Assessment Appeals Committee

DETERMINATION OF APPEALS UNDER Section 16 of The Municipal Board Act and Section 216 of The Cities Act

Appeal Numbers: AAC 2016-0026 to 2016-0029, inclusive AAC 2016-0030 to 2016-0033, inclusive (cross appeals)

Date and Location: February 15, 2017 – Saskatoon, SK

City of Saskatoon Appellants for AAC 2016-0026 to 2016-0029 and Respondents for AAC 2016-0030 to 2016-0033

- and -

Various c/o Altus Group Limited Respondents for AAC 2016-0026 to 2016-0029 and Appellants for AAC 2016-0030 to 2016-0033

APPEARED FOR:

City of Saskatoon: Travis Horne, Assessment Manager Kevin Tooley, Senior Assessment Appraiser

Altus Group Limited: Garry Coleman, Director

HEARD BEFORE: John Eberl, Panel Chair Gord Androsoff, Member Malcolm Eaton, Member

APPEALS AAC 2016-0026 et al and AAC 2016-0030 et al Page 2

INTRODUCTION:

[1] The 2016 assessments for the properties listed below, as set by the Board of Revision (Board) for the City of Saskatoon (City), are under appeal:

AAC Cross- Board Assessment Original Board's AAC Appeal Appeal Appeal Civic Address Roll Assessed Assessed Number Number Number Number Value Value

2325 Preston 2016-0026 2016-0030 25-2016 535402500 $27,984,300 $26,751,600 Avenue S

300 2016-0027 2016-0031 26-2016 Confederation 494505990 $31,015,100 $28,450,900 Drive

134 Primrose 2016-0028 2016-0032 58-2016 445225000 $58,877,800 $56,362,300 Drive

2016-0029 2016-0033 59-2016 3310-8th Street E 525515890 $88,055,500 $84,272,900

[2] The properties are non-regulated and classified Commercial and Industrial; they represent four of the five enclosed malls in the City. The Assessor used the income approach to value the properties.

[3] Altus Group Limited (Altus) appealed the assessed values to the Board, alleging the Capitalization (Cap) Rate of 7.17% applied to determine the assessments was too low and did not achieve equity with the assessments of similar properties. The Board allowed the appeals and ordered the assessed values calculated with a 7.49% Cap Rate.

[4] The City appeals to the Committee stating the Board mistakenly changed the Cap Rate and asks us to uphold the original assessed values.

[5] Altus filed cross-appeals and requests the Committee find mistakes in some of the Board’s findings set out in the analysis provided in its decisions.

ISSUE:

[6] Did the Board make a mistake by changing the Cap Rate and lowering the assessed value of the subject properties?

DECISION:

[7] The Committee finds the Board made no mistake by changing the Cap Rate and lowering the subject properties’ assessments.

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PROCEDURAL MATTERS:

Lead Appeal

[8] The parties agreed the property at 2325 Preston Avenue S (Board Appeal 25-2016, AAC appeals 2016-0026 and 2016-0030) would be the lead appeal and cross appeal. The Panel Chair advised we would issue one decision for all appeals.

Confidentiality Order

[9] Both parties requested certain documents declared as confidential. The following documents forming part of the Board record are declared confidential:

• Exhibit CA.1 for each appeal; • Exhibit R.1, Addendum E, pages 17-63 for AAC 2016-0028 and 0032; • Exhibit R.1, Addendum E, pages 17-93 for AAC 2016-0029 and 0033; and • Exhibit R.1, Addendum F, pages 94-96 for AAC 2016-0029 and 0033.

Board Record

[10] The Board record had the 2016 assessment notice for the lead property shown as attached to the City’s notices of appeal to the Committee for all four properties. The Panel Chair explained Saskatchewan Municipal Board (SMB) staff obtained the correct 2016 assessment notice for each of the other three properties under appeal and that information would be considered. The parties had no objection.

PRELIMINARY MATTERS:

Altus’s Cross Appeals AAC 2016-0030 to 2016-0033

[11] During discussion of preliminary matters, the Panel Chair asked Altus if the Grounds of Appeal to the Committee led to any change in assessed value beyond that ordered by the Board. At this time, the City raised objection, stating section 226 of The Cities Act, SS 2002, c C-11.1 [the Act] precluded the Committee from making any decision that would not affect the subject properties’ assessments.

[12] Altus’s Grounds of Appeal to the Committee for all the properties stated the Board “… erred in its decision …” in the following ways (directly quoted):

1. In its finding that the assessor could “collapse” two distinctly different neighbourhoods into one and consider them comparable strictly because there were insufficient sales in one of the original neighbourhoods.

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2. In its finding that a single sale must “still be placed in some group somewhere” in determining cap rates in order to meet the market valuation standard. 3. In finding that a single sale could not be used for statistical analysis without it being used to develop a cap rate.

[13] Altus confirmed the grounds did not relate to a mistake of the Board that leads to a change in assessed value; however, Altus did not want the points of argument excluded as irrelevant, so they launched the cross appeals with the points listed as grounds.

[14] The City stated the decision for AAC 2012-0067, City of Saskatoon v Frederick Boychuk et al [Boychuk], considered similar circumstances and provided analysis as to the intent of section 226 of the Act. Although the Committee had awarded costs in Boychuk, the City stated they believed the only penalty in addition to not hearing the cross appeals should be a default of the fees Altus paid with respect to the cross appeals. Further, the City expressed no objection to Altus articulating the argument set out in the grounds of the cross appeals in their role as respondent to the City’s appeals (AAC 2016-0026 to 0029).

[15] The City did not set out its intention to object to the Committee hearing the cross appeals in its submissions to us. Further, the City did not provide a copy of Boychuk for us to consider despite their reference to it.

Preliminary Conclusion at the Hearing

[16] We recessed to consider the matter. We informed the parties we determined the cross appeals would not be heard with reasons to be provided in this decision. However, Altus would be allowed to raise the points of argument made in the cross appeal grounds, as it was clear the grounds referred to issues within the Board’s decisions for the appeals.

[17] We informed the parties our final decision with reasons would be made following examination of the legislation, the Boychuk decision and our fee refund policies. The circumstances surrounding the City’s objection, and Altus verifying there was no change in assessed value requested, resulted in a lack of time for us to provide full reasons for our preliminary conclusion at the hearing.

APPEALS AAC 2016-0026 et al and AAC 2016-0030 et al Page 5

REASONS AND ANALYSIS

Legislation, Case Law and Fee Refund Policy

[18] Section 226(1) of the Act states:

After hearing an appeal, the appeal board may: (a) confirm the decision of the board of revision; (b) modify the decision of the board of revision to ensure that: (i) errors in and omissions from the assessment roll are corrected; and (ii) an accurate, fair and equitable assessment for the property is placed on the assessment roll; or (c) set aside the assessment and remit the matter to the assessor to ensure that: (i) errors in and omissions from the assessment roll are corrected; and (ii) an accurate, fair and equitable assessment for the property is placed on the assessment roll.

[19] In Boychuk, the Committee wrote at paragraph 19):

… The … section [226 of the Act] sets out the powers of the Committee after hearing an appeal, and states for what purpose the Committee may exercise its powers. Accordingly, the Committee should be acting for the purpose of correcting “errors in and omissions from the assessment roll” so that “an accurate, fair and equitable assessment for the property may be placed on the assessment roll.” No such qualifiers are attached to subsection 1(a), which allows the Committee to “confirm the decision of the board of revision”, but this subsection cannot be read in isolation from the others. When read in context it is apparent that this is the power to dismiss an appeal when no error or omission in the assessment roll has been demonstrated.

[20] The applicable SMB policy in effect at the time of this hearing is Rule 7.02(d) SPECIAL CIRCUMSTANCE REFUNDS, which states:

Where the [Committee] identifies a special circumstance, which may warrant an appeal fee refund, the [panel] shall refer the matter to the [SMB] for a decision.

Cross Appeal Hearings

[21] Altus confirmed their cross appeal grounds would not lead to a different assessed value than ordered by the Board. Altus wished to argue some points made in the Board’s decision were not relevant or applicable to its conclusion. Altus believed it was necessary to register cross appeals in order to make such argument.

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[22] When the Committee examines Board decisions in an appeal, we look at both the analysis provided, and the Board’s conclusions and orders. Sometimes, a Board’s analysis may be flawed but the conclusion may be correct. In such case, the Committee may not overturn the Board’s conclusion and orders, but rather make note of the mistakes in analysis. Moreover, each case is decided on its own merits. The Board’s decision is always evidence before the Committee. The parties may tender argument concerning the Board’s analysis – we will decide whether the argument is relative to an appeal’s determination on a case-by-case basis.

[23] We find the analysis provided by the Committee at paragraph 19) of Boychuk to be relevant to the circumstances surrounding this appeal. Any assessment appeal must relate to a change in assessed value or classification of a property. Parties’ concerns with a Board’s analysis may be relevant for consideration by the Committee at a hearing, but are not worthy of a separate appeal unless the assessed value is affected.

[24] We conclude the cross appeals will not be heard as separate appeals as we have no jurisdiction to hear them.

Appeal Fee Refund

[25] When raising objection to us hearing the cross appeals filed by Altus, the City referred us to Boychuk.

[26] In Boychuk, the City as appellants had filed an appeal alleging a mistake in the Board’s decision without a change in assessed value resulting. That circumstance in itself is similar to this appeal. However, there was no other appeal to be heard and it appears there were other factors present affecting the Committee’s decision. In dismissing the City’s appeals in Boychuk, the Committee not only retained the appeal fee but also made an order for costs to be paid by the City in the amount of $500. The City articulated as their position that Altus’s appeal fee ought to be retained by the Committee as penalty for filing the appeals, but no order for costs was warranted.

[27] We note for this appeal, we committed to hold a hearing for AAC 2016-0026 to 2016- 0029 regardless of Altus’s cross appeals; therefore, there is no added expense to either us or the City in preparing for and conducting the appeal hearings. That may have been a factor in the Committee secretary’s decision, who acts on behalf of the Committee, to accept the appeals. Further, there appear to have been other facts and circumstances considered by the Committee in making its decision to retain the appeal fee and order costs in Boychuk. Those facts and circumstances are not present in this appeal.

APPEALS AAC 2016-0026 et al and AAC 2016-0030 et al Page 7

[28] Under Policy 7.02(d) SPECIAL CIRCUMSTANCE REFUNDS, the Panel refers the matter to the SMB with recommendation to issue Altus a full refund of the cross appeal fees paid.

POSITIONS OF THE PARTIES:

[29] The City:

a) The model applied to assess the property produces an assessed value that reflects typical market conditions for similar properties. b) We chose the 7.17% Cap Rate because it included the Confederation (Confed) Mall sale and four sales of the largest retail properties in the City. c) The Board mistakenly analyzed the use of the Comparable Neighbourhood Method (CNM) as an assessment practice. d) At paragraph [41] of its decision, the Board reconciles its conclusion to apply the Cap Rate applied in previous years because the 2016 Cap Rate proposed by the Assessor produces “… an undesirable result.” The Board’s use of this phrase is incorrect and irrelevant. e) Based on the Committee’s direction in the decision for AAC 2013-0226, City of Saskatoon v Confed Shopping Centre Inc., the Assessor made a mistake in selecting the Cap Rate for enclosed malls in the City. 2016 was the first opportunity to correct the mistake. f) The Board mistakenly interpreted and considered jurisprudence. It is not possible to have an undesirable result when the Assessor is implementing the results of a Committee decision.

[30] Altus:

a) The only difference between the initial Cap Rate in 2013 (7.26%) and the 2016 rate of 7.17% is the removal of two Sutherland Retail sales from the 2013 Group 3 array, which lowered the rate. b) The Assessor established at the 2013 hearing that the enclosed malls are still considered a distinct group. The Market Mall and Confed Mall’s market data are combined to develop the income model applied to assess the subject property, which is further support the enclosed malls trade in the same market. c) The Assessor chose to collapse two, distinct markets and make one large neighbourhood. The City combined the enclosed malls, which are a distinct group, with the Large West Side Retail group (Group 3). This is a mistake in the application of the CNM. d) The number of sales in a group is not one of the variables the Assessor should look to when establishing comparability. The Assessor has grouped non-comparable properties from different markets in mistakenly developing the 7.17% Cap Rate.

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e) There are a number of factors that support assessing the subject property with a higher (7.49%) Cap Rate:  The high Assessment to Sales Ratio (ASR) of 1.09 for the Confed Mall using the value obtained applying the 7.17% Cap Rate (versus an ASR of 1.04 using 7.49%) indicates the assessment is significantly higher than the sale price.  The Confed Mall sale, which produces a sale Cap Rate of 7.78%, is only a single sale but represents 20% of the enclosed malls in the City.  If location is relevant, four of the five enclosed malls are located in the 7.49% Cap Rate area. f) Section 227 of the Act applies. AAC 2013-0226 clearly states a 7.49% Cap Rate should be used to determine assessments for the enclosed malls. g) The Court in Northland Hotels Management Inc. v Saskatoon (City), 2009 SKCA 66 (CanLII) and the Committee in AAC 2015-0049 et al, City of Saskatoon v Arbor Memorial Inc. and Prairie Funeral Services Ltd., found no mistake in excluding a sale either for calculating a Market Adjustment Factor (MAF) or performing statistical analysis.

ANALYSIS:

Property Valuation

[31] The base assessment date for 2016 assessments is January 1, 2011; assessed values of properties reflect market conditions as of the base date. The Saskatchewan Assessment Management Agency (SAMA) Board has the legislated authority to determine assessment cycles in Saskatchewan. By Board Order, market data up to December 31, 2010, can be used to determine assessments for 2013 to 2016, inclusive. Assessments “… must reflect the facts, conditions and circumstances affecting the property as at January 1 of each year …”, but relative to the base date established for the applicable cycle [s. 165(3.1), the Act].

[32] The Act states the application of the Market Valuation Standard (MVS) achieves equity for non-regulated property assessments when assessments “bear a fair and just proportion to the market value of similar properties as of the applicable base date” [s. 165(5), the Act].

[33] The MVS is achieved when the assessed value of property:

i. is prepared using mass appraisal; ii. is an estimate of the market value of the estate in fee simple in the property; iii. reflects typical market conditions for similar properties; and

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iv. meets quality assurance standards established by order of the agency [SAMA] [s. 163(f.1), the Act].

Cap Rate History

[34] In 2013, the City initially assessed four of the five enclosed malls (including the Midtown Plaza) in Saskatoon with a 7.49% Cap Rate, but applied a 7.26% Cap Rate to the Confed Mall property. Altus appealed the Confed Mall assessment to the Board, alleging the Cap Rate of 7.26% was too low. According to Altus, the property’s assessment, therefore, did not achieve equity with similar properties, as required by the Act. The Board allowed the appeal, stating in its decision, “… the subject should be grouped with the other enclosed malls and as a matter of equity receive the same 7.49% Cap Rate.”

[35] The City appealed the Board’s 2013 decision to the Committee (AAC 2013-0226), which the Committee heard in May 2015 and released a decision in July 2015. The Committee concluded, “… the Board made no mistake in changing the cap rate for [the Confed Mall property] from 7.26% to 7.49%.”

[36] During the hearing, the parties referred to a joint recommendation agreement (AAC 2013-0196), which created a new Cap Rate group using two Central Avenue sales from the City’s Group 3 retail Cap Rate array. The removal of the two sales from the array changed the Group 3 Cap Rate originally applied to the Confed Mall property from 7.26% to 7.17%. The decision for AAC 2013-0196 was issued on January 12, 2015.

[37] For 2014 and 2015, the subject properties remained assessed using the Cap Rate of 7.49% (the Group 2 rate) confirmed by the Committee for the Confed Mall property in AAC 2013-0226. That appeal involved only the Confed Mall, because in 2013 the City assessed the remaining four enclosed malls in Saskatoon using the Group 2 rate. According to information provided to the Board and Committee, four of the five enclosed malls are located in the Group 2 geographic neighbourhood.

[38] For 2016, the Assessor changed the assessments for the four appealed (enclosed mall) properties, applying the 7.17%, Group 3 Cap Rate. A lower Cap Rate produces a higher assessed value.

The Comparable Neighbourhood Method

[39] The City argues the Board mistakenly analyzed the Assessor’s use of the CNM as an assessment practice. The City supports their argument by saying the sale of the Confed Mall property (within the appropriate period) is included in the market data used to develop the 7.17% Cap Rate.

APPEALS AAC 2016-0026 et al and AAC 2016-0030 et al Page 10

[40] Altus suggests there is a mistake in the City’s application of the CNM in assessing the subject properties, which results in the assessed values of the subject properties being derived from the sales of non-comparable properties. Altus supports their argument by pointing to excerpts in the transcript of the Board hearing that suggest the City confirms the enclosed malls are a distinct market group unto themselves. According to Altus, the Group 2 Cap Rate is most appropriate if location is a factor, because four of the five enclosed malls are located there.

[41] In 2013, both the Board and Committee confirmed the enclosed malls trade in a distinct marketplace. We will make no further comment on the CNM because the decision for this appeal does not turn on whether or not the principle was applied correctly or incorrectly. Suffice it to say, the fact before us is the Assessor chose to apply a lower Cap Rate derived from a different array to the four subject properties in 2016.

Assessor Discretion

[42] The City’s positions relating to their decision in 2016 to choose a model producing higher assessed values for the properties than the years 2013 to 2015 speak to the matter of assessor discretion.

[43] The Court reaffirmed its stance on assessor discretion in Harvard Property Management Inc. v Saskatoon (City), 2017 SKCA 34 [Harvard], writing at paragraph [28]:

As these authorities indicate, Boards of Revision and the Committee must show an appropriate level of deference to the decisions made by an assessor in relation to the question of whether properties are, or are not, sufficiently comparable to be used in assessment analysis. However, this does not mean an assessor has carte blanche in these realms. He or she must act reasonably and must act by taking into account factors bearing on comparability. As the Court observed in 959630 Alberta Inc., immediately after the paragraph quoted above, “However, if the Assessor erred in the way in which he exercised the discretion reposed in all assessors by the Act and the Manual, then an appellate body may intervene to address that error in law”… [referencing Cadillac Fairview Corp. v Saskatoon (City), 2000 SKCA 84 at para 42, [2000] 11 WWR 89; L & L Lawson Enterprises Ltd. v Regina (City), 2008 SKCA 43 at para 40, 310 Sask R 29] (emphasis added).

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[44] We note the Board’s decision for the lead property appealed does not directly address the matter of assessor discretion as such, or identify an “error in law” as the Court refers to in Harvard. However, the Board’s decision at paragraph [41] does suggest it believes the assessor has wrongly applied his discretion in using the 7.17% Cap Rate to determine the enclosed malls assessments. Further, at paragraphs [38] to [40], the Board correctly identifies the Assessor’s reasons given for changing the assessed value in 2016 are a misinterpretation of the Board’s 2013 decision (BOR 347-2013) and AAC 2013-0226.

AAC 2013-0226 and the Board’s 2016 Decision

[45] The City suggests AAC 2013-0226 provides guidance leading them to apply the 7.17% (Group 3) Cap Rate to the subject properties. They further suggest the Board mistakenly interpreted jurisprudence in asserting that applying the Group 3 Cap Rate produces “an undesirable result.”

[46] We disagree. In the explanation provided as part of paragraph [41] of its decision, the Board states “… The application of a 7.17% cap rate would lead to the other four mall properties each receiving a higher assessment than they had received in the previous year without any change in their property characteristics or any change in the stratification group to which they had been assigned ….” We support this passage as providing reasoned analysis and identifying the Assessor’s mistake in changing the assessed values of the subjects.

[47] Further, the Board’s analysis at paragraph [40] correctly states as follows:

… The AAC decision does not, at any place, suggest that the Assessor has the choice of which cap rate to apply. What it does say is this: ‘In this appeal, the Board recognized that the Assessor’s choice was clear from a comparability and equity standpoint. The subject should have received the same cap rate as the other malls in the city (AAC 2013-0226, [31]).’

[48] The Committee’s analysis and conclusion in AAC 2013-0226 is further articulated in paragraphs [33] and [36] as shown below:

The 7.49% cap rate applied to the other four enclosed malls in Saskatoon should also apply to the subject property in order to maintain equity and meet the MVS. The grouping of the five malls for rent rate purposes and the pairing of the Confederation Mall rents with those of the Market Mall to determine typical rents for the subject property provide strong support for that choice … [33]

The Committee concludes that the Board made no mistake in changing the cap rate … from 7.26% to 7.49%. … The City did not prove error in the Board’s decision. [36]

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[49] Although the City claims a mistake in the Board’s analysis, and that the release of AAC 2013-0226 provided direction to change the Cap Rate applied to determine the subject properties’ assessed values, we find no basis for their positions.

Legislation

[50] The Board’s conclusion also finds support in legislation. Altus suggests section 227 of the Act is applicable. In this case, subsection 227(1) should be considered in conjunction with subsection 165(3.2) of the Act and subsection 22(12.1) of The Assessment Management Agency Act, SS 1986, c A-28.1 [AMAA], all shown below:

A decision made by a board of revision or the appeal board on an appeal of an assessment of any property applies, to the extent that it relates, to any assessment placed on the assessment roll for the property after the appeal is initiated but before the decision is made, without the need for any further appeal being initiated with respect to the assessment [s. 227(1), the Act].

Subject to any modification made pursuant to subsection 22(12.1) of The Assessment Management Agency Act, each assessment must reflect any decision of the appeal board that has been issued with respect to the property that is the subject of the assessment, unless the decision has been appealed pursuant to section 33.1 of The Municipal Board Act [s. 165(3.2), the Act].

If the appeal board has issued a decision with respect to a property, an assessment appraiser: (a) shall apply the decision of the appeal board in subsequent valuations and revaluations of that property; and (b) in applying the decision pursuant to clause (a), may make any necessary modification to reflect any change in the facts of the decision, in the conditions or circumstances of the property or in market value as defined in the municipal Act [s. 22(12.1)(a)–(b), the AMAA].

[51] The direction contained in the quoted legislation is clear. A decision of an appeal board carries forward to subsequent valuations unless there is a change in the facts of the decision, the conditions or circumstances of the property, or the definition of market value. In this appeal, there is no change in the facts of the decision or in the definition of market value. There is no evidence the conditions or circumstances of the properties have changed with respect to factors affecting the Cap Rate applied to determine assessed values.

[52] At the Committee hearing, the Panel asked the City what had changed about the subject properties to have them lower the Cap Rate and raise the assessments for 2016 (the last year of the 2013 to 2016 revaluation cycle). The City replied that two things occurred: the signing of the joint recommendation agreement (AAC 2013-0196 – see paragraph [33] of this decision) and the release of AAC 2013-0226, both in 2015.

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[53] We note neither occurrence affects the conditions or circumstances of the property. The joint recommendation agreement changes a Cap Rate grouping (and creates another) in the City, which we ruled does not apply to the subject properties. Further, we see the City misinterpreted the clear direction in AAC 2013-0226 that the assessments of the subject properties meet the MVS and achieve equity as defined in the Act with the 7.49% Cap Rate applied.

CONCLUSION:

[54] The Committee dismisses the City’s appeals. The Board made no mistake in finding the assessments of the subject properties should be determined by applying a Cap Rate of 7.49%. We uphold the Board’s assessed values as shown in paragraph [1].

Dated at REGINA, Saskatchewan this 2nd day of June, 2017.

Saskatchewan Municipal Board – Assessment Appeals Committee

Per: ______John Eberl, Panel Chair

Per: ______Kris Pennete, Director