City of Lethbridge v University of Lethbridge, 2024 ABKB 23

Court of King’s Bench of Alberta Citation: City of Lethbridge v University of Lethbridge, 2024 ABKB 23 Date: 20240112 Docket: 2206 00710 Registry: Lethbridge Between: City of Lethbridge Applicant - and - University of Lethbridge and City of Lethbridge Composite Assessment Review Board Respondents _______________________________________________________ Memorandum of Decision of the Honourable Justice J.C. Kubik _______________________________________________________ INTRODUCTION [ 1 ] The student residences at the University of Lethbridge (University) consist of townhouse, dormitory and multi-resident units

of various age, construction class and economic life. As improvements on lands owned by the University and situated in the City of Lethbridge (City) they are subject to municipal property tax assessments. [ 2 ] A July 2021 City Property Tax Assessment valued the University lands and improvements at $478,931,000.00. The student residence improvements accounted for $28,113,350.00 of that amount. [ 3 ] The University appealed the assessment to the City of Lethbridge Composite Assessment Review Board (CARB). At issue in the appeal was the taxable value of the student residence improvements.

More specifically, the issues on appeal were the fairness of the valuation methodology employed by the City and its calculation of external depreciation or obsolescence. [ 4 ] The University succeeded on its appeal and the CARB reduced the assessed value of the student residences to $23,919,857.00 which resulted in a final tax assessment of $473,467,500.00. [ 5 ] The City seeks judicial review of the CARB decision.

STANDARD OF REVIEW [ 6 ] In Canada (Minister of Citizenship and Immigration) v Vavilov , 2019 SCC 65 [ Vavilov ] the Supreme Court of Canada held reasonableness to be the presumptive standard for review of administrative decisions. The parties agree that this is the standard applicable to the CARB decision. [ 7 ] Reasonableness review engenders respect for the expertise of administrative decision makers and requires courts to exercise restraint, intervening only to “safeguard the legality, rationality and fairness of the administrative process”.

As expressed in Vavilov , reasonableness review starts with the reasons of the administrative decision maker and the role of the Court is to assess whether those reasons are transparent, intelligible, and justified on the record: para 15. [ 8 ] The reasons of administrative decision makers must demonstrate an internally coherent and rational chain of analysis which is justified on the facts of the case and the applicable law. If the reasons demonstrate this, deference is required: para 85. [ 9 ] Reasons must be read in the context of the evidentiary record and the arguments made before the tribunal.

As noted in Vavilov courts are not on a treasure hunt for error. A decision will be reasonable if there are no “fatal flaws in logic” and the analysis of the administrative decision maker flows logically from the evidence before it to the result. In other words, the decision does not stand on its own but must be considered in the context of the record. [ 10 ] It falls to the party seeking review to demonstrate that the decision is unreasonable. [ 11 ] The City argues that the CARB reasons are conclusory in nature and fail to explain how they weighed the evidence or analyzed the issues before them.

As a result, they say the CARB failed to provide transparent, justified, and intelligible reasons. [ 12 ] The University on the other hand, argues that the decision, when considered as a whole, and in the context of the evidentiary record and arguments, demonstrates reasons which are intelligible, transparent, and justified.

SUFFICIENCY OF REASONS [ 13 ] The City relies on Cavendish Farms Corporation v Lethbridge (City) , 2022 ABCA 312 [ Cavendish ] to argue that the CARB failed to demonstrate how it arrived at its reasons. [ 14 ] In Cavendish , the majority of the CARB panel failed to describe how it interpreted certain statutory language relevant to determining whether certain operational units in the potato processing plant were “machinery and equipment” and entitled to preferential tax treatment.

This was in stark contract to the dissenting reasons which thoroughly explored this issue in relation to each of the operational units in question. As noted by the Alberta Court of Appeal, it was insufficient to simply repeat statutory language and draw peremptory conclusions without explanation. [ 15 ] The reasons of the CARB in this case can be distinguished from those in Cavendish . They provide a comprehensive overview of the arguments of each party and rely on the detailed written and oral submissions at the hearing.

They explain why they were not persuaded that the cost approach proffered by the City was either fair or equitable and why they preferred the University’s consistent approach to valuation.

The CARB also explained their reasons for rejecting the City’s external depreciation calculation as arbitrary and accepting the University’s approach as reasonable. [ 16 ] They acknowledged arguments regarding the use of third-party reports in the context of valuation but were satisfied that, in this case, utilizing the data from that report, combined with data offered by the City, resulted in a better estimate of typical vacancy rates.

This will be discussed in further detail later in these reasons. [ 17 ] Finally, the CARB found that the case law and previous CARB decisions relied on by the City were distinguishable on the facts and issues raised. While they did not describe the individual cases or why they were distinguishable in their reasons, it is clear on the face of those decisions that they did not relate to student residences and disclosed no principles with respect to valuation that could be universally applied to render the City’s hybrid approach to valuation binding or persuasive.

Specifically, those cases dealt with an industrial property and car dealership respectively and were referable to the particular aspects of those properties. [ 18 ] This contrasts with the CARB decisions relied upon by the University, which were historic decisions relating specifically to the University student residences and demonstrated the way in which matters of cost and obsolescence had previously been dealt with.

The first of those decisions utilized the Marshall & Swift manual for all aspects of cost valuation; the second addressed the application of external depreciation, noting that in quantifying this obsolescence, “it was necessary to reconcile the difference between the market value of typical multi-family property in Lethbridge and the market value of the similar in form but atypical in function student housing at the U of L.” [ 19 ] This captures precisely what the CARB did in its reasons: assess the fair and equitable value of a unique form of improvement with no other market comparable. ISSUES FOR REVIEW [ 20 ] Under

section 467 of the Municipal Government Act, RSA 2000 (“ Act ”) an assessment review board is empowered to change an assessment roll or decide that no change is required; however, it must not alter an assessment that is fair and equitable. [ 21 ] In conducting an assessment review, the board must have regard to the following statutorily prescribed considerations: (

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

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

c) the assessment of similar property or businesses in the same municipality. [ 22 ] Because student residences neither generate a consistent income stream nor attract comparative market data, they are typically valued using the cost approach, which requires an estimate of the cost to construct the facility new less depreciation. [ 23 ] In this case, the CARB was required to decide whether the assessment was fair and equitable having regard to: (1) the overall valuation methodology utilized; and (2) the quantification of external depreciation (obsolescence). [ 24 ] On this judicial review, the reasonableness of these determinations, as well as the calculation of the age of the improvements are in issue.

(1) Overall Valuation Methodology [ 25 ] The City applied a hybrid approach to establish cost, utilizing the Marshall & Swift manual to determine the cost of new construction and relying on the Alberta Cost Manual to calculate depreciation.

The City argued that this approach was fair and equitable because it is the same approach used to value all properties in the municipality. [ 26 ] The University on the other hand, relied on the Marshall & Swift manual for all aspects of the cost quantification, arguing that it delivered a fair and equitable valuation because it was based on information specific to student residences. [ 27 ] The CARB rejected the City’s approach.

It found that the Alberta Cost Manual depreciation rates were based on single family residential properties and therefore did not provide adequate data, comparable to student residences. [ 28 ] They further rejected an Assessment to Sales Ratio (ASR) study which the City presented to demonstrate that their hybrid approach provided a consistent, reliable calculation of value.

The CARB was not persuaded by the ASR study as it did not provide a comparative analysis for student residences. [ 29 ] The CARB was satisfied that the University approach provided a consistent cost calculation because it used the Marshall & Swift manual for all elements of the valuation analysis, including the calculation of the cost of new construction, age life expectation and depreciation, and provided depreciation schedules specific to student residences. [ 30 ] Tax assessors and the CARB, in assessment appeals, are obligated to ensure a fair and equitable assessment, which is consistent with both the valuation standards and procedures set out in the regulations and the assessment of similar properties and business in the same municipality: Assessment and Taxation Regulation , 2018 AR 203/2017 .

It was reasonable for the CARB to accept the University argument and apply the Marshall & Swift manual across all aspects of the valuation given the unique nature of student residence improvements (a fact acknowledged by both parties at the hearing), and the lack of available market data comparable to these improvements.

Given the unique nature of the student residence improvements, it was also reasonable to reject the City argument that use of the hybrid approach was equitable simply because it is the method used to value all property types in the municipality. (2 ) Quantification of External Depreciation (Obsolescence) [ 31 ] The City assessed external depreciation at 36%.

This reflected the difference between the weighted average vacancy (47.16%) and the market vacancy rate of 11%, which was extrapolated from City market data for multi-residential rental properties in the month of July. [ 32 ] In its written submissions to the CARB, the University initially argued that the appropriate external depreciation was 48%.

This was premised on an equally weighted three-year average vacancy rate, reduced for market vacancy by 5%, based on a Canada Mortgage and Housing Corporation (CMHC) report documenting three-year average vacancy rates for multi-residential rental properties in Lethbridge in the month of October.

[ 33 ] At the CARB hearing however, the University modified its calculation to 46%, relying on its initial three-year weighted average but applying its 5% market vacancy adjustment for the eight-month academic school year (September – April) and the City’s 11% market vacancy adjustment for the other four months of the school year (May – August). [ 34 ] The CARB accepted the University argument that the City’s calculation of external depreciation was arbitrary, based on its finding that the City could not explain how it arrived at the 2021 weighting, the significant variation between the 2020 and 2021 weightings, and the evidence presented by the University which demonstrated that various other weighting scenarios would produce the same result.

The CARB accepted the University argument that equal waiting of the previous three-years eliminated arbitrariness and did not overstate the effect of COVID-19 on vacancy rates. [ 35 ] The CARB also accepted the University calculation of market vacancy adjustment, agreeing that a combination of CMHC and City of Lethbridge market data better reflected full year vacancy rates.

The CARB acknowledged the need to exercise caution when relying on third party reports (such as the CMHC report), however they also recognized the unique nature of the vacancy issue facing the University, in relation to student residences, as compared to normal market vacancy rates. The unique nature of student residences was recognized by the CARB as a compelling factor in their analysis and this was critical to their determination of a fair and equitable valuation.

The CARB was not bound by prior board decisions regarding the use of third party reports, but were free to weight the evidence, provided their analysis was reasonable on the record before them. [ 36 ] This method of calculation is reasonable given that market value assessment reflects the characteristics and physical condition of the property on December 31 st . Vacancy is not a point in time condition and the use of variable market vacancy rates was a fair and reasonable approach given the unique nature of the improvement and its vacancy conditions.

(3) Age Life Expectation [ 37 ] The City and University age life expectations deviated by one year on each of the student residence improvements. [ 38 ] The Assessment and Taxation Regulation stipulates that all assessments are an estimate of the value of the property on July 1 st of the estimate year. However, as provided for in section 389(2) of the Act the assessment reflects the characteristics and physical condition of the property on December 31 st of the year prior to the year in which a tax is imposed.

Taxes are imposed on January 1 st . [ 39 ] The University calculation of age life expectancy was incorrect as it rendered each residence one year older than it would have been based on the physical condition and characteristics of the improvements on December 31, 2021. The CARB, in relying on the University’s calculation, imported this error into their final quantified figure. This does not render the decision unreasonable, but rather requires correction by the CARB so that the final calculation, based on the methodology they accepted is correct.

CONCLUSION [ 40 ] The reasons of the CARB, when read in the context of the record, including the evidence, written submissions and arguments advanced by the parties, are intelligible, transparent, and justified. They reflect that the CARB considered the unique nature of the student residence improvements and applied the considerations set out in s. 467 of the Act and regulations to ensure a fair and equitable tax assessment.

The CARB decision is therefore reasonable. [ 41 ] The matter is remitted back to the CARB only to recalculate the tax assessment using the proper age life expectancy for each residence and applying the quantification methodology utilized by the CARB, and upheld here, to establish value. Heard on the 22 nd day of September, 2023. Dated at the City of Lethbridge, Alberta this 12 th day of January, 2024. J.C. Kubik J.C.K.B.A. Appearances:

Gregory G. Plester and Rebecca L. Kos, Brownlee LLP for the Applicant, City of Lethbridge Gilbert J. Ludwig, K.C., Wilson Laycraft for the Respondent, University of Lethbridge Gwendolyn J. Stewart-Palmer, K.C., Shores Jardine LLP for the Respondent, Lethbridge Composite Assessment Review Board