All properties in Ontario will receive new notices of assessment in 2008 that will serve as the basis for municipal property taxation for 2009 to 2012. In accordance with the requirements of the Assessment Act, these new assessments will be based on January 1, 2008 "current values" determined by the Municipal Property Assessment Corporation (MPAC). However, the meaning of "current value" has been thrown into uncertainty as a result of the recent decision of the Assessment Review Board in the "Bank Towers" case (BCE Place Limited et. al. and Municipal Property Assessment Corporation and City of Toronto).
In 1997, the Assessment Act was amended to require all real property in Ontario to be assessed on the basis of "current value," which the Act defines as "the amount of money the fee simple, if unencumbered, would realize if sold at arm's length by a willing seller to a willing buyer."
In assessing the Bank Towers, and indeed all other commercial property in Ontario, MPAC took the position that "current value" is not restricted to the fee simple interest of the owner of land. Rather, the definition of "current value" requires that all interests in land be assessed, including all estates, terms, easements and rights in land, including tenants' interests. MPAC also submitted that the phrase "if unencumbered" had no technical meaning, and that an encumbrance is an interest in land that diminishes its value.
The Assessment Review Board disagreed. It held that "current value" meant that only the owner's interest in real property is to be valued, and that the valuation is to be done as if property is vacant and untenanted. According to the Board, a tenant's interest in land under a lease is only a personal property interest, and is not relevant to the valuation of real property under the Assessment Act. The Board accordingly found that MPAC's valuation methodology of valuing the "full bundle of interests, including those of the landlord and the tenant" to be incorrect in law.
Both MPAC and the City of Toronto have requested leave to appeal the Assessment Review Board decision to the Divisional Court. One of the critical issues to be determined is whether the decision of the Assessment Review Board on the meaning of "current value" is consistent with a decision of the Court of Appeal that was released on January 14 in Carsons' Camp Limited and Municipal Property Assessment Corporation et. al. At issue in that case were third-party owned trailers that were affixed to an owner's land, which MPAC had included in determining "current value". The Court of Appeal upheld MPAC's assessment (and overturned a lower court decision), concluding that "the [Assessment] Act contemplates assessment of all that falls within the expanded definition of land despite the use of the words 'fee simple.' "
The Carsons' Camp decision was presented and argued before the Assessment Review Board in the Bank Towers case. However, the Board found that this Court of Appeal decision "was not germane to the case at hand" as it did not deal with "the issue of valuing the interests of the tenants for the purposes of assessment, nor does it deal with the meaning of the word 'encumbrance' or the meaning of the phrase 'as if unencumbered.' "
Regardless of whether the Assessment Review Board was correct in distinguishing the Court of Appeal's decision, its finding that only the owner's fee simple interest is to be valued is at odds with MPAC's interpretation of "current value" and its valuation methodology of assessing all interests in land. MPAC is currently finalizing the January 1, 2008 current values that will be the basis of the 2009 to 2012 assessments of all properties on Ontario. It is reasonable to anticipate that, notwithstanding the Assessment Review Board's decision in the Bank Towers case, MPAC will continue its practice of valuing land to include all interests, and not just the fee simple interest of owners as the Assessment Review Board has directed.
Assuming that the Divisional Court grants leave to appeal the Board's decision, the meaning of "current value" will likely remain the subject of conflicting interpretations for some time. Commercial property owners in particular will likely be obliged to appeal their new assessments as determined by MPAC to the Assessment Review Board pending a final court resolution of this fundamental issue. As a result, both taxpayers and municipalities will face continuing property tax uncertainty that will reasonably continue well into the new four-year reassessment cycle.
* This article originally appeared in the June 6, 2008 issue of The Lawyers Weekly published by LexisNexis Canada Inc.
Michael Bowman is a partner in the Litigation Department in Toronto.
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