ONCA, HABU, and MPAC’s BOP
Submitted by: Jeff Cowan, WeirFoulds LLP, Toronto, ON
On August 2, 2024, the Ontario Court of Appeal released its decision in MPAC v. Clareville Holdings Limited ,2024 ONCA 598 (“Clareville”). At issue was an appeal from the Divisional Court’s decision which dismissed an appeal from the Assessment Review Board’s decision that significantly reduced the assessment of a 5-parcel property assembly on King Street West in downtown Toronto. At issue was the highest and best use (HABU) of the property for assessment purposes.
In April of 2013, the owner submitted a development application to the City for a 42-storey mixed-use building on four of the properties. The City Planning Department opposed the application and advised that more land was required. In August of 2015, the owner purchased the adjoining property for $8 million, amended its application to add the property and sought approval for a 48-storey mixed use building. The City approved a 50-storey development in principle in the spring of 2020, but the rezoning had not been approved by the Local Planning Appeal Tribunal by the time of the ARB hearing.
MPAC had assessed the properties as a land assembly, with development potential for a high-rise development of 40 storeys or more. The ARB reduced the assessments for the years 2014 to 2016 (valuation date of January 1, 2012, from $20,474,000 to $7,775,000 for the four properties , and for the years 2017 to 2020 (valuation date of January 1, 2016) from $29,854,000 to $14,314,000 for the expanded assembly. In doing so, the Board relied on the properties’ current use as income-generating properties. The ARB determined that MPAC had failed to meet its burden (or onus) of proof (BOP) under s.40(17) of the Assessment Act (“Act”) to establish the correctness of the current value of the properties and had not rebutted the presumption that the current use of the property was its HABU. While it found that MPAC’s proposed HABU was legally permissible and physically possible, it concluded that MPAC had not discharged the onus of establishing financial feasibility, another accepted appraisal component necessary to a determination of HABU. MPAC had not provided sufficient evidence of forecasted supply and demand for condominium units and commercial space in the area. Further, MPAC had not followed the correct methodology, essentially providing market evidence as evidence of financial feasibility when it should have instead provided economic analyses. The owner’s expert relied on an income valuation, with which MPAC’s expert agreed, if current use was the basis of the valuation.
The ARB expressed the view that the existing use is presumed to be its highest and best use, such that a party seeking to prove a different one will require compelling evidence of how another legally permissible, physically possible, and financially feasible use is more productive than its current use. The presumption is based on the reasonable assumption that the current use already meets the tests of being physically possible, legally permissible, and financially feasible.
MPAC challenged this presumption as an error of law that conflicts with the direction in s. 19(1) of the Act that properties be assessed based on their current value and not on their current use. The Divisional Court disagreed and found that in the context of assessment appeals the ARB’s articulation of the presumption was little more than a re-statement of the burden of proof, and that the ARB made a factual determination that MPAC did not meet its BOP and establish a satisfactory evidentiary foundation for valuation based on a different use of the property. The Court of Appeal agreed. It found the ARB made no legal error by failing to use comparative sales as the basis for arriving at the current value.
The ARB had also determined that an assessor must determine the HABU of the land each year as of the state and condition date prescribed by s. 36(2) of the Act. In the Divisional Court , MPAC argued this was also wrong and effectively pre-empted the valuation of current value and the statutory valuation dates ( e.g. January 1, 2016) in s. 19.2 of the Act. The Divisional Court found there was no legal error in the ARB requiring that when returning the assessment roll, the assessor must necessarily turn his or her mind to whether there has been a change to the state or condition of the property that affects its HABU. If there has been such a change, a new assessed value must be established for that current HABU but effective on the applicable valuation date.
In the Court of Appeal MPAC did not challenge that finding; instead, it renewed its argument that the ARB erred in stating that there is a presumption that the current value of land will be assessed based on its current use.
The ONCA decision is of importance in not only clarifying MPAC’s BOP under s.40(17) of the Act , but also reinforcing the need for parties to have the proper evidentiary basis for their positions, albeit at extra effort and cost if necessary. In this and a number of recent decisions of the Divisional Court (e.g. MPAC. v. Bell Canada, 2024 ONSC 3670) ARB decisions that rely on the evidence , or lack of evidence by a party, on which to base its conclusion have been upheld. Leave to appeal both to the Divisional Court and the Court of Appeal, and appeals, require the determination of “pure” or “extricable “ questions of law and not mixed questions of fact and law. The Court of Appeal expressly distinguished MPAC v. Zarichansky, 2020 ONSC 1124 (Div Ct.) where the ARB was not satisfied that MPAC met its burden but then reverted to the prior cycle valuation, knowing that it did not represent the current value of the property. In Clareville, the ARB’s valuation was based on evidence put forward by the appellant that it accepted, which did not amount to a legal error.
Finally, the unchallenged decision of the Divisional Court on HABU as of the state and condition date in Clareville is of potential significance in the ongoing litigation before the ARB as it relates to 2021 and following years where, after settling appeals for 2017-2020, appellants have argued the government legislation imposing COVID lock downs was similar to zoning bylaws that change the HABU of a property as of the return of the roll. The ARB in a number of cases including and arising out of National Car Rental (Canada) Inc. v MPAC, 2022 CanLII 53352 (“National Car”) has determined that parties are estopped from raising this issue, given its determination that the settlements in effect “locked in” the agreed January 1, 2016 for the duration of the cycle, which now will continue through at least 2025. Part of the ARB’s reasoning is that there was no evidence that could translate COVID 2021 value impact to a January 1, 2016 valuation date.
In another decision, Ivanhoe Cambridge Inc v Oshawa (City), 2023 CanLII 116832 (“Ivanhoe Cambridge”), by the same member as in National Car, the ARB noted that National Car was issued three weeks after the Divisional Court’s decision in Clareville. Furthermore, as the Board observed in National Car, the parties did not ask the Court to decide whether the Act supports the application of the ‘state and condition paradigm’ and, consequently, the Court did not engage in a “detailed” analysis of the relevant inter dependent provisions of the Act. and did not consider prior Board decisions that were reviewed in detail in National Car. As a result of this, the ARB concluded it is not bound by the Divisional Court’s decision in Clareville on state and condition as of the return of the roll. This may be a strategic reason for MPAC not pursuing the issue in the Court of Appeal in Clareville. However, the assertion by the ARB that it is not bound by a superior court decision on a question of law that was clearly put to the Court because previous ARB decisions may be inconsistent is a slippery slope upon which to base its jurisprudence.
Leave to appeal the ARB decision in Ivanhoe Cambridge was denied by the Divisional Court in ARI STC GP Inc. v. MPAC 2014 ONSC 3663 on June 25, 2024. While the Clareville reasoning by the Divisional Court was argued, Justice Myers departed from the usual practice of not giving reasons for denying leave to expressly note “[t]here may come a time when there should be a consideration of the board’s move away from the ‘state and condition’” paradigm. It is a phrase used both in decisions of this court and in the relevant regulation.” However, he found the appellants had not raised changes to the “state and condition” of their land in their pleadings but essentially relied upon their decreased profitability. Consistent with the point made above, Myers J. found that a question of law did not arise on the facts of the case as the basis for declining to give leave to appeal.
However, he specifically noted that this did not mean he disagreed with the owners’ submission of law. It was “just not yet ripe for decision.” Good facts make good law, so the search goes on. The story is not yet complete.