CITATION: Orr v. MTCC 1056, 2016 ONSC 7630
COURT FILE NO.: 01-CV-206672CM
DATE: 20161209
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Kelly-Jean Marie Orr also known as Kelly-Jean Rainville
Plaintiff
– and –
Metropolitan Toronto Condominium Corporation No. 1056, Gowling, Strathy & Henderson, Brookfield Lepage Residential Management Services, a Division of Brookfield Management Services Ltd., Patrick Post, Pamela Cawthorn, Bruce Ward, Larry Boland, Francine Metzger, Michael Kosich and Richard Dorman
Defendants
Geoffrey Adair, Q.C., for the Plaintiff
David Gadsden and Matt Saunders, for the Defendant, Gowling, Strathy & Henderson
Robert Clayton, for the Defendants, Brookfield LePage Residential Management Services, a Division of Brookfield Management Services Ltd., Patrick Post & Pamela Cawthorn
HEARD: September 21-22, & November 24, 2016
REASONS FOR JUDGMENT on the issue of damages
Madam Justice D.A. Wilson
[1] Pursuant to Supplementary Reasons released June 8, 2015, the Court of Appeal ordered the trial of an issue before me. The issue to be determined is the value of the townhouse purchased by the Plaintiff Kelly-Jean Marie Orr [“Orr”] at 2289 Lake Shore Boulevard West as a two-storey unit and as a three-storey unit as of December 2, 2014 [“the valuation date”].
[2] Briefly put, Orr bought townhouse 113 at the Grand Harbour development in September, 1997 and the transaction closed in January, 1998 with a purchase price of $955,000. It was described as a three-storey unit and that is what Orr believed she had purchased. Later, it became clear that the third storey was illegally built into the common element space. The Court of Appeal fixed the damages as the difference between the value of unit 113 as a two-storey condominium and as a three-storey unit as of the valuation date.
[3] At the trial of an issue, the Plaintiff, the Defendant Gowling Strathy & Henderson [“Gowlings”] and the Defendants Brookfield LePage Residential Management Services Ltd, Patrick Post, and Pamela Cawthorn [“Brookfield”] each called an expert appraiser who testified about the value of the property as of the valuation date. Their respective reports were filed as exhibits at the trial.
[4] All of the experts were properly qualified as Rule 53.03 experts, able to offer an opinion to the court on the value of the loss of the third floor of unit 113 as of the valuation date.
[5] Certain facts were agreed to by the various experts which are germane to my decision: the Orr townhouse is the largest unit in the complex, and the livable area of the third floor is 922 square feet; there are 37 townhouses in the Grand Harbour development; the Plaintiff’s townhouse has an unobstructed view of Lake Ontario; and the direct comparison approach to valuation is the appropriate one for this assignment.
The Plaintiff’s Expert
[6] Dino Bottero [“Bottero”] was retained as an expert by the Plaintiff and he is an accredited appraiser and a member of the Appraisal Institute of Canada. He does property valuations and provides appraisal services for financial institutions, municipalities, government agencies and law firms. His colleague, Giorgio Beghetto [“Beghetto”], an associate appraiser, worked with him on this retainer.
[7] Bottero explained that the direct comparison approach is the best one for the valuation of the Plaintiff’s townhouse because it involves an analysis of the sales of similar properties. The appraiser takes a comparable property and makes adjustments based on the similarities or differences to the property in question. Some of the adjustments are quantitative while others are qualitative; the adjustments are made to make the comparable property more similar to the unit that is being appraised. After the appropriate adjustments are made, a price per square foot can be determined to be used in arriving at a dollar figure to represent the loss of the third floor in the Plaintiff’s townhouse.
[8] Market value is the most likely price which a property would bring on the open market with a willing seller and a willing buyer, over a reasonable period of time. An appraiser must consider the economic climate, the particular neighbourhood where a property is located, the house itself, its layout and finishes.
[9] Bottero explained that doing an appraisal is an art, not a science. He listed the various adjustments that had to be made to comparables based on the following: the condition of the comparable property; the time of sale; its location; physical characteristics, i.e., number of bedrooms and bathrooms, its layout, its condition and quality of finishes, whether it had a finished basement; the age of the unit and its unique features. The more similar a comparable property is to the Orr unit, the greater the weight that he attached to that property’s value. An appraiser should never simply average the sales prices of comparable properties to arrive at a valuation of a particular property; that is contrary to the principles that are taught to valuators.
[10] Beghetto attended and inspected the property on April 4^th^ and 14^th^, 2016 and took photographs. Bottero went to Grand Harbour on April 14, 2016 and inspected unit 113. He described the Grand Harbour complex is an attractive, upscale development which is unique. He looked at the statistics from the Toronto Real Estate Board for single family homes in the Greater Toronto Area for 2014.
[11] The Plaintiff’s unit is 3766 square feet, including the third floor. It has a terrace which overlooks Lake Ontario. The basement is finished and includes a bathroom. The third floor includes a large bedroom and an entertainment area with an unobstructed view of the lake. The photographs taken and included in his report demonstrate the attractive features and location of unit 113.
[12] Bottero noted that this unit is the largest one in the complex; he described it as “unusual and unique”. In his opinion, the removal of the third floor is significant and results in a loss of its special appeal and would “gut its character”.
[13] Bottero researched the Multiple Listing Service [“MLS”] and found five townhouses in the complex that had sold and used these as comparables. These properties were smaller than the Plaintiff’s; they ranged from 1900 to 2300 square feet. All of the comparable units sold between 2009 and 2015. Most of the comparables had inferior views and finishes that were not of the same high quality as the Plaintiff’s townhouse. Bottero described the condition of townhouse 113 as superlative. He included one townhouse from another development which was 1.5 kms east because it faced the lake directly, as the Plaintiff’s unit does. He obtained information from the Municipal Property Assessment Corporation and called the agents who handled the sales to confirm the sale prices.
[14] He accorded the proper weight to each one, based on the similarities with townhouse 113. He made his adjustments and determined that its value was $504.51 per square foot. Bottero arrived at a market value estimate for the townhouse with three storeys of $1.9 million and as a two-storey of $1,435,000 of December 2, 2014. The difference in value of unit 113 as a two-storey and as a three-storey as of the valuation date is therefore $465,000.
Brookfield’s Expert
[15] Agnes Lee [“Lee”] provided an expert opinion on behalf of Brookfield. She has her own company, Agnes Lee Appraisals, which conducts property appraisals of residential and industrial properties. She works in the Greater Toronto Area and specializes in higher end markets. She agreed with Bottero that the direct comparison approach was the correct one so she, too, looked at sales of comparables.
[16] Lee did not attend at the unit to inspect it as she understood that was not possible. She went to the complex and viewed the exterior only. Ms. Lee agreed that the text The Appraisal of Real Estate, 3^rd^ edition published by the Appraisal Institute of Canada is the governing text for appraisers in Canada. That book states that the importance of property inspection cannot be underestimated. She agreed that it would have been preferable to have inspected the Plaintiff’s unit and that other appraisers who had done so had a significant advantage over her.
[17] Lee looked for sales of other townhouses in the complex in the one-year period before the valuation date and after, and she found fifteen sales on the MLS. She looked at various factors including whether the unit had a view of the lake; its size and layout; the finishes; the elevation levels and its exposure. In Lee’s opinion, the most important factor was the size of the Plaintiff’s unit, which was significantly larger than other units in Grand Harbour. Lee testified that the cost per square foot is less for a larger unit than for a smaller one.
[18] After looking at the sales of other townhouses in the development in the relevant period, Lee rejected those that did not have a lake view or the same quality of finishes as townhouse 113. She ended up with five comparables. Lee agreed that by relying solely on the MLS listings, she had limited and, in some cases, inaccurate information about the comparables.
[19] After doing the comparisons, she discounted the value of the Plaintiff’s unit because of its size; in her experience, there is a limited demand for such large units. Ms. Lee did not agree that the loss of the third floor was significant despite its size and the fact that it had a clear view of the lake; rather, because the Plaintiff’s unit is so large, the loss of 922 square feet was not important. Ms. Lee made the appropriate adjustments for the comparables. She arrived at a valuation of $1,017,960 for the Plaintiff’s townhouse as of December 2014 as a two-storey unit. Her valuation as a three-storey unit was $1,157,400, so the difference in value is $140,000.
[20] She increased the value of the unit by only $200,000 over seventeen years, which she attributed to a large extent to the poor reputation the Grand Harbour complex has because of the litigation and the large size of the Plaintiff’s townhouse. Lee had no statistics to support her view that condominium units that are larger appreciate less than do smaller units in the same development. She acknowledged that other units sold which had increased in price by 20 per cent (20%) in as little as three years; she was aware the townhouse was purchased in 1997 for $955,000 and substantial renovations were done.
Gowling’s Expert
[21] Jim Parthenis [“Parthenis”] was the expert retained by the Defendant Gowlings to testify at the trial of the issue. He is the president of Lebow Carrington Appraisal, a company which specializes in residential appraisals. He has the designation of Canadian Residential Appraiser. He undertook an inspection of unit 113 to ascertain its physical condition and found that the Plaintiff’s unit has above average finishes and is a high-end, luxury townhouse.
[22] Using the direct comparison approach, Parthenis researched the sales activity in the townhouse portion of Grand Harbour and looked for similar properties to townhouse 113. He confined his search to the Grand Harbour development. Parthenis determined that the property value increase was seven percent (7%) per year from 2009 to 2014 in Grand Harbour.
[23] He found 30 sales in the complex over a seven-year period and he selected the three units which were the most similar to the Plaintiff’s townhouse: unit 117; unit 114; and unit 119. In his opinion, the most important factors in determining the market value of the Plaintiff’s townhouse were its location, size, total room count, number of washrooms and general condition. Parthenis made adjustments for the size of the comparable units, their state and location.
[24] He looked at the sale prices for the comparable units, adjusted them for the passage of time and other variables and found the per square foot sale price. After he did his adjustments, he valued units 114 and 117 at between $200,000-$300,000 more than unit 113, although he acknowledged that the Plaintiff’s townhouse was superior to either of them. Once he obtained the adjusted values for the three comparable units, he divided by three and arrived at an average market price.
[25] Parthenis testified that averaging the value of comparable properties was one of the options that an appraiser could employ if it was felt to be appropriate. He relied on the Canadian Uniform Standards of Professional Appraisal Practice [“CUSPAP”] which is published by the Appraisal Institute of Canada; he said it endorses averaging prices of comparables when arriving at an appraisal of a property. He was not familiar with the text, The Appraisal of Real Estate (3^rd^ Edition).
[26] He concluded that townhouse 113 had a market value as a two-storey as of the valuation date of $2,080,000 and as a three-storey unit, its value was $2,260,000. The loss of the third storey therefore is $180,000.
[27] Parthenis was not aware that townhouse 114 had been put on the market in the spring of 2015 with a list price of $1,898,000 and there was an offer of $1.6 million but it did not sell. He disagreed that his valuation of $2,260,000 in that time frame was incorrect even though, in reality, there was not an offer to purchase the property for anything close to his figure and the property was taken off the market with the greatest offer being the $1.6 million one.
Analysis
[28] Counsel agreed each of the experts called was properly qualified as an expert to offer an opinion to the court on the valuation of townhouse 113 as of December 2, 2014. Each expert had similar qualifications; there was not one who stood out as being more qualified than the others. In my view, in determining the value of the loss of the third floor to the Plaintiff, I must scrutinize the expert opinions and decide which one I accept.
[29] In my opinion, Lee’s opinion is not as reliable as that of the other experts principally because she did not attend and inspect the Plaintiff’s unit. Given that she was asked to value a property and she was using other units to make the comparison, it seems to me it was essential to go to the unit to obtain a sense of its location within the complex, its layout and the quality of finishes in particular. It is difficult to appreciate these features by simply looking at photographs. It was not the case that she was unable to attend the premises; simply that she understood that this option was not available to her. When questioned on this point, she agreed that the fact that she had not inspected the townhouse placed her at a disadvantage compared to the other experts who had done so and I agree with this statement. As a result, I give much less weight to her opinion.
[30] Furthermore, Lee had only limited information on the comparables. For example, she did not know that there were a number of three-storey townhouses at Grand Harbour and she was not aware which of the comparables had lake views, which she agreed was a significant factor in her analysis. She did not know that the unit next door to the Plaintiff, townhouse 114, which was a smaller unit, sold for $1,510,000 in 2011 and it was listed for sale in May 2015 with a price of $1,898,800. She was unaware that an offer was made in 2015 for that same unit for $1.6 million.
[31] Her estimation that the value of townhouse 113 increased only 20 percent (20%) over 17 years is difficult to accept. The prices of other units, according to the evidence, rose 20 percent (20%) in about three years. The fact that her figures are much less than the prices that smaller, less luxurious units with inferior views of the lake were fetching in the Grand Harbour development suggests to me that the court cannot rely on her valuations of the Plaintiff’s townhouse.
[32] In addition, her appraisal is significantly lower than either of the other expert’s valuations. Her appraisal of the unit both as a two-storey and as a three-storey unit was more than a million dollars less than that of Parthenis, who was retained by counsel for the co-defendant. I do not accept her view that the third floor added nothing in particular to the character of townhouse 113.
[33] Parthenis testified that he was not familiar with the text “The Appraisal of Real Estate” by the Appraisal Institute of Canada, which was acknowledged by both Bottero and Lee as the authoritative text for appraisers in Canada. This admission was surprising, given the evidence of the other two experts and makes me question the reliability of the opinion of Parthenis. Bottero and Lee agreed that this book directs that when doing an appraisal, it is not good practice to average the value indicators of comparable properties. When Parthenis was asked if averaging the value indicators of the comparable properties as a means of arriving at a valuation was contrary to the text, he did not know.
[34] Instead, Parthenis relied on the CUSPAP standards which he said confirmed that it was appropriate to average prices of other properties to arrive at a final valuation figure. That is the process he followed in coming to his opinion on the valuation of the Plaintiff’s townhouse. These standards were not produced as evidence at the trial. In his written submissions, counsel for Gowlings submits that “there is no reason to doubt Mr. Parthenis’ evidence that CUSPAP are the guiding principles for Canadian appraisers.” In the face of contradictory evidence from the other experts and without the opportunity to review these standards, it is impossible to know what exactly they recommend or direct to people who use and rely on them. Parthenis did not satisfactorily explain why he felt averaging was the best way to proceed in the case of the Orr valuation.
[35] Furthermore, Mr. Gadsden makes reference in his written submissions to the text and what it says about professional standards, but that material was never put in evidence at the trial of the issue. Counsel cannot urge the court to make findings based on material that was not made part of the court record. It was open to Mr. Gadsden to file portions of the text, or the CUSPAP standards, or to call evidence on the proper methodology to be used when a valuation of property is being done and he failed to do so.
[36] Parthenis used units 114 and 117 as comparables to unit 113. He acknowledged both of these units were smaller and inferior to the Plaintiff’s unit, yet in his analysis, he valued units 114 and 117 at a higher price than he did for unit 113. Furthermore, he arrived at an adjusted value of unit 114, a two-storey unit, at $2.3 million. The evidence, however, does not support his valuation. Unit 114 was put on the market in the spring of 2015 at a price of $1,898,000 and garnered the best offer of $1.6 million, which was not accepted. If unit 114 could not fetch an offer in excess of $1.6 million in the early part of 2015, it makes no sense that its value in December 2014 was $2.3 million. Of concern as well is the fact that his measurements of unit 113 were clearly wrong. I do not accept his explanation that some of the space was “air space” and ought not to be included in the calculation of size.
[37] The Bottero report was clearly the most comprehensive in terms of the work done in arriving at the opinion. Bottero and his associate attended at the premises, took many photos both of the location of the townhouse, its views, interior finishes and layout. Bottero considered the sales activity over the years of units in the complex. He also included photos of the comparable units, both interior and exterior, so I was able to get a sense of the differences between the comparables and the Plaintiff’s townhouse.
[38] Bottero testified that townhouses with an unobstructed view of Lake Ontario command a premium and I accept that evidence as it accords with common sense. This development is an upscale complex which overlooks the lake; a unit with a beautiful view of the waterfront would be more desirable than one which does not possess such a vista.
[39] I prefer the evidence of Bottero on the issue of the size of the Plaintiff’s unit over that of Lee on the same point. I accept that while larger condominium units generally have a lower per square foot price, in the case of the Orr unit, this would be offset by the loss of the third floor with its commanding views of the lake. I agree that the Orr unit is unique; it has a superb location, it was renovated with top quality finishes and it has a superior view of the waterfront. I accept that the Plaintiff’s townhouse is one of the most attractive, well-situated units at Grand Harbour. It was renovated with finishes that are superlative, and the views of the lake are lovely. It follows on a logical basis that the unit would command a higher price than other units that have sold in the development. The third floor is not just extra space; it is functional, attractive and provides a clear view of the waterfront.
[40] Comparables 4 (townhouse 114) and 5 (townhouse 117) appear to be the most similar to the Plaintiff’s unit. Unit 114 sold in March, 2011 for $1,510,000 and was listed in May, 2015 for $1,898,800. While it did not sell at that price, it did garner an offer of $1,600,000. Bottero noted that this unit had only a partially finished basement and inferior finishes to the Orr unit.
[41] Townhouse 117 sold in June, 2009 for $1,300,000 and was “significantly older” than the townhouse owned by the Plaintiff and clearly from the photographs, was nowhere near as luxurious in its decorating or finishes. It also had an inferior layout and basement-only access, according to Bottero.
[42] Bottero after making adjustments to units 114 and 117 appraised them above $1.8 million. I find his valuation of the Orr unit at $1.9 million is reasonable based on these comparables. After calculating the price per square foot at $504.51, the loss of the third floor is $465,000 as of the valuation date.
[43] It is interesting to note that the valuations done by Bottero are actually less than the appraisals of the expert retained by the Defendant Gowlings. This gives credence to the reasonableness of the valuations done by Bottero. Furthermore, the Plaintiff bought the unit in 1998 as a three-storey townhouse for $955,000. She then spent hundreds of thousands of dollars renovating the unit. It makes no sense that after doing so, the value of her townhouse would only have increased by $200,000 over a period of seventeen years, which is the opinion of Lee. The evidence of Parthenis contradicts this conclusion because he testified that from 2009 to 2014, the properties in Grand Harbour increased by about seven percent (7%) per year. The other experts did not disagree with this estimate.
[44] While the appraisals of townhouse 113 by the experts retained by the Defendants differ by more than a million dollars, their opinions as to the loss of the third floor are only $40,000 apart. That is due to their shared view that the third floor in a unit as large as the Plaintiff’s doesn’t make a significant difference the value of the property. I do not accept this perspective. Rather, I prefer the opinion of Bottero on this issue; the third floor added to the charm and unique quality of townhouse 113, it is an integral part of the unit. I pause to observe that while it is not necessary to my analysis on the issue I have been tasked to determine, the evidence at trial confirms Bottero’s view; the Plaintiff was clear and I found as a fact that she would not have purchased the unit if it was a two storey dwelling. Townhouse 113 without a third storey is, simply put, not the same condominium. Its loss is not trivial to the overall value of the unit.
[45] I agree that the appraisal of real estate is not an exact science; rather, it is an art. Following the direct comparison approach allows an analysis of a piece of property based on comparisons with similar properties with appropriate adjustments to take into account features of the property at issue. In my view, the most reliable opinion on the value of the loss of the third floor of unit 113 is that of Bottero. His research was thorough, his analysis was well-founded and his opinion was not undermined on cross-examination in the same way that the opinions of Lee and Parthenis were. I accept the opinion of Bottero as to the valuations of the unit and therefore find that the loss of the third floor of the Orr townhouse as of December 2, 2014 is $465,000 and I fix the damages of the Plaintiff in that amount.
[46] If there are other matters arising from my decision on this trial of an issue, I may be contacted by counsel.
D.A. Wilson J.
Released: December 9, 2016
CITATION: Orr v. MTCC 1056, 2016 ONSC 7630
COURT FILE NO.: 01-CV-206672CM
DATE: 20161209
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Kelly-Jean Marie Orr also known as Kelly-Jean Rainville
Plaintiff
– and –
Metropolitan Toronto Condominium Corporation No. 1056, Gowling, Strathy & Henderson, Brookfield Lepage Residential Management Services, a Division of Brookfield Management Services Ltd., Patrick Post, Pamela Cawthorn, Bruce Ward, Larry Boland, Francine Metzger, Michael Kosich and Richard Dorman
Defendants
REASONS FOR JUDGMENT ON THE ISSUE OF DAMAGES
D.A. Wilson J.
Released: December 9, 2016