Docket LT92004
Order LT93-5IN THE MATTER of the Real Property Assessment Act, R.S.P.E.I. 1988, Cap. R-4,
and
IN THE MATTER of a review, pursuant to Section 12 of The Island Regulatory and Appeals Commission Act, R.S.P.E.I. 1988, Cap. I - 11, of Order LT93-1, being an appeal, under Section 22 of the Real Property Assessment Act, by Douglas C. Lockhart (the Appellant) of Amherst, Nova Scotia, against a decision of the Minister of Finance (the Minister) with respect to the 1991 assessment of residential property number 235192 located in Millvale, P.E.I.
WEDNESDAY, AUGUST 11, 1993
Linda Webber, Chairman
John L. Blakney, Vice-Chairman
Michael Ryan, Commissioner
Order
Participants
1. Appellant
Douglas C. Lockhart
2. For the Department of the Provincial Treasury
Kevin Dingwell
Manager, Residential and Farm AssessmentsJames B. Ramsay
Director, Real Property Records
Reasons for Order
1 Background
The property in question is located in Millvale, P.E.I., approximately five miles north of Hunter River and one mile south of St. Ann. The property is located on the south side of Route 229 and consists of 50 acres of land with a clearing 1,500 feet in the woods, amidst a backdrop of mixed woods. A house is located in the clearing, accessible from the main road, down a deep switch-back, two-rut clay road (15% average grade).
The house is 496 square feet two-storey and 387 square feet one-storey, built in 1982 with a standard 8" concrete foundation with an 8' depth and a 3" concrete floor under the two-storey section. The dwelling is plumbed with a kitchen sink and three-piece bath but there is no well on the site. The electrical service stops 1,000 (+ or -) feet closer to the highway at the multi-use storage building on the lot.
The multi-use storage building is located approximately 400 feet from the highway and consists of approximately 864 square feet (24'x36'). It was built in 1978.
The assessment history of the property is as follows:
1984 $13,200 1985 24,600 1986 25,600 1987 26,400 1988 27,800 1989 29,000 1990 31,400 1991 54,800 1991 Revised 44,200 1991 Further Revised 39,500 By Notice of Appeal dated September 13, 1991, Douglas C. Lockhart appealed the real property assessment for property number 235192-000. The Commission rendered an Order with reasons on this matter on March 24, 1993.
Order LT93-1 stated as follows:
Pursuant to s.30(b) of the Real Property Assessment Act, the appeal is allowed and the Minister is directed to establish a reasonable adjustment for the decrease in functional value created by the lack of potable water and the expense/difficulty of installing full electrical service at the dwelling, and for the decrease in the value of the property as a result of the deterioration of the basement wall.
The response of the Minister of the Provincial Treasury to the directions in the Order was given by letter dated May 21, 1993 to Mr. Lockhart. On May 30, 1993, Mr. Lockhart filed a letter with the Commission (written to the Department of the Provincial Treasury and copied to the Commission) complaining about the response of the Minister and requesting the Commission to reconvene to resolve the matter complained of.
2 Review
Section 12 of The Island Regulatory and Appeals Commission Act, R.S.P.E.I. 1988, Cap. I - 11, states as follows:
12. The Commission may, in its absolute discretion, review, rescind or vary any order or decision made by it, or rehear any application before deciding it.
After reviewing the letter of May 21, 1993 to Mr. Lockhart, and Mr. Lockhart's complaints in connection with that response to Order LT93-1, the Commission determined that there remained sufficient ambiguity and confusion on the matter outstanding to require a review of Order LT93-1, pursuant to s.12 of The Island Regulatory and Appeals Commission Act cited above. This review took the form of the hearing of additional evidence on June 28, 1993 and subsequent information filed by the Department on July 12, 1993.
3 Evidence & Arguments
A. The Appellant
The Appellant took the view that the Minister failed to respond fairly to Order LT93-1, specifically failing to make the adjustments required by that Order. In his view, adjustments for such things as lack of potable water should reflect the cost of correcting the deficiency. The Appellant provided further evidence of the cost of correcting the various deficiencies connected with the property, testifying that he had contacted the appropriate individuals for these estimates (e.g. Island Tel, Maritime Electric, Toombe's Plumbing). His total estimate for the work quoted on was $9,299. The adjustments allowed by the Minister had totalled $4,700.
B. The Minister
The Minister's position is that the directions to the Minister in Order LT93-1 failed to take into account the methodology used to arrive at uniform assessments across the province and that when the methodology is taken into account, the Minister's response to the Order is fair.
In particular, the Minister's representatives' explanation is that for some items the lack of a service is accounted for by not adding to the assessment base and so no deduction from that base is warranted. For example:
The normal practice is to add an additional $1,000.00 assessed value for the presence of a functional well. In this case, no additional value was applied, therefore, an adjustment has already been made.
(Ex. 23 - Letter, June 24, 1993)
With respect to the lack of electricity and the difficulty of installing it on this particular site, the Minister's argument is that:
The adjustment [10%] was based on the average contribution of the cost of the electrical component to the structure.
(Ex. 23 - Letter, June 24, 1993)
Thus, the Minister's position is that the actual cost of installing the service is not the primary consideration.
In addition, the Departmental practice in making an allowance for structures with no electricity is to calculate the difference in assessment based on the reduction in the grade of the structure.
(Ex. 23 - Letter, June 24, 1993)
The Minister made an allowance ($4,000) for the deterioration in the basement wall based upon an estimate for renovations and repair to that wall and this was not contested by the Appellant. The full allowance is made for the deterioration of the foundation, "as it is considered necessary to have the walls repaired to avoid further deterioration of the structure". (Ex. 23 - Letter June 24, 1993)
In calculating the value of the property the Department's policies and procedures manual instructs officials to apply one square foot dollar value to residential properties and another lower value to seasonal (cottage) properties. In this particular case, the property was dealt with as a residential property and not a seasonal property. However, it was discovered that because of adjustments, such as neighbourhood location which does not apply to seasonal properties, the approach used by the Department benefited the Appellant. As a result, the Department decided not to revise the calculation using cottage property values.
The Department clarified its position on not applying an adjustment factor for location to seasonal properties by stating:
Location factors are not applied to these types of properties based on analysis that indicates such allowances are not required to establish a uniform market value assessment. Basically, the variance in land values within the Province provides a uniform application of value.
(Subsequent Submission - Letter, July 12, 1993)
4 Decision
The Commission's review of this matter, in addition to hearing the evidence of the witnesses, included an extensive review of the P.E.I. Policy and Procedures Manual, the course material for the Real Property Assessment Diploma Program in Urban Land Economics 1992/93, Real Estate Division, Faculty of Commerce and Business Administration, the University of British Columbia, and the Real Property Appraisal/Assessment Program material (1988) from St. Francis Xavier University-all of which were provided to the Commission by the Department. In addition, the Commission reviewed a considerable amount of case law relating to real property assessment decisions of Canadian Courts.
The Appellant's belief that the costs to be incurred by him to provide electrical and other services to his lot should directly offset his property assessment is not supported by the authorities we have reviewed. To some extent these costs may be accounted for in a location factor adjustment, discussed later in this decision. However, the special circumstances created by the Appellant's choice for the location of his residence must, to a large extent, be accepted as circumstances of his own making. The authorities all agree that what the market will pay is not necessarily related to what any one individual paid for any particular item or service. The item or service possesses a certain inherent value above which extra costs simply will not be recouped.
Overall, the Commission has determined that the procedures in place in the Department for the assessment of real property in P.E.I. are procedures standard in the industry for mass appraisals designed to achieve uniform assessments. The use of base values, added values for such items as potable water and adjustments for locational and other factors are all acceptable procedures. As well, the evidence before us indicates that, in general, they have been fairly applied and that the Minister's representatives are knowledgeable in this area.
Of course, judgment is involved in many of the decisions to be made by the Department and/or Minister and reasonable men and women may differ when judgment must be applied. Such judgment is most evident when adjustments must be made (e.g. depreciation, location, functional value).
In this particular case, the Commission does not accept the policy established by the Department whereby a location factor adjustment for seasonal/cottage properties is never allowed. While in general this rule may in fact result in uniform assessments, cases such as this must be considered exceptions to the rule. To say that the variance in land values makes all the adjustment necessary implies that the actual location of the building would be the same for different owners. Clearly, that is not the case.
If the Lockharts had decided to build their residence near the road, where the utility building is located, the provision of electrical service would not be any real problem. Their decision to locate where they did definitely affects the marketability of the property because it is so difficult to access. While this location may be the personal preference of the Lockharts, that does not eliminate the affect such a location is likely to have on the market value of that building.
In addition, we note that the "value added" for the existence of such things as potable water is fixed, even though the costs to provide the service may, because of special circumstances, be far greater than average. If those circumstances relate to the location of the structure (as is the case, here), a location adjustment goes toward providing some fair recognition of this special circumstance.
Also, we question the general policy to the extent it suggests that land values will vary by location for permanent residences but not for cottage properties. On the face of it, that proposition has no intuitive value. As well, since cottage residences can and do become permanent residences, this would also suggest that the land value of a former-cottage-now-permanent-residence changes just because the structure on it has been improved. However, we do not need to pursue these questions now. Even if we accept the policy as a general rule, for the reasons stated above, we believe that the location factor adjustment should be applied in this case.
Another adjustment factor we are unable to accept is the adjustment multiplier for cottage properties. In the calculation of an assessment the Department begins with a base square foot rate (replacement cost value) which changes from time to time but is often used for many years in a row. To adjust this rate to present day values it is adjusted by a multiplier that is intended to reflect increases in costs since the date the base was established.
For permanent residences this adjustment multiplier varies according to the location of the property, sometimes from one neighbourhood to another; sometimes from one area of the province to another. This is intended to reflect the different rates at which market value is increasing in different areas of the province.
However, for cottages the same adjustment multiplier is utilized all across the province-whether the cottage is located at East Point, Millvale, Panmure Island or Cavendish. Without additional evidence from sales showing that this is valid, the Commission cannot accept such an assumption. The same reasons for varying the multiplier for permanent residences logically, reasonably apply to varying the multiplier for cottages.
This is not to say that cottage properties may not rise in value faster than permanent residences. Larger geographical areas may appropriately be dealt with by one adjustment multiplier when dealing with cottages than when dealing with permanent residences. However, the validity of these propositions should be determined by an analysis of sales, as we understand was the case with the varying adjustment multipliers for permanent residences.
Clearly, the location of property is very relevant to market value and the forces that determine increases and decreases to property values. This is confirmed by the following excerpts from assessment manuals:
Nova Scotia:
First, for the property being assessed and its comparables, a set of property characteristics are specified that in effect contributes the sub-market being analyzed. This neighbourhood stratification is rooted in the principle that the value of a property is a function of its neighbourhood.
(p. 30)
British Columbia:
C. Value Updates
Updates are annual adjustments applied to properties between evaluations. A main appraisal system can use ratio studies or other market analyses to derive trending factors based on property type, location, size, age, and other property characteristics associated with changes in market value.
(p. 6-8)
Location still plays the primary role in land value determination, but modelling locations effects has become more complicated. Land values for physically similar sites can vary greatly between several blocks, let alone several miles. Most urban areas contain many value influence centres and their effect on land values is usually not linear. The appraiser must understand these patterns and build them into appraisal models.
(p. 15-3)
Comparability is a measure of similarity between a sale and a subject. Sale and subject should be similar with respect to date of sale, economic conditions, physical attributes, and competitiveness in the same market. Of these, the most important is competitiveness. If the comparable and subject do not compete in the same market, they do not face the same supply and demand forces, so value influences from comparable to subject may be misleading.
(p. 18-2)
The Department's evidence clearly suggests that market value for cottages, in general, rises more rapidly than market value for permanent residences located in the same area. Therefore, we would expect that the adjustment multiplier for Millvale cottages would be higher than the 1.57 multiplier applied to permanent residences. At the same time, we would expect, from our general knowledge of the areas, that cottages in Cavendish would rise in value faster than cottages in Millvale. Therefore, the 1.76 adjustment multiplier applied to all properties now may well be too high for Millvale-especially if most of the sales upon which the multiplier is based have occurred in the more popular resort areas. However, given that the purpose of real property assessments is to establish a fair tax base for all, we do not feel it would be reasonable to ignore the apparent inclination for cottages to rise in value more quickly than residential properties.
As a result, the Commission orders that an adjustment multiplier of 1.66-being the mid-point between the 1.57 Millvale permanent residence adjustment multiplier and the 1.76 cottage adjustment multiplier-be applied to the assessment calculations on the Lockhart property.
We also conclude that, while the Department used the incorrect base value (i.e. permanent residence base value) because of a positive desire to accommodate the Appellant, the correct base value with a location adjustment factor of 75% should be utilized. (This is the same location adjustment factor used by the Department-but on the permanent residence base calculation.)
Also, the grade of the cottage, in our view, falls between average and good. As a result we have applied an upward adjustment of 15% to the basic rate to reflect the difference in construction, as is the procedure set out in the province's Assessment Manual for dealing with such circumstances.
The recalculation is as set out in Schedule "A" attached to this Decision.
The Commission therefore orders a variation of Order LT93-1 as follows:
The adjustments made by the Minister in his letter of May 21, 1993 to Douglas Lockhart totalling $4,700.00, are confirmed; the market value assessment for 1991 is adjusted as set out in Schedule "A" annexed to this Decision.
IN THE MATTER of the Real Property Assessment Act, R.S.P.E.I. 1988, Cap. R-4,
and
IN THE MATTER of a review, pursuant to Section 12 of The Island Regulatory and Appeals Commission Act, R.S.P.E.I. 1988, Cap. I - 11, of Order LT93-1, being an appeal, under Section 22 of the Real Property Assessment Act, by Douglas C. Lockhart (the Appellant) of Amherst, Nova Scotia, against a decision of the Minister of Finance (the Minister) with respect to the 1991 assessment of residential property number 235192 located in Millvale, P.E.I.
Order
UPON review of Order LT93-1, in connection with the appeal by Douglas C. Lockhart, Amherst, Nova Scotia, against a decision of the Minister of Finance;
AND UPON hearing additional evidence in Charlottetown on June 28, 1993;
NOW THEREFORE, for the reasons given in the annexed Reasons for Order;
IT IS ORDERED THAT
1. The adjustments made by the Minister in his letter of May 21, 1993 to Douglas Lockhart totalling $4,700.00, are confirmed; the market value assessment is varied as follows:
Lot $ 3,000 Improvements $ 1,000 Dwelling $19,916 Patio $ 246 Porch $ 251 Land - 49 Acres $ 8,300 Storage Building $ 9,216 TOTAL $41,929 Less Adjustments $ 4,700 TOTAL ASSESSMENT $37,229 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
SCHEDULE A
LT92004
DOUGLAS LOCKHART
IMPROVEMENT CALCULATIONS
DESC. SQ. FT. RATE SELECTION GRADE YEAR BUILT BASIC RATE UNIT COST EXTENDED COSTS DEPRECIATION FUNCTIONAL NEI. LOC. MKT. FACTOR ADJ. MULT. COMPLETE VALUE DWELLING 2 STY. 5 496 500 335 1982 16.54 28.94 14,354 0.88 0.9 0.75 0.85 1.66 12,031 DWELLING 1 STY. 1 387 900 335 1982 15.21 15.21 5,888 0.88 0.9 0.75 0.85 1.66 4,935 FOUNDATION 110 linft. 200 1982 32 3,520 0.88 0.9 0.75 0.85 1.66 2,950 PATIO 120 24 1982 2.42 2.42 290 0.8 0.75 0.85 1.66 246 PORCH 24 1982 11.00 11.00 264 0.9 0.75 0.85 1.66 251 STORAGE 1000 0 0 BLDG. 864 1978 8.9 9.45 8,165 0.8 0.85 1.66 9,216
