Municipal Property Assessment Corp. et al. v. BCE Place Ltd. et al., (2009) 253 O.A.C. 28 (DC)

• Judge: Carnwath, Jennings and Pardu, JJ.
• Court: Superior Court of Justice of Ontario (Canada)
• Case Date: August 11, 2009
• Jurisdiction: Ontario
• Citations: (2009), 253 O.A.C. 28 (DC)

Municipal Prop. v. BCE Place Ltd. (2009), 253 O.A.C. 28 (DC)

MLB headnote and full text

Temp. Cite: [2009] O.A.C. TBEd. AU.040

Municipal Property Assessment Corporation (appellant) v. BCE Place Limited, 1225209 Ontario Limited, National Trust Company, Scotia Realty Limited, First Place Tower Inc., Toronto Dominion Centre, and 200 Bay Holdings Inc. (respondents) and Atikokan, Brant, Ear Falls, Goderich, Lambton, Lincoln, Ottawa, Quinte West, Red Lake, Sarnia, South Bruce Peninsula and Windsor (intervenors)

City of Toronto (appellant) v. BCE Place Limited, 1225209 Ontario Limited, National Trust Company, Scotia Realty Limited, First Place Tower Inc., Toronto Dominion Centre, and 200 Bay Holdings Inc. (respondents) and Atikokan, Brant, Ear Falls, Goderich, Lambton, Lincoln, Ottawa, Quinte West, Red Lake, Sarnia, South Bruce Peninsula and Windsor (intervenors)

(122/08; 126/08)

Indexed As: Municipal Property Assessment Corp. et al. v. BCE Place Ltd. et al.

Court of Ontario

Superior Court of Justice

Divisional Court

Carnwath, Jennings and Pardu, JJ.

August 11, 2009.

Summary:

The Municipal Property Assessment Corp. (MPAC) assessed the combined "current value" of six large office complexes in Toronto owned by the Bank Towers (the respondents) at almost $5 billion for each of the applicable taxation years. The respondents complained, pursuant to s. 40 of the Assessment Act, that the assessments were too high. The difference between MPAC's and the respondents' assessed values was almost $1.5 billion. The Ontario Assessment Review Board issued an interim decision after it made a final determination on the interpretation of "current value" in s. 1 of the Assessment Act, and particularly the phrase "fee simple, if unencumbered". Specifically, the Board agreed with the respondents' interpretation that a property must be assessed as though vacant because commercial leases were always encumbrances, and adopted a valuation methodology based on that interpretation. Both the MPAC and the City of Toronto sought leave to appeal the interim decision, pursuant to s. 43.1 of the Act. The two motions were heard together.

The Ontario Divisional Court, per Karakatsanis, J., in a decision reported at [2008] O.A.C. Uned. 59, granted leave to appeal on the question whether the Board erred in law in construing the definition of "current value".

The Ontario Divisional Court allowed the appeal and returned the matter to a differently constituted panel of the Board. The Board's interpretation was wrong in law. It did not comply with the legislated text as interpreted in the jurisprudence, and was predicated on valuing the interest of the owner when it was the value of the land that was to be assessed. Nor did it promote the legislative purpose of fairness. The interpretation was unreasonable and unjust: (i) it ignored the value that attached to the leases in place; (ii) it hypothesized a vacant building; and (iii) it valued one of the tower's at approximately $600 million when its market value was established three months later to be about $825 million.

Administrative Law - Topic 6166

Judicial review - Statutory appeal - Grounds for review - Error of law - Interpretation of statute - [See Real Property Tax - Topic 7161 ].

Administrative Law - Topic 6244

Judicial review - Statutory appeal - Remedies on appeal - Remittal of award or decision - [See Real Property Tax - Topic 7161 ].

Municipal Law - Topic 2104

Municipal taxation or levies - General - Legislation - Interpretation - [See Real Property Tax - Topic 7161 ].

Real Property Tax - Topic 3505.2

Valuation - General principles - Meaning of "current value" - Section 19(1) of the Assessment Act required that land be assessed at its current value - "Current value" was defined in s. 1 of the Act as follows: "'Current value' means, in relation to land, 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" - The Ontario Divisional Court explored the relationship between a fee simple interest and leasehold interests and the use of market rather than actual rents, in the following manner - "It has long been established that in the context of assessment of real property, the whole of the land is to be assessed, and not the separate interests which may make up the whole" - The principle expressed in the jurisprudence was to the effect that when assessing land generating income on an income basis, it was the current market rental rate, rather than the actual rent which should be employed to calculate the value of the whole land - Given the history of the jurisprudence, the court did not accept the argument that when the whole of the land was to be assessed, it included only physical objects described as "land" in the Act such as buildings - In the domain of real property assessment, a leasehold interest was an interest in relation to land - See paragraphs 36 to 47.

Real Property Tax - Topic 3505.2

Valuation - General principles - Meaning of "current value" - The ownership of interests in the land in question (six large office complexes) was divided by leasehold interests - Section 19(1) of the Assessment Act required that land be assessed at its current value - In issue was whether the Legislature, by specifying "current value" as opposed to the previous "market value", changed the principle that the whole of the land was to be assessed - The Ontario Divisional Court stated that, from a contextual perspective, per "Carsons' Camp" (2008, Ont. C.A.), the change to "current value" and the reference to "fee simple" in the definition of "current value" were not intended to change what was to be included in the assessed value - It mattered not that portions of the land had been leased - The definition of "current value" was in relation to "value" - To value the office complexes on the basis that they were vacant (an entirely hypothetical scenario) was to significantly undervalue them, and undermined the purpose of the Act - In the context of income-producing property, "fee simple if unencumbered" meant value calculated without reference to leases at other than market value - In the result, the court concluded that the Ontario Assessment Review Board erred in law in concluding that the amendment clarified that it was an ownership interest which was to be valued, and that a tenant's interest was a personal property interest and therefore not subject to assessment - See paragraphs 48 to 53.

Real Property Tax- Topic 3576

Valuation - Business property - Rental or income value - Effect of lease - [See both Real Property Tax - Topic 3505.2 ].

Real Property Tax - Topic 3584

Valuation - Business property - Rental or income value - Vacancy rate - [See second Real Property Tax - Topic 3505.2 and Real Property Tax - Topic 7161 ].

Real Property Tax - Topic 3904

Valuation - Particular business properties - Office buildings - [See both Real Property Tax - Topic 3505.2 ].

Real Property Tax - Topic 7003

Assessment appeals (incl. complaints) - General principles - Scope of appeal or standard of review - The Ontario Assessment Review Board issued an interim decision after it made a final determination on the interpretation of "current value" in s. 1 of the Assessment Act, particularly the words "fee simple, if unencumbered" - The parties disputed the standard of review on the appeal - The Ontario Divisional Court found the standard of review to be correctness - The court noted that its jurisprudence, both before and after "Dunsmuir", stated that where an appeal raised a question of law or specifically, an issue of statutory interpretation, that did not engage the Board's expertise; that where the Board was not protected by a privative clause; and that where there was a right of appeal, with leave, on a question of law, the standard of review in those circumstances was correctness - The court rejected the submission that the standard of review was reasonableness where the Board was interpreting its home or constitutive statute to which deference was appropriate - Both the concept of "fee simple" and "encumbrances" were questions of real property that did not fall within the Board's expertise but, rather, within the court's expertise - Were reasonableness the appropriate standard, the court would conclude the Board's decision to be unreasonable, for reasons concerning the proper approach to statutory interpretation - See paragraphs 28 to 35.

Real Property Tax - Topic 7161

Assessment appeals (incl. complaints) - Applications or appeals to the courts - Appeal on a question of law - The Municipal Property Assessment Corp. (MPAC) assessed the combined current value of six large office complexes in Toronto owned by the Bank Towers (the respondents) at almost $5 billion for each of the applicable taxation years - The respondents complained, pursuant to s. 40 of the Assessment Act, that the assessments were too high - The difference between MPAC's and the respondents' assessed values was almost $1.5 billion - The Ontario Assessment Review Board made a final determination on the interpretation of "current value" in s. 1 of the Act, and particularly the phrase "fee simple, if unencumbered" - Specifically, the Board agreed with the respondents' interpretation that a property must be assessed as though vacant because commercial leases were always encumbrances, and adopted a valuation methodology based on that interpretation - Leave to appeal was granted to both the City of Toronto and MPAC on the question whether the Board erred in law in construing the definition of "current value" - The Ontario Divisional Court held that the Board's interpretation was wrong in law - The Board's interpretation was unreasonable, "approaching the absurd" - It did not comply with the legislated text as interpreted in the jurisprudence, and was predicated on valuing the interest of the owner when it was the value of the land that was to be assessed - Nor did it promote the legislative purpose of fairness - It was unjust for several reasons: (i) it valued only the owner's interest and ignored the value that attached to the leases in place; (ii) it hypothesized a vacant building with a two-year period to market; and (iii) it valued one of the towers at approximately $600 million when its market value was established three months later to be about $825 million - In the result, the court returned the matter to a differently constituted panel of the Board - See paragraphs 67 to 72.

Real Property Tax - Topic 7224

Assessment appeals (incl. complaints) - Grounds of appeal - Error of law - Method of valuation - [See Real Property Tax - Topic 7161 ].

Statutes - Topic 522

Interpretation - General principles - Taxing statutes - The Ontario Divisional Court, in interpreting "current value" in s. 1 of the Assessment Act, considered the following guidelines to be used to assist in interpreting a taxing statute: "(i) The interpretation of tax legislation should follow the ordinary rules of interpretation; (ii) (a) A legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent: this is the teleological approach; (b) The teleological approach will favour the taxpayer or the tax department depending solely on the legislative provision in question, and not on the existence of predetermined presumptions; (iii) Substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statute; (iv) Only a reasonable doubt, not resolved by the ordinary rules of interpretation, will be settled by recourse to the residual presumption in favour of the taxpayer" - In the result, the court concluded that the Assessment Review Board's interpretation of "current value" was wrong in law - See paragraphs 66, 72.

Statutes - Topic 2407

Interpretation - Interpretation of words and phrases - General principles - By context - [See Statutes - Topic 2603 ].

Statutes - Topic 2603

Interpretation - Interpretation of words and phrases - Modern rule (incl. interpretation by context - Intention from whole of section or statute - In construing the definition of "current value" in s. 1 of the Assessment Act, the Ontario Divisional Court stated that "the language of the statute must be addressed in its total context, having regard to the purpose of the legislation, the consequences of proposed interpretations, the presumptions and special rules of interpretation, as well as admissible external aids. After considering all these indicators of legislative meaning, the court must adopt an interpretation that is appropriate. An appropriate interpretation is one that can be justified in terms of (a) its plausibility, that is, its compliance with the legislative text; (b) its efficacy, that is, its promotion of the legislative purpose; and (c) it's acceptability, that is, the outcome is reasonable and just" - In the result, the court concluded that the Assessment Review Board's interpretation of "current value" was wrong in law - See paragraphs 61 to 65, 72.

Statutes - Topic 6146

Operation and effect - Effect on earlier statutes - Amendments - Change to the law - Prior to 1997, the Assessment Act provided that land was to be assessed at its market value ("the amount that the land might be expected to realize if sold in the open market by a willing seller to a willing buyer") - In 1986, a majority judgment in "Nesse" (Ont. C.A.), found that a recent sale price of the subject property was the best evidence of "market value" even though the property was subject to long-term leases with below-market rents - The dissent in Nesse recognized the double standard of valuation that would result from the majority decision, depending on whether the sales or income valuation was used - The 1997 amendment to the Act stated that "the assessment of land shall be based on its current value" (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 these appeals, the Ontario Divisional Court concluded that the intention of the Legislature in the 1997 amendment was to give effect to the dissent in Nesse - It was not necessary for the Legislature to state that it wanted the totality of interests to be valued - The totality of interests had been so valued in the jurisprudence - The words "fee simple, if unencumbered" were added to the new definition in order to address the mischief of the double standard recognized in the dissent in Nesse - The 1997 revisions, however, were not meant to change the fact that land was still to be assessed at market value - See paragraphs 54 to 60.

Statutes - Topic 6146

Operation and effect - Effect on earlier statutes - Amendments - Change to the law - [See Statutes - Topic 2603 ].

Words and Phrases:

Current value - The Ontario Divisional Court discussed the meaning of the definition of "current value" as found in s. 1 of the Assessment Act, R.S.O. 1990, c. A-31, and used in s. 19(1) of the Act - See paragraphs 36 to 60.

Words and Phrases:

Fee simple, if unencumbered - The Ontario Divisional Court discussed the effect of the phrase "fee simple, if unencumbered" as found in the definition of "current value" in s. 1 of the Assessment Act, R.S.O. 1990, c. A-31 - See paragraphs 36 to 60.

Cases Noticed:

Carsons' Camp Ltd. v. Municipal Property Assessment Corp. et al. (2008), 232 O.A.C. 297; 88 O.R.(3d) 741; 2008 ONCA 17, appld. [para. 22 et seq.].

New Brunswick (Board of Management) v. Dunsmuir (2008), 372 N.R. 1; 329 N.B.R.(2d) 1; 844 A.P.R. 1; 2008 SCC 9, appld. [paras. 29, 52].

1098748 Ontario Ltd. v. Ontario Property Assessment Corp., Region No. 11 et al. (2000), 143 O.A.C. 121; 198 D.L.R.(4th) 139 (Div. Ct.), refd to. [para. 30].

Toronto (City) v. Wolf et al. (2008), 241 O.A.C. 41 (Div. Ct.), refd to. [para. 31].

Shier (J.D.) Lumber Co. Assessment, Re (1907), 14 O.L.R. 210 (C.A.), refd to. [para. 37].

Merkur (A.) & Sons Ltd. v. Ontario Regional Assessment Commissioner, Region No. 14 et al. (1977), 17 O.R.(2d) 339 (Div. Ct.), refd to. [para. 38].

Cardinal Plaza and Regional Assessment Commissioner, Region No. 19 (1984), 49 O.R.(2d) 161 (C.A.), refd to. [para. 40].

Standard Life Assurance Co. v. British Columbia (Assessor of Area #01 - Capital) (1997), 146 D.L.R.(4th) 247; 34 B.C.L.R.(3d) 346 (C.A.), refd to. [para. 44].

Metropolitan Toronto Condominium Corp. No. 1250 v. Mastercraft Group Inc. et al. (2009), 255 O.A.C. 253, appld. [para. 50].

Regional Assessment Commissioner, Region No. 11 v. Nesse Holdings Ltd. et al. (1984), 6 O.A.C. 134; 47 O.R.(2d) 766 (Div. Ct.), consd. [para. 51 et seq.].

Québec (Communauté urbaine) et autres v. Corporation Notre-Dame de Bon-Secours, [1994] 3 S.C.R. 3; 171 N.R. 161; 63 Q.A.C. 161, refd to. [para. 66].

Rizzo & Rizzo Shoes Ltd. (Bankrupt), Re (1998), 221 N.R. 241; 106 O.A.C. 1 (S.C.C.), refd to. [para. 66].

Bell Express Vu Limited Partnership v. Rex et al., [2002] 2 S.C.R. 559; 287 N.R. 248; 166 B.C.A.C.1; 271 W.A.C. 1; 2002 SCC 42, refd to. [para. 66].

Statutes Noticed:

Assessment Act, R.S.O. 1990, c. A-31, sect. 1 [paras. 23, 36]; sect. 17(1) [para. 22]; sect. 19(1) [para. 23].

Authors and Works Noticed:

Canada, Appraisal Institute, The Appraisal of Real Estate (2nd Canadian Ed.), pp. 4.2 [para. 7]; 5.12 [para. 41]; 20.19, 20.20 [para. 8].

Cowen, Jeff, Government Reforms in Municipal Property Assessment and the Commercial Lease (1998), p. 2 [para. 58].

Counsel:

Carl B. Davis and Donald G. Mitchell, for the appellant Municipal Property Assessment Corp.;

Richard Poole and David Fleet, for the respondents, BCE Place Limited, 1225209 Ontario Limited, National Trust Company, Scotia Realty Limited and First Place Tower Inc.;

Jeff Cowan, for the respondent, Toronto Dominion Centre;

Philip L. Sanford and Tara L. Piurko, for the respondent, 200 Bay Holdings Inc.;

Susan Ungar, Diana Dimmer, W. Terrance Denison and Rodney Gill, for the appellant, City of Toronto;

John L. O'Kane, for the intervenors.

These appeals were heard on June 24 and 25, 2009, at Toronto, Ontario, by Carnwath, Jennings and Pardu, JJ., of the Ontario Divisional Court. The court released the following reasons for judgment of the court on August 11, 2009.