Docket LT92009
Order LT93-4IN THE MATTER of the Real Property Assessment Act, R.S.P.E.I. 1988, Cap. R-4,
and
IN THE MATTER of an appeal, under Section 22 of the Real Property Assessment Act, by Sleiman Wakim (the Appellant) of Charlottetown, P.E.I., against a decision of the Minister of Finance (the Minister) with respect to the 1991 assessment of provincial property number 342766-000 located in Charlottetown, P.E.I.
WEDNESDAY, AUGUST 11, 1993
Linda Webber, Chairman
John L. Blakney, Vice-Chairman
Michael Ryan, Commissioner
Order
Appearances
1. For the Appellant
Sleiman Wakim The Appellant Peter Ghiz Legal Counsel
2. For the Minister
Jim Ramsay Director, Real Property Assessment Division Bill Found Manager Commercial and Special Purpose Properties Kevin Dingwell Manager, Residential and Farm Properties Roger Langille Legal Counsel
Reasons for Order
1 Background
By Notice of Appeal dated November 22, 1991, filed on behalf of Sleiman Wakim, the 1991 real property assessment for property number 342766 was appealed to this Commission.
The reason given for the appeal is: "We can see no justification for a 52.8% increase in the market value assessment for 1991 over the market value assessment for 1990."
The property in question is located at 32-36 University Avenue in Charlottetown, P.E.I.
The lot measures 80 feet frontage on University Avenue and is 88.25 feet deep. At the time of the appeal to the Department of Finance the property contained a building housing the Lunch Bar Restaurant and C & M Opticians on the first floor and three apartments on the second floor. The building was two storeys in the front and one in the back. The partial basement with clay floor was considered of no added value to the property. The building was approximately 130 years old.
The assessment history of the property is as follows:
Year
Commercial Realty
Non-Commercial Realty
Total
1985 $133,100 $ 13,200 $146,300 1986 $146,400 $ 14,500 $160,900 1987 $161,100 $ 15,900 $177,000 1988 $177,200 $ 17,500 $194,700 1989 $194,900 $ 19,300 $214,200 1990 $214,400 $ 21,200 $235,600 1991 1991 Revised
$348,900 $302,500
$ 34,500 $ 57,600
$383,400 $360,100
1991 Revised $336,400*
(Eff. Nov. 17) *(Land Value Only) 2 Evidence & Arguments
The basis of the appeal of Sleiman Wakim is that, "We can see no justification for a 52.8% increase in the market value assessment for 1991 over the market value assessment for 1990." (Ex. 1 p. Exhibit "O").
The phenomenal increase in tax payable in 1991 cannot be justified. There have been no significant improvements to the property over the past three years and it is my understanding that the 1991 taxes levied on other properties in the general vicinity increased approximately 10% over 1990.
(Ex. 1 p. Exhibit "K")
During and after the hearing, the Appellant's arguments were expanded to include an argument against valuing the land and building separately and adding the values together to arrive at a total assessment for the property, and against the method(s) used by the Department to do this.
The position of the Department is stated at p.8 of Exhibit 1:
The major increase in assessment from 1990 to 1991 was due, almost entirely, to an increase in the assessed value of the land. This increase was necessary to bring the land assessment of the subject property to a uniform level with other properties in the immediate area.
After hearing arguments during the hearing about the right to light argument of an adjacent property owner, and the encroachment of that same property owner's building on the Appellant's land, the Minister adjusted the assessment by reducing it a further $6,100-the rounded sum of $3,242 adjustment for the right to light issue and a $2,885 adjustment for the encroachment problem. The Department did not allow any adjustment for any restrictions created by the MacKenzie Theater side door, but rather provided information from the Fire Marshall indicating that it was not a required fire exit.
3 Decision
The Commission accepts the adjustments made by the Minister for the right to light problem and the encroachment problem as reasonable, and also agrees that since the evidence indicates no obligation to leave an exit on the MacKenzie Theater side of the building no adjustment is required for that. With respect to the argument that the land valuation increase is unacceptable simply because it has occurred so suddenly, the Commission has considerable sympathy for the Appellant but cannot see that this is a ground for invalidating the assessment.
It is first of all necessary to keep in mind the purpose of real property assessments:
In the final analysis, and regardless of the method of mass appraisal, the purpose of all assessment "appraisals" is the equitable distribution of the tax burden. For this reason, equity is achieved by an apportionment of the values of all properties which conform with certain universal and jurisdictional principles and up-to-date methods which are capable of ensuring the equal tax treatment of all groups of properties, industrial, commercial, residential or resource.
(p.2, St. Francis Xavier Course Manual, 1987)
The evidence provided on behalf of the Minister clearly indicates that the lot value assigned to the Appellant's properties is consistent with the lot value assigned to other properties in the area. The methodology used to apply these uniform rates to the unique configuration of each property is also consistent, and is used by the assessment industry generally and accepted as valid in determining similar land values.
The fact that the dollar value increased more than 52% from 1990 to 1991 is shocking and does the Minister no credit. Since the evidence before us indicates that the new assessment simply brought the Appellant's property up to the assessment level of other properties, then one could argue-as does the Minister-that the Appellant has in the past benefited from too-low an assessment. However, if the overall goal is equitable sharing of the tax burden this is of little comfort as it means that others must have borne too great a share during the years when the Appellant's property was under-assessed.
The Minister's representatives have explained that they noticed this discrepancy about 10 years ago and decided to increase the assessment 10% each year to "catch up" on the value. However, because of the low building value the "catch-up" formula didn't work and it was decided to make the required "correction" all at once in 1991.
If the Minister had noticed earlier the failure of the 10% formula to close the gap between assessed value and market value, a new formula could have been used-which would have introduced the change more gradually. In fairness to all taxpayers, this should have been done.
However, there is no rule or regulation requiring assessment changes to be made gradually and so the suddenness of the change cannot be used to invalidate the assessment.
Another argument made by the Appellant was that the Minister's approach to valuation-of determining the land value separate from the building value and then adding the two together to get the value of the whole-is invalid. None of the law cited by the Appellant supported this argument.
The University of British Columbia Appraisal Course Manual (1988) makes these comments:
The value of an improved parcel is usually separated into a land value and a building value. When the sales comparison or income approach is used, an independent estimate of the land value is subtracted from the total estimated value to obtain a reduced improvement value. This method, of course, requires the appraisal of improved land, which can be particularly difficult in older or highly developed areas.
As an alternative, some computer-assisted mass appraisal models, notably adaptive estimation procedures, provide for automatic separation of land and building values. Such models automate the land appraisal process and provide market-based land valuations in the complete absence of vacant land sales.
(p. 15-9)
The Minister's approach appears to be the latter. The principle of evaluating land and building separately is clearly acceptable.
The Appellant also appeared to argue that the Minister should have relied upon the 1985 purchase of part of the property by the Appellant as the best evidence of the market value of the property. We can't accept this six-year-old sale as evidence to be relied upon in the absence of evidence about inflation, land value changes, etc. in the interim. Even if the price paid in 1985 were market value, that is not evidence that the 1991 assessment is not also market value. We must agree with the comments in the Minster's brief, "In short, a six year old sale of a half-interest with a probable motive involved would not be regarded by any competent appraiser as a clear indicator of market value." (p.9)
A further argument by the Appellant that the particular circumstances of each property need to be considered is, in principle, valid but does not seem applicable here. The land values compared were substantially similar and its unique features (depth, triangularity, encroachment, etc.) have been accounted for.
Finally, the Appellant argued that the property must be viewed in its entirety and that it is inappropriate to add the land and building values together because anyone wanting to purchase the property would likely do so for the potential value of the land, not the value given to the land by the badly-deteriorated building on it.
In support of this proposition the Appellant primarily refers to two cases: Western Indoor Tennis Ltd. v. Assessor of Area II Richmond-Delta (1981), 29 B.C.L.R. 26 and Sun Life Assurance Co. of Canada v. The City of Montreal, [1950] S.C.R. 220, which case the Minister's counsel pointed out went on to the Privy Council for further decision.
In our view, the Appellant's counsel has misinterpreted the Western case. In that case (and others) the Courts disapproved of valuing land as though it were suitable (zoned) for one use and the building as though it were suitable (zoned) for another use. That is, if land is valued as residential then the building on it must be valued as residential; if land is valued as commercial then the building on it must be valued as commercial. It is simply inappropriate to value each separately in accordance with the highest possible use it can have. Following from this the Courts have affirmed that an assessment must deal with the land as presently used, not as it might be used in the future.
These comments are not of assistance in this case because the land and building were used by the Appellant as commercial/residential premises and were valued as commercial/residential premises.
The Sun Life case was one in which the building being assessed possessed extremely elaborate, expensive features that cost the owner a large amount of money that he was unlikely ever to recoup on a sale. A functional, effective, well-built building is all that the market really wants, said the Court, therefore, the extra features added by the owner to meet his special requirements should not be made part of a market value assessment.
The Appellant appears to argue that Sun Life stands for the proposition that the building value can't just be added to the land value without considering the special circumstances of the situation. In this case, the Appellant argues that for the land to have its full value no one would want the building that was on it in 1991-with the main building depreciated 86% and the second floor depreciated 95%.
The Commission finds itself in agreement with this proposition. Market value is what a willing buyer will pay to a willing seller. While the dilapidated building may have had some residual value for its owner, to any purchaser willing to pay top price for the land the building would have little, if any, value. A building valued at $23,700 on a lot valued at $330,300 is most likely more of a nuisance than an economic benefit to the potential buyer-even if it has value to the present owner.
While in general the adding together of land and building values would appear to be appropriate and likely to produce a fair result, this is one of the cases where that is not true. It is likely that for extremely elaborate or extremely dilapidated buildings there will occur this need to make a further adjustment to reflect true market value. Although these comments in the Sun Life case were made about a too-elaborate building, they are general enough to apply here:
Dealing first of all with replacement value, I think there are considerations that have to be kept in mind, and which apply particularly to this present case. Although this method of valuation for municipal purposes is of frequent use, there are cases where it would be dangerous to attach to it too much importance, in view of the particular circumstances which may arise.
(Mr. Justice Taschereau at p. 241)
And from the Privy Council decision [1952] 2 D.L.R. 81 at p. 95:
They (their Lordships) cannot accept the statement in the second heading of the Memorandum that it would seem that properties which are wholly occupied by their owners whether constructed for that purpose or acquired with that object in view are always worth to their owners the current cost of replacement less depreciation, ... the fact is that no such proposition is universally true.
This is one of the situations where we feel that the general approach-adding the replacement cost value of the building to the value of the land-is not appropriate. In the circumstances, with the lot value at a level uniform to others, the building represents no added value.
The Commission, therefore, confirms the assessment insofar as the land value is concerned, as adjusted by the Minister in Exhibit 16-being a total of $330,300. The building value is revised to zero, for the reasons cited above.
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, under Section 22 of the Real Property Assessment Act, by Sleiman Wakim (the Appellant) of Charlottetown, P.E.I., against a decision of the Minister of Finance (the Minister) with respect to the 1991 assessment of provincial property number 342766-000 located in Charlottetown, P.E.I.
Order
WHEREAS Sleiman Wakim appealed, by written notice dated November 22, 1991, against a decision of the Minister of Finance;
AND WHEREAS the Commission heard the appeal on January 14, 1993, April 2, 1993 and May 21, 1993;
NOW THEREFORE, for the reasons given in the annexed Reasons for Order;
IT IS ORDERED THAT
1. The appeal is allowed in part;
2. The 1991 assessment for property number 342766-000 is varied by a revision of the building assessment to zero; and
3. The lot assessment of $330,300 is confirmed.
DATED at Charlottetown, Prince Edward Island, this 11th day of August, 1993.
BY THE COMMISSION:
Linda Webber, Chairman
John Blakney, Vice-Chairman
Michael Ryan, Commissioner
