Court File and Parties

CITATION: Exchange Tower Limited v. Municipal Property Assessment Corporation, 2011 ONSC 4073

DIVISIONAL COURT FILES NO.: 321/10 & 320/10

DATE: 20110630

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

BETWEEN:

EXCHANGE TOWER LIMITED and BPO PROPERTIES ONTARIO LTD.

Applicants

– and –

MUNICIPAL PROPERTY ASSESSMENT CORPORATION and CITY OF TORONTO

Respondents

COURT FILE NO. 320/11

AND B E T W E E N:

OMERS REALTY CORPORATION, SMYE HOMES LTD. and BEE DEVELOPMENTS LTD.

Applicants

• and -

MUNICIPAL PROPERTY ASSESSMENT CORORATION and CITY OF TORONTO

Respondents

COUNSEL:

Richard Poole & Kathleen Poole, for the Applicants

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

Brad Nixon & Kathleen Poole, for the Applicants

Chester Gryski, for the Respondent, Municipal Property Assessment Corporation

HEARD: June 16, 2011

PROCEEDINGS UNDER the Assessment Act, R.S.O. 1990, c. A.31, as amended, s. 43.1 and the Rules of Civil Procedure, R. 14.05(3)(d)

Reasons for Decision

LEDERER J.:

INTRODUCTION

[1] This is an application for leave to appeal two decisions of the Assessment Review Board.

BACKGROUND

[2] The Assessment Act, R.S.O. 1990 c. A. 31 (the "Act"), at s. 3(1), provides that:

All real property in Ontario is liable to assessment and taxation...

[3] The Act requires that the assessment of land be based on its current value (Act, s. 19(1)). “Current value” as it relates to land, is defined as the amount of money the fee simple, if unencumbered, would realize if sold at arm’s length by a willing seller to a willing buyer (Act, s. 1(1)).

[4] The Act also provides for the promulgation by the Minister of classes and subclasses of real property (Act, s. 7 and s. 8). The Municipal Property Assessment Corporation ("MPAC") is required to prepare an assessment roll for each municipality. The assessment roll must include "the classification of the land" (Act, s. 14(1), para. 8). The land is to be classified for a taxation year as of June 30 of the previous year (Act, s. 19.3).

[5] The first of the two appeals concerns the assessment of four parking lots, all located in the downtown area of the City of Toronto. In conducting its assessment, MPAC took into account the development rights attributable to each of the properties arising from the provisions of the applicable zoning bylaw. The value of these "air rights" was included as a constituent element of the "current value" of the properties.

[6] The owners of the parking lots (Omers Realty Corporation, Smye Homes Ltd. and BEE Developments Ltd.) appealed to the Assessment Review Board.

[7] The second of the two appeals concerned the assessment of two parcels of land, both in downtown Toronto, making up what was, at the relevant time, the site for a new and significant development. For those who live in Toronto, it is the now-constructed Bay-Adelaide Centre. As with the parking lots, these two properties were valued by MPAC on a basis that included the rights to use the airspace above the surface of the land for development purposes as permitted by the applicable zoning. These "air rights" were valued and accounted for as part of the "current value" of the property.

[8] The owners of the property (Exchange Tower Limited and BPO Properties Ontario Ltd.) appealed this decision to the Assessment Review Board.

[9] Not surprisingly, the concern behind the appeals was the belief of the owners that the assessments and the taxes they would be required to pay were too high. In their view, the "air rights" should not have been included as a constituent element of the "current value". Rather, these rights are properly understood as part or a portion of the "real property" and, on that basis, should be separately classified as "vacant land" (O.Reg. 282/98 s. 1(1) and s. 20) or as "excess land" (O.Reg. 282/98 s. 21) rather than as "wholly in the Commercial Property Class" (see: Reasons for Decision: OMERS v. MPAC, at p. 3). These classifications, if established as applying to the air rights, would have altered their contribution to the value on which the tax would be based. The tax would be lower.

[10] The appeals were heard by the same member of the Assessment Review Board. She released her decisions for both on the same day, June 11, 2010. While not interchangeable, both the parties and the Assessment Review Board recognized that the fundamental issues were the same:

While the two hearings are for different properties, the parties requested that the Board apply the legal arguments and submissions with respect to the classification issues made at each hearing to all of the properties to ensure a consistent application of the Assessment Act (Act) and the Regulations made pursuant to it.

(Reasons for Decision: OMERS v. MPAC, at p. 2)

and:

The parties requested and the Board agreed to reserve its decision on the [parking lot] appeals pending completion on the hearing for [the Bay-Adelaide appeals] for the reason that the main issue in all of the appeals is the statutory interpretation of the same sections of the Assessment Act (Act) and Ontario Regulation (O. Reg.) 282/98.

(Reasons for Decision: Exchange Tower Limited v. MPAC, at p. 2)

[11] The Board member knew that the underlying issue was the classification of the air rights:

There is no issue with respect to the current values of the properties for any of the taxation years under appeal. The only issue for the Board to decide is whether a portion of each of the properties is eligible for classification in either the vacant land subclass or the excess land subclass of the Commercial Property Class for the three taxation years under appeal.

(Reasons for Decision: Exchange Tower Limited v. MPAC, at p. 2)

[12] She also understood that the issue that would ultimately determine the appeals was whether the "air rights" were properly dealt with as "land" or "real property" for the purposes of the Act:

The parties agree that the main issue to be determined by the Board is whether the 'airspace' above the two properties is land. The appellant used the term 'air rights' to describe this space. Only if the Board determines that the 'air rights' are land must it go on to determine whether they are eligible for classification in a subclass.

(Reasons for Decision: Exchange Tower Limited v. MPAC, at p. 4)

and:

The Board must decide if 'air rights' are portions of the parcels of land within the meaning of the Act and O. Reg. 282/98 eligible for classification in either the Excess Land Subclass of the Commercial Property Class or, the Vacant Land Subclass of the Commercial Property Class.

(Reasons for Decision: OMERS v. MPAC, at p. 4)

[13] The Board concluded that the "air rights" were not land and, accordingly, there was no basis for considering whether they should be classified as either "excess" or "vacant" land:

For the reason provided above the Board finds that neither the undeveloped airspace above the property or the air rights/development rights/density rights in the City of Toronto zoning by-law are "land" within the meaning of the Act.

Having found they are not land, there is no basis for considering if the criteria for the vacant land subclass or excess land subclass have been met.

(Reasons for Decision: OMERS v. MPAC, at p. 36)

and:

The Board finds that neither the facts of these appeals or the arguments presented on behalf of the appellant persuade it that the airspace of the subject properties or the rights to develop the airspace are land within the meaning of the Act.

(Reasons for Decision: Exchange Tower Limited v. MPAC, at p. 31)

[14] The applicants seek leave to appeal. The fundamental premise behind the application is that the Board erred in law when it determined that the "air rights" were not "real property" or "land".

THE AUTHORITY AND THE TEST

[15] The authority for the application is found in the Act, s. 43.1(1):

An appeal lies from the Assessment Review Board to the Divisional Court, with leave of the Divisional Court, on a question of law.

[16] The parties agree that the applicable test coincides with that found in Rule 62.02(4)(b):

Leave to appeal shall not be granted unless,

(a) there appears to the judge hearing the motion good reason to doubt correctness of the order in question, and

(b) the proposed appeal involves matters of such importance that, in his or her opinion, leave to appeal should be granted.

(Mullabrack v. Ontario Property Assessment Corporation Region No. 16, [2001] O.J. No. 1947 (Div. Ct.) at para. 12)

[17] To satisfy this test, the moving party is not required to establish that the "decision is wrong or probably wrong". The threshold is lower. It is satisfied if the correctness of the decision is "open to very serious debate". This may be shown when the "legal test applied and factors considered by the motions judge... are novel, and not in accordance with established case law" (see: Brownhall v. Canada (Ministry of Defence) 2006 7507 (ON SC), (2006), 80 O.R. (3d) 91 (S.C.J.), at para. 30; and, Canada Egg Marketing Agency v. Sunnylea Foods Ltd. (1977), 3 C.P.C. 348 (Ont. H.C.), at paras. 13 and 14; and 642279 Ontario Ltd. v. SCE Construction Management, [2009] O.J. 4432 (Div. Ct.), at para. 8)

ANALYSIS

[18] “Land”"real property" and "real estate" are defined in the Act s. 1(1). For its purposes, they are interchangeable:

“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, and

(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.

[Emphasis added]

[19] The parties referred to other definitions found in a dictionary and in texts, but it is the one found in the legislation on which any decision by this court must depend. The applicants submitted and the Board determined that this definition is not exhaustive (see: Reasons for Decision: OMERS v. MPAC, at p. 25). Nonetheless, from a reading of the words, it is difficult to see how this definition could be extended to cover air rights. Every one of the five paragraphs that make up the definition refer to things with a physical presence ("water""trees""mines"" buildings""structures") that are each associated with land ("covers""grows upon", “in”"under""affixed to"). As used in the definition, the word “land” clearly refers to an area of ground. It may be that the definition as found in the Act is not exhaustive, but there is nothing to suggest that it includes rights that have no physical existence. In particular, while paragraph (d) refers to "all buildings or any part of any building", to my mind, it cannot be said that this was intended to include the possibility of a building as recognized by the existing zoning.

[20] Nonetheless, the applicants insist that "air rights", for the purposes of the Act, can be and in this case should be, recognized as land. The applicants say that these rights bear hallmarks of real property. They say that "air rights" can be:

• measured

• inspected

• valued

• leased

• severed and transferred.

[21] In a fashion this may be so, but it does not make "air rights" land or real property.

Measured

[22] The applicants take the position that the extent and dimensions of the "air rights" can be determined by reference to the provisions of the zoning by-law which provides the rights. The by-law outlines the dimensions of the real property that the "air rights" represent. Counsel for MPAC pointed out that these dimensions are not demonstrative of a fixed boundary within which the owner is free to do as it wishes. The zoning by-law creates an envelope within which, and provides limitations (i.e. density provisions) by which, the extent of any proposed development is controlled. The shape and massing of any development can, and inevitably does, vary within the envelope. In other words, the extent of the "air rights" is not measured solely by the dimensions of the development envelope. On this understanding"air rights" cannot be definitively measured.

[23] These "air rights" should be contrasted to what has become known as a "strata plan" (O. Reg. 43/96 sections 14, 15 and 16). The parties agreed that, in the Canadian context, this is a relatively recent creation. It reflects the increase in vertical development in which title can be and is provided to floors or apartments in high rise buildings. A strata plan, once registered, provides for the ownership and transfer of the space within the building as described within the plan. With a strata plan in place, it may be that buildings in the air, above the ground, are "land" and "real property" for the purposes of the Act, but that is not the circumstance here.

[24] The Board found:

It does not make sense in considering the scheme of the Act that undeveloped airspace without a strata plan is land/real property or real estate. Considering the requirements of subsection 14(1) of the Act, the Board finds that MPAC is unable to describe the undeveloped airspace or to indicate a measurement in terms of acreage or otherwise for the undeveloped airspace, which it is required to do by the Act.

(Reasons for Decision: OMERS v. MPAC, at p. 29)

[25] I agree.

Inspected

[26] It was submitted, on behalf of the applicants, that "air rights" can be inspected. As the Act requires, an assessor can be given access to the site (Act, s. 10). Counsel said an assessor can attend at the land and look at the open space above the ground, but to what effect? What is the value of looking at the air? The Board observed:

Section 10 of the Act permits MPAC to inspect a property for the purpose of returning a proper assessment. It is absurd to think of MPAC inspecting undefined airspace (remembering that some of the development may be below ground) for the purpose of determining current value.

(Reasons for Decision: OMERS v. MPAC, at p. 31)

[27] Again, I agree.

Valued

[28] Virtually all things can be valued. The issue here is whether "air rights" can be valued as land. Counsel for the applicants noted that the valuation carried out for the four parking lots and the development site included the "air rights". This does not constitute them as real property. They may be just an attribute of the real estate being valued. After all, air rights do not exist independent of an association with a piece of ground.

[29] The Board reviewed the difficulty in valuing "air rights" as if they were "land""real property" or "real estate":

The scheme of the Act also requires that a parcel of land be valued. The appellants argue that the undeveloped airspace should be valued at the same rate per square foot used in the calculation of the current value of the property.

The Board does not agree. The parties agreed that for the subject properties, the current value was best approximated by using the sale price per square foot of GFA that has been established through sales. The evidence of Mr. Jech is that, in determining current value, no distinction is made between the permitted GFA of commercial space and the permitted GFA of residential space.

There is no evidence to support the appellants' argument that each square foot of GFA has the same current value and so the undeveloped airspace can be valued on the basis of the calculation of the current value for assessment purposes.

Mr. Jech the appellant's [sic] expert assessment witness, testified that without easements and rights-of-ways to the surface and subsurface of the property, the airspace may not be developed as a separate parcel of land and would not have any value.

(Reasons for Decision: OMERS v. MPAC, at p. 31)

[30] What follows from this is that, to the extent that "air rights" can be valued, it is not as a piece of land, but as a result of their association with a piece of land.

[31] Again, I agree.

Leased

[32] It is the position of the applicants that "air rights" can be leased and that this supports the proposition that they are land.

[33] The applicants rely on Toronto Transit Commission v. City of Toronto (1971), 1971 8 (SCC), 18 D.L.R. (3d) 68 (S.C.C.). In that case, the Toronto Transit Commission ("Commission") leased land to the Davisville Investment Co. Limited ("Davisville"). The premises leased were described as "ground rights, air rights and right of way" [Emphasis added]. The development concept was to build "another level of structures" above marshalling yards of the Commission, for both commercial and residential purposes. Pursuant to the Assessment Act then in place (R.S.O. 1960, c. 23), certain exemptions applied and the lands were not subject to taxation. Rather, the Commission was required to make annual payments in lieu of taxes (see: Reasons for Decision: OMERS v. MPAC, at p. 31). The exemption would be lost if the "tenant" occupied the land. The question was whether it did occupy the land. The policy proposition at stake seems to have been to avoid giving an unfair advantage to land owned by public agencies if they were to be put to a commercial use. The argument made relied on the obvious fact that, in the absence of a structure having been built, it was not possible to occupy the "air rights". The Supreme Court of Canada adopted the reasons of the trial judge when he found that it was not necessary for the tenant to be in physical possession to come within the term "occupied" (see: Toronto Transit Commission v. City of Toronto (trial judgment), 1968 409 (ON SC), [1968] 2 O.R. 481 at 483, as quoted in Toronto Transit Commission v. City of Toronto, supra, at p. 74). It was enough that the tenant had a contractual right to occupation whether or not it was exercised by going on the land (see: Toronto Transit Commission v. City of Toronto, supra, at p. 74).

[34] The applicants say that what is clear from this is that the lessee was dealt with as a tenant. What it leased included air rights. If what was leased was not land, they could not be tenants and there could be no assessment of it as land.

[35] This case does not help. The issue concerned occupancy. It does not consider whether "air rights" can be land. There is no reference to the definition of land as found in the Act. The case does suggest that efforts were made to distinguish between the value of the land for assessment purposes as between the owner (Commission) and the tenant (Davisville). A quote from the trial judge that was adopted by the Supreme Court of Canada made clear this was considered by him only in respect of the question of occupancy:

As between the owner and the tenant the assessor has quite properly made a division and valuation of the land to which each is entitled. I am not concerned with the amounts nor the propriety of the division between the owner and the tenant. I find that he did what he had a right to do. Davisville had a clear and undoubted right to occupancy. It was paying annually a substantial rent for that right. To say that the demised property was not occupied by the tenant is to my mind putting an interpretation upon that word which does not in my opinion do justice to the manner in which it is here used.

(Toronto Transit Commission v. City of Toronto (trial judgment), supra, at p. 483, as quoted in Toronto Transit Commission v. City of Toronto, supra, at p. 74)

[36] I observe that what was leased in Toronto Transit Commission v. City of Toronto, supra, included "ground rights". The buildings to be erected by the tenant were:

…to to be based on foundation pillars sunk into the land 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 pillars.

(Toronto Transit Commission v. City of Toronto, supra, at p. 70)

[37] In other words, however what was leased was characterized, it was founded on the inclusion of surface rights. In the absence of access to ground, the rights to develop above it would have no utility and no value. In considering the definition of land as found in the Act, and the context in which that term is being considered here, it is consistent with air rights as an attribute of the land with which they are invariably associated.

[38] I agree with the Assessment Review Board when it said that the court, in Toronto Transit Commission v. City of Toronto, supra, did not decide that "air rights" were land (see: Reasons for Decision: OMERS v. MPAC, at p. 34).

Severed and Transferred

[39] Can airspace be severed from the ground below? This seems self-evident. Nonetheless, it was reviewed by the Assessment Review Board. It referred to evidence of the witness, T. Jech, who observed that:

…no one in their right mind would buy the rights to airspace which did not include the right to access the airspace from the ground level and rights to anchor any building development in the airspace to the subsurface of the lot.

(Reasons for Decision: OMERS v. MPAC, at pp. 28-29)

and:

… based on the evidence that for the airspace above a property to become a separate piece of land, there must be a strata plan and the necessary agreements for easement and rights-of-way to allow the owner of the airspace access to the property and the ability to anchor any constructions to the surface and subsurface of the lot.

The airspaces above the subject properties have not been severed and alienated separately by a strata plan. They are not capable of standing on their own as land.

(Reasons for Decision: OMERS v. MPAC, at p. 29)

[40] Yet again, I agree.

[41] What about "air rights"? Can they be severed? Can they be transferred?

[42] There is no doubt that density or development rights are transferred between properties. There is no doubt that density rights, associated with a property, add to its value. To my mind, this demonstrates the point. As I have already said, density rights are invariably related to land. If they are transferred, the land they are identified with may change, but there will always be an association with a piece of ground. The zoning by-laws which put development rights in place are planning tools. Conventionally, in Ontario, they are understood to implement the policy found in Official Plans. Consistent with this understanding, the City Planner, called to give evidence to the Board, testified that, while transfers of density do take place, they are uncommon. The City prefers to deal with the zoning of each property individually (see: Reasons for Decision: OMERS v. MPAC, at p. 32). This confirms development rights are a result of land use planning. Land use plans change and evolve over time. This understanding mitigates against development rights being property or an asset to be sold and moved. This is underscored by the observation, made by the Assessment Review Board, that the transfer of development rights requires municipal approval whereas, as a general rule, the transfer of "land" or "real property" does not (see: Reasons for Decision: OMERS v. MPAC, at p. 33). When density rights are transferred, they are dealt with by agreement between the parties and not by the transfer of land under the Land Titles Act, R.S.O. 1990 c. L.5 or the Registry Act, R.S.O. 1990, c. R.20.

[43] The Board determined that:

…there is no evidence to support the conclusion that transfers of density is [sic] a transfer of land/real property or real estate.

(Reasons for Decision: OMERS v. MPAC, at p. 32)

[44] The submissions made to this court lead me to the same conclusion. The fact that density, development rights or air rights can be, and from time to time are transferred, does not demonstrate that they are land or real property.

Conclusion

[45] To the extent they exist and are present, these characteristics do not establish or contribute to a finding that, in the circumstances of these cases"air rights" are "land" or "real property", in particular, for the purposes of the Act. In my mind, they do nothing to suggest that the definition could be or should be understood to include "air rights".

[46] The applicants also rely on case law which, they say, raises a serious debate as to whether air rights are land or real property and satisfies the first arm of the test for leave to appeal.

[47] The applicants referred to Re: Trizec Manitoba Ltd. and City Assessor for the City of Winnipeg 1986 3934 (MB CA), 28 D.L.R. (4th) 161. The City acquired land, built a parking structure and granted to a development company ("Trizec") a lease to the air rights. Trizec, utilizing foundations sunk into the land, built a shopping mall and office tower in the airspace it had leased. With the buildings constructed, Trizec paid both rent to the City and property taxes associated with the buildings. Land that is municipally owned is exempt from the payment of property tax. In the normal course, there would be a loss of revenue to the municipality. In this case, the City assessed Trizec as an occupier and, on this basis, sought to collect tax on 80% of the assessed value of the land and on the air rights.

[48] Before the Manitoba Court of Appeal, Trizec contended that it neither owned nor occupied the land on which its structures were erected. It argued that the land was occupied solely by the City's parking garage and that its interest in the air rights attached to the land could not be separately assessed.

[49] The Court found that, for taxation purposes, it is the value of the totality of all rights attached to the land that is to be assessed. Air rights were said to have a "distinct character" which, in the circumstances, were "possessed separately from the surface rights". The Court observed that, in most cases, the air rights, separate from the surface rights, would have little value. In the case it was considering, this was not so. The buildings constructed by Trizec, in the airspace above the surface, were valued at $5,000,000. Without the air rights, they could not have been built. In the view of the Court, those rights had a value "separate from surface and subterranean rights retained by the City" (see: Re: Trizec Manitoba Ltd. and City Assessor for the City of Winnipeg, supra, at p. 177). The Court made clear that, where the owner was exempt, the interest of an occupier would still be subject to assessment:

In the case at bar, the objective totality of the interest which is not exempted is the sum of the rights conferred on Trizec by its air rights lease.

(Re: Trizec Manitoba Ltd. and City Assessor for the City of Winnipeg, supra, at p. 176)

[50] As counsel for MPAC pointed out, the difficulty with this is that we cannot be certain what rights the lease included. What does seem clear is that the air rights were not leased, on their own, as a severable interest. They were associated with the right to use the foundations of the garage as well as columns that were constructed by the City to provide additional support for the structures to be built by Trizec. The report of the case notes that Trizec paid annual rent for the columns of 7% of their cost (see: Re: Trizec Manitoba Ltd. and City Assessor for the City of Winnipeg, supra, at p. 165). The assessment of the "value of the totality of all the rights attached to the land" (see: para.[49], above) would include the use of the foundations in company with the air rights. Without the right to use the foundations, the air rights would have had little value. The buildings relied on by the court as demonstrating the value, could not have been constructed. In these circumstances, it is difficult to understand how the air rights were valued or occupied separate from the surface rights unless this is understood to mean surface rights "retained by the City" (see: para. [49], above). Presumably, the City did not retain the right to make any use of the foundations or columns.

[51] This being so, the case does not serve to demonstrate that air rights are can be leased or occupied as land separate from the ground. They are associated with the ground; in this case, that part of the ground not retained by the City, being the ground to which the foundations and the columns are attached. In the words of the definition of "land" found in the Act, the foundations and columns are structures "erected...upon" or "affixed to" land and so are themselves "land" (see: para. [18], above). On this basis, the air rights are an attribute of the land that was leased by the City to Trizec. They are not land in and of themselves.

[52] The Assessment Review Board considered the Trizec case. It noted:

The case of Trizec Manitoba Ltd. and City Assessor for the City of Winnipeg et al. 1986 3925 (MB KB), 32 M.P.L.R. 15, 25 D.L.R. (4th) 444 was also submitted by the appellants as a case which held that air rights or assessable. The scheme of assessment in Manitoba is different from Ontario in that land and buildings are to be separately assessed. The issue in Trizec, supra, was whether after the build a portion of the land assessment.

The legislation being interpreted in Trizec, supra, and the facts in this situation are very different from the appeals before the Board. The Manitoba Court held that once a building was constructed in the leased space, the building becomes assessable as a building and the land including the airspace remains assessable as land.

(Reasons for Decision: OMERS v. MPAC, at pp. 35-36)

[53] To observe that the Trizec case is different from the case here is to make the point that it is not helpful in considering the question raised, which is: Is there a serious debate as to whether "air rights" are land?

[54] The applicants also relied on Carson’s Camp v. Municipal Property Assessment Corp. 2008 ONCA 17, 88 O. R. (3d) 741. MPAC determined that 229 trailers located on property owned by Carson's Camp, but themselves owned by third parties, were placed there with sufficient permanency to be considered part of the land for the purpose of assessment. The permanency of the placement of the trailers was conceded, but it was, nonetheless, argued that they should not be included in the property tax assessment of the land. The definition of land in the Act was then as it is now. The case notes that the definition has not changed since its introduction in 1904. What had changed was the basis on which the assessed value was determined. Prior to 1997, land was to be assessed at its "market value". In that year, the Act was amended so that the assessment of land was based on its "current value" (see: para. [3], above). The change introduced the words "fee simple". The argument in Carson's Camp was that "fee simple", as it was traditionally understood, could not include the trailers. The Court of Appeal determined that "fee simple", as used in the Act, had to take into account the broad definition of land included in the Act. Given that the definition of land, as found in the Act, includes "all structures… placed upon… or affixed to land” (see: para. [18], above), the Court found that the value of the trailer should be considered in assessing the land for tax purposes. This was consistent with the earlier case of Northern Broadcasting Company 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 the land with some degree of permanency (referred to in Carson’s Camp v. Municipal Property Assessment Corp., supra, at para. 13).

[55] The applicants submitted that Carson's Camp supports their contention that land, as defined in the Act, is broad and should be extended to include "air rights".

[56] I do not agree. What arises from the Carson's Camp case is that the trailers fell squarely within the definition of "land", in that they were affixed to the ground with an accepted degree of permanency. This returns me to what I said earlier. There is nothing in the case or elsewhere to suggest that the definition of land includes rights that have no physical existence.

[57] The Assessment Review Board also did not agree. In considering Carson’s Camp v. Municipal Property Assessment Corp., supra, it observed:

In Carson's Camp, supra, the Court of Appeal concluded (at page 7 Quicklaw) that ‘everything encompassed by the term "land" is to be included in assessing value.’ The evidence for the properties under appeal is that the ‘air rights’/density/development rights of the property were included in the value of the land as is required by the Carson's Camp case. The Court of Appeal did not find that a right taken into consideration in the valuation of the fee simple estate is land itself.

Ownership of land confers rights in the air space above lands and in the subsurface below the land. The measures showing the extent of the land on the assessment roll are two-dimensional and the rights to use the land are three-dimensional.

(Reasons for Decision: OMERS v. MPAC, at p. 26)

[58] Based on all of this, it is difficult to understand how there can be a serious debate that air rights are land for the purposes of the Act. It may be, however, that this does not fully deal with the question. It begs the issue: If air rights are not land, what are they?

[59] Counsel for the applicants submitted that, if air rights are not "real property", then they must be personal property. He posited that, as personal property, they could not be a consideration in the assessment of the value of land carried out pursuant to the Act. The assessment would not include the value of the air rights which would reduce the value of any tax that was calculated as owing.

[60] This pre-supposes that the right to develop land is, itself, property. It is not. The decision of the Assessment Review Board reviews the nature of zoning. Zoning regulates the use of land. Historically, without zoning, an owner of land could do anything he or she wished with it. This view is sustained by reference to the Planning Act, R.S.O. 1990 c. P. 13 s. 34(1), which refers to zoning largely as restricting the use of land. Nonetheless, in the modern day, this may be a notional rather than a practical understanding. Anywhere in Ontario where an official plan is in place, and sets out the policy directing development, it is difficult to conceive anything being built in the absence of appropriate zoning. This being so, it may be as well to understand zoning as a permission, rather than a restriction on the outright ability to use one's land as one wishes. Be that as it may, contrary to the view of counsel for the applicants, there is no property in the "permissions" or "restrictions". They are rights which are associated with particular pieces of land that, subject to the procedures found in the Planning Act, can evolve, be amended or changed in the public interest. They are not property. As the Assessment Review Board noted:

While the bundle of rights inherent in the ownership of the physical interest in land may be a consideration in the valuation of the property, the individual rights are not land within the meaning of the Act.

(Reasons for Decision: Exchange Tower Limited v. MPAC, at p. 28)

[61] This does not deal completely with the submissions in respect of the application concerning the land on which the Bay-Adelaide Centre has been constructed (Court File No. 321/10). It was submitted that, quite apart from the issue of whether air rights are land and whatever impact a finding that they were would have had on the assessment value, these lands were, nonetheless, under construction and, on that basis, should be classified as vacant land. Moreover, it was said that the Assessment Review Board failed in the obligation imposed on it to “determine the matter” (Act, s. 40(19)) by not providing written reasons explaining its decision.

[62] O. Reg. 282/98 s. 1(1) para. 2 refers to vacant land as:

1.(1) The following land if it is not being used is vacant land for the purposes of this Regulation:

2. Land upon which a building or structure is being built.

[Emphasis added]

[63] The decision of Assessment Review Board indicates that, quite apart from any construction that may have been underway, the land was being used. It noted that, as of June 30, 2005, the following structures were on the site:

• a three or four-level underground parking garage (the witnesses did not agree);

• an unfinished concourse below the surfaces of the properties (also referred to as a "shell" of an underground concourse);

• pedestrian entrance(s) to the underground garage (the report of the board is unclear as to whether there was more than one); and,

• the building at 132 Yonge Street, a three-storey structure occupied by a clothing store.

[64] The applications concerned the 2007 and 2008 taxation years. The decision of the Assessment Review Board went on to say that, for those taxation years, these structures remained. By that time, there was construction hoarding around the entire site and there was a construction trailer on the site (see: Reasons for Decision: Exchange Tower Limited v. MPAC at pp. 10 and 11).

[65] From this evidence, the Assessment Review Board concluded that "the whole of the lands were in use for all taxation years under appeal as underground parking garages and that there is no portions of the land that were not in use or that have not been developed in any other way than to service the parcel of land" (see: Reasons for Decision: Exchange Tower Limited v. MPAC, at p.31).

[66] What is clear from this is that the Assessment Review Board considered the evidence and determined that the site, for the taxation years in issue, was in use and, on that basis, though under construction, was not vacant. For the purposes of the Act, it was not a construction site. In other words, the construction of the Bay-Adelaide Centre did not impede the continuous use and occupation of the parking garage or the clothing store.

CONCLUSION

[67] From all of this, I find that the first branch of the test for leave to appeal has not been satisfied. There is no serious debate as to whether air rights are land for the purposes of the Act or whether the lands were under construction and, accordingly, vacant lands, pursuant to O. Reg. 282/98 s. 1(1) para. 2. There is no reason for me to consider the second arm of the test.

[68] The applications are both dismissed.

COSTS

[69] As agreed to by the parties, given that it is the respondents who were successful, costs are payable by the applicants to the respondents in the amount of $5000. To be clear, the respondents are to be jointly and severally liable for the payment of these costs to the respondents.

LEDERER J.

Released: 20110630

CITATION: Exchange Tower Limited v. Municipal Property Assessment Corporation, 2011 ONSC 4073

DIVISIONAL COURT FILES NO.: 321/10 & 320/10

DATE: 20110630

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

BETWEEN:

EXCHANGE TOWER LIMITED and BPO PROPERTIES ONTARIO LTD.

Applicants

– and –

MUNICIPAL PROPERTY ASSESSMENT CORPORATION and CITY OF TORONTO

Respondents

COURT FILE NO. 320/11

AND B E T W E E N:

OMERS REALTY CORPORATION, SMYE HOMES LTD. and BEE DEVELOPMENTS LTD.

Applicants

• and -

MUNICIPAL PROPERTY ASSESSMENT CORORATION and CITY OF TORONTO

Respondents

JUDGMENT

LEDERER J.

Released: 20110630