Here’s a special update from Bob Gardiner on a significant ruling that should be carefully considered by any condo corporation that owns any common amenities in the form of units, whether superintendents suites, parking units or other facilities. Affected condos should get legal advice about filing a Request for Reconsideration with MPAC by the deadline of March 31, 2011.
In a recent decision, the Assessment Review Board (“ARB”) reduced an assessment by the Municipal Property Assessment Corporation (“MPAC”) of a condominium recreation centre from $1,740,000 to $1. The case will likely have far-reaching implications for many condominium corporations’ unit owners who have suffered double taxation with respect to their corporation-owned guest, superintendent, recreation, gatehouse and other types of units.
The Ballantrae Golf & Country Club in the Town of Whitchurch-Stouffville is located in a gated condominium community consisting of 736 units in five condominiums surrounding a golf course, together with a sewage plant and Recreation Centre. Schickedanz Bros. Ltd., the developer, continued to hold ownership of a 4.18 acre parcel of land containing the 15,722 sq. ft., one-storey Recreation Centre, pending development of the fifth condominium corporation. MPAC assessed the Recreation Centre in the amount of $1,460,000 for the 2005 taxation year and $1,740,000 for the 2006 and 2007 taxation years.
The ARB was persuaded by Schickedanz’ lawyers’ arguments that unit owners’ exclusive rights and controls over the Recreation Centre equated to an easement. The ARB noted the various factors surrounding the unit purchases (including the restricted zoning for the Recreation Centre, provisions contained in the disclosure statement, declaration, purchase agreements and the vendor’s sales representations made to potential purchasers). The ARB accepted that those factors demonstrated that owners’ rights with respect to the Recreation Centre constituted an easement appurtenant to each of the residential units.
The ARB also adopted its decision in Sunset Lake Owners Association v. MPAC where 141 residential lots shared rights-of-way over park routes, sports areas, docking facilities and parking, which MPAC had assessed separately. The ARB had determined in that case that the intent was to use the common areas for the shared use of the owners of the lots, and had therefore found that the common areas constituted easements in favour of the owners’ units, following a line of U.S. precedent cases.
Assessment of Servient Tenements
The Sunset case and the Schickedanz case both interpreted s. 9 (1) of the Assessment Act to conclude that where an easement is appurtenant to any land, that land must be assessed as part of the dominant tenement (the property which receives the benefit of the easement) at the added value which the easement gives to the dominant tenement, with the result that assessment of the shared lands (in this case the Recreation Centre freehold lands), as a servient tenement which is subject to the easement, must be reduced accordingly.
The ARB held that the “added value” added to the dominant tenement units had to be subtracted from the value of the servient tenement Recreation Centre. In order to determine the amount of the “added value”, the ARB took into account the fact that Schickedanz was transferring the Recreation Centre to the five condominium corporations for a zero additional payment.
No Double Taxation
In the end, the ARB held that “The prevailing principle is that there should be no double taxation, no matter how small.” For each of the taxation years under appeal, the assessment of the Recreation Centre was therefore reduced to a nominal amount of $1.
Implications of the Schikedanz decision
The Schickedanz assessment case will become a powerful precedent affecting many recreation facilities, guest units, superintendent units, gatehouses and other units held by condominium corporations as “common amenity assets” on behalf of the unit owners, which they exclusively control in the nature of an easement. One can only hope that MPAC may adopt the general conceptual easement and “added value” reasoning for all common amenity units.
Section 37 Agreement Settlement
In a separate case, MPAC and TSCC 1649 entered into a Settlement Agreement whereby the assessment of a daycare unit was reduced from $1,928,000 to $5. The City of Toronto had imposed a s. 37 site plan development agreement upon all owners of the property to construct, furnish and equip a daycare facility to accommodate 52 children for 99 years. The declarant, (Waterclub) and the three sister condos who became the successor owners of the daycare centre were obligated to charge only nominal rent to the daycare operator and restrictions prevented sale of the daycare unit for anything other than nominal value. The costs of operating the daycare unit exceed any revenue to be generated by it. The definition of “current value” referred to in s. 1, 19, 19.1 and 19.2 of the Assessment Act refers to 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, which in this case, would be less than zero. The parties agreed upon an assessment of $5.
The Real Reason for Double Taxation
The writer learned about the Schickedanz decision, rendered November 5, 2010, when I presented a PowerPoint "Condo 101" course at the annual retreat for MPAC’s policy, legal, appraisal managers and senior staff on November 10, 2010. I had the opportunity to present a very detailed analysis confirming the real reasons why the assessment and taxation of “common amenity units” is inappropriate, on a totally separate basis, founded upon provisions contained in the Condominium Act, 1998. Those common amenity assets are owned by the condominium corporation as an agent on behalf of each of the unit owners who share the common amenity units in proportion to the “common interest” appurtenant to each of their units. Double taxation occurs when common amenity assets are assessed and taxed, given the fact that the residential units have already been assessed for “current value”, which includes the value of each of their appurtenant common interests in the common amenity units. Owners are inevitably obligated to pay the common expenses required to cover all of the costs applicable to a condo corporation’s common amenity units or other lands held by the corporation, as well as the municipal realty taxes applicable to those common amenity assets.
Section 18 (2) of the Condominium Act provides that “the owners share the assets of the corporation in the same proportions as the proportions of their common interests in accordance with this Act, the declaration and the by-laws.” Despite the fact that the judge generally failed to rule favourably upon that concept in the case of MTCC 1172 v MPAC, individual unit owners were permitted by that case to appeal for a minor reduction in the current value assessment applicable to their individual units. That case was a CCI-Toronto supported attempt to put an end to double taxation of unit owners. It is Gardiner Miller Arnold LLP’s view that s. 18 (2) is complementary to s. 15 of the Condominium Act which provides that each unit, together with its appurtenant common interest, constitutes a parcel for the purpose of municipal assessment and taxation. Although normally units constitute a parcel for the purpose of municipal assessment and taxation, in a case where a corporation has acquired one or more assets which constitute units or land, there should be only a nominal assessment of $1 and no municipal taxation of such common amenity unit parcels, because the value of those common amenity units is already included in the current value of the common interests appurtenant to each of the owners’ units.
The concept of “current value” assessment requires MPAC to take into account many factors (including the value of amenities, rights and benefits attached to each of the units) when MPAC assesses the price which a willing buyer would likely pay to a willing seller in an open marketplace. Common interests account for all of the condominium corporation’s common amenities held by it on behalf of all of its unit owners. The condominium corporation’s common amenity assets (whether units, common elements, freehold lands, concierge services or chattels such as the on-site management office computer) all form part of the common interests appurtenant to each of the condominium corporation’s residential, parking and locker units in accordance with each of their respective proportionate shares of common interests.
File Before March 31st Deadline
If MPAC does not recognize the double taxation aspect in the assessment of your condominium corporation’s common amenity units in the next Assessment Notice, consider appealing taxes on behalf of all of the unit owners and on behalf of the condominium corporation. Make sure you file the condominium corporation’s Request for Reconsideration with MPAC before the March 31, 2011 filing deadline. This is also a good time to consider whether your condo has passed an assessment by-law provision allowing the condominium corporation to appeal assessment on behalf of all owners in appropriate circumstances.
We hope that double taxation appeals will not be necessary hereafter, but if they are, don’t just rely on the “easement” argument, because the “common interest” argument should have a broader scope to cover all types of common amenity units. In this article, I have simplified the various arguments used by MPAC and the condominium corporations in the Schickedanz case, so keep in mind that your condominium corporation’s case must be individually considered and then carefully prepared and argued. We have accumulated some winning techniques in several condo assessment scenarios. Make sure you retain a qualified assessment appraiser as a key witness and a condo litigator experienced in following the appropriate procedures and marshaling all the assessment evidence and arguments necessary to win the case.