Costco Wholesale Corporation v Calgary (City), 2022 ABKB 615

Court of King’s Bench of Alberta Citation: Costco Wholesale Corporation v Calgary (City), 2022 ABKB 615 Date: 20220914 Docket: 1801 15879 Registry: Calgary Between: Costco Wholesale Corporation (as represented by its designated agent, Altus Group Limited) Applicant - and - The City of Calgary and The Calgary Assessment Review Board Respondents _______________________________________________________ Reasons for Decision of the Honourable Justice G.A. Campbell _______________________________________________________ I.

Introduction [ 1 ] Costco Wholesale Corporation (as represented by its designated agent, Altus Group Limited) (“Costco”) applies under s 470 of the Municipal Government Act , RSA 2000, c M-26 , as amended (the “ MGA ” ) for judicial review of the Calgary Assessment Review Board (“CARB”) decision CARB 123804P-2018 (the “Decision”) confirming the 2018 property tax assessment by The City of Calgary (the “City”) for a building occupied by Costco in NE Calgary (the “Property”). [ 2 ] Costco seeks an order setting aside the Decision and directing that the matter be remitted to a different CARB panel.

Costco contends that the Decision is unreasonable and that there was procedural unfairness in the hearing before the CARB. Costco submits that 1) the CARB erred when it failed to apply correctly the law with respect to the burden of proof on Costco as a complainant, 2) made unreasonable findings not supported by the evidence, 3) gave inappropriate weight to Costco’s evidence at the hearing, 4) failed to apply correctly the legal tests for determining the assessment of the Property, and 5) upheld an assessment that exceeded market value, contrary to the MGA .

Costco further submits the City’s disclosure lacked the transparency, completeness, and detail necessary to allow a proper rebuttal, thus contravening the principle of procedural fairness. [ 3 ] The City claims that Costco is attempting to re-litigate its case and dispute reasonable findings made by the CARB that it disagrees with.

The City contends that, considering the Decision holistically and in view of the governing legislation, the evidence and submissions of the parties and the institutional context in which it was made, the Decision is reasonable and justifiable within the framework of facts and applicable law. [ 4 ] The CARB took no position on the merits of this judicial review, limiting its submissions to an overview of the legislative scheme for assessments, jurisdiction, procedures and the applicable standard of review.

[ 5 ] For the reasons that follow, I find that the Decision was reasonable and was not tainted by procedural unfairness. The application for judicial review is dismissed. II. Background Facts [ 6 ] The Property is a B quality single tenant 138,825 square foot building classified as Retail-Freestanding with the sub- component of Big Box 100,000+ square feet.

The land parcel is 10.27 acres with a land use designation Commercial-Regional 1. [ 7 ] For the 2018 year, the Property was assessed at a value of $21,650,000 (the “2018 Assessment”) using the income approach to valuation, which estimates a property’s market value by analyzing its capacity to generate future value.

A key component of this approach is selecting the appropriate inputs to calculate the value of property - typical market rental rates, vacancies, expenses and capitalization rates - in order to value similar properties based on their estimated typical Net Operating Income (“NOI”). [ 8 ] After receiving the 2018 Assessment, Costco filed a complaint to the CARB pursuant to s 460 of the MGA .

Costco challenged the 2018 Assessment on the basis that the assessor used incorrect inputs for the rental rate and capitalization rate in their application of the income approach, resulting in an assessed value that exceeded market value.

Costco requested that the Property be assessed at $13,980,000. [ 9 ] Costco’s complaint was heard by the CARB on August 2, 2018 (the “Hearing”). [ 10 ] In advance of the Hearing, and in accordance with s 8 of the Matters Relating to Assessment Complaints Regulation , AR 203/2017 (“ MRAC ” ), Costco and the City submitted and exchanged disclosure that included documentary evidence, a

summary of testimonial evidence and the written argument to be presented at the Hearing. [ 11 ] At the Hearing, the CARB considered the two issues identified by Costco: 1. Should the capitalization rate for freestanding retail be adjusted from 6.25% to 7.00%; and 2. Should the Big Box 100,000+SF rent rate be adjusted from $10.00 to $7.25? [ 12 ] In support of its proposed 7.00% capitalization rate, Costco presented a study of three sales of freestanding retail properties, asserting that these sales were the most comparable transactions within a 36-month timeframe.

Costco adjusted the NOI for each of these three sales for various reasons. With those adjustments, the mean capitalization rate of the three sales was 7.11%. [ 13 ] As further support, Costco provided the capitalization rate for two other sales, from 2021 and 2014, of larger freestanding industrial properties. [ 14 ] To support its proposed rental rate of $7.25, Costco presented a rental rate analysis of seven leases, five for Walmart locations (two of them in malls) and two for Lowe’s stores in former Target locations.

The median rent rate of these seven leases was $7.21. [ 15 ] The City did not present any evidence in support of its capitalization rate. Instead, the City presented a comparative analysis chart showing that Costco’s requested value per square foot was far less than the median value per square foot indicated in its capitalization rate study and for the two industrial sales. [ 16 ] The City presented six leases in support of its rental rate.

The City pointed out that Costco’s comparable lease rates were dated, all being from 2003 or earlier, and asserted that mall anchor leases are not comparable to freestanding retail Big Box leases, such as Costco’s. [ 17 ] Costco took issue with the City’s disclosure, arguing that it included “unsupported statements” and “excerpts of documents… that are not identified in any way” and, as such, was unreliable and unpersuasive and should be given no weight.

Costco pointed to redacted appraisals, portions of a Master’s thesis, notes from a meeting, portions of leases and citations to sources of information for bar graphs, rent analyses and a chart of recent market leasing. Costco argued the City failed to provide credible and complete information, making it impossible to challenge its comparables. Therefore, Costco asserts that the City’s disclosure did not satisfy the requirements of ss 5(2)(

b) and 9(2)(

b) of the MRAC . [ 18 ] Costco also argued that the City’s reliance on the 2018 Alberta Municipal Affairs: Guide for the Exchange of Assessment Information: Market Value Properties (the “ Guide” ) as the basis for its lack of disclosure and redacted disclosure is flawed. Costco asserts that the Guide does not apply to the disclosure required in a complaint hearing, but is intended only to address compliance when responding to requests for information under ss 294, 295, 299 and 300 of the MGA . The Guide is only a policy; the MRAC is the law to be followed.

Costco argued that the City’s reliance on the Guide resulted in a lack of transparency as to how the 2018 Assessment was created, thus denying Costco the opportunity to challenge its validity and giving rise to procedural unfairness. [ 19 ] Both Costco and the City made submissions at the Hearing on the applicable burden of proof on a complainant in an assessment complaint hearing. III. The CARB Decision [ 20 ] The CARB found that Costco had not met the prima facie requirement to show that there may be an error with the City’s capitalization or rental rates.

The CARB concluded, based on a review of all the evidence provided, that the assessment should remain unchanged.

[ 21 ] The CARB did not rule on Costco’s allegation of procedural unfairness arising from the City’s disclosure. IV. Analysis A. Standard of Review [ 22 ] The parties agree that, pursuant to Canada (Minister of Citizenship and Immigration) v Vavilov , 2019 SCC 65 (“ Vavilov ”), the standard of review for the Decision is reasonableness. On this judicial review, the onus is on Costco to demonstrate that the Decision is not reasonable. [ 23 ] The Supreme Court of Canada made numerous comments in Vavilov that are relevant here.

A reasonable decision is one that exhibits a requisite degree of justification, intelligibility, and transparency to both process and outcome: para 99, 105. It is based on internally coherent reasoning and is justified in the circumstances of the relevant factual and legal constraints that bear on it: para 101. The role of the reviewing court is to review the decision generally, not decide the issue: para 83. The focus is on the tribunal’s decision, not on what the reviewing court would have done in its place: para 15.

The decision is not to be held to a standard of perfection and any identified flaws or shortcomings must be more than superficial. They must be sufficiently significant to render the decision unreasonable: para 100. In applying a reasonableness standard to administrative decisions, courts are not to reweigh the evidence or embark on a “line- by-line treasure hunt for error”: para 102.

Further, reviewing courts are to carefully consider the tribunal’s expertise and specialized knowledge. [ 24 ] In the older case of Dunsmuir v New Brunswick , 2008 SCC 9 at para 47 , the Supreme Court of Canada held that reasonableness is a deferential standard that considers whether the decision under review falls within a range of acceptable outcomes, given the facts and the law in issue.

There may be more than one acceptable outcome and the reviewing court is not to substitute its own view of a preferred outcome. [ 25 ] The CARB has been recognized in Alberta as a highly specialized tribunal created to review assessor decisions on property valuations and assessments: St Albert Housing Society v St Albert (Composite Assessment Review Board) , 2017 ABCA 129 at para 27 . As a specialized tribunal, the CARB’s decisions are entitled to deference.

Reviewing courts are to pay attention to the decision-maker’s application of specialized knowledge and demonstrated expertise “in appreciation that a wide range of specialized decisions-makers routinely render decisions in their respective spheres of expertise, using concepts and language often unique to their areas and rendering decisions that often counter-intuitive to a generalist”: Newfoundland and Labrador Nurses' Union v Newfoundland and Labrador (Treasury Board) , 2011 SCC 62 at para 13 . [ 26 ] Assessments are opinions of market value; there may be more than one possible value or a range of possible values.

There will be competing opinions and multiple indicators of market value: Bramalea Limited (Trizec Equities Limited) v Assessor of Area 9 – Vancouver , 2006 BCSC 424 at para 47 . The task of evaluating and weighing all this information falls to the CARB’s relative expertise. [ 27 ] The CARB is not bound by the rules of evidence and is authorized to determine the admissibility, relevance and weight of any evidence: MGA , s 464(1). B. Burden of Proof and Reasonableness [ 28 ] Costco’s primary argument is that the Decision was unreasonable because the CARB did not properly apply the burden of proof.

Costco contends that the CARB failed to distinguish between Costco’s initial evidentiary burden to lead some evidence that was capable of showing that the assessment was incorrect and its ultimate or persuasive burden of proof to prove on the balance of probabilities that the assessment was incorrect and not fair and equitable. [ 29 ] The City acknowledges that a complainant’s initial burden is evidential and requires showing a prima facie case. [ 30 ] Both parties referred to the following analysis of Justice Renke in Beta Management Inc v Edmonton (City) , 2017 ABQB 571 at paras 139 - 140 : A complainant has the obligation of going forward with the complaint.

The complainant must set out a “case to meet,” respecting the 460(7) matters. The complainant has the evidential burden of providing some evidence supporting its contention that the assessment is incorrect. As Justice Yungwirth wrote in 1544560 Alberta Ltd at para 53: “the complainant must provide the evidence sufficient to warrant consideration of its claim that the assessment is wrong.” While some cases describe the complainant’s burden as one of setting out a prima facie case, in my opinion the better description is that the complainant bears an evidential burden.

See, e.g., 1544560 Alberta Ltd at paras 46 and 53; Concord Pacific Alberta Properties Inc at para 23; Ross v Edmonton (City) , 2016 ABQB 730 , Veit J at para 4. Regardless of nomenclature, the point is that the complainant does not have the “legal” or persuasive burden of establishing error on a balance of probabilities before the municipality responds. If the complainant provides a case to meet, should the municipality wish to respond, it would take up a burden – an evidential burden – to put forward evidence supporting the assessment.

I would not say that there is a legal “shifting” of the burden to the municipality, but if the municipality were to do nothing, it would maximize the risk that the board would alter the assessment (in my view, the municipality takes up a “tactical” burden). [ 31 ] The parties’ disagreement, therefore, is not about the articulation of the burden of proof, but its application. [ 32 ] Costco submits that the CARB erroneously required it to prove that the 2018 Assessment was incorrect and what the correct assessment should be.

Costco relies on these comments by Justice Veit in Ross v Edmonton (City) , 2016 ABQB 730 at paras 4 and 21 :

Here, the Board made a legal error in failing to distinguish between the initial evidentiary burden of proof, i.e. requiring the claimant to lead some evidence, and the ultimate or legal burden of proof, i.e. requiring the claimant to prove, on a balance of probabilities, that the assessment was unfair and inequitable. The [ MGA ] does not statutorily change the burden of proof for these proceedings; s. 460 of the MGA merely requires an assessed owner to provide what amounts to pleadings for the hearing. This Board committed an error of law in requiring Ms.

Ross to prove that her assessment was incorrect before requiring the City to engage; Ms. Ross had put forward some evidence that the assessment was incorrect. In such a situation, the evidentiary burden shifted to the City. This shift was not recognized by the Board. … …the correct analysis of the burden of proof on hearings before the Board is that a complainant must initially provide only some evidence that the assessment is incorrect, after which the evidentiary onus switches to the City to provide evidence that the assessment is correct.

After hearing al submissions on all the evidence, the Board should have decided whether the assessment of the Ross property was fair and equitable. Here, Ms. Ross had provided some evidence that the assessment was incorrect; the City then provided evidence which the Board rejected; the Board was then presumably left only with Ms. Ross’ evidence; Ms. Ross’ claim should therefore have been accepted.

The Board’s actual approach was incorrect. [Emphasis in original.] [ 33 ] Costco says the CARB failed to recognize that Costco’s evidence, if assumed to be true, with all possible reasonable inferences drawn from that evidence, was capable of establishing that the capitalization and rental rate inputs used to arrive at the 2018 Assessment were incorrect.

Therefore, the City should have had to provide evidence that its capitalization and rental rates were correct or risk having the 2018 Assessment changed. [ 34 ] The City counters that the CARB, using its specialized knowledge and expertise, reviewed and evaluated Costco’s evidence and concluded that there was, prima facie , no merit to Costco’s complaint that the capitalization and rental rates were incorrect.

The City notes that the CARB did not find Costco had failed to prove what the correct capitalization or rental rate should have been. [ 35 ] While a property assessment is presumed correct, the ultimate determination of its correctness requires consideration and weighing of all the evidence submitted by the parties. However, at the initial evidential stage, a complainant need not prove that the assessment is in error, exactly quantify the error or specify what the assessment should be.

The complainant need only provide evidence that is capable of showing, on a balance of probabilities, that a mistake exists such that the assessment is not fair and equitable. If the evidence is not sufficient to support that conclusion, then the complainant has not met its initial evidentiary burden.

The evidential burden is the burden placed on a party to adduce sufficient evidence to put a matter in issue; it is not the same as having to prove a fact. [ 36 ] This distinction was nicely summarized in I mperial Parking, represented by Deloitte & Touche LLP Property Tax Services v Calgary (City) , MGB Order 140/02 as follows at p. 10: The ultimate burden of proof or onus rests on the Appellant, at an assessment appeal, to convince the MGB their arguments, facts and evidence are more credible than that of the Respondent.

However, if the Applicant leads sufficient evidence at the outset to establish a prima facie case, the evidentiary onus shifts to the Respondent. In order to establish a prima facie case, the Appellant must convince the MGB panel that there is merit to the appeal. The Appellant must establish that it is more probable than not that the assessed value is incorrect or inequitable. Once the evidentiary onus shift occurs, then the validity of the assessment is in question.

In order to rebut the Appellants’ prima facie case, and in order to raise a legitimate inference that the assessment is correct, the Respondent must lead evidence to counter the Appellant’s evidence. At the end of the hearing, the MGB considers all the evidence presented and determines which party has established their case on a preponderance of evidence.

In theory this means the party with the strongest case should succeed. [ 37 ] Costco seems to suggest that the proper application of the burden of proof on a complainant required the CARB simply to accept Costco’s suggestion that the appropriate capitalization and rental rates were something different from those used by the City. I disagree. Mere suggestions are not enough to satisfy Costco’s initial evidentiary burden.

What is required is sufficient evidence to show a potential mistake in the 2018 Assessment. [ 38 ] The CARB found that the three sales in Costco’s capitalization rate study and the sales of the other two larger properties did not provide sufficient evidence to support a finding that the City’s capitalization rate was in error. The CARB explained its reasoning as follows: The Board finds the adjustments made by [Costco] to the NOI of the sale properties in the study were not supported by market evidence or third-party reports.

The median of the capitalization rates when the typical income set at the time of the sale is considered is 5.94%. The current capitalization rate applied is 6.25%. … The [City] provided no evidence to support the assessed capitalization rate of 6.25%. However, the Board found that the evidence provided by [Costco] in the capitalization rate study did not support the requested capitalization rate and did not change the assessment. The adjustment of the rent rate on Sale #1 from $12.00 to $18.00 was not supported by any evidence to show that an $18.00 rate was more typical at the time of sale.

The request to change the quality of a portion of the retail space from C to B was not supported by comparables to support the request. [Costco] stated that the B quality would reflect the restaurant space but did not use a restaurant rate. The capitalization rate at the time of the sale was 5.94%. The capitalization rate at the time of the sale of Sale #2 was 7.77%. The Board did not accept the argument to change the quality of Sale #3 from B to A. The comparison to the Blues Can was unconvincing. This is a property that is dissimilar from the sale property in location, size, and parcel size.

No other properties were provided as support for a change in quality. The capitalization rate at the time of the sale was 3.70%. The two dated sales purported to show that larger properties sell with a higher capitalization rate was not convincing. The sample was not large enough to show a reliable trend.

[ 39 ] The CARB’s explanation for rejecting Costco’s capitalization rate argument is clear: actual numbers had not been used and it had been provided with dated, unreliable information. The CARB had no evidence to support Costco’s adjustments to the actual numbers and, based on its specialized knowledge and expertise, did not accept them.

This being the case, the CARB was entitled to conclude that Costco had not provided sufficient evidence to show an error in the City’s capitalization rate. [ 40 ] Costco argues that upholding the 2018 Assessment was arbitrary because the City provided no evidence to support its capitalization rate. In the Decision, the CARB acknowledged that the City had not provided evidence to support its assessed capitalization rate.

However, at the initial evidentiary stage, Costco, not the City, has the burden of presenting the evidence supporting its complaint that the capitalization rate used in the 2018 Assessment was wrong. [ 41 ] With respect to the rental rate, the CARB explained that the leases Costco provided were not sufficient evidence to support finding an error: In the matter of the Big Box over 100,000 SF rent rate, the Board finds that the most convincing lease in evidence is that of the Royal Oak Walmart agreed upon by both parties at $10.00. The Lowe’s leases are not representative of current market value.

The rates were set in 1996 and 1997. The Board finds that the landlord had options in the two Calgary leases, they could accept or reject the lease in place. A rejection would leave the space vacant unless or until a new tenant could be found. A prudent landlord would, in all probability, accept the lease in place. Lowe’s purchased a leasehold interest in the two locations, indicating the leasehold interest was $9,000,000 for Signal Hill and $7,000,000 for Shawnessy.

It is apparent that the landlord would have had to pay at least that amount to re-purchase the leases if some outside party like Lowe’s was willing to pay that amount. These factors would be taken into account by the landlord when deciding whether to accept or reject the lease rate. The Board placed little weight on the leases at Northland Village Mall or Deerfoot City. Both of these locations are in the process of major reconfigurations which affect the Walmart stores and which may have an effect on the lease rate paid.

The Board finds that an anchor tenant is a draw to a center whether or not the access is directly from the mall or through a tunnel. The extended hours of operation do not prevent the tenant from being considered an anchor. Anchor tenants have the ability to negotiate a lower rate because they bring customers to a center.

Landlords can and do recoup any loss from the lower rate by applying higher rates to the smaller tenants who want to be in that centre due to the presence of a strong anchor. [ 42 ] The CARB’s explanation for rejecting Costco’s rental rate argument is clear: the dated leases did not represent current market values and leases for anchor mall tenants and for tenants in malls undergoing major redevelopment were not comparable. Most compelling for the CARB was that the Royal Oak Walmart lease, identified by both parties as a comparable, had a rental rate of $10.00, the same rate applied in the 2018 Assessment.

These are matters within the CARB’s expertise and the CARB was entitled to reject the other six leases and rely on the one. [ 43 ] Costco submits that this case is very similar to Ross v Edmonton (City) . I do not agree. The CARB in this case made no comment as to what the capitalization rate, rental rate or assessment should be and gave reasons for finding Costco’s evidence insufficient.

After considering the parties’ extensive written and verbal evidence and submission, the CARB concluded as follows: In the matter of the subject, the Board was asked to review the issues of a freestanding retail capitalization rate and the rent rate applied to Big Box over 100,000 SF.

The Boards finds that [Costco] has not met the prima facie requirement of identifying that there may be an error with the rates established by the [City]. … Thus, the onus of burden of proof has not been shifted to the [City] and based upon a review of all of the evidence provided, the assessment will remain unchanged. [ 44 ] The Decision, when read as a whole, demonstrates that the CARB recognized the distinction between the initial evidentiary burden of proof and the ultimate or persuasive burden of proof in complaint hearings. The Decision was based on the lack of evidence of an error in the 2018 Assessment.

Merely suggesting alternatives to the inputs used in an assessment does not demonstrate error. Further, when assessing whether a complainant has established a prima facie case, the CARB is not required simply to accept the complainant’s evidence at face value. The CARB is charged with assessing whether a complaint has merit and, in so doing, is entitled to use its expertise to evaluate whether the evidence is sufficient to warrant consideration of the complaint.

To preclude the CARB from making any assessment of the complainant’s evidence would render the initial evidentiary burden meaningless. [ 45 ] I find the CARB’s reasons clear, transparent and logical. The CARB’s decision not to change the capitalization or rental rates flows clearly and rationally from its evaluation of the evidence.

The CARB’s findings, including those on the adjustments made by Costco to its capitalization rates study, the similarity of properties, whether lease rates set in 1996 or 1997 represent current market value, the impact of mall redevelopment and anchor tenant status are all matters within the CARB’s expertise and were justifiable. It is not this Court’s role to reweigh and reassess that evidence. Accordingly, I find that the Decision was reasonable. C.

Procedural Fairness [ 46 ] Costco argues that the City’s disclosure lacked transparency, was incomplete and lacked sufficient detail and supporting evidence to allow Costco to respond at the Hearing. [ 47 ] As Justice Renke indicated in Beta Management , if a complainant provides a case to meet, the City must decide if and how it will respond. Failure to provide sufficient evidence maximizes the risk that an assessment will be altered, but the City is entitled to run

that risk. In these circumstances, a lack of evidence in and of itself does not create procedural unfairness. [ 48 ] Because the CARB concluded that Costco had failed to lead sufficient evidence to establish a prima facie case, it was not necessary for it to determine whether any procedural unfairness arose from the nature and extent of the City’s evidence. Therefore, it was reasonable for the CARB not to address that issue. V. Conclusion [ 49 ] The CARB is a specialized tribunal whose decisions are entitled to deference.

Its findings in the Decision are justifiable, transparent and intelligible and within a “range of possible, acceptable outcomes that are defensible in respect of law and facts”: Dunsmuir at para 47 . I find that the Decision was reasonable and I see no reason to interfere with it. [ 50 ] In the result, Costco’s application is dismissed. [ 51 ] The City is the successful party.

If the parties cannot agree on costs, they may contact my office within 45 days of this decision. [ 52 ] Shortly after the parties appeared before this Court and made their oral arguments, counsel for the Appellant, the CARB and myself were notified by the City of the untimely, tragic passing of Ms. Lam, counsel for the City. I offer my sincere and heartfelt condolences to Ms. Lam’s family, friends and City colleagues. [ 53 ] I thank all counsel for their thorough and excellent materials and the high quality of their advocacy. Heard on the 7 th day of June, 2022.

Dated at the City of Calgary, Alberta this 14 th day of September, 2022. G.A. Campbell J.C.K.B.A. Appearances: Kelsey J. Meyer and Elizabeth Allum Bennett Jones LLP for the Applicant Christina I. Lam City of Calgary Legal Services for the Respondent, The City of Calgary Michael S. Janke Janke Law Group for the Respondent, The Calgary Assessment Review Board