the provincial government introduced legislation capping property tax increases for those properties (“the protected classes”). The caps froze the level of taxation for properties in the protected classes at the level of taxation as of December 31, 1997, subject to specified increases allowed under the legislation. [Emphasis in original.]
Certain properties, however, were not “capped” because they were newly created or had new buildings erected or their tax classification was changed. Therefore they would be liable to taxes at the full municipal rate for their property tax class applied to their current value assessment. The 1998 legislation was amended to provide a cap on such properties, so that they would be taxed at the same average effective tax rate as up to six comparable capped properties in the vicinity. This legislation was amended for the 2001 taxation year and following years, to institute a cap on assessment related tax increases of 5% per year. If a property falls within the definition of an “eligible property,” its taxes are the lesser of the taxes that resulted from the application of the appropriate municipal tax rate to the current value assessment of the property or the application of the average effective level of taxation derived from up to six properties identified by MPAC as comparable properties. If MPAC determines that there are no comparable properties, or if the owner or municipality disagrees with the properties identified by MPAC, the owner or the municipality may appeal the issue of the appropriate comparable properties to the Assessment Review Board. In the present case, no list of properties was provided by MPAC for the subject properties because of its position that the properties were not “eligible properties” pursuant to the Municipal Act. Appeals were made to the Assessment Review Board, but MPAC, and the City of Toronto, took the position that the Assessment Review Board had no jurisdiction to determine eligibility. The parties have agreed that the determination by this court on this application will bind these properties on the appeals now pending before the Assessment Review Board.
[50] The Application Judge noted that in Curtis, Shaw J. rejected an argument advanced by MPAC that properties owned by each of the applicants in that case, had not become “eligible properties” when they were reclassified from a combination of “commercial and industrial” one year to “commercial” in the next taxation year. The Application Judge further noted that Shaw J. applied a purposive approach to s. 331 in holding that, while individual portions of the “eligible property” were to be treated as separate properties so as to tax them at the same level of comparable properties, what was at issue was the eligibility of the entire parcel of land of each of the applicants for special treatment under s. 331(20). By treating the entire parcel as eligible, the taxpayer derived the benefit of a tax rate harmonized with that applied to comparable properties, in keeping with the very purpose sought to be advanced by s. 331.
[51] Consistent with the result in Curtis, at para. 162 of his reasons, the Application Judge held that the entire parcel of land to be considered in this case was the airport land, not individual spaces occupied by different taxpayers with different tax classifications described industrial, commercial or shopping centre. Following the reasoning in Curtis, the airport land did not cease to be exempt from taxation. Only the tax exempt status of a portion of the airport land occupied by Exchange became taxable at the commercial tax rate. Thus, the Application Judge correctly concluded that the space occupied by Exchange does not fall within s. 331(20)(b) of the Municipal Act.
[52] The reasons of the Application Judge do not squarely address s. 331(20)(a) of the Municipal Act, the remaining category of property under which Exchange seeks to qualify as an “eligible property”.
[53] Section 331(20)(a) includes property to which s. 329(7) of the Municipal Act applies. Section 329(7) provides as follows:
Despite subsection (6), the taxes for municipal and school purposes for the property for the taxation year or portion of the taxation year shall be recalculated under section 331 if,
(a) there was an additional assessment that relates to a new building or structure erected on the property that was prior to the assessment, assessed for the taxation year as being in the subclass for vacant land under paragraph 2 of subsection 8(1) of the Assessment Act; or
(b) as a result of an additional assessment for the taxation year or for the previous year and the taxation or any portion thereof, the assessment of the property is increased by an amount equal to or greater than 50 per cent of the assessment on the assessment roll before the additional assessment was made.
[54] However, the record before us established that the premises occupied by Exchange were at no time classified as “vacant land”; therefore, s. 329(7)(a) is inapplicable.
[55] Similarly, the record before us ruled out application of s. 329(7)(b) in that the premises occupied by Exchange were assessed at the material times at a value of $12,425,000, as compared to the total assessed value of the other leased premises in the commercial class at $400,190,700. The assessment pertaining to the premises occupied by Exchange, therefore, falls well short of the requirement of an increase equal to or greater than 50 percent of the assessment in the assessment role, before the additional assessment of Exchange.
[56] In short, we conclude that no category of property relied upon by Exchange in s. 331(20) applies in this case. Moreover, at ss. 28 and 29 of O. Reg. 73/03 enacted pursuant to s. 338 of the Municipal Act, the legislation sets out the process and specific formula for the calculation of taxes where a portion of a parcel of land that is exempt from taxes changes from one taxation year to the next. It stands to reason that, if the portion of the premises occupied by Exchange could be considered “eligible property”, O. Reg. 73/03 would serve little purpose.
[57] Finally, we find no error in the reasoning of the Application Judge at para. 190 of his decision where he concluded that, while applying the formula in O. Reg. 73/03 would result in the taxation of Exchange at a higher rate than its competitor at Terminal 3 of the Airport, this would not be sufficient grounds for requiring a different method of taxation. The Application Judge quite properly echoed the view expressed by the Court of Appeal in Yonge Street Hotels Ltd. v. Municipal Property Assessment Corp. Region No. 9 [^28], at para. 24:
[I]t is our job to interpret the legislation that the legislature has enacted. We are not at liberty to overcome or ignore legislative distinctions by applying some free-standing principle of fairness. The fairness and equity of the 2000 amendments is extended only to "eligible properties". Any unfairness is created by the very language of the legislation, which draws a distinction between the erection of buildings on the one hand and the alteration, enlargement, or improvement of buildings on the other. While the application of that distinction to the facts of this case certainly disfavours the appellant, as a court of law we cannot ignore, obliterate, or refuse to apply the language chosen by the legislature. The legislature decided to give the benefit of an assessment on the basis of comparable properties to some properties and to withhold that benefit from others. Absent constitutional infirmity in the legislation according a benefit to one class and withholding the same benefit from another, there is nothing a court can do to alleviate any unfairness.
[58] In any event, any issue pertaining to the equity of the assessment or the quantum of taxes payable by reason of any assessment under the provisions of the Municipal Act lies within the exclusive jurisdiction of the Assessment Review Board as required by ss. 40(1) and 46(1.1) of the Assessment Act.
CONCLUSION AND COSTS
[59] The appeal is allowed. The cross-appeal is dismissed.
[60] Counsel had agreed not to ask the Application Judge to fix costs. Instead, counsel agreed to fix the amount of costs of the application and of the appeal subject to the outcome of the appeal. Accordingly, on consent, Exchange shall pay (a) costs in the amount of $75000 (inclusive of GST) to the appellants in such proportions as the appellants agree; and (b) costs in
the amount of $20000 (inclusive of GST) to the respondents in the cross-appeal (not including GTAA) in such proportions as the respondents agree.
KITELEY J.
TOSCANO ROCCAMO J.
DUCHARME J.
Dates of Reasons for Judgment:
Released: November 28, 2012
CITATION: Exchange Corporation Canada Inc. v. The Corporation of the City of Mississauga et al, 2012 ONSC 6221
DIVISIONAL COURT FILE NOS.: 262/12; 286/12; 287/12; 289/12
DATE: 20121128
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
Exchange Corporation Canada Inc.
Applicant/Respondent in Appeal
– and –
The Corporation of the City of Mississauga, Municipal Property Assessment Corporation and Greater Toronto Airports Authority
Respondents/Appellants
AND BETWEEN:
Exchange Corporation Canada Inc.
Applicant/Appellant in Cross-Appeal
– and –
The Corporation of the City of Mississauga, Municipal Property Assessment Corporation and Greater Toronto Airports Authority
Respondents/Respondents in the Cross-Appeal
REASONS FOR JUDGMENT
BY THE COURT
Dates of Reasons for Judgment:
Released: November 28, 2012
[^1]: 2011 ONSC 6768
[^2]: Supra, at para 196
[^3]: R.S.O. 1990, c. M.31
[^4]: S.O. 2001
[^5]: 2002 SCC 33 at paras. 8 - 10 and 36
[^6]: 2009 ONCA 548 at paras. 26 - 27
[^7]: 2011 ONSC 7592 (Div. Ct.) at para. 6
[^8]: 1959 125 (ON CA), [1960] O.R. 71 pp. 80-81
[^9]: Ibid, page 77
[^10]: Metro-Matic Services Ltd. v. Hulmann [1973] O.J. No. 2309 (C.A.), at para 12; Studioasis Media Corp. v. Ontario (Regional Assessment Commissioner, Regions No. 11 et al.) (1997), 1997 17828 (ON SCDC), 96 OAC 330 (Div. Ct.); Showline Ltd. v. Ontario (Regional Assessment Commissioner, Region No. 9), [1997] O.J. No. 74 (Div. Ct.) at paras. 24 to 29; Saga Canadian Management Services Ltd. and City of Ottawa et al., [1977] O.J. No. 2255 (H.C.); Mount Sinai Hospital v. Municipal Property Assessment Corp. [2003] O.J. No. 4295 (S.C.)
[^11]: Studioasis Media Corp., at para 30; Westminster Council v. Southern Ry. Co., [1936] A.C. 511; Metro-Matic Services Ltd., at para 17; Arsandco Investments Ltd. v. Municipal Property Assessment Corp. (2007), 2007 4308 (ON SC), 279 D.L.R. (4th) 160 (Ont. S.C.)
[^12]: At para 111(v), the Application Judge did not accurately set out the provisions of s.6.5(1) and (2).
[^13]: Desai Cross-Examination Q. 118-124
[^14]: Desai Cross-Examination Q.168
[^15]: Desai Cross-Examination Q. 118-123
[^16]: Application factum para 3
[^17]: Harvey M. Haber (ed.), Shopping Centre Leases 2nd ed. (Toronto: Canada Law Book, 2008).
[^18]: Infra, para 39.
[^19]: Re. Studioasis Media Corp., at paras 30 and 31 O’Driscoll J. wrote: “A series of cases [....] has established that to determine whether property is “occupied” by a tenant or licensee, the occupation or possession must be exclusive for the particular purposes of the possessor [...] it is irrelevant whether the relationship is one of landlord/tenant or licensor/licensee” (emphasis added).
[^20]: Westminster Council v. Southern Ry. Co., FN 11 at p. 533.. This case has been frequently followed in Ontario: see, e.g., Arsandco Investments Ltd., at paras. 24, 26-27; Gottardo Properties (Dome) Inc. v. Corporation of the City of Toronto et al. (1998), 1998 6184 (ON CA), 162 D.L.R. (4th) 574 (Ont. C.A.), at paras. 41-42; Ontario-Minnesota Pulp and Paper Co. v. Township of Atikokan, 1962 198 (ON SC), [1963] 1 O.R. 169 (H.C.J.), at pp. 176-177; The City of Toronto v. The Governors of the University of Toronto, 1946 56 (ON CA), [1946] O.R. 215 (C.A.), at pp. 222-224.
[^21]: Mount Sinai Hospital v. Municipal Property Assessment Corp, at para. 9; Re. Studioasis Media Corp., at paras. 29 and 30.
[^22]: Gottardo Properties (Dome) Inc. at para. 27.
[^23]: At paras 10, 18 and 135 of the judgment.
[^24]: Gottardo Properties (Dome) Inc., at para. 40; and Arsandco Investments Ltd., at para 23
[^25]: Gottardo Properties (Dome) Inc., at para 50 quoting from Westminister at p. 326: (a) occupant’s physical presence; (b) any controls imposed by one occupant on the other occupant’s use of the land and the purpose and effect of those controls; and (c) the relative significance of the activities carried out on the land to the primary business of each of the competing occupants.
[^26]: S.O. 2001, c. 25
[^27]: (2006), M.P.L.R. (4th) 140 (Ont. Sup. Ct.)
[^28]: (2005), 50 O.M.B.R. 1 (C.A.)