Canadian Property Holdings Inc. et al. v. Date:, 2012 MBCA 55

Citation: Canadian Property Holdings Inc. et al. v. Date: 20120529 The Assessor for the City of Winnipeg Docket: AI 07-30-06640 et al., 2012 MBCA 55 IN THE COURT OF APPEAL OF MANITOBA BETWEEN : CANADIAN PROPERTY HOLDINGS INC. ) M. Newman and 5055874 MANITOBA LIMITED ) for the Applicants ) (Appellants) Applicants ) M. R. Buchart ) for the Respondent The ) Assessor for the City of - and - ) Winnipeg ) THE ASSESSOR FOR THE CITY OF ) T. D.

Gisser WINNIPEG and THE MUNICIPAL ) for the Respondent The BOARD OF MANITOBA ) Municipal Board of ) Manitoba (Respondents) Respondents ) ) Chambers motion heard: ) April 26, 2012 ) ) Decision pronounced: ) May 29, 2012 MICHEL A. MONNIN J.A. 1 Canadian Property Holdings Inc. and 5055874 Manitoba Limited (the applicants) seek leave to appeal from a decision of The Municipal Board of Manitoba (the Board). 2 The applicants seek to place two questions before the court. The questions are:

a) Did the Board fail to properly interpret and apply the principle of equity?

b) Did the Board fail to properly interpret and apply the definition of value? 3 The decision that the applicants wish reviewed arises from the 2006 property assessment for a property at 220 Portage Avenue in Winnipeg, commonly referred to as the Royal Bank Building. 4 In its simplest form, the issue between the parties comes down to the capitalization rate that the Board utilized in coming to its assessment of value, as well as the per square foot rent the Board relied upon to reach its conclusion as to the value of the property. 5 The applicants argue that the questions they wish to place before the court are questions of law, while the Board and The Assessor for the City of Winnipeg (the Assessor) argue that the questions are of mixed fact and law and therefore, leave should not be granted. 6 The applicants concede that on their face the questions they wish to raise might well appear to be issues of methodology or mixed fact and law, but argue that in this case they are questions of law because the Board failed in its duty to treat property owners equitably and failed to properly apply the test of market value by ignoring actual rents. 7 On the issue of the capitalization rate, the applicants argue that the Board breached its duty of equity because it relied on a rate of ten per cent, which was a different rate than what the Assessor had applied to similar properties for the taxation year in question.

They argue that the Board had before it evidence from the Assessor himself that showed that the capitalization rate that he attributed to Class B office buildings, such as the building in issue here, was ten and one-half per cent. In addition, they argue, the Board had evidence that the Board of Revision of the City of Winnipeg utilized a capitalization rate of ten and one-half per cent for buildings similar to the one in issue here. By failing to use that same capitalization rate, the applicants argue that the Board breached s. 18 of The Municipal Assessment Act , C.C.S.M., c. M226 (the Act ), which provides:

Presumption of validity of assessment 18 Notwithstanding any other provision of this Act, an assessment is presumed to be properly made and the assessed value to be fixed ata fair and just amount where the assessed value bears a fair and just relation to the assessed values of other assessable property. 8 The applicants also rely on a decision of the British Columbia Court of Appeal in Bramalea Ltd. v. British Columbia(Assessor of Area # 09 – Vancouver) (1990), (BC CA), 76 D.L.R. (4th) 53, where Taylor J.A. first referred to theSupreme Court of Canada decision in Jonas v.

Gilbert (1881), 1881 CanLII 36 (SCC), 5 S.C.R. 356 (at p. 58): More than 100 years ago, in Jonas v. Gilbert (1881), 1881 CanLII 36 (SCC), 5 S.C.R. 356, Chief Justice Ritchie laid down the law inCanada concerning the taxpayer’s right to equitable treatment in the assessment process.

The Chief Justice said (at p. 366): Unless the legislative authority otherwise ordains, everybody having property or doing business in the country is entitled to assume thattaxation shall be fair and equal and that no one class of individuals, or one species of property, shall be unequally or unduly assessed. 9 To this argument, the respondents reply that the capitalization rates the applicants rely upon are more generalizedrates, while the Assessor provided the Board with more site-specific comparable rates.

They argue it was within the Board’s jurisdictionto decide which rate was the most appropriate and that was a decision based on facts, which is a matter of methodology and not law. 10 With respect to the square foot rental rate of $10.33 attributed to the property by the Board, the applicants argue thatthe figure utilized by the Board is so far removed from the actual rents received of $4.75 per square foot that the Board breached its dutyto fix the value of the property.

They wish to argue that by disregarding the actual rental income received, without any justification forso doing, the Board erred in arriving at a value as that term is defined in the Act. 11 The applicants rely on the Ontario Divisional Court decision in 1098748 Ontario Ltd. v.

Ontario Property AssessmentCorp., Region No. 11 et al. (2001), (ON SCDC), 143 O.A.C. 121, to support its position that the Board erred when itarrived at a value that was not one to be realized if the property was sold on the open market by a willing seller to a willing buyer. 12 The applicants also rely on a decision of this court in Fredant Investments Ltd. v. Winnipeg City Assessor (1998), (MB CA), 131 Man.R. (2d) 29, which was a case where value had to be assessed in light of a limited dividend agreementsetting out the maximum amount the owner could receive in rental payments for individual suites.

In sending the matter back to theBoard for a rehearing, Huband J.A. wrote (at para. 29): In the Consolidated Shelter case [(1965), (MB CA), 49 D.L.R. (2d) 565 (Man. C.A.)], it would seem that the courtlost sight of the driving imperative in assessment cases; namely, the requirement to determine the value of the property. Instead, thecourt permitted the assessment to be based on another factor; namely, that a restrictive agreement, adversely affecting value, should notbe taken into account because the municipality was not a party to it.

In doing so, the court was deflected from the search for marketvalue as the basis for property assessment and thus erred in principle. To depart from the Consolidated Shelter case is not, therefore, amere difference of opinion. 13 The Board, in its decision, dealt with the issue of rental rates as follows: The issues to be resolved are the rents for main floor banking space, the rent for banking space, retail space, office space, and storagethroughout the building. Also, the Board must determine an appropriate rent for vacant space throughout the building.

The Royal Bank and Great West Life when combined occupy 137,075 square feet or 78% of the building. Their rents are critical todetermining the value of the subject property. Both parties reviewed the 2003 Rent Roll with the Owner’s Agent accepting the actual rents as evidence of market value and assigning a$5.00 per square foot rent to the existing vacant space. The Assessor uses comparable rents to make adjustments to the Rent Roll inarriving at his market value. The major disagreement is over the rents assigned to the Great West Life and Royal Bank spaces. The Board notes that the Royal Bank

rents were last negotiated in 1999 and appear to be lower than the market evidence presented by the Assessor. The Great West Life rent at $4.75 per square foot is considerably lower than any of the market comparables provided. It is lower than the Royal Bank rents, and lower than several existing leases within the subject building including the rent negotiated by Agricore from whom Great West Life took over the space.

In arriving at an average net rent of $10.33 per square foot for the leased area of 175,077 square feet, the Board has assigned the following net rents as the best evidence of market rents: Concourse Restaurant: The Board accepts the Rent Roll rate of $80.00 per square foot. Concourse Bank: The Board assigns the Assessor’s market comparable rate of $12.00 per square foot.

Main Floor And Mezzanine: Main floor financial space comparables suggest a premium; the Board is comfortable assigning $13.00 per square foot to both the main floor and mezzanine space, given that the evidence provided suggests that there is little difference in the quality of the two spaces. Upper Floors: The Board assigns a rate of $10.00 per square foot to all leasable area excluding storage space. Comparable market rents indicate a weighted average of $10.97 for an average 10,631 square foot leased space.

Subject property leases on the upper floors, other than those of the Royal Bank and Great West Life, are for $10.00 or $12.00 per square foot. Vacant space was advertised for rent at $10.75 per square foot. Vacant Space: In keeping with our general use of $10.00 per square foot for office space, we have assigned a market rent of $10.00 per square foot for the vacant space. The Assessor assigns the advertised asking rent of $10.75 per square foot to the vacant space in the building; the Owner’s agent assigns $5.00 per square foot.

Storage Space: The Board assigns a rate of $4.00 per square foot to all indicated storage space. No outside market evidence for storage space was presented and the Rent Roll rates provide the only evidence. The 5,848 square feet of storage space is leased at $4.00 or $6.00 a square foot. The Assessor chooses to use $6.00 for all of it; Mr. Sanders uses a weighted rate of $4.37 for his calculation. 14 The test to be met by an applicant seeking leave to appeal from a decision of the Board has been well documented.

Recently, in The Assessor for The City of Winnipeg v. 346 Portage Avenue Inc. , 2011 MBCA 110 , Chartier J.A. stated (at para. 2): It is well settled that leave to appeal may be granted only on a question of law or jurisdiction and, even then, only if the question has arguable merit and is one of sufficient importance to warrant the attention of this court. It has also been held that neither the methodology used by the Board to determine assessed value nor its calculation of value is a question of law. See Richmond Six Ltd. et al. v.

Winnipeg City Assessor et al. , 2009 MBCA 58 at para. 2 , 240 Man.R. (2d) 80 ; Winnipeg City Assessor et al. v. Lakeview Management Inc. et al. , 2004 MBCA 11 , 180 Man.R. (2d) 270 ; Lakeview Management Inc. v. Winnipeg City Assessor et al. , 2004 MBCA 12 , 180 Man.R. (2d) 272 ; Manitoba (Provincial Municipal Assessor) v. Ducks Unlimited Canada , [1998] M.J. No. 547 (QL) (C.A.) ; and Briarwood Investment Corp. v.

Winnipeg City Assessor , 2004 MBCA 103 , 187 Man.R. (2d) 316 . 15 He further elaborated on methodology and the finding of value in these words (at para. 5): From the reasons, it is clear that the Board understood the defined term “value” because it correctly incorporated it in the test it used to determine the assessed value of the property. It then chose to assess the value of the property using the income approach methodology, which was one of the approaches suggested by the applicant.

As stated above, the chosen methodology and the Board’s calculation of value are not appealable to this court as neither is a question of law. In my view, because the Board applied the correct legal definition of “value” to the facts and used the right test to determine assessed value, any alleged error in regard to any conclusion reached would be an error of mixed fact and law, not an error of law alone. 16 The Board’s dealing with the issue of rental rates is puzzling.

In its reasons, the Board sets out that the Royal Bank and Great-West Life occupy 78 per cent of the rental space in the building and recognizes that the rental rates for that space are considerably

lower than any market comparables, but then, in my view, without any clear explanation, analysis or reasoning goes on to attribute a rental rate based on those comparables. 17 The discrepancy between the comparables and the actual rental rates is sufficiently disparate that one might well conclude that the Board failed in its duty to establish value.

Because of this disparity, what would normally be a question of mixed fact and law or methodology might well morph into an issue of law alone. 18 The distinction between a question of law and one of mixed fact and law is, in this case, sufficiently narrow that the applicants should be allowed the opportunity to attempt to make their case before a panel of this court. 19 The issue with respect to the capitalization rate is different however. The Board clearly identifies that it preferred the evidence submitted by the Assessor than what it considered to be a lack of evidence from the applicants.

It assessed the facts before it and came to a conclusion. That, in my view, is an issue of methodology and not law or equity, as the applicants wish to frame it. I would deny leave to place that issue before the court. 20 In conclusion, therefore, I would grant leave to appeal on the question of whether or not the Board, in utilizing the per square foot notional value that it did, failed to properly interpret the definition of value. J.A.