Toronto (City) v. Craft Kingsmen Rail Corp., 2023 ONSC 292

CITATION: Toronto (City) v. Craft Kingsmen Rail Corp., 2023 ONSC 292

DIVISIONAL COURT FILE NOS.: DC-22-237 and DC-22-238

DATE: 20230111

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

STEWART, GLUSTEIN, and CHARNEY JJ.

BETWEEN:

City of Toronto

Appellant

– and –

Craft Kingsmen Rail Corp. and Municipal Property Assessment Corporation

Respondents

Christopher J. Henderson, for the Appellant, City of Toronto

Stephen Longo and Jamie Walker, for the Respondent, Craft Kingsmen Rail Corp.

Melissa E. VanBerkum, for the Respondent, Municipal Property Assessment Corporation

AND BETWEEN:

Municipal Property Assessment Corporation

Appellant

– and –

Craft Kingsmen Rail Corp. and City of Toronto

Respondents

Melissa E. VanBerkum, for the Appellant, Municipal Property Assessment Corporation

Stephen Longo and Jamie Walker, for the Respondent, Craft Kingsmen Rail Corp.

Christopher J. Henderson, for the Respondent, City of Toronto

HEARD at Toronto by video: December 20, 2022

On appeal from the judgment of Justice F.L. Myers of the Superior Court of Justice dated April 11, 2022, with reasons reported at 2022 ONSC 2222.

REASONS FOR DECISION

CHARNEY J.:

1The City of Toronto (“Toronto”) and the Municipal Property Assessment Corporation (“MPAC”) appeal from the decision of the Superior Court of Justice dated April 11, 2022 (Craft Kingsmen Rail Corp v. Municipal Property Assessment Corporation, 2022 ONSC 2222), which held that “Air Parcels”—stratified parcels that start above the ground—are not “land” under the Assessment Act, R.S.O. 1990, c. A.31, until they are fixed to the ground.

2There is one issue in this appeal: does an Air Parcel that is not fixed to the ground qualify as “land”, “real property” or “real estate” under the Assessment Act?

3The Application Judge concluded, at para. 2, that “while the answer is not free from doubt, in my view, the answer is ‘no.’”

4For the following reasons, I conclude that the Application Judge erred in law in his interpretation and application of the relevant provisions of the Assessment Act to the facts before him. As a result, I would allow the appeals.

Jurisdiction and Standard of Review

Jurisdiction and Standard of Review

5The proceeding below was commenced by the Respondent, Craft Kingsman Rail Corp. (“Craft”) pursuant to s. 46 of the Assessment Act, which permits any person against whom the land is assessed to bring an application to the Superior Court of Justice for the determination of any matter relating to an assessment other than the assessed value or classification of the land or a determination that the lands are conservation lands.

6Pursuant to s. 46(4), an appeal lies to the Divisional Court from the judgment of the Superior Court of Justice.

7Since the issue on appeal relates to a question of statutory interpretation, the parties agree that this is a question of law and the standard of review is correctness: Canada (Minister of Immigration and Citizenship) v. Vavilov, 2019 SCC 65, [2019] 4 S.C.R. 653; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 10.

Facts

Facts

8With one important exception, I adopt the facts as set out by the Application Judge, at paras. 12 -14 of his Reasons:

In this case, the applicant has purchased blocks of space described in air parcels that lie above railway lands near the lake shore in Toronto. It has sought zoning approval to build structures on a physical deck that will be built 27 feet above the ground. The deck will cover the railroad tracks below and serve as the base for the future structures to be developed by the applicant or its successors in the space above the deck.

The proposed deck will have to be anchored to the ground below of course. When it bought the air parcels, the applicant also bought easements to ensure that it has the ability to enter upon the land below so it can build and affix its deck to the land below.

The applicant has purchased the air parcels described as “A”, “B” and “C” in the picture below. Until a deck is built between the air parcels and the land below, the air parcels are just legally defined limits of air rights. They cannot be accessed or used for any meaningful purpose.

9I do not accept the second-last sentence of the facts as described by the Application Judge: “Until a deck is built between the air parcels and the land below, the air parcels are just legally defined limits of air rights.” This statement is, in my view, a conclusion that is incorrect in law.

Additional Facts

Additional Facts

10I also note the following additional facts, which add some context to the statutory interpretation that must be undertaken.

11Air Parcels A and B have a site area of 12.23 acres, and span from Bathurst St. to the west and Spadina Ave. to the East. Air Parcel C spans from Spadina Ave. to the west to Blue Jays Way to the east. Although the Application did not relate to Air Parcel C (Air Parcel C was acquired after the Application was commenced), there is no dispute that the decision with respect to Air Parcels A and B will also apply to Air Parcel C.

12The Air Parcels were acquired from the vendors, the Canadian National Railway and the Toronto Terminals Railway Company, in three separate transactions which flowed from an Agreement of Purchase and Sale (APS) dated December 2, 2013. The total consideration for all three parcels was $43,325,000. Air Parcels A, B, and C were transferred to Craft in three transactions in 2018, 2019 and 2021 respectively. Municipal and provincial land transfer tax in the amount of $1,591,350 was paid.

13The legal description in the APS of what was conveyed to Craft was:

[T]he freehold interest of the vendor in the air rights and space beginning at a point that is approximately twenty-seven (27’) feet above the highest point of the top of rail on Front Street Rail Lands, subject to and together with any easements, rights-of-way and attachment rights existing as of the Execution Date, and delineated as Parcels 5, 6, and 7 on the property plan attached hereto…all as legally described in Schedule “A” hereto under the heading “Legal Description of Property”.

14The Air Parcels were registered under the Land Titles Act, R.S.O. 1990, c. L.5, and are assigned a 9-digit PIN number. Deeds noting the transfer of the fee simple to Craft of Parcels A and B were registered on title on September 24, 2018.

15Craft sought consents to sever the surface lands used for rail purposes from the Air Parcel pursuant to the Planning Act, R.S.O. 1990, c. P.13. Severance was granted by the Ontario Land Tribunal on October 16, 2020.

16Craft applied to the City of Toronto requesting an Official Plan amendment to permit Craft to build 3,500 residential units plus office and retail space in the Air Parcels.

17The total assessed value of Air Parcels A and B is $51,801,000. Air Parcel C is assessed at $13,002,000. The assessed value of the Air Parcels is not an issue in this application or appeal. Appeals relating to the assessed value proceed to the Assessment Review Board pursuant to s. 40 of the Assessment Act. Craft did appeal the assessed value of Air Parcels A and B to the Assessment Review Board, but withdrew its assessment appeals on August 9, 2021.

18Whether the current assessed value is correct is not relevant to the issue on this appeal. Craft’s position, and the Application Judge’s decision, is that until the Air Parcels are affixed to the ground, they are not “land” under the Assessment Act and are not liable to assessment at all. Craft acknowledges, and the Application Judge found, that once Craft affixes a deck to the land below, the Air Parcel will meet the definition of “land” in the statute and be subject to assessment under the Act.

Applicable Legislation

Applicable Legislation

19The terms “land”, “real property” and “real estate” are used interchangeably in the Assessment Act. Section 1 of the Assessment Act provides:

“land”, “real property” and “real estate” include,

(a) land covered with water,

(b) all trees and underwood growing upon land,

(c) all mines, minerals, gas, oil, salt quarries and fossils in and under land,

(d) all buildings, or any part of any building, and all structures, machinery and fixtures erected or placed upon, in, over, under or affixed to land,

(e) all structures and fixtures erected or placed upon, in, over, under or affixed to a highway, lane or other public communication or water, but not the rolling stock of a transportation system.

20Section 3(1) of the Assessment Act provides:

All real property in Ontario is liable to assessment and taxation, subject to the following exemptions from taxation:

21There follows a long list of exemptions, such as Crown Lands, cemeteries, land owned by a church or religious organization, public educational institutions, public hospitals, conservation land, etc.

22Section 3(1) was interpreted by the Supreme Court of Canada in Toronto Transit Commission v. City of Toronto, 1971 8 (SCC), [1971] SCR 746 (the “TTC case”). The Court stated, at 751:

The construction, however, is not difficult as the section provides simply for the assessment of “all real property”. In the same initial lines appear the words “subject to the following exemptions from taxation” and since that provision sets up an exemption the person must show plainly that he comes within the exemption.

23None of the exemptions listed in s. 3 of the Act apply in this case.

24The assessment is done for the purposes of taxation—property taxes are based on the assessed value and classification of the land.

25Also relevant is s. 1 of the Land Titles Act, which defines “land” as follows:

“land” means land, tenements, hereditaments and appurtenances and any interest therein.

26Also relevant is s. 1 of the Land Transfer Tax Act, R.S.O. 1990, c. L.6, which defines “land” as follows:

“land” includes lands, tenements and hereditaments and any estate, right or interest therein, a structure to be constructed on land as part of an arrangement relating to a conveyance of land, a leasehold interest or estate, the interest of an optionee, the interest of a purchaser under an agreement to sell land, or goodwill attributable to the location of land or to the existence thereon of any building or fixture, and fixtures

Decision of the Application Judge

Decision of the Application Judge

27In deciding whether an air parcel qualifies as land under s. 1 of the Assessment Act, the Application Judge commenced his analysis with the following statement, at para. 10:

While we actually own every stick and speck of dirt on our land, it should be understood that we do not actually own the air above our land. The air moves through the space above our houses freely as nature dictates. Ownership of an air parcel simply puts boundaries around a piece of the space above the land to define a place over which a person holds exclusive use rights.

28The Application Judge acknowledged that air parcels are defined, conveyed, and registered like land, but concluded, at para. 20:

The issue in this case is not whether air parcels can be defined and transferred under the Registry Act or the Land Titles Act, or the Planning Act. The issue is whether those air rights as defined and transferred in air parcels are assessed as “land” under the Assessment Act.

29After reviewing the modern rule of statutory interpretation, he identified the purpose of the Assessment Act, at para. 24:

The object of the Assessment Act then is to tax land as defined by the Legislature. It is the definition of land that drives the other definitions in the statutory scheme rather than the common law or conveyancing practice in registry and land titles offices.

30The Application Judge held, at para. 30, that “air parcels” were not recognized as real property at common law:

Some rights to exclude others from the column of space above the ground are a recognized attribute of ownership of the land below the air. But the common law of property stretches back over 500 years. It has never heard of “air parcels” or slices of space described in accordance with a regulation promulgated under Ontario’s Registry Act in 1996.

31With regard to the proper interpretation of the word “land” in the Assessment Act, the Application Judge, at para. 27, accepted that the definition of land is inclusive and that it is broader than just the ground, but found, at para. 41:

Everything about the definitions in s. 1, as broadened by the SCC, speaks to the relationship of something else with the ground. The broadened part of the definition is the inclusion of chattels that are on the land with some permanence but are not fixtures. Nothing in the common law nor the section speaks to air rights whether defined in a strata plan or not. It is only once a deck becomes fixed to the ground that new “land” will be created in the air and a building can be built “upon, in, over, under or affixed to land”.

32The Application Judge concluded, at para. 39:

I understand that the applicant also owns easements that will allow it to affix its proposed deck and new buildings to the ground below. For the present however, they are just unexercised rights. There is nothing in the air parcels affixed to the ground below. It is only when the deck is built and affixed, that land will be created. Until then, although described and alienable, the air parcels remain simply unoccupied space above the railway lands.

33Finally, the Application Judge held, at para. 42, that if the Legislature wishes to tax air parcels, it was incumbent on the Legislature to amend the definition of “land” in the Assessment Act, and not to ask the courts “to squeeze this new specie of development potential into a 1904 definition of ‘land.’”

34He concluded, at para. 45:

But until there is a physical connection to the ground underneath air parcels, I do not see how I can find them to fall within the current definition of “land” in s. 1 (1) of the Assessment Act as described in the case law.

Analysis

A. Principles of Statutory Interpretation

Analysis

35In undertaking this analysis, I will use the terms “land”, “real property” and “real estate”, interchangeably as they are in the Assessment Act.

36I begin my analysis with the principles of statutory interpretation recently reaffirmed by the Supreme Court of Canada in Vavilov, at para. 117:

A court interpreting a statutory provision does so by applying the “modern principle” of statutory interpretation, that is, that the words of a statute must be read “in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament... Parliament and the provincial legislatures have also provided guidance by way of statutory rules that explicitly govern the interpretation of statutes and regulations. [Citations omitted.]

37Consistent with this statement, s. 64(1) of the Ontario Legislation Act, 2006, S.O. 2006, c. 21, Sched. F (which replaced the former Interpretation Act, R.S.O. 1990, c.I-11), provides:

Rule of liberal interpretation

64 (1) An Act shall be interpreted as being remedial and shall be given such fair, large and liberal interpretation as best ensures the attainment of its objects.

38Another principle of statutory interpretation identified by the Court in Vavilov is the presumption that the same word has the same meaning when used within a statute or across statutes. The Court stated, at para. 44:

More generally, there is no convincing reason to presume that legislatures mean something entirely different when they use the word “appeal” in an administrative law statute than they do in, for example, a criminal or commercial law context. Accepting that the word “appeal” refers to the same type of procedure in all these contexts also accords with the presumption of consistent expression, according to which the legislature is presumed to use language such that the same words have the same meaning both within a statute and across statutes ... [Emphasis added, citations omitted.]

39The presumption of consistent expression is intended to ensure coherence and consistency between rules dealing with the same thing: Ruth Sullivan, Sullivan on the Construction of Statutes, 7th ed. (Toronto: LexisNexis, 2022), at §8.04.

40Based on the presumption of consistent expression, I respectfully disagree with the Application Judge’s statement, at para. 20, that “the issue in this case is not whether air parcels can be defined and transferred under the Registry Act or the Land Titles Act, or the Planning Act.” In my view, the fact that air parcels are dealt with as “land” or “real property” under all of those statutes—and I would add to that list the Land Transfer Tax Act —is, at the very least, an important consideration in determining whether air parcels fall within the definition of “land” in s. 1 of the Assessment Act.

41Interpreting the legislation so that air parcels are land for conveyance, registration, severance, and land transfer tax purposes, but not for assessment and taxation purposes, fails to interpret the legislative scheme regarding real property harmoniously as a comprehensive whole. Indeed, there is no convincing reason to presume that the Legislature meant something different when it used the word “land” in the Assessment Act than in all of those other statutes.

42Another principle of statutory interpretation that is relevant to the analysis in this case is the presumption against changing the common law unless three is a clear expression of legislative intent to the contrary. This principle was confirmed by the Supreme Court of Canada in Owners, Strata Plan LMS 3905 v. Crystal Square Parking Corp., 2020 SCC 29, 450 D.L.R. (4th) 105, at para. 39:

The common law forms part of the context in which a legislature enacts statutes, and the legislature is presumed not to have intended to alter or extinguish common law rules in doing so…In addition, when the legislature uses a term that has an established legal meaning, it is presumed to have given the term that meaning in the statute in question. [Citations omitted.]

43I will return to this principle after setting out the relevant common law below.

B. Real Property at Common Law

Real Property at Common Law

44The Appellants argue that the Application Judge erred when he commenced his analysis with the proposition, at para. 10, that “we do not actually own the air above our land.” The Appellants argue that this statement is inconsistent with the common law principle expressed in the Latin maxim “cuius est solum, eius est usque ad coelum et ad inferos”, which, roughly translated, means “whoever owns the soil, holds title all the way up to the heavens and down to the depths of the earth”. This maxim has been adopted in the English common law: Bruce Ziff, Principles of Property Law, 5th ed (Toronto: Carswell, 2010), at 92.

45As stated by Frank Goodwin in A Treatise on the Law of Real Property (Boston: Little Brown and Company, 1905), at 1:

The word “land” or “lands” comprehends the soil of the earth, and everything upward to the skies and downward to the depths below.

46This principle has been applied by courts in Ontario: Rice Lake Fur Co. Ltd., et al. v. McAllister, 1925 402 (ON CA), [1925] 2 D.L.R. 506 (Ont. C.A.), at 513; Toronto Transit Commission v. City of Toronto et al., 1968 409 (ON SC), [1968] 2 O.R. 481 (H.C.), aff’d by the SCC in the TTC case.

47While the authorities reject the literal suggestion that property rights extend to an unlimited height—hence you cannot sue an airplane in trespass for flying over your home—the principle does support the general proposition that land at common law is three-dimensional and includes the air space above the ground: R. v. Air Canada (1978), 1978 2210 (MB CA), 86 D.L.R. (3d) 631 (Man. C.A.) at 636–637; Stratton v. Richter, 2022 BCCA 337, at para. 60; Didow v. Alberta Power Limited, 1988 ABCA 257, 60 Alta. L.R. (2d) 212.

48See also British Columbia (Assessor of Area #09-Vancouver Sea to Sky) v. Amacon Group, 2016 BCSC 146, at para. 56, and cases cited therein. After reviewing several of the above sources, the British Columbia Supreme Court concluded, at para. 56:

The other authorities to which I was referred also suggest that, while the cuius est solum principle is not an accurate pronouncement of the law, the owner of the surface nevertheless has rights to the air space up to a reasonable height above the ground that accrue not only when the air space is actually used but also in relation to potential use.

49The Supreme Court of the United States has also considered the landowner’s rights in air space in United States v. Causby, (1946) 328 U.S. 256. While rejecting the Latin maxim as having no place in the modern world where “the air is a public highway” for airplanes (at 261), it confirmed the landowner’s ownership of the usable air space above the ground, at 264:

The landowner owns at least as much of the space above the ground as he can occupy or use in connection with the land. … The fact that he does not occupy it in a physical sense -- by the erection of buildings and the like -- is not material.

50The point here is that, at common law, the air space above the surface is part of the property, as much as the minerals below the surface and (subject to the Beds of Navigable Waters Act, R.S.O. 1990, c B.4) any water that might flow above the surface. This applies not only when the air space is actually used but also in relation to potential use.

51In the present case, the air space was part of the real property when it was owned by the Canadian National Railway and the Toronto Terminals Railway Company. The air space did not stop being real property when it was severed under the Planning Act. It did not stop being real property when it was sold by the vendors to Craft. Nor does severance or sale result in the air space transforming into personal property or a chattel. It retained its former attribute as real property or land despite severance and sale.

52The Application Judge is undoubtably correct when he states, at para. 10, that the “air moves through the space above our houses freely as nature dictates.” Nobody can own the wind. But the issue is not whether the wind is land or property, but whether the defined boundaries above the surface, which were part of the real property before severance, ceased to be real property when severed, or when sold, only to become real property again when “affixed” to the ground by the construction of some structure.

53These legal principles summarized in the Latin maxim support the position that at common law land is a three-dimensional concept and the definition of “land” or “real property” includes as much of the space above the ground as the owner can potentially occupy or use. Neither severance nor sale of the air space above the surface changes this characterization.

54The definition of land and real property at common law is important because the cases considering the definition of “land”, “real property” and “real estate” in the Assessment Act take the common law definition of land as the starting point for the statutory definition and hold that the Legislature chose an “expanded definition” of land which would cover more than the common law definition.

C. History of the Assessment Act

History of the Assessment Act

55To understand the relevance of the common law to the definition of “land”, “real property” and “real estate”, it is helpful to provide some historical context. While, as the Application Judge pointed out, we are concerned with the 1904 definition of land, that definition cannot be fully understood without referencing the earlier versions of the Assessment Act.

56The Ontario Assessment Act dates back to at least the Assessment Act of 1869, 32 Vict. c. 36. For ease of reference, I will begin with the Consolidated Assessment Act 1892, 55 Vict. c. 48, although the definitions in that statute were unchanged from the1869 statute.

57Prior to 1904, both real and personal property were assessable and liable to taxation. Section 7 of the Consolidated Assessment Act 1892 provided that: “All property in this Province shall be liable to taxation subject to the following exemptions…”.

58Property was defined in s.2 para. 8:

8. “Property” shall include both real and personal property as hereinafter defined.

59The statute had inclusive definitions for both real and personal property.

60Section 2, para. 9 stated:

9. “Land”, “real property” and “real estate” respectively, shall include all buildings or other things erected upon or affixed to the land, and all machinery or other things so fixed to any building as to form in law part of the realty, and all trees or underwood growing upon the land, and land covered with water, and all mines, minerals, quarries and fossils in and under the same, except mines belonging to Her Majesty;

61Section 2, para. 10 stated:

10. "Personal Estate" and "Personal Property" shall include all goods, chattels, interest on mortgages, dividends from bank stock, dividends on shares or stocks of other incorporated companies, money, notes, accounts and debts at their actual value, income and all other property, except land and real estate, and real property as above defined, and except property herein expressly exempted.

62These provisions were continued in the Assessment Act, R.S.O. 1897, c. 224.

63By the 1904 Assessment Act, 4 Edward VII, c. 23, personal property ceased to be liable to assessment, but the legislature expanded the definition of “land”, “real property” and “real estate” to include some items that formerly qualified as personal property. This was accomplished by amending the words “all buildings or other things erected upon or affixed to the land” in s. 2 para. 9 to the present wording: “all buildings, or any part of any building, and all structures, machinery and fixtures erected or placed upon, in, over, under or affixed to land”.

64The 1904 definition continues to apply today.

D. Common Law Definition Continues to Apply

Common Law Definition Continues to Apply

65The significance of the 1904 amendment to the Assessment Act was a central feature of the Supreme Court of Canada’s decision in Northern Broadcasting Co. v. Mountjoy (Improvement District), 1950 9 (SCC), [1950] S.C.R. 502. Both the majority and dissenting opinions reviewed the history of the amendment.

66The majority of the Supreme Court held that the definition of land, real property and real estate meant that certain items not considered fixtures at common law would nonetheless be considered part of the land for the purpose of valuation, so long as they are placed on land with some degree of permanency. The specific item at issue was a transformer connected to a transmitter by wires. The question for the Court was whether the transformer was a chattel (and therefore not subject to assessment or taxation) or qualified as real property under the expanded definition in the Assessment Act.

67The majority judgment of Kellock J. held that the transformers were caught by the expanded definition and qualified as “land” under the Act, stating, at 509 -510:

The second question which arises is as to whether or not a machine merely “placed” upon land without having acquired the character of land at law, falls within the definition.

I am content to assume that the Statute of 1897 was concerned only with fixtures at common law in the sense that they had become part of the realty.

In the context of the Statute, I think the Legislature must be taken to have had in mind the including of things which, although not acquiring the character of fixtures at common law, nevertheless acquire “locality” which things which are intended to be moved about, do not.

It is to be remembered that when the Statute of 1904 was passed, the assessment of personal property was abolished. Prior to the change it was unimportant for assessment purposes whether a given thing had become real or continued to be personal property, as both were assessable. In my opinion, the change in the definition of “land” made by the new legislation indicates an intention which the language used connotes on its face, namely, that the Legislature did not intend to abolish but to continue the assessment of chattels which, although not fixtures at law, nevertheless were not things intended in use to be moved from place to place.

68The Court’s decision confirms that the definition of land, real property and real estate in the 1897 legislation was the common law definition, and that the purpose of the 1904 amendment was to add to the common law definition by including within the definition of land certain items that were, at common law, chattels.

69This view is also confirmed by the Ontario Court of Appeal’s decision in Carsons’ Camp Limited v. Municipal Property Assessment Corporation, 2008 ONCA 17, 88 O.R. (3d) 741. The case concerned the proper interpretation of a 1997 amendment to the Assessment Act which changed the basis for valuation from “market value” to “current value.” “Current value” was defined as follows:

“current value” means, in relation to land, 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;

70The issue was whether the assessed value upon which the owner of the underlying land must pay taxes included the value of third-party owned trailers placed on the land.

71Carsons’ Camp (the Respondent on the appeal) argued that by introducing the concept of “current value” as that term is defined, the legislature intended to exclude from the assessed value of land anything that would not have been considered land at common law.

72The application judge accepted this position and held that, notwithstanding the expanded definition of land in s. 1 of the Act, the trailers owned by third parties and not intended to be permanent fixtures on the land did not form part of the “current value” of land as that term is defined in the Act, and could not, therefore, be included in the assessment. Unable to reconcile the definition of “land” and the definition of “current value,” the application judge held that the trailers could not be assessed “until such time as appropriate amendment is made” to the definition of current value in the Act.

73The Court of Appeal allowed the appeal. It began its analysis by considering, at para. 12, the terms “real property”, “land” and “real estate”, which it held “are used interchangeably throughout the Act.” The Court stated, at para. 13:

This broad definition has not changed since its introduction in the Act in 1904 and its interpretation continues to be governed by the Supreme Court of Canada's decision in Northern Broadcasting Co. v. Mountjoy (Improvement District), 1950 9 (SCC), [1950] S.C.R. 502, [1950] S.C.J. No. 19. In that case, the majority held that the expanded definition of land in the Act meant that certain items not considered fixtures at common law could nonetheless be considered part of the land for the purpose of valuation, so long as they are placed upon or affixed to land with some degree of permanency.

74The Court confirmed that the expanded definition of “land” in the 1904 legislation continued to apply notwithstanding the 1997 amendment. The Court stated, at para. 26:

I agree with the appellants’ submissions that nothing on the record before us suggests that the legislature intended to change what is to be included in the assessed value of land. If Carsons’ interpretation is accepted, it would signal a dramatic change in the scope of the Act as it has existed and been applied since 1904 and render the expanded statutory definition of land meaningless. If the legislature had intended to do so, it would have changed the definition of land in the Act to make it coincide with the common law definition of land. The legislature did not, and I do not find Carsons’ submission that this failure was merely an “oversight” to be persuasive.

75As in Northern Broadcasting, the Court in Carsons’ Camp accepted the common law definition of land as the starting point. There was no dispute that the subject trailers had been added to the common law definition by the expanded 1904 definition; the issue was whether anything was subtracted from the expanded 1904 definition by the 1997 amendment. The Court of Appeal held that the expanded definition from 1904 still prevailed—there is no suggestion anywhere that something less than the common law definition was ever contemplated.

76This interpretation is also consistent with the presumption against changing the common law unless there is a clear expression of legislative intent to the contrary: Owners, Strata Plan, at para. 39.

77The Application Judge in the present case recognized, at para. 29 of his Reasons, that the common law was the starting point for the statutory definition, but held, at para. 30, that air parcels were not recognized as a species of real property at common law, finding that the common law “has never heard of ‘air parcels.’” The fact that “air parcel” was not a term used in the 19th century does not detract from the fact that property at common law was a three-dimensional concept that included as much of the space above the ground as the owner can potentially occupy or use. That we have given a 20th century label to this common law concept does not mean that the rights did not previously exist.

E. Object of the Assessment Act

Object of the Assessment Act

78I am also troubled by the Application Judge’s statement of the object of the Assessment Act, which is a necessary part of the statutory interpretation analysis: the words must be read harmoniously with the object of the Act. The Application Judge stated, at para. 24, that “the object of the Assessment Act then is to tax land as defined by the Legislature”.

79This is entirely circular. If the object of the Act is to tax land “as defined”, then the object cannot be used to assist in arriving at that definition.

80I adopt instead the statement of purpose set out by the Supreme Court of Canada in the TTC case, where the Court stated, at p. 752:

The purpose of the relevant provisions of The Assessment Act seem to be quite plain. One starts with a basic proposition that all lands are subject to taxation and then there is carved out from that body of all lands certain lands which are exempt from taxation…

81The analysis undertaken by the Supreme Court in the TTC case is instructive in the present case. In all but one respect the facts are very similar.

82In the TTC case, the TTC owned a large block of property in the area around the Davisville subway station where the subway is above ground. The land was used for large marshalling yards, repair depots and other transit purposes. The TTC leased these lands to a private development company, Davisville Investment Co. Ltd., for a period of 52 years. The Court described the nature of the lease and the activities of the tenant, at pp. 748-749:

The premises leased were described in the document in five parcels and the lease granted what was described therein as ground rights, air rights and right of way. It was indicated that there should be erected above the marshalling yards and repair buildings another level of structures to be used for both commercial and housing accommodation and elaborate plans were prepared for a unique and very large development.

The lease to Davisville Investment Co. Ltd. describing by metes and bounds the five parcels to be demised to that tenant commences its description of parcels A and C with the words AIR RIGHTS and following the metes and bounds description of each of those two parcels reserves to the lessor all rights in the parcel lying below a specified level. In my view, this demise of air rights required no special consideration on this appeal. …The structures to be erected by the tenant were to be based on foundation pillars sunk into the lands owned by the Commission. In my view, what was contemplated was merely a structure on stilts and was to be as much an occupation of lands as if the structure had sat on the ground over the whole surface rather than merely on the pillars

The lessee entered upon the lands only for the purpose of drilling to conduct soil tests, a programme which it carried out both before and after the commencement of the lease period but the lessee up to the time of this litigation had never proceeded with any construction upon the lands nor indeed had used them except for the purpose of the aforesaid soil testing. The lessee, however, had continued to pay rental to the Transit Commission in accordance with the terms of the lease.

83The City of Toronto assessed the lands for the purpose of taxation. The TTC, which still owned the land, fell into an exempt category under what was then s. 4(1) (now s. 3(1)) of the Assessment Act, para. 9 of which exempted property belonging to a municipality or “any public commission” … “but not when occupied by a tenant or lessee.”

84The City of Toronto took the position that the land was occupied by a tenant or lessee, and therefore the exemption did not apply. The TTC took the position that since the tenant never proceeded with any construction on the lands, the lands were not occupied, and the exemption continued to apply.

85The Supreme Court held that the exemption did not apply even though the tenant had never proceeded with any construction upon the lands. Its analysis was based primarily on the object of the Assessment Act stated above. The Court stated, at p. 753:

Again, proceeding a step further in what may be termed an analysis of the legislative policy, this exemption of municipally owned lands, as the policy may be roughly designated, should not apply when the said lands are not devoted to purposes of the municipality but are devoted to commercial uses. A very plain example of that change of use is when the lands are leased to a tenant, then the use for municipal purposes disappears and in place thereof there is a commercial use producing a revenue to the municipality. That revenue comes from property used by the tenant for a commercial purpose wherein the tenant competes with other owners and tenants of commercially used lands. To permit lands so used to be tax free would be to bonus the tenants of such lands and permit unfair competition with other users of commercial lands…

Therefore, if no rates can be assessed against these lands, the Davisville Investment Co. Ltd. would hold, in the centre of one of the best areas in the City of Toronto for this type of commercial development, lands which if it had leased them from a private owner would have carried an assessment of $760,500 and would have been required by pay taxes on such an amount. This consideration is, in my view, a very strong argument against an interpretation of the words of para. 9 of s. 4 of The Assessment Act which would exempt from assessment the said lands when subject to the lease in question… Legislative policy would seem to only be carried out if lands are subject to taxation so soon as their use is no longer a use for municipal purposes but becomes a use for commercial purposes.

I am, in short, of the opinion that the words in para. 9 of s. 4 “but not when occupied by a tenant or lessee” in order to carry out the legislative policy of The Assessment Act must be interpreted to result that when a tenant or lessee has a contractual right to occupation whether or not he exercises that right by going on the lands and building or otherwise utilizing them for the development which he intends the exemption is removed and the lands become subject to assessment in the ordinary course. In my view, such an interpretation is the proper result in the many cases where developers will lease lands and then for a variety of business reasons fail to develop them over the considerable period although they pay to the owners the full rental value of the lands during that period preceding the actual development; the opposite interpretation would permit the lands to be exempt from taxation. To reach that conclusion I have not placed any reliance on the very minor physical occupation of the lands by entry for the purpose of soil testing. I have considered the fact that under the lease in question Davisville was entitled to enter upon the lands on the first day of the term and to use them completely from that date on...

86The only real difference between the TTC case and the present case is that in the TTC case the air rights were leased, and the developer was a tenant or lessee. In the present case the air parcel was sold, and the developer is the new owner. It makes no sense that air rights would be subject to assessment and taxation when leased, but free from assessment and taxation if severed from the surface under the Planning Act and sold in fee simple. The Air Parcel cannot fall within the definition of “land” if leased but cease to be “land” if sold. Either way, the object and policy of the Assessment Act must lead to the same conclusion: the land is taxable when the lessee or new owner acquires it, even if the lessee or new owner has never proceeded with construction. There is no requirement that the Air Parcel be fixed to the ground in order to qualify as “land”, “real property” or “real estate” under the Assessment Act.

87Significantly, as indicated above at para. 46, the trial decision in the TTC case expressly relied on the Latin maxim “Cujus est solum ejus est usque ad coelum, et ad inferos” in arriving at its decision, and expressly rejected the argument that air rights could not be assessed under the Assessment Act, stating:

It is argued the assessor had no right to consider the question of air rights. That is something not mentioned in the statute. It is true those words are not mentioned, but it seems to me that right to space even though unoccupied is merely a horizontal division of the land rather than a vertical division as between landlord and tenant.

88While the Supreme Court’s decision makes no reference to the Latin maxim, it did confirm the decision of the trial court.

89The object and policy of the Assessment Act was also discussed by the Ontario Court of Appeal in Carsons’ Camp. Like the Supreme Court of Canada in the TTC case, the Court of Appeal was concerned that narrowing the expanded definition of land would enable landowners to circumvent the Act’s purpose by changing the ownership of parts of the land. The Court stated, at para. 30:

Put another way, the Act contemplates identifying what is land according to the expanded definition, then assessing the value of the land assuming a fee simple ownership interest without encumbrance of all that comes within the definition. There are strong policy reasons for interpreting the Act in this way. The dominant owner of the freehold is easily identified; there is no need to determine the ownership interest in each portion of the broadly defined “land”. This approach makes it easier to assess the total value of the land, while also preventing manipulation of assessed value by changing the ownership of parts of the land. [Emphasis added.]

90The interpretation of the Act favoured by the Application Judge in the present case would defeat the “strong policy reasons” for the expanded definition of land, which is intended to assess “the total value of the land.” If a parcel of land is severed on the vertical plane (to create two narrower parcels) the total value of the previous parcel must be divided between two new parcels even if development has not yet begun: Toronto (City) v. Municipal Property Assessment Corporation, 2013 ONSC 6137, at paras. 3 and 8. However, if Craft’s position were accepted and the same parcel were severed along the horizontal plane (to create a ground parcel and an air parcel), the value attributable to the air parcel vanishes (until development begins) because the new air parcel would not be assessable.

91If air parcels are not assessable, the owner of development land can avoid paying property taxes by stratifying the land and conveying the air parcel to another corporation. Until the air parcel is affixed to the ground, it is not assessable. And the ground parcel now has little value because the owner cannot build on the surface without trespassing into the air parcel. This is the very kind of result that the Supreme Court of Canada in the TTC case and the Ontario Court of Appeal in the Carsons’ Camp case cautioned against.

F. Inclusive Definition

Inclusive Definition

92The Application Judge accepted, at para. 27, that the definition of “land” in s. 1 of the Assessment Act was an inclusive definition but concluded that what was included was limited by the examples listed in subsections (a) to (e) to something affixed to the ground. He stated, at para. 41:

Everything about the definitions in s. 1, as broadened by the SCC, speaks to the relationship of something else with the ground. The broadened part of the definition is the inclusion of chattels that are on the land with some permanence but are not fixtures.

93This part of his analysis was, however, based on his premise that real property at common law did not include the air above the land, and, therefore, he concluded, the examples listed in s. 1 could not be used to include something that had no connection to the ground. If we reject the premise, however, the examples listed in (a) to (e) cannot be used to narrow what was already included in the common law.

94The word “includes” is generally used to indicate that what follows are examples rather than an exhaustive list: Sullivan, at §4.04. This is confirmed by reading s. 1 of the Assessment Act as a whole. Section 1 of the Act lists 23 definitions. Nineteen of those definitions use the word “means”, which “generally precedes a definition to be construed as exhaustive”: Canada 3000 Inc., Re; Inter-Canadian (1991) Inc. (Trustee of), 2006 SCC 24, [2006] 1 S.C.R. 865, at para. 46. Only four of the definitions in the Act use the word “includes.” In this context “includes” cannot be interpreted as limiting the definition to the itemized list.

95The Supreme Court of Canada and the Court of Appeal have both confirmed that the examples given in the definition were intended to expand on the common law definition. These cases do not support the proposition that there was any intention to subtract from or limit the common law definition of land or real property. See also Owners, Strata Plan para. 39.

Conclusion

Conclusion

96For these reasons, I conclude that the Air Parcels which are the subject matter of this appeal qualify as “land”, “real property” or “real estate” under the Assessment Act. As a result, the appeal is allowed and the Order of the Application Judge is set aside.

97The parties have agreed on the costs of this matter at this level and the Court below:

a. The costs awarded below are reversed, and Craft shall pay each Respondent $5,000 for an aggregate payment of $10,000 for the costs of the Application.

b. On the appeal, costs are payable by Craft to each of the Appellants in the amount of $5,000 for an aggregate payment of $10,000.

Charney J.

I agree

Stewart J.

I agree

Glustein J.

Released: January 11, 2023

CITATION: Toronto (City) v. Craft Kingsmen Rail Corp., 2023 ONSC 292