Walmart Canada Corp. Appellant (Respondent) v. City of Prince Albert and, 2021 SKCA 158

Court of Appeal for Saskatchewan Docket: CACV3440 Citation: Walmart Canada Corp. v Prince Albert (City), 2021 SKCA158Date: 2021-12-02Between:Walmart Canada Corp.Appellant (Respondent)AndCity of Prince Albert and Saskatchewan Assessment Management AgencyRespondents (Appellants)Before: Richards C.J.S., Jackson and Barrington-Foote JJ.A. Disposition: Appeal allowedWritten reasons by: The Honourable Chief Justice RichardsIn concurrence: The Honourable Madam Justice Jackson The Honourable Mr.

Justice Barrington-FooteOn appeal from: 2019 SKMB 37 , 2019 SKMB 037, ReginaAppeal heard: October 8, 2021Counsel: Leonard Andrychuk, Q.C., and Allison Graham for the Appellant Dona-Lynn Morley for the Respondents Richards C.J.S. I. INTRODUCTION [1] This is an assessment appeal. It concerns the “market adjustment factor” [MAF], a variable used to account for certain kinds ofobsolescence and losses or gains in the value of a building when using the cost approach to value property. The central issues raised hereparallel those considered in Walmart Canada Corp. v Estevan (City), 2021 SKCA 157 [Walmart (Estevan)].

That decision is beingreleased at the same time as this one. [2] Walmart owns a store in Prince Albert [Building]. It was valued for assessment purposes using what is known as the costapproach. In performing the assessment, the assessor developed a MAF of 1.43. On appeal to the Board of Revision [Board], Walmartargued that the properties underpinning the sales used to calculate the MAF were not similar to the Building. The Board agreed andtherefore applied what it called a “neutral” MAF of 1.0. The City then appealed to the Assessment Appeals Committee of theSaskatchewan Municipal Board [Committee].

The Committee rejected the idea of a neutral MAF and, without further analysis, reinstatedthe 1.43 MAF used by the assessor. [3] I conclude, for the reasons set out below, that the Committee erred in law by proceeding as it did. As explained in Walmart(Estevan), a MAF can be applied only when there are enough sales of similar properties to warrant its development.

As a result, this mattermust be referred back to the Committee so that it can consider the reasonableness of the Board’s conclusions about the lack of similaritybetween the Building and the properties underlying the sales used by the assessor to calculate the 1.43 MAF. II. BACKGROUND [4] The Building is a “big box” retail store. It was constructed in 2001 and is 523,155 square feet in size. The Building wasvalued at $16,248,200 – more than double its previous assessed value. [5] To derive the value of the Building, the assessor used what it called the “market modified cost approach”.

This involved, first,the calculation of the Building’s replacement cost new less depreciation [RCNLD]. The assessor then developed and applied a MAF to theRCNLD. The Cost Guide developed by the Saskatchewan Assessment Management Agency [SAMA] explains a MAF as follows at page1 of

chapter 3.10: The market adjustment factor accounts for all economic obsolescence and any loss or gain in value of the building or structure due to anydifference in replacement costs and any difference in the amount of physical deterioration or functional obsolescence, that have not alreadybeen taken into account. [6] The detail of how a MAF is calculated is not especially important for the purpose of resolving this appeal.

It is enough to saythat, under the sales comparison method, the method in issue here, the Cost Guide provides that the development of a MAF begins withthe identification of “improved properties with comparable buildings or structures that are sales” (at 1, ch 3.10). [7] In calculating the MAF, the assessor used data from the sales of ten commercial properties located outside of the downtownarea of Prince Albert.

These properties included such things as a house that had been converted into a grocery/confectionary store, a dry-cleaning establishment, a gas station/convenience store, a hobby craft business, a dance studio/computer repair shop, and a formerBlockbuster video store. The assessor arrived at a MAF of 1.43 and, as noted above, ultimately assessed the Building at $16,248,200.

[ 8 ] Walmart appealed the assessment to the Board. It argued that the MAF was too high and, more specifically, that the properties used to calculate the MAF were not comparable to the Building. It was agreed that the evidence and argument advanced by Walmart on its appeal would apply to various other “big box” properties in Prince Albert. [ 9 ] The Board agreed with Walmart. It said that the idea of comparability or similarity of the properties used in the calculation of a MAF was fundamental and identified “four principle components” of similarity in the case at hand. These were (

a) use of the property, (

b) physical size of the land and improvements, (

c) approximate market value, and (

d) typical trading market. [ 10 ] The Board then examined each of these variables. First, it found similarity with respect to the use of the properties in issue because all were commercial/retail in nature. [ 11 ] Turning to physical size, the Board found no similarity between the Building and the properties underlying the sales used to calculate the MAF. It noted that the Building was over 150,000 square feet in size and that the largest of the properties in the MAF sales array was less than 15,000 square feet. [ 12 ] As for market value, the Board again found a lack of similarity.

It pointed out that the highest value sale among the properties used to calculate the MAF was less than $1,000,000 and that the median value of the ten sales in issue was $283,000. On the other hand, as noted above, the Building had been assessed at over $16,000,000. [ 13 ] Finally, the Board considered the trading market issue.

It underlined that the properties used to develop the MAF traded primarily in the local market whereas the Building would trade in a national or even international market. [ 14 ] In the result, the Board found the Building to be dissimilar to all of the properties used by the assessor to calculate the MAF and held that there was no market evidence to support a 1.43 MAF. As a result, it applied a “neutral” MAF of 1.0. [ 15 ] The City then appealed to the Committee.

One key feature of its position was that the assessor had created the most comparable sales array possible given the sales at its disposal and that the array was the only evidence available. The City also stressed that the Board had erred by using a “neutral” MAF because no such concept is mentioned in the Cost Guide and because a neutral MAF does not satisfy the requirements of s. 164.1(2) of The Cities Act , SS 2002, c C-11.1 [ Act ].

Section 164.1(2) provides that the assessment of non-regulated properties, such as the Building, “shall be determined according to the market valuation standard” [MVS]. [ 16 ] The MVS is defined as follows in s. 163 (f.1) of the Act : (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[.] [ 17 ] The Committee allowed the City’s appeal and reinstated the 1.43 MAF that had been developed by the assessor. It did so on the basis that a “neutral” MAF could not be squared with the MVS requirement in the Act . III. ISSUES [ 18 ] Walmart was granted leave to appeal to this Court on three grounds: (

a) Did the Committee err in the

interpretation of s. 163 (f.1) and s. 165(5) of the Act when it found that the MVS requires a MAF to be applied to all properties under the cost approach? (

b) Did the Committee err in the

interpretation of s. 163 (f.1) and s. 165(5) of the Act when it found that the MVS and equity are met by applying a MAF to properties that are not comparable to the properties in the MAF group if they are “the only evidence of market conditions”? (

c) Did the Committee err in law or jurisdiction by overturning the Board’s finding of fact that the subject property was not comparable to the properties in the MAF group without finding that the said finding of fact was unreasonable? IV. ANALYSIS A. Did the Committee err in its

interpretation of the Act ? [ 19 ] The first question on which leave was granted asks whether the Committee erred in the

interpretation of s. 163 (f.1) and s. 165(5) of the Act when it found that the MVS requires a MAF to be applied to all properties when using the cost approach. This is the same question that is addressed in Walmart (Estevan) at paragraphs 23–34 and there is no need to repeat that analysis here. Simply put, the Committee erred because there is no requirement, flowing from the Act or otherwise, that the employment of the cost approach to valuation must involve the application of a MAF.

A MAF is appropriate and possible only if there are an adequate number of sufficiently comparable properties to warrant its calculation. [ 20 ] That said, and as explained in Walmart (Estevan) at paragraph 34, the notion of a “neutral” MAF of 1.0 is misplaced. If there

are not enough sales of comparable properties to generate a MAF, that means there will be no MAF at all. It does not mean that the MAF should be set at 1.0. B. Did the Committee err by finding that non-comparable properties could be used to develop a MAF? C.

Did the Committee err by overturning the Board’s finding that the properties in issue were not comparable without finding the Board had acted unreasonably? [ 21 ] The second question on which leave was granted asks whether the Committee erred when it found that the MVS and equity were realized by applying a MAF to properties that are not comparable to the properties in the MAF group if they are “the only evidence of market conditions”. This is one of the points on which leave was granted in Walmart (Estevan) .

The third question at issue in this appeal asks whether the Committee erred by overturning the Board’s finding that the Building was not comparable to the properties in the MAF group without finding that what the Board had determined about comparability was unreasonable. Obviously, there is significant overlap between these two questions.

Accordingly, it makes sense to consider them concurrently. [ 22 ] Walmart submits that the Committee was faced with a clear finding by the Board that the Building was not similar to the properties used by the assessor to calculate the 1.43 MAF and erred by nonetheless endorsing that MAF without overturning the Board’s finding of non-similarity. Alternatively, Walmart says that, if the Committee’s decision is understood to have found the Board’s finding of non-similarity to have been unreasonable, the Committee erred in making that determination.

For its part, the City contends that the Committee’s decision should be read as meaning that the Committee held the Board’s findings about similarity to be unreasonable and then proceeded from there to reinstate the MAF developed by the assessor. [ 23 ] As is perhaps evident from the nature of the positions taken by the City and Walmart, the Committee’s decision is not entirely clear.

To sort out its meaning, it is useful to begin with what happened at the Board. [ 24 ] As explained above, the Board looked very directly at the comparability of the Building and the ten properties underpinning the sales used by the assessor to calculate the MAF. In this regard, it focussed on the use of the properties, their physical size, their value and the markets in which they typically trade. It concluded that, although all of the properties were used for a commercial/retail purpose, they had no similarity when it came to size, value and trading markets.

In the end, the Board expressly found the Building to be dissimilar to the properties used by the assessor to develop the MAF. It said this: [34] In the result, the Board finds the subject property to be dissimilar to any of the properties within the sales array used by the Assessor despite the similarity of its use as a commercial retail operation. Consequently, there is no true market evidence to support a Market Adjustment Factor of 1.47 or 1.43 for a property such as this. These types of properties are simply not bought or sold on the open market.

The application of a Market Adjustment Factor relies upon market evidence and in the matter at hand, there is no comparable market evidence as is required to develop and apply a Market Adjustment Factor. [ 25 ] Accordingly, and as Walmart and the City both agree, it is apparent that the Board found that the Building and the sales used to calculate the MAF were not similar, i.e., not similar enough to warrant the calculation of a MAF. [ 26 ] For its part, the Committee was obliged, by virtue of City Centre Equities Inc. v Regina (City) , 2018 SKCA 43 at paras 98–101 , to review the Board’s findings of fact and mixed fact and law using the reasonableness standard.

What then of its decision? The key elements of its relevant reasoning are set out below: [45] We see no indication the Board tried to reconcile the 1.43 MAF and a “neutral MAF” of 1.00. They assumed that, because they believed the MAF sales were not comparable to the subject properties, the market would react substantially differently than the local sales indicate. [46] The Board may have been influenced by [the tax agent’s] information of MAFs below 1.00 for other Canadian Tire and Walmart stores in communities outside the City. There was no evidence indicating how these MAFs were determined.

This data only showed that each individual city has a different MAF. Prince Albert is an individual assessment jurisdiction. The City pointed out that there is no case law in Saskatchewan that directs an assessor to use market data from outside their jurisdiction. We agree. Sales information in a mid-sized city like Prince Albert is limited yet this is what the Assessor has to work with. The City acknowledged the sales information is not ideal. It is, however, what is available.

AEC did not bring evidence of any more comparable sales that were not included in the MAF analysis. [47] The Board is bound by legislation yet did not explain how a “neutral MAF” meets the MVS and equity. It is not sufficient to accept AEC’s submissions without ensuring the solution meets the legislation. We find the Board made an error in law by not confirming the “neutral MAF” met the MVS. [48] AEC asserted that a “neutral MAF” better meets the MVS than the 1.43 MAF. One reason for this is that the cost estimates are determined using statistics.

However, the only statistics that are specifically required in Saskatchewan are Assessment to Sales Ratio (ASR) calculations, as described in SAMA’s quality assurance standards. ASRs cannot be calculated for a “neutral MAF” as there are no sales to analyze. [49] The “mass appraisal” definition calls for use of common data. What common data could be used in determining improvement values if sales are not employed? [50] Saskatchewan assessment guidelines call for the use of a MAF, based on sales, for non-regulated properties (except special purpose). The subject properties are Commercial/Retail.

An unadjusted Cost Approach may be accepted outside Saskatchewan for non-

regulated properties but this method is not normal assessment practice in this province. [51] Mass appraisal is “… the process of preparing assessments for a group of properties ….” It is not clear what group of properties the “neutral MAF” applied to. Sales are normally used to help define the property group since sales indicate market conditions. In the absence of sales, how can a property group be defined? [52] We find that a “neutral MAF” does not meet the MVS for reasons stated above.

We overturn the Board’s decision with regard to the 1.00 MAF and reinstate the MAF of 1.43. [ 27 ] I am unable to read this line of thinking as involving a conclusion by the Committee that the Board acted unreasonably in finding the Building to be dissimilar to the properties used by the assessor to develop the MAF. Rather, and reflecting the nature of the key submission that the City had made to it, the Committee’s attention was focussed on the propriety of the “neutral” MAF notion as a concept. This, of course, was a step away from the comparability issue itself.

Parenthetically, I note that Walmart goes so far as to say that, before the Committee, the City did not even argue the reasonableness of the Board’s decision and, by implication, to suggest that the City did not argue the issue of comparability. I am not persuaded that this is a wholly proper assessment of the situation. It is true that the brief filed by the City with the Committee did not use the term “reasonableness”.

However, it did allege errors by the Board in relation to “not recognizing the Assessor’s discretion in determining the property grouping and the comparability of properties” and “finding facts respecting the trading market for the Property without reliable or expert evidence respecting the market”. Its brief also argued that, although size may be a factor in comparability, it is not the only factor. Overall, I conclude that, although perhaps not elegantly, the City did put in issue the comparability of the Building and the properties used to develop the MAF in its submissions to the Committee.

These lines of argument are reflected in paragraphs 23 and 24 of the Committee’s decision. [ 28 ] In the end, and returning to the main track of the analysis, I conclude that the Committee reverted to the 1.43 MAF calculated by the assessor without considering whether the Board had acted unreasonably in finding that the properties underpinning the sales used to develop the MAF were not sufficiently similar to the Building to be used for that purpose. It found that the “neutral” MAF concept was illegitimate and moved directly from that conclusion to the reinstatement of the 1.43 MAF. That was an error of law. V.

REMEDY [ 29 ] Walmart contends that, if the Court finds the Committee failed to address the reasonableness of the Board’s finding of dissimilarity between the Building and the properties used in the MAF calculation, it should make that determination itself rather than referring the issue back to the Committee. As in Walmart (Estevan) , Walmart relies on CP Reit S Real Estate Limited v Saskatoon (City) , 2021 SKCA 100 , in making this submission.

For its part, the City contends that this is an issue that should be addressed by the Committee and, hence, referred back to it. [ 30 ] As discussed in Walmart (Estevan) at paragraphs 50 and 51, CP Reit does not stand for the proposition that the Court is obliged to undertake, or should make a practice of undertaking, the kinds of analysis that would normally come within the institutional mandate of the Committee. The Court’s role is focussed on questions of law.

There will be situations, like the one in CP Reit , where matters are so straightforward that the Court might elect to go further afield but those situations will be the exception rather than the rule. [ 31 ] In the circumstances here, I am not persuaded that the Court should take on the task of evaluating the reasonableness of the Board’s decision about comparability. This, it seems to me, is quintessentially something that the Committee should be doing.

In addition, and importantly, neither Walmart’s factum nor the City’s factum addresses the issue of comparability in the thorough and focussed way that the Court might expect if it was going to make a decision on the point. Oral argument shed some light on the comparability question, but I am not persuaded that the Court has heard all that might be relevant to this issue. [ 32 ] In the end, the best course of action is to refer the question of the reasonableness of the Board’s conclusion about comparability to the Committee for consideration. VI. CONCLUSION [ 33 ] Walmart’s appeal is allowed.

The question of the reasonableness of the Board’s finding about the dissimilarity between the Building and the properties used to calculate the 1.43 MAF is referred back to the Committee. The Committee is to consider that issue in the course of deciding whether it is possible, given the evidence at hand, to develop a MAF, and, if it is possible, the proper value of the MAF. [ 34 ] Walmart is entitled to costs in the usual way. “Richards C.J.S.” Richards C.J.S. I concur. “Jackson J.A.” Jackson J.A. I concur. “Barrington-Foote J.A.” Barrington-Foote J.A.