Docket: LT92007
Order: LT93-3IN THE MATTER of the Real Property Assessment Act, R.S.P.E.I. 1988 Cap. R-4;
and
IN THE MATTER of an appeal to The Island Regulatory and Appeals Commission (the Commission), under Section 22 of the Real Property Assessment Act (Act), by Alti-Lien Holders Inc. (the Appellant) of Charlottetown, Prince Edward Island, against a decision of the Minister of Finance (the Minister) with respect to the 1991 assessment of property (Provincial Property Number 778563-000) located in Victoria, P.E.I.
DATED the 22nd day of September, 1993.
Linda Webber, Chairman
John L. Blakney, Vice Chairman
Michael Ryan, Commissioner
Interim Order
Appearances
1. For the Appellant
Richard Farmer President, Alti-Lien Holders Inc.,
The Appellant
2. For the Minister
Jim Ramsay Director, Real Property Assessment Division
Bill Found Manager, Commercial and Special Purpose Properties
Reasons for Order
I. BACKGROUND
The property in question is located just outside the municipal boundary of Victoria, P.E.I. and includes 16.5 acres of land comprised of a 1.0 acre lot, 9.5 acres of land general, and 6.0 acres of low wet land. The property is serviced by three wells (2 fresh water and 1 salt water) and two sewage lagoons.
Three structures are located on the property. Building Number 1 is a three-storey precast concrete industrial engineering and research building. Construction of this building began in 1986, however it was never completed or occupied. Building Number 2 is a single storey Sprung structure and consists of a poured concrete foundation, aluminum frame, and a vinyl/rubber fabric exterior wall/roof cover. Construction of this building began in 1986 and has never been completed. The third building is a single storey steel-frame structure which was started in 1986 but was not completed at the time of appeal The foundation is poured concrete and the roof has a metal cover. There are no exterior or interior walls.
Building areas for the three structures include 25,260 square feet for building Number 1, building Number 2 has 27,604 square feet and building Number 3 has 2,014 square feet.
The P.E.I. Development Agency acquired the property on March 31, 1987. In 1990, Alti-Lien Holders Inc. took possession of the property and since that time has been trying to sell the property.
The assessment history of the property is as follows:
YEAR TOTAL 31/03/87 $1,114,700 1988 $1,169,000 1989 $1,248,900 1990 $1,309,700 14/12/90 $1,306,200 1991 $1,608,700 1991 Revised $969,300 1991 Revised $683,500 By Notice of Appeal dated June 10, 1992, Richard Farmer appealed the 1991 real property assessment for Provincial Property No. 778563-000. The reasons for the appeal are as follows:
"Value of property is groosly [sic] overrated. (a) property is of no or little commercial value (b) property damaged -structural and u/g pipes to be checked (c) Max. value should be based on sale of interest by one shareholder to another, i.e. free market value."
The Commission heard the appeal on May 4, 1993, in Charlottetown.
II. EVIDENCE AND ARGUMENTS
A. Appellant
Arguments for the Appellant can be summarized as follows:
The Appellant stated during the hearing that he has no argument against the assessments of building No. 1 and building No. 3 and he has no argument against the assessment on the lot or the improvements to the lot. The appeal is primarily against the assessment of building No. 2 - the Sprung structure.
Mr. Farmer focusses on: 1) the money that has been invested in the property during the course of construction; and 2) the fact that they have been unsuccessful at selling the property.
In response to the Department's statement regarding the total cost of the project, Mr. Farmer argued the actual investment on the property was not $7,000,000 but rather $1,500,000 which was the approximate value of work done on the property. A large percentage of this was not paid to the contractors and this forms the basis for the financial liens.
When construction ceased on the property there were originally 30 creditors. Of these, 15 or 16 creditors actually filed liens on the buildings, totaling $437,279.24. Of this amount, $232,278.01 in liens were subsequently sold for $106,319.01 or approximately 45.77% of the lien value.
The total lien of $437,279.24 was converted into share capital and formed Alti-lien Holders Inc. Alti-lien Holders Inc. offered to sell to the P.E.I. Development Agency the total shares, however the Development Agency declined this offer. Mr. Farmer contends the Agency declined this offer because the property was not worth the amount of the liens.
The Development Agency had possession of the property from 1987 to 1990. Mr. Farmer argued that during this period the property was neglected and as a result all the buildings suffered structural damage. Consequently, the property as a whole, in his opinion, is now worth less than $437,279.24.
The property has been for sale for the last 7 years and no legitimate buyers have come forward.
Currently there are a number of shareholders who are willing to sell their shares for approximately 50% of the value of the lien. Mr. Farmer stated that some transactions have been as low as 30%. The dollar figure of the total liens sold and those not sold would be approximately $300,000.
The Appellant further argued the per square foot cost of $37.12 of the Sprung structure, as stated by the Department, is not accurate, and in fact the price per square foot is "absolutely horrendous".
In conclusion the appellant stated Building Number 2 - the Sprung structure has basically no value. He has rented the building as a shed for storage and the rent has not paid for the expenses of advertising and incidental costs. He assumes that any reasonable offer would be accepted - even 10% or approximately $30,000.
B. The Minister
Arguments for the Minister can be summarized as follows:
The Department's explanation is summarized on p.12 of Exhibit 1:
The analysis of comparable lot and land assessments indicates that the subject's lot and land are not over-assessed in terms of uniformity of assessment with similar properties in the area. While all industrial/commercial type structures in this general area would receive the same allowance for Locational Obsolescence, the allowance for Physical Deterioration and Functional Obsolescence, are unique to each individual property with the subject receiving very large allowances to reflect the condition of the structures as well as the design.
Property sales which are comparable to the subject are unavailable, and therefore the Cost Approach must be given the maximum weight in arriving at the indicated market value of the subject.
The Department argued that the liens currently held against the property, in the amount of approximately $391,000, together with approximately $225,000 in legal and carrying charges for the current owners, represent an extremely small portion of the total money invested to date in the subject property. While there may be various motives for certain shareholders to sell their interest in the property to other shareholders at a loss, this is not indicative of the value of the property.
The subject property is currently listed with Century 21 at a list price of $900,000.00.
The Department argued the 1991 assessment of $683,500 currently under appeal, is very much below the total money spent to date on the subject property, however it is considered to fairly reflect the property value as of January 1, 1991, considering the type of property, its location, and its present condition.
III. DECISION
The Commission observes that the Department has already made a number of adjustments to the assessment which indicates that it is somewhat unsure of what to assess or what method to use to assess the property.
The Commission notes with interest the comments made in Regional Assessment Commissioner, Region No. 28 v. Avalon Aviation Inc. (1991), 27 O.M.B.R. 362 at p. 371:
The board finds that the assessment based on the cost approach has no relation to the market value of a single-purpose building, the ongoing purpose of which is lost ...
In that case the building at issue was an airplane hangar designed specifically for very large planes used as water bombers for fighting fires. Changes in technology had resulted in the planes effectively becoming obsolete. The hangars were no longer useful for their intended purpose, perhaps only useful as storerooms if converted. Overall, the case confirms the validity of taking economic obsolescence into consideration.
While the comments in Avalon Aviation are interesting, in the case before us we have no information other than replacement cost information. The Appellant did not provide an independent appraisal.
The Commission also notes that one definition for economic obsolescence is "loss in value from forces external to the property and is almost always considered incurable because the property owner can rarely do anything to overcome the defect".1
The Commission accepts this as a reasonable definition and accepts the Appellant's argument that the present building is no longer useful for the purpose for which it was designed, and it is difficult to perceive of any real use for it. In the opinion of the Commission the Appellant finds himself in a position brought about by circumstances over which he has no control. He is now in possession of a structure specifically designed for a purpose for which it could not be used at the time of appraisal. Consequently the Commission finds that the economic obsolescence of the Sprung structure is significant.
The Commission understands that the Department has categorized the buildings on the property as special purpose and that any purchaser will have to be someone who might use only a part of the property. The Commission further understands the Department's position is that in the case of special purpose buildings it is difficult to say with any certainty that one building has value and the other does not unless one building has deteriorated to a point where there is no value. The Department explained to the Commission that when special purpose buildings are transferred from one owner to another there is a certain amount of modification required and therefore the Department acknowledges a transition period for sale and conversion and applies an allowance of 25 per cent.
However, in this case, we accept the Appellant's argument that the present building is no longer useful for the purpose for which it was designed, and it is difficult to perceive of any real use for it. As the Appellant pointed out, it isn't even good for storing hay because it lacks ventilation and is designed to trap moisture.
In the result, the Commission finds that at the time of appraisal and due to circumstances beyond the control of the owner, the utility of the Sprung structure was significantly decreased and a cure of the loss in value is not economically feasible. Therefore, in this case the Commission does not accept the Department's general application of 25 per cent for the special purpose category.
The Commission therefore orders the Department to determine a new rate, such a rate to more appropriately reflect a loss in value that is considered by the Commission to be incurable and to submit a suggested revised assessment to the Commission by October 20, 1993, with reasons explaining the basis for the determined value.
IN THE MATTER of the Real Property Assessment Act, R.S.P.E.I. 1988 Cap. R-4;
and
IN THE MATTER of an appeal to The Island Regulatory and Appeals Commission (the Commission), under Section 22 of the Real Property Assessment Act (Act), by Alti-Lien Holders Inc. (the Appellant) of Charlottetown, Prince Edward Island, against a decision of the Minister of Finance (the Minister) with respect to the 1991 assessment of property (Provincial Property Number 778563-000) located in Victoria, P.E.I.
Interim Order
WHEREAS Alti-Lien Holders Inc. (the Appellant) appealed to The Island Regulatory and Appeals Commission (the Commission), in written notice dated June 10, 1992, against a decision of the Minister of Finance;
AND WHEREAS the Commission heard the appeal at a public hearing conducted in Charlottetown, P.E.I. on May 4, 1993;
AND WHEREAS the Commission has made an interim decision in accordance with the stated reasons;
NOW THEREFORE, pursuant to the Real Property Assessment Act;
IT IS ORDERED THAT the Department submit a suggested revised assessment to the Commission, consistent with the terms of this Interim Decision and Order, by October 20, 1993 with reasons explaining the basis for the determined value.
DATED at Charlottetown, Prince Edward Island this 22nd day of September, 1993.
BY THE COMMISSION:
Linda Webber, Chairman
John L. Blakney, Vice Chairman
Michael Ryan, Commissioner
1
Course 443/Certificate Year Two Real Property Assessment 1992/93 Course Manual - Urban Land Economics Diploma Programme, The University of British Columbia, p. 16-25.
