St Albert Housing Society v St Albert (City), 2016 ABQB 203

Court of Queen ’ s Bench of Alberta Citation: St Albert Housing Society v St Albert (City), 2016 ABQB 203 Date: 20160407 Docket: 1503 17352 Registry: Edmonton Between: St Albert Housing Society and Big Point Developments Inc Applicants - and - The City of St Albert and the City of St Albert Composite Assessment Review Board Respondents Corrected judgment: A corrigendum was issued on April 7, 2016; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ Reasons for Decision of the Honourable Madam Justice D.L.

Shelley _______________________________________________________ I. Introduction [ 1 ] St Alberta Housing Society [SAHS] and Big Point Developments Inc [BP] have applied for judicial review of the decisions [Decisions] of the City of St Albert’s Composite Assessment Review Board [CARB] that denied the Applicants’ appeals regarding the 2014 and 2015 tax assessments of their property at 12 Nevada Place, St Albert [the Property]. Both SAHS and BP seek a revision of the 2014 assessed value to $9,497,000 from $13,631,000, and of the 2015 assessed value to $8,610,000 from $14,610,000.

Both applications for judicial review were heard before me in Special Chambers. [ 2 ] These applications raise the preliminary issue of whether it is proper for the Applicants to proceed by way of judicial review in the face of s 470(1) of the Municipal Government Act , RSA 2000, c M-26 [ MGA ], which provides that “[a]n appeal lies to the Court of Queen’s Bench on a question of law or jurisdiction with respect to a decision of an assessment review board” [right of appeal]. II. Facts

[ 3 ] The Property is a 79 unit, 4 storey, multi-residential apartment building. BP is the registered owner, while SAHS has a partial ownership interest in the Property under a joint venture agreement with BP. [ 4 ] Under a Capital Grant Funding Agreement [the Funding Agreement] between BP and the Province of Alberta, the Province provided funds in 2012 and 2013 to cover the cost of building affordable housing units in the Property.

A condition of the Funding Agreement was that the grant recipient must rent out the housing units post-construction at or below provincially regulated rates to targeted persons, including low-to-moderate income individuals, families, seniors and people with special needs. According to the Funding Agreement, the “project rent” for the Property means that the monthly rent or payment is at a rate of 10% or more below the average market rent for the term of the Funding Agreement, as amended from time to time. [ 5 ] The Property was purchased by the City in 2010 at the request of SAHS.

However, SAHS had to transfer the land to BP because the latter was the successful applicant for funding under the Province’s affordable housing capital grant program. The City required SAHS and BP to enter into a Land Transfer Agreement [the Transfer Agreement] before it would allow the title transfer to BP. [ 6 ] The Transfer Agreement specifically provides, inter alia , that “[t]he property shall be used, in part, for the purposes of developing no less than seventy-eight

(78) Affordable Housing Units [and] the administration of that development, including the Affordable Housing Units, shall be subject to the Housing Capital Initiatives 2011/2012 Request for Proposals Conditional Grant Funding Agreement between the Province and [BP Developments Inc.] which requires, in particular, that Affordable Housing Units remain so for no less than twenty (20) years from the time of occupation”.

In addition, the Transfer Agreement indicates that BP cannot sell the Property without the City’s consent, and that, prior to such consent, the City can require a condition that the purchaser execute an assignment of the Transfer Agreement and become bound by its terms. III. Issues [ 7 ] The issues raised by the Applicants in these proceedings are as follows:

a) Does the right of appeal preclude an application for judicial review?

b) Are the Decisions reviewable according to the standard of review applied by the courts in reviewing decisions of administrative tribunals?

c) In confirming the City’s assessments of the market value of the Property, did the CARB err: i. by not considering the partial sale of the Property between BP and the SAHS on September 1, 2014? ii. by not considering the cap on rents and tenant income qualification guidelines set by the Province in the Funding Agreement; or iii. by not differentiating between affordable rental housing units and market rental housing units? [ 8 ] The Respondent takes no issue with this framework, which I will employ in the following discussion and analysis. IV. Discussion Issue (

a) Does the right of appeal preclude an application for judicial review? Applicants’ position [ 9 ] The Applicants submit that the Decisions involve issues of mixed fact and law, and that the facts engaged in the Decisions are especially important.

They argue that the jurisprudence of this Court and the Federal Court of Appeal support their position that the determination of market value inevitably involves a question of mixed fact and law: St Albert Housing Society v St Albert (City) , 2014 ABQB 556 at paras 34-35 , 13 Alta LR (6th) 145 [ Housing Society ]; Nash v Canada , 2005 FCA 386 at paras 9-10 , 344 NR 152.

The entitlement to judicial review on a question of mixed fact and law remains, even where there is a right of statutory appeal on a question of law or jurisdiction: Tompkins v Alberta (Appeals Commission for Alberta Workers’ Compensation) , 2012 ABQB 418 . [ 10 ] The Applicants distinguish the decision in Precision Drilling Corp v Calgary (City) , 2011 ABQB 503 [ Precision Drilling ].

They submit the issues in that case were couched in terms related to natural justice and fair hearing, which McCarthy J found to be questions of law. [ 11 ] Accordingly, they argue, since the central question in the present proceedings is the determination of market value, which is a question of mixed fact and law, judicial review is directly available to them as the appropriate remedy. City’s position [ 12 ] The City responds that the right of appeal provides an adequate alternate remedy to the Applicants.

Section 470(5) stipulates a three-part test that any aggrieved party must satisfy when seeking permission to appeal the decision of an assessment review board, namely: that the appeal involves a question of law or jurisdiction, the issue is of sufficient importance to merit an appeal, and the appeal has a reasonable chance of success.

[13] The Legislature’s decision to separate statutory appeal from judicial review is to be respected: Precision Drilling at paras 14-16. Our Court of Appeal has concluded that, where there is a clear right of appeal that provides an adequate remedy, judicial reviewshould be granted only in exceptional circumstances: KCP Innovative Services Inc v Alberta (Securities Commission), 2009 ABCA 102at para 9, 448 AR 268. [14] The City submits that the SAHS has not established any exceptional circumstances in this case, and consequently this Courtshould exercise its discretion to deny the application(

s) for judicial review: Precision Drilling at para 8. Analysis [15] Under s 470 of the MGA, an applicant can only seek leave to appeal on questions of law or jurisdiction. There is no ability toappeal questions of fact or mixed law and fact.

This legislative regime led Sulyma J to conclude that the right of appeal is not anadequate alternative remedy if an applicant seeks judicial review on a question of fact or mixed law and fact: Edmonton (City) vEdmonton (City of Edmonton Composite Assessment Review Board), 2012 ABQB 118 at para 82, 534 AR 110 [Edmonton v Alberta]. [16] In Associated Developers Ltd v Edmonton (City), 2011 ABQB 592 at para 26, 527 AR 287 [Associated Developers] Ross Jheld that, where both leave to appeal and judicial review applications are filed in the same action by an appellant/applicant, the “leaveapplication should be heard before the judicial review, and judicial review should only proceed if the Court found that no questions oflaw or jurisdiction were raised, and the only issues were issues of fact or mixed fact and law” [Emphasis added]. [17] In Precision Drilling at para 28, McCarthy J comments that “[i]f the confusion arising from the change in the disputeresolution process [in s 470] is as to whether a particular question should be resolved by judicial review or appeal, then it seems [that]the “cautious approach” articulated by Slatter J.A. in [Buckley v Entz Estate, 2007 ABCA 7] has much to recommend it.” The cautiousapproach suggests that an aggrieved party may combine the filing of a statutory appeal with an application for judicial review before thisCourt. [18] However, it appears to me that it remains open for a complainant, who has determined that the nature of the question is one ofmixed fact and law, to apply for judicial review without having to pursue a course of action (an appeal) that is not available for such aquestion.

It is well-established that superior courts in Canada have constitutionally protected, inherent jurisdiction to review actions anddecisions of administrative decision-makers, and as such, judicial review is constitutionally guaranteed: Dunsmuir v New Brunswick,2008 SCC 9 at para 31, [2008] 1 SCR 190, citing, Crevier v Attorney General of Quebec, (SCC), [1981] 2 SCR 220, 38NR 541. [19] While proceeding by way of judicial review may not be a judicious course of action for a “cautious” complainant, becausethere exists the possibility that the reviewing court might come to a different conclusion as to the nature of the issue being raised by anapplicant, that choice of procedure might prove to be an efficient approach where the nature of the issue is relatively clear or predictable.Put differently, if an applicant unilaterally determines that the ground for challenging a CARB decision is one of mixed law and fact, butthe reviewing court concludes that the question is actually one of law or jurisdiction, the complainant risks the denial of its applicationfor judicial review.

In such circumstances, that complainant also stands the risk of a possible loss of the opportunity to file a statutoryappeal within the legislatively specified timeline. [20] In the present case, the Applicants had the benefit of Yungwirth J’s decision in Housing Society, at paras 31-34, where sheheld that the application of the provisions of the MGA, including the legally recognized valuation methodologies, to the characteristicsand physical condition of a property to determine its market value, engages both the selection and application of a legally recognized testor standard to a set of facts (the circumstances of the property); and as such, is a question of mixed fact and law.

Similarly, she concludedthat the issue of whether the assessment of a property should be reduced – in the context of the CARB’s exercise of discretion and itsconsideration of the surrounding facts, related evidence and applicable laws – is a question of mixed fact and law. See also, Nash vCanada at paras 9-10, where Rothstein JA (as he then was) concluded that “[i]n fair market value cases, the judge must apply the legallyaccepted definition of fair market value to the facts found from the evidence adduced before him.” [21] I agree that the issue before me is a question of mixed fact and law.

The central issue in both Decisions involves theapplication of the provisions of the MGA, s 293, to the facts and evidence that relate to the assessments of the Property for the 2014 and2015 Tax Years. [22] Had I found or characterized the issue raised by the Applicants in this matter as a question of law or jurisdiction, I would haveconcluded that the right of appeal constitutes an adequate alternative remedy and that it is an adequate alternative remedy that must bepursued for relief, absent exceptional circumstances.

That finding would have precluded me from exercising the Court’s discretion tohear the judicial review application of a question of law or jurisdiction. This scenario was what presented in Precision Drilling at para17, where McCarthy J concluded that the issues engaged in that matter related to breach of natural justice, which is a question of law. [23] Consequently, judicial review is available to deal with the Applicants’ challenges to the Decisions. Issue (

b) Are the Decisions reviewable according to the standard of review applied bythe courts in reviewing decisions of administrative tribunals? [24] The Applicants argue that the standard of review applicable in this case, where the legal issue cannot be easily separated fromthe factual issue, is reasonableness: Dunsmuir v New Brunswick, 2008 SCC 9 at para 51, [2008] 1 SCR 190 [Dunsmuir]; HousingSociety at para 53. [25] If this Court determines that the questions raised in these proceedings are issues of mixed fact and law, the City agrees that thestandard of review applicable to the decisions of CARB is a deferential standard of reasonableness, as defined in Dunsmuir.

The Cityexpressly notes that, since judicial review only lies for questions of mixed fact and law, the applicable standard of review must be

reasonableness. [26] Based on my finding that the issue before me is a question of mixed fact and law, as well as my consideration of jurisprudencein relation to this category of question, I agree with both parties and conclude that the applicable review standard is reasonableness. [27] In Edmonton School District No 7 v Dorval, 2016 ABCA 8 at paras 38-40, our Court of Appeal confirmed that: “A decisionis reasonable if it is justifiable, transparent and intelligible.

The reasons must be read together with the outcome and serve the purpose ofshowing whether the result falls within the range of possible acceptable outcomes that are defensible in respect of the facts and law.” Seealso, Dunsmuir at para 47; Newfoundland and Labrador Nurses’ Union v Newfoundland and Labrador (Treasury Board), 2011 SCC62 at paras 12, 16, 164, [2011] 3 SCR 708. Issue (c)(

i) In confirming the City’s assessment of the market value of the Property,did the CARB err by not considering the partial sale of the Property between BP andthe SAHS on September 1, 2014?

Applicants’ position [28] In support of their position, SAHS and BP refer to Fording Coal Limited v British Columbia (1995), (BCSC), 6 BCLR (3d) 141 (BC SC), aff’d (BC CA), 22 BCLR (3d) 178 (BC CA) (WL) [Fording Coal], where FordingCoal purchased a coal mine from the Province of British Columbia at a price that the parties arrived at based on a “jointly commissionedappraisal of the fair market value.” The British Columbia Court of Appeal upheld the decision of the BC Supreme Court, whichrecognized the transaction as arm’s length and applied the applicable statutory test relating to a willing seller and a willing buyer in theopen market.

The BC Supreme Court had concluded that “[t]he best evidence of fair market value is what the parties themselves havenegotiated in this arm’s length transaction”: at para 15.

The Applicants submit that, although they are in a joint venture partnership,unlike the lessor and lessee relationship in Fording Coal, they were nonetheless dealing at arms-length when they commissionedBourgeois & Company Ltd [Bourgeois] to appraise the option units in the Property in order to facilitate the sale and purchase betweenthem. [29] The sale and purchase of the first two option units, the Applicants argue, is reliable evidence of market value for the 2014 taxyear, and could be used for municipal tax purposes: City of Montreal v Sun Life Assurance Co of Canada, (UKJCPC), [1952] 2 DLR 81 (PC), aff’g (SCC), [1950] SCR 220 [Sun Life Assurance].

The Applicants submit that in697604 Alberta Ltd v Calgary (City of), 2005 ABQB 512 at para 25, 11 MPLR (4th) 295 [697604 Alberta Ltd], Acton J held that “wherethere is a conflict between the actual market value and the factors set out in s 12 [of the operative MRAT], the market value as defined bythe Act should govern.” City’s position [30] The City argues that the CARB was reasonable in its Decisions. It weighed the evidence of both the Applicants and the CityAssessor as presented for the 2014 assessment.

In particular, the CARB noted the Applicants’ position that the Bourgeois appraisalreports, dated October 23, 2012 and February 11, 2013, were commissioned for the purpose of determining the fair market value of theindividual units within the Property in order to facilitate the sale of some units under an option to purchase agreement between SAHSand BP.

The CARB also noted the Assessor’s position that first, the Bourgeois appraisals were not generated for assessment purposes asat July 1, 2013, and second, the “sale” of the two option units was not at arms-length, as it was “an extension of the agreement betweenSAHS and BP Developments, and the Property was not exposed to the open market”: CARB’s 2014 Decision, para 33.

The CARBagreed with the Assessor that the Bourgeois appraisals were not prepared for assessment of the property’s market value, concluded that“the authors of these appraisals were not made available at the hearing for questioning,” and as such, CARB “does not consider the saleof the two units within the subject property based on those appraisals as indicative of the subject property’s value as a whole”: CARB’s2014 Decision, para 45. [31] The City submits that the CARB has the authority to determine admissibility, relevance and weight of any evidence, and it isnot open to a reviewing court, applying a reasonableness standard, to reweigh the evidence: Canadian Artists’ Representation vNational Gallery of Canada, 2014 SCC 42 at para 30, [2014] 2 SCR 197; Canada (Citizenship and Immigration) v Khosa, 2009 SCC12 at para 64, [2009] 1 SCR 339; Boyd v JBS Foods Canada Inc, 2015 ABCA 380 at para 37.

Analysis Bourgeois appraisal [32] First, it is unclear from the Record why the authors of the Bourgeois appraisal report were not presented by the Applicants atthe hearing before the CARB. Neither is it apparent why the Assessor or the CARB did not request the production of the authors, if theirreport was going to be challenged. [33] Secondly, the CARB’s position that the Bourgeois appraisals were not generated for assessment purposes as at July 1, 2013,does not mean they were irrelevant to the issue of market value in this context.

To the contrary, appraisals of properties are usually doneto evaluate the market value of the relevant property. It was unreasonable for the CARB to conclude that the relevance or validity of theBourgeois appraisals was diminished or eliminated because it was not generated for assessment purpose. [34] Courts have previously accepted jointly commissioned appraisals that were not created for assessment purposes as valid andreliable for determination of market value.

For instance, the “jointly commissioned purchase price appraisal” in Fording Coal was notgenerated for assessment purpose, yet the BC Supreme Court considered the appraisal report in the assessment context.

[35] In the absence of any evidence of a competing appraisal that contests or disputes the validity of the Bourgeois appraisals, it isdifficult to understand the reason why the CARB treated the report in the manner it did. Given the case law on jointly commissionedappraisals and the absence of a conflicting appraisal on the Property, the Bourgeois appraisal reports were relevant evidence forconsideration in determining the market value of the Property. Consequently, I find that it was unreasonable for the CARB to havediscounted that relevant evidence.

Arm’s length sale [36] The Barron’s Canadian Law Dictionary defines “arms-length” as “[a] phrase to describe a relationship between two partieswho are unrelated or strangers; thus each owes no special obligation to the other party.

The term is commonly applied [to describe]parties who carry out a particular transaction, each acting in self-interest.” In Windsor Plastic Products Ltd v Canada (1986), (FC), 2 FTR 46, 1986 CarswellNat 241 at para 20, Muldoon J indicated that “if one of several parties involved in atransaction acts in or represents a different interest from the others the fact that the common purpose may be to so direct the acts ofanother as to achieve a particular result will not by itself serve to disqualify the transaction as one between parties dealing at arm’slength,” citing, Swiss Bank Corp v Minister of National Revenue (1970), (CA EXC), 71 DTC 5235, 1971CarswellNat 283 at para 14 (Can Ex Ct) (WL); Minister of National Revenue v Sheldon’s Engineering Limited, (SCC), [1955] SCR 637 at 643, [1955] CTC 174. [37] The City’s argument that, because the sale and purchase of the 2 option units between SAHS and BP was not open to thepublic, it was not at arm’s length, is not supported by the existing case law.

In HDL Investments Inc v Regina (City), 2009 SKCA 138 atparas 83-87, [2010] 3 WWR 249, the Saskatchewan Court of Appeal concluded that where the phrase “open market” modified themeaning of the phrase “arm’s length,” the term (i.e. open market) did not operate to exclude an otherwise arm’s length sale made in theabsence of advertising the property for sale. In other words, an arm’s length sale does not cease to be a valid one because the sale of theproperty was not advertised to the public.

Once the ingredients of an arm’s length sale are present in any given transaction, it remainsone in that nature or characterization. [38] While SAHS and BP in the present matter are joint venture partners, they continue to exist as separate legal entities that havedifferent and divergent commercial interests.

There was no evidence before the CARB that indicates BP and SAHS were not acting intheir separate or respective self-interests when the transaction relating to the sale and purchase of the 2 option units was concluded. [39] Although the CARB did not clearly articulate its conclusion on the issue of whether or not the sale and purchase of the 2option units was done in an “open market,” to the extent that these Decisions indirectly affirm the City’s contention that the sale andpurchase of the 2 option units between BP Developments and SAHS was not at arm’s length because it was not exposed to the “openmarket,” I find them to be unreasonable.

Evidence of recent sale [40] While I agree with the City’s submission that, on an application of the reasonableness standard, this Court is not entitled toreweigh the evidence presented to the CARB, the reality is that there was evidence of an actual sale of two units in the Property beforethe CARB. [41] In 697604 Alberta Ltd at para 24, Acton J commented that: [24] In my view, the MGB’s failure to rely on the evidence of value provided by the recent sale of the Property fails to meet the test ofreasonableness.

I agree with the following comments from Re Regional Assessment Commissioner, Region No. 11 v Nesse HoldingsLtd. et al. (1984), (ON SC), 47 OR (2d) 766 (Ont HCJ Div Ct) at p 767: It seems to me to be worth remembering that where the Assessment Act, RSO 1980, c 31 requires the determination of what a propertymight be expected to realize if sold on the open market by a willing seller to a willing buyer (s 18(2)), the price paid in a recent free saleof the subject property itself, where, as in this case, there are neither changes in the market nor to the property in the interval, must bevery powerful evidence indeed as to what the market value of the property is.

It is for that reason that the recent free sale of a subjectproperty is generally accepted as the best means of establishing the market value of that property. ... ...I think that generally speaking the recent sales price, if available as it was in this case, is in law and, in common sense, the mostrealistic and most reliable method of establishing market value. [Emphasis added]. [42] Since the courts have generally held that evidence of recent sale is a relevant consideration for the purpose of municipalassessments and the determination of market value, I find that the CARB was unreasonable in discounting evidence in respect of the saleof the two option units, notwithstanding the partial nature of the sale. [43] Accordingly, I conclude that it was unreasonable for the CARB to have “refused to consider evidence of [the] recent sale thatfell squarely within the statutory definition of market value”: 697604 Alberta Ltd at para 30.

Issue (c)(ii) In confirming the City’s assessment of the market value of theProperty, did the CARB err by not considering the cap on rents and tenant incomequalification guidelines set by the Province in the Funding Agreement? Applicants’ position

[44] The Applicants highlight some of the contents of the Funding Agreement, which include: (

i) it is not a financial encumbrancelike a mortgage; (ii) it contains no clause to the effect that grant recipient can pay out the grant and be free of rent restrictions; and (iii) ifthe grant recipient fails to build or maintain the building as affordable housing, the agreement terminates, and the Province can requireproportional repayment of grant. Additionally, the Transfer Agreement between the City, the SAHS and BP: (

i) secures the developmentand use of the land, on which the Property is situated, for the purpose of providing affordable housing; (ii) restricts the use of theProperty to providing affordable housing post-construction “for no less than twenty (20) years from the time of occupation”; and (iii)provides that BP cannot sell the land without the City’s consent, and, as a condition for the consent, the City can require that thepurchaser execute an assignment of the agreement and become bound by its terms and conditions. [45] The Applicants argue that fair market value must reflect the legal restrictions on the land: Musqueam Indian Band v Glass,2000 SCC 52 at para 46, [2000] 2 SCR 633 [Musqueam].

They maintain that the use made of the Property should be taken intoconsideration in determining its market value.

They submit that, where a property owner enters into a development agreement with themunicipal body which restricts the use of the property, the restrictions on use must be considered in assessing that property for municipaltaxing purposes: Canadian National Railway v Vancouver (City), (BC CA), [1950] 4 DLR 807, [1950] 2 WWR 337.The Applicants also rely on the decision of our Court of Appeal in T Eaton Company Ltd v Alberta (Assessment Appeal Board), 1995ABCA 361 at para 40 [Eaton Company], where the Court held that it was erroneous and unreasonable for the AssessmentAppeal Board not to have directed “its mind to the effect of the development and use restrictions on market value” [Emphasis added]. [46] The Applicants observe that when the City, which is the taxing authority in the present case, entered into the TransferAgreement with the Applicants, the parties did not address the question as to whether the use limitation (i.e. cap on rents for affordablehousing) imposed by the Funding Agreement should be a consideration when the time came to assess the Property for the purpose oflevying property taxes. [47] Consequently, the Applicants submit there “is no sound basis on which it can be said that the parties to this ‘land transferagreement’ [could] have intended that the ‘affordable housing unit owners’ be put in the position of paying ‘property taxes’ based onunrestricted use of lands when it is precluded from enjoying what may be the highest and best use”: Pacific West Systems Supply Ltd vBC Rail Partnership, 2004 BCCA 247 at para 13, 238 DLR (4th) 724. [48] Finally, they contend that it is an error to determine the value of a property from the seller’s point of view instead ofconsidering what a purchaser will pay for the property.

The Applicants argue that it was unreasonable for the CARB to insist that actualmarket value of an affordable housing property, subject to a grant agreement, is “the sum of the sale price plus the residual value of thehousing grant,” since there is no market value to the restriction or limitation imposed by the grant. In essence, the Applicants say thatCARB erred by discounting what a purchaser will pay for the Property, and focusing on the value of the Property from the owner’sperspective: citing Eaton Company at paras 4, 27-28.

City’s position [49] The City submits that the CARB was reasonable in its Decisions in refusing to consider the cap on rents in the FundingAgreement for the purposes of assessing the Property. In respect of the 2014 municipal taxation of the subject property, the CARBconcluded that: 48. The rents charged in the subject property are lower than market because of restrictions imposed by contract.... This was amanagement decision that the Board is persuaded does not affect the subject property’s market value.

Although the agreements enteredinto contain provisions that place restrictions on the sale of the subject property, these restrictions do not bind anyone not a party to theagreement. 49. [T]he building’s market value did not decrease because a grant agreement was entered into; rather the cost to the Complainants ofconstructing the building did.

It seems to the Board that it is because the building costs the Complainants less to build that they arefinancially able to charge less than market rents. ... 53. [T]he Board is persuaded that the management decision to restrict the rents charged to low income tenants in exchange for a$6,787,544 capital grant from the Province is an encumbrance akin to a financing agreement that is not properly considered in estimatingthe value of the fee simple estate in the subject property. [50] Similarly in its 2015 Decision, the CARB stated that it understands the Property is restricted by the Funding Agreement fromcharging full market rents.

It also noted that the Applicants explained the purpose behind the need for the construction of the affordablehousing project in St Albert, and appreciated the social value the Property provides to the community.

Nevertheless, the CARBconcluded that “entering into this agreement was a management decision and as Big Point Developments Inc. is a for profit organization,the loss in revenue over a 20 year period in exchange for a government grant [surely was] taken into account when planning this project.”The Board concluded that, based on its examination of the sale of a comparable property in Edmonton that was also encumbered by aprovincial grant agreement, it is of the opinion that “should 12 Nevada Place sell in the future, the selling price would be at marketincluding the pro-rated balance of the remaining grant”. [51] The City argues that, in Consolidated Shelter Corp Ltd v Rural Municipality of Fort Garry (1965), (MBCA), 49 DLR (2d) 565 (Man CA)(QL) [Consolidated Shelter], the Manitoba Court of Appeal held that the Assessor was justified whenit refused to consider restrictions on the applicant’s property that was created by a restrictive agreement with the Crown, to which themunicipality was not a party. [52] Further, the City refers to Burnaby/New Westminster v Central Park Citizen Society (1993), (BC SC), 86BCLR (2d) 24 at para 25 (QL) [Central Park Citizen], where the British Columbia Supreme Court drew a distinction between“agreements that affect the value of the owner's interest in the land and agreements that affect the value of the land.” Tysoe J held that,

where the value of the land is being assessed, “agreements personal to the owner should not be taken into account.

On the other hand, agreements that would be binding on subsequent purchasers of the land will affect the market value of the land and should be taken into account.” The City submits that the Funding Agreement belongs to the category of agreements personal to the Applicants (i.e. between BP and the Crown), and the obligations created in the Funding Agreement “do not bind a purchaser as the funding can be repaid.” It notes the conclusion by the BC Supreme Court at para 37 that the “fact that a property is being voluntarily utilized for a non-profit purpose does not affect the value of the property”.

Analysis Nature of legal restrictions [ 53 ] The jurisprudence related to the question of whether restrictions on land should be considered or not in the process of determining the market value of the land has distinguished restrictions that impact market value from restrictions that should not be considered as affecting market value. [ 54 ] In Musqueam at para 14 , MacLachlin, CJ, dissenting on the appeal, clarified that: This principle [that fair market value must reflect the legal restrictions on the land] is properly applied to such restrictions as zoning laws, building codes, historical district or other non-zoning land-use controls, and environmental regulations. ...

Adjusting fair market value to account for such restrictions makes sense, because usually a landowner has little or no control over them , and clearly a buyer is not going to pay the going rate for commercial land if the land is zoned only for residential use.... [ Emphasis added ]. [ 55 ] The question then is: Does the cap on rents and tenant income qualification guidelines set by the Province in the Funding Agreement constitute a “legal restriction” that should be considered in the process of determining the market value of the Property?

To answer this question, I need to consider whether the Applicants have control over the cap on rents imposed by the Funding Agreement. [ 56 ] The Funding Agreement stipulates that only the Province can exercise a payout option where there has been a breach by the grant recipient or its lawful assignee. Since the Funding Agreement anticipates its existence for a period of 20 years, it is reasonable to contemplate that the contractual restriction or limitation agreed to would subsist for that period of time.

In effect, absent breach, the Applicants have no control over the legal restriction imposed by the Agreement. In this respect, it is worthy of mention that it is contrary to public policy to assume that a voluntary breach of contract is a legitimate choice available to the Applicants as a payout option. [ 57 ] Further, the Transfer Agreement, to which the City is a party, provides that BP cannot sell the land without the City’s consent, and, as a condition for the consent, the City can require that the purchaser execute an assignment of the Agreement and become bound by its terms and conditions.

This term of the Agreement creates a presumption that the restrictions contained in the Funding Agreement would bind a subsequent purchaser of the Property, at least for the 20 year duration that the Property is contemplated for use as affordable housing. [ 58 ] Therefore, the use restriction on the Property, including the cap on rents established under the Funding Agreement and the Transfer Agreement, constitutes a legal restriction that the Applicants have “little or no control over.” The reality is that, if a property with such a restriction is to be sold to a willing purchaser, the limitation would have an impact on the market value of the Property in the relevant assessment year: Musqueam at para 14 . [ 59 ] Accordingly, I conclude that it was unreasonable for the CARB to have concluded that “the rents charged in the [12 Nevada Place] property are lower than market because of restrictions imposed by contract [which] was a management decision that [does] not affect [the] property’s market value”: 2014 CARB Decision, at para 48; 2015 CARB Decision, at para 56.

Restrictions or financing [ 60 ] The Funding Agreement stipulates that, if the grant recipient fails to build or maintain the building as affordable housing, the agreement terminates, and the Province can require proportional repayment of the grant. [ 61 ] Under a financing arrangement, paying back the mortgage is an obligation for the borrower. The paying back of the grant advanced by the Province to BP under the Funding Agreement was not contemplated as the normal course of action.

Thus, unlike financing through mortgage, where the expectation is for the borrower to pay the lender back, the expectation in the subject grant is that BP as a “recipient” – not a borrower – would use money advanced to build or maintain the Property as affordable housing, pursuant to a social objective for the benefit of the community. [ 62 ] In my view, it was unreasonable for the City to suggest that the Applicants can voluntarily breach contractual terms imposing restrictions under the Funding Agreement and the Transfer Agreement, and pay back the grant, rather than support the Applicants in fully complying with the agreements to completion.

As indicated earlier, public policy generally frowns at any suggestion that would have the effect of indirectly encouraging breaches of contractual terms. [ 63 ] Accordingly, I conclude that it was unreasonable for the CARB to conclude that “[t]he Board is persuaded that the management decision to restrict the rents charged to low income tenants in exchange for a $6,787,544 capital grant from the Province is an encumbrance akin to a financing agreement that is not properly considered in estimating the value of the fee simple estate in the subject property”: 2014 CARB’s Decision, at para 53.

Value of property from owner’s perspective [ 64 ] In its 2014 Decision, at para 46, the CARB referred to a comparable sale in Edmonton, and implicitly endorsed the use of “sale price plus the assignment of the remainder of the capital grant” as a proper approach to market value. The CARB appeared to have

focused on the fact that the “contractual restrictions placed on [the Applicants] did not come without a corresponding benefit [and 12 Nevada Place’s] market value did not decrease because a grant agreement was entered into; rather, the cost to the [Applicants] of constructing the building did”: CARB’s 2014 Decision, at para 49.

It was unjustifiable for the CARB to have indicated that, based on a comparable sale in Edmonton, the market value of the Property would be the sum of the sale price plus the residual value of the housing grant. [ 65 ] Similarly, for 2015, the CARB clearly stated its opinion that “should 12 Nevada Place sell in the future, the selling price would be at market including the pro-rated balance of the remaining grant”: 2015 Decision, para 47.

Apart from the fact that the CARB appears to have topped the “market value” by some other valuation, it seems to me that this method of valuation ignores what a willing purchaser would be ready to pay for the Property. That valuation approach focused on a consideration of the effect of the housing grant on the value of the land to the Applicants as the seller. Our Court of Appeal rejected that approach in Eaton Company . [ 66 ] This consideration of property value from the owners’ perspective, in as much as the CARB focused on the benefit that accrued to the Applicants as owners, is irrelevant and erroneous.

In 697604 Alberta Ltd at para 23, Acton J also rejected this approach for determining the market value of a property. She observed: There is also no reasonable explanation for the MGB’s adoption of a definition of market value that included the sale price plus additional anticipated costs that the Applicant might incur. As noted above, market value is a defined term in the Act and means “the amount that a property, as defined in s 284(1)(r), might be expected to realize if it is sold on the open market by a willing seller to a willing buyer”.

The MGB had no authority to impose a definition of market value that differed from the definition in the Act [ Emphasis added ]. [ 67 ] It was unreasonable for the CARB to conclude that “should 12 Nevada Place sell in the future, the selling price would be at market including the pro-rated balance of the remaining grant.” It is curious that the CARB would think of considering the residual value of the housing grant in determining the market value of the Property, and at the same time conclude that the housing grant “is an encumbrance akin to a financing agreement that is not properly considered in estimating the value of the fee simple estate in the subject property: 2014 CARB Decision, at para 53.

This sends a conflicting message that further highlights the unreasonableness of the Decisions. City as party to the Transfer Agreement [ 68 ] It is also significant that the Applicants entered into the Transfer Agreement with the City.

That agreement recognizes that the Property is to be developed and used for the purpose of providing affordable housing “for no less than twenty (20) years from the time of occupation” and that BP cannot sell the land without the City’s consent, with a condition that the City can require that the Purchaser execute an assignment of the agreement and become bound by its terms and conditions.

This Transfer Agreement demonstrates the City’s awareness of the restrictions. [ 69 ] Unlike the situation in Consolidated Shelter at para 11 (QL), where the applicant created the restriction without the concurrence of the municipality, the City was aware of the cap on rents and the use restriction as affordable housing that was imposed on the Property, prior to the Transfer Agreement. [ 70 ] Significantly, the Manitoba Court of Appeal in Consolidated Shelter indicated that “if the Rural Municipality of Fort Garry had joined in the agreement, or in some way had been a party to it,” the municipality would been held to the terms of the agreement.

In such case, the restriction on the land would have been considered so at to reduce the municipal assessment and resulting taxation: at paras 8-10. [ 71 ] I am persuaded that, the City was “in some way” a party to the use restriction imposed on the Property as an affordable housing project for low-to-moderate income persons. Consequently, the City cannot then discount the terms of the Transfer Agreement dealing with the use restriction, and its impact on market value, when it comes to assessment and taxation.

Issue (c)(iii) In confirming the City’s assessment of the market value of the Property, did the CARB err by not differentiating between affordable rental housing units and market rental housing units? Applicants’ position [ 72 ] The Applicants contend that the way in which the Property is being used differs from the way in which other market rental apartment buildings (including neighbouring 10 Nevada Place) are being used. They note that the Property serves a particular use, which is to house an identifiable group of vulnerable people who are at the risk of homelessness.

The Applicants point to the comment of Tysoe J in Consolidated Shelter at para 32 that “[i]n determining the value by the income approach, it was appropriate to use market rents for a building that must be used to house seniors.” In other words, a particular use of a multi-residential property should be taken into account in determining market value.

This factor was also recognized in Sun Life Assurance at para 101 , where the Privy Council indicated that “[a] theatre, a church, even a railway or land used as a water undertaking [must] be dealt with as best as they can” [ emphasis added ]. [ 73 ] They argue that s 2(

c) of MRAT requires the municipal tax assessors to assess properties that are similar.

In this regard, the Applicants submit that the CARB erred when it treated North Ridge Place in the City of St Albert more favourably than the Property because, from the viewpoint of rent levels, size, location and suite mix, North Ridge Place “is as good a comparable as any other properties that the City relied upon as comparables to 12 Nevada”; Alberta Assessor’s Association Handbook, at 19-20 (Revised 2014). [ 74 ] The Applicants submit that the Property is atypical, being low rental social housing in the St Albert community, and cannot be placed in the same category as market rental apartment buildings.

They maintain that the Assessor cannot ignore the limitation of the

income producing capacity of the Property, which is a factor that will influence the price that an arms-length purchaser will pay for it. [ 75 ] The Applicants argue that, from a policy perspective, tax legislation should not be interpreted in a manner that would discourage the development of affordable housing in Canada, given their social and economic value locally and nationally.

City’s position [ 76 ] The City argues that the CARB decision on this issue is reasonable because it recognized that the Assessor is obliged to follow both the MGA and the MRAT in preparing the assessment of the Property. [ 77 ] It submits that the CARB determined that mass appraisal requires that assessments valued on the income approach must be based on typical rents, and not actual rents restricted by an agreement in respect of affordable housing. [ 78 ] In particular, the City notes that the Decisions noted that, under s 467(3) of the MGA , the Board must not alter an assessment which is fair and equitable taking into consideration the valuation standards in the regulations.

That

section reads: An assessment review board must not alter any assessment that is fair and equitable, taking into consideration (

a) the valuation and other standards set out in the regulations, (

b) the procedures set out in the regulations, and (

c) the assessments of similar property or businesses in the same municipality. [ 79 ] The City also refers to s 2 of the MRAT that provides: An assessment of property based on market value (

a) must be prepared using mass appraisal, (

b) must be an estimate of the value of the fee simple estate in the property, and (

c) must reflect typical market conditions for properties similar to that property. [ 80 ] In the City’s opinion, the legislatively mandated mass appraisal model demands that assessments must be based on the use of typical rentals, and not actual rentals, as the Applicants appear to suggest.

Analysis [ 81 ] The question at the core of this issue is whether it was appropriate for the Assessor, when using the income approach to valuation, to ignore the actual, reduced rents that are paid by tenants of the Property as an affordable housing apartment building, and instead assess it on the basis of the typical full market rents being charged by other housing apartment buildings that are not used as affordable housing. [ 82 ] In that context, I note that in its 2014 Decision at para 47, the Board stated that: The Board does not consider the North Ridge Place property the Complainants relied upon to support the contention that the subject property is being treated unfairly, a proper comparable.

North Ridge Place is operated as a seniors residence, which has different attributes than an apartment building . North Ridge Place is also physically attached to a lodge facility and services are shared between them. The subject property is operated as an apartment building, and has similar characteristics to other apartment buildings.

The only thing identified by the Complainants as setting the subject property apart from other buildings is that it offers lower than market rents to low income tenants. [ 83 ] Similarly, in its 2015 Decision at para 48, the CARB concluded that: The [North Ridge Place] property, a seniors’ independent living complex, is dissimilar to [12 Nevada Place] in that it features more extensive facilities than a typical apartment building.

The residents also have access to the facilities and services provided by the lodge which may be included in the rental rates; therefore making these rates atypical. [ 84 ] The reasons given above by the CARB, regarding the dissimilarity between North Ridge Place and the Property, in my view, lack justification and intelligibility. [ 85 ] If CARB considered the fact that North Ridge Place is operated as a seniors residence to constitute “different attribute than an apartment building,” why did the CARB refuse to consider the fact that the Property operates as affordable housing for an identifiable group of vulnerable people (i.e. low-to-moderate income tenants) as a similarly “different attribute than an apartment building”?

In my view, the operational scopes of both properties – i.e. provision of social and economic services in the particular community and the larger Canadian society – are similar. [ 86 ] Alternatively, is it the physical characteristic of North Ridge Place’s attachment to the “lodge facility and services” or access to the same, that strictly makes it profoundly dissimilar to the Property? In this regard, the CARB’s conclusion, based on the reasoning that the Property is dissimilar to North Ridge Place because of the latter’s bare attachment to another lodge or facility, was unreasonable.

The reality is that, notwithstanding the Property’s lack of attachment to a “lodge or facility,” it operates differently as an affordable

housing apartment building. In my view, the standard for assessing similarity should be holistic and inclusionary, neither selective nor exclusive of physical characteristic or use. [ 87 ] Based on the logic that the use of the North Ridge Place property as a seniors’ residence played a key role in the Assessor’s determination of its value, it is indefensible and unreasonable for the Assessor and the CARB to ignore the use of the Property as affordable housing for low income tenants in the determination of its market value. [ 88 ] Further, I note that s 2(

c) of MRAT requires that market value “ must reflect typical market conditions for properties similar to that property. ” [ 89 ] The 2014 CARB’s Decision at para 43, concluded that the Assessor did not err “in using market rents in their income approach to value calculations instead of actual rents.” Similarly, in its 2015 Decision at paras 55-56, the CARB concluded that: The Board finds that the reduced rental income of [12 Nevada Place] encumbered by the Agreement, does not compare to typical market rents nor does it represent the fee simple estate.

The Board is not convinced that the assessment of the subject property should be reduced to take into account the actual rents achieved. [ 90 ] The phrase “must reflect typical market conditions” in s 2(

c) of MRAT is directed at “ properties similar to that property, ” and not at “any other type” or “all other types” of properties, in the same municipality ( MGA , s 467(3)). When applied to the case at bar, the legislative intent in the provision of s 2(

c) of MRAT is that the Assessor must reflect market conditions that are typical to apartment buildings that operate as affordable housing in a manner similar to the Property. The comparison that is contemplated by that legislative provision is not between an affordable housing apartment building and other apartment buildings that do not typically offer similar program or service. [ 91 ] It seems to me that the income approach to valuation places some emphasis on the rents being charged on the property.

If the Property, as an affordable housing building, charges reduced or lower amounts as rents than “other buildings” that are not affordable housing buildings, the logical inference is that the latter are not in the same category as the Property. Consequently, s 2(

c) of MRAT requires that the Assessor search out properties that are similar to the Property, in terms of its use as an affordable housing building and its physical characteristic as an apartment building. [ 92 ] To determine what constitutes the typical rents (or market conditions) for apartment buildings like the Property, the Assessor would have to consider the actual rents that apartment buildings with social objectives or purposes that are similar to the Property’s, as a category , would typically charge their tenants. [ 93 ] It was unreasonable for the CARB to expect that the typical market conditions for an affordable housing building, subject to reduced rent, will compare to the typical market conditions for regular properties that are not being used for similar purpose, and collect full, unreduced rent.

In other words, it is unreasonable to expect that an affordable housing apartment building (charging reduced rents) with a social benefit goal, will generate the same income as a regular housing apartment building (charging full rents) that is not serving a social benefit purpose like seniors’ residence or low income tenants’ residence. [ 94 ] The income approach to valuation must reflect the distinction between affordable housing apartment and regular housing apartment, and that difference must be demonstrated in the market value of the Property for municipal assessment and taxation purposes, at the very least for the duration of the 20 year term that both the Funding Agreement and the Transfer Agreement recognize as legal restrictions imposed on the Property.

V. Disposition [ 95 ] Overall, I find that the Decisions lack justifications, as discussed above.

When these Decisions are read together with the outcomes, what emerged as the results, in terms of the 2014 and 2015 assessments, do not fall within the range of possible acceptable outcomes that are defensible in respect of the facts and law. [ 96 ] Accordingly, the applications for judicial review by SAHS and BP, are granted. [ 97 ] The Decisions are quashed, and the matter remitted back for reconsideration in accordance with the within Reasons. [ 98 ] If the parties are unable to agree on costs, they may arrange to speak with me within 30 days of the issuance of these Reasons.

Heard on the 25 th day of February, 2016. Dated at the City of Edmonton, Alberta this 7 th day of April, 2016.

D.L. Shelley J.C.Q.B.A. Appearances: David C McGreer Gaffney McGreer & Rowand for the Applicants, St Alberta Housing Society and Big Point Developments Inc Gwendolyn J Stewrat-Palmer Shores Belzil Jardine for the Respondent, City of St Albert _______________________________________________________ Corrigendum of the Reasons for of The Honourable Madam Justice D.L. Shelley _______________________________________________________ The name of Janice A. Agrios has been removed from the Appearances.