CP Reit S Real Estate Limited v Saskatoon (City), 2021 SKCA 100

Court of Appeal for Saskatchewan Docket: CACV3581 Citation: CP Reit S Real Estate Limited v Saskatoon (City), 2021 SKCA100Date: 2021-07-20Between:CP Reit S Real Estate LimitedAppellant(Appellant)AndCity of Saskatoon and Saskatchewan Assessment Management AgencyRespondent(Respondent)Before: Caldwell, Ryan-Froslie and Barrington-Foote JJ.A.Disposition: Appeal allowedWritten reasons by: The Honourable Mr. Justice CaldwellIn concurrence: The Honourable Madam Justice Ryan-Froslie The Honourable Mr.

Justice Barrington-FooteOn appeal from: 2020 SKMB 2 , 2020 SKMB 002 Appeal heard: March 2, 2021Counsel: Kurt Wintermute for the Appellant Alan Rankine for the Respondent Caldwell J.A. I.

INTRODUCTION [1] CP Reit S Real Estate Limited [Taxpayer] appeals from the January 14, 2020, decision (Various (Altus) v Saskatoon (City),2020 SKMB 2 [Committee Decision]) of the Saskatchewan Municipal Board Assessment Appeals Committee [Committee], which uphelda decision (Altus Group Limited v Saskatoon (City), AAC 2019-0068 (10 July 2019) [Board Decision]) of the Board of Revision for theCity of Saskatoon [Board] in respect of the 2019 assessments under The Cities Act, SS 2002, c C-11.1, of certain commercial properties inthat city [Subject Properties].

The Taxpayer is the lead appellant on behalf of the owners of the Subject Properties. [2] One issue in the assessment appeals before the Board and Committee was whether, under the direct capitalisation method ofthe income approach to valuation, the inclusion of two properties in a property array had distorted the median capitalisation rate [CAPrate] used in the 2019 assessments. The properties in question are 309 22nd Street East, Saskatoon [Affinity Head Office], and 201 1stAvenue South, Saskatoon [Midtown Plaza].

The Board upheld the 2019 assessments and, although it had concerns about the BoardDecision, the Committee declined to intervene. [3] On June 4, 2020, Leurer J.A. granted the Taxpayer leave to appeal to this Court on questions that ask whether the Committeecommitted legal errors in reviewing the Board Decision for reasonableness, because: (

i) in relation to the sale of [Affinity Head Office], the Board and Committee misapplied the “market valuation standard” (“MVS”)defined pursuant to paragraph 163(f.1) of The Cities Act (the “Act”) and comparability jurisprudence by failing to analyze whether theMVS had been satisfied in the assessment of the subject properties, and instead focused on whether the Affinity Sale was valid andwhether the sale itself satisfies the MVS; (ii) in relation to the sale of [Midtown Plaza], the Board and Committee misapplied the MVS defined pursuant to paragraph 163(f.1)of the Act and comparability jurisprudence by failing to analyze whether the MVS had been satisfied in the assessment of the subjectproperties, and instead focused on whether the Midtown Sale was valid and whether the sale itself satisfies the MVS; (iii) the Committee’s decision focused on the outcome of the Board’s decision to the exclusion of the Board’s rationale for thatdecision, contrary to the direction of the Supreme Court of Canada in Canada (Minister of Citizenship and Immigration) v Vavilov, 2019SCC 65 (“Vavilov”); and (iv) contrary to Vavilov, the Committee’s decision failed to consider whether the Board’s decision was justified in light of the legal andfactual constraints that bear on the decision, including the text of the Act, and prior decisions concerning the analysis of comparability. (Emphasis in original) [4] In brief answer to the first two questions, I find the Committee erred in law when it confirmed the Board Decision.

I wouldallow the appeal, set aside the Committee Decision and modify the Board Decision to adjust the 2019 assessments of the SubjectProperties by applying a 6.82% CAP rate. Given this result, I do not address the last two questions for which leave has been granted. II. BACKGROUND A. 2019 Assessments [5] The assessor assessed the Subject Properties in 2019 by employing the direct capitalisation method of the income approach to

property valuation, which “converts or ‘capitalizes’ the expected level of potential net income into a market value based assessment using an overall capitalization rate” ( Market Value Assessment in Saskatchewan Handbook , ver 3 (Regina: Saskatchewan Assessment Management Agency, 2012) [ Handbook ], at

Chapter 7 Strip Commercial Properties at 6 [ SCP Guide ]) [1] . [ 6 ] To apply the direct capitalisation method in mass appraisal, the assessor stratifies (or groups together) properties that have been sold within a certain timeframe [a sales array] according to their similarity to the properties that have been grouped together for assessment purposes [an assessment array]. The net operating income [NOI] of each property in the sales array is divided by the property’s sale price to produce a CAP rate. The assessor then determines the median of those CAP rates.

Using a rent analysis, the assessor estimates the gross rental income per square foot of each property in the assessment array and, after deducting typical expenses, multiplies it by the square footage of the assessed property to estimate the NOI that may be derived from the property. The assessor then estimates the market value of each property in the assessment array by dividing its estimated NOI by the median CAP rate of the sales array. [ 7 ] In this matter, the assessor stratified 41 sales of commercial properties in Saskatoon, which had occurred between 2012 and 2014, into six groups.

The assessor first grouped them based on location and then subdivided each group based on property size. There were 12 properties, including the Affinity Head Office and Midtown Plaza, in the second group of the sales array [Group 2 Sales], which all had a leasable area greater than 3,500 square feet. The Group 2 Sales had a median CAP rate of 6.60%, with the lowest and highest CAP rates being 3.20% and 9.28%. The Affinity Head Office had the lowest CAP rate and the Midtown Plaza had the next lowest, at 5.02%.

The Subject Properties (and others) fell within the second group due to their location and size [Group 2 Assessment Array]. Accordingly, the assessor applied the 6.60% median CAP rate in the 2019 assessment of the Subject Properties. [ 8 ] The owners of the Subject Properties, which include grocery stores, restaurants, drug stores, salons, a movie theatre and a frozen yogurt business, appealed the 2019 assessments to the Board on the basis, inter alia , that the Affinity Head Office and Midtown Plaza were not comparable to their properties or other properties in the Group 2 Assessment Array.

The Taxpayer took the lead appeal and argued that, due to the inclusion of these two sales, the 2019 assessments had not met the market valuation standard or achieved equity under The Cities Act . [ 9 ] As to the Midtown Plaza, the Taxpayer said that, while it contains retail space, the property as a whole is not comparable to the Subject Properties due to its considerable size and its unique amenities and, therefore, it should not have been used to determine the median CAP rate to be applied to run-of-the-mill retail properties in the Group 2 Assessment Array.

To distinguish it, the Taxpayer adduced the 2013 and 2019 “valuation cards” for the Midtown Plaza, which itemise its leasable space and rental incomes. The Taxpayer also pointed out that the rental rates for the Midtown Plaza were so different even from other enclosed malls in Saskatoon that a City assessor had created a separate rent model just for assessing its market value. [ 10 ] With respect to the Affinity Head Office, the Taxpayer argued that it had been improperly classified as retail space.

It submitted as evidence pictures and blueprints of that property, which show that, while the Affinity Head Office has a customer reception area, a much larger area is identified as office space, including space for human resources, finance, accounting, operations, marketing and loan collection departments.

Relying on the Marshall & Swift Valuation Service (commercial) (CoreLogic Inc.), for the proposition that main branches of financial institutions are distinguishable for assessment purposes from local branches, the Taxpayer argued the assessor’s conclusion that the Affinity Head Office was comparable to the Subject Properties was in error.

In a nutshell, it submitted that the large office-space component of the Affinity Head Office had affected its market value in a way that made it an unreliable indicator of the market value of the retail properties in the Group 2 Assessment Array. [ 11 ] In short, the Board upheld the 2019 assessments and, although it had concerns about the Board Decision , the Committee confirmed it. III. ISSUES AND ANALYSIS [ 12 ] The questions of law upon which the Taxpayer obtained leave to appeal against the Committee Decision overlap to a degree that permits their analysis to be structured under two headings.

In the result, the appeal may be allowed under the first heading, on the basis that the Committee erred in its

interpretation and application of The Cities Act . A. Did the Committee err in law in its

interpretation or application of the market valuation standard and this Court’s jurisprudence on comparability? [ 13 ] I conclude the Committee erred in law when it found the Board had justifiably confirmed the 2019 assessments because the sales of the Affinity Head Office and Midtown Plaza had met the “market valuation standard”, were “valid” and were, for those reasons, properly included within Group 2 Sales. Each of these conclusions results from a legally flawed

interpretation of The Cities Act because the market valuation standard does not apply to property sales and the statutory requirement of market value has no bearing on whether one property is similar to another for the purposes of mass appraisal. 1. The Cities Act [ 14 ] The term market valuation standard is defined under s. 163 of The Cities Act , along with the terms market value and mass appraisal : (f.1) “market valuation standard” means the standard achieved when the assessed value of property: (

i) is prepared using mass appraisal; (ii) is an estimate of the market value of the estate in fee simple in the property;

(iii) reflects typical market conditions for similar properties; and (iv) meets quality assurance standards established by order of the agency; (f.2) “market value” means the amount that a property should be expected to realize if the estate in fee simple in the property is sold in a competitive and open market by a willing seller to a willing buyer, each acting prudently and knowledgeably, and assuming that the amount is not affected by undue stimuli; (f.3) “mass appraisal” means the process of preparing assessments for a group of properties as of the base date using standard appraisal methods, employing common data and allowing for statistical testing; [ 15 ] As can be seen, the market valuation standard relates to the assessed value of a property—not the sale price of a property or its market value.

This

interpretation is supported by s. 164.1(2) of The Cities Act , which provides that “[n]on-regulated property assessments shall be determined according to the market valuation standard”.

Section 165 also employs the market valuation standard in a way that reinforces its

interpretation as a standard of assessment. Most directly, under s. 165(5), it is the standard that must be applied to achieve equity in the assessment of property: 165

(3) The dominant and controlling factor in the assessment of property is equity.

(3.1) Each assessment must reflect the facts, conditions and circumstances affecting the property as at January 1 of each year as if those facts, conditions and circumstances existed on the applicable base date. …

(5) Equity in non-regulated property assessments is achieved by applying the market valuation standard so that the assessments bear a fair and just proportion to the market value of similar properties as of the applicable base date. [ 16 ] As this all plainly indicates, the market valuation standard is the “standard achieved when the assessed value of [a non- regulated] property” meets the four conditions set forth in s. 163 (f.1), of which “an estimate of the market value of the estate in fee simple in the property” is but one condition ( s. 163 (f.1)(ii)).

The satisfaction of the standard is fundamental to the achievement of equity (s. 165(5)), which is the dominant and controlling factor in the assessment of property (s. 165(3)). That is, equity is presumptively not achieved if an assessment fails to meet the market valuation standard. 2.

Board Decision [ 17 ] In its initial appeal, the Taxpayer asserted that the 2019 assessments had failed to meet the market valuation standard because the assessed values of the Subject Properties did not reflect typical market conditions for similar properties , as required under s. 163 (f.1) (iii) of The Cities Act . [ 18 ] As the Board Decision on the Taxpayer’s appeal is short and unreported, I will set out the Board’s analysis and conclusions in full: ANALYSIS AND CONCLUSIONS: [1] In assessment appeals in Saskatchewan, as in all appeals, the Appellant bears the onus of proof to show error.

In this appeal, the Appellant has asked that the Board determine if the Assessor erred in including the three sales in cap-rate analysis. [2] In reaching a decision, the Panel considered equity with other similar properties and referred to all regulations with respect to the municipal assessment of properties. [3] Within standard mass appraisal the Panel considered how cap-rates impact assessment and how they were analyzed in this appeal. [4] The Assessor usually relies upon Marshall and Swift handbook, in tandem with the SAMA manual to classify properties. [5] In mass appraisal all sales that meet the M.V.S. must be included, regardless of how unique a property may be, it is still a part of the market. [6] The Panel concludes that the [Affinity Head Office] was assessed properly as a bank that provided retail services to its customers. [7] The Panel concludes that even though the [Midtown Plaza] is unique, the sale must be included in mass appraisal analysis.

Since the Midtown is a retail shopping centre, the Panel agrees with the Assessor including it within the cap-rate analysis for this appeal. [8] The Panel concludes that the sale of 2501 8th St E was in fact valid and should be included in the analysis because it meets the M.V.S. and was verified by the Assessor’s office. [2] DECISION: In accordance with Section 210(1) (

a) of The Cities Act the Panel confirms the assessment. The appeal is dismissed. [ 19 ] To be clear [3] , the Taxpayer did not appeal the 2019 assessments on the basis that the sales of the Affinity Head Office and Midtown Plaza were not “valid”—by which I understand a “valid” sale to be one that satisfies the definition of market value under s. 163 (f.2) of The Cities Act .

At root, the Taxpayer’s appeal to the Board alleged that the Midtown Plaza and Affinity Head Office were not similar—or not comparable , as the jurisprudence often describes it—to the properties in the Group 2 Assessment Array. [ 20 ] Moreover, the validity of a sale has nothing to do with the similarity of a property that has been sold to the properties being

assessed as a group under mass appraisal. There is no dispute that a median CAP rate must be derived from an array of properties whosesales satisfy the market value requirement of The Cities Act. This is because a median CAP rate would not be trustworthy if the data thatunderpinned it did not reflect “typical market conditions” (s. 163(f.1)(iii); see City Centre Equities Inc. v Regina (City), 2018 SKCA 43 atparas 138–140, 75 MPLR (5th) 179 [City Centre]).

However, that requirement is a data reliability threshold (Saskatoon (City) v WalmartCanada Corp., 2018 SKCA 2 at para 94); it is not a benchmark for including a property in an array of “similar properties”. [21] The characteristics that define the term market value under s. 163(f.2), namely, a “competitive and open market”, a “willingseller” and a “willing buyer”, each “acting prudently and knowledgeably”, and the absence of “undue stimuli” affecting the purchaseprice, are not characteristics of the property that was sold.

They are those of the parties to a sale, the marketplace in which a property wassold, and the sale transaction. While they may address the “typical market conditions” requirement of the market valuation standard, thesecharacteristics do not speak to whether the properties in question are “similar properties” (s. 163(f.1)(iii)) or are “similar properties as ofthe applicable base date” (s. 165(5)).

When the characteristics that s. 163(f.2) describes are present, it simply means that a sale has reliablyestablished the market value of the property that was sold. [22] Once the market value threshold has been met, The Cities Act, the Handbook and the jurisprudence dictate that the soldproperty may be included in a sales array to be used in the income approach to valuation—i.e., where its sale price and rental data will beused to estimate the market values of other properties in an assessment array—but only if it is similar to the properties grouped in theassessment array (see, The Cities Act, ss. 163 and 165; and see, for case law examples, Walmart at para 94; Harvard PropertyManagement Inc. v Saskatoon (City), 2017 SKCA 34 [Harvard 2017]; Regina (City) v Harvard Developments Ltd., 2004 SKCA 103 atparas 20–26 [Harvard 2004]; Sasco Developments Ltd. v Moose Jaw (City), 2012 SKCA 24 at paras 4 and 12, 385 Sask R 287 [Sasco];see also, for example, SCP Guide at 13). [23] This is because, if the property that has been sold is not similar to the property that is being assessed, then the assessed valuewill—by definition—not reflect “typical market conditions for similar properties” (s. 163(f.1)(iii), emphasis added) and, therefore, themarket valuation standard will not have been met (City Centre at para 153).

Moreover, where this occurs, equity will—prima facie—nothave been achieved in the assessment because equity “is achieved by applying the market valuation standard so that the assessments beara fair and just proportion to the market value of similar properties as of the applicable base date” (s. 165(5), emphasis added; Walmart atpara 105; City Centre at para 138). [24] If an appellant can establish, to the satisfaction of the board of revision on a balance of probabilities, that a property included ina sales array is not similar to the properties in the assessment array, then it will have met its burden of establishing error in the assessmentof the property in question (because the market valuation standard was not met).

In non-regulated property assessment appeals, proof ofsuch an error also constitutes evidence that equity has not been achieved. However, if the board of revision is satisfied on a balance ofprobabilities, based on the evidence as a whole, that equity has been achieved despite the error in the assessment, then the error is not amaterial error and the board is not entitled to interfere with the assessment.

If, on the other hand, the board of revision is satisfied thatequity has not been achieved, then the error is a material error and the board may exercise its decision-making powers under s. 210(1) ofThe Cities Act to “change the assessment and direct a revision of the assessment roll accordingly”.

See: Walmart at paras 65, 72 and 118;Kramer Ltd. v Sherwood (Rural Municipality), 2003 SKCA 121 at paras 23–26, 241 Sask R 67; see also Regina (City) v Laing PropertyCorp., (SK CA), [1995] 3 WWR 551, (CA) [Laing]; Estevan Coal Corp. v Estevan (Rural Municipality No. 5), 2000SKCA 82 at para 44, [2000] 8 WWR 474; HDL Investments Inc. v Regina (City), 2009 SKCA 138 at para 32, [2010] 3 WWR 249; Sascoat paras 34-41; Imperial Oil Limited v Regina (City), 2016 SKCA 107 at para 52, 408 DLR (4th) 46; etc. [25] In sum, s. 163(f.1) of The Cities Act sets the standard that every assessment of non-regulated property must meet—it does notapply to sales of non-regulated property or determine whether the sale was at market value.

Moreover, market value and the marketvaluation standard are not standards of similarity that may be used to determine whether a property should be included in a sales array forthe purposes of estimating the market value of other properties. The Board’s statement that, in mass appraisal, “all sales that meet the[market valuation standard] must be included, regardless of how unique a property may be, it is still a part of the market” is an error oflaw and establishes that it failed to address the issue of similarity (Board Decision at para 5). 3.

Committee Decision [26] The Taxpayer appealed from the Board Decision, arguing the Board had missed the mark on the issue of similarity. Indetermining that appeal, the Committee first addressed and dismissed an argument of its own making, writing: [13] While [the Taxpayer] did not specifically raise this to us as an issue, we wanted to speak to the adequacy of the Board’s writtenreasons. We believe the Board did a good job of summarizing the arguments put forward by the parties. The decision concludes with astatement on each point or issue, rather than a discussion of how the Board came to those conclusions.

Normally we would see a morefulsome [sic] explanation, and while we agree with the Board’s conclusions, we regard the analysis as lacking depth. The decision doesnot state how the Board reached its decision. [27] Much of the rest of the Committee Decision is an attempt to justify the result reached in the Board Decision.

Where relevant, Iaddress the Committee Decision in the reasons below. [28] In answer to the ground of appeal based on the Board’s alleged failure to address the inclusion of the two properties in Group 2Sales, the Committee acknowledged the Taxpayer had put forward evidence to show a lack of similarity but wrote: [28] …Classifying properties like a bank, with retail operations such as loans, mortgages, investments, etc., along with deposits andwithdrawal services, in addition to office space, is a matter of discretion.

The Board clearly heard the argument from the parties,understood the analysis, and concluded the Assessor used their discretion to value the [Affinity Head Office] in the retail class. We findthis to be a reasonable decision. Altus did not meet its burden of proof [sic] the Assessor erred in classifying the property in the retailgroup. …

[34] The City believed this sale [of the Midtown Plaza] was a valid sale, which met the [market valuation standard]. The Board decision records the arguments presented by both parties. The Board understood the arguments and agreed with the City. The onus lies on Altus, as the Appellant [ sic ], to meet the burden of proof and show Assessor error.

We agree with the Board’s conclusion, Midtown Plaza is a valid sale and should be included in the calculation to determine a Cap Rate for this group of properties. [ 29 ] However, as is readily apparent from the Board Decision , the Board had not understood the necessary analysis, had misinterpreted the law, had not addressed the assessment appeal as a question of assessor discretion, and had not addressed the Taxpayer’s evidence on the issue of similarity.

The Board, instead, had grounded its decision on a misinterpretation of the role sale validity played in the assessment process mandated by The Cities Act . [ 30 ] In Harvard 2004 , Cameron J.A. described the role of the Committee when reviewing a board of revision decision addressing an issue of similarity as being to determine whether the board had (at para 30): (a) “err[ed] in fact in identifying the peculiar features of [a sale] or the assessor’s treatment of the sale” (emphasis in original); (b) “err[ed] in law in its selection or

interpretation of the relevant provisions of the Manual” (emphasis in original); or (c) “err[ed] in its application of the governing provisions of the Manual to the facts regarding the sale”. None of this occurred under the Committee Decision . The Committee instead doubled-down on the Board’s misinterpretation of the role of sale validity under The Cities Act and referenced the exercise of assessor discretion as though it had rendered the 2019 assessments immune to appellate review. Neither of these propositions is legally correct. [ 31 ] I find the Committee erred in its

interpretation of The Cities Act and by failing to “come to grips accurately and adequately with the Board’s decision” in relation to Midtown Plaza and the Affinity Head Office ( Harvard 2004 at para 31; Cairns Developers Ltd. v Regina (City) , 2000 SKCA 89 at paras 23–24 , 199 Sask R 51). [ 32 ] I would, therefore, allow the appeal and set aside the Committee Decision . 4. Remedial Powers [ 33 ] Given the errors in law in the Committee Decision , the question of the appropriate remedy in this Court arises.

Although they each address appellate procedure, neither The Cities Act nor The Municipal Board Act , SS 1988-89, c M-23.2 , identify the remedial powers available to this Court in an assessment appeal. However, this Court’s powers under The Court of Appeal Act, 2000 , SS 2000, c C- 42.1 , are: Powers of the court 12

(1) On an appeal, the court may: (

a) allow the appeal in whole or in part; (

b) dismiss the appeal; (

c) order a new trial; (

d) make any decision that could have been made by the court or tribunal appealed from; (

e) impose reasonable terms and conditions in a decision; and (

f) make any additional decision that it considers just. [ 34 ]

Section 12 (

d) of The Court of Appeal Act, 2000 is front and centre in the context of this appeal as it authorises the Court to “make any decision that could have been made by the [Committee]”. Under The Cities Act , the Committee has the following decision- making powers: Decisions 226

(1) After hearing an appeal, the appeal board may: (

a) confirm the decision of the board of revision; (

b) modify the decision of the board of revision to ensure that: (

i) errors in and omissions from the assessment roll are corrected; and (ii) an accurate, fair and equitable assessment for the property is placed on the assessment roll; or (

c) set aside the assessment and remit the matter to the assessor to ensure that: (

i) errors in and omissions from the assessment roll are corrected; and (ii) an accurate, fair and equitable assessment for the property is placed on the assessment roll.

(2) If the appeal board decides to modify the decision of the board of revision pursuant to subsection (1), the appeal board may adjust, either up or down, the assessment or change the classification of the property.

(3) Notwithstanding subsections (1) and (2), a non-regulated property assessment shall not be varied on appeal using single property appraisal techniques.

(3.1) Notwithstanding subsections (1) and (2), an assessment shall not be varied on appeal if equity has been achieved with similar properties. … [ 35 ] It is trite that an appeal is taken from a result and not from the reasons that are given for it. Therefore, regardless of the fact that the Board did not address what was at issue in this assessment appeal, we may nevertheless, under s. 12 (

d) of The Court of Appeal Act, 2000 , exercise the Committee’s power under s. 226(1) (

a) of The Cities Act to confirm the Board Decision , provided equity has been achieved in the 2019 assessments. [ 36 ] The two other powers under ss. 226(1)(

b) and (

c) authorise the Committee to correct errors in the assessment roll. They differ only in the way in which that may be done. Under s. 226(1)(b)(i), the Committee can modify the decision of a board of revision and thereby correct an assessment by adjusting it, either up or down, or by changing the classification of the property (s. 226(2)). Under s. 226(1)(c)(i), the Committee may set aside an assessment and remit the matter to the assessor for correction.

Whether carried out by the Committee or by the assessor, the objective of such a correction is to “ensure that… an accurate, fair and equitable assessment for the property is placed on the assessment roll” (ss. 226(1)(b)(ii) and 226(1)(c)(ii); Walmart at para 80). [ 37 ] In this appeal we have found error in the way the Committee reviewed the Board Decision and in the Board Decision itself. However, acting under s. 12 (

d) of The Court of Appeal Act, 2000 , if we are to exercise either of the corrective powers under ss. 226(1) (

b) or (

c) of The Cities Act , we must also find it was a material error to include the Affinity Head Office or Midtown Plaza in Group 2 Sales. If there is no error, then we may confirm the Board Decision under s. 226(1) (

a) because, despite its flaws, it upheld the 2019 assessments in its result. If material error is established, we must determine whether the 2019 assessments have nevertheless met the market valuation standard and achieved equity. If equity has been achieved, then we must confirm the Board Decision (s. 226(3.1)). If equity has not been achieved, we may act to correct errors in or omissions from the assessment roll under s. 226(1)(b).

If we are not equipped or prepared for any reason to correct the errors ourselves, the recourse available to the Court is to set aside the assessment and remit the matter to the assessor to ensure that errors in or omissions from the assessment roll are corrected (s. 226(1)(c)). 5. The Question of Similarity [ 38 ] Although the Board made no findings of fact on the issue of similarity, we have the complete evidentiary record in this matter. There is also jurisprudence from this Court and previous decisions of the Committee that are relevant to the issue of property similarity.

Lastly, SAMA has prepared documentation, such as the Handbook , that outlines the assessment principles and practices that assessors should take into account when determining whether one property is similar to another for the purposes of mass appraisal. All of this may be used to decide whether it was a material error to include Midtown Plaza or the Affinity Head Office within Group 2 Sales ( 994552 N.W.T. Ltd. v Kindersley (Town) , 2019 SKCA 77 at paras 17–44 [ 994552 NWT ]). [ 39 ] It is helpful to begin the analysis with a general understanding of the income approach to property value assessment.

The Handbook describes the approach in these terms (Chapter 1 Introduction [ Introduction ] at 12): Income Approach The income approach is sometimes referred to as the rental income approach. The theory behind the income approach is that income- producing properties are bought and sold based on their income-producing potential. The value of an income-producing property is based on the present worth of anticipated income. For assessment purposes, this value is calculated by capitalizing the typical income produced by the real estate.

The typical income received and the typical capitalization rate employed is established through analysis of market data. Income-producing properties are properties that either produce income for their owners in the form of rents or those properties that could produce income. The potential income is affected by many factors, including building quality, amenities, location, neighbourhood, available parking, condition of the building, economic conditions and competition.

Income-producing properties are typically purchased for investment purposes; thus the properties’ ability to earn income is the critical element affecting their value from a market point of view. Income-producing properties are delineated into a number of different property classes and categories. Income-producing properties also include those that are owner-occupied, which, while they do not generate rent, can be directly compared to those that do.

Typically, income-producing properties include commercial and investment properties such as: • Rental apartments • Warehouses • Offices • Shopping centres • Hotels / motels • Other [ 40 ] On the issue of similarity, the Handbook states, in overarching terms, that non-regulated property assessments are calculated by “analyzing the sale prices of groups of properties at a specific point in time”, where “[s]ales of similar properties are compared to

determine market value based assessments of specific types of properties that have similar characteristics” ( Introduction at 9).

In this context, the Handbook identifies the “key characteristics” of market value as being ( Introduction at 9): • It is the most probable price estimate within a range, not the highest, lowest or average price. • It is expressed in terms of a dollar value. • It assumes an arm’s length transaction in the open market. • It assumes a willing buyer and a willing seller with no advantage being taken by either party. • It recognizes the present use and potential use of the property. [ 41 ] As the SCP Guide directs, the key to a successful market-value based assessment analysis is “to classify all strip commercial properties into groups containing common elements”, i.e., stratification (at 11).

In that Guide , assessors are instructed to classify commercial properties into “homogeneous groups” for the purposes of mass appraisal under the direct capitalisation method of the income approach to property valuation (at 8 and 11–13).

The Guide also states that, while there is “no one correct or appropriate classification system”, the objective of stratification is to identify “specific groups [of commercial properties] so that comparisons are meaningful” and so that the groups have “sufficient numbers…to establish values” (at 11). [ 42 ] The SCP Guide indicates when comparisons are meaningful by identifying general points of comparison, namely, “functionality, viability, and value”, which depend on property attributes such as “the quality of the physical improvement, the nature of the use of the property, and perhaps most importantly, its location”, where the “ability to make comparisons with other strip commercial properties is crucial” (at 11).

What the Guide calls the physical , “value-generating” characteristics of a property are subdivided into three categories—functional efficiency, durability, and attractiveness or aesthetics: (

a) Functional efficiency broadly refers to “the degree to which a building is suited for its intended use” (at 11). It involves the relationship of a structure to its site, where the internal layout of the improvement is often the primary factor, but it also involves attributes such as “the size and shape of rooms, ceiling height, circulation patterns, number of storeys, privacy, and storage capacity” (at 11). The Guide notes that functional efficiency is dynamic because “social, economic, and technological changes” affect the functional requirements of a given use of property (at 11). (

b) Durability refers to “construction quality and the ability of a structure to remain productive exclusive of functional considerations” (at 12). The principle of valuation that underpins this element is that “[a] high quality structure resists deterioration, has lower maintenance costs, and, assuming it remains functional, has a longer economic life” (at 12). The primary determinants of construction quality are identified as the “quality and condition of a building’s structural components and subsidiary systems” (at 12). (

c) Attractiveness or aesthetics, in respect of an improvement, affect the value of a property but this is “somewhat subjective” (at 12).

The Guide simply notes that “[e]xtreme designs not in keeping with the surrounding area in a commercial district” usually have “a shorter period of market acceptance” and what might be considered attractive is “subject to the changing tastes and preferences of market participants” (at 12). [ 43 ] Relevant to the Taxpayer’s arguments on the inclusion of the Affinity Head Office in Group 2 Sales, the role of the use to which a property has been put in it its valuation is not further explained in the SCP Guide .

While it recognises that use affects value, the Guide takes an indiscriminate approach to this attribute, describing in broad terms only what uses may arise for commercial properties. As can be seen, the Guide does not give any direction on how a use affects the value of a property or how to stratify properties on the basis of use (at 12): Combined with a ground-floor commercial use, the property may also incorporate office or residential uses on one or more upper floors.

Infrequently, some strip commercial properties may also have a secondary commercial use on a second floor of the property, or one-half floor above, or below grade.

The strip commercial property may comprise a single storefront with or without floors above, or it may consist of a row of storefronts under common ownership. [ 44 ] However, other chapters in the Handbook discuss the concept of the “highest and best use” of a property in terms more directly related to its market value ( Introduction at 10): Highest and Best Use The principle of highest and best use is defined as that use which, at the date of valuation, is most likely to produce the greatest net return in money or amenities over a given period of time.

The highest and best use must be legally permissible, physically possible, economically feasible and maximally productive. The highest and best use must also be the most probable of those uses that are possible. For this reason, highest and best use is more or less a synonymous term for most probable use. The purpose of determining a property’s highest and best use or probable use is to provide a basis for establishing its market value. It is the marketplace that determines highest and best use and it is up to the assessor to analyze the marketplace to determine what this use is.

Usually the present use of a property is its highest and best use. Highest and Best Use As-if -Vacant

Estimating the highest and best use of the site as-if-vacant is an essential prerequisite to applying the appropriate approach to value. Typically, the five criteria that are considered during a highest and best use analysis that must be met are: • The use is from among those legally permissible; • The use is physically possible; • The use is financially feasible; • The use is the most probable of those that are possible; • The use is maximally productive. Highest and Best Use As-If-Improved The highest and best use of a property is also estimated a second time for the property as-improved.

The existing improvements will usually be the highest and best use of the property as-improved. An exception would be where the property and the neighbourhood are in transition to another use. An example would be where an older smaller home is located on a street that has been partially redeveloped with arterial commercial developments, such as restaurants, shopping centres and suburban office buildings.

In this example, and depending on land prices and expected future benefits, the most probable use as-improved may be for commercial redevelopment. [ 45 ] Returning to the SCP Guide , it describes the locational characteristics of a property as a property’s most determinative attribute, although it also directly ties this attribute to property use (at 12): Locational Characteristics The most important single attribute of land is its location. The essence of location involves space and the need to transport people, goods, and services from one geographic location to another.

The locational requirements of a given parcel of land depend on its use. [ 46 ] When it comes to stratifying properties into meaningful groups based on physical characteristics, use and location, the SCP Guide tells assessors that personal observation and the available information about a property are at the root of the process (at 12): Observations For the most part, the groups of strip commercial properties in a jurisdiction and/or market area can be established by observation. Observations can be made to determine the homogeneity of the properties within a group of strip commercial properties.

Typically, depending on the availability of sufficient and reliable market evidence, the following trends may be noted: • Similar properties may have similar rent levels; • Similar properties may be of a similar range in size; and • Similar properties may have comparable locations In addition, some statistical measures such as coefficients of dispersion (CODs) can be generated on these and other physical identifying factors to determine the homogeneity of the properties within a strip commercial properties group. [ 47 ] At this point it is useful to observe that the word homogeneity is a noun defined as “the quality of being homogenous” and the word homogeneous is an adjective defined as “of the same kind, nature, or character: alike, similar, congruous” ( Shorter Oxford English Dictionary , 6th ed).

Notwithstanding what the Handbook says in the last paragraph of the excerpt above, in Harvard 2017 , Richards C.J.S. dispelled the notion that statistical testing could be used to determine the homogeneity of the properties within a group, stating: [24] All of this [i.e., the Handbook ] makes it quite clear that statistical testing is not a substitute for comparability and does not trump or displace the need for comparability.

It is possible, for example, that an assessor could include a warehouse and a hotel with a group of retail properties and still produce a property grouping that generates statistically acceptable results. There could be no suggestion, however, that this would be an acceptable stratification. [25] The approach taken by the Committee in this case put the cart before the horse. Statistics alone do not determine comparability or the strength of arguments in relation to comparability. In developing a capitalization rate, an assessor must begin by selecting the properties to be considered in the analysis.

This must be done by having resort to factors properly bearing on comparability. When this bridge has been successfully crossed, and a group of comparable properties identified, statistical analyses can then be used to determine the quality of the stratifications in issue. [26] It follows that, in this case, it was no answer to Harvard’s argument about the comparability of 136 2nd Ave. S. and 325 3rd Ave. N. for the Committee to say “The City tested [Harvard’s] alternative grouping and found that removing the two sales resulted in worse statistics not better”. That was not the point.

If the properties removed from a grouping are not properly comparable in the first place, it is irrelevant whether the statistics for what remains of the group get better or worse when the properties in question are removed. Those properties should not have been considered at all. (Emphasis in original) [ 48 ] See also TNC Mall Property Holdings Inc. v Moose Jaw (City) , 2020 SKCA 99 , 451 DLR (4th) 671 [ TNC Mall ], where Richards C.J.S. said: [43] …In developing a capitalization rate, an assessor must begin by selecting the properties to be considered in the analysis and the

selection process must be conducted with resort to factors properly bearing on comparability. Only when a group of comparable properties has been identified does statistical analysis come into play to determine the quality of the stratifications in issue. An assessor may not ignore the question of comparability by simply pointing to the results of statistical analyses…. [ 49 ] As recognised in Harvard 2017 and TNC Mall , a decision to include a property in a sales array of similar properties results from the exercise of a measure of discretion on the part of the assessor.

Referring to Harvard 2017 in Walmart , Whitmore J.A. identified the parameters of the appellate deference that is owed to an exercise of assessor discretion when stratifying properties to create meaningful arrays: [117] In [ Harvard 2017 ], this Court made it clear that an assessor’s decision relating to the comparability of properties attracts deference. However, this deference is limited: [27] It may be useful, as well, to add a word here about where the Assessor’s discretion fits into all of this.

On this front, I note that, in the proceedings before the Board of Revision and the Committee, considerable emphasis was placed on para. 24 of this Court’s decision in 959630 Alberta Inc. v Regina (City) , 2010 SKCA 136 , 362 Sask R 177 [ 959630 Alberta Inc. ]. That paragraph reads as follows: [24] While the Manual and the Act limit the factors that an assessor may properly take into account in a valuation, neither the Manual nor the Act dictate that any particular factor is determinative.

Nor does the Manual or the Act permit an appellate body to overturn an assessor’s discretion merely on the basis that the appellate body considers other factors more relevant, or other properties more comparable, than those determined by the assessor. See: FPR Developments Ltd. v. City of Regina and Saskatchewan Assessment Management Agency , 2008 SKCA 43 , 310 Sask. R. 29, at para. 40 (“ FPR Developments ”).

On this basis, even if the appellant were to clearly show that the Alternative [Market Adjustment Factor] Neighbourhood is more comparable than the [Market Adjustment Factor] Neighbourhood used by the Assessor, none of the Board, the Committee or this Court is permitted to intervene to overturn the Assessor’s discretion. The Committee acknowledged this at para. 24 of its decision (see above) and I find no error in its decision in that respect. The Court has made broadly similar sorts of observations in other cases as well.

See, for example: Cadillac Fairview Corp. v Saskatoon (City) , 2000 SKCA 84 at para 42 , [2000] 11 WWR 89; L & L Lawson Enterprises Ltd. v Regina (City) , 2008 SKCA 43 at para 40 , 310 Sask R 29. [28] As these authorities indicate, Boards of Revision and the Committee must show an appropriate level of deference to the decisions made by an assessor in relation to the question of whether properties are, or are not, sufficiently comparable to be used in an assessment analysis. However, that does not mean an assessor has carte blanche in these realms.

He or she must act reasonably and must act by taking into account factors bearing on comparability. As the Court observed in 959630 Alberta Inc. , immediately after the paragraph quoted above, “However, if the Assessor erred in the way in which he exercised the discretion reposed in all assessors by the Act and the Manual , then an appellate body may intervene to address that error in law”.

Thus, an assessor may not ignore the question of comparability, or attempt to meet concerns about comparability, by doing no more than pointing to the results of statistical analyses. [118] An assessor is required by s. 163 (f.1) of The Cities Act to assess the property using mass appraisal that reflects typical market conditions for similar properties. Once a taxpayer proves there is a material error, the burden shifts to the assessor to prove that the assessment is correct in any event, or that equity was achieved.

An appellate body is not required to defer to the assessor’s discretion if the exercise of that discretion is ill-founded.

For the reasons I have explained, a material error on behalf of the Assessor was made and the Committee made no error by declining to defer to the Assessor’s discretion regarding methodology and time frames. [ 50 ] All of which is to say that this Court will not interfere with an assessor’s judgment call on the issue of similarity unless the assessor can be shown to have committed a “material error of fact or law or of assessment principles and practice as laid down in the [ Handbook ]” ( Cadillac Fairview Corp. Ltd. v Saskatoon (City) , 2000 SKCA 84 at para 37 , [2000] 11 WWR 89 [ Cadillac Fairview ]).

Put another way, similarity is, at least to some degree, in the eye of the assessor, who must always have regard for the objective criteria that govern the issue. [ 51 ] While there is a measure of skill and subjective judgment involved in an assessor’s determination of the relevance of, and in weighing the importance of, objective factors, an assessor is not entitled to rely on a subjective view of similarity to the exclusion of an analysis of the relevant objective factors ( TNC Mall at para 43 ; Consumers Co-operative Refineries Limited v Regina (City) , 2020 SKCA 111 at para 82 [ Consumers Refineries ]).

In Laing , Cameron J.A. said that, “What is called for in the exercise of that skill and judgment is the structured formulation of consistent opinions as to fair and equitable value for the purposes of property taxation in the municipality” (at para 28). Accordingly, where an assessor acts reasonably in the circumstances to achieve the end identified in Laing , the exercise of discretion should withstand appellate review ( TNC Mall ; Consumers Refineries at para 106 ). 6.

Midtown Plaza [ 52 ] The question of whether the Midtown Plaza is similar to the properties in the Group 2 Assessment Array is readily answered. It is not—not on any measure — and the SCP Guide says as much (at 2): Strip commercial properties not included in this valuation guide: • Auto dealerships • Hotel and motel properties; • Multi-residential properties with four or more rental units; • Larger stand alone properties (for example - in excess of 30,000 square feet); and • Larger multi-tenanted commercial properties with sufficient on-site parking and not strictly oriented to the street .

This type of property may be more appropriately categorized as a neighbourhood shopping centre. (Refer to the Shopping Centre Valuation Guide).

(Emphasis added) [ 53 ] On the other hand, the following is found in the Handbook , under

Chapter 9 Shopping Centre Valuation Guide [ SC Guide ] at 2: 1.1 Shopping Centres Covered in this Valuation Guide The methods described in this valuation guide are designed to suit various types of shopping centres with the exception of strip malls . (Refer to the Strip Commercial Properties Valuation Guide).

The methods presented here may be applicable to other types of commercial properties, but this valuation guide does not directly address any other type of property. (Emphasis added) [ 54 ] Looking at this from the assessment principles perspective, the Handbook repeatedly instructs that properties with similar traits and similar value characteristics should be grouped together to achieve homogeneity. Axiomatically, properties that do not share traits or value characteristics, or enough of them, should not be grouped together.

The reason for this is straightforward because equity is achieved only when assessments “bear a fair and just proportion to the market value of similar properties ” ( The Cities Act , s. 165(5) ; emphasis added). [ 55 ] Even though two properties may have some points of similarity (such as functional efficiency or appearance), if they are sufficiently disparate (e.g., in location or square footage), they will likely have disparate or non-comparable market values.

More critically, even if two disparate properties happen to have equivalent market values, those market values would have been derived, at least in part, from different market conditions based on each property’s distinguishing value-generating characteristics.

That is, where two properties do not have similar value-generating characteristics, the market value of one will not “reflect typical market conditions” of the other ( s. 163 (f.1)(iii)), thereby making it impossible to satisfy the market valuation standard in an assessment (s. 163(f.1)) and, accordingly, making it impossible to achieve equity (s. 165(5)). [ 56 ] Although similarity is obviously a fundamental aspect of assessment law under The Cities Act , neither the statute nor the Handbook set a clear benchmark or threshold of similarity that must be met.

Nonetheless, in the matter at hand, the very fact that SAMA has published the SCP Guide for assessing strip commercial properties and the SC Guide for assessing shopping centres more than suggests that the value-generating characteristics of those types of properties are not similar enough to be included in the same Guide .

This is a particularly acute conclusion because both Guides recommend the same direct capitalisation method of the income approach to the valuation of the property types they address, which can only mean the difference lies in the value-generating characteristics of the properties. [ 57 ] The conclusion is borne out by a review of the SC Guide , which identifies three types of shopping centres for assessment purposes (i.e., regional and super regional centres, community centres, and neighbourhood centres) and itemises the “valuation parameters” for establishing the market value of each type of mall (i.e., rents based on tenant type, common area maintenance charges, vacancy allowances, non-recoverable operating expenses, vacant space shortfalls, expense rates, and CAP rates) (at 13-14).

With respect to the determination of CAP rates for malls, the SC Guide states (at 26): Selection of a Capitalization Rate Selection of an appropriate capitalization rate is essential for the determination of an equitable market value based assessment for a property. The selection task starts with an analysis of the capitalization rates demonstrated in the sales of similar shopping centres . After a review of the available information, appropriate statistical measures (median, mean, range, etc.) can be determined for capitalization rates for each class of shopping centre .

From this the typical capitalization rate can be determined for each group of properties being valued. (Emphasis added) [ 58 ] The foregoing excerpt plainly recognises that CAP rates may differ so much among shopping centres that even that narrow property type must be stratified to account for differences in their value-generating characteristics.

If, on a principled basis, malls are not similar enough to each other to satisfy the market valuation standard, then it is difficult to imagine how the Midtown Plaza could be found to be similar enough to a run-of-the mill retail shop to satisfy the standard. [ 59 ] Looking at this from another perspective, the Taxpayer adduced evidence of the value-generating characteristics of Midtown Plaza that establish it as an entirely different kind of improvement than the Subject Properties.

Common sense dictates that an entirely different type of buyer would be interested in acquiring the Midtown Plaza (which sold for an adjusted sales price of $375,491,609) than the local doughnut shop. Indeed, pointing to the City’s own assessment practices, the Taxpayer observed that, for rent modelling purposes under the SC Guide , City assessors treat the Midtown Plaza as distinct vis-à-vis the four other shopping centres in Saskatoon. [ 60 ] The Taxpayer’s point is driven home when one considers the underpinnings of its observation.

It means that, in the 2019 assessment year, a City assessor determined that Midtown Plaza was not similar enough to other enclosed malls in Saskatoon to reliably estimate the NOI of those other malls. NOI is a critical variable under the income approach to estimating market value and in determining CAP rates. The same income approach (and the same variable) was used to estimate the market value of the commercial properties in the Group 2 Assessment Array. As noted, under the direct capitalisation method, the estimated NOI of a property in an assessment array is divided by the median CAP rate of the sales array.

What this means is that the assessed value of a property is an estimation of its market value that is based on its rental income generating capacity (i.e., market value is a function of rental income). As such, any factor that affects the rental income potential of a property is relevant to the issue of similarity. [ 61 ] In this case, the Taxpayer’s evidence, which is not in dispute, indicated that Midtown Plaza had 340,878 ft 2 of department store

space, 50,465 ft 2 of secondary anchor space, 5,183 ft 2 of food court space, and 239,901 ft 2 of commercial retail space. The mall’s total leasable area was 637,227 ft 2 in 2013 and 638,234 ft 2 in 2019, not including a 12-story tower with 94,629 ft 2 of office space and an above- and below-ground parking lot. These are physical “value-generating” characteristics that undoubtedly set Midtown Plaza apart from all other shopping centres and all commercial retail properties in Saskatoon, as a City assessor seems to have recognised when assessing it.

Strikingly, the mall generated $1,978,792.77 in revenue from the office tower and parking lot in 2013 and $2,930,412.08 in 2019. No commercial property in the Group 2 Assessment Array has anywhere near that kind of rental income potential from non-retail space. [ 62 ] In addition to the evidence, and to SAMA stating as much in the Handbook , this Court has long recognised that enclosed malls are bought and sold in a different marketplace than the run-of-the-mill commercial property.

In Cadillac Fairview , Sherstobitoff J.A. found no material error in an assessor’s decision to stratify fully-enclosed malls into a single group under a city-wide neighbourhood on the basis that local market influences in smaller neighbourhoods, where there were no similar properties, did not reflect the “grossly disproportionate” size and sale price of a mall. In that case, the Court had regard for the size, age, specific use, zoning, geographic distribution and market dominance of enclosed malls as characteristics that distinguish a mall from other commercial properties.

Similarly, in TNC Mall , Richards C.J.S. noted that, by definition, similarity is a relative concept where properties are rarely comparable in the sense of being identical. He went on to say that malls are “simply more or less similar with reference to a variety of relevant characteristics including use, building size, construction style, condition, site size, location and so forth” (at para 40). However, Richards C.J.S. also remarked that there was no necessity of properties being “strictly comparable, full stop” because that would ignore the fundamental reality that no two mall properties are identical.

In L & L Lawson Enterprises Ltd. v Regina (City) , 2008 SKCA 43 , 310 Sask R 29, Smith J.A. said this about what an assessor must do: [35] …[T]he Assessor is to look to the nature of the building in question and determine comparability on the basis of factors that affect price, or how the building would react in the market place. [ 63 ] Frankly, it is as though the assessor in this case ignored The Cities Act and what the Handbook has to say about “factors that affect price”, as well as the issue of similarity altogether, when including Midtown Plaza in Group 2 Sales. [ 64 ] Given the assessment principles and objective criteria set forth in The Cities Act , the Handbook and this Court’s jurisprudence, and given the Taxpayer’s evidence, I have no hesitation concluding that the assessor materially erred in law and assessment practice and unreasonably exercised the discretion reposed in assessors when including Midtown Plaza within Group 2 Sales. 7.

Affinity Head Office [ 65 ] Whether the Board, the Committee or this Court is reviewing an assessment, the reviewing body must first orient itself to the specific allegation of error advanced by the appellant. In this matter, the Taxpayer asserted that the Affinity Head Office had been erroneously included in Group 2 Sales by reason that its use differed from that of retail properties. In this regard, it placed great weight on the difference between a branch office of a financial institution, which it acknowledges is retail space, and the head office of a financial institution, which it says is office space.

On this footing, the Taxpayer’s appeal asked whether the assessor had erred by failing to stratify the Sales Array to exclude mixed office- and retail-use buildings or, more narrowly, to exclude properties with improvements that are used chiefly as office space. [ 66 ] Like the Board and the Committee, the City did not “come to grips” with the Taxpayer’s appeal or with its evidence on the question of similarity.

The City took the position that, notwithstanding the grant of leave, the Taxpayer had not raised questions of law or jurisdiction in its appeal to this Court and, therefore, its appeal should not be addressed.

The City also submitted that the Taxpayer had not placed the question of similarity before the Board and, therefore, that the issue had not been properly before the Committee and it urged this Court not to address it either. [ 67 ] When the City did address similarity, it asserted that “comparability does not involve comparison of individual properties (or individual sales to individual properties) to determine if they are ‘similar properties’ in accordance with the [market valuation standard]”.

Although it acknowledged that this Court has held otherwise in cases like Walmart , Harvard 2017 and 994552 NWT , the City said our jurisprudence is “wrong” and invited us to “revisit” the law. [ 68 ] The City also referenced an argument it had made before the Board, where it had asserted that it is improper to take into account the use to which a lessee had put a property because it is the “estate in fee simple” that is being valued under the assessment regime, not a leasehold interest.

This, of course, mischaracterises the Taxpayer’s argument but also flies in the face of the Handbook , which plainly states that the “theory behind the income approach [to property valuation] is that income-producing properties are bought and sold based on their income-producing potential” where “value is calculated by capitalizing the typical income produced by the real estate” ( Introduction at 12).

The Handbook also states that “property use” is one of the “common characteristics or variables” that guide the market-value based assessment of “every type of property” (Chapter 2 Valuation Parameters [ Valuation Parameters Guide ] at 3). That Guide also notes that the “income characteristics of the real estate”, which include “rents”, “other income” and “operating expenses, etc.”, are examples of the “type of factors that may be considered in developing valuation parameters” (at 3).

That is, the City’s submission to the Board that property use is irrelevant is an absolute non sequitur in the context of the income approach to property valuation, where an estate in fee simple is valued based on its income producing potential as leased premises . [ 69 ] As I interpret its appeal, the Taxpayer does not take issue with the categorisation of the Affinity Head Office as a strip commercial property, even though it is largely office space.

Its complaint is with its classification, within that category, as retail space, because—unlike the retail commercial properties in the Group 2 Assessment Array—its rental income is chiefly derived from a lease of office space.

Put another way, the Taxpayer takes issue with the assessor’s failure to stratify the Sales Array based on property use, as contemplated by the Handbook . [ 70 ] With no intent to be flippant about this, the Taxpayer’s argument may be analogised to a game played on the children’s television show Sesame Street , where viewers were lyrically asked to identify and explain why “one of these things is not like the others”. In this appeal, the Taxpayer has identified the Affinity Head Office as “not like” the other properties in the Group 2 Arrays.

Explaining why this is the case, it pointed to evidence of that property’s use as a “bank” and previous decisions made under the former assessment

regime, where the Committee had found that banks are more similar to office buildings than retail properties. [ 71 ] For example, in Canadian Western Bank v Saskatoon (City) , [2003] SMBAACD No 198 (QL), the Committee agreed that a bank is more akin in appearance to an office building than a retail building due to its foyer being partitioned from its office space. In that case, the Committee concluded that the board of revision had erred when it decided that banks and other financial institutions were properly included in a retail neighbourhood, as opposed to an office neighbourhood.

Likewise, in Canada Trustco Mortgage Co. v Saskatoon (City) , [2002] SMBAACD No 222 (QL), where the taxpayer had argued that bank properties were not similar to retail properties, the Committee said that a taxpayer “should have some reliance that comparability is based on more objective criteria than, ‘in some respects they look the same’” (at para 12).

Neither of these decisions is, of course, determinative of the issue in this appeal, which must be decided under the current assessment regime. [ 72 ] Under the current regime, the Handbook directly ties the “highest and best use” of a property to its “greatest net return in money or amenities over a given period of time” and then states that “[t]he purpose of determining a property’s highest and best use or probable use is to provide a basis for establishing its market value” ( Introduction at 10).

The Handbook recognises that “[i]t is the marketplace that determines highest and best use and it is up to the assessor to analyze the marketplace to determine what this use is” ( Introduction at 10). Nevertheless, “[u]sually[,] the present use of a property is its highest and best use” ( Introduction at 10).

On the basis of the Handbook and the evidence before the Board, I must presume, therefore, that the highest and best use of the Affinity Head Office is as office space. [ 73 ] Furthermore, having regard for The Cities Act and the principles set forth in the Handbook , I find the Taxpayer’s evidence establishes a prima facie case that the physical characteristics of the Affinity Head Office, as leased premises, and the head-office “banking” functions that were carried out from that property distinguish it from a credit union branch that provides financial services to the public and thereby also distinguish it from retail commercial properties in general.

The point can be fairly made that its owner, as a landlord, would not compete for tenants in quite the same marketplace as would the owner of a property suitable for lease as a local bank branch or, more pointedly, as a doughnut shop. [ 74 ] The SCP Guide instructs assessors to classify or stratify commercial properties into homogenous groups based on their common characteristics or variables—i.e., their valuation parameters.

The Handbook recognises that use affects value and that the income characteristics of the estate in fee simple are factors in developing valuation parameters ( Valuation Parameters Guide at 3). The Handbook also says a property’s use affects its rental income, which affects its NOI and, in turn, affects the CAP rate.

Common sense and the application of the Handbook therefore suggest a property’s use as office space, as opposed to retail space, might well affect its potential rental income and the reliability of a rental income analysis based thereon, and might, thereby, give rise to a disparate CAP rate. [ 75 ] In this regard, the Taxpayer observes that the 3.20% CAP rate derived from the Affinity Head Office sale sticks out as by far the lowest of the Group 2 Sales.

Accepting the City’s position that all other valuation parameters are similar, the fact that the Affinity Head Office CAP rate is the only outlier of the Group 2 Sales likely results from its disparate use as office space.

Importantly, the City made no argument and adduced no evidence to counter this conclusion. [ 76 ] On the whole of it, therefore, I conclude the Taxpayer’s evidence is sufficient to make out a prima facie case that the inclusion of the Affinity Head Office in Group 2 Sales resulted from an improper exercise of assessor discretion or a material error in the application of assessment principles or practices.

As the City declined to address its burden of persuading this Court that, notwithstanding this prima facie error, the 2019 assessments had nonetheless met the market valuation standard and had nonetheless achieved equity, I find that the assessor erred by including the Affinity Head Office in Group 2 Sales because the assessor did not stratify the Sales Array for property use. 8. Relief [ 77 ] In the event that we found error in this matter, the Taxpayer asked us to exercise the Committee’s power under s. 226(1) (

b) of The Cities Act and to adjust the 2019 assessment by reducing the assessed value of the Subject Properties through the application of a median CAP rate of 6.82%, which it derived from Group 2 Sales after excluding the Affinity Head Office and Midtown Plaza.

While the City took issue with the remedy sought, it did not challenge the Taxpayer’s calculation of the median CAP rate. [ 78 ] Accordingly, I would modify the Board Decision by adjusting the 2019 assessments of the Subject Properties downward through the application of a 6.82% CAP rate to thereby ensure that errors in the assessment roll are corrected and that accurate, fair and equitable assessments for the Subject Properties are placed on the assessment roll, in accordance with these reasons. B. Did the Committee err in law in its

interpretation and application of Vavilov ? [ 79 ] As I would decide this appeal under the first two questions, there is no need to answer the third and fourth questions upon which leave has been granted. Questions as to whether and how the Supreme Court of Canada decision in Vavilov applies in the context of assessment appeals under The Cities Act and The Municipal Board Act may be answered in a different appeal, where the answers are material to the result.

However, I will state that, as the Board misinterpreted the law and the issues raised in this matter, the Board Decision is at once unreasonable, regardless of how that standard is cast, and incorrect. IV. CONCLUSION [ 80 ] I would allow the appeal, set aside the Committee Decision and modify the Board Decision by adjusting the 2019 assessments of the Subject Properties downward through the application of a 6.82% CAP rate. I would order that the Taxpayer have its costs in this matter, determined in the usual way.

“Caldwell J.A.” Caldwell J.A. I concur. “Ryan-Froslie J.A.” Ryan-Froslie J.A. I concur. “Barrington-Foote J.A.” Barrington-Foote J.A.