Order LT94-03 - LT93003 - Property Appeal - Seawood Estates Inc. v. Minister of Finance (Jun 9, 1994)

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 Seawood Estates Inc. (the Appellant) of Charlottetown, Prince Edward Island, against a decision of the Minister of Finance (the Minister) with respect to the 1992 assessment of residential property (Provincial Property Number 92650) located in Stanley Bridge, P.E.I.

Linda Webber, Chairman
John L. Blakney, Vice-Chairman
Debbie MacLellan, Commissioner

The subject property is a 54.5-acre peninsula of land located north of Highway #6 in Stanley Bridge, Prince Edward Island.

1987	$148,500
Revised	$136,500	Effective May 28, 1987
1988	$146,600
1989	$149,800
Revised	$141,500	Effective April 14, 1989
1990	$144,500
Revised	$143,400	Effective May 2, 1990
1991	$146,100
1992	$399,900
Revised	$312,000	Effective January 1, 1992

By Notice of Appeal dated August 28, 1992, the Appellant appealed the 1992 assessment to The Island Regulatory and Appeals Commission.

The Department's actions to increase the assessed values of the lots have been arbitrary and discriminatory without due regard for market value and comparable values. The Appellant argued that the area was treated as an exclusive subdivision-the assessed value of interior lots were increased by 100% and shore lots by 400%, while other areas were increased by only 10%. The increase in the assessment has come at a time when land values have "plummeted".

The Appellant questioned the Department's methodology for assessing all properties at the same value. No consideration was given to the individual characteristics of the lots when determining the assessed values of $10,000 and $20,000 for interior and shorefront lots, respectively.

The Appellant argued the Act does not adequately categorize land held for development purposes. The lots should not be considered residential or commercial for assessment purposes. Land which is held in inventory should be considered a fixed asset and for every lot sold, the fixed asset should be reduced accordingly. As a developer, his property should be assessed based on a consideration that the land is held in inventory and concessions should be given to developers who must bear the costs for infrastructure, etc.

The Appellant requests the assessed value of the property be reduced to the 1990 level.

The principal arguments for the Minister are set out in Exhibit S1 and are summarized as follows:

The assessment under appeal was arrived at on the basis of an appraisal which was completed on May 28, 1992, in response to a Reference of Assessment. The effective date was January 1, 1992.

The Department utilized the Cost Approach with market factor adjustments to arrive at the 1992 assessed value. The Department notes that this approach, which is applied on a mass appraisal basis, is the best method of arriving at a uniform level of assessment.

The Department contends that the increase in assessment was not done in an arbitrary and discriminatory manner. The increase was as a result of a reappraisal of the work unit, whereby the assessor "systematically" reviewed the market value of comparable lot sales within the domain of Seawood Estates, to arrive at a reasonable base for assessment purposes. Once this was established, a 50% reduction was applied, which is consistent with the Sub-Division Policy of the Department as contained in the P.E.I. Assessor's Procedure Manual.

Based on recent sales activity, the Department argues that the previous assessment of $1,100 per lot on the Seawood Estates property was unreasonable and inequitable and as a result recommends the current assessed value be confirmed.

The three primary objections put forward by the Appellant against the assessment in question are: 1) the suddenness of the large increase in the assessment, 2) the proposed lot increases being in excess of, not uniform with, others in the area, and 3) the failure of the Department to take into consideration individual lot characteristics, as well as the unique situation of a property developer.

This issue was canvassed by the Commission in the case of In the Matter of an Appeal by Sleiman Wakim (Order LT93-4) dated August 11, 1993. In that case we agreed with the Appellant that the sudden increase in assessment (52%) was shocking. However, since the requirement under the Real Property Assessment Act is to assess at market value, the only qualification on that being that such assessment must be uniform with other provincial assessments, the suddenness of the increase can't be used as a basis for challenging the legality of the assessment. If such a new assessment is valid, then it suggests that the property in question was undervalued for some years and one could view this as an advantage the Appellant received in the past.

The method used by the Department to arrive at an average lot value was to review the history of lot sales in the development in question and to determine an average value from this. The only distinction made was between shore lots and inside lots.

The Appellant argues that a comparison of only lots within the development is unfair. The benefits he has provided within that development have been, and continue to be, paid for by the owners and should not be used to evaluate the property, he suggests.

While, in principle, the Department should be careful not to limit its market value analysis too much-since this is likely to affect its ability to meet the uniformity test-in a case such as this we believe the Department's approach is reasonable.

The specific services the developer has provided directly affect the value of these parcels and to ignore them would be to ignore a factor of obvious importance in marketing these lots. We accept the Department's evidence that there are no comparable developments in the area with which to make an external comparison.

As well, the analysis of sales appears to us to be fair and the conclusions drawn are reasonable when trying to determine an average base value for lots in this development.

The Appellant further argues that it is unfair and unreasonable for the Department to ignore the unique characteristics of the lots in the development and of the developer in question.

The Appellant made an eloquent argument in favour of the need to recognize the unique situation of a developer: he must invest much money before he can expect any return and then must carry this inventory at his own expense, often for years before he realizes upon that investment.

However, we believe that this is recognized by the Department in its subdivision policy. That policy decreases the face value of property held by a developer by 50%. This is in recognition of the very difficulties the Appellant outlined to us. The 50% adjustment of lots which are marketable and properly assessed at market value is considered reasonable.

However, the Appellant also argued at length that the unique characteristics of each lot should be considered, i.e. not all lots are created equal.

This issue was addressed in the case of In the Matter of Robert B. Jaynes and Mildred L. Jaynes (Order LT93-2) dated August 12, 1993. In that case the assessment of the lot in question was on the basis of site acreage and its location on the shore; no adjustment was made for the amount of shore frontage, accessibility to the shore, the likelihood of erosion, etc. After reviewing the law and principles of assessment, the Commission concluded that the failure to take into account the unique features of the land resulted in an inequitable assessment.

As in that case, we reaffirm that it is acceptable for the Department to use its mass appraisal method to establish the general level of assessment for a particular area. But it must also be prepared, upon referral, to justify these on an individual basis in light of the unique features of a particular property and to make adjustments for unique features that may not have been taken into account.

The Commission is aware that any subdivision contains lots differing in quality and character as a result of subdivision design, available services, lot size and shape, location and other softer amenities such as view. The value placed on each lot largely depends on the desires of the purchaser and the purpose it will serve. Market demand for lots in coastal subdivisions are generally based on such factors as proximity and accessibility to the shore. Normally, as one moves away from those lots with greatest accessibility the value decreases. That is, the value given to 1st tier, or shorefront lots, 2nd tier, 3rd and 4th tier lots decreases as one moves towards the interior of the subdivision. Certain interior lots may be given equal or even greater value as shorefront lots if they have special characteristics such as height and a panoramic view. In a similar manner, other lots may have certain characteristics that would cause their market value to be far below the average value. Consequently, these factors must be considered when assessing lots and the Department must be prepared, upon referral, after determining the "average" lot or base price, to assess each lot based on its characteristics.

For Seawood Estates the problem is in some ways greater than usual because of the number of lots at issue. Another issue here is the "uniqueness" of these lots as the "leftovers" of the development. The evidence of the Appellant is that the best lots sell first, then the second best, etc. and at this point what are left are the ones most difficult to sell. He has not sold any in the last two years.

The Department responds by pointing out that the Appellant hopes to sell some of these lots for $20,000 and his refusal to sell for less is holding up the sale of these lots. While there may be some truth to this, overall, the Department relying upon what the Appellant hopes to sell for is no better than the Appellant relying upon real estate listings (comparing the list price to the assessed value) and complaining that the Department hasn't assessed those properties high enough. The Department points out that often the owner is very unrealistic in what he lists property for. The same can be said of the Appellant.

The Commission accepts the evidence of the Appellant as to the substantially lower value of the remaining lots. This, we feel, requires an adjustment before the subdivision adjustment is levied since the latter is supposed to apply to the market value.

The Commission finds that there must be an additional factor applied to situations where lots are less "average" and therefore less marketable than the preferred lots, especially when they have been on the market for an extensive period of time. It is the Commission's view that because the Appellant's subdivision has been on the market for an extensive period of time, and it is evident that the remaining lots are less desirable than the lots already sold, a further reduction in assessment is warranted.

In the circumstances, given the number of lots at issue and the nature of the lots, we see little value in ordering the Department to do an individual reassessment of each of the 36 lots. A more appropriate approach in this case is to adjust the "average" lot value of $10,000 by 50% to better reflect the lower value of the remaining lots. This then will become the market value of those lots to which the subdivision adjustment should be applied.

We noted no objection by the Appellant to the house and building assessment. The other land values appear reasonably arrived at and will be affirmed.

Land
2 Lots Plus Improvements	$ 43,400
36 Serviced Lots	$ 90,000
19 Unserviced Lots	$ 15,100
Roadways	$ 100
Common Areas	$ 100
Total Land and Assessment	$148,700	$148,700

Buildings
Residence (Line 1-1D)	$ 45,200
Main Barn (Line 2-2C)	$ 13,100
Multi-Use Storage (Line 4)	$ 10,600
Sheds (Lines 3 & 5)	$ 4,400
Total Buildings	$ 73,300	$ 73,300
TOTAL		$222,000

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 Seawood Estates Inc. (the Appellant) of Charlottetown, Prince Edward Island, against a decision of the Minister of Finance (the Minister) with respect to the 1992 assessment of property (Provincial Property Number 92650-000) located in Stanley Bridge, P.E.I.

WHEREAS Seawood Estates Inc. (the Appellant) appealed to The Island Regulatory and Appeals Commission (the Commission), in written notice dated August 28, 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 October 27, 1993;

AND WHEREAS the Commission has made a decision in accordance with the stated reasons;

IT IS ORDERED THAT The Seawood Estates Inc. assessment for 1992 is therefore adjusted as follows:

Land
2 Lots Plus Improvements	$ 43,400
36 Serviced Lots	$ 90,000
19 Unserviced Lots	$ 15,100
Roadways	$ 100
Common Areas	$ 100
Total Land and Assessment	$148,700	$148,700

Buildings
Residence (Line 1-1D)	$ 45,200
Main Barn (Line 2-2C)	$ 13,100
Multi-Use Storage (Line 4)	$ 10,600
Sheds (Lines 3 & 5)	$ 4,400
Total Buildings	$ 73,300	$ 73,300
TOTAL		$222,000